United States

Proposed rules simplify certain registered debt offering disclosures

FINANCIAL REPORTING INSIGHTS  | 

The SEC recently released Proposed Rule 33-10526, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates whose Securities Collateralize a Registrant’s Securities. If finalized, the proposed rule would simplify and streamline the following Regulation S-X financial disclosure requirements applicable to registered debt offerings:

  • Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered - The proposed amendments to Rule 3-10 would:

˗   Continue to permit the omission of separate financial statements of subsidiary issuers and guarantors when certain conditions are met, but would replace the condition that a subsidiary issuer or guarantor be 100% owned by the parent company with a condition that it be consolidated in the parent company’s financial statements;

˗   Replace currently required condensed consolidating financial information with certain proposed financial and non-financial disclosures. The proposed financial disclosures would (a) consist of summarized financial information of the issuers and guarantors, which may be presented on a combined basis, and (b) reduce the number of periods presented. The proposed non-financial disclosures would expand the required qualitative disclosures about the guarantees, issuers, guarantors and other matters that would be material to holders of the guaranteed security;

˗   Permit the proposed disclosures to be provided outside the footnotes to the parent company’s financial statements in the registration statement covering the offer and sale of the subject securities and any related prospectus, and in certain Exchange Act reports filed shortly thereafter;

˗   Require that the proposed disclosures be included in the footnotes to the parent company’s financial statements for annual and quarterly reports beginning with the annual report for the fiscal year during which the first bona fide sale of the subject securities is completed;

˗   Eliminate the requirement to provide pre-acquisition financial statements of recently acquired subsidiary issuers and guarantors; and

˗   Require the proposed financial and non-financial disclosures for as long as the issuers and guarantors have an Exchange Act reporting obligation with respect to the guaranteed securities, rather than for as long as the guaranteed securities are outstanding.

  • Rule 3-16, Financial statements of affiliates whose securities collateralize an issue registered or being registered - The proposed amendments to Rule 3-16 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 about the affiliate(s) and the collateral arrangement as a supplement to the consolidated financial statements of the registrant that issues the collateralized security;

˗   Replace the requirement to provide disclosure only when the pledged securities meet or exceed a numerical threshold relative to the securities registered or being registered with a requirement to provide the proposed financial and non-financial disclosures in all cases, unless they are immaterial to holders of the collateralized security; and

˗   Permit the proposed financial and non-financial disclosures to be located in filings in the same manner as described above for the disclosures related to guarantors and guaranteed securities.

The proposed disclosures in both Rules 3-10 and 3-16 that are permitted to be provided outside the audited and unaudited financial statements will be relocated to new Article 13 in Regulation S-X.