SEC Expands Ability to File Confidential Registration Statements
On June 19, the SEC announced that the Division of Corporation Finance will permit all companies to submit draft registration statements, on a confidential basis. Confidential draft submissions will now be available for all Section 12(b) Exchange Act registration statements, initial public offerings (IPO’s) and for secondary or follow-on offerings made in the first year after a company becomes publicly reporting.
The SEC has adopted the change by staff prerogative and not a formal rule change. On June 29, the SEC issued guidance on the change via new FAQ’s. The new policy became effective July 10.
Title I of the JOBS Act initially allowed for confidential draft submissions of registration statements by emerging growth companies, but did not include any other companies, such as smaller reporting companies. Regulation A+ as enacted on June 19, 2015, also allows for confidential submissions of an offering circular by companies completing their first Regulation A+ offering. The new policy does not change or limit the current process and procedures for confidential submissions by emerging growth (or Regulation A+) issuers.
In a press release, Director of the Division of Corporation Finance Bill Hinman stated, “[T]his is an important step in our efforts to foster capital formation, provide investment opportunities, and protect investors. This process makes it easier for more companies to enter and participate in our public company disclosure-based system.”
The SEC also considers this change as helpful in its efforts to improve the slow IPO market. SEC Chair Jay Clayton said, “By expanding a popular JOBS Act benefit to all companies, we hope that the next American success story will look to our public markets when they need access to affordable capital. We are striving for efficiency in our processes to encourage more companies to consider going public, which can result in more choices for investors, job creation, and a stronger U.S. economy.”
Background
Title I of the JOBS Act, initially enacted on April 5, 2012, created a new category of issuer called an “emerging growth company” (“EGC”). The primary benefits of an EGC include scaled-down disclosure requirements both in an IPO and periodic reporting, confidential filings of registration statements, certain test-the-waters rights in IPO’s, and an ease on analyst communications and reports during the EGC IPO process.
As a reminder, the definition of an EGC as first enacted on April 5, 2012, was a company with total annual gross revenues of less than $1 billion during its most recently completed fiscal year that first sells equity in a registered offering after December 8, 2011. An EGC loses its EGC status on the earlier of (i) the last day of the fiscal year in which it exceeds $1 billion in revenues; (ii) the last day of the fiscal year following the fifth year after its IPO (for example, if the issuer has a December 31 fiscal year-end and sells equity securities pursuant to an effective registration statement on May 2, 2016, it will cease to be an EGCon December 31, 2021); (iii) the date on which it has issued more than $1 billion in non-convertible debt during the prior three-year period; or (iv) the date it becomes a large accelerated filer (i.e., its non-affiliated public float is valued at $700 million or more). EGC status is not available to asset-backed securities issuers (“ABS”) reporting under Regulation AB or investment companies registered under the Investment Company Act of 1940, as amended. However, business development companies (BDC’s) do qualify.
On March 31, the SEC made inflationary adjustments to the definition of an EGC by increasing the definition by $70,000,000. Accordingly, an EGC is now defined as a company with total gross revenues of less than $1,070,000,000.
Regulation A+, as enacted on June 19, 2015, also allows for confidential submissions of an offering circular by companies completing their first Regulation A+ offering. Confidential submissions under Regulation A allow an issuer to get the process under way while soliciting interest of investors using the “test-the-waters” provisions without negative publicity risk if it alters or withdraws the offering before qualification by the SEC. However, the confidential filing, SEC comments, and all amendments must be publicly filed as exhibits to the offering statement at least 15 calendar days before qualification.
New Policy Guidelines
Confidential submissions to the SEC are completed by choosing a “confidential” setting in the EDGAR system. The EDGAR filing manual has detailed instructions for filing confidential draft registration statements which instructions can be followed by all companies.
To satisfy the requirement to publicly file the previous confidential information, the company can file all prior confidential information as an exhibit to its non-confidential filing, or change the setting in the EDGAR system on its prior filings, from “confidential” to “public.” In the event the company chooses to change its EDGAR setting to “public,” it would not have to re-file all prior confidential material as an exhibit to a new filing.
A confidential registration statement is subject to the same rules related to content and financial statements as a public filing. For example, if the company would be able to omit historical financial statements pursuant to the provisions of Section 71003 of the FAST Act, they could also do so in the confidential submission. See HERE for more information on Section 71003. Filing fees for registration are not due until a public registration statement is filed.
Securities Act Initial Public Offerings
The SEC will review draft registration statements and related revisions on a nonpublic basis if the company files a cover letter with the initial draft registration statement confirming that the company will file publicly file the registration statement and all nonpublic draft submissions at least 15 days prior to any road show, and in the absence of a road show, at least 15 days prior to the requested effective date of the registration statement.
Registration Under Section 12(b) of the Exchange Act
A registration statement under Section 12(b) of the Securities Exchange Act of 1934 is necessary to register a security for listing on a national securities exchange. A Form 10 is used to register securities under Section 12(b). It should be noted that a Form 10 is also used to register securities under Section 12(g) of the Exchange Act. Section 12(g) requires registration under certain circumstances and also allows for voluntary registration.
Securities Act Follow-on Offerings
The SEC will also accept confidential draft registration statements for follow-on offerings that are submitted prior to the end of the twelfth month following the effective date of the company’s initial Securities Act registration statement or Section 12(b) Exchange Act registration statement. In this case the company must submit a cover letter confirming that it was filing the registration statement and nonpublic draft submission at least 48 hours prior to any requested effective date.
In the case of a follow-on registration, the SEC will only allow a confidential submission of the first draft. Any subsequent amendments responding to SEC comments would need to be filed publicly. The company should also file the initial confidential filing, publicly, when it submits its first public filing of the registration statement.
Foreign Private Issuers
Foreign private issuers may follow the new guidance, may follow the process available to emerging growth companies (if they so qualify) or may elect the confidential review process only available to such foreign private issuers. In particular, the SEC allows the nonpublic submission of draft registration statements for foreign issuers if the foreign registrant is: (i) a foreign government registering its debt securities; (ii) a foreign private issuer that is listed or is concurrently listing its securities on a non-U.S. securities exchange; (iii) a foreign private issuer that is being privatized by a foreign government; or (iv) a foreign private issuer that can demonstrate that the public filing of an initial registration statement would conflict with the laws of an applicable foreign jurisdiction. Shell companies and blank-check companies may not utilize a confidential submission.
Rule 83 Confidentiality Request
If a company wants to keep certain information confidential, even after the required time to make such information public, it will need to submit two confidential requests, one as part of the registration review process and one when prior confidential filings are made public. During the confidential review process, the company should submit a request under Rule 83 in the same manner it would during a typical review of a registered offering. Once the company is required to make the prior filings “public” (15 days prior to qualification or effectiveness), the company would make a new request for confidential treatment under Rule 406 in the same manner other confidential treatment requests are submitted. In particular, for a confidential treatment request under Rules 83 and 406, a company must submit a redacted version of the document via EDGAR with the appropriate legend indicating that confidential treatment has been requested. Concurrently, the company must submit a full, paper version of the document to the SEC using the ordinary confidential treatment procedure (such filings are submitted via a designated fax line to a designated person to maintain confidentiality).
