Question
Dear Ms. Ovuka:
This letter is written as a follow-up to our telephone conference on Wednesday, March 10, 1993, concerning exemption from the reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “Act”). As discussed, we have outlined below the terms of a transfer of a [redacted] (the “Facility’) in a transaction which we believe should be exempt from the Act’s reporting requirements under either the “ordinary course of business” exemption (Section 7A(c)(1)) or the “finance lease” exemption (Rule 802.63).
1. Description of the Transaction. In 1990, an industrial company (the “Industrial User”) determined that it desired to have the Facility constructed on its premises in order to provide certain of its operations with [redacted]. After considering a variety of tax, accounting and other matters, the Industrial User concluded that the preferable way to achieve its goal was to have the Facility owned, constructed, operated and financed “off-balance sheet”. Accordingly, the Industrial User contracted with a developer (the “Developer”) to own, construct, operate and arrange financing for the Facility on a turn-key basis.
It was determined to obtain financing for the Facility in two stages, with construction loans beginning about the time construction of the Facility commenced and permanent financing replacing the construction loans when construction of the Facility was completed (including satisfactory completion of certain start-up and performance income generated by the output of the Facility (the sale of [redacted] to the Industrial User). We believe the Tolling Agreement should be viewed as the economic equivalent to a lease in a sale-leaseback transaction. The Industrial User (and sponsor of the project) has placed its credit behind the project by incurring obligations in the Tolling Agreement intended to ensure that sufficient funds are available to repay the debt incurred to construct and operate the Facility. Similarly, in a lease financing, the financing party looks to the credit of the lessee and the rent payments are structured to ensure repayment of the related financial obligations. The sale of the Facility from the Company to the Partnership is the economic equivalent of the sale of the underlying asset to the financing party in a lease financing which would be exempt under Rule 802.63. Accordingly, we also believe the transfer of the Facility should be exempt from filing under the Act due to Rule 802.63. 1
[Redacted] and I are available to discuss the foregoing with you and to answer any questions you many have. We look forward to hearing from you.
Very truly yours,
[redacted]
Ms. Nancy Ovuka
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
VIA FACSIMILE
Of course, if the Partnership had acquired the Facility as a capital contribution in connection with its formation, or had itself taken title from the contractor that constructed the turn-key facility, a filing under the Act would not be necessary. We believe that the presence ofthe non-operating Company, which has no actual or potential antitrust significance, should notchange this result.