Practising Law Institute’s Exempt and Hybrid Securities Offerings is the first practical, accessible resource to provide you with comprehensive legal, regulatory, and procedural guidance regarding these increasingly popular offering methodologies.

Authored by Morrison & Foerster Partners Anna Pinedo and James Tanenbaum, the third edition of Exempt and Hybrid Securities Offerings gives you a useful understanding of the applicable regulations and legal framework for these transactions, as well as the implications of these regulations for structuring transactions.

The treatise provides a detailed analysis of the regulations and guidance affecting exempt and hybrid securities offerings, as well as offers market context and practical structuring advice. Packed with checklists, transactional timelines, SEC guidance, and a wealth of labor-saving sample documents, Exempt and Hybrid Securities Offerings offers the relative advantages and drawbacks of the most commonly used forms of exempt and hybrid offerings. It clearly explains:

  • conducting venture private placements;
  • traditional and structured PIPE transactions;
  • institutional (debt) private placements;
  • Rule 144A offerings;
  • Regulation S offerings;
  • Regulation A offerings and crowdfunding;
  • shelf takedowns;
  • registered direct and ATM offerings;
  • confidentially marketed public offerings; and
  • continuous issuance programs, including MTN and CP programs.

This comprehensive three-volume treatise, with useful forms, has been updated to reflect changes brought about by the Dodd-Frank Act, the JOBS Act, the FAST Act, and other recent regulatory changes.

For more information, please click here.

On October 2, 2017, Congressmen Ted Budd (R-NC) and Gregory Meeks (D-NY) introduced a bipartisan bill, H.R. 3903, in the U.S. House of Representatives.  The bill proposes amendments to the Securities Act of 1933, as amended, to increase initial public offering (“IPO”) and follow-on activity. The proposed legislation extends three JOBS Act provisions currently available to emerging growth companies to all issuers: (1) submission of a draft registration statement for confidential nonpublic review by the SEC prior to the public filing of the IPO registration statement; (2) within the one-year period following an IPO, confidential submission of a draft registration statement for an offering; and (3) the ability to test-the-waters with institutional investors.  The SEC’s Division of Corporation Finance’s policy changes earlier in the year already have addressed confidential submissions for IPOs as well as follow-on offerings undertaken within twelve months of an IPO; however, the bill would ostensibly extend the confidentiality provisions contained in Securities Act Section 6(e)(2) for these draft registration statements.  Currently, those confidentiality provisions are available only for EGCs and confidential submissions made under the new SEC policy must be the subject of a Rule 83 confidential treatment request.  Also, the bill would address the ability to test the waters, which was not addressed by the Division of Corporation Finance.

The text of the bill is available here.

Recently, the Financial Executives Research Foundation (FERF) published a white paper titled, “Growing Past Emerging Growth: Five Years After the JOBS Act,” which highlights areas of focus for emerging growth companies (EGCs) that took advantage of the 2012 JOBS Act and now are losing their EGC status. In particular, the white paper notes the importance of developing a transition plan. Companies ceasing to be EGCs will be required to prepare full compensation disclosures. The more significant hurdle for most companies is addressing Sarbanes-Oxley Section 404 auditor attestation requirements. The white paper provides helpful suggestions on marshalling the requisite resources to prepare for compliance.

Friday, September 15, 2017
3:00 p.m. – 6:00 p.m. EDT

Thomson Reuters Building
3 Times Square, 30th Floor
New York, NY 10036

Morrison & Foerster Sponsorship

Now in its sixth year, IFR’s 2017 US ECM Roundtable will bring together a panel of the most senior ECM practitioners to discuss the very latest market trends and developments.

The format of the event will be a 90-minute discussion – including a 15-minute Q&A session – followed by networking drinks.  The session is free to attend but you must be registered.  Partner Anna Pinedo will participate on the panel.

Topics will include:

  • Overall state of the market;
  • Regulatory developments/JOBS Act;
  • Risk/block trades and accelerated bookbuilds; and
  • SPACs – Flavor of the day or enduring source of funding?

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

The IPO Task Force seems to have come together again.  The Center for Capital Markets released a letter dated August 22, 2017 addressed to the Treasury Secretary setting out a few suggestions, which are quite similar to those that had been advanced a few years ago, and that have as their objective increasing the number of public companies.  The suggestions include:

  • Extending the Title I JOBS Act on-ramp accommodations from five to ten years for EGCs and reviewing the EGC definition;
  • Making the JOBS Act accommodations available to all issuers, not just EGCs;
  • Modernizing the Sarbanes-Oxley internal control over financial reporting requirements;
  • Modernizing securities disclosure requirements;
  • Addressing the rules related to shareholder proposals and regulating proxy advisory firms;
  • Promoting equity market structure changes that enhance liquidity for EGC and small cap stocks; and
  • Incentivizing research coverage.

A bit of additional commentary on these suggestions is offered in the letter, which may be found here: http://www.centerforcapitalmarkets.com/wp-content/uploads/2017/08/Follow-Up-Letter-to-July-28-Roundtable-on-Access-to-Capital.pdf?x48633

The Staff of the SEC also recently updated the procedures relating to nonpublic review of draft registration statements.  Specifically, the following guidance was added:

The nonpublic review process is available for Securities Act registration statements prior to the issuer’s initial public offering date and for Securities Act registration statements within one year of the IPO. In identifying the initial public offering date, we will refer to Section 101(c) of the JOBS Act. The nonpublic review process is available for the initial registration of a class of securities under Exchange Act Section 12(b) on Form 10, 20-F or 40-F. [added August 17, 2017]

An issuer that has a registration statement on file and in process may switch to the nonpublic review process for future pre-effective amendments to its registration statement provided it is eligible to participate in the nonpublic review process and it agrees to publicly file its amended registration statement and all draft amendments in accordance with the time frame specified above. [added August 17, 2017]

See the procedures here:  https://www.sec.gov/corpfin/announcement/draft-registration-statement-processing-procedures-expanded

Global fintech venture capital-backed financings are on course to hit record highs, according to a recent research briefing by CB Insights. For the first half of 2017, there have been 496 VC-backed financings that raised over $8.0 billion for fintech companies around the world. U.S. fintech issuers represented almost 40% of the total number of fintech financings in the first half of the year with 198 deals raising $3.1 billion.

Financings for blockchain and bitcoin companies globally in the first half of 2017 raised $343 million over 36 deals. Wealth tech company financings, which include robo-advisors and mobile investing platforms, raised $661 million across 33 financings. Financings for insurance tech companies accounted for over 15% of financings by number of deals, raising $826 million over 76 deals.

There are now 26 fintech unicorns, companies with a valuation of over $1 billion, which include 15 U.S.-based fintech companies. This follows an ongoing trend of privately held companies choosing to remain private longer. Late-stage investments have been ever more present with companies going through multiple rounds of financings due to increased access to capital. Both global and U.S. late-stage investments in fintech companies hit five-quarter highs, with a median deal size of $34 million and $38.5 million, respectively.

To see CB Insight’s full report, click here.

Amongst other limitations, an issuer will cease to be considered an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act and unable to take advantage of the accommodations for such issuers set forth in the Jumpstart Our Business Startups Act if it has issued more than $1.0 billion of non-convertible debt securities over a rolling three-year period (not limited to completed calendar or fiscal years).  In general, all non-convertible debt securities issued over the prior three-year period, whether outstanding or not, are required to be counted against the $1 billion debt limit.  “Non-convertible debt” in this context means any non-convertible security that constitutes indebtedness, whether issued in a registered offering or not.  In calculating whether an issuer exceeds this $1 billion debt limit, the SEC Staff has interpreted all non-convertible debt securities issued by an issuer and any of its consolidated subsidiaries, including any debt securities issued by such issuer’s securitization vehicles, to count against the $1 billion debt limit.  As a result, asset-backed securities that are considered non-recourse debt and consolidated on a parent issuer’s financial statements for accounting purposes should be included when calculating the applicability of the $1 billion debt limit.  However, the SEC Staff does not object if an issuer does not count debt securities issued in an A/B exchange offer, as these debt securities are identical to (other than the fact that they are not restricted securities) and replace those issued in a non-public offering.

Below, a continuation of our bibliography of thought-provoking articles on issues related to right-sizing regulation, staying private versus going public, and related topics:

The Economics of Primary Markets, Kathleen Weiss Hanley, March 15, 2017.  The paper discusses the public offering process, including the economics of IPOs, such as whether there is underpricing in IPOs, and considers, in this regard, the costs and benefits associated with the IPO bookbuilding process.  In assessing the factors associated with the decline in the number of IPOs, the paper discusses some trade-offs associated with going public versus relying on private offerings, which is very timely given the ongoing dialogue on this topic.

The JOBS Act and the Costs of Going Public, Susan Chaplinsky, Kathleen Weiss Hanley, and S. Katie Moon, January 2017.  The article concludes that there is little evidence that the JOBS Act has reduced the direct costs of going public.  However, there may be accommodations resulting from the JOBS Act, such as those related to reduced disclosure, deferral of certain corporate governance related requirements, the ability to make confidential submissions, and the ability to test the waters, which result in savings that are difficult to .

Patching a Hole in the JOBS Act:  How and Why to Rewrite the Rules that Require Firms to Make Periodic Disclosures, Michael D. Guttentag, 88 Ind. L. J. 151, 2013.  This article examines the circumstances under which, or the conditions that should trigger when, companies should be required to comply with periodic disclosure requirements.

Information Issues on Wall Street 2.0, Elizabeth Pollman, 161 U. Pa. Rev. 179 2012-2013.  The article examines concerns arising from secondary private transactions as a result of lack of information, asymmetric information, and conflicts of interest, as well as concerns regarding insider trading.

“Publicness” in Contemporary Securities Regulation After the JOBS Act, Donald C. Langevoort and Robert B. Thompson, 101 Geo. L.J. 337, 2012-2013.  This paper considers whether the number of record holders is the right measure to use in determining “publicness,” or whether a different measure ought to be used, and how we should think about distinguishing between private and public companies.

Mutual Fund Investments in Private Firms, Sungjoung Kwon, Michelle Lowry, and Yiming Qian, April 2017.  Institutional investors hold a significant percentage of public equity.  The underlying premise of the paper is that mutual funds tend to invest in private companies backed by high quality venture capitalists.

On May 10, 2017, the SEC’s Division of Economic and Risk Analysis and New York University’s Stern School of Business held a dialogue aimed at assessing the economic factors causing the recent downturn in initial public offerings (“IPOs”) in the U.S. market.  Former Acting Chair and current SEC Commissioner Michael Piwowar began the dialogue, reiterating the importance of making public capital markets available to businesses.  Commissioner Piwowar emphasized that a robust IPO market fosters innovation, creates jobs and provides opportunities for investors to increase wealth and mitigate risk.

Throughout the discussion, academics, regulators and industry practitioners opined on economic trends that have led to a severe decrease in IPO activity over the past fifteen years.   The overall IPO activity is presently less than 1/3 of where it stood in the 1990s and 40% of current-day IPOs are undergone by large companies.  Panelists agreed that regulation, including restrictions and disclosures required by Sarbanes Oxley and the JOBS Act, has had at most a minimal impact on the decline of the IPO market.  Rather, through venture capital, private equity, hedge funds and mutual funds, emerging companies today enjoy a variety of options to privately grow their businesses and gain needed liquidity.  Even firms desiring “exit options” can opt to pursue for strategic sales rather than entering the public market.  While some industry professionals expect an uptick in IPOs as soon as this year, the time allocation, cost and risk of going public will likely continue to limit IPO activity, particularly among smaller issuers.

Commissioner Piwowar’s opening remarks at the SEC-NYU Dialogue on Securities Market Regulation: Reviving the U.S. IPO Market are available at: https://www.sec.gov/news/speech/opening-remarks-sec-nyu-dialogue-securities-market-regulation-reviving-us-ipo-market