Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemption from the requirements in subparagraph 4.2(a)(ix) of National Instrument 44-101 and subsections 12.1(3) and (4) of Form 44-101F1 Short Form Prospectus to provide separate guarantor disclosure in a prospectus and on an ongoing basis. Issuer expects to file prospectuses for offerings of medium term notes guaranteed by certain other entities in structure (a holding trust, a limited partnership holding a number of subsidiaries and an operating subsidiary). Issuer to provide certain alternative disclosure in respect of the credit supporters. Relief subject to numerous conditions.

Applicable Legislative Provisions

NI 44-101 Short Form Prospectus Distributions, s. 8.1(1).

Citation: Re Enbridge Income Fund, 2017 ABASC 41

March 13, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
(the Jurisdictions)

AND

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

AND

IN THE MATTER OF
ENBRIDGE INCOME FUND (the Fund),
ENBRIDGE COMMERCIAL TRUST (ECT),
ENBRIDGE INCOME PARTNERS LP (EIPLP) AND
ENBRIDGE INCOME PARTNERS HOLDINGS INC. (EIPHI)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief with respect to each Prospectus (as defined herein) from the requirements in:

(a)           Subparagraph 4.2(a)(ix) of National Instrument 44-101 Short Form Prospectus Distributions that the Fund must provide an undertaking to file the periodic and timely disclosure of ECT, EIPLP and EIPHI (the Continuous Disclosure Relief);

(b)           Subsection 12.1(3) of Form 44-101F1 Short Form Prospectus (Form 44-101F1) that the Fund provide certain disclosure for ECT, EIPLP and EIPHI; and

(c)           Subsection 12.1(4) of Form 44-101F1 that the earnings coverage ratios of each of ECT and EIPHI under section 6.1 of Form 44-101F1 must be provided as if such credit supporter was the issuer of the MTNs (as defined herein) (together with (b) above, the Prospectus Relief, and collectively with the Continuous Disclosure Relief, the Exemptions Sought).

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

(a)           the Alberta Securities Commission is the principal regulator for this application;

(b)           the Fund has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador; and

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

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102, National Instrument 13-101 System for Electronic Document Analysis and Retrieval, or National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) have the same meaning if used in this decision, unless otherwise defined herein.

Representations

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

The Fund Group Entities

1.             The Fund is an unincorporated open-ended trust established under the laws of the Province of Alberta pursuant to a trust indenture dated May 22, 2003, and last amended and restated on September 1, 2015. The Fund is a limited purpose trust and pursuant to the Fund trust indenture, its activities are generally restricted to acquiring, holding and dealing with interests in operating investments that are involved in energy infrastructure and related businesses (the Fund Permitted Activities). The Fund Permitted Activities also include issuing securities and engaging in financial and other activities ancillary or incidental to its purpose. The Fund is a reporting issuer in each province of Canada and is not in default of securities legislation in any jurisdiction of Canada. The head office of the Fund is located in Calgary, Alberta.

2.             ECT is an unincorporated trust established under the laws of the Province of Alberta pursuant to a trust indenture dated December 20, 2002, and last amended and restated on March 1, 2017, for the purpose of holding and administering the Fund assets. Pursuant to the ECT trust indenture, ECT’s activities are restricted to the direct or indirect conduct of the business of, or activities pertaining to, energy infrastructure including the ownership, operation and lease of assets and property, investments, and other rights or interests in companies or other entities involved in the energy infrastructure business and engaging in all activities ancillary or incidental to the foregoing (the ECT Permitted Activities). In connection with the ECT Permitted Activities, ECT can acquire, own, hold, lease, transfer, dispose of, invest in, operate and otherwise deal with assets, securities and other interests or properties of whatever nature or kind issued by persons involved, directly or indirectly, in the business or activities pertaining or related to energy infrastructure and may borrow monies and otherwise incur indebtedness, guarantee the debts and liabilities of any person, hold cash and short-term investments, issue securities, repurchase or redeem securities. ECT is a flow-through entity that does not legally own any material assets other than 99.99% of the Class A (voting) units of EIPLP (EIPLP Class A Units) and 49% of the EIPGP Common Shares (as defined herein).

3.             The Fund holds 100% of the common (voting) units of ECT. Enbridge Inc. (Enbridge) holds 100% of the preferred (non-voting) units of ECT. The authorized capital of ECT also includes Class B (non-voting) units, none of which have been issued.

4.             Enbridge Income Partners GP Inc. (EIPGP) is a corporation incorporated under the laws of Canada. EIPGP is the general partner of EIPLP and carries on no business, other than in its capacity as the general partner of EIPLP. EIPGP does not legally own any material assets other than 0.01% of the EIPLP Class A Units. EIPGP does not have any liabilities. EIPGP has not provided any guarantees or credit support other than in connection with previously issued medium term notes of the Fund and the Bank Guarantee (as defined herein).

5.             Enbridge holds 51% of the common (voting) shares of EIPGP (EIPGP Common Shares).

6.             EIPLP is a limited partnership established under the laws of the Province of Alberta pursuant to a limited partnership agreement dated December 20, 2002, as amended and restated on September 1, 2015. EIPLP, through its ownership of operating subsidiaries or investments, is involved in the transportation, storage and generation of energy.

7.             Enbridge holds, directly and indirectly through its wholly-owned subsidiary IPL System Inc. (IPL), 100% of each of the Class C (voting) units of EIPLP, the Class D (voting) units of EIPLP, the Class E (non-voting) unit of EIPLP and the special interest rights (non-voting) of EIPLP.

8.             EIPHI is a corporation incorporated under the laws of the Province of Saskatchewan. EIPHI indirectly owns a 50% interest in the Alliance Pipeline, which transports natural gas from Canada to the United States, a 50% interest in NRGreen, which owns waste heat facilities along the Alliance Pipeline, and interests in wind and solar facilities located in Alberta, Saskatchewan and Ontario.

9.             EIPLP owns 100% of the common (voting) shares of EIPHI.

10.          The Fund, ECT, EIPLP and the subsidiaries and investees of EIPLP (including EIPHI) are referred to herein as the Fund Group.

The MTN Guarantee

11.          As of the date hereof, a total of $2.075 billion principal amount of medium term notes (MTNs) of the Fund are issued and outstanding. The Fund intends to offer from time to time under short form base shelf prospectuses (each, a Prospectus) additional MTNs which will be subject to the MTN Guarantee (as defined herein). Such MTNs will be issued under a trust indenture between the Fund and Computershare Trust Company of Canada dated November 29, 2004, as amended. The MTNs will be direct unsecured obligations of the Fund ranking equally and pari passu, except as to redemption, purchase fund, amortization fund and/or sinking fund provisions, with all other unsecured and unsubordinated indebtedness of the Fund. The MTNs will rank equally with the Fund’s obligations under its existing unsecured revolving credit facility. The obligations under that credit facility are guaranteed by ECT, EIPLP, EIPGP and EIPHI (the Bank Guarantee).

12.          The Fund’s payment obligations under the MTNs will be unconditionally and irrevocably guaranteed (the MTN Guarantee) by each of ECT, EIPLP and EIPHI (each, a Guarantor) and are direct and unsecured obligations of each Guarantor, ranking pari passu with all other present and future unsecured and unsubordinated indebtedness of each such Guarantor. The MTN Guarantee constitutes “full and unconditional credit support” as defined in National Instrument 41-101 General Prospectus Requirements.

13.          The MTNs will be assigned a credit rating as they are issued. To the knowledge of the Fund, the MTN Guarantee provided by ECT is not material to such credit rating.

The Guarantors

14.          The Fund, ECT, EIPLP and EIPHI are holding entities and none has any material operations.

15.          EIPLP owns all of the underlying operating entities of the Fund Group through its subsidiaries and investees.

16.          ECT does not have any debt obligations other than subordinated promissory notes issued to the Fund. ECT has not provided any guarantees or credit support other than in connection with the MTN Guarantee and the Bank Guarantee.

Recent Developments

17.          On September 1, 2015, Enbridge and IPL transferred certain Canadian liquids pipeline assets and renewable energy assets to EIPLP (the 2015 Transaction).

18.          Prior to the 2015 Transaction, the financial results of ECT, EIPLP, EIPGP and EIPHI were consolidated in the financial statements of the Fund. As such, the Fund relied on the exemption in Item 13.4 of Form 44-101F1 in prior prospectuses under which it issued MTNs.

19.          On completion of the 2015 Transaction, the Fund ceased to control ECT, EIPLP, EIPGP and EIPHI and as a result, changed its method of accounting for its investments in ECT, EIPLP, EIPGP and EIPHI from consolidation accounting to the equity method of accounting. The changes to the method of accounting have been applied prospectively since September 1, 2015.

20.          EIPLP is the entity in the Fund Group into which all of the Fund Group operating subsidiaries and investments are consolidated. On October 28, 2015, pursuant to section 6.1 of National Policy 41-201 Income Trusts and Other Indirect Offerings, the Fund provided an undertaking (the October 2015 Undertaking) to the securities regulatory authority in each province of Canada. The October 2015 Undertaking included an undertaking that for any reporting periods where:

(i)            the generally accepted accounting principles (GAAP) used by the Fund prohibit the consolidation of financial information of the Fund and its operating entity or entities; and

(ii)           EIPLP and its subsidiaries, including significant business interests, represent significant assets of the Fund;

the Fund will prepare, file and provide to its unitholders separate audited annual consolidated financial statements and unaudited interim consolidated financial statements of EIPLP prepared in the same GAAP as the financial statements of the Fund, and related management’s discussion and analysis (MD&A) (including information about any of EIPLP’s significant business interests) (the EIPLP Financial Information). The EIPLP Financial Information consolidates the financial results of EIPHI, together with the other subsidiaries of EIPLP and is publicly available under the Fund’s SEDAR profile. In addition, the October 2015 Undertaking included an undertaking that, in the circumstances where paragraph (i) above applies and any significant assets of the Fund are not held within EIPLP, the Fund will also prepare and file separate audited annual financial statements and interim financial statements in the same GAAP as the financial statements of the Fund, and related MD&A, for each entity that owns a significant business interest which represents a significant asset of the Fund.

Guarantor Disclosure

21.          Item 13 of Form 44-101F1 provides certain exemptions from subsections 12.1(3) and 12.1(4) of Form 44-101F1. As a result of the 2015 Transaction, the Fund no longer meets the criteria for the exemption provided in section 13.4 of Form 44-101F1, as the Fund ceased to consolidate the financial results of the Guarantors into its financial statements.

22.          The Fund proposes to include the following alternative disclosure in each Prospectus, either directly or through incorporation by reference (collectively, the Alternative Prospectus Disclosure):

(a)           the current annual information form of the Fund containing full, true and plain disclosure of the material assets, businesses and operations of each Guarantor and the Fund Group as a whole;

(b)           the EIPLP Financial Information;

(c)           for the periods covered by the EIPLP Financial Information, EIPLP’s earnings coverage ratios calculated in accordance with item 6 of Form 44-101F1 as if EIPLP were the issuer of the MTNs; and

(d)           for the periods covered by the EIPLP Financial Information, “summary financial information” for EIPLP, as defined in paragraph 13.1(1)(g) of Form 44-101F1, as if EIPLP were the issuer, presented substantially in the format set out in subparagraph 13.4(e)(ii) of Form 44-101F1.

23.          The Fund proposes to provide and file on SEDAR an undertaking (the Undertaking) addressed to the regulator in Alberta and Ontario that, during each period commencing on the date on which the Fund issues any MTNs under a Prospectus and ending on the date on which all MTNs issued under such Prospectus are no longer issued and outstanding, (i) if the Fund consolidates any of the Guarantors, it will present “summary financial information” in respect of its consolidated subsidiaries in each Prospectus, presented substantially in the format set out in subparagraph 13.4(e)(ii) of Form 44-101F1, and (ii) the Fund will file periodic and timely disclosure in respect of each of the Guarantors that are not consolidated by the Fund similar to the disclosure required to be provided in respect of credit supporters under section 12.1 (the Section 12.1 Disclosure) of Form 44-101F1, provided that:

(a)           the Fund will not be required to file the Section 12.1 Disclosure in respect of EIPLP if all of the following are true:

(i)            the current annual information form of the Fund contains full, true and plain disclosure of the material assets, businesses and operations of EIPLP and the Fund Group as a whole;

(ii)           the Fund continues to satisfy its obligations pursuant to the October 2015 Undertaking;

(iii)          if EIPLP and its subsidiaries , including significant business interests, no longer represent significant assets of the Fund such that the Fund is no longer required by the October 2015 Undertaking to file the EIPLP Financial Information, the Fund nonetheless continues to file the EIPLP Financial Information in the manner contemplated in the October 2015 Undertaking;

(iv)          the Fund presents for the periods covered by the EIPLP Financial Information, EIPLP’s earnings coverage ratios calculated in accordance with item 6 of Form 44-101F1, as if EIPLP were the issuer of the MTNs;

(v)           the Fund presents for the periods covered by the EIPLP Financial Information, “summary financial information” for EIPLP, as defined in paragraph 13.1(1)(g) of Form 44-101F1, as if EIPLP were the issuer, presented substantially in the format set out in subparagraph 13.4(e)(ii) of Form 44-101F1;

(vi)          the Fund complies with Part 7 of NI 51-102 in respect of any material change for EIPLP that is not a material change for the Fund;

(b)           the Fund will not be required to file the Section 12.1 Disclosure in respect of ECT if all of the following are true:

(i)            the current annual information form of the Fund contains full, true and plain disclosure of the material assets, businesses and operations of ECT and the Fund Group as a whole;

(ii)           the Fund continues to satisfy its obligations pursuant to the October 2015 Undertaking;

(iii)          if ECT has any material operations or assets other than its interests in EIPGP, EIPLP and EIPLP’s subsidiaries, the Fund shall file all of the following with respect to ECT:

A.            separate audited annual financial statements and interim financial statements and related MD&A in the manner contemplated in the October 2015 Undertaking (the ECT Financial Information);

B.            for the periods covered by the ECT Financial Information, ECT’s earnings coverage ratios calculated in accordance with item 6 of Form 44-101F1, as if ECT were the issuer of the MTNs;

C.            material change reports in accordance with Part 7 of NI 51-102 in respect of any material change for ECT that is not a material change for the Fund; and

(c)           the Fund will not be required to file the Section 12.1 Disclosure in respect of EIPHI if all of the following are true:

(i)            the current annual information form of the Fund contains full, true and plain disclosure of the material assets, businesses and operations of EIPHI and the Fund Group as a whole;

(ii)           the Fund continues to satisfy its obligations pursuant to the October 2015 Undertaking;

(iii)          if EIPHI is not consolidated by either EIPLP or the Fund, the Fund shall file with respect to EIPHI all of the following:

A.            separate audited annual financial statements and interim financial statements and related MD&A in the manner contemplated in the October 2015 Undertaking (the EIPHI Financial Information);

B.            for the periods covered by the EIPHI Financial Information, EIPHI’s earnings coverage ratios calculated in accordance with item 6 of Form 44-101F1, as if EIPHI were the issuer of the MTNs;

C.            material change reports in accordance with Part 7 of NI 51-102 in respect of any material change for EIPHI that is not a material change for the Fund.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation to make the decision.

The decision of the Decision Makers is that the Exemptions Sought are granted provided that:

(a)           with respect to the Prospectus Relief, in relation to any Prospectus:

(i)            the Prospectus contains the Alternative Prospectus Disclosure;

(ii)           the Guarantors continue to satisfy the conditions set forth in paragraphs 13.4(a) and (b) of Form 44-101F1; and

(iii)          the Fund continues to satisfy the condition set forth in paragraph 13.4(c) of Form 44-101F1; and

(b)           with respect to the Continuous Disclosure Relief, the Fund has filed on SEDAR the Undertaking.

“Cheryl McGillivray, CA”
Manager
Corporate Finance