The Ontario Securities Commission is publishing for comment a proposed rule that is intended to clarify financing requirements for takeover and issuer bids.

In a recent OSC bulletin, the regulator notes that some uncertainty has arisen regarding the law relating to bid financing conditions as a result of a recent court decision, specifically the judgment of the Ontario Superior Court of Justice in BNY Capital Corp. v. Katotakis.

Proposed Rule 62-503 — Financing of Take-over Bids and Issuer Bids – is intended to address this uncertainty by confirming the extent to which conditionality in a bid financing arrangement is acceptable.

The proposed rule says that staff of the commission has previously taken the position that some conditionality in bid financing arrangements is acceptable, provided that the conditions are customary and minimal. “While staff continues to hold this view, a rule is considered necessary to clarify the law in this area in light of the BNY judgment,” it adds.

“The proposed rule provides that the financing arrangements may be subject to conditions if, at the time the bid is commenced, the offeror reasonably believes the possibility to be remote that the offeror will be unable to pay for securities deposited under the bid solely due to a financing condition not being satisfied,” it explains.

“In the commission’s view, the proposed rule reflects the general understanding in the legal community as to how [the Securities Act] has been applied in practice,” it says.

The OSC adds that it considered whether the rule should also be accompanied by a companion policy listing the types of financing conditions that likely would be or not be acceptable. It says it decided against this approach because conditions that may comply with the rule in one factual context may not be suitable in others. The rule is intended to enable the policy objectives of the Act to be met in a flexible manner, as bidders and lenders will be able to tailor their conditions to the specific circumstances of the transaction.

Comments on the rule are due by October 3.