The SEC approved final rule amendments that modify disclosures for debt offerings under Regulation S-X and clarify RBICs under the Advisers Act’s rules.
The SEC issued two sets of final rules aimed at easing registration requirements and clarifying the status of the assets of certain issuers. One set of amendments deals with debt offering disclosures under Regulation S-X, while the other set of amendments clarifies the status of rural business investment companies (RBICs) under the Adviser Act’s rules (Exemptions From Investment Adviser Registration for Advisers to Certain Rural Business Investment Companies, Release No. IA-5454, March 2, 2020; Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, Release No. 33-10762, March 2, 2020).
With respect to the debt offering rules changes, SEC Chairman Jay Clayton said: "This is another example of our career staff applying their unparalleled experience and expertise to bring forward a pragmatic and effective modernization of our disclosure requirements." Clayton also explained that the Advisers Act rule changes could encourage investment in rural areas of the U.S.: "It is my hope that the reduction in regulatory burdens will encourage capital formation in rural areas where capital to form and grow a business all too often is more scarce than it should be."
RBIC advisers. The first release impacts the Investment Adviser Act rules for venture capital funds and private funds. The new rules modify the definition of "venture capital fund" to include RBICs. Currently, the applicable provision defines this term to apply to advisers who advise only venture capital funds.
The Investment Adviser Act rules also were amended to revise the definition of "assets under management" in the context of the private fund advisor exemption. The amended definition clarifies that it excludes the assets of RBICs. The final rules changes are effective upon publication in the Federal Register.
Debt securities. The second release addresses disclosures under Regulation S-X required of guarantors and issuers of guaranteed securities, plus issuers’ affiliates whose securities collateralize a registrant’s registered securities. Specifically, the amendments impact the financial disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered in Rule 3-10 of Regulation S-X and affiliates whose securities collateralize securities registered or being registered in Rule 3-16 of Regulation S-X.
The purpose of the revisions is to ease burdens on registrants while providing material information to investors. Other benefits of the rule changes are to encourage registered instead of unregistered offerings and to facilitate the inclusion of credit enhancements that could lower the cost of capital.
The debt securities rule amendments have a complex transition period. Securities Act registrations first filed on or after January 4, 2021 must comply with the amendments. Additional transition requirements apply to Exchange Act registrations. Voluntary compliance before the January 4, 2021 effective date is permitted, but thereafter subsequent Exchange Act or Regulation A periodic reports must comply with the new rules.
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