Capital Markets Insights

Issuers getting Creative with Listed Issuer Finance Exemption

The Listed Issuer Finance Exemption only came into being in late 2022 with the intention of making capital raises easier for Canadian issuers by lowering the requirements that reporting issuers had to meet for certain raises, while at the same time opening up options for retail investors.

By way of a recap, the Listed Issuer Finance Exemption went into effect on November 21, 2022 to make capital raises more efficient for Canadian publicly-traded companies. The instrument enables a listed issuer to raise up to  CA$5m or 10% of the issuer’s market capitalization (up to a maximum of CA$10 million) without requiring a prospectus. In place of the prospectus, the issuer needs to create a short offering document that meets the requirements set out in Form 45-106F19. 

As well as simplifying capital raising for issuers, the Canadian Securities Administrators (CSA) wanted to encourage a wider range of opportunities for retail investors while still retaining an appropriate level of investor protection. Of course, the big advantage investors see with a LIFE offering is that, unlike a traditional private placement, they receive shares that can be freely traded on the public market.

How is Listed Issuer Financing Exemption being used?

Now that the Listed Issuer Financing Exemption has been in effect for a few months, we are seeing two interesting trends emerge from issuers. 

Firstly, there is a lot of variation in the investor agreements for LIFE deals, ranging from agreements that resemble a private placement subscription agreement to shorter documents that do not even require an investor’s signature. 

This most likely reflects the reality that Issuers, bankers, and legal firms are still finding the most efficient way to paper LIFE deals. It also underlines the importance that any digital solution for processing LIFE deals must accommodate these varied agreements. It must also easily merge investor data from enterprise systems into the document ready for the investor to sign. 

Despite the regulations stating not all documents require a full signature, we believe it is good practice for issuers to have investors add initials to agreements, to confirm any digitally inserted information. 

Secondly, we are seeing examples of issuers using the Listed Issuer Financing Exemption in creative ways as part of wider capital raises. 

By structuring a deal that knits together LIFE with a more traditional private placement offering, issuers and investors are able to both benefit. 

  • Issuers are able to raise more capital by offering exempt investors a combination of liquid shares, and more traditional private placement shares subject to a lock-up period.
  • Exempt investors benefit from discounts commonly associated with private placement shares for part of their investment, while receiving the remainder as freely tradable, liquid shares.

This creative approach of utilizing the tools and exemptions that the regulator has provided is an interesting development for the Canadian Alternative Investment sector. If the Listed Issuer Finance Excemption continues to be used in this way, and more issuers become aware of the possibilities of using LIFE in this way, then we should expect to see much more use of LIFE in private placement deals throughout 2023.