On February 9, 2011, the SEC issued its first proposed rule
amendments pursuant to the requirement of the Dodd-Frank Act to
remove references to credit ratings in the SEC's rules and
forms and replace them with other appropriate criteria.
Specifically, the proposed rules would revise the eligibility
criteria for registering primary offerings of non-convertible
securities on Forms S-3 and F-3, the principal U.S. short form
registration statements. Additionally, and of particular
significance to Canadian companies, the SEC is proposing to rescind
Form F-9, the primary MJDS form for registered offerings of
non-convertible debt and preferred stock.
To use Form S-3 or Form F-3 for primary offerings, issuers must
either have a $75 million public equity float or, if they do not
satisfy that requirement (e.g., in the case of a wholly owned
subsidiary), then any non-convertible securities (i.e., debt or
preferred shares) to be registered must be investment grade rated.
As proposed by the SEC, the investment grade eligibility
requirement of these forms would be replaced with a requirement
that the issuer have issued at least $1 billion in non-convertible
securities (other than common equity) for cash in SEC-registered
offerings over the three years preceding the filing of the
registration statement. This is the same criterion used under the
Securities Act of 1933 to define issuers of
non-convertible securities as "well-known seasoned
The proposed rules would also rescind Form F-9, which similarly
requires that the debt or preferred securities to be registered be
investment grade rated. Use of Form F-9 (rather than Form F-10, the
general MJDS registration statement form), is often preferred
because it does not (as does Form F-10) require reconciliation of
the issuer's financial statements to U.S. GAAP. Because,
however, Canadian public companies are now generally required to
prepare their financial statements in accordance with IFRS, the SEC
is of the view that Form F-9 is dispensable. Form F-10, however,
requires that either the issuer of the registered securities have a
public equity float of $75 million or that any debt securities or
preferred securities of a majority-owned subsidiary being
registered be fully and unconditionally guaranteed by the parent
company, which itself must meet all the F-10 requirements.
The proposing release further provides that issuers that currently
have a reporting obligation under the Securities Exchange Act
of 1934 resulting solely from an F-9 registration statement
covering investment grade securities would be required to file
annual reports on Form 20-F rather than being permitted, as is
currently the case, to file on MJDS Form 40-F. Preparation of Form
20-F, a U.S. form, requires considerably more time and effort than
does Form 40-F, which is essentially a wrapper form covering the
issuer's annual information form, audited financial statements
and MD&A filed in Canada.
The proposed amendments are subject to public comment, and thus the
final rules may differ in significant ways from the proposals. The
comment period for the rule proposal ends on March 28, 2011, and
adoption of the final rules is scheduled for the second quarter of
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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