Code of Federal Regulations Title 31. Money and Finance–Treasury § 31.800.306 Lending transactions
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(a) The extension of a loan or a similar financing arrangement by a foreign person to a U.S. business, regardless of whether accompanied by the creation in favor of the foreign person of a secured interest over securities or other assets of the U.S. business, shall not, by itself, constitute a covered transaction.
(1) The Committee will accept notices or declarations concerning a loan or a similar financing arrangement that does not, by itself, constitute a covered transaction only at the time that, because of imminent or actual default or other condition, there is a significant possibility that the foreign person may obtain control of a U.S. business, or acquire equity interest and access, rights, or involvement specified in § 800.211(b) over a TID U.S. business, as a result of the default or other condition.
(2) Where the Committee accepts a notice or declaration concerning a loan or a similar financing arrangement under paragraph (a)(1) of this section, and a party to the transaction is a foreign person that makes loans in the ordinary course of business, the Committee will take into account whether the foreign person has made any arrangements to transfer management decisions, or day-to-day control over the U.S. business to U.S. nationals or, as applicable, excepted investors for purposes of determining whether such loan or financing arrangement constitutes a covered transaction.
(b) Notwithstanding paragraph (a) of this section, a loan or a similar financing arrangement through which a foreign person acquires an interest in profits of a U.S. business, the right to appoint members of the board of directors of the U.S. business, or other comparable financial or governance rights characteristic of an equity investment but not of a typical loan may constitute a covered transaction.
(c) An acquisition of voting interest in or assets of a U.S. business by a foreign person upon default or other condition involving a loan or a similar financing arrangement does not constitute a covered transaction, provided that the loan was made by a syndicate of banks in a loan participation where the foreign lender (or lenders) in the syndicate:
(1) Needs the majority consent of the U.S. participants in the syndicate to take action, and cannot on its own initiate any action vis-[agrave]-vis the debtor; or
(2) Does not have a lead role in the syndicate, and is subject to a provision in the loan or financing documents limiting its ability to:
(i) Control the debtor such that control for purposes of § 800.208 could not be acquired; and
(ii) Exercise any access, rights, or involvement specified in § 800.211(b).
(1) Example 1. Corporation A, which is a U.S. business, borrows funds from Corporation B, a bank organized under the laws of a foreign state and controlled by foreign persons. As a condition of the loan, Corporation A agrees not to sell or pledge its principal assets to any person. Assuming no other relevant facts, this lending arrangement does not alone constitute a covered transaction.
(2) Example 2. Same facts as the example in paragraph (d)(1) of this section, except that Corporation A defaults on its loan from Corporation B and seeks bankruptcy protection. Corporation A has no funds with which to satisfy Corporation B's claim, which is greater than the value of Corporation A's principal assets. Corporation B's secured claim constitutes the only secured claim against Corporation A's principal assets, creating a high probability that Corporation B will receive title to Corporation A's principal assets, which constitute a U.S. business. Assuming no other relevant facts, the Committee would accept a notice of the impending bankruptcy court adjudication transferring control of Corporation A's principal assets to Corporation B, which would constitute a covered control transaction.
(3) Example 3. Corporation A, a foreign bank, makes a loan to Corporation B, a U.S. business. The loan documentation provides Corporation A the right to appoint a majority of the board of directors of Corporation B and the right to be paid dividends by Corporation B. These rights are characteristic of an equity interest but not of a typical loan. Also, as a result of the transaction, under the terms of the loan documentation, Corporation A has the power to determine, direct, or decide important matters affecting Corporation B. This loan is a covered control transaction.
(4) Example 4. Corporation A, a foreign bank that is not an excepted investor, makes a loan to Corporation B, an unaffiliated TID U.S. business. The loan documentation provides Corporation A the right to appoint one out of fifteen seats on Corporation B's board of directors and the right to be paid dividends by Corporation B. These rights are characteristic of an equity interest but not of a typical loan. However, assuming no other relevant facts under the terms of the loan documentation, Corporation A does not have the power to determine, direct, or decide important matters affecting Corporation B. This loan is a covered investment.
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