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Bank of America Subscription Financings

Our Client
Bank of America, as agent or sole lender on subscription financings

The Opportunity
Haynes and Boone was involved in the early development of subscription lines as a product, and has represented major institutions in these financings since 1988.  Ten years ago, we helped Bank of America enter this space, and it is now the dominant institution on the lending/agent side.

Over the years, an unresolved ERISA issue had been hindering the efficient closing and operation of these deals.  We took the conservative position that the ERISA issue did, in fact, exist, and that the best approach was to obtain individual exemptions for each deal from the ERISA Prohibited Transaction rules.  Each deal involved an application for exemption to the Department of Labor, a process that often took several months.

Counsel for other banks making these loans took a less conservative approach, which we believed didn’t adequately address the risks for the lenders.

The Haynes and Boone Solution
Largely because of our risk-management approach on behalf of our client, Haynes and Boone had strong, effective relationships with the professionals at the Department of Labor.  As the volume of our subscription financings for Bank of America increased, Haynes and Boone lawyers determined that we should approach the DOL for a “global exemption” to the ERISA Prohibited Transaction rules, which would apply to any like-structured deal in which Bank of America was the agent or sole lender.

We worked for more than a year to draft language for a global exemption, respond to DOL inquiries, meet with its representatives, and ultimately obtain the global exemption we were seeking.  The DOL granted the exemption in February 2004, but made its effective date retroactive to January 2003.

The Outcome
The global exemption gave Bank of America a competitive edge, saving them considerable time and money on each subscription financing.  At the time, they were the only bank to have a global exemption, and the process confirmed to the broad market that our more conservative risk assessment of the ERISA issue was the accurate one.

Bank of America continues to hold its position as market leader in subscription financing, and our initiative and practical analysis that went against the risk-taking grain of other banks and their law firms turned out to be the most innovative and exactly the right approach.

For more information about this case study, please contact Tim Powers at +1 214.651.5610 or   or Ellen McGinnis at +1 202.654.4512 or  .