Question

What type of disclosure would be required in a case where an outside party is a guarantor called on to satisfy the guarantee of payment for the debts of another entity?

Answer 1

ANSWER:-

Financial Statements of and Disclosures About Guarantors and Issuers of Guaranteed Securities:-

The requirements of Rule 3-10 of Regulation S-X are applicable to financial statements of a subsidiary that issues securities guaranteed by the “parent company,” as that term is defined in Rule 3-10 of Regulation S-X, or guarantees securities issued by the parent company.

However, the reference in Rule 3-10(a) of Regulation S-X to “an issuer or guarantor of a guaranteed security that is registered or being registered is required to file financial statements required by Regulation S-X with respect to the guarantee or guaranteed security” instead refers to “an issuer or guarantor of a guaranteed security that is qualified or being qualified pursuant to Regulation A is required to file financial statements required by Item 3 of 200 Form 1-SA with respect to the guarantee or guaranteed security.”

The parent company must also provide the disclosures required by Rule 13-01 of Regulation S-X. The parent company may elect to provide these disclosures in a footnote to its consolidated financial statements or alternatively, in management’s discussion and analysis of financial condition and results of operations described in Item 9 of Form 1-A in reports on Form 1-K and Form 1-SA required to be filed during the fiscal year in which the first bona fide sale of the subject securities is completed. However, the parent company must provide the disclosures in a footnote to its consolidated financial statements in its annual and semiannual reports beginning with its annual report filed on Form 1-K for the fiscal year during which the first bona fide sale of the subject securities is completed.

Disclosures About Affiliates Whose Securities Collateralize an Issuance:-

Disclosures about an issuer’s affiliates whose securities collateralize any class of securities being offered must be provided as required by Rule 13-02 of Regulation S-X.

The issuer may elect to provide these disclosures in a footnote to its consolidated financial statements or alternatively, in management’s discussion and analysis of financial condition and results of operations described in Item 9 of Form 1-A in reports on Form 1-K and Form 1-SA required to be filed during the fiscal year in which the first bona fide sale of the subject securities is completed. However, the issuer must provide the disclosures in a footnote to its consolidated financial statements in its annual and semiannual reports beginning with its annual report filed on Form 1-K for the fiscal year during which the first bona fide sale of the subject securities is completed.

Guarantors and issuers of guaranteed securities registered or being registered:-

(a) For each class of guaranteed security registered or being registered for which the registrant is the parent company (as that term is defined in § 210.3-10(b)(1)), provide the following disclosures to the extent material to holders of the guaranteed security:

(1) Identification of the issuers and guarantors of the guaranteed security;

(2) A description of the terms and conditions of the guarantees, and how payments to holders of the guaranteed security may be affected by the composition of and relationships among the issuers, guarantors, and subsidiaries of the parent company that are not issuers or guarantors of the guaranteed security;

(3) A description of other factors that may affect payments to holders of the guaranteed security, such as contractual or statutory restrictions on dividends, guarantee enforceability, or the rights of a noncontrolling interest holder;

(4) Summarized financial information as specified in § 210.1-02(bb)(1) of each issuer and guarantor of the guaranteed security. The summarized financial information of each such issuer and guarantor consolidated in the parent company’s consolidated financial statements may be presented on a combined basis with the summarized financial information of the parent company. Intercompany transactions between issuers and guarantors whose summarized financial information is presented on a combined basis shall be eliminated. If the information provided in response to the requirements of this section is applicable to one or more, but not all, issuers and/or guarantors, separately disclose the summarized financial information applicable to those issuers and/or guarantors. The financial information of subsidiaries that are not issuers or guarantors shall not be combined with that of issuers and guarantors. The method selected to present investments in subsidiaries that are not issuers or guarantors shall be disclosed and used for all such subsidiaries for all of the classes of guaranteed securities for which disclosure is required by this section, and shall be reasonable in the circumstances. Disclose this summarized financial information as of and for the most recently ended fiscal year and interim period included in the parent company’s consolidated financial statements. If the disclosure required by this paragraph (a)(4) is omitted because it is not material to holders of the guaranteed security, disclose a statement to that effect and the reasons therefore; and

(5) Any other quantitative or qualitative information that would be material to making an investment decision with respect to the guaranteed security. Note 1 to paragraph (a). The parent company may elect to provide the disclosures required by this section in a footnote to its consolidated financial statements or alternatively, in management’s discussion and analysis of financial condition and results of operations described in § 229.303 (Item 303 of Regulation S-K) of this chapter in its registration statement covering the offer and sale of the subject securities and any related prospectus, and in Exchange Act reports on the forms described in §§ 249.310 (Form 10-K), 249.220f (Form 20-F), and 249.308a (Form 10-Q) of this chapter required to be filed during the fiscal year in which the first bona fide sale of the subject securities is completed. If not otherwise included in the consolidated financial statements or in management’s discussion and analysis of financial condition and results of operations, the parent company must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in § 229.503(c) (Item 503(c) of Regulation S-K) of this chapter. However, the parent company must provide the disclosures in a footnote to its consolidated financial statements in its annual and quarterly reports beginning with its annual report filed on the forms described in §§ 249.310 (Form 10-K) and 249.220f (Form 20-F) of this chapter for the fiscal year during which the first bona fide sale of the subject securities is completed.