On January 23, 2015, the Securities and Exchange Commission (SEC) Staff issued a no-action letter that would allow issuers to conduct tender offers for their nonconvertible debt securities in a period of only five business days, subject to certain limitations described below.

Although Rule 14e-1(a) of the Securities Exchange Act of 1934 generally requires a minimum offer period of 20 business days for all tender offers (debt or equity), the SEC Staff issued a series of no-action letters from 1986 to 1990 that provided relief from this 20-business-day requirement in the context of certain issuer debt tender offers. Specifically, the SEC Staff granted no-action relief for issuer tender offers for investment-grade, nonconvertible debt securities that are held open for a period of seven to 10 calendar days, assuming certain other qualifications were met.

As indicated in this recent no-action letter (which supersedes the prior no-action letters), the SEC Staff will not recommend any enforcement action against an offeror that conducts a tender offer for any nonconvertible debt securities for a period of only five business days if certain conditions are met. Importantly, the type of nonconvertible debt securities that may qualify for the shortened five-business-day period is not restricted on the basis of any particular rating assigned by a credit rating agency, so issuers of high-yield debt securities and investment-grade debt securities will both be able to benefit on the same terms and conditions. Included in the specified conditions are the following:

• The securities must be nonconvertible debt securities.
• The tender offer must be made by the issuer of the subject debt securities, a directly or indirectly wholly owned subsidiary of such issuer, or a parent company that directly or indirectly owns 100 percent of the capital stock of such issuer.
• The tender offer must be open to all record and beneficial owners of such debt securities (subject to certain requirements with respect to __________ (QIBs) and/or non-U.S. persons as defined under Reg S).
• The tender offer must be announced via a press release through a widely disseminated news or wire service.
• The tender offer must be for any and all debt securities, not a partial tender offer.
• The consideration offered must be cash and/or nonconvertible debt securities that are identical in all material respects to the securities being tendered (other than with respect to maturity date, interest payment and record dates, redemption provisions and interest rate), but the new debt securities must be cash-pay interest and have a longer weighted average life to maturity.
• The consideration in the tender offer cannot be financed with proceeds from any new indebtedness that is contractually or structurally senior (whether by way of lien priority or changes to obligors).
• The tender offer may not be made in connection with a solicitation of consents to amend the indenture or the subject debt securities.
• The tender offer may not be made if a default or event of default exists under the indenture for the subject debt securities or under any other indenture or material credit agreement to which the issuer is a party. The issuer must not be subject to bankruptcy or insolvency proceedings, must not have commenced a solicitation of consents for a “prepackaged” bankruptcy proceeding and must not have had its board authorize discussions with any creditors for a consensual out-of-court restructuring of the issuer’s outstanding debt.
• Within 10 business days prior to the commencement of the tender offer, the issuer has not made a public announcement or closed any purchase, sale or transfer of a material business or amount of assets that would require pro forma financial information pursuant to Article 11 of Regulation S-X (whether or not the issuer is an SEC filer).
• The issuer must provide for certain withdrawal rights (even though withdrawal rights are not statutorily required under Rule 14e-1).
• The tender offer must be open for at least (i) five business days from and including the date of the announcement of any change in the consideration offered and (ii) three business days from and including the date of the announcement of any material change in the offer (other than a change in the consideration offered).

Debt tender offers are often used to refinance high-interest-rate debt securities with a new issue of lower-interest-rate debt securities. During favorable market conditions, issuers may also use debt tender offers to refinance short-term debt securities with debt securities having a longer maturity. A shorter offering period is important for these types of refinancing transactions because it lessens potential exposure to changing market conditions. Also, the ability to refinance quickly helps issuers avoid having to pay “double interest”—interest on both the newly issued debt and the outstanding debt that has yet to be purchased in the tender offer.

In practice, we expect that the shorter five-business-day offering window will be a benefit that healthy issuers of high-yield debt securities will take advantage of when refinancing their debt. However, we expect that issuers of high-yield debt securities that are trading at or near distressed levels will be unlikely or unwilling to satisfy the conditions for the shorter five-business-day tender offer period.

The SEC will continue to monitor developments in tender and exchange offers for nonconvertible debt securities and may reconsider its position in the no-action letter.