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CIBC Asset Management Inc. and CIBC Global Asset Management Inc. - MRRS Decision
Headnote
Standard exemption from subsection 4.1(1) of National Instrument 81-102 Mutual Funds (NI 81-102) to enable the Dealer Managed Funds, as defined in section 1.1 of NI 81-102, to invest in the shares of an issuer during the distribution period and the 60 days after the period in which an affiliate of the Dealer Manager, as defined in section 1.1 of NI 81-102, has acted as an underwriter in connection with an offering of trust units by the issuer.
Rule Cited
National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.
January 23, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,
AND THE NORTHWEST TERRITORIES,
NUNAVUT AND THE YUKON
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM ("MRRS")
FOREXEMPTIVE RELIEF APPLICATIONS
AND
CIBC ASSET MANAGEMENT INC. and
CIBC GLOBAL ASSET MANAGEMENT INC.
(the "Applicants")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Applicants (or "Dealer Managers"), the portfolio advisers of the mutual funds named in Appendix "A" (the "Funds" or "Dealer Managed Funds") for a decision under section 19.1 of National Instrument 81-102 -- Mutual Funds ("NI 81-102") granting:
• an exemption from subsection 4.1(1) of NI 81-102 (the "Investment Restriction") to enable the Dealer Managed Funds to invest in units (the "Units") of the Jazz Air Income Fund (the "Issuer") during the period of distribution for the Offering (as defined below) (the "Distribution") and the 60-day period following the completion of the Distribution (the "60-Day Period") (the Distribution and the 60-Day Period together, the "Prohibition Period") notwithstanding that the Dealer Managers or their associates or affiliates act or have acted as an underwriter in connection with the initial public offering (the "Offering") of the Units of the Issuer pursuant to a final long form prospectus filed by the Issuer in accordance with the securities legislation of each of the Jurisdictions (the "Requested Relief").
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission (the "OSC") is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
It is the responsibility of each of the Decision Makers to make a global assessment of the risks involved in granting exemptive relief from the Investment Restriction in relation to the specific facts of each application.
Interpretation
Defined terms contained in National Instrument 14-101 -- Definitions have the same meanings in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Applicants:
1. Each Dealer Manager is a "dealer manager" with respect to the Dealer Managed Funds, and each Dealer Managed Fund is a "dealer managed fund", as such terms are defined in section 1.1 of NI 81-102.
2. The head office of CIBC Asset Management Inc. is in Toronto, Ontario and the head office of CIBC Global Asset Management Inc. is in Montreal, Quebec.
3. The securities of the Dealer Managed Funds are qualified for distribution in one or more of the provinces and territories of Canada pursuant to simplified prospectuses that have been prepared and filed in accordance with their respective securities legislation.
4. The Issuer filed an amended and restated preliminary prospectus (the "Preliminary Prospectus") dated December 22, 2005 with each of the Decision Makers, for which an MRRS decision document evidencing receipt by the each of the Decision Makers was issued on December 22, 2005.
5. The Offering is being underwritten, subject to certain terms, by an underwriting syndicate that includes CIBC World Markets Inc. (the "Related Underwriter"), RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., Citigroup Global Markets Canada Inc., Merill Lynch Canada Inc., Conaccord Capital Corporation, Orion Securities Inc., Research Capital Corporation, Versant Partners Inc., Westwind Partners Inc., Dundee Securities Corporation and Wellington West Capital Markets Inc. (the Related Underwriter together with the other underwriters, which are now or may become part of the syndicate prior to closing, the "Underwriters").
6. The Related Underwriter is an affiliate of the Dealer Managers.
7. According to a Confidential Information Memorandum dated January 2006 provided to institutional investors, as reported on in the Globe & Mail on January 10, 2006 on page B3, Air Canada's Jazz IPO road show takes flight, and information contained in the Preliminary Prospectus, the Units are expected to be priced at $10.00 per Unit. The Underwriters are to be granted an over-allotment option (the "Over-Allotment Option") to purchase additional Units representing up to 15% of the amount of Units sold in the Offering at a price of $10.00 per Unit to be exercised in full within 30 days following the closing date (the "Closing Date") which is expected to occur during the week of January 30, 2006. The Offering is expected to be for approximately 17.5 million Units (or for approximately 20.1 million Units if the Over-Allotment Option is exercised in full) with the gross proceeds of the Offering expected to be approximately $175 million (or approximately $201 million if the Over-Allotment Option is exercised in full).
8. As disclosed in the Preliminary Prospectus, the Issuer is an unincorporated, open-ended trust established under the laws of the Province of Ontario. According to the Preliminary Prospectus, the Issuer will acquire an interest in Jazz Air LP and Jazz Air Holding GP Inc. ("Jazz GP"), the general partner of Jazz Air LP. On closing, Jazz Air GP will own and operate the largest regional airline in Canada, based on fleet size and the number of routes operated.
9. The Preliminary Prospectus states that the Issuer will use the gross proceeds from the Offering to subscribe for trust units and Series 1 trust notes of the Jazz Air Trust, an open-ended trust established under the laws of Ontario, which will, in turn, acquire limited partnership units in the Jazz Air LP and shares in the capital of Jazz GP indirectly from ACE Aviation Holdings Inc. ("ACE"). If exercised in full, the gross proceeds from the Over-Allottment Option will be used by the Issuer to suscribe for trust units and Series 1 trust notes of the Jazz Air Trust which will, in turn, acquire from ACE, additional limited partnership units in Jazz LP and shares in the capital of Jazz GP. Following the closing, the Issuer is expected to indirectly hold approximately 15% to 20% of the outstanding partnership units of Jazz Air LP with the remaining interest being held by ACE.
10. The Issuer, Jazz Air Trust, Jazz LP, Jazz GP and the Underwriters will enter into an underwriting agreement (the "Underwriting Agreement") in respect of the Offering prior to the Issuer filing the final prospectus for the Offering. Pursuant to the terms of the Underwriting Agreement, the Issuer will agree to sell to the Underwriters, and the Underwriters will agree to purchase on the Closing Date, as principals, from the Issuer on the Closing Date all of the Units offered under the Offering at a price of $10.00 per Unit.
11. According to the Preliminary Prospectus, the Issuer has applied to list the Units that will be distributed under the final prospectus on the Toronto Stock Exchange ("TSX"). This listing is subject to the Issuer's compliance with all of the relevant TSX requirements.
12. The Preliminary Prospectus does not disclose that the Issuer is a "related issuer" as defined in National Instrument 33-105 -- Underwriting Conflicts ("NI 33-105").
13. According to the Preliminary Prospectus, the Issuer and ACE may be considered "connected issuers", as defined in NI 33-105, of the Related Underwriter for the reasons set forth in the Preliminary Prospectus. As disclosed in the Preliminary Prospectus, these reasons include the fact that (i) the Related Underwriter and certain of the other Underwriters will be subsidiaries or affiliates of lenders of syndicates of financial institutions that will have made available a $300 million secured revolving credit facility to Air Canada and $475 million in secured credit facilities available to Aeroplan Limited Partnership (Air Canada is a wholly owned subsidiary of ACE and Aeroplan Limited Partnership is a subsidiary of ACE); and (ii) the Canadian chartered banks affiliated with the Related Underwriter and RBC Dominion Securities Inc. have entered into a commitment letter in respect of the establishment of a $165 million in new secured credit facilities in favour of the Issuer. As discussed in the Preliminary Prospectus, none of the Issuer, Air Canada or Aeroplan Limited Partnership is in default of its obligations to financial institutions that have made the facilities described above available and as of December 20, 2005, approximately $300 million was owing by Aeroplan Limited Partnership under its facilities and no amounts were owing under the Air Canada facilities. Following closing the Issuer is expected to be indebted under its facilities in the amount of approximately $115 million.
14. According to the Preliminary Prospectus, the decision to issue the Units and the determination of the terms of the distribution were made through negotiation between the Issuer, Jazz GP, Jazz LP and each of their respective subsidiaries on the one hand, and the Underwriters, on the other hand. According to the Preliminary Prospectus, the financial institutions related to the Underwriters (including the Related Underwriter) did not have any involvement in the decision or determination. As a consequence of the Offering the Related Underwriter will receive its proportionate share of the underwriters' fee. In addition, ACE may use all or part of the proceeds it receives under the Offering to repay any indebtedness owing by Air Canada under the Air Canada facility.
15. Despite the affiliation between the Dealer Managers and the Related Underwriter, they operate independently of each other. In particular, the investment banking and related dealer activities of the Related Underwriter and the investment portfolio management activities of each of the Dealer Managers are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:
(a) in respect of compliance matters (for example, each Dealer Manager and the Related Underwriter may communicate to enable the Dealer Managers to maintain up to date restricted-issuer lists to ensure that the Dealer Managers comply with applicable securities laws); and
(b) each Dealer Manager and the Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.
16. The Dealer Managed Funds are not required or obligated to purchase any Units during the Prohibition Period.
17. Each Dealer Manager may cause the Dealer Managed Funds to invest in the Units during the Prohibition Period. Any purchase of the Units will be consistent with the investment objectives of the Dealer Managed Funds and represent the business judgment of the Dealer Manager of the Dealer Managed Funds uninfluenced by considerations other than the best interests of the Dealer Managed Fund or in fact be in the best interests of the Dealer Managed Fund.
18. To the extent that the same portfolio manager or team of portfolio managers of a Dealer Manager manages two or more Dealer Managed Funds and other client accounts that are managed on a discretionary basis (the "Managed Accounts"), the Units purchased for them will be allocated:
(a) in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for its Dealer Managed Funds and Managed Accounts, and
(b) taking into account the amount of cash available to each Dealer Managed Fund for investment.
19. There will be an independent committee (the "Independent Committee") appointed in respect of each Dealer Manager's Dealer Managed Funds to review such Dealer Managed Funds' investments in the Units during the Prohibition Period.
20. The Independent Committee will have at least three members and every member must be independent. A member of the Independent Committee is not independent if the member has a direct or indirect material relationship with its Dealer Manager, the Dealer Managed Funds, or any affiliate or associate thereof. For the purpose of this Decision, a material relationship means a relationship which could, in the view of a reasonable person, reasonably interfere with the exercise of the member's independent judgment regarding conflicts of interest facing the Dealer Manager.
21. The members of the Independent Committee will exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.
22. The Dealer Manager, in respect of the Dealer Managed Funds, will notify a member of staff in the Investment Funds Branch of the AMF, in writing of any SEDAR Report (as defined below) filed on SEDAR, as soon as practicable after the filing of such a report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.
23. The Dealer Manager has not been involved in the work of the Related Underwriter and the Related Underwriter has not been and will not be involved in the decisions of the Dealer Manager as to whether the Dealer Manager's Dealer Managed Funds will purchase Units during the Prohibition Period.
Decision
Each of the Decision Makers has assessed the conflict of interest risks associated with granting an exemption in this instance from the Investment Restriction and is satisfied that, at the time this Decision is granted, the potential risks are sufficiently mitigated.
Each of the Decision Makers is satisfied that the test contained in NI 81-102 that provides the Decision Maker with the jurisdiction to make the Decision has been met.
The Decision of the Decision Makers under the Legislation is that the Requested Relief is granted, notwithstanding that the Related Underwriters act or have acted as underwriters in the Offering provided that, in respect of each Dealer Manager and its Dealer Managed Funds, the following conditions are satisfied:
I. At the time of each purchase of Units (a "Purchase") by a Dealer Managed Fund pursuant to this Decision, the following conditions are satisfied:
(a) the Purchase
(i) represents the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or
(ii) is, in fact, in the best interests of the Dealer Managed Fund;
(b) the Purchase is consistent with, or is necessary to meet, the investment objective of the Dealer Managed Fund as disclosed in its simplified prospectus; and
(c) the Dealer Managed Fund does not place the order to purchase, on a principal or agency basis, with its Related Underwriter;
II. Prior to effecting any Purchase pursuant to this Decision, the Dealer Managed Fund has in place written policies or procedures to ensure that,
(a) there is compliance with the conditions of this Decision; and
(b) in connection with any Purchase,
(i) there are stated factors or criteria for allocating the Units purchased for two or more Dealer Managed Funds and other Managed Accounts, and
(ii) there is full documentation of the reasons for any allocation to a Dealer Managed Fund or Managed Account that departs from the stated allocation factors or criteria;
III. The Dealer Manager does not accept solicitation by its Related Underwriter for the Purchase of Units for the Dealer Managed Funds;
IV. The Related Underwriter does not purchase Units in the Offering for its own account except Units sold by the Related Underwriter on Closing;
V. The Dealer Managed Fund has an Independent Committee to review the Dealer Managed Funds' investments in the Units during the Prohibition Period;
VI. The Independent Committee has a written mandate describing its duties and standard of care which, as a minimum, sets out the conditions of this Decision;
VII. The members of the Independent Committee exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances;
VIII. The Dealer Managed Fund does not relieve the members of the Independent Committee from liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above;
IX. The Dealer Managed Fund does not incur the cost of any portion of liability insurance that insures a member of the Independent Committee for a liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above;
X. The cost of any indemnification or insurance coverage paid for by the Dealer Manager, any portfolio manager of the Dealer Managed Funds, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Funds to indemnify or insure the members of the Independent Committee in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above is not paid either directly or indirectly by the Dealer Managed Funds;
XI. The Dealer Manager files a certified report on SEDAR (the "SEDAR Report") in respect of each Dealer Managed Fund, no later than 30 days after the end of the Prohibition Period, that contains a certification by the Dealer Manager that contains:
(a) the following particulars of each Purchase:
(i) the number of Units purchased by the Dealer Managed Funds of the Dealer Manager;
(ii) the date of the Purchase and purchase price;
(iii) whether it is known whether any underwriter or syndicate member has engaged in market stabilization activities in respect of the Units;
(iv) if the Units were purchased for two or more Dealer Managed Funds and other Managed Accounts of the Dealer Manager, the aggregate amount so purchased and the percentage of such aggregate amount that was allocated to each Dealer Managed Fund; and
(v) the dealer from whom the Dealer Managed Fund purchased the Units and the fees or commissions, if any, paid by the Dealer Managed Fund in respect of such Purchase;
(b) a certification by the Dealer Manager that the Purchase:
(i) was made free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(ii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interest of the Dealer Managed Fund, or
(iii) was, in fact, in the best interests of the Dealer Managed Fund;
(c) confirmation of the existence of the Independent Committee to review the Purchase of the Units by the Dealer Managed Funds, the names of the members of the Independent Committee, the fact that they meet the independence requirements set forth in this Decision, and whether and how they were compensated for their review;
(d) a certification by each member of the Independent Committee that after reasonable inquiry the member formed the opinion that the policies and procedures referred to in Condition II(a) above are adequate and effective to ensure compliance with this Decision and that the decision made on behalf of each Dealer Managed Fund by the Dealer Manager to purchase Units for the Dealer Managed Funds and each Purchase by the Dealer Managed Fund:
(i) was made in compliance with the conditions of this Decision;
(ii) was made by the Dealer Manager free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(iii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or
(iv) was, in fact, in the best interests of the Dealer Managed Fund.
XII. The Independent Committee advises the Decision Makers in writing of:
(a) any determination by it that the condition set out in paragraph XI(d) has not been satisfied with respect to any Purchase of the Units by a Dealer Managed Fund;
(b) any determination by it that any other condition of this Decision has not been satisfied;
(c) any action it has taken or proposes to take following the determinations referred to above; and
(d) any action taken, or proposed to be taken, by the Dealer Manager or a portfolio manager of a Dealer Managed Fund, in response to the determinations referred to above.
XIII. For Purchases of Units during the Distribution only, the Dealer Manager:
(a) expresses an interest to purchase on behalf of Dealer Managed Funds and Managed Accounts a fixed number of Units (the "Fixed Number") to an Underwriter other than its Related Underwriter;
(b) agrees to purchase the Fixed Number or such lesser amount as has been allocated to the Dealer Manager no more than five (5) business days after the final prospectus has been filed;
(c) does not place an order with an underwriter of the Offering to purchase an additional number of Units under the Offering prior to the completion of the Distribution, provided that if the Dealer Manager was allocated less than the Fixed Number at the time the final prospectus was filed for the purposes of the Closing, the Dealer Manager may place an additional order for such number of additional Units equal to the difference between the Fixed Number and the number of Units allotted to the Dealer Manager at the time of the final prospectus in the event the Underwriters exercise the Over-Allotment Option; and
(d) does not sell Units purchased by the Dealer Manager under the Offering, prior to the listing of such Units on the TSX.
XIV. Each Purchase of Units during the 60-Day Period is made on the TSX; and
XV. For Purchases of Units during the 60-Day Period only, an underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in Ontario Securities Commission Rule 48-501, Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.
"Rhonda Goldberg"
Assistant Manager
Investment Funds Branch
Ontario Securities Commission
APPENDIX "A"
THE MUTUAL FUNDS
Imperial PoolsImperial Canadian Dividend PoolImperial Canadian Dividend Income PoolImperial Canadian Equity PoolImperial Canadian Income Trust PoolRenaissance Talvest Mutual FundsRenaissance Canadian Balanced FundRenaissance Canadian Balanced Value FundRenaissance Canadian Dividend Income FundRenaissance Canadian Core Value FundRenaissance Canadian Growth FundRenaissance Canadian Income Trust FundRenaissance Canadian Income Trust Fund IIRenaissance Canadian Small Cap FundTalvest Cdn. Asset Allocation FundTalvest Cdn. Equity Growth FundTalvest Cdn. Equity Value FundTalvest Dividend FundTalvest Millennium High Income FundTalvest Millennium Next Generation FundTalvest Small Cap Cdn. Equity FundCIBC Mutual FundsCanadian Imperial Equity FundCIBC Balanced FundCIBC Canadian Emerging Companies FundCIBC Canadian Small Companies FundCIBC Capital Appreciation FundCIBC Core Canadian Equity FundCIBC Diversified Income FundCIBC Dividend FundCIBC Financial Companies FundCIBC Monthly Income FundFrontiers PoolsFrontiers Canadian Equity PoolFrontiers Canadian Monthly Income Pool