The Office of General Counsel issued the following informal opinion on September 5, 2002, representing the position of the New York State Insurance Department.

Re: Proposed Financing Arrangement and the CAPCO Statute


Does the below-described financing arrangement violate the New York Certified Capital Companies ("CAPCO") statute?


The proposed financing does not violate the CAPCO statute.


The inquirer represents ABC Partners, LLC ("ABC"), the ultimate parent of DEF Partners, LLC, ("DEF") which is a New York CAPCO. ABC is currently seeking bank financing. In connection with this financing, ABC will be required by the lender to grant a lien upon all of its assets, including its 100% interest in the holding company parent of DEF.

ABC has a contract with DEF pursuant to which it provides management services for a fee. This management contract will not be pledged; however, the fees due under the contract will be pledged to the lender. In the event of a default by ABC, the lender can foreclose upon its lien on ABC’s assets, including ABC’s ownership interest in the holding company parent of DEF.

The inquirer asks whether this proposed transaction violates the CAPCO statute in any way.


The New York CAPCO statute, codified at N.Y. Tax Law §§ 11 and 1511(k) (McKinney Supp. 2000), contains the rules governing the certification and operation of New York CAPCOs. Assuming that the description provided by the inquirer contains all of the relevant information regarding the role of or potential impact upon DEF with respect to the transaction, my review of the statute indicates that the lending transaction described does not run afoul of any provision of the New York CAPCO statute.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.