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Frequently asked questions on BDC notes

The following questions and answers provide a summary of the features pertaining to BDC Notes. The information given in these answers are subject to, and should be read in conjunction with the specific terms and conditions outlined in the Information Statement of each BDC Note.

1. Are the Notes RRSP eligible?

Yes, the Notes are RRSP eligible.

2. What is the credit rating of BDC?

As at today, BDC's notes with a term to maturity in excess of one year in Canadian currency were rated [AAA] by DBRS (Dominion Bond Rating Service Limited), [AAA] by S&P (Standard & Poor's Rating Service ) and [Aaa] by Moody's (Moody's Investor Services Inc.).

3. Is the Principal Amount of the Notes protected?

The Notes constitute direct unconditional BDC obligations and, as such, constitute direct unconditional obligations of Her Majesty in right of Canada. 100% of the Principal Amount of the Notes is protected when held to the Maturity Date. However, the Principal Amount of the Notes is not protected should the investor sell the Notes prior to Maturity Date.

4. Will the Noteholders receive certificates representing the Notes purchased?

With the exception of limited circumstances, Noteholders will not receive certificates evidencing the Notes in definitive form. A Noteholder will not be registered on the records maintained by CDS (Canadian Depository for Securities Limited), except through an agent who is a participant of CDS. Investors will hold their interests in the Notes through their client accounts with a Sales Agent.

5. How can I buy or sell a BDC Note before its maturity, on the secondary market?

If the note is listed on the Toronto Stock Exchange:

  • Ask your broker to place an order to buy or sell the Note on the Toronto Stock Exchange. There may or may not be supply or demand for the Note.

If the note is not listed on any Exchange:

  • Ask your broker if there is supply or demand on the secondary market for the Note. A liquid and developed secondary market is not automatic for each BDC Note.

6. The NAV (Net Asset Value) of the fund underlying the performance of my BDC Note is set at $10.50. Why am I offered a redemption price of $9.50 to buy back my Note before maturity?

The NAV of $10.50 is the figure on which the return formula is based to calculate the return at maturity. If the maturity date were today and the initial level of the fund had been $10 at issue, this Note would pay a return of 5% [(10.50 - 10) / 10]. However, if the maturity date is still a few years ahead, the price offered will be discounted to account for the time remaining before the return is paid at maturity, potential movements in the fund level (affecting the return) and unamortized structuring fees.

7. How will the return received on a BDC Structured Note be treated (interest or capital gain)?

The amount of the excess of the Maturity Redemption Amount over the Principal Amount that is payable to a Holder, if any, can be ascertained and payable only at Maturity Date. The amount of such excess, if any, will be included in the Holder's income, as interest, in the taxation year in which the Maturity Date is reached.

On disposition of a Note resulting from payment by the Bank at Maturity Date, a Holder will realize a capital gain (or a capital loss) to the extent that a payment received at such time, less the amount if any, required to be included in the Holder's income in the year of such a disposition as interest, exceeds (or is less than) the Holder's adjusted cost base of the Note.

The Canada Customs and Revenue Agency (CCRA) has not issued any opinion on whether amounts received or deemed to be received by a Holder on a disposition or a deemed disposition of a Note, other than a disposition resulting from payment by the Bank at Maturity Date, will be considered to be capital gain (or capital loss) or to be income (or ordinary loss).

Generally, a Holder should realize a capital gain (or capital loss) on a disposition of a Note, other than a disposition resulting from payment by the Bank at Maturity Date, equal to the amount by which the proceeds of disposition net of any reasonable costs of disposition exceed (or are exceeded by) the adjusted cost base of the Note to the Holder. Holders disposing of Notes shortly before Maturity Date should consult their own tax advisors with respect to their particular circumstances.

8. Are BDC Notes exempt from capital tax?

No. Corporate holders of BDC debt cannot claim a capital tax allowance for the BDC debt held because BDC is itself exempt from capital tax.

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