Presentation to Morgan Stanley

Tender Offers, Exchange Offers,

Consent Solicitations and Exit
Consents

Eugene Lee, Lou Rabinowitz and Ben Carale

October 29, 2015
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Why do liability management exercises?

Reduce debt
Refinance expensive debt
Buy back cheap debt
Adjust bond covenants

Liability Management Options

Bond Repurchases

Redemption

Cash Tender Offer

Exchange Offer

Consent Solicitation

Bond Repurchases

Advantages:

Can be completed quickly

Little or no documentation is necessary

Considerations:

Are tender offer rules implicated? (see discussion below)

Are there any contractual restrictions on debt repurchases?
Are there tax consequences (i.e., cancellation of
indebtedness)?
Are insider trading rules breached?
Do repurchased bonds have voting rights?

Bond Repurchases

To Reduce Risk that Bond Repurchases would be

construed as a tender offer:

make repurchases separately over a meaningful period of time

offers to purchase should be made to a limited number of
holders (i.e., limited number of institutional holders)
repurchases should occur at different prices and on different
terms

Bond Redemption

What is the Non-Call Period?

Period of time during which the Issuer cannot redeem the

bonds, with limited exceptions
BUT: Does not prohibit open market purchases (see earlier
slides) or tender offers (see later slides)

Exceptions to the Non-Call Period:

1. Make-Whole Redemption

to allow Issuer to redeem notes during the Non-Call Period;

very expensive, based on the net present value of all interest
payments due up to the end of the Non-Call Period, discounted
using a discount rate equal to the treasury rate plus, most
typically, 50 bps

Bond Redemption

Exceptions to the Non-Call Period:

2. Optional Redemption

After the Non-Call Period ends, Issuer may redeem the notes at a
premium, which premium declines every year until the Issuer can
redeem the notes at par.
This period often starts on the fifth anniversary of the offer date in
a ten-year deal, or the fourth anniversary of the offer date in an
eight-year deal
The amounts are based on the pricing of the deal. In a 10-year
deal, the norm is 100% plus the coupon in year 6, reducing
ratably to par at the end of year 8. In an 8-year deal, the norm is
100% plus the coupon in year 5, reducing ratably to par at the
end of year 6.

Cash Tender Offer U.S. Tender Offer Rules

What is a tender offer?

no definition
U.S. courts an 8-factor test

active and widespread solicitation of holders;

solicitation involving a substantial percentage of the bonds;
offer represents a premium in excess of the current market price;
firm, rather than negotiable terms
contingent on a minimum principal amount of bonds being
tendered (and/or a maximum principal amount of bonds being
purchased);
offer open for only a limited period of time;
offerees under pressure to respond to the offer; and
public announcements of the acquisition program followed by a
rapid accumulation of large amounts of the companys bonds
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Cash Tender Offer U.S. Tender Offer Rules

If an offer is a tender offer, then Rule 14e-1 applies if

the offer is made in the U.S.

Rule 14e-1 requires that:

issues if the U.S. is excluded

a tender offer remain open for at least 20 business days

holders be paid promptly following completion of a tender
offergenerally within 5 business days
a tender offer be extended for 10 business days following any
increase or decrease in the tender offer consideration

Recent U.S. SEC No Action Letters reducing the

periods under certain conditions
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Cash Tender Offer U.S. Tender Offer Rules

Rule 14e-1 requires that (cont):

unlike a tender offer for equity securities (or convertible or

exchangeable securities), it is NOT mandatory to give
withdrawal rights, but it is market practice to give some
withdrawal rights
Some options:

right to withdraw up to expiration date

right to withdraw up to expiration date of the early tender offer
period
considering reinstating withdrawal rights when material changes
are made to the tender offer after withdrawal rights have
terminated

Cash Tender Offer U.S. Tender Offer Rules

Antifraud Provisions apply:

Rule 10b-5: prohibits any person from making any material

misstatement or omission or engaging in any fraudulent or
deceptive act in connection with the purchase or sale of any
security

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Cash Tender Offers

Parties involved

Issuer
Dealer manager (typically investment banks)
Bondholder identification agent
Information and tender agent
Tabulation agent
Legal counsel
Trustee

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Cash Tender Offers

Transaction Documents

Offer to purchase
Letter of transmittal
Dealer manager agreement
Agent appointment letters / agreements
Legal opinions
Indenture / Trust Deed documents

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Cash Tender Offers

Pricing

Fixed price

May include an early bird premium

Dutch auction or modified Dutch auction

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Exchange Offers

What are bond exchange offers?

Offers to exchange all or a substantial portion of the

outstanding bonds for new bonds

Accordingly, there is an issuance of a new bond for existing

bonds

requires offering documentation (and due diligence)

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Exchange Offers

Tender Offer rules apply (discussed earlier)

Types of bond exchange offers (private vs. public
offers):

Section 3(a)(9) exempt exchange offers

any security exchange by the issuer with its existing security

holders exclusively where no commission or other remuneration
is paid or given directly or indirectly for soliciting such exchange

Private Section 4(a)(2) exchange offers

Rule 144A
Regulation S
SEC-registered exchange offers

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Consent Solicitation

What is it?

Solicitation by the issuer of consents from holders to amend

certain terms of the bonds or to waive past defaults or future
compliance with certain covenants

Stand-alone consent solicitation

not coupled with a tender or exchange offer

binding on non-tendering holders if meet required conditions
bonds remain outstanding after the consent, with the modified
terms

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Consent Solicitation

Exit consents

combined with a tender or exchange offer: each tendering

holder will be deemed to have consented to the amendments
binding on non-tendering holders if meet required conditions
typically strips out all restrictive covenants and events of
default to the extent possible thus sometimes referred to as
coercive tenders strong inducement for holders to
participate since non-tendering holders will lose the protection
of the restrictive covenants

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Consent Solicitation

Typical Voting Thresholds under Bonds

NY-law governed bonds:

No consent required:

Unanimous consent

Cure ambiguity, defect or omission

Make changes beneficial to holders
Other changes not materially and adversely affecting holders
change fundamental terms
release guarantee/collateral

Majority consent

other changes not requiring unanimous consent

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Consent Solicitation

Typical Voting Thresholds under Bonds (cont)

English law governed:

No consent required:

90% to 100% consent

Cure ambiguity, defect or omission

Make changes beneficial to holders
Other changes not materially and adversely affecting holders
change fundamental terms / reserved matters

Majority consent (subject to quorum and voting requirements in

the trust deed)

other changes not considered fundamental changes or reserved

matters

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Consent Solicitation

Parties involved

Issuer
Solicitation agent (typically investment banks)
Bondholder identification agent
Information agent
Tabulation agent
Legal counsel
Trustee

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Consent Solicitation

Transaction Documents

Consent solicitation statements

Consent form
Solicitation agent agreement
Agent appointment letters / agreements
Legal opinions
Supplemental indenture / trust deed

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Consent Solicitation

Anglo Irish case

As a general principle, trust deeds confer a right on the

majority to bind the minority as to a forfeiture of the rights
conferred on them by the terms of the bonds

However, if the resolution constitutes a negative inducement

to deter bondholders from refusing a proffered exchange, it is
not lawful for the majority to aid in the coercion of a minority by
voting for a resolution which expropriates the minoritys rights
under their bonds for nominal consideration

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Liability Management

Questions?

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