SEC Issues No-Action Letter Permitting Reliance Upon Section 3(a)(9) in Exchanges of Securities with Upstream Guarantees

January 1, 0001


On January 13, the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission issued a no-action letter to O’Melveny & Myers, Davis Polk, and Cleary Gottlieb permitting reliance upon Section 3(a)(9) of the Securities Act of 1933 for the issuance of a new parent security in exchange for an outstanding parent security that has one or more “upstream” guarantees from the parent’s 100%-owned subsidiaries (the “3(a)(9) Upstream Guarantee Letter”). All of the prior Staff no-action positions involving the availability of Section 3(a)(9) for exchanges of guaranteed securities had involved “downstream” guarantees (i.e., situations where the parent guaranteed a security issued by one or more of its subsidiaries) as opposed to “upstream” guarantees.

As a result of the 3(a)(9) Upstream Guarantee Letter:
  • issuers of securities with upstream guarantees will not be required to keep a shelf registration statement effective for the life of the outstanding convertible security to cover exercises and
  • issuers of securities with upstream guarantees will have an attractive third option for effecting exchange offers in addition to registration (which has timing implications) and relying on a private placement exemption (which limits the potential offerees).

See the Staff's Section 3(a)(9) Upstream Guarantees Letter and no-action request.