February 18, 2011

Corp Fin Hires Lona Nallengara as Deputy Director

Yesterday, Corp Fin announced that it has hired Lona Nallengara as Deputy Director for Legal and Regulatory Policy – replacing Brian Breheny who left the SEC a few months ago. Lona joins the SEC from Shearman & Sterling’s NYC office and he hails from Canada. Although many deputy director hires for the various SEC Divisions are done from within the agency, hiring a deputy from the outside certainly is not unprecedented (think Michael McAlevey).

Have you seen this new BBC show called “Rastamouse“? Fits into my long-awaited dream to open up a chain of bowling alleys called “RastaBowl” in which all employees wear dreadlock wigs…

Shareholder Proposals: Corp Fin Rejects First Chevedden Handwriting-Based Challenge

Recently, I blogged about how a number of companies have taken the traditional route of seeking no-action relief from the Corp Fin Staff to exclude proposals submitted by Ken Steiner, who in turn has listed John Chevedden as his proxy. These eligibility challenges allege that Steiner’s ownership verifications appeared to be pre-signed by the introducing broker and they allege that Chevedden then filled in the company name, shares owned and date of ownership on the blank form that had been pre-signed with an October 12, 2010 date (I also noted that some of the no-action requests included a handwriting expert certification).

Corp Fin has now posted the first response to one of these challenges – this American Express response – that doesn’t allow exclusion by the company. Here is the notable excerpt from Corp Fin’s response:

We are unable to concur in your view that American Express may exclude the proposal under rules 14a-8(b) and 14a-8(f). In this regard, we note that American Express raises valid concerns regarding whether the letter documenting the proponent’s ownership is “from the ‘record’ holder” of the proponent’s securities, as required by rule 1 4a-8(b)(2)(i). However, we also note that the person whose signature appears on the letter has represented in a letter dated January 21,2011 that the letter was prepared under his supervision and that he reviewed it and confirmed it was accurate before authorizing its use.

In view of these representations, we are unable to conclude that American Express has met its burden of establishing that the letter is not from the record holder of the proponent’s securities. In addition, under the specific circumstances described in your letter, we are unable to concur in your view that the proponent was required to provide additional documentary support evidencing that he satisfied the minimum ownership requirement as of the date that he revised his proposal. Accordingly, we do not believe that American Express may omit the proposal from its proxy materials in reliance on rules 14a-8(b) and 14a-8(f).

SEC’s Rating Agency Proposals: Some Investment Grade Debt Issuers Would No Longer Qualify to Use Shelfs

Here is news from Davis Polk:

In response to requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC issued proposed rules last week that would revise the Form S-3 and Form F-3 transaction eligibility criteria so that issuers of non-convertible debt securities could no longer qualify to use Form S-3 and Form F-3 by issuing investment grade securities.

This transaction criterion would be replaced with a new transaction criterion which would allow companies to use Form S-3 or Form F-3 to register primary offerings of non-convertible securities if the company has issued, for cash, more than $1 billion in non-convertible securities, other than common equity, through registered primary offerings over the prior three years and meets the registrant requirements. This is modeled on the standard used to determine whether a company that does not meet the public equity float requirement qualifies as a well-known seasoned issuer (“WKSI”) based on its debt issuances.

To be eligible to file short-form registration statements on Form S-3 or Form F-3, a company must meet (1) registrant requirements (for example, a company must have been a reporting company for at least a year and be timely in meeting these reporting requirements), and (2) at least one of several alternate transaction requirements. Companies can currently meet these transaction requirements by primarily offering, for cash, non-convertible securities that are rated investment grade.

Companies often rely upon this transaction requirement to establish their Form S-3 or Form F-3 eligibility for issuances of corporate debt when they do not meet the alternate transaction requirement that they have at least $75 million in common equity held by unaffiliated shareholders. The proposed rules would not change this $75 million threshold or the registrant requirements, and so will generally only impact investment grade issuers that do not have publicly traded equity.

The proposed rules are effectively a reissuance of a substantially similar proposal issued by the SEC in 2008 but never finalized. Many commenters opposed the 2008 proposal on the basis that it set too high a threshold and would reduce the number of issuers eligible to use shelf registration statements for primary debt offerings. (See the Davis Polk comment letter on the 2008 proposal expressing these concerns here). At the open meeting, SEC Commissioners and staff recognized these concerns and urged commenters to suggest an alternate Form S-3 and Form F-3 transaction eligibility criterion. Although Dodd-Frank requires the SEC to remove references to credit ratings in their rules and forms it does not set out alternate standards. Comments on the proposed rules are due by March 28th.

– Broc Romanek