Today, the staff of the Division of Corporation Finance (the "Staff") of the Securities and Exchange Commission issued a no-action letter to Davis Polk, Cleary Gottlieb and O'Melveny & Myers permitting reliance upon Section 3(a)(9) of the Securities Act of 1933 for the issuance of a new parent security in exchange for an outstanding parent security that has one or more "upstream" guarantees from the parent's 100%-owned subsidiaries (the "3(a)(9) Upstream Guarantee Letter"). All of the prior Staff no-action positions involving the availability of Section 3(a)(9) for exchanges of guaranteed securities had involved "downstream" guarantees (i.e., situations where the parent guaranteed a security issued by one or more of its subsidiaries) as opposed to "upstream" guarantees.
As a result of the 3(a)(9) Upstream Guarantee Letter:
- issuers of securities with upstream guarantees will not be required to keep a shelf registration statement effective for the life of the outstanding convertible security to cover exercises and
- issuers of securities with upstream guarantees will have an attractive third option for effecting exchange offers in addition to registration (which has timing implications) and relying on a private placement exemption (which limits the potential offerees).
See the 3(a)(9) Upstream Guarantee Letter
See the no-action request letter