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The balance at April 30, 1961, was and transatlantic route system. Princi$2,600,000, which is the maximum reserve pal operations base is located on leased amount required by the ordinance. This property at Kansas City Muncipal Airreserve account was built up by rentals port, Kansas City, Missouri, and its collected in excess of debt service principal overhaul base is located on charges. Hereafter, all rentals over and leased property at the Mid-Continetal above debt service charges will be paid nternational Airport, Kansas City, Misto a sinking fund and applied to pur- souri. The aggregate annual rental chase or redemption of bonds. It was under such leases in effect at March 1, originally estimated that by the end of
was approximately $6,250,000. the fiscal period in 1962 there would be TWA had lease agreements with three $180,000 in the sinking fund. However, other airports besides Kansas City. the figures for the fiscal year ending 1961 showed a balance in the sinking
(12) TWA showed good earnings in fund of $166,000.
1959 and 1960; however, substantial (8) The ordinance also required the
losses have been reported for 1961. The established of a guarantee fund of
company has incurred a heavy debt in $500,000, which has been attained. An
its program of fleet modernization. We other reserve called the operating fund
have no year-end figures at the present
time; however, for nine months ending has been established, as required by the
September 30, 1961, TWA reported total ordinance. This fund is to be held for estimated operating expenses of the city's
operating revenues were $290,000,000 and
a net loss of $12,700,000 as compared to airports for a period of six months in advance. This fund now totals $351,000,
the same period in 1960, when total while the total operating expenses for
operating revenues were $290,000,000 and
net earnings were $6,100,000. As of the year ending April 30, 1961, amounted to $576,000. In addition there is also a
September 30, 1961, TWA has cash of
$17,600,000 and U.S. securities of construction fund for extending, con
$15,900,000, current liabilities of $98,800,structing, or making general improve
000 and a long-term debt of $286,500,000. ments to the airport, which amounts to
The later figure is up from $84,900,000 $939,000.
of a year ago, reflecting additional long(9) These various funds have been built by the excess amounts of rental
term borrowings in connection with fleet
modernization. In this connection, payments not required for debt services. This fact indicates that the revenue
TWA's net investment in property and
equipment of September 30, 1961, was bonds are supported by properly man
$315,600,000 as compared to $204,900,000 aged operations and finances which are
the previous year. Tangible net worth now in a position to cover debt services
of TWA at December 31, 1960, was adequately. However, the strength of
$124,700,000. the issue lies in the ability of TWA to provide adequate rentals which will ulti- (13) The financial structure in back mately liquidate the issue.
of the subject bonds has improved to a (10) TWA is a subsidiary of Hughes
degree that indicates that the rental Tool Company, Houston, Texas, which is
payments from now on should be suffiengaged as a manufacturer of oil-well
cient to cover debt service and provide tools; the production and distribution of
a margin of safety as well. The financial motion pictures; and in the manufacture
stability of TWA is believed to be suffiof certain aircraft fuselage parts. As
cient to provide the necessary rental of December 31, 1960, it showed a net
payments to service the bonds. worth of $253,800,000, with an important (b) Ruling. We conclude that the part of the net worth being made up by
subject bonds are eligible for investment its investment in TWA.
by national banks, within the limitations (11) TWA is a leading airline nd is of Paragraph Seventh of section 5136 the only United States air carrier au- of the Revised Statutes (12 U.S.C. 24). thorized to provide service on a sched- (27 F.R. 6539, July 11, 1962. Redesignated uled basis on both a transcontinental 28 F.R. 8280, Aug. 13, 1963)
§ 1.111 Georgia State Authorities.
& 1.112 New Jersey Highway Authority. (a) Request. The Comptroller of the (a) Request. The Comptroller of the Currency has been requested to re- Currency has been requested to rule on consider the ruling of July 12, 1962, that whether the $40,000,000 New Jersey the bonds of various public authorities Highway Authority (Garden State Parkcreated by the State of Georgia are not way), Junior Revenue Bonds, Series One, general obligations of the State within
are eligible for investment by national the meaning of Paragraph Seventh of 12
banks. U.S.C. 24.
(b) Opinion. (1) The New Jersey (b) Opinion. The State of Georgia Highway Authority proposes to issue has created, by special acts of its Gen
$40,000,000 of revenue bonds to finance eral Assembly, nine public authorities (i) a contribution to an Interstate Highfor the purpose of constructing and fi
way (Freeway), (ii) construction of an nancing public buildings, bridges, high- interchange of the Garden State Parkways, and other public improvements.
way with the Freeway, and (iii) conAn Authority has the power to hold prop- struction of ramps and toll collection erty in its own name, to construct proj- facilities in Essex County, New Jersey. ects on land owned by the state, to bor
Heretofore, the Authority has not been money for any of its corporate permitted to collect tolls in Essex Counpurposes, and to issue its negotiable rev- ty, the busiest section of the Garden enue bonds payable solely from earnings.
State Parkway. Under recent legislaIt does not have the power to levy taxes tion the Authority will be able to do so nor to pledge property other than its
upon payment of $13,000,000 toward the earnings. The State Constitution au
cost of the Freeway. thorizes the State, its institutions and
(2) The bonds are to be dated Janupolitical subdivisions to contract for the
ary 1, 1962, and will mature January 1, long-term use of the facilities of an Au
1997. They are to be paid from the tolls thority and requires that appropriations
and other revenues of the Garden State be made sufficient to satisfy the pay
Parkway. These revenues, however, are ments required by such lease rental con
first applied to (i) New Jersey Highway tracts (Art. VII, Sec. VI, Par. I(a)).
Authority State-Guaranteed Parkway The General Assembly, in section 46 of
Bonds, Series A and Series B, $280,750,000 the General Appropriations Act of 1961,
due serially to 1988, and (ii) New Jersey has made the required appropriation for
Highway Authority General Revenue the current and future years and has
Bonds, $44,320,000 due serially to 1988, provided that payments on lease rental
and then to the subject bonds. The contracts shall constitute a first charge
subject bonds are not an obligation of on all such appropriations. The Su
the State of New Jersey or any political preme Court of the State of Georgia has
subdivision thereof, and no taxing power held that payments under such leases
is pledged to their payment. Net revconstitute obligations of the state for
enues available for debt service for the the payment of which the good faith of
years 1958 to 1961 have exceeded the the state is pledged. It has also held
estimates projected in 1954 for these that such lease obligations do not vio
years. If the pattern continues, earnlate the debt restriction and limitation
ings will be sufficient to service the debt provisions of the Constitution, and that
requirements. the constitutional and statutory provi
(c) Ruling. We conclude that the sions designed to ensure that state
subject bonds are eligible for investment monies will be available to permit pay
by national banks within the limitations ment of the bonds must be read to
of paragraph Seventh of R.S. 5136 (12 gether with those provisions. The net
U.S.C. 24). result of the foregoing is that the State
127 F.R. 6749, July 17, 1962. Redesignated of Georgia has solemnly undertaken to
28 F.R. 8280, Aug. 13, 1963) provide for the payment of the obligations of its duly constituted authorities. § 1.113 The Music Center Lease Com(c) Ruling. We conclude that the
pany, Los Angeles, California. subject bonds are general obligations of (a) Reguest. (1) The Comptroller of the State of Georgia within the meaning the Currency has been asked to rule on of paragraph seventh of 12 U.S.C. 24.
the eligibility of $13,730,000 Leasehold 127 F.R. 10251, Oct. 19, 1962. Redesignated Mortage Bonds of The Music Center 28 F.R. 8280, Aug. 13, 1963)
Lease Company, Los Angeles, Cali
fornia, for investment by national banks 12 U.S.C. 24. They are not special revunder the provisions of Paragraph enue obligations of a state, municipal Seventh, 12 U.S.C. 24.
government, or duly constituted author
ity thereof, and thus do not fall within (b) Opinion. (1) The Music Center
the exception for such securities conLease Company is a nonprofit corpora- tained in $ 1.2(c). They must, theretion acting for Los Angeles County and
fore, meet the requirements contained is not a municipal authority. Its prop- in either paragraph (a) or (b) of $ 1.2 in erty, assets, profits and net revenues are order to be eligible to be purchased for irrevocably dedicated to Los Angeles
investment by national banks. County except that all of its net revenues
(5) Paragraph (a) of § 1.2 provides will be used first to discharge its bonds, that in order to constitute an “investdebentures or other evidences of in
ment security” within the meaning of debtedness.
paragraph seventh, 12 U.S.C. 24, the (2) The County of Los Angeles owns
security must be a marketable obligacertain property in the Civic Center Area
tion, saleable under ordinary circumof downtown Los Angeles which it has
stances with reasonable promptness at leased to The Music Center Lease Com
a fair value and, (i) a public distribution pany for a period of 30 years. The Lease
of such securities must have been proCompany will construct, in accordance
vided for or made in a manner to prowith plans and specifications furnished
tect or insure the marketability of the by the County, a pavilion and related
issue; or (ii) other existing securities of facilities which it will lease to the County
the obligor must have such a public for a period of 30 years. The pavilion
distribution as to protect or insure the and facilities are for the use of the pub
marketability of the issue under conlic as an auditorium, opera house, music
sideration. hall and center. The cost of construc
(6) Paragraph (b) of $ 1.2 provides tion is estimated to be about $18,850,000.
that in the case of securities which do The Lease Company proposes to issue not meet the requirements of paragraph $13,730,000 in Leasehold Mortgage
(a) of $ 1.2 but which are issued by Bonds to finance the construction of the
established commercial or industrial pavilion and facilities. It is expected
businesses or enterprises that can demthat contributions estimated at $6,000,
onstrate the ability to service such 000 will provide the remainder of the
securities, the debt evidenced thereby financing. The bonds will have serial
must mature not later than ten years maturities beginning with $300,000 due after date of issuance, be sound and in 1965 and gradually increasing to
secure, and 75 percent of the principal $825,000 in 1991, the final maturity.
must be extinguished by maturity date These bonds have not been publicly
by substantial periodic payments. offered but will be sold on a private
(7) The securities under consideration placement basis. There has been no
will be sold on a private placement basis; registration with the Securities and Ex
there will be no public distribution, change Commission. Internal Revenue
There are no other obligations of the isService has ruled that the interest on
suer. The issuer cannot be considered these bonds is exempt from Federal
to be an established commerical entertaxes.
prise. Although it probably can demon(3) The basic security supporting the strate ability to service the debt which bonds is the lease to the County for the will be amortized to maturity, the final use of the pavilion. The pavilion is ex- maturity in 1991, exceeds the maximum pected to be completed by November 1, of ten years permissible under $ 1.2(b). 1964. Upon completion, the County will (c) Ruling. We conclude that the begin to make payments in the amount subject bonds fail to meet the requireof $845,000 per year. These payments ments of this part and accordingly are should be sufficient to cover the principal not “investment securities” within the and interest on the bonds until their meaning of 12 U.S.C. 24 and are not maturity. The bonds are further se- eligible for investment by national banks. cured by all buildings, improvements There is, however, no legal prohibition machinery, etc., constructed on or placed against their being accepted by national on the land which is involved.
banks as collateral for loans. (4) These securities are not exempt 127 F.R. 6924, July 21, 1962. Redesignated from the limitations and restrictions of 28 F.R. 8280, Aug. 13, 196's]
f 1.114 Federal National Mortgage As- (2) The bonds mature serially from sociation.
1963 to 1984. They are payable solely (a) Request. The Comptroller of the
from the revenues derived from the lease Currency has been requested to rule
of the dormitory facilities by the Authorwhether FNMA Short-Term Discount
ity to the State University of New York. Notes are eligible for investment by na
The lease agreement provides for an tional banks without limit.
annual rental suficient to cover debt (b) Opinion. In August of 1960 this
service requirements, and all other necoffice ruled that the FNMA Short-Term
essary charges. To date the University Discount Notes did not constitute invest
has made all required rental payments ment securities within the meaning of
when due. Occupancy rates for the paragraph seventh of R.S. 5136 (12
facilities have been very high, and there U.S.C. 24). This determination was
appears little likelihood of a shortage of based in part on the lack of a secondary
the necessary funds. The Authority has market for these notes. Because of this
never defaulted in the payment of its lack, it was our belief that these obliga
bond obligations. tions could not qualify as investment se
(c) Ruling. We conclude that the curities. At that time the sale of these
subject bonds are eligible for investment notes had been proceeding for only four
by national banks within the limitations months. Our conclusion, therefore, was
of paragraph seventh of 12 U.S.C. 24. reached without benefit of knowing what [27 F.R. 9377, Sept. 21, 1962. Redesignated the market reaction to these notes would
28 F.R. 8280, Aug. 13, 1963) be, and was aimed at protecting national banks against an investment which § 1.116 Massachusetts Turnpike Aumight prove unliquid. Experience under thority. the program, however, indicates that
(a) Request. The Comptroller of the there is, in fact, a ready market for the
Currency has been requested to rule on sale and resale of these notes. In addi
the eligibility of the $180,000,000 Massation, they compare favorably with the
chusetts Turnpike Authority, Boston general obligations of municipalities,
Extension Series A and Series B Revenue which may be purchased without limit. Bonds of 1962, dated January 1, 1962, due (c) Ruling. We conclude that the
January 1, 2002, for investment by nesubject notes are eligible for investment
tional banks under paragraph seventh by national banks without limit.
of 12 U.S.C. 24. [27 F.R. 6970, July 24, 1962. Redesignated (b) Opinion (1) The Massachusetts 28 F.R. 8280, Aug. 13, 1963)
Turnpike Authority was created in 1952 f 1.115 Dormitory authority of the State as a public instrumentality of the Comof New York.
monwealth of Massachusetts to con
struct, maintain, repair, and operate the (a) Request. The Comptroller of the
The Initial Currency has been requested to rule on
Turnpike, opened for traffic on May 16, the eligibility of the $8,630,000 Dormitory
1957, was financed by the $239,000,000, Authority of the State of New York,
3.30 percent Turnpike Revenue Bonds 3.60 percent Dormitory Revenue Bonds
(Series 1954) due in 1994. In 1954, prior of 1957 (State University of New York)
to the construction of the Initial Turnfor investment by national banks under
pike, this issue was ruled ineligible for the provisions of paragraph seventh,
purchase by national banks, under the 12 U.S.C. 24.
Investment Securities Regulation of this (b) Opinion. (1) The authority is a
Office. public benefit corporation, created in
(2) The instant issue is to finance 1944 to provide dormitories and related
the construction of the Boston Extenfacilities at colleges in the State of New
sion, a limited access toll expressway York. This issue was floated to help
which will bridge the 12 miles from the finance the construction of certain
eastern terminus of the Initial Turnpike dormintory facilities at various colleges to downtown Boston. Interest upon of the State University of New York.
these Bonds will be payable solely from These dormitories have been completed the net revenues derived from the operaand are now being utilized.
tion of the Boston Extension until the
1954 Bonds are retired. Similarly, no the Company's wool processing and spinredemption of the Extension Bonds is ning business. The lease is noncancelpermitted until that time. The Enabling able, and binds the Company to pay the Act provides that neither the full faith city over a period of 20 years, amounts and credit of the Commonwealth or its sufficient to pay the principal and interpolitical subdivisions, or their taxing est on the bonds until they have been power, are pledged to the payment of retired. In addition, provision is made either of these issues.
for the establishment of a sinking fund (3) The Initial Turnpike has been in reserve of one year's annual debt service operation for over five years. Net rey- requirement from the rentals. The enues have increased regularly. Bond credit quality of the issue clearly rests interest on the 1954 issue was covered upon the financial responsibility and his1.18 times in 1959, 1.30, in 1960, and 1.41,
tory of the lessee. The earnings records in 1961. Average annual debt service has and financial statements of the Company risen to 92 percent of coverage. Full
warrant the conclusion that the subject coverage can be expected soon if the bonds fall within section 2(c) of the Inpresent trend continues. The construc- vestment Securities Regulation of the tion of the Boston Extension, scheduled Comptroller. However, bankers are refor completion in 1965, can be expected minded that they must determine on the to result in a further favorable increase basis of their own review whether sécuin revenues through the inducement of a rities are suitable for investment. larger traffic volume on the Turnpike. (c) Ruling. We conclude that the subThe Reserve Account at the end of 1961 ject bonds are eligible for investment by equaled 17 months' interest on the national banks within the limitations of Bonds. It is expected to reach the re- paragraph seventh of 12 U.S.C. 24. quired two-year level next year.
(27 F.R. 9890, Oct. 6, 1962. Redesignated 28 (c) Ruling. We conclude that the
F.R. 8280, Aug. 13, 1963) $180,000,000 Massachusetts Turnpike
§ 1.118 Inter-American Development Authority, Boston Extension Series A
Bank. and Series B Revenue Bonds of 1962, do not at present qualify as “investment se- (a) Request. The Comptroller of the curities” within the meaning of Para- Currency has been requested to rule on graph Seventh of 12 U.S.C. 24. However, the eligibility of the obligations of the the $239,000,000 Massachusetts Turnpike
Inter-American Development Bank for Authority, 3.30 percent Turnpike Rev
investment by national banks under the enue Bonds (Series 1954) do qualify as
provisions of paragraph seventh of 12 "investment securities,” within the
U.S.C. 24. meaning of that section. Under 12
(b) Opinion. (1) The Inter-AmeriJ.S.C. 335, this ruling is of applicability
can Development Bank is an internato state member banks.
tional banking organization established (27 F.R. 10791, Nov. 6, 1962. Redesignated
to promote the economic progress of its 28 F.R. 8280, Aug. 13, 1963)
members by providing financial and
technical assistance for development 8 1.117 City of London, Kentucky.
programs and projects. It was estab(a) Request. The Comptroller of the
lished by virtue of an agreement which Currency has been requested to rule on has been ratified by the United States the eligibility of the $1,150,000 City of
and all of the Latin American countries London, Kentucky, Industrial Building except Cuba. The Agreement establishRevenue Bonds, dated September 1, 1962, ing the Bank became effective on Decemfor investment by national banks under ber 30, 1959, and it began operations the provisions of Paragraph Seventh of on October 1, 1960. 12 U.S.C. 24.
(2) The authorized capital stock of (b) Opinion. The subject issue con
the bank together with the initial ausists of special revenue bonds due serially thorized resources of the Fund for in various amounts beginning March 1, Special Operations total $1,000,000,000. 1964, and with the final maturity on
The initial authorized resources of the March 31, 1983. The proceeds of the
Fund for Special Operations are bonds are to be used to construct and $150,000,000, to be created from conequip an industrial building, which the
tributions from the member countries, city will lease to Caron Spinning Com
of this amount, $146,316,000 has actually pany to provide additional facilities for been contributed. The Bank has an au