Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Securities Act (Ontario), s. 53 -- Application for relief from prospectus requirement in respect of certain distributions of debt securities of filer -- debt securities are analogous to debt securities of or guaranteed by any municipal corporation in Canada, or debt securities secured by or payable out of rates or taxes levied under the law of a jurisdiction of Canada on property in the jurisdiction or on certain other revenues -- Filer's structure and obligations are analogous to a municipal finance authority and other municipal corporations -- Filer's borrowing program provides comparable protections and rights for debt securityholders to those found in municipal borrowing programs -- Filer will only issue debt securities -- Filer will provide prospective purchasers of debt securities with a comprehensive disclosure document -- Relief granted, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74.
April 28, 2017
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTION AND IN THE MATTER OF FIRST NATIONS FINANCE AUTHORITY (the Filer)
1) The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the prospectus requirement of the Legislation does not apply to distributions or trades of Debt Securities (as such term is defined below) of the Filer (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the British Columbia Securities Commission is the principal regulator for this application;
(b) 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 Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, Northwest Territories and Nunavut Territory; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
2) Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
3) This decision is based on the following facts represented by the Filer:
1. on April 1, 2006, the First Nations Fiscal Management Act (Canada) (the Federal Act) came into force;
2. the Government of Canada has adopted a policy of recognizing the inherent right of self government as an aboriginal right; the purpose of the Federal Act is to, among other things, provide First Nations with the access to capital markets available to other governments; to accomplish this purpose, the Federal Act, together with the regulation thereunder (the Federal Regulation), creates a comprehensive regulatory framework for First Nations to exercise real property taxation and for property tax revenues and certain other revenues prescribed by the Federal Regulation to support capital markets borrowings; this structure was modeled on the British Columbia municipal finance model, as operated by the Municipal Finance Authority of British Columbia under the Municipal Finance Authority Act (British Columbia);
3. the Filer was established pursuant to the Federal Act as a non-profit corporation without share capital;
4. the Filer's head office is located at 202 -- 3500 Carrington Road, Westbank, British Columbia, V4T 3C1;
5. the Filer is not a reporting issuer in any jurisdiction of Canada and has no present intention of becoming a reporting issuer in any jurisdiction of Canada;
6. no securities of the Filer have ever been traded on a marketplace in Canada as defined in National Instrument 21-101 Marketplace Operation and the Filer has no present intention of securities of the Filer being traded on such a marketplace;
7. the Filer is not in default of securities legislation in any jurisdiction of Canada;
8. the Filer is the central borrowing agency for eligible First Nations across Canada that have been accepted by the Filer as "borrowing members" (as defined in the Federal Act) (Borrowing Members);
9. pursuant and subject to the Federal Act, a Borrowing Member may enact a borrowing law to obtain from the Filer (i) long-term financing of capital infrastructure for the provision of local services on reserve lands where repayment is secured by property tax revenues of that Borrowing Member, and (ii) financing for other purposes prescribed by the Federal Regulation where repayment is secured by other revenues prescribed by the Federal Regulation of that Borrowing Member (Permitted Financing);
10. pursuant and subject to the Federal Act, requests for such Permitted Financing that are approved by the Filer are funded by, among other things, the issuance by the Filer of debt securities (Debt Securities) in the capital markets;
11. to facilitate an orderly fiscal management system for First Nations, the Federal Act allocates responsibility and oversight among, and regulates the activities of, three independent entities:
(a) the Filer, which was established to, among other things, secure for borrowing Members Permitted Financing;
(b) the First Nations Tax Commission (FNTC), which was established to regulate real property taxation by First Nations; the Federal Act provides that the FNTC must approve every (i) property tax revenue law to be enacted by a First Nation pursuant to the Federal Act and (ii) borrowing law to be enacted by a First Nation pursuant to the Federal Act authorizing the borrowing of money by such First Nation from the Filer that is secured by property tax revenues; and
(c) the First Nations Financial Management Board (FMB), which was established to, among other things, (i) provide assessment and certification services respecting First Nations financial management and financial performance and (ii) provide intervention services in the event that a First Nation defaults on a loan from the Filer; the Federal Act provides that the Filer may only accept a First Nation as a Borrowing Member if the FMB has issued to that First Nation a certificate in respect of their financial performance pursuant to the Federal Act and has not subsequently revoked it;
12. to facilitate orderly capital markets borrowings by Borrowing Members, the Federal Act and the Federal Regulations provide for certain safeguards:
(a) the Filer must establish a sinking fund to fulfill its repayment obligations to the holders of each Debt Security;
(b) the Filer must establish debt reserve funds to make payments or sinking fund contributions for which insufficient moneys are available from Borrowing Members to fulfill the Filer's repayment obligation to the holders of each Debt Security;
(c) the Filer has established a credit enhancement fund, funded by the Government of Canada, which may be used to temporarily offset any shortfalls in the debt reserve funds;
(d) in the event a First nation is insolvent, the Filer has, in certain circumstances, priority over all other creditors of the First Nation; and
(e) in the event a Borrowing Member fails to make a payment due to the Filer, the Filer may require the FMB to impose a "co-management arrangement" on or assume "third-party management" of the Borrowing Member;
13. the Board of Directors of the Filer is elected by its Borrowing Members;
14. the Authority has obtained a credit rating from a "designated rating organization" (as defined in National Instrument 45-106 Prospectus Exemptions (NI 45-106)); and
15. on November 30, 2011, the securities regulatory authority or regulator in British Columbia and Ontario issued a decision that the prospectus requirements of the Legislation do not apply to debt securities of the Filer (the "Previous Decision"); the Previous Decision terminated in accordance with its terms on November 30, 2016.
4) Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted, provided that this decision will terminate if:
(a) the prospectus exemption in s 2.34(2)(c) of NI 45-106 (the specified debt exemption) is amended such that:
(i) a prospectus exemption is no longer available in Canada to debt securities issued by or guaranteed by a municipal corporation in Canada, or secured by or payable out of rates or taxes levied under the law of a jurisdiction of Canada on property in the jurisdiction and collectable by or through the municipality in which the property is situated, or
(ii) additional conditions are added to the specified debt exemption; or
(b) the Federal Act or Federal Regulations are amended so that any of the representations in items 11 and 12 are no longer true.