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On January 23, 2015, a gleaming new No-Action Letter rolled out of the SEC Staff's office and heralded the beginning of a new era in U.S. debt tender offer reform.
This is no ordinary No-Action Letter.
This "Route 2015" No-action Letter is a celebration of cogitation, collaboration and compromise. Its provisions and guidelines were conceived, designed, modeled, remodeled, then . . . let's see . . . remodeled some more and finally assembled by a remarkable high-powered working group starring representatives of: (1) the SEC Staff and the SEC's Office of Mergers and Acquisitions, (2) the Credit Roundtable, (3) leading Wall Street investment banks, and (4) 18 leading U.S. law firms whose clients includes issuers and investment banks. The underlying no-action request letter was signed by 28 lawyers. Somewhere in here is fodder for a terrific "How many lawyers does it take to . . . ?" jest. But, we won't go there.
Let's get one thing out of the way. Route 1986 has been decommissioned going forward and will not apply to any debt tender offer commenced after January 23, 2015. In the Route 2015 No-Action Letter, the SEC Staff has stated that the Route 1986 No-Action Letters are "superseded" by their new 2015 no-action position and that none of such old letters " . . . should be taken to express the Division's position with respect to tender offers commencing after the date hereof [January 23, 2015]." RIP Route 1986 - we will watch you recede in our rear view mirror.
Join us in a drive down Route 2015. We will stop and appreciate each of its new "sights," and "fixes" that smooth over the uncertain potholes (See "DUDE, Where's My Reasonable Participation?" on previous page) that made Route 1986 a bumpy and uncomfortable ride for issuers and debt investors.
Route 2015 discards the nearly 30-year old distinction ingrained in Route 1986 between e̶l̶i̶t̶e̶ investment-grade and j̶u̶n̶k̶y̶ non-investment-grade debt securities.
A Route 2015 shortened tender offer can be made for any and all (no partial or "waterfall" offers are permitted similar to Route 1986) of a class or series of non-convertible debt securities, regardless of any particular rating assigned thereto by any nationally recognized statistical rating organization.
This is a Big Deal folks!
For the first time ever, non-convertible high-yield debt securities can be the subject of qualifying shortened debt tender offers under Route 2015 on an equal footing with non-convertible investment-grade securities. The impetus for eliminating this distinction was the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") in 2010 to strengthen the U.S. financial regulatory system in the wake of the Great Recession. The ignominious role that credit ratings played in the worst financial crisis since the Great Depression came in for blistering criticism by the U.S. Congress in Section 431 of the Dodd-Frank Act which states: "In the recent financial crisis, the ratings on structured financial products have proven to be inaccurate. This inaccuracy contributed significantly to the mismanagement of risks by financial institutions and investors, which in turn adversely impacted the health of the economy in the United States and around the world. Such inaccuracy necessitates increased accountability on the part of credit rating agencies."
It is no wonder that, in Section 939A of the Dodd-Frank Act, Congress directed all Federal regulatory agencies, including the SEC, to amend their regulations to remove any reference to, or reliance on, credit ratings and to create a standard for determining credit worthiness as such agency determined as appropriate for such regulations. When they adopted Route 2015, the SEC Staff dutifully followed the mandate of the Dodd-Frank Act and eliminated the distinction between investment-grade and high-yield securities for purposes of Route 2015.
The uncertain seven to ten calendar construct of Route 1986 that caused widespread discontent has been left in the dust.
Route 2015's signature accomplishment is to require all "shortened" debt tender offers to remain open for at least Five (5) Business Days.
Just what the doctor ordered!
This clear and specific requirement will apply to all shortened debt tender offers under Route 2015. We are pleased and excited that this Five Business Day requirement will usher in the "Age of Egalitarian Reasonable Participation" in debt tender offer land when combined with Route 2015's other new requirements discussed in detail below, including:
(1) "immediate widespread dissemination" of a press release announcing the launch of the Route 2015 offer no later than 10:00 a.m., Eastern time, on the first day of the Five Business Day tender offer period (that we are calling "IWD"),
(2) vigorous "multi-channel" publicizing of the debt tender offer (that we are calling "IWD +"),
(3) real time online availability of tender offer documents, and
(4) requirement that the offer remain open until at least 5:00 p.m., Eastern time, on the last day of the five business day tender offer period (or the last day of any extended offer period).
In an enthusiastic letter of support to the SEC Staff urging adoption of Route 2015, the Credit Roundtable stated that the minimum Five Business Day tender offer period " . . . provides more certainty with respect to the amount of time that investors and money managers have to respond to offers, since the period does not count holidays and weekends." Certainty, my friends, is the elixir of financial markets.
Bottom line, Route 2015's minimum Five Business Day tender offer period is a victory of common sense (Business on Business Days, People!) over the ad hoc "laissez-faire sense" that was possible under Route 1986's reign.
Third parties don't have a license to drive on Route 2015.
In addition to the issuer of the subject debt securities, the affiliates of the issuer shown on the corporate chart to the left are permitted to be offerors in a Route 2015 shortened debt tender offer for the issuer's outstanding debt securities.
As we will get to in more detail below, Route 2015 permits, for the first time "Qualified Debt Securities" to be offered in exchange (alone or in combination with cold hard cash) for the subject debt securities.
If a Route 2015 exchange offer is conducted under the exemption from registration provided under Section 3(a)(9) of the Securities Act of 1933, then, notwithstanding "permitted issuer" provisions of Route 2015, the "same issuer" requirements of Section 3(a)(9) must be carefully considered and complied with.
The "flying under the radar" days of debt tender offers have been shot out of the sky. Route 2015 has installed state-of-the-art "IWD Systems" to ensure that debt investors (at least all those who haven't made their habitat under a rock) are alerted right away to the launch of a shortened debt tender offer and have reasonably sufficient time to respond. This will increase the likelihood of a successful tender offer, which is good for all concerned.
Joining stealth launches in the dustbin of history is the nocturnal practice of issuers chewing up the purported "first day" of old Route 1986 debt tender offers by delivering docs to DTC a few minutes before midnight! Route 2015 bans such night time driving and ensures that shortened debt tenders offers are launched when the Sun is Shining on the East Coast of these United States of America!
Route 2015's IWD System requires that every shortened debt tender offer must be announced via a press release through a widely disseminated news or wire service at or prior to 10:00 a.m., Eastern time, on the first business day of the Five Business Day tender offer period.
This 10:00 a.m. deadline is not be trifled with!
Its purpose is to ensure that debt investors get "full" five business days in considering the tender offer. If the offeror misses the 10:00 a.m. Eastern time deadline, then the publication date will not count and the next succeeding business day will inaugurate the Five Business Day tender offer period.
At a minimum, the IWD press release must (1) disclose the "basic terms" of the offer, including the items listed on the press release graphic, and (2) contain an "active hyperlink" (don't bother with them inactive hyperlinks!) or an internet address at which a holder can obtain the tender offer documents. In addition, depending on other features of the offer discussed later in this publication, including any benchmark pricing of any portion of the consideration or offer of "Qualified Debt Securities" in exchange for the subject debt securities, the IWD press release is required to contain other important information and announcements. Look for the IWD symbol for special IWD Alerts throughout the rest of this publication.
To maximize reasonable participation by holders, Route 2015 requires offerors to go the extra mile and employ a multi-channel disclosure approach to get the IWD press release and other tender offer information into the hands of holders.
To distinguish the additional disclosure steps from the base IWD requirement described above, we are calling the following additional steps:
Route 2015 requires all offerors of shortened debt tender offers to take the additional disclosure steps described below in addition to complying with the base IWD press release publication requirement.
Any offeror in a shortened debt tender offer must use "commercially reasonable efforts" to send the IWD press release via email or other electronic communication to "all investors who subscribe to one or more corporate action e-mails or similar lists." A corporate action is any event that will result in a material change to a company and affect its stakeholders, including equity holders as well as debt holders. Stock splits, dividends, mergers, acquisitions and spinoffs are all examples of corporate actions.
The Route 2015 No-Action Letter does not specify a deadline for sending this email blast or other electronic communication. We would advise that offeror "hit the send button" contemporaneously with the publication of the IWD press release or as soon as possible after such publication on the first day of the Five Business Day tender offer period.
The "commercially reasonable efforts" standard that qualifies an offeror's requirement to send out an email blast about a shortened debt tender offer to debt investors who presumably already "subscribe to one or more corporate email or similar lists" is a head-scratcher. If an offeror already has a list of debt investors who receive its other corporate action emails, then one wonders what circumstances would make it "commercially unreasonable" to send that same group of investors an email about the launch of a shortened debt tender offer. On the other hand, it is unclear as to what obligations, if any, attach to an offeror, especially a non-public company, that does have any corporate action email list of debt investors or has only an incomplete list. We would like to see specific guidance on this requirement, including the consequences of non-compliance, from the SEC Staff.
An offeror in a shortened debt tender offer must use "other customary methods" to expedite the dissemination of information concerning the tender offer to beneficial holders of the subject debt securities. Customary? This seems like another missed opportunity to provide somewhat uniform guidelines for issuers on WHAT methods ought to be used to expedite the disseminaiton of such information.
Given that Route 2015 was drafted by an extraordinarily diverse committee, we are guessing that this lack of specificity was the path of least resistance in finalizing the overall Route 2015 No-Action Letter. Well, we sound another lurking grey area alert!
If the issuer or the offeror is a reporting company under the Exchange Act (including “voluntary filers”), then such reporting company must furnish the IWD press release in a Current Report on Form 8-K (foreign private issuers must use Form 6-K) filed with the SEC prior to 12:00 noon, Eastern time, on the first business day of the Five Business Day tender offer period.
This deadline for furnishing the IWD press release a Form 8-K filed no later than 12:00 noon, Eastern time, on the first business day is another important 2015 requirement that offerors must diligently comply with or risk extending the debt tender offer by an extra business day.
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