Investments In Bank Holding Companies And Media Companies

Published date17 April 2021
Subject MatterFinance and Banking, Corporate/Commercial Law, Financial Services, M&A/Private Equity, Compliance, Corporate and Company Law
Law FirmMayer Brown
AuthorThomas M. Rao, Angela Giancarlo, Jeffrey P. Taft and Madalyn R. Lake

A limited partner ("Investor") in a private equity fund ("Fund") will often enter into a letter agreement ("Side Letter") with the Fund that modifies the terms of the Fund's limited partnership agreement ("LPA") as they apply to the specific Investor. Through an LPA or a Side Letter, a Fund may grant an Investor rights in connection with certain investments made by the Fund that conflict with the Investor's internal investment policy restrictions. These rights may allow an Investor to disapprove of or exclude itself from Fund investments that the Investor is restricted from participating in. A Fund may also protect its own investment interests by negotiating for certain requirements or requests for Investors to be included in its LPA or Side Letter provisions to ensure compliance with applicable laws and regulations. Such LPA and Side Letter provisions may impact an Investor's capital commitment and contribution obligations to a Fund and, thus, may impact such Fund's subscription credit facility ("Facility") with a lending institution ("Lender"). Two common examples of potentially problematic investments include (i) investments in banks and bank holding companies and (ii) investments in media companies. This Legal Update will touch upon some of the restrictions Investors and Funds face relating to investments in banks, bank holding companies and media companies; the effect these restrictions have on capital commitments to a Fund and on a Facility; and, ultimately, why Facility Lenders should carefully review LPA and Side Letter provisions relating to these types of investments.

I. Investments in Bank Holding Companies

When a Fund or Investor invests in a bank or a bank holding company, the interest in the entity will be viewed as either controlling or non-controlling under the Bank Holding Company Act of 1956 ("BHCA").1 Concerns arise when any entity acquires direct or indirect control of a bank through a bank holding company. If a Fund or Investor has a controlling interest in a bank or a bank holding company, the Fund or Investor itself (assuming not a natural person) may be considered a bank holding company that is subject to regulation under the BHCA as discussed below. Further, if an Investor's commitment to a Fund that is invested in a bank or a bank holding company equals or exceeds a certain percentage of the aggregate commitments of the Fund, even if the Investor itself is not directly invested in such bank or bank holding company, the Investor may indirectly have control over such entity and be subject to the BHCA and its restrictions.

A bank holding company is defined as a company that has control over a bank or over a company that is or becomes a bank holding company.2 Under the BHCA and the Board of Governors of the...

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