Canadian regulators are making it easier for public companies to raise money by selling shares directly into the market on a continuing basis, a move that could help firms struggling to raise capital amid the current market upheaval.
At-the-market programs, known as ATMs, allow companies to sell batches of shares over a period of time at current market prices. This differs from marketed offerings, such as bought deals, where companies sell a block of shares at a preset price.
On Thursday, the Canadian Securities Administrators published amendments to its ATM rules, removing requirements that companies apply for certain securities law exemptions before launching an ATM, and removing caps on the number of shares a company can sell using an ATM. The new rules come into effect at the end of August.
While the changes have been in the works for several years, the final amendments are emerging when companies in sectors hit hard by COVID-19 are struggling with cash-flow, and may be having difficulty raising money.
“Since it is a more efficient way of raising capital, it will probably save some costs, and will allow issuers to take advantage of market conditions if they want to hit the market quickly," said Susan Copland, managing director of the Investment Industry Association of Canada, which lobbied for the changes.
"In a volatile share price situation, I think that could be nothing but helpful,” Ms. Copland said.
ATMs have been popular in the United States for years, but remain relatively rare in Canada. Since 2010, only 24 Canadian companies have used ATMs, raising around $2.76-billion over the course of 30 ATM programs, according to CSA data.
The lack of Canadian interest was partly owing to regulatory hurdles issuers needed to jump through to launch ATMs, said Rob Lando, a partner with the law firm Osler, Hoskin & Harcourt LLP. The CSA almost always granted the necessary exemptions, but having to apply for them was “an unnecessary speed bump,” Mr. Lando said.
The changes “provide people with the flexibility of putting the option of an ATM program right into their shelf prospectus at the outset without having to spend extra time or money applying for permission to have it," Mr. Lando said.
Alongside changes to exemption requirements, the new rules also remove share sale limits. This should allow for larger ATMs and encourage more companies to access the program. There could, however, be unintended consequences of removing sales limits.
Regulations had previously capped the amount of shares that could be sold in an ATM program at 10 per cent of the “aggregate market value” of an issuer’s outstanding shares.
This was in place to limit dilution for existing shareholders. In changing the rules, the CSA argued that “dilution concerns … are addressed by other factors, including existing prospectus and continuous disclosure requirements and the requirement to engage an underwriter in the ATM distribution.”
Regulators had also contemplated limiting ATMs to companies with “highly liquid securities,” and capping the amount of shares that could be sold on a daily basis at 25 per cent of total trading volume. They decided against this.
Alfred Avanessy, head of investment banking at Cormark Securities Inc., said the choice not to include liquidity requirements and daily caps may come back to haunt regulators. Junior issuers, whose stock trades very little, may end up leaning too heavily on ATM programs, thereby driving down share prices, he said.
“You can see it kind of being this constant pressure on the stock, and longer term that could be eroding capital market confidence, and that’s a bit unfair to the original shareholders," Mr. Avanessy said.
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