Sec. 31.05.06.06. Private Placements

A. This regulation applies to private placements which have not been rated by rating agencies.

B. If a private placement does not qualify as an investment grade obligation in accordance with Regulation .02B(4) of this chapter it shall be considered a high yield/high risk obligation unless:

(1) In the case of an interest-bearing obligation which does not involve an equity feature, the interest rate charged is comparable to rates generally prevailing at the time of the loan for securities of comparable terms and duration which are classified in an investment grade classification (for example, BBB or Baa or higher) by at least one of the accepted rating agencies;

(2) In the case of an interest-bearing obligation which also provides minor equity benefits to the lender, the interest rate charged is comparable to interest rates generally prevailing at the time of the loan for securities of comparable terms and duration which are classified in the third grade (for example, A) by at least one of the accepted rating agencies; or

(3) In the case of an interest-bearing obligation which also provides substantial equity benefits to the lender, the interest rate charged is comparable to interest rates generally prevailing at the time of the loan for securities of comparable terms and duration which are classified in the second grade (for example, AA) by at least one of the accepted rating agencies.