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guide legal services LatAm Exchange Offers by Ricardo M. Gonzalez, Partner, Mayer Brown LLP, and Jeffrey Susskind, Associate, Mayer Brown LLP any companies in Latin America are facing significant challenges in refinancing or servicing their outstanding debt, as well as complying with existing debt covenants. With little or no access to liquidity, these companies are increasingly looking to exchange offers as a viable, out-of-court restructuring alternative. Unlike other alternatives, such as cash tender offers and debt repurchases, exchange offers do not require issuers to use much needed cash. Recent examples of Latin American debt restructurings involving exchange offers include Cap Cana, S.A. (Dominican Republic), Transtel S.A. (Colombia) and Transportadora de Gas del Norte S.A. (Argentina). In an exchange offer, the issuer offers to exchange new securities for outstanding debt securities. The new securities may include different terms that offer relief to the issuer, such as reduced principal amounts and longer maturities, as well as terms that make the new securities attractive to holders of the outstanding debt, including new or additional security, higher priority and more restrictive covenants. Exchange offers are typically combined with “exit consents”, provided by exchanging securityholders, that eliminate most of the protective covenants in any debt securities that are not exchanged and remain outstanding following the exchange offer, thereby serving as an incentive for securityholders to exchange. Exchange offers are offerings of securities, and therefore any exchange offers made to U.S. securityholders must be registered with the SEC or qualify for an exemption from the registration requirements of U.S. securities laws. In addition, under the U.S. securities laws, exchange offers are a form of tender offer, and therefore exchange offers made to U.S. securityholders are subject to the applicable U.S. tender offer rules, including the requirement that the offer remain open for a minimum period of 20 business days. Importantly, different rules apply to convertible, as compared to non-convertible debt securities. There are three principal types of exchange offers: • Section 3(a)(9) Exchange Offers. Section 3(a)(9) of the U.S. Securities Act of 1933, as amended (the “Securities Act”), provides an exemption from registration under the Securities Act for securities issued to existing securityholders, subject to certain conditions, including that no compensation be paid for soliciting the exchange and no additional consideration be received from existing securityholders. In a Section 3(a)(9) exchange offer, the indenture must nevertheless be qualified under the Trust Indenture Act of 1939, which requires a filing to be made with the SEC. While this type of exchange offer is relatively quick and less expensive than a registered exchange offer, the prohibition on payments to a solicitation agent for securing exchanges may be a significant impediment to the M completion of a successful exchange offer. • Private Exchange Offers. If the exchange offer is for debt securities that were initially sold in a private placement or Rule 144A/Regulation S offering, the issuer may issue the exchange securities pursuant to a private placement that avoids the need to register the exchange offer with the SEC. Private exchange offers are typically limited to qualified institutional buyers, or “QIBs,” and non-U.S. persons. This type of exchange offer is also relatively quick and less expensive than a registered exchange offer. • Registered Exchange Offers. If no exemption from registration is available for the exchange offer, the issuer must file a registration statement with the SEC, including information regarding the terms of the exchange offer as well as information about the issuer and its business. The SEC may elect to review the registration statement, which could have serious timing implications. Given the significant time and expense generally associated with a registered exchange offer, as well as additional liability relating to the registration statement under the U.S. securities laws, this type of exchange offer is typically used in cases where the debt securities are widely held by the public. While exchange offers are relatively efficient transactions, “holdout” securityholders may refuse to participate in an exchange offer because they may be left in a better position holding the old debt securities following the exchange offer — even though such securities may be stripped of protective covenants. Sizable holdout groups may prevent the consummation of an exchange offer because high minimum exchange conditions (above 90%) are generally required by exchanging securityholders, who want to limit the number of holdouts that could benefit from their actions, as well as issuers that do not wish to consummate an exchange offer if large amounts of old debt will remain outstanding. In addition, Latin American issuers need to consider applicable local rules and regulations, as well as the rules of any stock exchanges on which their securities may be listed. In particular, securities regulators in a company’s home country often impose disclosure and other requirements on tender offers for any security of a public company, and such requirements should be reviewed with local counsel. n Mayer Brown Ricardo M. Gonzalez Email: rmgonzalez@mayerbrown.com Jeffrey Susskind Email: jsusskind@mayerbrown.com Phone: +55 11 2167 4850 Fax: +55 11 2167 4851 72 LatinFinance September/October 2009

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009