The SEC’s Division of Economic and Risk Analysis (DERA) recently produced a Report to Congress regarding the impacts of the Dodd-Frank Act on access to capital for consumers, investors, and businesses, and market liquidity.  Although the Report is principally focused on liquidity, it does provide some interesting statistics regarding the primary issuance of equity securities.

The Report notes that total capital formation from 2010 when the Dodd-Frank Act was enacted through year-end 2016 was approximately $20.2 trillion, of which $8.8 trillion was raised through registered offerings, and $11.38 trillion was raised in exempt offerings.  The report notes the substantial increase in reliance on exempt offerings.  Regulation D offerings have more than doubled since 2009.  However, the report notes that the amount sold in reliance on Rule 506(c) represented only 3% of the amount sold in reliance on Rule 506.  The average amounts raised in initial Rule 506(c) offerings is much smaller than the average amount reported sold in  Rule 506(b) offerings.  Rule 144A issuances remain stable.

The Report also provides data regarding Regulation A and crowdfunded offerings, and may be accessed here:  https://www.sec.gov/files/access-to-capital-and-market-liquidity-study-dera-2017.pdf.

In our Practising Law Institute treatise Exempt and Hybrid Securities Offerings, we refer to the concept of “integration” under the securities law as a bogeyman of sorts for practitioners. In this day and age of tweets and posts, and where public and “private” offerings are hard to distinguish from one another, is the concept of integration antiquated? Or is it perhaps due for a comprehensive re-examination by the Securities and Exchange Commission? As we discuss below, many of the fundamental principles of integration of offerings, aggregation of offerings for purposes of securities exchange rules, and communications issues like “gun-jumping” and “quiet periods” may have been so eroded as to no longer be meaningful.

To view our article, click here.

This article has been published in The Current: The Journal of PLI Press, Vol. 1, No. 1, Summer 2017 (© 2017 Practising Law Institute).

July 13 – 14, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

PLI’s Understanding the Securities Laws 2017 conference will provide an overview and discussion of the basic aspects of the U.S. federal securities laws by leading in-house and law firm practitioners as well as SEC staff. Emphasis will be placed on the interplay among the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, the JOBS Act, the securities related provisions of the FAST Act, related SEC regulations and significant legislative and regulatory changes and proposals made in the wake of the 2016 election.

Morrison & Foerster Partner Anna Pinedo will lead a session entitled “Securities Act Exemptions” on Day One of the program. Topics will include:

  • Exempt securities versus exempt transactions;
  • Private placements, including  offerings under Rules 504 and 506 of Regulation D;
  • Regulation A+ offerings;
  • “Intrastate” offerings, including new Rule 147A ;
  • Crowdfunding;
  • Employee equity awards;
  • Rule 144A offerings;
  • Regulation S offerings to “non-U.S. persons”; and
  • Resales of restricted and controlled securities:  Rule 144, Section 4(a)(7) and 4(a)(1½).

PLI will provide CLE credit.

For more information, or to register, please click here.

May 22 – 23, 2017

PLI New York Center
1177 Avenue of the Americas
(2nd Floor)
New York, NY 10036

PLI’s Private Placements and Hybrid Securities Offerings 2017 conference is designed for corporate and securities attorneys, compliance professionals, control room personnel, bankers and allied professionals who deal with private placements and other exempt and hybrid offerings. The faculty will address the changes to private and exempt offerings brought about by the JOBS Act, including matchmaking platforms, “accredited investor” crowdfunding, offerings using general solicitation, Rule 144A offerings, and the practical implications of these changes for issuers, broker-dealers and investment advisers. In addition, the faculty will address the basics of private placements, sales of restricted securities, Rule 144 and Section 4(a)(1-1/2) transactions and block trades. The panelists will discuss the considerations that have led many companies to remain private longer and defer IPOs, while creating liquidity opportunities for holders through private secondary trading markets. Panelists will address the basics of traditional private placements, PIPE transactions, and Rule 144A transactions, as well as recent developments affecting each of these capital raising alternatives.

Partner Anna Pinedo will serve as chairperson for this event and will speak on the “Welcome and Introduction to Private Placements and Hybrid Financings” panel on Day One of the conference and on the “Welcome and Introduction to Conducting Hybrid Offerings” panel on Day Two. Senior Of Counsel Marty Dunn will speak on the “Overview of 4(a)(2) and Regulation D” panel on Day One.

To register for this conference, or for more information, please click here.

On March 13, 2017, the NYSE issued a proposed rule to modify the provisions regarding the qualification of companies listing on the NYSE to allow for a listing without an IPO. Section 102.01B of the NYSE Listed Company Manual currently recognizes that some companies that have not previously registered their common equity securities under the Exchange Act, but which have sold common equity securities in a private placement, may wish to list those common equity securities on the NYSE at the time of effectiveness of a resale registration statement filed solely for the resale of the securities held by selling stockholders. Footnote (E) of Section 102.01B currently provides that the NYSE will exercise its discretion to list these companies by determining that a company has met the $100 million aggregate market value of publicly-held shares requirement based on a combination of both (1) an independent third-party valuation of the company (the “Valuation”) and (ii) the most recent trading price for the company’s common stock in a trading system for unregistered securities operated by a national securities exchange or a registered broker-dealer (a “Private Placement Market”). The NYSE then attributes a market value of publicly-held shares to the company equal to the lesser of (1) the value calculable based on the Valuation and (2) the value calculable based on the most recent trading price in a Private Placement Market.

Although Footnote (E) provides for a company NYSE listing upon effectiveness of a resale registration statement, it currently does not provide for a company listing in connection with the effectiveness of an Exchange Act registration statement in the absence of an IPO or other Securities Act registration. However, a company can become an Exchange Act registrant without a concurrent public offering by filing with the SEC a Form 10 or an annual report (such as a Form 10-K or Form 20-F).

The proposed rule would amend Footnote (E) to explicitly provide that it applies to companies listing (1) upon effectiveness of an Exchange Act registration statement without a concurrent Securities Act registration and (2) upon effectiveness of a resale registration statement. The proposed rule would also amend Footnote (E) to provide an exception to the Private Placement Market trading requirement for companies with a recent Valuation available indicating at least $250 million in market value of publicly-held shares. The valuation used for this purpose would need to be provided by an entity that has significant experience and demonstrable competence in the provision of these valuations.

This approach could be of significant interest for issuers that have completed 144A equity offerings, which are still popular among REITs, for issuers that have completed numerous private placements and have VC or PE investors that need liquidity, and for issuers, including foreign issuers, that are well-funded and do not need a capital raise through an IPO, but would still like to have their securities listed or quoted on a securities exchange.

The proposed rule is available at: https://www.sec.gov/rules/sro/nyse/2017/34-80313.pdf.

The SEC and the SEC Staff had a busy second half of 2016.  In late 2016, the SEC Staff issued guidance principally in the form of C&DIs on various topics.  Join Morrison & Foerster for our two-part recap of items you may have missed.

Session One
Wednesday, February 8, 2017
11:00 a.m. – 12:00 p.m. ET

During our first session, we will review Regulation A:  what do we know about how the exemption is working?; Regulation Crowdfunding; C&DIs on Regulation Crowdfunding; FINRA crowdfunding enforcement matter; Rule 147/Rule 504; Integration C&DI; C&DIs on Rule 701; and Guidance on Rule 144.

Speakers:

Session Two
Thursday, February 9, 2017
11:00 a.m. – 12:00 p.m. ET

During our second session, we will review C&DIs on Rule 144A, FPIs, and Regulation S.  We also will discuss guidance on Exxon Capital exchange offer representations; guidance on shortened tenders; and recent Trust Indenture Act related court cases.

Speakers:

CLE credit is pending for California and New York.

To register for this teleconference series, or for more information, please click here.

On December 8, 2016, the staff of the Division of Corporation Finance provided additional guidance in the form of Compliance and Disclosure Interpretations (“C&DIs”) related to the types of securities that may be counted toward the Rule 144A $100 million threshold.  For example, the C&DIs confirm that securities purchased and held on margin may be counted as “owned” for purposes of calculating whether the entity meets the $100 million threshold, provided that the securities are not subject to a repurchase agreement.  (Question 138.05).  Similarly, an entity may count securities that have been loaned to borrowers.  (Question 138.06)   However, the entity cannot count securities that it has borrowed, since these securities are not “owned.”  (Question 138.07)  An entity also cannot count short positions in securities for the same reason—these do not represent an ownership interest.  (Question 138.08)

The Staff guidance also addressed aggregation with respect to fund families in the context of determining whether these entities are QIBs.  The Staff has clarified that, when assessing QIB status for a family of funds, the investments held by funds that are not registered investment companies cannot be aggregated with the investments held by registered investment companies in the fund family.  (Question 138.09)

Finally, the Staff addressed assessing equity ownership of limited partnerships for purposes of Rule 144(a)(1)(v).  In this context, the Staff notes that the limited partners are the equity owners of a limited partnership.  The general partner, unless that person is also a limited partner, need not be considered in determining whether a limited partnership is a QIB.  (Question 138.10)

The C&DIs are accessible here:

https://media2.mofo.com/documents/12g.pdf

https://media2.mofo.com/documents/144a.pdf

https://media2.mofo.com/documents/f-forms.pdf

https://media2.mofo.com/documents/fpi.pdf

https://media2.mofo.com/documents/reg-s.pdf

PLI’s Private Placements and Hybrid Securities Offerings 2016 conference on August 1-2, 2016, presents an expert faculty of leading practitioners and regulators as they discuss and analyze the changing regulatory framework and market for private offerings. The faculty will address the changes to private and exempt offerings brought about by the JOBS Act, including matchmaking platforms, “accredited investor” crowdfunding, offerings using general solicitation, Rule 144A offerings, and the practical implications of these changes for issuers, broker-dealers and investment advisers. In addition, they will address the basics of private placements, sales of restricted securities, Rule 144 and Section 4(a)(1-1/2) transactions and block trades. The panelists will discuss the considerations that have led many companies to remain private longer and defer IPOs, while creating liquidity opportunities for holders through private secondary trading markets. Panelists will address the basics of traditional private placements, PIPE transactions, and Rule 144A transactions, as well as recent developments affecting each of these capital raising alternatives.

Morrison & Foerster Partner Anna Pinedo will serve as chairperson for this event and will speak on the “Welcome and Introduction to Private Placements and Hybrid Financings” panel on Day One of the conference and on the “Welcome and Introduction to Conducting Hybrid Offerings” panel on Day Two. Morrison & Foerster Partner James Tanenbaum will speak on a panel entitled “Regulation A+” on Day One. The conference will be held at the PLI New York Center in New York, NY and is scheduled to begin at 9:00 a.m. EDT.

To register for this conference, or for more information, please click here.

On July 21-22, 2016, Practising Law Institute will host its “Understanding the Securities Laws 2016” seminar. This program will provide an overview and discussion of the basic aspects of the U.S. federal securities laws by leading in-house and law firm practitioners as well as SEC staff. Emphasis will be placed on the interplay among the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, the JOBS Act, the securities related provisions of the FAST Act and related SEC regulations, and on how securities lawyers can solve practical problems that arise in the context of public and private offerings, SEC reporting, mergers and acquisitions and other common corporate transactions.

Morrison & Foerster Partner Anna T. Pinedo will lead a session entitled “Securities Act Exemptions” on Day One of the program. Topics will include:

  • Exempt securities versus exempt transactions;
  • Private placements;
  • Regulation D offerings;
  • Regulation A+ offerings;
  • Intrastate offerings;
  • Crowdfunding;
  • Employee equity awards;
  • Rule 144A high yield and other offerings;
  • Regulation S offerings to “non-U.S. persons”; and
  • Resales of restricted and controlled securities: Rule 144, Section 4(a)(7) and 4(a)(1½).

PLI will provide CLE credit.

For more information, or to register, please click here.

On January 12, 2016, the Securities and Exchange Commission’s Division of Corporation Finance (the “Division”) granted no-action relief to the College Savings Plan Network (“CSPN”), an affiliate of the National Association of State Treasurers that represents eleven International Revenue Code §529-qualified prepaid tuition programs (the “§529 Programs”), in connection with its request for the §529 Programs to qualify as “qualified institutional buyers” (“QIBs”) pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and “accredited investors” pursuant to Rule 501(a)(3) of Regulation D under the Securities Act.

In its letter to the Division, CSPN argued that the §529 Programs should qualify as both QIBs and accredited investors because the §529 Programs: (1) are business trusts or corporations that engage in business activities typically associated with QIBs and accredited investors; (2) should be treated as favorably as §529 prepaid tuition plans created especially for private universities; (3) are maintained by unique entities; and (4) do not need the protection of registration under the Securities Act.

In concluding that the §529 Programs are eligible for both QIB and accredited investor status, the Division emphasized the fact that the §529 Programs parallel the structure of trusts and corporations and do not need the protections associated with Securities Act registration.

A copy of the no-action letter is available at https://www.sec.gov/divisions/corpfin/cf-noaction/2016/cspn-011216-501a.htm.