June 18, 2008
SEC Staff Provides Some Auction Rate Securities Relief
The Investment Management and Corp Fin Staffs recently provided some no-action relief to Eaton Vance Management in one of the latest efforts to deal with the locked-up auction rate securities markets. There really seems to be no end in sight for the troubles in the auction rate market, so there is no doubt that the Eaton Vance’s plan to bail out its auction rate security holders will come as some welcome relief.
Several Eaton Vance funds have auction rate preferred securities outstanding, and Eaton Vance is seeking to enhance liquidity for the holders of the auction rate securities, given the inability to conduct auctions under current market conditions. Under the proposed transactions, the funds would issue “liquidity protected preferred shares” that would enable holders to sell their shares through a periodic remarketing or, in the event that the shares are not successfully remarketed, to a designated liquidity provider.
In addition to the requested Investment Company Act relief, Corp Fin said that, while offers to purchase the liquidity protected preferred shares in the event that they could not be remarketed may be a tender offer, the Staff would not recommend enforcement action if the offers are conducted without complying with Rule 13e-4 and Regulations 14D and 14E.
FASB Proposes an Expansion of FAS 5 Disclosures
Earlier this month, the FASB issued an Exposure Draft of a proposed Statement, Disclosure of Certain Loss Contingencies — an amendment of FASB Statements No. 5 and 141(R). The FASB is seeking to significantly expand the disclosures required about loss contingencies (including loss contingencies assumed in a business combination), such as pending or threatened litigation.
In issuing the Exposure Draft, the FASB is responding to concerns expressed by investors and others about the inadequacy of information currently available regarding the likelihood, timing and amount of future cash flows associated with loss contingencies. These changes could significantly impact the audit response letter process, given the potential increase in disclosure obligations concerning sensitive matters such as ongoing litigation and the operation of the proposed “prejudicial” exemption.
The proposal seeks to enhance current disclosure requirements by:
– expanding the types of loss contingencies to be disclosed to include specified remote loss contingencies;
– requiring that certain quantitative and qualitative information be disclosed;
– requiring a tabular reconciliation of changes in amounts recognized for loss contingencies; and
– providing an exemption from disclosing certain required information, if disclosing the information would be prejudicial to a company’s position in a dispute.
A significant aspect of the FASB’s proposal is the expansion of contingencies that are potentially reportable. Today, a company does not typically have to disclose loss contingencies for which the likelihood of a loss is remote. Under the proposed Statement, a company would be required to disclose remote loss contingencies if:
– the contingency (or contingencies) is expected to be resolved in the near term (within one year from the date of the financial statements); and
– the contingency (or contingencies) “could have a severe impact on the entity’s financial position, cash flows, or results of operations.”
Under the proposal, disclosure would also be required for all loss contingencies that stem from asserted claims or assessments (or those for which it is probable a claim will be asserted) and for which the likelihood of loss is deemed more than remote.
The FASB wants to “field-test” this proposal with preparers, and it also hopes to hold at least one roundtable on the topic. If adopted, the proposed Statement would be effective for fiscal years ending after December 15, 2008, and interim and annual periods in subsequent fiscal years. Comments are due by August 8, 2008.
Join us tomorrow for this important webcast – “E-Proxy’s First Season: Lessons Learned” – and hear:
– Lyell Dampeer, President, Broadridge Financial Solutions
– Keir Gumbs, Associate, Covington & Burling LLP
– Helen Kaminski, Assistant General Counsel, Corporate & Securities, Sara Lee Corporation
– Jordan Kovler, Vice President, DF King & Co.
– John Seethoff, Vice President & Deputy General Counsel, Microsoft Corporation
– Doug Stewart, Senior Attorney, Legal and Corporate Affairs, Intel Corporation
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– Dave Lynn