Shelf Offering

What Is a Shelf Offering?

A shelf offering is a Securities and Exchange Commission (SEC) provision that allows an equity issuer (such as a corporation) to register another issue of securities without selling the whole issue immediately. The issuer can instead sell portions of the issue north of a three-year period without re-registering the security or causing penalties.

A shelf offering is also known as a shelf registration; it is formally known as SEC Rule 415.

How Shelf Offerings Work

A shelf offering can be used for sales of new securities by the issuer (primary offerings), resales of outstanding securities (secondary offerings), or a combination of both. Companies that issue another security can register a shelf offering as long as three years in advance, which effectively gives it that long to sell the shares in the issue. Depending on the type of security and the idea of the issuer, forms S-3, F-3, or F-6 must be filed to make the shelf offering. During this period, the issuer still has to file the quarterly, annual, and different disclosures with the SEC, even if it hasn't issued any securities under the offering. If the three-year window draws close to terminating and the company hasn't sold every one of the securities in the shelf offering, it can file replacement registration statements to broaden it.

A shelf offering enables an issuer to access markets rapidly, with minimal extra administrative desk work, when market conditions are optimal for the issuer. The primary advantages of a shelf registration statement are timing and certainty. At the point when a firm finally decides to act on a shelf offering and issue actual securities to the market, it's called a takedown.

Takedowns can be made without the SEC's Division of Corporation Finance's audit or postponement. For instance, suppose the housing market is making a beeline for a sensational decline. In this case, it may not be a great time for a home manufacturer to emerge with its second offering, as numerous investors will be pessimistic about companies in that sector. By using a shelf offering, the firm can fulfill all registration-related procedures beforehand and act rapidly when conditions become better.

Advantages of Shelf Offerings

A shelf offering provides an issuing company with tight control over the process of offering new shares. It allows the company to control the shares' price by permitting the investment to deal with the supply of its security in the market. A shelf offering also enables a company to save on the cost of registration with the SEC by not having to re-register each time it wants to release new shares.

If a company has a long term new security issuing plan, the process of shelf registration allows it to address various issues of a specific security inside a single registration statement. This can be simpler to make and make due, since different filings are not required, bringing down administrative costs for the business as a whole. Further, no maintenance requirements exist past standard reporting, because shelf registrations don't make an extra burden while they are waiting for issue.

Illustration of a Shelf Offering

SafeStitch Medical Inc. (formerly TransEnterix), a manufacturer of robotic surgical technology, used shelf offering to prepare new offerings to correspond with send off plans of another product. At the point when shelf registrations were expanded pursuant to the release of another product line, the market responded with a 10% increase in share value. Even however the risk of share dilution was present, the market responded to the favorable news with respect to the pending mechanical advancement.

Highlights

• A shelf offering allows a company to register another issue with the SEC however taking into consideration a three year period to sell the offering instead of at the same time.
• The company maintains any unissued shares as treasury stock, where they stay "on the shelf" until offered for public sale.
• This lets a company adjust the timing of the sales of another issue to exploit better market conditions should they arise from here on out.