SEC Division of Corporation Finance no-action letter: Section 3(a)(9) Upstream Guarantees

Securities Act of 1933
Section 3(a)(9)
January 12, 2010
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Re. Availability of Section 3(a)(9) for exchanges of parent securities with “upstream” subsidiary guarantees Ladies and Gentlemen:
We hereby request that the staff of the Division of Corporation Finance (the “Staff”) concur with our opinion that Section 3(a)(9) of the Securities Act of 1933 (the “Securities Act”) would be available (assuming no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange within the meaning of
Section 3(a)(9)) for the issuance of a security (without any guarantee) in exchange for an
outstanding security that is fully and unconditionally guaranteed by one or more of the issuer’s 100%-owned subsidiaries (as defined in Rule 3-10 of Regulation S-X). In the alternative we request that you advise us that the Staff will not recommend any enforcement action to the Securities and Exchange Commission if an issuer were to effect such an exchange in reliance upon Section 3(a)(9). The availability of Section 3(a)(9) for such exchanges presents itself on a regular basis typically in one of the two following fact patterns:

• Convertible notes. Convertible securities are frequently issued with
  guarantees by one or more of the issuer’s 100%-owned subsidiaries.
  These convertible securities are typically debt securities of the parent that are convertible at the option of the holder into common stock of the parent. The subsidiary guarantees are included to protect the convertible note holder against structural subordination to claims of the subsidiaries’ creditors. The subsidiary guarantees play an integral role in defining the effective seniority of the convertible notes.
• Exchange offers. As a result of the recent financial crisis, there has been
  a significant increase in the number of exchange offers by issuers seeking to delever and equitize their balance sheets. These exchange offers (NY) 98401/675/PRIVATE/MISC09/no-action.rev2.doc