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Securities Act of 1934 - Rule 14e-1(b)December 23, 2005 Via Facsimile (646) 848-8787 and U.S. Mail Michael J. Willisch, Esq.
Gentlemen, We are responding to your letter dated December 23, 2005 to Brian V. Breheny and Nicholas P. Panos, as supplemented by telephone conversations with the staff of the Division of Corporation Finance, with regard to your request for no-action relief. Our response is attached to the enclosed photocopy of your letter to avoid having to recite or summarize the facts set forth in your letter. Unless otherwise noted, capitalized terms in this letter have the same meaning as defined in your letter. Without necessarily concurring in your analysis, and based on your oral and written representations and the facts and circumstances presented, the staff will not recommend that the Commission take enforcement action under Rule 14e-1(b) against BBVA Privanza International (Gibraltar) Limited or Banco Bilbao Vizcaya Argentaria, S.A. if the Tender Offer uses the pricing mechanism described in your letter and the Tender Offer is otherwise conducted in the manner represented. In granting the requested relief, we note in particular that:
The foregoing no-action position is based solely on your oral and written representations and the facts presented in your letter and in telephone conversations with the staff, and is strictly limited to the application of the rule to the proposed transaction. The transaction should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts or representations. In addition, your attention is directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 10(b) and 14(e), and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the participants in the Tender Offer. The Division expresses no views with respect to any other questions that the proposed transaction may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of any other federal or state laws to, the proposed transaction. Sincerely, For the Division of Corporation Finance, Brian V. Breheny Incoming Letter:December 21, 2005
Via Facsimile Brian V. Breheny, Esq., Chief Gentlemen: We are writing on behalf of BBVA Privanza International (Gibraltar) Limited ("BBVA Gibraltar") and Banco Bilbao Vizcaya Argentaria, S.A. ("BBVA" and, together with BBVA Gibraltar, the "Offerors") to seek confirmation that the Division of Corporation Finance will not recommend that the Securities and Exchange Commission (the "Commission") take enforcement action under Rule 14e-1(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if a cash tender offer (the "Tender Offer") for all of the outstanding Non-Cumulative Guaranteed Preference Shares, Series D of BBVA Gibraltar (the "Preference Shares"), including Preference Shares represented by American Depositary Shares ("ADSs" and, together with the Preference Shares, the "Subject Securities"), 1 is conducted using a fixed spread pricing methodology in the manner described below. Background BBVA Gibraltar, a company organized under the laws of Gibraltar, is 99%-owned by BBVA, a corporation (sociedad anónima) organized under the laws of the Kingdom of Spain. Each of BBVA Gibraltar and BBVA is a foreign private issuer, as defined in Rule 3b-4(c) under the Exchange Act, but only BBVA is a reporting company for purposes of U.S. securities laws. BBVA Gibraltar does not have any class of equity securities registered pursuant to Section 12 of the Exchange Act, is not required to file periodic reports pursuant to Section 15(d) of the Exchange Act and is not a closed-end investment company registered under the Investment Company Act of 1940. BBVA Gibraltar has outstanding 70 Preference Shares, all of which are currently held by a custodian for the Depositary and represented by ADSs. Each ADS represents the right to receive one Preference Share. The ADSs were initially offered by BBVA Gibraltar in 1997 to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended, at an offering price of $1,000,000 per ADS, and are currently held by a limited number of institutional investors.2 The Preference Shares are currently rated investment grade ("A1") by Moody's. None of the Preference Shares or ADSs are listed or traded on any U.S. stock exchange or automated quotation system or registered under the U.S. securities laws. The ADS are traded in the over-the-counter market. However, given that only 70 ADSs are outstanding and each underlying Preference Share has a liquidation preference of $1,000,000 per share, we understand that an active trading market for the ADSs has not developed. The Preference Shares accrue non-cumulative preferential cash dividends at an annual fixed rate of 7.764% of the liquidation preference thereof, when, as and if declared by the board of directors of BBVA Gibraltar, with payments made quarterly in arrears, provided that the payment of dividends in any year is limited by the amount of Distributable Profits (as defined) of BBVA for the preceding fiscal year and to the extent that BBVA would be limited in making such payments under applicable Spanish banking regulations affecting banks which fail to meet their capital ratios. The Preference Shares have a liquidation preference of $1,000,000 per share. In the event of liquidation, dissolution or winding up of BBVA Gibraltar, holders of the Preference Shares will be entitled to receive out of the assets of BBVA Gibraltar available for distribution to shareholders, before any distribution is made to holders of ordinary shares of BBVA Gibraltar or holders of preference shares ranking junior to the Preference Shares, for each Preference Share a liquidation preference of $1,000,000 plus accrued and unpaid dividends for the then-current quarterly dividend period, provided that if a liquidation payment is to be paid while BBVA is in liquidation, dissolution or winding up, the liquidation payment per Preference Share shall not exceed the liquidation payment per Preference Share that would have been paid from the assets of BBVA had the Preference Shares been issued by BBVA and ranked junior to all liabilities of BBVA, pari passu with the most senior preferred stock of BBVA and senior to BBVA's ordinary shares. The Preference Shares are redeemable by BBVA Gibraltar, in whole or in part from time to time on or after June 30, 2007, at the liquidation preference of $1,000,000 per share, plus accrued and unpaid dividends for then-current quarterly dividend period to the date fixed for redemption. The Preference Shares are guaranteed by BBVA, an investment-grade issuer, as to (i) any accrued and unpaid dividends, whether or not declared, for the most recent quarterly dividend period, subject to BBVA having Distributable Profits (as defined) for the preceding fiscal year, (ii) the redemption price of any Preference Shares redeemed, (iii) the liquidation preference of the Preference Shares, subject to the liquidation preference provisions described above, and (iv) any additional amounts payable by BBVA Gibraltar. BBVA's guarantee ranks junior to all liabilities of BBVA (other than certain guarantees of preferred or preference stock of any direct or indirect subsidiaries of BBVA), pari passu with the most senior preferred stock of BBVA and senior to BBVA's ordinary shares. Holders of Preference Shares have no voting rights, except in limited circumstances such as failure to pay dividends when due for specified periods, which would provide holders of the Preference Shares with the right to appoint additional members to BBVA Gibraltar's board of directors, and in respect of variations or abrogations in the rights, preferences or privileges of the Preference Shares by way of amendments of BBVA Gibraltar's Articles of Association or otherwise. The Proposed Tender Offer BBVA Gibraltar seeks to acquire in the Tender Offer all of the outstanding Preference Shares, including Preference Shares represented by ADSs, with a view to redeeming, canceling or amortizing all of the Preference Shares as soon as practicable following the consummation of the Tender Offer. The Tender Offer will consist of an offer to purchase for cash all of the outstanding Preference Shares and ADSs and will be conditioned, inter alia, on all Preference Shares (including Preference Shares represented by ADSs) being validly tendered and not withdrawn prior to the expiration date of the Tender Offer. The Tender Offer documents will describe this and other conditions and the right of BBVA Gibraltar and BBVA to waive those conditions if they so elect. A major U.S. investment bank will act as dealer manager (the "Dealer Manager") in connection with the Tender Offer. The Tender Offer will provide all holders of the Subject Securities the opportunity to dispose of their securities where an active trading market does not otherwise exist. BBVA Gibraltar proposes to price the Tender Offer based on a stated fixed spread over the yield on a specified benchmark U.S. Treasury security as of 2:00 p.m., New York time, on the second business day immediately preceding the expiration date of the Tender Offer (the "Pricing Date"), i.e., the 18th business day of the offer period.3 As discussed in further detail below, the nominal purchase price per Subject Security will be set on the Pricing Date because of the high likelihood that a price set earlier will be above or below market as of the expiration date of the Tender Offer. The Tender Offer will remain open for 20 full business days, subject to extension. Tendering holders of Preference Shares and ADSs will have withdrawal rights until the expiration of the Tender Offer, and payment for Preference Shares and ADSs validly tendered and not withdrawn, subject to satisfaction of the conditions of the Tender Offer, will be made promptly after such expiration date. The stated fixed spread and the benchmark U.S. Treasury security will be disclosed in the offer to purchase to be distributed at the commencement of the Tender Offer to all holders of the Subject Securities. The formula to be used to determine the nominal purchase price per Subject Security, as well a hypothetical nominal purchase price based on the applicable reference yield immediately preceding the commencement of the Tender Offer, will also be disclosed in such offer to purchase. The offer to purchase will include as annexes a detailed schedule setting forth the formula for determining the nominal purchase price per Subject Security, as well as a schedule illustrating how the hypothetical nominal purchase price has been calculated. The offer to purchase will identify the electronic quotation service to be used as the definitive reference source for yield data regarding the benchmark U.S. Treasury security in calculating the nominal purchase price and where yield data regarding such U.S. Treasury security will be available during the Tender Offer. The actual nominal purchase price per Subject Security will be disclosed in a press release to be issued prior to the close of business on the Pricing Date. Throughout the Tender Offer, representatives of the Dealer Manager will be available through a toll-free telephone number to provide a hypothetical nominal purchase price as of the date of a holder's inquiry as well as to answer questions holders of the Subject Securities may have regarding the Tender Offer. The telephone number will be disclosed in the offer to purchase and any press releases regarding the Tender Offer. Discussion The Division of Corporation Finance and the Division of Market Regulation have previously adopted no-action positions with respect to certain cash tender offers conducted by issuers for any and all of their non-convertible, investment grade debt securities using a fixed spread pricing methodology.4 We believe that the Tender Offer for the Preference Shares is consistent with the principles reflected in such letters and does not present considerations that differ significantly from issuer debt tender offers for cash for any and all non-convertible, investment grade debt securities of a particular class or series. In addition, we believe that the proposed fixed spread pricing methodology is consistent with the principles established in prior no-action letters relating to formula pricing in issuer tender offers for equity securities.5 The proposed Tender Offer is substantially similar to the tender offers covered by the no-action letters relating to the use of fixed spread pricing methodologies for non-convertible, investment grade debt tender offers in that the offer would (i) be an offer to purchase for cash all of the Subject Securities, (ii) be open to all record and beneficial holders of the Subject Securities, (iii) identify the specific benchmark U.S. Treasury security to be used in calculating the nominal purchase price and specify the fixed spread to be added to the yield on such benchmark U.S. Treasury security, (iv) describe the methodology to be used to calculate the nominal purchase price to be paid for the tendered securities, (v) identify the electronic quotation service to be used as the definitive reference source for yield data regarding the benchmark U.S. Treasury security in calculating the nominal purchase price and (vi) state the nominal purchase price that would have been payable under the Tender Offer based on the applicable reference yield immediately preceding commencement of the Tender Offer.6 In addition, the Tender Offer is not being made in anticipation of or in response to other tender offers for any other of the issuer's securities, will be conducted in a manner designed to afford all record and beneficial holders of the Subject Securities a reasonable opportunity to participate in the Tender Offer and provides that all tendering holders of the Subject Securities will be paid promptly after their tendered securities are accepted for payment, within the standard settlement time frame for broker-dealer trades. In addition, the Tender Offer is similar to the equity tender offers covered by the no-action letters relating to the use of formula pricing in that (i) the formula for determining the nominal purchase price will be disclosed in the tender offer materials disseminated to holders of the Subject Securities, (ii) the formula for determining the nominal purchase price will remain fixed throughout the duration of the Tender Offer (except if there is a change in the formula, in which case the offer period would be extended unless at least ten business days remained between the date of announcement of such change and the then-scheduled expiration date of the Tender Offer), (iii) a toll-free telephone number will be provided that will enable holders of the Subject Securities to obtain answers to questions they may have regarding the Tender Offer as well as a hypothetical nominal purchase price as of the date of such holder's inquiry, (iv) the nominal purchase price will be set two business days prior to the scheduled expiration of the Tender Offer and (v) a press release will be issued to publicly announce the nominal purchase price prior to the close of business on the Pricing Date. As in the case of The Times Mirror Company fixed spread tender offer, the nominal purchase price in the Tender Offer will be calculated by reference to the yield on the specified benchmark U.S. Treasury security as of 2:00 p.m., New York time, on a specified business day preceding the expiration of the Tender Offer.7 Accordingly, while a tendering holder will not know the nominal purchase price on the date of its tender (unless such holder tenders after 2:00 p.m., New York time, on the Pricing Date (i.e., the second business day immediately preceding the expiration of the Tender Offer)), such holder will know the pricing determinants, which are set at the commencement of the Tender Offer and disclosed in the offer to purchase, and will retain the right to withdraw the tendered securities prior to the expiration of the Tender Offer. The yield on the benchmark U.S. Treasury security and the resulting nominal purchase price of the Subject Securities will be accessible as soon as practicable after 2:00 p.m., New York time, on the Pricing Date by means of a toll-free telephone number established for the Tender Offer, and will be disclosed in a press release to be issued prior to the close of business on the Pricing Date. The Tender Offer would be extended if a change is made to the fixed spread or the method of calculating the nominal purchase price during the Tender Offer unless at least ten business days remained between the date of announcement of such change and the then-scheduled expiration date of the Tender Offer. Although the Preference Shares do not constitute non-convertible, investment grade debt, these securities have many of the attributes of such debt. For example, as discussed above, the Preference Shares accrue non-cumulative dividends at an annual fixed rate based on the liquidation preference thereof ($1,000,000 per share). BBVA Gibraltar has paid such dividends in full on each dividend payment date since the issuance of the Preference Shares. The Preference Shares also have a liquidation preference per share to the extent discussed above. Moreover, the Preference Shares are rated investment grade and are guaranteed, to the extent described above, by an investment grade issuer. The Dealer Manager has advised that the Preference Shares, like fixed income securities, are valued by investors on the basis of their yield, taking into account BBVA's credit spread, compared to a benchmark yield.8 Thus, as prevailing interest rates fluctuate, the price (and corresponding yields) of securities paying dividends at a nominal fixed rate, including the Preference Shares, would also tend to fluctuate. The pricing mechanism in a fixed spread tender offer would allow holders of the Subject Securities to evaluate the terms and relative value of the Tender Offer in a manner consistent with standard market practice for buying and selling such securities. As in the case of tender offers for non-convertible, investment grade debt, the use of a fixed spread pricing methodology also has distinct advantages, both for the Offerors and holders of the Subject Securities, over a fixed nominal price tender offer. In particular, the use of fixed spread pricing reduces the interest rate risk to which a fixed nominal price tender offer subjects the issuer and holders. Specifically, in connection with a fixed nominal price tender offer, interest rates (and therefore market yields) may vary during the offer period, particularly in the case of an offer that remains open for a period of 20 full business days. If interest rates increase during the offer period, the issuer will end up overpaying for securities whose dollar value has declined. By contrast, if interest rates decrease during the offer period, the success of the offer may be jeopardized as holders refuse to tender securities whose dollar value has increased. The proposed fixed spread pricing methodology for the Tender Offer would eliminate 18 days of market risk relating to fluctuations in the U.S. Treasury securities market, thereby reducing the risk of failure of the Tender Offer resulting from a decrease in interest rates during the offer period and reducing the risk of overpayment for the securities if there is any increase in interest rates during the offer period.9 In addition, holders will be able to monitor the market and base their decision to tender on the spread being offered in the Tender Offer, without worrying about fluctuations in the U.S. Treasury securities market. Conclusion In our view, fixed spread pricing conducted in the manner described herein is desirable from both the perspective of the Offerors and the holder of the Subject Securities. We are advised that it is also consistent with actual market practice with respect to trading such securities. In light of the above, we believe that the position expressed in the prior no-action letters with respect to fixed spread pricing in respect of tender offers for non-convertible, investment grade debt securities, as well as the position expressed in prior no-action letters with respect to formula pricing in respect of tender offers for equity securities, should also apply in the context of a tender offer for the Subject Securities. Accordingly, we request that the Division of Corporation Finance advise us that it will not recommend that the Commission take any enforcement action pursuant to Rule 14e-1(b) under the Exchange Act if the Tender Offer is conducted in the manner described herein. If you have any questions with respect to the foregoing or require any further information with respect to this request, please do not hesitate to call the undersigned at 011-34-91-702-2741. Alternatively, you may call (212) 450-4000 and ask to be connected. Very truly yours, Michael J. Willisch Endnotes
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