Photographer: Andrew Harrer / Bloomberg
Photographer: Andrew Harrer / Bloomberg
U.S. regulators are throwing another wrench into Wall Street’s SPAC machine by cracking down on how accounting rules apply to a key element of blank check businesses.
The Securities and Exchange Commission proposes new proposals guidelines that warrants, issued to early investors in the transactions, may not be considered as equity instruments, but rather as liabilities for accounting purposes. The move, previously reported by Bloomberg News, threatens to disrupt the filing of new specialty procurement firms until the issue is resolved.
The accounting considerations are the SEC’s latest attempt to lower the white-hot SPAC market. The regulator has been raising red flags for months that investors are not fully informed about possible risks associated with blank check businesses, which are listed on public stock exchanges to raise money to buy other entities.
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According to SEC, the SEC, according to accountants, trusted the guidance on warrants last week. A pipeline of hundreds of submissions for new SPACs could be affected, the people said, asking not to be named because the talks were private.
“The SEC has indicated that it will not declare any registration declarations in force unless the warrant issue is addressed,” according to a customer letter sent by the accounting firm Marcum and reviewed by Bloomberg.
In a SPAC, early investors buy units, which usually contain a share in ordinary shares and a fraction of a warrant to buy more shares later. It is considered a sweetener for fans and has hitherto been regarded as accounting instruments as equity instruments. Sponsorship teams – the management of a SPAC – also usually receive warrants as part of their reward for finding a deal in addition to the founding shares.
In a statement late Monday, SEC officials urged stakeholders at SPACs to pay attention to the accounting implications of their transactions. They said a recent analysis of the market showed a factual pattern in transactions in which ‘warrants were to be classified as a liability, measured at fair value, with changes in fair value in each period as a report.’
“The evaluation of the accounting of contracts in an entity’s equity, such as warrants issued by a SPAC, requires careful consideration of the specific facts and circumstances for each entity and each contract,” officials said in the statement. .
According to the SEC, a firm has asked the agency how certain accounting rules apply to SPACs, according to another person familiar with the matter. It is unclear how many companies will be affected by the move, and not all warrants will be affected. Regulators still see it as a widespread issue. Companies are expected to review their statements and correct any material errors, the person said.
The move will cause a major inconvenience to accountants and advocates, who are appointed to ensure that blank check businesses comply with the agency. The people familiar with the matter said that spatial spaces that are already public and that have hit mergers with targets need to restore their financial results.
More than 550 SPACs have filed to be known on U.S. wallets so far this year, trying to raise a combined $ 162 billion, according to data compiled by Bloomberg. This is more than the total for 2020, during which more than every previous year SPACs were collected.
The flood has overwhelmed those responsible for reviewing applications at the SEC, causing an increase in liability insurance rates for blank check businesses and raising concerns in the market that the bubble is about to burst .
– With help by Robert Schmidt
(Updates with SEC guidance beginning in second paragraph)