Question
From: (redacted)
Sent: Wednesday,March 01, 2006 11:10 AM
To: Verne,B. Michael
Subject: Questionunder 802.1 (I think)
I have an odd situation thatdoesn't fit neatly under any of the provisions of 802.1 but seems to me should,in concept, be an acquisition in the ordinary course. It's kind of a reverseoutsourcing arrangement.
X owns a plant. Some timeago, X allowed Y to construct a cogeneration facility on the premises of X'splant. Y sells the electricity from the cogeneration plant to third parties. Aby-product of the cogeneration facility is steam, which is created in boilersowned by Y as part of its cogeneration facility. Y supplies all of the steam backto X, for use in X's plant.
Y files for bankruptcy. Thebankruptcy trustee proposes to sell the boilers back to X. (Y will continue toown the rest of the cogen facility and will enter into a new contract to supplysteam to X.) The boilers are used durable goods but not held by either partyfor resale or leasing. The acquired person is not going to replace the boilers(because it is bankrupt). The boilers might look like a used facility under802.2, but they don't fit that language either.
What leads me to want tocharacterize them as ordinary course assets is that they don't produce anythingthat's resold to anybody. They produce steam (which if anything, would beclassified as current supplies) used captively by X because that's where theboilers are located. If X were just going out and buying new boilers for itsplant, the acquisition of those assets would clearly be exempt. Seems to me theanswer can't be different if the boilers happen to be used.
Have you got a shoe hornhandy?