The Ontario Securities Commission says that issuers that file a preliminary short form prospectus for an “equity line” financing can expect to have their filings reviewed as if it was a long form prospectus.

In recent months, a number of prospectuses that seek an “equity line” financing arrangement have been filed with the OSC. Under an equity line arrangement, the issuer typically enters into an agreement with one or more purchasers which provides that, over a certain term, the issuer may require the purchasers to subscribe for a certain number of securities of the issuer, usually at a discount from the then market price.

From the perspective of the issuer, a line of equity secures access to funds and serves a similar function to a line of credit. From the perspective of the purchasers, a line of equity permits the purchasers the opportunity to purchase securities of the issuer at a discount, and allows for a repayment of capital through the resale of the securities into the secondary market.

The OSC says, “Equity-line financings represent a relatively novel form of financing in Canada and raise a number of important policy issues relating to the appropriate treatment of such offerings under existing securities law. These issues are currently being considered by the Canadian Securities Administrators. In the meantime, pending the outcome of such consideration, staff will continue to review such offerings in consultation with the other CSA jurisdictions on a case-by-case basis.”

While these filings may be submitted under the short-form system, the regulators say that they need longer to review them. These financings will generally be reviewed within the time allocated to a long form prospectus.