Strategic English for Liability Management: Consent Solicitation Explained in Plain English

1) Grounding in Plain English

One-sentence definition: A consent solicitation is when a company asks its bondholders for permission to change the terms of the bonds they already hold.

Think of a consent solicitation like updating the rulebook of a club. The club (the issuer) has rules written down in a charter (the bond indenture). Members (bondholders) joined under those rules. Over time, the club might need to adjust a rule to operate more efficiently—perhaps allowing meetings to be held online, or changing how dues are calculated. The club cannot simply announce a new rule; it has to ask its members to approve the change. A consent solicitation is that formal request for approval.

In bonds, the “rulebook” is the indenture or other governing document. It contains covenants—promises about what the issuer can and cannot do—and procedures for changing those promises. A consent solicitation asks bondholders to approve amendments to specific covenants or terms. The core purpose is to change existing terms to better fit the issuer’s current needs, while staying within the process agreed at issuance. The key audience is the bondholders who are entitled to vote under the indenture. The issuer communicates the proposed changes, sets out the timing and thresholds for approval, and often offers a fee to those who consent.

A simple before/after helps. Before: an indenture might limit additional debt or restrict asset sales. After: the issuer proposes to loosen that limit, add flexibility for a planned transaction, or remove a covenant that is no longer relevant. The consent solicitation lays out exactly which words in the indenture will change, how the change benefits the company’s plan, and why holders should agree. Crucially, the bonds remain the same instruments; what changes are their governing terms.

2) Situate Among Siblings

Consent solicitations often get confused with exchange offers and tender offers, but the differences are straightforward when you focus on what is changing and what holders receive.

• What is changing:

  • Consent solicitation: The terms of the existing bonds change (e.g., covenants, definitions, events of default), but the bonds themselves remain outstanding.
  • Exchange offer: The instrument changes. Holders are offered new securities (with new terms) in exchange for the old ones.
  • Tender offer: Ownership changes. The issuer offers to buy the old bonds for cash (or sometimes a mix), retiring them when purchased.

• What holders receive:

  • Consent solicitation: Typically a consent fee for agreeing, often modest compared to the bond’s principal. The fee compensates for facilitating the change.
  • Exchange offer: New securities (possibly plus cash) with different maturity, coupon, or structure. Consideration flows as new instruments.
  • Tender offer: Cash consideration (or cash plus a premium) paid in return for surrendering bonds.

• Regulatory and communications posture (typical patterns):

  • Consent solicitation: Emphasis on the disclosure of proposed amendments and associated risks; communications are governed by anti-fraud rules (e.g., Rule 10b-5) and the governing documents’ procedures. No registration of new securities is required because no new securities are issued.
  • Exchange offer: Often implicates securities registration/exemptions if new securities are offered; more extensive offering documentation and legends; communications are constrained by securities offering rules.
  • Tender offer: Subject to tender offer rules and timing requirements (e.g., minimum offer periods, proration, withdrawal rights); disclosure focuses on pricing mechanics, timing, and conditions.

A quick decision tree keeps it simple:

• If you need to amend terms on bonds that will remain outstanding, use a consent solicitation.
• If you want to replace an existing security with a new one, use an exchange offer.
• If the goal is to retire the security for cash and reduce debt outstanding, use a tender offer.

This framing clarifies motive and mechanism. A consent solicitation is a tool for altering the operating conditions of existing debt, not for trading it in or buying it back.

3) Mechanics That Matter

A consent solicitation follows a predictable life cycle. Understanding each step helps you plan, sequence, and communicate clearly.

• Announcement The issuer publicly announces the solicitation, typically via a press release and a notice to holders through the trustee or clearing systems. The announcement should plainly state: the bonds affected, the proposed amendments, the consent fee (if any), the record date (if applicable), the consent deadline, the required threshold for approval, and where to find the definitive documents. This stage is about clarity and access: holders should know what is changing, by when they must decide, and how to submit consents.

• Record date and consent dates Some indentures allow the issuer to set a record date—a snapshot date to determine which holders are entitled to consent. This prevents last-minute trading to capture fees or influence outcomes. The consent period runs from announcement (or when materials are available) until the consent deadline. Communications should specify time zones and precise timestamps (e.g., 5:00 p.m. New York City time) to avoid ambiguity.

• Quorum and consent thresholds Indentures specify approval standards. Commonly, amendments to non-core covenants require the consent of a majority of the outstanding principal amount, while fundamental changes (like maturity, principal amount, or interest rate) may require supermajority or even unanimous consent. Language precision matters: “a majority in principal amount of the Notes outstanding” often means more than 50% of the total outstanding principal. The definitive document will also state whether the threshold applies series-by-series or across multiple series. Communicate these thresholds exactly as they are defined, without paraphrasing that could mislead.

• Voting mechanics Holders typically deliver consents through the trustee, tabulation agent, or clearing systems (e.g., DTC, Euroclear, Clearstream). The process often involves submitting electronic instructions that both block the bonds (for administrative certainty) and register the consent response. Include clear, step-by-step operational instructions and contact details for the tabulation agent for troubleshooting.

• Exit consents and covenant stripping In some structures, issuers combine an exchange or tender offer with an exit consent: holders who agree to exchange or sell also consent to strip or relax certain covenants on the old bonds. The goal is to reduce the value of the old bonds for those who decline the offer, encouraging participation. While exit consents can be effective, they must be used within legal and market norms and disclosed clearly. They are controversial in some jurisdictions and may face legal constraints. If used, explain which covenants would be removed or modified and on what conditions.

• Consent fees and early participation premiums A standard consent solicitation might offer a consent fee payable only to holders who consent by the deadline (and sometimes only if the amendments become effective). If paired with an exchange or tender, there may be an early participation premium—an extra amount for holders who respond by an early deadline. Be specific about whether fees are contingent on achieving the threshold and whether fees are paid per $1,000 principal amount or another basis. State the currency and the expected payment date.

• Result scenarios

  • If consents achieved: If the threshold is met (and any other conditions are satisfied), the issuer and trustee execute a supplemental indenture. The amendments become effective as described—sometimes upon execution, sometimes when the fee is paid, and sometimes conditional on closing a related transaction. Communicate timing of effectiveness with care.
  • If consents not achieved: The indenture remains unchanged, and no fees are paid if fees are conditional on success. The issuer may choose to extend the solicitation, modify terms, or terminate. Any change should be announced promptly with the revised deadlines or conditions.

Throughout, keep timing, thresholds, and conditions precise. Avoid loose phrases like “most holders” when the indenture specifies “at least a majority in principal amount.” Precision prevents confusion and reduces legal risk.

4) Compliance and Scripts

Compliance begins with one anchor: in all written and oral communications, do not make any material misstatements or omissions. This is the spirit of the anti-fraud standard commonly referred to under Rule 10b-5. In practice, that means:

• Present both the benefits and the risks of the proposed amendments. If a covenant relaxation could increase leverage or reduce protective terms, say so in plain English.
• Ensure all numerical details are accurate and consistent across the press release, solicitation statement, FAQs, and scripts.
• Avoid selective disclosure. Provide the same material information to all holders at the same time via public channels or the formal solicitation materials. If someone asks a question that elicits material non-public information, direct them to the published documents or issue a broad update.
• Be cautious with forward-looking statements. When you discuss expected outcomes (e.g., “we expect the amendments will support our refinancing plan”), frame them as expectations, not guarantees, and include appropriate cautionary language pointing readers to risk factors in the definitive documents.
• Always point holders to the definitive solicitation statement and any supplemental indenture forms. Those documents control.

Below are template-driven communications you can adapt. Keep the language simple, accurate, and consistent with the definitive documents.

a) Announcement email/cover letter Subject: Request for Your Consent to Amend Terms of [Bond Name]

Dear Holder,

We are asking holders of [Bond Name/Series, CUSIP/ISIN] to approve specific amendments to the indenture that governs these notes. The proposed changes are described in the attached Solicitation Statement and include [brief, neutral summary of amendments]. We are offering a consent fee of [amount per $1,000 principal] to holders who deliver a valid consent by [deadline, date and time, time zone], subject to the conditions described in the Solicitation Statement.

Key details:

• Record date (if applicable): [date]. Holders as of this date are entitled to consent.
• Consent deadline: [date and time, time zone].
• Required approval: [e.g., a majority in principal amount of notes outstanding].
• How to consent: Please follow the instructions of your custodian or the tabulation agent listed below.

Please read the Solicitation Statement carefully. It contains important information about the proposed amendments, the potential risks, and the conditions to payment of any fees. Do not rely on this email alone.

Questions may be directed to the information agent at [contact details].

Sincerely, [Issuer Representative]

b) Two-item FAQ

1) What are you changing and why? We are seeking approval to amend [identify covenants/terms] in order to [state business purpose plainly, e.g., provide flexibility for refinancing/transactions]. The notes will remain outstanding; only the governing terms would change. Please review the Solicitation Statement for full details and risk factors.

2) Will I receive a fee if I consent? If you deliver a valid consent by [deadline] and the required approval threshold is reached (and other conditions are satisfied), you will be eligible to receive a consent fee of [amount per $1,000 principal]. If the amendments are not approved or conditions are not met, no fee will be paid. See “Terms of the Solicitation” in the Solicitation Statement for specifics.

c) 60-second call script

Hello, this is [Name] from [Issuer/Information Agent]. I’m calling regarding the consent solicitation for [Bond Name/Series, ISIN/CUSIP]. We are asking holders to approve certain amendments to the indenture that governs these notes. The notes themselves remain outstanding; we are only seeking changes to specified terms. A consent fee of [amount per $1,000] is offered to holders who submit a valid consent by [deadline], subject to the conditions described in the Solicitation Statement.

To participate, please contact your custodian and follow their instructions to submit your consent through the clearing systems, or contact our tabulation agent at [contact]. The required approval is [state threshold precisely]. All details, including risks and conditions, are in the Solicitation Statement. We cannot discuss information outside that document, so please review it carefully. If you have further questions, we can direct you to the information agent or the posted materials.

Thank you for your time.

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By anchoring your communications in these core principles, you make consent solicitations understandable and compliant. Keep the focus on what is changing (the terms), who decides (the eligible holders), how votes are counted (the threshold and mechanics), and what holders receive (the consent fee, if conditions are met). Use precise, consistent language across all channels, and always point back to the definitive documents. With this approach, you serve both clarity and credibility—two essentials in liability management.