April 9, 2020

SEC Chair & Corp Fin Director Issue Joint Statement on Covid-19 Disclosure

Yesterday, SEC Chair Jay Clayton and Corp Fin Director Bill Hinman issued a joint statement urging companies “to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning” in light of the impact of the Covid-19 pandemic. The statement covers a lot of ground, but this excerpt is probably the key takeaway for companies preparing for their upcoming Q1 earnings releases & analyst calls:

Speaking for ourselves, and recognizing the challenges inherent in our request, we urge our public companies, in their earnings releases and analyst calls, as well as in subsequent communications to the marketplace, to provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions. Detailed discussions of current liquidity positions and expected financial resource needs would be particularly helpful to our investors and markets.

Beyond the income statement and the balance sheet effects, we recognize that COVID-19 may significantly impact operations, including as a result of company efforts to protect worker health and well-being and customer safety. The impact of company actions and policies in this area may be of material interest to investors, and we encourage disclosures that address that interest.

In addition, companies and financial institutions may be receiving financial assistance under the CARES Act or other similar COVID-19 related federal and state programs. Such assistance may take various forms and is intended to mitigate COVID-19 effects for companies and their workers. If these or other types of financial assistance have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, the affected companies should provide disclosure of the nature, amounts and effects of such assistance.

Throughout the statement, Clayton & Hinman repeatedly encourage companies to make forward-looking statements about a wide variety of topics related to their Covid-19 responses:

This quarter, earnings statements and calls will not be routine. In many cases, historical information may be substantially less relevant. Investors and analysts are thirsting to know where companies stand today and, importantly, how they have adjusted, and expect to adjust in the future, their operational and financial affairs to most effectively work through the COVID-19 health crisis.

For a lot of companies, the call for voluntary forward-looking disclosure about these and other matters is likely to be a big ask – even with assurances that “good faith attempts to provide appropriately framed forward-looking information” won’t be second guessed by the SEC. Their businesses have just been hit by the financial equivalent of a nuclear bomb. My guess is that most of them are going to have a tough enough time just trying to work through the forward-looking “known trends” disclosure they’re required to make in MD&A.

We’d all like some clarity about how companies “expect to adjust their operational and financial affairs to most effectively work through the Covid-19 health crisis.” In fact, I’d wager that nobody would like to know the answer to that question more than the boards and management teams who are trying to figure it out for their own companies. But, in the short term, I doubt that many companies will be able to provide a lot of meaningful disclosure in this area – and I’m not at all sure that it’s in their best interests to try.

Corp Fin Updates Annual Meeting Guidance (And I Get Scooped by Lynn)

I want to republish something that Lynn blogged yesterday over on the “Proxy Season Blog” – and there’s a backstory to this one.  For some reason, the announcement of Corp Fin’s tweak to its annual meeting guidance didn’t arrive in our inboxes until after I published yesterday’s blog.  Lynn was sharp-eyed enough to catch the story from other sources and break the news in her blog while I was busy eating a pop-tart or something. I’m sure she’ll lord this over me until my dying day, because that’s exactly what I’d do to her if the shoe was on the other foot.  Anyway, here’s what she had to say:

Yesterday, Corp Fin issued an announcement providing updated guidance for conducting shareholder meetings in light of COVID-19 concerns. We blogged about Corp Fin’s original guidance back when it was issued in mid-March. Yesterday’s announcement addresses delays in printing and mailing of full-set proxy materials – allowing limited relief to companies that shift to furnishing proxy materials via the notice-only method of delivery. Corp Fin’s announcement also clarifies that its previous guidance regarding changes to the date, time and location of annual meetings also applies to special meetings.

The announcement says Corp Fin’s update about furnishing proxy materials stems from the impact of COVID-19 on some proxy service providers and transfer agents. The Staff understands some companies are concerned about being able to send notice of electronic availability of proxy materials at least 40 calendar days before the meeting so it’s allowing flexibility as long as shareholders receive proxy materials sufficiently in advance of the meeting and the company announces the change. Here’s an excerpt from the guidance:

The staff encourages issuers affected by printing and mailing delays caused by COVID-19 to use all reasonable efforts to achieve this goal without putting the health or safety of anyone involved at risk. In some cases, this may mean delaying a meeting in accordance with state law requirements and the procedures described above, if necessary, in order to provide materials on a timely basis. In circumstances where delays are unavoidable due to COVID-19 related difficulties, the staff would not object to an issuer using the “notice-only” delivery option in a manner that, while not meeting all aspects of the notice and timing requirements of Rule 14a-16, will nonetheless provide shareholders with proxy materials sufficiently in advance of the meeting to review these materials and exercise their voting rights under state law in an informed manner and so long as the issuer announces the change in the delivery method by following the steps described above for announcing a change in the meeting date, time, or location. Affected issuers and intermediaries also should continue to use their best efforts to send paper copies of proxy materials and annual reports to requesting shareholders, even if such deliveries would be delayed.

Issuers and other affected parties are encouraged to contact the staff to discuss any other concerns resulting from any late filings caused by delays in the printing and mailing of proxy materials.

Business Development Companies: SEC Adopts Rules Streamlining Registration Process

Yesterday, the SEC announced the adoption of rule amendments to streamline the offering process for business development companies and registered closed-end funds. In essence, the rules are intended to put these companies on the same footing as operating companies when it comes to the registration process. I know that this almost goes without saying at this point, but the vote was along partisan lines, with Commissioner Allison Herren Lee submitting a dissenting statement.

Here’s the 349-page adopting release. We’ll be posting memos in our “Business Development Companies” Practice Area.

John Jenkins