Brookfield Infrastructure Corporation and Brookfield Asset Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from the requirements of paragraph 2.2(e) of National Instrument 44-101 Short Form Prospectus Distributions requiring an issuer's equity securities to be listed and posted for trading on short form eligible exchange -- relief granted from the prospectus requirements pursuant to the terms of a rights agreement -- relief granted on terms and conditions and a five-year sunset clause.
March 27, 2020
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 INFRASTRUCTURE CORPORATION AND BROOKFIELD ASSET MANAGEMENT INC.
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Brookfield Infrastructure Corporation (BIPC) and Brookfield Asset Management Inc. (Brookfield, and together with BIPC, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:
(a) the requirements contained in the Legislation to file a preliminary prospectus and a final prospectus and receive receipts therefor (the Prospectus Requirement) shall not apply to specific trades in non-voting limited partnership units of Brookfield Infrastructure Partners L.P. (BIP), (the BIP Units) to be made in connection with the distribution and exchange of class A exchangeable subordinate voting shares of BIPC (the Exchangeable Shares) by Brookfield pursuant to the terms of the Rights Agreement (each as defined below); and
(b) BIPC be exempt from the requirements contained in paragraph 2.2(e) of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) with respect to equity securities (the Short Form Prospectus Eligibility Requirements, together with the Prospectus Requirement, 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 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Yukon and Nunavut, as applicable.
Interpretation
Terms defined in National Instrument 14-101 Definitions (NI 14-101), MI 11-102 and NI 44-101 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 Affiliates
BIP
1. BIP is an exempted limited partnership established, registered and in good standing under the laws of Bermuda. BIP's registered and head office is located at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.
2. BIP is a reporting issuer in all of the provinces and territories of Canada and is a SEC foreign issuer within the meaning of section 1.1 of National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102). BIP satisfies its continuous disclosure obligations by complying with U.S. federal securities laws in accordance with NI 71-102. BIP 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 BIP consists of: (a) non-voting limited partnership units (the BIP Units); (b) Class A preferred limited partnership units, issuable in series; and (c) general partnership units.
4. The BIP Units are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbols "BIP" and "BIP.UN", respectively.
5. BIP's sole asset is its managing general partnership interest and preferred limited partnership interest in Brookfield Infrastructure L.P. (Holding LP), a Bermuda exempted limited partnership that was established on August 17, 2007.
6. Brookfield Infrastructure Partners Limited, a wholly-owned subsidiary of Brookfield, holds the general partner interest in BIP.
Brookfield
7. Brookfield is a corporation existing and in good standing under the Business Corporations Act (Ontario). Brookfield's registered and head office is located at Suite 300, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3.
8. Brookfield 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.
9. The Class A Limited Voting Shares of Brookfield are listed on the NYSE and the TSX under the symbols "BAM" and "BAM.A", respectively.
10. Brookfield indirectly holds an approximate 29.2% economic interest (on a fully-exchanged basis) through its ownership of redeemable partnership units of Holding LP (the Redeemable Partnership Units).
11. Brookfield indirectly holds an approximate 100% voting interest in BIP through its ownership of the general partner unit of BIP.
12. BIP, Holding LP and certain of their subsidiaries have retained Brookfield and its related entities to provide management, administrative and advisory services under a master services agreement (the Master Services Agreement).
BIPC
13. BIPC is a corporation existing and in good standing under the Business Corporations Act (British Columbia), and was incorporated on August 30, 2019. BIPC's registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. BIPC's head office is located at 250 Vesey Street, 15th Floor, New York, New York, 10281, United States of America.
14. The authorized share capital of BIPC consists of an unlimited number of common shares (the BIPC Common Shares).
15. All of the BIPC Common Shares are held by Brookfield Instructure Holdings (Canada) Inc., a wholly-owned subsidiary of BIP.
16. BIPC's principal investments are initially expected to consist of indirect interests in utilities businesses in Europe and South America.
17. BIPC 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 any jurisdiction in which it is a reporting issuer.
The Special Distribution
18. BIPC filed a preliminary long form prospectus on November 13, 2019 (the Preliminary Prospectus) to qualify the distribution of the Exchangeable Shares to be distributed by BIP to holders of BIP Units (the Special Distribution) and BIP filed a preliminary short form prospectus on the same day for the distribution of BIP Units issuable or deliverable upon the exchange, redemption or purchase of Exchangeable Shares pursuant to their terms.
19. Upon obtaining a receipt for the final prospectus, BIPC will become a reporting issuer in each of the provinces and territories of Canada.
20. BIPC filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission (the SEC), as amended, which was declared effective on March 12, 2020, to register the Exchangeable Shares that will be distributed pursuant to the Special Distribution; and BIP filed a registration on Form F-3 with the SEC, as amended, which was declared effective on March 12, 2020, to register the BIP Units issuable or deliverable upon the exchange, redemption or purchase of Exchangeable Shares pursuant to their terms.
21. Prior to the closing of the Special Distribution, BIPC will reclassify its share structure such that, following the reclassification, BIPC's authorized share capital will consist of: (i) an unlimited number of Exchangeable Shares; (ii) an unlimited number of class B multiple voting shares (the Class B Shares); (iii) an unlimited number of class C non-voting shares (the Class C Shares); (iv) an unlimited number of class A senior preferred shares (issuable in series); and (v) an unlimited number of class B junior preferred shares (issuable in series).
22. The only voting securities of BIPC 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.
23. Neither the Exchangeable Shares nor the Class B Shares carry a residual right to participate in the assets of BIPC upon liquidation or winding-up of BIPC, and accordingly, are not equity securities under the Legislation. The Class C Shares are the only equity securities of BIPC.
24. Prior to the closing of the Special Distribution, the following ownership interests will be contributed or transferred by Holding LP, or a subsidiary thereof, to BIPC:
(a) approximately 80% of BUUK Infrastructure Holdings Limited, a gas distribution business located in the United Kingdom; and
(b) approximately 28% of Nova Transportadora do Sudeste S.A., a gas transportation business located in Brazil.
25. Prior to the closing of the Special Distribution, BIP will receive Exchangeable Shares through a distribution by Holding LP of Exchangeable Shares to all the holders of equity units of Holding LP, including Brookfield through its indirect ownership of Redeemable Partnership Units and special general partner units in Brookfield Infrastructure Special LP.
26. The distribution ratio of Exchangeable Shares for each BIP Unit held will be based on the fair market value of the businesses to be transferred by BIP to BIPC, the number of BIP Units outstanding at the time of the Special Distribution (assuming exchange of the Redeemable Partnership Units), and the market capitalization of BIP. Holders of BIP Units will receive one (1) Exchangeable Share (less any Exchangeable Shares withheld to satisfy withholding tax obligations) for every nine (9) BIP Units held as of the record date of the Special Distribution.
27. BIPC has applied to have the Exchangeable Shares listed on the NYSE and TSX.
28. BIP believes that certain investors in certain jurisdictions may be dissuaded from investing in BIP because of the tax reporting framework that results from investing in units of a Bermuda exempted limited partnership. With the objective of providing investors that would not otherwise invest in BIP with an opportunity to gain access to BIP's portfolio of infrastructure assets, BIP created BIPC and is distributing Exchangeable Shares pursuant to the Special Distribution.
29. Each Exchangeable Share has been structured with the intention of providing an economic return equivalent to a BIP Unit and the rights, privileges, restrictions and conditions attached to each Exchangeable Share (the Exchangeable Share Provisions) are such that each Exchangeable Share is intended to be, as nearly as practicable, functionally and economically, equivalent to a BIP Unit. In particular:
(a) each Exchangeable Share will be exchangeable at the option of a holder for one (1) BIP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC) (an Exchange);
(b) the Exchangeable Shares are redeemable by BIPC for BIP Units (or its cash equivalent, at BIPC's election) 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 BIPC, holders of Exchangeable Shares will be entitled to receive BIP Units (or its cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) and not any remaining property or assets of BIPC following such payment (a BIPC Liquidation);
(d) upon a liquidation, dissolution or winding up of BIP, including where substantially concurrent with a BIPC Liquidation, all of the Exchangeable Shares will be automatically redeemed for BIP Units (or its cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a BIP Liquidation); and
(e) subject to applicable law and in accordance with the Exchangeable Share Provisions, each Exchangeable Share will entitle the holder to dividends from BIPC payable at the same time as, and equivalent to, each distribution of a BIP Unit. The Exchangeable Share Provisions also provide that if a distribution is declared on the BIP 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.
30. Upon being notified by BIPC that BIPC has received a request for an Exchange, BIP 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 BIP Units (or its cash equivalent, at BIP's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
31. Upon being notified by BIPC that it intends to conduct a Redemption, BIP 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 BIP Units (or its cash equivalent, at BIP's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
32. Upon the occurrence of a BIP Liquidation or BIPC Liquidation, BIP 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 BIP Liquidation or BIPC Liquidation for BIP Units on a one-for-one basis (subject to adjustment to reflect certain capital events).
33. Prior to the Special Distribution, Brookfield will enter into a rights agreement (the Rights Agreement) pursuant to which it will agree that, for the five-year period beginning on the date of the Special Distribution, Brookfield will guarantee BIPC's obligation to deliver BIP Units or its cash equivalent in connection with an Exchange.
34. An investment in Exchangeable Shares is intended to be, as nearly as practicable, functionally and economically, equivalent to an investment in BIP Units. BIP expects that:
(a) investors of Exchangeable Shares may purchase Exchangeable Shares as an alternative way of owning BIP Units rather than a separate and distinct investment; and
(b) the market price of the Exchangeable Shares will be significantly impacted by (i) the combined business performance of BIPC and BIP as a single economic unit, and (ii) the market price of the BIP Units, in a manner that should result in the market price of the Exchangeable Shares closely tracking the market price of the BIP Units.
35. A holder of Exchangeable Shares would be able to terminate its investment by either (i) selling the Exchangeable Shares on the TSX or on the NYSE, or (ii) selling the BIP Units received by operation of the Exchangeable Share Provisions on the TSX or on the NYSE.
Issuance of BIP Units Under the Rights Agreement
36. The attributes of the Exchangeable Shares, as set out in the Exchangeable Share Provisions, and the trades contemplated by the Rights Agreement involve or may involve:
(a) the delivery by Brookfield of BIP Units to a holder of Exchangeable Shares; and
(b) the first trade of BIP Units received by a holder of Exchangeable Shares in connection with the Rights Agreement.
37. Under section 2.42 of National Instrument 45-106 Prospectus Exemptions and in connection with the conversion, exchange, or exercise of a security, the Prospectus Requirement does not apply to a distribution by an issuer if (a) the issuer distributes a security of its own issue to a security holder of the issuer in accordance with the terms and conditions of a security previously issued by that issuer, or (b) subject to certain notification requirements, the issuer distributes a security of a reporting issuer held by it to a security holder of the issuer in accordance with the terms and conditions of a security previously issued by that issuer.
38. If Brookfield were required to deliver the BIP Units pursuant to the Rights Agreement in the future, it could not rely on paragraph 2.42(b) of NI 45-106, because Brookfield would be delivering BIP Units to a security holder of BIPC, not of Brookfield.
39. In absence of an exemption, the delivery by Brookfield of BIP Units to a holder of Exchangeable Shares, must comply with the Prospectus Requirement under the Legislation in each jurisdiction of Canada where the delivery occurs.
40. The Exchangeable Shares represent part of the equity value of BIP and are intended to be, in all material respects, functionally and economically equivalent to the BIP Units. As a result of the Exchangeable Share Provisions, holders of Exchangeable Shares are able to receive a BIP Unit or its cash equivalent (the form of payment to be determined at the election of BIPC) and will receive identical distributions to the BIP Units. Investors may purchase Exchangeable Shares as an alternative way of owning BIP Units rather than a separate and distinct investment.
41. A key factor in ensuring that an investment in the Exchangeable Shares will be as nearly as practicable, functionally and economically equivalent to an investment in BIP Units is the ability of holders of Exchangeable Shares to (i) exchange their Exchangeable Shares, (ii) receive BIP Units on the exchange, and (iii) sell the BIP Units on the TSX or the NYSE.
42. Relief from the Prospectus Requirement for the delivery by Brookfield of BIP Units to holders of Exchangeable Shares is necessary for the operation of the backstop provided by Brookfield to holders of Exchangeable Shares. As such, granting relief from the Prospectus Requirement is not contrary to the public interest.
Qualification to File Short Form Prospectus
43. BIPC wishes to be eligible to file short form prospectuses under NI 44-101 upon completion of the Special Distribution. While BIPC does not currently intend to complete a distribution immediately following the completion of the Special Distribution, BIPC's eligibility to file short form and shelf prospectuses is critical to its viability as an issuer of a security offering an alternative way of owning BIP Units. In addition, there are short time frames associated with financings undertaken in current market conditions. As a result, the relief from the Short Form Prospectus Eligibility Requirements is being sought in advance of the completion of the Special Distribution and any possible follow on distribution of BIPC securities.
44. The qualification criteria for short form prospectus eligibility are outlined in section 2.2 of NI 44-101. Once BIPC becomes a reporting issuer, it will satisfy all of the qualification criteria for short form prospectus eligibility in section 2.2 of NI 44-101 with the exception of subsection 2.2(e) which requires that an issuer's equity securities are listed and posted for trading on ashort form eligible exchange and that an issuer is not an issuer whose (i) operations have ceased, or (ii) whose principal asset is cash, cash equivalents, or its exchange listing (the Equity Security Requirement). The term "equity security" is defined under the Legislation as a security that carries a residual right to participate in the earnings of the issuer and, on the liquidation or winding up of the issuer, in its assets. The Exchangeable Shares do not carry a residual right to participate in the assets of BIPC upon liquidation or winding-up of BIPC, and accordingly, are not equity securities under the Legislation.
45. In the event that BIPC undertakes an offering or other distribution of its securities prior to the filing of its audited financial statements for the year ended December 31, 2020, BIPC intends to rely on the exemption in subsection 2.7(1) of NI 44-101 from the requirements to have (i) current annual financial statements and (ii) a current AIF.
46. BIPC is not eligible for the exemption for alternative qualification criteria for conventional preferred shares under Part 2 of NI 44-101 because the Exchangeable Shares are not conventional preferred shares.
47. Except for not meeting the Equity Security Requirement, BIPC would otherwise be qualified to file a prospectus in the form of a short form prospectus pursuant to, and in accordance with, NI 44-101.
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:
1. the Prospectus Requirement shall not apply to the delivery by Brookfield of BIP Units to holders of Exchangeable Shares as may be required, provided that:
(a) such BIP Units are delivered strictly pursuant to Brookfield's agreement to guarantee BIPC's obligation to deliver BIP Units in connection with an Exchange under the terms of the Rights Agreement;
(b) BIP is a reporting issuer, as defined in the Legislation, in a jurisdiction of Canada at the time such relief is relied upon for the delivery of BIP Units;
(c) the terms of the Rights Agreement are not materially amended; and
(d) Brookfield has provided prior written notice of the distribution to the principal regulator;
2. any first trade in BIP Units acquired by a holder of Exchangeable Shares in connection with Brookfield satisfying its obligations under the Rights Agreement shall not be a distribution under the Legislation, provided that:
(a) BIP is and has been a reporting issuer, as defined in the Legislation, in a jurisdiction of Canada for the four months immediately preceding the trade;
(b) the trade is not in previously issued securities of an issuer from the holdings of any control person, as that term is defined in subsection 1(1) of the Securities Act (Ontario);
(c) no unusual effort is made to prepare the market or to create a demand for the BIP Units;
(d) no extraordinary commission or consideration is paid to a person or company in respect of the trade;
(e) if the selling securityholder is an insider or officer of BIP, the selling security holder has no reasonable grounds to believe that BIP is in default of securities legislation; and
(f) the terms of the Rights Agreement are not materially amended;
3. the decision as it relates to the Prospectus Requirement shall terminate on the date that is the earlier of:
(a) the fifth anniversary of the Special Distribution; and
(b) the day on which the Rights Agreement is terminated prior to the fifth anniversary of the Special Distribution;
4. BIPC does not have to comply with the Short Form Prospectus Eligibility Requirements so long as:
(a) BIPC is otherwise qualified to file a preliminary short form prospectus under section 2.2 of NI 44-101;
(b) the Exchangeable Shares are listed and posted for trading on a short form eligible exchange (as defined in NI 44-101);
(c) BIPC is not an issuer whose operations have ceased; and
(d) BIPC is not an issuer whose principal asset is cash, cash equivalents, or its exchange listing.
As to the Prospectus Requirement,
As to the Short Form Eligibility Requirements,