2.1 Overview
Registrants or their subsidiaries may elect to issue debt or
debt-like securities (hereafter referred to as a “debt security” or “debt
securities”) that include guarantees of payment by the registrants or their
subsidiaries. Registrants may also co-issue debt securities with one or more of
their consolidated subsidiaries. These structures may be used to improve the credit
quality of the debt security and enhance the protection provided to debtholders. If
the issuer fails to make a payment on the debt security, the guarantors may be
obliged to make the payment. Under the Securities Act, guarantees of debt securities
are considered securities themselves. Therefore, all offerings of guaranteed debt
securities, as well as the guarantees of such debt securities, must be registered
with the SEC unless they are exempt from registration, and registrants may be
required to provide separate financial statements for each subsidiary issuer or
guarantor.
However, Rule
3-10 specifies certain conditions under which a registrant may
provide alternative disclosures, described in Rule 13-01, in lieu of separate financial
statements of the subsidiary issuer or guarantor. Depending on the facts and
circumstances, a registrant may be required to file one of the following:
- The financial statements of each subsidiary issuer or subsidiary guarantor.
- Alternative disclosures that include (1) alternative nonfinancial disclosures (see Section 2.3.1) and (2) alternative financial disclosures (see Section 2.3.2) about the issuer(s) and guarantor(s). In certain limited circumstances, the alternative financial disclosures may be omitted (see Section 2.3.3).
The guidance on presenting alternative disclosures is structured as follows:
- Rule 3-10 outlines the eligibility requirements for providing alternative disclosures in lieu of the separate financial statements of each subsidiary issuer or subsidiary guarantor.
- Rule 13-01(a) identifies the alternative disclosures required in lieu of separate financial statements.
- Rule 13-01(b) specifies the required locations of such alternative disclosures.
A registrant should consider the alternative disclosure requirements
of Rule 13-01 if it issues (or co-issues along with one or more of its consolidated
subsidiaries) a registered debt security that is guaranteed by one or more of its
consolidated subsidiaries or if one of the registrant’s consolidated subsidiaries
registers a debt security that is guaranteed by the parent company. Such alternative
disclosures should be included in (1) the initial registration statement that
registers the debt security and related guarantees, (2) annual reports on Form 10-K,
(3) quarterly reports on Form 10-Q, and (4) any future registration statements, as
applicable.
Note that if a registrant provides separate financial statements for
a subsidiary issuer or guarantor, the registrant should present the same periods as
those presented for the parent company for both annual and interim periods. If the
registrant provides alternative financial disclosures, only the most recent annual
and interim year-to-date periods must be presented.
Rules 3-10 and 13-01 do not apply to exempt debt securities
offerings, private securities, debt that is not a security (i.e., bank debt or other
private financings), or to registered debt securities that do not have guarantor
features or subsidiary co-issuers. However, if the debt securities that meet the
eligibility conditions in Section
2.2 are offered under an exempt offering that includes registration
rights (i.e., contractual arrangements that allow the holders of those exempt
securities to require an issuer to file a registration statement for the resale of
the securities), the registrant must comply with the alternative disclosure
requirements of Rules 3-10 and 13-01 at the time it files a registration statement
and in subsequent periodic reports. Although such disclosures are not required in an
exempt offering, they may help investors in unregistered debt securities in making
informed investment decisions.