On 24 July 2018, in line with its efforts to ease disclosure and capital formation obligations applicable to public companies while ensuring that investors have access to material information, the SEC proposed rule amendments that would simplify the financial disclosure requirements for registered debt offerings with regard to guarantors and issuers of guaranteed securities, as well as for affiliates whose securities collateralize a registrant's securities. The SEC is proposing to amend Rules 3-10 and 3-16 of Regulation S-X and relocate part of Rule 3-10 and all of Rule 3-16 to new Article 13 in Regulation S-X, which would comprise proposed Rules 13-01 and 13-02.

Proposed Amendments to Rule 3-10:

  • As proposed, Rule 3-10 would continue to permit the omission of separate financial statements of subsidiary issuers and guarantors, provided that certain conditions are met and the parent company provides supplemental financial and non-financial disclosure about the subsidiary issuers and/or guarantors and the guarantees. The requirements regarding disclosures would be provided by proposed Rule 13-01, which would principally:

    • require that subsidiary issuers or guarantors be consolidated in the parent company's consolidated financial statements rather than be 100% owned by the parent company, as is currently required;
    • replace condensed consolidating financial information as required under the current rule with certain proposed financial and non-financial disclosures: (i) the financial disclosures would consist of summarized financial information of the issuers and guarantors, which may be presented on a combined basis, and reduce the number of periods presented, and (ii) the non-financial disclosures would expand the qualitative disclosures regarding the guarantees and the issuers and guarantors, as well as require disclosure of additional information that would be material to holders of the guaranteed security; and
    • allow the disclosures to be provided outside the footnotes contained in the parent company's financial statements in the registration statement covering the offer and sale of the subject securities and any related prospectus, as well as in certain Exchange Act reports filed shortly thereafter.

Proposed Amendments to Rule 3-16:

  • In line with the SEC's view that separate financial statements of affiliates whose securities are pledged as collateral are not material in most situations, the proposed amendments to Rule 3-16 would notably:

    • replace the current requirement to provide separate financial statements with regard to each affiliate whose securities are pledged as collateral with financial and non-financial disclosures about the affiliate(s) and the collateral arrangement as a supplement to the consolidated financial statements of the registrant that issues the collateralized security; and
    • permit the proposed financial and non-financial disclosures to be located in filings in the same manner as described above for the disclosures related to guarantors and guaranteed securities.

The SEC press release announcing the proposed rule is available at:

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