Question
(redacted)
May 16, 1991
Patrick Sharpe
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Dear Mr. Sharpe:
Pursuant to our recent telephone conversation, I am writing this letter to acquaint you with the following facts in an effort to determine whether the transaction in question would be reportable under the Hart-Scott-Rodino Act.
Who has right to 50% of profits or 50% of assets on dissolution
A number of individuals (the Original Partners) formed a limited partnership (the Partnership) to develop a regional shopping center (the Shopping Center) on land owned by the Partnership. One of the Original Partners was the sole general partner (the General Partner) and owned more than 50% of all partnership interests. All the rest of the Original Partners were limited partners.
After the Shopping Center was completed and opened to the public for business (although not then fully leased), a group of institutional investors consisting of pension plans and government employee retirement systems (collectively, the Institutional Investors) entered into two simultaneous transactions with respect to the Shopping Center:
The Partnership Interest Acquisition
The Institutional Investors formed a general partnership among themselves (the equity {Partnership) which purchased a 50% limited partnership interest in the Partnership from the Original Partners. For your information, the purchase price of such interest was in excess of $15,000,000.
The Loan
not controlled? Correct - not controlled
The Institutional Investors formed a mirror-image second partnership among themselves (the Lending Partnership) which mad a loan in excess of (redacted) (the Loan) to the Partnership. The Loan which was secured by a first mortgage encumbering the shopping Center as well as by a cash escrow in the sum of $3,00,000, provide for monthly payments of interest only, payable over a 15 year term.
The General Partner personally guaranteed to the Lending Partnership:
(a)the payment of all leasing costs incurred for space which had never been leased in the Shopping center; and
(b)all interest payments to the Lending Partnership until such time as the Shopping Center is leased to a stabilized level (it was anticipated by all parties concerned that prior to the full lease-up of the Shopping Center, the General Partner would have to subsidize the interest payments to the Lending Partnership).
At a point in time after the simultaneous closing of the two transactions, the General Partner defaulted in its obligation to provide the Partnership with sufficient out-of-pocket funds to make the interest payments on the Loan. As a consequence, the Loan went into default.
After the Loan went in to default, the Institutional Investors met with the General Partner and negotiated a work-out of the problem. The terms of the work-out were that in exchange for the Lending Partnerships agreement to release the General Partner under his guarantee, the General Partner would cause the Partnership to deliver a deed in lieu of foreclosure to the Lending Partnership and also to assign to the Lending Partnership 100% of the $3,500,000 in the cash escrow. Had this agreement not been reached, the Lending partnership would have foreclosed its mortgage. The work-out transactions described in this paragraph are expected to be consummated imminently.
Section 802.63 (a) of the Regulations provides that an acquisition . . . in connection with a bona fide debt work-out shall be exempt from the requirements of the act if made by a creditor in a bona fide credit transaction entered into in the ordinary course of the creditors business.
Premerger Office
It is our belief that the work-out transaction described in this letter falls within the scope of Section 802.63 (a) and should be exempt from any reporting requirement. However, because of the comparative complexity of the transaction, I wanted to run it by the Department just to be sure.
I would appreciate hearing from you after you have had a chance to review this letter.
Thank you very much.
Very truly yours,
(redacted)
STAFF COMMENTS: Called (redacted) 5-17-91 - Letter has some problems. Basically agree this is exempt under 802.63. Confirmed mirror image partnership is its own UPE. (no one upstream that is a competitor). PS RS Concurs
cc: (redacted)