The Securities and Exchange Commission (SEC) proposed last week amendments to streamline the financial disclosure requirements for debt offerings for guarantors and issuers of guaranteed securities.
Specifically, the amendments are to Rules 3-10 and 3-16 of Regulation S-X. The idea is to focus disclosures on information that is material to investors, make them easier to understand and reduce the costs and burdens for registrants. The SEC says the amendments should encourage issuers to register debt offerings while providing investors with protections that are not present in unregistered offerings.
“I have seen firsthand instances in which an issuer did not pursue SEC registration of a debt offering that included a subsidiary guarantee or pledge of affiliate securities as collateral because of the costs and, in particular, time burdens of these rules,” SEC Chairman Jay Clayton said. “The proposed rules are intended to make the disclosures easier for investors to understand and to encourage these offerings to be conducted on an SEC-registered basis.”
Regarding Rule 3-10, the changes would replace the condition that a subsidiary issuer or guarantor be 100 percent owned by the parent company with the condition that it be consolidated in the parent company’s financial statements.
It would also replace condensed consolidating financial information with certain proposed financial and non-financial disclosures. Additionally, it would permit the proposed disclosures to be provided outside the footnotes to the parent company’s audited annual and unaudited interim consolidated financial statements. It would also require that the proposed disclosures be included in the notes to the parent company’s consolidated financial statements for annual and quarterly reports.
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Regarding Rule 3-16, the changes would replace the existing requirement to provide separate financial statements for each affiliate whose securities are pledged as collateral with financial and non-financial disclosures. Similarly, it would permit the proposed financial and non-financial disclosures to be located in filings for the disclosures related to guarantors and guaranteed securities. Finally, it would replace the requirement to provide disclosure only when the pledged securities meet or exceed a numerical threshold.
Following publication in the Federal Register, there will be a 60-day public comment period.