On March 2, 2020, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements in Rules 3-10 and 3-16 of Regulation S-X, applicable to registered debt offerings involving guaranteed or collateralized securities. The amendments are intended to improve the quality of disclosure to investors, and encourage issuers to conduct debt offerings with these credit enhancements, on a registered, rather than an unregistered, basis. The final amendments largely follow the SEC's proposals in its July 2018 release.

In general, unless specified conditions are met to avail of an exemption, existing Rule 3-10 requires financial statements to be filed for issuers and guarantors of registered securities, while existing Rule 3-16 requires a registrant to provide separate financial statements for each affiliate whose securities constitute a substantial portion (i.e. 20%) of the collateral for securities offered. The Rule 3-10 amendments continue to allow the omission of separate subsidiary issuer or guarantor financial statements, but new Rule 13-01 effects changes to the conditions to be met to avail of such exemption, including: (i) replacing the condition that a subsidiary issuer or guarantor be 100%-owned by the parent company with a condition that it be consolidated in the parent company's consolidated financial statements, (ii) replacing condensed consolidating financial information with new financial (i.e. simplified "summarized financial information" for issuers and guarantors) and non-financial disclosures, (iii) allowing amended disclosures to be provided outside the financial statement footnotes; and (iv) requiring amended disclosures for as long as an issuer or guarantor has an Exchange Act reporting obligation with respect to guaranteed securities, rather than for as long as the guaranteed securities remain outstanding. The Rule 3-16 amendments, to be codified in a new Rule 13-02, will among other things: (i) replace the existing requirement to provide separate financial statements for each such affiliate, with amended financial and non-financial disclosures about the affiliate and the collateral arrangement as a supplement to the consolidated financial statements of the issuing registrant, and (ii) replace the 20% numerical threshold, with a new requirement to provide financial and non-financial disclosures in all cases unless they are immaterial to holders of the collateralized security.

The amendments will be effective on January 4, 2021, but voluntary compliance ahead of that date will be permitted. Here are links to the SEC's Fact Sheet and the adopting release.

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