In an effort to encourage more public offerings, the Securities and Exchange Commission announced that it will extend a benefit for emerging growth companies to all enterprises.
The Division of Corporation Finance will permit all companies, on a voluntary basis, to submit draft registration statements relating to initial public offerings for review on a non-public basis. The process will be available for IPOs as well as most offerings made in the first year after a company has entered the public reporting system. It will take effect on July 10, 2017.
“This is an important step in our efforts to foster capital formation, provide investment opportunities, and protect investors,” Director of the Division of Corporation Finance Bill Hinman, said in a June 30 statement. “This process makes it easier for more companies to enter and participate in our public company disclosure-based system."
Permitting all companies to submit registration statements for non-public review, similar to the benefit used by emerging growth companies under the JOBS Act, will provide companies with more flexibility to plan their offering, the SEC’s announcement says.
Among other criteria, an EGC is defined as an issuer with total annual gross revenues of less than $1 billion during its most recently completed fiscal year.
The non-public review process after the IPO reduces the potential for lengthy exposure to market fluctuations that can adversely affect the offering process and harm existing public shareholders, the announcement added. By requiring a public filing period prior to the launch of marketing, the process incorporates a feature of the EGC review process that provides an opportunity for the public to evaluate those offerings.
The expanded nonpublic review process does not limit the process by which EGC’s submit draft registration statements for confidential review. The SEC will continue to process those submissions and filed registration statements in the normal course.
Corp Fin will review a draft initial Securities Act registration statement and related revisions on a nonpublic basis provided that the issuer confirms in a cover letter to the nonpublic draft submission that it will publicly file its registration statement and nonpublic draft submissions at least 15 days prior to any road show or, in the absence of a road show and at least 15 days prior to the anticipated effective date of the registration statement for its listing on a national securities exchange.
The Division will also accept draft registration statements submitted prior to the end of the twelfth month following the effective date of an issuer’s initial Securities Act registration statement or an issuer’s Exchange Act Section 12(b) registration statement for nonpublic review.
An issuer submitting a draft registration statement for nonpublic review in the above circumstances should confirm in its cover letter that it will publicly file its registration statement and nonpublic draft submission such that it is publicly available on the EDGAR system at least 48 hours prior to any requested effective time and date.
The Commission will limit nonpublic review in these cases to the initial submission; an issuer responding to staff comments on such a draft registration statement should do so with a public filing, not with a revised draft registration statement. It will conduct any further review following our normal procedures and act upon requests for acceleration in accordance with Securities Act Rule 461.
Similar to the initial registration procedures described above, the issuer should file the draft registration statement it had previously submitted for nonpublic review at the time it publicly files its registration statement.
Foreign Private Issuers may elect to proceed in accordance with these procedures or those available to Emerging Growth Companies (if the issuer qualifies as an Emerging Growth Company) or follow guidance in the SEC’s May 30, 2012 statement.
“While an issuer should take all steps to ensure that a draft registration statement is substantially complete when submitted, we will not delay processing if an issuer reasonably believes omitted financial information will not be required at the time the registration statement is publicly filed,” says guidance accompanying the announcement. “In addition, we will consider an issuer’s specific facts and circumstances in connection with any request made under Rule 3-13 of Regulation S-X.”
“We will consider reasonable requests to expedite processing of draft and filed registration statements and encourage issuers and their advisors to review their transaction timing with the staff assigned to the filing review,” the guidance adds. “The staff will monitor practices under the expanded processing procedures and may make modifications to limit or terminate these procedures.”
An issuer that does not yet have EDGAR access codes will need to file a Form ID to obtain them. Pending further updates to Form ID, the new issuer should indicate on that form that it intends to use the codes to submit a draft registration statement even if it is not an EGC. This will help preserve the nonpublic status of the issuer’s drafts until it publicly files them, the Division says.
“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,” Chairman Jay Clayton said in a statement. “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.”