1. GOVERNMENT AND CORPORATE FINANCE
INVESTMENT DEALER FINANCE DEPARTMENT
• The size (or dollar value), coupon (interest rate offered), and currency of denomination of the issue
• The timing of the issue
• Whether the issue should be domestic or foreign
• What effect the issue may have on the market
• Whether the issue should be a new maturity, or whether a previous issue should be reopened
• Types of securities
• Timing to market
• Private or public offering
• Proportion directed to institutional and retail investors
• Coupon rate or valuation multiple (such as price-to-earnings ratio)
• Underwriting fee (charged to the corporation)
CANADIAN GOVERNMENT ISSUES
competitive tender system
government securities distributors
PROVINCIAL AND MUNICIPAL ISSUES
direct bonds and guaranteed bonds
DEBT FINANCING AND OTHER ALTERNATIVES
mortgage bonds and debentures
2. THE CORPORATE FINANCING PROCESS
THE DEALER’S ADVISORY RELATIONSHIP WITH CORPORATIONS
-ADVICE ON THE SECURITY TO BE ISSUED
+• Bonds have a lower interest rate than comparable debentures. • They are marketable to institutions that require debt issues secured by assets.
-• They are less flexible because the assets are pledged to a trustee. • They can be problematic in mergers and amalgamations because of pledges against specific assets. • They require regular interest payments, the omission of which can lead to default.
+• Debentures are flexible because there are no specific pledges or liens. • The cost at issue is lower because there is no registration of assets.
-• The coupon rate can be higher than that of a comparable bond because of the lack of pledge on specific assets. • They require regular interest payments, the omission of which can lead to default.
+• Technically, preferred shares are considered equity. Therefore, the company can increase debt outstanding and still maintain a stable debt-to-equity ratio, if the issue is successful. • Omission of a dividend payment does not trigger default, as non-payment of interest on the bond or debenture would. • They provide greater flexibility in financing because of the lack of pledge of assets. • They have a limited lifespan because they can be redeemed through the open market, lottery, or purchase fund.
-• The cost of issuing preferred shares is high because the dividends are paid with after-tax income. The high cost can increase risk to the corporation. • Occasionally, non-payment of dividends on preferred issues can trigger the implementation of voting privileges for preferred shareholders. • A purchase fund can be a drain on company
+• There is no obligation to pay dividends. • No repayment of capital is required. • The larger equity base can support more debt. • The market value of the company can be established for estate purposes, mergers, or takeovers.
-• Equity is diluted for existing shareholders upon the issuance of additional shares. • Dividends, if paid, are more expensive than interest because they are paid with after-tax dollars. • A higher underwriting discount than on a debt issue is charged.
ADVICE ON PROTECTIVE PROVISIONS
trust deed restrictions, or covenants
THE METHOD OF OFFERING
private placement, a primary offering, or a secondary offering
• The banking group consists of additional dealers with liability for their participation, as noted above.
• The selling group consists of other dealers who are not members of the banking group.
• Casual dealers are non-members of the banking or selling group. They may include broker dealers, foreign dealers, or banks.
• Special group orders may occur under various circumstances. For example, the issuer may demand special consideration for a dealer or its banker, or for its parent’s banker, if it is a subsidiary of a foreign parent.
• A portion may be allotted for sale to the exempt list. This list usually includes only large professional buyers, mostly financial institutions, that are exempt from prospectus requirements.
3. BRINGING SECURITIES TO THE MARKET
WHEN A PROSPECTUS IS REQUIRED
• Trades by or on behalf of an issuer (e.g., a new issue from treasury)
• Except in Quebec, trades from a control position, unless the trade is made under a prospectus exemption
• Trades in securities previously acquired by way of a prospectus exemption, unless the subsequent trade is made under a further prospectus exemption
red herring prospectus
PERMITTED ACTIVITIES DURING THE WAITING PERIOD
DETAILS OF AN OFFERING
• Cover page disclosure
• Information relating to the issuer
• Information relating to the securities
• Information relating to the officers and shareholders
• Information relating to the parties involved
MARKET OUT CLAUSES
THE SHORT FORM PROSPECTUS SYSTEM
• Greenshoe option (or over-allotment option)
• Penalty bid
• Stabilizing bid
SECURITIES DISTRIBUTIONS THROUGH THE EXCHANGES
• The issuer has filed an AIF, is a reporting issuer, and is a SEDAR filer.
• The securities are listed securities or units of securities and warrants.
• The issuer has filed with the TSX Venture Exchange an exchange offering document, which incorporates by reference the AIF, the most recent financial statements, and material change reports. (This document must be delivered to purchasers.)
• The number of securities offered does not exceed the number previously outstanding.
• The gross proceeds do not exceed $2 million.
• No more than 20% of the offering goes to one purchaser.
4. OTHER METHODS OF DISTRIBUTING SECURITIES TO THE PUBLIC
• As junior company distributions
• As options of treasury shares and escrowed shares
• Through a Capital Pool Company (CPC)
• The NEX board
• Through Crowdfunding
5. THE LISTING PROCESS
• Submit annual and interim financial reports, as well as other corporate reports, to the exchange.
• Promptly notify the exchange about dividends or other distributions, proposed employee stock options, and sale or issue of treasury shares.
• Notify the exchange of other proposed material changes in the company’s business or affairs.
• Prestige and goodwill Company prestige is enhanced through increased public visibility. Shareholder goodwill increases as buying and selling become easier and market performance becomes more visible. • Established and visible market value The market value of a listed company is readily visible. Financial analysts are more likely to follow a listed company. In turn, this can attract new shareholders, enhance overall marketability in the secondary market, and increase the market for new issues by the company.
• Excellent market visibility The daily financial press carries full details of listed trading on a daily and weekly basis.
• More information available Because of strict exchange disclosure regulations, investors have access to more information on a regular basis.
• Simplified valuation for tax purposes The valuation of securities for estate tax purposes and estate tax planning is easier
• Additional controls on management After listing, certain restrictions are put in place regarding stock options (those issued for internal use only), reporting of dividends, issue of shares for assets, and other matters.
• Need to keep market participants informed A listed company’s management must devote considerable time to meet with security analysts and institutional investors and to communicate with the press to explain company developments.
• Market indifference Low trading volume and poor market performance of a listed company become a matter of public record.
• Additional disclosure Listing imposes additional disclosure requirements on the company that consume management time. Specifically, management is required to make continuous and prompt disclosure of material changes related to the company.
• Additional costs to the company Various fees, including a listing fee and subsequent annual sustaining fee, must be paid to the exchange when a class of shares is listed.
TEMPORARY INTERRUPTION OF TRADING
• Delayed opening
• Halt in trading
• Suspension in trading
CANCELLING A LISTING (DELISTING)
• The delisted security no longer exists because it was called for redemption (in the case of a preferred share) or was substituted for another security as a result of a merger.
• The company is without assets or has gone bankrupt.
• The public distribution of the security has dwindled to an unacceptably low level.
• The company has failed to comply with the terms of its listing agreement.