Deal Diary

If, as they say, past is prologue, then boards of directors in the United States should follow closely lessons learned by their European and British counterparts when it comes to the potential role sustainable finance plays in relation to financing the long-term strategic objectives of U.S. companies across all sectors of the economy. Companies and investors alike are demanding sustainable investment opportunities in the form of financial and consumer products, and companies are facing increased pressure to factor in sustainability in terms of long-term growth strategies. In addition, all stakeholders continue to demand access to comparable and reliable metrics in order to evaluate the extent to which a particular investment or product is, in fact, sustainable. Indeed, the foregoing is driving rulemaking initiatives by various federal and state regulatory authorities, including the U.S. Securities and Exchange Commission (SEC). All of these factors deserve the attention by boards of directors.

As noted in our blogpost last week, Gary Gensler, Chair of the U.S. Securities Exchange Commission, has asked the Commission staff to consider updates to Rule 10b5-1 in an effort to “address cracks” in the current insider trading regime and otherwise “freshen up” the rule. In prepared remarks given to the Commissions’ Investor Advisory Committee (IAC) on June 10, Gensler reiterated his concerns about 10b5-1 trading plans.

To address the key issue in the litigation In re: Citibank August 11, 2020 Wire Transfers ¹, on March 19, 2021, the Loan Syndication and Trading Association (LSTA) circulated a Market Advisory² that contains draft erroneous payment language to be incorporated into credit agreements that purports to protect administrative agents and contractually entitles administrative agents to claw-back erroneous payments in the future.

On April 8, 2021, John Coates, the Acting Director of the Securities and Exchange Commission’s (SEC) Division of Corporation Finance, released a public statement expressing concern about claims of some practitioners and commentators regarding special purpose acquisition companies (SPACs). In particular, Mr. Coates questions the view that a private company faces less exposure to securities law liability when “going public” through a business combination with a SPAC (a “de-SPAC” transaction) than when employing a conventional IPO structure. After emphasizing the significant investor protections concerns this assertion raises, Mr. Coates refutes the claim by describing the manner in which the existing federal securities law regime protects SPAC investors. Mr. Coates also proposes an interpretation of the Private Securities Litigation Reform Act (PSLRA) that would limit the scope of its safe harbor when SPAC participants make forward-looking statements in connection with de-SPAC transactions. Despite the customary disclaimer cautioning readers that the public statement only expresses the views of Mr. Coates and not those of the SEC, the public statement may provide insight as to how the SEC Staff is thinking about de-SPAC transactions. We summarize each of Mr. Coates’s points below.

On March 31, 2021, the Securities and Exchange Commission (SEC) provided public statements from Acting Chief Accountant Paul Munter and from the Division of Corporation Finance addressing Special Purpose Acquisition Companies (SPACs). Although each of the statements were distinct and addressed different issues, the primary focus of both was to raise awareness of critical accounting, financial reporting and governance considerations that a private operating company should carefully consider and address prior to consummating a business combination with a SPAC.

The upcoming transition from the London Inter-bank Offered Rate (LIBOR), which is published by ICE Benchmark Administration Limited (IBA), to the Secured Overnight Funds Rate (SOFR), which is published by the New York Federal Reserve Bank (NYFRB), has prompted a great deal of discussion in the world of leveraged finance. In particular, the transition from LIBOR to SOFR creates a number of potential issues and pitfalls under existing loan documents, including issues related to when the transition will go into effect, discrepancies between LIBOR and SOFR interest rate “floors” in loan documents and the need to obtain lender consents. Lenders should pay careful attention to these issues and consider whether any changes to their existing loan documents or other loan documentation is necessary.

The world has changed a lot since our 2020 report. A global pandemic; a reckoning on race, inequality and social justice; a climate crisis; an economic shock; and increased political polarization have created challenging dynamics for companies and boards globally. The role of the board in managing risk and charting the course ahead is more critical today than ever before. This report delves into these wide-ranging and interlocking issues and offers insight on how directors and management must proactively embrace their stewardship roles in this brave new world.