Memorandum
SEC Adopts Amendments to Financial Disclosure Requirements
That Enhance the Ability of Umbrella Partnerships to Offer SECRegistered Debt
March 4, 2020
On March 2, 2020, the Securities and Exchange Commission adopted significant amendments to its rulesthat will simplify and streamline the financial disclosure requirements applicable to registered offerings ofdebt securities that are guaranteed by related entities. 1 Among other significant changes, these amendments
will enhance the ability of businesses organized as multiple-tier umbrella partnership structures, such as UPCs and UPREITs to issue SEC-registered debt securities.
As a general matter, each issuer and guarantor of a registered debt security is treated as registering the offerand sale of a separate security for purposes of the Securities Act of 1933. Consequently, each issuer andguarantor of a registered debt security would, in the absence of relief, be required to include in the applicable
Securities Act registration statement its own audited annual and unaudited interim financial statements asrequired by Regulation S-X and become subject to ongoing SEC reporting requirements under Section 15(d)of the Securities Exchange Act of 1934. Rule 3-10 of Regulation S-X provides relief from these rules under
specified circumstances to allow subsidiary issuers or guarantors to omit financial statements separate fromthe consolidated financial statements of an SEC-registrant parent company issuer or guarantor and tosuspend ongoing Exchange Act reporting requirements for that subsidiary. Historically, however,availability of this Rule 3-10 relief has required, among other conditions, that the subsidiary issuer orguarantor be “100% owned” by the parent company. The adopted amendments replace this condition with arequirement that the subsidiary issuer or guarantor merely be consolidated in the parent company’s
financial statements.
In publicly traded umbrella partnership structures, a business is owned by a tax partnership (the “operatingpartnership” or “OP”), which, in turn, is owned by limited partners, on the one hand, and a listed entity(referred to as a “PubCo”), on the other. Depending on the structure, the PubCo might be treated for federal
income tax purposes as a real estate investment trust, a C corporation or a publicly traded partnership. In
each case, the PubCo controls the OP as its general partner or managing member and consolidates the1 See Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities

Collateralize a Registrant’s Securities, Release No. 33-10762; 34-88307; File No. S7-19-18 (March 2, 2020).

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Memorandum – March 4, 20202

results of the OP in its financial statements, but generally does not own 100% of the OP’s equity securities asthese are also owned by the limited partners of the OP. The OP, as the owner of the business, typically serves
as the primary credit support for debt issued by UP-Cs and UPREITs, potentially together with its
subsidiaries. The OP, however, has historically been ineligible for the Rule 3-10 exception because it is not
100% owned by the SEC registrant PubCo. Consequently, companies with umbrella partnership structures
have generally avoided issuing debt securities in SEC-registered offerings or, alternatively, have beenrequired to cause the OP itself to become a separate SEC-reporting company in addition to the PubCo,
thereby incurring additional cost and expense. As a result of these amendments, the OP in an umbrella
partnership structure—as a consolidated subsidiary of the SEC registrant PubCo—will now be eligible for theRule 3-10 exception, thereby enabling the OP to provide credit support as issuer or guarantor for SECregistered debt issued or guaranteed by PubCo without requiring OP to present separate financial statements
or subjecting it to onerous SEC periodic reporting requirements.
This memorandum has focused on the unique impact of the amendments on UP-C and UPREIT issuers. A
separate memorandum will also be circulated that more comprehensively discusses the amendments, which
replace the historical requirement to present condensed consolidating financial information of the issuer,guarantors and non-guarantors with certain new financial and non-financial disclosures that consist ofsummarized financial information of the issuer and guarantors, which may be presented outside of thefinancial statements on a combined basis and for a reduced number of periods, and expand qualitative
disclosures about the guarantees and the issuers and guarantors.
Click here for additional information regarding the UP-C and other umbrella partnership structures.

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Memorandum – March 4, 20203

For further information, please contact one of the following members of the Firm’s Corporate Department.
WASHINGTON, D.C.

NEW YORK CITY

Joshua Ford Bonnie+1-202-636-5804
jbonnie@stblaw.com

Joseph H. Kaufman+1-212-455-2948
jkaufman@stblaw.com

William R. Golden III+1-202-636-5526wgolden@stblaw.com

Edgar J. Lewandowski+1-212-455-7614
elewandowski@stblaw.com

PALO ALTO
William B. Brentani+1-650-251-5110
wbrentani@stblaw.com

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assumes no liability in connection with the use of this publication. Please contact your relationship partner if we can be ofassistance regarding these important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.

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