SEC Issues Interpretive Guidance For Up-C Structures Permitting Holding Period Tacking Under Rule 144 For Unit-For-Share Exchanges

On November 1, 2016, the staff of the Securities and Exchange Commission (the "SEC") issued interpretive guidance¹ concluding that in Up-C structures the holding period of LLC units or other partnership interests (the "OP Units") in the subsidiary operating entity ("OP") exchanged for publicly traded shares (the "Pubco Shares") of the parent corporation ("Pubco") may, under certain circumstances, be tacked for the purposes of compliance with the holding period requirements of Rule 144 (the "Up-C Letter"). The Up-C Letter is consistent with the SEC staff's position in the recent Bank of America, N.A. letter from March 2016,² where the staff reached a substantially similar conclusion in the context of an UPREIT structure (the "UPREIT Letter"). However, unlike the guidance provided by the UPREIT Letter, the Up-C Letter does not require that the governing documents establishing the Up-C structure (the "Governing Documents") include a cash exchange option, but rather that