House Passes the Financial CHOICE Act of 2017: Implications for Closed-End Fund Capital Raising and Registration Process
In connection with the passing of the Financial CHOICE Act, the House approved an amendment offered by Rep. Trey Hollingsworth (R-IN) (the Amendment) which would extend “well-known seasoned issuer” (WKSI)1 status to registered closed-end investment companies (closed-end funds) that meet certain requirements. Currently, closed-end funds are excluded from the WKSI definition and thus, cannot benefit from the more flexible automatic registration process available to WKSIs. Form N-2, the registration form used by closed-end funds, is not included in the definition of automatic shelf registration statement.
The Amendment, which was designated as Subtitle X to the Financial CHOICE Act, “Modernized Offering and Proxy Rules for Closed-End Funds,” directs the SEC, not later than one year after the enactment date of the Act, to revise any rules to the extent necessary to allow closed-end funds to use the securities offering and proxy rules that are available to WKSIs. In this connection, the SEC is directed to, among other things, remove the exclusion of a closed-end fund from the definition of a WKSI and add registration statements filed on Form N-2 to the definition of automatic shelf registration statement.
In his remarks in support of the Amendment, Rep. Hollingsworth stated:
Closed-end funds … are currently under attack by unfair onerous filing and offering regulations. This commonsense amendment would provide parity for these certain closed-end funds by streamlining their registration process, offering and communications processes that are currently available to other publicly traded companies ... Giving qualifying closed-end funds the ability to enjoy well-known seasoned issuer status would help those funds better evaluate and access the market for their offerings and would enable them to more quickly access capital markets.
The Amendment was agreed to by a 231-180 vote. The Congressional Record concerning the Amendment is available at: https://www.congress.gov/amendment/115th-congress/house-amendment/129/text.
1 A “well-known seasoned issuer” is an issuer that is required to file reports with the SEC under Section 13(a) or Section 15(d) of the Exchange Act and satisfies the following requirements: (1) it meets the registrant requirements of Form S-3 or Form F-3; (2) as of a date within 60 days of filing its shelf registration statement, either: (a) it has a worldwide market value of its outstanding voting and non-voting common stock held by non-affiliates of $700 million or more; or (b) it has issued in the last three years at least $1 billion aggregate principal amount of non-convertible securities in registered primary offerings for cash; and (3) it is not an “ineligible issuer.”