Securities Law Blog

Earlier this month, the SEC’s Division of Corporation Finance announced it had expanded its policies to better accommodate public issuers seeking to raise capital and go-to-market faster.

These five new policies are noteworthy:

• All issuers can now submit a confidential draft registration statement for nonpublic review for any offering required to be registered under the Securities Act or proposed registration of a class of securities on Form 10 for a direct listing. This applies to the initial submission of all follow-on offerings by existing public issuers (from confidentially marketed public offerings and registered directs to shelf registrations and rights offerings), regardless of whether the issuer is newly public or has been public for many years. Importantly, upon filing its subsequent registration statement publicly (or “flipping” it), issuers are required to wait only two business days prior to the registration statement’s requested effective date and may request the SEC staff expedite that two business-day period. This accommodation will allow existing issuers to pre-clear their public disclosure confidentially without being vulnerable to downward pressure on their stock price in advance of an announced upcoming offering.
• An issuer can now file an initial draft registration statement without naming an investment banking underwriter and providing related disclosures. The identity of the underwriter, however, must be included in later drafts and public filings. This change will remove the upfront delay sometimes encountered by IPO issuers when their underwriting arrangements are not firmly set with an underwriter or they are still shopping for an underwriter. In the micro-cap market, it is not uncommon for underwriters to wait to fully commit to an offering until an issuer has cleared at least one round of SEC comments at which point they can “test the waters” and assess deal predictability.
• Issuers can now make reasonable requests to the SEC staff to expedite their registration statement review and processing. This change will help issuers communicate timing concerns about their public offering in order to satisfy time-sensitive obligations such as to fund a merger or acquisition, meet an approaching debt repayment deadline, provide capital to avert a going concern qualification in its audited financials or reach a specific effectiveness date to avoid liquidated damages pursuant to a registration rights agreement.
• All issuers can now omit financial information that relates to a historical period from their draft registration statement if they reasonably believe such information will not be required at the time the registration statement is publicly filed. This policy expands to all issuers a nonpublic review accommodation originally afforded to emerging growth companies.  In availing itself of this accommodation, the issuer undertakes that it will not distribute a preliminary prospectus for the offering until the registration statement has been amended to include the omitted financial information.
• Special purpose acquisition companies (SPACs) and co-registrant targets can now submit their de-SPAC Form S-4 registration statement for nonpublic review (where the SPAC is the surviving entity) as if the transaction were an initial public offering under the Securities Act. This change is consistent with the SEC’s position that a de-SPAC is really the functional equivalent of a target’s IPO. For SPACs in the middle or later part of their lifecycle, this accommodation allows for a quieter and potentially quicker pivot from an undesirable business combination.

In announcing the SEC’s expanded policies (which are not technically SEC rules or regulations), the SEC staff was tasked with monitoring these practices and may modify, limit or terminate the policies. SEC chair nominee Paul Atkins, who has a reputation as a free-market advocate, will likely support these go-to-market faster initiatives in this challenging environment for new issues.