[Federal Register Volume 64, Number 243 (Monday, December 20, 1999)]
[Rules and Regulations]
[Pages 70992-70997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32689]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 107
Small Business Investment Companies
AGENCY: Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule implements provisions of the Small Business
Reauthorization Act of 1997, enacted on December 2, 1997, that affect
the Small Business Investment Company (SBIC) program, including
provisions affecting SBICs' minimum capital requirements, leverage
eligibility, and the timing of tax distributions by SBICs that have
issued Participating Securities. Other provisions of the final rule
modify regulations governing the refinancing of real estate by SBICs,
portfolio diversification requirements, takedowns of leverage, and in-
kind distributions by Participating Securities issuers. A proposed
regulation that would have prohibited political contributions by SBICs
is not being finalized at this time.
DATES: This rule is effective on December 20, 1999.
FOR FURTHER INFORMATION CONTACT: Leonard W. Fagan, Investment Division,
at (202) 205-7583.
SUPPLEMENTARY INFORMATION: On April 14, 1999, SBA published a proposed
rule (64 FR 18375) to implement the provisions of Subtitle B of Public
Law 105-135 (December 2, 1997), the Small Business Reauthorization Act
of 1997, which relate to SBICs. The proposed rule also included a
provision prohibiting political contributions by SBICs and
modifications of regulations governing the refinancing of real estate
by SBICs, portfolio diversification requirements, procedures for
drawing down leverage from SBA, and in-kind distributions by SBICs that
have issued leverage in the form of Participating Securities.
SBA received two comments on the proposed rule during the 30-day
comment period. This final rule includes changes based on some of the
comments received, as explained in this preamble.
Private Capital
Proposed Sec. 107.230(b)(3) is adopted as final. The provision
implements a change in the statutory definition of private capital to
include certain funds invested in a Licensee by a Federally chartered
or Government-sponsored corporation established prior to October 1,
1987.
Definition of ``Associate''
The proposed technical correction in the definition of
``Associate'' in Sec. 107.50 is adopted as final. The revised
definition clarifies the applicability of paragraph (8)(i) of the
definition to business concerns organized as partnerships or limited
liability companies.
Leverageable Capital
The proposed change in the definition of Leverageable Capital in
Sec. 107.50 is adopted as final. The definition no longer excludes
Qualified Non-private Funds (as defined in Sec. 107.230(d)) whose
source is Federal funds.
Internet Access and Electronic Mail
Proposed Sec. 107.504 is adopted with one minor change. The
proposed rule would have required all SBICs to have Internet access and
Internet electronic mail no later than June 30, 1999. Because of the
time elapsed since publication of the proposed rule, the final rule
moves the effective date of this requirement to March 31, 2000.
Political Contributions
Proposed Sec. 107.505, which would have prohibited contributions by
SBICs to any political campaign, party, or candidate, or to any
political action committee, is not being finalized at this time. SBA is
continuing to study the issue of political contributions by SBICs.
Financing of Smaller Enterprises
Since April 1994, SBICs have been required to direct a certain
percentage of their investment activity to businesses that fall
significantly below the maximum size permitted for a Small Business.
These businesses are referred to as ``Smaller Enterprises.'' The
proposed rule included minor corrections and clarifications related to
the financing of Smaller Enterprises that are adopted as proposed, and
one substantive change that has been modified in the final rule.
Section 215(b) of Public Law 105-135 increased the maximum amount
of SBA
[[Page 70993]]
leverage for which an SBIC could be eligible (see the section of this
preamble entitled ``Maximum Amount of Leverage''). The statute further
required that 100 percent of any ``financings made in whole or in part
with leverage in excess of $90,000,000'' (the previous limit) be
invested in Smaller Enterprises. SBA's interpretation of this
requirement in proposed Sec. 107.710(d) was that an SBIC must have 100
percent of any outstanding leverage over $90 million invested in
Smaller Enterprises, while also satisfying the requirement in
Sec. 107.710(b) that 20 percent of its total investment activity be
devoted to Smaller Enterprises.
One commenter pointed out that the proposed rule appeared to
prevent any leverage over $90,000,000 from being invested in businesses
that are not Smaller Enterprises, even if an SBIC had already made
Smaller Enterprise investments in an amount far exceeding the basic 20
percent requirement in Sec. 107.710(b). The commenter suggested that
SBA look instead at the composition of an SBIC's portfolio in the
aggregate.
SBA agrees that an aggregate test is appropriate and has modified
the final rule so that an SBIC's required dollar amount of Smaller
Enterprise investments is determined on that basis. The final rule also
modifies the basic 20 percent investment requirement and the additional
100 percent requirement for leverage over $90,000,000 so that they do
not overlap. In other words, it eliminates the possibility that an SBIC
investing an additional dollar would be required to increase its
Smaller Enterprise investments by $1.20.
In the final rule, Sec. 107.710(b)(1) is revised to exclude
financings made in whole or in part with leverage over $90,000,000 from
the total dollar amount of financing activity that is subject to the 20
percent test. An SBIC that has issued leverage over $90 million then
must determine its total required dollar amount of Smaller Enterprise
financings under Sec. 107.710(d). This amount is determined by adding
the minimum amount necessary to satisfy paragraph (b)(1) to the total
dollar amount of financings made in whole or in part with leverage over
$90,000,000. The source of funding for individual investments in
Smaller Enterprises does not matter; the SBIC is only required to
provide sufficient financing to Smaller Enterprises in the aggregate.
In developing the final rule, SBA considered whether it would be
excessively difficult for SBICs to identify financings made ``in whole
or in part'' with leverage over $90,000,000. SBA believes that this
would not be the case. Since SBA introduced a new interim leverage
funding mechanism in May 1998, SBICs typically draw leverage as needed
to fund specific investments. Thus, there should be a clear link
between the takedown of leverage over $90,000,000 and the closing of a
financing. SBA realizes that SBICs sometimes request leverage to
provide themselves with ``working capital'' for general operating
purposes. If an SBIC requests leverage over $90,000,000 for this
purpose, but the effective use of the leverage is to free or replace
other funds used to complete a financing, SBA will assume that the
financing was made with the leverage proceeds.
Real Estate Refinancing
Proposed Sec. 107.720(c)(2) is adopted as final. The provision
allows an SBIC to provide financing to a Small Business that will use
the proceeds to refinance debt obligations on property that it owns and
occupies, provided the Small Business uses at least 67 percent of the
usable square footage for an eligible business purpose.
Co-Investment With Associates
Proposed Sec. 107.730(d)(3)(iv) is adopted as final. The provision
concerns one set of circumstances under which an SBIC's co-investment
with an Associate is presumed to be on terms that are equitable to the
SBIC, so that no specific demonstration of fairness is required. As
revised, the presumption applies only to an SBIC that intends to
operate permanently as a non-leveraged company, rather than to any SBIC
that is currently non-leveraged.
Portfolio Diversification Requirement (``Overline'' Limit)
Proposed Sec. 107.740(a) is adopted as final. Under the revised
provision, an SBIC's overline limit will be computed based on the sum
of: (1) its Regulatory Capital at the time an investment or commitment
is made; and (2) any distributions permitted under Sec. 107.1570(b)
that were made within the preceding 5 years and reduced Regulatory
Capital. A distribution made within the preceding 5 years under
Sec. 107.585 may also be added back to Regulatory Capital for the
purpose of the overline computation if it reduced Regulatory Capital by
no more than 2 percent. A larger distribution under Sec. 107.585 may be
added back with the approval of SBA.
The final rule also clarifies that the overline limit applies to
SBICs that do not have outstanding leverage, but which intend to issue
leverage in the future.
Leverage Application Procedures and Eligibility
The proposed technical correction in Sec. 107.1100(b) is adopted as
final. The revision reflects recent changes in leverage funding
procedures, under which a Licensee can issue leverage only by first
obtaining a leverage commitment from SBA, and then drawing down funds
against the commitment.
Proposed Sec. 107.1120(d) contained a certification requirement for
Licensees seeking leverage over $90,000,000. In the final rule, this
requirement has been modified to be consistent with the changes made in
Sec. 107.710. These changes are discussed in the section of this
preamble entitled ``Financing of Smaller Enterprises.''
Maximum Amount of Leverage
Proposed Secs. 107.1150(a) and (b)(1) are adopted as final, with
one modification. The leverage eligibility table in Sec. 107.1150(a)(1)
has been updated to reflect changes in the Consumer Price Index (CPI)
through September 1999. In accordance with Sec. 107.1150(a)(2), SBA
will determine the next adjustment of the current leverage ceiling
($105,200,000) after the Bureau of Labor Statistics publishes the CPI
for September 2000. SBA will publish the indexed maximum leverage
amounts each year in a Notice in the Federal Register.
Draws Against SBA Leverage Commitments
Proposed Secs. 107.1220 and 107.1230(d) are adopted as final. The
procedural requirements in these sections have been updated to be
consistent with the interim leverage funding mechanism, sometimes
described as ``just-in-time'' funding, that SBA introduced in May 1998.
The final rule makes four changes in these procedures that are
discussed in greater detail in the preamble to the proposed rule.
First, it eliminates the requirement that draw requests submitted
within 30 days of the end of a Licensee's fiscal quarter be accompanied
by updated quarterly financial statements. Second, it clarifies that
every draw request must be accompanied by a statement certifying that
there has been no material adverse change in the Licensee's financial
condition since its last filing of SBA Form 468. Third, it requires a
Licensee to provide preliminary unaudited year end financial statements
when it submits a draw request more than 30 days
[[Page 70994]]
following the end of its fiscal year if the Licensee has not yet filed
its audited annual financial statements. Fourth, it allows a Licensee
to apply for a leverage draw based on operating liquidity needs, on
specific financings it expects to close, or on a combination of the
two.
Tax Distributions
Section 215(c) of Public Law 105-135 amended provisions of the Act
governing the timing of ``tax distributions'' that SBICs with
outstanding Participating Securities may make to their private
investors and SBA. Previously, such distributions could be made once a
year, based on the income allocated by a Licensee to its investors for
Federal income tax purposes for the fiscal year immediately preceding
the distribution. The statutory change now gives a Licensee the option
of making a tax distribution at the end of any calendar quarter based
on a quarterly estimate of tax liability. However, if the aggregate
quarterly distributions made during any fiscal year exceed the amount
that the Licensee would have been permitted to make based on a single
computation performed for the entire year, future tax distributions
must be reduced by the amount of the excess.
The statutory changes are implemented in Secs. 107.1550 and
107.1575 and are finalized as proposed. The timing of tax distributions
is addressed in Secs. 107.1550(d) and 107.1575(a). The final rule
permits interim tax distributions to be made on the last day of a
calendar quarter or on any succeeding day through the first Payment
Date following the end of the quarter (Payment Dates are February 1,
May 1, August 1, and November 1 of each year). As before, Licensees may
make annual tax distributions as late as the second Payment Date
following the end of their fiscal year. If the distribution is not made
on a Payment Date, SBA's prior approval is required.
Section 107.1550(e) implements the statutory provision concerning
excess tax distributions. A detailed example of how the excess amount
is computed appears in the preamble to the proposed rule.
Distributions on Other Than Payment Dates
Proposed Sec. 107.1575 is adopted as final. The section
incorporates a technical change to accommodate quarterly tax
distributions by SBICs, as discussed in the section of this preamble
entitled ``Tax Distributions.'' It also clarifies that while
distributions on dates other than Payment Dates must normally be
computed as of the distribution date, this requirement does not apply
to ``annual'' distributions (i.e., those computed as of the end of an
SBIC's fiscal year end).
In-Kind Distributions
SBA proposed two substantive changes in Sec. 107.1580, which
governs in-kind distributions by SBICs that have issued Participating
Securities. First, under proposed Sec. 107.1580(a)(2), only
``Distributable Securities'' could be distributed in kind. This new
term, which was defined in proposed Sec. 107.50, would replace the term
``Publicly Traded and Marketable'' in Sec. 107.1580. Although the two
terms are technically different, SBA did not expect the change to have
a major effect on Licensees' ability to distribute securities.
SBA received one comment on paragraph (3) of the definition, which
requires that the quantity of securities distributed to SBA must be
able to be sold ``over a reasonable period of time without having an
adverse impact upon the price of the security.'' The commenter felt
that because of the subjective nature of this provision, SBICs might
find it difficult to determine whether a particular security will meet
the requirement. SBA acknowledges that the requirement involves the
application of judgment, but is finalizing paragraph (3) of the
definition as proposed. The identical language appeared in the
definition of ``Publicly Traded and Marketable,'' which has been in use
with respect to in-kind distributions since the inception of the
Participating Securities program. Based on its experience so far, SBA
is satisfied that the requirement is workable and appropriate.
The second change involved proposed Sec. 107.1580(a)(1), under
which all in-kind distributions would have required SBA's prior
approval. In SBA's view, this change represented a minor expansion of
the current requirement in Sec. 107.1570(a) that SBA approve all
distributions made on dates other than one of the quarterly Payment
Dates (February 1, May 1, August 1, and November 1). However, SBA
received a comment, from a trade association representing a significant
number of SBICs, expressing concern that ``SBA would substitute its
judgment for that of the private experts managing SBICs as to when [an
in-kind] distribution should take place or whether it might take place
at all.''
SBA did not intend to create a fundamental change in the conditions
under which in-kind distributions can be made. SBA proposed the rule
change to ensure that it would have sufficient opportunity to ascertain
whether a proposed distribution satisfies the regulatory definition of
``Distributable Securities.'' This type of review is an essential part
of SBA's regulatory oversight responsibilities. Nevertheless, SBA does
not wish to create a perception that it will readily overrule business
decisions made by SBIC managers. Therefore, in the final rule, the
requirement for prior approval of all in-kind distributions has been
eliminated from Sec. 107.1580. All distributions on dates other than
Payment Dates, whether in cash or in kind, will continue to require
prior approval under Sec. 107.1575(b)(1).
To further clarify its role in reviewing in-kind distributions, SBA
has also modified the introductory text of the definition of
Distributable Securities. The final rule states that SBA determines
whether securities qualify as Distributable Securities, but in so doing
obtains the advice of a third party with expertise in the marketing of
securities. This provision has a dual purpose. First, it emphasizes
SBA's responsibility to ensure that a proposed distribution is
consistent with regulatory requirements. Second, it formalizes SBA's
current practice of seeking the advice of appropriate experts as it
conducts its regulatory review. SBA is willing to commit itself to this
procedure as a means of assuring the SBIC industry that it will not
arbitrarily or capriciously reject proposed in-kind distributions.
The final rule also adopts a non-substantive change in
Sec. 107.1580(a)(4), which deals with SBA's use of agents to dispose of
the securities it receives. This provision appeared in the proposed
rule as Sec. 107.1580(a)(5).
Compliance With Executive Orders 12866, 12988, and 13132, the
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the
Paperwork Reduction Act (44 U.S.C. Ch. 35).
SBA has determined that this final rule does not constitute a
significant rule within the meaning of Executive Order 12866 since it
will not have an annual effect on the economy of $100 million or more,
and that it will not have a significant economic impact on a
substantial number of small entities within the meaning of the
Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The purpose of the
final rule is to implement provisions of Public Law 105-135 which
relate to small business investment companies, and to make certain
other changes, primarily technical corrections and clarifications, to
the regulations governing SBICs. There are 352 SBICs, not all of which
are small businesses. In addition, the changes will have little or no
effect on
[[Page 70995]]
small businesses seeking funding from SBICs; rather they would only
affect definitions for and activities of the SBICs.
For purposes of Executive Order 12988, SBA has determined that this
final rule is drafted, to the extent practicable, in accordance with
the standards set forth in Section 3 of that Order.
For purposes of Executive Order 13132, SBA has determined that this
final rule has no federalism implications.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
has determined that this final rule contains no new reporting or
recordkeeping requirements.
List of Subjects in 13 CFR Part 107
Investment companies, Loan programs--business, Reporting and
recordkeeping requirements, Small businesses.
For the reasons set forth in the preamble, SBA amends 13 CFR part
107 as follows:
PART 107--SMALL BUSINESS INVESTMENT COMPANIES
1. The authority citation for part 107 continues to read as
follows:
Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d, 687g
and 687m.
2. In Sec. 107.50, revise paragraph (8)(i) of the definition of
Associate, revise the definition of Leverageable Capital, and add, in
alphabetical order, a new definition of Distributable Securities to
read as follows:
Sec. 107.50 Definitions of terms.
* * * * *
Associate of a Licensee means any of the following:
* * * * *
(8) * * *
(i) Any person described in paragraphs (1) through (6) of this
definition is an officer, general partner, or managing member; or
* * * * *
Distributable Securities means equity securities that are
determined by SBA (with the advice of a third party expert in the
marketing of securities) to meet each of the following requirements:
(1) The securities (which may include securities that are salable
pursuant to the provisions of Rule 144 (17 CFR 230.144) under the
Securities Act of 1933, as amended) are salable immediately without
restriction under Federal and state securities laws;
(2) The securities are of a class:
(i) Which is listed and registered on a national securities
exchange, or
(ii) For which quotation information is disseminated in the
National Association of Securities Dealers Automated Quotation System
and as to which transaction reports and last sale data are disseminated
pursuant to Rule 11Aa3-1 (17 CFR 240.11Aa3-1) under the Securities
Exchange Act of 1934, as amended; and
(3) The quantity of such securities to be distributed to SBA can be
sold over a reasonable period of time without having an adverse impact
upon the price of the security.
* * * * *
Leverageable Capital means Regulatory Capital, excluding unfunded
commitments.
* * * * *
3. In Sec. 107.230, revise paragraph (b)(3) to read as follows:
Sec. 107.230 Permitted sources of Private Capital for Licensees.
* * * * *
(b) Exclusions from Private Capital. * * *
(3) Funds obtained directly or indirectly from any Federal, State,
or local government agency or instrumentality, except for:
(i) Funds invested by a public pension fund;
(ii) Funds obtained from the business revenues (excluding any
governmental appropriation) of any federally chartered or government-
sponsored corporation established before October 1, 1987, to the extent
that such revenues are reflected in the retained earnings of the
corporation; and
(iii) ``Qualified Non-private Funds'' as defined in paragraph (d)
of this section.
* * * * *
4. Revise Sec. 107.504 to read as follows:
Sec. 107.504 Equipment and office requirements.
(a) Computer capability. You must have a personal computer with a
modem, and be able to use this equipment to prepare reports (using SBA-
provided software) and transmit them to SBA. In addition, by March 31,
2000, you must have access to the Internet and the capability to send
and receive electronic mail via the Internet.
(b) Facsimile capability. You must be able to receive facsimile
messages 24 hours per day at your primary office.
(c) Accessible office. You must maintain an office that is
convenient to the public and is open for business during normal working
hours.
5. Remove Sec. 107.508.
Sec. 107.508 [Removed]
6. In Sec. 107.710, revise paragraphs (b)(1), (c)(1)(i), and
(c)(1)(ii), redesignate paragraphs (d) and (e) as paragraphs (e) and
(f), revise the last sentence of redesignated paragraph (f), and add a
new paragraph (d) to read as follows:
Sec. 107.710 Requirement to Finance Smaller Enterprises.
* * * * *
(b) * * *
(1) General rule. At the close of each of your fiscal years, for
all Financings you extended since April 25, 1994, excluding Financings
made in whole or in part with Leverage in excess of $90,000,000, at
least 20 percent (in total dollars) must have been invested in Smaller
Enterprises. If you were licensed after April 25, 1994, the 20 percent
requirement applies to the Financings you extended since you were
licensed, excluding Financings made in whole or in part with Leverage
in excess of $90,000,000, plus any pre-licensing investments approved
by SBA for inclusion in your Regulatory Capital. For purposes of this
paragraph (b)(1), Leverage in excess of $90,000,000 includes aggregate
Leverage over $90,000,000 issued by two or more Licensees under Common
Control. See also paragraph (d) of this section.
* * * * *
(c) * * *
(1) * * *
(i) Less than $10,000,000 if such Leverage included Participating
Securities; or
(ii) Less than $5,000,000 if such Leverage was Debentures only.
* * * * *
(d) Special requirement for Leverage over $90,000,000. If you have
issued Leverage over $90,000,000 (including aggregate Leverage over
$90,000,000 issued by two or more Licensees under Common Control), at
the end of each of your fiscal years the cumulative Financings you
extended to Smaller Enterprises must equal at least:
(1) The dollar amount necessary to satisfy paragraph (b) of this
section; plus
(2) 100 percent of the amount of all Financings made in whole or in
part with Leverage over $90,000,000.
* * * * *
(f) Non-compliance with this section. * * * However, you will not
be eligible for additional Leverage until you reach the required
percentage (see Sec. 107.1120(c) through (e)).
7. In Sec. 107.720, revise paragraph (c)(2) to read as follows:
Sec. 107.720 Small Businesses that may be ineligible for Financing.
* * * * *
(c) * * *
(2) You are not permitted to finance a business, regardless of SIC
[[Page 70996]]
classification, if the Financing is to be used to acquire or refinance
real property, unless the Small Business:
(i) Is acquiring an existing property and will use at least 51
percent of the usable square footage for an eligible business purpose;
or
(ii) Is building or renovating a building and will use at least 67
percent of the usable square footage for an eligible business purpose;
or
(iii) Occupies the subject property and uses at least 67 percent of
the usable square footage for an eligible business purpose.
* * * * *
8. In Sec. 107.730, revise paragraph (d)(3)(iv) to read as follows:
Sec. 107.730 Financing which constitute conflicts of interest.
* * * * *
(d) * * *
(3) * * *
(iv) You have no outstanding Leverage and do not intend to issue
Leverage in the future, and your Associate either is not a Licensee or
has no outstanding Leverage and does not intend to issue Leverage in
the future.
* * * * *
9. In Sec. 107.740, revise paragraph (a) to read as follows:
Sec. 107.740 Portfolio diversification (``overline'' limitation).
(a) General rule. This Sec. 107.740 applies if you have outstanding
Leverage or intend to issue Leverage in the future.
Without SBA's prior written approval, you may provide Financing or
a Commitment to a Small Business only if the resulting amount of your
aggregate outstanding Financings and Commitments to such Small Business
and its Affiliates does not exceed:
(1) For a Section 301(c) Licensee, 20 percent of the sum of:
(i) Your Regulatory Capital as of the date of the Financing or
Commitment; plus
(ii) Any Distribution(s) you made under Sec. 107.1570(b), during
the five years preceding the date of the Financing or Commitment, which
reduced your Regulatory Capital; plus
(iii) Any Distribution(s) you made under Sec. 107.585, during the
five years preceding the date of the Financing or Commitment, which
reduced your Regulatory Capital by no more than two percent or which
SBA approves for inclusion in the sum determined in this paragraph
(a)(1).
(2) For a Section 301(d) Licensee, 30 percent of a sum determined
in the manner set forth in paragraph (a)(1)(i) through (iii) of this
section.
* * * * *
10. In Sec. 107.1100, revise the section heading and paragraph (b)
to read as follows:
Sec. 107.1100 Types of Leverage and application procedures.
* * * * *
(b) Applying for Leverage. The Leverage application process has two
parts. You must first apply for SBA's conditional commitment to reserve
a specific amount of Leverage for your future use. You may then apply
to draw down Leverage against the commitment. See Secs. 107.1200
through 107.1240.
* * * * *
11. In Sec. 107.1120, redesignate paragraphs (d) through (g) as
paragraphs (e) through (h) and add a new paragraph (d) to read as
follows:
Sec. 107.1120 General eligibility requirements for Leverage.
* * * * *
(d) Certify, if applicable, that you will satisfy the requirement
in Sec. 107.710(d) to provide Financing to Smaller Enterprises.
* * * * *
12. In Sec. 107.1150, revise paragraph (a) and the first sentence
of paragraph (b)(1) to read as follows:
Sec. 107.1150 Maximum amount of Leverage for a Section 301(c)
Licensee.
(a) Maximum amount of Leverage. (1) Amounts before indexing. If you
are a Section 301(c) Licensee, the following table shows the maximum
amount of Leverage you may have outstanding at any time, subject to the
indexing adjustment set forth in paragraph (a)(2) of this section:
------------------------------------------------------------------------
Then your maximum leverage
If your leverageable capital is: is:
------------------------------------------------------------------------
(1) Not over $17,500,000.................. 300 percent of Leverageable
Capital
(2) Over $17,500,000 but not over $52,500,000 + [2 x
$35,100,000. (Leverageable Capital -
$17,500,000)]
(3) Over $35,100,000 but not over $87,700,000 + (Leverageable
$52,600,000. Capital -$35,100,000)
(4) Over $52,600,000...................... $105,200,000
------------------------------------------------------------------------
(2) Indexing of maximum amount of Leverage. SBA will adjust the
amounts in paragraph (a) of this section annually to reflect increases
through September in the Consumer Price Index published by the Bureau
of Labor Statistics. SBA will publish the indexed maximum Leverage
amounts each year in a Notice in the Federal Register.
(b) Exceptions to maximum Leverage provisions. (1) Licensees under
Common Control. Two or more Licensees under Common Control may have
aggregate outstanding Leverage over $105,200,000 (subject to indexing
as set forth in paragraph (a)(2) of this section) only if SBA gives
them permission to do so. * * *
* * * * *
13. Revise Sec. 107.1220 to read as follows:
Sec. 107.1220 Requirement for Licensee to file quarterly financial
statements.
As long as any part of SBA's Leverage commitment is outstanding,
you must give SBA a Financial Statement on SBA Form 468 (Short Form) as
of the close of each quarter of your fiscal year (other than the fourth
quarter, which is covered by your annual filing of Form 468 under
Sec. 107.630(a)). You must file this form within 30 days after the
close of the quarter. You will not be eligible for a draw if you are
not in compliance with this Sec. 107.1220.
14. In Sec. 107.1230, revise paragraph (d)(1), redesignate
paragraphs (d)(2) and (d)(3) as paragraphs (d)(3) and (d)(4), add a new
paragraph (d)(2), and revise the first sentence of redesignated
paragraph (d)(4) to read as follows:
Sec. 107.1230 Draw-downs by Licensee under SBA's Leverage commitment.
* * * * *
(d) * * *
(1) A statement certifying that there has been no material adverse
change in your financial condition since your last filing of SBA Form
468 (see also Sec. 107.1220 for SBA Form 468 filing requirements).
(2) If your request is submitted more than 30 days following the
end of your fiscal year, but before you have submitted your annual
filing of SBA Form 468 (Long Form) in accordance with Sec. 107.630(a),
a preliminary unaudited annual financial statement on SBA Form 468
(Short Form).
* * * * *
(4) A statement that the proceeds are needed to fund one or more
particular Small Businesses or to provide liquidity for your
operations. * * *
* * * * *
15. In Sec. 107.1550, revise the first sentence of the introductory
text, paragraph (b)(1), and paragraph (d), and add a new paragraph (e)
to read as follows:
Sec. 107.1550 Distributions by Licensee--permitted ``tax
Distributions'' to private investors and SBA.
If you have outstanding Participating Securities or Earmarked
Assets, and you
[[Page 70997]]
are a limited partnership, ``S Corporation,'' or equivalent pass-
through entity for tax purposes, you may make ``tax Distributions'' to
your investors in accordance with this Sec. 107.1550, whether or not
they have an actual tax liability. * * *
* * * * *
(b) How to compute the Maximum Tax Liability. (1) You may compute
your Maximum Tax Liability for a full fiscal year or for any calendar
quarter. Use the following formula:
M = (TOI x HRO) + (TCG x HRC)
where:
M = Maximum Tax Liability
TOI = Net ordinary income allocated to your partners or other owners
for Federal income tax purposes for the fiscal year or calendar quarter
for which the Distribution is being made, excluding Prioritized
Payments allocated to SBA.
HRO = The highest combined marginal Federal and State income tax rate
for corporations or individuals on ordinary income, determined in
accordance with paragraphs (b)(2) through (b)(4) of this section.
TCG = Net capital gains allocated to your partners or other owners for
Federal income tax purposes for the fiscal year or calendar quarter for
which the Distribution is being made, excluding Prioritized Payments
allocated to SBA.
HRC = The highest combined marginal Federal and State income tax rate
for corporations or individuals on capital gains, determined in
accordance with paragraphs (b)(2) through (b)(4) of this section.
* * * * *
(d) Paying a tax Distribution. You may make an annual tax
Distribution on the first or second Payment Date following the end of
your fiscal year. You may make a quarterly tax Distribution on the
first Payment Date following the end of the calendar quarter for which
the Distribution is being made. See also Sec. 107.1575(a).
(e) Excess tax Distributions. (1) As of the end of your fiscal
year, you must determine whether you made any excess tax Distributions
for the year in accordance with paragraph (e)(2) of this section. Any
tax Distributions that you make for a subsequent period must be reduced
by the excess amount distributed.
(2) Determine your excess tax Distributions by adding together all
your quarterly tax Distributions for the year (ignoring any required
reductions for excess tax Distributions made in prior years), and
subtracting the maximum tax Distribution that you would have been
permitted to make based upon a single computation performed for the
entire fiscal year. The result, if greater than zero, is your excess
tax Distribution for the year.
16. In Sec. 107.1575, revise paragraphs (a)(1) and (b)(2) and add a
new paragraph (a)(4) to read as follows:
Sec. 107.1575 Distributions on other than Payment Dates.
(a) * * *
(1) Required annual Distributions under Sec. 107.1540(a)(1), annual
Distributions under Sec. 107.1550, and any Distributions under
Sec. 107.1560 must be made no later than the second Payment Date
following the end of your fiscal year.
* * * * *
(4) Quarterly Distributions under Sec. 107.1550 must be made no
earlier than the last day of the calendar quarter for which the
Distribution is being made and no later than the first Payment Date
following the end of such calendar quarter.
(b) * * *
* * * * *
(2) The ending date of the period for which you compute your
Earmarked Profits, Prioritized Payments, Adjustments, Charges, Profit
Participation, Retained Earnings Available for Distribution, liquidity
ratio, Capital Impairment, and any other applicable computations
required under Secs. 107.1500 through 107.1570, must be:
(i) The distribution date, or
(ii) If your Distribution includes annual Distributions under
Secs. 107.1540(a)(1), 107.1550 and/or 107.1560, your most recent fiscal
year end;
* * * * *
17. In Sec. 107.1580, revise the heading for paragraph (a)
introductory text, and revise paragraphs (a)(1), (a)(4), and (b)(2) to
read as follows:
Sec. 107.1580 Special rules for In-Kind Distributions by Licensees.
(a) In-Kind Distributions while Licensee has outstanding
Participating Securities. * * *
(1) You may distribute only Distributable Securities.
* * * * *
(4) You must deposit SBA's share of securities being distributed
with a disposition agent designated by SBA. As an alternative, if you
agree, SBA may direct you to dispose of its shares. In this case, you
must promptly remit the proceeds to SBA.
(b) * * *
(2) You must obtain SBA's prior written approval of any In-Kind
Distribution of Earmarked Assets that are not Distributable Securities,
specifically including approval of the valuation of the assets.
Dated: December 10, 1999.
Fred P. Hochberg,
Acting Administrator.
[FR Doc. 99-32689 Filed 12-17-99; 8:45 am]
BILLING CODE 8025-01-P
