Hunton & Williams LLP Advises on Dutch Auction Debt-for-Debt Exchange

NEW YORK — October 23, 2012 — Lawyers in Hunton & Williams LLP's power and energy capital markets group recently advised the dealer manager, J.P. Morgan, in a groundbreaking debt-for-debt exchange conducted as a Dutch auction. The exchange offer by National Rural Utilities Cooperative Finance Corporation was ultimately for $339,725,000 aggregate principal amount of CFC’s 8.00 percent Medium Term Notes, Series C, due 2032.

Although commonly used for tender offers, the Dutch auction had not been used by a corporate issuer to effect a debt-for-debt exchange. Similar to a Dutch auction tender, the total exchange consideration offered for each old note equaled the discounted value of the remaining payments of principal and interest (excluding accrued interest) using a yield of (i) a reference yield plus (ii) the clearing spread, as such clearing spread was determined by the Dutch auction. The same 30-year Treasury security was used to calculate both the reference yield and also the yield of the newly issued bonds offered in the exchange. The total exchange consideration was payable 26 percent in cash and 74 percent in new bonds.

The new bonds issued in the exchange offer were not registered under the Securities Act of 1933. The new bonds were issued to holders of old notes in the United States that were "qualified institutional buyers" as that term is defined in Rule 144A or outside the United States to persons other than "U.S. persons" as defined in Rule 902 under the Securities Act. The new bonds were issued with the benefit of registration rights.

The Hunton & Williams legal team was led by partners Michael F. Fitzpatrick Jr. and Steven C. Friend, of the firm's New York office.

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