CANADA Law and Practice Contributed by: Scott Hyman, Anthony Spadaro and David Wilson, Davies Ward Phillips & Vineberg LLP
standalone indenture for the single purpose of issuing one series of debt securities. Key provi- sions of a trust indenture include the following: • payment, reporting and certain other positive covenants; • negative covenants (which are less restrictive for investment grade debt securities); • optional and mandatory redemption provi- sions; • events of default; and • provisions governing any consents required for indenture amendments. Canadian trust indentures for broadly offered debt securities do not include financial cov- enants, except in very limited circumstances. Investment grade debt securities are gener- ally redeemable at the issuer’s option by paying “make-whole” premium; however, there is typi- cally a period of several months (which varies by the tenor of the securities) in advance of matu- rity when they may be redeemed at par. Non- investment grade (or “high-yield” ) debt securi- ties are typically redeemable at a make-whole premium until the expiry of their “no-call” period, following which they are redeemable at declin- ing prices set out in a fixed call schedule (that eventually allows for redemption at par). With few exceptions (including for “hybrid bonds” ), Canadian debt securities invariably include a put right in favour of holders in the case of a change of control of the issuer. However, for investment grade issuers, this change of control put is only effective if the change of control results in a pre- scribed ratings downgrade. Governing law The governing law for a trust indenture and the debt securities issued thereunder is typically the law of the Canadian province in which the issuer is headquartered. Trust indenture legislation in
that province and in certain other jurisdictions in which the debt securities are offered may pre- scribe certain minimum standards for the trust indenture, absent an exemption. 2.2 Use of Loan Market Association (LMA) Agreements or Other Standard Loans There is no standard form loan agreement in Canada. The Canadian Bankers Association (CBA) has published a model credit agreement, but it is heavily skewed in favour of protecting lenders’ rights and remedies and is therefore not typically used as a starting point in large syndi- cated or bilateral loan facilities. Typically, the documentation is based on the lead lender’s preferred form or a precedent transaction with similar terms undertaken by the lead lender or the acquirer. That said, certain model definitions or provisions developed by the CBA can be useful to avoid protracted negotia- tion over relatively straightforward mechanical concepts. For example, the Canadian Alterna- tive Reference Rate (CARR) working group has developed standard language to replace the Canadian Dollar Offered Rate (CDOR) with the Canadian Overnight Repo Rate Average (COR- RA) as the new benchmark for floating loans denominated in Canadian Dollars. Market par- ticipants have generally adhered to this standard language, which reasonably balances the inter- ests of borrowers and lenders. 2.3 Language Although commitment papers and loan docu- mentation in Canada can be prepared in either of Canada’s two official languages (English and French), the vast majority are prepared in Eng- lish, even in the predominantly French-speak- ing province of Quebec. As a result of recent amendments to Quebec’s language laws, all
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