TheCorporateCounsel.net

The US is expected to reach its statutory debt ceiling tomorrow, unless both the House and the Senate can agree to a solution. This Politico article says that the looming fight will be one for the ages. It will likely drag on for months while the Treasury Department is left to cut certain contributions to avoid immediate sovereign default on US debts. The article says there’s not even the “hint of an endgame” right now.

The stalemate isn’t doing companies any favors. A new memo from Davis Polk outlines what you need to be thinking about as we face the prospect of dysfunctional US credit & capital markets – which the memo cautions is a threat at this point regardless of whether a sovereign debt default actually occurs. The Davis Polk team shares action items for:

– Board risk oversight

– Access to liquidity – capital markets & drawing on revolvers

– Annual reporting cycle – including guidance, annual reports currently underway, risk factors and forward-looking statements, and MD&A trends

– Other disclosure & market communications – potential Form 8-K triggers and insider trading issues

– Opportunistic acquirers & activist interest

– Impact on pending transactions

– Stock buybacks & 10b5-1 plans

– Executive & director compensation and other HR considerations

– D&O coverage

The memo points out that 2011 could be a good reference point for risk factor updates. Here’s more detail:

Companies will need to take a fresh look at their risk factors and forward-looking statement disclosure to ensure they adequately address the threat of a U.S. sovereign default, particularly if a company has not engaged in this exercise since 2011 when the United States first lost its triple-A credit rating.

While the SEC does not expect companies to include generic risk factors about events that affect companies broadly, companies should consider any specific impact on their own activities that could require such disclosure.

– Liz Dunshee