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A GFL truck arrives at a transfer station in Toronto on Aug. 18, 2020.Melissa Tait/The Globe and Mail

GFL Environmental Inc. will join Canada’s primary stock index next week, capping off its eventful first year as a public company.

The S&P/TSX Composite Index will add GFL prior to the open of trading on Dec. 21. It will replace Knight Therapeutics Inc. in the only change to the membership of the 222-company index by S&P Dow Jones Indices, the index’s manager. No changes are planned for the S&P/TSX 60, an index of select larger-capitalization stocks.

The garbage-hauler went public in March after two previous aborted attempts, just as investors gripped the scale of the COVID-19 pandemic, and the company had to price its IPO below expectations. The company’s TSX-listed shares are up roughly 60 per cent from their first-day close, however, despite a U.S. short-seller taking aim at the company’s stock in August.

GFL said Monday that it plans a private offering of US$1-billion in senior secured notes, with plans to use the proceeds to repay a portion of its term-loan facility. The shares were down about 2 per cent in morning trading.

With the growth of index funds and other passive investing strategies, whether a stock is part of a major index can have a meaningful effect on share prices. Fund managers who track an index need to hold shares in the companies. The stocks can see a price bump before and even after inclusion. Similarly, companies removed from the index lose a source of demand for their shares.

In November, 2019, research by Morningstar Direct for The Globe and Mail found $219-billion in Canadian mutual funds and exchange-traded funds whose returns were closely correlated with those of the companies in the S&P/TSX Composite – including the ones that explicitly say they track that index.

The S&P/TSX has historically had between 220 and 250 members, depending on the quarter. S&P Dow Jones Indices skipped the first-quarter process because of COVID-19 market turmoil and made a large number of changes in the second quarter.

At a market capitalization of roughly $11.6-billion, GFL will be just outside the 50 biggest companies in the Composite by value. It’s $3.86-billion in revenue places it roughly in the top 75.

To be included in one of S&P Dow Jones Indices’ Canadian indexes, companies must be listed on the TSX for at least six full calendar months as of the month-end prior to the quarterly review – meaning GFL was ineligible when S&P did the previous rebalancing in September.

To get into the Composite Index, a company’s float-adjusted market capitalization must be 0.04 per cent, or four-hundredths of a percentage point, of the total value of the index. To stay in the Composite, a company’s float must not drop below 0.025 per cent, or 2.5 hundredths of a percentage point, of the index.

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