Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- capital trust established by insurance company to issue capital trust securities as cost-effective means of raising capital for Canadian insurance regulatory purposes exempted from eligibility requirements to file a short form prospectus, certain form requirements and permitted to abridge 10-day notice requirement -- insurance company is exempt from requirements to file certain disclosure documents as long as its parent files required disclosure -- parent has guaranteed certain obligations of the insurance company -- relief granted as disclosure regarding the insurance company and parent is more relevant -- relief subject to conditions -- National Instrument 44-101 Short Form Prospectus Distributions -- relief also granted for temporary confidentiality of decision.

Applicable Legislative Provisions

National Instrument 44-101 Short Form Prospectus Distributions , ss. 2.3, 2.8.

Form 44-101F1 Short Form Prospectus, items 6, 11.

July 27, 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

SUN LIFE CAPITAL TRUST II (the "Trust"),

SUN LIFE ASSURANCE COMPANY OF CANADA

("SLA") AND

SUN LIFE FINANCIAL INC.

("SLF" and, together with the Trust and SLA, the "Filers")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision (the "Requested Relief") under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") that:

1. the Trust be exempted from the following requirements of the Legislation in connection with offerings by the Trust from time to time of Notes:

(a) the qualification requirements (the "Qualification Requirements") of Part 2 of National Instrument 44-101 -- Short Form Prospectus Distributions ("NI 44-101"), such that the Trust is qualified to file a prospectus in the form of a short form prospectus; and

(b) the disclosure requirements (the "Disclosure Requirements") in Item 6 (Earnings Coverage Ratios) and Item 11 (Documents Incorporated By Reference), with the exception of Item 11.1(1)(5), of Form 44-101F1 -- Short Form Prospectus of NI 44-101 in respect of the Trust, as applicable;

2. the Application and this decision documents be held in confidence by the principal regulator, subject to certain conditions.

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 each of the provinces and territories other than Ontario.

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.

Representations

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

SLF

1. SLF was incorporated under the Insurance Companies Act (Canada) (the "Insurance Act") on August 5, 1999. On the completion of the demutualization of SLA on March 22, 2000, SLF became the holding company which holds directly all of the outstanding shares of SLA. SLF's head office is located at 150 King Street West, Toronto, Ontario, M5H 1J9.

2. The authorized share capital of SLF consists of an unlimited number of (i) common shares, (ii) Class A shares issuable in series and (iii) Class B shares issuable in series.

3. SLF is a publicly traded company on the Toronto, New York and Philippines Stock Exchanges.

4. SLF is a reporting issuer in each province and territory of Canada and is not, to its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.

5. SLF is qualified to use the short form prospectus system provided by NI 44-101.

SLA

6. SLA is an insurance company under the Insurance Act and is regulated by the Superintendent of Financial Institutions (Canada) (the "Superintendent"). The head office of SLA is located at 150 King Street West, Toronto, Ontario, M5H 1J9.

7. The authorized share capital of SLA consists of an unlimited number of (i) Class A shares issuable in series, (ii) Class B shares issuable in series, (iii) Class C shares issuable in series, (iv) Class D shares issuable in series and (v) common shares. SLF holds all of the issued and outstanding shares of SLA.

8. SLA is a reporting issuer in each of the provinces and territories of Canada and is not, to its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.

9. SLF has guaranteed certain obligations of SLA in order to rationalize the securities reporting obligations of SLF and SLA (the "SLF Guarantees"). The SLF Guarantees include a full and unconditional subordinated guarantee of (i) $150 million of 6.30% subordinated debentures due 2028, $300 million of 6.65% subordinated debentures due 2015 and $800 million of 6.15% subordinated debentures due 2022 of SLA, and (ii) the preferred shares of SLA (the "SLA Preferred Shares") outstanding from time to time, other than preferred shares held by SLF and its affiliates (the "SLF Preferred Share Guarantee").

10. As a result of the SLF Guarantees, SLA received an exemption dated November 14, 2007 (the "2007 SLA Order") from the requirements to file certain continuous disclosure materials with the Canadian security regulatory authorities. Under the 2007 SLA Order, SLA is not required to file interim financial statements, annual and interim management's discussion and analysis, annual information forms, press releases and material change reports in respect of changes that are also material changes in the affairs of SLF, material contracts, and Chief Executive Officer and Chief Financial Officer Certifications. However, SLA is required to file annual audited financial statements, and certain summary information regarding SLA will be filed on a quarterly basis. In addition, SLF is required to send to holders of the debentures and preferred shares the disclosure materials that SLF is required to send to holders of its similar debt and preferred shares, respectively.

11. SLA satisfies each of the basic qualification criteria listed in section 2.2 of NI 44-101 other than sections 2.2 (d) and (e) and is deemed, pursuant to section 2.8(4) of NI 44-101, to have filed a notice of intention to be qualified to file a short form prospectus. SLA does not satisfy the requirements under section 2.2 (d) because it is exempt from filing interim financial statements, annual and interim management's discussion and analysis and annual information forms for so long as the terms and conditions of the 2007 SLA Order are satisfied, and it does not satisfy the requirement under section 2.2(e) because it is a wholly-owned subsidiary of SLF, so its equity securities are not listed on any exchange.

The Trust

12. The Trust will be a trust established under the laws of Ontario pursuant to a declaration of trust prior to the filing of a preliminary prospectus by the Trust, SLA and SLF.

13. The Trust is proposing to conduct an initial public offering (the "Offering") of one or more series of subordinated notes (the "Notes") in each of the provinces and territories of Canada and may, from time to time, issue further series of Notes. It is currently anticipated that the first series of Notes will be designated as Sun Life ExchangEable Capital Securities Series 2009-1 (the "SLEECS"). The Trust will be a newly-formed entity and, as such, will have no prior operating history. As a result of the Offering, the capital of the Trust will consist of the Notes issued pursuant to the Offering and voting trust units, issuable in series (the "Voting Trust Units" and collectively with the Notes, the "Trust Securities"). All of the Voting Trust Units will be held directly or indirectly by SLA.

14. The Trust will be a single purpose vehicle established for the purpose of effecting offerings of Trust Securities in order to provide SLA with a cost effective means of raising capital for Canadian insurance regulatory purposes by means of (i) creating and selling the Trust Securities and (ii) acquiring and holding assets, which will consist primarily of one or more senior unsecured debentures of SLA and other eligible assets to be specified in the prospectus for the Offering (the "Prospectus") ((i) and (ii) collectively, the "Trust Assets"). The Trust Assets will generate income for distribution to holders of Trust Securities. The Trust will not carry on any operating activity other than in connection with offerings of Trust Securities and in connection with the Trust Assets.

15. As a result of the Offering, it is expected that the Trust will become a reporting issuer in each of the provinces and territories of Canada.

SLEECS

16. The SLEECS will pay a fixed rate of interest on such dates (each, an "Interest Payment Date") as may be described in the Prospectus until such date as described in the Prospectus, following which the interest will be reset every five years (each such interest reset date, an "Interest Reset Date") until maturity at the Government of Canada Yield (as defined in the Prospectus) plus a spread to be described in the Prospectus.

17. Under agreements to be entered into among SLA, SLF, the Trust and a party acting as trustee, SLA and SLF will agree, for the benefit of the holders of SLEECS, that if, in respect of the SLEECS, (i) SLA elects, at its sole option, prior to the commencement of the interest period ending on the day preceding the relevant Interest Payment Date, that holders of the SLEECS invest interest payable in cash thereon on such Interest Payment Date in SLA Deferral Preferred Shares, or (ii) for whatever reason (other than as a result of a Missed Dividend Deferral Event) interest is not paid in full in cash on the SLEECS on any Interest Payment Date (in either case, an "Other Deferral Event"), (a) SLA will not declare cash dividends on any SLA Public Preferred Shares, or (b) if there are no SLA Public Preferred Shares outstanding, SLF will not declare cash dividends on any of its preferred shares or common shares (collectively, the "SLF Dividend Restricted Shares"), until a period of time specified in the Prospectus has elapsed (the "Dividend Stopper Undertaking"). Accordingly, it is in the interest of SLA and SLF to ensure, to the extent within their control, that the Trust pays the interest on the SLEECS in cash on each Interest Payment Date so as to avoid triggering the Dividend Stopper Undertaking. "SLA Public Preferred Shares" means, at any time, preferred shares of SLA which, at that time: (i) have been issued to the public (excluding any preferred shares of SLA held beneficially by affiliates of SLA), (ii) are listed on a recognized stock exchange, and (iii) have an aggregate liquidation entitlement of at least $200 million. "SLA Deferral Preferred Shares" means each series of SLA Preferred Shares to be issued to holders of SLEECS in respect of each Deferral Event.

18. On each Interest Payment Date on which a Deferral Event has occurred in respect of the SLEECS, holders will be required to invest interest payable on such SLEECS in SLA Deferral Preferred Shares. A "Deferral Event" means: (i) an Other Deferral Event, or (ii) SLA has failed to declare cash dividends on its Class B Non-Cumulative Preferred Shares Series A or, if there are SLA Public Preferred Shares outstanding, SLA has failed to declare cash dividends on any of its SLA Public Preferred Shares in accordance with their respective terms (other than a failure to declare dividends on any such shares during a Dividend Restricted Period) in the last 90 days preceding the commencement of the interest period ending on the day preceding the relevant Interest Payment Date ("Missed Dividend Deferral Event"). "Dividend Restricted Period" means the period from and including the Deferral Date (as defined in the Prospectus) to but excluding the first day of the applicable Dividend Declaration Resumption Month (as defined in the Prospectus).

19. The SLEECS will be automatically exchanged, without the consent of the holders, for a new series of SLA Preferred Shares upon the occurrence of certain stated events relating to the solvency of SLA or actions taken by the Superintendent in respect of SLA (an "Automatic Exchange").

20. The SLF Preferred Share Guarantee will apply to the SLA Preferred Shares issuable upon a Deferral Event or an Automatic Exchange, as applicable. In circumstances where SLF is not the subject of a winding-up order, the SLF Preferred Share Guarantee will entitle the holder to receive payment from SLF within 15 days of any failure by SLA to pay a declared dividend or to pay the redemption price on SLA Preferred Shares and, in the case of any amount remaining unpaid with respect to the preference of the SLA Preferred Shares upon a winding-up of SLA, within 15 days of the later of the date of the final distribution of property of SLA to its creditors and the date of the final distribution of surplus of SLA, if any, to its shareholders. In circumstances where SLF is the subject of a winding-up order, the SLF Preferred Share Guarantee will entitle the holder of SLA Preferred Shares to receive payment from SLF within 15 days of the determination of the final distribution of surplus of SLF, if any, to SLF's shareholders. Claims under the SLF Preferred Share Guarantee will be subordinate to all outstanding indebtedness and liabilities of SLF, unless otherwise provided by the terms of the instrument creating or evidencing any such liability. In the event that a failure to pay declared dividends, the redemption price or the liquidation preference occurs at a time when SLF is subject to a winding-up order, the SLF Preferred Share Guarantee has been structured so that the amount payable by SLF under the SLF Preferred Share Guarantee will be subject to reduction such that the claims of holders of the respective class of preferred shares of SLA under the SLF Preferred Share Guarantee will, in effect, rank equally with the claims of holders of the respective class of preferred shares of SLF to any surplus assets of SLF remaining for distribution. Otherwise the SLF Preferred Share Guarantee would negatively impact the capital treatment of preferred shares of SLA for insurance regulatory purposes.

21. SLA will covenant that SLA will maintain direct or indirect ownership of 100% of the outstanding Voting Trust Units. Subject to regulatory approval, the SLEECS will constitute Tier 1 capital of SLA.

22. The SLEECS will be non-voting and will be unsecured obligations of the Trust ranking at least equally with other subordinated indebtedness of the Trust from time to time issued and outstanding. On a liquidation or winding-up of the Trust, the indebtedness evidenced by the SLEECS will be subordinate in right of payment to the prior payment in full of all other liabilities of the Trust except liabilities which by their terms rank in right of payment equally with or subordinate to the indebtedness evidenced by the SLEECS. The holders of SLEECS will not be entitled to initiate proceedings for the termination of the Trust.

23. Pursuant to an administration agreement to be entered into between the trustee of the Trust (the "Trustee") and SLA, the Trustee will delegate to SLA certain of its duties in relation to the administration of the Trust. SLA, as administrative agent, will provide advice and counsel with respect to management of the assets of the Trust and other matters as may be requested by the Trustee from time to time and will administer the day-to-day operations of the Trust.

24. The Trust may, from time to time (including pursuant to the Offering), issue further series of Notes which qualify as Tier 1 capital of SLA for regulatory purposes, the proceeds which would be used to acquire additional Trust Assets.

25. Because of the terms of the Notes and the various covenants of SLA and SLF, and given that the SLF Preferred Share Guarantee will apply to the SLA Preferred Shares issuable upon the occurrence of an Automatic Exchange or Deferral Event and that SLA is exempt from making most continuous disclosure filings, information about the affairs and financial performance of SLA and SLF, as opposed to the Trust, is meaningful to holders of Notes.

26. It is expected that the SLEECS will receive an approved rating from an approved rating organization, as defined in National Instrument 41-101.

27. At the time of the filing of any prospectus in connection with offerings of Notes (including the Offering):

(a) the prospectus will be prepared in accordance with the short form prospectus requirements of NI 44-101 other than the Disclosure Requirements, except as permitted by the Legislation;

(b) the Trust will comply with all of the filing requirements and procedures set out in NI 44-101 other than the Qualification Requirements, except as permitted by the Legislation;

(c) SLF and SLA will continue to be regulated by the Superintendent;

(d) SLF will continue to be the direct or indirect beneficial owner of all of the issued and outstanding voting securities (as defined in the Legislation) of SLA;

(e) SLF and SLA will be reporting issuers or the equivalent thereof under the Legislation;

(f) SLF will continue to provide the SLF Preferred Share Guarantee;

(g) the prospectus will incorporate by reference the documents of SLF set forth under Item 11.1 of Form 44-101F1, and SLA's annual financial statements;

(h) the prospectus disclosure required by Item 11 (other than 11.1(1)(5)) of Form 44-101F1 in respect of the Trust) will be addressed by incorporating by reference SLF's public disclosure documents referred to in paragraph 27(g) above, and SLA's annual financial statements; and

(i) SLF will satisfy all of the criteria in section 2.2 of NI 44-101 and SLA will satisfy the criteria in section 2.2 of NI 44-101 other than sections 2.2(c), (d) and (e).

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 Requested Relief is granted provided that:

(i) the Trust, SLA and SLF, as applicable, comply with paragraph 27 above;

(ii) SLA remains the direct or indirect owner of all of the outstanding Voting Trust Units;

(iii) SLA, as direct or indirect holder of the Voting Trust Units, will not propose changes to the terms and conditions of any outstanding Notes offered and sold pursuant to a short form prospectus of the Trust filed under this decision that would result in such Notes being exchangeable for securities other than SLA Preferred Shares;

(iv) the Trust has minimal assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Trust Securities or the administration of the Trust Assets;

(v) the Trust issues a news release and files a material change report in accordance with Part 7 of National Instrument 51-102 -- Continuous Disclosure Obligations, as amended, supplemented or replaced from time to time, in respect of any material change in the affairs of the Trust that is not also a material change in the affairs of SLF or SLA;

(vi) the Trust becomes, on or before the filing of a preliminary short form prospectus in connection with the Offering and thereafter remains, an electronic filer under National Instrument 13-101 -- System for Electronic Document Analysis and Retrieval (SEDAR);

(vii) following the Offering, the Trust is a reporting issuer in at least one jurisdiction in Canada;

(viii) following the Offering, the Trust files with the securities regulatory authorities in each jurisdiction in which it becomes a reporting issuer all periodic and timely disclosure documents that it is required to have filed in that jurisdiction: (a) under all applicable securities legislation; (b) pursuant to an order issued by the securities regulatory authority; or (c) pursuant to an undertaking to the securities regulatory authority;

(ix) the securities to be distributed: (a) have received an approved rating on a provisional basis; (b) are not the subject of an announcement by an approved rating organization, of which the Trust is or ought reasonably to be aware, that the approved rating given by the organization may be downgraded to a rating category that would not be an approved rating; and (c) have not received a provisional or final rating lower than an approved rating from any approved rating organization; and

(x) the Trust files a notice declaring its intention pursuant to section 2.8 of NI 44-101 prior to or concurrently with the filing of the preliminary short form prospectus for the Offering.

The further decision of the principal regulator is that the application of the Filers and this decision shall be held in confidence by the principal regulator until the earlier of (i) the date that a preliminary prospectus has been filed in respect of the Offering and (ii) the date that is 90 days after the date of this decision document.

"Michael Brown"
Assistant Manager, Corporate Finance Branch