This is is an interesting Corp Fin no-action letter. It’s novel, but only in that this issue rarely comes up. The issuer here – PMI – was apparently required, pursuant to the terms of the indenture for the debt securities at issue to make an offer to repurchase the debt (this is sometimes called a put option tender offer which is fairly common) at the same time that it was doing an exchange offer for the same class of debt securities.
The purpose of the exchange offer is to include a “net share settlement” feature in the indenture. Many issuers have been going back and amending their existing contingent convertible debt securities to include a net share settlement feature (which gives the issuer the right to settle a conversion demand in cash instead of stock) in order to gain better accounting treatment. In short, if the convertible debt security has a net share settlement feature then the issuer does not have to treat the debt on a fully converted basis for financial reporting purposes and EPS calculations.
All of this is purely for background. What is interesting here is that these two events (two tender offers) are occurring simultaneously. Sullivan & Cromwell submitted the no-action request seeking relief from the applicable tender offer provisions (Regulation 14E and Rule 13e-4) that prohibit a purchase outside a tender offer. Here the staff granted the relief requested because apparently the put option was under water, making it unlikely that any holder would tender the debt securities in the put option tender offer.
So the SEC Staff got comfortable that the only offer likely to receive tenders was the exchange offer where a holder of existing debt securities would tender and get a slightly different debt security back (one with the net share settlement feature) plus some nominal cash. Thanks to Jim Moloney for his perspective!