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capitalized with cash or with the parent’s common stock where the
stock was publicly traded and had a readily ascertainable value.
The second listed ruling, Rev. Rul. 69-501, 1969-2 C.B. 233,
concerned what apparently came to be known as the bank-loop
transaction. In that ruling, a domestic parent formed a foreign
finance subsidiary and capitalized it with cash equal to 20
percent of the face amount of parent-guaranteed debt obligations
that the subsidiary would subsequently sell in a foreign public
offering. The cash for this purpose was borrowed by the parent
from a foreign financial institution. Upon receipt of the cash,
the finance subsidiary deposited it with the same foreign
financial institution. The subsidiary’s right to withdraw the
deposit was not contingent upon the parent’s repayment of its
loan from the financial institution, and the deposit did not
serve as collateral for the loan. On this basis, the ruling held
that the subsidiary was sufficiently capitalized to be recognized
as the issuer of the debt obligations.
With respect to the third listed ruling, Rev. Rul. 70-645,
1970-2 C.B. 273, neither party argues that its fact pattern has
any direct bearing on the issues in this case, and we agree.19
19 Rev. Rul. 70-645, 1970-2 C.B. 273, did not address the
particulars of a finance subsidiary’s capitalization, as the
finance subsidiary therein received a cash capital contribution
which, so far as the ruling indicated, it retained throughout the
period it had debt outstanding. The ruling instead addressed
whether a finance subsidiary may use a portion of its borrowings
(continued...)
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