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The SEC’s new policy of allowing all companies to file draft registration documents for initial public offerings confidentially provides welcome flexibility to access the public markets and is likely to spur more IPOs, deal lawyers and others told Bloomberg BNA.
“I think it’s great, and very welcome,” securities and derivatives lawyer Anna Pinedo, Morrison & Foerster LLP, New York, said in a telephone interview. The move sets a new tone regarding initiatives the agency can undertake on its own without legislation. It also doesn’t raise any investor protection issues, she said.
New York lawyer Michael Zeidel, a corporate finance partner at Skadden Arps Slate Meagher & Flom LLP, agreed. Expanding the nonpublic review process should be seen as an “incremental change” that gives larger issuers more flexibility, not as a change in market transparency or reduction in investor protection, Zeidel said.
Through a spokesperson, the Securities and Exchange Commission declined to comment.
Most people Bloomberg BNA spoke with also said the move is likely to spur more registered offerings, a goal of SEC Chairman Jay Clayton. “The capital markets like certainty, and this new process provides just that—certainty as to the timing of an offering and the related terms,” Gibson Dunn & Crutcher LLP’s James Moloney said.
Moloney, who practices securities and mergers and acquisitions law out of the firm’s Orange County, Calif., office, said the announcement, coupled with indications the staff is willing to consider waiver requests for certain financials that may be difficult to obtain, “signals a much friendlier review process” in which the staff is willing to consider new ways of resolving impediments to issuers’ capital-raising efforts.
In at least one lawyer’s view, the announcement allowing companies to omit certain financial information doesn’t mean the staff will be more flexible in reviewing the substance of the financial statements themselves. Rather, issuers will be able to avoid the time and expense of preparing financial information that won’t be publicly filed or used by investors in evaluating the IPO, New York lawyer Catherine Clarkin, deputy managing partner of Sullivan & Cromwell LLP’s Capital Markets Group, said.
Moloney and Zeidel agreed that the regulatory burdens associated with being a public company are only partly responsible for the decline in IPOs. However, both attorneys predicted the expanded confidential filing process will spur companies to begin the filing process earlier, allowing them to go public at the optimum time.Clayton, Corporation Finance Division Director William Hinman, and other new SEC managers “are clearly signaling their intention of doing everything possible to kick-start the public markets and entice more issuers to come in, file with the SEC and get their deals through review in a shorter period, thereby allowing issuers to access the public markets during favorable windows when conditions are right,” Moloney said.Moloney and Andrew Brady, a former SEC lawyer now of counsel in Skadden’s Washington office, both said investment banks that underwrite securities offerings will benefit from the move. “If the new process results in more registered securities offerings, as I suspect it will, then there will be an increase in actual offering activity, and I’m sure the underwriters will do just fine,” Moloney said.
University of Virginia Law Professor Andrew Vollmer, a former SEC lawyer who served briefly as the agency’s acting general counsel, agreed that the development “signals a new flexibility about the registration process and a willingness to consider departures from the standard approach.”
However, he added, "[m]uch more can be done.” In Vollmer’s view, the commission should work with lawmakers to allow all issuers to communicate about an offering at any time. The agency also could reduce significantly required disclosures in a registration statement and in periodic filings, he told Bloomberg BNA.
Dennis M. Kelleher, president and chief executive officer of Better Markets, a nonprofit organization, took a more guarded view.
In an email, Kelleher said the key for investors is what happens after the SEC review process. Has the issuer been required to disclose all material information needed to evaluate the company? he asked. Are prospective IPO investors, typically sophisticated institutional investors, given enough time to evaluate the information before making an investment decision? “If the answers to both those questions are yes, then whether the SEC review process was confidential or not is less important.”
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The SEC staff has issued FAQs regarding the new policy.
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