Royal Bank of Canada and RBC Capital Trust II- s. 6.1 of OSC Rule 13-502
Headnote
Issuer exempt from requirement to pay participation fees, subject to conditions.
Ontario Rules Cited
Ontario Securities Commission Rule 13-502 Fees.
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION
RULE 13-502 FEES
AND
IN THE MATTER OF
ROYAL BANK OF CANADA AND
RBC CAPITAL TRUST II
ORDER
WHEREAS the Director has received an application from Royal Bank of Canada (the "Bank") and RBC Capital Trust II (the "Trust") for an order, pursuant to Section 6.1 of Ontario Securities Commission Rule 13-502 Fees (the "Fees Rule"), that the requirement to pay a participation fee under Section 2.2 of the Fees Rule shall not apply to the Trust, subject to certain terms and conditions.
AND WHEREAS as the Bank and the Trust have represented to the Director that:
1. The Trust is an open-end trust established under the laws of the Province of Ontario by The Royal Trust Company as trustee (the "Trustee"), pursuant to an amended and restated declaration of trust dated July 23, 2003.
2. The Trust has a financial year-end of December 31.
3. The Trust is a reporting issuer in Ontario and, to its knowledge, is not in default of any requirement under the securities legislation of the Province of Ontario.
4. The Bank is the administrative agent of the Trust pursuant to an amended and restated administration and advisory agreement dated July 23, 2003 and, in such capacity, provides advice and counsel with respect to the administration of the day-to-day operations of the Trust and other matters as may be requested by the Trustee from time to time.
5. The outstanding securities of the Trust consist of (i) Special Trust Securities (the "Special Trust Securities"), which are voting securities of the Trust, and (ii) Trust Capital Securities -- Series 2013 (the "TruCS" and together with the Special Trust Securities, the "Trust Securities"). All outstanding Special Trust Securities are held by the Bank. The Trust distributed 900,000 TruCS in a public offering pursuant to a prospectus dated July 16, 2003 (the "Offering"). The TruCS are not listed on any exchange.
6. The Trust is a special purpose vehicle established solely for the purpose of effecting the Offering in order to provide the Bank with a cost-effective means of raising capital for Canadian financial institution regulatory purposes. The assets and liabilities of the Trust are reported on the Canadian GAAP consolidated balance sheet of the Bank; however, under current U.S. GAAP, the Bank is not the primary beneficiary of the Trust and is therefore precluded from consolidating the assets and liabilities of the Trust in its U.S. GAAP financial statements. The Trust does not carry on any independent business activities other than to acquire and hold assets to generate income for distribution to holders of the Trust Securities.
7. Pursuant to the MRRS Decision Document dated August 18, 2003 (the "Continuous Disclosure Exemption") granted to the Trust by the Ontario Securities Commission, as principal regulator, on behalf of itself and other decision makers (collectively, the "Decision Makers"), the Decision Makers determined that the requirement contained in the securities legislation of the Province of Ontario and in other applicable jurisdictions (collectively, the "Legislation"):
(a) to file interim financial statements and audited annual financial statements with the Decision Makers and deliver such statements to the holders of Trust Securities;
(b) to make an annual filing, where applicable, with the Decision Makers in lieu of filing an information circular;
(c) to file an annual report and an information circular with the Decision Maker in the Province of Quebec and deliver such report or information circular to holders of Trust Securities resident in the Province of Quebec;
(d) to prepare and file an annual information form, including management's discussion and analysis (the "MD&A") and to prepare and file interim MD&A, with the Decision Makers and send such MD&A to holders of Trust Securities;
shall not apply to the Trust for so long as:
(i) the Bank remains a reporting issuer under the Legislation;
(ii) the Bank files with the Decision Makers, in electronic format under the Trust's SEDAR profile, the documents listed in clauses (a) to (c) above;
(iii) the Trust pays all filing fees that would otherwise be payable by the Trust in connection with the filing of the documents referred to in clauses (a) to (d) above;
(iv) the Bank sends its annual financial statements, interim financial statements, annual information form, annual management discussion and analysis and interim management discussion and analysis to holders of Trust Securities and its annual report to holders of Trust Securities resident in the Province of Quebec at the same time and in the same manner as if the holders of Trust Securities were holders of the common shares of the Bank;
(v) all outstanding securities of the Trust are either Trust Capital Securities or Special Trust Securities;
(vi) the rights and obligations (other than the economic terms thereof) of holders of additional series of Trust Capital Securities are the same in all material reports as the rights and obligations of the holders of the TruCS as of the date of the Continuous Disclosure Exemption; and
(vii) the Bank is the beneficial owner of all Special Trust Securities;
provided that if a material adverse change occurs in the affairs of the Trust the Continuous Disclosure Exemption shall expire 30 days after the date of such change.
8. The Trust was established by the Bank in order to comply with the regulatory requirements of the Office of the Superintendent of Financial Institutions ("OSFI") relating to the issuance of innovative Tier 1 capital instruments (as contained in OSFI's Principles Governing Inclusion of Innovative Instruments in Tier 1 Capital dated August 2001 (the "OSFI Guideline")).
9. OSFI maintains strict guidelines and standards with respect to the capital adequacy requirements of federally regulated financial institutions, including the Bank, and, in particular, specifies minimum required amounts of Tier 1 capital to be maintained by such institutions. Tier 1 capital consists of common shareholders' equity, qualifying non-cumulative perpetual preferred shares, qualifying innovative instruments and qualifying non-controlling interests arising on consolidation from Tier 1 capital instruments. Innovative instruments, such as the TruCS, must satisfy the detailed requirements of the OSFI Guideline to be included in Tier 1 capital. Accordingly, the innovative instruments (TruCS) must be issued by a special purpose vehicle (RBC Capital Trust II), which is a consolidated non-operating entity whose primary purpose is to raise innovative Tier 1 capital (the Trust is included in the Canadian GAAP financial statements of the Bank on a fully-consolidated basis; however, under current U.S. GAAP, the Bank is not the primary beneficiary of the Trust and is therefore precluded from consolidating the assets and liabilities of the Trust in its U.S. GAAP financial statements). OSFI approved the inclusion of the TruCS as Tier 1 capital of the Bank on July 22, 2003. Proposed amendments to Canadian accounting rules may result in the Bank being precluded from consolidating the assets and liabilities of the Trust in its Canadian GAAP financial statements, however, OSFI has confirmed that the TruCS will continue to be treated as qualifying innovative Tier 1 instruments notwithstanding the implementation of these amendments.
10. No continuous disclosure documents concerning only the Trust will be filed with the OSC unless the conditions in the Continuous Disclosure Exemption are not satisfied.
11. The Trust would be required (but for this Order) to pay participation fees under the Fees Rule.
12. The Bank does not currently intend to issue additional securities through the Trust.
THE ORDER of the Director under the Fees Rule is that the requirement to pay a participation fee under Section 2.2 of the Fees Rule shall not apply to the Trust, for so long as:
(i) the Bank and the Trust continue to satisfy all of the conditions contained in the Continuous Disclosure Exemption;
(ii) the Bank does not issue further securities out of the Trust; and
(iii) the capitalization of the Trust represented by the TruCS is included in the participation fee calculation applicable to the Bank.
February 27, 2004.
"Iva Vranic"