What's The Deal?

Here's the deal:

An effective shelf registration statement allows an issuer to be in a position to complete multiple offerings from time to time in the future without having the timing of any such offering delayed by a possible SEC review.
In a continuous offering, issuers may offer securities promptly following the declaration of effectiveness of a shelf registration statement and do so pursuant to an offering program, such as a medium-term note program.
Alternatively, when the issuer has no present intention to offer securities, and intends to do so from time to time in the future in distinct offerings, the issuer will be said to be conducting a series of delayed offerings.
A shelf registration statement may be used for a variety of types of offerings, including at-the-market offerings, depending on the issuer's needs

The shelf registration process allows an issuer to file a registration statement with the Securities and Exchange Commission ("SEC") in order to register a public offering, when the issuer has no present intention to sell the securities being registered. A shelf registration statement permits multiple offerings off of the same shelf registration statement and it can be used for the sale of new securities by the issuer ("primary offerings"), the resale of outstanding securities held by securityholders ("secondary offerings"), or a combination of both.

With an effective shelf registration statement, when the issuer wants to offer securities, it takes them "off the shelf." These "shelf takedowns" are usually offered pursuant to a base prospectus (contained in the registration statement) and a prospectus supplement. Securities are usually registered for sale either on a continuous or a delayed basis, although a portion of the securities may be offered immediately.

Benefits of a Shelf Registration Statement

The primary advantages of a shelf registration statement are timing and certainty. An effective shelf registration statement enables an issuer to access the capital markets quickly when necessary or when market conditions are optimal. As noted above, once an issuer's shelf registration statement has been declared effective, no SEC review is required in connection with subsequent takedowns.

When a specific offering is planned, a prospectus supplement that describes the terms of the offering must be filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act") within the time period specified in the relevant provision of Rule 424(b) that is being relied on in connection with the supplement filing.

In the case of a shelf registration statement on Form S-3 (for U.S. issuers) or Form F-3 (for foreign private issuers), the registration statement may provide historical information by relying on incorporation by reference from the issuer's reports previously filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and also can incorporate Exchange Act reports that are filed by the issuer after the shelf registration statement's effective date. The ability to forward incorporate will allow the issuer to ensure that the shelf registration statement remains current, without having to undertake amendments.

Takedowns from an effective shelf registration can be made without SEC Staff review or delay. Unlike a post-effective amendment, a prospectus supplement does not have to be declared effective by the SEC Staff.

Differences Between a "Continuous" Offering and a "Delayed" Offering

In a "continuous offering," securities are offered promptly after effectiveness of the registration statement (within two days) and will continue to be offered from such date forward. The term "continuous" only applies to offers of the securities, not to sales of the securities, as sales may be made sporadically over the duration of the continuous offering.

By contrast, in a "delayed offering," there is no present intention to offer securities at the time of effectiveness. Generally, only more "seasoned" issuers that are "primarily eligible" to use Form S-3 or Form F-3 may engage in delayed primary offerings. In a delayed primary offering, the issuer typically will file a "core" or "base" prospectus as part of the initial filing of the registration statement. The actual terms and specifics of an offering will be filed after effectiveness of the shelf registration statement, in either a prospectus supplement (the most common method), a post-effective amendment or, where permitted, an Exchange Act report incorporated by reference into the registration statement.

Eligibility Requirements for Filing a Shelf Registration Statement

In order to be eligible to use Form S-3 or Form F-3, among other requirements, the issuer:

Must have a class of securities registered under the Exchange Act (or must be required to file reports under Section 15(d) of the Exchange Act);
Must have been subject to the reporting requirements of Section 12 or Section 15(d) of the Exchange Act for at least 12 calendar months immediately preceding the filing of the registration statement and have timely filed all required reports with the SEC during that period; and
Since the end of the last year covered by its audited financial statements, cannot have failed to pay dividends or sinking fund installments on preferred stock or defaulted on installments on indebtedness for borrowed money or on material leases.

Issuance of Nonconvertible Securities

An issuer is considered "primarily eligible" to use Form S-3 or Form F-3 if the aggregate market value of its voting and non-voting common equity held by non-affiliates (its "public float") is at least $75 million. As an alternative to the $75 million public float requirement, issuers may use Form S-3 or Form F-3 for offerings of nonconvertible securities (other than common equity), if the issuer satisfies any one of the following criteria:

The issuer has issued (as of a date within 60 days prior to the filing of the registration statement) at least $1 billion in nonconvertible securities, other than common equity, in primary offerings for cash registered under the Securities Act, over the prior three years;
The issuer has outstanding (as of a date within 60 days prior to the filing of the registration statement) at least $750 million of nonconvertible securities, other than common equity, issued in primary offerings for cash registered under the Securities Act;
The issuer is a wholly-owned subsidiary of a well-known seasoned issuer ("WKSI"); or
The issuer is a majority-owned operating partnership of a real estate investment trust ("REIT") that qualifies as a WKSI.

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Originally published 31 July, 2020

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