Background
LP, a Canadian limited partnership, holds common shares of Profitco through two Holdcos and holds preference shares of Profitco directly. It is unclear whether Profitco is wholly-owned, directly or indirectly, by LP. LP also holds all the shares of Lossco, which is affiliated and related to Profitco, except that a redacted person holds non-voting preference shares of Lossco.
Proposed transactions
Lossco will use the proceeds of a daylight loan (drawn down under a group credit facility) to subscribe for an interest-bearing note of Profitco, which will use such loan proceeds to subscribe for newly-created non-voting cumulative redeemable retractable preference shares of Lossco, whose proceeds will be used by Lossco to repay the daylight loan. Profitco will also subscribe for Class G preference shares of Lossco.
LP and Lossco will enter into an agreement pursuant to which LP will make an annual non-interest bearing advance to Lossco in an amount equal to the excess of the amount of dividends payable on the Preference Shares over the amount of interest payable on Note 1 on an annual basis (the Annual Advance).
The above loss consolidation arrangement will be terminated, on the earlier of a specified date and the utilization of Lossco’s non-capital losses by the payment of the accrued and unpaid dividends on the preference shares and of the interest on Note 1, followed by Lossco redeeming the Preference Shares through delivery of Note 1 to Profitco, with Note 1 being extinguished by set-off, and Profitco repaying all Annual Advance amounts.
Additional information
The Group's borrowing capacity under the undrawn credit facility will exceed the level required to complete the proposed transactions.
Rulings
Including ruling on s. 20(1)(c) and opinion on Bill C-59 version of s. 245.