“Test-the-Waters” Communications: The SEC Proposes to Expand the Permitted Use of “Test-the-Waters” Communications to All Issuers

Sullivan & Cromwell LLP - February 27, 2019
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On February 19, 2019, the Securities and Exchange Commission proposed a new rule and related amendments to expand the permitted use of “test-the-waters” or “TTW” communications to all companies regardless of size or reporting status, including registered investment companies and business development companies. The proposal, if adopted, would permit all issuers, as well as persons acting on their behalf, such as underwriters, to assess market interest for a proposed registered offering by engaging in oral and written communications with qualified institutional buyers or institutional accredited investors prior to or following the filing of a registration statement. The proposal represents a substantial expansion of the TTW provisions, currently available only to emerging growth companies, in support of the SEC’s efforts to encourage additional registered offerings in the United States. Combined with the extension to all issuers of the availability of the confidential review process for IPO and other registration statements, the proposal would level the playing field for companies seeking to assess market demand on an entirely confidential basis. In addition, the proposal would permit more companies and their underwriters to engage in confidential pre-marketing activities, commonly referred to as “wall crossings”, currently available only to well-known seasoned issuers and issuers with an effective shelf registration statement. Comments on the proposed rule will be due 60 days after publication in the Federal Register.