United States: Shortened Tender And Exchange Offer Periods For Non-Convertible Debt Securities

On January 23, 2015, the Securities and Exchange Commission staff issued a no-action letter reflecting their new position on expedited tender or exchange offers for non-convertible debt securities conducted under certain guidelines. The letter indicates that the staff of the SEC's Division of Corporation Finance will not object to issuers conducting these simple tender or exchange offers with deadlines that would be significantly shorter than those required by SEC regulations. The letter states that the staff will not recommend enforcement action with respect to tender or exchange offers for non-convertible debt securities that are held open for as few as five business days (as opposed to the 20 business days required by Rule 14e-1(a)), with potential extensions of as little as five business days following changes in the offered consideration or three business days following changes in other material terms of the offer. The no-action letter applies to both investment-grade and non-investment grade debt securities and supersedes previously issued no-action letters that had allowed similarly expedited tender or exchange offers only for investment-grade debt securities. However, the no-action letter also established several conditions that must be satisfied before an issuer of such securities may conduct a tender or exchange offer with deadlines shorter than those required by existing regulations.

Conditions

Generally, these offers must:

  • be made for any and all securities of a class or series of non-convertible debt;
  • be made by (i) the issuer of the securities, (ii) a wholly owned subsidiary of the issuer or (iii) a parent company of the issuer;
  • involve consideration consisting solely of cash1 or non-convertible debt securities that are (i) identical in all material respects to the targeted debt securities (including as to obligors, collateral, lien priority, covenants and other terms) except for the payment-related dates, redemption provisions and interest rate; (ii) have interest terms payable only in cash; and (iii) a weighted average life to maturity that is longer than that of the targeted debt securities;
  • be open to all record and beneficial holders of the targeted debt securities, although an exchange offer would be restricted to Qualified Institutional Buyers (as defined in Rule 144A) or non-U.S. persons (within the meaning of Regulation S) as long as other holders of the targeted series of debt securities would have the option to receive cash in an amount equal to the approximate value of the exchange offer consideration;
  • be announced no later than 10:00 a.m., Eastern time, on the first business day of the five business day period, through a widely disseminated press release,2 which in the case of an offer by an SEC reporting company must also be furnished almost immediately under a Current Report on Form 8-K;
  • permit tenders through guaranteed delivery procedures;
  • provide for certain withdrawal rights; and
  • not include early settlement features.

Changes in the offered consideration or other material terms of the offer may result in the requirement to extend the offer period, such that at least five business days remain from and including the announcement of any change in the offered consideration, and at least three business days remain from and including the announcement of any other material change in the offer. In a manner similar to the announcement of these expedited offers, issuers must notify investors of these material changes by a widely disseminated press release, and SEC reporting issuers must describe changes to the offered consideration almost immediately in a Form 8-K.

In addition, an offeror cannot avail itself of the shorter time periods for a tender or exchange offer for non-convertible debt securities if such offer is being made:

  • in connection with a consent solicitation to amend the documents governing the targeted debt securities;
  • at a time when there is a default or event of default under any of the issuer's material debt agreements;
  • at a time when the issuer is the subject of bankruptcy or insolvency proceedings or otherwise has commenced activity geared toward accomplishing an out-of-court restructuring or pre-packaged bankruptcy;
  • in anticipation of or in response to, or concurrently with, a change of control or other extraordinary transaction involving the issuer;
  • in anticipation of or in response to a competing tender offer;
  • concurrently with a tender offer for any other series of the issuer's securities made by the issuer or certain affiliates of the issuer if the effect of such offer would result in a change to the capital structure of the issuer (e.g., addition of obligors or collateral, increased priority of liens or shortened weighted average life to maturity of such other series); or
  • in connection with a material acquisition or disposition.

Changes from Current Practice

Although previous SEC no-action letters effectively permitted issuers of investment-grade non-convertible debt securities to hold tender offers for those securities open for as few as seven to ten days, this latest no-action letter supersedes those prior letters and allows the minimum tender or exchange offer period to be as short as five business days. Issuers of investment-grade non-convertible debt were also previously able to settle early as holders tendered in a shortened tender offer and were not required to provide withdrawal rights. This new no-action letter eliminates the ability to include early settlement features or to deny withdrawal rights. The letter's requirement that SEC reporting companies disclose the announcement of an offer and its basic terms, as well as any changes to the consideration offered, on a Form 8-K is also new.

Unlike issuers of investment-grade debt securities, issuers of high-yield non-convertible debt have not previously been permitted to conduct tender or exchange offers with periods shorter than those required by SEC regulations. Consequently, this new SEC staff position provides these issuers with a significantly faster way to conduct these offers. However, without the ability to combine the tender or exchange offer with exit consents to strip away restrictive high-yield debt covenants, the ability to conduct a tender or exchange offer on an expedited time frame may prove to have limited utility for such issuers.

Although it is important to understand that the issuance of a no-action letter does not have the effect of modifying existing federal securities rules and regulations or carry the weight of formal SEC guidance or interpretation, such letters are a well-established means for the SEC staff to guide issuers with respect to where the SEC will choose to exercise its enforcement powers. To read the full no-action letter, please see http://www.sec.gov/divisions/corpfin/cf-noaction/2015/abbreviated-offers-debt-securities012315-sec14.pdf.

Footnotes

1. The offer, however, cannot be financed using the net proceeds from debt that is senior in right of payment to the targeted debt securities or that otherwise occupies a higher position in the capital structure relative to the targeted debt securities (excluding borrowings under a pre-existing credit or debt facility).

2. In addition, the offeror would (i) use commercially reasonable efforts to circulate the press release via e-mail (or other electronic communication) to all investors subscribing to one or more corporate action e-mails or similar lists; (ii) use other customary methods to expedite dissemination of information regarding the abbreviated offer to the beneficial holders of the targeted debt securities; and (iii) issue a press release promptly after the consummation of the offer with the results of the offer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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