Question
November 27, 1992
Nancy Ovuka
Federal Trade Commission
Room 303
Sixth Street and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Request for Informal Opinion
Dear Ms. Ovuka:
This is a follow-up to my phone conversation of today regarding a fact situation and the applicability of the Hart Scott Rodino filing requirements to that fact situation. You asked that I provide you with a letter requesting an informal opinion. The purpose of this letter is to request that opinion.
Facts
My client is an operating subsidiary of a national bank engaged in equipment leasing activities. It proposes to purchase approximately $42 million in leases, including title to the underlying leased equipment from the leasing subsidiary of a foreign bank. The foreign banks leasing subsidiary is in the process of downsizing its operations. My client is interest in hiring 12 of the foreign bank subsidiarys personnel, and in doing so also wants to acquire the $42 million in leases. The personnel hired by my client would operate offices located in [redacted]. (PNO staff note: loan organization, not lease financing)
My client is in the business of buying and selling leases together with the underlying property as well as lease originations. The $42 million dollars of leases and leased property in the proposed transaction would represent less than 10% of the assets of the foreign bank leasing subsidiary. The foreign bank leasing subsidiary would continue to operate. No voting securities or other securities would be involved in the transaction, only leases and leased equipment. Although the underlying assets are included, the leases involved are full pay-out leases in that the property leased would have little, if any, residual value at the end of the lease term.
Discussion
The Hart Scott Rodino Act generally exempts from the filing requirements acquisitions of goods or realty transferred in the ordinary course of business and acquisitions of bonds, mortgages, deeds and trusts or other obligations which are not voting securities. Section 7A(c)(1) and (2).
In this case, the purchaser is engaged in the business of purchasing and selling leases in the ordinary course of business including the purchase and sale of the property leased. The phrase ordinary course of business is not defined in either the act of the regulations.
Regulations to the Hart-Scott-Rodino Act, at Section 802.1, provide that if as a result of an acquisition (PNO staff note: of goods or realty), the acquiring person will hold all or substantially all of the assets of the other entity or an operating division thereof, the acquisition would not be in the ordinary course of business. In this case, my client would not purchase or hold all or substantially all of the assets of an entity or any of its operating divisions, nor would it purchase any voting securities. Rather, a company engaged in the ordinary course of business in the purchase of equipment leases including the underlying equipment would be purchasing leases and equipment. (PNO staff note: purchases of used durable goods not exempt)
The leases themselves could be viewed as other obligations and therefore within the exemption set forth in Section 7(A)(c)(2), of bonds, mortgages, deeds and deeds of trust of other obligations which are not voting securities. (PNO staff note: no!)
As we view the fact situation, the Hartz (sic) Scott Rodino notification should not be required because the transaction would be exempt under Section 7(A)(c)(1) and Section 7(a)(C)(2) of the Clayton Act.
We trust that you will concur with our position.
I would appreciate it if you could review the matter and respond on Monday, November 30, 1992, if possible. We are trying to facilitate a closing before year-end. If a filing is necessary we must commence the process immediately.
Please call me at [redacted] with your response of if you have any questions.
Sincerely,
[redacted]
cc: (redacted)