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ELIGIBILITY OF SPECIFIC BOND ISSUES FOR 129.6 percent in 1960; 147.0 percent in PURCHASE BY NATIONAL BANKS
1961, and 179.7 percent for the first nine $ 1.105 Miscellaneous rulings.
months of 1962. For the same period in
1962, earnings were 128.9 percent of total The Comptroller has ruled as follows debt service, up from 106.4 percent for on specific security issues:
the like period in 1961. The Authority (a) (Reserved]
has purchased at discount and retired (b) The $28,000,000 State Highway $934 thousand of its bonds, and on SepDepartment of the State of Delaware, tember 30, 1962, had cash and invest418 % Delaware Turnpike Revenue ments totaling $5,984,493. The two year Bonds, dated January 1, 1962, are in- interest reserve requirement has been eligible for purchase by national banks. met.
(c) The $74,000,000 State Roads Com- (c) Ruling. We conclude that the mission of the State of Maryland 418 % $58,500,000 Texas Turnpike Authority, Northeastern Expressway Revenue Dallas-Fort Worth Turnpike Revenue Bonds, dated January 1, 1962, are ineligi- Bonds, Series 1955, dated April 1, 1955, ble for purchase by national banks.
now qualify as “investment securities” (d) The $25,000,000 Town of Chero- within the meaning of Paragraph Sevkee, Alabama, 434% Industrial Develop- enth of 12 U.S.C. 24. Under 12 U.S.C. ment Revenue Bonds, dated March 1, 355, this ruling is applicable to state 1961, are eligible for purchase by na- member banks. tional banks, within the limitations of [27 F.R. 12811, Dec. 28, 1962. Redesignated Paragraph Seventh of section 5136 of 28 F.R. 8280, Aug. 13, 1963) the Revised Statutes (12 U.S.C. 24). 127 F.R. 2506, Mar. 16, 1962, as amended at
Commonwealth of Kentucky, 27 F.R. 6539, July 11, 1962; 27 F.R. 12811, Dec. 28 1962. Redesignated 28 F.R. 8280,
Department of Parks. Aug. 13, 1962)
(a) Opinion. (1) Request has been § 1.106 Texas Turnpike Authority.
made of the Comptroller of the Currency
for a ruling whether the $9,900,000 State (a) Request. The Comptroller of the
Property and Buildings Commission of Currency has been requested to recon- the Commonwealth of Kentucky Departsider the rulings of June 8, 1955 and
ment of Parks Revenue Bonds, Series March 12, 1962 that the $58,500,000
1962, are eligible for investment by naTexas Turnpike Authority, Dallas-Fort tional banks. Worth Turnpike Revenue Bonds, Series (2) It is proposed to issue $9,900,000 1955, dated April 1, 1955, were ineligible
of revenue bonds to finance construction for investment by national banks under of lodges, cottages, dining facilities and Paragraph Seventh of 12 U.S.C. 24.
necessary appurtenances thereto in cer(b) Opinion. (1) The Texas Turn- tain of the Commonwealth's parks. pike Authority was created by an Act
(3) The bonds will be due serially beof the 1953 State Legislature to construct ginning with an amount of $160,000 on turnpike facilities within the State, and April 1, 1964, and increasing yearly until specifically to build and operate a toll the final maturity date of April 1, 1992, highway between the cities of Dallas and when $622,000 will be due. The coupon Fort Worth. The instant issue, payable has not been decided upon. Bonds masolely from net revenue of the turnpike turing after April 1, 1972, will be subject system, consists of $15 million 2.70 per- to redemption at certain prices set forth cent bonds due January 1, 1980, and in the Official Statement. $43.5 million 278 percent bonds due Jan- (4) The bonds are being issued by the uary 1, 1995. In 1955, prior to the con- State Property and Buildings Commisstruction of the turnpike, this issue was sion on behalf of the Department of ruled ineligible for purchase by national Parks pursuant to the provisions of secbanks, under the Investment Securities tions 58.010 to 58.140 inclusive of KenRegulation of this Office. This ruling tucky Revised Statutes, as permitted and was reviewed and reaffirmed on March provided by section 56.450 KRS and a 12, 1962 (27 F.R. 2506).
resolution adopted by the Commission (2) The turnpike has been in opera- and approved by the Department on tion for over five years. Net reserves March 22, 1962. The bonds will be sefrom its operation have shown a steady cured pursuant to the terms of the resorise. Bond interest was covered by lution, whereunder the Citizens Fidelity Bank and Trust Company, Louisville, of Kansas City, Missouri, 414 percent Kentucky, is named as Trustee for the Airport Revenue Bonds, dated July 1, holders of the bonds for the purpose of 1954, are eligible for investment by nasecuring the payment of both principal tional banks. and interest on the bonds and to secure (2) On February 21, 1955, this Office the faithful performance of the cove- ruled that subject bonds would not be nants and provisions contained in the eligible for investment by national banks. resolution.
Since that date, we have reaffirmed our (5) The bonds are payable from and position several times, the most recent constitute a first lien upon the gross rev- being in December 1959. We have been enues to be derived from all revenue- requested again to re-examine our posiproducing facilities presently located in tion relative to these bonds. the State Parks System or presently (3) The bonds are not general oblioperated by the Department and all reve- gations of the city, but are special revenue-producing facilities hereafter con- nue obligations payable from revenues structed, acquired or operated by the derived by the city from certain rentals Department.
to be paid by Trans World Airlines, Inc. (6) The Department is empowered by to the city under the provisions of a section 148.030 KRS to unite into one lease and agreement between the city project for financing purposes all or as and the company. many parks, and the improvements (4) The bonds were issued on July 1, thereon, or to be constructed, enlarged 1954, with interest capitalized until June or improved, as it deems practicable, so 30, 1957. The facilities for TWA were that the fee and charges and other reve- completed by January 1, 1957, and the nue or receipts from every source what- company has been paying the required soever from the parks thus united shall rental since that date. Payments into be used for the payment of the principal the sinking fund from rentals received and interest of all bonds which may be will be used for the payment of serial issued. The lien of the bonds for such bonds and the ultimate retirement of the united project shall be a lien on the term bonds. gross income and revenue of all of the (5) Rentals received from TWA from parks thus united.
January 1, 1957, to April 30, 1961, the (7) The bonds are additionally se- date of the latest fiscal report of Kansas cured by the obligation of the Commis- City, total $5,557,000, which when added sion and the Department to levy an en- to total occupancy permit fees received trance fee subject to certain conditions. from TWA from July 1, 1954, to Decem
(8) The anticipated revenues and ber 31, 1956, of $370,000, aggregate State appropriations appear to be suff- $5,927,000. Interest and fiscal fees on cient to provide adequate debt service. revenue bonds from July 1, 1954, to The outstanding feature underlying this April 30, 1961, amounted to $5,173,000. issue is the ability of the Department to The rentals paid for this period were charge an entrance fee if certain condi- sufficient to provide for the required debt tions occur. Inasmuch as the Depart- service. ment does not presently charge an en- (6) A review of the earnings for the trance fee and the present gross revenues
year ending April 30, 1961, reveals that of the Department amply cover esti- net operating income was 2.19 times the mated Debt Service, the covenant to debt service required for the same period. charge such entrance fee adds additional The debt service amounted to $794,750 and supplementary security to the bonds. for this period and the same amount will
(b) Ruling. We conclude that the be required for the period ending in 1962. subject bonds are eligible for investment The first of the serial maturities takes by national banks, within the limitations place on July 1, 1962, in the amount of of Paragraph Seventh of section 5136 of $400,000. Using the earnings figures for the Revised Statutes (12 U.S.C. 24). the year ending April 30, 1961, this total 127 F.R. 6539, July 11, 1962. Redesignated
debt service for 1962 of $1,187,000 is cov28 F.R. 8280, Aug. 13, 1963)
ered 1.47 times. $ 1.110 City of Kansas City, Missouri. (7) It should be noted that city ordi
(a) Opinion. (1) Request has been nace authorizing the bonds required made of the Comptroller of the Currency
that at July 1, 1962, the Reserve Account for a ruling whether the $18,700,000 City
have a minimum balance of $2,250,000. 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 International Airport, Kansas City, Misto a sinking fund and applied to pur- souri. The aggregate an rental chase or redemption of bonds. It was under such leases in effect at March 1, originally estimated that by the end of 1961, 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
(12) TWA showed good earnings in 1961 showed a balance in the sinking 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 has been established, as required by the
time; however, for nine months ending ordinance. This fund is to be held for
September 30, 1961, TWA reported total 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 the year ending April 30, 1961, amounted
net earnings were $6,100,000. As of
September 30, 1961, TWA has cash of to $576,000. In addition there is also a
$17,600,000 and U.S. construction fund for extending, con
securities of structing, or making general improve
$15,900,000, current liabilities of $98,800,
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. (9) These various funds have been
of a year ago, reflecting additional longbuilt by the excess amounts of rental
term borrowings in connection with fleet
modernization. In this payments not required for debt services.
TWA's net investment in property and This fact indicates that the revenue bonds are supported by properly man
equipment of September 30, 1961, was
$315,600,000 as compared to $204,900,000 aged operations and finances which are
the previous year. now in a position to cover debt services
Tangible net worth
of TWA at December 31, 1960, was adequately. However, the strength of the issue lies in the ability of TWA to
$124,700,000. 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 suffi. engaged 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- 127 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.
(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 Supreme 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 Com
pany, Los Angeles, California. (a) Reguest. (1) The Comptroller of the Currency has been asked to rule on the eligibility of $13,730,000 Leasehold Mortage Bonds of The Music Center 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. cha ge 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, 1963)