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SEC Significantly Expands Confidential Review of Registration Statements

Will Allow Confidential Submission of All Registration Statements for IPOs, Spin-Offs and Most Offerings Within 12 Months of an IPO or Spin-Off

The Securities and Exchange Commission (“SEC”) announced[1] on Thursday that its the Staff of the Division of Corporation Finance (the “Staff”) will soon allow all companies to submit initial public offering (“IPO”) draft registration statements for confidential review. This change expands a benefit previously reserved for Emerging Growth Companies (“EGCs”), and is specifically aimed at encouraging more companies to enter the public market.  The SEC also announced that it will review draft registration statements submitted by non EGCs that omit financial statements that the issuer reasonably believes will not be required when the registration statement is filed publicly, and indicated a willingness to discuss expedited reviews with issuers and their advisors. 

Confidential Review. 

Under the new process, which will go into effect on July 10, 2017, all companies, regardless of their prior year revenue, will be allowed to submit a draft IPO registration statement and related revisions to the SEC for confidential Staff review.

This process is also being made available to initial registrations of a class of securities under Section 12(b) of the Securities Exchange Act of 1934. This will allow companies conducting spin-off transactions to submit draft registration statements for confidential review. 

The Staff will also confidentially review draft registration statements for most other offerings made during the first twelve months following a company’s IPO. The confidential review is limited to the initial submission, however, and responses to Staff comments must be made with a public filing and not a revised draft registration statement. Any further review by the Staff will be done following normal procedures, which require public filings of amendments to a registration statement.

Since the Jumpstart Our Business Startups Act (“JOBS Act”)[2] was signed into law in 2012, only EGCs, companies with less than $1.07 billion in gross revenues in their most recently completed fiscal year, have been permitted to submit registration statements for confidential review. Since the JOBS Act was enacted, approximately 88 percent of the EGCs that have filed IPO registration statements have taken advantage of the benefit of confidential review.[3]

By submitting a draft registration statement for confidential review, companies can begin the Staff review process without disclosing certain information that may be sensitive or confidential until they have a greater level of confidence in the potential success of the offering. In addition, any back and forth with the Staff on sensitive accounting and other issues will not be public until just prior to the transaction.  This provides companies with greater flexibility to plan their offerings and reduces exposure to potential market fluctuations.

Because most companies conducting IPOs historically have qualified for EGC status, and therefore have had the benefit of confidential review since the enactment of the JOBS Act,4 we believe that the most significant impact of this change will be for companies conducting spin-off transactions or follow-on offerings within the first year after an IPO or spin-off.   Previously, companies conducting spin-off transactions or follow-on offerings had to publicly disclose the transaction through the filing and review of a registration statement well in advance of the planned launch of a transaction (with any resulting impact on the share price of the public parent company or issuer).  We believe that it will be of significant benefit to those companies to be able to plan their transactions confidentially and evaluate market conditions at a time closer to the planned launch of the transaction before public disclosure.

This welcome change in policy reflects the Staff’s efforts to encourage more companies to take advantage of the public markets when they are seeking to raise capital. Corporation Finance Division Director Bill Hinman observed that “This is an important step in our efforts to foster capital formation, provide investment opportunities, and protect investors.” He also noted that “This process makes it easier for more companies to enter and participate in our public company disclosure-based system.”  This positive development follows a recent public statement[4] by the Chief Accountant in the Division of Corporation Finance  inviting registrants to submit requests for waivers when required financial statements are not available. 

In order to take advantage of this benefit for initial public offerings, an issuer must confirm in a cover letter to the confidential draft submission that it will publicly file its registration statement and all confidential draft submissions at least 15 days prior to the road show (or, in the absence of a road show, or in the case of a registration of a spin-off under Section 12(b), 15 days prior to the anticipated effective date of the registration statement for its listing on a national securities exchange). For other offerings made in the first twelve months after an IPO or registration under Section 12(b), an issuer must confirm in its cover letter that it will publicly file its registration statement and all confidential draft submissions so that they are publicly available on the EDGAR system at least 48 hours prior to any requested effective time and date.

Financial Statements Included in Draft Registration Statements.

As a result of amendments to the JOBS Act made by the Fixing America’s Surface Transportation Act (the “FAST Act”), an EGC is permitted to omit financial information for historical periods otherwise required by Regulation S-X if it reasonably believes the omitted information will not be required to be included in the filing at the time of the contemplated offering, so long as the issuer amends the registration statement prior to distributing a preliminary prospectus to include all financial information required at the time of the amendment.   In its announcement, the Staff indicated it would offer a similar accommodation to other issuers that are now permitted to submit confidential draft registration statements.  The Staff indicated that it will not delay reviewing a draft registration statement if an issuer omits financial information that it reasonably believes will not be required at the time the registration statement is publicly filed.  This accommodation will be particularly useful for spin-out transactions and IPOs of non-EGCs, as issuers may be able to avoid preparing financials for periods that would not be required at the time the registration statement is publicly filed. 

Requests to Expedite.

Finally, the Staff noted that it will consider reasonable requests to expedite processing of draft and filed registration statements and encouraged issuers and their advisors to review their transaction timing with the staff assigned to the filing review. 


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