January 23, 2025
Capital Raising During Blackout Periods
This new Willkie CAPITAL LETTERS publication focuses on raising capital during blackout periods. It starts by saying that companies are “often well advised to wait until after they issue their earnings or file the related annual, quarterly or special report before accessing the capital markets.” But it acknowledges that “a self-imposed blackout period does not, as a matter of law, prevent a company from issuing securities so long as the company satisfies all disclosure obligations [and] [t]here may be compelling reasons to issue securities during a blackout period” like “uncooperative market conditions or unscheduled needs (e.g., M&A transactions).”
So what additional considerations do companies need to address if they’re seeking to raise capital at this time? The memo notes that many constituents need to be involved in the decision to move forward and vet the disclosure — including management and the board, the underwriters, both parties’ counsel and the auditors. It’s also important to understand the key drivers of the company’s performance, what data will be available when — including through closing of the offering — and whether changes are common during the quarterly close and financial statement review process. The materiality of the earnings information may also depend on whether the offering is debt or equity.
Speaking of earnings information, the memo gives tips on how to disclose, diligence and comfort “flash numbers” — i.e., pre-released financial information about a closed year or quarter to satisfy a company’s disclosure obligations in a capital raising transaction. The memo has these important compliance reminders when you’re putting out flash numbers:
Flash Numbers May Need to Be Furnished on a Form 8-K – Item 2.02 of Form 8-K requires a company to “furnish” a Form 8-K containing any material nonpublic information regarding the company’s results of operations or financial condition for a completed quarterly or annual fiscal period that the company or any person acting on its behalf discloses in a public announcement or release. SEC Exchange Act Form 8-K Compliance and Disclosure Interpretation 106.07 specifically requires a Form 8-K in the case of “preliminary” earnings disclosure for a completed quarterly period, even if some of the amounts are only estimates. An additional Form 8-K would be required when the final results are publicly disclosed or when revised amounts are publicly disclosed. While the disclosure of information in the context of an unregistered offering (e.g., a Rule 144A offering) may not constitute a “public announcement or release,” disclosure of flash numbers in a private offering memorandum may trigger required public disclosure under Regulation FD, as further described below. Therefore, a public company would be well advised to furnish an Item 2.02 Form 8-K even for disclosure in a private offering memorandum.
Don’t Forget About Regulation FD – Providing flash numbers in a prospectus or private offering memorandum may trigger required public disclosure under Regulation FD for public companies. The standard procedure is to file a Form 8-K including the flash numbers substantially simultaneously with the launch of the offering. The offering constituents should ensure that such a press release is drafted in a manner to avoid it being considered an “offer” of the securities under the U.S. federal securities laws. Private companies that have previously issued securities pursuant to Rule 144A should consider making any such results simultaneously available on their website or in the dataroom established to comply with Rule 144(d)(4) in order to remove information asymmetry as between potential investors in the new offering and existing and potential investors in the company’s existing securities.
– Meredith Ervine
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