(9) These various funds have been built by the excess amounts of rental payments not required for debt services. This fact indicates that the revenue bonds are supported by properly managed operations and finances which are now in a position to cover debt services adequately. However, the strength of the issue lies in the ability of TWA to provide adequate rentals which will ultimately liquidate the issue.

(10) TWA is a subsidiary of Hughes Tool Company, Houston, Texas, which is engaged as a manufacturer of oil-well tools; the production and distribution of motion pictures; and in the manufacture of certain aircraft fuselage parts. As of December 31, 1960, it showed a net worth of $253,800,000, with an important part of the net worth being made up by its investment in TWA.

(11) TWA is a leading airline and is the only United States air carrier authorized to provide service on a scheduled basis on both a transcontinental and transatlantic route system. Principal operations base is located on leased property at Kansas City Municipal Airport, Kansas City, Missouri, and its principal overhaul base is located on leased property at the Mid-Continental International Airport, Kansas City, Missouri. The aggregate annual rental under such leases in effect at March 1, 1961, was approximately $6,250,000. TWA had lease agreements with three other airports besides Kansas City.

(12) TWA showed good earnings in 1959 and 1960; however, substantial losses have been reported for 1961. The company has incurred a heavy debt in its program of fleet modernization. We have no year-end figures at the present time; however, for nine months ending September 30, 1961, TWA reported total operating revenues were $290,000,000 and a net loss of $12,700,000 as compared to the same period in 1960, when total operating revenues were $290,000,000 and net earnings were $6,100,000. As of September 30, 1961, TWA has cash of $17,600,000 and U.S. securities of $15,900,000, current liabilities of $98,800000 and a long-term debt of $286,500,000. The later figure is up from $84,900,000 of a year ago, reflecting additional longterm borrowings in connection with fleet modernization. In this connection, TWA's net investment in property and equipment of September 30, 1961, was

$315,600,000 as compared to $204,900,000 the previous year. Tangible net worth of TWA at December 31, 1960, was $124,700,000.

(13) The financial structure in back of the subject bonds has improved to a degree that indicates that the rental payments from now on should be sufficient to cover debt service and provide a margin of safety as well. The financial stability of TWA is believed to be sufficient to provide the necessary rental payments to service the bonds.

(b) Ruling. We conclude that the subject bonds are eligible for investment by national banks, within the limitations of Paragraph Seventh of section 5136 of the Revised Statutes (12 U.S.C. 24). [27 F.R. 6539, July 11, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.111 Georgia State Authorities.

(a) Request. The Comptroller of the Currency has been requested to reconsider the ruling of July 12, 1962, that the bonds of various public authorities created by the State of Georgia are not general obligations of the State within the meaning of Paragraph Seventh of 12 U.S.C. 24.

(b) Opinion. The State of Georgia has created, by special acts of its General Assembly, nine public authorities for the purpose of constructing and financing public buildings, bridges, highways, and other public improvements. An Authority has the power to hold property in its own name, to construct projects on land owned by the state, to borrow money for any of its corporate purposes, and to issue its negotiable revenue bonds payable solely from earnings. It does not have the power to levy taxes nor to pledge property other than its earnings. The State Constitution authorizes the State, its institutions and political subdivisions to contract for the long-term use of the facilities of an Authority and requires that appropriations be made sufficient to satisfy the payments required by such lease rental contracts (Art. VII, Sec. VI, Par. I(a)). The General Assembly, in section 46 of the General Appropriations Act of 1961, has made the required appropriation for the current and future years and has provided that payments on lease rental contracts shall constitute a first charge on all such appropriations. The Su

preme Court of the State of Georgia has held that payments under such leases constitute obligations of the State for the payment of which the good faith of the State is pledged. It has also held that such lease obligations do not violate the debt restriction and limitation provisions of the Constitution, and that the constitutional and statutory provisions designed to ensure that state monies will be available to permit payment of the bonds must be read together with those provisions. The net result of the foregoing is that the State of Georgia has solemnly undertaken to provide for the payment of the obligations of its duly constituted authorities.

(c) Ruling. We conclude that the subject bonds are general obligations of the State of Georgia within the meaning of paragraph Seventh of 12 U.S.C. 24. [27 F.R. 10251, Oct. 19, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.112

New Jersey Highway Authority.

(a) Request. The Comptroller of the Currency has been requested to rule on whether the $40,000,000 New Jersey Highway Authority (Garden State Parkway), Junior Revenue Bonds, Series One, are eligible for investment by national banks.

(b) Opinion. (1) The New Jersey Highway Authority proposes to issue $40,000,000 of revenue bonds to finance (i) a contribution to an Interstate Highway (Freeway), (ii) construction of an interchange of the Garden State Parkway with the Freeway, and (iii) construction of ramps and toll collection facilities in Essex County, New Jersey. Heretofore, the Authority has not been permitted to collect tolls in Essex County, the busiest section of the Garden State Parkway. Under recent legislation the Authority will be able to do so upon payment of $13,000,000 toward the cost of the Freeway.

(2) The bonds are to be dated January 1, 1962, and will mature January 1, 1997. They are to be paid from the tolls and other revenues of the Garden State Parkway. These revenues, however, are first applied to (i) New Jersey Highway Authority State-Guaranteed Parkway Bonds, Series A and Series B, $280,750,000 due serially to 1988, and (ii) New Jersey Highway Authority General Revenue Bonds, $44,320,000 due serially to 1988, and then to the subject bonds. The

subject bonds are not an obligation of the State of New Jersey or any political subdivision thereof, and no taxing power is pledged to their payment. Net revenues available for debt service for the years 1958 to 1961 have exceeded the estimates projected in 1954 for these years. If the pattern continues, earnings will be sufficient to service the debt requirements.

(c) Ruling. We conclude that the subject bonds are eligible for investment by national banks within the limitations of paragraph Seventh of R.S. 5136 (12 U.S.C. 24).

[27 F.R. 6749, July 17, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.113

The Music Center Lease Company, Los Angeles, California.

(a) Request. (1) The Comptroller of the Currency has been asked to rule on the eligibility of $13,730,000 Leasehold Mortgage Bonds of The Music Center Lease Company, Los Angeles, California, for investment by national banks under the provisions of Paragraph Seventh, 12 U.S.C. 24.

(b) Opinion. (1) The Music Center Lease Company is a nonprofit corporation acting for Los Angeles County and is not a municipal authority. Its property, assets, profits and net revenues are irrevocably dedicated to Los Angeles County except that all of its net revenues will be used first to discharge its bonds, debentures or other evidences of indebtedness.

(2) The County of Los Angeles owns certain property in the Civic Center Area of downtown Los Angeles which it has leased to The Music Center Lease Company for a period of 30 years. The Lease Company will construct, in accordance with plans and specifications furnished by the County, a pavilion and related facilities which it will lease to the County for a period of 30 years. The pavilion and facilities are for the use of the public as an auditorium, opera house, music hall and center. The cost of construction is estimated to be about $18,850,000. The Lease Company proposes to issue $13,730,000, in Leasehold Mortgage Bonds to finance the construction of the pavilion and facilities. It is expected that contributions estimated at $6,000,000 will provide the remainder of the financing. The bonds will have serial

maturities beginning with $300,000 due in 1965 and gradually increasing to $825,000 in 1991, the final maturity. These bonds have not been publicly offered but will be sold on a private placement basis. There has been no registration with the Securities and Exchange Commission. Internal Revenue Service has ruled that the interest on these bonds is exempt from Federal taxes.

(3) The basic security supporting the bonds is the lease to the County for the use of the pavilion. The pavilion is expected to be completed by November 1, 1964. Upon completion, the County will begin to make payments in the amount of $845,000 per year. These payments should be sufficient to cover the principal and interest on the bonds until their maturity. The bonds are further secured by all buildings, improvements machinery, etc., constructed on or placed on the land which is involved.

(4) These securities are not exempt from the limitations and restriction of 12 U.S.C. 24. They are not special revenue obligations of a state, municipal government, or duly constituted authority thereof, and thus do not fall within the exception for such securities contained in § 1.2(c). They must, therefore, meet the requirements contained in either paragraph (a) or (b) of § 1.2 in order to be eligible to be purchased for investment by national banks.

(5) Paragraph (a) of § 1.2 provides that in order to constitute an "investment security" within the meaning of paragraph seventh, 12 U.S.C. 24, the security must be a marketable obligation, saleable under ordinary circumstances with reasonable promptness at a fair value and, (i) a public distribution of such securities must have been provided for or made in a manner to protect or insure the marketability of the issue; or (ii) other existing securities of the obligor must have such a public distribution as to protect or insure the marketability of the issue under consideration.

(6) Paragraph (b) of § 1.2 provides that in the case of securities which do not meet the requirements of paragraph (a) of § 1.2 but which are issued by established commercial or industrial businesses or enterprises that can demonstrate the ability to service such securities, the debt evidenced thereby must mature not later than ten years after date of issuance, be sound and

secure, and 75 percent of the principal must be extinguished by maturity date by substantial periodic payments.

(7) The securities under consideration will be sold on a private placement basis; there will be no public distribution. There are no other obligations of the issurer. The issuer cannot be considered to be an established commercial enterprise. Although it probably can demonstrate ability to service the debt which will be amortized to maturity, the final maturity in 1991, exceeds the maximum of ten years permissible under § 1.2(b).

(c) Ruling. We conclude that the subject bonds fail to meet the requirements of this part and accordingly are not "investment securities" within the meaning of 12 U.S.C. 24 and are not eligible for investment by national banks. There is, however, no legal prohibition against their being accepted by national banks as collateral for loans.

[27 F.R. 6924, July 21, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.114 Federal National Mortgage Association.

(a) Request. The Comptroller of the Currency has been requested to rule whether FNMA Short-Term Discount Notes are eligible for investment by national banks without limit.

(b) Opinion. In August of 1960 this office ruled that the FNMA Short-Term Discount Notes did not constitute investment securities within the meaning of paragraph seventh of R.S. 5136 (12 U.S.C. 24). This determination was based in part on the lack of a secondary market for these notes. Because of this. lack, it was our belief that these obligations could not qualify as investment securities. At that time the sale of these notes had been proceeding for only four months. Our conclusion, therefore, was reached without benefit of knowing what the market reaction to these notes would be, and was aimed at protecting national banks against an investment which might prove unliquid. Experience under the program, however, indicates that there is, in fact, a ready market for the sale and resale of these notes. In addition, they compare favorably with the general obligations of municipalities, which may be purchased without limit.

(c) Ruling. We conclude that the subject notes are eligible for investment by national banks without limit.

[27 F.R. 6970, July 24, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.115 Dormitory authority of the State of New York.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $8,630,000 Dormitory Authority of the State of New York, 3.60 percent Dormitory Revenue Bonds of 1957 (State University of New York) for investment by national banks under the provisions of paragraph seventh, 12 U.S.C. 24.

(b) Opinion. (1) The authority is a public benefit corporation, created in 1944 to provide dormitories and related facilities at colleges in the State of New York. This issue was floated to help finance the construction of certain dormitory facilities at various colleges of the State University of New York. These dormitories have been completed and are now being utilized.

(2) The bonds mature serially from 1963 to 1984. They are payable solely from the revenues derived from the lease of the dormitory facilities by the Authority to the State University of New York. The lease agreement provides for an annual rental sufficient to cover debt service requirements, and all other necessary charges. To date the University has made all required rental payments when due. Occupancy rates for the facilities have been very high, and there appears little likelihood of a shortage of the necessary funds. The Authority has never defaulted in the payment of its bond obligations.

(c) Ruling. We conclude that the subject bonds are eligible for investment by national banks within the limitations of paragraph seventh of 12 U.S.C. 24. [27 F.R. 9377, Sept. 21, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $180,000,000 Massachusetts Turnpike Authority, Boston Extension Series A and Series B Revenue Bonds of 1962, dated January 1, 1962, due January 1, 2002, for investment by national banks under paragraph seventh of 12 U.S.C. 24.

(b) Opinion. (1) The Massachusetts Turnpike Authority was created in 1952 as a public instrumentality of the Commonwealth of Massachusetts to construct, maintain, repair, and operate the Massachusetts Turnpike. The Initial

Turnpike, opened for traffic on May 16, 1957, was financed by the $239,000,000, 3.30 percent Turnpike Revenue Bonds (Series 1954) due in 1994, In 1954, prior to the construction of the Initial Turnpike, this issue was ruled ineligible for purchase by national banks, under the Investment Securities Regulation of this Office.

(2) The instant issue is to finance the construction of the Boston Extension, a limited access toll expressway which will bridge the 12 miles from the eastern terminus of the Initial Turnpike to downtown Boston. Interest upon these Bonds will be payable solely from the net revenues derived from the operation of the Boston Extension until the 1954 Bonds are retired. Similarly, no redemption of the Extension Bonds is permitted until that time. The Enabling Act provides that neither the full faith and credit of the Commonwealth or its political subdivisions, or their taxing power, are pledged to the payment of either of these issues.

(3) The Initial Turnpike has been in operation for over five years. Net revenues have increased regularly. Bond interest on the 1954 issue was covered 1.18 times in 1959, 1.30, in 1960, and 1.41, in 1961. Average annual debt service has risen to 92 percent of coverage. Full coverage can be expected soon if the present trend continues. The construction of the Boston Extension, scheduled for completion in 1965, can be expected to result in a further favorable increase in revenues through the inducement of a larger traffic volume on the Turnpike. The Reserve Account at the end of 1961 equaled 17 months' interest on the Bonds. It is expected to reach the required two-year level next year.

(c) Ruling. We conclude that the $180,000,000 Massachusetts Turnpike Authority, Boston Extension Series A and Series B Revenue Bonds of 1962, do not at present qualify as "investment securities" within the meaning of Paragraph Seventh of 12 U.S.C. 24. However, the $239,000,000 Massachusetts Turnpike Authority, 3.30 percent Turnpike Revenue Bonds (Series 1954) do qualify as "investment securities," within the meaning of that section. Under 12 U.S.C. 335, this ruling is of applicability to state member banks.

[27 F.R. 10791, Nov. 6, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.117 City of London, Kentucky.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the $1,150,000 City of London, Kentucky, Industrial Building Revenue Bonds, dated September 1, 1962, for investment by national banks under the provisions of Paragraph Seventh of 12 U.S.C. 24.

(b) Opinion. The subject issue consists of special revenue bonds due serially in various amounts beginning March 1, 1964, and with the final maturity on March 31, 1983. The proceeds of the bonds are to be used to construct and equip an industrial building, which the city will lease to Caron Spinning Company to provide additional facilities for the Company's wool processing and spinning business. The lease is noncancelable, and binds the Company to pay the city over a period of 20 years, amounts sufficient to pay the principal and interest on the bonds until they have been retired. In addition, provision is made for the establishment of a sinking fund reserve of one year's annual debt service requirement from the rentals. The credit quality of the issue clearly rests upon the financial responsibility and history of the lessee. The earnings records and financial statements of the Company warrant the conclusion that the subject bonds fall within section 2(c) of the Investment Securities Regulation of the Comptroller. However, bankers are reminded that they must determine on the basis of their own review whether securities are suitable for investment.

(c) Ruling. We conclude that the subject bonds are eligible for investment by national banks within the limitations of paragraph seventh of 12 U.S.C. 24.

[27 F.R. 9890, Oct. 6, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1963]

§ 1.118 Inter-American Development Bank.

(a) Request. The Comptroller of the Currency has been requested to rule on the eligibility of the obligations of the Inter-American Development Bank for investment by national banks under the provisions of paragraph seventh of 12 U.S.C. 24.

(b) Opinion. (1) The Inter-American Development Bank is an international banking organization established to promote the economic progress of its

members by providing financial and technical assistance for development programs and projects. It was established by virtue of an agreement which has been ratified by the United States and all of the Latin American countries except Cuba. The Agreement establishing the Bank became effective on December 30, 1959, and it began operations on October 1, 1960.

(2) The authorized capital stock of the bank together with the initial authorized resources of the Fund for Special Operations total $1,000,000,000. The initial authorized resources of the Fund for Special Operations are

$150,000,000, to be created from contributions from the member countries. Of this amount, $146,316,000 has actually been contributed. The Bank has an authorized capital stock of $850,000,000. Of the total capital stock actually subscribed ($813,160,000 since Cuba did not become a member), $381,580,000 is paid in capital, including $150,000,000 contributed by the United States, and $431,580,000 is callable capital, $200,000,000 of it subscribed by the United States. Provision has been made to increase callable capital by $500,000,000.

(3) The ordinary capital resources are used to make loans to private enterprise, to governments, to government agencies to help finance industrial, agricultural and mining development projects and to help expand and improve such needs as electric power, water supply, irrigation works and arable land. Loans thus made are for periods from ten to twenty years and bear interest at 54 percent. It is not the policy of the bank wholly to undertake the financing of large-scale projects. The Bank, however, will generally consider participation with other financial institutions in these projects. As a general rule, only those projects involving loans in excess of $100,000 will be considered. In addition to loaning directly, the Bank will also guarantee certain loans.

(4) Up to this time 55 loans aggregating $191,000,000 were made from the Bank's ordinary capital resources. Of this, $84,000,000 went to private enterprise, $34,000,000 for financing water supply and sewage projects and $72,000,000 for governments and government agencies and enterprises for farm settlement, colonization, mining devel