Subscription Receipt Financing

The instrument has three moving parts. First is the receipt itself, which is a contractual right to receive a security later, not the security today. Second is the escrow, where subscription proceeds are held by a third-party agent instead of flowing to the company. Third is the release condition, the defined event that must occur before the escrowed funds are released and the receipts convert.

That release condition is the whole point. A company can announce a bought deal or private placement, collect committed capital, and reassure the market that the funds only move if the transaction it needs the money for actually closes. Most subscription receipt agreements also include a deadline. If the condition is not satisfied by that outside date, the receipts are cancelled and investors are repaid, often with interest earned in escrow.

Subscription receipts show up when the timing of a raise and the timing of a deal do not line up cleanly. Common triggers we see on the public-company side:

• Financing an acquisition, where the buyer must show committed funds before the target will sign, but does not want cash sitting idle if the deal collapses.
• A reverse takeover or qualifying transaction, where a private company raises money in connection with going public and the receipts convert on completion of the listing step.
• A bought deal tied to a corporate event, where the underwriter wants certainty of funds and the issuer wants protection if closing conditions are not met.

The instrument solves a trust problem on both sides. The company gets certainty of financing, and investors get their capital back if the reason they invested never materializes.

We are not securities lawyers and we do not draft the trust indenture. What we do is the accounting, financial reporting, and disclosure that a subscription receipt financing generates, and we coordinate the pieces that feed a filing. That means preparing the financial statements under International Financial Reporting Standards (IFRS) that support the financing, working with the escrow agent and legal counsel on the numbers, and getting the continuous disclosure filed correctly on SEDAR+.

On one TSXV qualifying transaction we supported as the issuer went public, our team prepared the subscription receipt financing documentation as the deal closed in late 2020, alongside the interim statements and the acting chief financial officer work the listing required. That combination, sitting in the Office of the CFO seat while also owning the reporting, is where the value shows up. The person modelling the escrow release is the same person who has to file the results.

The escrow release condition is where these deals live or die. If the condition is drafted loosely, you get a fight over whether it was met. If it is drafted tightly, you get a clean conversion and no one argues. Read that clause before you read anything else.

Our public-company practice runs IFRS reporting, MD&A, board and audit committee support, and SEDAR+ filing coordination. A subscription receipt financing usually touches all of them at once, which is why we treat it as a reporting event, not just a treasury event.

A subscription receipt is not a completed share issuance. Until the release condition is met, the investor holds a contractual right, not equity, and the accounting reflects that. It is also not convertible debt. There is no ongoing borrower and lender relationship, no coupon in the usual sense, and no maturity in the debt meaning of the word. The escrow simply holds the money until a yes or no answer arrives.

It is also not the same as a garden-variety private placement of shares. In a straight private placement, the shares are issued and the cash is the company’s on closing. With subscription receipts, issuance and funding are deliberately split so the raise can happen before the deal it is meant to fund.