2000 Ruling 2000-0009123 - CHANGE IN TERMS OF DEBT OBLIGATION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

1. No disposition upon amendments to terms of debt obligation
2.18(9.1) applies to restructuring fee

Position:

1. OK
2. OK

Reasons:

1. Original notes still exist together with all provisions not covered by amending agreement
2. Statement of fact that the payment is because of accelerated repayment schedule

XXXXXXXXXX
XXXXXXXXXX 							2000-000912
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX

We are writing in response to your correspondence of XXXXXXXXXX wherein you had requested an advance income tax ruling on behalf of XXXXXXXXXX. We also acknowledge our (XXXXXXXXXX) various telephone conversations in furtherance of this matter.

You have advised that, to the best of the knowledge of yourself and that of responsible officials of XXXXXXXXXX, none of the issues involved in this request for an advance income tax ruling is being considered by a Taxation Services Office or Taxation Centre of Canada Customs and Revenue Agency in connection with a tax return already filed or is the subject of an objection or appeal or is before the courts, or, if a judgement has been issued, the time limit for appeal has not expired.

You have further advised that the business number of XXXXXXXXXX is XXXXXXXXXX and that it files its return of income at the XXXXXXXXXX Taxation Centre of Canada Customs and Revenue Agency.

Facts

1. XXXXXXXXXX ("ACO") was incorporated under the XXXXXXXXXX Business Corporations Act on XXXXXXXXXX. It is a public corporation whose common shares are listed on the XXXXXXXXXX Stock Exchange. XXXXXXXXXX ("BCO") is a Canadian corporation which is wholly-owned by ACO. ACO has a number of other subsidiary corporations some of which carry on business in XXXXXXXXXX.

2.

XXXXXXXXXX

3. A prospectus was issued in XXXXXXXXXX for the distribution by ACO of

XXXXXXXXXX

4. In an Offering Memorandum dated XXXXXXXXXX, ACO issued, in the United States, Senior Notes pursuant to an indenture (the "U.S. Notes"). The U.S. Notes are unsecured obligations of ACO with an aggregate principal amount of $XXXXXXXXXX (U.S.). Interest on the U.S. Notes accrues at the rate of XXXXXXXXXX% per annum and is payable semi-annually on XXXXXXXXXX of every year beginning on XXXXXXXXXX. The notes mature on XXXXXXXXXX. The U.S. Notes are unconditionally guaranteed, jointly and severally, by Guarantors which include BCO and CCO. The proceeds of the U.S. Notes were used to finance ACO's XXXXXXXXXX. ACO also entered into a Registration Rights Agreement with the U.S. Noteholders (or their agents) whereby ACO became obligated to pay to such Noteholders certain liquidated damages in the event that registration statements were not filed with the Securities and Exchange Commission on a timely basis.

5. Under the terms of both the Canadian Notes and the U.S. Notes, ACO was not obligated to pay more than XXXXXXXXXX% of the aggregate principal amount of the notes within XXXXXXXXXX years from the later of the date of issue of the notes or the date the funds were advanced. As such, the payment by ACO of interest on the notes to non-resident Noteholders was exempt from Canadian withholding tax pursuant to subparagraph 212(1)(b)(vii) of the Income Tax Act (the "Act").

6. Over the past XXXXXXXXXX years, ACO ran into financial difficulties as a result of XXXXXXXXXX. As a result, it defaulted on its obligations respecting the payments of interest and principal on the U.S. Notes and the Canadian Notes. ACO also became obligated to pay certain liquidated damages under the Registration Rights Agreement. ACO and BCO have also been unable to pay certain other creditors, including trade creditors (the "Claims Creditors").

7. On XXXXXXXXXX, ACO and BCO sought and were granted an initial order by the XXXXXXXXXX (the "Court") which provided them protection from their creditors under the Companies Creditors Arrangement Act (Canada) (the "CCAA"). On XXXXXXXXXX, ACO and BCO filed the Fourth Amended and Restated Plan of Compromise and Arrangement (the "Plan") with the Court.

Proposed Transactions

8. Pursuant to an order granted by the Court on XXXXXXXXXX, the Noteholders and Claims Creditors of ACO met to consider and vote on the Plan on XXXXXXXXXX. The Plan was approved by a majority in number and those representing XXXXXXXXXX in value of the Noteholders and Creditors which were present and voting at the meeting. An application was made by ACO and BCO to the Court for a final order approving the Plan which final order was issued on XXXXXXXXXX. The date of the implementation of the Plan will be shortly after XXXXXXXXXX.

9. On the implementation of the Plan:

a) ACO will pay:

i) any unpaid interest amounts that have accrued under the terms of the Notes up to and including the Plan Implementation Date;

ii) any unpaid liquidated damages that have accrued under the terms of the Registration Rights Agreement up to and including the Plan Implementation Date;

iii) to the trustees under the Existing Trust Indentures, any unpaid amounts relating to compensation, fees, charges, costs, expenses and other like amounts that are required to be paid to such trustees under the terms of the applicable Existing Trust Indentures, the Registration Rights Agreement and the Guarantees prior to the Plan Implementation Date;

iv) except as referred to above and other than the repayment of the principal indebtedness owing under the Notes, to any Person, any unpaid amounts that are required to be paid by ACO to such Persons under the terms of the Notes, the Existing Trust Indentures, the Registration Rights Agreement and the Guarantees or under applicable law prior to the Plan Implementation Date that is required to cause ACO to be in compliance with the terms of the Notes, the Existing Trust Indentures, the Registration Rights Agreement and the Guarantees and applicable law; and

v) any unpaid amounts that have accrued as interest on any of the amounts referred to above, all in accordance with the terms of the Existing Trust Indentures, the Registration Rights Agreement and the Guarantees up to and including the Plan Implementation Date;

b) The Registration Rights Agreement and all rights and obligations of the parties thereto shall be deemed to be forever cancelled, discharged and released, other than the obligation of ACO to pay the amounts referred to above;

c) The terms of the Notes, of the Existing Trust Indentures and of the Guarantees shall be, and shall be deemed to be, amended (but shall not be, and shall not be deemed to be, rescinded, converted or substituted) such that:

i) any acceleration of the maturity date for the full repayment of principal indebtedness under the Notes that may have resulted under the terms of the Existing Trust Indentures at any time prior to the Plan Implementation Date shall be deemed to be cancelled and waived;

ii) ACO shall repay, on the Plan Implementation Date, as partial repayment of principal indebtedness under the Notes, U.S. $XXXXXXXXXX for every U.S. $XXXXXXXXXX amount of principal indebtedness of the U.S. Notes and Cdn $XXXXXXXXXX for every Cdn $XXXXXXXXXX of principal indebtedness of the Canadian Notes that is outstanding immediately prior to the Plan Implementation Date;

iii) the interest rate on the principal indebtedness of the U.S. Notes and the Existing Canadian Notes outstanding from time to time after the Plan Implementation Date shall be XXXXXXXXXX% per annum;

iv) ACO shall repay, on or before XXXXXXXXXX, as partial repayment of principal indebtedness under the Notes, U.S. $XXXXXXXXXX for every U.S. $XXXXXXXXXX amount of principal indebtedness of the Existing U.S. Notes and Cdn $XXXXXXXXXX for every Cdn $XXXXXXXXXX amount of principal indebtedness of the Existing Canadian Notes that is outstanding immediately prior to the Plan Implementation Date plus all unpaid accrued interest, provided that ACO may, in its sole discretion, postpone payment of such amount to not later than XXXXXXXXXX;

v) the remaining unpaid principal indebtedness under the Notes, after the repayments referred to in (ii) and (iv) above, shall be repaid by ACO paying XXXXXXXXXX of such unpaid principal indebtedness under the Notes in equal principal instalments on each of XXXXXXXXXX, plus, on each such date, all unpaid accrued interest; and

vi) ACO shall be entitled, at its option, to repay, at any time, and from time to time, after XXXXXXXXXX, on commercially reasonable terms, any amounts of principal indebtedness of the Notes sooner than set forth above, without any interest, penalty or bonus whatsoever, provided that such repayment is made on a pro-rata basis between the U.S. Notes and the Canadian Notes and that ACO also pays at that time all unpaid interest on the Notes to and including the date of such payment; and

vii) to the Noteholders' legal counsel, an amount equal to the legal fees of and reasonable expenses incurred by such legal counsel with respect to their legal representation of certain Noteholders in connection with the Plan.

d) ACO shall pay, on the next Business Day after the Plan Implementation Date, to the Noteholders, a restructuring fee equal to an aggregate amount of XXXXXXXXXX% of the principal indebtedness that is outstanding under the Notes immediately after the Plan Implementation Date, which amount shall not constitute a payment or repayment of any amounts due under the Notes but as a penalty or bonus because of the early repayment of the principal amount of the Notes pursuant to the Plan as described in clauses (c)(ii),(iv),(v) and (vi), above;

e) Any and all defaults of any of ACO, BCO or CCO under any of the Notes, the Existing Trust Indentures or the Guarantees that may be in existence at the time of the Plan Implementation Date for any reason shall be deemed to be waived and remedied and no longer effective against ACO, BCO or CCO;

f) The right of any person to make a claim under the Guarantees in connection with any default that may exist under the Notes or as a result of any acceleration of the time of payment by ACO of any amounts pursuant to the terms of the Notes that may have occurred as a result of such defaults shall be deemed to be cancelled, terminated, extinguished, discharged and released; and

g) The obligations of ACO and BCO under the terms of the Guarantees shall continue in full force and effect in respect of ACO's obligations under the Notes, as amended by the Plan.

The Plan further provides that, notwithstanding the terms of the Notes, the Existing Trust Indentures or the Guarantees:

h) ACO shall be entitled to obtain, on commercially reasonable terms, a credit facility in the maximum amount of $XXXXXXXXXX which facility may be secured by the inventories and receivables of ACO and its Affiliates and direct and indirect subsidiaries (wholly-owned or otherwise) and the borrowing of such funds and the granting of such security by ACO thereunder shall not constitute a default or an event of default under the Notes, the Existing Trust Indentures or the Guarantees; and

i) ACO shall be entitled to complete all transactions contemplated by the terms of the XXXXXXXXXX Transaction Agreement (as such agreement is defined in the Plan) as it has been, and may be, subsequently amended after the Voting Creditors' Meeting and the execution of the XXXXXXXXXX Transaction Agreement and the completion of any of the transactions contemplated thereby shall not constitute a default or an event of default under any of the Notes, the Existing Trust Indentures or the Guarantees.

Purpose of Proposed Transactions

The purpose of the proposed transaction is to effect a compromise and arrangement of certain debt obligations of ACO and BCO with a view to avoiding the receivership, bankruptcy or liquidation of ACO and BCO. It is intended that the Plan will enable ACO and BCO to maintain and operate their businesses and it is expected that the Noteholders and Claims Creditors of ACO and BCO will derive a greater benefit from the continued operations of ACO's and BCO's businesses than would result from a forced liquidation or bankruptcy of ACO and/or BCO.

Rulings Provided

Provided that the above statements of fact are complete and accurate and that the proposed transactions are implemented as described, the following rulings are provided:

A. A holder of a Canadian Note or of a U.S. Note will not be considered to have disposed of such Note solely by virtue of the implementation of the amendments to the terms of those Notes pursuant to the Plan and, accordingly, to the extent that a payment of interest on the Notes prior to the implementation of the Plan was exempt from tax under Part XIII of the Act by virtue of paragraph 212(1)(b)(vii) thereof, a payment of interest on the Notes to such a holder will continue to be so exempt subsequent to the implementation of the Plan..

B. Provided that the restructuring fee, as described in subparagraph 8(d) of the Proposed Transactions, to be paid to the Noteholders does not exceed the value at the time of the payment of the interest that, but for the rescheduled principal repayments on the Notes, as described in clauses 8(c)(ii),(iv),(v) and (vi) of the Proposed Transactions, would have been paid or payable by ACO as interest on the Notes for taxation years ending after that time, such payment will, pursuant to subparagraph s 18(9.1)(e and (f) of the Act, be deemed to have been paid by ACO and received by the Noteholders as interest on the Notes.

These rulings are provided subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996 and are binding upon the Agency provided that the proposed transactions are completed on or before XXXXXXXXXX. These rulings are based on the Act and the Income Tax Regulations in their present form and do not take into account the effects of any proposed amendments thereto.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch