CSA Releases Staff Notice 41-304 Requiring Enhanced Disclosure of Estimated Distributable Cash
On Friday, August 26, the Canadian Securities Administrators (CSA) issued Staff Notice 41-304 - Income trusts: prospectus disclosure of distributable cash. The Notice is intended to provide additional guidance on the CSA's expectations about the nature and extent of estimated distributable cash disclosure in prospectuses.
Most income trust issuers present information about estimated distributable cash (or distributable income) in their prospectuses, as this often forms the basis upon which an income trust is valued in connection with its initial public offering. These estimates are usually based on trailing 12-month net income, adjusted for interest expenses, taxes, depreciation and amortization (EBITDA). EBITDA is usually further adjusted for certain additional items, ranging from non-recurring historical items to normalizing the effect of a recent or prospective acquisition, in order to arrive at distributable cash. The specific adjustments, as well as the level of explanatory disclosure provided in prospectuses concerning these various adjustments, generally vary from issuer to issuer.
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