“For a Few Dollar Dollars More” Upsizing Your Shelf Deal

We are counsel to the Bank of El Paso, a non-WKSI issuer in an underwritten offering of common stock off a Form S-3 shelf. The takedown will deplete all the shares of common stock registered on the shelf. The underwriters have indicated that the deal is oversubscribed, and they want to upsize the deal to capture the extra demand.

Can we do it?

Yes, through Rule 462(b), which lets a non-WKSI issuer upsize a deal by filing an abbreviated registration statement that becomes immediately effective upon filing. (WKSIs generally do not need the help of Rule 462(b), because they can file an automatically effective shelf with an unspecified amount of securities that will not be reviewed by the Staff.)

First, some background. Recall that Rule 462(b) allows an issuer to file an immediately effective registration to register additional shares, if three conditions are met:

  • the registration statement registers additional securities of the same class included in the prior registration statement that the SEC declared effective;
  • the new registration statement is filed prior to the time confirmations are sent or given; and
  • the new registration statement registers additional securities in an amount and at a price that together represent no more than 20% of the maximum aggregate offering price reflected in the “Calculation of Registration Fees” table.

Applying Rule 462(b) to your case, you easily meet the first condition: The Rule 462(b) registration statement would register additional shares of common stock covered by the effective Form S-3 shelf. The second condition is straightforward too – you would need to file your Rule 462(b) registration statement prior to sending any confirmations for the extra shares. See also C&DI 244.04 (discussing this point).

The third condition is trickier – what does the 20% limitation mean here? Or, to put it another way, 20% of what?

The answer from the Staff is not entirely intuitive. Under C&DI 244.03, your Rule 462(b) registration statement can register common stock in an amount and at a price that together represents no more than 20% of the maximum aggregate offering price of the shares remaining on the shelf immediately prior to the final take-down. So, you look to see how much headroom you have under the shelf, and base your 20% calculation on that.

There are some limitations to bear in mind. The Staff takes the position that Rule 462(b) can only be used in connection with a final take-down of all of the securities off of a shelf, and that upsizing via the Rule 462(b) registration statement is only available once per delayed shelf registration statement. See C&DI 244.03. Why is this important? Imagine that you have a shelf covering both common stock and convertible debt, and that the shelf has $500 million of capacity remaining. You might think that you could use Rule 462(b) to upsize the shelf by 20% (to $600 million), and sell, say, $200 million in common stock and $400 million in convertible debt. But the Staff will not let you get your “few dollars more” that way. Instead, you would first have to take down $200 million in common stock, leaving $300 million of headroom. Then, you could take down the remaining $300 million in convertible debt, plus an additional 20% of $300 million – i.e., you would get a total of $360 million of convertible debt (not $400 million). See C&DI 644.07.

So far, so good. The Bank filed an abbreviated registration statement pursuant to Rule 462(b) and the underwriters are preparing to confirm sales. What comes next?

Some steps you need to take:

  • If the underwriters are going to use a pricing term sheet as a free writing prospectus under Rule 433, the issuer would file the term sheet. See Rule 433(d)(5)(ii). (Recall that FWPs that are preliminary pricing term sheets do not need to be filed – see Rule 433(d)(5)(i)).
  • Remember that we omitted information from the base prospectus contained in the initial registration statement by virtue of Rule 430B (Rule 430A’s shelf-related cousin). Now we need to get that information into the prospectus so that the prospectus will be complete (for opinion and Section 11 purposes). We can do this by filing the final prospectus supplement (complete with the missing pricing information) under Rule 424(b)(2), which allows us to “pour back” the missing information into the registration statement. The final prospectus supplement must be filed pursuant to Rule 424(b) no later than “the second business day following the earlier of the date of the determination of the offering price or the date it is first used after effectiveness in connection with a public offering” (although market practice is to file it as soon as practicable). The combined magic of Rule 430B and Rule 424(b)(2) allows the final prospectus supplement effectively to go back in time and complete the incomplete prospectus included in the original registration statement so that the registration statement is deemed to have been complete as of its effective date as a matter of law. Pretty cool, no?

We’re getting very nitty-gritty here, but under which registration number should the FWP and prospectus supplement be filed for EDGAR purposes – in other words, the number of the initial registration statement or the number of the Rule 462(b) abbreviated registration statement? Should the registration number of the Rule 462(b) registration statement be noted anywhere on the FWP or prospectus supplement?

With respect to the EDGAR submission header for each of the FWP and prospectus supplement you plan to file, you should use the registration number from the initial effective registration statement and not that from the abbreviated Rule 462(b) registration statement. See C&DI 644.06. However, since the FWP and the prospectus supplement will reflect the additional shares from the abbreviated registration statement, you should include both the registration number from the original registration statement and from the abbreviated registration statement on the cover page of the FWP and prospectus supplement. (Recall that additional securities cannot be registered by post-effective amendment to an initial effective registration statement – other than with respect to a WKSI shelf – and that including the registration number of the abbreviated registration statement provides a cross-reference to the registration statement from which the additional shares are offered.) See C&DI 227.03

You May Also Be Interested In