The use of at-the-market (“ATM”) offerings by issuers listed on Canadian stock exchanges has increased since the amendments to National Instrument 44-102 – Shelf Distributions (“NI 44-102”) and its companion policy came into effect on August 31, 2020 to streamline ATM offerings (the “2020 Amendments”).
ATM offerings can be advantageous to issuers because it allows them to raise capital directly in the market with no discount and to pay a fee that is generally lower than a standard brokered public offerings or private placements.
Prior to the 2020 Amendments, there were only a handful of ATM offerings per year completed by issuers in Canada. At the time, issuers were limited to 10% of market value of the issued and outstanding securities that were the subject of the ATM offering and a daily limit of 25% of the daily trading volume of such securities. For issuers to go above these limits, they needed to apply to applicable securities authorities for exemptive relief from various securities law requirements for prospectus offerings. The 2020 Amendments removed these limits and added certain other requirements that issuers must satisfy to undertake an ATM offering.
An ATM offering allows an issuer that has a base shelf prospectus filed under NI 44-102 (a “Base Shelf Prospectus”) to file a prospectus supplement (a “Prospectus Supplement”) for an ATM offering. It also allows an issuer to – at its discretion – instruct an agent or agents (generally an independent dealer(s)) to use commercially reasonable efforts to sell a certain amount of new equity securities of the issuer in the public markets for a period of time. The equity securities are sold at prevailing market prices at the time of sale, based on the parameters of sale instruction notices provided by the issuer to the agent(s) from time to time and in accordance with the terms of an equity distribution agreement between the issuer and the agent(s) (an “Equity Distribution Agreement”). The instruction notices include a floor price and a maximum number of equity securities to be sold by the agent(s).
The agent(s) for an ATM offering will typically receive a commission of two to three percent of the aggregate price of equity securities sold pursuant to the offering. The commission is generally substantially lower than the fees paid by issuers in a standard brokered public offerings or private placements.
The expiration date for an ATM offering is typically either the same date as the expiration date of the issuer’s Base Shelf Prospectus and/or when the maximum number of equity securities are issued under the Equity Distribution Agreement. A Base Shelf Prospectus expires 25 months after it is filed under NI 44-102.
Under NI 44-102, there are several disclosure requirements that an issuer must satisfy to proceed with an ATM offering, including, without limitation:
- For the duration of the ATM offering, an issuer is required to periodically disclose in its ongoing public disclosure documents and/or in reports, the number of equity securities and average price of the equity securities sold under the ATM offering, the gross and net proceeds received by the issuer and the agent’s commissions paid to the agent(s).
- The press release announcing the ATM offering must contain certain specified disclosure with respect to the Equity Distribution Agreement.
- The cover page of the Base Shelf Prospectus must include a statement that the issuer may undertake an ATM offering under the Base Shelf Prospectus.
- The Prospectus Supplement must include certain disclosure with respect to the statutory rights of the purchasers of the issuer’s equity securities under the ATM offering.
- The Prospectus Supplement must include certain disclosure with respect to the fact that the agent(s) for the ATM offering or person acting jointly or in concert with the agent(s), may enter into a transaction that is intended to stabilize or maintain the market price of the securities distributed under the ATM offering.
- The Prospectus Supplement must include certificates of the issuer and agent containing certain specified language.
There are a number of factors that an issuer should also consider when contemplating whether an ATM offering is appropriate for them including:
- Due to the fact that the equity securities will be sold by an agent or agents in the markets generally, there is no mechanism in place to control which jurisdiction those equity securities are sold. Accordingly, issuers that are interested in undertaking an ATM offering will need to become a reporting issuer in each of the provinces and territories of Canada. This could mean additional filing costs and, potentially, translation costs in the case of Québec. That being said, issuers can apply to the Autorité des Marchés Financiers in Québec for exemptive relief with respect to translation of the Base Shelf Prospectus, Prospectus Supplement and continuous disclosure documents that would otherwise require translation in the case of a regular prospectus offering that is qualified in Qué
- As noted above, to launch an ATM offering, the issuer’s Base Shelf Prospectus must include certain specified disclosure with regards to the issuer’s ability to undertake an ATM offering. For issuers that have an existing Base Shelf Prospectus filed that does not contain the required disclosure, they may need to file an amended and restated Base Shelf Prospectus to include this disclosure. The issuer may also need to file a new Base Shelf Prospectus in any jurisdiction where the issuer is not currently a reporting issuer.
- An issuer should ensure that the existing Base Shelf Prospectus is large enough to cover the maximum issuance under the ATM offering and any future financings that the issuer may undertake during the lifetime of that Base Shelf Prospectus from offerings other than the ATM offering. If the issuer needs to amend its Base Shelf Prospectus, it may be prudent to increase the amount of securities that an issuer may issue under that Base Shelf Prospectus.
Issuers that are interested in undertaking an ATM offering should review applicable securities laws including NI 44-102 and its companion policy, and speak to their own advisers.
If you have any questions about ATM offerings, please contact the author directly.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.