SEC's Division of Corporation Finance Issues New Guidance on Abbreviated Debt Tender Offers and Debt Exchange Offers | Practical Law

SEC's Division of Corporation Finance Issues New Guidance on Abbreviated Debt Tender Offers and Debt Exchange Offers | Practical Law

The SEC's Division of Corporation Finance issued a no-action letter granting relief from Rules 14e-1(a) and (b) under the Exchange Act for certain abbreviated debt tender offers and debt exchange offers.

SEC's Division of Corporation Finance Issues New Guidance on Abbreviated Debt Tender Offers and Debt Exchange Offers

by Practical Law Corporate & Securities
Published on 28 Jan 2015 • USA (National/Federal)
The SEC's Division of Corporation Finance issued a no-action letter granting relief from Rules 14e-1(a) and (b) under the Exchange Act for certain abbreviated debt tender offers and debt exchange offers.
On January 23, 2015, the SEC's Division of Corporation Finance (Division) issued a no-action letter granting relief from Rules 14e-1(a) and (b) under the Exchange Act for certain abbreviated debt tender offers and debt exchange offers. The guidance was released as a result of discussions among the Division's staff, certain investment banks and law firms, and the Credit Roundtable. The relief granted in the letter took immediate effect and supersedes the Division's prior no-action letters on abbreviated non-convertible debt tender offers. The most significant change involves the expansion of prior relief to allow the use of high-yield debt securities in abbreviated debt tender offers.
In the letter, the Division's staff confirmed that it will not recommend any enforcement action to the SEC if an offeror:
  • Conducts a tender offer for non-convertible debt securities and holds the tender offer open for at least five business days from and including the date the tender offer is first published by means of "immediate widespread dissemination," provided the tender offer satisfies certain additional criteria discussed below (Five Business Day Tender Offer).
  • Holds open a Five Business Day Tender Offer for at least five business days from and including the date of the announcement of any change in the consideration offered.
  • Holds open a Five Business Day Tender Offer for at least three business days from and including the date of the announcement of any material change in the offer other than a change in the consideration offered.
Rule 14e-1 under the Exchange Act requires that a tender offer must be held open for 20 business days, and prior guidance reduced this number to seven to ten calendar days in certain circumstances. The new guidance now allows for a Five Business Day Tender Offer if the following criteria are satisfied:
  • Non-convertible debt securities. The offer must be made for a class or series of non-convertible debt securities. Unlike the previous guidance, the new guidance does not require a particular credit rating for the securities, meaning that high-yield debt securities are now eligible for abbreviated tender offers.
  • No offers by third parties. The offer must be made by the issuer of the securities, or certain subsidiaries or parents of the issuer.
  • Appropriate offer consideration. The offer must be made for cash consideration or "qualified debt securities" (or a combination of both) for any and all of the subject debt securities. Qualified Debt Securities are non-convertible debt securities that:
    • are identical in all material respects (including, but not limited to, the issuer, guarantor, collateral, lien priority, covenants and other terms) to the subject debt securities, except for the maturity date, interest payment and record dates, redemption provisions and interest rate;
    • have all interest payable only in cash; and
    • have a weighted average life to maturity that is longer than the subject debt securities.
  • Benchmark pricing. The consideration offered may be fixed or may be an amount based on a fixed spread to a benchmark and, in the case of Qualified Debt Securities, the coupon may be based on a spread to a benchmark (including US Treasury rates, LIBOR, swap rates and, in the case of securities denominated in currencies other than US dollars, sovereign securities or swap rates denominated in the same currency as the securities subject to the offer, in each case that are readily available on a Bloomberg or similar trading screen or quotation service). In addition:
    • the spread used for determining the amount of consideration offered must be announced at the commencement of the offer;
    • in the case of an offer of Qualified Debt Securities, if the interest rate or the spread used for determining the interest rate for the securities is not fixed and announced at the commencement of the offer, it must be announced at the commencement of the offer as a range of not more than 50 basis points, with the final interest rate or spread to be announced by 9:00 a.m. (ET) on the business day prior to the expiration of the offer;
    • the exact amount of consideration and the interest rate on any Qualified Debt Securities must be fixed by 2:00 p.m. (ET) on the last business day of the offer; and
    • in the case of an offer of Qualified Debt Securities, a minimum acceptance amount must be announced at the commencement of the offer.
  • Open to all holders. The offer must be open to all record and beneficial holders of the debt securities, except exchange offers in which:
    • Qualified Debt Securities are offered to qualified institutional buyers and/or non-US persons (Eligible Exchange Offer Participants) in a transaction exempt from the registration requirements of the Securities Act; and
    • holders who are not Eligible Exchange Offer Participants (or an affiliate) will be given an option concurrent with the offer (which can be part of the same offer to purchase document) to receive cash from either the offeror or a dealer manager for the holders' debt securities in a fixed amount determined by the offeror, in its reasonable judgment, to approximate the value of the Qualified Debt Securities being offered, and this amount is set out at the commencement of the offer.
  • No solicitation of consents. An offer may not be made in connection with a solicitation of consents to amend the indenture, form of security or note or other agreement governing the debt securities.
  • No defaults. An offer may not be made if a default or event of default exists under the indenture or any other indenture or material credit agreement to which the issuer is a party.
  • No bankruptcy or insolvency. An offer may not be made if:
    • the issuer is the subject of bankruptcy or insolvency proceedings;
    • the issuer has commenced a solicitation of consents for a prepackaged bankruptcy proceeding; or
    • the issuer's board of directors has authorized discussions with creditors of the issuer to effect a consensual restructuring of the issuer's outstanding indebtedness.
  • No financing with senior indebtedness. An offer may not be financed with the proceeds of any senior indebtedness, meaning indebtedness that:
    • has obligors, guarantors or collateral (or a higher priority with respect to collateral) that the subject debt securities do not have;
    • has a weighted average life to maturity less than that of the subject debt securities; or
    • is otherwise senior in right of payment to the subject debt securities.
  • No change of control or other extraordinary transactions. An offer may not be:
    • made in anticipation of or in response to, or concurrently with, a change of control or other type of extraordinary transaction involving the issuer, such as a merger (or similar business combination), reorganization or liquidation or a sale of all or substantially all of its consolidated assets;
    • made in anticipation of or in response to other tender offers for the issuer's securities;
    • made concurrently with a tender offer for any other series of the issuer's securities made by the issuer or any subsidiary or parent company of the issuer if the effect of the offer, if consummated (by way of amendment, exchange or otherwise), would be to add obligors, guarantors or collateral (or increase the priority of liens securing the other series) or shorten the weighted average life to maturity of the other series; or
    • commenced within ten business days after the first public announcement or the consummation of the purchase, sale or transfer by the issuer or any of its subsidiaries of a material business or amount of assets that would require the furnishing of pro forma financial information with respect to the transaction under Article 11 of Regulation S-X (whether or not the issuer is a registered company).
  • Guaranteed delivery procedure. The offer must permit tenders prior to the expiration of the offer through a guaranteed delivery procedure by means of a certification by or on behalf of a holder that:
    • the holder is tendering securities beneficially owned by it; and
    • the delivery of the securities will be made by the close of business on the second business day after the offer expires.
  • Immediate widespread dissemination. The offer must be announced by press release, by 10:00 a.m. (ET) on the first business day of the five business day period, through a widely disseminated news or wire service (Immediate Widespread Dissemination). The press release must:
    • disclose the basic terms of the offer (including the identity of the offeror, the class of securities to be purchased, the type and amount of consideration being offered and the offer's expiration date); and
    • contain an active hyperlink to, or an Internet address at which a record or beneficial holder could then obtain, copies of the offer to purchase and letter of transmittal (if any) and other instructions or documents (including a form of guaranteed delivery instructions) relating to the tender of the debt securities.
    The offeror would also be required to:
    • use commercially reasonable efforts to send 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;
    • use other customary methods to expedite the dissemination of the information to beneficial holders of the debt securities; and
    • issue a press release promptly after consummating the offer that sets out the results of the offer.
  • Form 8-K. If the issuer or offeror is a reporting company or voluntary filer, it must file a Form 8-K, with the press release announcing the offer as an exhibit, before 12:00 p.m. (ET) on the first business day of the offer.
  • Changes to offer. The offer must provide for communication by Immediate Widespread Dissemination:
    • at least five business days before expiration of the offer of any change in the consideration being offered; and
    • at least three business days before expiration of the offer of any other material change to the offer.
    The communication must be made by 10:00 a.m. (ET) on the first day of the five or three business day period, as applicable. If the issuer or offeror is a reporting company or voluntary filer, it must file a Form 8-K, describing any change in the consideration being offered, before 12:00 p.m. (ET) on the first day of the five business day period.
  • Withdrawal rights. The offer must provide for withdrawal rights that are exercisable:
    • at least until the earlier of the expiration date of the offer and, in the event that the offer is extended, the tenth business day after commencement of the offer; and
    • at any time after the 60th business day after commencement of the offer if the offer has not been consummated within 60 business days after commencement.
  • Payment of consideration. The offer must provide that the offeror will not pay the consideration in the offer until promptly after expiration of the offer.
To learn more about debt tender offers and debt exchange offers, see: