Shelf Registration

What Is a Shelf Registration Statement?

6 min read

What is shelf registration? Also known as a shelf-registration statement, the S-3 is akin to putting securities on a shelf for later sale, just like you might set that new jar of strawberry jam on your pantry shelf for later use. Officially called SEC Rule 415, shelf registration is a procedure that all companies offering new securities without an immediate IPO must comply with. Any time an SEC registrant wants to sell securities to the public, they must be registered. To do so, a Form S-3 is required. What is nice about the shelf registration is that it covers two or three years. During this time, the issuer can issue securities without re-registering them.

Shelf Registration Statement

SEC Website

Seventeen years ago, the SEC put automatic registration and shelf filings in place. For those familiar with the process, it’s a simple registration process that applies to well-known, seasoned issuers (WKSI). WKSI covers debt securities, common stock, preferred stock, and warrants, among other instruments.

Authorized by the United States Securities and Exchange Commission, rule 415 allows a company to file only one registration document.

What’s nice about this is that it allows the company to issue multiple securities in one document. 

Equally important, Form S-3 issuers may use shelf registration to register securities offered immediately, continuously, or delayed. 

Criteria For A WKSI Company

  • Timely reporting of all annual, quarterly, and current reports 
  • Has over a $700 million market capitalization or,
  • Issued $1 billion in registered debt offerings in the three years prior
  • Principle business operations in the United States
  • No defaults on debt, lease installments, or preferred stock dividends

Shelf registration, shelf offering, or shelf prospectus are three different terms for the same thing. Whenever a company wants to register a public offering, it can choose to fill out a shelf registration statement with the SEC. 

Simply put, it’s somewhat of a shortcut as they don’t need to file a separate prospectus for each active offering. In addition, they don’t need to issue a further prospectus. 

Only One Single Prospectus

Instead, there is a single prospectus for multiple and defined future offerings. The prospectus, often part of a registration statement, may be used to offer securities for up to several years after its publication. Usually, there is no intention to sell all the securities registered immediately. 

Did you know that a shelf registration statement allows a company to have multiple offerings on the same registration? 

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What Are Shelf Registrations Used For?

More often than not, shelf registration is used by the issuer for the sale of new securities. Additionally, shares of common stock, preferred stock, and public debt securities are examples. 

A company has a few different options when filing a shelf registration statement.

For example, a company can file a shelf registration statement with a prospectus for 100 million shares, $1 billion face value in bonds, $500 million face value of convertible bonds, $50 million series of warrants, and 50 million series B-warrants. 

What’s great is that these five different classes of securities are offered in a single document.

Moreover, the company may offer to sell all of them, none of them, or any part of some class. They can sell 30 million shares at one time and another 50 million a year later if they want to.

As a result, they’ll have 20 million unissued shares, all covered in the shelf prospectus.

The S-3 shelf registration still requires some work before each offering and sale. Firstly, a summary statement about any material changes to the company. Secondly, there have been changes to its business and finances since the shelf prospectus was filed. 

Not Every Company Can File One

Shelf registration is not a free-for-all; it’s only available to companies deemed reliable by the securities regulatory authority. Moreover, because of the purposely time-constrained nature, those authorities examine shelf examinations far less rigorously than standard public offerings. 

As the saying goes, preparation is half the battle. A shelf registration can be prepared up to three years in advance. That is why many companies complete the shelf registration process. So, when money is needed or market conditions are favorable, a company can strike quickly and offer the issue quickly.

Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.

– Abraham Lincoln

Shelf Registration Example

Let’s use the housing market as an example and assume the current market conditions are unfavorable. Because of this, it’s not a good time for a firm in this sector to issue a public offering. Moreover, it might not be wise for a homebuilder to come out with a second offering as many investors are pessimistic. 

However, by using shelf registration, the firm can bide its time and wait for market conditions to turn around. And when it does, they go to market quickly when conditions become more favorable.

Finally, the market will dictate whether a firm will use debt or equity offerings in its universal shelf filings. Debt offerings come in many forms, for example, public debt. It’s somewhat like regular bank debt, but it’s registered with the SEC after it’s issued in a private transaction.

Because of this, the debt can be freely traded on an exchange. So, essentially, the company exchanged its private debt for publicly traded and registered debt. 

Final Thoughts

I hope that this article has somewhat demystified this whole securities registration process. However, there’s much more to this than a quick blog post. Tons of rules and exemptions are super important to the process. I encourage you to take some time and check out the SEC website, as there’s lots of good reading material for a Friday night.  

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