News Releases

Regulators Issue Guidance on Income Trust Disclosure Relating To Distributable Cash

Aug 26, 2005

The Canadian Securities Administrators (CSA) issued guidance today on the information that income trusts are expected to disclose to ensure transparency when they present information about estimated distributable cash in a prospectus.

The information that an income trust provides about its estimated distributable cash is likely to be central to an investor’s assessment of the income trust’s prospects. The disclosed amount of estimated distributable cash often incorporates significant estimates and assumptions. However, many income trusts have provided only limited information on these estimates and assumptions.

The CSA staff guidance describes what is an appropriate presentation for estimated distributable cash. This involves detailed disclosure of matters such as the information’s purpose and relevance, and of the assumptions that underlie it. Depending on what adjustments are being made to an income trust’s historical amounts, it may also involve providing financial statements of other entities, or other financial information. In some circumstances, CSA staff expect that appropriate disclosure of estimated distributable cash will require a forecast be included in the prospectus, in the format of historical financial statements, prepared in accordance with the CICA Handbook.

"We have heard repeated concerns about the transparency of this information," said Susan Wolburgh Jenah, acting Chair of the Ontario Securities Commission. "We expect issuers to carefully consider whether their disclosure represents a balanced and complete assessment of all factors likely to affect estimated distributable cash." Ms. Wolburgh Jenah added that the expectations in the notice will be reflected in staff’s prospectus reviews.

Issuers also need to consider whether their disclosure provides adequate transparency about the sustainability of estimated distributable cash. For example, for some income trusts, capital expenditures to replace productive capacity might be relatively low in initial years but could rise significantly in later years. In these instances, information should be provided about the time period in which expenses are expected to be at the level disclosed, and about any expected long-term plans to replace productive capacity that could affect the amount of cash available to be distributed to investors.

The CSA will continue to monitor developments with respect to income trust disclosure and may provide future additional guidance.

The CSA Staff Notice 41-304 - Income Trusts: Prospectus Disclosure of Distributable Cash is available on several CSA members’ web sites.

The CSA is the council of the securities regulators of Canada's provinces and territories whose objectives are to improve, coordinate and harmonize regulation of the Canadian capital markets.