Substantial Investments - Appendix D

Appendix D
Leverage Limit Applicable to Specialized Financing Entities

This document has been prepared for convenience of reference only and has no official sanction.  For all purposes of interpreting and applying the law, users should consult the applicable Specialized Financing Regulations.

Equity and Exposure Limits graphic

“FRE”: federally regulated entity       
“SFE”: specialized financing entity
*  Non-controlling interest in the SFE

Mathematical formula of the leverage limit:  A – B  < 2 (C + D)

Where

A     is the value of all outstanding debts of both the SFE and all its subsidiaries that are also SFE as reported on their respective balance sheets on an unconsolidated basis;

B     is the value of all outstanding debts of both the SFE and all its subsidiaries that are also SFE that are payable to the bank or BHC and their respective subsidiaries;

C     is the value of the excess of assets over liabilities (i.e. equity) of the SFE as reported on its balance sheet on an unconsolidated basis; and

D     is the value of the non-controlling interest as reported on the SFE’s balance sheet on a consolidated basis.

 

-

B

<  2 x

(C

+

D)

SFE 1

X + Y + Z + 75 + 85 + 50

75 + 85 + 50

 

100

90 + 32

X+Y+Z  <  444

SFE 2

Y + Z +  85 + 50

85 + 50

 

210 +  90

32

Y+Z  <  664   but Y+Z < 444 –– X

SFE 3

Z + 50

50

 

48 + 32

0

Z  < 160   but Z < 444 – X – Y

SFE 4

W  + 30

30

 

 24 + 96

0

W  < 240

SFE 5

Leverage limit does not apply –the FRE does not control, or have a substantial investment in, SFE 5