Federal Reserve Releases FAQs On The Select "Control" Issues

The Federal Reserve has released FAQs covering its recently revised control regulation, which became effective on September 30, 2020 (the "Control Rule").¹ For more on the specifics of the Control Rule, please refer to our previous client note, Federal Reserve Board Adopts Final Control Regulation. The FAQs address industry questions concerning:

• the calculation of "Issuer Shareholders' Equity" when determining total equity under the Control Rule;
• potential "grandfathering" of certain existing investments; and
• limiting contractual rights, including covenants in loan agreements, as an indication of control.

Calculation of Issuer Shareholders' Equity

Under the Control Rule, a first company is presumed to control a second company if the first company controls one-third or more of the second company's total equity. In the FAQs, the Federal Reserve clarified the methodology by which it would calculate "Issuer Shareholders' Equity," which serves as