Blog Post 03.26.20
Alert
Alert
By David S. Baxter,
03.31.20
In the wake of COVID-19, underwriters should be vigilant when conducting due diligence on an issuer intending to engage in a securities offering. The issuer could be facing work-stoppages, supply-chain disruptions, reduced demand for products and services, securities portfolio devaluations, impairments, or a host of other concerning developments, any of which could be material to the issuer’s business, financial condition or results of operations. Underwriters should seek to understand all material impacts of COVID-19 on the issuer to ensure that such matters have been properly disclosed to investors prior to any underwritten offering. These matters can be explored, among other ways, in due diligence sessions with the issuer’s management.
Attached to this Client Alert is a sample list of questions that underwriters can use as a starting point to tailor due diligence questions for a particular issuer’s management. These questions should be narrowed or supplemented as appropriate to address the circumstances unique to the issuer and the industry in which the issuer operates.
These sample questions are derived in part from guidance issued by the SEC’s Division of Corporation Finance on March 25, 2020, which includes a non-exhaustive list of illustrative questions that an issuer should consider when preparing disclosure related to COVID-19 and its impact on the issuer’s business, financial condition and results of operations. In that guidance, the SEC states, “Assessing the evolving effects of COVID-19 and related risks will be a facts and circumstances analysis. Disclosure about these risks and effects, including how the company and management are responding to them, should be specific to a company’s situation.” In particular, the guidance encourages disclosure “that is tailored and provides material information about the impact of COVID-19 to investors and market participants” and for companies to provide disclosures that “allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management.”
The disclosure obligations faced by issuers are described in more detail in our March 24, 2020 Client Alert, “COVID-19: Q&A for Public Companies.”
Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm’s capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.