Recently, the Securities and Exchange Commission (“SEC”) published five new Compliance & Disclosure Interpretations (“C&DIs”) refining its January 2015 no-action letter on abbreviated tender and exchange offers (the “No-Action Letter”). The No-Action Letter permits issuers to conduct tender and exchange offers for non-convertible debt securities meeting certain criteria on a five business day timeline, rather than the twenty business day timeline required by Rule 14e-1(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).1 In previously issued no-action letters, the SEC reserved the flexibility to conduct abbreviated exchange offers for issuers of investment grade debt (i.e., debt with a rating of BBB- or higher).2 Superseding prior guidance, the January 2015 No-Action Letter allowed high-yield debt tender and exchange offers to take place on a five business day timeline, subject to certain conditions. During the year since the issuance of the No-Action Letter, a significant proportion of debt tender offers have used the five business day timeline.
The C&DIs published by the SEC Division of Corporation Finance on November 18, 2016 expounds on the requirements for conducting a five business day tender offer.
Section 3(a)(9) Offers (Exchange Offers with Existing Security Holders)
Under the No-Action Letter, abbreviated exchange offers of Qualified Debt Securities3 must be made to Qualified Institutional Buyers4 (“QIBs”) or to non-U.S. persons5 (together, “Eligible Exchange Offer Participants”) in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). According to the C&DIs, corporations may rely on the exemption under Section 3(a)(9) of the Securities Act, in addition to those under Section 4(a)(2) and Rule 144 of the Securities Act, to conduct an abbreviated exchange offer in reliance on the No-Action Letter. Section 3(a)(9) of the Securities Act exempts from registration securities exchanged between the issuer and its existing security holders provided that no commission or other remuneration is given, directly or indirectly, for soliciting the exchange. This C&DI may be very useful for companies undergoing debt restructuring.
Pursuant to the No-Action Letter, an abbreviated offer may not be commenced within ten business days after the initial public announcement or consummation of a material transaction, such as the purchase, sale or transfer by the issuer of its subsidiaries of a material business or amount of its assets, such that the issuer would be required to furnish pro forma financial statements pursuant to Article 11 of Regulation S-X. The C&DIs clarify that the abbreviated offer may be announced at any time, but not commenced prior to 5:01 p.m. on the tenth business day after the first public announcement of the relevant transaction. Should the abbreviated offer commence after 5:01 p.m. on a particular business day, day one of the five business day period will be deemed to be the next business day.
The No-Action Letter also provides that an abbreviated offer must be announced via a widely disseminated press release at or prior to 10:00 a.m., Eastern Time, on the first business day of the offer. Thus, as a practical matter, the earliest time after a material transaction that an issuer may announce and commence an abbreviated tender offer is at or prior to 10:00 a.m. on the eleventh day following the announcement of the relevant material transaction.
Minimum Tender Conditions
The No-Action Letter states that abbreviated offers must be made “for any and all” subject debt securities. In response to an inquiry as to whether this means that abbreviated offers cannot have minimum tender conditions, the SEC staff responded that abbreviated offers may have minimum tender conditions. Just as in non-abbreviated offers, a company may condition consummation of an abbreviated offer on the tender of a certain percentage of the target securities.
Fixed Spread Exchange Offers
The No-Action Letter provides that Five Business Day Tender Offers may be open to all record and beneficial holders of subject debt securities, so long as offers of Qualified Debt Securities are limited to Eligible Exchange Offer Participants.6 Holders that are not Eligible Exchange Offer Participants must be given a concurrent option to receive cash for their securities in a fixed amount, determined by the offeror, to approximate the value of the Qualified Debt Securities being offered. The C&DIs allow the offeror to calculate that amount of cash consideration with reference to a fixed spread to a benchmark, so long as the calculation is the same as the calculation used to determine the amount of Qualified Debt Securities.
Foreign Private Issuers
The No-Action Letter requires that issuers that are Exchange Act reporting companies furnish a press release to announce the abbreviated offer on a Form 8-K filed before 12:00 noon, Eastern time, on the first business day of the abbreviated offer. The C&DIs clarify that a foreign issuer may satisfy this requirement by filing a Form 6-K.
The No-Action Letter and C&DIs permit issuers to conduct debt tender and exchange offers on a five business day timeline for investment grade or non-convertible debt securities meeting certain criteria. The effect should be to allow issuers to refinance their debt on a shorter timeline than was previously available.