Ariz. Admin. Code § 14-4-117

Current through Register Vol. 30, No. 25, June 21, 2024

Section R14-4-117 - Requirement for Registration of a Debt Offering; Definitions

A. As a condition of registration of debt securities under A.R.S. Title 44, Chapter 12, Article 7, except pursuant to § 44-1901, an issuer must demonstrate its ability to service its debt obligations as they become due, including the obligations under the debt securities to be offered.

B. An offering of investment grade debt securities that have been rated BBB or higher by Standard & Poor's or Fitch Investors Service, Inc., or Baa or higher by Moody's Investors Service will be considered to have complied with the requirements of this Section.

C. For purposes of this Section, the following definitions shall apply.

1. "Fixed charges" means the sum of interest expensed and capitalized; amortized premiums, discounts, and capitalized expenses related to indebtedness; an estimate of the interest within rental expense; and preference security dividend requirements of consolidated subsidiaries.

2. "Earnings" is the amount resulting from subtracting the sum of the items in subsection (C)(2)(b) from the sum of the items in subsection (C)(2)(a).

a. Pretax income from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees, fixed charges; amortization of capitalized interest, distributed income of equity investees, and the issuer's share of pretax losses of equity investees for which charges arising from guarantees are included in fixed charges.

b. Interest capitalized, preference security dividend requirements of consolidated subsidiaries, and the minority interest in pretax income of subsidiaries that have not incurred fixed charges.

3. "Equity investees" means investments for which the issuer accounts by using the equity method of accounting.

4. "Pro forma ratio" means a ratio that reflects the application of proceeds from the proposed offering to repay any outstanding debt or to retire other securities.

D. The issuer's demonstration of its ability to service its debt obligations shall include all of the following.

1. Statement of the issuer's current cash flow prepared in conformity with generally accepted accounting principles and adjusted on a pro forma basis to reflect:

a. The elimination of interest and fees on debt or debt securities and of cash dividends on preferred stock that are to be retired with the proceeds of the offering.

b. The effect of any acquisitions or capital expenditures that were made by the issuer after its last fiscal year, or that are proposed or required for the current fiscal year, that materially affect the issuer's cash flow.

c. The effect of interest and fees on debt or debt securities or cash dividends paid after the issuer's last fiscal year.

d. The effect of any interest and fees on debt or debt securities and of cash dividends on preferred stock or common stock that were issued during the issuer's last fiscal year, but that were outstanding for only a portion of such fiscal year, as if such debt, debt securities, preferred stock, or common stock had been outstanding for entire fiscal year.

e. The effect of imputed or deferred charges of zero-coupon debt or debt securities for the issuer's last fiscal year and any additional charges on such debt or debt securities issued after the issuer's last fiscal year.

f. The effect of accrued dividends on preferred stock for the issuer's last fiscal year and any additional dividends on such preferred stock issued after the issuer's last fiscal year.

g. The effect of any other material changes to the issuer's future cash flow.

2. Detailed explanation of the facts and assumptions underlying the pro forma statement of cash flow.

3. A ratio of earnings to fixed charges for each of the last five fiscal years and the latest interim period.

a. If a ratio indicates less than one-to-one coverage, disclose the dollar amount of the deficiency.

b. If the proceeds from the proposed sale of securities will be used to repay any of the issuer's outstanding debt or to retire other securities and the change in the ratio would be 10 percent or greater, include a pro forma ratio. Use the net change in interest or dividends from the refinancing to calculate the pro forma ratio.

4. A calculation using the amounts and captions used by the issuer to calculate the ratio of earnings to fixed charges.

5. Copies of written agreements, contracts, or other instruments material to the issuer's ability to service its obligations under the debt securities to be offered.

6. Detailed information regarding all guarantee obligations of or to the issuer in connection with any debt. Any financial statements provided to the Commission to satisfy this subsections shall be prepared in conformity with generally accepted accounting principles.

7. Other material or information the issuer desires to include to support its demonstrations.

E. If the Commission deems it necessary for investor protection, the Commission may require that the issuer establish a sinking fund or redemption requirements.

Ariz. Admin. Code § R14-4-117

Former Order S-17. Repealed effective December 21, 1995, under an exemption from the Attorney General approval requirements of the Arizona Administrative Procedure Act (Supp. 95-4). New Section adopted by final rulemaking at 7 A.A.R. 1308, effective March 1, 2001 (Supp. 01-1).