Question
From:
(Redacted)
Sent:
Tuesday, November 30, 2010 11 :00 AM
To:
Verne, B. Michael
Subject: Question re: FDIC Transaction
Mike,
I have a question regarding the purchaseof certain assets and voting securities from the FDIC for which I could usesome guidance.
My client wants to enter into anagreement with FDIC in its receivership capacity for a failed state bank (the"Bank") to acquire the residual interest in a credit card receivablestrust (the "Residual Interest"). The holder of the Residual Interestis entitled to receive all collections from the trust that are not alreadyallocated to the bondholders.
Specifically, my client would payapproximately $90 million (subject to certain adjustments that are expected tobring the purchase price down to approximately $70 million), to acquire thefollowing assets from FDIC as receiver for the Bank:
(i)a 100% participation interest (evidenced by a trust certificate) in theResidual Interest, representing all of the Residual Interest (the "100%Participation Interest"); and
(ii)certain information rights relating to the credit card accounts and certainduties under the trust documents.
In addition, my client will be requiredby the FDIC to purchase all of the stock of the Bank's subsidiary (whichoriginally held the Residual Interest but assigned the 100% ParticipationInterest in the Residual Interest to the Bank prior to closing in an unrelatedtransaction) (the "Subsidiary"). To be clear, while Subsidiary isstill the nominal holder of the Residual Interest, it had assigned 100% of itsrights in the Residual Interest to the Bank in the form of the 100%Participation Interest. Because the Subsidiary has no assets of value, webelieve that Subsidiary's stock is worthless. So why acquire it? In essence,the client is being required by FDIC as part of the deal to acquire theSubsidiary stock from the Bank along with the asset of value (i.e., the 100% ParticipationInterest), so that FDIC can be free of any obligations or entanglementsrelating to the trust after closing.
The only asset of real value beingpurchased here is the 100% Participation Interest, which is being purchaseddirectly from FDIC in its capacity as receiver.
I understand that it is the PNO'sposition that the FDIC is a federal agency and therefore cannot be an entityunder Section 801.1(a)(2). Therefore, the Section 7 A(c)(4) exemption wouldapply to any asset purchases from the FDIC. In this case, would you concur thatmy client's acquisition of the 100% Participation Interest and information rightsfrom the FDIC as receiver be considered exempt from the Act?
If these asset acquisitions would not beconsidered exempt under 7A(c)(4) for some reason, would the acquisition of theResidual Interest nevertheless be considered exempt under 802.1 as a transactionin the ordinary course of business if the Bank continues to hold residualinterests in other credit card receivables?