Register today for OSC Dialogue 2024: Inviting, thriving and secure capital markets
The Manufacturers Life Insurance Company and Manulife Financial Capital Trust II
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- passport application -- credit support issuer does not satisfy conditions of exemption in section 13.4 of NI 51-102 -- credit support issuer has securities outstanding that are not designated credit support securities because credit supporter has not provided a full and unconditional guarantee -- designated credit support securities cannot have a full and unconditional guarantee because of regulatory capital requirements -- credit support issuer exempt from certain continuous disclosure, certification, insider reporting, prospectus qualification and prospectus disclosure requirements under the Legislation, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c.S-5, as amended, ss.107, 121(2)(a)(ii).
National Instrument 51-102 Continuous Disclosure Obligations, ss. 13.1, 13.4.
National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, s. 8.6.
National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI), ss. 2.1, 6.1.
National Instrument 55-104 Insider Reporting Requirements and Exemptions, s. 10.1.
National Instrument 44-101 Short Form Prospectus Distributions, Part 2 and s. 8.1.
Form 44-101F1 Short Form Prospectus, Item 6 and s. 11.1.
National Instrument 44-102 Shelf Distributions, Part 2 and s. 11.1.
January 13, 2017
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 THE MANUFACTURERS LIFE INSURANCE COMPANY (MLI) AND MANULIFE FINANCIAL CAPITAL TRUST II (the Trust and, together with MLI, the Filers)
DECISION
Background
MLI and Manulife Financial Capital Trust received the 2012 Order exempting MLI and Manulife Financial Capital Trust from the continuous disclosure and certification requirements and insiders of MLI from the insider reporting and insider profile requirements of securities legislation as specified in the 2012 Order. The 2012 Order expires on January 15, 2017.
On June 30, 2012, Manulife Financial Capital Trust redeemed all of its outstanding securities issued to the public and ceased to be a reporting issuer.
The Trust received the 2009 Order exempting the Trust from the continuous disclosure and certification requirements of securities legislation as specified in the 2009 Order.
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) to renew and combine the 2012 Order and the 2009 Order, to provide that:
1. MLI be granted an exemption (the Continuous Disclosure Exemption) from the Continuous Disclosure Requirements pursuant to section 13.1 of NI 51-102;
2. the Trust be granted a Continuous Disclosure Exemption from the Continuous Disclosure Requirements pursuant to section 13.1 of NI 51-102;
3. MLI be granted an exemption (the Certification Exemption) from the Certification Requirements pursuant to section 8.6 of NI 52-109;
4. the Trust be granted a Certification Exemption from the Certification Requirements pursuant to section 8.6 of NI 52-109;
5. insiders of MLI be granted an exemption (the Insider Profile Exemption) from the requirement to file an insider profile under section 2.1 of NI 55-102 pursuant to section 6.1 of NI 55-102;
6. insiders of MLI be granted an exemption (the Insider Reporting Exemption) from the Insider Reporting Requirements in respect of securities of MLI pursuant to section 121(2)(a)(ii) of the Act and section 10.1 of NI 55-104;
7. MLI be granted an exemption (the Prospectus Qualification Exemption) from the Prospectus Qualification Requirements in respect of a distribution of MLI Preferred Shares pursuant to section 8.1 of NI 44-101 and section 11.1 of NI 44-102; and
8. MLI be granted an exemption (the Prospectus Disclosure Exemption) from the Prospectus Disclosure Requirements in respect of a distribution of MLI Preferred Shares pursuant to section 8.1 of NI 44-101 and section 11.1 of NI 44-102 (collectively, the Exemption 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 each of the provinces and territories other than Ontario.
Interpretation
Defined terms contained in National Instrument 14-101 -- Definitions and MI 11-202 have the same meaning in this decision, unless they are defined in this decision.
In this decision,
2009 Order means the decision document dated August 21, 2009 from the securities regulatory authorities in each province and territory of Canada, as described in more detail herein, granting relief to the Trust from certain continuous disclosure obligations and certain certification requirements, subject to certain specified conditions;
2012 Order means the decision document dated January 13, 2012 from the securities regulatory authorities in each province and territory of Canada, as described in more detail herein, granting relief to: (a) MLI and Manulife Financial Capital Trust from filing certain continuous disclosure obligations and certain certification requirements; and (b) insiders of MLI from filing an insider profile and from certain insider reporting requirements in respect of securities of MLI, subject to certain specified conditions;
Act means the Securities Act (Ontario);
AIF means an annual information form;
Annual Filings means an issuer's AIF, annual financial statements and annual MD&A filed pursuant to NI 51-102;
Assignment and Set-Off Agreement means the assignment, set-off and trust agreement entered into among the Trust, MLI, MFC and CIBC Mellon Trust Company, as indenture trustee, dated July 10, 2009;
Automatic Exchange means the automatic exchange of each MaCS II -- Series 1 for MLI Exchange Preferred Shares upon the occurrence of a Loss Absorption Event;
Business Day means a day on which Canadian chartered banks are open for business in the City of Toronto and which is not a Saturday or Sunday;
Canada Yield Price means the price per $1,000 principal amount of MaCS II -- Series 1 calculated by MLI to provide an annual yield thereon from the applicable date of redemption to but excluding the next Interest Reset Date equal to the GOC Redemption Yield plus (A) 1.00% if the redemption date is any time prior to December 31, 2019, or (B) 2.00% if the redemption date is any time after December 31, 2019;
Capital Guidelines means the Canadian insurance regulatory guidelines issued from time to time by the Superintendent or other governmental authority in Canada concerning the maintenance of adequate capital reserves by Canadian insurance companies, including MLI;
Certification Requirements means the requirements to file: (a) annual certificates (as defined in NI 52-109) under sections 4.1 and 6.1, as applicable, of NI 52-109; and (b) interim certificates (as defined in NI 52-109) under sections 5.1 and 6.2, as applicable, of NI 52-109;
Continuous Disclosure Filings means: (a) audited annual financial statements including MD&A thereon required by sections 4.1 and 5.1 of NI 51-102; (b) unaudited interim financial reports including MD&A thereon required by sections 4.3 and 5.1 of NI 51-102; (c) an AIF required by section 6.1 of NI 51-102; (d) press releases and material change reports required by section 7.1 of NI 51-102 in the case of material changes that are also material changes in the affairs of MFC; and (e) other material contracts required by section 12.2 of NI 51-102 in the case of material contracts that are also material contracts of MFC;
Continuous Disclosure Requirements means the requirements contained in NI 51-102 to file and deliver, as applicable, the Continuous Disclosure Filings;
Credit Facility means the unsecured credit facility in the amount of up to $30,000,000 provided by MLI to the Trust;
credit support issuer has the meaning given to such term in NI 51-102;
credit supporter has the meaning given to such term in NI 51-102;
Deferral Date means an Interest Payment Date in respect of which a Deferral Event has occurred;
Deferral Event means: (i) an Other Deferral Event, or (ii) MLI has failed to declare cash dividends on its Class A Shares Series 1 or, if any MLI Public Preferred Shares are outstanding, MLI has failed to declare cash dividends on any of its MLI Public Preferred Shares in accordance with their respective terms, in either case, in the last 90 days preceding the commencement of the Interest Period ending on the day preceding the relevant Interest Payment Date;
Deficiency Payment means a payment to be calculated as follows:
(a) in the event that, at the time of the determination date, a winding-up order has been made with respect to MFC, then the Deficiency Payment shall be the amount that, when paid to the holders of the MLI Preferred Shares outstanding as of the Triggering Event, will result in:
(i) the holders of Class A Shares of MLI outstanding as of the Triggering Event receiving payment of the same proportion of the unpaid amounts on the Class A Shares of MLI as the holders of such shares would have received had their claim to such unpaid amounts on the final distribution of surplus of MFC, if any, pursuant to section 95(1) of the WURA ranked on a parity with the claims of the holders of the Class A Shares of MFC; and
(ii) the holders of Class B Shares of MLI outstanding as of the Triggering Event receiving payment of the same proportion of the unpaid amounts for such Class B Shares of MLI as the holders of such shares would have received had their claim to such unpaid amounts on the final distribution of surplus of MFC, if any, pursuant to section 95(1) of the WURA ranked on a parity with the claims of the holders of Class B Shares of MFC;
(b) in all circumstances other than those listed above, the Deficiency Payment will equal the aggregate unpaid amounts attributable to all classes of MLI Preferred Shares outstanding as of the Triggering Event;
Demutualization means the demutualization of MLI on September 23, 1999 pursuant to letters patent of conversion issued by the Minister of Finance;
designated credit support securities has the meaning given to such term in NI 51-102;
Dividend Declaration Resumption Month means the month that is the 6th month following the relevant Deferral Date in respect of which an Other Deferral Event has occurred, being the month in which, as applicable, (i) MLI may resume declaring and paying dividends on the MLI Public Preferred Shares, or (ii) MFC may resume declaring and paying dividends on the MFC Dividend Restricted Shares;
Dividend Restricted Period means the period from and including a Deferral Date in respect of which an Other Deferral Event has occurred to but excluding the first day of the relevant Dividend Declaration Resumption Month;
Dividend Stopper Undertaking means the covenant of MLI and MFC, as applicable, for the benefit of the holders of the MaCS II -- Series 1, in the Assignment and Set-Off Agreement to, among other things, refrain from declaring or paying dividends on its shares in the circumstances described in that agreement, commencing on the applicable Deferral Date in respect of which an Other Deferral Event has occurred until the Dividend Declaration Resumption Month;
Eligible Trust Assets means money, debt obligations, including those of MLI, and contractual rights in respect of the activities and operations of the Trust;
Exchange Trustee means CIBC Mellon Trust Company, as trustee for the holders of MaCS II -- Series 1 pursuant to the Share Exchange Agreement;
Existing Subordinated Debt Guarantees means the full and unconditional subordinated guarantees by MFC of MLI's payment obligations in respect of the MLI Existing Subordinated Debentures;
Form 44-101F1 means Form 44-101F1 -- Short Form Prospectus Distributions of NI 44-101;
full and unconditional credit support has the meaning given to such term in NI 41-101;
GOC Redemption Yield means, on any date of redemption of a MaCS II -- Series 1, the average of the annual yields as at 12:00 p.m. (Eastern time) on the Business Day immediately preceding the date on which the Trust gives notice of the redemption of the MaCS II -- Series 1, as determined by two Canadian registered investment dealers, each of which will be selected by, and must be independent of, MLI and the Trust, as being the annual yield from the applicable date of redemption to but excluding the next Interest Reset Date which a non-callable Government of Canada bond would carry, assuming semi-annual compounding, if issued in Canadian dollars at 100% of its principal amount on the date of redemption and maturing on the next Interest Reset Date;
ICA means the Insurance Companies Act(Canada), as amended;
ICA Financial Statements means the audited annual financial statements of MLI prepared in order to comply with the ICA;
Indenture means the amended and restated trust indenture made as of November 18, 2011 between MLI and BNY Trust Company of Canada, as supplemented (as the same may be further amended, amended and restated and supplemented or replaced from time to time);
Insider Reporting Requirements means the requirements for an insider of a reporting issuer to file:
(a) insider reports required by section 107 of the Act and sections 3.2 and 3.3 of NI 55-104 in respect of securities of the reporting issuer; and
(b) insider reports required under any provisions of securities legislation of any of the provinces or territories of Canada substantially similar to section 107 of the Act and sections 3.2 and 3.3 of NI 55-104 in respect of securities of the reporting issuer;
Interest Payment Date means the last day of June and December in each year during which the MaCS II -- Series 1 are outstanding;
Interest Period means from and including each Interest Payment Date to but excluding the next following Interest Payment Date;
Interest Reset Date means December 31, 2019, and every fifth anniversary of such date thereafter until December 31, 2104, on which dates the interest rate on the MaCS II -- Series 1 and the MLI Debenture will be reset as described in the MaCS II Final Prospectus;
Interim Filings means an issuer's interim financial reports and interim MD&A filed pursuant to NI 51-102;
Liquidation Preference means any amount to which holders of a particular class or series of MLI Preferred Shares are entitled in priority to any amounts which may be payable in respect of any class of shares of MLI which rank junior to such class or series in the event of a distribution of assets upon the liquidation, dissolution or winding-up of MLI;
Loss Absorption Event means an event giving rise to the Automatic Exchange, being the occurrence of any one of the following: (i) an application for a winding-up order in respect of MLI pursuant to the WURA is filed by the Attorney General of Canada or a winding-up order in respect of MLI pursuant to the WURA is granted by a court; (ii) the Superintendent advises MLI in writing that the Superintendent has taken control of MLI or its assets pursuant to the ICA; (iii) the Superintendent advises MLI in writing that the Superintendent is of the opinion that MLI has a net Tier 1 capital ratio of less than 75% or an MCCSR ratio of less than 120%; (iv) the Board of Directors of MLI advises the Superintendent in writing that MLI has a net Tier 1 capital ratio of less than 75% or an MCCSR ratio of less than 120%; or (v) the Superintendent directs MLI pursuant to the ICA to increase its capital or provide additional liquidity and MLI elects to cause the Automatic Exchange as a consequence of the issuance of such direction or MLI does not comply with such direction to the satisfaction of the Superintendent within the time specified therein;
MaCS II -- Series 1 means the $1,000,000,000 principal amount of 7.405% Manulife Financial Capital Trust II Notes -- Series 1 due December 31, 2108 (first redeemable December 31, 2014);
MaCS II Declaration of Trust means the declaration of trust dated June 12, 2009 made by the MaCS II Trustee, as amended and restated on July 10, 2009, and as it may be further amended, restated and supplemented from time to time;
MaCS II Final Prospectus means the final prospectus of the Trust dated July 6, 2009;
MaCS II Trustee means Computershare Trust Company of Canada, as trustee of the Trust;
MCCSR means Minimum Continuing Capital and Surplus Requirements for Life Insurance Companies established from time to time as part of the Capital Guidelines to ensure that insurance companies maintain adequate capital and appropriate forms of liquidity in relation to their operations;
MD&A means management's discussion and analysis;
MFC means Manulife Financial Corporation;
MFC Dividend Restricted Shares means, collectively, the MFC Preferred Shares, and common shares of MFC;
MFC Guarantees means collectively the Existing Subordinated Debt Guarantees, the New Subordinated Debt Guarantees and the Preferred Share Guarantee;
MFC Preferred Shares means collectively the outstanding Class A Shares, Class B Shares and Class 1 Shares of MFC from time to time;
MFC Responsible Issuer Undertaking means the undertaking delivered by MFC to the principal regulator confirming that, among other things:
(a) for so long as MLI and the Trust both qualify for the Continuous Disclosure Exemption, MFC will be considered a "responsible issuer" for purposes of determining MFC's liability under Part XXIII.1 of the Securities Act (Ontario) as if MaCS II -- Series 1 were an "issuer's security" of MFC for purposes of such Part; and
(b) for greater certainty, pursuant to the definition of "issuer's security" in section 138.3(1) of the Securities Act (Ontario), MLI Preferred Shares and designated credit support securities of MLI guaranteed by MFC constitute issuer's securities of MFC for purposes of determining MFC's liability under Part XXIII.1 of the Securities Act (Ontario);
Missed Dividend Deferral Event means (i) the failure of MLI to declare cash dividends on the Class A Shares Series 1 of MLI, or (ii) if MLI has any MLI Public Preferred Shares outstanding, the failure of MLI to declare cash dividends on any of the MLI Public Preferred Shares in accordance with their respective terms (other than a failure to declare such dividends during a Dividend Restricted Period), in either case, in the last 90 days preceding the commencement of the Interest Period ending on the day preceding the relevant Interest Payment Date;
MLI means The Manufacturers Life Insurance Company;
MLI 2.10% Subordinated Debentures means the $750,000,000 principal amount of 2.10% fixed/floating subordinated debentures of MLI due June 1, 2025 (first redeemable June 1, 2020);
MLI 2.389% Subordinated Debentures means the $350,000,000 principal amount of 2.389% fixed/floating subordinated debentures of MLI due January 5, 2026 (first redeemable January 5, 2021);
MLI 2.640% Subordinated Debentures means the $500,000,000 principal amount of 2.640% fixed/floating subordinated debentures of MLI due January 15, 2025 (first redeemable January 15, 2020);
MLI 2.811% Subordinated Debentures means the $500,000,000 principal amount of 2.811% fixed/floating subordinated debentures of MLI due February 21, 2024 (first redeemable February 21, 2019);
MLI 2.819% Subordinated Debentures means the $200,000,000 principal amount of 2.819% fixed/floating subordinated debentures of MLI due February 26, 2023 (first redeemable February 26, 2018);
MLI 2.926% Subordinated Debentures means the $250,000,000 principal amount of 2.926% fixed/floating subordinated debentures of MLI due November 29, 2023 (first redeemable November 29, 2018);
MLI 3.181% Subordinated Debentures means the $1,000,000,000 principal amount of 3.181% fixed/floating subordinated debentures of MLI due November 22, 2027 (first redeemable November 22, 2022);
MLI 3.938% Subordinated Debentures means the $400,000,000 principal amount of 3.938% fixed/floating subordinated debentures of MLI (as successor company to SLAC) due September 21, 2022 (first redeemable September 21, 2017);
MLI 4.165% Subordinated Debentures means the $500,000,000 principal amount of 4.165% fixed/floating subordinated debentures of MLI due June 1, 2022 (first redeemable June 1, 2017);
MLI Class 1 Shares means the Class 1 Shares of MLI;
MLI Debenture means the senior debenture issued by MLI in respect of the MaCS II -- Series 1;
MLI Deferral Preferred Shares means Class 1 Shares Series 1 of MLI to be issued to holders of MaCS II -- Series 1 in respect of each Deferral Event;
MLI Exchange Preferred Shares means the Class 1 Shares Series 1 of MLI to be issued to holders of MaCS II -- Series 1 in respect of an Automatic Exchange;
MLI Existing Subordinated Debentures means collectively the MLI 2.10% Subordinated Debentures, the MLI 2.389% Subordinated Debentures, the MLI 2.640% Subordinated Debentures, the MLI 2.811% Subordinated Debentures, the MLI 2.819% Subordinated Debentures, the MLI 2.926% Subordinated Debentures, the MLI 3.181% Subordinated Debentures, the MLI 3.938% Subordinated Debentures and the MLI 4.165% Subordinated Debentures;
MLI Preferred Shares means collectively the outstanding Class A Shares, Class B Shares and Class 1 Shares of MLI from time to time, other than shares issued to and held by MFC or an affiliate (as defined in NI 51-102) of MFC, and, for greater certainty, MLI Preferred Shares includes any outstanding Resulting MLI Preferred Shares;
MLI Public Preferred Shares means, at any time, preferred shares of MLI which, at that time (i) have been issued to the public (excluding any preferred shares of MLI held beneficially by affiliates of MLI), (ii) are listed on a recognized stock exchange, and (iii) have an aggregate liquidation entitlement of at least $200 million, provided, however, if, at any time, there is more than one class of MLI Public Preferred Shares outstanding, then the most senior class or classes of outstanding MLI Public Preferred Shares shall, for all purposes, be the MLI Public Preferred Shares;
MLI Subordinated Debentures means the subordinated debentures of MLI outstanding from time to time, other than the MLI Existing Subordinated Debentures;
New Subordinated Debt Guarantees has the meaning given to such term in paragraph 55;
NI 13-101 means National Instrument 13-101 -- System of Electronic Document Analysis and Retrieval (SEDAR);
NI 41-101 means National Instrument 41-101 -- General Prospectus Requirements;
NI 44-102 means National Instrument 44-102 -- Shelf Distributions;
NI 44-101 means National Instrument 44-101 -- Short Form Prospectus Distributions;
NI 45-106 means National Instrument 45-106 -- Prospectus and Registration Exemptions;
NI 51-102 means National Instrument 51-102 -- Continuous Disclosure Obligations;
NI 52-109 means National Instrument 52-109 -- Certification of Disclosure in Issuers' Annual and Interim Filings;
NI 55-102 means National Instrument 55-102 -- System for Electronic Disclosure by Insiders (SEDI);
NI 55-104 means National Instrument 55-104 -- Insider Reporting Requirements and Exemptions;
NI 71-101 means National Instrument 71-101 -- The Multijurisdictional Disclosure System;
Offering means the public offering of the MaCS II -- Series 1 pursuant to the MaCS II Final Prospectus;
OSFI means the Office of the Superintendent of Financial Institutions (Canada);
Other Deferral Event means (i) the election by MLI, 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 MaCS II -- Series 1 invest interest payable on the MaCS II -- Series 1 on the relevant Interest Payment Date in MLI 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 MaCS II -- Series 1 on any Interest Payment Date (or the next following Business Day, if the relevant Interest Payment Date is not a Business Day);
parent credit supporter has the meaning given to such term in NI 51-102;
Perpetual Preferred Share Rate means the rate per annum equal to the Thirty Year Canada Yield prevailing (i) in the case of the MLI Exchange Preferred Shares, at the time of the Automatic Exchange, or (ii) in the case of the MLI Deferral Preferred Shares, on the date of issuance of each series of MLI Deferral Preferred Shares, plus, in each case, 3.24%;
Preferred Share Guarantee means the subordinated guarantee dated January 29, 2007 by MFC of the payments to be made by MLI under the MLI Preferred Shares, which consist of: (a) the amount of any declared and unpaid dividends on the MLI Preferred Shares; (b) the Redemption Price of the MLI Preferred Shares; and (c) the Liquidation Preference of the MLI Preferred Shares, as amended and restated on January 13, 2017 to reflect the terms of this decision;
Prospectus Disclosure Requirements means the requirements contained in section 6 (Earnings Coverage Ratio) and section 11.1, other than section 11.1(1)(5), (Incorporation by Reference) of Form 44-101F1 that issuers must satisfy to distribute securities pursuant to a short form prospectus or a base shelf prospectus, as applicable;
Prospectus Qualification Requirements means the requirements contained in Part 2 of NI 44-101 and Part 2 of NI 44-102 that issuers must satisfy to distribute securities pursuant to a short form prospectus or a base shelf prospectus, as applicable;
Redemption Price means the amount payable by MLI following presentation and surrender of any MLI Preferred Shares which have been redeemed by MLI or which are then redeemable by the holder pursuant to the terms of such MLI Preferred Shares;
Resulting MLI Preferred Shares has the meaning given to such term in paragraph 8;
SEDAR means the System for Electronic Document Analysis and Retrieval;
Share Exchange Agreement means the share exchange agreement entered into by MFC, MLI, the Trust and the Exchange Trustee on July 10, 2009;
SLAC means The Standard Life Assurance Company of Canada;
summary financial information has the meaning given to such term in NI 51-102;
Superintendent means the Superintendent of Financial Institutions (Canada);
Tax Act means the Income Tax Act (Canada), as amended;
Thirty Year Canada Yield means, on the relevant date, the average of the annual yields as at 12:00 p.m. (Eastern time), as determined by two Canadian registered investment dealers, each of which will be selected by, and must be independent of, MLI and the Trust, as being the annual yield to maturity on such date which a non-callable Government of Canada bond would carry, assuming semi-annual compounding, if issued on such date in Canadian dollars in Canada at 100% of its principal amount with a term to maturity of thirty years;
Triggering Event will occur if MLI:
(a) fails to make full payment of any dividend declared on any MLI Preferred Shares on the date required for such payment; or
(b) fails to make payment in full when due of the Redemption Price; or
(c) becomes subject to a "winding-up order" (as defined under the WURA or any order of similar effect made under applicable laws for the winding-up, liquidation or dissolution of MLI);
Trust means Manulife Financial Capital Trust II;
Trust Assets means the Eligible Trust Assets held from time to time by the Trust;
Trust Securities means, collectively, the Voting Trust Units and the MaCS II -- Series 1;
Voting Trust Units means the Voting Trust Units of the Trust; and
WURA means the Winding-up and Restructuring Act (Canada), as amended.
Representations
This decision is based on the following facts represented by the Filers:
MLI
Incorporation and Status
1. MLI was incorporated on June 23, 1887, by a Special Act of Parliament of the Dominion of Canada. Pursuant to the provisions of the then Canadian and British Insurance Companies Act (Canada), the predecessor legislation to the ICA, MLI undertook a plan of mutualization and became a mutual life insurance company on December 19, 1968. On September 23, 1999 MLI completed the Demutualization. MLI's head office is located at 200 Bloor Street East, Toronto, Ontario, M4W 1E5.
2. MLI is regulated by OSFI and it is licensed under the insurance legislation of each province and territory of Canada. MLI has a financial year end of December 31. MLI is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not, to the best of its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.
Capital Structure
3. MLI's authorized share capital consists of an unlimited number of Common Shares, an unlimited number of Class A Shares, issuable in series, an unlimited number of Class B Shares, issuable in series and an unlimited number of Class 1 Shares, issuable in series.
4. There are seven series of Class A Shares which are authorized for issuance. MLI is authorized to issue 40,000 Class A Shares Series 1; 2,400,000 Class A Shares Series 2; 2,400,000 Class A Shares Series 3; 37,600,000 Class A Shares Series 4; 37,600,000 Class A Shares Series 5; 4,000,000 Class A Shares Series 6; and an unlimited number of Class A Shares Series Z.
5. There are one series of Class B Shares and two series of Class 1 Shares which are authorized for issuance. MLI is authorized to issue 1,100,000 Class B Shares Series 1 and an unlimited number of Class 1 Shares Series 1 and Class 1 Shares Series Z.
6. As of September 30, 2016, approximately 5,208 million Common Shares and 40,000 Class A Shares Series 1 were issued and outstanding. MFC holds all of the issued and outstanding MLI Common Shares and Class A Shares Series 1. MFC may from time to time subscribe for a sufficient number of Class A Shares Series Z and/or Class 1 Shares Series Z such that at all times MFC will control any class vote of the Class A Shares and/or Class 1 Shares.
7. MLI also issued each of the MLI Existing Subordinated Debentures (other than the MLI 3.938% Subordinated Debentures) on February 17, 2012, February 25, 2013, November 29, 2013, February 21, 2014, December 1, 2014, March 10, 2015, June 1, 2015 and November 20, 2015, respectively, pursuant to prospectus supplements to MLI's base shelf prospectus dated November 11, 2011 and December 13, 2013 (as amended by Amendment No. 1 dated May 13, 2015), as applicable. The MLI 3.938% Subordinated Debentures were issued by SLAC on September 21, 2012 and assumed by MLI as successor company to SLAC on July 1, 2015. As of September 30, 2016, an aggregate principal amount of $5.0 billion of MLI Existing Subordinated Debentures were issued and outstanding.
8. MLI satisfies each of the alternative qualification criteria listed in sections 2.4 and 2.5 of NI 44-101, other than sections 2.4(1)(a), 2.5(a) and 2.4(1). MLI will not satisfy the requirements under sections 2.4(1)(a) and 2.5(a) because the Preferred Share Guarantee is not a full and unconditional guarantee (as discussed below). In addition, MLI will not satisfy the requirements under section 2.4(1) for distributions of rate reset MLI Preferred Shares because rate reset MLI Preferred Shares will be convertible into another series of MLI Preferred Shares (the "Resulting MLI Preferred Shares").
Financial Statements
9. MLI prepares the ICA Financial Statements in order to comply with section 331 of the ICA, which requires that such financial statements be placed before its shareholders and policyholders at every annual meeting. MLI is also required to send the ICA Financial Statements to its registered shareholder and policyholders and to file them with the Superintendent not later than 21 days before the date of the annual meeting pursuant to sections 334(1) and 335(1) of the ICA. MLI files its annual financial statements on SEDAR in compliance with the 2012 Order.
MFC
Incorporation and Status
10. MFC was incorporated under the ICA on April 26, 1999. On September 23, 1999, in connection with the Demutualization, MFC became the sole shareholder of MLI. MFC's head office is located at 200 Bloor Street East, Toronto, Ontario, M4W 1E5.
11. MFC is regulated by OSFI. MFC is a publicly traded company on the Toronto Stock Exchange, the New York Stock Exchange, the Stock Exchange of Hong Kong Limited and the Philippine Stock Exchange. MFC has a financial year end of December 31. MFC is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not, to the best of its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.
Capital Structure
12. The authorized share capital of MFC consists of an unlimited number of Common Shares, an unlimited number of Class A Shares, issuable in series, an unlimited number of Class B Shares, issuable in series and an unlimited number of Class 1 Shares, issuable in series. There are two series of Class A Shares and twenty series of Class 1 Shares which are authorized for issuance. MFC is authorized to issue 14 million Class A Shares Series 2, 12 million Class A Shares Series 3, 8 million Class 1 Shares Series 3, 8 million Class 1 Shares Series 4, 8 million Class 1 Shares Series 5, 8 million Class 1 Shares Series 6, 10 million Class 1 Shares Series 7, 10 million Class 1 Shares Series 8, 10 million Class 1 Shares Series 9, 10 million Class 1 Shares Series 10, 8 million Class 1 Shares Series 11, 8 million Class 1 Shares Series 12, 8 million Class 1 Shares Series 13, 8 million Class 1 Shares Series 14, 8 million Class 1 Shares Series 15, 8 million Class 1 Shares Series 16, 14 million Class 1 Shares Series 17, 14 million Class 1 Shares Series 18, 10 million Class 1 Shares Series 19, 10 million Class 1 Shares Series 20, 17 million Class 1 Shares Series 21, 17 million Class 1 Shares Series 22, 19 million Class 1 Shares Series 23 and 19 million Class 1 Shares Series 24.
13. As of September 30, 2016, approximately 1,973 million Common Shares, 14 million Class A Shares Series 2, 12 million Class A Shares Series 3, 6.3 million Class 1 Shares Series 3, 1.7 million Class 1 Shares Series 4, 8 million Class 1 Shares Series 5, 10 million Class 1 Shares Series 7, 10 million Class 1 Shares Series 9, 8 million Class 1 Shares Series 11, 8 million Class 1 Shares Series 13, 8 million Class 1 Shares Series 15, 14 million Class 1 Shares Series 17, 10 million Class 1 Shares Series 19, 17 million Class 1 Shares Series 21 and 19 million Class 1 Shares Series 23 were issued and outstanding.
14. MFC also issued medium term notes on June 26, 2008 and April 8, 2009. As of September 30, 2016, an aggregate principal amount of $1.0 billion in medium term notes were issued and outstanding.
15. MFC also issued senior notes on September 17, 2010, March 4, 2016, June 23, 2016 and December 2, 2016. As of December 31, 2016, an aggregate principal amount of US$3.52 billion in senior notes were issued and outstanding.
16. MFC also issued subordinated debentures on May 25, 2016. As of September 30, 2016, an aggregate principal amount of Singapore $500 million in subordinated debentures were issued and outstanding.
17. MFC is qualified to use the short form prospectus system provided by NI 44-101.
18. MFC has delivered to the Ontario Securities Commission the MFC Responsible Issuer Undertaking. MFC has filed the MFC Responsible Issuer Undertaking on its SEDAR profile.
The Trust and the MaCS II Trustee
Formation and Status
19. The Trust is a trust established under the laws of the Province of Ontario by the MaCS II Trustee pursuant to the MaCS II Declaration of Trust. The Trust's head office is located at 200 Bloor Street East, Toronto, Ontario, M4W 1E5.
20. The Trust has a financial year end of December 31. The Trust is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not, to the best of its knowledge, in default of its reporting issuer obligations under the securities legislation of any of the provinces or territories of Canada.
Capital Structure
21. The authorized unit capital of the Trust consists of an unlimited number of Voting Trust Units. As of September 30, 2016, 1,000 Voting Trust Units were issued and outstanding. All of the outstanding Voting Trust Units are held by MLI.
22. The Trust issued the MaCS II -- Series 1 pursuant to the Offering. As of September 30, 2016, an aggregate principal amount of $1,000,000,000 in MaCS II -- Series 1 were issued and outstanding.
23. The Trust Securities are the only outstanding securities of the Trust.
Business of the Trust
24. The Trust is a single purpose vehicle established solely for the purpose of effecting the Offering in order to provide MLI (and indirectly MFC) with a cost-effective means of raising capital for Canadian insurance company regulatory purposes by: (a) creatingand selling the Trust Securities; and (b) acquiring and holding Trust Assets, which consist primarily of the MLI Debenture. The Trust used the proceeds of the Offering to purchase the MLI Debenture. The MLI Debenture generates income for payment of principal, interest, the redemption price, if any, and any other amounts in respect of the MaCS II -- Series 1.
25. The Trust does not have any material assets other than the MLI Debenture. The Trust has no material liabilities other than the Credit Facility. The purpose of the Credit Facility is to ensure liquidity in the normal course of the Trust's activities. As of December 31, 2015 an aggregate of $1.0 million was outstanding under the Credit Facility.
Description of the Trust Securities
26. From the date of issuance until December 31, 2108, the Trust will pay interest on the MaCS II -- Series 1 in equal (subject to the reset of the interest rate and except for the first interest payment) semi-annual instalments on each Interest Payment Date. Starting on December 31, 2019, and on each Interest Reset Date thereafter until 2104, the interest rate on the MaCS II -- Series 1 will be reset at an interest rate per annum equal to the Government of Canada Yield (as defined in the MaCS II Final Prospectus) plus 5.00%.
27. Pursuant to the Assignment and Set-Off Agreement, MLI and MFC have agreed, for the benefit of the holders of the MaCS II -- Series 1, that if an Other Deferral Event occurs, then (a) MLI will not declare or pay any cash dividends on any MLI Public Preferred Shares, or (b) if no MLI Public Preferred Shares are outstanding, then MFC will not declare or pay cash dividends on the MFC Dividend Restricted Shares and (c) in cases where (a) applies, neither MFC nor any subsidiary of MFC may make any payment to holders of MLI Public Preferred Shares in respect of dividends not declared or paid by MLI, and neither MFC nor any subsidiary of MFC may purchase any MLI Public Preferred Shares, or, in cases where clause (b) applies, neither MFC nor any subsidiary of MFC may make any payment to holders of MFC Dividend Restricted Shares in respect of dividends not declared or paid by MFC, and neither MFC nor any subsidiary of MFC may purchase any MFC Dividend Restricted Shares, provided that any subsidiary of MFC whose primary business is dealing in securities may purchase MLI Public Preferred Shares or MFC Dividend Restricted Shares in certain limited circumstances as permitted in the ICA or the regulations thereunder, in any case until the expiry of the Dividend Stopper Undertaking. Accordingly, it is in the interest of MLI and MFC to ensure, to the extent within their control, that the Trust pays the interest on the MaCS II -- Series 1 in cash on each Interest Payment Date so as to avoid triggering the Dividend Stopper Undertaking.
28. On each Interest Payment Date on which a Deferral Event has occurred in respect of a series of MaCS II -- Series 1, holders of MaCS II -- Series 1 will be required to invest interest payable on the MaCS II -- Series 1 in MLI Deferral Preferred Shares.
29. The MLI Deferral Preferred Shares will pay quarterly non-cumulative preferential cash dividends, as and when declared by the Board of Directors of MLI, subject to the provisions of the ICA, at the Perpetual Preferred Share Rate, subject to any withholding tax.
30. Prior to the issuance of any MLI Deferral Preferred Shares in respect of a Deferral Event, MLI will not, without the prior approval of the Superintendent and the prior approval of the holders of the MaCS II -- Series 1, amend any terms attaching to such MLI Deferral Preferred Shares, provided that the prior approval of the holders of MaCS II -- Series 1 will not be required in the case of amendments relating to the MLI Class 1 Shares as a class.
31. The MaCS II -- Series 1, including accrued and unpaid interest thereon, will be exchanged automatically, without the consent of the holder thereof, for the MLI Exchange Preferred Shares pursuant to the Automatic Exchange.
32. Pursuant to the Share Exchange Agreement, MLI has granted to the Exchange Trustee, for the benefit of the holders of MaCS II -- Series 1, the right to exchange MaCS II -- Series 1 for MLI Exchange Preferred Shares upon an Automatic Exchange and the Exchange Trustee on behalf of the holders of the MaCS II -- Series 1 has granted to MLI the right to exchange MaCS II -- Series 1 for MLI Exchange Preferred Shares upon an Automatic Exchange. Pursuant to the Share Exchange Agreement, MLI has covenanted to take or refrain from taking certain actions so as to ensure that holders of MaCS II -- Series 1 will receive the benefit of the Automatic Exchange, including obtaining the requisite approval of holders of the MaCS II -- Series 1 for any amendments to the provisions of the MLI Exchange Preferred Shares (other than any amendments relating to the MLI Class 1 Shares as a class).
33. The MLI Exchange Preferred Shares will pay quarterly non-cumulative preferential cash dividends, as and when declared by the Board of Directors of MLI, subject to the provisions of the ICA, at the Perpetual Preferred Share Rate, subject to any applicable withholding tax.
34. If the MaCS II -- Series 1 have not been exchanged for MLI Exchange Preferred Shares pursuant to the Automatic Exchange, MLI will not, without the prior approval of the Superintendent and the prior approval of the holders of the MaCS II -- Series 1, amend any terms attaching to the MLI Exchange Preferred Shares, provided that the prior approval of the holders of the MaCS II -- Series 1 will not be required in the case of amendments relating to the MLI Class 1 Shares as a class.
35. The Preferred Share Guarantee applies to MLI Preferred Shares, including the MLI Class 1 Shares issuable upon a Deferral Event or an Automatic Exchange. In circumstances where MFC is not the subject of a winding-up order, the Preferred Share Guarantee entitles the holder of MLI Preferred Shares to receive payment from MFC within 15 days of any failure by MLI to pay a declared dividend or to pay the redemption price for such shares and, in the case of any amount remaining unpaid with respect to the preference of the MLI Preferred Shares upon a winding-up of MLI, within 15 days of the later of the date of the final distribution of property of MLI to its creditors and the date of the final distribution of surplus of MLI, if any, to its shareholders. In circumstances where MFC is the subject of a winding-up order, the Preferred Share Guarantee entitles the holder of MLI Preferred Shares to receive payment from MFC within 15 days of the determination of the final distribution of surplus of MFC, if any, to MFC's shareholders. Claims under the Preferred Share Guarantee are subordinate to all outstanding indebtedness and liabilities of MFC 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 of MLI Preferred Shares occurs at a time when MFC is subject to a winding-up order, the Preferred Share Guarantee has been structured so that the amount payable by MFC under the Preferred Share Guarantee is subject to reduction such that the claims of holders of the respective class of MLI Preferred Shares under the Preferred Share Guarantee, in effect, rank equally with the claims of holders of the respective class of preferred shares of MFC to any surplus assets of MFC remaining for distribution. Otherwise the Preferred Share Guarantee would negatively impact the capital treatment of preferred shares of MLI for insurance regulatory purposes.
36. The MaCS II -- Series 1 have been structured to achieve Tier 1 regulatory capital for purposes of the guidelines of the Superintendent.
37. The Trust may, at its option, with the prior approval of the Superintendent, on giving not more than 60 nor less than 30 days' notice to the holders of the MaCS II -- Series 1, redeem the MaCS II -- Series 1, in whole or in part. The redemption price per $1,000 principal amount of MaCS II -- Series 1 redeemed on any day that is not an Interest Reset Date in respect of the MaCS II -- Series 1 will be equal to the greater of par and the Canada Yield Price, and the redemption price per $1,000 principal amount of MaCS II -- Series 1 redeemed on any Interest Reset Date in respect of the MaCS II -- Series 1 will be par, together in either case with accrued and unpaid interest to but excluding the date fixed for redemption, subject to any applicable withholding tax.
38. The Trust may, at its option, with the prior approval of the Superintendent, on giving not more than 60 nor less than 30 days' notice to the holders of MaCS II -- Series 1, redeem all (but not less than all) of the MaCS II -- Series 1 upon the occurrence of certain regulatory or tax events affecting MLI or the Trust. The redemption price per $1,000 principal amount of the MaCS II -- Series 1 will be equal to par, together with accrued and unpaid interest to but excluding the date fixed for redemption, subject to any applicable withholding tax.
39. The MaCS II -- Series 1 are direct unsecured obligations of the Trust, ranking at least equally with other subordinated indebtedness of the Trust from time to time issued and outstanding. In the event of the insolvency or winding-up of the Trust, the indebtedness evidenced by MaCS II -- Series 1 issued by the Trust 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 indebtedness evidenced by such MaCS II -- Series 1.
40. Neither MLI nor MFC will assign or otherwise transfer any of its obligations under the Share Exchange Agreement or the Assignment and Set-Off Agreement, except in the case of a merger, consolidation, amalgamation or reorganization or a sale of substantially all of the assets of MLI or MFC.
41. MLI has covenanted that all of the outstanding Voting Trust Units will be held at all times by MLI.
42. As long as any MaCS II -- Series 1 are outstanding and held by any person other than MLI or any of its affiliates, the Trust may only be terminated with the approval of the holder of the Voting Trust Units and with the prior approval of the Superintendent. The holders of MaCS II -- Series 1 will not be entitled to initiate proceedings for the termination of the Trust. So long as any MaCS II -- Series 1 are outstanding and held by any person other than MLI or any of its affiliates, neither MLI nor MFC will approve the termination of the Trust unless the Trust has sufficient funds to pay the redemption price of the MaCS II -- Series 1.
43. The MaCS II -- Series 1 are non-voting except in certain limited circumstances set out in the MaCS II Declaration of Trust.
44. Pursuant to an administration agreement dated June 12, 2009, as amended and restated on July 10, 2009 and as it may be further amended and restated from time to time, entered into between the MaCS II Trustee and MLI, the MaCS II Trustee has delegated to MLI certain of its obligations in relation to the administration of the Trust. MLI, as administrative agent, at the request of the MaCS II Trustee, administers the day-to-day operations of the Trust and performs such other matters as may be requested by the MaCS II Trustee from time to time.
45. Due to the terms of the Trust Securities, the Share Exchange Agreement, the Assignment and Set-Off Agreement and the various covenants of MLI and MFC, and given that the Preferred Share Guarantee applies to the MLI Class 1 Shares issuable upon the occurrence of an Automatic Exchange or Deferral Event, information about the affairs and financial performance of MLI and MFC, as opposed to that of the Trust, is more meaningful to holders of MaCS II -- Series 1. MFC's and MLI's filings provide holders of MaCS II -- Series 1 and the general investing public with all information required in order to make an informed decision relating to an investment in MaCS II -- Series 1. Information regarding MFC and MLI is relevant both to an investor's expectation of being paid the principal, interest and redemption price, if any, and any other amount on the MaCS II -- Series 1 when due and payable.
46. The MLI Exchange Preferred Shares and the MLI Deferral Preferred Shares will be redeemable after specified dates, at the option of MLI and subject to regulatory approvals, by the payment of a cash amount. The MLI Exchange Preferred Shares and the MLI Deferral Preferred Shares are also convertible, in certain circumstances, into Resulting MLI Preferred Shares.
47. Apart from the right to receive the interest described herein, holders of MaCS II -- Series 1 have no further right in the income of the Trust.
48. The Voting Trust Units entitle the holder thereof (i.e., MLI) to: (a) vote in respect of certain matters regarding the Trust; (b) receive the net distributable funds on all Eligible Trust Assets, if any, of the Trust remaining after discharge of the obligations of the Trust to creditors; (c) upon prior approval of the Superintendent, require the Trust to repurchase at any time all, or from time to time part, of the Voting Trust Units, provided that there are no outstanding MaCS II -- Series 1 held by any person other than MLI or affiliates of MLI; and (d) in the event of a termination of the Trustee, receive the remaining property of the Trust after discharge of the obligations of the Trust to creditors.
Preferred Share Guarantee and Existing Subordinated Debt Guarantees
49. Since January 29, 2007, MFC has provided the Preferred Share Guarantee.
50. On each of February 17, 2012, February 25, 2013, November 29, 2013, February 21, 2014, December 1, 2014, March 10, 2015, June 1, 2015, July 1, 2015 and November 20, 2015, MFC entered into the Existing Subordinated Debt Guarantees in respect of the MLI Existing Subordinated Debentures. The Existing Subordinated Debt Guarantees provide full and unconditional credit support in respect of the MLI Existing Subordinated Debentures and the MLI Existing Subordinated Debentures are designated credit support securities.
The MFC Guarantees
51. MFC has provided the Existing Subordinated Debt Guarantees, which results in holders of MLI Existing Subordinated Debentures being entitled to receive payment from MFC within 15 days of any failure by MLI to make a payment due under such debt securities.
52. MFC has provided the Preferred Share Guarantee. The amount payable under the Preferred Share Guarantee for any declared and unpaid dividends, Redemption Price and Liquidation Preference is limited so that the claims of holders of MLI Preferred Shares under the guarantee, in effect, rank equally with the claims of holders of the corresponding series of MFC Preferred Shares. To accomplish this, the Preferred Share Guarantee provides that if a Triggering Event occurs, MFC will pay the Deficiency Payment to MLI, in trust for the benefit of holders of MLI Preferred Shares outstanding as of the Triggering Event.
53. The Preferred Share Guarantee applies in respect of any MLI Preferred Shares outstanding from time to time, including the MLI Class 1 Shares issuable pursuant to the Automatic Exchange or a Deferral Event.
54. The Preferred Share Guarantee ranks subordinate to any and all outstanding liabilities of MFC unless otherwise provided by the terms of the instrument creating or evidencing any such liability. However, since the Preferred Share Guarantee is a debt obligation of MFC and therefore ranks ahead of the claims of holders of MFC Preferred Shares, the calculation of the amount payable under the Preferred Share Guarantee is subject to reduction so that, on the distribution of assets upon a winding-up of MFC, claims under the Preferred Share Guarantee effectively rank equally with the claims of holders of the MFC Preferred Shares. Otherwise, the Preferred Share Guarantee would negatively impact the capital treatment of the MLI Preferred Shares for insurance regulatory purposes.
55. In respect of any issued and outstanding MLI Subordinated Debentures (other than (i) debt securities issued to and held by MFC or its affiliates (as defined in NI 51-102), (ii) debt securities issued to the types of entities described in section 13.4(2)(c)(iii) of NI 51-102, and (iii) debt securities issued under exemptions from the prospectus requirement in section 2.35 of NI 45-106), MFC will provide a guarantee similar to the Existing Subordinated Debt Guarantees (referred to as the "New Subordinated Debt Guarantees"). The New Subordinated Debt Guarantees will provide full and unconditional credit support in respect of the MLI Subordinated Debentures and the MLI Subordinated Debentures will be designated credit support securities.
56. The New Subordinated Debt Guarantees and the Preferred Share Guarantee, as applicable, will be described in the prospectus or prospectus supplement filed by MLI in connection with a distribution of MLI Subordinated Debentures or MLI Preferred Shares.
Termination of Guarantees
57. Each of the MFC Guarantees will terminate (except in respect of any demand previously made on MFC thereunder) upon the earlier to occur of:
(a) unless MFC and MLI agree to the contrary, the date that no MLI securities which are the subject of such guarantee (or securities or rights convertible into, exchangeable for or carrying rights to acquire such securities, including, in the case of the Preferred Share Guarantee, the MaCS II -- Series 1) are outstanding;
(b) the date that MFC no longer, directly or indirectly, owns all of the outstanding common shares of MLI;
(c) the date that the relief contemplated by this decision is no longer available to MLI; or
(d) the date MLI commences filing its own Continuous Disclosure Filings with the security regulatory authorities in each of the provinces and territories of Canada;
provided that, MFC may not terminate the Preferred Share Guarantee in respect of any outstanding MLI Preferred Shares pursuant to clauses (b), (c) or (d) above at any time:
(i) after the occurrence of an Automatic Exchange or a Deferral Event; or
(ii) during a period when MLI has failed to make full payment of any dividend declared on any MLI Preferred Shares on the date required for such payment or has failed to make payment in full when due of the Redemption Price and, in either case, such failure has not been remedied by payment of such amounts in full by MLI or MFC.
The Exemption Sought
58. The Exemption Sought is a renewal and combination of and supersedes the relief granted pursuant to the 2012 Order and the 2009 Order.
59. The Exemption Sought will extend the simplified approach currently utilized with respect to MFC's, MLI's, and the Trust's respective continuous disclosure obligations. The obligation to prepare and, where applicable, print and distribute, continuous disclosure materials for MLI and the Trust would be costly and time consuming.
60. As a result of the various covenants of MLI and MFC made in accordance with the Exemption Sought, information about the affairs and financial performance of MFC and MLI will continue to be made available to the holders of securities of MLI and the Trust and the general investing public. This information, as opposed to information solely related to MLI and the Trust, is more meaningful to holders of securities of MLI and the Trust and the general investing public, and will provide holders of securities of MLI and the Trust and the general investing public with all information required to make an informed decision relating to an investment in MLI and the Trust. This information will also be relevant to an investor's expectation of being paid the principal, interest, dividends and redemption prices, as applicable, and any other amounts paid of securities of MLI and the Trust.
Continuous Disclosure and Certification Exemptions of MLI
61. The MLI Continuous Disclosure Exemption is substantially similar to the relief available to "credit support issuers" under section 13.4(2) of NI 51-102. With the MFC Guarantees, MLI will satisfy each of the conditions of section 13.4(2) of NI 51-102, other than the requirements set out in section 13.4(2)(c).
62. The MLI Certification Exemption is substantially similar to the relief under section 8.5 of NI 52-109, which provides an exemption from the requirements of NI 52-109 for an issuer that qualifies for the relief contemplated by, and is in compliance with the requirements and conditions set out in, section 13.4(2) of NI 51-102.
63. Section 13.4(2)(c) of NI 51-102 requires that the credit support issuer not issue any securities and not have any securities outstanding, other than:
(a) non-convertible debt securities, non-convertible preferred shares, or convertible debt securities or convertible preferred shares that are convertible into securities of the credit supporter (in each case, where the parent credit supporter has provided alternative credit support or a full and unconditional guarantee of the payments to be made by the credit support issuer that results in the holder of such securities being entitled to receive payment from the credit supporter or, in the case of alternative credit support, the credit support issuer, within 15 days of any failure by the credit support issuer to make a payment);
(b) securities issued to and held by the parent credit supporter or an affiliate (as defined in NI 51-102) of the parent credit supporter;
(c) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or
(d) securities issued under exemptions from the prospectus requirement in section 2.35 of NI 45-106.
64. The Preferred Share Guarantee is structured such that, in a circumstance where MLI fails to make payment of either declared dividends or the Redemption Price of MLI Preferred Shares when properly surrendered for redemption, or there exists insufficient assets to pay the Liquidation Preference upon the liquidation or winding-up of MLI, and at such time a winding-up order has been made in respect of MFC, payment of such amounts to holders of MLI Preferred Shares will not be made until the final distribution of surplus of MFC, if any, to shareholders of MFC pursuant to section 95(1) of the WURA. This provision of the Preferred Share Guarantee is necessary in order to preserve the appropriate priority of claims (i.e., so claims of the holders of MLI Preferred Shares under the Preferred Share Guarantee do not rank ahead of the claims of holders of MFC Preferred Shares by virtue of such claims crystallizing earlier). In circumstances where MFC is not the subject of a winding-up order, holders of MLI Preferred Shares will be entitled to payment from MFC within 15 days of the non-payment of dividends or of the non-payment of the Redemption Price of MLI Preferred Shares and, in the case of the Liquidation Preference, within 15 days of the later of: (i) the date of the final distribution of property of MLI to creditors pursuant to section 93 of the WURA; and (ii) the date of the final distribution of surplus of MLI, if any, to shareholders pursuant to section 95(1) of the WURA.
65. With the implementation of the MFC Guarantees, the only issued and outstanding securities of MLI that will not satisfy the conditions in section 13.4(2)(c) of NI 51-102 are the MLI Preferred Shares because the Preferred Share Guarantee is not a full and unconditional guarantee as required by the definition of "designated credit support securities" in section 13.4(1) of NI 51-102 for the following reasons:
(a) if MFC is subject to a winding-up order under the WURA, holders of MLI Preferred Shares will not be entitled to payment from MFC under the Preferred Share Guarantee until the final distribution of surplus of MFC, if any, to MFC shareholders pursuant to section 95(1) of the WURA;
(b) if MFC is subject to a winding-up order under the WURA, the payment by MFC to holders of MLI Preferred Shares under the Preferred Share Guarantee will be an amount that, when paid, will result in the holders of a class of MLI Preferred Shares receiving payment of the same proportion of the unpaid amounts on the class of MLI Preferred Shares as the holders of such shares would have received had their claim to such unpaid amounts on the final distribution of surplus of MFC under the WURA ranked on parity with the claims of the holders of the corresponding class of MFC Preferred Shares; and
(c) if MLI is subject to a winding-up order under the WURA, holders of MLI Preferred Shares will not be entitled to payment from MFC under the Preferred Share Guarantee until the later of (i) the date of the final distribution of property of MLI to creditors pursuant to section 93 of the WURA, and (ii) the date of the final distribution of surplus of MLI, if any, to MLI shareholders pursuant to Section 95(1) of the WURA.
In addition, MLI Preferred Shares that are convertible into Resulting MLI Preferred Shares will not satisfy the condition in section 13.4(2)(c) of NI 51-102 because such MLI Preferred Shares will not be non-convertible preferred shares as required by the definition of "designated credit support securities" in section 13.4(1) of NI 51-102.
Insider Reporting Exemption of MLI
66. Section 13.4(3) of NI 51-102 provides an exemption from the requirement to file an insider profile under NI 55-102 and from the Insider Reporting Requirements for an insider of a credit support issuer in respect of securities of the credit support issuer provided that certain conditions are satisfied. With the MFC Guarantees, MLI will satisfy each of the conditions of section 13.4(3) of NI 51-102, other than the requirement set out in section 13.4(3)(a), which requires MLI to comply with section 13.4(2)(c) of NI 51-102.
Prospectus Qualification Exemption and Prospectus Disclosure Exemption of MLI
67. The Prospectus Qualification Exemption is substantially similar to (i) the alternative qualification criteria for issuers of guaranteed non-convertible debt securities, preferred shares and cash settled derivatives under sections 2.4 of NI 44-101 and NI 44-102; and (ii) the alternative qualification criteria for issuers of guaranteed convertible debt securities or preferred shares under sections 2.5 of NI 44-101 and NI 44-102. With the MFC Guarantees, MLI will satisfy each of the conditions of sections 2.4 and 2.5 of NI 44-101 and NI 44-102, other than (i) the requirement set out in sections 2.4(1)(a) and 2.5(a) of NI 44-101 that the Preferred Share Guarantee be full and unconditional; and (ii) in connection with a distribution of rate reset MLI Preferred Shares, the requirement set out in section 2.4(1) of NI 44-101 that the MLI Preferred Shares be non-convertible.
68. The MLI Preferred Shares will not satisfy the conditions in sections 2.4(1)(a) and 2.5(a) of NI 44-101 because the Preferred Share Guarantee is not a full and unconditional guarantee as required for the reasons described in paragraph 65.
69. The Prospectus Disclosure Exemption is substantially similar to the relief available under section 13.2 of Form 44-101F1. With the Preferred Share Guarantee, MLI will satisfy each of the conditions of section 13.2 of Form 44-101F1, other than (i) the requirement set out in section 13.2(a) of Form 44-101F1; and (ii) in connection with a distribution of rate reset MLI Preferred Shares, the requirement set out in section 13.2(c) of Form 44-101F1. MLI will not satisfy the condition in section 13.2(a) of Form 44-101F1 because the Preferred Share Guarantee is not a full and unconditional guarantee as required for the reasons described in paragraph 65. In addition, in connection with a distribution of rate reset MLI Preferred Shares, MLI will not satisfy the condition in section 13.2(c) of Form 44-101F1 that the MLI Preferred Shares be non-convertible.
70. At the time of the filing of any short form prospectus or prospectus supplement in connection with offerings of MLI Preferred Shares:
(a) the prospectus will be prepared in accordance with the short form prospectus requirements of NI 44-101 and, if applicable, NI 44-102, other than the Prospectus Disclosure Requirements, except as permitted by the Legislation;
(b) MLI will comply with all of the filing requirements and procedures set out in NI 44-101 and, if applicable, NI 44-102, other than the Prospectus Qualification Requirements, except as permitted by the Legislation;
(c) the prospectus will incorporate by reference the documents of MFC set forth under Item 11.1 of Form 44-101F1;
(d) the prospectus disclosure required by Item 11 (other than 11.1(1)(5) of Form 44-101F1 in respect of MLI) will be addressed by incorporating by reference MFC's public disclosure documents referred to in paragraph 70(c) above;
(e) MFC will satisfy all of the criteria in section 2.2 of NI 44-101 and MLI will satisfy the criteria in section 2.2 of NI 44-101 other than sections 2.2(c), (d) and (e); and
(f) MFC and MLI will comply with each condition of section 13.2 of Form 44-101F1 in effect as of the date of this decision, other than paragraphs 13.2(a) and (c).
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for it to make the decision.
The decision of the principal regulator under the Legislation is that the Continuous Disclosure Exemption be granted to MLI provided that:
(a) MFC and MLI continue to be regulated by OSFI;
(b) MFC continues to be the direct or indirect beneficial owner of all the issued and outstanding voting securities (as defined in the Legislation) of MLI;
(c) MFC and MLI remain reporting issuers or the equivalent thereof under the Legislation;
(d) MFC continues to provide the Existing Subordinated Debt Guarantees in respect of any MLI Existing Subordinated Debentures that are outstanding;
(e) MFC provides the New Subordinated Debt Guarantees in respect of any MLI Subordinated Debentures that are outstanding;
(f) MFC continues to provide the Preferred Share Guarantee in respect of the MLI Preferred Shares until such date as of which no MLI Preferred Shares (or securities or rights convertible or exchangeable for or carrying rights to acquire MLI Preferred Shares, including MaCS II -- Series 1) are outstanding;
(g) MFC complies with the requirements of the Legislation and the requirements of the Toronto Stock Exchange in respect of making public disclosure of material information on a timely basis;
(h) MFC immediately issues in Canada and files any news release that discloses a material change in its affairs;
(i) MFC concurrently sends to all holders of MLI Existing Subordinated Debentures and MLI Subordinated Debentures all disclosure materials that are sent to holders of similar debt securities of MFC in the manner and at the time required by the Legislation and the Toronto Stock Exchange;
(j) MFC concurrently sends to all holders of MLI Preferred Shares and MaCS II -- Series 1 all disclosure materials that are sent to holders of similar preferred shares of MFC in the manner and at the time required by the Legislation and the Toronto Stock Exchange;
(k) no person or company other than MFC provides a guarantee or alternative credit support (as defined in NI 51-102) for the payments to be made under any issued and outstanding securities of MLI;
(l) MFC files for the periods covered by any interim or annual consolidated financial statements of MFC (either as a standalone document or as part of such MFC financial statements), consolidating summary financial information for MFC presented with a separate column for each of the following: (i) MFC; (ii) MLI; (iii) any other subsidiaries of MFC on a combined basis; (iv) consolidating adjustments; and (v) the total consolidated amounts;
(m) MLI files a notice indicating that it is relying on the Continuous Disclosure Filings of MFC and setting out where those documents can be found for viewing in electronic format;
(n) MLI immediately issues in Canada a news release and files a material change report for all material changes in respect of the affairs of MLI that are not also material changes in the affairs of MFC;
(o) MLI files its annual financial statements (prepared in accordance with section 331 of the ICA) concurrently with the filing of such financial statements with the Superintendent in compliance with section 335 of the ICA;
(p) MLI does not issue any securities, and does not have any securities outstanding, other than: (i) designated credit support securities; (ii) securities issued to and held by MFC or an affiliate (as defined in NI 51-102) of MFC; (iii) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; (iv) securities issued under exemptions from the prospectus requirement in section 2.35 of NI 45-106; and (v) MLI Preferred Shares that are subject to the Preferred Share Guarantee;
(q) MFC and MLI continue to comply with each condition in section 13.4(2) of NI 51-102 in effect as of the date of this decision, other than the condition in paragraph 13.4(2)(c);
(r) such Continuous Disclosure Exemption will cease to apply three months after the coming into force of any substantive amendments to section 13.4(2) of NI 51-102 that materially adversely affect the Continuous Disclosure Exemption; and
(s) such Continuous Disclosure Exemption will cease to apply on January 15, 2022.
The further decision of the principal regulator under the Legislation is that the Continuous Disclosure Exemption be granted to the Trust provided that:
(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with the requirements and conditions set out in MLI's Continuous Disclosure Exemption;
(b) for so long as any MaCS II -- Series 1 are outstanding, MFC and MLI continue to provide the Dividend Stopper Undertaking;
(c) the Trust does not issue any securities, and does not have securities outstanding, other than: (i) MaCS II -- Series 1, and (ii) Voting Trust Units;
(d) the Trust does not carry on any operating activity other than in connection with the administration and repayment of the Trust Securities;
(e) the Trust does not have any material assets other than the MLI Debenture, has minimal assets, operations, revenues or cash flows other than those related to the MLI Debenture or the issuance, administration and repayment of the Trust Securities and has no material liabilities other than the Credit Facility;
(f) the Trust files a notice indicating that it is relying on the Continuous Disclosure Filings of MFC and setting out where those documents can be found for viewing in electronic format;
(g) at any time that the Trust is not exempt from making such payment, the Trust pays all filing fees that would otherwise be payable by the Trust in connection with the filing of the continuous disclosure documents under NI 51-102;
(h) at any time MLI is not exempt from filing such documents, MLI concurrently sends to all holders of the MaCS II -- Series 1 all disclosure materials that are sent to holders of MLI Preferred Shares in the manner and at the time required by the Legislation;
(i) the Trust immediately issues in Canada a news release and files a material change report for all material changes in respect of the affairs of the Trust that are not also material changes in the affairs of MLI or MFC;
(j) MLI, as holder of the Voting Trust Units, will not propose changes to the terms and conditions of any outstanding MaCS II -- Series 1 that would result in MaCS II -- Series 1 being exchangeable for securities other than MLI Exchange Preferred Shares;
(k) in any circumstances where the MaCS II -- Series 1 are voting, the Trust will comply with Part 9 of NI 51-102;
(l) all of the outstanding Voting Trust Units are beneficially owned by MLI or any of its affiliates (as defined in NI 51-102) and all of the issued and outstanding voting shares of MLI or of its affiliates which own the Voting Trust Units are beneficially owned by MFC;
(m) (i) MaCS II -- Series 1, including accrued and unpaid interest thereon, will be exchanged automatically, without the consent of the holder thereof, for MLI Exchange Preferred Shares pursuant to the Automatic Exchange upon the occurrence of a Loss Absorption Event; (ii) on each Interest Payment Date on which a Deferral Event has occurred in respect of a series of MaCS II -- Series 1, holders of MaCS II -- Series 1 will be required to invest interest payable on the MaCS II -- Series 1 in MLI Deferral Preferred Shares; and (iii) the Preferred Share Guarantee applies to MLI Preferred Shares, including the MLI Class 1 Shares issuable upon a Deferral Event or an Automatic Exchange;
(n) such Continuous Disclosure Exemption will cease to apply three months after the coming into force of any substantive amendments to section 13.4(2) of NI 51-102 that materially adversely affect the Continuous Disclosure Exemption; and
(o) such Continuous Disclosure Exemption will cease to apply on January 15, 2022.
The further decision of the principal regulator is that the Certification Exemption be granted to MLI provided that:
(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with the requirements and conditions set out in MLI's Continuous Disclosure Exemption;
(b) MLI and the Trust are not required to, and do not, file their own Annual Filings and Interim Filings; and
(c) such Certification Exemption will cease to apply on January 15, 2022.
The further decision of the principal regulator is that the Certification Exemption be granted to the Trust provided that:
(a) the Trust qualifies for the relief contemplated by, and MFC, MLI and the Trust are in compliance with the requirements and conditions set out in the Trust's Continuous Disclosure Exemption;
(b) the Trust is not required to, and does not, file its own Annual Filings and Interim Filings; and
(c) such Certification Exemption will cease to apply on January 15, 2022.
The further decision of the principal regulator is that the Insider Profile Exemption be granted to insiders of MLI provided that:
(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with, the requirements and conditions set out in MLI's Continuous Disclosure Exemption;
(b) the insider does not receive, in the ordinary course, information as to material facts or material changes concerning MFC before the material facts or material changes are generally disclosed;
(c) the insider is not an insider of MFC in any capacity other than by virtue of being an insider of MLI;
(d) if the insider is MFC, MFC does not beneficially own any designated credit support securities issued by MLI, MLI Existing Subordinated Debentures, MLI Subordinated Debentures, MLI Preferred Shares or MaCS II -- Series 1; and
(e) such Insider Profile Exemption will cease to apply on January 15, 2022.
The decision of the principal regulator is that the Insider Reporting Exemption be granted to insiders of MLI provided that:
(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with, the requirements and conditions set out in MLI's Continuous Disclosure Exemption;
(b) the insider qualifies for the relief contemplated by the Insider Profile Exemption; and
(c) such Insider Reporting Exemption will cease to apply on January 15, 2022.
The further decision of the principal regulator is that the Prospectus Qualification Exemption and Prospectus Disclosure Exemption be granted to MLI provided that:
(a) MLI qualifies for the relief contemplated by, and MFC and MLI are in compliance with the requirements and conditions set out in MLI's Continuous Disclosure Exemption;
(b) MLI and MFC, as applicable, comply with paragraph 70 above;
(c) any short form prospectus or prospectus supplement of MLI is in respect of an offering of MLI Preferred Shares that are subject to the Preferred Share Guarantee;
(d) on completion of any offering of MLI Preferred Shares, the MLI Preferred Shares are only convertible into Resulting MLI Preferred Shares or into securities of MFC;
(e) MLI includes in the short form prospectus or prospectus supplement for the periods covered by any interim or annual consolidated financial statements of MFC included in the short form prospectus or prospectus supplement consolidating summary financial information for MFC presented with a separate column for each of the following: (i) MFC; (ii) MLI; (iii) any other subsidiaries of MFC on a combined basis; (iv) consolidating adjustments; and (v) the total consolidated amounts;
(f) such Prospectus Qualification Exemption will cease to apply three months after the coming into force of any substantive amendments made to section 2.4 or 2.5 of NI 44-101 that materially adversely affect the Prospectus Qualification Exemption;
(g) such Prospectus Disclosure Exemption will cease to apply three months after the coming into force of any substantive amendments made to section 13.2 of Form 44-101F1 that materially adversely affect the Prospectus Disclosure Exemption; and
(h) such Prospectus Qualification Exemption and Prospectus Disclosure Exemption will cease to apply on January 15, 2022.
This decision shall expire 30 days after the date that a material adverse change occurs in the representations of MFC, MLI or the Trust in this decision.
The further decision of the principal regulator is that the 2012 Order and the 2009 Order are replaced by this decision.
As to the Exemption Sought (other than from the Insider Reporting Requirements in the Act).
"Sonny Randhawa"
Deputy Director, Corporate Finance
Ontario Securities Commission
As to the Exemption Sought from the Insider Reporting Requirements in the Act.
"Judith N. Robertson"
Commissioner
Ontario Securities Commission
"Garnet W. Fenn"
Commissioner
Ontario Securities Commission