SEC Permits Abbreviated Tender and Exchange Offers for Non-Convertible High-Yield and Investment-Grade Debt Securities

On January 23, 2015, the Securities and Exchange Commission responded to a request submitted by a consortium of law firms, including Jones Day, representing a diverse group of issuers, investment banks, and investors, by issuing a no-action letter indicating that it would not recommend SEC enforcement action in connection with a tender offer or exchange offer for non-convertible debt securities that is held open for as few as five business days, if the offer is conducted in accordance with certain enumerated conditions. This action by the SEC will permit many issuers to engage in more efficient refinancing transactions, and to minimize the amount of increased interest expense that issuers often have had to incur in connection with refinancings of debt securities, due to the length of time they have been required to keep tender and exchange offers open.

The SEC's Regulation 14E, which governs tender offers for securities, requires that all tender offers remain open for a period of at least 20 business days in order to afford investors with sufficient time to make a decision as to whether to participate in the offer. Investors in debt securities are often more sophisticated institutional investors, however, and the decision to participate in a tender offer for debt securities often is different in nature from the decision to participate in a tender offer for equity securities. In recognition of those facts, the SEC issued a series of no-action letters beginning in 1986 providing relief from the 20-business-day requirement in the context of certain tender offers involving investment-grade debt securities. 

This most recent SEC no-action letter (which supersedes the prior letters) eliminates the distinction between investment-grade and other debt securities and permits debt tender offers (including tender offers conducted in the context of certain exchange offers) to be held open for as few as five business days if certain conditions are satisfied. The significant conditions include: 

• The offer must be made available to all holders of the debt securities and for all of the outstanding securities.
• The offer must be made by the issuer of the debt securities or a parent or subsidiary of the issuer. Consequently, third parties tendering for debt securities of an issuer will not be permitted to avail themselves of the shortened tender period.
• The offer must be made solely for cash or other so-called qualified debt securities, which is defined as securities that are materially identical to the securities that are the subject of the tender offer.
• The consideration offered in the tender offer must be fixed or based on a benchmark spread.
• The offer cannot be combined with an exit consent to amend or eliminate covenants or otherwise to amend the provisions of the indenture or the debt securities. 

Although the no-action letter provides for a number of accommodations, it will not be available in the context of most restructuring or reorganization transactions. In addition, the no-action letter limits the type of debt that may be used to finance the tender offer. Finally, the issuer must follow certain public announcement and Form 8-K filing requirements. Notwithstanding the conditions to issuers availing themselves of the benefits of this SEC no-action letter, the position of the SEC set forth in the no-action letter will nonetheless afford many issuers with a more efficient mechanism for tendering for existing debt securities.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com.

Ian B. Blumenstein
New York / Boston
+1.212.326.3843 / +1.617.449.6893
iblumenstein@jonesday.com

Marie Elena Angulo
Miami / London
+1.305.714.9705 / +44.20.7039.5246
mangulo@jonesday.com

Charles T. Haag
Dallas
+1.214.969.5148
chaag@jonesday.com

J. Eric Maki
New York
+1.212.326.3780
emaki@jonesday.com

Joel T. May
Atlanta
+1.404.581.8967
jtmay@jonesday.com

W. Stuart Ogg
Los Angeles
+1.213.243.2365
sogg@jonesday.com

John T. Owen
New York
+1.212.326.7874
jtowen@jonesday.com

Kimberly J. Pustulka
Cleveland
+1.216.586.7002
kjpustulka@jonesday.com

Edward B. Winslow
Chicago
+1.312.269.4223
ebwinslow@jonesday.com

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