Application by a reporting issuer and a capital trust (the Trust) for an order granting the Trust relief from the requirement in OSC Rule 13-502 Fees (the Fees Rule) to pay participation fees – Relief analogous to relief for “subsidiary entities” contained in section 2.4(1) of the Fees Rule – Trust may not, from a technical accounting perspective, be entitled to rely on the exemption in section 2.4(1)(b) of the Fees Rule – Trust and reporting issuer meet all of the substantive requirements to rely on the exemption in section 2.4(1) but for the requirement that applicable accounting standards require the consolidation of the parent and the subsidiary entity – Trust exempt from requirement to pay participation fees, subject to conditions.
Applicable Legislative Provisions
OSC Rule 13-502 Fees, s. 2.4.
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION
RULE 13-502 FEES
IN THE MATTER OF
TRANSCANADA PIPELINES LIMITED
WHEREAS the Ontario Securities Commission (the OSC) has received an application from TransCanada PipeLines Limited (TCPL) and TransCanada Trust (the Trust) for an order, pursuant to section 8.1 of OSC Rule 13-502 Fees (the Fees Rule), that the requirement to pay a participation fee under section 2.2 of the Fees Rule shall not apply to the Trust, subject to certain terms and conditions.
AND WHEREAS TCPL and the Trust have represented to the OSC that:
1. The Trust is a trust established under the laws of Ontario pursuant to a declaration of trust, dated September 16, 2014, as amended, restated or supplemented from time to time.
2. The Trust's head and registered office is located in Calgary, Alberta.
3. The Trust has a financial year end of December 31.
4. The Trust is a reporting issuer in each of the provinces and territories of Canada (the Report-ing Jurisdictions). The Trust is not in default of any requirement of the securities legislation in the Reporting Jurisdictions.
5. Pursuant to an administration agreement dated as of September 16, 2014 between Valiant Trust Company, as trustee of the Trust (the Trustee) and TCPL, the Trustee has delegated to TCPL certain of its duties in relation to the administration of the Trust. TCPL, as administrative agent, provides advice and counsel with respect to management of the assets of the Trust and other matters as may be requested by the Trustee from time to time and administers the day-to-day operations of the Trust.
6. As of the date hereof, the capital of the Trust consists of Trust Notes – Series 2015-A (the Series 2015-A) and voting trust units (the Voting Trust Units and collectively with the Series 2015-A, the Trust Securities). No Trust Securities are currently listed on a marketplace as defined in National Instrument 21-101 Marketplace Operation.
7. The Trust is a single purpose vehicle established for the purpose of effecting offerings of Trust Securities in order to provide TCPL with a cost effective means of raising capital by means of
a. creating and selling the Trust Securities; and
b. acquiring and holding assets, which will consist primarily of one or more subordinated notes of TCPL (each, a TCPL Sub Note) and certain other eligible assets (as described in the Prospectus) (collectively, the Trust Assets).
8. The Trust, pursuant to section 13.4 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), relies on the continuous disclosure documents filed by TCPL.
9. TCPL is a wholly owned subsidiary of TransCanada Corporation (TCC).
10. The TCPL Sub Notes are included in calculated participation fee payable by TCC, and the TCPL Sub notes are substantially the same as Series 2015-A.
11. TCPL, as a legal matter, controls the Trust through its ownership of the Voting Trust Units issued by the Trust.
12. TCC has paid, and will continue to pay, participation fees applicable to it under section 2.2(1) of the Fees Rule. TCPL relies on the fees paid by TCC, pursuant to section 2.4 of the Fees Rule.
13. The Trust is a “Class 2 reporting issuer” under the Fees Rule and would be required (but for this Order) to pay participation fees under such rule.
14. The Fees Rule includes an exemption for “subsidiary entities” in subsection 2.4(1) of the Fees Rule. TCC, TCPL and the Trust meet all of the substantive requirements to rely on the exemption in subsection 2.4(1) of the Fees Rule, but for (a) the requirement in subsection 2.4(1)(b) that the accounting standards to which the parent's financial statements are prepared in accordance with National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards require the consolidation of the parent and the subsidiary entity, and (b) the requirement in subsection 2.4(i)(d), that the capitalization of the parent for the previous financial year included the capitalization of the subsidiary.
15. The Fees Rule defines “subsidiary entity” by reference to the accounting definition under the generally accepted accounting principles applying to the person or company, rather than by reference to a legal definition based on control.
16. TCC includes the TCPL Sub Notes in its capitalization, and the TCPL Sub Notes are substantially the same as the Series-A. Therefore the capitalization of TCC effectively includes the Series 2015-A.
17. The Trust is a variable interest entity (VIE) under U.S. GAAP. According to the VIE model under U.S. GAAP, neither TCC nor TCPL may consolidate the Trust because the assets of the Trust consist primarily of the TCPL Sub Notes, which are liabilities of TCPL. As a result, the Trust is not, from a technical accounting perspective entitled to rely on the exemption in subsection 2.4(1) of the Fees Rule. However, despite this accounting treatment, the Trust is considered a subsidiary of TCPL and TCC (as such term is defined in the Securities Act (Ontario)), due to the fact that TCPL controls the Trust for the purposes of Section 4 of the Securities Act (Ontario) and TCPL is controlled by TCC.
THE ORDER of the Commission under the Fees Rule is that the requirement to pay a participation fee under section 2.2 of the Fees Rule shall not apply to the Trust, for so long as:
(a) the Trust continues to rely on the exemption in Section 13.4 of NI 51-102 and the Trust and TCPL satisfy all of the conditions of Section 13.4 of NI 51-102;
(b) the Trust does not carry on any operating activity other than in connection with offerings of its securities and the Trust has minimal assets, operations, revenues or cash flows other than those related to the TCPL Sub Notes and any additional subordinated notes of TCPL that may be issued, from time to time, to the Trust or the issuance, administration and repayment of Trust Securities;
(c) the capitalization of the TCPL Sub Notes and any additional subordinated notes of TCPL that may be issued, from time to time, to the Trust is substantially the same as the capitalization of the all outstanding securities of the Trust, other than the Voting Trust Units; and
(d) the capitalization of the TCPL Sub Notes and any additional subordinated notes of TCPL that may be issued, from time to time, to the Trust is included in the participation fee calculation applicable to TCC and TCC has paid the participation fee calculated on this basis.
Dated this 28th day of September, 2016.
Manager, Corporate Finance
Ontario Securities Commission