On February 9, 2011, the SEC proposed rules in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that would remove references to credit ratings in rules and forms promulgated under the Securities Act and the Exchange Act. Under the proposed rules, the transaction eligibility criteria for use of Form S-3 and Form F-3 would be revised so that issuers of non-convertible debt securities could no longer qualify by issuing investment grade securities.
Under the proposed rules, Instruction I.B.2. of Form S-3 and Form F-3 would provide that an offering of non-convertible securities is eligible to be registered on Form S-3 and Form F-3 if the issuer has issued at least $1 billion of non-convertible securities in transactions registered under the Securities Act, other than equity securities, for cash during the past three years (as measured from a date within 60 days of the filing of the registration statement) and satisfies the other relevant requirements of either Form S-3 or F-3. The proposed standard is the same standard used to determine whether a company that does not meet the public equity float requirement (at least $75 million in common equity held by unaffiliated shareholders) qualifies as a well-known seasoned issuer (WKSI).
Currently, to be eligible to use a short-form registration statement on Form S-3 or F-3, an issuer must meet certain registration requirements and at least one of several transaction requirements. The registration requirements include having been a reporting company for at least one year and having been timely satisfying the reporting requirements during such period. For a primary offering, companies can currently satisfy the transaction requirements by issuing non-convertible securities that are rated as investment grade.
Currently, companies issuing non-convertible corporate debt that do not meet the public equity float requirement may rely on the investment grade securities criteria to satisfy the transaction requirement to use either Form S-3 or F-3. The proposed rules would not change the public equity float requirement and therefore should only impact investment grade issuers that do not have publicly traded equity securities. The proposed rules are very similar to changes proposed by the SEC in 2008 that were never finalized. Comments to the proposed rule are due by March 28, 2011.