What Is SEC Form T-3?

SEC Form T-3 is an application for the qualification of an indenture that must be filed with the Securities and Exchange Commission (SEC). SEC Form T-3 is needed for compliance with the Trust Indenture Act of 1939, which applies to debt securities such as bonds, debentures, and notes that are offered for public sale.

Even though such securities may be registered under the Securities Act, they may not be offered for sale to the public unless a formal agreement between the issuer of bonds and the bondholder, known as the trust indenture, conforms to the standards of this act.

Key Takeaways

  • Corporations and governments issue bonds to investors who pay a principal amount or initial investment upfront to the bond issuer.
  • SEC Form T-3 is an application for the qualification of an indenture that must be filed with the Securities and Exchange Commission.
  • SEC form T-3 is required by the Trust Indenture Act, but it's also used when the new bonds are to be exempt from SEC registration.

Understanding SEC Form T-3

Corporations and governments issue bonds as IOUs to investors who pay a principal amount or initial investment upfront to the bond issuer. The investor or bondholder typically receives interest payments on the amount invested as well as the principal amount paid back on the bond's maturity date. Bond issuers use the funds raised from bond offerings for expansion or various projects.

Bond issuers are required to disclose to investors the terms of a debt security that’s being issued via a trust indenture. An indenture is a contract between the bond issuer and its appointed trustee. The bond trustee, which is usually a financial institution, carries out the agreement to issue the bond while protecting the interests of the investors or bondholders. The trust indenture must be approved by the SEC.

The Trust Indenture Act (TIA) requires any new bond issues that are valued for more than $5 million to be registered by way of a trust indenture. However, there are exceptions in which certain bonds are not subject to the Trust Indenture Act, including municipal bonds, which are bonds offered for sale by a state, county, municipality, or local government.

SEC Form T-3 is the Trust Indenture Act (TIA) form used to apply for qualification of an indenture under which a class of debt securities is to be issued in an unregistered offering. Although SEC form T-3 is required by the Trust Indenture Act of 1939, it is only necessary when the proposed securities to be issued are exempt from registration under the Securities Act of 1933. Form T-3 is a standalone form, unlike Form T-1, and Form T-2, which serve the same purpose but are filed as exhibits to Securities Act registration statements in registered offerings.

Requirements for SEC Form T-3

Form T-3 is a relatively straightforward form, but it prohibits any offers until an application for qualification has been filed with the SEC. Below are some of the T-3 sections along with the information that the applicant (or bond issuer) is required to furnish to the SEC.

General Information

The SEC Form T-3 requires the form or type of business, as well as its state of residence. The form also requires the type of securities being issued, including the approximate date for the public offering of the bonds.

Securities Act Exemption

The next section requires the applicant to state why they should not have to register the indenture. The form asks the issuer to state briefly the facts relied upon by the applicant as a basis for the claim that registration of the indenture securities under the Securities Act of 1933 is not required.

Affiliates

If there are affiliates of the company, the applicant must disclose, by way of writing or via a diagram, showing the relationship of each affiliate to the applicant and to the other named affiliates. If those affiliates have voting interests, the percentages of those voting rights should be included.

The T-3 form requires disclosure of how the bond funds are to be used if the applicant plans on purchasing another company or a division of a company via an acquisition. Also, if there's a reorganization planned, the information is required about those plans.

Directors and Officers

Form T-3 requires a list of names and the complete mailing addresses of all directors and executive officers as well as any individuals that are likely to be chosen as directors or executive officers. The specific offices that each of these individuals holds within the company or organization must also be disclosed. Any individuals or principal owners of voting securities, which own 10% or more of the voting securities for the company must be furnished.

Underwriters

The SEC requires the name and complete mailing address of the underwriters that are to be used for the securities being proposed. In some cases, the SEC requires any past underwriters used for securities issued within the last three years.

Classification of the Bond

In this section, the SEC requires whether any voting rights come with the ownership of the bond by investors. Also required are any other provisions of the security that investors should be aware of before purchasing the bond.

Other Instructions

It's important that applicants pay particular attention to the requirements of the form T-3 and any of the SEC's definitions and terms to ensure proper compliance. In the form, attention is also directed to Rule 5a-3 regarding the filing of statements of eligibility and qualification and to Rule 7a-16 regarding the inclusion of items, the differentiation between items and answers, and the omission of instructions. Please review the T-3 Form via the SEC website, although an electronic submission (instead of a PDF) might be required when filing the application.