Preparing COVID-19 Disclosure Under US Securities Law

The spread of and response to the COVID-19 pandemic presented companies with unprecedented challenges in 2020. With the distribution of vaccines underway, there appears to be light on the horizon. Even so, most companies will continue to feel the effects of the virus throughout the coming year. Companies needing to comply with U.S. disclosure and other securities law obligations should carefully review CF Disclosure Topic No. 9A (“CF 9A”) concerning COVID 19 related disclosure, which the US Securities and Exchange Commission (the ”SEC”) Staff of the Division of Corporation Finance (the “Staff”) published on June 23, 2020. CF 9A supplements the previous CF Disclosure Guidance Topic No. 9 (“CF 9”), published on March 25, 2020, and remains the latest word from the Staff on the preparation of COVID-19 related disclosure.

Although reporting companies will have previously prepared COVID-19 related disclosure, it is important to update such disclosure in line with CF 9A, taking into account developments relating to the virus and managements’ evolving understanding of its impact on their business. For non-reporting companies preparing disclosure in contemplation of a securities offering, CF 9A will provide the basis doing so.

CF 9A Disclosure Considerations

CF 9A provides a series of targeted questions relating to disclosing companies’ operations, liquidity, receipt of government assistance and ability to continue as a going concern, the answers to which should be addressed in relevant disclosure and updated as required.

Operational Adjustments

First, CF 9A addresses the impact of COVID-19 on the disclosing company’s operations, including operational adjustments implemented by management and/or the board of directors. Key considerations cover a range of topics:

Operational Challenges: What are the material operational challenges that management and the board of directors are monitoring and evaluating?

Health and Safety: How and to what extent have you altered your operations, such as implementing health and safety policies for employees, contractors, and customers, to deal with these challenges, including challenges related to employees returning to the workplace?

Impact of Adjustments: How are the changes impacting or reasonably likely to impact your financial condition and short- and long-term liquidity?


Second, CF 9A asks companies to disclose how their overall liquidity position and outlook is evolving:

Revenues: To the extent COVID-19 is adversely impacting your revenues, consider whether such impacts are material to your sources and uses of funds, as well as the materiality of any assumptions you make about the magnitude and duration of COVID-19’s impact on your revenues.

Cash Flow: Are any decreases in cash flow from operations having a material impact on your liquidity position and outlook?

Access to Credit: Have you accessed revolving lines of credit or raised capital in the public or private markets to address your liquidity needs? Are your disclosures regarding these actions and any unused liquidity sources providing investors with a complete discussion of your financial condition and liquidity?

Have COVID-19 related impacts affected your ability to access your traditional funding sources on the same or reasonably similar terms as were available to you in recent periods? Have you provided additional collateral, guarantees, or equity to obtain funding? Have there been material changes in your cost of capital? How has a change, or a potential change, to your credit rating impacted your ability to access funding? Do your financing arrangements contain terms that limit your ability to obtain additional funding? If so, is the uncertainty of additional funding reasonably likely to result in your liquidity decreasing in a way that would result in you being unable to maintain current operations?

Liquidity Metrics: If you include metrics, such as cash burn rate or daily cash use, in your disclosures, are you providing a clear definition of the metric and explaining how management uses the metric in managing or monitoring liquidity? Are there estimates or assumptions underlying such metrics the disclosure of which is necessary for the metric not to be misleading?

Covenant Compliance: Are you at material risk of not meeting covenants in your credit and other agreements?

Capital Expenditures: Have you reduced your capital expenditures and if so, how? Have you reduced or suspended share repurchase programs or dividend payments? Have you ceased any material business operations or disposed of a material asset or line of business? Have you materially reduced or increased your human capital resource expenditures? Are any of these measures temporary in nature, and if so, how long do you expect to maintain them? What factors will you consider in deciding to extend or curtail these measures? What is the short- and long-term impact of these reductions on your ability to generate revenues and meet existing and future financial obligations?

Debt Service: Are you able to timely service your debt and other obligations? Have you taken advantage of available payment deferrals, forbearance periods, or other concessions? What are those concessions and how long will they last? Do you foresee any liquidity challenges once those accommodations end?

Commercial Concessions: Have you altered terms with your customers, such as extended payment terms or refund periods, and if so, how have those actions materially affected your financial condition or liquidity? Did you provide concessions or modify terms of arrangements as a landlord or lender that will have a material impact? Have you modified other contractual arrangements in response to COVID-19 in such a way that the revised terms may materially impact your financial condition, liquidity, and capital resources?

Supplier Finance Programs: Are you relying on supplier finance programs, otherwise referred to as supply chain financing, structured trade payables, reverse factoring, or vendor financing, to manage your cash flow? Have these arrangements had a material impact on your balance sheet, statement of cash flows, or short- and long-term liquidity and if so, how? What are the material terms of the arrangements? Did you or any of your subsidiaries provide guarantees related to these programs? Do you face a material risk if a party to the arrangement terminates it? What amounts payable at the end of the period relate to these arrangements, and what portion of these amounts has an intermediary already settled for you?

Recent Developments: Have you assessed the impact material events that occurred after the end of the reporting period, but before the financial statements were issued, have had or are reasonably likely to have on your liquidity and capital resources and considered whether disclosure of subsequent events in the financial statements and known trends or uncertainties in MD&A is required?

Government Assistance

Third, CF 9A addresses the disclosure of COVID-19 related government assistance provided under the Coronavirus Aid, Relief and Economic Security (CARES) Act, raising the following considerations:

  • How does a loan impact your financial condition, liquidity and capital resources? What are the material terms and conditions of any assistance you received, and do you anticipate being able to comply with them? Do those terms and conditions limit your ability to seek other sources of financing or affect your cost of capital? Do you reasonably expect restrictions, such as maintaining certain employment levels, to have a material impact on your revenues or income from continuing operations or to cause a material change in the relationship between costs and revenues? Once any such restrictions lapse, do you expect to change your operations in a material way?
  • Are you taking advantage of any recent tax relief, and if so, how does that relief impact your short- and long-term liquidity? Do you expect a material tax refund for prior periods?
  • Does the assistance involve new material accounting estimates or judgments that should be disclosed or materially change a prior critical accounting estimate? What accounting estimates were made, such as the probability a loan will be forgiven, and what uncertainties are involved in applying the related accounting guidance?

Ability to Continue as a Going Concern

Finally, CF 9A addresses the possibility that conditions and events, taken as a whole, could raise substantial doubt about a disclosing company’s ability to meet its obligations as they become due within one year after the issuance of financial statements.

In each reporting period, management should consider, in preparing MD&A disclosure, whether there are conditions and events that give rise to the substantial doubt about the company’s ability to continue as a going concern, including any default on outstanding obligations, labor challenges or work stoppages. Management should also disclose plans to address these challenges and the extent to which such plans have been implemented.

In Summary

For companies that have prepared COVID-19 related disclosure in the past, the questions posed by the Staff in CF 9A should be familiar. However, circumstances in the markets in which such companies operate are no doubt constantly evolving as governments implement new measures to control the spread of the virus, as new strains of the virus are identified and as vaccines are developed and distributed. Additionally, management’s understanding of the direct and indirect effects of COVID-19 on its business has, hopefully, continued to improve. As a result, all companies should revisit the above considerations raised by CF 9A and update their disclosure as appropriate.

In particular, disclosing companies should note the following priorities when preparing or updating COVID-19 related disclosure:

  1. Include where appropriate the latest forward-looking information used to ascertain the impact of COVID-19 on your business where such information would be material to investors and is made in good faith and on a reasonable basis. As the considerations raised by CF 9A suggest, the SEC is interested not only in the historical impact of COVID-19 but also in how management is analyzing and responding to it. US counsel should be consulted prior to disclosing any forward looking statements.
  2. Ensure that risk factor disclosure is specific to your business. In the early days of the pandemic, many companies disclosed risks affecting markets or society generally rather than focus on their individual business, industry and markets. The SEC has singled out such disclosure for criticism. Companies and their counsel should revisit and improve previous disclosure as needed.
  3. Reevaluate the materiality of all COVID-19 related statements. When preparing disclosure concerning events of global significance like COVID-19, many companies succumb to the temptation to provide an encyclopedic account of such events and their effects. Disclosure should, however, include only statements of material fact.
  4. Revise your COVID-19 narrative to reflect recent developments and ensure that such narrative is presented consistently in both SEC fillings and in press releases. The SEC reviews company press releases in conjunction with disclosure. Disagreement between the two may delay such review while the SEC seeks clarification.

For further guidance on preparing COVID-19 related disclosure in compliance with CF 9A, please contact Daniel D. Nauth at 416-477-6031 or at