A shelf offering is a Securities and Exchange Commission (SEC) provision that allows an issuer to register a new issue of security without selling the entire issue at once. The issuer can sell portions of the issue over a three-year period without re-registering the security or incurring penalties. A shelf offering is also known as a shelf registration.
Breaking Down Shelf Offering
A shelf offering can be used for sales of new securities by the issuer (primary offerings), resales of outstanding securities (secondary offerings) or a combination of both. Companies that issue a new security can register a shelf offering up to three years in advance, which effectively gives it that long to sell the shares in the issue. Depending on the type of security and the nature of the issuer, forms S-3, F-3, or F-6 must be filed to make the shelf offering. During this period, the issuer still has to file the quarterly, annual, and other disclosures with the SEC even if it hasn't issued any securities under the offering. If the three-year window draws close to expiring and the company hasn't sold all of the securities in the shelf offering, it can file replacement registration statements to extend it.
A shelf offering enables an issuer to access markets quickly, with little additional administrative paperwork, when market conditions are optimal for the issuer. The primary advantages of a shelf registration statement are timing and certainty. When a firm finally decides to act on a shelf offering and issue actual securities to the market, it's called a takedown. Takedowns can be made without the SEC’s Division of Corporation Finance’s review or delay. For example, suppose the housing market is heading toward a dramatic decline. In this case, it may not be a good time for a home builder to come out with its second offering, as many investors will be pessimistic about companies in that sector. By using a shelf offering, the firm can fulfill all registration-related procedures beforehand and act quickly when conditions become more favorable.
Additional Benefits of Shelf Offerings
A shelf offering provides an issuing company with tight control over the process of offering new shares. It allows the company to control the shares' price by allowing the investment to manage the supply of its security in the market. A shelf offering also enables a company to save on the cost of registration with the SEC by not having to re-register each time it wants to release new shares.