Issuing FDIC-Guaranteed Debt under the TLGP

About ten days ago, the FDIC issued its Final Rule regarding its Temporary Liquidity Guarantee Program (known as "TLGP"), which includes the debt guarantee program under which the FDIC is guaranteeing the unsecured senior debt of eligible entities. The TLGP is an opt-out program with an opt-out deadline of December 5th.

In connection with the FDIC's final rule, Corp Fin has issued an interpretive letter clarifying that offerings of TLGP-guaranteed debt don't need to be registered under the '33 Act (since the guaranteed debt will be exempt under Section 3(a)(2)). We have posted memos regarding TLGP in our "Debt Financings" Practice Area.

The first offerings of debt guaranteed under the program have already been launched - and it has been estimated that as much as $300 billion of debt may ultimately be issued under the TLGP. To help you prepare for this wave, we have just announced a new webcast - "How to Issue FDIC-Guaranteed Debt under the TLGP" - to be held on December 17th. With all the big issues being hashed out right now, our panel of Wall Street lawyers will be able to give you the latest developments. This is a "biggie."

If you're not a member of TheCorporateCounsel.net, try a '09 no-risk trial to access this webcast for free. If you are a member, please renew your membership today since all memberships are on a calendar-year basis.

Yesterday, Mark Borges blogged about the GAO's preliminary assessment of the compliance with TARP so far, particularly as it relates to executive compensation. It's a great blog entry.

The NYSE Speaks '08: Latest Developments and Interpretations

We have posted the transcript from our recent webcast: "The NYSE Speaks '08: Latest Developments and Interpretations."

Financial Viability Exception: Nasdaq Issues New Staff Interpretive Letters

Recently, Nasdaq posted three new letters (2008-18, -19 and -20) written to companies seeking to utilize the financial viability exception in Rule 4350(i)(2), the rule that provides an exception to the shareholder approval rules for companies in financial distress. A company may not use this exception without obtaining specific approval from Nasdaq; the company must also comply with certain other requirements. But these new letters - and this series of FAQs on the financial viability exception - may help companies thinking about requesting the exception to understand the factors Nasdaq will consider in deciding whether to approve it.

- Broc Romanek

A Coming Wave of New-Age Repricings?

I know that a lot of companies are rethinking their executive compensation arrangements right now. We just sent the Nov-Dec ‘08 issue of The Corporate Executive to the printer. This issue contains the definitive guidance on repricings (and related compensation restructuring issues) and how to implement hold-through-retirement provisions that will help comply with Treasury’s “excessive risk” limitations.

Act Now: To receive a non-blurred version of this issue right away (and on a complimentary basis), enter a No-Risk Trial for ‘09 today.

Note that last week, the Council of Institutional Investors issued a statement warning companies not to reset the bar for CEO pay because of the market meltdown. We have posted this statement - and other memos regarding underwater options - in CompensationStandards.com's "Stock Options" Practice Area. In addition, we have posted other memos about executive compensation restructuring in our "Rolling Back Compensation" Practice Area.

Believe It or Not: Sarbanes-Oxley Lawsuit Marches On

With the markets collapsing and a new appetite for regulatory reform, it was surprising to see this article that reports that the Free Enterprise Fund was dealt another setback in its attempt to find the Sarbanes-Oxley Act unconstitutional. By a 5-4 decision, the US Court of Appeals for Washington DC voted not to review the case recently. Apparently, the plaintiffs now plan to appeal to the US Supreme Court.

Even more surprising is the occasional mention in the process of Paulson's '07 "blueprint" to modernize the financial markets as a possible stepping stone for regulatory change. As you may recall, that was a blueprint to deregulate, not re-regulate. We'll be posting reform proposals in our "Regulatory Reform" Practice Area.

SEC's "IDEA" Not a Great Idea? Accusations of Trademark Infringement

As noted by Dominic Jones in his "IR Web Report" a while back, the SEC's plan to launch a new online database (dubbed "IDEA") may have hit a wall when a Canadian tech company - CaseWare International - claimed it already had been using the name for 20 years. The SEC filed a trademark application back in May with the US Patent and Trademark Office, while CaseWare claims it registered its trademark with the US PTO back in 2001. It will be interesting to see how this plays out...

- Broc Romanek

Doings at the ABA's Federal Regulation of Securities Committee Fall Meeting

Last week, Corp Fin updated its "'33 Act Sections" CD&Is. I'm sure that this is welcome news to Corp Fin Director John White, who had Chief Counsel Tom Kim and Deputy Director Brian Breheny stand up and affirm their intent to update the portions of the old Telephone Manual into CD&Is by the end of the year during the recent ABA Fall meeting of the Federal Regulation of Securities Committee.

During his last remarks as Corp Fin Director, John reviewed the numerous changes during his two-plus year tenure - including noting that now over 20,000 of the Staff's comment letters have been posted - and he identified big rulemakings that have been tee'd up for the near future, including:

- IFRS roadmap now proposed, along with proposed timetable
- Further implementation of certain CIFiR recommendations
- Proxy matters, including a reconsideration of shareholder access
- Technology, including XBRL and the "21st Century Disclosure Initiative"
- Beneficial ownership reporting regime, in the wake of the CSX decision and the SEC's short-selling efforts

In our "Conference Notes" Practice Area, we have posted notes from PLI's recent Securities Law Institute.

Mandatory XBRL Likely to Come Soon

Recently, I wondered in this blog whether SEC Chairman Cox would get across the finish line with mandatory XBRL before he left. Listening to John's remarks, I got the sense that the SEC would adopt mandatory XBRL before Cox departed (although John didn't mention what type of transitionary timetable would be adopted). Bolstering this effort, XBRL US announced last week that they have completed a new draft of the XBRL US GAAP Taxonomies - as well as the initiation of a public review.

Recently, I blogged that Broadridge was leading the way on proxy statement XBRL taxonomies. This changed last month when Broadridge donated its draft proxy taxonomies to XBRL US. However, XBRL US's new draft taxonomy doesn't include tags for proxy statements - thus making it highly unlikely the SEC would include executive compensation data in its initial adoption of mandatory XBRL.

Our December Eminders is Posted!

We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

- Broc Romanek

RiskMetrics Issues '09 Proxy Season Policies

In our "Proxy Advisors" Practice Area, we have posted RiskMetrics' new set of 2009 policies, which were released in the middle of last week. Tune in next month to hear Pat McGurn of RiskMetrics' ISS Division to discuss these new policies in this webcast: "Forecast for 2009 Proxy Season: Wild and Woolly."

RiskMetrics to Change CGQ?

Speaking of RiskMetrics, I have heard that they are contemplating an overhaul of their corporate rating service, the "Corporate Governance Quotient" (known as "CGQ"). Although their plans could change, I understand that there will not be a single numerical score as there is today. [You may recall that today, each company's CGQ score is available from their Yahoo! Finance page, among other places.]

Instead, there would be multiple scores for each company, each score dependent on a major area of governance (egs. board independence, board structure, compensation, auditing and financial integrity). The idea is to make the results less "black-and-white" and allow users to reach their own conclusions more readily.

I'm not sure if a change in methodology will make the CGQ more popular with investors - studies have shown they are not considered particularly relevant for investment decisions today - but I imagine some companies will welcome this development (particularly corporate secretaries who have directors that closely follow the scores - although I believe the number of those have dwindled over the years).

Bebchuk v. Electronic Arts: Transcript Posted

Recently, I blogged how Judge Hellerstein of US District Court (SDNY) dismissed Bebchuk v. Electronic Arts, Inc. (which involves Professor Lucian Bebchuk's attempt to use Rule 14a-8 to establish new "shareholder access" procedures). I mentioned that once we find a copy of the decision, we'd post it in our "Shareholder Proposals" Practice Area.

Apparently, the Judge didn't feel like writing a decision because he figured that the 2nd Circuit would handle that upon appeal - so we've posted his 1-page order as well as the transcript from the hearing.

- Broc Romanek

Another One Bites the Dust: SEC's Chief Accountant to Leave

Yesterday, SEC Chief Accountant Conrad Hewitt announced that he will leave the SEC in January. This is a day after Alexander Cohen announced he would leave as Deputy Chief of Staff. And a week after General Counsel Brian Cartwright announced his departure plans - and two weeks from Corp Fin John White's announcement.

While it's not unusual for these positions to be filled by a new Chairman (other than the Corp Fin Director, who typically doesn't "rotate" with a new Administration), it's a little unusual for these departure announcements to come so close to each other. Looks like President-elect Obama will need to pick a new SEC Chair soon, so that these positions can be filled in short-order during these trying times.

Why is SEC Chairman Cox a Short-Timer?

It's been widely reported that SEC Chairman Chris Cox will leave office soon himself, even though his five-year term doesn't expire until June 2010. Some members have asked: "What if Cox didn't want to leave office? Does the President have the authority to fire an SEC chair?"

The answer is "no." The law with respect to independent - so-called "alphabet" - agencies is that the SEC Commissioners including the Chair are appointed for a specific term and can only be removed "for cause." However, the President can tap someone else as Chair - and have an existing Chair serve as a "mere" Commissioner instead. This setup is supposed to insulate those agencies from political pressure. Historically though, the SEC Chair has tendered a resignation when a new party comes into power.

CFIUS Issues Final Regulations

Last week, the Department of the Treasury's Committee on Foreign Investment in the United States (known as “CFIUS”) issued final regulations governing national security reviews of foreign investments in US companies. The new regulations – issued to implement amendments adopted by the "Foreign Investment and National Security Act of 2007" – largely track the proposed regulations issued in April - and are the most significant changes to the CFIUS rules since their adoption in ‘91.

The new rules encourage parties to consult with CFIUS in advance of filing formal notification (an existing CFIUS “best practice”). Significantly, the new rules do not define “national security,” or what constitutes “control” by a foreign investor; nor do they provide special rules for sovereign wealth funds. CFIUS retains the flexibility to review each transaction on a case-by-case basis.

We have posted memos analyzing the new regulations in our "National Security" Practice Area.

- Broc Romanek

Issues to Consider: Special Meetings to Authorize TARP Preferred Stock

As predicted by 59% of members taking our recent poll, it appears that over 100 companies have applied to participate in Treasury's Capital Purchase Program. While participation in the CPP doesn't require shareholder approval, most of these companies don't have the authority to issue preferred shares under their charter and they are now scrambling to file preliminary proxy materials for a special meeting to obtain shareholder approval. Here are a few issues to consider:

1. Corp Fin Review - Yesterday, the Corp Fin Staff posted this guidance - complete with typical comments and pro forma analysis - for companies filing special meeting proxy statements (at this weekend's ABA Fall meeting, John White mentioned that several of these bulletins on a variety of topics would be forthcoming soon - more on the ABA meeting next week).

I believe the Corp Fin Staff is selecting most (if not all) of these preliminary proxy statements for review. And I have heard that although expedited treatment isn't being promised by the Staff, the Staff is aware of the time pressures caused by the Treasury's timeline - and that comments are often issued faster than the typical 30-day period.

2. ISS Review - Many of the CPP companies likely will request “blank check” preferred stock, which gives a company's board the power to issue preferred stock at its discretion, with voting, conversion, distribution and other rights to be determined by the board at the time of issue. However, issuances of “blank check” shares typically raise a concern for ISS that they could be used as a takeover defense if they are placed with parties friendly to management. To address this concern, companies can create “declawed” preferred stock, which can't be used as a takeover device. Here is more information as to how RiskMetrics Group will assess such requests.

3. Samples - At least 58 companies already have filed preliminary proxy statements with the SEC. In our "Credit Crunch" Practice Area, we have posted a few of these proxy statements (although we can't vouch for whether they have cleared Corp Fin's review process) - as well as sample risk factor disclosures regarding the credit crunch.

More on “Breaking the Buck” for Listed Companies

Last week, Dave blogged about "breaking the buck" for listed companies. A few members e-mailed some thoughts and confirmed most of what the NYSE Staff said during our webcast. In other words, the NYSE Staff has told them that they are - at least for now - maintaining the $1 requirement and the NYSE is giving companies the longer of six months or the next annual meeting to fix the problem through a reverse stock split, etc. (with the alternative of moving the listing; apparently the pink sheets are becoming more popular).

New York Revises its Plan to Regulate Credit Default Swaps

From Davis Polk: "The New York State Department of Insurance will delay indefinitely its previously outlined plan to regulate credit default swaps, while remaining on active surveillance of the various federal plans and options, according to the testimony of NYS Department of Insurance Superintendent Eric Dinallo before the United States House of Representatives Committee on Agriculture last week.

The decision, as officially announced in the 'First Supplement to Circular Letter 19' published last week, results from “the progress made toward comprehensive federal regulation.” In his testimony, Mr. Dinallo specifically referred to SEC Chairman Christopher Cox’s request for power to regulate the credit default swap market, subsequent actions by the President’s Working Group (in particular, its initiative to develop central counterparties for credit default swaps) and his discussions with members of the United States Congress. Mr. Dinallo asserted that while the NYS Department of Insurance continues to have the jurisdiction to regulate credit default swaps where the buyer holds, or is expected to hold, a material interest in the referenced obligation, the NYS Department of Insurance believes that “the best option is a holistic solution for the entire credit default swap market” and that “it would not be effective or efficient for New York to regulate some transactions” while others are regulated under another scheme or not at all.

Mr. Dinallo stated that the NYS Department of Insurance will be actively following and assisting with regulatory efforts made by federal agencies and Congress. He suggested that, in his view, federal regulation should contain the following elements:

- requirements that all sellers maintain adequate capital and post sufficient trading margins to minimize counterparty risk;
- a guaranty fund that ensures that a failure of one seller will not create a cascade of failures in the market;
- clear and inclusive dispute resolution mechanisms;
- mechanisms for collecting comprehensive market data and making it available to regulatory authorities; and
- comprehensive regulatory oversight, such that regulation is not voluntary.

Once appropriate regulations have been put in place, Mr. Dinallo concluded, New York will consider changes in state law to prevent problems that could arise from some swaps being categorized as insurance. On the other hand, if New York finds the federal government is not acting decisively enough, the implication is that the NYS Insurance Department may again decide to act as a regulator of credit default swaps."

- Broc Romanek