Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities: A Small Entity Compliance Guide

[*]Table of Contents

This compliance guide is divided into the following parts:

1. Introduction

2. Who is Affected by the Revised Rules?

3. Background

4. Guarantors and Issuers of Guaranteed Securities Registered or Being Registered (Amended Rule 3‑10 and New Rule 13‑01)

5. Affiliates Whose Securities Collateralize Securities Registered or Being Registered (Amended Rule 3‑16 and New Rule 13‑02)

6. What are the Compliance Dates of the Amendments?

7. Other Resources

8. Contacting the SEC Staff

1. Introduction

On March 2, 2020, the Securities and Exchange Commission adopted amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered in Rule 3‑10 of Regulation S‑X, and for issuers’ affiliates whose securities collateralize securities registered or being registered in Rule 3‑16 of Regulation S‑X (See Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, Release No. 33-10762 (the “Adopting Release”)). The changes are intended to provide investors with material information given the specific facts and circumstances, make the disclosures easier to understand, and reduce the costs and burdens to registrants.

2. Who is Affected by the Revised Rules?

• Domestic and foreign registrants, including smaller reporting companies, with offerings of guaranteed and/or collateralized debt securities registered under the Securities Act of 1933 and classes of guaranteed and/or collateralized debt securities registered under the Securities Exchange Act of 1934;
• Issuers offering guaranteed and/or collateralized securities under Regulation A; and
• Issuers of asset-backed securities that are required to provide financial information for certain third parties, such as significant obligors of pool assets and guarantors of those pool assets.

3. Background

Prior to the amendments, Rules 3-10 and 3-16 required specific disclosures to be made in connection with registered debt offerings and subsequent periodic reporting, including offerings by and periodic reports from smaller reporting companies, and offerings and periodic reports made pursuant to Regulation A:

• Rule 3‑10 previously required financial statements to be filed for all issuers and guarantors of guaranteed securities that are registered or being registered, but also provided several exceptions to that requirement. These exceptions were typically available for individual subsidiaries of a parent company when certain conditions were met, including that the parent company provided certain disclosures in its consolidated financial statements in its filings. If the conditions were met, separate financial statements of each qualifying subsidiary issuer and guarantor could be omitted.[1]
• Rule 3‑16 previously required a registrant to provide separate financial statements for each affiliate whose securities constituted a substantial portion of the collateral, based on a numerical threshold, for any class of registered securities as if the affiliate were a separate registrant.

4. Guarantors and Issuers of Guaranteed Securities Registered or Being Registered (Amended Rule 3‑10 and New Rule 13‑01)

The requirements in prior Rule 3‑10 were amended and partly relocated to new Rule 13‑01. Amended Rule 3‑10 continues to permit the omission of separate financial statements of subsidiary issuers and guarantors when certain conditions are met and the parent company[2] provides supplemental financial and non-financial disclosures about the subsidiary issuers and/or guarantors and the guarantees. Similar to the prior rule, amended Rule 3‑10 provides the conditions that must be met in order to omit separate subsidiary issuer or guarantor financial statements. New Rule 13‑01 specifies the accompanying amended disclosure requirements. The requirements of amended Rule 3‑10 and new Rule 13‑01 apply to entities that qualify as smaller reporting companies under amended Rule 8-01(c) and new Rule 8-03(b)(6), and to entities offering or that have offered guaranteed securities pursuant to Regulation A through Forms 1-A, 1-K, and 1-SA.

Set forth below are tables summarizing the main features of amended Rule 3‑10 and new Rule 13‑01. These tables are only a summary of certain requirements contained in the amended rules and regulations; they are not a substitute for the amended rules and regulations. Registrants should refer to the amended rules for the full requirements and to the description of those requirements in the Adopting Release.[3]

The following table summarizes the eligibility conditions under the amended rules that, if satisfied, permit the omission of the separate financial statements of a subsidiary issuer or guarantor:

Eligibility Conditions
Eligibility Condition	Description	Rule Reference (Regulation S‑X)
Parent Company Financial Statements	Consolidated financial statements of the “parent company” (see definition at amended Rule 3‑10(b)(1)) have been filed.	Amended Rule 3‑10(a)
Consolidated Subsidiary	The subsidiary issuer or guarantor is a consolidated subsidiary of the parent company.	Amended Rule 3‑10(a)
Debt or Debt-Like	The guaranteed security is “debt or debt-like” (see definition at amended Rule 3‑10(b)(2)).	Amended Rule 3‑10(a)(1)
Eligible Issuer and Guarantor Structure	The issuer and guarantor structure must match one of the eligible issuer and guarantor structures.	Amended Rule 3‑10(a)(1)(i) or (ii)
Supplemental Financial and Non-Financial Disclosures	Parent company provides the amended supplemental financial and non-financial disclosures specified in new Rule 13‑01 (see tables that follow).	Amended Rule 3‑10(a)(2)

The following tables summarize the amended supplemental non-financial and financial disclosures that, to the extent material, must be provided by the parent company as one of the conditions of eligibility to permit the omission of the separate financial statements of a subsidiary issuer or guarantor:

Non-Financial Disclosures
Disclosure Requirement	Description	Reference
Non-Financial Disclosures	Disclosures about the following: the issuers and guarantors; the terms and conditions of the guarantees; and how the issuer and guarantor structure and other factors may affect payments to holders of the guaranteed securities. Disclosure of facts and circumstances specific to particular issuers and guarantors that are beyond what is specifically required in new Rules 13‑01(a)(1) through (3) may be necessary (see “Additional Information Required to be Disclosed” section below).	New Rules 13‑01(a)(1) through (3) of Regulation S‑X
Exhibit Listing Each Subsidiary Guarantor, Issuer, or Co-Issuer	List of each of the parent company’s subsidiaries that is a guarantor, issuer, or co-issuer of guaranteed securities registered or being registered that the parent company issues, co-issues, or guarantees.	New Exhibit 22 (Item 601(b)(22) of Regulation S-K Regulation A: New Exhibit 17 in Item 17 of Form 1-A[4]

Financial Disclosures
Disclosure Requirement	Description	Rule Reference (Regulation S‑X)
Summarized Financial Information	Summarized financial information, as specified in Rule 1‑02(bb)(1) of Regulation S‑X, which includes select balance sheet and income statement line items, for each issuer and guarantor. Disclosure of additional line items of financial information beyond what is specified in new Rule 13‑01(a)(4) may be necessary (see “Additional Information Required to be Disclosed” section below).	New Rule 13‑01(a)(4)
Basis of Presentation Note	An accompanying note that briefly describes the basis of presentation.	New Rule 13‑01(a)(4)
Transactions with and Balances Due To / From Related Parties and Non-Obligated Subsidiaries	An issuer’s or guarantor’s amounts due from, amounts due to, and transactions with non-obligated subsidiaries and related parties must be presented in separate line items.	New Rule 13‑01(a)(4)(iii)
Combined Basis Presentation	The summarized financial information of each issuer and guarantor consolidated in the parent company’s consolidated financial statements is permitted to be presented on a combined basis with the summarized financial information of the parent company. However, if information provided in response to disclosures specified in new Rule 13‑01 (e.g., one of the non-financial disclosures) is applicable to one or more, but not all, issuers and guarantors, disclose summarized financial information for the issuers and guarantors to which the information applies. In limited circumstances (i.e., where the separate financial information applicable to those issuers and/or guarantors can be easily understood), narrative disclosure may be provided in lieu of such separate summarized financial information.	New Rules 13‑01(a)(4)(i) and 13-01(a)(4)(iv)
Elimination of Certain Intercompany Balances and Transactions	Intercompany balances and transactions between issuers and guarantors whose information is presented on a combined basis must be eliminated.	New Rule 13‑01(a)(4)(ii)
Exclusion of Non-Obligated Subsidiary Information	The summarized financial information of issuers and guarantors must exclude subsidiaries that are not issuers or guarantors, even if an issuer or guarantor would otherwise consolidate such non-issuer and non-guarantor subsidiaries. An issuer’s or guarantor’s investment in a subsidiary that is not an issuer or guarantor must not be presented.	New Rule 13‑01(a)(4)(iii)
Periods to Present	The summarized financial information must be provided as of and for the most recently ended fiscal year and year-to-date interim period, if applicable, included in the parent company’s consolidated financial statements.	New Rule 13‑01(a)(4)(v)
Non-Exclusive Scenarios Permitting Omission of Summarized Financial Information	The summarized financial information may be omitted if one of the four non-exclusive scenarios in new Rule 13‑01(a)(4)(vi) is applicable and disclosed.	New Rule 13‑01(a)(4)(vi)
Additional Information Required to be Disclosed	Disclose any financial and narrative information about each guarantor if the information would be material for investors to evaluate the sufficiency of the guarantee, and sufficient information so as to make the financial and non-financial information presented not misleading.	New Rules 13‑01(a)(6) and (7)
Recently-Acquired Subsidiary Issuers and Guarantors	Disclose pre-acquisition summarized financial information specified in new Rule 13‑01(a)(4) for recently-acquired subsidiary issuers and guarantors in a Securities Act registration statement filed in connection with the offer and sale of the guaranteed security if the parent company has acquired a significant “business” after the date of its most recent balance sheet included in its consolidated financial statements and that acquired business and/or one or more of its subsidiaries are obligated as issuers and/or guarantors.[5]	New Rule 13‑01(a)(5)
Location of Disclosures and Related Audit Requirement	The parent company may provide the disclosures in its consolidated financial statements and related footnotes or alternatively, in MD&A. If a parent company elects to provide the disclosures in its audited financial statements, the disclosures must be audited. If not otherwise included in the consolidated financial statements or in MD&A, the parent company must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in Item 105 of Regulation S-K.	New Rule 13‑01(b)

Subsidiary issuers and guarantors that are permitted to omit their financial statements under amended Rule 3‑10 are exempt from Exchange Act reporting under Exchange Act Rule 12h‑5 and from Regulation A periodic reporting under Rule 257(b)(7) of Regulation A. A parent company must continue providing the financial and non-financial disclosures for so long as the subsidiary issuer or guarantor has a Section 12(b) or 15(d) reporting obligation with respect to the guarantee or guaranteed security in order to continue to be eligible to omit the financial statements of a subsidiary issuer or guarantor. A parent company is permitted to cease providing the disclosures if the corresponding subsidiary issuer’s or guarantor’s Section 15(d) obligation is suspended automatically by operation of Section 15(d)(1) or through compliance with Exchange Act Rule 12h‑3. Similarly, a Tier 2 Regulation A reporting parent company may cease providing the disclosures for subsidiary issuers or guarantors that suspend their reporting obligations through compliance with Regulation A Rule 257(d).

5. Affiliates Whose Securities Collateralize Securities Registered or Being Registered (Amended Rule 3‑16 and New Rule 13‑02)

The disclosure requirements in prior Rule 3‑16 have been replaced with the amended disclosure requirements in new Rule 13‑02.[6] The requirements of new Rule 13‑02 apply to entities that qualify as smaller reporting companies under amended Rule 8-01(d) and new Rule 8-03(b)(7), and to entities offering or that have offered collateralized securities pursuant to Regulation A through Forms 1-A, 1-K, and 1-SA.

Set forth below are tables summarizing the financial and non-financial disclosures required by new Rule 13‑02, to the extent material. This table is only a summary of certain requirements contained in the amended rules and regulations; it is not a substitute for the amended rules and regulations. Registrants should refer to the amended rules for the full requirements and the description of those requirements in the Adopting Release.[7]

Non-Financial Disclosures
Disclosure Requirement	Description	Reference
Non-Financial Disclosures	Disclosures about the following: The securities pledged as collateral; the affiliates whose securities are pledged; the terms and conditions of the collateral arrangement; and whether a trading market exists for the pledged securities. Disclosure of facts and circumstances specific to particular affiliates or the collateral arrangement that are beyond what is specifically required in new Rules 13‑02(a)(1) through (3) may be necessary (see “Additional Information Required to be Disclosed” section below).	New Rules 13‑02(a)(1) through (3) of Regulation S‑X
Exhibit Listing Each Affiliate Whose Securities Are Pledged & the Securities Pledged as Collateral	List of each of the registrant’s affiliates whose securities are pledged as collateral for securities registered or being registered that also identifies the securities pledged as collateral.	New Exhibit 22 (Item 601(b)(22) of Regulation S-K Regulation A: New Exhibit 17 in Item 17 of Form 1-A[8]

Financial Disclosures
Disclosure Requirement	Description	Rule Reference (Regulation S‑X)
Summarized Financial Information	Summarized financial information, as specified in Rule 1‑02(bb)(1) of Regulation S‑X, which includes select balance sheet and income statement line items, for each affiliate whose securities are pledged as collateral. Disclosure of additional line items of summarized financial information beyond what is specified in new Rule 13‑02(a)(4) may be necessary (see “Additional Information Required to be Disclosed” section below).	New Rule 13‑02(a)(4)
Basis of Presentation Note	An accompanying note that briefly describes the basis of presentation.	New Rule 13‑02(a)(4)
Transactions with and Balances Due To / From the Registrant, Certain Subsidiaries, and Related Parties	An affiliate’s amounts due from, amounts due to, and transactions with the registrant, any of the registrant’s subsidiaries not included in the Summarized Financial Information of the affiliate(s), and related parties must be presented in separate line items.	New Rule 13‑02(a)(4)(iii)
Combined Basis Presentation	The summarized financial information of each affiliate consolidated in the registrant’s consolidated financial statements is permitted to be presented on a combined basis. However, if information provided in response to disclosures specified in new Rule 13‑02 (e.g., one of the non-financial disclosures) is applicable to one or more, but not all, affiliates, disclose summarized financial information for the affiliates to which the information applies. In limited circumstances (i.e., where the separate financial information applicable to those affiliates can be easily understood), narrative disclosure may be provided in lieu of such separate summarized financial information.	New Rules 13‑02(a)(4)(i) and 13-02(a)(4)(iv)
Elimination of Certain Intercompany Balances and Transactions	Intercompany balances and transactions between affiliates whose information is presented on a combined basis must be eliminated.	New Rule 13‑02(a)(4)(ii)
Periods to Present	The summarized financial information must be provided as of and for the most recently ended fiscal year and year-to-date interim period, if applicable, included in the registrant’s consolidated financial statements.	New Rule 13‑02(a)(4)(v)
Non-Exclusive Scenarios Permitting Omission of Summarized Financial Information	The summarized financial information may be omitted if one of the two non-exclusive scenarios in new Rule 13‑02(a)(4)(vi) is applicable and disclosed.	New Rule 13‑02(a)(4)(vi)
Additional Information Required to be Disclosed	Disclose any financial and narrative information about each affiliate if the information would be material for investors to evaluate the pledge of the affiliate’s securities as collateral, and sufficient information so as to make the financial and nonfinancial information presented not misleading.	New Rules 13‑02(a)(6) and (7)
Recently-Acquired Affiliates Whose Securities are Pledged as Collateral	Disclose pre-acquisition summarized financial information specified in new Rule 13‑01(a)(4) for recently-acquired affiliates whose securities are pledged as collateral in a Securities Act registration statement filed in connection with the offer and sale of the collateralized security if the registrant has acquired a significant “business” after the date of its most recent balance sheet included in its consolidated financial statements and that acquired business and/or one or more of its subsidiaries are affiliates whose securities are pledged as collateral.[9]	New Rule 13‑02(a)(5)
Location of Disclosures and Related Audit Requirement	The registrant may provide the disclosures in its consolidated financial statements and related footnotes or alternatively, in MD&A. If a registrant elects to provide the disclosures in its audited financial statements, the disclosures must be audited. If not otherwise included in the consolidated financial statements or in MD&A, the registrant must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in Item 105 of Regulation S-K.	New Rule 13‑02(b)
Debt Agreements with Collateral Release Provisions	New Rule 13‑02 applies to collateralized debt securities issued on or after January 4, 2021, and to each registered security issued and outstanding before January 4, 2021 for which the registrant has previously been required to provide the financial statements required by prior Rule 3‑16. As a transitional matter, so as not to change the amount of collateral available to investors in previously issued debt securities that include collateral release provisions, amended Rule 3‑16, and not new Rule 13‑02, applies to each registered security issued and outstanding before January 4, 2021 for which the registrant has not previously been required to provide Rule 3‑16 Financial Statements.	Amended Rule 3‑16 Introductory Text

6. What are the Compliance Dates of the Amendments?

The amendments are effective on January 4, 2021. Refer to specific transition information in the Adopting Release.[10] Voluntary compliance with the final amendments in advance of January 4, 2021, is permitted. After voluntary compliance, subsequent Exchange Act or Regulation A periodic reports must comply with the final rules.

7. Other Resources

The Adopting Release for the new rules, which includes an appendix[11] summarizing the prior and amended rules, can be found on the SEC’s website at https://www.sec.gov/rules/final/2020/33-10762.pdf.

The SEC’s disclosure forms can be accessed on the SEC’s website at https://www.sec.gov/forms.

8. Contacting the SEC Staff

The SEC’s Division of Corporation Finance is happy to assist small companies and others with questions regarding the amendments. You may contact the Division’s Office of Chief Accountant for this purpose and other questions regarding the form and content of financial statements and other financial information required to be included in Commission filings at (202) 551-3400 or at https://www.sec.gov/forms/corp_fin_interpretive.

Questions on other SEC regulatory matters concerning smaller reporting companies or offerings made pursuant to Regulation A may be directed to the Division’s Office of Small Business Policy at (202) 551-3460.

[*] The staff of the U.S. Securities and Exchange Commission prepared this guide, as a “small entity compliance guide,” pursuant to Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for the rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.