Question
(redacted)
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Re:
Dear : Ms. Guelzow:
I am writing to ask the Commissions advice on the applicability of two exemptions to the Hart-Scott-Rodino Act. The first exemption is set forth in Section 7a(c)(11) of the Act, 15 U.S.C. 7a(c)(11) of the Act, 15 U.S.C. 18a(c)(11) (concerning acquisitions by a bank in the ordinary course of its business), and the second is set forth in Rule 802.63, 16 C.F.R. 802.3 (concerning certain acquisitions by creditors and insurers).
The Proposed Transaction.
Our clients, a domestic corporation, is an investor holding title to a number of large pieces of equipment (consisting principally of aircraft and railroad rolling stock) through the use of lease financings (the investment assets). The lease financings through which our client obtained the assets were of the type described in the Commissions Statement of Basis and Purpose (SBP), 43 Fed. Reg. at 33502 (1978).
The wholly-owned equipment leasing subsidiary of a large domestic bank (Bank Subsidiary, Inc.) has approached our client and expressed its interest in purchasing substantially all of the investment assets described above. Bank Subsidiary, Inc. proposes to acquire the assets subject to the existing lease financings and, like our client, will hold the assets for investment purposes only. We seek confirmation that under these facts no pre-merger filing will be required because the proposed transaction falls within one of the two exemptions noted above.
Section 7A(c)(11)
The statutory exemption contained in Section 7A(c)(11) applies to acquisitions solely for the purpose of investment made by any bank, banking association, trust company, investment company, or insurance company, as long as the acquisition is, like our proposed transaction, in the ordinary course of the acquiring persons business. We believe that Bank Subsidiary, Inc. should be considered a bank within the meaning of the statutory exemption.
Our only hesitation on this subject is caused by Rule 802.64(1), a rule unrelated in content or purpose to Section 7A(c)(11), but which defines bank within the meaning of 15 U.S.C. 8-b-2(a)(2). What concerns us is that 80b-2(a)(2) does not include a banks subsidiary within its scope, though this limitation is modified by Rule 802.64(12), which separately defines a banks subsidiary as an exempt institutional investor. Subsection (12) of Rule 802.64 notwithstanding, if the definition of bank in 15 U.S.C. 80b-2(a)(2) were used to interpret Section 7A(c)(11), Bank Subsidiary, Inc., would not fall within the scope of Section 7A(c)(11).
We believe that such a narrow reading of the statutory exemption would render it of extraordinarily limited utility, as it is standard industry practice for banks acquiring lease financing assets to do so through wholly-owned investment subsidiaries. Furthermore, such an artificial reading of the statutory exemption would be inconsistent with the policy of the Act that requires filings to be made by the ultimate parent entity of the acquiring and acquired persons. It would also disadvantage companies operating through wholly-owned subsidiaries, as opposed to those operating through divisions. This preference for one corporate structure over another where the structural difference has no antitrust significance would be inconsistent with the Commissions historic practice.
It should be noted that because the particular assets involved are subject to net leases in which the owner has no control or responsibility for the operations, maintenance or use of the assets, managerial control over the investment assets will be unaffected by the proposed transaction. Under these circumstances, if a filing were to be required for our rather typical investment transaction, large numbers of filings would be required by the Commission for transactions lacking any antitrust significance whatsoever. Accordingly, while we have concluded that this exemption should apply under our facts, we would appreciate the Commissions guidance in this matter.
Rule 802.63(a)
With respect to the second exemption (that which is set forth in Rule 802.63[A], it is not clear whether the transaction we have described constitutes the establishment of a lease financing, even though as a result of the transaction Bank Subsidiary, Inc. will simply be stepping into our clients shoes. A secondary question is whether Bank Subsidiary, Inc. would be a creditor acquiring assets within the meaning of the rule. The SBP 43 Fed. Reg. at 33501-33503, does not define which entities come within the class of creditors, nor state whether the list provided in the SPB is meant to be exclusive. Although these are interesting questions, we seek the Commissions views on this second exemption only if you disagree with our conclusion that the proposed transaction with Bank Subsidiary, Inc. would be entitled to the exemption described in Section 7A(c)(11).
Since this is a transaction we hope to close by year end, we would appreciate a prompt response confirming our reasoning, as well as any other comments you might have. Thank you for your assistance.
Very truly yours
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