7 7Index

ACCOUNT VERIFICATION. See BANKING RELATIONSHIP

BANKING RELATIONSHIPBank Act, 2bank for international settlements and international chamber ofcommerce, 5

bank services and agreements, 48central account agreement, 48pre-authorized debit services, 48SWIFT payments, 48

bankrupt company. See INSOLVENT COMPANYBills of Exchange Act, 2cash management services, 3current account documents, 9Canadian Payments Association, 11contra proferentem, 10notice of dishonour, 11operation of account agreement, 9protest of bills of exchange, 11set-off, 11standard of care, 11verification of account terms, 9waiver of presentment, 11

Depository Bills and Notes Act, 2, 32duties, 34between bank and customer, 37duty of account verification, 38duty of inquiry, 38

confidentiality, 40

453

BANKING RELATIONSHIP — continuedduties — continuedconfidentiality — continuedbank’s consent, 44express consent, 44implied consent, 44

consents, 42disclosure required by interests of bank, 44disclosure required by law, 42disclosure to public, 43duty of confidentiality, 40duty of secrecy, 41

fiduciary, 44implied terms, 36banker’s duty of care, 37duty of inquiry, 37

third-party responsibility, 40usual account agreement terms, 34account agreement, 34payment instructions, 34

legal information about customer. See LEGAL INFORMATIONABOUT CUSTOMER

non-bank entity, 7opening corporate bank account, 14Financial Transactions and Reporting Analysis Centre of Canada

(“FINTRAC”), 15money laundering offences, 15Proceeds of Crime (Money Laundering) and Terrorist Financing Act,

15set-off, 47credit balance, 47debit balance, 47minimum deposit balances, 48right of set-off, 47specific cash collateral accounts, 48super priority, 48

statutory relationship, 8Superintendent of Financial Institutions, 8

traditional banking services, 5transfer of funds, 3

BANKING & CREDIT RELATIONSHIPS454

BANKRUPTCY AND INSOLVENCY ACT. See INSOLVENTCOMPANY

BANKSthree schedule types of banks, 6

BONDSasset-backed securities, 193bearer bond, 193book entry bond, 194equity-linked bonds, 193fixed rate bonds, 192floating rate bonds, 192high-yield bonds, 193inflation-linked bonds, 193lottery, 194municipal bond, 194perpetual bonds, 193registered bond, 193subordinated bonds, 193zero coupon bonds, 193

BORROWER PLANNING ISSUEScommon forms of security. See SECURITYdebentures as credit documents, 122charge, 122debenture, 122trust deed, 122

environmental review, 120due diligence, 121phase 1 investigation, 121phase 2 investigation, 121representations and warranties, 120

fixtures, 119how to take and register security, 115intellectual property, 120sufficient description, 118taxation and cross-border financing, 123blanket facility, 124derivatives, 125swing lines, 124

INDEX 455

CANADIAN PAYMENTS ASSOCIATION, 11, 56

CHEQUINGbank’s duty of inquiry before paying cheque, 28mistake of fact, 29

bank’s duty with respect to returned cheques, 28interbank clearing process, 30

central clearing arrangements, 28certification of cheques, 30special suspense account, 30

countermand, 30direct credit transfers, 27electronic payment, 33generally, 24international payments, 33Canada Payments Act, 33clearing systems, 33SWIFT, 33

large batch system, 27large value system, 27payment, 25pre-authorized payment, 34pre-authorized debit, 34pre-authorized debit agreement, 34

signing, 31Depository Bills and Notes Act, 32forgeries, 32

stop payment, 26

COLLATERALIZED DEBT OBLIGATIONSAAA+ tranche, 235cash CDO, 235cash flow structures, 234CDO-based securitization, 236asset correlation, 236balance sheet CDO, 236cash settlement, 236cashflow CDO, 236CDO-Squared, 236collateralized debt agreement, 236correlation, 237credit default swap, 237credit event, 237

BANKING & CREDIT RELATIONSHIPS456

COLLATERALIZED DEBT OBLIGATIONS — continuedCDO-based securitization — continueddefault correlation, 237delta, 237detachment point, 237equity tranche, 238Monte Carlo simulation, 238physical settlement, 238protection buyer, 238protection seller, 238recovery rate, 238reference entity, 238reference portfolio, 238synthetic CDO, 239super senior tranche, 239tranche thickness, 239

CFO, 235collateralized bond obligations, 234collateralized fund obligations, 234collateralized loan obligations, 234generally, 234loss trigger, 235market for the market spread, 235market value structures, 234portfolio spread triggers, 235super senior, 235tranche, 235

COMMITMENT PROCESS. See SECURED LENDING RELA-TIONSHIP

COMPANIES’ CREDITORS ARRANGEMENT ACT. See INSOL-VENT COMPANY

CONSIGNMENT. See NON-TRADITIONAL FINANCINGSOURCES

CONVERTIBLE DEBT. See NON-TRADITIONAL FINANCINGSOURCES

CORPORATE SEAL AND IDENTIFICATIONcorporate seal, 23

CREDIT DERIVATIVES. See DERIVATIVES

INDEX 457

CREDIT FACILITIES, 107asset-based lending, 107conditional sales agreement, 109construction funding, 108covenant light loan transactions, 108factoring, 108finance factoring, 108true factoring, 108

hire purchase transactions, 108leasing, 109retention of title, 109sale and leaseback transactions, 108securitization, 109sponsor based funding, 107

CREDITOR. See LOAN TRANSACTIONSsecured lending relationship, 81unsecured creditor, 80

CROWD-FUNDING AND INTERNET ALTERNATIVES FOR FUN-DRAISING. See PUBLIC MARKETS FOR DEBT IN CANADA

CURRENT ACCOUNT DOCUMENTS. See BANKINGRELATION-SHIP

DEBT. See PUBLIC MARKETS FOR DEBT IN CANADA

DERIVATIVES, 183collateralized debt. See COLLATERALIZED DEBT OBLIGATIONScredit derivatives, 220credit spread put options, 221default swap, 221total rate of return swap, 221

confirmations, 215Credit Support Annex, 216currency swap, 183definitions, 2151993 Commodity Derivatives Definitions, 2151996 Equity Derivatives Definitions, 2152014 Credit Derivatives Definitions, 215

fixed rate, 213floating rate, 213forward exchange contract, 183generally, 183, 213

BANKING & CREDIT RELATIONSHIPS458

DERIVATIVES — continuedInterest Rate and Currency Exchange Agreement, 214interest rate swap, 213Interest Rate Swap Agreement, 214International Swaps and Derivatives Association, 184, 214liquidity. See LIQUIDITY ARRANGEMENTSoutward forward, 183par forward, 183regulatory issues, 217Canadian Securities Administrator, 219CSA Consultation Paper 91-407, 219derivative dealer, 217derivatives data report, 218Global Markets Entity utility (GMEI), 218ISDA Representation Letter, 219local counterparty, 219

large derivative participant (LDP), 219legal entity identifier (LEI), 218Ontario Securities Commission, 218syndicated facilities, 241trade repository, 218

schedule, 215securitization, 221generally, 221rating, 230actual, 231additional considerations, 231asset-backed securities, 231credit enhancement, 231liquidity enhancement, 231notional, 231

securitization vehicles, 221substantive consolidation, 228terms, 223beneficial interest, 223cash flow waterfall, 224financial asset, 224interest-only strip, 224issuer, 224originator, 224

true sale, 223UNCITRAL, 229waterfall provision, 228

INDEX 459

DERIVATIVES — continuedstructured finance, 239swap market, 214syndicated facilities, 241Adherence Letter, 245legal entity identifier, 246local operating unit, 246reporting obligations, 246creation data, 247errors & omissions, 247life-cycle event data, 247valuation data, 247

transaction reporting rules, 244United States Treasury Office of Foreign Assets Control, 242

User’s Guides, 216

DISTRESS PREFERRED SHARES. See NON-TRADITIONALFINANCING SOURCES

ELECTRONIC BANKINGapplicable law, 55automated clearing settlement system (ACSS), 57Canadian Payments Association, 56clearing standards, 56clearing system, 56conflicts of law, 68Clearing House Interbank Payments System (CHIPS), 68

contractual issues, 62Society for Worldwide Interbank Financial Telecommunication, 66S.W.I.F.T. Code, 66

electronic signature, 69Personal Information and Protection of Electronic Documents

Act, 69UNCITRAL Model Law on Electronic Commerce, 69Uniform Electronic Commerce Act (Canada), 69

enhanced requirements for diligence, 72inter-member electronic clearing process, 57large value transfer system, 57legal background, 59payment confirmation reference number (PCRN), 59Telecommunications Act, 62

LVTS system, 57position, 56

BANKING & CREDIT RELATIONSHIPS460

ELECTRONIC BANKING — continuedapplicable law — continuedstacking of cheques, 57S.W.I.F.T. clearing arrangement, 57value, 57would be due to them and from them, 56

Bills of Exchange Act, 51cyber security issues and solutions, 71cyber security, 71

Depository Bills and Notes Act, 51effect on transaction closing process, 73closing agreement, 73closing escrow arrangements, 73coding error, 76escrow, 73escrow account, 73funding protocol, 73inter-bank fund transfer confirmation, 73inter-bank transfer, 73LVTS-PCRN, 73LVTS transfer, 73Tranche one transfer, 75

electronically delivered banking services, 66electronic signature, 69enhanced requirements for diligence, 72electronic transfer of funds, 51generally, 52Bank Act, 54electronic document, 54

Personal Information and Protection of Electronic Documents Act, 69UNCITRAL Model Law on Electronic Commerce, 69Uniform Electronic Commerce Act (Canada), 69

revised agreements and processes, 70securities depository system, 51

GOVERNMENT FUNDING. See NON-TRADITIONALFINANCING SOURCES

GUARANTEESassignment and receipt of trust funds, 144assignment, 144

changing the primary obligation, 146non est factum, 147

INDEX 461

GUARANTEES — continuedchanging the primary obligation — continuedprima facie rule, 147

defences and waivers, 141primary debt obligation, 142

representations and warranties, 145restrictions, 135financial assistance restriction, 136Guarantees Acknowledgement Act, 137Statute of Frauds, 137

terms, 138additional terms, 139waiver of the guarantee defences, 139

consideration, authority, and capacity, 138limitation on the scope of the guarantee, 141limitation of liability, 141limitation on the dollar amount of the guarantee obligation, 141

obligation guaranteed, 139specific performance, 139

terms of delivery, 140guarantee delivery conditions, 140

INSOLVENT COMPANYbankrupt, 255Commercial Tenancies Act, 256petition, 255voluntary assignment, 255

Companies’ Creditors Arrangement Act, 257arrangement, 258Commercial List Users Committee of the Ontario Superior Court of

Justice, 258compromise, 258court appointed receiver, 259debtor-in-possession provisions, 258formal plan of compromise or arrangement, 260meeting of creditors, 260model C.C.A.A. initial order, 258model form receivership orders, 259sale of assets, 260liquidating C.C.A.A., 261related person, 261restriction on sales, 261

Winding-Up and Restructuring Act, 260

BANKING & CREDIT RELATIONSHIPS462

INSOLVENT COMPANY — continuedeligible financial contracts, 266financing, 268debtor-in-possession financing, 270assignment, 271critical supplie, 271eligible wages, 272interim financing, 270Wage Earner Protection Program Act, 272

preferences and fraudulent conveyances, 268transfers a undervalue (TUV), 268

shareholder approval in restructurings, 273insolvent, 249international insolvencies, 266UNCITRAL Model on Cross-Border Insolvency, 266

no formal process, 249Bankruptcy and Insolvency Act, 249Companies’ Creditors Arrangement Act, 250preference, 249

notice of intention to file proposal under the BIA, 251fair dealing, 254insolvent party, 251interim stay of proceedings, 252notice of intention, 251official receiver, 252proposal, 251trustee, 251

proposal accepted under the BIA, 254formal plan of proposal, 54inspectors, 255

receiver, 262court-appointed, 264Canada Business Corporations Act, 264interim receivers, 265national receivers, 265Notice of Intention to Enforce Security, 265Rules of Civil Procedure, 264

subordination of equity claims, 266

INTEREST RATES, 125banker’s acceptance, 133Bills of Exchange Act, 133CDOR, 134

INDEX 463

INTEREST RATES — continuedbanker’s acceptance — continuedDepository Bills and Notes Act, 133

cost of credit disclosure, 126defining interest, 127Interest Act, 126consumer protection law, 126

interest rate alternatives, 129Canada, 129Canada Bond rate, 130cost of funds, 130fixed rate, 129floating prime rat, 129

United States, 130London Interbank Offered rate, 130U.S. Prime and U.S. Base rates, 130

letters of credit, 132penalty interest, 128

INVENTORY FINANCEblocked account, 159generally, 157floor plan arrangement, 157inventory finance programs, 159inventory security arrangement, 158lock box arrangements, 159private label financing basis, 159value added vendor finance program, 158

ISSUER TO DEALER RELATIONSHIPbest efforts basis, 197co-managers, 197generally, 196lead manager, 197sales agency agreement, 197underwriting, 196underwritten deal, 196

ISSUER TO PURCHASER RELATIONSHIPgenerally, 194minority shareholder, 194prospectus, 195

LEASING. See NON-TRADITIONAL FINANCING SOURCES

BANKING & CREDIT RELATIONSHIPS464

LEGAL INFORMATION ABOUT CUSTOMER, 17anti-money laundering signatory verification, 17articles of incorporation, 17bank standard form of resolution, 17by-laws, 17certificate of incumbency, 17key man insurance, 19restrictions on change of control, 19signatories, 17signature card, 17special resolutions, 17unincorporated entities, 19co-ownership, 19corporation in a partnership, 19joint venture, 19general or ordinary partnership, 19general partner, 20limited partnership, 20

LETTER OF CREDIT, 179Article V of the Uniform Commercial Code of the United States, 181choses in action, 179documentary letter of credit, 179International Chamber of Commerce, 179ISP 98, 181sight draft, 181standby letter of credit, 179UCP 600, 181Uniform Customs and Practice for Documentary Credits, 179United Nations Convention on the Independent Guarantees andStandby Letters of Credit, 181

LIQUIDITY ARRANGEMENTSClassic FICO Score, 234credit scoring, 233extendible commercial paper, 233Fair Isaac Credit Bureau Risk Score, 234general, 232

LOAN TRANSACTIONSborrower planning. See BORROWER PLANNING ISSUEScapital assets, 80credit facilities. See CREDIT FACILITIES

INDEX 465

LOAN TRANSACTIONS — continuedcurrent assets, 80credit relationships, 79interest rate issues and options. See INTEREST RATESsecured creditor, 80secured lending relationship. See SECURED LENDING RELATION-SHIP

security. See SECURITYterms, 79letter of commitment, 80general assignment of book debts, 80general security agreement, 80operating credit facility, 79revolving credit facility, 79term sheet, 80

unsecured creditor, 80unsecured lending relationship. See UNSECURED LENDINGRELATIONSHIP

MEZZANINE OR QUASI-EQUITY DEBT. See NON-TRADITIONAL FINANCING SOURCES

NEGATIVE COVENANT. See UNSECURED LENDINGRELATIONSHIP

NEGATIVE PLEDGE. See UNSECURED LENDING RELATION-SHIP

NON-TRADITIONAL FINANCING SOURCESasset-based finance, 151consignment, 177true consignment, 178

convertible debt, 184convertible debt instrument, 184debentures, 184trust indenture, 184

derivatives. See DERIVATIVESdistress preferred shares, 167guarantees, 167put call agreements, 167

generally, 149government funding, 165factoring finance, 150finance lease, 150

BANKING & CREDIT RELATIONSHIPS466

NON-TRADITIONAL FINANCING SOURCES — continuedinventory. See INVENTORY FINANCEleasing arrangements, 150, 160Bankruptcy and Insolvency Act, 162Companies’ Creditors Arrangement Act, 162finance lease, 160lease for financing purposes, 160master equipment lease and schedules, 163reservation of title, 161synthetic lease obligation, 164true or operating lease, 160

letters of credit. See LETTER OF CREDIToperating lease, 150receivables. See RECEIVABLES FINANCEsecuritization. See SECURITIZATION AND STRUCTUREDFINANCE

subordinate and mezzanine finance, 170last-out debt, 170mezzanine or quasi-equity debt, 170remedy stand-still, 171second lien debt, 170subordinate debt, 170

trade credit, 173bank guarantee, 173banker’s acceptance, 173documentary credits, 176Economic Development Corporation, 177letter of credit, 173letters of guarantee, 175line of credit, 176purchase money security interest, 173super priority, 175third-party assurances, 175Uniform Customs and Practice for Documentary Credits of the

International Chamber of Commerce, 176true lease, 150

OFFERING MATERIALS FOR A PROSPECTUS OFFERING, 199annual information form, 202audited financial statements, 202due diligence, 200final prospectus, 200fund documents, 202

INDEX 467

OFFERING MATERIALS FOR A PROSPECTUS OFFERING —continued

long form prospectus, 200management discussion and analysis, 202medium-term note program, 201MJDS forms, 201N1 44-101, 201preliminary prospectus, 199prospectus exemptions, 199prospectus offering, 199prospectus placement, 199short form prospectus, 200

PRECEDENTS FOR KEY DOCUMENTS, 275commitment process, 275commitment letter, 276fee letter, 288term sheet, secured revolving loan, 281

guarantee, 420guarantee and indemnity agreement, 420

loan agreement, 318pro forma opinion letter, 436secured loan checklists, 290customer identification form, 308List of Acceptable Identification Documents, 311

due diligence checklist, 299know your client considerations, 316secured loan checklist and closing agenda, 290third-party information form, 314

security agreements, 385long form, 393short form, 386

PROSPECTUS. See OFFERING MATERIALS FOR A PROSPEC-TUS OFFERING

PUBLIC DEBT DEALdocumentation and structure. See PUBLICMARKETS FOR DEBT INCANADA

PUBLIC MARKETS FOR DEBT IN CANADAbonds, 192. See also BONDScrowd-funding and Internet alternatives for fund raising, 206crowd-funding, 206

BANKING & CREDIT RELATIONSHIPS468

PUBLIC MARKETS FOR DEBT IN CANADA — continuedcrowd-funding and Internet alternatives for fund raising — continuedJumpstart Our Business Startups Act, 209start-up crowd-funding exemptions, 207

covenants, 192documentation and structure in public debt deal, 197Canadian Depository for securities CDSX system, 199central credit document, 198Financial Action Task Force on Money-Laundering, 199indenture trustee, 199repurchase restrictions, 199trust deed, 197trust indenture, 198

listing debt securities, 206prospectus offering. See OFFERING MATERIALS FOR A PRO-SPECTUS OFFERING

securities law, 202Canadian Depository for Securities Limited, 205clearing agencies, 205directed selling efforts, 203exempt distribution, 205general public, 204multi-jurisdictional disclosure system, 204SC Rule 45-501, 205security, 203trade, 203unregistered offerings, 205

size and nature, 187Canadian Debt (Bond) Market, 187Canadian equity market, 187CanDeal, 188investment-grade debt market, 188investment-grade market, 187non-investment-grade high-yield debt market, 188

types of debt, 188asset-backed securities market, 189bearer form, 192CUSIP numbers, 190debentures, 188debt repayment schedule, 191debt securities, 188global form, 192medium-term notes, 191

INDEX 469

PUBLIC MARKETS FOR DEBT IN CANADA — continuedtypes of debt — continuedmedium-term notes — continuedfixed rate, 191floating rate, 191

money market instrument equivalents, 191money market instruments, 190Securities and Exchange Commission, 189Securities Industry and Financial Markets Association, 190

RECEIVABLES FINANCEaccounts receivable purchase agreement, 154asset-based lender, 155asset-based lending, 152eligible accounts receivable, 153factor financing arrangement, 154generally, 152loan agreement, 155purchase factor arrangement, 154repurchase arrangement, 153

RECEIVER. See INSOLVENT COMPANY

SECURED LENDING RELATIONSHIP, 90commitment process, 90commitment letters, 90

credit support, 97credit insurance, 97credit substitution, 97credit wrap, 97insurance products, 97key man insurance, 97performance assurances, 97rental interruption insurance, 97

granting security, 95remedies available to borrower, 104remedies available to lender, 99seize-or-sue statutory arrangement, 99

usual documentation for granting of security, 92all-asset basis, 92enforcement of rights, 94application to the court for appointment of receiver, 94foreclosure or judicial sale, 94

BANKING & CREDIT RELATIONSHIPS470

SECURED LENDING RELATIONSHIP — continuedusual documentation for granting of security — continuedenforcement of rights — continuedprivate appointment of receiver, 94

going concern, 94liquidation, 94perfection, 93purchase money security interest, 93

SECURITYborrower planning. See BORROWER PLANNING ISSUEScommon forms, where to register, 110security over cash deposits, 114security over claims and receivables, 113chattel paper, 113claims, 113receivables, 113

security over financial instruments, 112financial assets, 112financial instruments, 112negotiable documents of title, 113uncertified securities, 113

security over intellectual property, 114Canadian Intellectual Property Office, 114copyright, 114industrial design, 114patents, 114trademarks, 114

intangibles, 114intellectual property, 114

security over real estate, 110charge, 110easements, 111hypothec, 110leasehold interests, 111mineral rights, 111mortgage, 110parcels of real estate, 111rights of way, 111three-party agreement, 111title register, 111

security over tangible movable property, 111goods, 111

INDEX 471

SECURITY — continuedcommon forms, where to register — continuedsecurity over tangible movable property — continuedtangible personal property, 112

how to take and register security chart, 115-118

SECURITIZATION AND STRUCTURED FINANCE, 167asset-backed lending, 167asset securitization, 167capital cost allowance, 168derivatives. See DERIVATIVESlevel assured payment stream, 167income-producing assets, 167revenue stream, 167securitization vehicles, 167

SET-OFF. See BANKING RELATIONSHIP

SUBORDINATE AND MEZZANINE FINANCE. See NON-TRADITIONAL FINANCING SOURCES

TAXATION AND CROSS BORDER FINANCING. SeeBORROWER PLANNING ISSUES

TRADE CREDIT. See NON-TRADITIONAL FINANCINGSOURCES

UNSECURED LENDING RELATIONSHIP, 80negative covenants, 87negative pledge, 83positive covenant, 84Bankruptcy and Insolvency Act, 85

remedies available to borrower, 89approval of a plan, 89Companies’ Creditor Arrangement Act, 89

remedies available to lender, 88executing on a judgment, 88garnishment, 88petition to a court, 88receiving order, 88seizure and sale, 88

unsecured credit facilities, 81acknowledgement, 82

BANKING & CREDIT RELATIONSHIPS472

UNSECURED LENDING RELATIONSHIP — continuedunsecured credit facilities — continuedcash flow lending, 81covenant-based lending, 81current account documents, 81letter of commitment, 81loan agreement, 81survival arrangement, 82term sheet, 81unsecured credit, 81

VERIFICATIONidentifying requirements, 14

INDEX 473