There have been a number of interesting trends and developments in Canadian debt capital markets that impact issuers and their counsel as of the end of the first quarter of 2026.

The recent sea-change in prevailing government sentiment with respect to promoting the development of infrastructure, energy and transportation projects in Canada, and the simplified process for obtaining required approvals, is expected to be a central focus of lending in Canada for many years to come in order to meet the demand for debt capital for these types of projects. An important example of government support for such developments is the increasing availability of government guarantees for loans made to Indigenous groups to facilitate their equity participation in infrastructure, energy and other businesses.

This article next highlights:

• the extent to which hybrid notes have become an increasingly important instrument utilised by Canadian investment-grade issuers; and
• the differences in the way that the Canadian private credit market has developed as compared to the United States and other jurisdictions.

Finally, the article outlines the recent permanent adoption by the Canadian Securities Administrators of a “well-known seasoned issuer” (WKSI) shelf prospectus programme that will materially facilitate public debt issuances by qualifying issuers.

Government Initiatives to Accelerate and Support Infrastructure Development

One of the impacts of the changing geopolitics since the beginning of 2025 has been to re-awaken Canadians and their governments to the need to enhance and upgrade, among other things, the various types of infrastructure required to move Canadian products to a diversity of markets, including to enhance market integration within Canada. This new urgency to address the infrastructure deficit has found expression in a number of initiatives, including:

• passage of the Building Canada Act (Canada), which enables the federal government to streamline federal approval processes and established the Major Projects Office to facilitate faster implementation of projects designated to be in the national interest;
• the governments of all major provinces introducing streamlined processes to expedite project approval processes; and
• the Federal and Alberta governments entering into a memorandum of understanding (MOU) that contemplates, among other things, the construction of a new pipeline to Asian markets and development of new carbon capture and storage infrastructure.

The variety and scope of projects contemplated will necessitate significant debt capital in financing structures.

Indigenous Equity Financing: Structural and Legal Considerations

While there is an evident consensus supporting expedited project approval, the need for indigenous consultation and economic participation by affected indigenous communities in new infrastructure and other projects continues to be recognised and prioritised. The financial mechanisms to support indigenous economic participation have continued to evolve and crystallise, and rely on debt capital markets for implementation.

The federal Indigenous Loan Guarantee Program, expanded to CAD10 billion in March 2025, provides a foundational framework for Indigenous equity participation in Canadian infrastructure at scale. The programme enables the Canada Indigenous Loan Guarantee Corporation (CILGC) to provide guarantees ranging from approximately CAD20 million to CAD1 billion in support of Indigenous acquisition financing. The first transaction under the federal programme, a CAD400 million guarantee supporting a partnership of 36 First Nations in acquiring a 12.5% interest in Enbridge’s Westcoast natural gas pipeline system, with total Indigenous equity investment of approximately CAD715 million, closed in May 2025 and has established a reference point for subsequent deal structuring. Provincial programmes in Alberta, British Columbia, Ontario, Saskatchewan and Manitoba operate alongside the federal programme, and the layering of federal and provincial support has become a central structuring consideration in larger transactions.

The CILGC recently issued its second guarantee to support the acquisition by Aamjiwnaang First Nation and the Chippewas of Kettle and Stony Point First Nation of a nearly 20% equity interest in the Chatham-to-Lakeshore electricity transmission project from Hydro One.

Typical Transaction Structure

These transactions are not structurally uniform, and the legal architecture varies depending on the form of government support and the nature of the underlying asset. In the most common structure, the Indigenous investor acquires its interest through a special-purpose acquisition vehicle that finances the purchase through a debt stack comprising:

• a senior debt tranche sourced by the SPV from debt capital markets and sized based on the credit metrics associated with the underlying business; and
• debt incurred by the indigenous stakeholders in the SPV to fund an equity contribution to the SPV, with this stakeholder-level debt being guaranteed by a guarantee from a federal or provincial government entity (such as the CILGC).

In smaller transactions or transactions that do not qualify for third-party credit, there may only be one tranche of government guaranteed debt.

Investor Protections

Typically, the indigenous investor or investors hold only a minority equity position in the operating business. A key protection for both the investors in the senior debt tranche and the lenders to the SPV stakeholders is to ensure that the governance arrangements at the level of the operating business and at the SPV level minimise the risk that the cash flow generated by the operating business is not distributed to the SPV to service the senior debt tranche or not further distributed by the SPV to service the stake-holder debt. The intercreditor arrangements are similarly complex. The structure creates bifurcated creditor groups:

• SPV-level lenders holding first-ranking security directly over the SPV’s ownership interest in the underlying business; and
• the lenders to the SPV stakeholders, whose claims are structurally subordinate to the position of the SPV-level senior tranche.

The stakeholder-level lenders have no direct recourse to the underlying ownership interest in the operating business. Ultimately, both levels of debt are dependent on distributions flowing up through the project waterfall from the operating business.

This structure requires careful negotiation of standstill provisions, cure rights and enforcement mechanics. The stakeholder-level lenders will require rights to cure defaults at the SPV level before senior tranche lenders to the SPV can take enforcement. The scope of those cure rights and the conditions on enforcement are each heavily negotiated and are central to the rating analysis of the senior tranche debt incurred by the SPV. Where a federal or provincial guarantor is also a party, the interaction between the guarantee terms, the intercreditor agreement and the project finance documents adds a further layer of complexity that requires co-ordination among multiple counsel teams.

Outlook

The legal framework for these transactions has matured considerably. Core documentation architecture is now reasonably settled, rating agency treatment of the financing-vehicle debt is established, and the parameters of federal and provincial guarantee programmes are defined. What remains transaction-specific, and where experienced counsel adds the most value, is the detailed negotiation of intercreditor mechanics, the structuring of cure and standstill rights in the context of specific project finance documents, and the co-ordination of multiple government counterparties where both federal and provincial support are engaged. Programme capacity, rather than legal or structural uncertainty, is now the principal constraint on deal volume.

Canadian Corporate Hybrid Notes: A Simplified Path to Equity Credit

Overview

Subordinated “hybrid” notes have become an increasingly important instrument in the Canadian investment-grade capital markets. Their defining characteristic, and the source of their appeal, is the ability to obtain partial equity credit from rating agencies while remaining debt for legal, tax and structural purposes. Recent issuances by Capital Power, Bell Canada, Canadian Utilities and Brookfield Renewable confirm the product’s reach across the utilities, power generation, telecommunications and renewable energy sectors, and have established a consistent body of practice around the key structural and legal terms.

Structural features and legal mechanics

The current Canadian hybrid note structure is the product of deliberate simplification. Earlier instruments incorporated a conversion mechanism under which the notes would be exchanged into preference shares upon certain insolvency events – a feature that created legal complexity around share authorisation, corporate approvals and the interaction between debt and equity claims in an insolvency. That feature has been largely abandoned. Capital Power’s August 2024 consent solicitation, in which it exchanged its existing CAD350 million Series 1 notes for a new series that expressly removed the preference share delivery provision, is a useful illustration of the market actively rationalising legacy documentation in favour of the simplified structure.

The defining legal feature of the current structure is the optional interest deferral mechanism. Issuers may elect to defer interest payments for extended periods (typically up to five consecutive years on a renewable basis) with deferred amounts accruing cumulatively, without triggering a default. The deferral mechanism is reinforced by two complementary provisions. “Dividend stopper” provisions prevent the issuer from making payments on common or preferred equity ranking pari passu or junior to the notes while interest remains deferred. At the same time, a “dividend pusher” provides that if the issuer does pay a dividend on any such equity security, all deferred interest becomes immediately due and payable. Together, these provisions ensure that the instrument sits effectively alongside equity in the payment hierarchy.

Provisions that step up the interest coupon over time or in specified circumstances are potentially problematic and require careful negotiation. Rating agencies treat the step-up as evidence of the issuer’s economic incentive to refinance, which bears directly on the instrument’s permanence as equity capital and therefore on the quantum of equity credit assigned.

Rating agency treatment

Equity credit treatment is instrument-specific and requires affirmative confirmation from the relevant rating agencies prior to launch. Issuers and their counsel now routinely engage rating agencies in advance of documentation to confirm that proposed terms, particularly around deferral mechanics, subordination language and step-up provisions, satisfy current ratings’ methodologies. That pre-sounding process has become a standard part of transaction execution and has contributed to greater consistency in documentation across issuers.

Tax and corporate law considerations

A material advantage of the hybrid note structure over traditional preferred shares is tax efficiency: interest payments on the notes are generally deductible by the issuer, whereas preferred share dividends are paid from after-tax income. That distinction has made hybrid notes the preferred instrument for issuers seeking equity credit without the tax cost of preferred equity.

Private Credit in Canada: Legal and Structural Considerations

Market context

Private credit occupies a different position in the Canadian market than in the United States. Canadian banks were not displaced from mid-market lending in the way their US counterparts were, and the “Big Six” continue to compete actively in leveraged finance on terms that direct lenders find difficult to match consistently. The result is a market in which private credit functions as a complement to bank and public market financing rather than a structural replacement – and where the legal and documentation differences between the two markets are a meaningful factor in instrument selection.

Regulatory developments

A noteworthy structural development for Canadian private credit practitioners is the 1 January 2025 reform to the criminal interest rate under the Criminal Code. The maximum rate was reduced from an effective annual rate of 60% to an annual percentage rate (APR) cap of 35%, but at the same time commercial loans above CAD500,000 to non-individual borrowers were made fully exempt from the cap. For most institutional private credit transactions, this exemption will apply, and the practical impact on the core Canadian private credit market is therefore limited. Lenders and borrowers should nonetheless ensure that loan documentation and fee structures are reviewed for compliance with the new framework in connection with transactions beneath the CAD500,000 threshold or where individual borrowers are involved.

Documentation considerations

The documentation differences between private credit and public or bank financing are a genuine factor in instrument selection and one that counsel is increasingly asked to advise on specifically. Private credit facilities and typical bank credit facilities are governed by maintenance covenant packages that require ongoing financial performance testing, as opposed to the incurrence-based covenants typical of high-yield bond indentures. For issuers with early-stage businesses or in cyclical industries, or subject to public disclosure requirements, the maintenance covenant framework and associated lender reporting obligations can represent a material constraint. Lender concentration is a related consideration: a single credit agreement with a small syndicate of direct lenders creates a different consent and amendment dynamic than a widely held bond indenture, which can affect the issuer’s flexibility to manage its capital structure over time.

Prepayment flexibility is the countervailing advantage. Private credit facilities typically permit prepayment of term debt on shorter notice and with lower make-whole obligations than public bonds, which aligns well with sponsor-backed transactions where the hold period is finite and the refinancing timing is uncertain. The absence of a registration or prospectus requirement also reduces execution time and eliminates public disclosure obligations during the financing process, which is a consideration that is particularly relevant in competitive M&A processes.

Outlook

Whether tariff-related economic stress prompts the major Canadian banks to reduce exposure to affected sectors, and thereby creates incremental opportunity for private credit lenders, is a question that will bear on the market’s development in 2026. That shift has not materialised at scale, but it is a variable that practitioners in this market are monitoring closely. In the near term, the Canadian private credit market is best understood as a specialised and durable complement to bank and public market financing, with a well-defined role in sponsor-backed and time-sensitive transactions and a documentation framework that rewards careful structuring and experienced counsel.

Well-Known Seasoned Issuers

Canadian issuers, including debt issuers, now have an expedited way to reach the public market. At the end of 2025, the Canadian Securities Administrators carried forward the prospectus exemptive relief for a WKSI previously granted under blanket orders in a new permanent amendment to National Instrument 44-102 – Shelf Distributions (the “WKSI Rules”). The changes align the Canadian shelf prospectus regime more closely with the automatic shelf registration process for WKSIs implemented in the United States by the Securities and Exchange Commission (SEC). This uniformity will facilitate cross-border debt offerings.

There are several other benefits of the WKSI Rules that will be appealing to debt issuers. Since a WKSI may file a base shelf prospectus and receive a deemed receipt upon filing, rather than having to wait several days for a securities commission to review a preliminary prospectus and clear the filing of a final base short form prospectus, offerings will occur at a substantially increased rate, particularly for those debt issuers who do not yet have a shelf prospectus in place. Management teams will also appreciate the reduced administrative burden of only one due diligence session rather than a session accompanying each of the preliminary and final base shelf prospectuses. Reduced diligence, coupled with the speed at which a WKSI shelf prospectus may be in place, will enable issuers to respond to rapidly changing market conditions. The certainty provided by establishing a formal WKSI regime will also be welcome to debt issuers.

The WKSI Rules provide for increased flexibility when scheduling an offering since a WKSI base shelf prospectus remains effective for 37 months, rather than the 25 months for a standard base shelf prospectus. This increased time window will enable debt issuers to respond more easily to changing market conditions and potentially, in times of heightened uncertainty, allow them to access the markets when they might otherwise be bogged down in a refiling process. The extended period of effectiveness will also reduce aggregate refiling costs for debt issuers.

The WKSI Rules permit a debt issuer to omit the aggregate offering amount under the base shelf prospectus, allowing for additional flexibility in offering size. With a 37-month period of effectiveness, debt issuers will not have to forecast principal amounts years in advance, as was the case under the standard shelf prospectus rules. Omitting the aggregate offering amount also ameliorates concerns that merely filing a base shelf prospectus with a total aggregate offering amount signals the amount that an issuer expects to offer. Additionally, shelf prospectuses that qualify equity securities in addition to debt securities will no longer result in shareholders and analysts speculating as to the amounts of debt and equity that an issuer expects to issue.

To qualify as a WKSI, a reporting issuer must meet certain requirements, most notably:

• having outstanding listed equity securities that have a public float of at least CAD500 million; or
• having at least CAD1 billion of non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash in the last three years.

In other words, issuers without equity outstanding will be able to avail themselves of the WKSI Rules for expedited debt offerings. The public float requirement of CAD500 million means that the Canadian WKSI Rules are open to issuers of substantially smaller size than the SEC equivalent. In the United States, the public float requirement is USD700 million, which as of the time of writing is approximately CAD960 million. The Canadian WKSI Rules are therefore open to issuers that have a public float approximately half the size of that needed in the United States.

Majority-owned subsidiary entities that issue only non-convertible securities, other than equity securities, and that have the full and unconditional credit support of a parent issuer that meets the WKSI requirements, may also file a WKSI shelf prospectus. Many public debt issuers are subsidiary entities, and the expansion of the WKSI Rules to these entities will facilitate market access.

Since late 2025, a significant number of debt issuers have taken advantage of the WKSI Rules when filing a base shelf prospectus. It is expected that most WKSI-eligible debt issuers will prefer to use a WKSI base shelf prospectus going forward.