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  • FEC Record: Advisory opinions

AO 2009-18: Disaffiliation of SSFs after restated agreement

September 1, 2009

Penske Truck Leasing Co., L.P. Political Action Committee (Penske PAC), the separate segregated fund (SSF) of Penske Truck Leasing Co., L.P. (Joint Venture) may disaffiliate from the General Electric Company PAC (GEPAC), the SSF of the General Electric Company (GE) principally because the GE limited partners have divested themselves of majority ownership status and relinquished majority control of the Joint Venture’s Advisory Committee to the Penske affiliates.

Background

In 1988, Penske Truck Leasing Corporation (“Penske”) formed a limited partnership in which affiliates of General Electric Capital Corporation (GE Capital Corporation) became limited partners one month later. At that time, affiliates of Penske owned 69 percent of the Joint Venture and affiliates of GE Capital Corporation owned 31 percent. In 2002, the GE companies’ ownership increased to 79 percent of the Joint Venture. Since then, the ownership level of the GE companies has steadily decreased, though remaining above 50 percent, until the execution of the Joint Venture’s Third Amended and Restated Agreement of Limited Partnership of Penske Truck Leasing Co., L.P. (Third Restated Agreement) on March 26, 2009. Following the Third Restated Agreement, GE companies’ ownership level of the Joint Venture fell to 49.90 percent bringing the combined ownership of Penske companies to 50.10 percent.

Additional changes under the Third Restated Agreement charged Penske, the general partner, with performing all management and operational functions relating to the business of the Joint Venture. Furthermore, the limited partners, such as GE companies, will not participate in the control of the business of the Joint Venture and have no power to act or bind the Joint Venture. However, the limited partners do retain the right to approve certain actions, as well as certain voting rights.

The Joint Venture has an Advisory Committee which consists of five members, three appointed by Penske and two appointed by GE companies. Under the Third Restated Agreement, the Advisory Committee cannot possess or apply any power that could amount to participation in the control of the business. The financing of the Joint Venture also changed under the Third Restated Agreement. Even though the Joint Venture has received financing from a line of credit from GE Capital Corporation in previous years and continues to do so, now the nature of the contractual agreement is closer to agreements with third party lenders, with affirmative and negative covenants, events of default and reporting obligations.

In 2002, the Joint Venture’s SSF, Penske PAC, was formed. Since 2002, Penske PAC has identified GE Credit Corporation of Tennessee as a connected organization on its FEC Form 1, due to the ownership level of the GE companies to the Joint Venture, and has identified GEPAC as an affiliated committee.

Penske asked the Commission if, after the Third Restated Agreement, Penske PAC and GEPAC are no longer affiliated with each other under the Federal Election Campaign Act (the Act) and Commission regulations.

Legal analysis and conclusions

The Act and Commission regulations provide that political committees, including SSFs, that are established, financed, maintained or controlled by the same corporation, labor organization, person or group of persons, including any parent, subsidiary, branch, division, department or local unit thereof, are affiliated. 11 CFR 100.5(g)(2) and 110.3(a)(1)(ii). Contributions made to or by such political committees are considered to have been made to or by a single political committee. 2 U.S.C. §441a(a)(5); 11 CFR 100.5(g)(2) and 110.3(a)(1).

In the absence of per se affiliation, Commission regulations provide for an examination of various circumstantial, non-exhaustive factors in the context of the overall relationship to determine whether one sponsoring organization has established, financed, maintained or controlled the other sponsoring organization or committee, and hence, whether their respective SSFs are affiliated. 11 CFR 100.5(g)(4)(i) and (ii); and 110.3(a)(3)(i) and (ii); See AOs 2007-13 and 2004-41. The Commission considered a number of circumstantial factors in determining that Penske PAC and GEPAC are no longer affiliated.

Organization owns a controlling interest in the voting stock or securities

One affiliation factor considers whether a sponsoring organization owns a controlling interest in the voting stock or securities of another sponsoring organization. 11 CFR 100.5(g)(4)(ii)(A) and 110.3(a)(3) (ii)(A). Prior to the Third Restated Agreement, GE companies owned a 79 percent interest in the Joint Venture; however, after the Third Restated Agreement, GE companies now have a minority interest of 49.90 percent in the Joint Venture. In addition, no GE company owns any voting interest in Penske Corporation or any Penske affiliate. Under the facts presented, the GE companies no longer have a majority interest in the Joint Venture. Thus, the Commission noted the application of this factor to these facts does not suggest that the entities are affiliated.

Authority or ability to direct or participate in governance or to control officers

Other factors which indicate the affiliation of organizations include the authority or ability of one corporate sponsor to participate in the governance of another corporate sponsor or to hire, appoint, demote or otherwise control the officers, or other decision-making employees, of another sponsoring organization. 11 CFR 100.5(g)(4) (ii)(B); 110.3(a)(3)(ii)(B); 11 CFR 100.5(g)(4)(ii)(C) and 110.3(a)(3) (ii)(C).

The general partner, Penske, has broad management control of the affairs of the Joint Venture including, among others, paying expenses, debts and obligations to the Joint Venture and entering into and terminating contracts with third parties. The general partner is fully in charge of all affairs of the Joint Venture, and the management and control of the Joint Venture’s business rests exclusively with the general partner. The Third Restated Agreement does include the requirement for a supermajority of four out of the five members of the Advisory Committee to approve certain actions, such as changing business conduct policies, making acquisitions in excess of $10 million or changing the character of the Joint Venture which was established in the Third Restated Agreement. However, even with the requirement of a supermajority in these matters, the GE companies do not control the day-to-day affairs of the Joint Venture. Furthermore, the Commission noted that it has in the past concluded that limited partners in a joint venture were not affiliated with the joint venture, despite the existence of supermajority voting rights. See AO 2001-07.

In regards to the ability to control officers, the general partner has the authority to appoint officers to the Joint Venture with the approval of only three members of the Advisory Committee. Since the GE companies appoint only two members to the Advisory Committee, they do not have the ability to veto the appointment of officers. Thus, the Commission concluded the application of these factors to these facts does not suggest that the entities are affiliated.

Common or overlapping officers or employees indicating a formal or ongoing relationship or the creation of a successor entity.¹

The law also considers whether a sponsoring organization has common or overlapping officers or employees with another sponsoring organization indicating a formal or ongoing relationship between the organizations. 11 CFR 100.5(g)(4)(ii)(E) and 110.3 (a)(3)(ii)(E). An additional factor asks whether a sponsoring organization or committee has any members, officers, or employees who were members officers or employees of another sponsoring organization or committee indicating a formal or ongoing relationship or the creation of a successor entity. 11 CFR 100.5(g) (4)(ii)(F) and 110.3(a)(3)(ii)(F). The Joint Venture and the GE companies have one official overlapping decision-maker, namely Mr. Penske. Mr. Penske serves as chairman of the general partner, Penske, and sits on the Board of Directors of GE. Besides Mr. Penske there are the two appointed GE members to the Advisory Committee, and the CEO of the Joint Venture who holds an “honorific title” with GE Capital Corporation only as a holdover from when the Joint Venture was majority owned by GE entities. Currently there are no other overlapping officers, directors or employees between the Joint Venture and the GE companies. There are also no former officers or employees of GE companies who may work for the Joint Venture or Penske companies other than what “might be expected in the normal employment market” as described by the requestors. Furthermore, there is no agreement for Penske companies or GE companies to hire former employees of the other entity. The Commission remarked that in past advisory opinions, previously affiliated SSFs were deemed no longer affiliated despite the fact that there was an overlap in officers in the parent organizations. See AOs 2007-13 and 1996-23. Thus, the Commission noted that the overlap of officers between the Joint Venture and GE companies is not by itself a strong indication of affiliation.

Providing funds or goods in a significant amount or on an ongoing basis

The affiliation factors also include whether a sponsoring organization provides funds or goods in a significant amount or on an ongoing basis to another sponsoring organization and whether a sponsoring organization causes or arranges for funds in a significant amount or on an ongoing basis to be provided to another sponsoring organization. 11 CFR 100.5(g)(4)(ii)(G) and (H) and 110.3(a)(3)(ii)(G) and (H). The Joint Venture’s primary source of financing is a revolving line of credit held by GE Capital Corporation which was established prior to the execution of the Third Restated Agreement. However, following the Third Restated Agreement, the terms of the line of credit were renegotiated to give GE Capital Corporation the right to reset the rates to market rates and to make the Joint Venture refinance the debt with third party lenders. These current terms are similar to agreements with third-party lenders. The Commission has concluded in prior advisory opinions that disaffiliated companies may maintain some consumer-supplier relationships and that those transactions can be seen as part of the process to establish the independence and separation of an entity from its organizational parent. See AOs 2000-28, 2003-21, 2004-41, 2007-13 and 1996-41; see also AOs 2007-13 and 2008-28. Thus, the newly renegotiated line of credit between GE companies and the Joint Venture can be viewed as part of the process of separating the two and does not suggest that the entities are affiliated.

Having an active or significant role in the formation of another sponsoring organization or committee

The affiliation factors also include whether a sponsoring organization or committee had an active or significant role in the formation of another sponsoring organization. 11 CFR 100.5(g)(4)(ii)(I) and 110.3(a)(3)(ii)(I). In this case, the GE companies were not involved in the actual formation of the Joint Venture, but rather became involved shortly after its formation in 1988. Penske PAC was established in 2002 by the Joint Venture and its employees who administer it without the involvement of the GE companies. Additionally, there is no indication that the Joint Venture was involved in the formation of GEPAC. Therefore, the application of this factor to these facts does not suggest the entities are affiliated. Having similar patterns of contributions or contributors indicating a formal or ongoing relationship. An additional affiliation factor includes whether the sponsoring organizations or committees have similar patterns of contributions or contributors indicating a formal or ongoing relationship between the sponsoring organizations or committees. 11 CFR 100.5(g)(4)(ii)(J) and 110.3(a)(3)(ii)(J). Penske PAC and GEPAC do not coordinate contributions except to the extent necessary to comply with the shared contribution limits applicable to affiliated committees. The two SSFs have no transfers between the two of them and the Joint Venture knows of no overlap between contributors to the two SSFs. Thus, this factor does not indicate the entities are affiliated.

Conclusion

Based on the above analysis of affiliation factors the Commission concluded that the Joint Venture and the GE companies are no longer affiliated for purposes of the Act. Consequently, Penske PAC and GEPAC may disaffiliate.

AO 2009-18: Date Issued: July 29, 2009; Length: 11 pages.

¹ The Commission noted that the affiliation factor involving whether a sponsoring organization has common or overlapping membership with another sponsoring organization indicating a formal or ongoing relationship between the sponsoring organizations did not apply to this particular case because neither the Joint Venture nor the GE companies is a labor organization, membership organization, a cooperative or a trade association. 11 CFR 100.5(g) (4) (ii)(D) and 110.3(a)(3)(ii)(D).