Question
From:
(redacted)
Sent:
Thursday, May 29,20084:25 PM
To:
Verne, S. Michael
Cc:
(redacted)
Subject:
An HSR question
Attachments:nyc4-730768-1.doc
Mike, I haveattached a memo detailing a transaction between a debtor-in-possession("0") and a purchaser ("P"). There mayor may not be afiling on that transaction depending on the value of the assets being acquireddirectly from 0 by P. The wrinkle is this. There are several ordinary courselenders who we think can rely on 802.63 to acquire assets from 0 in exchangefor the debts owed them. These creditors have assigned the rights to theseassets to P who will acquire them, but not from 0, as legally, they will havebeen foreclosed upon by creditors. It is the creditors who will assign therights to the assets to P, so we believe it is correct to say that those assetswill be acquired by P from Creditors and not from 0 and so should not beconsidered as part of the consideration in the transaction between 0 and P. Wewould like to discuss this with you to determine if you agree with thatanalysis or not. Please let us know when a good time will be to discuss and Ican set up a conference call. Thanks very much.
Seller isDebtor-in-possession ("D").
Ultimate parententity of Buyer is "J".
J will form a Newcoof which it will own in excess of 50%.
There are severalpre-petition ordinary course secured creditors ("Creditors").
There is onepurchase agreement to which all are parties, with Creditors acting thru anAgent.
D is selling orotherwise disposing of assets valued in excess of$63.1 million.
Newco is payingabout $17 million to D for control of a business ("TQ") that isalready 49% owned by J. As a result ofthis acquisition, J will own TQ interestsvalued at approximately $27.951 million.
Newco is paying$30-40 million to D for inventory, based on an estimated GAAP value. There arevirtually no assumed liabilities.
*Creditors arerealizing on their collateral and acquiring assets from D valued atapproximately $150 million, although no one creditor will acquire more than$63.1 million in assets. The Creditors have made a Credit bid whereby they areprobably not taking possession of the assets but will be the legal owners atleast with respect to their right to subsequently assign their rights to theproperty to Newco.
J will contributeto Newco several facilities which J owns and approximately $135 million incash.
Creditors haveagreed to assign their rights to D's assets to Newco in exchange for minoritypositions in the Newco and $135 million.
Analysis
We do not thinkthere are any HSR filings required under a scenario in which the inventory isvalued at less than $35 million and the assumed liabilities are virtually zero.
Newco is payingapproximately $17 million to D for the 51 % interest in TQ that J does notpresently own. The value of the business that will be held as a result of theacquisition is approximately $27.951 million.
Newco is payingapproximately $30-$40 million to D for the assets it is acquiring from D andwhen added to the value of the TQ interests will not exceed$63.1 million if theinventory is valued at approximately $35 million or less. The value of assumedliabilities is zero.
The creditors'acquisition of D's assets are exempt because no one creditor will be receivingmore than $63.1 million in assets but also because Rule 802.63 would apply, as theCreditors, who are ordinary course creditors, are acquiring the right to thoseassets pursuant to a restructuring.
*The collectivetransfer or assignment of the creditors' assets to Newco should be viewed asseparate transactions from the different persons (the Creditors) who have therights to those assets pursuant to the restructuring and not as a acquisitionof the assets by J through Newco from D.
Thus, theconsideration with respect to the TQ/Newco transaction and the D/Newcoinventory purchase is less than $63.1 million [so long as inventory is valuedat less than $35 million and there are no significant assumed liabilities]. Theconsideration with respect to each Creditor's assignment to Newco is less than$63.1 million for each of the transactions between Newco and the Creditors, butthese transactions do not count as part of consideration for D/J transactions(TQ and inventory).
Creditors will nothave to file to acquire Newco interests since Newco is an LLC, and no creditorwill acquire a 50% or more interest in Newco.
Accordingly thereare no HSR filings required so long as inventory is valued at less than $35million and there are virtually no assumed liabilities.