The CNV proposes conditions for exchanges of privately placed debt for publicly offered debt



On July 27, 2020, the Argentine Securities Commission (the “CNV” in its Spanish acronym) issued General Resolution No. 849/2020 (the “Resolution”) whereby it called for a public consultation regarding a regulation proposal for exchanges of privately placed debt for publicly offered debt, as well as some changes with respect to the term of dissemination and bidding of securities.

1. Refinancing of private debt by means of exchanges or payment-in-kind

The Resolution proposes a series of conditions in order to consider that the public offer requirement for new notes (obligaciones negociables) issued within debt exchanges has been fulfilled, which would make such newly issued notes eligible for the tax benefits set forth in the Corporate Notes Law No. 23,576 (as amended).

According to the Resolution, in cases of debt refinancing where exchanges or payment in kind of newly issued notes with privately issued notes and/or preexisting credits is offered, the placement by public offer requirement will be deemed fulfilled when the new issuance is underwritten as follows:

(i) In kind, as long as it does not exceed 30% of the total amount to be placed; and

(ii) in cash, the remaining 70%, as long as the issuance is underwritten and paid by individuals or legal entities that are different from those participating in the exchange and are domiciled in Argentina or in countries that are not included in the list of non-cooperative jurisdictions for the purposes of tax transparency.

The Resolution also provides a series of requirements that shall be met in order to prove the ownership of the credits to be paid in kind and the truthfulness of the debt.

We believe it will be wise for the Resolution to increase the 30% threshold proposed for payments in kind, considering the undesirable effect that would imply artificially increasing the debt of the issuers.

2. Public offering requirement

According to the CNV's proposal regarding the refinancing of private debt, the Resolution suggests to eliminate the provisions of Article 3, Section I, Chapter IV, Title VI of the CNV's Regulations, by virtue of which it was established that in cases of business debts refinancing, the public offering requirement was considered fulfilled when the underwriters of the new issuance are holders of the notes subject to an exchange.

However, such rule is provided for cases of exchanges placed by public offer and, therefore, it should remain in force since otherwise there would be a regulatory loophole in the matter that could cause confusion regarding eligibility for tax benefits in such cases.

In this sense, although the Resolution does not propose to revoke the Interpretative Criteria No. 17, 18 and 19, by virtue of which the CNV established that the tax benefits of securities placed by public offering extend to the new marketable securities that are issued pursuant to an exchange, as long as the issuance is underwritten by holders of the marketable securities under an exchange, the suppression of said rule could lead to the interpretation that said interpretative criteria are no longer in force and that the private debt exchange procedure set forth in the Resolution must be complied with, which would not be reasonable.

3. Reduction of the dissemination term

In order to make it easier for issuers to take advantage of available market windows more efficiently and, in line with recent issuance precedents, the Resolution proposes to reduce the dissemination term to one (1) business day in the case of individual issuances or series under an authorized program under the general public offering regime that are aimed exclusively at qualified investors

Likewise, the Resolution provides that when the issuer is registered in the Frequent Issuer regime, the dissemination and bidding term may be reduced to one (1) business day, except that it is an issuance intended to refinance debts through an exchange or payment in kind. However, it does not include any similar provision regarding individual issuances or series under a program authorized by the CNV.

The Resolution sets forth a fifteen-business-day term counted as from the last publication in the Official Gazette, which will take place on July 28, 2020, in order to send suggestions for changes and/or modifications.

1 According to the CNV Rules, the following subjects are considered to be a qualified investor: (i) the National State, the Provinces and Municipalities, Autonomous Entities, State Corporations and Partnerships and State Companies; (ii) international organizations and legal entities governed by public law; (iii) Public Trust Funds; (iv) the National Social Security Administration - Sustainability Guarantee Fund; (v) pension funds; (vi) public and private banks and financial entities; (vi) mutual investment funds; (vii) Financial Trusts with public offering; (viii) Insurance, Reinsurance and Work Risk Insurance Companies; (ix) Mutual Guarantee Corporations; (x) legal entities registered by the CNV as agents, when acting on their own behalf; (xi) individuals who are permanently registered in the Registry of Qualified Persons of the CNV; (xii) individuals or legal entities, other than those mentioned in the preceding items, who at the time of making the investment have investments in marketable securities and/or deposits in financial entities for an amount equivalent to 350,000 UVA; and (xiii) legal entities incorporated abroad and individuals domiciled abroad.

Should you require further information, do not hesitate to contact María Victoria Funes, Fermín Caride, María Victoria Tuculet and/or Luciano Zanutto.