Brookfield Renewable Partners L.P. and Brookfield Renewable Corporation
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- partnership creates corporation to provide investors with alternative way to hold its units -- corporation issues exchangeable shares whose terms are structured so that each exchangeable share is functionally and economically equivalent to a partnership unit -- each exchangeable share provides an equivalent economic return as a partnership unit -- both the partnership and the corporation are reporting issuers -- the corporation will, from time to time, enter into related party transactions with persons other than the partnership -- the partnership may not be party to each of these related party transactions but each such transaction will be treated by the partnership as a related party transaction -- the corporation is exempt from related party transaction requirements, subject to conditions, including that the partnership will comply with the related party transaction requirements for each of the corporation's related party transactions as though the partnership entered into such related party transaction directly.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, Part 5, and s. 9.1.
January 26, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BROOKFIELD RENEWABLE PARTNERS L.P. AND BROOKFIELD RENEWABLE CORPORATION
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Brookfield Renewable Partners L.P. (BEP) and Brookfield Renewable Corporation (BEPC, and together with BEP, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that BEPC be exempt from the requirements of Part 5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101, and the requirements of Part 5 of MI 61-101, the Related Party Transaction Requirements) in connection with related party transactions of BEPC entered into with persons other than BEP or subsidiary entities of BEP (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Manitoba, New Brunswick, Québec and Saskatchewan.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
Relevant Entities
BEP
1. BEP is an exempted limited partnership established, registered and in good standing under the laws of Bermuda. BEP's registered and head office is located at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.
2. BEP is a reporting issuer in all of the provinces and territories of Canada and is an SEC issuer within the meaning of section 1.1 of National Instrument 51-102 Continuous Disclosure Obligations. BEP is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
3. The authorized capital of BEP consists of: (a) an unlimited number of non-voting limited partnership units (the BEP Units); (b) an unlimited number of class A preferred limited partnership units; and (c) an unlimited number of general partnership interests. As of January 22, 2023, there were 275,358,750 BEP Units (642,064,787 BEP Units assuming the exchange of redeemable partnership units of Holding LP and Exchangeable Shares as each such term is defined below), 38,000,000 class A preferred limited partnership units and 3,977,260 general partnership interests issued and outstanding.
4. The BEP Units are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbols "BEP" and "BEP.UN", respectively.
5. BEP's sole material asset is an approximate 58% limited partnership interest and preferred limited partner interests in Brookfield Renewable Energy L.P. (Holding LP), a Bermuda exempted limited partnership established, registered and in good standing under the laws of Bermuda.
6. Each director of the general partner of BEP, other than Sachin Shah, is also a director of BEPC.
7. Brookfield Renewable Partners Limited, a wholly-owned subsidiary of Brookfield Corporation (formerly Brookfield Asset Management Inc.), holds the general partnership interests in BEP.
BEPC
8. BEPC is a corporation existing and in good standing under the Business Corporations Act (British Columbia). BEPC's registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. BEPC's head office is located at 250 Vesey Street, 15th Floor, New York, New York, 10281, United States of America.
9. BEPC is a reporting issuer in all of the provinces and territories of Canada and is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
10. The authorized share capital of BEPC consists of: (a) an unlimited number of class A exchangeable subordinate voting shares (the Exchangeable Shares); (b) an unlimited number of class B multiple voting shares (the Class B Shares); (c) an unlimited number of class C non-voting shares (the Class C Shares); (d) an unlimited number of class A senior preferred shares (issuable in series); and (e) an unlimited number of class B junior preferred shares (issuable in series). As of January 22, 2023, there were 172,218,098 Exchangeable Shares, 165 Class B Shares, 189,600,000 Class C Shares, zero class A senior preferred shares, and zero class B junior preferred shares issued and outstanding.
11. The Exchangeable Shares are listed on the NYSE and the TSX under the symbol "BEPC".
12. BEPC's principal investments consist of hydroelectric power, wind, solar and energy transition capacity across the United States, Europe, Brazil and Columbia.
13. The board of directors of BEPC consists of each of the directors of the general partner of BEP, other than Sachin Shah, and two additional directors.
14. The only voting securities of BEPC are the Exchangeable Shares and the Class B Shares. Holders of Exchangeable Shares are entitled to one (1) vote per Exchangeable Share held and holders of Class B Shares are entitled to cast, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the Exchangeable Shares. Accordingly, the Exchangeable Shares collectively represent a 25% voting interest in BEPC and the Class B Shares collectively represent a 75% voting interest in BEPC.
15. Neither the Exchangeable Shares nor the Class B Shares carry a residual right to participate in the assets of BEPC upon liquidation or winding-up of BEPC, and accordingly, are not equity securities under the Legislation. The Class C Shares are the only equity securities of BEPC.
16. BEP, indirectly through wholly-owned subsidiaries, owns 100% of the issued and outstanding Class B Shares and 100% of the Class C Shares. Through its ownership of these securities, BEP has a 75% voting interest in BEPC, thereby controlling BEPC and the appointment and removal of directors of BEPC, and is entitled to all of the residual value in BEPC after payment in full of the amount due to holders of Exchangeable Shares and Class B Shares and subject to the prior rights of holders of preferred shares. The Class B Shares and the Class C Shares are not transferable except to BEP or persons controlled by BEP.
Brookfield Corporation
17. Brookfield Corporation is a corporation existing and in good standing under the Business Corporations Act (Ontario). Brookfield Corporation's registered and head office is located at Suite 100, Brookfield Place, 181 Bay Street, Toronto, Ontario, M5J 2T3.
18. Brookfield Corporation is a reporting issuer in all of the provinces and territories of Canada and is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
19. The Class A Limited Voting Shares of Brookfield Corporation are listed on the NYSE and the TSX under the symbol "BN".
20. Brookfield Corporation holds an approximate 48% economic interest in BEP on a fully-exchanged basis through its indirect ownership of BEP Units, redeemable partnership units of Holding LP and Exchangeable Shares.
21. Brookfield Corporation indirectly holds a 100% voting interest in BEP through its ownership of the general partner interest of BEP.
22. BEP, Holding LP and certain of their subsidiaries have retained affiliates of Brookfield Corporation to provide management, administrative and advisory services under a master services agreement.
The Exchangeable Shares
23. BEP believes that certain investors in certain jurisdictions may be dissuaded from investing in BEP because of the tax reporting framework that results from investing in units of a Bermuda exempted limited partnership.
24. BEPC was created, in part, to provide investors that would not otherwise invest in BEP with an opportunity to gain access to BEP's portfolio of renewable power assets, and to provide investors with the flexibility to own, through the ownership of an Exchangeable Share, the economic equivalent of a BEP Unit.
25. On July 30, 2020, BEP completed a special distribution of Exchangeable Shares to holders of BEP Units (the Special Distribution). Each Exchangeable Share has been structured with the intention of providing an economic return equivalent to a BEP Unit and the rights, privileges, restrictions and conditions attached to each Exchangeable Share (the Exchangeable Share Provisions) are such that each Exchangeable Share is, as nearly as practicable, functionally and economically, equivalent to a BEP Unit. In particular:
(a) each Exchangeable Share is exchangeable at the option of a holder for one (1) BEP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEPC) (an Exchange);
(b) the Exchangeable Shares are redeemable by BEPC at any time (including following a notice requiring redemption having been given by BEP) for BEP Units on a one-for-one basis (subject to adjustment to reflect certain capital events) (a Redemption);
(c) upon a liquidation, dissolution or winding up of BEPC, holders of Exchangeable Shares will be entitled to receive BEP Units (or its cash equivalent, at BEPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) and not any remaining property or assets of BEPC following such payment (a BEPC Liquidation);
(d) upon a liquidation, dissolution or winding up of BEP, including where substantially concurrent with a BEPC Liquidation, all of the Exchangeable Shares will be automatically redeemed for BEP Units (or its cash equivalent, at BEPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a BEP Liquidation); and
(e) subject to applicable law and in accordance with the Exchangeable Share Provisions, each Exchangeable Share entitles the holder to dividends from BEPC payable at the same time as, and equivalent to, each distribution on a BEP Unit. The Exchangeable Share Provisions also provide that if a distribution is declared on the BEP Units and an equivalent dividend is not declared and paid concurrently on the Exchangeable Shares, then the undeclared or unpaid amount of such dividend accrues and accumulates and is to be paid upon the first to occur of any of the circumstances contemplated by paragraphs (a) to (d) above, if not yet paid.
26. Upon being notified by BEPC that BEPC has received a request for an Exchange, BEP has an overriding call right to purchase (or have one of its affiliates purchase) all of the Exchangeable Shares that are the subject of the Exchange notice from the holder of Exchangeable Shares for BEP Units (or its cash equivalent, at BEP's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
27. Upon being notified by BEPC that it intends to conduct a Redemption, BEP has an overriding call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares for BEP Units on a one-for-one basis (subject to adjustment to reflect certain capital events).
28. Upon the occurrence of a BEP Liquidation or BEPC Liquidation, BEP will have an overriding liquidation call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares on the day prior to the effective date of such BEP Liquidation or BEPC Liquidation for BEP Units on a one-for-one basis (subject to adjustment to reflect certain capital events).
29. In connection with the Special Distribution, Brookfield Corporation entered into a rights agreement pursuant to which it agreed that, for the seven-year period beginning on July 30, 2020, Brookfield Corporation will guarantee BEPC's obligation to deliver BEP Units or its cash equivalent in connection with an Exchange.
30. BEP also entered into an equity commitment agreement pursuant to which BEP has covenanted and agreed not to declare or pay any distribution on the BEP Units if on such date BEPC does not have sufficient funds or other assets to enable the declaration and payment of an equivalent dividend on the Exchangeable Shares.
Other BEPC Related Party Transactions
31. On June 22, 2020, in connection with the Special Distribution, the Ontario Securities Commission granted: (i) BEP relief from the Related Party Transaction Requirements in connection with any related party transaction of BEP with BEPC or any of BEPC's subsidiary entities; (ii) BEPC relief from the Related Party Transaction Requirements in connection with any related party transaction of BEPC with BEP or any of BEP's subsidiary entities (the BEPC Related Party Relief); and (iii) BEP relief from the requirements of sections 5.4 and 5.6 of MI 61-101 in connection with any related party transaction of BEP entered into indirectly through Holding LP or any subsidiary entity of Holding LP, if that transaction would qualify for the transaction size exemptions set out in sections 5.5(a) and 5.7(1)(a) of MI 61-101 if the Exchangeable Shares were included in the calculation of BEP's market capitalization.
32. It is anticipated that BEPC will, from time to time, enter into related party transactions with persons other than BEP or subsidiary entities of BEP (Other BEPC Related Party Transactions) in respect of which the BEPC Related Party Relief does not apply.
33. BEP may not be a party to each Other BEPC Related Party Transaction entered into. However, every Other BEPC Related Party Transaction will indirectly be a related party transaction for BEP and will be treated by BEP as a related party transaction of BEP.
34. Subject to the availability of an exemption, BEPC would be required to obtain: (i) a formal valuation in respect of the non-cash assets involved in the Other BEPC Related Party Transaction; and (ii) minority approval for the Other BEPC Related Party Transaction from the holders of every class of affected securities of BEPC voting separately as a class, excluding the votes attached to affected securities held by the persons enumerated in section 8.1(2) of MI 61-101.
35. Minority approval is required of every class of affected securities, being equity securities of the issuer. The Exchangeable Shares are not equity securities and thus are not entitled to vote for the purposes of minority approval under MI 61-101. The only equity securities of BEPC are the Class C Shares, all of which are held by BEP. BEP, as an entity for which each Other BEPC Related Party Transaction would also constitute a related party transaction, does not require the protections of MI 61-101.
36. By virtue of the Exchangeable Share Provisions, the economic rights of the holders of BEP Units and Exchangeable Shares will be affected in an identical manner in respect of any related party transaction entered into by either BEP or BEPC. A related party transaction for BEPC is, in effect, a related party transaction for BEP.
37. BEP, as the sole holder of the equity securities of BEPC, will receive any benefit and/or bear any detriment from any Other BEPC Related Party Transaction entered into.
38. BEPC is a controlled subsidiary of BEP and BEP consolidates BEPC and its businesses in BEP's financial statements.
39. A majority of any committee of independent directors of BEP that considers an Other BEPC Related Party Transaction will be comprised of directors who are also directors of BEPC.
40. Investments in Exchangeable Shares are as nearly as practicable, functionally and economically, equivalent to an investment in BEP Units. BEP and BEPC believe that:
(a) investors of Exchangeable Shares purchase Exchangeable Shares as an alternative way of owning BEP Units rather than a separate and distinct investment; and
(b) the market price of the Exchangeable Shares is significantly impacted by (i) the combined business performance of BEPC and BEP as a single economic unit, and (ii) the market price of the BEP Units, in a manner that results in the market price of the Exchangeable Shares closely tracking the market price of the BEP Units.
41. BEPC is the entity through which persons who do not wish to hold BEP Units directly may hold their interests in BEP, and BEP is the entity through which holders of Exchangeable Shares and BEP Units hold their interests in the collective operations of BEP and its subsidiaries, including BEPC and its subsidiaries. BEP and BEPC are a single economic entity.
42. BEP will comply with the Related Party Transaction Requirements for each Other BEPC Related Party Transaction as though BEP entered into the Other BEPC Related Party Transaction directly.
43. Other than where BEP or subsidiary entities of BEP are also party to the Other BEPC Related Party Transaction, in which case any formal valuation required to be obtained by BEP under the Related Party Transaction Requirements (including for the Other BEPC Related Party Transaction) will be in respect of BEP and its subsidiary entities (including BEPC and BEPC's subsidiary entities) on a consolidated basis:
(a) the subject matter of any formal valuation required to be obtained by BEP under the Related Party Transaction Requirements for an Other BEPC Related Party Transaction and the value or range of values of such subject matter would be identical to any formal valuation obtained by BEPC for the same Other BEPC Related Party Transaction; and
(b) the form and substance of any formal valuation required to be obtained by BEP under the Related Party Transaction Requirements for an Other BEPC Related Party Transaction would be identical, in all material respects, to any formal valuation obtained by BEPC for the same Other BEPC Related Party Transaction.
44. Any and all disclosure documents in connection with an Other BEPC Related Party Transaction, including any formal valuations, information circulars or material change reports, will be filed on the SEDAR profiles of both BEP and BEPC.
45. Holders of Exchangeable Shares who wish to vote at the BEP level may do so by conducting an Exchange of Exchangeable Shares for BEP Units.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) all of the equity securities of BEPC are owned, directly or indirectly, by BEP;
(b) all of the voting securities of BEPC, other than the Exchangeable Shares, are owned, directly or indirectly, by BEP;
(c) there are no material changes to the Exchangeable Share Provisions, as described above;
(d) BEP consolidates BEPC and its businesses in BEP's financial statements;
(e) BEP will comply with the Related Party Transaction Requirements for each Other BEPC Related Party Transaction as though BEP entered into the Other BEPC Related Party Transaction directly;
(f) other than where BEP or subsidiary entities of BEP are also party to the Other BEPC Related Party Transaction, in which case any formal valuation required to be obtained by BEP under the Related Party Transaction Requirements (including for the Other BEPC Related Party Transaction) will be in respect of BEP and its subsidiary entities (including BEPC and BEPC's subsidiary entities) on a consolidated basis:
(i) the subject matter of any formal valuation required to be obtained by BEP under the Related Party Transaction Requirements for an Other BEPC Related Party Transaction and the value or range of values of such subject matter would be identical to any formal valuation obtained by BEPC for the same Other BEPC Related Party Transaction; and
(ii) the form and substance of any formal valuation required to be obtained by BEP under the Related Party Transaction Requirements for an Other BEPC Related Party Transaction would be identical, in all material respects, to any formal valuation obtained by BEPC for the same Other BEPC Related Party Transaction; and
(g) any and all disclosure documents in connection with an Other BEPC Related Party Transaction, including any formal valuations, information circulars or material change reports, are filed on the SEDAR profiles of both BEP and BEPC.