Rule 144A
Allows the sale of securities to qualified institutional buyers (QIBs) within the United States without registration under the Securities Act of 1933.
Key Facts
- Definition:
- Rule 144A: It allows the sale of securities to qualified institutional buyers (QIBs) in the United States.
- Regulation S: It allows the sale of securities outside of the United States to both U.S. and non-U.S. QIBs.
- Target Market:
- Rule 144A: The tranche is offered and sold in the United States to QIBs.
- Regulation S: The tranche is offered and sold offshore, outside of the United States.
- Investor Base:
- Rule 144A: Limited to qualified institutional buyers (QIBs) in the United States.
- Regulation S: Can be offered to both U.S. and non-U.S. QIBs outside of the United States.
- Securities Act Registration:
- Rule 144A: Allows for the sale of securities without registration and review by the Securities and Exchange Commission (SEC).
- Regulation S: Also allows for the sale of securities without registration under the Securities Act of 1933.
Regulation S
Allows the sale of securities outside of the United States to both U.S. and non-U.S. QIBs, also without registration under the Securities Act of 1933.
Target Market
Rule 144A
The tranche is offered and sold in the United States to QIBs.
Regulation S
The tranche is offered and sold offshore, outside of the United States.
Investor Base
Rule 144A
Limited to qualified institutional buyers (QIBs) in the United States.
Regulation S
Can be offered to both U.S. and non-U.S. QIBs outside of the United States.
Securities Act Registration
Rule 144A
Allows for the sale of securities without registration and review by the Securities and Exchange Commission (SEC).
Regulation S
Also allows for the sale of securities without registration under the Securities Act of 1933.
Considerations for High Yield Offerings
Traditionally, high yield offerings in the EMEA debt capital markets have followed either the “US high yield model” or the “Eurobond” model. The “US high yield model” typically involves 144A/Reg S offerings, while the “Eurobond” model often utilizes Reg S only offerings.
While Reg S only offerings may be less time-consuming and expensive than 144A/Reg S offerings, market practice and investor expectations often favor the latter.
Disclosure
144A/Reg S offerings require robust disclosure equivalent to what would be required in an SEC-registered offering to mitigate potential US securities law liabilities.
Comfort Package
Underwriters in 144A/Reg S offerings typically require a full suite of US-style deliverables, including 10b-5 disclosure letters and SAS 72 comfort letters.
Investor Expectations
International high yield investors have come to expect 144A-level disclosure and comfort packages, even in Reg S only offerings.
Conclusion
Despite the potential benefits of Reg S only offerings, the starting position for most international high yield offerings remains the 144A/Reg S structure with 144A-level disclosure and comfort packages. Careful consideration and discussion with underwriters and legal counsel are crucial before deviating from this practice.
Sources
- Capital Markets Overview: Rule 144A & Reg S Debt Offering Practice
- Regulation S (Reg S) & Rule 144A securities remain key component of the issuers financing toolkit
- 144A vs REG S Only- considerations in high yield offerings
FAQs
What is Rule 144A?
Rule 144A is a Securities and Exchange Commission (SEC) exemption that allows for the sale of securities to qualified institutional buyers (QIBs) in the United States without registration under the Securities Act of 1933.
What is Regulation S?
Regulation S is a SEC exemption that allows for the sale of securities outside of the United States to both U.S. and non-U.S. QIBs, also without registration under the Securities Act of 1933.
What is the main difference between Rule 144A and Regulation S?
The main difference between Rule 144A and Regulation S is the target market for the securities being sold. Rule 144A offerings are sold to QIBs in the United States, while Regulation S offerings are sold to QIBs outside of the United States.
What are the advantages of using Rule 144A?
Advantages of using Rule 144A include the ability to access the deep pool of experienced high yield investors in the United States, increased issuer visibility in the US market, and additional certainty resulting from New York court-tested high yield documents and covenants governed by New York law.
What are the advantages of using Regulation S?
Advantages of using Regulation S include the ability to avoid the registration requirements of the Securities Act of 1933, the flexibility to offer securities to both U.S. and non-U.S. investors, and the potential for a more streamlined and less expensive offering process.
When should I use Rule 144A?
Rule 144A should be used when the issuer wants to offer securities to QIBs in the United States and is willing to comply with the additional disclosure and other requirements of Rule 144
When should I use Regulation S?
Regulation S should be used when the issuer wants to offer securities to QIBs outside of the United States and wants to avoid the registration requirements of the Securities Act of 1933.