Note terms
In order to obtain “undated” capital that will be used by it inter alia to make distributions to its shareholders, Aco, a resident corporation, will issue Fixed Rate Resetting Perpetual Non-Cumulative Subordinated Notes (the “Notes”) in one or more private placements. They will:
- be issued at no discount or only a shallow discount;
- rank subordinate to all of ACo’s other indebtedness, except indebtedness which by its terms ranks equally or subordinate to the Notes;
- accrue interest initially at the prevailing interest rate at their time of issuance and be payable in arrears on the “Interest Payment Dates,” with the interest rate thereafter being periodically reset on the “Interest Reset Dates;”
- be subject to ACo’s right in its discretion, with prior notice to the holders, to cancel any interest that would otherwise be payable on any Interest Payment Date; however, in such event, Aco will be precluded from declaring dividends or repurchasing shares until interest payments are resumed.
- be redeemable by Aco for their principal plus any accrued and unpaid (and uncancelled) interest
- not trigger an Event of Default under the Notes if there is a failure to make a payment on the Notes when due (including any interest, whether as a result of cancellation or otherwise);
- have no scheduled maturity or redemption date, so that ACo is not required to make any repayment of the principal except upon an Event of Default (principally, bankruptcy or insolvency).
Additional information
The Interest paid or payable by ACo on the Notes will not be deductible under paragraph 20(1)(c) or any other provision of the Act in computing the income of ACo for any taxation year.
Ruling
Interest paid by Aco on the Notes to a recipient (beneficially owning the Notes) dealing at arm’s length with Aco will not be subject to Part XIII tax.