Chatham Asset Management, LLC

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -National Instrument 62-104 Take-Over Bids, s. 6.1(1) – Filer exempt from the take-over bid requirements in Part 2 of NI 62-104 in connection with proposed normal course purchases of the variable voting shares of the Issuer, subject to conditions – Filer acquired large block of Issuer’s variable voting shares in connection with Issuer’s recapitalization transaction by way of plan of arrangement – Filer seeking flexibility to purchase additional variable voting shares in market and to provide liquidity in variable voting shares – Filer granted relief to acquire variable voting shares in normal course provided that such purchases satisfy the requirements of section 4.1 of NI 62-104, except that, for the purpose of calculating the 5% purchase limit, the variable voting shares acquired by the Filer pursuant to the Issuer’s recapitalization will be excluded – Issuer advised of the application and Filer intends to seek waiver of Issuer’s shareholder rights plan to make additional purchases of variable voting shares under the Order.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.

National Instrument 62-104 Take-Over Bids, Part 2 and s. 6.1(1).

December 15, 2016

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

CHATHAM ASSET MANAGEMENT, LLC

(the “Filer”)

 

DECISION

 

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for an exemption (the “Relief Sought”) from the take-over bid requirements under the Legislation in connection with certain normal course purchases in the market of variable voting shares (as defined below) of Postmedia Network Canada Corp. (“Postmedia”) by the Filer and investment funds for which the Filer acts as manager, advisor or subadvisor (the “Filer Funds”).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a)           the Ontario Securities Commission is the principal regulator for the Application; and

 

(b)           the Filer has 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, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Québec, Saskatchewan, Yukon Territory, Northwest Territories and Nunavut.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless otherwise set forth herein.

Representations

The decision is based on the following facts represented by the Filer:

1.             The Filer is a privately held registered investment advisor registered under the U.S. Investment Advisers Act of 1940, as amended, that acts as manager, advisor or subadvisor to certain investment funds, including the Filer Funds.

 

2.             The principal executive offices of the Filer and the Filer Funds are located in Chatham, New Jersey, USA.

 

3.             Postmedia is a holding company incorporated under the federal laws of Canada, which conducts its news media business through its wholly-owned subsidiary, Postmedia Network Inc. (“PNI”). Postmedia’s head and registered office is located at 365 Bloor Street East, 12th Floor, Toronto, Ontario.

 

4.             Postmedia is a reporting issuer in each of the provinces and territories of Canada. Postmedia is authorized to issue an unlimited number of Class C voting shares (the “Voting Shares”) and an unlimited number of Class NC variable voting shares (the “Variable Voting Shares”). The Variable Voting Shares are convertible into Voting Shares by Canadians on a one-for-one basis. The Voting Shares and Variable Voting Shares are listed on the Toronto Stock Exchange under the symbols PNC.A and PNC.B, respectively.

 

5.             On October 5, 2016, Postmedia completed by way of a corporate plan of arrangement under the Canada Business Corporations Act a recapitalization transaction (the “Recapitalization”), by which all of the 12.50% senior secured notes due July 2018 (the “Second Lien Notes”) issued by PNI, in the aggregate principal amount of approximately US$268.6 million, together with all interest accrued from and after July 15, 2016, were exchanged for Variable Voting Shares of Postmedia.

 

6.             Upon completion of the Recapitalization, there were 93,717,199 outstanding shares of Postmedia, consisting of 93,676,563 Variable Voting Shares and 40,636 Voting Shares. Except as required by law, the Variable Voting Shares and the Voting Shares vote together as a single class, with the Variable Voting Shares limited to 49.9% of the votes.

 

7.             Prior to the Recapitalization, the Filer Funds held approximately US$178,909,000 principal amount (plus accrued interest) of Second Lien Notes, but did not hold any shares in Postmedia.

 

8.             Through the Recapitalization, the Filer Funds exchanged Second Lien Notes for 61,166,689 Variable Voting Shares (the “Recapitalization Block”). The Filer exercises control or direction over the investments of the Filer Funds, including the Recapitalization Block. The Recapitalization Block represents approximately 65% of the outstanding Variable Voting Shares of Postmedia and approximately 32% of the voting rights attached to all voting securities of Postmedia.

 

9.             Neither the Filer nor the Filer Funds have acquired any Voting Shares or Variable Voting Shares subsequent to the Recapitalization.

 

10.          As a result of its acquisition of the Recapitalization Block, the Filer exercises control or direction over more than 20% of the outstanding Variable Voting Shares. Any additional acquisitions of Variable Voting Shares by the Filer on either its own behalf or on behalf of the Filer Funds to which the legislation applies would constitute a take-over bid under the applicable provisions under the Legislation, unless an exemption is otherwise available.

 

11.          Subject to applicable law and depending on the prices at which the Variable Voting Shares are trading, the Filer intends to acquire a limited number of additional Variable Voting Shares on behalf of the Filer Funds . If the Filer acquires voting rights that would give it 331/3% or more of the voting rights attached to all voting securities of Postmedia, Investment Canada Act approval may be required. The Filer does not intend to acquire additional Variable Voting Shares if such acquisition would result in 331/3% or more of the voting rights of Postmedia’s voting securities being held by the Filer Funds.

 

12.          As a result of its acquisition of the Recapitalization Block, the Filer is unable to acquire additional Variable Voting Shares through normal course purchases in the market pursuant to the take-over bid exemption in section 4.1 of National Instrument 62-104 – Take-over Bids and Issuer Bids (the “Normal Course Purchase Exemption”) until 12 months after October 5, 2016, being the date when the Filer Funds acquired the Recapitalization Block. The Filer would like the flexibility to acquire on behalf of the Filer Funds additional Variable Voting Shares listed on the Toronto Stock Exchange during the 12 month period since the Filer Funds acquired the Recapitalization Block. The interest of the Filer in being able to acquire Variable Voting Shares is not to gain legal control of Postmedia but instead to preserve its ability to purchase Variable Voting Shares, depending on the prices at which the Variable Voting Shares are trading, and to provide liquidity to the market.

 

13.          As part of the Recapitalization, Postmedia amended and restated its shareholder rights plan (“SRP”). The Filer, as a result of its purchases on behalf of the Filer Funds, is a “grandfathered person” under the SRP. Any additional purchases of Voting Shares or Variable Voting Shares by the Filer either on its own behalf or on behalf of the Filer Funds, including any purchases of Variable Voting Shares made under this Order, will trigger the SRP unless the application of the SRP is otherwise waived by Postmedia.

 

14.          The Filer has advised Postmedia that it has made an application for the Relief Sought. The Filer intends to seek a waiver of the SRP from Postmedia to enable the Filer to acquire Variable Voting Shares pursuant to this Order and, to the Filer’s knowledge, Postmedia will consider such waiver request. The Filer will not acquire Variable Voting Shares pursuant to this Order unless Postmedia has waived the application of the SRP in respect of such acquisitions.

 

15.          Neither the Filer nor any of the Filer Funds will purchase Variable Voting Shares at any time when they have knowledge of any material fact or material change about Postmedia which has not been generally disclosed.

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 Relief Sought is granted provided that the acquisitions of Variable Voting Shares by the Filer or the Filer Funds in the market comply with the Normal Course Purchase Exemption, except that, for the purpose of determining the number of Variable Voting Shares acquired by the Filer or the Filer Funds within the twelve-month period preceding the date of any such purchase of Variable Voting Shares in the market, the Recapitalization Block shall be excluded in the calculation of acquisitions of Variable Voting Shares otherwise made by the Filer or the Filer Funds within the previous twelve-month period.

Dated at Toronto this 15th day of December, 2016.

“Naizam Kanji”

Director, Office of Mergers & Acquisitions

Ontario Securities Commission