There are several reasons why we expect more interesting developments in the capital markets throughout 2021, both regulatory and in transactions. With a Democratic administration and a new chairman of the Securities and Exchange Commission with a long history of regulatory oversight, there will likely be more rule-making in the United States and more attention to enforcement.
Here are five trends that we believe will dominate financial markets in 2021.
1. Continued focus on ESG
New developments abound in the area of environmental, social and corporate governance (ESG) and sustainability from standard setters, non-governmental organizations (NGOs), advisory service providers, rating agencies, institutional investors and asset managers. The private sector has led this march towards sustainable finance and investing in large part because the standards and parameters upon which performance or disclosure can be based have not yet been universally adopted and accepted. The SEC has now made it an area of focus, so expect to see regulation on this later in the year.
2. Ongoing assault on the traditional IPO book-making process
In the late 1990s and early 21st century, several initial auction-based public offerings prompted the market to question whether the traditional method of book building would survive in the long term, but it stuck largely to the traditional model. . Enter Direct Lists and Special Purpose Acquisition Companies (SPAC).
The success of some recent direct listing secondary offerings has started to drift away from traditional IPOs and has prompted some companies considering IPOs to reconsider their strategy, arguing that traditional underwritten offers leave too much money on the market. table with the IPO discount and have high transaction costs. . The NYSE finalized rule changes allowing companies to make primary offers using the direct listing method and the Nasdaq passed similar rule changes allowing direct listings.
Will direct direct listings ultimately threaten the traditional underwritten IPO? This year may shed light on whether this new supply structure will gain ground, if the market is not eclipsed by the continued strength of the PSPC market.
3. Companies are starting to take advantage of recent SEC rules
In 2020, the SEC changed its rules in several areas, such as requiring complete financial information to be included in SEC filings, testing the waters, and simplifying disclosure. These new developments, including the streamlining of private offer exemptions and the recent extension of the A + threshold, are expected to make raising public capital more attractive to companies impacting the debt and equity markets. These changes can be subtle, but rule-making initiatives have been important steps in eliminating several challenges some companies face in raising capital or staying public.
4. Liability management operations and pre-packs
Many companies with public debt, especially those severely affected by the Covid-19 pandemic, will have to meet their commitments as well as their liquidity needs and be forced to engage in liability management operations with their title holders. Options include swap bids, cash takeover bids, solicitations of consent and repackaged reorganization plans. The structures and legal regime applicable to these transactions have not changed much since the 1980s. However, the debt takeover bid rules have been streamlined thanks to a letter of no action from the SEC from 2015, and other techniques that were previously of concern are now standard in many exchange offers.
Companies with balance sheet or liquidity problems have also sought relief in the stock markets through convertible debt offers and rights offers. The dilution caused by these emissions is often offset by the relief granted. We expect 2021 to see a variety of restructurings that will test some traditional transaction structures.
5. The challenges of double class voting share structures will continue.
Corporate governance of IPO companies will remain at the forefront of internal strategic discussions, with an emphasis on the acceptability of dual class voting structures in which shares sold to the public have fewer voting rights. than the shares kept by the founders / insiders. However, major asset managers oppose capital structures with share classes having multiple votes. Index providers often do not include stocks of companies with multiple voting share classes in their indexes, which makes them more difficult to market.
The US stock exchanges allow these structures, but many foreign exchanges do not, which is an incentive to seek forums between exchanges, especially for foreign companies. Recent proposed changes to London’s enrollment rules that would allow two-class structures could even be a playing field. Support has grown for middle ground, with two-class structures controlled by sunset provisions and other limitations.
… and the disruptor with five tendencies
A phenomenon has erupted in equity capital markets that may eclipse all previous trends: the rise of the individual investor and the power of social media. This was evidenced by the recent surge in trading prices for some stocks, spurred by a wave of buying largely motivated by retail investors with a publicly announced mission to press investors who bet against those stocks. The SEC has announced its intention to investigate these actions and we haven’t heard the end of this story.
This column does not necessarily reflect the opinion of the Office of National Affairs, Inc. or its owners.
Barbara a jones is a member of the Greenberg Traurig LLPs Global Capital Markets and Global Mergers & Acquisitions practice groups. She is the coordinator of the firm’s Covid-19 Interdisciplinary Economic Stimulation Working Group, co-chairs the Blockchain & Digital Assets Interdisciplinary Practice Group, and coordinates its Conflict Minerals Compliance Initiative.
Marc M. Rossell is co-chair of Greenberg Traurig LLPs in Latin America and a member of Global Capital Markets practice. He focuses on financial market transactions, including equity and debt offerings and structured finance.
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