Securities Law & Instruments

Headnote

Policy Statement 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption granted from the requirement in item 5 of Form 31-103F1 Calculation of Excess Working Capital that long-term related party debt of a registered firm be included in the adjusted current liabilities of the firm, unless a subordination agreement has been entered into in respect of such debt, in calculating its excess working capital required under section 12.1 of NI 31-103 -- Relief subject to certain conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 12.1.

Sections 263 (Dual application) and 296 (Coordinated review) of the Québec Securities Act.

[TRANSLATION]

April 24, 2015

IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (THE JURISDICTIONS) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF FIERA CAPITAL CORPORATION (THE FILER)

DECISION

Background

The securities regulatory authority or regulator in Québec and Ontario (the Dual Exemption Decision Makers) have received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirement in item 5 of Form 31-103F1 Calculation of Excess Working Capital (Form 31-103F1) that long-term related party debt of a registered firm be included in the adjusted current liabilities of the firm, unless a subordination agreement (Subordination Agreement) has been entered into in respect of such debt, in calculating its excess working capital required under section 12.1 of Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations (Regulation 31-103) (the Exemption Sought).

Furthermore, the securities regulatory authority or regulator in Québec and Ontario (the Coordinated Decision Makers) have received an application from the Filer that certain parts of the Application and the credit documentation provided to the Coordinated Decision Makers (the Confidential Information) be declared inaccessible and not made available to the public (the Confidentiality Request).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a hybrid application):

a) the Autorité des marchés financiers is the principal regulator for this application;

b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting Passport System (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Yukon and Nunavut;

c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario; and

d) the decision evidences the decision of each Coordinated Decision Maker.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions and Regulation 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

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

1. The Filer is a corporation formed under the laws of Ontario and a reporting issuer in Québec, Ontario, Alberta and British Columbia. Its common shares are listed on the Toronto Stock Exchange (the TSX) under the symbol FSZ. The Filer's head office is located in Montreal.

2. The Filer is registered in all provinces and territories of Canada in the categories of portfolio manager and exempt market dealer. The Filer is also registered in Québec, Ontario and Newfoundland and Labrador in the category of investment fund manager, in Manitoba in the category of adviser under The Commodity Futures Act (Manitoba), in Ontario in the categories of commodity trading manager and in Québec in the category of derivatives portfolio manager.

3. The share capital of the Filer is comprised of two classes of shares: Class A Subordinate Voting Shares (Class A Shares) and Class B Special Voting Shares (Class B Shares). Both classes of shares entitle holders thereof to one vote per share, except in the case of a vote related to the election of directors of the Filer. In such case, holders of Class A Shares are entitled, voting separately as a class, to elect one-third of the directors of the Filer and holders of Class B Shares are entitled, voting separately as a class, to elect two-thirds of the directors of the Filer.

4. As at March 31, 2015, there were 20 022 638 Class B Shares and 48 811 231 Class A Shares outstanding, for a total of 68 833 869 outstanding shares of the Filer.

5. National Bank of Canada (NBC), indirectly through its wholly-owned subsidiaries, owns approximately 31.3% of the Filer's outstanding Class A shares (which represents approximately 22.2% of the total outstanding shares of the Filer) and, through an investor rights agreement between it and the Filer, has the right to propose for election two of four directors of the Filer that the holders of Class A Shares are entitled to elect. The Filer has determined that NBC is a "related party" as defined under part I in the CPA Handbook.

6. Desjardins Société financière inc., an indirect wholly-owned subsidiary of Fédération des caisses Desjardins du Québec (Desjardins), indirectly owns approximately 36% of the outstanding Class B Shares representing approximately 11% of the Filer's outstanding shares and, through a unanimous shareholders agreement between it and Arvestia Inc.{1}, has the right to propose for election two of the eight directors of the Filer that the holders of Class B Shares are entitled to elect. Caisse centrale Desjardins (CcD), one of the Lenders (as defined below), is also an indirect wholly-owned subsidiary of Desjardins. The Filer has determined that CcD is also a "related party" as defined under part I in the CPA Handbook.

7. A credit agreement dated March 30, 2012, was entered into among the Filer, NBC (as a lender and as administrative agent), Bank of Montreal (BMO), and CcD (the Original Credit Agreement) under the terms of which senior unsecured credit facilities in the aggregate amount of Cdn$118,000,000 were made available to the Filer.

8. The Original Credit Agreement was negotiated in the context of the Filer acquiring the business and assets of Natcan Investment Management Inc. (Natcan) (a wholly-owned subsidiary of NBC). The Filer financed this acquisition in part by way of debt and in part by way of the issuance of Class A Shares. The loans obtained through the Original Credit Agreement were the best option available to the Filer at that time to meet its debt financing needs. As for the part of the financing raised by way of a share issuance, the Filer issued to Natcan Class A Shares representing 35% of the issued and outstanding shares of the Filer. It is only once the issuance of those Class A Shares was complete that the Filer and NBC, as a shareholder of Natcan, became related parties. Therefore, NBC was not a related party of the Filer at the time and, although CcD might have been, the Original Credit Agreement was negotiated between the Filer and the lenders thereunder under commercially reasonable terms for parties dealing at arm's length.

9. The Original Credit Agreement was amended and restated as of January 31, 2013, to increase the principal amount of the revolving facility to Cdn$20,000,000 and increase the principal amount of the term facility to Cdn$180,000,000 (the Principal Credit Agreement).

10. The Principal Credit Agreement was amended and restated as of October 31, 2013, pursuant to the second amended and restated credit agreement entered into among the Filer, NBC, CcD, BMO, The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RBC) and (collectively with NBC, CcD, BMO,BNS and RBC the Lenders and, any one of them, a Lender) with NBC acting as administrative agent, in order to, among other things, increase the principal amount of the revolving facility and reduce the principal amount of the term facility (the Credit Agreement).

11. Under the terms of the Credit Agreement, two facilities (the Facilities) were put in place:

a) A term facility in the principal amount of Cdn$175,000,000 (the Term Facility);

b) A revolving facility in the principal amount of Cdn$75,000,000 (the Revolving Facility). As part of the Revolving Facility, and not in addition thereto, a swingline facility in an amount of Cdn$5,000,000 (the Swingline Facility), was made available to the Filer.

12. The purpose of the Term Facility was to refinance in part the existing term loans under the Principal Credit Agreement.

13. The purpose of the Revolving Facility is to:

a. finance general corporate purposes of the Filer and its affiliates;

b. finance in part the recent acquisitions of Bel Air Investments Advisors LLC, Bel Air Securities LLC and Wilkinson O'Grady & Co., Inc. completed by the Filer; and

c. finance future acquisitions by the Filer.

14. The purpose of the Swingline Facility is to enable the Filer to have access to credit without the same formalities as those applicable to a drawdown under the Revolving Facility, by simply writing cheques on its accounts and making transfers from its accounts, up to the aggregate amount of Cdn$5,000,000. This is customary in most revolving facilities and acts as a credit line would. The Swingline Facility is part of NBC's commitment under the Revolving Facility, but is subject to redistribution among the other Lenders such that ultimately the risk associated with the Swingline Facility is borne by all Lenders in accordance with the pro rata share of the Revolving Facility set forth in the Credit Agreement.

15. As at March 31, 2015, the principal amount outstanding under the Credit Agreement was Cdn$234 823 796. This amount was incurred primarily in connection with the financing of recent acquisitions by the Filer (the Investments).

16. The book value of these Investments as at March 31, 2015 is estimated at Cdn$535 675 459, which is Cdn$300 851 663 more than the principal amount outstanding under the Credit Agreement.

17. The loans under the Credit Agreement were not incurred for the purposes of providing working capital to, or funding ongoing operations of, the Filer (except for an amount of Cdn$1,875,000 drawn down on January 30, 2013). Instead, this financial arrangement was structured primarily for significant business acquisitions.

18. The term for the loans under the Facilities is April 3, 2017; however, the Filer will start repaying the term loan in quarterly consecutive repayments of Cdn$3,375,000 starting on June 30, 2015.

19. In addition, the Filer may, at any time, voluntarily repay the whole or any part of the loans without penalty or premium. Any repayment of loans made under the Revolving Facility may be re-borrowed by the Filer at any time, given the revolving nature of the Revolving Facility.

20. Except for the loans made under the Swingline Facility, all repayments of any part of the loans must be made to the administrative agent (NBC) who shall forthwith distribute to each of the Lenders their rateable share of such repayments. The loans made under the Swingline Facility are only repaid to NBC until such time as NBC, as administrative agent, requests that the other Lenders participate in the loans made under the Swingline Facility up to their respective rateable shares, which it can do at any time. The Lenders each have a residual interest in the loans made under the Swingline Facility as they may each have to purchase their proportionate share of such loan from NBC. Note that upon acceleration, such a redistribution of the loans under the Swingline Facility is automatic and, therefore, as noted above, ultimately the risk associated with the Swingline Facility is borne by all Lenders in accordance with their pro rata share of the Revolving Facility.

21. The Credit Agreement is a typical syndicated credit agreement, negotiated at arm's length between the Filer and a group of financial institutions, each acting independently one from the other. Its terms and conditions are no different from what is typically seen on the market.

22. The Credit Agreement includes standard default provisions and standard remedies for such defaults, including declaring the whole or any part of the Facilities to be cancelled and accelerating the maturity of all or any part of the loans thereunder.

23. As the Credit Agreement is a syndicated loan, NBC has been appointed as administrative agent under the Credit Agreement to oversee the day-to-day administration of the agreement and the loans. In its capacity as administrative agent, NBC cannot exercise by itself any remedy further to the occurrence of any default without first being instructed to do so by the Majority Lenders (as defined below), including demanding immediate repayment of the loans. To the extent that the administrative agent is notified of a default of the Filer, it can only take such action and assert such rights as it is instructed in writing by the Majority Lenders to take or assert. As is the case in any syndicated loan financing, NBC has no influence beyond that of any other Lender by sole reason of its role as administrative agent.

24. The "Majority Lenders" are defined as the Lenders to which at least 66 2/3% of the loans are due or, if no loans are then outstanding, the Lenders whose commitments under the Facilities represent at least 66 2/3% of the Facilities. The amount owed to NBC under the Facilities (the NBC Loan) and the amount owed to CcD under the Facilities (the CcD Loan) currently account, in the aggregate, for less than 66 2/3% of the Facilities.

25. Regardless of the composition of the syndicate of Lenders at any time, the definition of Majority Lenders would never permit NBC to make any decisions without at least one other Lender being in agreement with such decision. As the syndicate of Lenders currently exists, no decision of the Majority Lenders can be made without the votes of at least three of the Lenders, which means that neither NBC nor CcD may make decisions, alone or together, without another Lender also approving this decision.

26. Any amendment to the Credit Agreement can only be made with the consent of the Filer and the administrative agent, acting in accordance with the instructions of the Majority Lenders, or in the case of certain important provisions, with the consent of every Lender. Similarly, non-compliance by the Filer with any term of the Credit Agreement may only be waived by the Majority Lenders or all the Lenders, as the case may be, depending on the provision in question.

27. The Credit Agreement contains the framework within which the Lenders have agreed as a group to lend money to the Filer. Any deviation from that framework requires at a minimum, the consent of the Majority Lenders.

28. Section 12.1 of Regulation 31-103 requires that the Filer, as a registered firm, must ensure that it has excess working capital, as calculated using Form 31-103F1, of greater than zero. Item 5 of Form 31-103F1 essentially provides that in determining a registered firm's excess working capital, the firm must include in its adjusted current liabilities all long-term related party debt, unless the firm and the lender have entered into a Subordination Agreement in the form set out in Appendix B to Regulation 31-103 with respect to such debt and delivered a copy of the agreement to the regulator. The notes included in Form 31-103F1 require that a registered firm refer to the definition of "related party" under part I in the CPA Handbook when determining whether the firm has related parties.

29. The loans are not owed to a single related-party lender, but rather to a syndicate of Lenders. The Filer cannot choose to repay a single Lender and no single Lender can demand payment of its loans owing under the Facilities. Any repayment made by the Filer will be applied proportionately between the Lenders. Consequently, neither NBC nor CcD can demand repayment of only its portion of the loans made under the Facilities.

30. The Lenders are sophisticated institutions and they would not be influenced by any other Lender to make loans on terms which would not be commercially acceptable to them for the benefit of Lenders who may be related parties to the borrower. The five Lenders under the Credit Agreement are some of the most prominent financial institutions in Canada and the decision to enter into the Credit Agreement was closely examined by competent and informed individuals or a committee formed of such individuals who would not permit the loans to unduly benefit one Lender over the others. Such diligent, arm's length oversight also applies to any decision each of the Lenders needs to make under the terms of the Credit Agreement while the Facilities are in place.

31. In light of the way decisions must be made by the syndicate of Lenders under the Credit Agreement, NBC, (whether as a Lender or as administrative agent) is not in a position to make any decision on its own, other than the day-to-day administration of the loans. Any important decision (including acceleration of maturity following an event of default) must be made by the Majority Lenders, which means that NBC and CcD may not make decisions, alone or together, without at least one other Lender approving this decision. None of the other Lenders would approve any such decision unless it thought it best for such Lender.

32. The Filer believes that because decisions are made at a minimum by the Majority Lenders (currently, a minimum of three Lenders) and because the Majority Lenders together are not a related party of the Filer, it is reasonable to consider that the loans under the Credit Agreement are not structured as typical related party debt, (within the meaning intended by the Canadian Securities Administrators (CSA) for that expression to have in Form 31-103F1), do not present the public policy concerns that the CSA has in respect of typical related party debt, and hence it is reasonable to grant the Exemption Sought.

33. The requirement to add the NBC Loan and the CcD Loan to item 5 of Form 31-103F1 fails to take into account the fact the NBC Loan and the CcD Loan and all of the other loans made under the Credit Agreement:

a) arose primarily in connection with the financing of long-term Investments;

b) were not incurred to provide working capital for the Filer or to fund its ongoing operations (except for an amount of Cdn$1,875,000 drawn down on January 30, 2013); and

c) are more than offset by the Cdn$535 675 459 of long-term Investments acquired through the Filer's recent acquisitions.

34. In the absence of the Exemption Sought the Filer will be in breach of Regulation 31-103. Furthermore, any change to the structure of the financing would be detrimental to the Filer.

Decision

Each of the principal regulator and the securities regulatory authority or regulator in Ontario is satisfied that the decision meets the test set out in the Legislation to make the Decision.

The decision of the Dual Exemption Decision Makers under the Legislation is that the Exemption Sought is granted, subject to the following conditions:

(i) except for decisions which can be made by NBC as administrative agent in accordance with the Credit Agreement, all decisions under the Credit Agreement will require at least one Lender who is not a related party (as defined under part I in the CPA Handbook) of the Filer;

(ii) the Credit Agreement will not be amended to expand the scope of decisions which the administrative agent may currently make acting as such pursuant to the Credit Agreement, to decisions which, to be made, currently require at least one Lender who is not a related party (as defined under part I in the CPA Handbook) of the Filer;

(iii) on or before March 31st of each year, the Filer will file with its principal regulator a notice with the following information, as at December 31st of each preceding year:

A. the principal amount outstanding under the Credit Agreement;

B. the pro-rata share by each Lender of the commitments and loans under the Credit Agreement; and

C. the value of the Investments made using funds from the Credit Agreement; and

(iv) in the event that the aggregate value of the NBC Loan and CcD Loan exceeds the aggregate value of the long term Investments related to loans made under the Credit Agreement, then NBC and CcD will be asked to enter into Subordination Agreements for their share of such excess amount and the Filer deliver these Subordination Agreements to its principal regulator or, failing such, such excess amount will be added to item 5 of Form 31-103F1 by the Filer; and

This decision shall apply to any amendment to the Credit Agreement, including, any renewal, extension or increase in the principal amount made available under the Facilities that takes place after the date of this decision, provided that the terms reflect current market practices at that time and that the conditions set forth above are respected.

This decision, except for the Confidentiality Request, shall terminate on the day that is five years after the date of this decision.

"Eric Stevenson"
Superintendent, Client Services and Distribution Oversight
Autorité des marchés financiers

Furthermore, the decision of the Coordinated Decision Makers is that the Confidentiality Request is granted until the date that the Filer advises its principal regulator that there is no longer any need for Confidential Information to remain inaccessible.

"Benoît Longtin"
Assistant Corporated Secretary
Autorité des marchés financiers

{1} Desjardins and Arvestia Inc. are the two shareholders of Fiera Holdings Inc., who in turn is the general partner of Fiera Capital L.P., the only holder of Class B Shares of the Filer.