Securities Law & Instruments


Headnote

National Policy 11-206 Process for Cease to be a Reporting Issuer Applications – issuer of asset backed securities deemed to no longer be a reporting issuer under securities legislation – issuer has certain securities outstanding issued in Canada to accredited investors pursuant to prospectus exemption – issuer to continue to provide alternative disclosures to investors.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., s.1(10)(a)(ii).

July 26, 2019

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)

AND

IN THE MATTER OF
THE PROCESS FOR CEASE TO BE
A REPORTING ISSUER APPLICATIONS

AND

IN THE MATTER OF
REAL ESTATE ASSET LIQUIDITY TRUST
(the Filer)

ORDER

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Filer for an order under the securities legislation of the Jurisdiction (the Legislation) that the Filer has ceased to be a reporting issuer in all the jurisdictions of Canada in which it is a reporting issuer (the Order Sought).

Under the Process for Cease to be a Reporting Issuer Applications (for a passport application):

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

(b)           the Filer has provided notice that subsection 4C.5(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

INTERPRETATION

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

REPRESENTATIONS

This order is based on the following facts represented by the Filer:

1.             The Filer was established under a declaration of trust on September 13, 2004, which declaration of trust was amended and restated as of October 7, 2004 and supplemented by a supplemental declaration of trust made as of August 27, 2015 (collectively, the Declaration of Trust). The Declaration of Trust is governed by the laws of the Province of Ontario. Montreal Trust Company of Canada is the trustee (in such capacity, the Issuer Trustee) of the Filer and is a trust company established under the laws of Canada and is licensed to carry on business as a trustee in all provinces and territories of Canada. The head office of the Issuer Trustee is 100 University Avenue, 11th Floor, Corporate Trust Department, Toronto, Ontario M5J 2Y1;

2.             The Filer is a special purpose entity that purchases, from time to time, various categories of commercial and multifamily mortgages, hypothecs and other charges on real or immovable property situated in Canada originated by parties other than the Filer (the Custodial Property) and issues mortgage pass-through certificates that evidence undivided co-ownership interests in the Custodial Property (the Certificates) to fund such purchases. The Custodial Property is deposited with a custodian and the recourse of the holders of a series of Certificates is limited to the Custodial Property related to that series of Certificates and any proceeds thereof;

3.             For each offering of a series of Certificates, the Filer entered into a pooling and servicing agreement (a Pooling and Servicing Agreement) with a reporting agent (the Reporting Agent) and servicers of the Custodial Property related to that series of Certificates (each, a Servicer), among others, providing for, among other things, the issuance of the series of Certificates, the rights of the related Certificate holders, the servicing and administration of the related Custodial Property and the preparation by the related Servicer and the Reporting Agent of certain annual, quarterly and monthly reports (collectively, the Reports) for the related Certificate holders containing financial and other information in respect of the series of Certificates and the Custodial Property related to that series of Certificates;

4.             The Reports for a series of Certificates are made available and, pursuant to the terms of the Pooling and Servicing Agreement related to that series of Certificates, will continue to be made available to the related Certificate holders by the Reporting Agent on a website of the Reporting Agent identified in the related Pooling and Servicing Agreement and Offering Documents (as defined below) of the Filer;

5.             The Reports for a series of Certificates consist of the following annual reports:

(a)           an annual report, which is made available to the related Certificate holders no later than March 15 of each year, setting out the amount of distributions of principal and interest on the series of Certificates, administration and other fees, and other information on the series of Certificates for each calendar year;

(b)           an annual statement of compliance signed by a senior officer of each Servicer of the Custodial Property related to the series of Certificates, which is made available to the related Certificate holders no later than April 15 of each year, certifying that the Servicer has fulfilled all of its obligations under the related Pooling and Servicing Agreement during the calendar year or, if there has been a material default, specifying each such default and the nature and status thereof; and

(c)           an annual accountants’ report prepared by a firm of independent public or chartered accountants, which is made available to the related Certificate holders no later than April 15 of each year, regarding compliance by each Servicer of the related Custodial Property with the Uniform Single Attestation Program for Mortgage Bankers during the calendar year;

6.             The Reports for a series of Certificates consist of a quarterly report, which is made available to the related Certificate holders within fifteen days of the end of each calendar quarter, setting out the amount of distributions of principal and interest on the series of Certificates, administration and other fees, and other information on the series of Certificates for each three-month period during each calendar year;

7.             The Reports for a series of Certificates consist of the following monthly reports, which are made available to the related Certificate holders no later than the date each month on which distributions from the Custodial Property related to the series of Certificates are made to the related Certificate holders:

(a)           a distribution date statement and loan level statement setting out the amount of distributions of principal and interest on the series of Certificates, Certificate balances, administration and other fees, and certain aspects of the performance and composition of the Custodial Property related to the series of Certificates during the month;

(b)           a delinquent loan status report setting out, among other things, delinquent mortgages in the related Custodial Property by the length of their delinquency and mortgages in the related Custodial Property subject to foreclosure or other enforcement proceedings;

(c)           a report on mortgage modifications setting out, among other things, mortgages in the related Custodial Property that have been modified and the original and revised terms thereof;

(d)           a status report on the mortgages in the related Custodial Property in which the related mortgaged properties have been acquired through enforcement proceedings for the benefit of the related Certificate holders setting out, among other things, the amount of income collected and other amounts received in respect of these mortgages;

(e)           a report on mortgage reserves and letters of credit in the related Custodial Property setting out, among other things, the types of reserves and the balances of the reserves and letters of credit; and

(f)            reports on the financial status of the mortgages in the related Custodial Property setting out, among other things, and to the extent applicable, occupancy levels, revenue, net operating income ratios, debt service coverage ratios and other performance information;

8.             If there are performance issues with any mortgages in the Custodial Property related to a series of Certificates, additional information will be made available to the related Certificate holders regarding these mortgages, including reports on the status of these mortgages and inspection reports on and appraisals of the mortgaged properties related to these mortgages;

9.             The Filer is a reporting issuer in each of the Jurisdictions and is a “venture issuer” as defined in National Instrument 51-102 Continuous Disclosure Obligations;

10.          Pursuant to an MRRS decision document dated May 2, 2005, the Filer is exempted, on certain terms and conditions, from the requirements of the securities legislation in the Jurisdictions concerning, among other things, the preparation, filing and delivery of interim and annual financial statements (the Continuous Disclosure Decision);

11.          Pursuant to an MRRS decision document dated May 31, 2005, the Filer was exempted, on certain terms and conditions, from the requirements in Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (MI 52-109) to file interim and annual certificates in the forms set out in MI 52-109, which relief terminated on June 1, 2008;

12.          Pursuant to a decision dated July 18, 2008, the Filer was exempted, on certain terms and conditions, from the requirements in MI 52-109 to file interim and annual certificates in the forms set out in MI 52-109, which relief terminated on June 1, 2013;

13.          Pursuant to a decision dated July 12, 2013, the Filer is exempted, on certain terms and conditions, from the requirements in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109) to file interim and annual certificates in the forms set out in NI 52-109 (the NI 52-109 Decision);

14.          The Filer is not in default of any of the requirements of the securities legislation in any of the Jurisdictions;

15.          The Filer has no issued and outstanding securities other than the Certificates;

16.          As of April 8, 2019, the Filer has seven series of Certificates outstanding, being:

(a)           Series 2014-1 Commercial Mortgage Pass-Through Certificates (the Series 2014-1 Certificates)

By Canadian offering memoranda and a U.S. supplemental offering memorandum, each dated October 20, 2014, the Filer privately placed on October 24, 2014, ten classes of Series 2014-1 Certificates in the aggregate principal amount of $280,615,596, with an aggregate principal amount of $270,003,596 privately placed in Canada and an aggregate principal amount of $10,612,000 privately placed in the United States on October 24, 2014;

(b)           Series 2015-1 Commercial Mortgage Pass-Through Certificates (the Series 2015-1 Certificates)

By Canadian offering memoranda and a U.S. supplemental offering memorandum, each dated May 13, 2015, the Filer privately placed on May 21, 2015, eleven classes of Series 2015-1 Certificates in the aggregate principal amount of $334,829,948, with an aggregate principal amount of $321,436,000 privately placed in Canada and an aggregate principal amount of $13,393,948 privately placed in the United States on May 21, 2015;

(c)           Series 2016-1 Commercial Mortgage Pass-Through Certificates (the Series 2016-1 Certificates)

By Canadian offering memoranda and a U.S. supplemental offering memorandum, each dated May 11, 2016, the Filer privately placed on May 18, 2016, eleven classes of Series 2016-1 Certificates in the aggregate principal amount of $400,953,248 with an aggregate principal amount of $363,953,248 privately placed in Canada and an aggregate principal amount of $37,000,000 privately placed in the United States on May 18, 2016;

(d)           Series 2016-2 Commercial Mortgage Pass-Through Certificates (the Series 2016-2 Certificates)

By Canadian offering memoranda and a U.S. supplemental offering memorandum, each dated September 16, 2016, the Filer privately placed on September 23, 2016, eleven classes of Series 2016-2 Certificates in the aggregate principal amount of $421,477,036, with an aggregate principal amount of $401,477,036 privately placed in Canada and an aggregate principal amount of $20,000,000 privately placed in the United States on September 23, 2016;

(e)           Series 2017 Commercial Mortgage Pass-Through Certificates (the Series 2017 Certificates)

By Canadian offering memoranda and a U.S. supplemental offering memorandum, each dated October 24, 2017, the Filer privately placed on October 27, 2017, twelve classes of Series 2017 Certificates in the aggregate principal amount of $406,758,444, with an aggregate principal amount of $317,948,444 privately placed in Canada and an aggregate principal amount of $88,810,000 privately placed in the United States on October 27, 2017;

(f)            Series 2018-1 Commercial Mortgage Pass-Through Certificates (the Series 2018-1 Certificates)

By Canadian offering memoranda and a U.S. supplemental offering memorandum, each dated July 18, 2018, the Filer privately placed on July 26, 2018, twelve classes of Series 2018-1 Certificates in the aggregate principal amount of $351,794,690, with an aggregate principal amount of $190,594,690 privately placed in Canada and an aggregate principal amount of $161,200,000 privately placed in the United States on July 26, 2018; and

(g)           Series 2019-HBC Commercial Mortgage Pass-Through Certificates (the Series 2019-HBC Certificates)

By Canadian offering memoranda and a U.S. supplemental offering memorandum, each dated March 18, 2019, the Filer privately placed on March 25, 2019, five classes of Series 2019-HBC Certificates in the aggregate principal amount of $250,000,000, with an aggregate principal amount of $167,187,000 privately placed in Canada and an aggregate principal amount of $82,813,000 privately placed in the United States on March 25, 2019;

17.          All series of Certificates previously offered by way of prospectus by the Filer in Canada have been paid in full. The Filer has not offered any series of Certificates by way of a prospectus or registration statement in the United States;

18.          The Filer is not eligible to surrender its status as a reporting issuer in British Columbia pursuant to British Columbia Instrument 11-502 Voluntary Surrender of Reporting Issuer Status because the Filer has more than 50 securityholders, being the holders of the Certificates. Similarly, and because the Certificates are beneficially owned, directly or indirectly, by more than 50 securityholders worldwide, the Filer is not eligible to file under the simplified procedure under National Policy 11-206 Process for Cease to be a Reporting Issuer Application;

19.          A series of Certificates only entitles the Certificate holders of that series to distributions from the Custodial Property related to that series. Certificate holders do not have any recourse to the Filer. Certificates do not entitle the holders thereof to receive or to convert their Certificates into other securities of the Filer, or to otherwise participate in the distribution of the assets of the Filer upon a liquidation or winding up;

20.          The Certificates are rated by designated rating agencies (as defined in National Instrument 44-101 Short Form Prospectus Distributions) (Rating Agencies). The Rating Agencies base their ratings of a series of Certificates on the Custodial Property related to that series of Certificates in which the related Certificate holders have an undivided co-ownership interest and, in the case of certain classes of Certificates (a Senior Class), the subordination of the payment of distributions on certain other classes of Certificates to the prior payment of distributions to a Senior Class, rather than by any independent assessment of the condition and performance, financial or otherwise, of the Filer. The Filer has confirmed that for the foreseeable future the Certificates will continue to be rated by at least two Rating Agencies after the Filer ceases to be a reporting issuer in Canada;

21.          There is no obligation or covenant in any Pooling and Servicing Agreement, the Certificates or any Canadian offering memoranda or U.S. supplemental offering memorandum delivered in connection with an offering of Certificates (Offering Documents) for the Filer to maintain its status as a reporting issuer or the equivalent in any jurisdiction of Canada or to file management’s discussion and analysis (MD&A) or any other continuous disclosure documentation on SEDAR. No MD&A or any other continuous disclosure documentation was included or incorporated by reference in any Offering Document. The investors to which Certificates were placed were sophisticated, institutional investors who had the opportunity to negotiate for such disclosure or filing obligations under the related Pooling and Servicing Agreement, the Certificates or the related Offering Documents as they saw fit. No continuous disclosure of financial statements, MD&A or annual information forms is required under the United States securities laws pursuant to which the Certificates were sold in the United States and no continuous disclosure is required in Canada under the prospectus exemption pursuant to which the Certificates were sold in Canada;

22.          Pursuant to the Continuous Disclosure Decision and the NI 52-109 Decision, the Filer is exempt from filing on SEDAR interim and annual financial statements and interim and annual certificates in the forms set out in NI 52-109, respectively, on the basis that (a) the Filer currently has, and will continue to have, no material assets or liabilities other than its rights and obligations arising from acquiring Custodial Property and issuing Certificates, (b) holders of a series of Certificates only have recourse to the Custodial Property related to their series and will not have any recourse to the Filer, and (c) the information that would be disclosed in interim and annual financial statements of the Filer is not relevant to Certificate holders since holders of a series of Certificates only have entitlements in and recourse to the Custodial Property related to their series and do not have any entitlements in or recourse to the Filer.

23.          The disclosure in the Reports for a series of Certificates provides detailed financial and performance information on the related series of Certificates and Custodial Property, including on the related mortgages and hypothecs, on a monthly, quarterly and annual basis. All financial and performance information disclosed in the interim and annual MD&A and other continuous disclosure documents of the Filer is obtained exclusively from the Reports. The Filer is required pursuant to the terms of the Pooling and Servicing Agreements to continue to cause the Servicers and the Reporting Agent to prepare the monthly, quarterly and annual Reports and make them available to Certificate holders on a website of the Reporting Agent identified in each Pooling and Servicing Agreement and the related Offering Documents for as long as the Certificates are outstanding, even if the Filer’s reporting issuer status is terminated. Certificate holders and investors in commercial mortgage-backed securities generally are fully aware of and comfortable using the Reporting Agent’s website to access the monthly, quarterly and annual Reports. The Filer has used the Reporting Agent to prepare Reports and the Reporting Agent’s website for the posting of the Reports since 2004;

24.          No securities of the Filer, including the Certificates, are listed, traded or quoted in Canada or another country on a marketplace (as defined in National Instrument 21-101 Marketplace Operation) or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported. The Filer has no intention to distribute any securities by way of a public offering of securities in Canada or the United States;

25.          The Filer issued a news release on July 7, 2019 announcing that it has applied to the Ontario Securities Commission, as principal regulator, for a decision that it has ceased to be a reporting issuer in all jurisdictions of Canada and, if that decision is granted, the Filer will no longer be a reporting issuer in any jurisdiction of Canada;

26.          Upon granting of the Order Sought, the Filer will not be a reporting issuer or the equivalent in any jurisdiction of Canada.

ORDER

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

The decision of the principal regulator under the Legislation is that the Order Sought is granted.

“Heather Zordel”
Commissioner
Ontario Securities Commission

“Grant Vingoe”
Vice-Chair
Ontario Securities Commission