The SEC adopted a final rule to "simplify and streamline" the financial disclosure requirements for certain guarantors and issuers under Regulation S-X concerning registered debt offerings. The rule amendments will go into effect on January 4, 2021, but compliance prior to this date is permitted.

As previously covered, the amendments will streamline financial disclosure requirements for (i) guarantors and issuers of guaranteed securities and (ii) issuers' affiliates whose securities collateralize a registrant's securities. In addition, the SEC stated that the amendments are intended to (i) provide material information to investors "given the relevant facts and circumstances," (ii) improve the clarity of disclosures, and (iii) reduce the costs and burdens of compliance for registrants, and so increase the number of registered offerings with credit enhancements.

Based on comments received, the SEC adopted the proposal with certain modifications, including:

  • requiring disclosure of additional information about each guarantor that would be material for investors to evaluate the guarantee;

  • allowing supplementary financial and non-financial disclosures regarding subsidiary issuers and/or guarantors and the guarantees to be provided outside of the footnotes to the parent's consolidated financial statements in all cases; and

  • rescinding the requirement that recently acquired subsidiary issuers and guarantors provide pre-acquisition financial statements.

Statement of Dissent

SEC Commissioner Allison Herren Lee criticized the final rule, stating the changes (i) will reduce disclosures and protections for investors, and (ii) rely on "regulatory intuition" and assumptions lacking supporting evidence regarding disclosure requirements. In particular, Commissioner Herren said the final rule assumes that:

  • lessening disclosures and increasing reliance on management's materiality judgments will improve disclosures for investors; and
  • reducing issuers' burdens (i.e. reducing attendant costs as a result of reducing disclosure requirements) will result in an increased number of public offerings.