The Proposed Financial Reform Bill Contains Sweeping Changes That Could Have Significant, Long-Term Impact
The "Restoring American Financial Stability Act of 2010" could prove to have a long-term impact on the banking industry if it is passed. Three provisions in the Bill (S. 3217) of greatest interest would directly affect small investors, venture capitalists, and angel investors by:
• Increasing the financial thresholds for individuals qualifying as "accredited investors" (e.g., those investors whose investments are not subject to certain information requirements imposed by federal securities regulations);• Granting the Securities and Exchange Commission ("SEC") the power to make certain financing transactions which are currently preempted from state regulation subject to such regulation; and
• Requiring that those offerings that remain preempted from state regulation nonetheless be subject to a 120 day review process with the SEC.
Bankers often field requests from their clients to put together deals that include a mix of debt and equity financing. From the bankers' point of view, equity contribution is a good thing. It lowers the leverage ratio and gives the fledgling venture a better chance to succeed. In recent years, waves of deregulation and changing practices resulted in less protection for investors and, coincidentally, greater risk for lenders. As often is the case, the pendulum is now swinging back and more regulations are on the horizon. It is a good thing for commercial bankers to have an awareness of these trends and to factor them in when considering loan applications from investor groups.
Two members of the JMBM Special Assets Team™, Robert Braun and Craig Levine, explore the meaning of these provisions in their article, "The Financial Banking Reform Bill: Turning Back the Clock Private Placement Exemptions," which I have republished below.
If you wish to discuss how this Bill might affect you, your deals or your clients' deals, don't hesitate to contact us. The JMBM Special Assets Team™ is adept at structuring commercial finance deals for lenders to middle market companies and emerging entrepreneurial businesses. We work with lenders and borrowers, issuers, underwriters, credit enhancers and servicers on complex, innovative transactions, as well as routine financings where controlling cost is essential.
