1107015 Informal Interpretation

15 USC 18a(c)(1) - 7A(c)(1)
Michael Verne

– Agree.


From: (Redacted)
Sent: Monday, July 18, 2011 9:20 AM
To: Verne, B. Michael
Cc: (Redacted)
Subject: Question re: ordinary course of business exemption


We represent theacquiring party in a proposed acquisition and we would like to confirm with youthat the "ordinary course of business" exemption provided in Section7A(c)(1) and 16 CFR 802.1(a) applies to the proposed transaction. We believethat an HSR filing is not required, since the proposed transaction qualifies asan acquisition of credit card receivables in the ordinary course of business.

For the purposes of thisanalysis, please assume that the HSR Act's size-of-person andsize-of-transaction tests are satisfied.

Company A, a bank holdingcompany, intends to acquire from Company B, also a bank holding company, all ofthe outstanding voting securities of Bank B1, a state-chartered bank, forapproximately $3.5 billion (the "Bank Stock Purchase"). Thistransaction is subject to Section 3 of the Bank Holding Company Act and thus isexempt from the requirements of the HSR Act under Section 7A(c)(7).

Company B also owns BankB2, a bank that is primarily engaged in issuing credit cards to Company B'scustomers. In particular, Bank B2 issues credit cards to (i) Bank B1 'scustomers, (ii) Company B's U.S. wealth management customers, and (iii)customers of Company B's foreign bank subsidiaries who own homes in the U.S.(the "cross-border customers").

Simultaneously with theclosing of the Bank Stock Purchase discussed above, Company A's banksubsidiary, Bank A, will acquire from Bank B2 the portion of Banks B2'sportfolio of credit card receivables that relates to Bank B1 's customers. Thecredit card receivables to be acquired have a net book value of $179.1 millionand the consideration that Bank A is paying for these receivables is equal tonet book value less an allowance for loan losses of approximately $14 million -or approximately $165 million. Bank B2 will retain the credit card accounts andreceivables relating to Company B's other customers (i.e., the U.S. wealthmanagement customers and the cross-border customers), which together representapproximately 16% of its current credit card business.

Bank A is currentlyengaged in the ordinary course of business in issuing credit cards to CompanyA's customers. Bank B2 is retaining a sizable portfolio of credit card accountsand it is not exiting the business of issuing credit cards. Indeed, afterconsummation of the proposed transaction, Bank B2 will continue to issue creditcards to Company B's wealth management and cross-border customers. Nor is thereany non-compete provision in the credit card portfolio purchase agreement thatprevents Company B and Bank B2 from expanding their retained U.S. credit cardoperations.

Based on prior PNOinformal interpretations of the "ordinary course of business"exemption in connection with the acquisition of financial assets likereceivables and loans, we believe that the acquisition of the credit cardportfolio qualifies as an acquisition of credit card receivables in theordinary course of business. In particular, we rely on Interpretation #7 of thePremerger Notification Practice Manual (ABA Premerger Notification PracticeManual, 4th Ed., at 11), which indicates that the exemption is available aslong as the seller "is not exiting the business altogether.'"Similarly, in an April 6, 2005 interpretation, the PNO advised that atransaction involving the purchase of virtually all the receivables held by acompany was exempt under the ordinary course of business exemption since theseller would continue to operate and generate receivables (see http://www.ftc.gov/bc/hsr/informal/opinions/0503027.htm). Also, in a February 10, 2009 interpretation, the PNO advised that atransaction involving the purchase of all or substantially all of the creditcard accounts held by the seller was exempt under the ordinary course ofbusiness exemption (see http://www.ftc.gov/bc/hsr/informal/opinions/0902004.htm).

For the foregoingreasons, we believe that the proposed purchase of a credit card portfolioqualifies for the ordinary course of business exemption from the requirementsof the HSR Act, pursuant to Section 7A(c)(1) and 16 CFR 802.1(a).

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