Staff are of the view that the Originator plays a vital role for
the MIE, such that the performance of the MIE is largely
dependent on the Originator’s business expertise in originating
and servicing mortgages. In fact, this expertise is what the
MIE is indirectly offering to the public through its securities.
Even though the MIE has been established as a separate
legal entity, in our prospectus reviews, Staff are examining
the relationship of the MIE and Originator comprehensively,
and may regard the MIE as part of the Originator’s business.
The OSC Guidance provides helpful information to market
participants in understanding when an MIE/MIC would be
considered and investment fund. If an MIE/MIC is an investment
fund, then the Proposed Restriction would impact its business
if it invests in non-guaranteed mortgages. If a public MIE/MIC
is presently regulated as an investment fund when it is not an
investment fund, based on the OSC Guidance, then it may want to
be regulated as a corporate issuer to avoid any possible application
of the Investment Restriction to its business. This is what one MIC
did in these circumstances.
Timbercreek Reacts to Proposed Restriction
On July 15, 2013, Timbercreek Senior Mortgage Investment
Corporation (Timbercreek) announced that a special shareholders
meeting would be held to consider, among other things, approving
the transition of the corporation from the Canadian securities
regulatory regime for investment funds (the investment fund
reporting regime) to the regulatory regime for non-investment
funds (the corporate issuer reporting regime).
Timbercreek stated that it is proactively addressing the
Proposed Restriction in order to avoid any concern by shareholders
about the impacts the Proposed Restrictions may have on their
investment in the Corporation. Timbercreek also stated that it
discussed the Transition with the OSC to ensure its plan meets the
CSA requirements for it to cease to be classified as an investment
fund to mitigate any risk that it will be adversely affected by the
On September 12, 2013, Timbercreek announced that 99.8%
of shareholders voted in favour of the Transition with over 55% of
shareholders participating in the vote.
The CSA has not provided any background information
explaining the need for the Proposed Restriction, but one can
assume it is likely in response to the U.S. mortgage meltdown.
Many industry participants are concerned that the Proposed
Restriction, if implemented, will negatively impact successful
non-guaranteed mortgage funding models by driving up the costs
of mortgages for borrowers, and decreasing the returns available
to investors. Industry participants should continue to follow this
story as it evolves.
However, from a different perspective, market participants
and their counsel welcome the recently released OSC Guidance on
when an MIE or MIC is an investment fund and when it is not, and
hopefully such guidance will be accepted by all CSA members.
For more information contact:
firstname.lastname@example.org | 416.860.2955
The contents of this article do not constitute legal advice and is provided
for information purposes only. This article does not necessarily reflect the
opinions of Cassels Brock & Blackwell LLP or any of its lawyers or clients
or those of the Exempt Market Dealers Association of Canada. The content
of this article is not intended to be used as a substitute for specific legal
advice or opinions.
1. An MIE refers to a person or company whose purpose is to directly or
indirectly invest substantially all of its assets in debts owing to it that are
secured by mortgages, hypothecs or in any other manner on real property
(collectively, “mortgages” for purposes of this definition), and whose other
assets are limited to: (a) deposits with a bank or other financial institution;
(b) cash; (c) debt securities referenced in section 8. 21 [Specified debt] of NI
31-103; (d) real property which is directly or indirectly held on a temporary
basis as a result of action taken to enforce its rights as a secured lender;
and (e) instruments intended solely to hedge specific risks relating to the
debts owing to it that are secured by mortgages, hypothecs or in any other
manner on real property.
“Many industry participants are concerned that the Proposed Restriction, if implemented, will negatively impact
successful non-guaranteed mortgage funding models by driving up the costs of mortgages for borrowers, and
decreasing the returns available to investors.”
FOCUS ON REAL ESTATE