Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – investment fund not using specified derivatives exempted from the requirement to calculate its net asset value at least once in each week, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, s. 14.2(3)(a) and s. 17.1.
July 4th, 2008
In the Matter of the Securities Legislation of Ontario (the Jurisdiction)
and
In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of Timbercreek Mortgage Investment Corporation (the Filer)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) for an exemption pursuant to section 17.1 of NI 81-106 from the requirement set out in section 14.2(3)(a) of NI 81-106 that the Filer must calculate its net asset value at least once in each week (the “Exemption Sought”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
the Ontario Securities Commission is the principal regulator for this application; and
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 the Non-Principal Jurisdictions.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a newly-incorporated company established under the laws of the Province of Ontario. The head and registered office and mailing address of the Filer is located at 25 Price Street, Toronto, Ontario M4W 1Z1.
The Filer is not in default of securities legislation in any jurisdiction.
The Filer filed a final prospectus dated June 25, 2008 (the “Final Prospectus”) with the securities regulators in each of the provinces and territories of Canada (other than Quebec) as SEDAR project no. 01262136 and was issued a receipt dated June 26, 2008 in respect thereof.
The Filer is a non-redeemable investment fund to which section 14.2(3)(a) of NI 81-106 applies, but is not subject to the requirements of National Instrument 81-102 – Mutual Funds (“NI 81-102”). The Filer is not a “mutual fund” because its shareholders are not entitled to receive, on demand, an amount computed by reference to the value of a proportionate interest in the whole or in part of the net assets of the Filer, as contemplated in the definition of “mutual fund” in the securities legislation of the Jurisdictions.
The Filer’s investment objective is, with a primary focus on capital preservation, to acquire and maintain a diversified portfolio of mortgage loan investments (“Mortgage Assets”) that generates attractive, stable returns in order to permit the Filer to pay monthly distributions to its shareholders.
The Filer intends to acquire, following the closing of the Offering (as defined below), two portfolios of Mortgage Assets, in order to establish its initial portfolio of Mortgage Assets (the “Initial Portfolio Acquisitions”).
The Filer plans to achieve its investment objective by investing in a diversified portfolio of Mortgage Assets (the “Portfolio”) consisting primarily of mortgage loans for which the principal amount of the loan, at the time of commitment, together with all other equal and prior ranking mortgages does not exceed 75% of the value of the underlying real property securing the loan that are directly secured by residential (including multi-residential), office, retail and industrial real property across Canada, primarily located in larger urban markets and their surrounding areas, which are typically more liquid and provide less volatile security for mortgage loans.
Timbercreek Asset Management Inc. (the “Fund Manager”) will act as manager and portfolio advisor of the Filer. The Fund Manager was incorporated under the laws of Ontario on May 31, 2004. The head office, registered office and principal business address of the Fund Manager is located at 25 Price Street, Toronto, Ontario M4W 1Z1.
The Fund Manager has established and, on behalf of the Filer, retained the services of Timbercreek Mortgage Strategies Inc. to provide directly or indirectly through licensed service providers, as applicable, mortgage management and day-to-day mortgage administration services, including the sourcing, structuring and management of secured mortgage investments on behalf of the Filer.
The Filer intends to make equal monthly cash distributions by way of dividend to holders of shares of record on the last business day of each month.
The Filer will make a public offering (the “Offering”) of subscription receipts (the “Subscription Receipts”) in the Jurisdictions.
Each Subscription Receipt will entitle the holder thereof to receive, without any further action on the part of the holder thereof and without payment of additional consideration, one Class A share (a “Class A Share”) of the Filer.
The Final Prospectus of the Filer qualifies the distribution to the public of the Subscription Receipts and Class A Shares in the Jurisdictions.
The Toronto Stock Exchange (the “TSX”) has conditionally approved the listing of the Class A Shares, subject to the Filer fulfilling all of the requirements of the TSX on or before September 4, 2008, including distribution of the Class A Shares to a minimum number of public holders.
The Filer is authorized to issue an unlimited number of Class A Shares, Class B shares (“Class B Shares”) and voting shares (the “Voting Shares”). Before giving effect to the Offering, there are issued and outstanding 100 Voting Shares. The Class A Shares and Class B Shares are entitled to receive dividends as and when declared by the board of directors of the Filer. The holders of Class A Shares and the holders of Class B Shares are not entitled to vote at meetings of the shareholders of the Filer, other than as required by law or as set forth in the Final Prospectus. The Class A Shares and Class B Shares rank equally with each other and in priority to the Voting Shares with respect to the payment of distributions and the repayment of capital on the dissolution, liquidation or winding up of the Filer. Upon the dissolution, liquidation or winding up of the Filer, after satisfaction of all liabilities of the Filer (or the establishment of reserves or other provision therefor) holders of Class A Shares will be entitled to receive their pro rata portion of the net asset value attributable to the Class A Shares and the holders of Class B Shares will be entitled to receive their pro rata portion of the net asset value attributable to the Class B Shares. The holders of Voting Shares are not entitled to receive dividends. The holders of the Voting Shares will be entitled to one vote per share. The Voting Shares are redeemable and retractable at a price of $1.00 per share. The Voting Shares rank subsequent to both the Class A Shares and the Class B Shares with respect to distributions on the dissolution, liquidation or winding-up of the Filer.
Commencing in July 2008, a Class A Share may be surrendered for redemption on the last business day of any month, other than October (each a “Redemption Date”), by no later than 4:00 p.m. (Toronto time) on the 15th day of such month or the immediately preceding business day in the event that the 15th day is not a business day. Payment of the proceeds of redemption will be made on or before the last business day of the following month (the “Redemption Payment Date”). Shareholders whose Class A Shares are surrendered for redemption on a Redemption Date will be entitled to receive a redemption price per Class A Share equal to the lesser of: (i) 95% of the Trading Price (as defined below) of the Class A Shares; and (ii) the Market Price (as defined below). Any declared and unpaid distributions payable on or before a Redemption Date in respect of Class A Shares tendered for redemption on such Redemption Date will also be paid on the Redemption Payment Date. For these purposes, “Trading Price” means the weighted average trading price on the TSX or such other stock exchange on which the Class A Shares may be listed (the “Exchange”) for the ten trading days immediately preceding the relevant Redemption Date; and “Market Price” means the closing price of the Class A Shares on the Exchange on the Redemption Date or, if there was no trade during the relevant period preceding a monthly Redemption Date, the average of the last bid and the last asking prices of the Class A Shares on the Exchange for each day during the relevant period.
The Class B Shares are redeemable monthly on the same terms as the Class A Shares, provided that the redemption price per Class B Share will be equal to the lesser of: (i) 95% of the Trading Price of the Class A Shares multiplied by the Class B Exchange Ratio (as such term is defined in the Final Prospectus); and (ii) the Market Price multiplied by the Class B Exchange Ratio.
Class A Shares may be redeemed on the last business day in October of each year (each, an “Annual Redemption Date”) at a redemption price per Class A Share equal to the net redemption value of the Filer (“NRV”) per Class A Share. Shares must be surrendered for annual redemption by no later than 4:00 p.m. (Toronto time) on October 1st of such year or the immediately preceding business day, in the event that October 1st is not a business day. Payment of the proceeds of annual redemptions will be made on or before the last business day of November.
Class B Shares may be redeemed on an Annual Redemption Date at a redemption price per Class B Share equal to the applicable NRV per Class B Share.
Under section 14.2(3)(a) of NI 81-106, an investment fund that does not use specified derivatives must calculate its net asset value at least once in each week. The Filer will not engage in derivative transactions for any purpose.
The Fund Manager proposes to calculate the net asset value of the Filer (“NAV”) at the close of business on the 15th day of each calendar month (or the next business day if the 15th is not a business day) and on the last business day of each calendar month (each being a “Valuation Date”), or on such other dates as may be required by applicable laws.
The NAV is the value of the consolidated assets of the Filer less (1) the consolidated liabilities of the Filer (including any accrual of performance fee) and (2) the stated capital of the Voting Shares of the Filer ($100).
The Fund Manager proposes to calculate the NRV on each Valuation Date.
The NRV will be equal to the sum of the NRV for each class of Shares (for each class, a “Class Net Redemption Value”), and will be calculated by the Fund Manager. The Class Net Redemption Value for each class of Shares of the Filer will be calculated by allocating NAV and specific Share class expenses of the Filer to the Class A Shares and Class B Shares, respectively. The net redemption value per Class A Share (the “NRV per Class A Share”) will be the quotient obtained by dividing the Class Net Redemption Value of the Class A Shares by the total number of Class A Shares (immediately before any Share redemptions and subscriptions) at the close of business on the relevant Valuation Date. The net redemption value per Class B Share (the “NRV per Class B Share”) will be the quotient obtained by dividing the Class Net Redemption Value of the Class B Shares by the total number of Class B Shares (immediately before any Share redemptions and subscriptions) at the close of business on the relevant Valuation Date.
The Filer will make available the most recently calculated NAV, NRV per Class A Share and NRV per Class B Share through the internet at www.timbercreekfunds.com.
The Final Prospectus discloses that the most recently calculated NAV and the most recently calculated NRV per Class A Share and NRV per Class B Share will be available to the public upon request and will be posted at www.timbercreekfunds.com, together with an explanation of the meaning of NRV and its relation to NAV.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted for so long as:
the Class A Shares are listed on the TSX; and
the Fund Manager calculates the NAV at least twice per calendar month: at the close of business on the 15th day of each calendar month (or the next business day if the 15th day is not a business day) and on the last business day of each calendar month.
“Vera Nunes”
Vera Nunes
Assistant Manager, Investment Funds
ONTARIO SECURITIES COMMISSION