For some types of securities offering programs, we have "black letter law" that instructs issuers how frequently the program documentation should be updated and their offering documents refreshed. For example, U.S. shelf registration statements must be renewed every three years. Prospectuses for EMTN programs that are required under the European Union's "prospectus directive" must be updated annually. However, what guidance do we have for exempt bank note programs? Structured CD programs? Rule 144A or Regulation D structured note programs? We are often asked about the timing for proposed updates for these programs, as they are not subject to a specific set of updating rules. As a result, in this article, we discuss the considerations that may inform a decision about when it is time to refresh one of these programs. Adequacy of Disclosures About the Issuer. The first order of business in addressing this question is to understand whether the issuer-related disclosures included in the current program offering materials are up-to-date. A typical exempt offering program will "forward-incorporate" issuer disclosures from the relevant issuer's Exchange Act filings (or similar documents in the issuer's home jurisdiction), including the relevant risk factors relating to the issuer's business and financial results. However, even if this is the case, the disclosures in the relevant offering documents should be evaluated to ensure that these are current. Have significant mergers, acquisitions, or dispositions occurred since the last time the issuer's business was described? Has there been some other fundamental change in the issuer's business? Are any summary or long-form financial statements that are provided in the program documents too stale to be meaningful?
Even the summary business description that may appear in an offering circular could be outdated. If so, a refresh of the program may be advisable.
Investor Base. Institutional investors, such as those that purchase securities in a Rule 144A program, may be deemed to have access to, and be more likely to understand, the issuer's recent financial results. Accordingly, if the issuer's most recent reports are incorporated by reference, it may be deemed less useful to refresh a program. However, at the other end of the spectrum, for example, in the case of bank notes or CDs that may be offered to retail investors, it may be useful to include recent summary financial information and to reference specifically the most recent company reports that an investor may look to for key business and financial information.
Currency of Risk Factors and Technical Terms. Many frequent issuers of structured notes have multiple registered and unregistered issuance platforms. Over time, as these programs are updated, the issuers will revise (and modernize?) their risk factors, as well as more technical disclosures such as redemption procedures, "market disruption events," antidilution provisions for common equity securities, events of default, the authority of the calculation agent, and other matters. To the extent these items have been updated in other programs, an issuer may deem it advisable, and administratively more convenient, to ensure that its unregistered programs are similarly revised to match up the relevant provisions.
Underlying Program Documents. Most of our discussion so far has focused on the disclosure documents that are used in connection with a program. However, there are a variety of other documents that should be considered in connection with a program:
Indenture/Paying Agency Agreement: are the covenants, events of default, and other provisions consistent with the issuer's other program documents, current market practice, and current regulatory requirements?
Program Agreement: does the agreement between the issuer and the distributors set forth appropriate representations, warranties, and covenants? Do these provisions conform to current practices and to the distributors' due diligence requirements?
Legal Opinions and Comfort Letter: is the existing suite of "deliverables" sufficient in light of current regulatory and risk management needs? Are there any current business and legal issues facing the issuer?
Marketing Considerations. Last, but not least, optics may matter. In some exempt offering programs, it may be reasonable to rely on a base offering document that is three or more years old. In other contexts, particularly when retail investors are involved, an "old" offering document may seem out of place, even if it includes and/or incorporates information that is fairly current. In each case, the views of the relevant distributors should be considered carefully.
We would not suggest that there is a single right answer regarding the frequency of program updates. However, upon consideration of the issues discussed above, the issuer, the distributors, and their respective counsel can make a judgment.