Over the course of the last year, a number of insolvent mining companies in Alberta, British Columbia, Ontario, Québec and the Northwest Territories have sought protection from their creditors under the Companies’ Creditors Arrangement Act (CCAA) and then proceeded to sell all or substantially all of their assets pursuant to a court supervised sale and investment solicitation process (SISP).
A SISP is a court-supervised process under the CCAA whereby the assets of an insolvent company are marketed to prospective purchasers or an investment of equity/debt by way of refinancing/restructuring is sought. A sale of assets typically plays out as follows:
- Mining company files for creditor protection under the CCAA. The process begins when the mining company applies to the court for protection under the CCAA. The court will then issue an initial order staying the claims of creditors against the company and appoint a licensed insolvency trustee, known as a monitor, to monitor the business and affairs of the company during the CCAA process.
- SISP approval order. Upon application by the company, and after considering the opinion of the court-appointed monitor, the court may determine it is in the best interests of the company and its stakeholders that its assets be sold. The court will then issue a SISP approval order setting out a detailed framework governing the sale process, including the applicable requirements in order for potential bidders to participate and key deadlines.
- Solicitation of prospective bidders. Following the issuance of the SISP approval order, the company, in consultation with the monitor and its financial advisors, will compile a list of prospective bidders and circulate teaser materials. The sale may also be advertised in newspapers, industry publications, by way of press release, and on the monitor’s website.
- Initial access to due diligence materials. To help prospective bidders evaluate the company’s assets, the company will often prepare a confidential information memorandum (CIM) describing its assets and operations and will establish an electronic data room containing comprehensive due diligence materials. To obtain a copy of the CIM and access the electronic data room, prospective bidders are required to sign a confidentiality agreement and agree to comply with the provisions of the SISP approval order.
- Letter of intent. To become qualified, a prospective bidder is required to submit a non-binding letter of intent (LOI) by the stipulated deadline, which must comply with the detailed requirements set out in the SISP order (including setting out the identity of the purchaser and its owners), the basic structure of the offer (including the proposed list of assets to be purchased), any assumed liabilities, a low-high range purchase price, the material conditions to closing, and any additional due diligence to be conducted.
- Identification of qualified bidders. Once the applicable LOI deadline has passed, the company, in consultation with the monitor and its financial advisors, will make a determination as to which prospective bidders are qualified bidders by considering, among other things, whether:
- The submitted LOI met the requirements of the SISP approval order;
- The proposed sale would be in the best interests of the company and its stakeholders; and
- The prospective bidder has the requisite financial capacity and experience to close the proposed transaction.
- Template asset purchase agreement. Qualified bidders will then obtain access to the template asset purchase agreement (APA) prepared by the company and posted in the electronic data room. Prospective purchasers are then required to use that APA template as the starting point for preparing their bid.
- Submission of qualified bids. Qualified bidders will have the opportunity to complete final and comprehensive due diligence, and assuming they wish to proceed further, each bidder must then prepare and submit a purchase bid by the stipulated bid deadline. To be considered a qualified bid, typically the bid must:
- Be binding and irrevocable for the number of days set out in the SISP approval order;
- Be accompanied by a refundable deposit (typically 5%-10% of the bid price);
- Not be contingent on the bidder obtaining financing or conducting any additional due diligence;
- Not request or entitle the bidder to any break-up or termination fees; and
- Include an executed APA, together with a blackline outlining all of the bidder’s proposed changes from the template APA.
- Assessment of qualified bids. Once the applicable bid deadline has passed, the company, in consultation with the monitor and its financial advisors, will assess the qualified bids and determine which bids, if any, are in the best interests of the company and its stakeholders. In making this assessment, the company and the monitor will consider, among other factors, the following:
- The type and amount of consideration to be provided by the bidder;
- The nature and amount of debt and other liabilities to be assumed by the bidder;
- The ability of the bidder to consummate the transaction;
- The planned treatment of stakeholders;
- The proposed revisions to the template APA; and
- Any regulatory requirements applicable to the bidder closing the transaction (such as Competition Act and/or Investment Canada Act approvals).
- Auction. In the event that the company, in consultation with the monitor and its financial advisors, determines it has received more than one qualified bid in the best interests of the company and the company’s stakeholders, the company may choose to conduct an auction process to determine the highest and/or best bid.
- Approval and vesting order. Once a successful bid has been identified, whether through an auction or otherwise, the company must then apply to the court for an approval and vesting order seeking approval of the bid as the successful bid and the agreed upon APA and authorizing any steps necessary to give effect to the transaction.
- Transaction closes. Once approved by the court, the company and the parties to the successful bid can proceed to close the transaction. The successful bidder’s deposit is applied against the purchase price, while unsuccessful bidders’ deposits are returned. Closing will typically occur a month or two after the approval and vesting order is issued by the court, as the parties usually need time to draft closing documents and obtain any required regulatory approvals.
While the above is representative of a typical SISP asset sale, there is considerable flexibility under the CCAA to tailor the process. In some cases, a company’s SISP will contemplate the emergence of a “stalking horse” bidder after the LOI deadline but before the bid deadline. In this case, all of the qualified bidders will have the opportunity to enter into the first binding APA (the stalking horse APA), although only one bidder can become the stalking horse bidder, which bid then establishes the minimum floor price that the other qualified bidders must exceed when submitting their bids. All other qualified bidders must also submit a blackline to the stalking horse APA and not to the template APA by the bid deadline. As consideration for acting as the stalking horse bidder, the stalking horse bidder is usually entitled to expense reimbursement, a break fee in the event that it is ultimately outbid, and security against the mining company’s assets to secure these payments.
Subscribe and stay updated
Receive our latest blog posts by email.