Affiliate "Control" Definition

Posted By: CRAGoddess

Affiliate "Control" Definition - 08/05/15 03:56 PM

I would like to beat the dead horse named "GAR" - Gross Annual Revenue and pose a question on the definition of "control" as it pertains to including revenues of an affiliate for the GAR calculation.

We know that the CRA Q&A states to include the revenues of an affiliate in the GAR calculation as indicated:

"§ 345.42(a)(4)--1: When indicating whether a small business borrower had gross annual revenues of $1 million or less, upon what revenues should an institution rely?

A1. Generally, an institution should rely on the revenues that it considered in making its credit decision. For example, in the case of affiliated businesses, such as a parent corporation and its subsidiary, if the institution considered the revenues of the entity's parent or a subsidiary corporation of the parent as well, then the institution would aggregate the revenues of both corporations to determine whether the revenues are $1 million or less. Alternatively, if the institution considered the revenues of only the entity to which the loan is actually extended, the institution should rely solely upon whether gross annual revenues are above or below $1 million for that entity. However, if the institution considered and relied on revenues or income of a cosigner or guarantor that is not an affiliate of the borrower, such as a sole proprietor, the institution should not adjust the borrower's revenues for reporting purposes."

The example stated in this Q&A for "affiliated businesses" is very limited (parent and subsidiary). Generally, an "affiliate company" means a company controlled by or under common control or ownership by another entity. But is there a percentage of control that should be used for data reporting when revenues of an affiliated company are considered in the credit decision? Is 25% considered common control? 10%?

We are engaging our credit analysts to assist in GAR reporting on larger credits. They are asking very detailed questions, of which all resources I have are silent on these issues.

Thanks all.
Posted By: Kathleen O. Blanchard

Re: Affiliate "Control" Definition - 09/03/15 10:42 AM

In this case, it is really looking at if the entities are part of the same corporate family with no other restriction. If the financial support of affiliated entities was considered, this requirement is triggered without going to the level of 'how much of an affiliate'.
Posted By: Karen Tucker

Re: Affiliate "Control" Definition - 09/23/15 01:31 AM

Here is more info.The reg defines affiliate as follows:

(a) Affiliate means any company that controls, is controlled by, or is under common control with another company. The term ``control'' has the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is under common control with another company if both companies are directly or indirectly controlled by the same company.

12 USC 1841(a)(2) says

(2) Any company has control over a bank or over any company if—
(A) the company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more of any class of voting securities of the bank or company;
(B) the company controls in any manner the election of a majority of the directors or trustees of the bank or company; or
(C) the Board determines, after notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the management or policies of the bank or company.

25% is mentioned but it's not the only possible criteria for determining control.
Posted By: Len S

Re: Affiliate "Control" Definition - 09/23/15 03:41 AM

Karen - how are you enjoying life after your career at the OCC? Welcome to BOL threads!
Posted By: Karen Tucker

Re: Affiliate "Control" Definition - 09/30/15 03:02 PM

Len - life is good! I do some part time consulting for Wolters Kluwer. and I have more time with my family. I've also picked up my volunteer work. BTW, I will be teaching large bank CRA in Atlanta at ABA school in October. Then I'll be on a panel at the CRA Colloquium in November. Maybe see you.
Posted By: Kathleen O. Blanchard

Re: Affiliate "Control" Definition - 09/30/15 08:01 PM

Karen, Are you going to the Interagency conference in Feb?