The SEC Proposes New Disclosure Requirements Relating to Short-Term Borrowings

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On September 17, 2010, the Securities and Exchange Commission proposed new rules relating to disclosure of short-term borrowings by public companies. The proposed rules would be applicable to both financial and non-financial companies and would require disclosure about the use and impact of short-term borrowings in annual and quarterly reports, proxy or information statements that include financial statements, registration statements under the Securities Exchange Act of 1934 and registration statements under the Securities Act of 1933.

The objective of the new rules, as described by SEC Chairman Mary Schapiro, is to target “balance sheet window dressing” by companies, whereby short-term borrowings are reduced at period-end in order to present a healthier leverage and liquidity picture to investors. By requiring disclosure of a public company’s leverage throughout the course of the relevant reporting period, the SEC aims for companies to provide greater visibility into their intra-period borrowings and their overall financial position.

The SEC’s proposing release may be found on the SEC’s website here.

Summary of the Proposed Rules

The proposed rules would require disclosure of public companies’ short-term borrowings on an annual and quarterly basis (other than foreign private issuers and smaller reporting companies, the treatment of which is described below). The new rules would apply to all companies that provide Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure (“MD&A”) and not just bank holding companies and other financial institutions. Companies would be required to provide tabular quantitative disclosure regarding short-term borrowings under a new subheading in MD&A, accompanied by qualitative discussion.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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