On January 23, the Securities and Exchange Commission’s Division of Corporate Finance issued a no-action letter (New Letter) that (1) substantially revises prior guidance relating to debt tender offers and (2) expands the guidance to cover certain debt exchange offers, effective immediately.

The SEC previously permitted tender offer periods of less than 20 business days, as required by Rule 14e-1(a) under the Securities Exchange Act of 1934, but solely in respect of cash tender offers for non-convertible investment grade debt securities. Subject to the satisfaction of certain conditions outlined herein, the New Letter permits an offeror to conduct a tender offer for non-convertible debt securities (irrespective of investment grade ratings) for five business days, and for cash and/or “Qualified Debt Securities”(i.e., non-convertible debt securities that are identical in all material respects to the targeted debt securities, except for the maturity date, interest payment and record dates, redemption provisions, and interest rate provided that such securities have (1) interest payable only in cash and (2) a weighted average life to maturity that is longer than the targeted debt securities). In order to qualify for the abbreviated five-business-day offer period, a tender offer must satisfy various criteria, including as to the targeted securities, the offeror and the consideration offered, and must comply with specified procedural requirements. 

By eliminating the requirement that the targeted securities be investment grade and permitting issuers with an exchange offer alternative, the New Letter should offer issuers flexibility and facilitate the ability of existing debt holders to roll all or part of their investment into new debt securities. However, the opportunities for issuers to refinance current debt pursuant to such an exchange offer may be limited, given that the typical practice of soliciting consents to eliminate restrictive covenants is not permitted pursuant to the New Letter.

Click here for a copy of the New Letter.