SEC Reporting Considerations for Guarantees and Collateralizations

Guarantees of debt or debt-like securities that are registered under the Securities Act of 1933 are considered securities themselves under that legislation. Therefore, such guarantees, in addition to offerings of the guaranteed debt or debt-like securities, must be registered with the SEC unless they are exempt from registration. Once a company registers them, an SEC reporting obligation is established for each subsidiary issuer or guarantor under which the following (not all-inclusive) must be provided separately:

• Annual financial statements prepared in accordance with applicable accounting standards and audited in accordance with PCAOB standards.
• An annual assessment of internal control over financial reporting.
• Quarterly reporting of condensed financial information.
• MD&A.

Given how burdensome these requirements can be, the SEC typically permits registrants to provide alternative nonfinancial and financial disclosures as follows in their financial statements or MD&A as a form of relief in certain circumstances:

Summarized financial information of the issuer(s) and guarantor(s) consisting of the following line items, together with a brief description of the basis of presentation:

• Current and noncurrent assets.
• Current and noncurrent liabilities.
• Redeemable preferred stock (if applicable).
• Noncontrolling interests (if applicable).
• Net sales or gross revenues.
• Gross profit (or costs and expenses related to net sales or gross revenues).
• Income (loss) from continuing operations.
• Net income (loss).
• Net income (loss) attributable to the entity.

It is significantly less costly and burdensome for a registrant to provide these alternative disclosures than comply with separate SEC reporting obligations for each subsidiary issuer and guarantor. Thus, before issuing securities, a registrant should determine whether it qualifies for such relief on the basis of the contemplated legal structure and consult with SEC legal counsel as appropriate. A registrant is eligible to provide alternative disclosures if its securities are issued or fully and unconditionally guaranteed by a parent company registrant, all issuers and guarantors are consolidated subsidiaries of the parent company, the securities are debt or debt-like, and one of the following issuer and guarantor structures is used:

1. The parent company registrant issues (or co-issues on a joint-and-several basis with one or more of its consolidated subsidiaries) securities, and any guarantees are provided by one or more consolidated subsidiaries. The diagram below illustrates an example of this eligible structure.
2. A consolidated subsidiary issues (or co-issues with one or more other consolidated subsidiaries of the parent company registrant) the securities, and the securities are fully and unconditionally guaranteed by the registrant/parent company. The diagram below illustrates an example of this eligible structure.