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Ontario Securities Commission
December 15, 2014
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 Element Financial Corporation (the “Filer” or “Element”)
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## 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 (the “Exemption Sought”) from the financial statement requirements in Section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”) for the business acquisition report (“BAR”) to be prepared and filed with the applicable Canadian securities regulatory authorities in connection with the acquisition by the Filer of certain railcars (the “Railcars”) and underlying leases (the “Leases” and, together with the Railcars, the “Railcar Assets”) pursuant to a vendor finance program with Trinity Industries Inc. (the “Trinity Vendor Program”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.
### Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 or NI 51-102 have the same meanings if used in this decision, unless otherwise defined herein.
### Representations
The decision is based on the following facts represented by the Filer:
#### The Filer
[1] The Filer is a corporation formed under the [Business Corporations Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-b16/latest/rso-1990-c-b16.html) (Ontario).
[2] The principal and head office of the Filer is located in Toronto, Ontario.
[3] The financial year end of the Filer is December 31.
[4] The Filer is an equipment finance company in the business of providing financing to customers to facilitate purchases of equipment by its customers. Financing provided by the Filer typically involves the provision of equipment loans and leases. The Filer originates business through vendor finance programs established with equipment manufacturers.
[5] The Filer is a reporting issuer in each of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.
[6] To its knowledge, the Filer is not in default of securities legislation in any such jurisdiction in Canada in which it is a reporting issuer.
[7] The common shares, Cumulative 5-Year Rate Reset Preferred Shares, Series A, Cumulative 5-Year Rate Reset Preferred Shares, Series C, Cumulative 5-Year Rate Reset Preferred Shares, Series E and 5.125% Extendible Convertible Unsecured Subordinated Debentures of the Filer are listed on the Toronto Stock Exchange under the symbols “EFN”, “EFN.PR.A”, “EFN.PR.C”, “EFN.PR.E” and “EFN.DB”, respectively.
#### The Trinity Vendor Program and the Prior Tranches
[8] On December 9, 2013, Element established the Trinity Vendor Program with Trinity Industries Inc. (“Trinity”) to acquire Railcar Assets from Trinity and/or its affiliates over a two year period.
[9] Under the terms of the Trinity Vendor Program, Element and Trinity formed a strategic alliance whereby Element is presented with preferred opportunities from time to time to acquire Railcar Assets from Trinity on financial terms to be agreed upon by the parties at the time of offer.
[10] The identification of the Railcar Assets offered by Trinity to Element under the Trinity Vendor Program may include Leases for: (a) newly manufactured Railcars; (b) existing Railcars; and (c) secondary market purchases of Railcars from third parties identified by Trinity, and is based on predetermined diversification criteria, including limits on Railcar type, use, Lease duration, average age and credit quality of the lessee. Offers of qualifying Railcar Assets are to be made to Element by Trinity from time to time for the duration of the Trinity Vendor Program. Trinity and Element meet on a quarterly basis to report on and consult with respect to material business and process issues under the Trinity Vendor Program.
[11] In connection with the Trinity Vendor Program, Element previously acquired approximately US$619 million of Railcar Assets (collectively, the “2013/14 Tranches”) pursuant to an approximately US$105 million tranche completed on December 19, 2013, an approximately US$396 million second tranche completed on January 28, 2014 and an approximately US$118 million third tranche completed on March 27, 2014.
[12] On May 26, 2014, the OSC, on behalf of the Canadian Securities Administrators, granted an order in response to an exemptive relief application made by the Filer in connection with the 2013/14 Tranches (the “2013/14 Relief”). The 2013/14 Relief provided that in lieu of historical financial statements required by Part 8 of NI 51-102 the Filer would provide alternative financial information in the BAR in respect of the 2013/14 Tranches comprised of: (a) an audited statement of assets acquired and liabilities assumed as at the date of each 2013/14 Tranche; (b) a 12 month financial forecast accompanied by an independent auditor’s report reflecting the financial impact of the 2013/14 Tranches; and (c) additional information about the Trinity Vendor Program, including a description of the terms of the Trinity Vendor Program and a description of the Railcars and Leases acquired in the 2013/14 Tranches which includes disclosure of the Leases in default, if any, the year of manufacture of the Railcars, credit ratings of the lessees, remaining Lease terms of the Leases acquired and average initial Lease rates.
[13] On May 27, 2014, the Filer filed a BAR in connection with the 2013/14 Tranches.
[14] On June 27, 2014, in connection with the Trinity Vendor Program, Element acquired approximately US$121.4 million of Railcar Assets (the “June Tranche”, and together with the 2013/14 Tranches, the “Prior Tranches”).
[15] On September 9, 2014, the OSC, on behalf of the Canadian Securities Administrators, granted an order in response to an exemptive relief application made by the Filer in connection with the June Tranche (the “June Relief”, and together with the 2013/14 Relief, the “Prior Relief”). The June Relief provided that in lieu of historical financial statements required by Part 8 of NI 51-102 the Filer would provide alternative financial information in the BAR in respect of the June Tranche comprised of: (a) an audited statement of assets acquired and liabilities assumed as at June 27, 2014; (b) a 12 month financial forecast accompanied by an independent auditor’s report reflecting the financial impact of the June Tranche; and (c) additional information about the Trinity Vendor Program, including a description of the terms of the Trinity Vendor Program and a description of the Railcars and Leases acquired in the June Tranche which includes disclosure of the Leases in default, if any, the year of manufacture of the Railcars, credit ratings of the lessees, remaining Lease terms of the Leases acquired and average initial Lease rates.
[16] On September 10, 2014,
minicounsel