Offering in confidence: New confidential prospectus pre-file review process

On March 5, 2020, the Canada Securities Administrators (“CSA”) introduced a new harmonized process for the full review of prospectuses on a confidential pre-file basis (the “Confidential Pre-File Review Process”). The Confidential Pre-File Review Process applies to non-investment fund issuers. Staff Notice 43-310 Confidential Pre-File Review of Prospectuses (for non-investment fund issuers) (the “Notice”) replaces prior piecemeal guidance on non-investment fund pre-filing reviews and is intended to foster consistency in how regulators approach pre-filing reviews.[1] Issuers will now be able to pre-clear substantially all regulatory comments in order to reduce uncertainty and create greater flexibility in timing a public offering.

Overview

With limited exceptions, the prospectus regulatory review process normally begins once an issuer has publicly filed its preliminary prospectus with its principal regulator. If all filing requirements are met, the principal regulator issues a receipt for the preliminary prospectus. The principal regulator will then review the preliminary prospectus and issue comments. After comments are addressed to the satisfaction of the principal regulator and such regulator provides clearance for the final prospectus, the issuer files the final prospectus. Upon the principal regulator being satisfied that all of its comments have been resolved, the issuer is able to obtain a final receipt, at which point the prospectus can be used to offer and sell securities.

Under the public review scheme, if a material issue with a prospectus is raised during the process, delays can ensue in obtaining regulatory clearance to file a final prospectus and a receipt therefor, thereby frustrating the timeline for closing a live public offering.

With the new Confidential Pre-File Review Process, issuers are able to first confidentially file a prospectus with their principal regulator to address significant issues prior to disclosing such information to the public. The CSA anticipates that the new pre-filing option will address, among other things, participants’ concerns regarding delays in the regulatory review process that previously created obstacles for closing public offerings.

Confidential Pre-filing Requirements

Issuers may use the Confidential Pre-File Review Process for long-form (including for initial public offerings), short-form and shelf prospectuses.

The new process is not available for structured notes distributed under the shelf prospectus system.[2] Additionally, the process does not apply to non-offering prospectuses that are to be filed in Canada only and prospectuses filed solely to qualify the issuance of securities on conversion of convertible securities, including special warrants.

Further, the Confidential Pre-File Review Process is only available after the terms and conditions of the applicable offering and any related transaction are clearly determined and after any applicable underwriters have substantially completed their review. The CSA expects that pre-filed prospectuses will be of the same form and quality as a publicly filed preliminary prospectus and contain the disclosure prescribed under the applicable securities legislation. Consequently, a pre-filed prospectus should include all documents required to be filed with a publicly filed prospectus of the same form (i.e. a cover letter, material contracts and technical reports, as required by securities laws).

One distinct requirement under the Confidential Pre-File Review Process is that the CSA requests, where practical, that issuers include an estimate of the price of the offering, which is typically omitted from a preliminary prospectus. In line with the CSA’s objective of avoiding delays, the intention is that disclosing estimates at the pre-file stage will allow the principal regulator to flag material concerns before the information is made public.

In circumstances where the Confidential Pre-File Review Process is available, issuers should pre-file the prospectus with their principal regulator only. In all jurisdictions, other than Ontario, pre-filings are to be submitted by email to the applicable regulator.[3] In Ontario, pre-filings are submitted through the Ontario Securities Commission’s electronic filings portal, and an applicable fee is due at the time of filing.[4]

The Review Process

The applicable principal regulator will apply the same standard of review as is typically applied to a publicly filed preliminary prospectus and will make best efforts to provide comments within 10 working days. Certain factors may impede this timeline, especially if the pre-filing is: (i) complex, involves novel and substantial issues or raises a novel policy concern; or (ii) the disclosure is incomplete. Note that regulators will prioritize reviews of public prospectus filings over prospectuses filed under the Confidential Pre-File Review Process.

Where a confidential pre-filed prospectus is materially non-compliant or incomplete, the review process will be paused until the issuer provides a revised draft within a reasonable time. If the issuer does not provide a response within 90 days of the initial pre-filing date, the regulator will consider the pre-filing withdrawn.

Post Pre-filing Considerations

While the Confidential Pre-file Review Process will be advantageous to issuers willing to invest time and resources up front, issuers are cautioned that the process does not bar regulators from providing additional comments once the preliminary prospectus is publicly filed. Regulators are most likely to provide additional comments where new issues arise or when there are material changes to the prospectus or supplementary documents. Accordingly, to maximize the benefits afforded by the Confidential Pre-file Review Process and to avoid additional comments from the principal regulator, issuers should aim to provide a substantially completed product and to reduce the time gap between clearing the pre-filed prospectus and submitting the preliminary public filing.

Acknowledgment
The authors of the publication would like to thank Genesa Olivieri for her assistance with this publication.

[1] The Notice supplements the process provided in National Policy 11-202 – Process for Prospectus Reviews in Multiple Jurisdictions (“NP 11-202”). Under Part 8 of NP 11-202, an issuer has the choice to submit a prospectus to securities regulators for a confidential pre-file review. The submission is made prior to the public filing of the preliminary prospectus and allows regulators to make a preliminary determination on key issues that may arise in the full review.

[2] See Staff Notice 44-304 Linked Notes Distributed under Shelf Prospectus System and Staff Notice 44-305 2015 Update – Structured Notes Distributed Under the Shelf Prospectus System.

[3] The e-mail addresses for the securities regulators can be found under Question 10 of the Notice.

[4] The filing fee is currently $3,800, and this amount will be credited against the filing fee for the publicly filed preliminary prospectus.