discloseable and/or major transactions (unlikely, but will depend on the size of the buy-back). The bond buyback exercise, funded by bank loans, will only reduce SDHB's total debt by 1%-2% and trim its interest costs. Instruct a limited number of banks to make enquiries on your behalf. However, the position is different with bonds because they are negotiable instruments and (provided there is no prohibition in the contractual documentation) an issuer can buy back and hold its bonds before their maturity without any automatic cancellation/ extinguishment of the bonds bought back. as well. Keep a step ahead of your key competitors and benchmark against them. In some cases, for example where these trades are conducted in less liquid securities, even relatively small purchases of bonds could move prices, and activity should be monitored to assess the impact of open market repurchases on the trading price or value of such bonds to determine if a disclosure obligation may be necessary, including to the extent that trading activity by an issuer in its illiquid securities could give a false or misleading impression to the market of the value of those securities. the announcement of an acquisition program has been followed by a rapid accumulation of bonds. The general rule is that issuers must inform the public as soon as possible of inside information, which directly concerns the issuer or its securities. Become your target audience’s go-to resource for today’s hottest topics. Meanwhile, Deutsche Bank (DB) and Anglo American (AAL) have both announced multibillion-dollar bond buyback tenders. If you would like to learn how Lexology can drive your content marketing strategy forward, please email enquiries@lexology.com. We would recommend the following common-sense steps to try to ensure your bond repurchases would not be considered tender offers in disguise. Some practitioners in the market take the view that this '25%' rule may not necessarily apply to repurchases of debt securities, because the context and potential effect of a debt repurchase versus an equity repurchase are different. Remember, if shares in the issuer and/or the bonds are listed on a stock exchange, it will be necessary to ensure full compliance with any relevant stock exchange rules, including those relating to: In the case of convertible bonds, you should also check (where relevant) that the buy-back will constitute an ‘exempt share repurchase’ for the purposes of the Hong Kong SFC’s Code on Share Repurchases. Again, you need to look at the contractual documentation. The repurchase program should not be for the entire series of the notes or a substantial percentage (more on this below). As of June 30, 2016, 11 fallen angel companies had issued tender offers YTD (year-to-date), boosting their bonds’ prices by 5% on average between the day prior to and the day after the tender offer. "I would like to thank the SCCA for this excellent service! For example the issuer will use cash to repurchase bonds, and the following questions arise. This is also usually expressly stated in the offering memorandum related to issuance of the bonds. We believe that it can be a reasonable rule of thumb to follow for the purposes of determining the 'creeping tender offer' question. One benefit of bond repurchases is that they do not require legally mandated time periods (for example, tender offers for bonds in the US are, with limited exceptions, required to remain open for 20 business days) or offering documentation. Please contact customerservices@lexology.com. Questions? Under this test, your bond repurchase program could be seen to be a tender offer if at least some of the following statements about it are true: The factors are effectively an attempt to distil the traditional features of a tender offer—i.e., if it looks like a tender offer and smells like a tender offer, it is one. You should also confirm that your senior credit facility, if any, does not restrict or limit repurchases of other indebtedness. A bond repurchase, or bond buyback, refers to the process whereby the issuer approaches the open market and repurchases its bonds from holders. The issue is that when structuring your bond repurchase program, you must ensure that you are not conducting what is, under US securities law, essentially a tender offer by another name; otherwise, you would risk being in violation of US tender offer rules if your repurchase program targets US holders. If MAR does not apply to you as an issuer, a reference to the repurchase program should generally be made to bondholders in the next interim or annual report. It may go without saying, but when you approach the market and make repurchases, you should be aware that as you are offering to acquire debt, information unrelated to the buyback you may have about the company, its financial condition or operations or the course of its business could amount to non-public information that could be price sensitive. We note that the following "creeping tender" analysis is primarily relevant only in situations where bonds were initially sold into the US pursuant to Rule 144A or other exemptions. Although there are other liability management processes issuers can use to reduce their outstanding indebtedness (for example, a tender offer), repurchases are advantageous for issuers that wish to capitalise relatively quickly on a depressed market price for their bonds. Even small repurchases can, in some circumstances, be grouped together in a way that violates the tender offer rules. Prior results do not guarantee a similar outcome. Similarly, Genel Energy tendered an offer to buy back a $750-million issue that was trading at about half its face value. If the issuer wishes to borrow cash to fund the buyback, will that borrowing be permitted under any borrowing covenants binding on the issuer under the bonds or any of its other financings or other contractual documentation? Often circumstances will be very fact-specific, and so issuers should consult their financial and legal advisers before conducting open market repurchases to help navigate transactions and ensure compliance with such rules and regulations, breach of which can in some cases result in criminal liability. If the bonds are trading at less than their par value, issuers can use this tool opportunistically to acquire debt, which will both reduce overall interest expense and result in a P&L debt on any gain if the bonds are cancelled. FS market conduct: A look at market manipulation enforcement in the US, Hong Kong and Germany, Contact tracing apps in China, Hong Kong, Singapore, Japan, and South Korea, First-step analysis: restructuring & insolvency in Hong Kong, Convertible Bonds - An Issuer's Guide (Asia Edition), Bond Connect - The Fast and Furious Way to the China Interbank Bond Market, From Stock Connect to Bond Connect - The first northbound trading under Bond Connect launches today, High-Yield Bonds in Asia - The Complete Issuer's Guide (Second Edition), High Yield Bonds - An Issuer's Guide, 4th European Edition, how this needs to be done: most often this is permitted at any price, in the open market or otherwise – but there could be restrictions imposed on the method of purchase (eg by tender); and.

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