In an At-the-Market offering, commonly known as an ATM offering, a public company sells its shares into an existing trading market at the then-current market price instead of a fixed or negotiated price. This type of offering is typically sold over a longer period of time than a traditional firm commitment offering, and the price paid for the shares will vary as the market price for the shares varies. The number of shares sold on any day or in any single offering is not considered significant in relation to the issuer’s public float or daily trading volume. The issuer engages a broker-dealer to sell the shares within a set range of prices using no special selling efforts. The shares are sold on or through a national securities exchange, like the New York Stock Exchange (“NYSE”) or Nasdaq Stock Market LLC (“Nasdaq”), or to or through a market maker.
Advantages of an ATM Offering:
- Minimal market impact – Issuers can quickly raise capital by selling newly-issued shares into the natural trading flow of the market at market prices, without having to market and announce the offering. This method is less likely to have a negative impact on an issuer’s trading price.
- Flexibility – Issuers have flexibility in determining the timing and size of the offering because the terms are agreed upon between the issuer and its agent in advance, in the issuer’s discretion. Issuers can choose to sell a specific number of shares over a set window of time within ranges of prices, or instruct the agent to sell only a certain percentage of its outstanding shares into the market in any one offering. ATM offerings need not be spread out over a long period, and issuers that have the market cap and volume to support it can raise a significant amount of capital in a one-off ATM offering.
- Less dilutive – Compared to other alternative methods of financing, like equity lines of credit, registered directs, and PIPEs, ATMs are less dilutive, typically because the other alternatives require warrant coverage and may be priced at a discount to the market price.
- Lower cost – The distribution costs for ATM offerings typically are less than lines of credit, registered directs, PIPEs or CMPOs.
- Minimal management involvement – ATM offerings do not require special selling efforts, including roadshows and involve only limited prospectus preparation and delivery requirements.
- No shareholder approval – ATMs are considered “public offerings” under Nasdaq and NYSE listing standards, preventing the need to receive shareholder approval to issue the shares.
Disadvantages of an ATM Offering:
- Smaller sized deals – ATM offerings are generally not as attractive to issuers seeking to raise a large amount of capital because absent a sizable market cap and sufficient trading volume the issuer must trickle out the shares over time into the market.
- Liquidity – Issuer must have enough trading volume to support an ATM, which may be challenging for many small-cap or micro-cap issuers.
- Price is market dependent – The price of the offering is set by the market and not fixed. Accordingly, volatility in the share price may increase the dilutive effects of the offering and make accessing capital more challenging for issuers in comparison to an equity line of credit or a credit facility.
- Ongoing maintenance cost – Because an ATM offering can span multiple reporting periods, issuers will need to refresh the offering each time they issue new financial information, with each such refresh typically resulting in additional legal and accounting fees. However, a well-crafted ATM offering will have caps on these fees and will allow the issuer to pause the offering (and thus avoid these fees) for any reporting period in which it does not plan to make any sales.
- Public offering – ATMs allow issuers to trickle shares into the market and may be less dilutive than other offerings, but they are registered offerings. Accordingly, they are not as stealthy as PIPEs, which are announced only after pricing. Once the selling agreement for the ATM has been entered into and as shares are sold, the transactions must be disclosed at the end of each quarter in the issuer’s periodic reports under the Securities Exchange Act of 1934.
- Form S-3 eligibility – Issuer must be eligible to use Form S-3 and, if subject to the “Baby Shelf” rules (having a non-affiliate market cap of $75 million or less), have available baby shelf capacity for the ATM. This element, combined with the need for liquidity in the issuer’s shares, may make this type of offering out of reach for small-cap or micro-cap issuers.
Before Structuring and Conducting an ATM Offering, Issuers Should Consider:
- Regulation M
- Prohibits stabilization and passive market making activities by the issuer or broker-dealer.
- Issuer will need to determine whether ATM constitutes a “distribution” under Regulation M. If it does, the broker dealer’s ability to issue research reports or engage in market making activities will be significantly limited.
- Integration
- If additional capital raising activities, whether public or private, will be occurring simultaneously with (or within six months of) the ATM, the transactions will need to be structured to comply with applicable Securities and Exchange Commission (“SEC”) regulations to avoid having the offerings integrated by the SEC.
- Blackout Periods
- Because the issuer is actively making decisions about when to sell securities, it needs to be mindful not to launch an ATM offering or initiate sales while in possession of material non-public information. ATM offerings are typically paused during an issuer’s periodic and event-specific blackout periods, which limits when the ATM offering is available.
Issuers Should Consider Filing a Shelf Registration Statement Now for a Future ATM Offering
Historically, a key consideration for issuers when contemplating an ATM offering was whether they had a shelf registration statement currently available for the offering. If so, issuers were able to capitalize on favorable market conditions by quickly launching an ATM offering off their existing shelf registration statement. Absent an available shelf registration statement, the issuer would have had to publicly file a registration statement and wait for it to be cleared by the SEC before they could launch. Accordingly, the long-standing advice has been that if you anticipate ever having an ATM offering (or potentially ever utilizing a shelf for its many other uses), then issuers should maintain a shelf registration statement available to allow for this flexibility.
Nevertheless, not every issuer maintains a shelf registration statement because it has costs, including the SEC registration fees, and fees associated with legal and auditing professionals. Fortunately for these issuers, the SEC recently expanded its confidential review of registration statements to all issuers. Now issuers can file a shelf registration statement confidentially and (if the SEC has no comments or is not reviewing the registration statement) are able to make it public and declared effective within a few days. While it is still advisable for issuers that may be raising capital to maintain a shelf registration statement, there is now a path to putting up a shelf registration statement for use in an ATM offering without a protracted public waiting period. It should be noted, however, that if the SEC reviews the shelf registration statement and has comments, that those comments will need to be addressed publicly and cannot be addressed confidentially. Accordingly, and notwithstanding the new flexibility around confidential filing, issuers should still consider putting up and maintaining a shelf registration statement. For additional information on the SEC’s latest guidance on confidential filings please refer to our legal current “SEC Allows Greater Use of Confidential Draft Registration Statements.”
If you have any questions about launching an ATM offering, filing a shelf registration statement or the new guidance from the SEC, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets Practice Group.