Wednesday, July 05, 2017

SEC extends confidential review of IPO filings to all companies

By John Filar Atwood

The right to file IPO draft registration statements for review by the SEC before they are made public, formerly only available to emerging growth companies (EGCs), will now be extended to all companies. The SEC’s Division of Corporation Finance announced that beginning July 10, all filers will be allowed to have their draft IPO registration statements reviewed on a confidential basis.

According to a Commission news release, the widely-used JOBS Act provision also will extend to most offerings made with one year after a company enters the public reporting system. The SEC believes that the non-public review process after the IPO will reduce the potential for lengthy exposure to market fluctuations that can adversely affect the offering process and harm existing public shareholders.

Director of the Division of Corporation Finance Bill Hinman explained that the move is intended to foster capital formation and provide investment opportunities while protecting investors. The new process should make it easier for more companies to participate in the SEC’s disclosure-based system, he noted.

Cover letter. In the announcement, the staff said that it 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 that it will publicly file its registration statement and nonpublic draft submissions at least 15 days prior to any road show. In the absence of a road show, the registration statement must be publicly filed at least 15 days prior to the requested effective date.

The staff noted that 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 the offerings. For initial registrations under Exchange Act Section 12(b), the company must publicly file at least 15 days prior to the anticipated effective date of the registration statement for its listing on a national securities exchange.

The staff will accept draft registration statements submitted prior to the end of the twelfth month following the effective date of an issuer’s initial Securities Act or Exchange Act registration statement for confidential review. In these circumstances, a company must confirm in a 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.

According to the staff, confidential review in these cases will apply only to the initial submission. The staff advised that an issuer responding to staff comments on a draft registration statement should do so with a public filing, not with a revised draft registration statement.

The staff will conduct any further review of a filing using its normal procedures, and will act upon requests for acceleration in accordance with Securities Act Rule 461. Similar to the initial registration procedures an issuer should file the draft registration statement it had previously submitted for nonpublic review at the time it publicly files its registration statement, the staff said.

Content of the filing. The staff encouraged issues to take steps to ensure that a draft registration statement is substantially complete when submitted, but advised that it will not delay processing a filing if an issuer reasonably believes omitted financial information will not be required at the time the registration statement is publicly filed. In addition, the staff will consider an issuer’s specific facts and circumstances in connection with any request made under Rule 3-13 of Regulation S-X.

The staff is willing to consider reasonable requests for expedited processing of draft and filed registration statements. It encouraged issuers and their advisers to review the transaction timing with the staff assigned to the review their specific filing.

EGCs. The staff noted that the expanded nonpublic review process will not limit the process by which EGCs submit draft registration statements for confidential review. The staff will continue to process those submissions and filed registration statements in the normal course of business.