T3 – Rise of the Trust Indenture Act Filings in Section 3(a)(9) Exchanges

Your good client John Connor is on the phone. John – a somewhat paranoid guy, if truth be told – is convinced that Skynet, Inc. is planning to take over, and terminate, his company. John’s complex survival strategy involves a Section 3(a)(9) exchange of securities, in addition to all sorts of pyrotechnics, motorcycle chases, and a bodybuilding governor named Ahnold. (Okay, the bit about the bodybuilding governor is hard to believe, but the rest of it is all thoroughly credible.)
You’re all over the Securities Act issues, but before you say “hasta la vista, baby” there is one more aspect to consider – the Trust Indenture Act of 1939.

Background to the TIA

The TIA is somewhat obscure to many securities lawyers, so a bit of background is in order. If the TIA applies to a debt issuance, the indenture must be “qualified” with the SEC before sales of the securities can be made (TIA 306), and various substantive provisions are deemed included in the indenture (TIA 318(c)).

Luckily, you do not need to worry about the TIA in connection with most of the unregistered debt offerings you will commonly encounter. TIA 304(b) exempts Section 4(a)(2) and Rule 144A offerings, while TIA 304(a) exempts a grab-bag of exempt offerings (including Section 3(a)(2) offerings for banks and Section 3(a)(3) commercial paper). But Section 3(a)(9) exchanges are among the transactions caught by the TIA, as are Section 3(a)(10) exchanges (for some background, see our discussion of the Section 3(a)(10) exemption), as well as offerings under Section 1145(a) of the Bankruptcy Code. See TIA 304(a) and TIA C&DI 101.05.Form T-3

Form T-3 is the TIA form used to apply for qualification of an indenture under which a class of debt securities is to be issued in an unregistered offering. Form T-3 is a standalone form, unlike Forms T-1 and T-2, which serve the same purpose but are filed as exhibits to Securities Act registration statements in registered offerings. See TIA 307.

Form T-3 is not a terribly complicated form, but bear in mind that TIA 306(c) prohibits offers until an application for qualification has been filed with the SEC. The SEC Staff has been known to issue TIA 306(c) comments to companies that commenced an exchange offer before filing their Form T-3.
Will I become an SEC reporting company by filing a Form T-3?

No. TIA 314(a) requires delivery of certain periodic reports to the indenture trustee and the SEC. However, TIA 314(a) delegates authority to the SEC to adopt rules detailing the reporting requirements for issuers that are not otherwise subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act. The SEC has never adopted these regulations. As a result, the SEC Staff takes the position that an otherwise non-reporting company is not required to file information with the SEC by virtue of TIA 314(a). See TIA C&DI 107.01. While we are on the topic of TIA 314(a), the scope of this section was the subject of a fair amount of litigation a few years ago. For a discussion of those cases and our views on the matter, see this client alert.


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