Chapter 1 — Introduction

To ensure that investors receive relevant financial information about (1) guarantors and issuers of registered guaranteed debt or debt-like securities and (2) affiliates whose securities collateralize registered securities, Regulation S-X requires registrants to disclose certain information about those entities. However, although registration of guaranteed debt or debt-like securities under the Securities Act can result in requirements for both the issuer of the guaranteed debt or debt-like security and the guarantor of the debt or debt-like security to file periodic reports (i.e., Forms 10-K and 10-Q) in accordance with Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), Regulation S-X has provided relief from these requirements for subsidiary issuers and guarantors by allowing registrants to provide alternative nonfinancial disclosures and alternative financial disclosures (collectively, “alternative disclosures”) in lieu of such separate financial statements when certain criteria have been met. In addition, Regulation S-X requires registrants to provide certain financial and nonfinancial information about affiliates whose securities collateralize registered securities. These requirements are based on the premise that investors in guaranteed debt or debt-like securities and collateralized securities rely on the consolidated financial statements of the registrant as their primary source of financial information.

While Regulation S-X, Rule 3-10, outlines the conditions that must be met for a registrant to qualify for alternative disclosures, the specific disclosure requirements are set forth in Regulation S-X, Rule 13-01, which requires the registrant to provide “summarized financial information” and other narrative disclosures, to the extent material, of each guarantor and issuer of guaranteed debt or debt-like securities. Similarly, Regulation S-X, Rule 13-02, requires the registrant to provide “summarized financial information” and other narrative disclosures, to the extent material, of each affiliate whose securities collateralize the securities that are registered or being registered.

Note that if a registered security or security being registered contains both a guarantee by one or more subsidiaries and a pledge of affiliates’ securities, the registrant must consider the disclosure requirements in both Rules 13-01 and 13-02 because (1) the guarantee and pledge constitute separate credit enhancements and (2) the disclosure requirements for each may be different. As a result, the alternative disclosures required for compliance with Rule 13-01 may differ from those required by Rule 13-02, even if the affiliates whose securities are pledged as collateral and the subsidiaries that guarantee the security are the same entities.