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Although unsecured, the amounts of the obligations ($13,200,000
and $22 million) were small in relation to HGI’s assets. HGI was
the parent corporation of the Home Insurance Co., one of the 15
largest property and casualty insurers in the United States at
the time, and had assets of over $2.5 billion and net equity of
approximately $660 million in 1976, which increased to assets of
over $5 billion and net equity of over $744 million in 1985. The
HGI notes were disclosed on HGI’s audited financial statements
required to be submitted to the Securities and Exchange
Commission and various State regulatory agencies. HGI’s
financial statements were also included in the offering circulars
pertaining to Finance’s Eurobond borrowings, suggesting the
relevance of HGI’s financial condition to prospective investors.
In the case of its issuance of the 1977 HGI note, HGI was
required to, and did, obtain the consent of several banks with
which it had a revolving credit agreement.
Respondent also contends that the HGI notes’ lack of
substance is illustrated by the fact that they were ultimately
canceled without any repayment. The listed rulings, however,
clearly contemplate the parent’s withdrawal of the finance
subsidiary’s equity capital upon the full or partial retirement
of the subsidiary’s borrowing. Rev. Rul. 73-110, 1973-1 C.B.
454, specifically addressed this point, citing the parent’s
withdrawal of capital from a finance subsidiary upon the
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