SEC Expands Accommodations for its Confidential Registration Statement Review Process, Increasing Flexibility for Issuers

On March 3, the United States Securities and Exchange Commission (SEC) issued guidance expanding its policies related to its confidential Draft Registration Statement (DRS) review process to all registration statements made under the Securities Act of 1933, as amended (Securities Act) and the Exchange Act of 1934, as amended (Exchange Act).

Background of the Confidential SEC Review Process

The confidential DRS process allows issuers to have their registration statements reviewed by SEC staff prior to making the filing public. By allowing companies the opportunity to submit DRSs under confidential treatment, issuers are shielded from having to prematurely alert the public market of the contemplated offering and from sharing sensitive company information before the offering is adequately developed.

The 2012 Jumpstart Our Business Startups (JOBS) Act first extended the confidential DRS process to Emerging Growth Companies (EGCs). The accommodation was expanded to all issuers in 2017 to include the following situations:

1. Registration statements filed in connection with an Initial Public Offering (IPO).
2. Initial registration statements filed pursuant to Section 12(b).
3. The initial submission of a Securities Act related registration statement within the 12 month-period following (1) the IPO registration statement’s effective date or (2) an issuer’s registration statement under 12(b) of the Exchange Act.

Highlights of the Change in Policy

1. Expansion of Registration Statement Eligibility: The SEC expanded its confidential review process to apply to registration statements made under 12(g) of the Exchange Act, which includes Forms 10, 20-F, and 40-F.
2. Removal of Timing Restrictions: With these new accommodations, the SEC has eliminated the 12-month window restriction and will now accept DRSs for confidential review related to Securities Act offerings or registration statements made pursuant to Sections 12(b) or 12(g) of the Exchange Act, regardless of the amount of time since the issuer’s IPO. 
3. De-SPAC Transactions:  De-SPAC transactions may now use DRSs for confidential review where the SPAC is the surviving entity if the target company qualifies for confidential review under the SEC’s prior policies.
4. Omission of Underwriter Name from Initial DRS: In the instance where an issuer has not yet selected its underwriter in connection with an eligible registration statement, the SEC now allows issuers to omit underwriter names from its initial DRS submission. Note, the underwriter details must eventually be disclosed in subsequent confidential DRS submissions and the publicly filed registration statement.

Implications and Practical Guidance

Now that more companies, both private and public, will have access to the SEC’s confidential review process, we anticipate there will be an increase in filers taking advantage of these accommodations. The accommodations will be particularly useful to issuers who have been public for more than 12 months but are ineligible to use the Form S-3 shelf registration process. For these issuers, a public registration statement would signal the beginning of an offering to the market, even if an SEC review will significantly delay the offering’s closing.  

In any DRS submission, there are certain items we would flag and remind companies to keep in mind when electing to use the confidential review process:

1. Any and all DRS submissions (and related SEC correspondence) will eventually be made public via EDGAR once the registration statement is publicly filed.
2. The SEC has cautioned that its ability to keep draft registration statements and related correspondence confidential prior to a public filing is not absolute, though it will protect these materials where possible.
3. As the SEC has previously required, submissions should be substantially complete, though the SEC’s guidance provides that it will proceed with its review of filings omitting historical financial information if the issuer reasonably believes the omitted information will not be required at the time of public filing because of the passage of time.