– Agree. Update: November 9, 2015. This no longer reflects the position of the PNO. See also 1511001.
Question
From: (Redacted)
Sent: Friday, November 11, 2011 11:08 AM
To: Verne, B.Michael
Subject: HSR exemption confirmation -wind acquisition
Mike,
I would be grateful ifyou could provide your opinion on the reportability of the followinghypothetical transaction.
Purchaser proposes to acquire100% of the LLC interests in Wind Power LLC, a limited liability company thatowns 100% of the LLC interests in Project LLC. Wind Power LLC is a holdingcompany, with no other assets or holdings aside from the interests in ProjectLLC. Project LLC owns assets consisting of leasehold rights to real property,contracts, and permits, and in addition, structures and improvements on theleased real property, consisting primarily of towers and wind turbines, andsupporting infrastructure, including a substation and operations andmaintenance building. The various contracts and permits are essential in orderfor Project LLC to generate and sell commercial power created by the turbinesoperating on the leased real property.
Project LLC currentlydoes not generate any revenue except perhaps certain revenues related totesting/debugging. However, Purchaser's proposed acquisition of Wind Power LLCwill likely close after the wind turbines are commercially operational and havebegun to generate revenues for Project LLC from the sale of power. The partiesanticipate that even if closing of the transaction does not occur in the nextsix months, Project LLC will have generated well below $5 million in revenuespre-closing, in the aggregate.
Based on these facts, pleaselet me know if the following conclusions are consistent with HSR regulations.
16 C.F.R. 802.2(a) -The "new facilities" exemption is not applicable if ProjectLLC will be earning revenues from the commercial sale of power generated byProject LLC's wind turbines before closing.
16 C.F.R. 802.4-The acquisition of interests in an unincorporated entity such as an LLC isexempt from HSR notification requirements if acquisition of the underlyingassets held by such LLC would otherwise be exempt under other HSR regulations,including for example, the "unproductive real property" exemption setforth at 16 C.F.R . 802.2(c). (See, e.g., Informal Staff Opinion No.0806023, dated June 12, 2008.)
16 C.F.R. 802.2(c) -The "unproductive real property" exemption is applicable tothe hypothetical transaction, and the hypothetical transaction is therefore notreportable under the HSR Act, because:
oLeasehold interests in real property are equivalent to ownership of realproperty, for purposes of applying the 802.2(c) exemption. (See InformalStaff Opinion No. 0406012, dated July 1, 2004.)
o The wind turbines affixed to and operated on thereal property leased by Project LLC are properly classified as "structuresand improvements" as described in 802.2(c).
o Thewind turbines do not constitute a "manufacturing or non-manufacturingfacility" not considered "unproductive real property" pursuantto 802.2(c)(ii).
oThe contracts and permits held by Project LLC, which are inextricably connectedto the leasehold interests and structures and improvements held by Project LLC,are properly classified as "assets incidental" to the ownership ofthe real property leasehold rights, as described in 802.2(c). (See, e.g., InformalStaff Opinion No. 0806023, dated June 12, 2008.)
oThe entire group of assets held by Wind Power LLC (via Project LLC) areproperly entitled to the 802.2(c) exemption because they are limited to theleasehold rights in real property, structures and improvements on that realproperty (towers, turbines, infrastructure), and assets incidental to the samereal property (permits and contracts).
oThe assets held by Wind Power LLC will have generated less than $SM in revenuesin total, at the time of closing the transaction.