In order to fund general corporate purposes, ACo will issue senior unsecured notes on a private placement basis for 100% of their principal amount and bearing an annual coupon of a stipulated percentage of the principal. On maturity, the “Final Redemption Amount” required to be paid by ACo will equal the product of the Principal Amount, and an index reflecting the price performance of the specified commodity (the “Underlying”) between the “Strike Date” (shortly before the issue date) and the “Final Redemption Date” (shortly before maturity). The Final Redemption Amount will be payable in cash unless a Noteholder timely elects for physical settlement. A calculated “Early Redemption Amount” is payable on default. ACo likely will hedge its exposure under the Notes through options or other available hedging instruments.
CRA ruled that s. 212(1)(b)(ii) will not apply to any payments of the interest coupons or to any payments on maturity or earlier redemption. The rationale stated in the CRA headnote is that:
The commodity is not sufficiently linked to the profitability of the issuer’s business.