Dutch Auction of Debt

We were recently approached by a PE sponsor who wanted to make use of our impartiality by asking us if PMC would run a Dutch auction on their behalf to buy back debt in a portfolio company. Having successfully done so, we think that this may have value for other sponsors.

Michael Pearce

This sponsor had seen the debt of a portfolio company trading significantly below par and at a level they felt offered value to a buyer. Consequently they wanted to invite debt holders to submit prices at which they would be prepared to sell all or part of their holding. In the normal course of events this type of transaction would have been managed by a banking institution but for various reasons the sponsor welcomed the independence offered by PMC. Also, and importantly, the fee the bank market would charge for this relatively straightforward process was large. Having decided there was no conflict with PMC’s broader corporate treasury business we agreed to undertake this work.

Financial sponsors retain PMC to advise on the risk management aspects of their investments. They do so because of our long experience of how the foreign exchange and interest rate markets relate to their specific needs and, very importantly, because of our impartiality and independence. They know we have no financial interest in whatever market action they ultimately take.

Michael Pearce Non-Executive Director PMC

A formal auction document was sent to all debt holders setting out the reverse auction rules and requesting submission of their price and amount by a certain date and time. Upon expiry of the deadline when all offers had been received, PMC informed the sponsor and tendering debt holders of the outcome. Inevitably there were a number of questions asked during the auction process, both procedural and relating to the underlying debt (e.g. pricing of accrued interest) but PMC’s involvement gave both the sellers and the Sponsor the knowledge that their interests were being respected.

If you think that PMC can help you in a similar process, please let us know.

Leave a Reply