There has recently been a welcome thaw in the capital markets, with several billion-dollar capital raises by Alcoa Inc., Ingersoll-Rand plc, Newell Rubbermaid Inc., Ford Motor Co. and other large issuers. Taking advantage of favorable pricing windows in the markets, these issuers were able to sell overnight billions of dollars in equity, debt and convertible securities. One of the keys to their success was their ability to offer and sell a combination of securities very quickly under their universal shelf registration statements.

For example, Alcoa had filed its universal shelf in March 2008. Immediately following the announcement of its first-quarter loss on March 16, 2009 (which saw its stock prices fall 8.7% on the following day), the aluminum producer was able to launch on March 18 a public offering and sell overnight $900 million of common stock and $500 million of convertible notes.

As confidence is slowly on the rise and issuers are going back to tap the capital markets, public companies should think about their future capital markets needs and strategy and consider putting in place a universal shelf registration so as to position themselves favorably when the need arises.

Universal shelf registrations are most advantageous to issuers that qualify as "well known seasoned issuers," or WKSIs. However, universal shelf registrations also offer advantages to non-WKSIs (note that, in each case, it is assumed that the issuer would be able to effect the registration of the securities on Form S-3).

For those debating whether or not to employ universal shelf registrations, there are numerous advantages, specifically with respect to the quick access to capital markets that come without SEC review. Once the registration statement is effective, which may be immediately upon filing for WKSIs, securities can be issued and sold quickly by means of a prospectus supplement that is filed with the SEC but not reviewed. WKSIs' shelf registrations are automatically effective upon filing, without review by the SEC. For non-WKSIs, the registration statement will be subject to SEC review before it becomes effective.

Furthermore, the flexibility available is a major asset. Universal shelf registrations offer companies the flexibility to issue a variety of securities at different times or concurrently under a single registration at any time, as well as the opportunity to sell securities at various prices, including fixed prices, changing prices, negotiated prices or market prices at the time of sale. They also offer the flexibility to sell securities through various transactions, including underwritten sales, direct sales to purchasers in negotiated sales or competitively bid transactions, or sales through agents or dealers. This permits offerings designed to reduce the downward pressures on stock prices that could result from an underwritten offering.

Due to the speed, flexibility and ability to exploit short-term pricing opportunities, lower underwriter fees and smaller discounts to the last trading price of the stock enable lower direct issuance costs. Universal shelf registrations can also be used for resale by selling security holders. WKSIs also have the power to omit the names of the selling security holders and the amount of securities offered by each of them from the base prospectus. Non-WKSIs may only omit identifying selling security holders from the base prospectus under certain circumstances.

For WKSIs, universal shelf registrations provide the chance to sell an unlimited amount of securities, while for non-WKSIs, the registration will need to indicate a maximum aggregate offer price for all securities to be registered. Additionally, WKSIs have the ability to delay payment of the registration fee to the time of the "take-down" ("pay as you go") and then only pay the fee relating to the amount being taken down. Non-WKSIs must pay a registration fee based on the maximum aggregate amount being registered at the time the Form S-3 is filed.

Simplified disclosure is also considered a substantial advantage, since the registration statement will be filed with only a bare base prospectus, which generally will incorporate most relevant information from the issuer's periodic reports and will otherwise simply include a description of the securities to be issued, risk factors, the plan of distribution, a ratio of earnings to fixed charges (for debt securities), a general use of proceeds section and an experts section.

One final advantage is the ability to delay the filing of most exhibits to the time of a take-down, with certain exceptions (e.g., charter, indentures, Form T-1).

Yet despite these many advantages, there are several limitations to using universal shelf registrations.

Chief among these limitations is market overhang. Setting up a universal shelf registration may depress the trading price of the stock ("market overhang") because investors may discount the market prices of the stock in anticipation of a take-down. The exact scope of the overhang will vary depending on the facts and circumstances of each issuer.

Additionally, shelf registrations can only be used for sales for cash and not in exchange for other securities. In particular, this registration cannot be issued for securities to be issued in a business combination for stock. The shelf registrations have a three-year life from filing, then a new registration statement will need to be filed before the old shelf terminates.

Each amendment to the registration statement will result in a reassessment of WKSI status. If WKSI status is lost as a result of a new assessment in connection with an amendment filing or in connection with a Form 10-K filing, a new registration statement must be filed on the appropriate form subject to SEC review (i.e., without automatic effectiveness upon filing).

Finally, issuers remain subject to Regulation FD and any shareholder approval requirements under stock exchange rules or otherwise.

Valerie Demont is a partner in the New York office of Pepper Hamilton LLP. She focuses her practice on U.S. and cross-border mergers and acquisitions, capital markets, corporate finance and securities matters.