fe Ð ~ 0 'j ~ ld-..'~ MAY 8 /93 

ir U (Q L1" u ." 

Our Ref. No. 95-83-~C
 

~ESPONSE OF THE OFFICE OF CHIEF COUNSEL ESI S.A.
 

DIVISION OF INVESTMENT MAAGEMENT File No. 132-3
 

Your letters of February 9, 1995 and April 21, 1995 request
 

our assurance that we would not recommend enforcement action to
 

the Commission if ESI S .A. ("ESI") issues securities without
 

registering under the Investment Company Act of 1940 (the "1940
 

Act") in reliance on Rule 3a-7 thereunder. 1./
 

ESI, a Luxembourg limited liability corporation, proposes to
 

conduct a private placement of notes to investors within the
 

United States without registering as an investment company. Each
 

series of notes will be secured by (i) debt securities issued by
 

or on behalf of a European Union member state (" Sovereign
 

Securities") and (ii) the rights of ESI under an interest rate
 

and currency exchange agreement entered into between ESI and a
 

swap counterparty.
 

You state that ESI has issued and sold multiple series of
 

secured notes outside the United States in accordance with
 Regulation S under the Securities Act of 1933 ("Securities Act") . 

ESI obtained legal opinions that registration was not required
 

under the Securities Act or the 1940 Act because ESI did not use
 

U. S. jurisdictional means in connection with its offerings.
 .~cordingly, counsel did not base its analysis on Rule 3a-7 with 

2spect to each such issuance.
 

You represent that the previous offshore issuances would
 

have complied with the provisions of Rule 3a-7, except for two
 

provisions relating to the trustee. First, Rule 3a-7(a) (4) (i)
 

requires an issuer to appoint a trustee that, among other things,


meets the requirements of Section 26 (a) (1) of the 1940 Act, which 

requires that the trustee be a "bank," as defined in Section
 2 (a) (5). Chase Manhattan Trustees Limited (the "Trustee"), the 

trustee for all of ESI' s previous issuances, is organized under
 

the laws of England and therefore does not meet the requirements
 

of Section 26 (a) (1). The Trustee, however, is a wholly- owned
 

subsidiary of The Chase Manhattan Bank, N .A., which is a "bank"
 

as defined in Section 2 (a) (5). You represent that the proposed
 

U. S. private placement and all future offerings using U. S.
 jurisdictional means will comply with Rule 3a-7 (a) (4) (i) . 

Second, Rule 3a-7 (a) (4) (iii) requires an issuer to take
 

actions "necessary for the cash f:Lows derived from eligible
 

assets for the benefit of the holders of the fixed- income
 

securities to be deposited periodically in a segregated account
 

that is maintained or controlled by the trustee consistent with
 

1./ Rule 3a-7 excludes from the definition of "investment


company" certain issuers that pool certain financial assets
 

and issue securities backed by those assets.
 
~he rating of the outstanding fixed- income securities." You
 

~ate that, with respect to the previous offerings, cash flow
 

~aid from the swap counterparty for the benefit of ESI is
 

deposited in a segregated account held by the applicable paying
 

agent, an affiliate of the Trustee, for the benefit of the
 

holders of the notes. Cash flow derived from the Sovereign
 

Securities is collected in a segregated account by a custodian,
 

also an affiliate of the Trustee, and is then transferred to the
 

swap counterparty in accordance with the terms of the transaction
 documents. ESI does not satisfy Rule 3a-7 (a) (4) (iii) because the 

funds are not deposited in an account maintained or controlled by
 

the Trustee, but with affiliates of the Trustee acting in their
 

capacities as paying agent or custodian. You represent that the
 

trustee for the proposed private placement and all future
 

offerings using U. S. jurisdictional means will comply with all


provisions of Rule 3a- 7 (a) (4) (iii) . 

Based on the facts and representations in your letter, and
 

without necessarily agreeing with your legal analysis, we would
 

not recommend enforcement action to the Commission if ESI does
 

not register as an investment company under the 1940 Act in
 reliance on Rule 3a-7. Our position is based particularly on 

your representation that (1) the proposed U. S. private placement
 

and all future offerings using U. S. jurisdictional means will
 

fully comply with the provisions of Rule 3a-7, including
 subsections (a) (4) (i) and (a) (4) (iii), and (2) ESI's previous 

'tfshore offerings conformed, and all future offshore offerings
 

iii conform, to the requirements of Rule 3a-7, except as
 

described above. ~/ You should note that any different facts or
 

representations may require a different conclusion. This
 

~/ We do not believe that Hyperion Capital Management, Inc.
 

(pub. avail. Aug. 1, 1994) supports your argument that each
 

series of ESI' s previous issuances should be deemed a
 

separate issuer for purposes of Rule 3a-7. Our position in
 

Hyperion was based on the representation that, in the event
 

of the sponsor's bankruptcy, the sponsor's creditors would
 

have no recourse against the pool, and holders of securities
 

issued by the pool would look to the pool for payment. In
 

your April 21, 1995 letter, however, you state that a
 

bankruptcy court in Luxembourg mayor may not enforce
 

contractual provisions limiting the recourse of investors in
 

a particular series to the assets underlying that series.
 

Therefore, we do not believe that each pool of assets
 

backing a series of notes, rather than ESI, should be
 

considered the issuer of the notes.
 

- 2 ­
~esponse expresses the Division's position on enforcement action
 

ly, and does not purport to express any legal conclusions on
 

Áe questions presented.
 ~1~tu 

ce M. Bishop
 

rney 

- 3 ­
tlRRICK, HERRINGTON
 

& SUTCLIFFE
 1940 Act/Rule 3a-7
 

February 9, 1995
 

. :).l~,tl!tJ~~D.""'-~1i--.....-,t~""_.' ........u~~.-..~.-.-tn;f'...-...~.~ì~.~'-f t. r.:~'
 

Office of the Chief Counsel
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Division of Investment Management L\:3.il.!!1i.." "'''''-",".~,.,..."....,... "0_ "',,0'. " .i-- "... ;",.., "";..._'h~,,,-, .,
 

Securities and Exchange Commission !...,.\,".....il ,.,.,.....,.'3J,.,.,~.,L. ..:- ..1... ......._.. 0'" ..


450 Fifth Street, N. W. i ;i~iHt¡ 1 . C\ l- )
 . ~"ii_~__..~ ;i_~~' .. _:=::= .;_. . = ...- ~ .;'''j--I_..~.,,~,~;...,_.''''l.....~~.i.;.J'''~f;,i~,''. 'i

Mail Stop 10-6
 

Washington, DC 20549 "\JUtUiUH¥ d2 q 1 i J . . ,~; ,;i,:i~Il- l-'l"'''w.'~'' . ~. ~..,.. lIlJ~"ttii¡lt_~¡i~fA¡lH'.illl"IO'
 

Attention: Jack W. Murphy 

Re: ESI S.A. -- Investment Company Act
 

of 1940. Rule 3a-7
 

Dear Mr 0 Murphy: 

On behalf of our client, ESI S.A. ("ESI"), we request the concurrence of 
 the staff 

(the "Staff") of the Division of Investment Management of the Securities and Exchange
 

Commission regarding the availabilty to ESI, in connection with a proposed private placement 

of notes into the United States, of the exemption from registration as an "investment company" 

under the Investment Company Act of 1940, as amended (the "1940 Act"), provided by 

Rule 3a-7 promulgated under the 1940 Act. 

Background 

ESI was incorporated with limited liability in Luxembourg on April 22, 1994 for 

the purpose of issuing securities and entering into certain other related transactions. ESI has 

issued and sold multiple series of secured notes outside the United States in accordance with 

Regulation S under the Securities Act of 1933, as amended (the "Securities Act"). Each series
 

of notes has consisted of a single class of notes paying interest on a per annum basis based upon 

either a fixed or floating interest rate. The notes have been denominated in several different 

currencies. 

.~ 1-80032.5
 

1285 Avenue of ¡he Americas . New York, New York 10019-6064 

Telephone 2123268801 . Facsimile 2123268777
 

Los Angeles . Sacramento . San Francisco . Washington, D,C.
 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 2
 

Each series of notes is secured by (i) debt securities issued by or on behalf of a 

European Union member state ("Sovereign Securities") and (ii) the rights of ESI under an 

interest rate and currency exchange agreement (each, a "Swap Agreement") entered into between 

ESI and a swap counterparty. To date, all Swap Agreements have been entered into with the 

same swap counterparty, but the Sovereign Securities acquired by ESI have been of varying 

types and issues and have had varying maturity dates, payment dates and interest rates. 

Each series of notes is secured only by those assets pledged as security for such 

series and noteholders do not have recourse to any of the assets pledged as security for other 

series of notes. The Indenture governing the notes provides that each series of notes is payable 

solely from (i) payments or prepayments of, or with respect to, the Sovereign Securities acquired 

with the proceeds of such series of notes and (ii) the related Swap Agreement. The notes are 

not cross-collateralized or cross-defaulted between series. Each series of notes has also been 

rated "AAA" by Standard & Poor's Ratings Group. 

ESI currently wishes to conduct a private placement of notes to investors within 

the United States without being required to register as an "investment company" under the 1940 

Act. To avoid registration under the 1940 Act, ESI proposes to rely upon the exclusion from 

the definition of "investment company" provided by Rule 3a-7. ESI's previous offshore 

issuances were accomplished in accordance with Regulation S under the Securities Act and 

without registration under the 1940 Act and counsel rendered legal opinions to the effect that 

registration was not required under the Securities Act or the 1940 Act. In reaching its opinions 

with respect to the 1940 Act, counsel relied on the fact that ESI, a foreign corporation, did not 

use U. S. jurisdictional means in connection with its offerings and, accordingly, counsel did not 

base its analysis on Rule 3a-7 with respect to each such issuance. Notwithstanding the absence 

of a need to comply with Rule 3a-7, as described below, ESI's previous offshore issuances 

complied with all of the provisions of Rule 3a-7, except for two technical provisions relating to 

the trustee. 

Based upon the analysis set forth below, we believe, in accordance with previous 

applications of the provisions of the 1940 Act, that each pool of assets securing a series of notes 

should be considered an individual issuer for purposes of applying the provisions of Rule 3a-7. 

Accordingly, future issuances by ESI that comply with all the provisions of Rule 3a-7 should 

be entitled to the exemption from registration under the 1940 Act accorded by the rule. Our 

position is based, in part, upon the limited recourse of each series of notes and the discrete 

NYI-80032.5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 3
 

nature of the pool of assets securing each series. Additionally, we are of the belief that given 

the structure of ESI's previous issuances, its substantial compliance with the requirements of 

Rule 3a-7 and the changes to ESI's issuances using U.S. jurisdictional means as proposed herein, 

permitting ESI to rely upon Rule 3a-7 in connection with future issuances is neither inconsistent 

with any statutory objective of the securities laws nor violative of the public policy concerns 

expressed by the Staff in its application of the securities laws and in the promulgation of the 

rules thereunder. Therefore, because (i) each pool of assets should be considered an individual 

issuer and/or (ii) ESI substantially complied with the provisions of Rule 3a-7 in connection with 

its previous offshore offerings of notes, ESI should not be precluded from issuing future series 

of notes in reliance on the exemption from registration provided by Rule 3a-7. 

Application of Rule 3a-7 to ESl's prior issuances
 

Generally 

Because ESI was not otherwise required to register under the 1940 Act with 

respect to its previous issuances, it was not necessary for ESI to seek to satisfy the requirements 

of Rule 3a-7 in connection with such issuances. However, in retrospect, such issuances 

complied with all the provisions of Rule 3a-7 except for certain of the technical requirements 

of Section (a)(4) thereunder. 

Rule 3a-7
 

As described above, ESI is engaged in the business of purchasing and holding 

Sovereign Securities and Swap Agreements (both "eligible assets") and does not issue 

redeemable securities within the meaning of Section 2(a)(32) under the 1940 Act. Accordingly, 

ESI satisfies the general requirements of Section (a) of Rule 3a-7. 

Section (a) (1) 

The notes issued by ESI "entitle the holder to receive . . . a stated principal 

amount" and "interest on a principal amount. . . calculated by reference to a fixed rate or to 

a standard or formula which does not reference any change in the market value or fair value of 

eligible assets" and are therefore "fixed income securities", as defined in Section (b)(2)(v) of 

Rule 3a-7. Additionally, because each of the Sovereign Securities and the Swap Agreements are 

NYI-80032,5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 4 

II , the "financial assets. . . that by their terms convert into cash within a finite period of time 


notes issued by ESI "entitle their holders to receive payments that depend primarily on the cash 

flow from eligible assets". Therefore, each of ESI's previous issuances complied with the
 

provisions of Section (a)(1) of Rule 3a-7. 

Section (a) (2) 

At the time of initial sale, the notes issued by ESI have been rated in the highest 

rating category assigned to long-term debt ("AAA") by Standard & Poor's Ratings Group, "a 

nationally recognized statistical rating organization that is not an affiiated person of the issuer 

or of any person involved in the organization or operation of the issuer". Therefore, each of 

ESI's previous issuances complied with the provisions of Section (a)(2) of Rule 3a-7. 

Section (a) (3) 

Although ESI acquires additional eligible assets, each such acquisition occurs only 

in connection with new issuances of notes and such additional eligible assets are pledged to 

secure such new issuance of notes. In accordance with Section (a)(3), (i) "the assets are 

acquired . . . in accordance with the terms and conditions set forth in the agreements, 

indentures, or other instruments pursuant to which the issuer's securities are issued", (ii) "the 

acquisition . . . of the assets does not result in a downgrading in the rating of the issuer's 

outstanding fixed income securities" and (iii) "the assets are not acquired. . . for the primary 

purpose of recognizing gains or decreasing losses resulting from market value changes". In 

addition, the documentation governing each issuance of notes prohibits ESI from disposing of 

the assets securing each series of notes as long as such series is outstanding. The maturity of 

the Sovereign Securities securing each issuance of notes is also coincident with the maturity of 

the related series of notes. Therefore, each of ESI's previous issuances complied with the 

provisions of Section (a)(3) of Rule 3a-7. 

Section (a) (4) 

With respect to the provisions of Section (a)(4)(i), the trustee in respect of all of 

ESI's previous issuances, Chase Manhattan Trustees Limited (the "Trustee"), "is not affiliated 

. . . with the issuer or with any person involved in the organization or operation of the issuer", 

NYI-80032.5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 5
 

"does not offer or provide credit or credit enhancement to the issuer" and "executes an 

agreement or instrument concerning the issuer's securities containing provisions to the effect set 

fort in Section 26(a)(3)" of the 1940 Act. However, the Trustee is organized under the laws 

of England and therefore does not meet the requirements of Section 26(a)(1) of the 1940 Act, 

which requires that the trustee be a "bank", as defined in Section 2(a)(5) of the 1940 Act. We 

wish to point out though that the Trustee is a wholly-owned subsidiary of The Chase Manhattan 

Bank, N.A. which is a "bank" as defined in Section 2(a)(5) of the 1940 Act. We believe that 

the engagement of a qualified trustee in the previous issuances adequately protects investors 

(even though the Trustee was organized in a jurisdiction outside the. United States). As 

discussed below, with respect to future transactions which are intended to comply with 

Rule 3a-7, a trustee wil be engaged that satisfies the requirements of Section (a) 
 (4) (i) of the 

rule. 

Section (a)(4)(ii) requires that an issuer take "reasonable steps to cause the trustee 

to have a perfected security interest. . . valid against third parties in those eligible assets that 

principally generate the cash flow needed to pay the fixed-income security-holders". In 

connection with each issuance, ESI obtains. a legal opinion that the Trustee, on behalf of the 

related noteholders and swap counterparty, has a first-priority perfected security interest in the 

Sovereign Securities. 

Pursuant to Section (a)(4)(iii), an issuer is required to take "action necessary for 

the cash flows derived from eligible assets for the benefit of the holders of the fixed-income 

securities to be deposited periodically in a segregated account that is maintained or controlled 

by the trustee consistent with the rating of the outstanding fixed-income securities." In general, 

cash flow paid from the swap counterparty for the benefit of ESI is deposited in a segregated 

account held by the applicable paying agent, an affiiate of the Trustee, for the benefit of the 

holders of the notes. Cash flow derived from the Sovereign Securities is collected in a 

segregated account by a custodian, also an affilate of the Trustee, and is then transferred to the 

swap counterparty in accordance with the terms of the transaction documents. Because these 

funds are not deposited in an account maintained or controlled by the Trustee, but with affiliates 

of the Trustee acting in their capacities as paying agent or custodian, as a technical matter the 

provisions of Section (a)(4)(iii) of Rule 3a-7 may not have been fully satisfied. As a general 

matter, however, since in each such case the funds are held for the benefit of the holders of the 

notes we believe that investors are adequately protected. In addition, Standard & Poor's Ratings 

Group believes that this method of handling cash flows is consistent with the "AAA" rating 

NYl-80032.5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 6
 

afforded to ESI's notes. As discussed below, with respect to future transactions which are 

intended to comply with Rule 3a-7, the requirements of Section (a)(4)(iii) of the rule wil be 

fully satisfied.
 

Application of the Rule 3a-7 to ESl's proposed issuance
 

Because ESI complied with the provisions of Sections (a)(1), (a)(2), (a)(3) and 

(a)(4)(ii) in connection with its previous issuances of notes there is no need for any changes to 

be made to the structure of ESI's securities offerings with respect to those portions of Rule 3a-7. 

With respect to the provisions of Sections (a) 
 (4) (i) and (a)(4)(iii), ESI proposes to make the following structural changes to comply with these provisions. 

United States trustee 

In connection with the proposed U.S. private placement and all future offerings 

using U.S. jurisdictional means, ESI would engage a trustee in respect of the notes to be issued 

which would meet the requirements of Section 26(a)(1) of the 1940 Act. 

Deposit of Cash Flows with trustee 

In connection with the proposed U.S. private placement and all future offerings 

using U.S. jurisdictional means, cash flow from the related Sovereign Securities and Swap 

Agreement would be transferred from the paying agent, the custodian or the swap counterparty, 

as the case may be, to a segregated account that is maintained or controlled by the trustee, 

thereby satisfying the requirements of Section (a)(4)(iii). 

Analvsis 

The Staff has previously interpreted discrete pools of assets backing an issue of 

securities to be the issuer of such securities for the purposes of the 1940 Act, despite the 

presence of a nominal "issuer". Applying this precedent to the analogous fact pattern presented 

by ESI, we believe that each of the discrete pools of assets securing each series of notes should 

Ny¡-gOO32.5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 7
 

be considered an individual issuer for the purposes of Rule 3a-7 Y Accordingly, ESI should 

be able to comply with Rule 3a-7 in connection with future issuances using U.S. jurisdictional 

means, notwithstanding the lack oftechnical compliance in connection with its previous issuances 

outside the United States. 

In Hyperion Capital Management, Inc. (publicly available August 1, 1994) the 

Staff took the position that, for the purposes of determining compliance with the diversification 

requirements of Section 5 (b)( 1) of the 1940 Act, individual pools of assets securing certain assetbacked and mortgage-backed securities could be treated as separate issuers, rather than the 

11 We recognize that the Staff, in applying the provisions of the 1940 Act, has developed the 

doctrine of integration, whereby multiple issuers may be viewed as a single issuer. Application 

of the doctrine of integration to ESI's situation would lead to a result contrary to our position, 

however, we do not believe that integration concerns are present in ESI's sìtuation. The 

standard for integration as developed by the Staff in connection with determining compliance 

with the 100 beneficial owner limitation of Section 3(c)(I) of the 1940 Act and the Touche, 

Remnant doctrine, is whether a reasonable investor would consider an investment in two or more 

entities to be materially different, see Welsh, Carson, Anderson & Stowe (publicly available 

June 18, 1993) and Pasadena Investment Trust (publicly available January 22, 1993). 

We believe that a reasonable investor would consider an investment in one series 

of ESI notes to be materially different from an investment in a different series of notes. Each 

series of ESI's notes has targeted the interests of different investors by (i) being denominated 

in a different currency, (ii) generating a different return based on either a different fixed or 

floating rate of interest and (iii) possessing different payment and maturity dates. 

In light of these differences in the characteristics of each series of notes, we 

believe that recognized principles of integration do not require two or more distinct series of 

ESI's notes to be viewed as one issuer. We also do not believe that a series of notes issued in 

accordance with Rule 3a-7 would, as a result of compliance with Rule 3a-7, be integrated with 

any other series of notes issued by ESI. Additionally, we are aware that the Staff wil no longer 

respond to letters dealing with issues of integration unless they present novel or unusual issues, 

see Shoreline Fund L.P. (publicly available April 11, 1994), and accordingly we are not 

requesting that the Staff provide no action relief with respect to integration. 

Ny¡.gOO32,5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 8
 

sponsor or depositor of such pools.~1 The Staff emphasized that its position derived from the 

fact that "the sponsor's creditors would have no recourse against the pool, and the holder of the 

asset-backed or mortgage-backed security looks to the pool for payment." Additionally, the Staff 

noted that the assets underlying the securities at issue in Hyperion were either "bankptcy 

remote" or the trustee or issuer, on behalf of the investors, had a perfected first priority 

ownership or security interest in such underlying assets. 

The Hyperion analysis is consistent with our position that each series of notes 

should be treated as a separate issuer for the purposes of Rule 3a-7. First, because ESI was 

established solely for the purpose of issuing securities and entering into certain other related 

transactions, ESI wil not have any creditors other than the investors in each of its discrete series 

of notes and the swap counterparty. This fact,' together with the contractual provisions limiting 

the recourse of ESI's noteholders to the assets pledged as security for their series of notes, 

protects ESI's noteholders to the same degree as the holders of the asset-backed and mortgagebacked securities at issue in Hyperion. Second, investors in ESI look solely to the pool of assets 

underlying their series of notes for payment. The cash flows upon which ESI investors rely 

derive solely from the Sovereign Securities and the Swap Agreement related to a particular series 

~I See also Pennsylvania Tax-Free Income Trust (publicly available March 4, 1977) (for the 

purposes of Section 5(b)(I) of the 1940 Act, the issuer of revenue bonds was deemed to be the 

business entity which was solely responsible for the payment of the bond obligation rather than 

the public authority which nominally issued the bond); T. Rowe Price Tax-Free Funds (publicly 

available June 24, 1993) (for the purposes of Section 5(b)(1) of the 1940 Act, an investment in 

a municipal bond refunded with escrowed U.S. Government securities would be viewed as an 

investment in the U.S. Government securities because, inter alia, the bondholder looked to the 

escrowed U.S. Government securities for payment); Coutts Global Fund (publicly available 

December 7, 1994) (for the purposes of Section 3(c)(I) of the 1940 Act, each Sub-Fund of an 

Irish Umbrella Fund would be viewed as a single issuer); and Guide 18 to Form N-IA ("When 

the assets and revenues of an agency, authority, instrumentality or other political subdivision are 

separate from those of the government creating the subdivision and the security is backed only 

by the assets and revenues of the subdivision, such subdivision would be deemed to be the sole 

issuer for purposes of Section 5(b)(1). Similarly, in the case of an industrial development bond, 

if that bond is backed only by the assets and revenues of the non-governmental user, then such 

non-governmental user would be deemed to be the sole issuer for the purposes of Section 

5(b)(I). ") 

NYl-80032.5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995 

Page 9 

of notes and not to any other assets of ESI. Third, in connection with each issuance, ESI grants 

to the Trustee, on behalf of the related noteholders and swap counterparty, a security interest 

in the assets securing such series and ESI obtains an opinion of counsel to the effect that such 

security interest in the Sovereign Securities is a first-priority perfected security interest. 

Thus, the Staff's position in Hyperion and related no-action letters is consistent, 

we believe, with the conclusion that each series of ESI's previous issuances should be deemed 

a separate issuer for the purposes of Rule 3a-7. Therefore, the fact that ESI did not comply with 

certin of the technical provisions of Rule 3a-7 in connection with previous issuances should not 

preclude ESI from relying on the exemption from registration as an "investment company" under 

the 1940 Act provided by Rule 3a-7 with respect to the proposed U.S. private placement and 

other future issuances in connection with which ESI wil fully comply with Rule 3a-7. 

Even if the Staff declines to conclude that each series of notes should be viewed 

as a separate issuer for purposes of the 1940 Act, we believe the Staff should agree with our 

conclusion that ESI's substantial compliance with the provisions of Rule 3a-7 in respect of 

previous offshore issuances should not preclude ESI from relying on the exemption from 

registration as an "investment company" under the 1940 Act provided by Rule 3a-7 with respect 

to future issuances using U. S. jurisdictional means. 

Request 

In view of the foregoing, we respectfully request that the Division of Investment 

Management agree that it wil concur with our opinion that the exemption from registration as 

an "investment company" under the 1940 Act provided by Rule 3a-7 is available to ESI in 

connection with the proposed private placement of notes in the United States. 

In accordance with the Commission's Rules of Practice, two additional copies of 

this letter are enclosed. 

If the Staff is inclined to refuse to take a no-action position, we would appreciate 

the opportunity to discuss this matter with you further before any adverse written response to 

this letter is disseminated. If you have any questions concerning the foregoing or require any 

NY 1-80032.5 
Office of the Chief Counsel 

Division of Investment Management 

February 9, 1995
 

Page 10
 

additional information or clarification, please feel free to call me at (212) 326-8909 or Eric R. 

Bothwell of this firm at (212) 326-8713. 

Very truly yours, , 

: /­

. r',: 

i ",., '-t. / - .. . ! '-­

Laurence B/Isaacson 

cc: Rochelle Kauffman- Plesset 

Eric R. Bothwell
 

David A. Marple
 

NY 1-80032.5 
94/21/95 FRI 13: 33 FAX 212 326 8748 ORRICK I4 002 

tlRRICK, HERRINGTON
 

&: SUTCLIFFE
 

Apri 21, 1995
 

Offce of the Chief Counl 

Division of Investment Mangement 

Secrities and Exchage Commission 

450 Fifth Street, N. W. 

Mai Stop 10-6 

Washion, DC 20549
 

Attntion: Jance Bishop 

Re: ESI S.A. -- Investment 

Companv Act of 1940. Rule 3a-7 

Dear Ms. Bishop: 

We understad tht you have inuired as to the enforcebilty of the limited recourse provisions in the documentation governing the offerigs by ESI S.A. (the "Company") 

of separate series of notes (collectively, the "Notes 


"). 

We have been advised by Luxembourg counel that any clause in the documentation whereby one or more parties agrees that the obligations of the Company in 

respect of a series of Notes shal only be payable from the collateral securg such series of 

Notes wil be enforceable as between the contracting parties. 

We have also been advised that if the Company were to go into bankptcy, tlta banfipfëYcóuif in wxeïibollr.g mayor may riot enforce-such provisions. 

HÖWèVer:the tranactions 
 have t,een structured such tht the êompány_w.illlivcrio liabilties 

or obliga.tiO~.?~~E ,_!È~!1",~~_;N2t~§,,~~_ tl~.~.\V~p aKr~int~nts~d, accordingly, the risk ora
 

6aptcy of ffé Company has been implicitly rate "AM II remote. We have also made
 

certin that the risk profie associated with each series of Notes is identical (i.e. each series of
 

Notes is backed by bonds issued by the same member state of the European Union and a swap 

agreement entered int with the same swap counterpart). In ths way, it is extremely unlikely 

NYl.8992.i 

1285 Aveue of rhe America . New York, New York 10019.6064
 

Telephone 212 3268801 . Facsimile 212 326 8777 

Los J\ngcl~s · SacrtIm~~lo . San francico . Washinton, D.C.
 
04/21/95 FRI 13: 33 FAX 212 326 8748 ORRICK I4 003 

Office of the Chief Counsel & SUTCLIFFE ltRICK. HERRINGTON


Division of Investment Mangement 

April 21, 1995 

Page 2 

tht an event of default would ocur only with respt to a parcular or limted number of series 

of Notes. We also wish to poin out tht we have ben advise by Luembourg Counsel tht 

Luembourg cour wil recogn the seurity inrest gran with respet to each senes of 

Notes. We have separtely been advised by loc counl tht the trstee with respet to each
 

senes of Notes ha a perfecte security interest in the bond securing each such series, subject 

to no eq or prior clai.
 

We hope ths is responsive to your question. If you have any questions concerng the foregoin or require an additiona inonnation or clarication, pleae feel free 

to cal me at (212) 326-8909 or Eric R. Bothwell of ths fir at (212) 326-8713.
 

'Y1-89112,1