Relief granted to an investment fund listed on the Toronto Stock Exchange from the requirement in National Instrument 81-106 Investment Fund Continuous Disclosure to calculate its net asset value on a daily basis subject to certain conditions and requirements.
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 14.2(3), 17.1.
June 29, 2005
McMillan Binch Mendelsohn LLP
Attention: Kimberly J. Poster
Global Credit Pref Corp. (the "Company")
Application dated May 30, 2005 filed pursuant to section 17.1 of National Instrument 81-106 ("NI 81-106")
Application No. #391/05 and Sedar Project No. 791030
By letters dated May 30, 2005 and June 6, 2005 (collectively, the "Application"), you applied on behalf of the Company to the local securities regulatory authority or regulator (collectively the "Decision Makers") in each province of Canada except Prince Edward Island for exemptive relief from section 14.2(3) of NI 81-106 pursuant to section 17.1 of NI 81-106. Ontario is the principal jurisdiction of the Company.
From our review of the Application and the amended preliminary prospectus dated May 30, 2005 filed on behalf of the Company under Sedar Project No. 782387 (the "Preliminary Prospectus"), we understand the relevant facts and representations to be as follows:
1. The Company is a mutual fund corporation established under the laws of Ontario.
2. Gatehouse Capital Inc. (the "Manager") is the promoter and manager of the Company and will provide or arrange for the provision of administrative services required by the Company.
3. First Asset Investment Management Inc. (the "Investment Advisor") is the investment advisor to the Company. The Investment Advisor is registered as an advisor in the categories of investment counsel and portfolio manager, and is registered as a commodity trading counsel and commodity trading manager.
4. The Company will make an offering (the "Offering") to the public, on a best efforts basis, of preferred shares (the "Preferred Shares") pursuant to a final prospectus that will be filed with the securities regulatory authorities in each of the Provinces of Canada.
5. The Preferred Shares are expected to be listed and posted for trading on the Toronto Stock Exchange (the "TSX"). An application requesting conditional listing approval has been made by the Company to the TSX.
6. The Preferred Shares have been assigned a preliminary rating of P-l (Low) by Standard & Poor's, a division of The McGraw Hill Companies, Inc. ("S&P"), in accordance with the rating criteria applicable to Canadian special purpose entities.
7. The Company's investment objectives are: (i) to pay holders of Preferred Shares ("Holders") on a date that is approximately ten years from the closing date of the Offering (the "Redemption Date") an amount per Preferred Share equal to the original subscription price of $25.00 per Preferred Share; and (ii) to provide Holders with quarterly fixed cumulative preferential distributions.
8. The Company will invest the net proceeds of the Offering in order to obtain exposure to a credit linked note (the "Credit Linked Note"), which will be rated A- by S&P at closing of the Offering. The Credit Linked Note will be issued by The Toronto-Dominion Bank ("TD Bank"), whose long term debt is rated A+ by S&P as of the date hereof. The return on the Credit Linked Note will be linked to the number of defaults experienced over the term of the note among the issuers in an equally weighted portfolio of approximately 129 companies, all of which are currently rated investment grade by S&P.
9. In order to provide the Company with the means to meet its investment objectives, the Company will enter into a forward purchase and sale agreement (the "Forward Agreement") with TD Global Finance (the "Counterparty"), which will provide the Company with the economic return generated by the Credit Linked Note. The Credit Linked Note will be held by a newly created investment trust to be established under the laws of Ontario, Global Credit Trust. Under the terms of the Forward Agreement, the Counterparty will agree to pay to the Company, on or about the Redemption Date, as the purchase price for a portfolio of common shares of Canadian public companies to be acquired by the Company with the net proceeds of the Offering, the economic return provided by the Credit Linked Note. The obligations of the Counterparty will be guaranteed by TD Bank.
10. The net asset value per Preferred Share will be calculated twice a month. The Manager will post the net asset value per Preferred Share on its website at www.gatehousecapital.ca.
11. The description of the retraction process contained in the Preliminary Prospectus contemplates that the retraction price for the Preferred Shares will be determined as of the valuation date, being the last day of the month (the "Retraction Date"). As requests for retractions may be made at any time during the month and are subject to a cut-off date (five business days prior to the Retraction Date), and as the net asset value is calculated twice a month, retractions may not be implemented at a price equal to the net asset value next determined after receipt of the retraction request.
12. On a retraction, Holders will be entitled to receive a retraction price per Preferred Share equal to 95% of the net asset value determined at the relevant Retraction Date less $0.75. Holders of Preferred Shares that have retracted their shares will receive payment on or before the tenth business day following the relevant Retraction Date.
13. The Company will make fixed quarterly distributions to Holders of the Preferred Shares. The record date for Holders entitled to receive such distributions will be determined in accordance with the requirements of the TSX.
This letter confirms that, based on the information provided in the Application and the disclosure in the Preliminary Prospectus (including the facts and representations described above), and for the purposes described in the Application, the Decision Makers hereby grant an exemption from the following requirement of NI 81-106:
(a) section 14.2(3) -- to permit the Company to calculate its net asset value and publish its net asset value twice a month provided that the final prospectus discloses:
(i) that the net asset value calculation is available to the public upon request; and
(ii) a website that the public can access for this purpose.