Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – investment fund manager obtaining relief from the requirement to obtain the approval of securityholders before changing the fundamental investment objectives of a non-redeemable investment fund – exemptive relief required as a result of changes to tax law eliminating certain tax benefits associated with character conversion transactions – manager required to send written notice at least 30 days before the effective date of the change to the investment objectives of the funds setting out the change, the reasons for such change and a statement that the fund will no longer distribute gains under forward contracts that are treated as capital gains for tax purposes – National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.1(1)(c), 19.1.

June 20, 2016

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

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
ASTON HILL CAPITAL MARKETS INC.
(the Filer)

AND

VOYA FLOATING RATE SENIOR LOAN FUND

AND

VOYA DIVERSIFIED FLOATING RATE SENIOR LOAN FUND
(collectively, the Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for exemptive relief from the requirement to obtain prior securityholder approval before changing the fundamental investment objective of the Funds under subsection 5.1(1)(c) of National Instrument 81-102 Investment Funds (NI 81-102) (the Requested Relief).

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

1.             the Ontario Securities Commission is the principal regulator for this application; and

2.             the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (collectively with Ontario, the Jurisdictions).


Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 81-102 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 the manager of the Funds and is registered as a portfolio manager in Ontario and an investment fund manager in Ontario, Quebec and Newfoundland and Labrador. The head office of the Filer is located in Ontario.

2.             Each Fund is an investment trust established under the laws of the Province of Ontario pursuant to a trust agreement.

3.             Neither the Filer nor the Funds are in default of securities legislation in any Jurisdiction.

4.             Voya Floating Rate Senior Loan Fund is a non-redeemable investment fund. Its units were qualified for distribution pursuant to a prospectus dated May 27, 2011, that was prepared and filed in accordance with the securities legislation in each of the Jurisdictions. Accordingly, Voya Floating Rate Senior Loan Fund is a reporting issuer or the equivalent in each Jurisdiction. The units of Voya Floating Rate Senior Loan Fund are listed and posted for trading on the Toronto Stock Exchange (the TSX).

5.             Voya Diversified Floating Rate Senior Loan Fund is a non-redeemable investment fund. Its units were qualified for distribution pursuant to a prospectus dated February 26, 2013, that was prepared and filed in accordance with the securities legislation in each of the Jurisdictions. Accordingly, Voya Diversified Floating Rate Senior Loan Fund is a reporting issuer or the equivalent in each Jurisdiction. The units of Voya Diversified Floating Rate Senior Loan Fund are listed and posted for trading on the TSX.

6.             Under its current investment objective and strategies, each Fund may enter into character conversion transactions. Each Fund is a party to a forward purchase and sale agreement (each, a Forward Agreement). Each Forward Agreement provides the applicable Fund with exposure to the returns of the securities of another investment fund (the Reference Fund).

7.             Through the use of the Forward Agreements, each Fund provides tax-advantaged distributions to securityholders because each Fund will realize capital gains (or capital losses) on the disposition of securities acquired under the Forward Agreements, rather than ordinary income. Ordinary income is subject to tax at a higher rate in Canada than capital gains.

8.             The Forward Agreements with respect to Voya Floating Rate Senior Loan Fund and Voya Diversified Floating Rate Senior Loan Fund are expected to terminate on June 30, 2016 and February 28, 2018, respectively (the Termination Dates).

9.             The Income Tax Act (Canada) was amended in December 2013 to implement proposals that were first announced in the March 21, 2013 federal budget regarding the income tax treatment of character conversion transactions (the Tax Changes). Under the Tax Changes, the favourable tax treatment of character conversion transactions will be eliminated after a prescribed date (the Effective Date). The Effective Date for each Fund will be the applicable Termination Date.

10.          As a result of the Tax Changes, the Forward Agreements would no longer be able to, following the applicable Termination Dates, provide material tax efficiency to securityholders of the Funds.

11.          The Filer wishes to amend the investment objectives of each Fund to delete references to “tax-advantaged” distributions as a result of the termination of the Forward Agreements. Other than for the loss of tax efficiency resulting from the Tax Changes, each Fund will have the same investment attributes under its amended investment objectives as exist under its current investment objectives.


12.          Following such amendment, the revised investment objectives of each Fund will be as set out below:

Fund

Current Investment Objective

Revised Investment Objective

Voya Floating Rate Senior Loan Fund

The Fund’s investment objectives are to (i) provide tax-advantaged distributions consisting primarily of returns of capital; (ii) preserve capital; and (iii) generate increased returns in the event that short-term interest rates rise, in each case, through exposure to a diversified portfolio consisting primarily of of senior secured floating rate corporate loans (Senior Loans) and other senior debt obligations of non-investment grade North American borrowers, actively managed by Voya Investment Management Co, LLC and, if applicable, its successor (the Sub-Advisor).

The Fund’s investment objectives are to (i) provide distributions; (ii) preserve capital; and (iii) generate increased returns in the event that short-term interest rates rise, in each case, through exposure to a diversified portfolio consisting primarily of Senior Loans and other senior debt obligations of non-investment grade North American borrowers, actively managed by the Sub-Advisor.

Voya Diversified Floating Rate Senior Loan Fund

The Fund’s investment objectives are to (i) provide tax-advantaged monthly cash distributions consisting primarily of returns of capital; (ii) preserve capital; and (iii) generate increased returns in the event that short-term interest rates rise above applicable LIBOR floors, in each case, through exposure to a diversified portfolio consisting primarily of Senior Loans and other senior debt obligations of non-investment grade North American borrowers, actively managed by the Sub-Advisor.

The Fund’s investment objectives are to (i) provide monthly cash distributions; (ii) preserve capital; and (iii) generate increased returns in the event that short-term interest rates rise above applicable LIBOR floors, in each case, through exposure to a diversified portfolio consisting primarily of Senior Loans and other senior debt obligations of non-investment grade North American borrowers, actively managed by the Sub-Advisor.

13.          The Filer has complied with the material change report requirements set out in Part 11 of National Instrument 81-106 Investment Fund Continuous Disclosure in connection with the Filer’s decision to make the changes to the investment objectives of the Funds set out above.

14.          The Filer expects the proposed changes to the fundamental investment objectives of each Fund to take effect as soon as reasonably practicable on or about the applicable Termination Date.

15.          The Filer has determined that it would be in the best interests of each Fund and not prejudicial to the public interest to receive the Requested Relief.

Decision

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

The decision of the principal regulator under the Legislation is that the Requested Relief is granted, provided that, at least 30 days before the effective date of the change in the investment objectives of each Fund, the Filer will send to each securityholder of each Fund a written notice that sets out the change to the investment objective, the reasons for such change and a statement that such Fund will no longer distribute gains under forward contracts that are treated as capital gains for tax purposes.

“Raymond Chan”
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission