Securities Law Considerations In Cross-Border Restructurings

Non-U.S. companies in the process of restructuring debt that includes one or more series of U.S. bonds must ensure that their restructuring plan and any securities issued as part of such plan comply with the requirements of U.S. securities law, in particular the registration requirements of the U.S. Securities Act of 1933 ("Securities Act").

This Commentary discusses the registration requirements under the Securities Act along with the more common exemptions relied upon when new unregistered securities are issued as part of a restructuring plan. A less frequently used exemption, Section 3(a)(10) of the Securities Act, and a proposed course to satisfy the requirements of this exemption, are also explained.

U.S. Securities Law Considerations

It is fairly common for a company seeking to restructure its U.S. bonds to replace the existing bond with a new bond (normally through an exchange offer) or with new stock in the company. However, because the restructuring plan involves the offering of new securities, it must either comply with the registration requirements of Section 5 of the Securities Act or satisfy the requirements of an exemption from registration.

Section 5 requires an issuer to register with the U.S. Securities and Exchange Commission ("SEC") all offers and sales of its securities, unless the security to be issued is exempt from registration pursuant to Section 3 of the Securities Act, or the transaction is structured to satisfy the requirements of certain transactional exemptions available under Section 4 of the Securities Act or the rules promulgated under such Act. The registration process can be both time-consuming and costly, and it is often inconsistent with the fundamental objective of putting into place an efficient restructuring that does little or nothing to impair the value of the underlying business.

There are exemptions available for issuing securities in a cross-border restructuring without submitting to the SEC registration process. In this context, the most commonly used exemptions are the private placement exemption (provided by Section 4(a)(2) of the Securities Act) and the single-issuer exchange offer exemption (provided by Section 3(a)(9) of the Securities Act).1

The Private Placement Exemption—Section 4(a)(2)

Known as the "private placement" exemption, Section 4(a)(2) exempts transactions that do not involve a public offering or distribution. A second requirement of this exemption is that there cannot be any...