FINAL BILL REPORT

HB 713

                                  C 421 L 87

BYRepresentatives Winsley, Lux, Zellinsky and Chandler

Revising provisions on debt-related securities.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions

SYNOPSIS AS ENACTED

BACKGROUND:

Debenture companies are defined by law as those entities which issue securities to be used as capital of the issuer for the purpose of investing, holding or trading in mortgages, property contracts or security agreements.  The director of the Department of Licensing through the Securities Division is responsible for regulation of debenture companies.  The debenture company sells its securities to investors with the expectation that the debt obligations it purchases will provide sufficient income to pay the securities it has issued.  Debenture companies are required to maintain a specified level of paid-in capital based on the level of outstanding securities of the company.  At least 50 percent of the securities issued by a debenture company must have a maturity of two or more years.  The directors and officers of the debenture company are prohibited from certain types of conflicts of interest in operating the company.

The Securities Act generally applies to any note, stock, evidence of indebtedness or similar type of obligation.  The Securities Act exempts certain transactions involving covered securities from compliance with the act's provisions.  Among the exempt transactions is one involving a bond or other evidence of indebtedness secured by a mortgage, deed of trust or real property contract if the entire mortgage, deed of trust or contract is offered and sold as a unit.

SUMMARY:

The definition of debenture company is modified.  Provisions relating to conflicts of interest are modified to include controlling persons as well as officers and directors.  New requirements are added governing the acquisition of debenture companies.  An acquiring party must file a notice of application with the director of the Department of Licensing.  The director may halt the acquisition if there is reason to believe the debenture company will be harmed.  The director may require the company to stop engaging in unsafe or unsound practices.

The transaction exemption from the Securities Act for single mortgages and real estate contracts is modified to exclude from the exemption partial interests in more than one mortgage and multiple obligations sold as part of a single plan of financing.

VOTES ON FINAL PASSAGE:

      House 97   0

      Senate    47     0(Senate amended)

      House       (House refused to concur)

Conference Committee

      Senate    44     1

      House 96   0

EFFECTIVE:July 26, 1987

            January 1, 1987 (Sections 1 - 8)