Merrill Lynch Mortgage Loans Inc. & Merrill Lynch Canada Inc. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Section 233 of the Regulation - issuer is relatedissuer and therefore connected issuer of sole underwriter - no independent underwriter involvement subject to certainconditions, including participation of an arm's length party in the negotiation of the material terms of the offering, thedrafting of the prospectus, the due diligence relating to the offering, the pricing of the securities and the disclosure ofsuch information and the relationship between the issuer and the underwriter in the prospectus.

Statutes Cited

Securities Act, R.S.O. 1990, c. S. 5, as am. (the "Act").

Regulations Cited

Regulation made under the Act, R.R.O. 1990, Reg. 1015, as am., ss. 219(1), 224(1)(b) and 233.

Rules Cited

In the Matter of the Limitations on a Registrant Underwriting Securities of a Related Issuer or Connected Issuer of theRegistrant (1997), 20 OSCB 1217.

IN THE MATTER OF

THE CANADIAN SECURITIES LEGISLATION

OF ONTARIO, BRITISH COLUMBIA,

ALBERTA, QUÉBEC AND NEWFOUNDLAND

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM FOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

MERRILL LYNCH MORTGAGE LOANS INC.

AND MERRILL LYNCH CANADA INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Ontario, BritishColumbia, Alberta, Québec and Newfoundland (the "Jurisdictions") has received an application from Merrill LynchMortgage Loans Inc. (the "Issuer") and Merrill Lynch Canada Inc. ("ML Canada") (the Issuer and ML Canada arecollectively referred to herein as the "Filer") for a decision pursuant to the securities legislation of the Jurisdictions (the"Legislation") that the provision contained in the Legislation mandating independent underwriter involvement shall notapply to ML Canada and the Issuer in respect of the proposed offering of Merrill Lynch Mortgage Loans Inc. CommercialMortgage Pass-Through Certificates, Series 2001 ­ LBC (as defined below) by means of a preliminary short formprospectus (the "Preliminary Prospectus") and a short form prospectus (the "Prospectus");

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"MRRS") the Ontario Securities Commission is the principal regulator for this Application;

AND WHEREAS it has been represented by the Filer to the Decision Makers that:

1. the Issuer was incorporated under the laws of Canada on March 13, 1995; the authorized share capital of theIssuer consists of an unlimited number of common shares, of which 1,000 common shares are issued andoutstanding, all of which are held by Merrill Lynch & Co., Canada Ltd. ("ML & Co."); the head office of the Issueris located in Toronto, Ontario;

2. to date the Issuer has issued 600,000,000 S&P BULLS (the "S&P 500 Bulls"), $182,083,237 (initial certificatebalance) of pass-through certificates of which $163,874,000 (initial certificate balance) were designated asExchangeable Commercial Mortgage Pass-Through Certificates, Series 1998 - Canada 1 (the "OfferedCertificates"), $163,874,000 (initial certificate balance) Commercial Mortgage Pass-Through Certificates, Series1998-Canada 1 (the "C-1 Certificates"), $193,741,000 (initial certificate balance) of Commercial Mortgage Pass-Through Certificates, Series 1999-Canada 2 (the "C-2 Certificates"), $220,000,000 (initial certificate balance)of 1st Street Tower Pass-Through Certificates (the "Tower Certificates"), approximately $227,324,000 (initialcertificate balance) of Commercial Mortgage Pass-Through Certificates, Series 2000-Canada 3 (the "C-3Certificates"), approximately $115,500,000 (initial certificate balance) of BMCC Corporate Centre Pass-ThroughCertificates, Series 2000-BMCC (the "BMCC Certificates") and approximately $255,981,000 (initial certificatebalance) of Commercial Mortgage Pass-Through Certificates, Series 2000-Canada 4 (the "C-4 Certificates");

3. on May 12, 1999 and May 19, 2000 the Issuer filed a revised annual information form and received anacceptance thereof on behalf of the Canadian securities administrators dated May 13, 1999 and August 31,2000 respectively;

4. the Issuer has been a "reporting issuer" (or the equivalent as defined in the Legislation) pursuant to thesecurities legislation in each of the provinces of Canada for over 12 calendar months and is not in default ofany of the requirements of the Legislation, but has been granted relief from the requirements to makecontinuous disclosure of its financial results under applicable securities legislation by the securities regulatoryauthorities in applicable provinces other than certain reports to the S&P 500 Bulls investors, the Canada 1Certificateholders, the Canada 2 Certificateholders, the Canada 3 Certificateholders, the Canada 4Certificateholders, the Tower Certificateholders, the BMCC Certificateholders and the holders of such additionalcertificates (the "Additional Certificates") as may be set forth from time to time in the schedule attached to theMRRS Decision Document dated November 30, 2000 and variations thereof granting the Issuer relief from thecontinuous disclosure requirements based upon the fact that after the completion of the S&P 500 Bulls, C-1Certificates, C-2 Certificates, C-3 Certificates, C-4 Certificates, Tower Certificates, BMCC Certificates and anyAdditional Certificates transactions the continued financial performance of the Issuer is not relevant to aninvestor because the S&P Bulls, C-1 Certificates, C-2 Certificates, C-3 Certificates, C-4 Certificates, TowerCertificates, BMCC Certificates and Additional Certificates do not represent any interest or claim on any assetsof the Issuer;

5. the Issuer currently has no assets or liabilities other than its rights and obligations under certain of the materialcontracts related to the S&P 500 BULLS, the C-1 Certificates, the C-2 Certificates, the C-3 Certificates, the C-4Certificates, the Tower Certificates and the BMCC Certificates transactions and does not presently carry onany activities except in relation to the S&P 500 Bulls, the C-1 Certificates, the C-2 Certificates, the C-3Certificates, the C-4 Certificates, the Tower Certificates and the BMCC Certificates;

6. the officers and directors of the Issuer are employees of ML Canada;

7. ML Canada was continued and amalgamated under the laws of Canada on August 26, 1998; the authorizedshare capital of ML Canada consists of an unlimited number of common shares; all of the issued andoutstanding common shares of ML Canada are owned by ML & Co. and Midland Walwyn Inc; the head officeof ML Canada is located in Toronto, Ontario;

8. ML Canada is not a reporting issuer in any Canadian province;

9. ML Canada is registered as a dealer in the categories of "broker" and "investment dealer" and is a member ofthe Investment Dealers Association of Canada;

10. the Issuer proposes to offer Merrill Lynch Mortgage Loans Inc. Commercial Mortgage Pass-ThroughCertificates, Series 2001 ­ LBC (the "LBC Pass-Through Certificates"), issuable in classes, with an ApprovedRating by an Approved Rating Organization, as those terms are defined in the Legislation with respect to theprompt offering qualification system (the "POP System") and the shelf system (the "Shelf System"), to the publicin Canada (the "Offering"), to finance the purchase by the Issuer from Merrill Lynch Capital Canada Inc. ofownership interests in particular mortgage loans purchased by Merrill Lynch Capital Canada Inc. fromLaurentian Bank of Canada ("LBC"). Beneficial title to the mortgage loans will be deposited with Montreal TrustCompany of Canada as custodian (the "Custodian") on closing and within 90 days thereafter, registered titleto the mortgage loans will be recorded in the name of the Custodian. Each LBC Pass-Through Certificate ofa particular class will represent an undivided co-ownership interest in a particular pool of mortgage loans;

11. LBC is a bank under the Bank Act (Canada) and is a reporting issuer pursuant to the securities legislation ineach of the provinces of Canada. LBC is an independent arm's length party of ML Canada and the Issuer.

12. ML Canada proposes to act as the underwriter in connection with the distribution of 100% of the dollar valueof the distribution for the proposed Offering;

13. all material terms of the LBC Pass-Through Certificates and the Offering will be negotiated on an arm's lengthbasis between LBC and ML Canada and may not be changed in any material fashion without approval ofspecified percentage of the holders of the LBC Pass-Through Certificates which will be set out in thePreliminary Prospectus and the Prospectus in respect of the Offering. LBC has participated in the drafting ofthe Preliminary Prospectus, and will participate in the drafting of the Prospectus, the due diligence relating tothe Offering and in the pricing of the LBC Pass-Through Certificates.

14. the only financial benefits which ML Canada will receive as a result of the proposed Offering are the normalarm's length underwriting commission, a structuring fee and reimbursement of expenses associated with apublic offering in Canada, which commissions and reimbursements shall for purposes of this Decision bedeemed to include the increases or decreases contemplated by Section 3.5(a)(1) of National Policy No. 44 andby the applicable securities legislation in Québec;

15. ML Canada took the initiative in organizing the business of the Issuer in connection with the Offering and assuch ML Canada may be considered to be a "promoter" of the Issuer within the meaning of the Legislation;

16. ML Canada administers the ongoing operations and pays the ongoing operating expenses of the Issuer, forwhich ML Canada receives no additional compensation;

17. the Issuer may be considered to be a related issuer (or the equivalent as defined in the Legislation) andtherefore a connected issuer (or the equivalent as defined in the Legislation) of ML Canada for the purposesof the proposed Offering because:

(a) both ML Canada and the Issuer are subsidiaries of ML & Co.;

(b) the officers of the Issuer are employees of ML Canada;

(c) ML Canada is a promoter of the Issuer; and

(d) ML Canada administers the on-going operations of the Issuer;

18. in connection with the proposed distribution by ML Canada of 100% of the LBC Pass-Through Certificates ofthe Issuer, the Preliminary Prospectus and the Prospectus of the Issuer shall contain the following information:

(a) on the front page of each such document,

(i) a statement, naming ML Canada, in bold type which states that the Issuer is a related issuer(or the equivalent) and therefore a connected issuer (or the equivalent) of ML Canada inconnection with the distribution,

(ii) a summary, naming ML Canada, stating that the Issuer is a related issuer (or the equivalent)and therefore a connected issuer (or the equivalent) of ML Canada based on, among otherthings, the common ownership of ML Canada and the Issuer, and

(iii) a cross-reference to the applicable section in the body of the document where furtherinformation concerning the relationship between the Issuer and ML Canada is provided;

(b) in the body of each such document,

(i) a statement, naming ML Canada, that the Issuer is a related issuer (or the equivalent) andtherefore a connected issuer (or the equivalent) of ML Canada in connection with thedistribution,

(ii) a summary explaining the basis on which the Issuer is a related issuer (or the equivalent)and therefore a connected issuer (or the equivalent) of ML Canada, including details of thecommon ownership by ML & Co. of ML Canada and the Issuer, and other aspects of therelationship between ML Canada and the Issuer,

(iii) disclosure regarding the involvement of ML Canada in the decision to distribute the LBCPass-Through Certificates being offered and the determination of the terms of the distributionincluding specific reference to the negotiation of such terms on an arm's length basis withLBC,

(iv) details of the financial benefits described in paragraph 14 of this Decision Document whichML Canada will receive from the proposed Offering, and

(v) the participation of LBC in the proposed Offering described in paragraph 13 of this DecisionDocument;

AND WHEREAS pursuant to the MRRS this Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers pursuant to the Legislation is that the requirement contained in theLegislation mandating independent underwriter involvement shall not apply to ML Canada and the Issuer in connectionwith the Offering provided that:

(a) LBC participates in the Offering as stated in paragraph 13 above; and

(b) LBC's participation in the Offering and the relationship between the Issuer and ML Canada aredisclosed in the Preliminary Prospectus and the Prospectus of the Issuer as stated in paragraph 18above.

December 27, 2000.

"Howard I. Wetston"       "J.A. Geller"