Scheduled outage for OSC Electronic Filing Portal on Thursday, April 25, 2024 from 6:00 to 11:00 pm (EST)
Brookfield Infrastructure Partners L.P. and Brookfield Infrastructure Corporation
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- partnership creates corporation to provide investors with alternative way to hold its units -- corporation issues exchangeable shares whose terms are structured so that each exchangeable share is functionally and economically equivalent to a partnership unit -- each exchangeable share provides an equivalent economic return as a partnership unit -- both the partnership and the corporation are reporting issuers -- the corporation will, from time to time, enter into related party transactions with persons other than the partnership -- the partnership may not be party to each of these related party transactions but each such transaction will be treated by the partnership as a related party transaction -- the corporation is exempt from related party transaction requirements, subject to conditions, including that the partnership will comply with the related party transaction requirements for each of the corporation's related party transactions as though the partnership entered into such related party transaction directly.
June 2, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BROOKFIELD INFRASTRUCTURE PARTNERS L.P. AND BROOKFIELD INFRASTRUCTURE CORPORATION
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Brookfield Infrastructure Partners L.P. (BIP) and Brookfield Infrastructure Corporation (BIPC, and together with BIP, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that BIPC be exempt from the requirements of Part 5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101, and the requirements of Part 5 of MI 61-101, the Related Party Transaction Requirements) in connection with related party transactions of BIPC entered into with persons other than BIP or subsidiary entities of BIP (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Manitoba, New Brunswick, Québec and Saskatchewan.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
Relevant Entities
BIP
1. BIP is an exempted limited partnership established, registered and in good standing under the laws of Bermuda. BIP's registered and head office is located at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.
2. BIP is a reporting issuer in all of the provinces and territories of Canada and is an SEC foreign issuer within the meaning of section 1.1 of National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102) and satisfies its continuous disclosure obligations by complying with U.S. federal securities laws as is permitted under NI 71-102. BIP is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
3. The authorized capital of BIP consists of: (a) an unlimited number of non-voting limited partnership units (the BIP Units); (b) an unlimited number of Class A preferred limited partnership units, issuable in series; and (c) an unlimited number of general partnership units. As of April 30, 2023, there were 458,643,058 BIP Units (762,846,376 BIP Units assuming the exchange of redeemable partnership units of Holding LP and Exchangeable Shares (as such terms are defined below)), 43,901,312 class A preferred limited partnership units and 1 general partnership unit issued and outstanding.
4. The BIP Units are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbols "BIP" and "BIP.UN", respectively.
5. BIP's only substantial asset is its managing general partner interest and preferred limited partner interest in Brookfield Infrastructure L.P. (Holding LP), a Bermuda exempted limited partnership established, registered and in good standing under the laws of Bermuda.
6. Each director of the general partner of BIP is also a director of BIPC.
7. Brookfield Infrastructure Partners Limited, a wholly-owned subsidiary of Brookfield Corporation (formerly Brookfield Asset Management Inc.) (BN), holds the general partnership unit in BIP.
BIPC
8. BIPC is a corporation existing and in good standing under the Business Corporations Act (British Columbia). BIPC's registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. BIPC's head office is located at 250 Vesey Street, 15th Floor, New York, New York 10281, United States of America.
9. BIPC is a reporting issuer in all of the provinces and territories of Canada and is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
10. The authorized share capital of BIPC consists of: (a) an unlimited number of class A exchangeable subordinate voting shares (Exchangeable Shares); (b) an unlimited number of class B multiple voting shares (Class B Shares); (c) an unlimited number of class C non-voting shares (Class C Shares); (d) an unlimited number of class A senior preferred shares (issuable in series); and (e) an unlimited number of class B junior preferred shares (issuable in series). As of April 30, 2023, there were 110,616,095 Exchangeable Shares, 2 Class B Shares, 2,103,677 Class C Shares, zero class A senior preferred shares, and zero class B junior preferred shares issued and outstanding.
11. The Exchangeable Shares are listed on the NYSE and the TSX under the symbol "BIPC".
12. BIPC's principal investments consist of indirect interests in regulated gas transmission systems in Brazil and of regulated distribution operations in the United Kingdom, as well as a non-controlling interest in an Australian regulated utility.
13. The board of directors of BIPC consists of each of the directors of the general partner of BIP and one additional director.
14. The only voting securities of BIPC are the Exchangeable Shares and the Class B Shares. Holders of Exchangeable Shares are entitled to one (1) vote per Exchangeable Share held and holders of Class B Shares are entitled to cast, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the Exchangeable Shares. Accordingly, the Exchangeable Shares collectively represent a 25% voting interest in BIPC and the Class B Shares collectively represent a 75% voting interest in BIPC.
15. Neither the Exchangeable Shares nor the Class B Shares carry a residual right to participate in the assets of BIPC upon liquidation or winding-up of BIPC, and accordingly, are not equity securities under the Legislation. The Class C Shares are the only equity securities of BIPC under the Legislation.
16. BIP, indirectly through wholly-owned subsidiaries, owns 100% of the issued and outstanding Class B Shares and 100% of the Class C Shares. Through its ownership of these securities, BIP has a 75% voting interest in BIPC, thereby controlling BIPC and the appointment and removal of directors of BIPC, and is entitled to all of the residual value in BIPC after payment in full of the amount due to holders of Exchangeable Shares and Class B Shares and subject to the prior rights of holders of preferred shares. The Class B Shares and the Class C Shares are not transferable except to BIP or persons controlled by BIP.
BN
17. BN is a corporation existing and in good standing under the Business Corporations Act (Ontario). BN's registered and head office is located at Suite 100, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3.
18. BN is a reporting issuer in all of the provinces and territories of Canada and is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
19. The Class A Limited Voting Shares of BN are listed on the NYSE and the TSX under the symbol "BN".
20. BN holds an approximate 27.1% economic interest in BIP on a fully-exchanged basis, including through its indirect ownership of BIP Units, redeemable partnership units of Holding LP and Exchangeable Shares.
21. BN indirectly holds a 100% voting interest in BIP through its ownership of the general partnership unit of BIP.
22. BIP, Holding LP and certain of their subsidiaries have retained certain wholly-owned subsidiaries of Brookfield Asset Management ULC, which is 75% owned by BN and 25% owned by Brookfield Asset Management Ltd., to provide management, administrative and advisory services under a master services agreement.
The Exchangeable Shares
23. BIP believes that certain investors in certain jurisdictions may be dissuaded from investing in BIP because of the tax reporting framework that results from investing in units of a Bermuda exempted limited partnership.
24. BIPC was created, in part, to provide investors that would not otherwise invest in BIP with an opportunity to gain access to BIP's globally diversified portfolio of high quality infrastructure assets and their associated returns, and to provide investors with the flexibility to own, through the ownership of an Exchangeable Share, the economic equivalent of a BIP Unit.
25. On March 31, 2020, BIP completed a special distribution of Exchangeable Shares to holders of BIP Units (the Special Distribution). Each Exchangeable Share has been structured with the intention of providing an economic return equivalent to a BIP Unit and the rights, privileges, restrictions and conditions attached to each Exchangeable Share (the Exchangeable Share Provisions) are such that each Exchangeable Share is intended to be, as nearly as practicable, functionally and economically, equivalent to a BIP Unit. In particular:
(a) each Exchangeable Share is exchangeable at the option of a holder for one (1) BIP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC) (an Exchange);
(b) the Exchangeable Shares are redeemable by BIPC at any time for BIP Units (or its cash equivalent, at BIPC's election), including following a notice requiring redemption having been given by BIP, on a one-for-one basis (subject to adjustment to reflect certain capital events) (a Redemption);
(c) upon a liquidation, dissolution or winding up of BIPC, holders of Exchangeable Shares will be entitled to receive BIP Units (or its cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) and not any remaining property or assets of BIPC following such payment (a BIPC Liquidation);
(d) upon a liquidation, dissolution or winding up of BIP, including where substantially concurrent with a BIPC Liquidation, all of the Exchangeable Shares will be automatically redeemed for BIP Units (or its cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a BIP Liquidation); and
(e) subject to applicable law and in accordance with the Exchangeable Share Provisions, each Exchangeable Share entitles the holder to dividends from BIPC payable at the same time as, and equivalent to, each distribution on a BIP Unit. The Exchangeable Share Provisions also provide that if a distribution is declared on the BIP Units and an equivalent dividend is not declared and paid concurrently on the Exchangeable Shares, then the undeclared or unpaid amount of such dividend accrues and accumulates and is to be paid upon the first to occur of any of the circumstances contemplated by paragraphs (a) to (d) above, if not yet paid.
26. Upon being notified by BIPC that BIPC has received a request for an Exchange, BIP has an overriding call right to purchase (or have one of its affiliates purchase) all of the Exchangeable Shares that are the subject of the Exchange notice from the holder of Exchangeable Shares for BIP Units (or its cash equivalent, at BIP's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
27. Upon being notified by BIPC that it intends to conduct a Redemption, BIP has an overriding call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares for BIP Units (or its cash equivalent, at BIP's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
28. Upon the occurrence of a BIP Liquidation or BIPC Liquidation, BIP has an overriding liquidation call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares on the day prior to the effective date of such BIP Liquidation or BIPC Liquidation for BIP Units on a one-for-one basis (subject to adjustment to reflect certain capital events).
29. In connection with the Special Distribution, BN entered into a rights agreement pursuant to which it agreed that, until March 31, 2025, BN will guarantee BIPC's obligation to deliver BIP Units or its cash equivalent in connection with an Exchange.
Other BIPC Related Party Transactions
30. On March 11, 2020, in connection with the Special Distribution, the Ontario Securities Commission granted: (i) BIP relief from the Related Party Transaction Requirements in connection with any related party transaction of BIP with BIPC or any of BIPC's subsidiary entities; (ii) BIPC relief from the Related Party Transaction Requirements in connection with any related party transaction of BIPC with BIP or any of BIP's subsidiary entities (the BIPC Related Party Relief); and (iii) BIP relief from the requirements of sections 5.4 and 5.6 of MI 61-101 in connection with any related party transaction of BIP entered into indirectly through Holding LP or any subsidiary entity of Holding LP, if that transaction would qualify for the transaction size exemptions set out in sections 5.5(a) and 5.7(1)(a) of MI 61-101 if the Exchangeable Shares were included in the calculation of BIP's market capitalization.
31. It is anticipated that BIPC will, from time to time, enter into related party transactions with persons other than BIP or subsidiary entities of BIP (Other BIPC Related Party Transactions) in respect of which the BIPC Related Party Relief does not apply.
32. BIP may not be a party to each Other BIPC Related Party Transaction entered into. However, every Other BIPC Related Party Transaction will indirectly be a related party transaction for BIP and will be treated by BIP as a related party transaction of BIP.
33. Subject to the availability of an exemption, BIPC would be required to obtain: (i) a formal valuation in respect of the non-cash assets involved in the Other BIPC Related Party Transaction; and (ii) minority approval for the Other BIPC Related Party Transaction from the holders of every class of affected securities of BIPC voting separately as a class, excluding the votes attached to affected securities held by the persons enumerated in section 8.1(2) of MI 61-101.
34. Minority approval is required of every class of affected securities, being equity securities of the issuer. The Exchangeable Shares are not equity securities and thus are not entitled to vote for the purposes of minority approval under MI 61-101. The only equity securities of BIPC are the Class C Shares, all of which are held by BIP. BIP, as an entity for which each Other BIPC Related Party Transaction would also constitute a related party transaction, does not require the protections of MI 61-101.
35. By virtue of the Exchangeable Share Provisions, the economic rights of the holders of BIP Units and Exchangeable Shares will be affected in an identical manner in respect of any related party transaction entered into by either BIP or BIPC. A related party transaction for BIPC is, in effect, a related party transaction for BIP.
36. BIP, as the sole holder of the equity securities of BIPC, will receive any benefit and/or bear any detriment from any Other BIPC Related Party Transaction entered into.
37. BIPC is a controlled subsidiary of BIP and BIP consolidates BIPC and its businesses in BIP's financial statements.
38. A majority of any committee of independent directors of BIP that considers an Other BIPC Related Party Transaction will be comprised of directors who are also directors of BIPC.
39. Investments in Exchangeable Shares are as nearly as practicable, functionally and economically, equivalent to an investment in BIP Units. BIP and BIPC believe that:
(a) investors of Exchangeable Shares purchase Exchangeable Shares as an alternative way of owning BIP Units rather than a separate and distinct investment; and
(b) the market price of the Exchangeable Shares is significantly impacted by (i) the combined business performance of BIPC and BIP as a single economic unit, and (ii) the market price of the BIP Units, in a manner that results in the market price of the Exchangeable Shares closely tracking the market price of the BIP Units.
40. BIPC is intended to be an entity through which persons who do not wish to hold BIP Units directly may hold their interests in BIP, and BIP is the entity through which holders of Exchangeable Shares and BIP Units hold their interests in the collective operations of BIP and its subsidiaries, including BIPC and its subsidiaries. BIP and BIPC are a single economic entity.
41. BIP will comply with the Related Party Transaction Requirements for each Other BIPC Related Party Transaction as though BIP entered into the Other BIPC Related Party Transaction directly.
42. Other than where BIP or subsidiary entities of BIP are also party to the Other BIPC Related Party Transaction, in which case any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements (including for the Other BIPC Related Party Transaction) will be in respect of BIP and its subsidiary entities (including BIPC and BIPC's subsidiary entities) on a consolidated basis:
(a) the subject matter of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other BIPC Related Party Transaction and the value or range of values of such subject matter would be identical to any formal valuation obtained by BIPC for the same Other BIPC Related Party Transaction; and
(b) the form and substance of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other BIPC Related Party Transaction would be identical, in all material respects, to any formal valuation obtained by BIPC for the same Other BIPC Related Party Transaction.
43. Any and all disclosure documents in connection with an Other BIPC Related Party Transaction, including any formal valuations, information circulars or material change reports, will be filed on the SEDAR profiles of both BIP and BIPC.
44. Holders of Exchangeable Shares who wish to vote at the BIP level may do so by conducting an Exchange of Exchangeable Shares for BIP Units.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) all of the equity securities of BIPC are owned, directly or indirectly, by BIP;
(b) all of the voting securities of BIPC, other than the Exchangeable Shares, are owned, directly or indirectly, by BIP;
(c) there are no material changes to the Exchangeable Share Provisions, as described above;
(d) BIP consolidates BIPC and its businesses in BIP's financial statements;
(e) BIP will comply with the Related Party Transaction Requirements for each Other BIPC Related Party Transaction as though BIP entered into the Other BIPC Related Party Transaction directly;
(f) other than where BIP or subsidiary entities of BIP are also party to the Other BIPC Related Party Transaction, in which case any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements (including for the Other BIPC Related Party Transaction) will be in respect of BIP and its subsidiary entities (including BIPC and BIPC's subsidiary entities) on a consolidated basis:
(i) the subject matter of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other BIPC Related Party Transaction and the value or range of values of such subject matter would be identical to any formal valuation obtained by BIPC for the same Other BIPC Related Party Transaction; and
(ii) the form and substance of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other BIPC Related Party Transaction would be identical, in all material respects, to any formal valuation obtained by BIPC for the same Other BIPC Related Party Transaction; and
(g) any and all disclosure documents in connection with an Other BIPC Related Party Transaction, including any formal valuations, information circulars or material change reports, are filed on the SEDAR profiles of both BIP and BIPC.
"David Mendicino"
Manager, Office of Mergers & Acquisitions
Ontario Securities Commission