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 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, contains
certain conditions under which a registrant may provide alternative disclosures,
described in Rule 13-01, in lieu of separate
financial statements. 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 guarantors(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 offerings, private
securities (i.e., bank debt or other private financings), or to publicly registered
debt securities of the registrant that do not include guarantor features. However,
if the debt securities that meet the eligibility conditions in Section 2.2 are offered under an exempt offering
that includes registration rights, 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 decision.