SIMPSON THACHER & BARTLETT LLP
425 LEXINGTON AVENUE
NEW YORK, N.Y. 10017-3954
(212) 455-2000
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FACSIMILE (212) 455-2502
October 14, 2005
VIA EDGAR AND
FACSIMILE
Daniel F. Duchovny
Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquisitions
100 F Street, NE
Washington, D.C. 20549
Re: New American Capital, Inc.
Schedules TO-I filed October 5, 2005
SEC File Nos. 005-81027 and 005-81028
-------------------------------------
Dear Mr. Duchovny:
On behalf of New American Capital, Inc. (the "Company"), a direct
wholly-owned subsidiary of Washington Mutual, Inc. ("Washington Mutual"), we
hereby transmit via EDGAR for filing Amendments No. 1 to the Schedules TO-I (the
"Schedules TO-I") filed by the Company and by Washington Mutual with the
Securities and Exchange Commission (the "Commission") on October 5, 2005 in
connection with the Company's offers to purchase the Company's Zero Coupon
Convertible Notes due February 15, 2021 (the "Zero Coupon Notes"), the Company's
4% Convertible Senior Notes due May 15, 2008 (the "4% Notes") and the Company's
2 3/4% Convertible Cash to Accreting Senior Notes due March 15, 2016 (the
"2 3/4% Notes", and together with the Zero Coupon Notes and the 4% Notes, the
"Notes").
In addition, we are providing the following responses to the comments
contained in the comment letter of the staff of the Commission, dated October
11, 2005, relating to the Schedules TO-I. For convenience of reference, we have
set forth the text of the staff's comments below in bold.
Securities and Exchange Commission
October 14, 2005
Page 2
SCHEDULES TO-I FILED ON OCTOBER 5, 2005
1. WE NOTE THE ABILITY OF NOTE HOLDERS TO CONVERT THEIR NOTES FOR A SPECIFIC
PERIOD OF TIME FOLLOWING THE NOTICE OF A FUNDAMENTAL CHANGE. PLEASE ADVISE
REGARDING WHAT CONSIDERATION WAS GIVEN TO WHETHER THE CONVERSION FEATURE
IS A TENDER OFFER AND THE APPLICABILITY OF THE FEDERAL TENDER OFFER RULES.
IN THIS REGARD, PLEASE SEE WESTERN UNION CORP. (AUGUST 18, 1986). PLEASE
PROVIDE A RESPONSE WITH REGARD TO EACH SECURITY.
The Company considered whether the ability of Noteholders to convert their
Notes for a specified period of time as a result of the occurrence of the merger
of Providian Financial Corporation with and into the Company on October 1, 2005
(the "Merger") might constitute a tender offer. The Company concluded for the
reasons discussed below that the operation of the conversion feature set forth
in the Notes is not a tender offer and therefore the federal tender offer rules
are not applicable.
The Company believes that its conclusion is correct legally and is
consistent with widespread and longstanding market practice. As a general
matter, a convertible security is simply a security which gives the holder the
option, at its sole discretion, to convert the original security into a
different security of the issuer. Some convertible securities are convertible at
any time during their term. However, a substantial market exists for convertible
securities that become convertible only upon the occurrence of certain events
specified in the original security. Typically, some of these triggering events
are within the control of the issuer but the majority are not. When a triggering
event occurs and the conversion feature of the convertible security becomes
exercisable pursuant to its terms, the issuer is not required to make an offer
for, or to invite the tender of, the convertible security. The issuer's only
obligations in that event are to provide notice that a triggering event has
occurred, if required by the applicable indenture, and, if the holder duly
exercises its conversion option, to deliver the consideration into which the
convertible security is convertible.
The Company's 4% Notes and 2 3/4% Notes are typical "contingent
convertible" debt securities in which the conversion right is only triggered
upon the occurrence of certain specified events and for certain specified
"windows" of time upon the occurrence of those events.(1) These triggering
events include not only the occurrence of a change in control transaction or
other "Fundamental Change" (as defined in the indenture and related supplemental
indentures pursuant to which the Notes were issued) but also a variety of other
events such as:
- an increase in trading prices of the underlying common stock above
specified levels;
- ----------
(1) The Company's Zero Coupon Notes are convertible by the holders at any
time.
Securities and Exchange Commission
October 14, 2005
Page 3
- a decrease in trading prices of the Notes below specified levels;
- a downgrading of the S&P or Moody's ratings on the Notes below
specified levels; and
- payments of certain dividends or distributions.
The Company believes that there is no basis for treating a change in
control convertibility trigger any differently, as far as the Commission's
tender offer rules are concerned, from any of the other convertibility triggers
or convertible notes generally. It has been estimated that in excess of $100
billion of "contingently convertible" securities have been issued in the past 5
years and there are approximately 368 "contingently convertible" issuances
currently outstanding. Neither we nor the Company are aware of any issuers
having filed a Schedule TO upon the triggering of a conversion feature or in
connection with conversion rights generally. For example, we note that a number
of issuers recently have issued notices in connection with the opening of
windows of convertibility and have not treated the opening of the window as an
issuer tender offer. See, e.g., Press release issued by Ivax Corporation on
October 3, 2005 (included as Exhibit 99.1 to Ivax Corporation's Current Report
on Form 8-K filed on October 3, 2005 (File No. 001-09623)); Press Release issued
by School Specialty, Inc. on September 12, 2005 (included as Exhibit 99.1 to
School Specialty, Inc.'s Current Report on Form 8-K filed on September 13, 2005
(File No. 000-24385)); Press release issued by Quanex Corporation on August 1,
2005 (included as Exhibit 99.1 to Quanex Corporation's Current Report on Form
8-K filed on August 4, 2005 (File No. 001-05725)). We also note that issuers
would have significant difficulties in complying with the tender offer rules if
each triggering event constituted the commencement of a tender offer. For
example, some triggering events, such as a ratings downgrade, can occur without
any prior notice to the issuer, and some convertibility windows might not
continue for a full 20 business days. In addition, if an issuer were required to
comply with the issuer tender offer rules, shares could not be issued upon the
exercise of a conversion right until the expiration of the offer period. This
could violate the issuer's obligations under the applicable indenture since
indentures (including the indenture pursuant to which the Notes were issued)
typically require the issuer to deliver shares as promptly as practicable
following the election of a holder to exercise its right to convert.
We acknowledge the staff's reference to the August 18, 1986 Western Union
Corp. no-action letter. However, we note that such letter dealt primarily with a
request for no-action relief under former Rule 10b-6 under the Securities
Exchange Act of 1934 in connection with a complex capital restructuring. We are
not aware of any subsequent instance in which any Commission rule or release, or
any no-action letter or other published staff interpretive guidance, has
indicated that the operation of a contingent conversion feature constituted an
issuer tender offer. In fact, to the best of our knowledge, neither the
Commission nor the staff has ever previously cited Western Union publicly for
that proposition since that letter was issued in 1986. In contrast, we note that
there is ample guidance in the no-action letters granted to issuers of
contingent convertible securities such
Securities and Exchange Commission
October 14, 2005
Page 4
as LYONs to the effect that change in control offers to purchase such securities
are subject to the Commission's tender offer rules because they are offers to
purchase equity securities. See, e.g., California Energy Co., Inc. (March 29,
1989). Such guidance does not, however, contain any mention that the triggering
of a conversion exercise window might also constitute a tender offer.
In preparing the Schedules TO-I, the Company carefully reviewed the
filings made in several similar recent transactions in which a change in control
transaction both triggered a conversion period for a series of convertible debt
securities and required the issuer to make an offer to purchase those
convertible debt securities. In each of these instances, the issuer filed a
Schedule TO in connection with the change in control offer to purchase the
convertible debt securities but did not file a Schedule TO in connection with
the conversion window that opened as a result of the change in control. See,
e.g., Schedule TO-I filed by Harrah's Operating Company, Inc. on July 14, 2005
(File Number 005-80865); Schedule TO-I filed by Cimarex Energy Co. on July 6,
2005 (File Number 005-78712); Schedule TO-I filed by Mandalay Resort Group on
May 15, 2005 (File Number 005-35737).
Based on the foregoing, the Company respectfully submits that the
operation of a contingent conversion feature embedded in the Notes as a result
of a Fundamental Change does not constitute an issuer tender offer and that
applying the federal tender offer rules to this conversion right would be
fundamentally inconsistent with widespread and longstanding market practice.
We also note that the Schedules TO-I already contain extensive disclosure
describing the conversion rights with respect to the Notes, advising the holders
that the Notes are currently convertible and informing the holders of the value
of the consideration that would be received upon conversion compared to the
value that would be received by tendering in the offer. See, for example, (i)
the third and fourth paragraphs on the cover page, (ii) the questions in the
Summary Term Sheet entitled "What are my conversion rights with respect to my
Notes?", "Are my Notes currently convertible?" and "If I do not tender, will I
continue to be able to exercise my conversion rights?" and (iii) Section 6 -
Conversion Rights With Respect to the Notes, contained in the Offers to
Purchase. As such, the Company believes that in any event the Schedules TO-I
already contain all the material information holders need in order to make an
informed decision as to whether to tender their Notes in the offer, convert
their Notes following the notice of a Fundamental Change, or continue to hold
their Notes. Accordingly, the Company respectfully submits that requiring it to
file additional Schedules TO-I in connection with the conversion windows would
not provide holders any additional information that would be material in their
decision making process.
2. PLEASE ADVISE US AS TO THE EXEMPTION FROM REGISTRATION UPON WHICH YOU ARE
RELYING IN CONDUCTING THE OFFER AND, IN PARTICULAR, IN CONNECTION WITH THE
ISSUANCE OF SECURITIES PURSUANT TO THE PAYMENT OF THE MAKE WHOLE PREMIUM.
WE MAY HAVE FURTHER COMMENT UPON RECEIPT OF YOUR RESPONSE.
Securities and Exchange Commission
October 14, 2005
Page 5
Holders of the Zero Coupon Notes and the 4% Notes who tender their Notes
pursuant to the offers to purchase will receive solely cash in exchange for
their Notes and will not receive any stock or other security of the Company or
Washington Mutual. Therefore, no registration under the Securities Act of 1933
(the "Securities Act"), or exemption therefrom, is required in connection with
the offers to purchase the Zero Coupon Notes and the 4% Notes since no
securities will be issued in connection with the tender of any such Notes.
In contrast, holders of the 2 3/4% Notes who tender their Notes pursuant
to the offer to purchase such Notes will receive cash plus a Make Whole Premium
payable in cash and Washington Mutual common stock in exchange for their Notes.
(Holders of the 2 3/4% Notes who elect to convert their Notes during the window
period also will receive the same Make Whole Premium). Washington Mutual is
relying on the exemption from registration under Section 3(a)(9) of the
Securities Act with respect to the issuance of the shares of Washington Mutual
common stock as part of the Make Whole Premium.
Section 3(a)(9) exempts from registration under the Securities Act
exchanges of securities by an issuer exclusively with its own security holders
where no commission or other remuneration is paid or given directly or
indirectly for soliciting such exchange. Section 3(a)(9) generally requires that
the same issuer must issue both the securities to be surrendered and the
securities to be issued in exchange thereof. The staff has for many years taken
the position that the exemption afforded by Section 3(a)(9) is available for
securities of a parent issued in exchange for securities issued by a
wholly-owned subsidiary of the parent where the parent has fully guaranteed its
subsidiary's obligations under those securities. This position is summarized in
telephone interpretation 2S in the March 1999 Supplement to the Division of
Corporation Finance's "Manual of Publicly Available Interpretations", which
states that "the Division has agreed that a parent may rely on the 3(a)(9)
exemption to issue its own securities to holders of a wholly-owned subsidiary's
debt securities supported by the parent's full and unconditional guarantee." The
staff has issued numerous no-action letters concerning the availability of
Section 3(a)(9) in connection with mergers in which the securities of the
acquired corporation became convertible into securities of the parent of the
acquired corporation and the parent guaranteed the obligations of the acquired
corporation with respect to the outstanding convertible securities. See, e.g.,
Weatherford International, Inc. (June 25, 2002); Nabors Industries, Inc. (April
29, 2002); AOL Time Warner, Inc. (November 15, 2000); World Access, Inc.
(October 28, 1998); Daisy Systems Corporation (April 10, 1989). In each of these
letters, the staff relied upon representations from the issuer to the effect
that:
- the indenture under which the convertible securities were issued did not
require the issuer to, and the issuer did not, solicit the consent of the
holders of the convertible securities with respect to the subject
transaction, the guarantee of the convertible securities or the adjustment
of the conversion feature;
Securities and Exchange Commission
October 14, 2005
Page 6
- the indenture under which the convertible securities were issued permitted
the issuer and the trustee to execute a supplemental indenture to
guarantee the convertible securities without the consent or vote of the
holders of the convertible securities; and
- no commission or other remuneration will be paid or given, directly or
indirectly, in connection with the conversion of the convertible
securities.
As described in detail below, the Merger and the related assumption by the
Company of Providian Financial Corporation's obligations under the Notes, and
guarantee by Washington Mutual of those obligations, meets each of these
requirements and is substantially identical to a number of precedent
transactions for which the staff provided no-action letters with respect to the
availability of the Section 3(a)(9) exemption.
Pursuant to Section 2(z) of the Fifth Supplemental Indenture, dated as of
October 1, 2005, entered into by Washington Mutual, the Company, Providian
Financial Corporation and the indenture trustee in connection with the Merger,
Washington Mutual has fully and unconditionally guaranteed the obligations of
the Company with respect to the Notes. Washington Mutual has filed a copy of the
Fifth Supplemental Indenture with the Commission as Exhibit 4.5 to its Current
Report on Form 8-K filed on October 4, 2005. Consistent with the criteria noted
by the staff in the above referenced no-action letters, we note that the
indenture pursuant to which the Notes were issued (i) did not require the
Company, Washington Mutual or Providian Financial Corporation to, and each did
not, solicit the consent or vote of the holders of the Notes with respect to the
Merger, Washington Mutual's guarantee of the Notes, or the adjustment of the
conversion features of the Notes and (ii) permitted Providian Financial
Corporation and the indenture trustee to execute the Fifth Supplement Indenture
to guarantee the Notes without a consent or vote of the holders of the Notes.
As noted above, Section 3(a)(9) exempts exchanges from registration only
if "no commission or other remuneration is paid or given directly or indirectly
for soliciting such exchange." The only payments to be made by the Company or
Washington Mutual in connection with the offer to purchase the 2 3/4% Notes are
the payments by the Company to the Noteholders of the accreted principal amount
of the 2 3/4% Notes, together with accrued and unpaid cash interest, and the
Make Whole Premium. Rule 150 under the Securities Act makes clear that, for
purposes of Section 3(a)(9), the term "commission or other remuneration" does
not include payments made by the issuer to its security holders in connection
with an exchange of securities for outstanding securities when such payments are
part of the terms of the offer to exchange. Since the payments to be made to
holders in the offer are part of the terms of the offer to exchange as expressly
required by the terms of the 2 3/4% Notes themselves, such payments do not
constitute a "commission or other remuneration" for purposes of Section 3(a)(9).
Securities and Exchange Commission
October 14, 2005
Page 7
We also note that neither Washington Mutual nor the Company has retained a
dealer-manager or other agent to solicit tenders or conversions of any of the
Notes or agreed to pay anyone any solicitation or similar fee.(2)
ITEM 4. TERMS OF THE TRANSACTION, PAGE 2
3. WITH RESPECT TO YOUR DISCLOSURE IN RESPONSE TO ITEM 4(b), PLEASE TELL US
WHY YOU NEED TO QUALIFY YOUR DISCLOSURE "TO THE BEST OF YOUR KNOWLEDGE."
WHAT PREVENTS YOU FROM KNOWING AND DISCLOSING THIS INFORMATION? PLEASE
EXPLAIN OR DELETE THE QUALIFIER. APPLY THIS COMMENT TO ITEMS 8(a) AND (b)
AND ITEM 11(a)(1).
In response to the staff's comment, the Company has amended each of the
Schedule TOs to delete the "to the best knowledge of the Company and Washington
Mutual" qualifier from the disclosure in Items 4(b), 8(a), 8(b) and 11(a)(1) of
each Schedule TO.
OFFER TO PURCHASE
SELECTED HISTORICAL FINANCIAL DATA, PAGE 9
4. IT APPEARS THAT CERTAIN FINANCIAL INFORMATION HAS BEEN INCORPORATED BY
REFERENCE TO SATISFY ITEM 10 OF SCHEDULE TO. PLEASE PROVIDE THE PRO FORMA
FINANCIAL INFORMATION PURSUANT TO ITEM 10 OF SCHEDULE TO, IF APPLICABLE,
AND THE COMPLETE SUMMARIZED FINANCIAL INFORMATION AS REQUIRED BY
INSTRUCTION 6 TO ITEM 10 OF SCHEDULE TO. WE NOTE SPECIFICALLY THE LACK OF
DISCLOSURE OF THE INFORMATION REQUIRED BY ITEM 1010(c)(1) AND (4). PLEASE
ADVISE US REGARDING WHETHER YOU INTEND TO DISSEMINATE THAT INFORMATION TO
SECURITY HOLDERS. REFER TO TELEPHONE INTERPRETATION H.7 IN THE JULY 2001
SUPPLEMENT TO OUR "MANUAL OF PUBLICLY AVAILABLE TELEPHONE INTERPRETATIONS"
THAT IS AVAILABLE ON THE COMMISSION'S WEBSITE AT WWW.SEC.GOV FOR
ADDITIONAL GUIDANCE.
The Company and Washington Mutual have not included financial statements
in response to Item 10 in the Schedules TO filed in connection with the offers
to purchase the Zero Coupon Notes and the 4% Notes since, in accordance with
Instruction 2 to Item 10 of Schedule TO, such financial statements are not
considered material to holders because, among other reasons, the consideration
offered consists solely of cash, the offer is not
- ----------
(2) The Company has retained JP Morgan Trust Company, N.A. as information
agent for the offer to purchase the 2 3/4% Notes. JP Morgan Trust Company,
N.A. will perform certain ministerial services in connection with the
offer but will not make any recommendation as to whether holders should
tender their Notes in the offer nor solicit any such holders to tender in
the offer. Furthermore, the fee payable to JP Morgan Trust Company, N.A.
will not be affected in any manner by the action of any holder nor is such
fee contingent upon the number of holders who tender their Notes in the
offer. As such, the fee paid to JP Morgan Trust Company, N.A. should not
be considered a "commission or other remuneration" for purposes of Section
3(a)(9). Such a conclusion is consistent with no-action positions
previously taken by the staff when information agents have been retained
in order to perform ministerial tasks in connection with offers similar to
the ones being made by the Company. See, e.g. ECL Industries Inc. and
Norlin Corp. (December 16, 1985).
Securities and Exchange Commission
October 14, 2005
Page 8
subject to any financing condition, the offer is for all outstanding Notes and
Washington Mutual is a public reporting company that files reports
electronically under EDGAR.
The Company recognizes, however, that as a result of the Make Whole
Premium, holders of the 2 3/4% Notes who tender in the offer will receive
consideration partially in the form of Washington Mutual common stock. The
Company concluded that even though the consideration offered does not consist
solely of cash, financial statements are still not material to a holder's
decision. We note that approximately 85% of the consideration to be received by
holders of the 2 3/4% Notes who tender their Notes in the offer will be paid in
cash. We also note that the Company and the offer satisfy all the other criteria
set forth in Instruction 2 to Item 10 of Schedule TO.
Notwithstanding the Company's conclusion that financial statements are not
required to be included in Item 10, the Company elected to incorporate certain
financial information into the Schedule TO relating to the 2 3/4% Notes and to
include certain summarized financial information in the related Offer to
Purchase. The summarized financial information included in the Offer to Purchase
contains the information that is customarily presented by banks and thrift
holding companies in selected financial data tables filed with the Commission.
Certain line items specified in Item 1010(c)(1) of Regulation M-A are not line
items that are meaningful to Washington Mutual's business or normally reported
by banks and thrift holding companies. For instance, Washington Mutual and other
banks and thrift holding companies do not characterize assets and liabilities as
current or noncurrent. Similarly, such companies do not report net sales or
gross revenues.
We note that the summarized financial information contained in the Offer
to Purchase for the 2 3/4% Notes is consistent with the selected financial
information included in Washington Mutual's Registration Statement on Form S-4
(the "S-4") filed in connection with the Merger (Registration No. 333-126353)
and is generally consistent with the selected financial information included by
Washington Mutual in its Annual Reports on Form 10-K. The Company therefore
believes that it has complied with Item 1010(c)(1) since it has presented the
financial information that is most meaningful to Washington Mutual's business.
Although the Company does not believe that the information specified in
Item 1010(c)(4) of Regulation M-A is required to be included for the reasons
stated above, in response to the staff's comment, the Company has amended the
Schedule TO for the 2 3/4% Notes to include such information. The Company
intends to make this information available to holders of the Notes through DTC's
Automated Tender Offer Program. In addition, the information specified in Item
1010(c)(4) is widely and publicly available since it is included in Washington
Mutual's periodic filings with the Commission and the Offer to Purchase clearly
states how holders can obtain Washington Mutual's periodic filings.
Finally, the Company does not believe that pro forma financial information
is required to be included pursuant to Item 10 of Schedule TO. Item 1010(b) of
Regulation M-A requires pro forma information only if material, and the Company
does not believe that
Securities and Exchange Commission
October 14, 2005
Page 9
pro forma information is material. We note that Washington Mutual was not
required to include pro forma financial information in the S-4 since the Merger
was not considered significant in accordance with Article 11 of Regulation S-X.
* * * * * * * *
Each of the Company and Washington Mutual has advised us that they
acknowledge that:
- each is responsible for the adequacy and accuracy of the disclosure
in the filings;
- staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filings; and
- neither may assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
Please call Lee Meyerson at (212) 455-3675 or Eric Swedenburg at (212)
455-2225 with any additional questions you may have or if you wish to discuss
the above responses.
Very truly yours,
SIMPSON THACHER & BARTLETT LLP
cc: Carey Brennan, Esq.
Brett Cooper, Esq.