Question
From:
(redacted)
Sent:
Wednesday, May 07,20084:10 PM
To:
Verne, B. Michael
Cc:
(redacted)
Subject: Section802.63
Mike;
Thanks for takingthe time to speak to us this afternoon. The following is to confirm ourconversation and your view that the acquisition of equity by the existing bondholdersin connection with the debt work-out arrangement that we described qualifiesfor exemption under Section 802.63 of the HSR Rules as a bona fide debt workoutmade by a creditor in a bona fide credit transaction in the ordinary course ofthe creditor's business.
As I explained:
Creditor andexisting debtors are in discussions regarding a debt work-out arrangement forcreditors' existing debt and to provide additional funding. Several months ago,creditor announced an exchange offer relating to outstanding notes but theoffer was not successful. Discussions regarding the current debt work-outarrangement began thereafter. Neither the creditor or debt holders haveannounced an intention to file for or force a filing for reorganization orbankruptcy. The parties do, however, contemplate that the work-out will be.done under the provisions of the Companies' Creditors Arrangement Act ofCanada (the "CCAA") or the Canada Business
Corporation Act(the "CBCA") and thus executed via a court proceeding.
The debtinstruments held by the creditors are bonds which were issued pursuant to anindenture and are by their very nature liquid instruments that are regularlytraded in the debt market between qualified institutional buyers.
It is contemplatedthat the debt work-out will involve an exchange by existing bondholders ofexisting debt for equity (approximately 85% of the debtor's equity). The 85%equity will be allocated as follows: (i) 58% to all existing bondholders, and(ii) 27% to existing bondholders participating in a $200 million debt financingdesigned to secure the liquidity of the debtor and thereby protect the existingbondholders. In addition, certain existing bondholders backstopping the newdebt will receive 11 % of debtor's equity, (8.5% to the backstop parties and2.5% to other existing note holders who agree to buy notes by an early date).All the equity distributed to bondholders, regardless of allocation, will beissued in the context of the overall debt work-out arrangement.
On the basis ofthese facts you advised that the exchange by the existing bond holders for equityin the context of the debt work-out arrangement as described qualify forexemption under Section 802.63. The exemption extends to equity acquired inexchange for existing debt, additional equity acquired in the exchange byexisting bondholders participating in a new debt financing for the debtor andequity acquired by those bondholders serving as backstops for the newfinancing.
In addition, youagain confirmed that Interpretation 225 in the Fourth Edition of the PremergerNotification Practice Manual reflects the PNO's current position regarding theapplication of Section 802.63 to the exchange of debt for equity in abankruptcy proceeding, confirming that the exchange by creditors, who acquiredebt prior to a public announcement of an intent to file for bankruptcy,qualify for Section 802.63 exemption when the exchange takes place inconnection with a bona fide debt work-out or foreclosure. You further confirmedthat the test applicable to so-called "Vulture Funds" is based onwhether debt is acquired pre-or post announcement of an intention to file forbankruptcy and not on the intent of the creditor at the time debt is acquired.
We also discussedthe application of Section 801.15(a) to the acquisition of voting securitiesthat qualify for the Section 802.63 exemption. You confirmed that votingsecurities acquired that qualify for the Section 803.63 exemption are not heldfor purposes of the determining the aggregate amount of voting securities thata person holds for purposes of the HSR Act.
Lastly, youconfirmed that the advice provided does not extend to debt holders who acquiredebt of the creditor after its intention to file for reorganization orbankruptcy is publicly announced. Please let me know if the above doesaccurately reflect our discussion and your views on the issues. With kindregards,