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THE TOUR
CONTINUES
Under old Route 1986, an ostensible seven calendar day tender offer period could be truncated to just one or two business days (!) as a result of securities intermediaries requiring beneficial holders to tender securities up to three business days prior to the expiration date. This common and unpopular market practice threw a monkey wrench into the ability of debt holders to reasonably participate in what was an already abbreviated tender offer period.
Route 2015 has come up with a nifty procedure that is guaranteed to contain that wrench-wielding market practice.
Offerors in Route 2015 exchange offers must permit holders to tender their subject debt securities at any time 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:
(1) such holder is tendering securities beneficially owned by it, and
(2) that the delivery of such securities will be made no later than the close of business on the second business day after the expiration of the offer.
This guaranteed delivery procedure, working in tandem with other features of Route 2015, will ensure that holders have right up until the expiration time on the last business day of the tender offer period to tender their subject debt securities. In its support letter to the SEC Staff, the Credit Roundtable has stated that if custodian banks and other intermediaries ceased imposing earlier tender deadlines, the Credit Roundtable " . . . would be willing to consider supporting a modification of the notice of guaranteed delivery procedures."
Change Happens.
Route 2015 "gets longer," in a manner of speaking, if any change in the terms of a shortened debt tender offer would cause the targeted debt holders to:
(1) receive different consideration than initially offered, or
(2) rubberneck and exclaim "Whoa! That's A Change!"
IWD Alert
Route 2015 requires an offeror to extend the debt tender offer period AND announce such extension no later than 10:00 a.m., Eastern time, on the first business day of the applicable extension period using the IWD protocol, i.e., via a press release through a widely disseminated news or wire service, as follows:
(1) in case of "any change in consideration offered," the tender offer period must be extended for five (5) business days from and including the day of IWD announcement of such extension, and
(2) in case of "any other material change in the offer," the tender offer period must be extended for three (3) business days from and including the day of IWD announcement of such extension.
Route 2015 does not require offerors to undertake any IWD + measures in connection with a five or three business day extension. As such, offerors are not required to:
(1) send out any email blast to holders who subscribed to the issuer's corporate action emails, or
(2) use any customary methods to expedite the dissemination of information concerning the extension to the holders.
Form 8-K Filings for Changes in Consideration
If there is any change in the consideration, then any issuer or offeror that is a reporting company under the Exchange Act (including a “voluntary filer”) must describe any change in the consideration being offered in a Current Report on Form 8-K (foreign private issuers can use Form 6-K) filed with the SEC prior to 12:00 noon, Eastern Time, on the first business day of the applicable five business day period.
It is important to note that this Form 8-K must actually describe the change in consideration and merely furnishing the IWD press release as an exhibit will not satisfy this requirement.
Under old Route 1986, issuers were not required to provide for "withdrawal rights." Debt holders who developed "tender remorse" after tendering their securities had no exit ramp that permitted them to withdraw their tendered securities from the tender offer.
(MUHAHAHAHA! THERE'S NO WAY OUT!) Scary!
Route 2015 does a lot of things right to ensure that debt holders are alerted about a shortened tender offer and have at least five business days to reasonably participate in such offer. Route 2015 attempts to go further by requiring offerors to provide certain withdrawal rights to permit participating holders to withdraw their tendered securities.
Route 2015 requires offerors to provide for withdrawal rights that are exercisable:
(1) at least until the earlier of (x) the expiration date of the offer, and (y) in the event that the offer is extended, the tenth (10th) business day after commencement of the offer, and
(2) if for any reason the offer has not been consummated within 60 business days after commencement of the offer, then at any time after such 60th business day.
In light of Route 2015's investor protection ethos, we expected that Route 2015 would require holders to be provided with mandatory withdrawal rights that are coterminous with the minimum Five Business Day tender offer period as it may be extended, on one or more occasions, either voluntarily by the offeror or in accordance with the mandatory five or three business day extension periods discussed above in Item 9. In such case, clause (1) above should have read along the lines of " . . . until the later of (x) the initial expiration date, and (y) in the event that the offer is extended on one or more occasions, the expiration date established as a result of the last such extension."
Therefore, we are puzzled that, in any case where an offer is extended, clause (1) above makes it mandatory for offerors to provide withdrawal rights to holders for only the first ten business days immediately following the commencement date of such offer. This is oddly disconnected from the possibility (which we concede will not occur frequently) that, for exigent or other reasons, even a shortened Five Business Day tender offer under Route 2015 might be extended more than once and, consequently, might have a new and final expiration date that is more than ten business days after the commencement date of such offer. Now, especially where an offer is extended because of a change in consideration or other material change, issuers can always choose to do the right thing and voluntarily provide coterminous withdrawal rights to holders . . . but they are not specifically "required" to do so by Route 2015!
We find the lack of "mandatory" coterminous withdrawal rights troubling in light of the fact that Route 2015 requires a mandatory extension of the tender offer period by (x) five business days if there any change in consideration or (y) three business days if there is any other material change in the terms of the offer. It seems to us only fair that holders of subject debt securities should have the right to withdraw any tendered securities at any time during the period that the tender offer remains open (similar to the requirement under Exchange Act Rule 13e-4 that applies only to equity securities, including convertible debt securities) if they find any change in consideration or any material change to terms of the tender / exchange offer to be unacceptable.
In fairness, we acknowledge that Regulation 14E itself does not provide for any mandatory withdrawal rights for holders. Prior to the adoption of Route 2015, it was market practice in traditional tender offers for straight debt securities to provide holders with limited withdrawal rights that typically expired after the first 10 business days of a full-blown 20 business day tender offer period. While being fully cognizant of these facts, we continue to feel that the failure of Route 2015 to provide mandatory coterminous withdrawal rights to holders might be a lost opportunity and is at odds with the investor protection ethos that otherwise pervades Route 2015.
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