[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13322]
[[Page Unknown]]
[Federal Register: June 2, 1994]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 107
[FR Doc. 94-7844]
Small Business Investment Companies; Valuation Guidelines;
Correction
AGENCY: Small Business Administration.
ACTION: Final rule; correction.
-----------------------------------------------------------------------
SUMMARY: SBA is correcting the presentation of certain information
concerning valuation guidelines which was included in the final rule
published in the Federal Register on April 8, 1994 (59 FR 16933).
Certain paragraphs were not printed in bold type as intended.
EFFECTIVE DATE: April 25, 1994.
FOR FURTHER INFORMATION CONTACT:
Saunders Miller, Senior Policy Advisor, Investment Division; Telephone
(202) 205-6510.
SUPPLEMENTARY INFORMATION: On April 8, 1994, SBA published a final rule
(59 FR 16933) which included the addition of a new appendix III to part
107 of title 13 of the Code of Federal Regulations. The appendix sets
forth valuation guidelines for Small Business Investment Companies
(Licensees). In Section III of appendix III, it was SBA's intention to
have certain paragraphs printed in bold type and other paragraphs
printed in regular type. Bold type was intended to identify a model
valuation policy which could be adopted verbatim by Licensees, while
regular type was intended to identify supplementary information which
would assist Licensees in interpreting and applying the model policy.
When the final rule was printed, however, none of the text in Section
III appeared in bold type.
In order to allow Licensees to distinguish between the model
valuation policy and the supplementary information, SBA is publishing a
reorganized version of appendix III. Section III of the reorganized
appendix is retitled ``Model Valuation Policy'' and includes only those
paragraphs originally intended to be printed in bold type. A new
Section IV is entitled ``Valuation Policy With Supplementary
Information'' and contains both the model and supplementary paragraphs
with no difference in type face. An explanation of the difference
between Sections III and IV, and how each may be used by Licensees, is
provided in paragraphs H. and I. of Section II of the appendix.
In FR Doc. 94-7844, published in the Federal Register on Friday,
April 8, 1994, appendix III of 13 CFR part 107 is corrected to read as
follows:
Appendix III To Part 107--Valuation Guidelines for SBICs
I. Introduction
This appendix describes the policies and procedures to which
Licensees (SBICs and SSBICs) must conform in valuing their Loans and
Investments and provides guidance as to the techniques and standards
which are generally applicable to such valuations.
The need for clearly defined valuation policies and procedures
and understandable techniques arises in connection with the
requirement that Licensees report the worth of their portfolios to
investors and SBA. This information assists SBA in its assessment of
the overall operational performance and financial condition of
individual Licensees and of the industry.
II. Overall Guidelines
A. Definitions
1. Asset Value means the amount that the general partners or
board of directors of a Licensee have established as a current value
in accordance with its Valuation Policy.
2. Marketable Securities means securities for which market
quotations are readily available and the market is not ``thin'',
either in absolute terms, or relative to the potentially saleable
holdings of the Licensee and other investors with saleable blocks of
such securities. These securities are valued as follows: (a) For
over-the-counter stocks, taking the average of the bid price at the
close for the valuation date and the preceding two days, and (b) for
listed stocks, taking the average of the close for the valuation
date and the preceding two days. This classification does not
include securities which are subject to resale restrictions, either
under securities laws or contractual agreements, although other
securities of the same class may be freely marketable.
3. Other Securities means all Loans and Investments not defined
in paragraph A.(2) of this section. Such securities shall be valued
at Asset Value. Most SBIC and SSBIC investments will fall in this
classification.
4. Valuation Policy means the official document of a Licensee
that definitively sets forth the Licensee's methods of valuing Loans
and Investments in accordance with the requirements of Sec. 101(g)
and this appendix.
B. Objective
The goal of a Licensee's valuation process is to value its Loans
and Investments. However, the very nature of Licensees' investments
sometimes makes the determination of fair market value
problematical. In most cases there is no market for the investment
at the time of valuation. Therefore, except where market quotations
are readily available and the markets are not ``thin'', the Boards
of Directors or General Partners are necessarily responsible for
determining in good faith the value of Loans and Investments.
Determination of value will depend upon the circumstances in
each case. No exact formula can be devised that will be generally
applicable to the multitude of different valuation issues that will
arise. This is especially true for semiannual valuation updates of
relatively new investments for which current results either exceed
or do not meet the Small Concern's forecasts. A sound valuation
should be based upon all of the relevant facts, with common sense
and informed judgement influencing the process of weighing those
facts and determining their significance in the aggregate.
C. General Considerations
The Asset Value of Loans and Investments will depend upon the
circumstances of each individual case and will be based upon the
nature of the asset and the stage of a company's existence.
In negotiating the terms and conditions of an investment with a
Small Concern, the Licensee, in effect, establishes an initial
valuation for the investment, which is cost. Cost shall be the Asset
Value until there is a basis to increase or decrease the valuation.
Unrealized appreciation should be recognized when warranted, but
should be limited to those investments that have a sustained
economic basis for an increase in value. Temporary market
fluctuations or a temporary increase in earnings should not be the
cause or sole reason for appreciation.
Unrealized depreciation should be recorded when portfolio
companies show sustained unfavorable financial performance.
Continuous close scrutiny of Loans and Investments will provide
insight into the business cycles and problems encountered by small
business concerns. This insight will allow the Licensee to
differentiate between a temporary downturn or setback and a long-
term problem indicating a measurable decline in Asset Value.
When a decline in Asset Value appears permanent, a complete or
partial write-off of the asset (i.e., recording a realized loss
rather than unrealized depreciation) should occur. Some of the more
obvious indications of permanent impairment of an investment include
the termination of business operations, a petition for bankruptcy
protection or liquidation, or the absence of a verifiable forwarding
address of the business or its proprietor(s). Less obvious
situations may include the loss of major revenue accounts, the shut
down of a critical distribution channel, an adverse legal or
regulatory ruling, or the expiration of a priority claim on
collateral in a distressed Small Concern. These and other possible
circumstances should be assessed on a case-by-case basis, with
supporting documentation on file.
D. Valuation Responsibility
As specified in 13 CFR 107.101(g), the Licensee's Board of
Directors or General Partners have the sole responsibility for
determining Asset Value. In determining Asset Value, the Board of
Directors or General Partners must satisfy themselves that all
appropriate factors relevant to a good faith valuation have been
considered and that the methods used are reasonable and prudent and
are consistently applied. Although the Board of Directors or General
Partners have the ultimate responsibility for determining Asset
Value, they may appoint management or other persons to assist them
in such determinations and to provide supporting data and make the
necessary calculations pursuant to the Board's or General Partners'
direction. It is essential that a careful, conservative, yet
realistic approach be taken by Licensees in determining the Asset
Value of each Loan and Investment.
As part of the annual audit of the Licensee's financial
statements, the Licensee's independent public accountant has
responsibility to review the Licensee's valuation procedures and
implementation of such procedures including adequacy of
documentation. The independent public accountant also has reporting
responsibility regarding the results of this review. (See appendix I
to this part, section III and section V, paragraphs I and J).
E. Frequency of Valuation
Loans and Investments shall be valued individually and in the
aggregate by the Board of Directors or General Partners at least
semiannually--as of the end of the second quarter of Licensee's
fiscal year and as of the end of Licensee's fiscal year, Provided
however, That Licensees without Leverage need only perform
valuations once a year. On a case-by-case basis, SBA may require
valuations to be made more frequently. Only valuations performed as
of the fiscal year-end are required to be reviewed by the Licensee's
independent public accountant, as discussed in paragraph D. of this
section. Each Licensee shall forward a valuation report to SBA
within 90 days of the end of its fiscal year in the case of annual
valuations, and within thirty days following the close of other
reporting periods. Material changes in valuations shall be reported
not less often than quarterly within thirty days following the close
of the quarter. Since the valuations will only be as sound as the
timeliness of the financial information upon which they are based,
Licensees shall require frequent financial statements from Small
Concerns. Monthly financial statements are normally appropriate.
F. Written Valuation Policy
Each Licensee shall establish a written Valuation Policy
approved by its Board of Directors or General Partners that includes
a statement of policies and procedures that are consistent with
Section III of this appendix.
G. Documentation
Each Licensee shall prepare and retain in its permanent files a
valuation report as of each valuation date documenting, for each
portfolio security, the cost, the current Fair Value and the
previous Fair Value, plus the methodology and supporting data used
to determine the value of each such portfolio security. The minutes
of meetings of Boards of Directors or General Partners at which
valuations are determined will contain a resolution confirming that
the valuations of each portfolios security were determined in
accordance with Licensee's duly adopted valuation procedures and
will incorporate by reference the valuation report signed by each
Director or General Partner along with any dissenting valuation
opinions.
H. Instructions
A model Valuation Policy is presented in Section III below.
Licensees may adopt the model in its entirety or make appropriate
modifications, additions or deletions. Any changes, however, must be
generally consistent with the model.
A second version of the model Valuation Policy is presented in
Section IV. This section repeats the language of Section III, but is
expanded to include additional explanatory paragraphs. These
paragraphs are commentary provided by SBA to assist Licensees in
interpreting and applying some of the model valuation criteria. They
may be adapted for inclusion in the Licensee's Valuation Policy, if
desired.
I. Approval
1. Any Licensee that utilizes the exact wording of Section III,
without any additions, deletions, or changes will be presumed to
have an acceptable Valuation Policy. It is acknowledged, however,
that this wording may not be entirely applicable to all Licensees.
If a Licensee wants to adopt a Valuation Policy that is different
from Section III, the Licensee must obtain SBA's written approval of
such Policy. If changes from the wording of Section III are minor,
it is suggested that the Licensee indicate deletions with a caret
() and underline additions.
2. Applicants for either a Section 301(c) or 301(d) license must
submit their Valuation Policies for approval as part of the
licensing application process.
III. Model Valuation Policy
A. General
1. The [Board of Directors] [General Partners] have sole
responsibility for determining the Asset Value of each of the Loans
and Investments and of the portfolio in the aggregate.
2. Loans and Investments shall be valued individually and in the
aggregate [at least semi-annually--as of the end of the second
quarter of the fiscal year and as of the end of the fiscal year.]
[at least annually--as of the end of the fiscal year.] Fiscal year-
end valuations are audited as set forth in 13 CFR Part 107 Appendix
III, Section II, paragraph D.
3. This Valuation Policy is intended to provide a consistent,
conservative basis for establishing the Asset Value of the
portfolio. The Policy presumes that Loans and Investments are
acquired with the intent that they are to be held until maturity or
disposed of in the ordinary course of business.
B. Interest-Bearing Securities
1. Loans shall be valued in an amount not greater than cost,
with Unrealized Depreciation being recognized when value is
impaired. The valuation of loans and associated interest receivables
on interest-bearing securities should reflect the portfolio
concern's current and projected financial condition and operating
results, its payment history and its ability to generate sufficient
cash flow to make payments when due.
2. When a valuation relies more heavily on asset versus earnings
approaches, additional criteria should include the seniority of the
debt, the nature of any pledged collateral, the extent to which the
security interest is perfected, the net liquidation value of
tangible business assets, and the personal integrity and overall
financial standing of the owners of the business. In those instances
where a loan valuation is based on an analysis of certain
collateralized assets of a business or assets outside the business,
the valuation should, at a minimum, consider the net liquidation
value of the collateral after reasonable selling expenses. Under no
circumstances, however, shall a valuation based on the underlying
collateral be considered as justification for any type of loan
appreciation.
3. Appropriate unrealized depreciation on past due interest
which is converted into a security (or added to an existing
security) should be recognized when collection is doubtful.
Collection is presumed to be in doubt when one or both of the
following conditions occur: (i) Interest payments are more than 120
days past due; or (ii) the small concern is in bankruptcy,
insolvent, or there is substantial doubt about its ability to
continue as a going concern.
4. The carrying value of interest-bearing securities shall not
be adjusted for changes in interest rates.
5. The valuation of convertible debt may be adjusted to reflect
the value of the underlying equity security net of the conversion
price.
c. Equity Securities--Private Companies
1. Investment cost is presumed to represent value except as
indicated elsewhere in these guidelines.
2. Valuation should be reduced if a company's performance and
potential have significantly deteriorated. If the factors which led
to the reduction in valuation are overcome, the valuation may be
restored.
3. The anticipated pricing of a Small Concern's future equity
financing should be considered as a basis for recognizing Unrealized
Depreciation, but not for Unrealized Appreciation. If it appears
likely that equity will be sold in the foreseeable future at a price
below the Licensee's current valuation, then that prospective
offering price should be weighed in the valuation process.
4. Valuation should be adjusted to a subsequent significant
equity financing that includes a meaningful portion of the financing
by a sophisticated, unrelated new investor. A subsequent significant
equity financing that includes substantially the same group of
investors as the prior financing should generally not be the basis
for an adjustment in valuation. A financing at a lower price by a
sophisticated new investor should cause a reduction in value of
prior securities.
5. If substantially all of a significant equity financing is
invested by an investor whose objectives are in large part
strategic, or if the financing is led by such an investor, it is
generally presumed that no more than 50% of the increase in
investment price compared to the prior significant equity financing
is attributable to an increased valuation of the company.
6. Where a company has been self-financing and has had positive
cash flow from operations for at least the past two fiscal years,
Asset Value may be increased based on a very conservative financial
measure regarding P/E ratios or cash flow multiples, or other
appropriate financial measures of similar publicly-traded companies,
discounted for illiquidity. Should the chosen valuation cease to be
meaningful, the valuation may be restored to a cost basis, or in the
event of significant deterioration in performance or potential, to a
valuation below cost to reflect impairment.
7. With respect to portfolio companies that are likely to face
bankruptcy or discontinue operations for some other reason,
liquidating value may be employed. This value may be determined by
estimating the realizable value (often through professional
appraisals or firm offers to purchase) of all assets and then
subtracting all liabilities and all associated liquidation costs.
8. Warrants should be valued at the excess of the value of the
underlying security over the exercise price.
D. Equity Securities--Public Companies
1. Public securities should be valued as follows: (a) For over-
the-counter stocks, take the average of the bid price at the close
for the valuation date and the preceding two days, and (b) for
listed stocks, take the average of the close for the valuation date
and the preceding two days.
2. The valuation of public securities that are restricted should
be discounted appropriately until the securities may be freely
traded. Such discounts typically range from 10% to 40%, but the
discounts can be more or less, depending upon the resale
restrictions under securities laws or contractual agreements.
3. When the number of shares held is substantial in relation to
the average daily trading volume, the valuation should be discounted
by at least 10%, and generally by more.
IV. Valuation Policy With Supplementary Information
A. General
1. The [Board of Directors] [General Partners] have sole
responsibility for determining the Asset Value of each of the Loans
and Investments and of the portfolio in the aggregate.
2. Loans and Investments shall be valued individually and in the
aggregate [at least semi-annually--as of the end of the second
quarter of the fiscal year and as of the end of the fiscal year.]
[at least annually--as of the end of the fiscal year.] Fiscal year-
end valuations are audited as set forth in 13 CFR Part 107, Appendix
III, Section II, paragraph D.
3. This Valuation Policy is intended to provide a consistent,
conservative basis for establishing the Asset Value of the
portfolio. The Policy presumes that Loans and Investments are
acquired with the intent that they are to be held until maturity or
disposed of in the ordinary course of business.
B. Interest-Bearing Securities
1. Loans shall be valued in an amount not greater than cost,
with Unrealized Depreciation being recognized when value is
impaired. The valuation of loans and associated interest receivables
on interest-bearing securities should reflect the portfolio
concern's current and projected financial condition and operating
results, its payment history and its ability to generate sufficient
cash flow to make payments when due.
2. When a valuation relies more heavily on asset versus earnings
approaches, additional criteria should include the seniority of the
debt, the nature of any pledged collateral, the extent to which the
security interest is perfected, the net liquidation value of
tangible business assets, and the personal integrity and overall
financial standing of the owners of the business. In those instances
where a loan valuation is based on an analysis of certain
collateralized assets of a business or assets outside the business,
the valuation should, at a minimum, consider the net liquidation
value of the collateral after reasonable selling expenses. Under no
circumstances, however, shall a valuation based on the underlying
collateral be considered as justification for any type of loan
appreciation.
3. Appropriate unrealized depreciation on past due interest
which is converted into a security (or added to an existing
security) should be recognized when collection is doubtful.
Collection is presumed to be in doubt when one or both of the
following conditions occur: (i) Interest payments are more than 120
days past due; or (ii) the small concern is in bankruptcy,
insolvent, or there is substantial doubt about its ability to
continue as a going concern.
a. Licensees may rebut this presumption by providing evidence of
collectibility satisfactory to SBA. Such evidence may include the
existence of collateral, the value of which has been verified
through an appraisal by an independent professional appraiser
acceptable to SBA. Such an appraisal shall be at liquidation value
(net of liquidation costs) and shall have been performed within the
12 months immediately preceding the valuation date. In considering
whether collateral provides an appropriate basis for valuations, SBA
will review the Licensee's operating history for evidence concerning
its willingness and ability to pursue available remedies (including
foreclosure) in default situations.
b. For those Licensees primarily involved in making loans, the
use of a loan classification system is strongly encouraged to help
manage portfolios and determine Asset Values, with loans that
warrant extra attention being flagged by the Licensee's management.
Such a ``watch list'' can also be used to report to the Board of
Directors or General Partner(s). For each loan placed on the watch
list, a reason or statement should describe the particular
situation. Danger signals that should alert the Licensee to
potential problems include delinquency, a lack of profitability,
weak or decreasing equity, increasing debt load, a deteriorating
cash position, an abnormal increase in accounts payable, inaccurate
financial information, insurance cancellation, judgments and tax
liens, family problems, loss of employees, collateral problems,
slowdown in inventory turnover, poor maintenance of plant and
equipment, and heavy reliance on short term debt.
c. Upon careful consideration of all the relevant factors, the
Board of Directors or General Partners shall determine which loans
require recognition of Unrealized Depreciation. It is a good rule of
operation for a Licensee to perform downward valuations earlier
rather than later. When the quality of a loan recovers, a higher
Asset Value may subsequently be assigned.
4. The carrying value of interest-bearing securities shall not
be adjusted for changes in interest rates.
5. The valuation of convertible debt may be adjusted to reflect
the value of the underlying equity security net of the conversion
price.
a. Accepted methods for valuing convertible debentures generally
involve one of two approaches. The first approach views the
debenture as a debt obligation. Under this approach, the Licensee
should utilize the loan valuation techniques described in this
section above. The second approach considers the conversion of all
convertible securities of the same class into their common stock
equivalent, taking into account dilution, and a subsequent valuation
of the Licensee's proportionate equity interest. Valuation of this
equity interest should follow the equity valuation techniques
described in Paragraph C. of this section.
b. Normally, the reported value is the higher of these two
alternatives. However, Licensees should disregard higher equity
values and retain lower debt-based valuations if there are
circumstances which make conversion undesirable. When equity
considerations govern the Asset Value assigned, all underlying
factors should be disclosed.
C. Equity Securities--Private Companies
1. Investment cost is presumed to represent value except as
indicated elsewhere in these guidelines.
2. Valuation should be reduced if a company's performance and
potential have significantly deteriorated. If the factors which led
to the reduction in valuation are overcome, the valuation may be
restored.
3. The anticipated pricing of a Small Concern's future equity
financing should be considered as a basis for recognizing Unrealized
Depreciation, but not for Unrealized Appreciation. If it appears
likely that equity will be sold in the foreseeable future at a price
below the Licensee's current valuation, then that prospective
offering price should be weighed in the valuation process.
4. Valuation should be adjusted to a subsequent significant
equity financing that includes a meaningful portion of the financing
by a sophisticated, unrelated new investor. A subsequent significant
equity financing that includes substantially the same group of
investors as the prior financing should generally not be the basis
for an adjustment in valuation. A financing at a lower price by a
sophisticated new investor should cause a reduction in value of
prior securities.
5. If substantially all of a significant equity financing is
invested by an investor whose objectives are in large part
strategic, or if the financing is led by such an investor, it is
generally presumed that no more than 50% of the increase in
investment price compared to the prior significant equity financing
is attributable to an increased valuation of the company.
6. Where a company has been self-financing and has had positive
cash flow from operations for at least the past two fiscal years,
Asset Value may be increased based on a very conservative financial
measure regarding P/E ratios or cash flow multiples, or other
appropriate financial measures of similar publicly-traded companies,
discounted for illiquidity. Should the chosen valuation cease to be
meaningful, the valuation may be restored to a cost basis, or in the
event of significant deterioration in performance or potential, to a
valuation below cost to reflect impairment.
a. Under these conditions, valuation factors that may be
considered include:
(1) The utilization of a multiple of earnings, cash flow, or
revenues, which are commensurate with the multiples which the market
currently accords to comparable companies in similar businesses and
industries, with an appropriate discount for conditions such as
illiquidity or a minority position. Care should be taken to use only
comparable companies, including not only business similarities but
also similarities as to size, financial condition, and earnings
outlook. However, in order for comparative market prices to be
meaningful, data for a representative sample of similar companies
must be available.
(2) Among the more important factors to be considered in a
particular case are (i) the nature of the business, (ii) the risk
involved, and (iii) the growth, stability or irregularity of
earnings and cash flows. A company with a positive earnings trend
and a favorable outlook may command a capitalization factor
(multiplier) in the marketplace that will result in a stock
valuation well above book value. When the gross value of a small
concern is computed by applying a capitalization rate to pre-
interest, pre-tax earnings, the value of equity securities is
derived by subtracting the outstanding debt of the concern from the
gross value. While capitalization rates do vary, an appropriate rate
can be determined by analyzing rates for comparable companies in the
same industry. Investigating similar companies in the same industry
or geographic area can be done directly or through published
material from sources such as the Value Line, Standard and Poor's,
Robert Morris and Associates, or any other of the numerous sources
available for comparative industry data.
(3) Another method discounts the present value of estimated
future proceeds to a Licensee, including dividend income and sales
of securities, using a discount rate that reflects the degree of
risk of the equity interest.
(4) One may also utilize the recent sale prices of comparable
blocks of the issuer's securities in arm's length transactions.
b. Equity interests or limited partnership interests without the
benefit of stock certificates and which generally define a certain
percentage of the profits to be allocated to each of the investors
based on its relative contributions should be valued in a manner
similar to the valuation methods described in this section.
7. With respect to portfolio companies that are likely to face
bankruptcy or discontinue operations for some other reason,
liquidating value may be employed. This value may be determined by
estimating the realizable value (often through professional
appraisals or firm offers to purchase) of all assets and then
subtracting all liabilities and all associated liquidation costs.
a. Liquidation value will depend on the decreasing value of
wasting assets, the costs experienced by the business being
liquidated, the expenses borne by the Licensee in order to be able
to realize any liquidating value, the elapsed time until such net
proceeds can be realized, the ranking of the Licensee's claims
relative to other security interests and subordination agreements,
and the probability of any ultimate realization of value.
b. Incorporating this approach as a normal step in valuation can
provide improved understanding of the downside of an investment.
c. Licensees should recognize unrealized appreciation or
depreciation, as appropriate, on Assets Acquired in Liquidation of
Loans and Investments. In order to recognize Unrealized
Appreciation, asset values must be verified by an appraisal which
meets all the conditions specified in the preceding paragraph;
Provided, however, that if the assets acquired constitute a going
concern, such assets may be appraised as a going concern rather than
at liquidation value. Unrealized Appreciation may not be recognized
if the Licensee does not benefit from such appreciation. For
example, an asset acquired through foreclosure should not be carried
at a value greater than the defaulted loan balance plus any expenses
and penalties to which the Licensee is entitled.
8. Warrants should be valued at the excess of the value of the
underlying security over the exercise price.
a. Valuation of debt with detachable warrants can be done
similarly to convertible debt by treating the debt and warrants as a
unit, or, alternatively, the debt can be valued on its own basis as
a debt instrument, and the warrants separately. If the warrants are
valued separately, the following factors must be taken into account:
(1) Current value of issued shares.
(2) The differential between the exercise private and the
underlying share values if the current share values are higher than
the exercise price.
(3) Time until expiration dates are reached or dates of changes
in terms of exercise prices.
(4) Number of shares into which the warrants are exercisable on
various dates.
(5) Restrictions on sale of the underlying stock.
(6) Restrictions on the transferability of the warrants.
(7) Registration rights for the warrants or the underlying
shares.
(8) Financial ability of the Licensee to perform the exercise of
its rights or to sell its warrants.
(9) The ultimate desirability, if any, of exercising the rights
given by the warrants.
D. Equity Securities--Public Companies
1. Public securities should be valued as follows: (a) For over-
the-counter stocks, take the average of the bid price at the close
for the valuation date and the preceding two days, and (b) for
listed stocks, take the average of the close for the valuation date
and the preceding two days.
a. However, securities are not deemed to be freely marketable in
those situations where such securities are very thinly or
infrequently traded, or may be lacking in truly representative
market quotations, or where the market for such securities cannot
absorb the quantity of shares which the Licensee and similar
investors may want to sell.
b. In such cases, Asset Value must be determined by the Board of
Directors or General Partners.
2. The valuation of public securities that are restricted should
be discounted appropriately until the securities may be freely
traded. Such discounts typically range from 10% to 40%, but the
discounts can be more or less, depending upon the resale
restrictions under securities laws or contractual agreements.
3. When the number of shares held is substantial in relation to
the average daily trading volume, the valuation should be discounted
by at least 10%, and generally by more.
Dated: May 19, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-13322 Filed 6-1-94; 8:45 am]
BILLING CODE 8025-01-M
