Liability Management: Tenders, Exchanges and Consent Solicitations

If debt were a pet, it would be the sort that looks harmless when you bring it home, then grows teeth and starts demanding attention at the worst possible time. Rising rates, cash squeezes, or a stack of bonds all maturing at once can make even well-run companies sweat.

That’s when issuers turn to liability management – a toolkit for taming their debt before it starts chewing through the furniture. The usual choices? Tender offers, exchange offers and consent solicitations. They sound technical (and they are), but in practice, they’re nothing more than strategies issuers use to wrestle back control of the capital structure.

Tender Offers – buying back the problem

A tender offer is basically the issuer sidling up to bondholders and saying, “Fancy selling those notes back to me?” Cash is the usual currency. From the issuer’s perspective, the perks are obvious: retire debt early (ideally at a discount), tidy up a repayment schedule that’s starting to look like spaghetti junction at rush hour, or show off a bit by showing the market they’ve got the confidence – and the spare cash – to repurchase their own bonds.

For investors, it can be just as appealing. Sometimes the market for trading bonds is about as lively as the Monday morning exodus after Glastonbury – in other words, not very. A tender gives them a ready-made exit, and if the issuer throws in a decent premium, it can feel like a reward for showing up.

But tenders aren’t a casual swap. In the UK they sit under the watchful eye of FSMA (Financial Services and Markets Act 2000) and MAR (Market Abuse Regulation). Add the UK Prospectus Regulation into the mix and retail investors become a headache, which is why tenders are usually aimed at institutions. The paperwork (a tender offer memorandum) has to be thorough: it must set out the “why”, the “how much”, the timetable and the risks. Anything less and you risk misleading investors. And if an issuer launches while sitting on unpublished financial news, they’re not just unlucky – they could be in breach of insider dealing rules. Gulp.

Exchange Offers – swap, don’t shop

Not all liability management involves waving cash around. Sometimes issuers prefer a straight trade: old bonds out, new bonds in. An exchange offer lets them push out repayment debts, tweak the fine print, or bundle a messy patchwork of debts into something more manageable.

Because new bonds are being created, the paperwork pile gets higher. The UK Prospectus Regulation usually demands a full, approved prospectus if those shiny new bonds are to be listed or offered to the public in the UK or EU. Unless an exemption applies, there’s no slipping past this one.

Then there’s the people problem: investors. Some will happily swap; others will sit it out with arms firmly crossed. That’s where the infamous “exit consent” comes in – a tactic where investors who don’t play along suddenly find their old bonds stripped of useful protections. Issuers might call it creative structuring; investors tend to call it bullying. Regulators insist on fairness and transparency, and the courts have backed them up. But push too far, and you stop looking like a responsible issuer and start looking like the playground bully.

Consent Solicitations – shifting the goal posts mid-game

And then there are times when issuers don’t need new bonds or buybacks at all. What they really want is to adjust the rules already in place. A consent solicitation is how they ask investors for permission – maybe to relax a covenant, push back a repayment date, or approve a corporate manoeuvre that the bonds currently block.

The thresholds are set by the bond documents. Under English law, the fundamental changes – like repayment terms – usually need 75% of bondholders on side, while the everyday stuff can sneak through with less fuss.

That all sounds straightforward, doesn’t it? But in practice it rarely is. Investors can be prickly if the changes feel too one-sided, and getting enough votes can be like chasing RSVPs for a party – plenty of ‘yeses’, but half the guests are no-shows on the night.

The danger lies in process. Notices must be clear, the explanatory documents accurate, and the meeting run exactly as the rulebook says. Skimp on any of that and you give investors a ready-made reason to challenge the outcome. Meanwhile, MAR hovers in the background, demanding that inside information be disclosed properly. Ignore that, and you’ll have regulators knocking at the door as well as bondholders. Gulp (yes, again).

Timing, Taxes and Talking Points

Whatever form of liability management an issuer picks – a few golden rules run through all of them.

Timing and disclosure come first. Announcements must be clear, accurate and not misleading under FSMA and MAR. Investor calls can’t dish out nuggets of information to a select few – equal treatment means everyone holding the same bonds gets the same shot.

Then there’s tax, the uninvited guest who always shows up, eats everything in sight, and still demands thanks for coming. Buy back debt at a discount and the accountants may cheer at the gain, but the taxman will be waiting with his hand out – thank you very much. Exchange offers can carry their own quirks too, from stamp duty to withholding headaches, depending on how the deal is structured. It’s why tax advisers usually get pulled into the room early, armed with calculators and a faint air of doom.

And finally, perception. Liability management can look like sensible housekeeping – trimming and tidying before things get messy – or it can look like a distress signal. The same move can be seen as calm planning or blind panic; it all depends on how the story is told.

The Last Word

Liability management gives issuers a flexible toolkit for reshaping their debt – but anyone who thinks it’s just financial admin in a smart suit is in for a shock. Tender offers, exchange offers, and consent solicitations all come with their own quirks under UK and EU rules, and none of them are as simple as wiping the slate clean.

Every step matters: structure it badly and investors start sniffing around, skimp on disclosure and regulators come knocking, misjudge the mood and the whole thing starts to look like a thinly veiled panic. Structure it well, though, and you’ve not just kept the machine running – you’ve shown investors you can run a proper transaction with the same polish and discipline as a fresh bond issue.

Liability management isn’t just financial tinkering. Regulators expect discipline, fairness and transparency, and investors expect the same. Get it right and the market is reassured. Get it wrong and both regulators and investors will be quick to call you out.