Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Issuer granted exemptions from the prospectus requirement, dealer registration requirement and underwriter registration requirement in connection with trades of commercial paper/short term debt - Sufficient to obtain one credit rating at or above a revised category from an approved credit rating agency - Relief granted subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).

National Instrument 45-106 Prospectus and Registration Exemptions.

April 9, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

VOLKSWAGEN GROUP CANADA INC.

(VW Canada) AND

VW CREDIT CANADA, INC. (VCCI, and together with

VW CANADA, the Filers)

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that trades of negotiable promissory notes or commercial paper, maturing not more than one year from the date of issue, of the Filers (Commercial Paper) be exempt from the dealer registration requirement, the underwriter registration requirement and the prospectus requirement of the Legislation (respectively, the Dealer Registration Exemption Sought, the Underwriter Registration Exemption Sought, the Prospectus Exemption Sought and, together, the Exemptions Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

In this decision,

"financial intermediary" has the meaning ascribed to that term in Ontario Securities Commission Rule 14-501 Definitions;

"financial intermediary short-term debt registration exemption" means the exemption from the registration requirement, for a trade by a financial intermediary or a Schedule III bank, set out in clause 4.1(1)(a) of OSC Rule 45-501, or in a successor provision of OSC Rule 45-501, insofar as that clause or provision provides an exemption from the dealer registration requirement and the underwriter registration requirement for a trade of a type described in the short-term debt dealer registration exemption;

"market intermediary" has the meaning ascribed to that term in Ontario Securities Commission Rule 14-501 Definitions;

"NI 45-106" means National Instrument 45-106 Prospectus and Registration Exemptions;

"OSC Rule 45-501" means Ontario Securities Commission Rule 45-501 Ontario Prospectus and Registration Exemptions;

"Schedule III bank" means an authorized foreign bank named in Schedule III of the Bank Act (Canada);

"short-term debt dealer registration exemption" means the exemption from the dealer registration requirement set out in subsection 2.35(1) of NI 45-106, or in a successor provision in NI 45-106; and

"short-term debt underwriter registration exemption" means the deemed exemption from the underwriter registration requirement contained in subsection 1.4(2) of NI 45-106, or in a successor provision in NI 45-106, insofar as the deemed exemption relates to the short-term debt dealer registration exemption.

Representations

This decision is based on the following facts represented by the Filers:

1. VW Canada is a corporation existing under the Canada Business Corporations Act. Volkswagen Canada Inc., as it was known at the time of the Prior Decision (as defined below), changed its name to Volkswagen Group Canada Inc. on January 1, 2008. The head office of VW Canada is located in Ajax, Ontario. VW Canada is not a reporting issuer, or the equivalent, in any jurisdiction of Canada and is not in default of the Legislation or the securities legislation of any jurisdiction of Canada.

2. VCCI is a corporation existing under the Canada Business Corporations Act and is the financing affiliate of VW Canada. The head office of VCCI is located in St. Laurent, Québec. VCCI is not a reporting issuer, or the equivalent, in any jurisdiction of Canada and is not in default of the Legislation or the securities legislation of any jurisdiction of Canada.

3. Subsection 1.4(2) and clause 2.35(1)(b) of NI 45-106 provide that exemptions from the dealer registration, underwriter registration and prospectus requirements of the Legislation for short-term debt (the Commercial Paper Exemption) are available only where such short-term debt "has an approved credit rating from an approved credit rating organization." NI 45-106 incorporates by reference the definitions for "approved credit rating" and "approved credit rating organization" that are used in National Instrument 81-102 Mutual Funds (NI 81-102).

4. The definition of "approved credit rating" in NI 81-102 requires, among other things, that (a) the rating assigned to such debt must be "at or above" certain prescribed short-term ratings, and (b) such debt must not have been assigned a rating by any "approved credit rating organization" that is not an "approved credit rating."

5. DBRS Limited (DBRS) has assigned the Commercial Paper a short-term rating of "R-1(low)" (the DBRS Rating). Standard & Poor's, a division of The McGraw-Hill Companies, Inc. (S&P), has assigned the Commercial Paper a short-term rating of "A-2" (the S&P Rating). Moody's Investors Service, Inc. (Moody's) has assigned the Commercial Paper a short-term rating of "Prime-2" (the Moody's Rating).

6. Each of DBRS, S&P and Moody's is an "approved credit rating organization" under NI 81-102. The DBRS Rating meets the prescribed threshold for an "approved credit rating" under NI 81-102. However, neither the S&P Rating nor the Moody's Rating meets the prescribed threshold for an "approved credit rating" under 81-102 and, as a result, the Commercial Paper of the Filers does not meet the criteria for the Commercial Paper Exemption.

7. The Dealer Registration Exemption Sought and the Prospectus Exemption Sought were granted under a prior decision dated April 11, 2006 (the Prior Decision). By its terms, the Prior Decision will terminate on the earlier of:

(a) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the securities legislation of the jurisdictions of Canada that amends section 2.35 of NI 45-106 or provides an alternate exemption; and

(b) three years from the date of the Prior Decision.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemptions Sought are granted provided that:

1. the Commercial Paper:

(a) matures not more than one year from the date of issue;

(b) is not convertible or exchangeable into or accompanied by a right to purchase another security other than Commercial Paper; and

(c) has a rating issued by one of the following rating organizations, or any of their successors, at or above one of the following rating categories or a rating category that replaces a category listed below:

Rating Organization
Rating
DBRS Limited
R-1 (low)
Fitch Ratings Ltd.
F2
Moody's Investors
P-2
Service, Inc.
Standard & Poor's
A-2

2. In Ontario, the Dealer Registration Exemption Sought and the Underwriter Registration Exemption Sought are not available in respect of a trade in Commercial Paper by a market intermediary (except for a trade in Commercial Paper with a registered dealer that is an affiliate of the market intermediary or a trade in Commercial Paper by a lawyer or accountant if the trade is incidental to the principal business of that lawyer or accountant), unless the market intermediary is:

(a) a financial intermediary or Schedule III bank; or

(b) a dealer registered under the Legislation, as a "limited market dealer", provided that:

(i) under its registration, the dealer would be authorized to make the trade if the trade were a trade in a negotiable promissory note or commercial paper referred to in the short-term debt dealer registration exemption; and

(ii) the trade is made on behalf of the dealer by an individual, who is registered under the Legislation to trade on behalf of the dealer and, under that registration, would be authorized to make the trade if the trade were a trade in a negotiable promissory note or commercial paper referred to in the short-term debt dealer registration exemption.

3. In Newfoundland and Labrador, the Dealer Registration Exemption Sought and the Underwriter Registration Exemption Sought are not available in respect of a trade in Commercial Paper by a market intermediary (except for a trade in Commercial Paper with a registered dealer that is an affiliate of the market intermediary or a trade in Commercial Paper by a lawyer or accountant if the trade is incidental to the principal business of that lawyer or accountant), unless the market intermediary is a dealer registered under the securities legislation of Newfoundland and Labrador, as a "limited market dealer", provided that:

(a) under its registration, the dealer would be authorized to make the trade if the trade were a trade in a negotiable promissory note or commercial paper referred to in the short-term debt dealer registration exemption; and

(b) the trade is made on behalf of the dealer by an individual, who is registered under the securities legislation of Newfoundland and Labrador to trade on behalf of the dealer and, under that registration, would be authorized to make the trade if the trade were a trade in a negotiable promissory note or commercial paper referred to in the short-term debt dealer registration exemption.

4. For each jurisdiction of Canada, the Prospectus Exemption Sought will terminate on the earlier of:

(a) 90 days after the coming into force of any rule, other regulation or blanket order or ruling under the securities legislation of that jurisdiction of Canada that amends the conditions of the prospectus exemption contained in section 2.35 of NI 45-106 or provides an alternate exemption; and

(b) June 30, 2012.

5. Except as provided in paragraph 6, below, for each jurisdiction of Canada, the Dealer Registration Exemption Sought and the Underwriter Registration Exemption Sought will terminate on the earlier of:

(a) in the case of the Dealer Registration Exemption Sought, the date when the short-term debt dealer registration exemption does not apply in that jurisdiction of Canada;

(b) in the case of the Underwriter Registration Exemption Sought, the date when the short-term debt underwriter registration exemption does not apply in that jurisdiction of Canada; and

(c) June 30, 2012.

6. In Ontario, for a financial intermediary or Schedule III bank, the Dealer Registration Exemption Sought and the Underwriter Registration Exemption Sought will terminate on the earlier of:

(a) the date when the financial intermediary short-term debt registration exemption does not apply in Ontario; and

(b) June 30, 2012.

"Wendell S. Wigle"
Commissioner
Ontario Securities Commission
 
"Margot C. Howard"
Commissioner
Ontario Securities Commission