Many companies are facing potential funding issues as a result of the coronavirus (COVID-19) epidemic. Investors want to know if the companies they invest in are planning to raise capital, including through participation in new federal programs, such as the Paycheck Protection Program described in our March 27 client alert. However, under the U.S. securities laws, companies are generally required to disclose future capital needs only in the context of securities offerings and certain periodic reports, including their annual reports.

SEC Chairman Jay Clayton in interviews on April 7 with CNBC and The Wall Street Journal addressed this tension between the legal requirements for minimum disclosure and what he considers to be good practice under the current circumstances of the COVID-19 epidemic.

“Companies should be telling the market where they stand from a capital needs perspective,” Clayton said in a statement to The Wall Street Journal. “That’s fundamental. Those companies seeking capital, whether from private sector investors or the government, should practice good corporate hygiene.”

While Chairman Clayton’s views are his own and do not have the force of law, we believe public companies should carefully consider his views of good market practice and consider making public disclosure of their capital needs, including their participation in federal programs, such as the Paycheck Protection Program. As Chairman Clayton noted in his remarks to CNBC, public companies will need to consider how much they can disclose of their plans for capital raising without disrupting their ability to raise capital and complete negotiations with capital providers.