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Date
Rule
7A(c) (1); 802.1(b)
Staff
Richard Smith
Response/Comments
12/4/94-Called writer who advised that A & B were selling a portion of their own assets and such assets were not held by divisions, subsidiaries or entities controlled by A or B. (He advised that A and B had subsidiaries, but they were not involved in this transaction.) I advised that under this fact scenario, the transaction was non-reportable under 7A(c)(1) and the principles set forth in ABA letter #25. -[note 1- (3pages regarding rules)]-[note 2- Staff meeting 5-13-94-The entering into the LMA agreement between A & B is not reportable. The subsequent acquisition (exercise of the option) is potentially reportable. It is the purchase of the whole business (including the airtime under the LMA agreement). After the exercise of the option, B will beneficially own the whole business.] - [note3-12/6/94 - PMN Staff-In the attached letter, a newly formed partnership (which is not controlled by any person and does not have a regularly prepared balance sheet) forms a wholly owned sub (Newco), which forms three wholly-owned corporate subs. The partnership has $39 MM in cash and loans to make three acquisitions. First, the partnership purchases assets from A (a $100 MM person) for $32.5. Since the partnership meets the three requirements of 801.11(e), i.e., is newly formed, not controlled and does not have a regularly prepared balance sheet, it can subtract what it will pay for A’s assets from its total assets, making it only a $6.5 MM person. (Two of the partners are a father and his grown son, who are investing independent finals in the partnership-no need to aggregate their holdings, in my views). Second, the partnership, through a wholly owned sub, will acquire the voting stock of a sub of B for cash and voting (and non-voting) securities of Newco, B is not a $100 MM person and the partnership is, at most, only a $35 MM person (the value of the assets purchase from A ($32.5 MM) plus the remaining cash not to be used for the purchase of B’s sub ($6.5 MM minus $4 MM = $2.5 MM); the Newco voting and non-voting securities are not assets of the partnership and would not appear as such on its balance sheet). Third, the partnership, through a wholly owned sub, will acquire the voting stock of a sub of C, with C not being a $100 MM person. The partnership’s size would be A’s asset s plus the financials of B’s sub, which will not make the partnership a $100 MM person. Assuming the three events get done in this order, I do not think any filings are needed. Please let me know your thoughts. Thanks

Question

Richard Smith
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580

 

            Re:      Applicability of Exemptions in 15 U.S.C. §§18a(3) ( b) and
                        18a(c) (1) to Sale of Assets

 

Dear Mr. Smith:

            I am writing to set forth my understanding of the advice which you gave me in the course of our telephone conversation on December 6.

            Our clients are two financial institutions (“Seller A” and “Seller B”, together the “Sellers”) engaged in a variety of activities, including the financing and acquisition of assets subject to leveraged lease arrangements. The Sellers have recently concluded an agreement pursuant to which they would sell (the “Sale”) certain assets 1 subject to such leveraged lease arrangements 2 to a diversified financial institution (the “Purchaser”).

            For Seller A, the assets to be sold represent:

                        (1)       significantly less than 1 percent of Seller A’s total assets;

                        (2)       approximately 1 percent (on a net receivable basis) of Seller A’s total portfolio of assets subject to leveraged lease arrangements; and

                        (3)       approximately 18.8 percent (on a net receivable basis) of the (redacted) included in Seller A’s portfolio of such assets.

            For Seller B, the assets to be sold represent:

                        (1)       significantly less than 1 percent of Seller B’s total assets;

                        (2)       less than 1 percent (on a net receivable basis) of basis) of Seller B’s total portfolio of assets subject to leveraged lease arrangements; and

                        (3)       approximately .8 percent (on a net receivable basis) of the (redacted) included in Seller B’s portfolio of such assets.                     

            For the leveraged leasing activities of the consolidated leasing group of the ultimate parent corporation (which is a financial institution) of which the Sellers are a part (“Consolidated”), the assets to be sold represent:

                        (1)       significantly less than 1 percent of the total assets of consolidated;

                        (2)       approximately 1 percent Ion a net receivable basis) of the total portfolio of assets of Consolidated subject to leveraged lease arrangements; and

                        (3)       approximately 3.74 percent (on a net receivable basis) of the (redacted) included in the portfolio of such assets of Consolidated.

            The (redacted) in the Sellers’ portfolio of assets are not managed separately from the other assets in the portfolio.

            In that the Sellers are engaged in the business of acquiring and financing assets subject to lease arrangements, and not solely in the business of financing (redacted) through lease arrangements, I understood you to say that the Sale would not constitute the sale of all or substantially all of the assets of a division. I also understood you to say that the Sale 3    would therefore be exempt from the notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), by virtue of 15 U.S.C. § 18a(c( (1), if the following conditions were also met:

            (1) the assets were subject to bona fide financing arrangements;

            (2) operational and managerial control of the assets would not change as a result of the sale;

            (3) the assets were subject to long-term leases or leases renewable at the option of the lessees;

            (4) the Purchaser was not a competitor of any of the lessees; and

            (5) the transaction was purely financial in nature

As discussed and as I have reconfirmed with the Sellers and Purchaser, all of these conditions are met. Accordingly, based on my conversation with you, I understand the Sale to be exempt from the requirements of the HSR Act.

            Please let me know by close of business on Friday, December 16 if I have misunderstood or mischaracterized the position of the Premerger Notification Office on the above points.[note 1]

                                                                                         (Redacted)

The assets subject to the lease arrangements constitute railroad cars.

One of the leases constitutes a so called “single investor lease” between one of the Sellers and alessee end user. In this transaction the Seller did not leverage its investment by borrowing part of thepurchase price from a third party lender. This lease, however, was a financing arrangement and hassubstantially all of the other attributes of a leveraged lease financing. Single investor leasetransactions represent a very small percentage of the Sellers’ portfolio of leased assets.

As discussd during our telephone conversation, one group of (redacted) subject to asingle investor transaction (see footnote 2) and with respect to a second group of (redacted) theoriginal leveraged lease has recently terminated and the Seller is presently negotiating a new leasewith a third party which may or may not be concluded by the date of the Sale. However, the totalvalue of the (redacted) represented by these two groups is less than $3,500,000. Accordingly,even if the sale of these assets would not be exempt as an acquisition in the ordinary course ofbusiness (the exemption applicable to the bulk of the transaction) under 15 U.S.C. §18(a) (3) (B),the sale of these (redacted) would be not reportable.

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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