As Markets Soar, More Companies Turn to Shelf Registrations to Prepare Fundraising

As of Jan. 27 this year, 56 forms known as original shelf registrations—in which companies tell investors that they could issue stock at some point in the next few years, without committing to do so—had been filed with the Securities and Exchange Commission, up from 44 in the same period a year earlier, according to research firm Audit Analytics. That continued the trend of 2020, when companies submitted 844 original filings, up 37.2% from 2019. The figures for 2020 and the start of 2021 were both the highest in at least a decade.

Shelf filings put in place the legal paperwork for raising equity, giving companies the ability to issue shares relatively quickly when market conditions are favorable. Companies can file the form, known as an S-3, any time after their first year on the public markets, and have to stay current on their securities filings. Having a filing in place saves the time involved with legal and financial reviews, investment bankers and securities lawyers said.

“A shelf registration is like having something in your cupboard,” said Mark Lehmann, chief executive of JMP Securities, an investment firm. “You can open your cupboard and grab it. If you don’t have it…you’ve got to go get it.”

The recent surge in some company stocks has put shelf registrations in the spotlight as many executives consider raising fresh cash to capitalize on high stock market valuations. Individual investors this week poured into shares of businesses such as GameStop Corp. and AMC Entertainment Holdings Inc. that previously had been seen as weak bets. Some have exited since then. AMC on Wednesday said it sold out its most recent shelf offering of 50 million shares, shortly after the market frenzy began. The movie-theater chain in December filed a shelf registration statement.

Shelf registrations are expected to become more popular if market prices stay high, said Derryck Coleman, director of research analytics at Audit Analytics. “Companies can sell their securities for a higher price, so the market becomes a very attractive place to raise capital,” he said.

Stock markets have forged higher in recent months after the Federal Reserve last spring moved to lower interest rates to near zero and revived bond-buying and other programs to combat the economic slowdown caused by the coronavirus pandemic.

Shelf registrations, once less common among large and well-performing companies, have become a popular tool that finance chiefs use to take advantage of short-term bursts in investor demand, for example after a positive earnings report, bankers said.

“Three years ago, we were trying to convince boards that even if they weren’t going to raise capital tomorrow, they should have a shelf on file as good corporate housekeeping,” said Seth Rubin, head of equity capital markets at Stifel Financial Corp., an investment firm. “Today, that’s not a hard conversation,” he said.

Some companies hesitate to file shelf registrations, worrying that it could send a signal that it is planning an offering, rather than simply giving itself the option of doing one, investment bankers said. Companies’ shares also have historically traded at a discount shortly after a shelf registration is filed.

Last year, companies with market capitalizations of $1.2 billion or less that filed registration statements saw their shares decline by an average of 0.6% after the first day and by 0.3% seven days later, according to data provided by Stifel. Their shares traded 2.7% lower on average 30 days after the registration was filed, Stifel said. Many larger companies qualify with the SEC to receive automatic registration based on their size and history of issuing securities.

A big question facing companies with shelf registrations is when and whether it makes sense to use them. A run-up in a company’s share price can provide finance chiefs and corporate boards with an opportune time to raise capital. But, as with any equity issue, taking advantage of a shelf registration risks disappointing new investors who invest at the top of the market.

Write to Mark Maurer at [email protected] and Kristin Broughton at [email protected]