[Congressional Record Volume 142, Number 119 (Wednesday, September 4, 1996)]
[House]
[Pages H10041-H10043]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               AMENDMENTS

  Under clause 6 of rule XXIII, proposed amendments were submitted as 
follows:

                               H.R. 3719

                        Offered By: Mr. LaFalce

       Amendment No. 1: Page 7, line 24, strike ``3'' and insert 
     ``7''.
       Page 9, line 8, strike ``after August 1, 1996''.
       Page 9, line 11, after ``lenders'' insert ``unless the 
     Administrator determines that the lender, on a case by case 
     basis, has undertaken other agreements which retain an 
     acceptable exposure to loss by the lender in the event of 
     default of a loan being securitized''.

                               H.R. 3719

                        Offered By: Mr. LaFalce

       Amendment No. 2: Page 17, line 9, after ``percent'' insert 
     ``but not to exceed 6 per centum per annum''.

                               H.R. 3719

                        Offered By: Mr. LaFalce

       Amendment No. 3: Page 33, line 18, strike ``0.8125'' and 
     insert ``0.9375''.

                               H.R. 3719

                        Offered By: Mr. LaFalce

       Amendment No. 4: Page 37, strike lines 17 and 18 and insert 
     the following:
       ``(3) have a minimum of 2 years experience, in 
     liquidating''.
       Page 38, line 5, after ``funds'' insert ``, subject to such 
     company obtaining prior written approval from the 
     Administrator before committing the agency to purchase any 
     other indebtedness secured by the property''.
       Page 38, line 8, after ``practices'' insert ``pursuant to a 
     liquidation plan approved by the Administrator in advance of 
     its implementation''.

                               H.R. 3719

                        Offered By: Mr. LaFalce

       Amendment No. 5: Page 42, after line 8 insert the 
     following:

     SEC. 207. DEFINITIONS.

       (a) Small Business Concern.--Section 103(5) (15 U.S.C. 
     662(5)) is amended by inserting before the semicolon the 
     following: ``, except that, for the purposes of this Act, an 
     investment by a venture capital firm, investment company 
     (including a small business investment company) employee 
     welfare benefit plan or pension plan, or trust, foundation, 
     or endowment that is exempt from Federal income taxation--
       ``(A) shall not cause a business concern to be deemed not 
     independently owned and operated;
       ``(B) shall be disregarded in determining whether a 
     business concern satisfies size standards established 
     pursuant to section 3(a)(2) of the Small Business Act; and
       ``(C) shall be disregarded in determining whether a small 
     business concern is a smaller enterprise''.
       (b) Private Capital.--Section 103(9) (15 U.S.C. 662(9)) is 
     amended to read as follows:
       ``(9) the term `private capital'--
       ``(A) means the sum of--
       ``(i) the paid-in capital and paid-in surplus of a 
     corporate licensee, the contributed capital of the partners 
     of a partnership licensee, or the equity investment of the 
     members of a limited liability company licensee; and
       ``(ii) unfunded binding commitments, from investors that 
     meet criteria established by the Administrator, to contribute 
     capital to the licensee; provided that such unfunded 
     commitments may be counted as private capital for purposes of 
     approval by the Administrator of any request for leverage, 
     but leverage shall not be funded based on such commitments; 
     and
       ``(B) does not include any--
       ``(i) funds borrowed by a licensee from any source;
       ``(ii) funds obtained through the issuance of leverage; or
       ``(iii) funds obtained directly or indirectly from any 
     Federal, State, or local government, or any government agency 
     or instrumentality, except for--
       ``(I) funds invested by an employee welfare benefit plan or 
     pension plan; and
       ``(II) any qualified nonprivate funds (if the investors of 
     the qualified nonprivate funds do not control, directly or 
     indirectly, the management, board of directors, general 
     partners, or members of the licensee);''.
       (c) New Definitions.--Section 103 (15 U.S.C. 662) is 
     amended by striking paragraph (10) and inserting the 
     following:
       ``(10) the term `leverage' includes--
       ``(A) debentures purchased or guaranteed by the 
     Administration;
       ``(B) participating securities purchased or guaranteed by 
     the Administration; and
       ``(C) preferred securities outstanding as of October 1, 
     1996;
       ``(11) the term `third party debt' means any indebtedness 
     for borrowed money, other than indebtedness owed to the 
     Administration;
       ``(12) the term `smaller enterprise' means any small 
     business concern that, together with its affiliates--
       ``(A) has--
       ``(i) a net financial worth of not more than $6,000,000, as 
     of the date on which assistance is provided under this Act to 
     that business concern; and
       ``(ii) an average net income for the 2-year period 
     preceding the date on which assistance is provided under this 
     Act to that business concern, of not more than $2,000,000, 
     after Federal income taxes (excluding any carryover losses); 
     or
       ``(B) satisfies the standard industrial classification size 
     standards established by the Administration for the industry 
     in which the small business concern is primarily engaged;
       ``(13) the term `qualified nonprivate funds' means any--
       ``(A) funds directly or indirectly invested in any 
     applicant or licensee on or before August 16, 1982, by any 
     Federal agency, other than the Administration, under a 
     provision of law explicitly mandating the inclusion of those 
     funds in the definition of the term `private capital';
       ``(B) funds directly or indirectly invested in any 
     applicant or licensee by any Federal agency under a provision 
     of law enacted after September 4, 1992, explicitly mandating 
     the inclusion of those funds in the definition of the term 
     `private capital'; and
       ``(C) funds invested in any applicant or licensee by one or 
     more State or local government entities (including any 
     guarantee extended by those entities) in an aggregate amount 
     that does not exceed 33 percent of the private capital of the 
     applicant or licensee;
       ``(14) the terms `employee welfare benefit plan' and 
     `pension plan' have the same meanings as in section 3 of the 
     Employee Retirement Income Security Act of 1974, and are 
     intended to include--
       ``(A) public and private pension or retirement plans 
     subject to such Act; and
       ``(B) similar plans not covered by such Act that have been 
     established and that are maintained by the Federal Government 
     or any State or political subdivision, or any agency or 
     instrumentality thereof, for the benefit of employees;
       ``(15) the term `member' means, with respect to a licensee 
     that is a limited liability company, a holder of an ownership 
     interest or a person otherwise admitted to membership in the 
     limited liability company; and
       ``(16) the term `limited liability company' means a 
     business entity that is organized and operating in accordance 
     with a State limited liability company statute approved by 
     the Administration.''.

      SEC. 208. ORGANIZATION OF SMALL BUSINESS INVESTMENT 
                   COMPANIES.

       (a) Limited Liability Companies.--Section 301(a) (15 U.S.C. 
     681(a)) is amended in the first sentence, by striking ``body 
     or'' and inserting ``body, a limited liability company, or''.
       (b) Issuance of License.--Section 301(c) (15 U.S.C. 681(c)) 
     is amended to read as follows:
       ``(c) Issuance of License.--
       ``(1) Submission of application.--Each new applicant for a 
     license to operate as a small business investment company 
     under this Act shall submit to the Administrator an 
     application, in a form and including such documentation as 
     may be prescribed by the Administrator.
       ``(2) Procedures.--
       ``(A) Status.--Not later than 90 days after the initial 
     receipt by the Administrator of an application under this 
     subsection, the Administrator shall provide the applicant 
     with a written report detailing the status of the application 
     and any requirements remaining for completion of the 
     application.
       ``(B) Approval or disapproval.--Within a reasonable time 
     after receiving a completed application submitted in 
     accordance with this subsection and in accordance with such 
     requirements as the Administrator may prescribe by 
     regulation, the Administrator shall--
       ``(i) approve the application and issue a license for such 
     operation to the applicant if

[[Page H10042]]

     the requirements of this section are satisfied; or
       ``(ii) disapprove the application and notify the applicant 
     in writing of the disapproval.
       ``(3) Matters considered.--In reviewing and processing any 
     application under this subsection, the Administrator--
       ``(A) shall determine whether--
       ``(i) the applicant meets the requirements of subsections 
     (a) and (c) of section 302; and
       ``(ii) the management of the applicant is qualified and has 
     the knowledge, experience, and capability necessary to comply 
     with this Act;
       ``(B) shall take into consideration--
       ``(i) the need for and availability of financing for small 
     business concerns in the geographic area in which the 
     applicant is to commence business;
       ``(ii) the general business reputation of the owners and 
     management of the applicant; and
       ``(iii) the probability of successful operations of the 
     applicant, including adequate profitability and financial 
     soundness; and
       ``(C) shall not take into consideration any projected 
     shortage or unavailability of leverage.
       ``(4) Exception.--
       ``(A) In general.--Notwithstanding any other provision of 
     this Act, the Administrator may, in the discretion of the 
     Administrator and based on a showing of special circumstances 
     and good cause, approve an application and issue a license 
     under this subsection with respect to any applicant that--
       ``(i) has private capital of not less than $3,000,000;
       ``(ii) would otherwise be issued a license under this 
     subsection, except that the applicant does not satisfy the 
     requirements of section 302(a); and
       ``(iii) has a viable business plan reasonably projecting 
     profitable operations and a reasonable timetable for 
     achieving a level of private capital that satisfies the 
     requirements of section 302(a).
       ``(B) Leverage.--An applicant licensed pursuant to the 
     exception provided in this paragraph shall not be eligible to 
     receive leverage as a licensee until the applicant satisfies 
     the requirements of section 302(a).''.
       (c) Report on Smaller Business Investment Companies.--Not 
     later than 90 days after the date of the enactment of this 
     Act, the Administrator shall, after consultation with smaller 
     small business investment companies, submit to the Committees 
     on Small Business of House of Representatives and the Senate, 
     a report on the feasibility of permitting smaller debt 
     oriented small business investment companies to establish a 
     separate corporate entity that would be authorized to 
     participate in the loan program authorized under section 7(a) 
     of the Small Business Act (15 U.S.C. 636(a)). The report 
     shall include information regarding eligibility, 
     capitalization, and audit and regulatory oversight matters.

     SEC. 209. CAPITAL REQUIREMENTS.

       (a) Increased Minimum Capital Requirements.--Section 302(a) 
     (15 U.S.C. 682(a)) is amended by striking ``(a)'' and all 
     that follows through ``The Administration shall also 
     determine the ability of the company,'' and inserting the 
     following:
       ``(a) Amount.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     private capital of each licensee shall be not less than--
       ``(A) $2,500,000; or
       ``(B) $5,000,000, with respect to each licensee authorized 
     or seeking authority to issue participating securities to be 
     purchased or guaranteed by the Administration under this Act.
       ``(2) Adequacy.--In addition to the requirements of 
     paragraph (1), the Administrator shall--
       ``(A) determine whether the private capital of each 
     licensee is adequate to assure a reasonable prospect that the 
     licensee will be operated soundly and profitably, and managed 
     actively and prudently in accordance with its articles; and
       ``(B) determine that the licensee will be able''.
       (b) Exemption for Certain Licensees.--Section 302(a) (15 
     U.S.C. 682(a)) is amended by adding at the end the following 
     new paragraph:
       ``(4) Exemption from capital requirements.--Any company 
     licensed under subsection (c) or (d) of section 301 before 
     the date of enactment of the Small Business Programs 
     Improvement Act of 1996 shall be exempt from the capital 
     requirements in paragraph (1): Provided, That any such 
     company shall be eligible to apply for leverage from the 
     Administration only if--
       ``(A) the licensee certifies in writing that not less than 
     50 percent of the aggregate dollar amount of its financings 
     after the date of enactment of the Small Business Investment 
     Company Improvement Act of 1996 will be provided to smaller 
     enterprises; and
       ``(B) the Administrator determines that--
       ``(i) the licensee has been profitable for three of the 
     last four years, and for the average of all four years;
       ``(ii) the licensee is not committing a continuing 
     violation of a major regulation of the Administration; and
       ``(iii) such action would not create or otherwise 
     contribute to an unreasonable risk of default or loss to the 
     United States Government.

     And, Provided further, That any such company may apply for 
     leverage to refinance a maturing debenture without regard to 
     the profitability requirements in clause (i) above.''.
       (c) Diversification of Ownership.--Section 302(c) (15 
     U.S.C. 682(c)) is amended by adding the following new 
     subsection:
       ``(d) Diversification of Ownership.--The Administrator 
     shall ensure that the management of each licensee applying 
     for a license after the date of enactment of the Small 
     Business Investment Company Improvement Act of 1996 is 
     sufficiently diversified from and unaffiliated with the 
     ownership of the licensee in a manner that ensures 
     independence and objectivity in the financial management and 
     oversight of the investments and operations of the 
     licensee.''.

     SEC. 210. BORROWING.

       (a) Debentures.--Section 303(b) (15 U.S.C. 683(b)) is 
     amended in the first sentence, by striking ``(but only'' and 
     all that follows through ``terms)''.
       (b) Third Party Debt.--Section 303(b) (15 U.S.C. 683(b)) is 
     amended by adding the following new subsections:
       ``(5) Third Party Debt.--The Administrator--
       ``(1) shall not permit a licensee having outstanding 
     leverage to incur third party debt that would create or 
     contribute to an unreasonable risk of default or loss to the 
     Federal Government; and
       ``(2) shall permit such licensees to incur third party debt 
     only on such terms and subject to such conditions as may be 
     established by the Administrator, by regulation or 
     otherwise.''.
       ``(6) Requirement to Finance Smaller Enterprises.--The 
     Administrator shall require each licensee, as a condition of 
     approval of an application for leverage, to certify in 
     writing that not less than 20 percent of the aggregate dollar 
     amount of the financings of the licensee will be provided to 
     smaller enterprises.''.
       ``(7) Capital Impairment.--Before approving any application 
     for leverage submitted by a licensee under this Act, the 
     Administrator--
       ``(1) shall determine that the private capital of the 
     licensee meets the requirements of section 302(a); and
       ``(2) shall determine, taking into account the nature of 
     the assets of the licensee, the amount and terms of any third 
     party debt owed by such licensee, and any other factors 
     determined to be relevant by the Administrator, that the 
     private capital of the licensee has not been impaired to such 
     an extent that the issuance of additional leverage would 
     create or otherwise contribute to an unreasonable risk of 
     default or loss to the Federal Government.''.
       (e) Equity Investment Requirement.--Section 303(g)(4) (15 
     U.S.C. 683(g)(4)) is amended by striking ``and maintain''.
       (f) Fees.--Section 303 (15 U.S.C. 683) is amended--
       (1) in subsection (b), in the fifth sentence, by striking 
     ``1 per centum,'' and all that follows before the period at 
     the end of the sentence and inserting the following: ``1 
     percent, plus an additional charge of 1 percent per annum 
     which shall be paid to and retained by the Administration'';
       (2) in subsection (g)(2), by striking ``1 per centum,'' and 
     all that follows before the period at the end of the 
     paragraph and inserting the following: ``1 percent, plus an 
     additional charge of 1 percent per annum which shall be paid 
     to and retained by the Administration''; and
       (3) by adding at the end the following new subsections:
       ``(i) Leverage Fee.--With respect to leverage granted by 
     the Administration to a licensee, the Administration shall 
     collect from the licensee a nonrefundable fee in an amount 
     equal to 3 percent of the face amount of leverage granted to 
     the licensee, payable upon the earlier of the date of entry 
     into any commitment for such leverage or the date on which 
     the leverage is drawn by the licensee.
       ``(j) Calculation of Subsidy Rate.--All fees, interest, and 
     profits received and retained by the Administration under 
     this section shall be included in the calculations made by 
     the Director of the Office of Management and Budget to offset 
     the cost (as that term is defined in section 502 of the 
     Federal Credit Reform Act of 1990) to the Administration of 
     purchasing and guaranteeing debentures and participating 
     securities under this Act, except that the Administration is 
     authorized to continue to use for the payment of salaries 
     such commitment fees as are being collected by the 
     Administration on the effective date of the Small Business 
     Investment Company Reform Act of 1996.''.
       (g) Repealer.--The amendments made by subsection 210(f) of 
     the Small Business Programs Improvement Act of 1996 shall be 
     effective as to leverage approved on or after October 1, 1996 
     and shall cease to be effective for financings approved on or 
     after October 1, 1997.

     SEC. 211. LIABILITY OF THE UNITED STATES.

       Section 308(e) (15 U.S.C. 687(e)) is amended by striking 
     ``Nothing'' and inserting ``Except as expressly provided 
     otherwise in this Act, nothing''.

     SEC. 212. EXAMINATIONS; VALUATIONS.

       (a) Examinations.--Section 310(b) (15 U.S.C. 687b(b)) is 
     amended in the first sentence by inserting ``which may be 
     conducted with the assistance of a private sector entity that 
     has both the qualifications to conduct and expertise in 
     conducting such examinations,'' after ``Investment 
     Division of the Administration,''.
       (b) Valuations.--Section 310(d) (15 U.S.C. 687b(d)) is 
     amended to read as follows:
       ``(d) Valuations.--

[[Page H10043]]

       ``(1) Frequency of valuations.--
       ``(A) In general.--Each licensee shall submit to the 
     Administrator a written valuation of the loans and 
     investments of the licensee not less often than semiannually 
     or otherwise upon the request of the Administrator, except 
     that any licensee with no leverage outstanding shall submit 
     such valuations annually, unless the Administrator determines 
     otherwise.
       ``(B) Material adverse changes.--Not later than 30 days 
     after the end of a fiscal quarter of a licensee during which 
     a material adverse change in the aggregate valuation of the 
     loans and investments or operations of the licensee occurs, 
     the licensee shall notify the Administrator in writing of the 
     nature and extent of that change.
       ``(C) Independent certification.--
       ``(i) In general.--Not less than once during each fiscal 
     year, each licensee shall submit to the Administrator the 
     financial statements of the licensee, audited by an 
     independent certified public accountant approved by the 
     Administrator.
       ``(ii) Audit requirements.--Each audit conducted under 
     clause (i) shall include--
       ``(I) a review of the procedures and documentation used by 
     the licensee in preparing the valuations required by this 
     section; and
       ``(II) a statement by the independent certified public 
     accountant that such valuations were prepared in conformity 
     with the valuation criteria applicable to the licensee 
     established in accordance with paragraph (2).
       ``(2) Valuation criteria.--Each valuation submitted under 
     this subsection shall be prepared by the licensee in 
     accordance with valuation criteria, which shall--
       ``(A) be established or approved by the Administrator; and
       ``(B) include appropriate safeguards to ensure that the 
     noncash assets of a licensee are not overvalued.''.

     SEC. 213. TRUSTEE OR RECEIVERSHIP OVER LICENSEES.

       (a) Finding.--It is the finding of the Congress that 
     increased recoveries on assets in liquidation under the Small 
     Business Investment Act of 1958 are in the best interests of 
     the Federal Government.
       (b) Definitions.--For purposes of this section--
       (1) the term ``Administrator'' means the Administrator of 
     the Small Business Administration;
       (2) the term ``Administration'' means the Small Business 
     Administration; and
       (3) the term ``licensee'' has the same meaning as in 
     section 103 of the Small Business Investment Act of 1958.
       (c) Liquidation Plan.--
       (1) In general.--Not later than 90 days after date of 
     enactment of this Act, the Administrator shall submit to the 
     Committees on Small Business of the Senate and the House of 
     Representatives a detailed plan to expedite the orderly 
     liquidation of all licensee assets in liquidation, including 
     assets of licensees in receivership or in trust held by or 
     under the control of the Administration or its agents.
       (2) Contents.--The plan submitted under paragraph (1) shall 
     include a timetable for liquidating the liquidation portfolio 
     of small business investment company assets owned by the 
     Administration, and shall contain the Administrator's 
     findings and recommendations on various options providing for 
     the fair and expeditious liquidation of such assets within a 
     reasonable period of time, giving due consideration to the 
     option of entering into one or more contracts with private 
     sector entities having the capability to carry out the 
     orderly liquidation of similar assets.
       (3) Report.--Not later than 90 days after the date of 
     enactment of this Act, the Comptroller General of the United 
     States shall submit to the Committees on Small Business of 
     the Senate and the House of Representatives a report on the 
     activities and expenditures of the receiver's agents employed 
     by or under contract with the Investment Division of the 
     Small Business Administration. The report shall detail the 
     qualifications and experience of the receiver's agents, their 
     billing practices and procedures, expenses, costs, overhead, 
     and use of outside contractors or attorneys.

      SEC. 214. TECHNICAL AND CONFORMING AMENDMENTS.

       The Small Business Investment Act of 1958 (15 U.S.C. 661 et 
     seq.) is amended in subsection (a) of section 303 by striking 
     ``debenture bonds'' and inserting ``securities,'' and by 
     striking subsection (f) and redesignating subsequent 
     subsections accordingly.

                               H.R. 3719

                   Offered By: Mrs. Meyers of Kansas

       Amendment No. 6: Title II, Section 202 is amended as 
     follows:
       On page 33, line 15, Strike ``0.8125'' and insert 
     ``0.9375''.
       Title I, Section 103 is amended as follows:
       On page 7, line 24, by striking ``3 business days'', and 
     inserting ``5 business days''.
       Title I, Section 103 is amended as follows:
       On page 9, strike lines 1 through 11, and insert the 
     following:

     ``is amended by adding at the end the following: ``The 
     Administration may not prohibit a lender from securitizing 
     the non-guaranteed portion of any loan made under section 
     7(a) solely due to the status of the lender as a depository 
     or non-depository institution. In order to reduce the risk of 
     loss to the government in the event of default, the 
     Administration may require any lender securitizing the non-
     guaranteed portion of any loan to retain exposure of up to 
     ten percent of the amount of the loan.''.
       Title I, Section 104 is amended as follows:
       On page 16, by striking line 23, and inserting the 
     following:

     ``shall be--(a) in the case of a homeowner, or business, or''
       On page 17, line 9, by striking the period, inserting a 
     semicolon, and adding the following:
       ``(b) in the case of a homeowner, or business or other 
     concern, including agricultural cooperatives able to obtain 
     credit elsewhere, at the rate prescribed by the 
     Administration but not more than the rate determined by the 
     Secretary of the Treasury, taking into consideration the 
     current average market yield on outstanding marketable 
     obligations of the United States with remaining periods to 
     maturity comparable to the average maturities of such loans 
     plus an additional charge of not to exceed one percent per 
     annum as determined by the Administrator, and adjusted to the 
     nearest \1/8\ of one percent.''.

                               H.R. 3719

                         Offered By: Mr. Talent

       Amendment No. 7: Page 9, line 4, before the period insert 
     ``solely on the status of the lender as a depository 
     institution'';
       Page 9, line 5, strike ``shall require all'' and insert 
     ``may require'';
       Page 9, line 8, strike ``August 1'' and insert ``October 
     1''; and
       Page 9, line 9, strike ``, which percentage shall be 
     applicable uniformly to both depository institutions and 
     other lenders''.