Staff: Nancy Ovuka
Response: 11/13/92 Called [redacted]. Both "secured loans" and "financing leases" are
lease financing transactions. In "secured loans", seller does not take "title",
but does have a security interest in leased equipment. Question: Is entire
lease portfolio of sub being acquired? If not, exempt under 7A(c)(1). Smith
and Sharpe concur. NMO
File #: 9211003 [PDF 194KB]
(redacted) November 10, 1992
Nancy Ovuka, Esq.
Dear Ms. Ovuka:
Further to our telephone conversation yesterday, this letter requests an informal interpretation from the staff as to the applicability of § § 7A(c)(2) and 7A(a)(3)(A) of the Clayton Act, as amended (the "Act") to the acquisition of a lease portfolio consisting of [redacted].
The Secured Loans(PNO staff note: form of
Title to the [redacted] is held by the [redacted] but the [redacted] are responsible for and control the [redacted]. In the event of a default under the loan by an [redacted] (who is Seller's obligor), Seller has the right to demand that the [redacted] make payment directly to Seller (if the [redacted] is not already paying Seller directly), and Seller is entitled to exercise its remedies under the UCC with respect to the [redacted] which, however, remains subject to the [redacted]. (PNO staff note: title seems fairly meaningless here)
Purchaser will acquire from Seller the debt owed by the [redacted] to Seller and will assume Seller's security interests in the [redacted] and the [redacted].
The Financing Leases
Purchaser will acquire Seller's title to the [redacted] subject to the Financing Leases.
Value of Secured Loans and Financing Leases
The staff has previously taken the position that the acquisition of a leveraged [redacted] is not exempt from the Act under § 7(A)(c)(2) on the ground that the acquisition of the lease is tantamount to the acquisition of the [redacted] asset. See ABA Premerger Notification Practice Manual, Item 25. However, it is unclear whether the staff in taking that position has been presented with the situation where the portfolio consists both of secured loans and financing leases. The Secured Loans should be distinguished from the Financing Leases on a number of grounds.
First, in the case of the Secured Loans, Purchaser does not acquire title to the [redacted] equipment. The Purchaser only acquires a loan which is secured by a security interest in the [redacted] and the [redacted] to which it is subject. Purchaser cannot acquire title to the [redacted] subject to a
[redacted] unless its borrower (the [redacted]) defaults and, in exercising its UCC remedies, Purchaser acquires and retains title to the [redacted] on account of its loan.(2)
Second, the purchase of the Secured Loans is very similar to the purchase of commercial loan accounts and of mortgages which the staff has previously deemed exempt from the Act. See ABA Premerger Notification Practice Manual, Item 26. As with commercial loans and mortgages, the Purchaser will have no right to proceed against the assets which secure its debt unless there is a default in payment to it. If it does proceed, Purchaser must act in a commercially reasonable manner under the UCC. (UCC § 9-504) Therefore, it should be concluded that in acquiring the Secured Loans, Purchaser is buying "obligations" which are exempt from the notification requirements under § 7A(c)(2) of the Act.
§ 7A(a)(3) and The Financing Leases
Under 15 CFR § 801.21(b), the value of the Secured Loans as "obligations" is not to be aggregated with the value of the [redacted] in determining whether the threshold under § 7A(a)(3)(B) has been met:
Therefore, in the event the value of the equipment subject to the [redacted] alone does not equal $15 million, the acquisition of the [redacted] should not be subject to the Act's notification requirements.
Thank you for your kind consideration. We look forward to receipt of the staff's informal interpretation as soon as practicable. In the meantime, you should feel free to telephone me with any questions or comments.
1. We are currently uncertain of the actual value of the [redacted] subject to the [redacted] since our review is not get [sic] complete but believe it may be well less than $15 million.
2. The usual practice of most secured lenders of [redacted] however, under the UCC is to sell the [redacted] at either public auction or private sale and to retain the proceeds on account of the debt.