The Reports covenant provides critical information to investors about an issuer’s ongoing financial performance. In this ELFA Covenant Tip we explain common reporting requirements and what happens if the covenant is breached.
The annual and quarterly financial statements must be delivered within a specified number of days after the period end. In general, such statements should meet the information requirements of Rule 144A and may include additional disclosure (such as on EBITDA).
Financial reports are also typically required to contain an MD&A, which discusses the financial results in greater detail, and a description of material events.
Under certain circumstances (e.g. if certain materiality thresholds are met), an issuer must include separate disclosure on Unrestricted Subsidiaries if unrestricted subsidiaries are not included in the report.
As we noted in a prior ELFA Covenant Tip, issuers sometimes post reports behind a password protected website. ELFA Insight Series vol. 2 (available here) explores some of the implications of this practice.
Bonus Point: If an issuer fails to comply with the Reports covenant, the default will only ripen into an actionable EoD after the expiry of a grace period (and compliance with any other applicable conditions.)