With ongoing economic uncertainty, many companies are thinking about and taking steps to address liquidity and capital resources. John wrote last week about Corp Fin’s COVID-19 disclosure guidance, and this Davis Polk memo takes a look at factors public companies and their underwriters should consider when thinking about a possible securities offering during a blackout period. Self-imposed blackout periods are in place at many companies due to the rapidly developing COVID-19 pandemic and insider knowledge of potential impacts to a company. Care must always be taken when thinking about disclosures with a securities offering, but in light of current circumstances, disclosure considerations are now heightened.
As noted in the memo, there is no legal prohibition on the sale of securities during a blackout period, but it can be tricky. Even with a blackout period in place, for companies thinking about a securities offering, the memo says it’s possible to do so when:
– management has enough information about the current (or recently ended) quarter to predict with a fair degree of confidence what the company’s reported results are likely to be
– management has a good track record judging its anticipated results at similar points in the information-gathering and reporting cycle
– management’s expectations for the quarter, and future periods, are either (i) at least in line with “the market’s” expectations as well as with management’s own previously announced guidance (if any) – or (ii) if management’s expectations are not so in line, the company and its underwriters conclude that the deviation is not material or the company is willing to “pre-release” its current expectations prior to the earnings release. In certain circumstances, such as those relating to the impact of the COVID-19 crisis, management may not be able to predict the company’s results beyond the current quarter, with a high degree of confidence. In those scenarios, a company may decide to withdraw previously issued guidance and not issue new guidance. Nevertheless, withdrawing guidance is not a substitute for disclosure of underlying trends and uncertainties that could affect financial and operational performance
– management’s analysis of the going-forward impact on the company’s business of COVID-19 is sufficiently developed that disclosure can be made at the time of the offering that will be in line with what is disclosed when the 10-K, 20-F, 10-Q, 6-K or other filing is made
The memo provides tips on what to say if management’s expectations aren’t in line with market expectations and considerations for updating risks, trends and uncertainties, selective disclosure issues, as well as reputational and legal risks.
-Lynn Jokela, TheCorporateCounsel.net April 2, 2020
