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Banking Interpretations


October 20, 1993

[ ]

Dear [ ]:

I am writing in belated reply to your letter of this past June concerning the legal lending limit issues raised in connection with the syndication of backstop credit facilities for [ ].

[ ] is a special purpose subsidiary of [ ] that purchases trade receivables and funds those purchases by issuing commercial paper. The payment of the commercial paper is guarantied by liquidity facilities, in the form of a standby letter of credit and a syndicated credit agreement from [ ] (the "Banks"), secured by the trade receivables. If the credit facility is called upon to repay maturing commercial paper or fund the purchase of receivables, the Banks would be required to lend money to [ ]. Under this structure, [ ] is the borrower of the full amount of the credit facilities and accordingly the size of the credit facilities is limited by the Banks' per borrower lending limits.

The proposed modification in the structure of the facilities would remove that limit on the aggregate size of the transactions that may be performed. The proposal is to create a direct relationship between the sellers of the trade receivables and the Banks providing credit support. The Banks would agree that upon the occurrence of an event that triggered their obligations to provide an extension of credit, they would purchase designated receivables from [ ]. The sole source of repayment would be the underlying receivables.

Under the structure you have proposed [ ] would not be obligated to repay extensions of credit. Instead, the Banks providing the credit facilities, as purchasers of trade receivables on a non-recourse basis, would be treated for lending limit purposes as having made extensions of credit to the individual obligors on those receivables.

I hope I have described the structures and lending limit consequences with sufficient accuracy to satisfy your needs.

Very truly yours,

Michael Schussler
Assistant Counsel