Due diligence in a Rule 144A/Regulation S offering
Produced in partnership with Lloyd Harmetz of Morrison & Foerster LLP

The following Banking & Finance practice note produced in partnership with Lloyd Harmetz of Morrison & Foerster LLP provides comprehensive and up to date legal information covering:

  • Due diligence in a Rule 144A/Regulation S offering
  • Why conduct due diligence?
  • The extent of due diligence
  • Organising the due diligence review
  • The due diligence process
  • Conclusion

Due diligence in a Rule 144A/Regulation S offering

Rule 144A (17 CFR 230.144A) securities are purchased only by qualified institutional buyers (QIBs), which are typically among the most sophisticated institutional investors. The related portion of the offering sold under Regulation S is typically sold to sophisticated institutional investors located outside the US The offering documentation, due diligence, legal opinions and comfort letters for Rule 144A/Regulation S debt offerings are often very similar in many respects to those provided in registered offerings. Below we focus on the due diligence process that is conducted by the initial purchasers and their counsel.

Why conduct due diligence?

A due diligence investigation is a critical component in an initial purchaser’s decision to undertake an offering. The due diligence process enables the initial purchaser to evaluate the relevant legal, business, and reputational risks of the offering and its documentation. Practitioners generally believe that Rule 144A and Regulation S offerings do not subject the issuer and the initial purchasers to the liability provisions of Section 11 (15 USCS § 77k) or 12(a)(2) (15 USCS § 77l) of the Securities Act of 1933, as amended (the 'Securities Act'), perhaps limiting the potential need to establish a formal 'due diligence' defence; however, the issuer and the initial purchasers could be subject to private rights of action under Section 10(b) (15 USCS § 78j) of the Securities

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