KDP Investment Advisors, Inc.
24 Elm Street
Montpelier, VT 05602
June 30, 1999
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW, Mail Stop 66-9
Washington, DC 20549
Re: File S7-30-98
Dear Mr. Katz:
We respectfully submit our comments on Release No. 33-7606A in which the Securities and Exchange Commission (Commission) requests comments on proposed amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934. KDP Investment Advisors, Inc. (KDP) is a leading provider of independent research focused on the high yield debt market. The company's team of 18 analysts provides market commentary, pricing, and subscription research on approximately 350 high yield companies to clients including institutional investors, pension plan sponsors, mutual fund companies, and other financial institutions. In the process of providing its research services, KDP analysts are extensive users of financial information, in particular information that is provided on the Commission's EDGAR system.
Of most interest to us are portions of Section V and VII of the proposed changes that would increase the access to information prior to the pricing or offering of securities. In our specific circumstances, this represents access to preliminary prospectus fillings ("red herrings") circulated in advance of private offerings of high yield debt under Regulation 144A. Of the $132.2 billion of new high yield debt issued in 1998, a full $106.1 billion (80%) came to market under Regulation 144A. Of the $55 billion of new high yield debt issues sold year-to-date through 6/29/99, high yield offerings under Regulation 144A totaled $45.6 billion (83%). It is our view that the current use of Regulation 144A filings in the high yield debt market has in some cases limited the access of independent securities analysts to information contained in the preliminary prospectuses. When combined with the dominance of 144A offerings in the high yield debt market, we believe this lack of access leads some investors to make deccisions on the basis of very limited financial information.
In practice, we also question the notion that 144A filings are really "private securities offerings" in the sense that they contain "confidential, material, and inside information." While securities underwriters limit distribution of 144A private placement documents, key terms and preliminary prospectuses are often widely available to buy side firms indicating interest - providing at least partial transparency before the 144A transaction is completed. Instead of attempting to protect investors by limiting disclosure, we propose that the Commission increase its focus on qualifying the buyers if there is a desire to prohibit certain potential investors from purchasing 144A securities at issuance. Overall, we believe the Commission's proposed changes acknowledge the unintended consequence of limited disclosure due to the extensive use of Regulation 144A offerings in high yield, and we support the proposed changes that will improve timely securities analyst and investor access to informaation.
In addition, we also support the Form B "term sheet" concept for seasoned issuers (Section V), quicker filing dates for interim financial reports (Section XI), and further use of the EDGAR system for all disclosure requirements.
We appreciate the opportunity to comment on your proposed changes and thank you for your attention to our comments. Should you have any questions or a desire to discuss our comments further, please feel free to reach me at the above address or at (802) 229-0544 (firstname.lastname@example.org).
Kevin M. Kuzio
KDP Investment Advisors, Inc.