Canadian Securities Course - Debentures Overview

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Questions and Answers

What is a requirement for an issuer to use a short form prospectus?

Must operate in multiple jurisdictions outside Canada.

Must be in business for at least five years.

Must have a history of profitability.

Must file electronically using SEDAR+. (correct)

Which of the following is NOT an advantage of listing shares on an exchange?

Establishment of market value.

Additional controls on management. (correct)

Increased market visibility.

Increased investor following.

What must be true about an issuer to ensure continuous disclosure obligations?

The issuer must have a minimum number of employees.

The issuer must be a reporting issuer in at least one Canadian jurisdiction. (correct)

The issuer must issue securities only in foreign markets.

The issuer must operate in multiple sectors of the economy.

Which method is NOT used for after-market stabilization by the lead dealer?

Withholding shares from the secondary market. Signup and view all the answers

Which of the following represents a disadvantage of being a reporting issuer?

Requirement for additional disclosure. Signup and view all the answers

Which statement about the SEDAR+ system is correct?

It is mandatory for filing short form prospectuses. Signup and view all the answers

What role does the underwriter play in a primary offering of securities?

They are responsible for the pricing and marketing of the issue. Signup and view all the answers

What are treasury shares?

Repurchased shares that do not have voting rights or dividend entitlements. Signup and view all the answers

How does a secondary offering differ from a primary offering?

A secondary offering refers to previously issued stocks being sold by shareholders. Signup and view all the answers

What is a firm commitment agreement in the context of bond issuance?

An agreement involving various groups where the bonds are underwritten and sold at par value. Signup and view all the answers

What responsibilities does the financing group have when issuing bonds?

To maintain continuous contact with the issuing company and advise on various aspects of the bond issue. Signup and view all the answers

What does the financing group accept on behalf of its members during the bond issuance process?

Liability for the issue of bonds, covering endorsements from all participating members. Signup and view all the answers

What is the role of the managing underwriter in the bond issuance process?

To oversee the bond issuance process and coordinate the financing group's activities. Signup and view all the answers

What documents are typically prepared by the financing group for bond issuance?

A prospectus and trust deed along with selling documents. Signup and view all the answers

Why do treasury shares not hold voting rights or dividend entitlements?

They are held primarily for future resale, impacting voting and dividend rights. Signup and view all the answers

What is a defining characteristic of debentures?

They are only backed by the general creditworthiness of the corporation. Signup and view all the answers

Which factor is NOT considered when a corporation selects a lead dealer for financing?

The amount of commission the dealer will earn. Signup and view all the answers

What is the primary purpose of the due diligence report prepared by the dealer?

To evaluate the financial structure and future prospects of the corporation. Signup and view all the answers

In addition to evaluating the corporation, what else is included in the dealer's assessment?

Risk factors associated with both the industry and the company. Signup and view all the answers

What outcome is associated with securing a reputable dealer for a corporate issue?

Improved market acceptance and potentially cheaper financing. Signup and view all the answers

What type of report is typically generated after the assessment of a corporation's financial status?

Due diligence report. Signup and view all the answers

Which of the following financial options is NOT mentioned as an alternative to debentures for corporations?

Initial public offerings. Signup and view all the answers

What role does the lead dealer play in the financing process for a corporation?

They offer advice on issue distribution and market support. Signup and view all the answers

What is one of the primary benefits of conducting an assessment prior to negotiations for a new securities issue?

To facilitate the negotiation of better terms with stakeholders. Signup and view all the answers

What is included on the cover page of a prospectus for an offering of securities?

Relevant information for investors regarding the offering Signup and view all the answers

Why is it important for potential purchasers to consider the information presented in a prospectus?

To ensure they make informed investment decisions Signup and view all the answers

Which section of the prospectus summarizes information likely to influence an investor’s decision?

Summary Signup and view all the answers

What type of information is provided regarding the issuer in the prospectus?

Name, business, and disclosed financial history Signup and view all the answers

What does the section regarding securities in a prospectus NOT typically include?

Pricing strategy for future offerings Signup and view all the answers

What information is typically found in the officers and shareholders section of a prospectus?

Names and addresses of directors and occupation histories Signup and view all the answers

Which aspect is NOT typically highlighted in a prospectus when summarizing the offering?

Projections for the company’s growth Signup and view all the answers

What is the significance of market out clauses as mentioned in the cover page of a prospectus?

They allow the issuer to withdraw from the offering under certain conditions Signup and view all the answers

What does the summary in a prospectus not typically include?

Detailed descriptions of each security Signup and view all the answers

Which of the following is true regarding the information related to the issuer's capital structure in a prospectus?

It provides insight into the company’s equity and debt distribution Signup and view all the answers

What is the role of the banking group in a bond issue?

To include additional dealers with agreed liability. Signup and view all the answers

Which group is responsible for selling bonds but is not part of the banking group?

The selling group. Signup and view all the answers

Who can be classified as casual dealers?

Non-members of the banking or selling group. Signup and view all the answers

What might prompt the issuer to demand special consideration for a dealer?

The dealer's relationship with a foreign bank. Signup and view all the answers

What typically characterizes the exempt list in the context of bond sales?

It includes large professional buyers exempt from prospectus requirements. Signup and view all the answers

What is one of the primary concerns for securities administrators regarding capital raising?

Ensuring the integrity of capital markets through safeguards. Signup and view all the answers

How may the designation of bonds set up by the financing group change?

It may be altered based on market demand during the sale. Signup and view all the answers

What distinguishes equity financing from debt financing?

Equity financing raises capital without incurring debt. Signup and view all the answers

What can special group orders result from?

Specific requests by the issuer for certain dealers. Signup and view all the answers

What is a likely consequence of the safeguards in securities issuance?

Orderly flow of capital supporting companies seeking investment. Signup and view all the answers

Study Notes

Debentures and Financing Options

Debentures rely solely on the corporation's creditworthiness without specific asset pledges.
Corporations have various financing alternatives: bank loans, commercial paper, leasing, government grants, and export financing.

Dealer's Advisory Relationship

Corporations engage dealers for financing advice, focusing on timing, amount, and pricing of securities issuance.
A reputable lead dealer can enhance market acceptance and reduce financing costs.
Dealers conduct thorough assessments of the corporation, its industry, and risk factors to prepare due diligence reports.
Expertise in pricing and marketing is crucial during the primary offering of securities.

Treasury Shares and Offerings

Companies can repurchase outstanding shares, known as treasury shares, which lack voting and dividend rights but can be resold later.
Secondary offerings involve selling previously issued stock by major shareholders, managed by investment dealers.
In bond issuance, a financing group led by a lead underwriter manages the public resale of bonds at par value.

Financing Group Roles

The financing group provides advice on issue structure, covenants, and timing, and prepares necessary documentation like prospectuses.
The banking group consists of additional dealers sharing financial liability for their participation in the bond issue.
Selling groups and casual dealers assist with bond sales, and certain orders may be exempted based on issuer requirements.

Prospectus System and Safeguards

Securities issuances must comply with safeguards to protect investors and ensure capital market integrity.
The prospectus includes crucial offering details, summaries, and information related to the issuer, securities, and corporate officers.
Short form prospectuses may be utilized under specific conditions by reporting issuers.

After-Market Stabilization Process

After securities issuance, lead dealers may stabilize the market by managing sales and creating open bids at the offer price.
Listing shares on an exchange provides advantages including market visibility and investor interest but also incurs added management controls and disclosure requirements.

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Description

This quiz covers the fundamentals of debentures as discussed in the Canadian Securities Course. Debentures are defined by their reliance on the corporation's creditworthiness rather than specific asset backing. Gain insight into various financing options available to corporations alongside debentures.