Flash: SEC Proposes To Remove Security Rating Eligibility Criteria From Securities Act Registration Statements And To Rescind MJDS Form F-9

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 issuers." 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...

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