Debt securities

Why “Debt Securities” Duration Matters – Corporate / Commercial Law

United States: Why the duration of “debt securities” matters

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The California General Corporation Law defines three types of “reorganizations”: a reorganization by merger, a reorganization by exchange and a reorganization by sale of assets. Cal. Corp. Code § 181. A “reorganization of sale of assets” is defined as the acquisition of all or substantially all of the assets of a domestic company, foreign company or other commercial entity in exchange , in whole or in part, of equity securities or debt securities. However, not all of these swaps for debt securities will constitute a reorganization. In the case of an exchange only for debt securities, a transaction will be an “asset sale reorganization” only when the debt securities are: (i) insufficiently secured; and (ii) have a maturity date greater than five years after the completion of the reorganization.

Thus, a transaction will not be an “asset sale reorganization” when the debt securities either (i) have a maturity date of less than five years (in which case they may or may not be guaranteed); or (ii) are “sufficiently guaranteed” even if they have a maturity date of more than five years. Chapter 10 of the Companies Code will generally govern transactions involving the sale of all or substantially all of a company’s assets that do not fall under the definition of a “reorganization related to the sale of assets”.

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