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The SEC Expands Its Confidential Review of Registration Statements

Firm Thought Leadership

On June 29, 2017, the Securities and Exchange Commission announced that, subject to certain restrictions, it will expand the confidential submission process currently reserved for emerging growth companies (EGCs)—generally, issuers with less than $1.07 billion in gross revenue during their most recently completed fiscal year—to all initial public offering issuers and newly public companies. The new policy, which is part of the SEC’s ongoing efforts to facilitate capital formation, will take effect on July 10, 2017. The SEC’s announcement can be found here, and the staff’s explanation of these procedures is available here.

Confidential Review Available for All IPOs

Under the SEC’s new policy, all issuers (not just EGCs) are permitted to participate in the confidential review process in connection with their IPO. As a result, all issuers will be able to submit their initial registration statement, as well as revisions to the initial registration statement, to the SEC on a confidential basis. In order to take advantage of the policy, an issuer must confirm in a cover letter that it will publicly file its registration statement, and all nonpublic draft submissions, at least 15 days prior to any roadshow or, in the absence of a roadshow, at least 15 days prior to the requested effective date of the registration statement.

Confidential Review for Spin-Off Companies

The policy change also applies to the initial registration of securities under Section 12(b) of the Securities Exchange Act of 1934. This will permit many spin-offs to take advantage of the confidential submission process.

Confidential Review in First Year After IPO or Spin-Off

Under the new policy, prior to the end of the 12th month following the effective date of an issuer’s IPO or spin-off, the SEC will confidentially review an issuer’s initial draft of a registration statement so long as the issuer confirms in its cover letter that it will publicly file its registration statement, as well as its confidential submission, at least 48 hours prior to the requested effective time and date. This relief applies to all issuers, not just EGCs. Importantly, however, confidential review is available only for the initial submission and not for subsequent revisions or changes made in response to SEC staff comments. Issuers responding to staff comments must do so with a public filing, not with a revised confidential submission.

Flexibility to Omit Certain Financial Statements in Initial Submission

The new policy extends certain relief related to financial statements that currently only applies to EGCs. Pursuant to the Fixing America’s Surface Transportation Act (the FAST Act), which is discussed here, EGCs may omit historical financial information otherwise required to be included in an IPO registration statement if the EGC “reasonably believes” that the financial information for that period will not be required to be included in the registration statement at the time of the contemplated offering. Under the new policy, all issuers submitting a draft registration statement will be permitted to omit financial information that they reasonably believe will not be required at the time the registration statement is publicly filed. The SEC noted that it would consider “reasonable requests” to expedite its review of both confidentially submitted and publicly filed registration statements, and the SEC staff encouraged issuers and their advisors to review their transaction timing with the member of the SEC staff assigned to the filing review.

No Impact on EGCs or Foreign Private Issuers

The SEC’s new policy does not change the existing confidential submission process for EGCs. Likewise, the policy does not affect the confidential submission processes otherwise available for foreign private issuers.

Conclusion

The new policy is intended to make it easier for companies to access the public markets. By permitting all companies to take advantage of the confidential review process, the new SEC rules should provide companies with greater control over the timing of disclosure of their potential IPO, spin-off or follow-on offering and reduce the potential for lengthy exposure to negative market fluctuations during the SEC review process.


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