At-the-Market Offerings: A Good Option When Volatility Is High

An at-the-market program is a good way to diversify a company's capital-raising options, especially now.
Brian Hirshberg and Chirag NaiduJuly 7, 2020

Following years of generally low market volatility, public companies are now navigating an uncertain and unprecedented market environment as a result of the global COVID-19 pandemic. In this new environment, many public companies are focused on diversifying their capital raising options. Companies that may need to raise capital as a result of abrupt liquidity and capital resource constraints should consider the option of setting up an at-the-market (ATM) offering program.  Whether a public company is seeking to raise additional capital, repay debt, fund the purchase price for a small acquisition, or facilitate a liquidity opportunity for an existing stockholder, an ATM offering can be an efficient approach.

An ATM program allows a public company to raise modest amounts of capital over time by offering securities into the already existing trading market. The company sells newly issued shares periodically, over time, on an as-needed basis based on the current trading price of the securities.

Brian Hirshberg, Mayer Brown

In challenging markets, public companies may rely on private investment in public equity (PIPE) transactions and registered direct offerings; however, often in these transactions, the securities are sold at a significant discount. By contrast, an ATM offering program may provide a company with a more attractive and less dilutive capital-raising option. The availability of an ATM program also allows a company to take advantage of a temporarily higher stock price or an upcoming milestone event to raise capital. It also may be used in conjunction with other financing options.

ATM programs have become increasingly common in recent years. They allow companies to maintain discretion over the terms of each sale, including the timing and price. ATM programs generally also have lower commissions and associated fees than underwritten offerings with less management involvement in the sale process (for example, there are no road shows).

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In a volatile market, the timing and availability of an ATM program are critical. To maximize availability and efficiency, ATM programs should be structured to permit sales during the period of time between the company’s earnings announcement and the filing of the corresponding annual or quarterly periodic report with the Securities and Exchange Commission — as long as the periodic report is not expected to contain any material differences from the information conveyed in the earnings announcement.

To avoid a waiting period and to ensure the company’s ATM agent that the necessary disclosure is included in the ATM prospectus and the requisite diligence obligations have been met, the earnings announcement should be filed (instead of furnished) on a current report on form 8-K and thereby incorporated by reference into the ATM prospectus and reviewed by the company’s independent auditor. To simplify the bring-down diligence process, companies should satisfy ongoing ATM diligence obligations in conjunction with the company’s quarterly earnings announcement and related periodic report filing. As a result of the coordinated timing, the ATM agent and its counsel will already have access to the company’s latest business and financial information in its public filings and can instead focus time and attention on simply confirming the receipt of the company’s diligence deliverables.

Forward Sales

Many ATM programs have been recently structured to incorporate a forward-sale option. A forward sale allows a company to sell its securities through the ATM program at the current trading price without actually issuing any securities to satisfy the sale until a future date. This new structure is most efficient for companies with a current trading price that represents an attractive cost of capital from the company’s perspective. At its discretion, the company is permitted to enter into an agreement with a forward purchaser who would purchase a fixed number of the company’s securities at a fixed price at any time during the term of the forward contract (typically six months to one year from the date of the agreement).

Chirag Naidu, Mayer Brown

Instead of selling newly issued company securities, the ATM agent borrows already outstanding securities and sells them short into the market. This option has gained popularity in recent years (particularly among real estate investment trusts) as it ensures the company a guaranteed cost of capital without the need to immediately issue new securities.

The forward-sale option is typically structured to provide the company with the option to elect a cash or share settlement for all or part of the transaction. If the company elects to cash settle and the market price at settlement is higher than the forward price, the company would pay the applicable cash amount (the difference between the market and forward price) to the forward purchaser. The forward purchaser would pay the same cash amount to the company in the event the market price at settlement is lower than the forward price. If the company elects to share settle, shares with a current value equal to the cash amount (calculated in the same manner) would be delivered in lieu of cash.

Preferred ATMs

Increasingly, public companies with outstanding listed classes of preferred stock have implemented an ATM program for this class of securities. Most companies with preferred stock ATM programs already have an ATM program established and maintained for their common stock, thereby leveraging the ongoing diligence and maintenance costs across several ATM programs.

Similar to a common stock ATM program, the company may sell preferred securities through the ATM program at varying prices based upon the prevailing market price of the preferred securities. However, for a preferred ATM program, the initial terms (dividend rate, conversion features, and redemption terms) that were fixed as part of the original issuance of preferred stock cannot change with a subsequent issuance under an ATM program. Importantly, the securities under the subsequent issuance must remain fungible with those that were part of the original issuance. Nonetheless, the size of the preferred stock ATM program is not constrained by the size of the original issuance of preferred securities. The size of the preferred stock ATM program can be significantly larger than the outstanding shares of preferred stock at the time the program is established.

A company that is able to qualify as a well-known seasoned issuer (WKSI) may take advantage of a more flexible ATM offering registration process.

A public company is eligible to implement an ATM program if it has a public float of at least $75 million or satisfies certain other qualifying thresholds. However, a company that is able to further qualify as a well-known seasoned issuer (WKSI) may take advantage of a more flexible ATM offering registration process.

The WKSI shelf registration statement is automatically deemed effective upon filing without waiting for an SEC review and comment period to be completed.  Additionally, WKSIs are not required to specify an aggregate dollar amount for their shelf registration statements. As a result, WKSIs are in a position to immediately access the market through a newly established ATM program. Conversely, non-WKSIs will need to navigate the SEC review and comment process and also ensure that the securities to be offered and sold under the ATM program do not exceed the aggregate value of securities remaining under the effective registration statement.


Companies seeking to establish a new ATM program should choose investment banks with established expertise in operating ATM programs and discuss management expectations and goals for the ATM offering.

In particular, the company should discuss any desired volume limitations, the inclusion of block trades, and any timing requirements relating to the execution or suspension of the ATM program.

Companies should consider engaging multiple ATM agents for a single ATM program (all engaged agents would sign one ATM agreement). Engaging multiple ATM agents allows a company to have several options when considering brokerage platforms to use throughout the term of the ATM program. Notwithstanding having access to multiple platforms, the company cannot sell its securities under the ATM program with more than one ATM agent at the same time.

Companies are advised to suspend any ongoing repurchase programs or dividend reinvestment plans before accessing an ATM program. Alternatively, companies may expressly limit the availability of the ATM program to periods that do not overlap with the repurchase programs or dividend reinvestment plans.

ATM programs are typically operated on an agency basis in which the ATM agent is engaged by the company to sell a modest number of securities from time to time on a best efforts basis. However, most recent ATM programs are now established to include a block trade option. ATM offerings are often also effectively used on behalf of selling stockholders. Similar to a company ATM offering, a selling stockholder ATM offering allows the stockholder to sell securities into the market if an attractive opportunity arises. These types of ATM programs allow selling stockholders to exceed the Rule 144 volume limitations that are applicable for affiliates of the company.

If the selling stockholder in the ATM offering is an affiliate of the company, the parties should consider establishing a trading plan (in accordance with Rule 10b5-1) to form an affirmative defense against insider trading. Any person or entity executing pre-planned transactions pursuant to a Rule 10b5-1 plan that was established in good faith at a time when that person or entity was not aware of material nonpublic information has an affirmative defense against accusations of insider trading, even if actual trades made pursuant to the plan are executed at a time when the individual or entity may be aware of material nonpublic information.

Brian Hirshberg is counsel in Mayer Brown’s New York office and a member of the Capital Markets practice. Chirag Naidu is an associate in Mayer Brown’s New York office and a member of the Capital Markets practice.