1211004 Informal Interpretation

Michael Verne

– Agree.


From: (Redacted)
Sent: Wednesday, November 07, 2012 6:20 PM
To: Verne, B.
Cc: (Redacted)
Subject: question regarding application of 16 C.F.R. 802.2(b)
Attachments: 0406008.pdf


Iam writing to confirm application of the exemption under 16 C.F.R. 802.2(b),relating to treatment of "used facilities," to the facts below.


Buyeris an affiliate through a common ultimate parent entity ("HoldingCompany") of Company A, the lessee and operator of a waste-to-energyfacility (the "Facility") owned by Lessor. Lessor is in the businessof providing financing, and has held its interest in the Facility in theordinary course of its business since the Facility was built new in 1992.(Technically the interest is held by an owner trustee for the benefit of Lessorand controlled, for HSR purposes, by Lessor). First Operator was the solelessee and operator of the Facility when it was built new in 1992. In 1997,First Operator was operating the Facility at a loss and entered into atransaction with Company A in which First Operator assigned all of its rightsunder the lease to Company A, and the lease between Lessor and First Operatorwas amended and restated to reflect this assignment and to keep First Operatorobligated under the lease to pay a portion of the rent for the Facility toLessor, which obligation was backed by security provided by First Operator'sparent company. Company A has been the sole and continuous operator of theFacility since 1997. In 2005, Company A was acquired by Holding Company as partof a larger transaction, and continues as an indirect, wholly-owned subsidiaryof Holding Company. (The transaction in which Holding Company acquired CompanyA was reported under the HSR Act without incident). Buyer now proposes toacquire Lessor's interest in the Facility.


Thisacquisition appears exempt under 16 C.F.R. 802.2(b), provided that:

-"the facility is acquired from a lessor that hasheld title to the facility for financing purposes in the ordinary course of thelessor's business,"

-"by a lessee that has had sole and continuouspossession and use of the facility since it was first built as a newfacility."

Thefirst condition is plainly satisfied here, because Lessor holds and has at allmaterial times held its undivided interest in the ordinary course of itsbusiness of providing financing. We understand that the fact that the interestis the beneficial ownership in the "title to the facility" (rather thana direct ownership of the title) makes no difference. The second conditionrequires more analysis, but Informal Interpretation 0406008, attached andavailable at http://ftc.govlbc/hsrlinformal/oPinions/0406008.htm, seems to beon point. In that interpretation, a transaction was non-reportable where abuyer was the successor-in-interest to the lease interest held by the firstoperator of the facility.

Here,as in Informal Interpretation 0406008, First Operator caused the Facility to bebuilt, was the lessee in the original transaction with Lessor, and had sole andcontinuous possession and use of the Facility. Company A in essence succeededto First Operator's rights under that original lease, and assumed all operatingresponsibility of First Operator relating to the Facility. Company A had soleand continuous possession and use of the facility after it succeeded to FirstOperator's right. Both Company A and Buyer are wholly-owned subsidiaries oftheir common ultimate parent entity, Holding Company. Under these Circumstances,do you agree that Company A would be deemed to have stepped into theshoes of First Operator as the "lessee that has had sole and continuouspossession and use" of the Facility, and that

Buyer,as a subsidiary of Holding Company and affiliate of Company A, is thereforeexempt under Section 802.2(b) from reporting this acquisition?

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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