May 21, 2019
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
MOUNT LOGAN CAPITAL INC.
(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 (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 indirect acquisition by the Filer of an interest in certain senior secured loans and debt instruments from a U.S. based loan provider (the “Loan Provider”) (the interest in the loans and debt instruments indirectly acquired are referred to herein as the “Indirect Acquired Loans”) and the direct acquisition by the Filer of an interest in certain loans and debt instruments sourced from BC Partners Advisors, L.P. (the interest in the loans and debt instruments directly acquired are referred to herein as the “Direct Acquired Loans” and together with the Indirect Acquired Loans, the “Acquired Loans”). The acquisition of the Indirect Acquired Loans (the “Indirect Loan Acquisitions”) and the acquisition of the Direct Acquired Loans (the “Direct Loan Acquisitions” and together with the Indirect Loan Acquisitions, the “Acquisitions”) were completed pursuant to a series of transactions for the purpose of expanding the Filer’s investment strategy from a focus on natural resource lending to a broader lending-oriented credit platform.
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 Section 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 and NI 51-102 have the same meanings if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is a corporation existing under the Business Corporations Act (Ontario).
The head office of the Filer is located in New York, New York and the registered office of the Filer is located in Toronto, Ontario.
The Filer is a reporting issuer in each of the Jurisdictions and is not in default of securities legislation in any Jurisdiction, except as noted herein.
The common shares of the Filer are listed on the NEO Exchange under the symbol “MLC”.
The Filer’s financial year end is December 31.
The Arrangement and the Acquisitions
On July 27, 2018, the Filer (in its prior name, being “Marret Resource Corp.”) entered into an arrangement agreement (the “Arrangement Agreement”) with, inter alia, BC Partners Investment Holdings Limited (“BCPIHL”) providing for a court-approved plan of arrangement to be carried out under Section 182 of the Business Corporations Act (Ontario) pursuant to which, among other things, the Filer would expand its investment strategy from a focus on natural resource lending to a broader lending-oriented credit platform (the “Arrangement”).
In connection with, and prior to the completion of, the Arrangement, the Filer completed a private placement (the “Financing”) of 73,738,548 subscription receipts (the “Subscription Receipts”) for aggregate gross proceeds of approximately $40.5 million, which proceeds were deposited in escrow pending the satisfaction of certain conditions as set out in the subscription receipt agreement governing the terms of the Subscription Receipts.
On October 19, 2018, and prior to the completion of the Arrangement, Great Lakes Senior MLC I LLC, a wholly-owned subsidiary of BCPIHL formed under the laws of the State of Delaware for the purpose of facilitating the Arrangement (“SPV”), entered into definitive agreements (collectively, the “SPV Loan Agreements”) pursuant to which it would acquire the Indirect Acquired Loans.
On October 19, 2018, and following the entering into of the SPV Loan Agreements, the Arrangement was completed pursuant to which, among other things, each Subscription Receipt was ultimately converted into one common share of the Filer, the net proceeds of the Financing were released to the Filer and the Filer acquired all of the issued and outstanding securities of SPV in exchange for the issuance to BCPIHL of common shares of the Filer.
Immediately following the completion of the Arrangement, the Filer (through its wholly-owned subsidiary SPV) completed the acquisition of the Indirect Acquired Loans which consisted of an interest in loans and debt instruments in the aggregate principal amount of approximately US$16 million having the following principal terms:
Sector
Cost (US$)
Face Value (US$)
Maturity
Rate
Loan 11
Consumer
$3,704,857
$3,740,578
May 2024
L+475
Loan 2
Industrials
$2,278,101
$2,300,000
July 2024
L+425
Loan 3
Consumer
$3,723,387
$3,740,578
July 2025
L+425
Loan 4
Industrials
$3,709,997
$3,740,578
May 2024
L+450
Loan 5
Industrials
$2,593,690
$2,618,404
June 2024
L+425
- Immediately following the completion of the acquisition of the Indirect Acquired Loans, the Filer directly completed the acquisition of the Direct Acquired Loans which consisted of an interest in loans and debt instruments in the aggregate principal amount of approximately US$7.2 million and approximately C$5.1 million having the following principal terms:
Sector
Cost
Face Value
Maturity
Rate
Loan 1
Information Technology
US$4,937,500
US$5,000,000
July 2024
L+750
Loan 2
Healthcare
US$2,275,855
US$2,310,549
September 2024
L+600
Loan 3
Industrials
C$5,112,361
C$5,112,361
May 2028
11.0%
Nature of the Acquisitions and Available Financial Information
The Filer understands that staff of the principal regulator is of the view that the Acquisitions constitute the acquisition of a “business” within the meaning of Part 8 of NI 51-102. Based on such view of staff of the principal regulator and given the Filer’s financial results, the Acquisitions would constitute a “significant acquisition” for the Filer within the meaning of Part 8 of NI 51-102 and the Filer is required to file a BAR in accordance with Part 8 of NI 51-102.
Pursuant to Part 8 of NI 51-102, the Filer was required to file the BAR on or before January 2, 2019 (the “Required Filing Date”). As a result of not filing the BAR on or before the Required Filing Date, the Filer was noted in default on the list of reporting issuers maintained by the Ontario Securities Commission (the “Reporting Issuer List”).
The Filer understands that: (i) the Filer will be in default of the requirement to file the BAR for the period commencing on the Required Filing Date and ending on the date that the BAR is filed in accordance with this decision; and (ii) the Filer will no longer be noted in default on the Reporting Issuer List following the filing of the BAR in accordance with this decision.
Sections 8.4(1) and 8.4(3) of NI 51-102 require that a reporting issuer include in the BAR certain annual financial statements and, if applicable, interim financial statements in respect of the business acquired. Section 8.4(5) of NI 51-102 requires that a reporting issuer include in the BAR certain pro forma financial statements of the Filer (collectively, the “Required Financial Statements”).
Neither the Filer nor SPV acquired any physical facilities, marketing systems, sales forces, customers, operating rights, production techniques, trade names or other assets from the vendors of the Acquired Loans in connection with the Acquisitions. Such items remained with the vendors of the Acquired Loans following the Acquisitions.
Neither the Filer nor SPV acquired a separate entity, a subsidiary or a division of either vendor of the Acquired Loans. Each Acquired Loan constitutes an interest in a larger credit facility in respect of the applicable borrower (each, a “Credit Facility”) and the interest of the Filer or SPV, as applicable, in each Credit Facility is in the range of approximately 1% to 8%.
The financial information in respect of each Acquired Loan necessary to produce the Required Financial Statements for the Acquisitions has not been made available to the Filer, nor does the Filer have a right to obtain such information. Accordingly, there is limited information available to the Filer in respect of each Acquired Loan.
The nature of the Acquired Loans, including that each Acquired Loan was only recently originated, make it impracticable to produce the Required Financial Statements in respect of the Acquisitions. As the Acquired Loans consist of a collection of unrelated loans and debt instruments which are not attributable to any one stand-alone legal entity and were at no time consolidated for accounting purposes prior to the completion of the Acquisitions, no historical financial statements in respect of the Acquired Loans have been, or can be, prepared.
In lieu of the Required Financial Statements, the Filer proposes to include in the BAR alternative financial information (the “Alternative Financial Information”) in respect of the Acquisitions as follows:
(a) An audited statement of assets acquired as at October 19, 2018 that:
(i) is comprised of the Acquired Loans, such information to be presented in a single statement;
(ii) includes a statement that the statement of assets acquired has been prepared in accordance with International Financial Reporting Standards;
(iii) includes a description of the significant accounting policies used to prepare the statement of assets acquired;
(iv) is accompanied by an independent auditor’s report that reflects that the statement was prepared in accordance with the basis of accounting disclosed in the notes to the statement; and
(v) includes a description of the key terms of each Acquired Loan.
- The Filer submits that the Exemption Sought would not be prejudicial to the public interest because the Alternative Financial Information will provide investors with the information material to their understanding of the Acquisitions and the Filer believes that the presentation of financial statements prepared strictly in compliance with Section 8.4 of NI 51-102 would not be more meaningful or relevant to investors than the Alternative Financial Information.
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 provided that the BAR for the Acquisitions includes the Alternative Financial Information.
“Marie-France Bourret”
________________________________
Marie-France Bourret
Manager, Corporate Finance
Ontario Securities Commission