[Federal Register Volume 59, Number 149 (Thursday, August 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18962]


[[Page Unknown]]

[Federal Register: August 4, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20433; International Series Release No. 694; 812-8944]

 

Ontario Financing Authority; Notice of Application

July 28, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANT: Ontario Financing Authority (``OFA'').

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from all 
provisions of the Act.

SUMMARY OF APPLICATION: OFA, a public authority established by the 
Province of Ontario, Canada, seeks an order exempting it from all 
provisions of the Act in connection with the offer and sale of its debt 
securities in the United States.

FILING DATE: The application was filed on April 20, 1994 and amended on 
July 20, 1994.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on August 22, 1994, 
and should be accompanied by proof of service on applicant, in the form 
of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street N.W., Washington, D.C. 
20549. Applicant, c/o Pamela M. Gibson, Shearman & Sterling, Commerce 
Court West, 199 Bay Street, Suite 4405, Toronto, Canada, M5L 1E8.

FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Senior Attorney, (202) 942-0565, or C. David Messman, 
Branch Chief, (202) 942-0564 (Division of Investment Management, Office 
of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicant's Representations

    1. OFA is a statutory authority of the Province of Ontario 
(``Ontario'' or the ``Province'') established on November 15, 1993 by 
the Province under the Capital Investment Plan Act, 1993 (the ``Capital 
Investment Act''). The Province established OFA to assist the Province, 
and municipalities, school boards, post-secondary institutions, 
hospitals and other public bodies (the ``Public Sector Clients'') to 
borrow and invest money, and provide other financial services. Through 
OFA, money will be raised to finance capital investment in the areas 
of, among others, education, health-care, transportation, and water and 
sewage infrastructure. OFA is expected to become a major financing 
vehicle for borrowing by Public Sector Clients.
    2. OFA proposes to issue and sell in the United States debt 
securities unconditionally guaranteed by the Province (``Guaranteed 
Debt Securities''). The proceeds of the Guaranteed Debt Securities will 
be lent to various Public Sector Clients. Substantially all of the 
moneys borrowed by OFA will be re-lent to the Public Sector Clients. 
Funds not immediately lent to the Province or Public Sector Clients 
will be invested by OFA. In order to assure favorable terms to the 
Public Sector Clients, and in anticipation of their borrowing needs, 
OFA may borrow and then invest the proceeds of such borrowings 
temporarily in debt instruments, such as banker's acceptances, Treasury 
bills, and commercial paper until the Public Sector Clients require 
such funds.
    3. Guaranteed Debt Securities will be direct, unsecured obligations 
of OFA, with the payment of principal, and any interest or premium, 
irrevocably and unconditionally guaranteed by the Province (the 
``Provincial Guarantee'') pursuant to an order of the Lieutenant 
Governor in Council under the Financial Administration Act (the 
``FAA''). Section 22 of the FAA provides, in part, that the Lieutenant 
Governor in Council may by order authorize the Minister of Finance, on 
behalf of Ontario, ``to agree to guarantee or indemnify the debts, 
obligations, securities or undertakings of any person * * * [and] may 
fix such terms and conditions as are considered advisable * * *.'' 
Pursuant to this authority, Guaranteed Debt Securities will bear the 
irrevocable unconditional guarantee of the Province so that, in the 
event of a default, holders of Guaranteed Debt Securities may proceed 
directly against the Province under such guarantee without first 
proceeding against OFA, and such amount will then be payable out of the 
Consolidated Revenue Fund of the Province.
    4. The Capital Investment Act is the primary legislation governing 
OFA and sets out OFA's constitution, functions, and powers. The 
Minister of Finance of the Province is responsible for the 
administration of the Capital Investment Act in respect of OFA. 
Pursuant to the Capital Investment Act, OFA is required to submit an 
annual report on its affairs, including audited financial statements, 
to the Minister of Finance within 90 days of the end of its fiscal 
year. The financial statements are audited by the Provincial Auditor.
    5. The Lieutenant Governor in Council is empowered to make 
regulations respecting the management, control, and administration of 
the affairs of OFA. OFA's board of directors may pass by-laws 
regulating OFA's proceedings, specifying the powers and duties of the 
officers and employees and generally for the management of OFA. In 
particular, the power of OFA to borrow, issue securities, make short-
term investments, manage risk associated with financing and investment, 
or incur liabilities in order to facilitate financings by others only 
may be exercised under the authority of a by-law that has been approved 
by the Minister of Finance.
    6. Substantially all of OFA's assets are expected to include: (i) 
Obligations of Public Sector Clients to repay loans made to them by 
OFA; (ii) the assets, consisting primarily of deposit obligations, of 
The Province of Ontario Savings Office; (iii) obligations of certain 
Public Sector Clients to repay loans made to them by the Province and 
transferred to OFA; (iv) investments to facilitate OFA's cash flow 
management and maximize the return on its surplus funds and those of 
Public Sector Clients; and (v) such other assets, which may consist of 
obligations or investments, as permitted by the Capital Investment Act.

Applicant's Legal Analysis

    1. Section 3(a)(3) of the Act defines an investment company as an 
issuer engaged in the business of investing, reinvesting, owning, 
holding, or trading in securities, and owning ``investment securities'' 
having a value exceeding 40% of the value of such issuer's total 
assets. Because substantially all of the moneys borrowed by OFA will be 
lent to Public Sector Clients, a substantial portion of OFA's assets 
will consist of obligations of the Public Sector Clients to repay such 
loans. In addition, OFA will invest its own surplus funds and those of 
other Public Sector Clients, as well as make temporary investments. 
Such obligations and investments could be deemed to be ``investment 
securities'' within the meaning of section 3(a)(3). As a result, OFA 
could be deemed to be an ``investment company'' under the Act.
    2. Section 6(c) permits the SEC to grant an exemption from the 
provisions of the Act if and to the extent that such exemption is 
necessary and appropriate in the public interest, consistent with the 
protection of investors, and consistent with the purposes fairly 
intended by the policy and provisions of the Act.
    3. OFA believes that granting the exemption would be appropriate in 
the public interest. It would benefit United States investors by making 
the Guaranteed Debt Securities more readily available to such 
investors. It also would expand the United States' market for OFA's 
Guaranteed Debt Securities and thus encourage the free flow of capital 
among nations.
    4. OFA further believes that granting the exemption requested would 
be consistent with the protection of investors. The payment of the 
principal of, and any premium or interest on, the Guaranteed Debt 
Securities will be irrevocably and unconditionally guaranteed by the 
Province. As a result, the Guaranteed Debt Securities will be backed by 
the sovereign credit of the Province and not merely the credit and 
assets of OFA.
    5. Finally, OFA believes an exemption would be consistent with the 
purposes fairly intended by the policy and provisions of the Act. OFA 
is a governmental central financing and investing authority that was 
organized to obtain and arrange efficient financing and investments for 
the requirements of public authorities of the Province. OFA is thus a 
statutory body with characteristics different from the types of 
investment companies at which the Act generally is directed and for 
which its substantive provisions are necessary or suitable.

Applicant's Conditions

    OFA agrees that any order of the SEC granting the requested relief 
shall be subject to the following conditions:
    1. No Guaranteed Debt Securities will be offered or sold within the 
United States unless: (a) They are registered under the Securities Act 
of 1933 (the ``Securities Act''); (b) in the opinion of United States 
counsel for OFA, an exemption from registration under the Securities 
Act is available with respect to such offer and sale; or (c) the staff 
of the SEC states in writing that they will not recommend that the SEC 
take any enforcement action under the Securities Act if such securities 
are offered and sold in the United States without registration.
    2. All borrowings by OFA, including the issuance by OFA of the 
Guaranteed Debt Securities, will be effected in accordance with the 
provisions of the Capital Investment Act and any applicable regulations 
and by-laws promulgated thereunder. All investments of funds of OFA and 
any Pubic Sector Client will be made by OFA in accordance with the 
requirements of the Capital Investment Act and any applicable 
regulations and by-laws promulgated thereunder. All temporary 
investments by OFA will be made in accordance with the requirements of 
the Capital Investment Act and any applicable regulations and by-laws 
promulgated thereunder.
    3. The payment of principal of, and any interest or premium on, all 
Guaranteed Debt Securities issued by OFA will be irrevocably and 
unconditionally guaranteed by the Province pursuant to an order of the 
Lieutenant Governor in Council under the FAA.
    4. Applicant and the Province will expressly submit to the 
jurisdiction of any state or federal court in the City or State of New 
York in any action or proceeding arising out of or relating to the 
Guaranteed Debt Securities and the Provincial Guarantee, and Applicant 
and the Province will agree that all claims in respect of such action 
or proceeding may be heard and determined in such New York State court 
or in any such federal court. Applicant and the Province also will 
waive the defense of an inconvenient forum to the maintenance of any 
such action or proceeding. Applicant and the Province will appoint an 
agent for service of process with an office in New York, New York, as 
agent to receive on behalf of Applicant and the Province service of 
copies of the summons and complaint and any other process which may be 
served in any such action or proceeding. Such consent to jurisdiction 
and appointment of an agent for service of process will be irrevocable 
until all amounts due and payable in respect of any such Guaranteed 
Debt Securities have been paid. Applicant will agree to explicitly 
waive any immunity it may have from jurisdiction and from execution or 
attachment or any process in the nature thereof in respect of any suit, 
action, or proceeding arising out of or relating to the Guaranteed Debt 
Securities. The Province will agree to explicitly waive any immunity 
the Province may have from jurisdiction in respect of any such action.
    5. In respect of any action or proceeding brought with respect to 
such Guaranteed Debt Securities or Provincial Guarantee instituted in 
any state or federal court in the United States (other than any action 
or proceeding in any New York State or federal court in New York City 
referred to in the preceding paragraph), each of OFA and the Province 
will agree to accept service of process by any form of mail requiring a 
signed receipt effected in accordance with Sections 1608(b)(3)(B) and 
1608(a)(3), respectively, of the Foreign Sovereign Immunities Act of 
1976 (28 U.S.C. 1608). In agreeing to accept such service of process in 
any such action or proceeding, neither OFA nor the Province will waive 
any claim of sovereign immunity it may have with respect to itself or 
its property in any such action or proceeding, consent to the subject 
matter jurisdiction or jurisdiction in personam of any such court, 
agree that any such court is a proper forum for any such action or 
proceeding, or waive any rights it may have to remove any such action 
or proceeding from state court to federal court.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18962 Filed 8-3-94; 8:45 am]
BILLING CODE 8010-01-M