Top 10 Practice Tips: Registered Direct Offerings
This Top 10 Practice Tips provides practice points for internal and external counsel to consider before establishing a medium-term note (MTN) program and when issuing MTNs. An MTN program enables an issuer to more efficiently offer and sell debt securities, which may have similar or different terms, on a periodic or continuous basis by using pre-agreed offering and underwriting documents and a simplified clearing process. While MTN programs are often used by finance companies that have continuous financing needs, such as auto or rail finance companies, such programs are a useful and common tool for any company looking to raise capital.
This practice note outlines key considerations and procedural elements involved in conducting a Registered Direct Offering (RDO), a type of public securities offering typically marketed to institutional and accredited investors. The practice note begins by explaining the hybrid nature of RDOs, which combine features of public and private offerings, and highlights their appeal for issuers seeking discreet market access. This note discusses the structural aspects of RDOs, including the use of shelf registration statements, the absence of over-allotment options, and the role of placement agents. It also addresses regulatory requirements such as escrow arrangements under Rule 15c2-4, the necessity of filing appropriate prospectus supplements, and the negotiation of placement agency agreements. Additional topics include the potential use of subscription agreements, compliance with NYSE and Nasdaq 20% shareholder approval rules, and the implications of the Baby Shelf Rule for issuers with smaller public floats. The document further explores settlement procedures through the Depository Trust Corporation and the application of Regulation M, emphasizing the placement agent’s role as a statutory underwriter. Overall, the document serves as a comprehensive guide for legal counsel navigating the complexities of RDOs, focusing on procedural and regulatory frameworks rather than offering substantive legal advice.
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