The SEC recently issued a no-action letter that significantly expands the scope of securities that are eligible for an abbreviated tender offer process. The SEC’s new position should allow for issuers to restructure their balance sheets in a more expedited fashion and take advantage of favorable market conditions.
Under existing SEC rules, a tender offer must remain open for a minimum of 20 business days. In the 1980s, the SEC began granting relief from the 20 business day requirement for investment grade rated non-convertible debt. Tender offers for such debt could be conducted in as little as seven to ten calendar days as long as the consideration consisted solely of cash. The new SEC policy, as set forth in the no-action letter (which supersedes the prior string of no-action letters regarding abbreviated tender offers), allows for tender offers for both investment grade and non-investment grade debt to be completed in as little as five business days so long as certain conditions are met:
- The tender offer must be made by the issuer of the securities (or a parent or wholly-owned subsidiary) and not a third-party;
- The consideration must consist solely of cash or Qualified Debt Securities1 for any and all of the outstanding securities of the subject class;
- The offer must be made available to all record and beneficial holders of the subject securities; provided that offers that include Qualified Debt Securities are made only to Qualified Institutional Buyers (as defined in Rule 144A under the Securities Act of 1933) and/or non-U.S. persons (within the meaning of Regulation S under the Securities Act) and investors who do not fall within such categories are given a concurrent option to receive cash for their 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;
- The tender offer cannot be made in connection with a consent solicitation;
- The tender offer cannot be made if the issuer is in default under any of its indentures or credit agreements or if the issuer is the subject of bankruptcy or insolvency proceedings or is soliciting votes for a pre-packaged bankruptcy;
- The tender offer cannot be financed with Senior Indebtedness2;
- Tenders must be permitted prior to expiration through guaranteed delivery procedures; and
- The issuer must announce the tender offer prior to 10:00 a.m. eastern on the first business day of the tender offer via a widely disseminated press release and must file the press release on a Current Report on Form 8-K prior to 12:00 p.m. eastern, if the issuer is an SEC reporting company.
Additionally, tender offers must be extended for a minimum of five business days if the consideration is changed and three business days for any other material changes in the offer (accompanied by qualifying press releases and 8-Ks).
There are several types of tender offers that will not be eligible for the abbreviated period. They include those being made (i) in anticipation of or in response to, or concurrently with, a change of control or other extraordinary transaction, (ii) in anticipation of or in response to other tenders for the issuer’s securities, (iii) concurrently with tender offers by the issuer for other debt securities that would add obligors, guarantors or collateral (or increase the priority of liens securing such debt) or shorten the weighted average life to maturity of such debt), or (iv) within ten business days after the announcement or consummation of a material acquisition or disposition.
The SEC’s new position is a welcome change that adapts to technological changes and market convention and provides additional flexibility to issuers that are looking to consummate tender offers or exchange offers for their outstanding debt securities.
1 Qualified Debt Securities are non-convertible debt securities that are identical in all material respects to the subject securities (other than maturity date, interest payment and record dates, redemption provisions and interest rate) and which have interest payable only in cash and have a weighted average life to maturity that is longer than the subject securities.
2 Senior Indebtedness is indebtedness that (i) has obligors, guarantors or collateral (or a higher priority with respect to collateral) that the subject securities do not have, (ii) has a weighted average life to maturity less than that of the subject securities or (iii) is otherwise senior in right of payment to the subject securities.