In January 2015, the Securities and Exchange Commission (the SEC) issued a no action letter (the No-Action Letter) permitting issuers to conduct debt tender and exchange offers for investment grade or non-investment grade non-convertible debt securities that may be held open for only five business days, subject to a series of conditions (abbreviated offers).
On November 18, 2016, the staff of the SEC’s Division of Corporation Finance (the staff) published five new Compliance & Disclosure Interpretations clarifying its views related to conducting tender and exchange offers in compliance with the conditions of the No-Action Letter.
Minimum tender conditions are permitted. The No-Action Letter states that abbreviated offers must be made “for any and all” subject debt securities. The staff clarified that this does not mean that an abbreviated offer cannot have a minimum tender condition – an offer can be made “for any and all” but still have a minimum tender condition.
Foreign private issuers may use Form 6-K to announce abbreviated tender or exchange offers. The No-Action Letter states that an issuer that is an SEC- reporting company must furnish a press release announcing the abbreviated offer via a press release on Form 8-K prior to 12:00 noon, Eastern time, on the first business day of the abbreviated offer. The staff clarified that foreign private issuers (who are not required to file Form 8-Ks) may satisfy this condition by filing a Form 6-K.
Non-QIB US persons may be offered cash consideration calculated with reference to a fixed spread to a benchmark in lieu of Qualified Debt Securities. The No-Action Letter allows abbreviated offers for cash consideration to all holders for a fixed amount of cash or an amount of cash calculated with reference to a fixed spread to a benchmark as of the last business day of the offer. The No-Action Letter also allows abbreviated offers to QIBs and non-US persons for consideration consisting of Qualified Debt Securities (as defined in the No-Action Letter) in a fixed amount or in an amount calculated with reference to a fixed spread or benchmark, so long as a fixed amount of cash consideration is concurrently offered to persons other than QIBs and non-US persons. The staff clarified that in the latter case, in an abbreviated offer involving consideration of Qualified Debt Securities, persons other than QIBs and non-US persons can be offered cash consideration with reference to a fixed spread or benchmark (not just a fixed amount of cash consideration), provided that the calculation is the same as the calculation used in determining the amount of Qualified Debt Securities.
Qualified Debt Securities offered as consideration may be issued under Section 3(a)(9) of the Securities Act. The No-Action Letter provides that abbreviated exchange offers may be conducted for consideration of Qualified Debt Securities issued pursuant to Section 4(a)(2) of the Securities Act of 1933 or Rule 144A adopted thereunder. The staff clarified that abbreviated exchange offers also may be conducted for consideration of Qualified Debt Securities issued to QIBs and non-US persons pursuant to Section 3(a)(9) of the Securities Act. Section 3(a)(9) of the Securities Act provides an exemption from registration for securities exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.
Abbreviated offers in connection with an M&A transaction may be announced at any time, but may only be commenced on or after 5:01 p.m. on the tenth business day after the first public announcement of a material M&A transaction. The No-Action Letter provides that an abbreviated offer may not be “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 such transaction pursuant to Article 11 of Regulation S-X (whether or not the issuer is a registrant under the Exchange Act).” The staff clarified that an issuer may announce an abbreviated offer at any time, but may not commence the offer prior to 5:01 p.m. on the tenth business day after the first public announcement of a material M&A transaction. However, if an abbreviated offer is commenced after 5:01 p.m. on a particular business day, the first day of the five business day period would be the next business day.
The authors would like to thank Brian Lewis for his contribution to this alert.