Monday, December 23, 2013

IPOs face possible delays if shutdown lingers

The Securities and Exchange Commission's "carryover" funds keeping it open amid the government shutdown may run out in a few weeks, threatening the recovering IPO market and high profile deals like Twitter.

The regulator, in charge of reviewing the plans of companies aiming for initial public offering, is currently staffed as usual due to the fact it has funds left over from last fiscal year. But these funds could be depleted in "a few weeks," according to an SEC statement, which would then put the SEC into shutdown mode around the time of the much-awaited IPO of online messaging service, Twitter.

The timing is horrible for the initial public offering market, which has been staging its busiest run since 2007. Given the flurry of companies that have filed plans to go public, including Twitter, the SEC's staff was already expected to be taxed and slowdowns to ensue, says Kathleen Smith of IPO fund manager Renaissance Capital. "The SEC is already buys with the busy IPO calendar" she says. "We have a vibrant IPO market, it's a shame to have something that would slow things down further," Smith says.

So far this year, 152 companies have successfully started selling shares to the public for the first time, says Renaissance Capital. That's up 54% from the same point last year and on pace of being the busiest year since 2007. During all of 2007, there were 213 IPOs.

If the SEC's carryover funds are depleted, though, the regulatory agency will only be able to keep open units that qualify for exceptions of the "Antideficiency Act," according to the SEC's plan of operations during a shutdown. Those protected functions include basic services including law enforcement connected to the protection of property, keeping computers systems running connected with making securities filings publicly available, market monitoring and surveillance and the operation of key internal systems.

But that leaves swaths of the SEC at risk of shutting down, including the process of approving filings by sec! urities registrants, which includes the initial public offering market.

It's a big question exactly how much of an impact a prolonged shutdown could have on Twitter's IPO. The deal has already been filed in private with the SEC and the public prospectus is expected to be disclosed soon. That process should be well underway already, Smith says. "They have a great deal of the work already done," she says.

Investors hope that deals can be maintained. Investors are also expecting that funding needed to keep the IPO review process alive might be continued, Smith says. "I'm guessing they will find ways to selectively approve the budget to allow vital functions to continue," she says.

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