Today, the Securities and Exchange Commission released proposed rules that would require public companies to provide greater disclosure of its short-term borrowings. The SEC also released interpretive guidance for current disclosure requirements for the Management’s Discussion and Analysis of Financial Condition and Results of Operation (MD&A).

The proposed rules are similar to the SEC's Guide 3, currently applicable only to bank holding companies, and would require the following disclosure of a company's short-term borrowing:

  • the amount in each specified category of short-term borrowings at the end of the reporting period and the weighted average interest rate on those borrowings.
  • the average amount in each specified category of short-term borrowings for the reporting period and the weighted average interest rate on those borrowings.
  • for registrants meeting the proposed definition of “financial company,” the maximum daily amount of each specified category of short-term borrowings during the reporting period; and
  • for all other registrants, the maximum month-end amount of each specified category short-term borrowings during the reporting period.

The proposed rules would require this disclosure of all companies in the MD&A section of their periodic reports.

The interpretive release addresses the perceived increase in the complexity and diversity of companies’ financing activities by restating the SEC’s desire that companies’ disclosure meet the objectives of MD&A. Specifically, the interpretive release:

  • reminds companies that it must clearly communicate material liquidity risks,
  • clarifies the disclosure obligations related to repurchase agreements accounted for as sales,
  • makes clear that the use of financing structures in a manner that masks a company’s reported financial condition is not permitted,
  • emphasizes that leverage ratios and financial measures must be calculated and presented in a way that does not obscure the company’s leverage profile or reported results, and
  • provides guidance on the requirement to provide tabular disclosure of contractual obligation, an area where companies have drawn divergent conclusions as to the disclosure requirements.

The proposed rules are subject to a 60 day public comment period. The interpretive guidance is effective immediately.