Petrobras in Cash Tender Offers With Knockout and Hopscotch Features
September 21, 2020
Cleary Gottlieb represented long-standing client Petróleo Brasileiro S.A. (Petrobras) in abbreviated five-day tender offers targeting 19 series of notes denominated in U.S. dollars, euros, and pounds sterling issued by Petrobras’ Dutch finance subsidiary, Petrobras Global Finance B.V. (PGF).
The tender offers launched on September 10, 2020, expired on September 16, 2020, and settled on September 21, 2020.
Abbreviated tender offers were first sanctioned by the SEC in 2015 in a no-action letter requested by a group of law firms, including Cleary. Market participants have since incorporated features to such offers to help issuers maximize the use of resources available for an offer, while mitigating their financial exposure to a type of offer that is required to be extended to any and all of the notes of a series subject to the offer.
PGF’s tender offer was structured with “knockout” and “hopscotch” features. The knockout feature allowed PGF to establish a tender cap of $4 billion to be used to fund the transaction. The 19 series of notes were assigned an acceptance priority level, and PGF was permitted to knock out (i.e., refrain from repurchasing) all notes of a series tendered to the extent that the repurchase of such notes would cause PGF to exceed the tender cap. The hopscotch feature allowed PGF to skip the series of notes that would have caused the tender cap to be exceeded and repurchase series of notes in subsequent acceptance priority levels as long as PGF was able to repurchase the full amount of tendered notes of each series without exceeding the tender cap. As a result, PGF used $3.97 billion to repurchase approximately $3 billion, €330.8 million, and £85.5 million aggregate principal amount of notes across 12 series.
Petrobras is one of the world’s largest integrated oil and gas companies, engaging in a broad range of oil and gas activities. The firm has represented Petrobras for many years in significant SEC reporting, corporate governance, financing, and litigation matters.