August 10, 2020

Volume X, Number 223

August 10, 2020

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SEC Division of Corporation Finance Issues Additional Disclosure Guidance Related to COVID-19 Pandemic

On June 23, the Division of Corporation Finance (the Division) of the Securities and Exchange Commission issued CF Disclosure Guidance: Topic No. 9A (Topic 9A) providing additional disclosure considerations for public reporting companies regarding operations, liquidity and capital resources disclosures in light of business and market disruptions related to the COVID-19 pandemic. Topic 9A supplements CF Disclosure Guidance Topic No. 9 issued by the Division on March 25, 2020 and discussed in Katten’s advisory “COVID-19 Impact on Public Disclosure on SEC Reporting Companies.”

The Division notes, in Topic 9A, their view that it is important for reporting companies to provide robust and transparent disclosures about how such companies are addressing short- and long-term liquidity and funding risks in light of current economic conditions. Noting that, while some companies have made relevant disclosures in earnings releases, the Division encourages reporting companies to evaluate, in light of materiality considerations, the extent to which such disclosures should also be included in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

In Topic 9A, the Division encourages reporting companies to consider a broad range of questions in preparing disclosures related to COVID-19 and current economic conditions, including among others:

  • What are the material operational challenges that management and the Board of Directors are monitoring and evaluating?

  • How is your overall liquidity position and outlook evolving?

  • Have COVID-19 related impacts affected your ability to access your traditional funding sources on the same or reasonably similar terms as were available to you in recent periods?

  • Are you at material risk of not meeting covenants in your credit and other agreements?

  • Have you reduced your capital expenditures or ceased any material business operations or disposed of a material asset or line of business?

  • Have you altered terms with your customers, such as extended payment terms or refund periods, and if so, how have those actions materially affected your financial condition or liquidity?

Further, Topic 9A provides that reporting companies that are receiving federal assistance under the CARES Act, including through loans or tax relief, should consider the impact of that assistance on their financial condition, results of operations, liquidity and capital resources. Consideration in disclosures should be given to the material terms and conditions of the federal assistance (including a company’s expectations as to compliance with such terms and conditions), any restrictions imposed by the federal assistance (e.g., as to seeking other sources of funding or maintaining certain employment levels) and whether the reporting company expects to change its operations in any material way once the restrictions lapse.

Finally, Topic 9A reminds reporting companies to consider whether current conditions and events, taken as a whole, raise substantial doubt about the company’s ability to meet its obligations as they become due within one year after issuance of the financial statements (and, accordingly, continue as a going concern) and if so, to provide required disclosures in the company’s financial statements and consider appropriate disclosures in the company’s MD&A.

Topic 9A is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 178


About this Author

Brian Hecht Corporate Lawyer Katten

Brian Hecht is a Corporate partner in Katten's New York office. He offers broad transactional experience in capital markets transactions, mergers and acquisitions and corporate governance matters. Within capital markets, Brian's practice focuses on initial public offerings, high yield offerings, spin-offs, tender offers and investment grade debt offerings. Within mergers and acquisitions, he represents private equity funds and public companies in both public and private acquisitions and divestitures.

Prior to joining Katten, Brian was a...

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and strategic alliances.  He is a leading practitioner in representing investors, public companies and placement agencies in private investment in public equity (PIPE) transactions. In addition, he also counsels public companies on securities law compliance, disclosures, corporate governance and compensation-related issues. Many of his clients are middle market and upper middle market companies in the technology, oil and gas, manufacturing, health care and commercial banking industries.

Mark Reyes Securities Lawyer Katten Muchin law firm Chicago office

Mark J. Reyes concentrates his practice in corporate and securities matters, including representing issuers and investors in public offerings and private placements of equity and debt securities and advising clients in complex corporate transactions such as mergers, acquisitions, private investments in public equity (PIPEs), private equity investments and joint ventures. He also counsels public companies on securities law compliance, disclosures and corporate governance matters.

Shown below is a...