Back in April we wrote about the passing of a new set of laws which have the potential to impact the catastrophe bond and insurance-linked securities market by easing some of the current restrictions on securities advertising, marketing and issuance. The Jumpstart Our Business Startups Act, or JOBS Act, was signed into law by President Obama on the 5th April. Now the SEC has proposed rules to enact the part of the law which would allow for general solicitation and advertising of securities offerings.
Currently cat bond and ILS issuances have to be marketed behind closed doors, to a select group of investors known as qualified institutional buyers (or QIBS). The laws in place currently means that all Rule 144a securitization deals have to be marketed in the same way and open or general solicitation to invest is strictly forbidden. The JOBS Act will shake this up be allowing securities to be openly marketed and advertised as long as they are only sold to accredited investors.
So marketing and advertising of securities can be open, and public, meaning that a new cat bond deal could for example be advertised in the financial and investment press to try to gain the attention of new investors to the sector. That could be beneficial for the market as a whole. At the least it will remove some of the red tape and requirement to be secretive about new 144a cat bond and ILS deals which will make the marketing and road show process a little easier for the bookrunners and managers of a transaction.
Those doing the advertising, marketing or general solicitation must take reasonable steps to verify that buyers of securities are accredited investors and the onus will be on the seller. The securities can be offered and exposed to anyone, but must be sold only to qualified buyers.
The proposed rules under the JOBS Act would allow companies to use general solicitation and general advertising to offer securities under these two rulings which will have to be changed, Rule 506 of Regulation D of the Securities Act and Rule 144A of the Securities Act. The SEC has provided a detailed document which lays out the proposed changes and there is a thirty day period during which comments on the proposed rules will be heard and taken into consideration. Shortly after those thirty days are up the SEC will review comments and decide whether to adopt the proposed rules.
“I believe that the proposed rules fulfill Congress’s clear directive that issuers be given the ability to communicate freely to attract capital, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings,” said SEC Chairman Mary Schapiro.
So, that means that by the end of September it may be legally acceptable for open solicitation and general advertising and marketing of new catastrophe bond, insurance-linked securitization notes and other securities. Artemis is more than happy to talk to anyone looking for a platform to market their offerings to our readership (the largest of its kind) and we’re open to suggestions, just drop us a line.
The law also affects some hedge funds and also startup businesses looking for capital. They will be allowed to openly solicit for capital for their funds and businesses, so this of course impacts some of the ILS funds as well who are legally allowed to operate in the U.S. under SEC laws. Again, Artemis is happy to work with those looking to take advantage of the new advertising and solicitation regime, contact us.
Of course it’s not clear how this would impact offerings, whether bookrunners and managers of cat bond transactions would feel the need to advertise a deal before issuance or whether they feel that the ILS investment community is small enough that they can access capital efficiently anyway. For hedge funds and ILS funds seeking new capital it could a different matter, and may herald a new era where ILS funds are allowed to be more open about the unique investment opportunity they offer.
You can find the SEC information on the proposed rules and the process for submitting comments here.