The SEC has adopted new rules amending the eligibility criteria for Form S-3 to replace credit ratings criteria as a measure of eligibility with four new tests. Form S-3 is a “short-form” registration statement available to qualified issuers and for eligible transactions. This form also enables issuers to conduct “shelf” offerings. The change is in response to the requirement under the Dodd-Frank Wall Street Reform and Consumer Protection Act that financial regulators reduce their reliance on credit rating agencies.

Under the old rules, qualified issuers could use the short-form registration statement if they are registering, among other eligible transactions, an offering of non-convertible securities, such as debt securities, that had received an investment grade rating by a nationally recognized statistical rating organization. The new rules replace this transaction eligibility criteria with the following four tests, one of which must be satisfied in order to register an offering of non-convertible securities on Form S-3:

  • the issuer has issued (as of a date within 60 days prior to the filing of the registration statement) at least $1 billion in non-convertible securities, other than common equity, in primary offerings for cash, not exchange, registered under the Securities Act of 1933, over the prior three years;
  • the issuer has outstanding (as of a date within 60 days prior to the filing of the registration statement) at least $750 million of non-convertible securities, other than common equity, issued in primary offerings for cash, not exchange, registered under the Securities Act;
  • the issuer is a wholly-owned subsidiary of a well-known seasoned issuer as defined under the Securities Act; or
  • the issuer is a majority-owned operating partnership of a real estate investment trust that qualifies as a well-known seasoned issuer.

The new rules include a temporary grandfather provision that allows an issuer to use the shortform registration statement if it has a reasonable basis to believe that it would have been eligible under the prior transaction eligibility criteria and files final prospectus on or before September 2, 2015.