TheCorporateCounsel.net

October 17, 2008

Nasdaq Proposes Suspension of Bid Price and Market Value Tests

Nasdaq has made a rule filing with the SEC seeking to temporarily suspend the exchange’s bid price and market value of publicly held securities continued listing requirements until January 16, 2009, given the current state of the market. The last time the Nasdaq imposed an across-the-board, three-month moratorium on the application of its minimum bid and public float requirements for continued listing was during the market turmoil following September 11, 2001.

In its filing, Nasdaq notes that, as of September 30, 2007, there were only 64 securities trading below $1 on Nasdaq, while by September 30, 2008 that number had jumped to 227, and by last Thursday, the number of securities trading below a $1 was 344. Nasdaq further notes that “during this time there was no fundamental change in the underlying business model or prospects for many of these companies, but the decline in general investor confidence has resulted in depressed pricing for companies that otherwise remain suitable for continued listing. These same conditions make it difficult for companies to successfully implement a plan to regain compliance with the price or market value of publicly held shares tests.”

Nasdaq is requesting that the SEC waive the 30-day operative delay period so that the rule change can be put in place immediately.

I think that this is a very positive step to help both issuers and investors at a time when neither can afford to experience unnecessary delistings.

Time to Choose Prime over LIBOR?

Earlier this year, I blogged about the troubles with LIBOR, that ubiquitous short-term rate used in so many lending arrangements. Now, with the extraordinary conditions in the credit markets (including a near collapse of inter-bank lending – yikes!), LIBOR has shot up, hitting new highs in recent weeks.

In an alert issued earlier this week, Foley Hoag LLP discussed the impact of the inversion of LIBOR relative to the US Prime Rate and the potential impact on credit agreements:

“U.S. Companies that borrow under bank credit facilities that provide for the borrower to elect payment of interest at either a LIBOR-based rate (sometimes called a “Eurodollar” loan) or a Prime Rate-based rate (sometimes called a “Base Rate” loan) need to be aware of a significant development resulting from the recent turmoil in the world’s credit markets.

Under normal market conditions, the Prime Rate generally exceeds LIBOR rates. Given this, borrowers generally elect to pay interest at a LIBOR-based rate on loans that will be outstanding for more than a short time.

However, in recent days, certain LIBOR rates have at times exceeded the Prime Rate quoted by most major U.S. banks. Because of this, chief financial officers and treasurers need to carefully monitor their LIBOR/Eurodollar interest periods and consider whether to elect the Prime Rate/Base Rate when those interest periods next roll over. Furthermore, borrowers may wish to consider whether to “break funding” on some or all of their existing LIBOR/Eurodollar contracts and convert their outstanding loans to Prime Rate/Base Rate loans – depending on how LIBOR rates have moved since the beginning of the current interest period for an outstanding LIBOR/Eurodollar loan, borrowers may have to pay minimal or no “breakage costs” for doing so. The ability to “break funds” on an outstanding LIBOR/Eurodollar loan and convert it to a Prime Rate-based loan will depend on, among other factors, the language of the relevant loan agreement and whether the relevant loan is a revolver loan or a term loan, and borrowers should discuss this option with their lender before doing so.

It’s impossible to predict how long this anomalous situation will last, but the savings to alert companies could be substantial. When and if this rate inversion is reversed and more normal conditions prevail, borrowers under typical loan agreements should again be able to elect LIBOR on short notice and resume their normal interest rate strategies.”

Walk-in Registration for New Orleans

For our big executive compensation conferences next week, online registration for New Orleans attendance closed last night. However, you can walk-in and register in New Orleans with a check or credit card. In light of current economic conditions, we are waiving the standard walk-in fee this year.

Note that you will still be able to register for the video webconference at any time as this deadline doesn’t apply to that method of attendance.

I look forward to seeing you either in New Orleans or on the web!

– Dave Lynn