Voluntary Supplemental Material Filed Pursuant to Section 11(a) of the Securities Act of 1933 by Foreign Issuers (suppl)

Filed pursuant to General Instruction II.L of Form F-10
File No. 333-257098

 

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. This preliminary prospectus supplement and the accompanying short form base shelf prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

Subject to Completion, dated November 14, 2022

PRELIMINARY PROSPECTUS SUPPLEMENT

(To the short form base shelf prospectus dated June 28, 2021)

New Issue

US$400,000,000

    % Senior Notes due 2029

TRANSALTA CORPORATION

 

 

The Notes (as hereinafter defined) will bear interest at the rate of     % per annum. Interest on the Notes is payable on                  and                  of each year, beginning on                 , 2023. The Notes will mature on                 , 2029.

At any time on or after                 , 2025, we may redeem some or all of the Notes at the redemption prices set forth in this Prospectus Supplement, plus accrued and unpaid interest. Prior to                 , 2025, we may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, plus a “make-whole” premium.

In addition, prior to                 , 2025, we may redeem up to 35% of original aggregate principal amount of the Notes (which includes additional Notes, if any) in an amount not to exceed the amount of the proceeds of certain equity offerings at the redemption price set forth in this Prospectus Supplement, plus accrued and unpaid interest. We will also have the option to redeem the Notes in whole and not in part at 100% of the aggregate principal amount of the Notes, plus accrued interest to the date of redemption, in the event of certain changes to Canadian withholding tax laws or the enforcement or interpretation thereof. Upon the occurrence of a Change of Control Triggering Event (as hereinafter defined), holders of the Notes will have the right to require us to repurchase all or any part of their notes at a repurchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest.

The Notes will be our senior unsecured obligations and will rank equally in right of payment with all of our existing and future senior indebtedness and senior in right of payment to all of our future subordinated indebtedness. The Notes will be effectively subordinated to any of our future secured indebtedness to the extent of the value of the assets securing such indebtedness. None of our existing and future subsidiaries will guarantee the Notes. As a result, the Notes will be structurally subordinated to all existing and future obligations of our subsidiaries, including trade payables and indebtedness.

The underwriters, as principals, conditionally offer the Notes, subject to prior sale, if, as and when issued by the Corporation (as hereinafter defined) and accepted by the underwriters in accordance with the conditions contained in the underwriting agreement referred to under “Underwriting (Conflicts of Interest)” in this Prospectus Supplement.

 

 

Investing in the Notes involves risks. See “Risk Factors” in this Prospectus Supplement beginning on page S-18 and under the heading “Risk Factors” beginning on page 28 of the accompanying Prospectus (as hereinafter defined).

 

 

 

		Per Senior Note				Total
Public Offering Price(1)				%		US$
Underwriting Commission				%		US$
Proceeds to TransAlta(1)(2)				%		US$

 

(1)	The public offering price of the Notes will also include accrued interest, if any, from                 , 2022 to the date of delivery.

(2)	Before deducting the expenses of the offering, which are estimated to be approximately US$        .

The Notes will not be listed on any securities exchange or quotation system and, consequently, there is no market through which these securities may be sold and purchasers may not be able to resell securities purchased under this Prospectus Supplement. This may affect the pricing of the Notes in the secondary market, the transparency and availability of trading prices, the liquidity of the Notes and the extent of issuer regulation. See “Risk Factors” in this Prospectus Supplement.

THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR ANY UNITED STATES STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY UNITED STATES STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This offering is made by a Canadian issuer that is permitted, under the multijurisdictional disclosure system adopted by the United States and Canada, to prepare this Prospectus Supplement and the accompanying Prospectus in accordance with Canadian disclosure requirements. Prospective investors should be aware that such disclosure requirements are different from those of the United States. The financial statements included herein have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and they are subject to Canadian auditing and auditor independence standards. As a result, such financial statements may not be comparable to financial statements of United States companies.

Prospective investors should be aware that the acquisition of the securities described in this Prospectus Supplement and the accompanying Prospectus may have tax consequences both in the United States and Canada. Such tax consequences for investors who are resident in, or citizens of, the United States may not be described fully in this Prospectus Supplement or the accompanying Prospectus. You should read the tax discussion under “Certain Income Tax Considerations” in this Prospectus Supplement and consult with your own tax advisor with respect to your own particular circumstances.

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that we are incorporated and organized under the laws of Canada, that most of our officers and directors are residents of Canada, that some or all of the underwriters or experts named in this Prospectus Supplement are residents of Canada, and that a substantial portion of our assets and the assets of said persons are located outside the United States. We have appointed our subsidiary, TransAlta Holdings U.S. Inc., 913 Big Hanaford Road, Centralia, WA 98531, as our authorized agent for service of process in any suit or proceeding arising out of or relating to the debt securities issued under the Indenture (as hereinafter defined) and for actions brought under federal or state securities laws in any federal or state court located in the City of New York.

The earnings coverage ratio on long-term debt for the twelve month period ended December 31, 2021 is less than one to one. See “Earnings Coverage” in this Prospectus Supplement.

The Notes will be ready for delivery in book-entry form only through the facilities of The Depository Trust Company (“DTC”) and its direct and indirect participants on or about                  , 2022.

Our head and registered office is located at 110 -12th Avenue S.W., Calgary, Alberta, T2P 2M1.

 

 

Joint Book-Running Managers

 

RBC CAPITAL MARKETS		CIBC CAPITAL MARKETS		BOFA SECURITIES
		Co-Managers
SCOTIABANK		BMO CAPITAL MARKETS		TD SECURITIES
NATIONAL BANK OF CANADA FINANCIAL MARKETS		MUFG		DESJARDINS CAPITAL MARKETS
ATB CAPITAL MARKETS		MIZUHO		LOOP CAPITAL MARKETS

The date of this Prospectus Supplement is                 , 2022

IMPORTANT NOTICE ABOUT INFORMATION IN

THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS

This document is divided into two parts. The first part is this prospectus supplement (this “Prospectus Supplement”), which describes the specific terms of the senior notes we are offering (the “Notes”) and also adds to and updates certain information contained in the short form base shelf prospectus of the Corporation (as hereinafter defined) dated June 28, 2021 (the “Prospectus”) and the documents incorporated by reference into this Prospectus Supplement or the accompanying Prospectus. The second part, the accompanying Prospectus, gives more general information, some of which may not apply to the Notes we are offering hereby. Defined terms used in this Prospectus Supplement that are not defined herein have the meanings ascribed thereto in the accompanying Prospectus.

Except as set forth under “The Offering” and “Description of Notes” in this Prospectus Supplement or under “Description of Debt Securities” in the accompanying Prospectus, and unless the context otherwise requires, all references in this Prospectus Supplement to “TransAlta”, the “Corporation”, “we”, “us” and “our” mean TransAlta Corporation and its consolidated subsidiaries including any consolidated partnerships of which the Corporation or any of its subsidiaries are partners.

If the description of the Notes varies between this Prospectus Supplement and the accompanying Prospectus, you should rely on the information in this Prospectus Supplement.

You should rely on the information contained in or incorporated by reference into this Prospectus Supplement and the accompanying Prospectus and any term sheet or other free writing prospectus for this offering that we file with the securities regulatory authorities in Canada or the SEC. We have not, and the underwriters have not, authorized anyone to provide you with different or additional information. We are not, and the underwriters are not, making an offer to sell the Notes in any jurisdiction where the offer or sale is not permitted. You should not assume that the information appearing in this Prospectus Supplement or the accompanying Prospectus is accurate as of any date other than the date on the front of this Prospectus Supplement.

PRESENTATION OF FINANCIAL INFORMATION

In this Prospectus Supplement, unless otherwise specified or the context otherwise requires, all dollar amounts are expressed in Canadian dollars. “U.S. dollars” or “US$” means the lawful currency of the United States. Unless otherwise indicated, all financial information included and incorporated by reference in this Prospectus Supplement and the accompanying Prospectus is determined using IFRS. Therefore, our consolidated financial statements included in this Prospectus Supplement and the accompanying Prospectus, copies of which are available on SEDAR (as hereinafter defined) at www.sedar.com and on the SEC’s website at www.sec.gov, may not be comparable to financial statements of U.S. companies prepared in accordance with U.S. generally accepted accounting principles.

We use a number of financial measures to evaluate our performance and the performance of our business segments, including measures and ratios that are presented on a non-IFRS basis, as described below. We believe that these non-IFRS amounts, measures and ratios, read together with our IFRS amounts, provide investors with a better understanding of how management assesses results. Non-IFRS amounts, measures and ratios do not have standardized meanings under IFRS. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as an alternative for, or more meaningful than our IFRS results.

Adjusted EBITDA and deconsolidated net debt to deconsolidated adjusted EBITDA ratio are non-IFRS measures that are presented in this Prospectus Supplement. See “Highlights – Unaudited Interim Condensed Consolidated Financial Highlights”, “Additional IFRS Measures and Non-IFRS Measures” and “Key Non-IFRS Financial Ratios” in the management’s interim discussion and analysis of financial condition and results of operations as at and for the three and nine-month periods ended September 30, 2022 (“Interim MD&A”) appended to this Prospectus Supplement as Exhibit “D” for additional information, including a definition and reconciliation of such non-IFRS measures to the most comparable IFRS measure.

EXCHANGE RATE INFORMATION

TransAlta publishes its consolidated financial information in Canadian dollars. The following table sets forth the Canada/U.S. exchange rates on the last day of the periods indicated as well as the high, low and average rates for such periods. The high, low and average exchange rates for each period were identified or calculated from spot rates in effect on each trading day during the relevant period. The exchange rates shown are expressed as the number of U.S. dollars required to purchase one Canadian dollar. These exchange rates are based on those published on the Bank of Canada’s website on each trading day (the “Bank of Canada rate”). On November 10, 2022, the Bank of Canada rate was US$0.7475 equals $1.00.

 

		Nine Months Ended September 30,				Year Ended December 31,
		2022				2021				2020				2019
High for period		US$	0.8031			US$	0.8306			US$	0.7863			US$	0.7699
Low for period		US$	0.7285			US$	0.7727			US$	0.6898			US$	0.7353
Rate at end of period		US$	0.7296			US$	0.7888			US$	0.7854			US$	0.7699
Average rate for the period(1)		US$	0.7798			US$	0.7980			US$	0.7461			US$	0.7537

 

(1)	The average of the Bank of Canada rate on the last day of each month during the applicable period.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus Supplement and the accompanying Prospectus contain both historical and forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and Section 21E of the United States Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”). All forward-looking statements are based on TransAlta’s beliefs as well as assumptions based on information available at the time the assumption was made and on management’s experience and perception of historical trends, current conditions and expected further developments as well as other factors deemed appropriate in the circumstances. These forward-looking statements are not facts, but only predictions and generally can be identified by the use of statements that include phrases such as “may”, “will”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “foresee”, “potential”, “enable”, “continue”, “estimate”, “would” or other words or phrases of similar import. These forward-looking statements are subject to known and unknown risks, uncertainties and other important factors, many of which are beyond the Corporation’s control, that could cause actual events, outcomes or results to differ materially from those expressed or implied in the forward-looking statement. Although the Corporation believes that the assumptions and expectations conveyed by such forward-looking statements are reasonable based on information available on the date they are made, there can be no assurance that such assumptions and expectations will prove to be correct.

Forward-looking statements in this Prospectus Supplement, the Prospectus and the documents incorporated by reference in the Prospectus and this Prospectus Supplement include, but are not limited to, statements with respect to TransAlta’s possible or assumed future results set out under “General Development of the Business” and “Business of TransAlta” in our most recent annual information form dated February 23, 2022 (the “Annual Information Form”) for the year ended December 31, 2021 and the management’s discussion and analysis of financial condition and results of operations as at and for the year ended December 31, 2021 (the “Annual MD&A”) (each of which is contained in our annual report on Form 40-F for the year ended December 31, 2021 (the “Form 40-F”)).

With respect to forward-looking statements contained in this Prospectus Supplement, we have made assumptions regarding, among other things: our ability to close this offering on a timely basis and on the terms expected; fulfillment by the underwriters and qualified independent underwriter of their obligations pursuant to the underwriting agreement; and that no event will occur which would allow the underwriters to terminate their obligations under the underwriting agreement.

 

S-i

In particular, this Prospectus Supplement and the accompanying Prospectus contain forward-looking statements pertaining to the following: the anticipated closing of the offering of the Notes, the net proceeds from the offering and the use of such proceeds, including in respect of the matters relating to our Green Financing Framework (each as defined herein), including project evaluation and selection, management of proceeds and reporting; the sources of financing of the repayment of our 2022 Notes (as defined herein); our credit ratings outlook; no significant changes to applicable laws and regulations, including any tax and regulatory changes in the markets in which we operate; no material adverse impacts to the investment and credit markets; impacts arising from COVID-19 not becoming significantly more onerous on the Corporation; merchant power prices in Alberta, Ontario and the Pacific Northwest; our proportionate ownership of TransAlta Renewables not changing materially; no material decline in the dividends expected to be received from TransAlta Renewables; Alberta’s power generation mix and related shifts in energy consumption; the remediation of Kent Hills 1 and Kent Hills 2 wind facilities; expected sources of financing; and assumptions regarding our current strategy and priorities. Additional assumptions on which we have based our 2022 guidance are disclosed with such guidance in the Interim MD&A and the Annual MD&A.

Factors that may cause the Corporation’s actual plans, actions or results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements include risks relating to: fluctuations in demand, market prices and the availability of fuel supplies required to generate electricity; changes in demand for electricity and capacity and our ability to contract our generation for prices that will provide expected returns and replace contracts as they expire; the legislative, regulatory and political environments in the jurisdictions in which we operate; environmental requirements and changes in, or liabilities under, these requirements; changes in general economic or market conditions, including interest rates; operational risks involving our facilities, including unplanned outages at such facilities; disruptions in the transmission and distribution of electricity; the effects of weather and other climate-change related risks; unexpected increases in cost structure and disruptions in the source of fuels, water, sun, or wind required to operate our facilities; failure to meet financial expectations; disruptions and delays with the Corporation’s supply chain, including as it pertains to the Corporation’s development and construction projects; exposure of our facilities, construction projects and operations to effects of natural disasters, public health crises (such as pandemics and epidemics, including COVID-19) and other catastrophic events beyond our control; natural and man-made disasters resulting in dam failures; the threat of domestic terrorism and cyberattacks; foreign political risks, including the escalation of armed hostilities in Ukraine; equipment failure and our ability to carry out or have completed the repairs in a cost-effective manner or timely manner or at all; commodity risk management; industry risk and competition; the need to engage or rely on certain stakeholder groups and third parties; fluctuations in the value of foreign currencies; the need for and availability of additional financing; structural subordination of securities; counterparty credit risk; changes in credit and market conditions; changes to our relationship with, or ownership of, TransAlta Renewables; risks associated with development projects and acquisitions, including capital costs, permitting, labour and engineering risks; changes in the payment of future dividends, including from TransAlta Renewables; insurance coverage; credit ratings; our provision for income taxes; legal, regulatory, and contractual disputes and proceedings involving the Corporation; outcomes of investigations and disputes; reliance on key personnel; labour relations matters; development projects and acquisitions; and the expected retirement of coal-fired generation and increase in generation from renewable sources.

Additional information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in this Prospectus Supplement and the accompanying Prospectus under “Risk Factors” as well as in the Annual MD&A as appended hereto as Exhibit “B” and the Annual Information Form, and elsewhere in TransAlta’s filings with the Canadian and U.S. securities regulators.

Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this Prospectus Supplement, the Prospectus and the documents incorporated by reference in the

 

S-ii

Prospectus and this Prospectus Supplement are made only as of the date such statements and the Corporation does not undertake to publicly update these forward-looking statements to reflect new information, future events or otherwise, except as required by applicable laws. In light of these risks, uncertainties and assumptions, the forward-looking events might occur to a different extent or at a different time than the Corporation has described or might not occur. The Corporation cannot assure you that projected results or events will be achieved. The foregoing risk factors, among others, including risks relating to the nature of the Notes, are described in further detail under the heading “Risk Factors” in this Prospectus Supplement and in the accompanying Prospectus and in the documents incorporated by reference into this Prospectus Supplement and the accompanying Prospectus, including the Annual MD&A and the Annual Information Form, and elsewhere in TransAlta’s filings with Canadian and U.S. securities regulators.

 

S-iii

DOCUMENTS INCORPORATED BY REFERENCE

Various documents are incorporated or deemed to be incorporated by reference into the accompanying Prospectus and reference should be made to the accompanying Prospectus for full details. See “Documents Incorporated by Reference” in the accompanying Prospectus. As of the date of this Prospectus Supplement, the following documents filed with the securities commissions or similar authorities in each of the provinces of Canada and with the SEC are specifically incorporated by reference into and form an integral part of this Prospectus Supplement and the accompanying Prospectus:

 

(a)

the Annual Information Form (incorporated by reference to Exhibit 13.1 to our annual report on Form 40-F filed with the SEC on February 23, 2022, File No. 001-15214); and

 

(b)

the management proxy circular dated March 18, 2022 prepared in connection with our annual and special meeting of shareholders held on April 28, 2022 (incorporated by reference to Exhibit 99.1 to our report on Form 6-K filed with the SEC on March 23, 2022, File No. 001-15214).

Any documents of the type required to be incorporated by reference in a short form prospectus pursuant to National Instrument 44-101 — Short Form Prospectus Distributions of the Canadian Securities Administrators, including any documents of the type referred to above or under “Documents Incorporated by Reference” in the accompanying Prospectus, material change reports (excluding confidential material change reports) and business acquisition reports we subsequently file with any securities commissions or similar authorities in Canada after the date of this Prospectus Supplement and prior to the termination of any offering of the Notes under this Prospectus Supplement shall be deemed to be incorporated by reference into this Prospectus Supplement and the accompanying Prospectus. These documents are available through the internet on the System for Electronic Document Analysis and Retrieval (“SEDAR”), which can be accessed at www.sedar.com. In addition, any similar documents we file with, or furnish to, the SEC pursuant to Section 13(a), 13(c) or 15(d) of the U.S. Exchange Act on or after the date of this Prospectus Supplement and prior to the termination of this distribution of Notes, shall be deemed to be incorporated by reference into this Prospectus Supplement or the accompanying Prospectus and the registration statement on Form F-10 of which this Prospectus Supplement and the accompanying Prospectus form a part, if and to the extent expressly provided in such report, except that any report on Form 6-K shall be incorporated only to the extent expressly provided in such report. Our reports on Form 6-K, and our annual reports on Form 40-F, are available on the SEC’s website at www.sec.gov.

Any statement contained in this Prospectus Supplement or the accompanying Prospectus, or in a document incorporated or deemed to be incorporated by reference herein or therein, shall be deemed to be modified or superseded for the purposes of this Prospectus Supplement to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement is not to be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus Supplement.

Copies of the documents incorporated herein by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference in such documents) may be obtained either over the internet on the SEC’s website www.sec.gov or on request without charge from the Corporate Secretary of TransAlta at P.O. Box 1900, Station “M”, 110 - 12th Avenue S.W., Calgary, Alberta, Canada T2P 2M1, Telephone (403) 267-7110.

 

S-iv

MARKETING MATERIALS

Any “template version” of any “marketing materials” (as such terms are defined under applicable Canadian securities laws) that are utilized by the underwriters in connection with the offering of Notes are not part of this Prospectus Supplement and the accompanying Prospectus to the extent that the contents of the template version of the marketing materials have been modified or superseded by a statement contained in this Prospectus Supplement. Any template version of any marketing materials filed with Canadian securities regulators after the date of this Prospectus Supplement and before the termination of the distribution of the Notes under the offering (including any amendments to, or an amended version of, any template version of any marketing materials) is deemed to be incorporated into this Prospectus Supplement and the accompanying Prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC under the U.S. Securities Act a registration statement on Form F-10 relating to the Notes and of which this Prospectus Supplement and the accompanying Prospectus form a part. This Prospectus Supplement and the accompanying Prospectus do not contain all of the information set forth in such registration statement, certain items of which are contained in the exhibits to such registration statement as permitted or required by the rules and regulations of the SEC. See “Documents Filed as Part of the Registration Statement” in the accompanying Prospectus. Statements made in this Prospectus Supplement and the accompanying Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete, and in each instance, reference is made to the exhibit, if applicable, for a more complete description of the relevant matter, each such statement being qualified in its entirety by such reference. Items of information omitted from this Prospectus Supplement and the accompanying Prospectus but contained in the registration statement on Form F-10 are available on the SEC’s website at www.sec.gov.

We are subject to the information requirements of the U.S. Exchange Act, and, in accordance therewith, file reports and other information with the SEC. Under the multijurisdictional disclosure system adopted in the United States and Canada, such reports and other information, subject to certain exceptions, may be prepared in accordance with the disclosure requirements of Canada, which requirements are different from those of the United States. We are exempt from the rules under the U.S. Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the U.S. Exchange Act. Under the U.S. Exchange Act, we are not required to publish financial statements as promptly as United States companies. Such reports and other information are available on the SEC’s EDGAR website at www.sec.gov. Prospective investors may read and download any public document that we have filed with the securities regulatory authorities in each of the provinces and territories of Canada on SEDAR at www.sedar.com.

 

S-v

 

S-1

 

S-2

Our Operating Assets

The following table provides an overview of our assets in which we have an owned interest:

 

As at September 30, 2022		Facility		Nameplate capacity (MW)		Consolidated Interest		Gross Installed capacity		Ownership (%)		Net Capacity Ownership Interest (MW)		Region		Revenue source		Contract expiry date
Hydro		Brazeau, AB		355		100%		355		100%		355		Western Canada		Merchant		—
26 facilities		Bighorn, AB		120		100%		120		100%		120		Western Canada		Merchant		—
		Spray, AB		112		100%		112		100%		112		Western Canada		Merchant		—
		Ghost, AB		54		100%		54		100%		54		Western Canada		Merchant		—
		Rundle, AB		50		100%		50		100%		50		Western Canada		Merchant		—
		Cascade, AB		36		100%		36		100%		36		Western Canada		Merchant		—
		Kananaskis, AB		19		100%		19		100%		19		Western Canada		Merchant		—
		Bearspaw, AB		17		100%		17		100%		17		Western Canada		Merchant		—
		Pocaterra, AB		15		100%		15		100%		15		Western Canada		Merchant		—
		Horseshoe, AB		14		100%		14		100%		14		Western Canada		Merchant		—
		Barrier, AB		13		100%		13		100%		13		Western Canada		Merchant		—
		Taylor, AB*		13		100%		13		100%		13		Western Canada		Merchant		—
		Interlakes, AB		5		100%		5		100%		5		Western Canada		Merchant		—
		Belly River, AB*		3		100%		3		100%		3		Western Canada		Merchant		—
		Three Sisters, AB		3		100%		3		100%		3		Western Canada		Merchant		—
		Waterton, AB*		3		100%		3		100%		3		Western Canada		Merchant		—
		St. Mary, AB*		2		100%		2		100%		2		Western Canada		Merchant		—
		Upper Mamquam, BC*		25		100%		25		100%		25		Western Canada		LTC		2025
		Pingston, BC*		45		50%		23		100%		23		Western Canada		LTC		2023
		Bone Creek, BC*		19		100%		19		100%		19		Western Canada		LTC		2031
		Akolkolex, BC*		10		100%		10		100%		10		Western Canada		LTC		2046

 

S-3

As at September 30, 2022		Facility		Nameplate capacity (MW)		Consolidated Interest		Gross Installed capacity		Ownership (%)		Net Capacity Ownership Interest (MW)		Region		Revenue source		Contract expiry date
		Ragged Chute, ON*		7		100%		7		100%		7		Eastern Canada		LTC		2029
		Misema, ON*		3		100%		3		100%		3		Eastern Canada		LTC		2027
		Galetta, ON(1)*		2		100%		2		100%		2		Eastern Canada		LTC		2030
		Appleton, ON*(1)		1		100%		1		100%		1		Eastern Canada		LTC		2030
		Moose Rapids, ON*		1		100%		1		100%		1		Eastern Canada		LTC		2030
Total Hydro				947				925				925
Wind &		Summerview 1, AB*		68		100%		68		100%		68		Western Canada		Merchant		—
Battery Storage		Summerview 2, AB*		66		100%		66		100%		66		Western Canada		Merchant		—
27 facilities		Ardenville, AB*		69		100%		69		100%		69		Western Canada		Merchant		—
		Blue Trail and Macleod Flats, AB*		69		100%		69		100%		69		Western Canada		Merchant		—
		Castle River, AB*		44		100%		44		100%		44		Western Canada		Merchant		—
		McBride Lake, AB*		75		50%		38		100%		38		Western Canada		LTC		2024
		Soderglen, AB*		71		50%		36		100%		36		Western Canada		Merchant		—
		Cowley North, AB*		20		100%		20		100%		20		Western Canada		Merchant		—
		Oldman, AB*		4		100%		4		100%		4		Western Canada		Merchant		—
		Sinnott, AB*		7		100%		7		100%		7		Western Canada		Merchant		—
		Windrise, AB*		206		100%		206		100%		206		Western Canada		LTC		2041
		WindCharger battery storage, AB*		10		100%		10		100%		10		Western Canada		Merchant		—
		Melancthon, ON*		200		100%		200		100%		200		Eastern Canada		LTC		2026-2028
		Wolfe Island, ON*		198		100%		198		100%		198		Eastern Canada		LTC		2029

 

S-4

As at September 30, 2022		Facility		Nameplate capacity (MW)		Consolidated Interest		Gross Installed capacity		Ownership (%)		Net Capacity Ownership Interest (MW)		Region		Revenue source		Contract expiry date
		Kent Breeze, ON*		20		100%		20		100%		20		Eastern Canada		LTC		2031
		Kent Hills, NB*		167		100%		167		83%		139		Eastern Canada		LTC		2035
		Le Nordais, QC*		98		100%		98		100%		98		Eastern Canada		LTC		2033
		New Richmond, QC*		68		100%		68		100%		68		Eastern Canada		LTC		2033
		Wyoming Wind, WY*		140		100%		140		100%		140		United States		LTC		2028
		Lakeswind, MN*		50		100%		50		100%		50		United States		LTC		2034
		Big Level, PA*		90		100%		90		100%		90		United States		LTC		2034
		Antrim, NH*		29		100%		29		100%		29		United States		LTC		2039
		Skookumchuck, WA		137		49%		67		100%		67		United States		LTC		2040
Total Wind				1,906				1,763				1,735
Solar		Mass Solar, MA*		21		100%		21		100%		21		United States		LTC		2032-2035
2 facilities		North Carolina Solar, NC		122		100%		122		100%		122		United States		LTC		2033
Total Solar				143				143				143
Gas		Keephills 2, AB		395		100%		395		100%		395		Western Canada		Merchant		—
17 facilities		Keephills 3, AB		463		100%		463		100%		463		Western Canada		Merchant		—
		Poplar Creek, AB		230		100%		230		100%		230		Western Canada		LTC		2030
		Sheerness, AB		800		50%		400		50%		200		Western Canada		Merchant		—
		Sundance 6, AB		401		100%		401		100%		401		Western Canada		Merchant		—
		Fort Saskatchewan, AB		118		60%		71		50%		35		Western Canada		LTC/Merchant		2029
		Sarnia, ON*		499		100%		499		100%		499		Eastern Canada		LTC		2022-2032

 

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S-6

 

S-7

 

S-8

 

S-9

 

S-10

 

S-11

 

S-12

 

S-13

 

S-14

 

S-15

 

S-16

 

S-17

RISK FACTORS

An investment in the Notes is subject to a number of risks. In addition to the other information contained in and incorporated by reference into this Prospectus Supplement and the accompanying Prospectus, you should consider carefully the risk factors set forth below and under the heading “Risk Factors” in the accompanying Prospectus, “Risk Factors” and “Governance and Risk Management” in the Annual MD&A and “Risk Factors” in the Annual Information Form. The risks and uncertainties described below, in the Prospectus and in the documents incorporated by reference are not the only ones we may face. Additional risks and uncertainties that we are unaware of, or that we currently deem to be immaterial, may also become important factors that affect us. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected, with the result that the trading price of the Notes could decline and you could lose all or part of your investment.

There is no public market for the Notes.

The Notes are a new issue of securities for which there is currently no public market. We do not intend to apply for listing of the Notes on any securities exchange or to arrange for the Notes to be quoted on any automated dealer quotation system. If the Notes are traded after their initial issue, they may trade at a discount from their initial offering prices, depending on prevailing interest rates, the market for similar securities and other factors, including general economic conditions and our financial condition. We cannot assure you as to the liquidity of the trading market for the Notes or that a trading market for the Notes will develop.

Changes in interest rates may cause the market value of the Notes to decline.

Prevailing interest rates will affect the market price or value of the Notes. The market price or value of the Notes may decline as prevailing interest rates for comparable debt instruments rise, and increase as prevailing interest rates for comparable debt securities decline.

The Notes are unsecured obligations of the Corporation.

The Notes will be our direct unsecured obligations, ranking equally and pari passu, except as to sinking fund or analogous provisions, with all of our other unsecured and unsubordinated indebtedness. The Notes will be effectively subordinated to all indebtedness and other liabilities of our subsidiaries and will be effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such secured indebtedness. If we are involved in any bankruptcy, dissolution, liquidation or reorganization, the holders of indebtedness and liabilities of our subsidiaries would be paid before the holders of Notes receive any amounts due under the Notes and the holders of our secured indebtedness would be paid before the holders of Notes receive any amounts due under the Notes, to the extent of the value of the assets securing such secured indebtedness. In that event, a holder of Notes may not be able to recover any principal or interest due under the Notes.

We may not be able to fulfill our repurchase obligations with respect to the Notes upon a change of control.

If we experience a Change of Control Triggering Event, we will be required to make an offer to repurchase all outstanding Notes at a repurchase price equal to 101% of the principal amount of the Notes repurchased, plus accrued and unpaid interest, if any, to the applicable repurchase date. Failure to repurchase, or to make an offer to repurchase, the Notes would constitute a default under the Indenture governing the Notes, which would also constitute a default under certain instruments governing our existing indebtedness. See “Description of Notes — Repurchase Upon Change of Control Triggering Event” in this Prospectus Supplement.

If a Change of Control Triggering Event were to occur, we cannot assure you that we would have sufficient funds to repay any Notes that we would be required to offer to repurchase, or to satisfy any other

 

S-18

obligations that would become immediately due and payable under the other instruments governing our indebtedness, as a result of such Change of Control Triggering Event. In order to satisfy our obligations, we may attempt to refinance our indebtedness or obtain consents from our other lenders or from the holders of the Notes. We cannot assure you that we would be able to refinance our indebtedness or obtain such consents on satisfactory terms or at all.

Because the Indenture governing the Notes will not contain limits on the amount of additional debt that we may incur, our ability to make timely payments on the Notes you hold may be affected by the amount and terms of our future debt.

Our ability to make timely payments on our outstanding debt may depend on the amount and terms of our other obligations, including any notes. The Indenture governing the Notes will not contain any limitation on the amount of indebtedness or other liabilities that we or any of our subsidiaries may incur in the future, including additional senior debt securities. In the event we issue additional notes under the Indenture governing the Notes or incur other indebtedness, unless our earnings grow in proportion to our debt and other fixed charges, our ability to service the notes on a timely basis may become impaired. We expect that we will from time to time incur additional debt and other liabilities. In addition, TransAlta will not be restricted from paying dividends on or repurchasing its securities under the Indenture governing the Notes.

The Indenture governing the Notes will not require that we allocate an amount equal to the net proceeds from this offering to Eligible Projects or take the other actions described under “Green Financing Framework” in this Prospectus Supplement, and our failure to do so could adversely impact the value of the Notes.

The market price and tradability of the Notes may be impacted by any failure by us to allocate an amount equal to the net proceeds from this offering to Eligible Projects, take the other actions as described under “Green Financing Framework” in this Prospectus Supplement or to otherwise meet or continue to meet the investment requirements of certain sustainability-focused investors. Although we intend to allocate an amount equal to the net proceeds from this offering to Eligible Projects and take the other actions as described under “Green Financing Framework” in this Prospectus Supplement, it will not be an event of default under the Indenture governing the Notes nor will we be required to repurchase or redeem the Notes if we fail to do so. See “Green Financing Framework” in this Prospectus Supplement.

We may use or allocate an amount equal to the net proceeds from this offering in ways with which you may not agree.

We intend to allocate an amount equal to the net proceeds from this offering to finance or refinance, in part or in full, new and/or existing Eligible Projects and will use the net proceeds from this offering to repay $100 million drawn on the Credit Facility and to replace balance sheet cash used to fund the repayment in full of the 2022 Notes. See “Use of Proceeds” in this Prospectus Supplement. We may also allocate or re-allocate amounts relating to this offering to other new Eligible Projects. We have significant flexibility in allocating amounts relating to this offering, including re-allocating in the event we no longer own assets to which we allocated amounts relating to this offering or if the assets to which we allocated amounts related to this offering no longer meet the criteria for an Eligible Project. You may not agree with the ultimate allocation of amounts relating to this offering, even if we believe the expenditures to which we allocate such amounts were in respect of Eligible Projects.

We cannot assure you that the Eligible Projects to which we allocate amounts relating to this offering will satisfy, or continue to satisfy, investor criteria and expectations regarding environmental impact and sustainability performance nor can we assure you that the Eligible Projects criteria and other aspects of the framework described under “Green Financing Framework” in this Prospectus Supplement will satisfy, or continue to satisfy, investor criteria or expectations for sustainable finance products.

 

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Recent Canadian tax proposals

In February 2022, the Department of Finance (Canada) released draft legislation, including a proposal on interest deductibility. The proposal was open for public comment until May 2022 and was originally intended to be effective for taxation years beginning on or after January 1, 2023. On November 3, 2022, the Department of Finance (Canada) released revised legislative proposals relating to the interest deductibility proposals and, while the November 3, 2022 draft legislative provisions provided that the interest deductibility proposals would be effective for taxation years beginning on or after October 1, 2023, it is unknown when the legislation may be enacted. The November 3, 2022 draft legislative proposals are open for public comment until January 6, 2023. We will continue to assess the proposed changes in tax legislation as they could affect our business, financial condition and cash flows available to make payments to holders of the Notes.

 

S-20

USE OF PROCEEDS

We expect that the net proceeds from this offering will be approximately US$              million after deducting underwriting commissions and estimated expenses of this offering. We intend to allocate an amount equal to the net proceeds from this offering to finance or refinance, in part or in full, new and/or existing Eligible Projects.

Pending such allocation, we intend to use the net proceeds from this offering to repay $100 million drawn on the Credit Facility and replace balance sheet cash used to fund the repayment in full of the 2022 Notes. Certain of the underwriters or their respective affiliates are lenders under our credit facilities. Such underwriters or their affiliates may receive a portion of the net proceeds from this offering in connection with the repayment of indebtedness. See “Our Competitive Strengths — Prudent Financial Profile with Strong Liquidity and Access to Capital” and “Underwriting (Conflicts of Interest)” in this Prospectus Supplement.

 

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CAPITALIZATION

The following table summarizes our consolidated capitalization as of September 30, 2022, on an actual basis and on an (i) as adjusted basis to give effect to the repayment in full of the 2022 Notes effective November 15, 2022 and (ii) as further adjusted to give effect to the issuance Notes offered by this Prospectus Supplement. As noted under “Use of Proceeds”, we intend to use the net proceeds from this offering to repay $100 million drawn on the Credit Facility and to replace balance sheet cash used to fund the repayment in full of the 2022 Notes and, as a result, it is expected that this offering will not result in an increase in our long-term debt except to the extent of discounts, commissions and other expenses of the offering. You should read this table together with our unaudited consolidated financial statements for the three and nine months ended September 30, 2022 which are included in this Prospectus Supplement. All U.S. dollar amounts in the following table have been converted to Canadian dollars using the exchange rate of US$1 = C$1.366.

 

(in millions of Canadian dollars)		As at September 30, 2022				As adjusted at September 30, 2022(4)				As further adjusted at September 30, 2022(5)
Cash and Cash Equivalents		$	816			$	370			$	808
Indebtedness
Syndicated Bank Facility(1)			—			$	100				—
Bilateral Credit Facilities(1)			—				—				—
Term Facility(2)			—				—				—
Renewables Syndicated Bank Facility(3)			—				—				—
7.30% Debentures due 2029		$	110				110			$	110
6.90% Debentures due 2030			141				141				141
4.50% US$ Senior Notes due 2022			546				—				—
6.50% US$ Senior Notes due 2040			410				410				410
New US$400mm Senior Notes			—				—				546
Exchangeable Debentures			350				350				350
Lease Obligations & Other			106				106				106
Exchangeable Preferred Securities			400				400				400
Project Bonds			1,795				1,795				1,795
Tax Equity			133				133				133
Unamortized Issuance Costs			(44	)			(44	)			(52	)
Total Indebtedness			3,947				3,501				3,939
Total Shareholders’ Equity			2,417				2,417				2,417
Total Capitalization		$	6,364			$	5,918			$	6,356

 

Notes:

(1)	As of November 12, 2022, under our Syndicated Bank Facility and Bilateral Credit Facilities, we have cumulative commitments available to be borrowed of $618 million (after giving effect to $872 million of outstanding letters of credit).

(2)	As of November 12, 2022, we have commitments available to be borrowed under our Term Facility of $400 million (no outstanding letters of credit issued under the facility).

(3)	As of November 12, 2022, we have commitments available to be borrowed under our TransAlta Renewables Syndicated Bank Facility of $585 million (after giving effect to $102 million of outstanding letters of credit and $13 million in borrowings).

(4)	Reflects adjustments for the repayment of the 4.50% US$ Senior Notes due 2022 using $100 million of drawings on our Syndicated Bank facility and $446 million in cash.

(5)	Reflects adjustments for the expected cash proceeds for the anticipated issuance of US$400 million and cash issuance costs of US$6 million using the exchange rate above.

 

S-22

GREEN FINANCING FRAMEWORK

We intend to allocate an amount equal to the net proceeds from this offering to finance or refinance, in part or in full, new and/or existing Eligible Projects. See “Use of Proceeds” in this Prospectus Supplement.

Our Green Financing Framework has been developed in line with the GBP published by the ICMA. Our Green Financing Framework is intended to provide transparency to our issuances of green bonds, including the Notes, and reporting processes. The Green Financing Framework is based on the four core components of the GBP, being: (1) Use of Proceeds; (2) Process for Project Evaluation and Selection; (3) Management of Proceeds; and (4) Reporting. The Green Financing Framework also describes the manner in which green bonds support and contribute towards meeting the SDG. Under the Green Financing Framework, TransAlta may issue green bonds in various formats, according to the prevailing terms described in the documentation.

Use of Proceeds

An amount equivalent to the net proceeds from the issuance of the Notes will be allocated to finance or refinance, in part or in full, Eligible Projects providing tangible environmental benefits. TransAlta will follow the process described in the Green Financing Framework along with its professional judgement, discretion and sustainability expertise when identifying the Eligible Projects.

In the case of refinancing existing Eligible Projects, investments and expenditures that have been made within the 36-month period preceding the date of issuance of the Notes shall be considered for inclusion as Eligible Projects. TransAlta will fully allocate the net proceeds of the Notes within 24-months of issuance.

Eligible Projects

 

Project Category		Eligible Criteria		Alignment with UN SDG
Renewable Energy		•   Proceeds may be allocated to the construction, development, operation, acquisition, maintenance, connection, transmission and distribution of the following renewable energy generation sources:   •  Solar or solar-plus-storage   •  Wind or wind-plus-storage   •  Refurbishment, operation or maintenance of existing hydroelectric facilities provided the size of the dam or reservoir is not increased   •  Run of river hydroelectric power or hydro-plus-storage   •  Green hydrogen (<36.4g CO2e/MJ)		7, 13
Energy Efficiency		•   Proceeds may be allocated to products and systems that reduce energy consumption or mitigate emissions, including:   •  Development of large-scale, long duration energy storage projects		7, 11, 13

 

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Process for Project Evaluation and Selection

TransAlta has established a Green Bond Committee (the “Committee”) at the Management level with responsibility for governing the selection and monitoring of the Eligible Projects. The Committee will be chaired by the Treasurer and include senior members of the following teams representing TransAlta: Finance, Legal and Sustainability.

The Committee will be principally responsible for: (1) evaluating and selecting Eligible Projects; (2) annually reviewing the list of previously allocated Eligible Projects against the eligibility criteria; and (3) reviewing and approving updates to the Green Financing Framework.

When evaluating Eligible Projects, the Committee will assess whether the Eligible Projects meet the eligibility criteria laid out in the “Use of Proceeds” section of the Green Financing Framework. Projects must also comply with applicable laws and regulations and TransAlta’s policies and guidelines, such as our Total Safety Management Policy.

Additionally, the Committee will, if a project no longer meets the eligibility criteria set forth in the Green Financing Framework, review and approve removing it and replacing it with another Eligible Project.

Sustainability is overseen by TransAlta’s Governance, Safety and Sustainability Committee (“GSSC”) of the Board of Directors of TransAlta (the “Board”). The GSSC assists the Board in fulfilling its oversight responsibilities with respect to TransAlta’s monitoring of climate change, environmental, health and safety regulations, public policy changes and the development of strategies, policies and practices for climate change, environment, health and safety, and social well-being, including human rights, working conditions and responsible sourcing.

Management of Proceeds

TransAlta’s treasury team will manage the allocation of an amount equal to the net proceeds of the Notes to Eligible Projects. Net proceeds will be recorded separately in TransAlta’s records in order to clearly track the use of and allocation of funds for Eligible Projects. TransAlta will strive to achieve a level of allocation to the Eligible Project portfolio that matches or exceeds the balance of net proceeds of the outstanding Notes within 24 months of issuance.

Pending full allocation of an amount equal to the net proceeds of the outstanding Notes, the proceeds will be held in temporary investments such as cash, cash equivalents and/or other liquid marketable investments in line with TransAlta’s financial policies or used to pay outstanding indebtedness.

Payment of principal and interest on the Notes will not be directly linked to the performance of any eligible asset.

If any Eligible Projects are removed from the portfolio of Eligible Projects, TransAlta will strive to substitute those projects with replacement eligible projects, as soon as possible and in any case within 24 months.

Reporting

For each issuance of green bonds, including the Notes, TransAlta commits to publish an allocation and impact report annually within one year of issuance until full allocation of the proceeds and in the event of any material changes until the relevant maturity date. TransAlta’s green bond reporting, including in respect of the Notes, will be made publicly available on our website.

 

S-24

Allocation Reporting

TransAlta will provide information on the allocation of the net proceeds of the Notes on its website. The information will contain at least the following details: (1) net proceeds of outstanding Notes; (2) the proportion of spending by Eligible Project category as defined in the Use of Proceeds section of the Green Financing Framework; (3) subject to confidentiality considerations, a list of the Eligible Projects financed through the Notes, including a description of the projects and allocated amounts; and (4) the remaining balance of unallocated proceeds, if any.

Impact Reporting

TransAlta will report on relevant environmental impact metrics, where feasible and on a proportion-funded basis, and disclose measurement methodology. Examples of impact metrics that may be reported are found in the below table.

 

Eligible Project Category		Potential Quantitative Impact Metrics
Renewable Energy		•   Total installed capacity (MW)   •   GHG emissions avoided per year (tCO2e)
Energy Efficiency		•   Total installed capacity of energy storage (MWh)   •   Energy use reduction (GJ)   •   GHG emissions reduced/avoided (tCO2e)

External Review

TransAlta’s Green Financing Framework is supported by a second-party opinion, available on our website, and a post-issuance external verification on reporting.

Information contained on our website (including allocation reports, impact reports and second-party opinions) or the website of our second-party opinion provider, is not and should not be deemed to be a part of this Prospectus Supplement or the accompanying Prospectus. In addition, the Green Financing Framework is not and should not be deemed to be a part of this Prospectus Supplement or the accompanying Prospectus.

 

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DESCRIPTION OF NOTES

The following description of the terms of the Notes supplements, and to the extent inconsistent therewith replaces, the description set forth under the heading “Description of Debt Securities” in the accompanying Prospectus and should be read in conjunction with such description. In this section, “Corporation” refers only to TransAlta Corporation and not to any of its subsidiaries, unless otherwise stated. All capitalized terms used under this heading “Description of Notes” that are not defined herein have the meanings ascribed thereto in the accompanying Prospectus.

General

The Notes will be direct unsecured obligations of the Corporation and will rank equally and ratably with all other unsubordinated and unsecured indebtedness of the Corporation.

Payment of the principal, premium, if any, and interest on the Notes will be made in U.S. dollars.

The provisions of the Indenture relating to the payment of additional amounts in respect of Canadian withholding taxes in certain circumstances (described under the heading “Description of Debt Securities — Payment of Additional Amounts” in the accompanying Prospectus) and the provisions of the Indenture relating to the redemption of Notes in the event of specified changes in Canadian withholding tax laws or the enforcement or interpretation thereof on or after the date of this Prospectus Supplement (described under the heading “Description of Notes — Tax Redemption” in this Prospectus Supplement) will apply to the Notes, except (i) as described under the heading “Certain Income Tax Considerations — Certain U.S. Federal Income Tax Considerations — FATCA” in this Prospectus Supplement, (ii) that for the purposes of Section 10.5 of the Indenture, a “Holder” of a Note shall include a beneficial owner thereof, and (iii) that in addition to the exclusions contained in the Indenture, no additional amounts will be paid in the following circumstances:

 

(a)

where the payment is in respect of a debt or other obligation to pay an amount to a person with whom the Corporation is not dealing at arm’s length for the purposes of the Income Tax Act (Canada) (the “Tax Act”);

 

(b)

to any person in respect of whom such Canadian Taxes (as defined in the accompanying Prospectus) are required to be withheld or deducted as a result of such person being a “specified non-resident shareholder” of the Corporation (within the meaning of subsection 18(5) of the Tax Act) at the time of the payment or such person not dealing at arm’s length for the purposes of the Tax Act with a “specified shareholder” (within the meaning of subsection 18(5) of the Tax Act) of the Corporation at the time of payment;

 

(c)

where Canadian Taxes (as defined in the accompanying Prospectus) are required to be withheld or deducted as a result of the Corporation being a “specified entity” (as defined in proposed subsection 18.4(1) of the Tax Act released on April 29, 2022 by the Minister of Finance (Canada), or substantially analogous provisions of any finally enacted amendment to the Tax Act) in respect of the recipient of a payment, to the extent that the applicable payment would be subject to withholding tax under such Act as a consequence of such proposals or provisions; or

 

(d)

for any combination of any of the items described in paragraphs (a) to (c) above or paragraphs (a) to (f) under the heading “Description of Debt Securities — Payment of Additional Amounts” in the accompanying Prospectus.

The Notes will initially be issued in an aggregate principal amount of US$              million and will mature on                     , 2029. The Notes will bear interest at the rate of     % per annum from                     , 2022 or from the most recent date to which interest has been paid or provided for, payable semi-annually on                 and                  of each year, commencing                    , 2023, to the persons in whose names the Notes are registered at the close of business on the preceding                      or                     , respectively. Interest shall be computed assuming a 360-day year consisting of twelve 30-day months.

 

S-26

The Corporation may from time to time, without the consent of the holders of the Notes, issue additional Notes after this offering. The Notes and any additional Notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture (except in respect of the payment of interest accruing prior to the issue date of the additional Notes and the first payment of interest following the issue date of the additional Notes), including, without limitation, waivers, amendments, redemptions and offers to purchase.

The Notes will be issuable in minimum denominations of US$2,000 or integral multiples of US$1,000 in excess thereof.

The Notes will not be entitled to the benefits of any sinking fund.

Optional Redemption

On and after                     , 2025, the Corporation may, at its option on one or more occasions, redeem all or a part of the Notes, upon notice as described under “— Selection and Notice”, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the Notes to be redeemed to, but not including, the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the twelve-month period beginning on                  of the years indicated below:

 

Year		Percentage
2025				%
2026				%
2027 and thereafter			100.00	%

At any time prior to                     , 2025, the Corporation may, at its option on one or more occasions redeem up to 35% of the aggregate principal amount of the Notes (including additional Notes) originally issued under the Indenture, upon notice as described under “— Selection and Notice”, at a redemption price of     % of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), with an amount of cash not greater than the net cash proceeds of one or more Equity Offerings by the Corporation, provided, that for purposes of calculating the principal amount of the Notes able to be redeemed with such cash proceeds of such Equity Offering or Equity Offerings, such amount shall include only the principal amount of the Notes to be redeemed plus the premium on such Notes to be redeemed, provided further that:

(1) at least 65% of the aggregate principal amount of the Notes (including additional Notes) originally issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Corporation and its Subsidiaries); and

(2) the redemption occurs within 180 days of the date of the closing of the related Equity Offering.

In addition, at any time prior to                     , 2025, the Corporation may, at its option on one or more occasions, redeem all or a part of the Notes, upon notice as described under “— Selection and Notice”, at a redemption price equal to the sum of:

(1) 100.0% of the principal amount thereof, and

(2) the Make Whole Premium (as defined herein) as of the applicable redemption date,

plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date).

 

S-27

“Business Day” means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York, Calgary, Alberta or another place of payment are authorized or required by law to close

“Equity Offering” means any public or private sale of capital stock of the Corporation made on a primary basis by the Corporation (other than (x) capital stock that is mandatorily redeemable or otherwise required to be repurchased at the option of the holder thereof on or prior to the date that is 91 days after the date on which the Notes mature and (y) any sale to a subsidiary of the Corporation).

“Make Whole Premium” means, with respect to a Note as of any redemption date for such Note whose redemption price may be determined by reference to the Make Whole Premium, the excess, if any, of (1) the present value as of the applicable redemption date of (a) the redemption price of such Note at                     , 2025 (such redemption price being set forth in the first full paragraph of this “— Optional Redemption” section) plus (b) any required interest payments due on such Note through                     , 2025 (except for accrued and unpaid interest to, but not including, the applicable redemption date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months), over (2) the then-outstanding principal amount of such Note.

“Treasury Rate” means, with respect to any redemption date for any Note whose redemption price may be determined by reference to the Make Whole Premium, the yield to maturity as of the redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Selected Interest Rates (Daily) - H.15 that has become publicly available at least two Business Days prior to such date (or, if such Statistical Release is no longer published, any publicly available source of similar market data selected by the Corporation)) most nearly equal to the period from such date to                     , 2025; provided, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Corporation shall obtain the Treasury Rate by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to                     , 2025 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. Calculation of the Make Whole Premium and the Treasury Rate will be made by the Corporation or on behalf of the Corporation by such Person as the Corporation shall designate. The Corporation will (1) calculate the Treasury Rate and the Make Whole Premium no later than the first (and no earlier than the fourth) Business Day preceding the applicable redemption date (or, in the case of any redemption in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture, on the Business Day preceding such event), and (2) prior to such redemption date (or such event, as applicable), file with the Trustee a statement setting forth the Treasury Rate and the Make Whole Premium and showing the calculation of each in reasonable detail.

Repurchase Upon Change of Control Triggering Event

If a Change of Control Triggering Event occurs, unless the Corporation has exercised its right to redeem the Notes as described under “— Optional Redemption”, each holder of Notes will have the right to require the Corporation to purchase all or a portion of such holder’s Notes pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, the Corporation will offer a payment (the “Change of Control Payment”) equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date.

Within 30 days following the date upon which the Change of Control Triggering Event occurred, or at the Corporation’s option, prior to any Change of Control but after the public announcement of the pending Change of Control, the Corporation will be required to send, by first class mail, a notice to each holder of Notes,

 

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with a copy to the Trustee (as hereinafter defined), which notice will govern the terms of the Change of Control Offer. Such notice will state, among other things, the purchase date, which must be no earlier than 10 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the “Change of Control Payment Date”). The notice, if mailed prior to the date of consummation of the Change of Control, will state that the Change of Control Offer is conditional on the Change of Control being consummated on or prior to the Change of Control Payment Date. Each holder of Notes electing to have Notes purchased pursuant to a Change of Control Offer will be required to surrender their Notes, with the form entitled “Option of Holder to Elect Purchase” on the reverse of the Note completed, to the paying agent at the address specified in the notice, or transfer their Notes to the paying agent by book-entry transfer pursuant to the applicable procedures of the paying agent, prior to the close of business on the third business day prior to the Change of Control Payment Date.

The Corporation will not be required to make a Change of Control Offer if (a) a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for such an offer made by the Corporation and such third party purchases all Notes properly tendered and not withdrawn under its offer; (b) a notice of redemption has been given, unless and until there is a default in payment of the applicable redemption price or (c) in connection with or in contemplation of any Change of Control, the Corporation or a third party has made an offer to purchase (an “Alternate Offer”) any and all Notes validly tendered at a cash price equal to or higher than the Change of Control Payment and has purchased all Notes properly tendered in accordance with the terms of such Alternate Offer. Notwithstanding anything to the contrary contained herein, a Change of Control Offer, tender offer or Alternate Offer by the Corporation or a third party may be made in advance of a Change of Control Triggering Event or Change of Control, conditioned upon the occurrence of such Change of Control Triggering Event or a Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer, tender offer or Alternate Offer is made.

In connection with any Change of Control Offer, tender offer or Alternate Offer by the Corporation or any third party to purchase all of the Notes, if holders of not less than 90.0% of the aggregate principal amount of the then outstanding Notes validly tender and do not validly withdraw such Notes in connection with such Change of Control Offer, tender offer or Alternate Offer and the Corporation or such third party purchases all of the Notes validly tendered and not validly withdrawn by such holders, all of the holders of the Notes will be deemed to have consented to such Change of Control Offer, tender offer or Alternate Offer and accordingly, the Corporation or such third party (as applicable) will have the right upon not less than 10 days’ nor more than 60 days’ prior written notice, given not more than 60 days following such purchase date pursuant to the Change of Control Offer, tender offer or Alternate Offer, to purchase all Notes that remain outstanding following such purchase at a purchase price equal to the highest price offered to each other holder in such Change of Control Offer, tender offer or Alternate Offer, plus, to the extent not included in the Change of Control Offer, tender offer or Alternate Offer, accrued and unpaid interest to, but excluding, the applicable purchase date (subject to the right of the holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the applicable purchase date).

The definition of Change of Control includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of the assets of the Corporation and its subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all”, there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Corporation to repurchase its Notes as a result of a sale, transfer, conveyance or other disposition of less than all of the assets of the Corporation and its subsidiaries taken as a whole to another “person” may be uncertain. In addition, a recent Delaware Chancery Court decision raised questions about the enforceability of provisions, which are similar to those in the Indenture, related to the triggering of a change of control as a result of a change in the composition of a board of directors. Accordingly, the ability of a holder of Notes to require the Corporation to repurchase its Notes as a result of a change in the composition of the board of directors of the Corporation may be uncertain.

 

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To the extent that the provisions of any applicable securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Corporation will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such compliance.

“Ratings Decline” means the occurrence of a decrease in the rating of the Notes by one or more gradations (including gradations within the rating categories, as well as between categories) by each of the Rating Agencies, within 60 days of the earliest of (a) a Change of Control, (b) the date of public notice of the occurrence of a Change of Control or (c) public notice of the intention of the Corporation to effect a Change of Control (which 60 day period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by an a Rating Agency); provided, however, that notwithstanding the foregoing, a Ratings Decline shall be deemed not to have occurred if any of the Rating Agencies rates the Notes with an Investment Grade Rating that is not subject to review for possible downgrade on such 60^th day.

The Trustee shall not be charged with knowledge of, or be responsible for the monitoring of, the ratings of the Notes.

“Change of Control” means the occurrence of any of the following:

 

(a)

the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger, amalgamation, arrangement or consolidation), in one or more series of related transactions, of all or substantially all of the Corporation’s assets and the assets of its subsidiaries, taken as a whole, to any person, other than to the Corporation or one of its subsidiaries;

 

(b)

the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person (other than a subsidiary of the Corporation) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the U.S. Exchange Act), directly or indirectly, of more than 50% of the Corporation’s outstanding Voting Shares or other Voting Shares into which the Corporation’s Voting Shares are reclassified, consolidated, exchanged or changed, measured by voting power rather than number of shares;

 

(c)

the Corporation consolidates with, or merges or amalgamates with or into, or enters into an arrangement with, any person, or any person consolidates with, or merges or amalgamates with or into, the Corporation, in any such event pursuant to a transaction in which any of the Corporation’s outstanding Voting Shares or the Voting Shares of such other person are converted into or exchanged for cash, securities or other property, other than any such transaction where the Corporation’s Voting Shares outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Shares of the surviving person or any direct or indirect parent company of the surviving person immediately after giving effect to such transaction; or

 

(d)

the adoption of a plan relating to the liquidation or dissolution of the Corporation.

Notwithstanding the foregoing, (1) a transaction will not be deemed to involve a Change of Control under clause (b) above if (i) we become a direct or indirect wholly-owned subsidiary of a holding company and (ii) (A) the direct or indirect holders of the Voting Shares of such holding company immediately following that transaction are substantially the same as the holders of the Corporation’s Voting Shares immediately prior to that transaction or (B) immediately following that transaction no person (other than a holding company satisfying the requirements of this sentence) is the beneficial owner, directly or indirectly, of more than 50% of the Voting Shares of such holding company; and (2) the term “Change of Control” shall include a merger, amalgamation or consolidation of the Corporation with, or the sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole to, an affiliate of the Corporation that is incorporated or organized solely for the purpose of reincorporating or reorganizing the Corporation in another jurisdiction, which is not otherwise prohibited by the terms of the Indenture. The term “person”, as used in this definition, has the meaning given thereto in Section 13(d)(3) of the U.S. Exchange Act.

 

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“Change of Control Triggering Event” means the occurrence of both a Change of Control and so long as the Notes are rated, a related Ratings Decline.

“Investment Grade Rating” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB– (or the equivalent) by S&P, or, in each case, if such Rating Agency ceases to make a rating of the Notes publicly available, the equivalent investment grade credit rating by the replacement agency selected by the Corporation in accordance with the procedures described below.

“Rating Agencies” means Moody’s and S&P; and if either ceases to make a rating of the Notes publicly available, a “nationally recognized statistical rating organization”, within the meaning of Sections 3(a)(62) under the U.S. Exchange Act, selected by the Corporation (as certified by a resolution of the Corporation’s board of directors) as a replacement agency for Moody’s or S&P, or each of them, as the case may be.

“Voting Shares” means, with respect to any specified person as of any date, the shares of such person that is at the time entitled to vote generally in the election of the board of directors of such person.

Tax Redemption

The Notes will be subject to redemption at any time, in whole but not in part, at the option of the Corporation, at a redemption price equal to the principal amount thereof together with accrued and unpaid interest to the date fixed for redemption, upon the giving of a notice as described below in “—Selection and Notice”, if (1) the Corporation determines that (a) as a result of any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of Canada or of any political subdivision or taxing authority thereof or therein affecting taxation, or any change in official position regarding application or interpretation of such laws, regulations or rulings (including a holding by a court of competent jurisdiction), which change or amendment is announced or becomes effective on or after the date of this Prospectus Supplement, the Corporation has or will become obligated to pay, on the next succeeding date on which interest is due, additional amounts with respect to the Notes as described under “Description of Debt Securities—Payment of Additional Amounts” in the accompanying Prospectus; or (b) on or after the date of this Prospectus Supplement, any action has been taken by any taxing authority of, or any decision has been rendered by a court of competent jurisdiction in, Canada or any political subdivision or taxing authority thereof or therein, including any of those actions specified in (a) above, whether or not such action was taken or decision was rendered with respect to the Corporation, or any change, amendment, application or interpretation shall be officially proposed, which, in any such case, in the written opinion to the Corporation of legal counsel of recognized standing, will result in the Corporation becoming obligated to pay, on the next succeeding date on which interest is due, additional amounts with respect to the Notes and (2) in any such case, the Corporation in its business judgment determines that such obligation cannot be avoided by the use of reasonable measures available to the Corporation; provided, however, that (i) no such notice of redemption may be given earlier than 60 days prior to the earliest date on which the Corporation would be obligated to pay such additional amounts were a payment in respect of the Notes then due, and (ii) at the time such notice of redemption is given, such obligation to pay such additional amounts remains in effect; and provided, further, that any such notice of redemption shall be given no later than 30 days prior to such redemption.

In the event that the Corporation elects to redeem the Notes pursuant to the provisions set forth in the preceding paragraph, the Corporation shall deliver to the Trustee a certificate, signed by an authorized officer, stating that the Corporation is entitled to redeem the Notes pursuant to their terms.

Prior to the publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Corporation will deliver the Trustee an opinion of counsel to the effect that there has been such change or amendment which would entitle the Corporation to redeem the notes hereunder. In addition, before the Corporation publishes or mails notice of redemption of the Notes as described above, it will deliver to the

 

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Trustee a certificate, signed by an authorized officer, stating that the Corporation cannot avoid its obligation to pay additional amounts by taking reasonable measures available to it and all other conditions for such redemption have been met.

The Trustee shall be entitled to rely on such officer’s certificate and opinion of counsel as sufficient evidence of the existence and satisfaction of the conditions precedent as described above, in which event it will be conclusive and binding on the holders of the Notes. The Trustee shall not be responsible for the determination of any redemption price.

Selection and Notice

Notice of any redemption will be mailed by first class mail (or sent electronically if DTC is the recipient) at least 10 days but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. No Notes of US$2,000 or less can be redeemed in part.

Notes called for redemption will become due on the date fixed for redemption, subject to the Corporation’s right to delay or rescind an optional redemption date as provided below. Unless the Corporation defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption. If fewer than all of the Notes of the applicable series are to be redeemed, the particular Notes or portions thereof to be redeemed will be selected, not more than 60 days prior to the redemption date, from the outstanding Notes of such series not previously called (a) if such Notes are held in global form, in accordance with the procedures of DTC or (b) if such Notes are held in certificated form, on a pro rata basis.

Notice of any optional redemption of the Notes may, at the Corporation’s discretion, be subject to one or more conditions precedent, including, but not limited to, (i) the completion of one or more Equity Offerings or other securities offerings or other financings or the completion of any transaction (or series of related transactions) that constitute a Change of Control; and (ii) any other instructions, as determined by the Corporation, that a holder of Notes must follow. If an optional redemption of the Notes is subject to satisfaction of one or more conditions precedent, such notice may state that, at the Corporation’s discretion, the redemption date may be delayed on one or more occasions either to a date specified in a subsequent notice to holders of the Notes or until such time (which date or time may be more than 60 days after the date the notice of redemption was mailed or otherwise sent) as any or all such conditions shall be satisfied or waived, and that such redemption will not occur and such notice will be rescinded if any or all such conditions shall not have been satisfied as and when required (as determined by the Corporation in its sole discretion taking into account any election by the Corporation to delay such redemption date), unless the Corporation has waived any such conditions that are not satisfied, or at any time if in the good faith judgment of the Corporation any or all of such conditions will not be satisfied. In addition, such notice will state that no representation is made as to the correctness or accuracy of the CUSIP, ISIN or similar number, if any, listed in such notice or printed on the Notes.

If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the holder of Notes upon cancellation of the original Note.

The Indenture

The Notes will be issued under the Indenture. The Indenture is subject to, and governed by, the U.S. Trust Indenture Act of 1939, as amended. Whenever there are references to particular provisions of the Indenture, those provisions are qualified in their entirety by reference to the Indenture. References in parentheses are to section numbers of the Indenture. All capitalized terms used under this heading “The Indenture” that are not defined herein have the meanings ascribed thereto in the Indenture.

 

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Events of Default

The following events are defined in the Indenture as “Events of Default” with respect to debt securities of any series: (a) the failure of the Corporation to pay when due the principal of or premium (if any) on the Notes; (b) the failure of the Corporation, continuing for 30 days, to pay any interest due on the Notes; (c) the breach or violation of any covenant or condition (other than as referred to in (a) and (b) above), which continues for a period of 60 days after notice from the Trustee or from holders of at least 25% in principal amount of all outstanding Notes of any series affected thereby; (d) the failure of the Corporation or any Subsidiary to pay when due (after giving effect to any applicable grace periods) any amount owing in respect of any Indebtedness other than Non-Recourse Debt, or the Corporation or any Subsidiary otherwise defaults in the performance or observance of any other covenant, term, agreement or condition in connection with such Indebtedness, and if such Indebtedness has not matured it shall have been accelerated prior to the date on which the same would otherwise have become due and payable, provided that the aggregate principal amount of such Indebtedness is in excess of the greater of US$75 million and 3% of Consolidated Shareholders’ Equity (provided that if such default is waived by the persons entitled to do so, then the Event of Default in this clause (d) will be deemed to be waived without further action on the part of the Trustee or the holders of the Notes); (e) the entry of certain judgments or decrees against the Corporation or any Material Subsidiary for the payment of money in excess of the greater of US$75 million and 3% of Consolidated Shareholders’ Equity, in the aggregate, if the Corporation or any such Material Subsidiary, as the case may be, fails to pay such decree or judgment within 60 days or file an appeal thereof within 60 days or, if the Corporation or such Material Subsidiary, as the case may be does file an appeal, that judgment or decree continues undischarged or unstayed as provided in the Indenture; or (f) certain events of bankruptcy, insolvency or reorganization involving the Corporation or a Material Subsidiary.

Mergers, Consolidations, Amalgamations and Sale of Assets

The Corporation will not enter into any transaction whereby all or substantially all of its undertaking, property and assets would become the property of any other person (the “Successor”), whether by reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale, or otherwise, unless:

 

(a)

the Successor expressly assumes all of the covenants and obligations of the Corporation under the Indenture and the transaction otherwise meets all of the requirements of the Indenture;

 

(b)

the entity formed by or continuing from such consolidation or amalgamation or into which the Corporation is merged or with which the Corporation enters into such arrangement or the person which acquires or leases all or substantially all of the Corporation’s properties and assets is organized and existing under the laws of the United States, any state thereof or the District of Columbia or the laws of Canada or any province thereof;

 

(c)

immediately before and after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and

 

(d)

no condition or event will exist as to the Corporation (at the time of such transaction) or the Successor (immediately after such transaction) and after giving full effect thereto or immediately after the Successor will become liable to pay the principal monies, premium, if any, interest and other monies due or which may become due hereunder, which constitutes or would constitute an Event of Default under the Indenture.

In addition to the above conditions, such transaction will substantially preserve and not impair any of the rights and powers of the Trustee or of the holders of Notes (Section 8.1).

 

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Covenants

The Indenture covenants substantially to the following effect:

Restriction on Sales and Leasebacks

The Corporation will not, and will not permit any Subsidiary to, enter into any sale and leaseback transaction unless the Corporation and its Subsidiaries comply with this restrictive covenant. A “sale and leaseback transaction” is an arrangement between the Corporation or any Subsidiary and a bank, insurance company or other lender or investor where the Corporation or any Subsidiary lease real or personal property which was or will be sold by the Corporation or any Subsidiary to that lender or investor. The Corporation can comply with this restrictive covenant if it meets either of the following conditions:

 

(a)

the sale and leaseback transaction is entered into prior to, concurrently with or within 270 days after the acquisition, the completion of construction (including any improvements on an existing property) or the commencement of commercial operations of the property; or

 

(b)

the Corporation or its Subsidiaries could otherwise grant a Security Interest on the property as permitted by the provisions of the covenant (described under the heading “—Negative Pledge” in the accompanying Prospectus) (Section 10.10).

Negative Pledge

So long as any Notes remain outstanding the Corporation and its Subsidiaries will not create, assume or otherwise have outstanding any Security Interest, except for Permitted Encumbrances, on or over its or their respective assets (present or future) in respect of any Indebtedness of any person unless, in the opinion of legal counsel to the Corporation, the obligations of the Corporation in respect of all Notes then outstanding shall be secured equally and rateably therewith (Section 10.12).

“Attributable Amount” means with respect to any sale and leaseback transaction (as defined herein under the heading “Covenants—Restriction on Sales and Leasebacks” below), as at the time of determination, the present value (discounted at the rate of interest set forth or implicit in the terms of such lease, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such sale and leaseback transaction.

“Consolidated Net Tangible Assets” means all consolidated assets of the Corporation as shown on the most recent audited consolidated balance sheet of the Corporation, less the aggregate of the following amounts reflected upon such balance sheet: (i) all goodwill, deferred assets, trademarks, copyrights and other similar intangible assets; (ii) to the extent not already deducted in computing such assets and without duplication, depreciation, depletion, amortization, reserves and any other account which reflects a decrease in the value of an asset or a periodic allocation of the cost of an asset; provided that no such deduction shall be made to the extent such account reflects a decrease in the value or periodic allocation of the cost of any assets referred to in (i) above; (iii) minority interests; (iv) current liabilities; and (v) assets created, developed, constructed or acquired with or in respect of which Non-Recourse Debt has been incurred, and any and all receivables, inventory, equipment, chattel paper, intangibles and other rights or collateral arising from or connected with those assets (including the shares or other ownership interests of a single purpose entity which holds only such assets and other rights and collateral arising from or connected therewith) and to which recourse of the lender of such Non-Recourse Debt is limited to the extent of the outstanding Non-Recourse Debt financing such assets.

“Consolidated Shareholders’ Equity” means, without duplication, the aggregate amount of shareholders’ equity (including, without limitation, common share capital, preferred share capital, contributed surplus and retained earnings) of the Corporation as shown on the most recent audited consolidated balance sheet of the Corporation, adjusted by the amount by which common share capital, preferred share capital and

 

S-34

contributed surplus has been increased or decreased (as the case may be) from the date of such balance sheet to the relevant date of determination, in accordance with Generally Accepted Accounting Principles, together with the aggregate principal amount of obligations of the Corporation in respect of Preferred Securities.

“Financial Instrument Obligations” means obligations arising under:

 

(a)

any interest swap agreement, forward rate agreement, floor, cap or collar agreement, futures or options, insurance or other similar agreement or arrangement, or any combination thereof, entered into or guaranteed by the Corporation where the subject matter of the same is interest rates or the price, value, or amount payable thereunder is dependent or based upon the interest rates or fluctuations in interest rates in effect from time to time (but, for certainty, shall exclude conventional floating rate debt);

 

(b)

any currency swap agreement, cross currency agreement, forward agreement, floor, cap or collar agreement, futures or options, insurance or other similar agreement or arrangement, or any combination thereof, entered into or guaranteed by the Corporation where the subject matter of the same is currency exchange rates or the price, value or amount payable thereunder is dependent or based upon currency exchange rates or fluctuations in currency exchange rates in effect from time to time; and

 

(c)

any agreement for the making or taking of any commodity (including natural gas, oil or electricity), any commodity swap agreement, floor, cap or collar agreement or commodity future or option or other similar agreements or arrangements, or any combination thereof, entered into or guaranteed by the Corporation where the subject matter of the same is any commodity or the price, value or amount payable thereunder is dependent or based upon the price of any commodity or fluctuations in the price of any commodity;

to the extent of the net amount due or accruing due by the Corporation thereunder (determined by marking to market the same in accordance with their terms).

“Generally Accepted Accounting Principles” means generally accepted accounting principles which are in effect from time to time in Canada.

“Indebtedness” means all items of indebtedness in respect of any amounts borrowed (including obligations with respect to bankers’ acceptances and contingent reimbursement obligations relating to letters of credit and other financial instruments) and all Purchase Money Obligations which, in accordance with Generally Accepted Accounting Principles, would be recorded in the financial statements as at the date as of which Indebtedness is to be determined, and in any event including, without duplication: (i) obligations secured by any Security Interest existing on property owned subject to such Security Interest, whether or not the obligations secured thereby shall have been assumed; and (ii) guarantees, indemnities, endorsements (other than endorsements for collection in the ordinary course of business) or other contingent liabilities in respect of obligations of another person for indebtedness of that other person in respect of any amounts borrowed by them.

“Material Subsidiary” means, at any time, a Subsidiary (i) the total assets of which represent more than 10% of the total assets of the Corporation determined on a consolidated basis as shown in the most recent audited consolidated balance sheet of the Corporation; or (ii) the total revenues of which represent more than 10% of the total revenues of the Corporation determined on a consolidated basis as shown in the consolidated income statement of the Corporation for the four most recent fiscal quarters of the Corporation.

“Non-Recourse Debt” means any Indebtedness incurred to finance the creation, development, construction or acquisition of assets and any increases in or extensions, renewals or refundings of any such Indebtedness, provided that the recourse of the lender thereof or any agent, trustee, receiver or other person acting on behalf of the lender in respect of such Indebtedness in respect thereof is limited in all circumstances

 

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(other than in respect of false or misleading representations or warranties and customary indemnities provided with respect to such financings) to the assets created, developed, constructed or acquired in respect of which such Indebtedness has been incurred and to any receivables, inventory, equipment, chattel paper, intangibles and other rights or collateral arising from or connected with the assets so created, developed, constructed or acquired (including the shares or other ownership interests of a single purpose entity which holds only such assets and other rights and collateral arising from or connected therewith) and to which the lender has recourse.

“Permitted Encumbrance” means any of the following:

 

(a)

any Security Interest existing as of the date of the first issuance by the Corporation of Securities issued pursuant to the Indenture, or arising thereafter pursuant to contractual commitments entered into prior to such issuance;

 

(b)

any Security Interest created, incurred or assumed to secure any Purchase Money Obligation;

 

(c)

any Security Interest created, incurred or assumed to secure any Non-Recourse Debt;

 

(d)

any Security Interest in favor of any Wholly-Owned Subsidiary;

 

(e)

any Security Interest on property of a corporation or its Subsidiaries which Security Interest exists at the time such corporation is merged into, or amalgamated or consolidated with the Corporation or such property is otherwise, directly or indirectly acquired by the Corporation other than a Security Interest incurred in contemplation of such merger, amalgamation, consolidation or acquisition;

 

(f)

any Security Interest securing any Indebtedness to any bank or banks or other lending institution or institutions incurred in the ordinary course of business and for the purpose of carrying on the same, repayable on demand or maturing within 12 months of the date when such Indebtedness is incurred or the date of any renewal or extension thereof;

 

(g)

any Security Interest on or against cash or marketable debt securities pledged to secure Financial Instrument Obligations;

 

(h)

any Security Interest in respect of:

 

(i)

liens for taxes, duties and assessments not at the time overdue or any liens securing workmen’s compensation assessments, unemployment insurance or other social security obligations; provided however, that if any such liens, duties or assessments are then overdue the Corporation or the applicable Subsidiary thereof shall be contesting the same in good faith;

 

(ii)

any liens or rights of distress reserved in or exercisable under any lease for rent and for compliance with the terms of such lease;

 

(iii)

any obligations or duties, affecting the property of the Corporation or any Subsidiary thereof, to any municipality or governmental, statutory or other public authority, with respect to any franchise, permit, licence or grant and any defects in title to structures or other facilities arising solely from the fact that such structures or facilities are constructed or installed on lands held by the Corporation or any Subsidiary thereof, under franchises, permits, licences or other grants, from a municipality or other such authority, which obligations, duties and defects in the aggregate do not materially impair the use of such property, structures or facilities for the purpose for which they are held by the Corporation or any Subsidiary thereof;

 

(iv)

any deposits or liens in connection with contracts, bids, tenders or expropriation proceedings, surety or appeal bonds, costs of litigation when required by law, public and statutory obligations, liens or claims incidental to current construction, builders’, mechanics’, labourers’, materialmen’s, warehousemen’s, carriers’ and other similar liens;

 

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(v)

the right reserved to or vested in any municipality or governmental, statutory or other public authority by any statutory provision or by the terms of any lease, license, franchise, grant or permit, that affects any land, to terminate any such lease, license, franchise, grant or permit or to require annual or other periodic payments as a condition to the continuance thereof;

 

(vi)

any undetermined or inchoate liens and charges incidental to the current operations of the Corporation or any Subsidiary thereof that have not at the time been filed against the Corporation; provided however, that if any such lien or charge shall have been filed, the Corporation or the applicable Subsidiary thereof shall be contesting the same in good faith;

 

(vii)

any Security Interest the validity of which is being contested at the time by the Corporation or the applicable Subsidiary thereof in good faith or payment of which has been provided for by deposit with the Trustee or another trustee of debt securities issued by the Corporation or the applicable Subsidiary thereof of an amount in cash sufficient to pay the same in full;

 

(viii)

any easements, rights-of-way and servitudes (including, without in any way limiting the generality of the foregoing, easements, rights-of-way and servitudes for railways, sewers, dykes, drains, gas and water mains or electric light and power or telephone and telegraph conduits, poles, wires and cables) that, in the opinion of the Corporation, will not in the aggregate materially and adversely impair the use or value of the land concerned for the purpose for which it is held by the Corporation or any Subsidiary thereof;

 

(ix)

any security to a public utility or any municipality or governmental, statutory or other public authority when required by such utility, municipality or other such authority in connection with the operations of the Corporation or any Subsidiary thereof;

 

(x)

any liens and privileges arising out of judgments or awards with respect to which the Corporation or the applicable Subsidiary thereof shall be prosecuting an appeal or proceedings for review and with respect to which it shall have secured a stay of execution pending such appeal or proceedings for review; and

 

(xi)

any other liens of a nature similar to the foregoing which do not in the opinion of the Corporation materially impair the use of the property subject thereto or the operation of the business of the Corporation or the applicable Subsidiary thereof or the value of such property for the purpose of such business;

 

(i)

any extension, renewal, alteration or replacement (or successive extensions, renewals, alterations or replacements) in whole or in part, of any Security Interest referred to in the foregoing clauses (a) through (h) inclusive, provided the extension, renewal, alteration or replacement of such Security Interest is limited to all or any part of the same property that secured the Security Interest extended, renewed, altered or replaced (plus improvements on such property) and the principal amount of the Indebtedness secured thereby is not increased; and

 

(j)

any other Security Interest if the aggregate amount of Indebtedness secured pursuant to this clause (j) (together with the Attributable Amount of any sale and leaseback transaction) does not exceed 20% of Consolidated Net Tangible Assets.

“Preferred Securities” means securities which on the date of issue thereof by a Person: (i) have a term to maturity of more than 30 years; (ii) rank subordinate to the unsecured and unsubordinated Indebtedness of such person outstanding on such date; (iii) entitle such person to defer the payment of interest thereon for more than four years without thereby causing an event of default in respect of such securities to occur; and (iv) entitle such person to satisfy the obligation to make payments of deferred interest thereon from the proceeds of the issuance of its shares.

“Purchase Money Obligation” means any monetary obligation created or assumed as part of the purchase price of real or tangible personal property, whether or not secured, any extensions, renewals, alterations

 

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or replacements of any such obligation, provided that the principal amount of such obligation outstanding on the date of such extension, renewal, alteration or replacement is not increased and further provided that any security given in respect of such obligation shall not extend to any property other than the property acquired in connection with which such obligation was created or assumed and fixed improvements, if any, erected or constructed thereon.

“Security Interest” means any mortgage, charge, pledge, lien, encumbrance, assignment by way of security, title retention agreement or other security interest whatsoever, howsoever created or arising, whether absolute or contingent, fixed or floating, perfected or not, which secures payment or performance of an obligation.

“Subsidiary” means, in relation to a Person (i) any corporation of which at least a majority of the outstanding shares having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of any other class or classes of such corporation might have voting power by reason of the happening of any contingency, unless the contingency has occurred and then only for as long as it continues) is at the time directly, indirectly or beneficially owned or controlled by the person or one or more of its Subsidiaries, or the person and one or more of its Subsidiaries; (ii) any partnership of which the person or one or more of its Subsidiaries, or the person and one or more of its Subsidiaries: (i) directly, indirectly or beneficially own or control more than 50% of the income, capital, beneficial or ownership interests (however designated) thereof; and (ii) is a general partner, in the case of a limited partnership, or is a partner that has authority to bind the partnership, in all other cases; or (iii) any other person of which at least a majority of the income, capital, beneficial or ownership interests (however designated) are at the time directly, indirectly or beneficially owned or controlled by the first mentioned person or one or more of its Subsidiaries, or the first mentioned person and one or more of its Subsidiaries.

“Wholly-Owned Subsidiary” means any Subsidiary that the Corporation directly or indirectly beneficially owns 100% of the outstanding shares having by the terms thereof ordinary voting power to elect a majority of the board of directors of such Subsidiary or owns, directly or indirectly, 100% of the income, capital, beneficial or ownership interests (however designated) thereof.

Book-Entry System

DTC, New York, New York, will act as Notes depository for the Notes. The Notes will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Notes, in the aggregate principal amount of the issue, and will be deposited with DTC.

DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the U.S. Exchange Act. DTC holds and provides asset servicing for issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial

 

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relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The DTC Rules applicable to its Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on DTC’s records. The ownership interest of each actual purchaser of each Note (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Notes, except in the event that use of the book-entry system for the Notes is discontinued.

To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Notes with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Notes; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, tenders, defaults, and proposed amendments to the Notes. For example, Beneficial Owners of Notes may wish to ascertain that the nominee holding the Notes for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Notes unless authorized by a Direct Participant in accordance with DTC’s Money Market Instrument procedures. Under its usual procedures, DTC mails an “Omnibus Proxy” to the Corporation as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments on the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Corporation or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Notes held for the accounts of customers in bearer form or registered in “street name”, and will be the responsibility of such Participant and not of DTC, the Trustee, or the Corporation, subject to any statutory or regulatory requirements as may be in effect from time to time. Any payment due to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the Corporation’s responsibility or the responsibility of the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct Participants and Indirect Participants.

 

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DTC may discontinue providing its services as depository with respect to the Notes at any time by giving reasonable notice to the Corporation or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, certificates for the Notes are required to be printed and delivered.

The Corporation may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor Notes depository). In that event, certificates will be printed and delivered to DTC.

The information in this section covering DTC and DTC’s system has been obtained from sources that the Corporation believes to be reliable, but the Corporation takes no responsibility for the accuracy thereof. The information in this section is subject to any changes to the arrangements between the Corporation and DTC and any changes to these procedures that may be instituted unilaterally by DTC.

 

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EARNINGS COVERAGE

The following coverage ratios have been prepared in accordance with Canadian securities law requirements and are included in this Prospectus Supplement in accordance with Canadian disclosure requirements.

The following table sets forth our earnings coverage ratios calculated for the twelve-month period ended December 31, 2021 and the twelve-month period ended September 30, 2022. Such earnings coverage ratios do not give effect to the issuance of any Notes offered by this Prospectus Supplement since the aggregate principal amount of Notes that will be issued hereunder and the terms of issue are not presently known and do not give effect to events subsequent to September 30, 2022.

 

		Twelve month period ended
		December 31, 2021				September 30, 2022
Earnings coverage on long-term debt(1)			(0.87	)x(2)			1.81x

 

(1)

Earnings coverage on long-term debt on a net earnings basis is equal to net earnings before interest expense and income taxes, divided by interest expense including capitalized interest and interest income. For purposes of calculating the earnings coverage ratios set forth herein, long-term debt includes the current portion of long-term debt and does not include any amounts with respect to Notes that may be issued under this Prospectus Supplement.

(2)	The Corporation would have required additional earnings of $506 million for the twelve months ended December 31, 2021 in order to achieve an earnings coverage ratio of one-to-one for such period.

The pro forma earnings coverage ratio for the twelve month period ended December 31, 2021 and the twelve month period ended September 30, 2022, giving effect to this offering and the application of the net proceeds from the sale of the Notes, including any interest savings in connection with the use of proceeds of this offering (assuming this offering took place on the first date of the respective twelve month period), would have been x and x, respectively.

The earnings coverage ratios set forth above do not purport to be indicative of earnings coverage ratios for any future periods. The earnings coverage ratios have been calculated based on information prepared in accordance with IFRS.

We evaluate our performance using a variety of measures. Earnings coverage discussed above is not defined under IFRS and, therefore, should not be considered in isolation or as an alternative to, or more meaningful than, net earnings as determined in accordance with IFRS as an indicator of our financial performance or liquidity. This measure is not necessarily comparable to a similarly titled measure of another company. Net earnings has been calculated on a consistent basis for the twelve month period ended December 31, 2021 and the twelve month period ended September 30, 2022.

 

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CERTAIN INCOME TAX CONSIDERATIONS

The following summary is of a general nature only and is not intended to be, and should not be construed to be, legal or tax advice to any prospective investor and no representation with respect to the tax consequences to any particular investor is made. Accordingly, prospective investors should consult with their own tax advisors for advice with respect to the income tax consequences to them having regard to their own particular circumstances, including any consequences of an investment in the Notes arising under state, provincial or local tax laws in the United States or Canada or tax laws of jurisdictions outside the United States or Canada.

Certain Canadian Federal Income Tax Considerations

In the opinion of Norton Rose Fulbright Canada LLP, counsel to the Corporation, and Blake, Cassels & Graydon LLP, counsel to the underwriters, the following summary, as of the date hereof, describes the principal Canadian federal income tax considerations generally applicable to a prospective purchaser of Notes pursuant to this Prospectus Supplement and the accompanying Prospectus who, at all relevant times, for purposes of the Income Tax Act (Canada) (the “Tax Act”) and any applicable tax treaty: (i) is neither resident nor deemed to be resident in Canada; (ii) deals at arm’s length with, and is not affiliated with, us and with any transferee who is resident in Canada (or deemed to be resident in Canada) for purposes of the Tax Act and to whom the purchaser assigns or otherwise transfers a Note; (iii) does not use or hold and is not deemed to use or hold a Note in carrying on business in Canada; (iv) is not an insurer who carries on an insurance business, or is deemed to carry on an insurance business, in Canada and elsewhere, (v) is entitled to receive all payments (including principal, interest and premium, if any) in respect of a Note; and (vi) is not a “specified shareholder” of us within the meaning of subsection 18(5) of the Tax Act or a person that does not deal at arm’s length with any such specified shareholder (each such purchaser is referred to herein as a “Non-Resident Holder”).

This summary is based on the current provisions of the Tax Act, the regulations thereunder (the “Regulations”) and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) published in writing, publicly available and in effect as of the date hereof. This summary also takes into account all specific proposals to amend the Tax Act and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date of this Prospectus Supplement (the “Proposed Amendments”) and assumes that all Proposed Amendments will be enacted in the form proposed. No assurance can be given that the Proposed Amendments will be enacted in the form proposed, or at all. Other than the Proposed Amendments, this summary does not anticipate any changes in law or CRA administrative policies or assessing practices, whether by legislative, governmental or judicial action or interpretation, nor does it take into account provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein.

This summary does not address the possible application of the “hybrid mismatch arrangement” rules included in Proposed Amendments released on April 29, 2022 to a Non-Resident Holder (i) that disposes of a Note to a person or entity with which it does not deal at arm’s length or to an entity that is a “specified entity” (as defined in such Proposed Amendments) with respect to the Non-Resident Holder or in respect of which the Non-Resident Holder is a “specified entity”, (ii) that disposes of a Note under, or in connection with, a “structured arrangement” (as defined in such Proposed Amendments), or (iii) in respect of which we are a “specified entity”. Such Non-Resident Holders should consult their own tax advisors.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular purchaser and no representations with respect to the income tax consequences to any particular purchaser are made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, prospective purchasers of Notes should consult their own tax advisors with respect to their own particular circumstances.

 

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No Canadian withholding tax will apply to amounts paid or credited, or deemed to be paid or credited, by us to a Non-Resident Holder as, on account or in lieu of payment of, or in satisfaction of, interest, principal, premium, bonus or penalty on the Notes. No other Canadian taxes on income or capital gains will be payable under the Tax Act by a Non-Resident Holder in respect of the acquisition, holding, redemption or disposition of a Note by a Non-Resident Holder, or the receipt of interest, principal or premium thereon by a Non-Resident Holder solely as a consequence of such acquisition, holding, redemption or disposition of a Note.

Certain U.S. Federal Income Tax Considerations

The following is a summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of a Note by an initial purchaser thereof who is a U.S. Holder (as hereinafter defined) who purchases the Note for cash at its “issue price” (the first price at which a substantial amount of the Notes is sold for cash, excluding sales to bond houses, brokers, or similar persons acting in the capacity of underwriters, placement agents or wholesalers) and who will hold the Note as a “capital asset” within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). This summary is intended for general information only and does not address all potentially relevant U.S. federal income tax matters.

This summary does not address the tax consequences to U.S. Holders subject to special provisions of the Code including, without limitation: banks; financial institutions; thrifts; tax-exempt organizations; insurance companies; regulated investment companies or real estate investment trusts; holders subject to the alternative minimum tax; certain former citizens or residents of the United States; dealers in securities or foreign currencies that elect to use a mark-to-market method of accounting; traders that mark-to-market their securities; qualified retirement plans; individual retirement accounts or other tax-deferred accounts; holders holding Notes as part of a “hedge”, “straddle”, “conversion transaction” or other integrated transaction; investors in pass-through entities that hold the Notes; and persons required for U.S. federal income tax purposes to conform the timing of income accruals with respect to their Notes to their financial statements under Section 451 of the Code and holders with a “functional currency” other than the U.S. dollar. This summary also does not cover any state, local or non-U.S. tax consequences. This summary is based upon existing provisions of the Code, final and temporary regulations promulgated thereunder (“U.S. Treasury Regulations”), and rulings and judicial decisions in effect on the date hereof, all of which are subject to change (possibly with retroactive effect) and differing interpretations, so as to result in U.S. federal income tax consequences different from those described herein. This discussion is not binding on the U.S. Internal Revenue Service (the “IRS”) and we have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance that the IRS will not take positions that are different from those discussed below or that a U.S. court will not sustain such a challenge.

As used herein, the term “U.S. Holder” means a beneficial owner of a Note that is (i) an individual who is a citizen or resident of the United States as determined for U.S. federal income tax purposes, (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source, or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or if the trust has made a valid election to be treated as a United States person.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Notes, the U.S. federal income tax treatment of a partner in the partnership will depend on the status of the partner and the activities of the partnership. Partners in partnerships (or other entities or arrangements treated as partnerships for U.S. federal income tax purposes) holding Notes should consult their tax advisors regarding the tax consequences of the acquisition, ownership or disposition of the Notes.

 

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Effect of Certain Contingencies

In certain circumstances we may be obligated to pay amounts in excess of stated interest or principal on the Notes (see, for example, “Description of Debt Securities —Payment of Additional Amounts” in the accompanying Prospectus and “Description of Notes—Optional Redemption” and “Description of Notes—Repurchase Upon Change of Control Triggering Event” in this Prospectus Supplement). Under the applicable U.S. Treasury Regulations, such excess amounts should not cause the Notes to be subject to special rules applicable to contingent payment debt instruments if, based on all the facts and circumstances as of the date on which the Notes are issued, there is only a remote likelihood that any contingencies causing the payment of such excess amounts will occur, or if such excess amounts, in the aggregate, are considered incidental. We believe that the possibility of paying excess amounts is remote and/or that such amounts are incidental. Accordingly, we do not intend to treat the Notes as contingent payment debt instruments. Our position will be binding on a U.S. Holder unless such holder timely and explicitly discloses its contrary position in the manner required by applicable U.S. Treasury Regulations. Our position, however, is not binding on the IRS. If the IRS successfully challenges this position, the timing and amount of income included and the character of the income recognized with respect to the Notes may be materially and adversely different from the consequences discussed herein. U.S. Holders should consult their own tax advisors regarding this issue. The remainder of this discussion assumes that the Notes will not be treated as contingent payment debt instruments.

Payments of Interest

Interest (including additional amounts and any taxes withheld on payments of interest, if any) on the Notes will generally be taxable to a U.S. Holder as ordinary income at the time received or accrued, in accordance with such holder’s method of accounting for U.S. federal income tax purposes. Such interest will constitute income from sources outside the United States for U.S. foreign tax credit limitation purposes. The rules governing U.S. foreign tax credits are complex. Prospective purchasers of Notes should consult their tax advisors regarding the availability of U.S. foreign tax credits in their particular circumstances.

Original Issue Discount

If the stated redemption price at maturity of a Note exceeds its issue price by more than a de minimis amount, a U.S. Holder will be required to treat such excess amount as original issue discount (“OID”), which is treated for U.S. federal income tax purposes as accruing over the term of the Note as interest income to such U.S. Holder in accordance with a constant yield method based on a compounding of interest before the receipt of cash payments attributable to this income. A U.S. Holder’s adjusted tax basis in a Note would be increased by the amount of any OID included in gross income. In compliance with U.S. Treasury Regulations, if we determine that the Notes are issued with OID, we will provide certain information to the IRS and/or U.S. Holders, as applicable, that is relevant to determining the amount of OID in each accrual period.

Sale, Exchange, Retirement or Redemption of Notes

Upon the sale, exchange, retirement, redemption or other taxable disposition of a Note, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount realized on such sale, exchange, retirement, redemption or other taxable disposition of the Notes (other than amounts received that are attributable to accrued but unpaid interest, which amounts will be taxable as ordinary income to the extent not previously included in income) and such U.S. Holder’s adjusted tax basis in the Note, which generally is its cost. Such gain or loss generally will constitute capital gain or loss and will be long-term capital gain or loss if the Note was held by such U.S. Holder for more than one year. Net long-term capital gain of non-corporate U.S. Holders, including individuals, is generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Gain or loss recognized by a U.S. Holder generally will be treated as U.S. source income or loss for foreign tax credit purposes. Prospective investors should consult their own tax advisors as to the foreign tax credit implications of such sale, exchange or other disposition of a Note.

 

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Additional Tax on Investment Income

Certain U.S. Holders who are individuals, estates or trusts and whose income exceeds certain thresholds generally will be required to pay an additional 3.8 percent tax on all or a portion of their “net investment income,” which includes, among other things, interest income and capital gains from the sale or other disposition of a Note, subject to certain limitations and exceptions. U.S. Holders should consult their own tax advisors regarding the application of this additional tax to their investment in the Notes.

Information Reporting and Backup Withholding

In general, payments of interest and principal on and the proceeds from sales of Notes held by a U.S. Holder will be required to be reported to the IRS unless the U.S. Holder is a corporation or other exempt recipient and, when required, demonstrates this fact. In addition, a U.S. Holder that is not an exempt recipient may be subject to backup withholding of U.S. federal income tax on such payments unless it provides a taxpayer identification number and otherwise complies with applicable certification requirements. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder generally will be allowed as a credit against such U.S. Holder’s U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the required information is furnished to the IRS in a timely manner. Holders should consult their tax advisors regarding the application of backup withholding, the availability of an exemption from backup withholding and the procedure for obtaining such an exemption, if available.

Information with Respect to Foreign Financial Assets

Individuals that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information report (on IRS Form 8938) with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by certain financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non U.S. issuers or counterparties, and (iii) interests in foreign entities. The Notes may be subject to these rules. Under certain circumstances, U.S. entities that hold specified foreign financial assets may also be subject to these rules. A U.S. Holder that does not file a required IRS Form 8938 may be subject to substantial penalties, and the statute of limitations on the assessment and collection of all U.S. federal income taxes of such holder for the related tax year may not close before the date which is three years after the date on which such report is filed. U.S. Holders are urged to consult their tax advisors regarding the application of this legislation to their ownership of the Notes.

FATCA

No additional amounts will be required to be paid on account of, and payments on the Notes will be paid net of, any deduction or withholding imposed under Sections 1471 through 1474 of the Code (provisions commonly known as “FATCA”) or any current or future regulations issued thereunder, any intergovernmental agreement entered into with respect to FATCA or similar law or regulation adopted pursuant to an intergovernmental agreement between a non-U.S. jurisdiction and the United States with respect to the foregoing or any agreements entered into pursuant to Section 1471(b)(1) of the Code.

THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A PROSPECTIVE PURCHASER’S PARTICULAR SITUATION. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. OR OTHER TAX LAWS.

 

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UNDERWRITING (CONFLICTS OF INTEREST)

We intend to offer the Notes through the underwriters named below for whom RBC Capital Markets, LLC (the “Representative”) is acting as representative. Subject to the terms and conditions contained in the underwriting agreement dated the date of this Prospectus Supplement, each underwriter has severally agreed to purchase, and we have agreed to sell to such underwriter, the principal amount of Notes set forth opposite the underwriter’s name.

 

Underwriter		Principal Amounts of Notes
RBC Capital Markets, LLC		US$
CIBC World Markets Corp.		US$
BofA Securities, Inc.		US$
Scotia Capital (USA) Inc.		US$
BMO Capital Markets Corp.		US$
TD Securities (USA) LLC		US$
National Bank of Canada Financial Inc.		US$
MUFG Securities Americas Inc.		US$
Desjardins Securities Inc.		US$
ATB Capital Markets Inc.		US$
Mizuho Securities USA LLC		US$
Loop Capital Markets LLC		US$
Total		US$

In the underwriting agreement, the underwriters have severally agreed, subject to the terms and conditions set forth therein, to purchase all the Notes offered under this Prospectus Supplement if any of the Notes are purchased. In the event of default by an underwriter, the underwriting agreement provides that, in certain circumstances, purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated. The obligations of the underwriters under the underwriting agreement may also be terminated upon the occurrence of certain stated events specified in the underwriting agreement including “regulatory out”, “litigation out”, “disaster out” and “material change out” provisions.

The underwriting agreement provides that the obligations of the underwriters to purchase the Notes included in this offering are subject to approval of legal matters by counsel and to other conditions.

The underwriters propose to offer the Notes directly to the public at the public offering price set forth on the cover page of this Prospectus Supplement and to dealers at the public offering price, less a concession not to exceed            % of the principal amount of the Notes. The underwriters may allow, and dealers may re-allow a concession not to exceed                % of the principal amount of the Notes on sales to other dealers. After the initial offering of the Notes to the public, the Representative may change the public offering price and concessions.

The following table shows the underwriting commission that we will pay to the underwriters in connection with this offering (expressed as a percentage of the principal amount of the Notes).

 

		Paid by TransAlta
Per Note				%

In connection with this offering, the Representative may purchase and sell Notes in the open market. These transactions may include over-allotment, syndicate covering transactions and stabilizing transactions. Over-allotment involves syndicate sales of the Notes in excess of the principal amount of the Notes to be purchased by the underwriters in this offering, which creates a syndicate short position. Syndicate covering

 

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transactions involve purchases of the Notes in the open market after the distribution has been completed in order to cover syndicate short positions. Stabilizing transactions consist of certain bids or purchases of the Notes made for the purpose of preventing or retarding a decline in the market price of the Notes while this offering is in progress.

The underwriters may also impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the Representative, in covering syndicate short positions or making stabilizing purchases, repurchases Notes originally sold by that syndicate member.

As a result of these activities, the market price of the Notes offered under this Prospectus Supplement may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time without notice. The underwriters may carry out these transactions in the over-the-counter market or otherwise. Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes.

We estimate that our total expenses for this offering will be approximately US$            (not including underwriting commissions).

Certain of the underwriters and their respective affiliates have in the past performed, and may in the future perform, various financial advisory, investment banking and commercial lending service for us and our affiliates in the ordinary course of business, for which they have received and will receive customary fees and commissions.

Certain of the underwriters or their respective affiliates are lenders under our credit facilities. Such underwriters or their affiliates may receive a portion of the net proceeds from this offering in connection with the repayment of indebtedness. See “Use of Proceeds.” In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the underwriters or their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the Notes offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the Notes offered hereby. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the U.S. Securities Act, or to contribute to payments the underwriters may be required to make because of any such liabilities.

The Notes will not be qualified for sale under the securities laws of Canada or any province or territory of Canada (other than the Province of Alberta) and may not be, directly or indirectly, offered, sold or delivered in Canada or to residents of Canada in contravention of the securities laws of any province or territory of Canada. Each underwriter has agreed that it will not, directly or indirectly, offer, sell or deliver any Notes purchased by it in Canada or to residents of Canada.

 

S-47

Conflicts of Interest

Affiliates of RBC Capital Markets, LLC, an underwriter in this offering, beneficially own in excess of 10% of our issued and outstanding common stock. Accordingly RBC Capital Markets, LLC is deemed to have a “conflict of interest” under FINRA Rule 5121. As a result , this offering is being made in compliance with the requirements of Rule 5121, which requires, among other things, that a “qualified independent underwriter” participate in the preparation of, and exercise the usual standards of “due diligence” with respect to, the registration statement and this Prospectus Supplement. BofA Securities, Inc. has agreed to act as a qualified independent underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the U.S. Securities Act, specifically including those inherent in Section 11 thereof. BofA Securities, Inc. will not receive any additional fees for serving as a qualified independent underwriter in connection with this offering. We have agreed to indemnify BofA Securities, Inc. against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act. Pursuant to Rule 5121, RBC Capital Markets, LLC will not confirm any sales to any account over which it exercises discretionary authority without the specific written approval of the account holder.

Settlement

We expect that delivery of the Notes will be made to investors on or about                , 2022, which will be the business day following the date of this Prospectus Supplement (such settlement being referred to as “T+                ”). Under Rule 15c6-1 under the U.S. Exchange Act, trades in the secondary market are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes prior to the delivery of the Notes hereunder may be required, by virtue of the fact that the Notes initially settle in T+                , to specify an alternate settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of Notes who wish to trade Notes prior to their date of delivery hereunder should consult their advisors.

No Sales of Similar Securities

We have agreed that we will not, for a period of 90 days after the date of this Prospectus Supplement, without first obtaining the prior written consent of the Representative, offer, sell, or contract to sell, directly or indirectly, any debt securities issued or guaranteed by us, except for the Notes sold to the underwriters pursuant to the underwriting agreement.

Offering Restrictions

The Notes are offered for sale in those jurisdictions in the United States where it is lawful to make such offers. No action has been taken, or will be taken, which would permit a public offering of the Notes in any jurisdiction outside the United States.

Each of the underwriters has severally represented and agreed that it has not offered, sold or delivered and it will not offer, sell or deliver, directly or indirectly, any of the Notes, in or from any jurisdiction except under circumstances that are reasonably designed to result in compliance with the applicable laws and regulations thereof.

This prospectus supplement does not constitute an offer of the Notes, directly or indirectly, in Canada or to residents of Canada. Each underwriter, severally and not jointly, has represented and agreed that it will not, directly or indirectly, offer, sell or deliver, any of the Notes purchased by it to any resident of Canada without the consent of TransAlta and that any sub-underwriting, banking group or selling group agreement or similar arrangement with respect to the Notes that may be entered into by such underwriter in connection with the offering of the Notes will require each other party thereto to make an agreement to the same effect.

 

S-48

Notice to Prospective Investors in the United States of America

The Notes may not be acquired or held by any person who is an employee benefit plan or other plan or arrangement subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or Section 4975 of the Code, or who is acting on behalf of or investing the assets of any such plan or arrangement, unless the acquisition and holding of the Notes by such person will not result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.

 

S-49

LEGAL MATTERS

Certain legal matters relating to Canadian law in connection with the offering of the Notes will be passed upon on behalf of the Corporation by Norton Rose Fulbright Canada LLP, Calgary, Alberta and on behalf of the underwriters by Blake, Cassels & Graydon LLP. Certain legal matters relating to United States law in connection with the offering of the Notes will be passed upon on behalf of the Corporation by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York and on behalf of the underwriters by Latham & Watkins LLP, Houston, Texas.

The partners and associates of Norton Rose Fulbright Canada LLP, as a group, and Blake, Cassels & Graydon LLP, as a group, beneficially own, directly or indirectly, less than 1% of any class of securities of the Corporation.

EXPERTS

The consolidated financial statements of the Corporation, included in this prospectus from the TransAlta Corporation Annual Report, and the effectiveness of the Corporations’ internal control over financial reporting, have been audited by Ernst & Young LLP, an independent registered public accounting firm, as set forth in their reports thereon, included therein, and included herein. Such consolidated financial statements have been included herein in reliance upon the reports of such firm given on their authority as experts in accounting and auditing.

In connection with the audit of our Annual Financial Statements, Ernst & Young LLP is independent with respect to TransAlta Corporation in accordance with the Rules of Professional Conduct of the Chartered Professional Accountants of Alberta and in compliance with Rule 3520 of the Public Company Accounting Oversight Board (United States).

 

S-50

EXHIBIT “A” – ANNUAL AUDITED FINANCIAL STATEMENTS AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

See attached.

 

SA-1

Consolidated Financial Statements

Management’s Report

To the Shareholders of TransAlta Corporation

The Consolidated Financial Statements and other financial information included in this annual report have been prepared by management. It is management’s responsibility to ensure that sound judgment, appropriate accounting principles and methods, and reasonable estimates have been used to prepare this information. They also ensure that all information presented is consistent.

Management is also responsible for establishing and maintaining internal controls and procedures over the financial reporting process. The internal control system includes an internal audit function and an established business conduct policy that applies to all employees. In addition, TransAlta Corporation (“TransAlta”) has a code of conduct that applies to all employees and is signed annually. The code of conduct can be viewed on TransAlta’s website (www.transalta.com). Management believes the system of internal controls, review procedures and established policies provides reasonable assurance as to the reliability and relevance of financial reports. Management also believes that TransAlta’s operations are conducted in conformity with the law and with a high standard of business conduct.

The Board of Directors (the “Board”) is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal controls. The Board carries out its responsibilities principally through its Audit, Finance and Risk Committee (the “Committee”). The Committee, which consists solely of independent directors, reviews the financial statements and annual report and recommends them to the Board for approval. The Committee meets with management, internal auditors and external auditors to discuss internal controls, auditing matters and financial reporting issues. Internal and external auditors have full and unrestricted access to the Committee. The Committee also recommends the firm of external auditors to be appointed by the shareholders.

 

/s/ John Kousinioris		/s/ Todd Stack
John Kousinioris		Todd Stack
President and Chief Executive Officer		Executive Vice Precident, Finance and Chief Financial Officer

February 23, 2022

 

SA-2

Consolidated Financial Statements

 

Management’s Annual Report on Internal Control Over Financial Reporting

To the Shareholders of TransAlta Corporation

The following report is provided by management in respect of TransAlta Corporation’s (‘TransAlta”) internal control over financial reporting (as defined in Rules 13a-15f and 15d-15f under the United States Securities Exchange Act of 1934 and National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings).

TransAlta’s management is responsible for establishing and maintaining adequate internal control over financial reporting for TransAlta.

Management has used the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) 2013 framework to evaluate the effectiveness of TransAlta’s internal control over financial reporting. Management believes that the COSO 2013 framework is a suitable framework for its evaluation of TransAlta’s internal control over financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of TransAlta’s internal controls, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of TransAlta’s internal controls are not omitted, and is relevant to an evaluation of internal control over financial reporting.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper overrides. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design safeguards into the process to reduce, though not eliminate, this risk.

In accordance with the provisions of NI 52-109 and consistent with U.S. Securities and Exchange Commission guidance, the scope of the evaluation did not include internal controls over financial reporting of North Carolina Solar, which the Company acquired on Nov. 5, 2021. North Carolina Solar was excluded from management’s evaluation of the effectiveness of the Company’s internal control over financial reporting as at Dec. 31, 2021, due to the proximity of the acquisition to year-end. Further details related to the acquisition are disclosed in Note 4 to the Company’s Consolidated Financial Statements for the year ended Dec. 31, 2021. Included in the 2021 Consolidated Financial Statements of TransAlta for North Carolina Solar is 2 per cent and 5 per cent of the Company’s total and net assets, respectively, as at Dec. 31, 2021.

TransAlta proportionately consolidates the joint operations of the Sheerness Generating Station and equity accounts for our investment in SP Skookumchuck Investment, LLC in accordance with International Financial Reporting Standards. Management does not have the contractual ability to assess the internal controls of these joint arrangements and associates. Once the financial information is obtained from these joint arrangements and associates it falls within the scope of TransAlta’s internal controls framework. Management’s conclusion regarding the effectiveness of internal controls does not extend to the internal controls at the transactional level of these joint arrangements and associates.

Included in the 2021 Consolidated Financial Statements of TransAlta for joint operations and equity accounted investments are 4 per cent and 10 per cent of the Company’s total and net assets, respectively, as of Dec. 31, 2021, and 8 per cent of the Company’s revenues for the year then ended.

 

SA-3

Consolidated Financial Statements

 

Changes in Internal Controls over Financial Reporting

The Company’s internal controls over financial reporting commencing Nov. 5, 2021, include controls designed to result in complete and accurate consolidation of North Carolina Solar’s results. Other than the North Carolina Solar acquisition, there has been no change in the Company’s internal control over financial reporting that occurred during the year covered by this Annual Report that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management has assessed the effectiveness of TransAlta’s internal control over financial reporting, as at Dec. 31, 2021, and has concluded that such internal control over financial reporting is effective.

Ernst & Young LLP, who has audited the consolidated financial statements of TransAlta for the year ended Dec. 31, 2021, has also issued a report on internal control over financial reporting under the standards of the Public Company Accounting Oversight Board (United States). This report is located on the following page of this Annual Report.

 

/s/ John Kousinioris		/s/ Todd Stack
John Kousinioris		Todd Stack
President and Chief Executive Officer		Executive Vice President, Finance and Chief Financial Officer
February 23, 2022

 

SA-4

Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of TransAlta Corporation

Opinion on Internal Control Over Financial Reporting

We have audited TransAlta Corporation’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, TransAlta Corporation (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the joint operations of the Sheerness Generating Station and equity accounted joint venture of SP Skookumchuck Investment, LLC which are included in the 2021 consolidated financial statements of the Company and constituted 4% and 10% of total and net assets, respectively, as of December 31, 2021, and 8% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the joint operations of the Sheerness Generating Station and equity accounted joint venture of SP Skookumchuck Investment, LLC.

As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of North Carolina Solar, which is included in the 2021 consolidated financial statements of the Company and constituted 2% and 5% of total and net assets, respectively, as of December 31, 2021. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of North Carolina Solar.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of financial position of TransAlta Corporation as of December 31, 2021 and 2020, and the related consolidated statements of earnings (loss), comprehensive earnings (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

SA-5

Consolidated Financial Statements

 

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Chartered Professional Accountants

Calgary, Canada

February 23, 2022

 

SA-6

Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of TransAlta Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of TransAlta Corporation (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of earnings (loss), comprehensive earnings (loss), changes in equity and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the financial performance and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

SA-7

Consolidated Financial Statements

 

Valuation of Long-Lived Assets related to certain cash generating units (“CGU“s) within the Wind and Solar segment and Goodwill related to the Wind and Solar segment
Description of the Matter		As disclosed in notes 2(G), 2(H), 2(P)(I), 7, 18 and 21 of the consolidated financial statements, the Company owns significant Wind and Solar generation assets and has recognized goodwill from historical acquisitions which must be tested for impairment at least annually or when indicators are present. The carrying value of Goodwill related to the Wind and Solar segment was $175 million and the carrying value of long-lived assets in the Wind and Solar segment consisted of property, plant & equipment of $2,304 million, right-of-use assets of $64 million and intangible assets of $147 million as at December 31, 2021.
		Determining the recoverable amounts for the Wind and Solar segment for the purposes of the goodwill impairment test and of certain CGUs in the Wind and Solar segment with indicators of impairment (“Wind and Solar CGUs”) for the asset impairment test was identified as a critical audit matter due to the significant estimation uncertainty and judgment applied by management in determining the recoverable amount, primarily due to the sensitivity of the significant assumptions to the future cash flows and the effect that changes in these assumptions would have on the recoverable amount. The estimates with a high degree of subjectivity include generation profiles, commodity prices, cost estimates, and determining the appropriate discount rate.
How We Addressed the Matter in Our Audit		We obtained an understanding of management’s process for estimating the recoverable amount of the Wind and Solar segment and the Wind and Solar CGUs. We evaluated the design and tested the operating effectiveness of controls over the Company’s processes to determine the recoverable amount. Our audit procedures to test the Company’s recoverable amount of the Wind and Solar segment and the Wind and Solar CGUs with indicators of impairment included, among others, comparing the significant assumptions used to estimate cash flows to current contracts with external parties and historical trends and obtaining historical power generation data to evaluate future generation forecasts. We assessed the historical accuracy of management’s forecasts by comparing them with actual results and performed a sensitivity analysis to evaluate the assumptions that were most significant to the determination of the recoverable amount. We evaluated the Company’s determination of future commodity prices by comparing them to externally available third-party future commodity price estimates. We also involved our internal valuation specialist to assist in our evaluation of the discount rates, which involved benchmarking the inputs against available market data.
Valuation of Level III Derivative Instruments
Description of the Matter		As disclosed in notes 2(P)(IV), 15 and 25 of the consolidated financial statements, the Company enters into transactions that are accounted for as derivative financial instruments and are recorded at fair value. The valuation of derivative instruments classified as level III are determined using assumptions that are not readily observable. As at December 31, 2021 the fair value of the Company’s derivative financial instruments classified as level III was $159 million net risk management assets.
		Auditing the determination of fair value of level III derivative instruments that rely on significant unobservable inputs can be complex and relies on judgments and estimates concerning future commodity prices, discount rates, volatility, unit availability and demand profiles, and can fluctuate significantly depending on market conditions. Therefore, such determination of fair value was identified as a critical audit matter.

 

SA-8

Consolidated Financial Statements

 

How We Addressed the Matter in Our Audit		We obtained an understanding of the Company’s processes and we evaluated and tested the design and operating effectiveness of internal controls addressing the determination and review of inputs used in establishing level III fair values. Our audit procedures included, among others, testing a sample of level III derivative instrument internal models used by management and evaluating the significant assumptions utilized. We also compared management’s future pricing assumptions, credit valuation adjustments, and liquidity assumptions to third-party data as well as comparing terms such as volumes and timing to executed commodity contracts. We compared the unit availability and demand profile assumptions to historical information. We performed a sensitivity analysis to evaluate the assumptions that were most significant to the determination of level III fair value. For a sample of level III derivative instruments, we involved our internal valuation specialist to assist in our evaluation of the appropriateness of the discount rates by evaluating the key assumptions and methodologies.

/s/ Ernst & Young LLP

Chartered Professional Accountants

We have served as auditors of TransAlta Corporation and its predecessor entities since 1947.

Calgary, Canada

February 23, 2022

 

SA-9

Consolidated Financial Statements

 

Consolidated Statements of Earnings (Loss)

 

Year ended Dec. 31 (in millions of Canadian dollars except where noted)		2021				2020				2019
Revenues (Note 5)			2,721				2,101				2,347
Fuel and purchased power (Note 6)			1,054				805				881
Carbon compliance			178				163				205
Gross margin			1,489				1,133				1,261
Operations, maintenance and administration (Note 6)			511				472				475
Depreciation and amortization			529				654				590
Asset impairment charge (Note 7)			648				84				25
Gain on termination of Keephills 3 coal rights contract (Note 18)			—				—				(88	)
Taxes, other than income taxes			32				33				29
Termination of Sundance B and C PPAs			—				—				(56	)
Net other operating loss (income) (Note 9)			8				(11	)			(49	)
Operating income (loss)			(239	)			(99	)			335
Equity income (Note 10)			9				1				—
Finance lease income			25				7				6
Net interest expense (Note 11)			(245	)			(238	)			(179	)
Foreign exchange gain (loss)			16				17				(15	)
Gain on sale of assets and other (Note 4 and 18)			54				9				46
Earnings (loss) before income taxes			(380	)			(303	)			193
Income tax expense (recovery) (Note 12)			45				(50	)			17
Net earnings (loss)			(425	)			(253	)			176
Net earnings (loss) attributable to:
TransAlta shareholders			(537	)			(287	)			82
Non-controlling interests (Note 13)			112				34				94
			(425	)			(253	)			176
Net earnings (loss) attributable to TransAlta shareholders			(537	)			(287	)			82
Preferred share dividends (Note 28)			39				49				30
Net earnings (loss) attributable to common shareholders			(576	)			(336	)			52
Weighted average number of common shares outstanding in the year (millions)			271				275				283
Net earnings (loss) per share attributable to common shareholders, basic and diluted (Note 27)			(2.13	)			(1.22	)			0.18

See accompanying notes.

 

SA-10

Consolidated Financial Statements

 

Consolidated Statements of Comprehensive Earnings (Loss)

 

Year ended Dec. 31 (in millions of Canadian dollars)		2021				2020				2019
Net earnings (loss)			(425	)			(253	)			176
Other comprehensive loss
Net actuarial gains (loss) on defined benefit plans, net of tax(1)			37				(11	)			(26	)
Losses on derivatives designated as cash flow hedges, net of tax			—				(1	)			—
Total items that will not be reclassified subsequently to net earnings			37				(12	)			(26	)
Losses on translating net assets of foreign operations, net of tax			(14	)			(11	)			(59	)
Gains on financial instruments designated as hedges of foreign operations, net of tax			—				11				21
Gains (losses) on derivatives designated as cash flow hedges, net of tax(2)			(200	)			20				61
Reclassification of gains on derivatives designated as cash flow hedges to net earnings, net of tax(3)			(8	)			(110	)			(42	)
Total items that will be reclassified subsequently to net earnings			(222	)			(90	)			(19	)
Other comprehensive loss			(185	)			(102	)			(45	)
Total comprehensive earnings (loss)			(610	)			(355	)			131
Total comprehensive earnings (loss) attributable to:
TransAlta shareholders			(693	)			(439	)			54
Non-controlling interests (Note 13)			83				84				77
			(610	)			(355	)			131

 

(1)	Net of income tax expense of $11 million for the year ended Dec. 31, 2021 (2020 — $3 million recovery, 2019 — $7 million recovery).

(2)	Net of income tax recovery of $55 million for the year ended Dec. 31, 2021 (2020 —$8 million expense, 2019 — $16 million expense).

(3)	Net of reclassification of income tax recovery of $2 million for the year ended Dec. 31, 2021 (2020 —$31 million recovery, 2019 — $10 million recovery).

See accompanying notes.

 

SA-11

Consolidated Financial Statements

 

Consolidated Statements of Financial Position

 

As at Dec. 31 (in millions of Canadian dollars)		2021				2020
Cash and cash equivalents			947				703
Restricted cash (Note 24)			70				71
Trade and other receivables (Note 14)			651				583
Prepaid expenses			29				31
Risk management assets (Note 15 and 16)			308				171
Inventory (Note 17)			167				238
Assets held for sale (Note 4 and 18)			25				105
			2,197				1,902
Investments (Note 10)			105				100
Long-term portion of finance lease receivables (Note 8)			185				228
Risk management assets (Note 15 and 16)			399				521
Property, plant and equipment (Note 18)
Cost			13,389				13,398
Accumulated depreciation			(8,069	)			(7,576	)
			5,320				5,822
Right-of-use assets (Note 19)			95				141
Intangible assets (Note 20)			256				313
Goodwill (Note 21)			463				463
Deferred income tax assets (Note 12)			64				51
Other assets (Note 22)			142				206
Total assets			9,226				9,747
Accounts payable and accrued liabilities			689				599
Current portion of decommissioning and other provisions (Note 23)			48				59
Risk management liabilities (Note 15 and 16)			261				94
Current portion of contract liabilities (Note 5)			19				1
Income taxes payable			8				18
Dividends payable (Note 27 and 28)			62				59
Current portion of long-term debt and lease liabilities (Note 24)			844				105
			1,931				935
Credit facilities, long-term debt and lease liabilities (Note 24)			2,423				3,256
Exchangeable securities (Note 25)			735				730
Decommissioning and other provisions (Note 23)			779				614
Deferred income tax liabilities (Note 12)			354				396
Risk management liabilities (Note 15 and 16)			145				68
Contract liabilities (Note 5)			13				14
Defined benefit obligation and other long-term liabilities (Note 26)			253				298
Equity
Common shares (Note 27)			2,901				2,896
Preferred shares (Note 28)			942				942
Contributed surplus			46				38
Deficit			(2,453	)			(1,826	)
Accumulated other comprehensive income (Note 29)			146				302
Equity attributable to shareholders			1,582				2,352

 

SA-12