LETTERS OF CREDIT
9.1 (1) The following definitions apply in this section.
- “acceptable rating”
“acceptable rating” means the rating, given by a credit rating agency to an issuer at the time of the issuance or renewal of a letter of credit, that is at least equal to one of the following ratings:
(a) A, from Dominion Bond Rating Service Limited;
(b) A, from Fitch Ratings;
(c) A2, from Moody’s Investors Service; and
(d) A, from Standard & Poor’s Ratings Services. (note acceptable)
“ATB” means Alberta Treasury Branches established under the Alberta Treasury Branches Act of the Province of Alberta. (ATB)
“bank” means a bank or authorized foreign bank, as defined in section 2 of the Bank Act. (banque)
- “cooperative credit society”
“cooperative credit society” means a cooperative credit society to which the Cooperative Credit Associations Act applies or a cooperative credit society that is incorporated and regulated by or under an Act of the legislature of a province. (coopérative de crédit)
“default” means the occurrence of one of the following:
(a) the written notification to the Superintendent that the administrator intends to terminate or wind up the whole of the pension plan under subsection 29(5) of the Act;
(b) the amendment of the plan, resolution by the employer or coming into force of any other measure that effects the termination of the whole of the plan;
(c) the Superintendent’s declaration under subsection 29(2) or (2.1) of the Act that terminates the whole of the plan;
(d) the bankruptcy of the employer or the filing of an application or petition by or against the employer under the Winding-up and Restructuring Act;
(e) the non-renewal of a letter of credit for its full face value unless
(i) it has been replaced by another letter of credit for the same face value on or before the expiry of the letter of credit,
(ii) an amount equal to the face value of the letter of credit has been remitted to the pension fund on or before the expiry of the letter of credit, or
(iii) the face value of the letter of credit has been reduced in accordance with subsection (2), (3) or (4); and
(f) the failure by an employer to comply with a direction issued by the Superintendent under section 11 of the Act with respect to the face value a letter of credit referred to in subsection 9(13.1). (« défaut »)
“issuer” means a bank, a cooperative credit society or an ATB, that has an acceptable rating by two credit rating agencies, is not an employer or affiliated with an employer within the meaning of subsection 2(2) of the Canada Business Corporations Act and is a member of the Canadian Payment Association. (« émetteur »)
(2) If the aggregate face value of the letters of credit held for the benefit of the plan exceeds 15% of the market value of the assets that relate to the defined benefit provisions of the plan as determined at the valuation date and if, based on the most recent actuarial report,
(a) the average solvency ratio and the solvency ratio of the plan are 1.0 or more, the aggregate face value of the letters of credit may be reduced by the lesser of
(i) the amount by which the aggregate face value of the letters of credit exceeds 15% of the market value of the assets that relate to the defined benefit provisions of the plan as determined at the valuation date, and
(ii) the lesser of the solvency excess and the excess of the solvency assets over the solvency liabilities; and
(b) either the average solvency ratio or the solvency ratio of the plan is less than 1.0, the aggregate face value of the letters of credit may be reduced by the amount of the excess referred to in subparagraph (a)(i) to the extent of the difference between
(i) the amount of the solvency special payment for the plan year following the valuation date, and
(ii) the amount of the solvency special payment that does not take into consideration the maximum referred to in the description of B of the definition “solvency assets” in subsection 2(1) for the plan year following the valuation date.
(3) An employer may reduce the face value of a letter of credit after making a payment to the pension fund of the amount of the reduction.
(4) The face value of a letter of credit may be reduced if, based on the most recent actuarial report,
(a) the solvency ratio of the plan would have been no less than 1.05 had the reduced face value been in effect at the valuation date; and
(b) the average solvency ratio of the plan would have been no less than 1.0 had the reduced face value been in effect at the valuation date.
(5) A letter of credit shall be an irrevocable and unconditional standby letter of credit that
(a) is in accordance with the rules of the International Standby Practices ISP98, International Chamber of Commerce Publication No. 590, as amended from time to time;
(b) specifies the date that it becomes effective, which can be no later than the date on which the instalment of the special payment that is being replaced is due, and the date that it expires, which shall be the day on which the plan year ends;
(c) provides that the issuer will pay the face value of the letter of credit on demand from the trustee without inquiring whether the trustee has a right to make the demand;
(d) is payable in Canadian currency;
(e) provides that
(i) the insolvency, liquidation or bankruptcy of the employer is to have no effect on the rights or the obligations of the issuer of the letter of credit or the trustee,
(ii) it will, in accordance with these Regulations, be renewed, replaced or allowed to expire without renewal or replacement, and
(iii) it may not be
(A) assigned except by the issuer to another issuer, or
(B) amended except
(I) on a renewal, to increase the face value or to decrease the face value,
(II) if a successor issuer has taken over the rights and obligations under it from a predecessor issuer, to change the name of that predecessor to the name of that successor,
(III) following an assignment, to reflect the change in issuer, and
(IV) to decrease the face value in accordance with these Regulations;
(f) provides that if the issuer assigns the letter of credit without the agreement of the employer or, after the issuance of the letter of credit, fails to meet the definition of an issuer, the issuer is still required to pay the face value of the letter of credit on demand from the trustee; and
(g) provides that any amendments to the letter of credit be provided to the employer within five days after the amendment is made.
(6) The employer or, if the employer is not the administrator of the plan, the administrator shall enter into a trust agreement or may amend any existing trust agreement that they may have with the trustee regarding the letters of credit.
(7) If the employer is not the administrator, the administrator shall give a copy of the trust agreement to the employer within 10 business days after entering into or amending a trust agreement.
(8) The trust agreement shall provide that
(a) the trustee shall hold letters of credit in Canada in trust for the plan;
(b) the definition “default” in subsection (1) applies to the agreement;
(c) the employer shall immediately notify, in writing, the trustee and the Superintendent and, if the employer is not the administrator of the plan, the administrator of a default;
(d) if not otherwise notified under paragraph (c), the administrator shall notify, in writing, the trustee and the Superintendent of a default immediately after becoming aware of it;
(e) on receipt of the notice referred to in paragraph (c) or (d), the trustee shall immediately make a demand for payment of the face value of
(i) all of the letters of credit held for the benefit of the plan, if the default is one that is described in any of paragraphs (a) to (d) and (f) of the definition “default” in subsection (1), and
(ii) the letter of credit that has not been renewed, if the default is one that is described in paragraph (e) of that definition;
(f) on receipt of a written notice of default from any person other than the employer or the administrator, the trustee shall
(i) immediately notify, in writing, the employer, the administrator and the Superintendent of the notice, and
(ii) make a demand for payment of the face value of all of the letters of credit held for the benefit of the plan unless the administrator provides a written notice to the trustee within 30 days after receipt of the notice that the default has not occurred;
(g) when a trustee makes a demand for payment of the face value of a letter of credit held for the benefit of the plan, it shall notify, in writing, the employer, the administrator and the Superintendent that it has made the demand;
(h) the trustee shall immediately notify, in writing, the employer, the administrator and the Superintendent if the issuer does not pay the face value of a letter of credit after a demand for payment has been made;
(i) the trustee shall not make a demand for payment if a letter of credit expires without being renewed or if the face value is being reduced, in accordance with these Regulations; and
(j) the administrator shall notify the trustee of any circumstance in which a letter of credit may expire or when the face value of a letter of credit may be reduced, under these Regulations.
(9) The employer shall provide to the trustee
(a) the letter of credit, on its initial issuance, at least 15 days before the day on which the first instalment of a solvency deficiency payment to which the letter of credit relates is due;
(b) if a letter of credit is replacing another, the replacement letter of credit at least 15 days before the expiry of the letter of credit that is being replaced;
(c) if an expiring letter of credit is to be renewed, the renewed letter of credit at least 15 days before the day on which it would otherwise have expired; and
(d) if the letter of credit is being amended, the amended letter of credit within 15 days after the day on which the letter of credit was amended.
(10) Any demand made by the trustee in respect of a letter of credit shall be in writing or in any other form that the letter of credit provides.
(11) An issuer who assigns a letter of credit to another issuer shall inform the Superintendent, the employer, the administrator and the trustee of the transaction within 15 days after the assignment.
- SOR/2011-85, s. 4.
- Date modified: