[Federal Register Volume 59, Number 183 (Thursday, September 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23338]


[[Page Unknown]]

[Federal Register: September 22, 1994]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 107

 

Small Business Investment Companies; Leverage

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: This final rule allows Small Business Investment Companies 
licensed under sections 301 (c) and (d) of the Small Business 
Investment Act of 1958 (Licensees) having no immediate need for SBA 
financial assistance (Leverage) to reserve the future availability of 
such financial assistance by obtaining SBA's conditional commitment to 
guarantee Debentures or Participating Securities (collectively ``pooled 
securities''), or to purchase Preferred Securities, that will be 
offered in the future as the Licensee draws against SBA's commitment.

EFFECTIVE DATE: This final rule is effective September 22, 1994.

FOR FURTHER INFORMATION CONTACT:
Saunders Miller, Office of Program Development; Telephone (202) 205-
6510.

SUPPLEMENTARY INFORMATION: On August 8, 1994, SBA published a proposed 
rule which contemplated allowing Licensees to apply for a conditional 
commitment from SBA to reserve Leverage for their future use. See 59 FR 
40315. The amount of Leverage that could be reserved by any Licensee 
was proposed to be not less than $1,000,000, and not more than 50 
percent of the Licensee's Regulatory Capital.
    The public was afforded a 30-day period in which to submit comments 
on the proposed rule. SBA received six comment letters during that 
time, all of which strongly supported the underlying concept of an 
Agency commitment of future financial assistance to Licensees but which 
also made several suggestions for improving the proposal.
    One recurring suggestion was that SBA eliminate the restriction on 
the amount that could be reserved on behalf of any one Licensee. As 
stated above, the proposed rule would have established a commitment 
ceiling equal to 50% of a Licensee's Regulatory Capital. Although SBA's 
rationale for the ceiling was not discussed in the proposed rule, most 
of the commenters understood that the ceiling was proposed in an 
attempt to fairly distribute scarce resources and to prevent the 
hoarding of committed funds by any one Licensee.
    SBA did realize, as the comment letters pointed out, that even if 
there were no ceiling in the regulations, the Agency would still have 
the authority to allocate commitment authority among interested 
Licensees. Nevertheless, SBA believed that given: (i) A probable 
timetable for the funding of an average Licensee's investors' 
commitments of 25% a year for 4 years (thereby converting the 
Licensee's Regulatory Capital into Leverageable Capital) and (ii) an 
ideal Leverage ratio during those 4 years of 2:1, the average 
Licensee's need for committed Leverage funds would be adequately met by 
an annual limit of 50% of Regulatory Capital.
    SBA has reconsidered its position and has concluded that the 
regulation should be broad enough to accommodate, without resort to an 
Agency waiver, those Licensees with investor-funding schedules that are 
more compressed than the average. SBA still believes that some ceiling 
is desirable administratively, but a ceiling set at 50% of Regulatory 
Capital may be too low, particularly in years when demand for reserved 
funds does not exceed the supply. Accordingly, in this final rule, SBA 
has increased the ceiling to 100% of Regulatory Capital.
    A second suggestion submitted during the comment period addressed 
the documentation proposed to be required pre- and post-funding of 
draws under SBA's commitment. Under the proposed rule, every Licensee 
with an outstanding commitment from SBA would be required to submit a 
Financial Statement on SBA Form 468 (Short Form) within 30 days of the 
close of each of its fiscal quarters. A Licensee submitting a draw 
request within that 30-day period would be required to submit the Short 
Form Financial Statement, or a statement of no adverse change since its 
most recent Short Form 468, with the draw request.
    A few of the comment letters objected to quarterly financial 
reporting as burdensome and unnecessary. SBA disagrees. The preparation 
of a quarterly short form financial statement becomes a simple matter 
if performed on a personal computer, using readily-available 
bookkeeping software together with reporting software provided by SBA.
    Furthermore, the commitment funding process as proposed by SBA was 
not intended to put SBA at a disadvantage relative to where it would 
have been if it were considering a request for Leverage under the 
traditional funding mechanism. Since Leverage requests outside of the 
commitment process must be accompanied by a Short Form 468 for the most 
recent fiscal quarter, and since the draw down of funds under the SBA 
commitment is the issuance of Leverage, SBA should receive a Short Form 
468 for the most recent quarter in order to evaluate a draw request.
    Under the commitment funding process, decisions on requests for 
draws will have to be made quickly by SBA staff, more quickly than 
decisions on requests for Leverage under the traditional funding 
process. SBA staff will need to monitor more closely the financial 
status of a Licensee with an outstanding SBA commitment in order to be 
able to respond in a timely fashion to the Licensee's draw requests. 
The filing of quarterly financial statements on Short Form 468 by all 
Licensees with outstanding SBA commitments will allow SBA to perform 
that function as promised.
    As mentioned above, in the event the draw request is made within 30 
days of the end of the Licensee's fiscal quarter, SBA had proposed to 
accept a statement of no adverse change in lieu of the Short Form 468. 
Most of the comment letters argued in favor of adopting the more 
familiar standard of ``no material adverse change''. SBA agrees that 
adverse changes which are immaterial to the Licensee's financial status 
should not be a barrier to consideration for a draw of Leverage. 
Accordingly, Sec. 107.215(f)(3)(i)(A) has been finalized with the 
suggested change.
    Most of the comment letters also contained an objection to the 
requirement for specific deal information both pre- and post-draw. SBA 
reaffirms its position that while a Licensee need not have specific 
transactions under consideration in order to obtain SBA's commitment, 
draws under that commitment must be intended for use in a particular 
transaction with a particular small concern.
    To ease the paperwork burden on Licensees, however, the statement 
evidencing the Licensee's need for the funds no longer requires that 
the Licensee provide the small concern's Standard Industrial 
Classification code number or a summary of the proposed financing. See 
proposed Sec. 107.215(f)(2)(i)(B), finalized as 
Sec. 107.215(f)(3)(i)(B). Instead, the statement must include only the 
name and address of the small concern, the amount of the proposed 
financing, and the scheduled closing date.
    SBA is also extending by 30 days the due date for the written 
explanation of the failure to close a transaction. In summary, if the 
intended transaction closes, the Licensee must submit a Form 1031 
(``Portfolio Financing Report'') within 30 days of the actual closing 
date. If the transaction fails to close, however, a written explanation 
must be filed with SBA within 60 days (instead of 30 days, as proposed) 
after the scheduled closing date. Penalties for the failure to file the 
Form 1031 or the written explanation remain unchanged from the proposed 
rule.
    The final documentation matter addressed in some of the comment 
letters concerns the requirement that a Licensee submit a certified 
statement with each draw request representing that it is in compliance 
with applicable regulations. The suggestion was made that SBA be 
permitted to accept draw requests in the event violations are disputed 
or are not material in nature. SBA has considered the suggestion and 
believes a clarification of the subject matter is in order.
    SBA did not intend to apply a different standard to draw requests 
than it currently applies to Leverage requests. A Licensee with an 
unresolved regulatory violation that would not be cause for automatic 
disqualification for Leverage under the traditional funding process 
should not, for the same violation, be disqualified automatically from 
drawing down Leverage under the commitment funding process.
    In practice, there are two separate circumstances under the 
traditional funding process where SBA would consider favorably the 
Leverage request of a Licensee with an outstanding violation: (1) If 
the Licensee's violation is of a non-substantive provision of the Act 
or regulations and the Licensee has not repeatedly violated non-
substantive provisions; or (2) if the Licensee has agreed with SBA on a 
course of action for the resolution of its violation, and if the terms 
of the agreement do not preclude the Licensee from obtaining Leverage 
prior to the resolution of the violation. In each case, the 
determination as to whether a violation exists is made by SBA, as is 
the decision to provide Leverage notwithstanding the violation.
    SBA has revised the proposed rule to allow for favorable 
consideration of a draw request under those two circumstances. See new 
paragraph 107.215(f)(2) ``Conditions to draws.'' Proposed 
Sec. 107.215(f)(2) has been renumbered as Sec. 107.215(f)(3), and now 
permits a Licensee to submit a certification that, to the best of its 
knowledge and belief, it is in compliance with applicable regulations 
(i.e., it has no unresolved regulatory violations) or an explanation as 
to the specific nature of any outstanding violations.
    One additional change has been made to the proposed rule. The 
amount of the commitment fee was not set forth in the proposal. This 
final rule fixes -he commitment fee at 3% of the face amount of the 
pooled securities and 1% of the issue price of the Preferred Securities 
reserved under the commitment. As explained below, when pooled 
securities are issued by a Licensee as a draw against SBA's commitment, 
the 2% guaranty fee ordinarily due pursuant to Sec. 107.210(d)(1) will 
be offset against the 3% commitment fee already paid. No additional 
payment will be necessary.
    With the exception of some minor changes in wording, the proposed 
rule is otherwise adopted without change.
    Effective immediately, any Licensee may submit an application for 
SBA's conditional commitment to reserve Leverage. The Application must 
be accompanied by the same financial information and other 
documentation as is required of Licensees applying for Leverage, except 
that no securities forms should accompany an application for SBA's 
commitment. For a Licensee wishing to participate in the next scheduled 
pooling of Leverage securities, and also wishing to obtain SBA's 
conditional commitment for future Leverage, separate applications 
should be filed.
    A determination to grant a Licensee's request for a commitment will 
be made only after SBA reviews the applicant's financial and regulatory 
status as well as its representation as to projected needs. The actual 
amount of a commitment which SBA will approve for a particular Licensee 
will depend in part on factors other than the applicant Licensee's own 
financial and regulatory situation, including such matters as the 
anticipated need for Leverage by all other Licensees making Leverage 
requests and the amount of program authority appropriated by Congress 
for the fiscal year.
    The commitment, when granted, will represent a conditional 
agreement on SBA's part to permit a Licensee to make draws against an 
agreed upon reserved amount of Leverage over a fixed period of time.
    As a condition to a commitment's taking effect, the Licensee must 
pay a non-refundable commitment fee in the amount discussed above. 
Payment must be received within thirty days following SBA's issuance of 
the commitment, or prior to any draw against the commitment if 
requested within such thirty day period. When a Licensee issuing pooled 
securities draws against SBA's commitment, the amount of the user fee 
associated with the guarantee of the Licensee's security or securities 
will be debited against an account holding the commitment fees and 
credited against an account holding guaranty fees. Failure to make 
timely and full payment of the commitment fee will preclude any draws 
against the commitment, and will cause SBA's commitment to lapse 
automatically at 5:00 p.m. Eastern Time on the thirtieth calendar day 
following SBA's issuance of the commitment.
    In any case, as mentioned above, SBA's commitment will also lapse 
at 5:00 p.m. Eastern Time on the 60th calendar day preceding the close 
of the next full Federal fiscal year following issuance of such 
commitment. Under present law, the Federal fiscal year ends on 
September 30. Therefore, depending upon when within a given Federal 
fiscal year a commitment was extended, the term of the commitment may 
be as short as ten months or as long as twenty-two months.
    Requests for a draw may be submitted at any time during the term of 
the commitment. It is contemplated that requests for a draw of pooled 
securities will, eventually, be funded as frequently as twice a month. 
Requests for a draw of preferred securities may be funded at any time. 
The minimum amount of any draw of pooled securities will be $1,000,000, 
with integral multiples of $100,000 permitted thereafter. Requests for 
draws of preferred securities may be in any amount.
    As was explained in the proposed rule, SBA's present general 
practice, which is not proposed to be changed (and which SBA is 
extending to Participating Securities) is to extend invitations to 
Licensees to participate in the creation of a pool of SBA-guaranteed 
Debentures, against which a public offering of SBA-guaranteed trust or 
pool certificates, each evidencing a fractional interest in the pool, 
is made to long-term investors. Such pools are formed and certificates 
sold every three months, give or take a few days. Preceding the closing 
of the sale of the pool certificates there is a ten-day period during 
which no more Debentures may be considered for inclusion in the pool. 
During that ten-day period, the rate of interest on Debentures or of 
Prioritized Payments on Participating Securities is determined.
    When a Licensee requests a draw, it will be deemed to have 
authorized SBA to guarantee its security immediately, and to have 
authorized SBA, acting as the Licensee's agent, to sell such security 
to a short-term investor that will agree to hold the Licensee's 
security until the Licensee's security is put into the next pool, or is 
repurchased by the Licensee, or is repurchased by SBA because of a 
definitive determination based on subsequently-received adverse 
information concerning the Licensee's credit or regulatory status.
    If the security is a Debenture, it will be sold to a short-term 
investor at a discount, calculated as if the maturity date of the 
Debenture were the next scheduled closing date for the sale of pool 
certificates. The Licensee will also agree to the payment of additional 
interest to the short-term investor, at the same rate used to calculate 
the discount, for each day that the sale of pool certificates is 
delayed beyond the scheduled date. While payment to the short-term 
investor of all interest accrued from the date of sale to the actual 
closing date shall be the responsibility of the Licensee, it shall be 
guaranteed by SBA. The Licensee's failure to make full payment of such 
additional interest shall constitute an event giving rise to a 
condition affecting the Licensee's good standing under SBA's 
regulations. If the Licensee's security is a Participating Security, 
the same conditions will apply, however, the Participating Security 
will be sold to a short-term investor at a price equal to the face 
amount thereof.
    Although SBA guarantees the Licensee's undertaking to the short-
term investor concerning payment of interest on a Debenture or 
Prioritized Payments on a Participating Security on the date such 
Debenture or Participating Security is pooled, the Licensee does not 
warrant, nor does SBA guarantee, that pooling will take place on any 
specific date. The short-term investor assumes the risk that the 
recovery of its invested principal and the receipt of interest or 
Prioritized Payments will be delayed to the extent that the pool 
closing is delayed. Based on historical experience, it is unlikely that 
any such delay will occur and if it does, the duration of the delay 
should be minimal. The rate at which the Licensee's Debenture will be 
discounted or at which the Prioritized Payments will accumulate on a 
Participating Security when either of these securities are sold to a 
short-term investor will, in both cases, be determined with reference 
to the current average market yield on obligations of the United States 
with comparable periods to maturity. However, for the purpose of 
determining the rate of interest or of Prioritized Payments payable to 
a short-term investor, ``maturity'' refers to the next scheduled 
pooling date, not the stated maturity date of the security in question.
    In the normal course of events, when the sale of pool certificates 
closes, the Licensee's security will be included in the pool, having 
been purchased, as previously agreed, from the short-term investor with 
the Licensee's share of the proceeds of the sale of SBA guaranteed 
certificates issued against the pool.
    The sale of the Licensee's security to a short-term investor with 
SBA's guaranty does not obligate SBA to include that security in a pool 
of long-term securities in disregard of subsequently-obtained 
information calling into question either the Licensee's financial 
soundness or the Licensee's compliance with applicable regulations. If 
SBA determines to withhold its guarantee of the Licensee's security to 
the pool, SBA will purchase the Licensee's security from the short-term 
investor on or before the pool closing date.
    Sale of the Licensee's security to a short-term investor with SBA's 
guaranty does not cut off the Licensee's right to withdraw its security 
from entering into the pool by repurchasing it directly from the short-
term investor if notice is given to SBA at least ten days prior to the 
pool cut-off date. However, since the sale of the Licensee's security 
to a short-term investor, and not the subsequent pooling of the 
security, is the event that discharges SBA from its reservation 
obligation to the extent of the security's face amount, the Licensee's 
subsequent repurchase of its security from the short-term investor does 
not re-obligate SBA under the terms of its commitment, or restore SBA's 
guarantee authority to the extent of the face amount of the repurchased 
security.
    SBA's approval of an application for a commitment does not lock in 
any interest or Prioritized Payment rate, nor does SBA's guarantee of a 
security sold to a short-term investor indicate in any way what the 
Licensee's interest or Prioritized Payment rate will be when the 
security is pooled and certificates are sold to long-term investors.
    Once in the hands of the pool trustee, the Licensee's Debenture or 
Participating Security will assume all the terms and characteristics of 
the other securities in the pool, including an interest or Prioritized 
Payment rate recalculated with reference to the maturities of the other 
securities being pooled.

Compliance With Executive Orders 12866, 12612, and 12778, and With the 
Regulatory Flexibility and Paperwork Reduction Acts

Executive Order 12866 and Regulatory Flexibility Act

    This final rule will not constitute a significant regulatory action 
for the purposes of Executive Order 12866 because it is not likely to 
have an annual impact on the national economy of $100 million or more, 
and, for purposes of the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq., it will not have a substantial impact upon a significant number 
of small entities.
    1. The legal basis for this final regulation is section 308(c) of 
the Small Business Investment Act, 15 U.S.C. 687(c), and section 
20(a)(2) of the Small Business Act, 15 U.S.C. 631 (note) as amended by 
section 414 of Pub. L. 102-366.
    2. The potential benefits of this final regulation have been set 
forth in the discussion above, under Supplementary Information.
    3. The potential cost of this final regulation cannot be quantified 
or estimated.
    4. There are no Federal rules which duplicate, overlap, or conflict 
with this final rule.
    5. SBA is not aware of regulatory alternatives that could achieve 
the same objectives at lower cost.
    This rule was not reviewed under Executive Order 12866.

Executive Order 12612

    SBA certifies that this final regulation has no federalism 
implications warranting the preparation of a Federalism Assessment in 
accordance with Executive Order 12612.

Executive Order 12278

    For the purposes of Executive Order 12278, SBA certifies that this 
final rule is drafted, to the extent practicable, in accordance with 
the standards set forth in Section 2 of that Order.

Paperwork Reduction Act

    This final regulation will impose an additional record-keeping 
requirement on those Licensees that voluntarily avail themselves of the 
benefit of this final rule. Viewing the matter from the Licensee's 
standpoint, the additional burden of preparing a quarterly short-form 
financial statement is offset by the assurance of the future 
availability of Leverage and the reduction of cost resulting from 
elimination of the need to draw down Leverage funds long before they 
may be invested in Small Concerns. From SBA's standpoint, the 
additional record-keeping is necessary if SBA is not to rely upon out-
dated financial information when its funds draws against its 
commitment.

[Catalog of Federal Domestic Assistance Program No. 59.011 Small 
Business Investment Companies]

List of Subjects in 13 CFR Part 107

    Investment companies, Loan programs-business, Reporting and record-
keeping requirements, Small businesses.

    For the reasons set forth above, part 107 of Title 13, Code of 
Federal Regulations is amended as follows:

PART 107--SMALL BUSINESS INVESTMENT COMPANIES

    1. The authority citation for Part 107 continues to read as 
follows:

    Authority: Title III of the Small Business Investment Act, 15 
U.S.C. 681 et seq.; 15 U.S.C. 683; 15 U.S.C. 687(c); 15 U.S.C. 687b; 
15 U.S.C. 687d; 15 U.S.C. 687g; 15 U.S.C. 687m, as amended by Pub. 
L. 102-366.

    2. Part 107 is amended by adding a new Sec. 107.215 to read as 
follows:


Sec. 107.215  Commitments by SBA.

    (a) General. A Licensee may apply for SBA's conditional commitment 
to reserve an amount of Leverage against which SBA may purchase its 
Preferred Securities or guarantee its Debentures or Participating 
Securities as and when offered for future public sales. The amount of 
any such commitment shall be not less than $1,000,000 but not more than 
100 percent of Regulatory Capital. Applications shall be prepared and 
submitted in accordance with Sec. 107.210(b), as amended from time to 
time, except to the extent that this Sec. 107.215 is inconsistent 
therewith.
    (b) Commitment fees. The Licensee shall pay to SBA a nonrefundable 
fee of 3% of the face amount of the Debentures or Participating 
Securities reserved under the commitment or, in the case of Preferred 
Securities reserved under a commitment, 1% of the issue price of such 
Preferred Securities. No request for a draw will be approved unless 
this fee has been paid in full. The 2% fee required to be paid by 
issuers of Debentures or Participating Securities pursuant to 
Sec. 107.210(d) shall be credited against the 3% commitment fee paid 
pursuant to this paragraph (b).
    (c) Automatic cancellation of commitment. Unless the full amount of 
the commitment fee is paid by 5:00 p.m. Eastern Time on the 30th 
calendar day following SBA's issuance of its commitment, the commitment 
shall be automatically cancelled.
    (d) Lapse of commitment. Notwithstanding payment of the commitment 
fee, SBA's commitment shall automatically lapse at 5:00 p.m. Eastern 
Time on the 60th calendar day preceding the close of the next full 
Federal fiscal year following issuance of such commitment.
    (e) Additional record-keeping requirements. Following notification 
that SBA's commitment has been granted, a Licensee shall submit a 
Financial Statement on SBA Form 468 (Short Form) as of the close of 
each quarter of its fiscal year to SBA within 30 days after the close 
of the quarter, or with any request for a draw that is made within such 
30-day period. If a Licensee is not in compliance with this paragraph, 
no draw request shall be considered.
    (f) Draws. (1) Minimum amount of draw. The minimum face amount of 
Debentures or Participating Securities that may be issued in connection 
with a draw against SBA's commitment is $1,000,000; plus multiples of 
$100,000 above $1,000,000. Preferred Securities may be issued in any 
amount.
    (2) Conditions to draws. No Licensee shall be eligible to make a 
draw against SBA's commitment unless it is in compliance with all 
applicable provisions of the Act and SBA regulations (i.e., no 
unresolved statutory or regulatory violations); Provided, however, that 
a Licensee that is not in compliance may nevertheless be eligible for 
draws if SBA determines that
    (i) The Licensee's outstanding violations are of non-substantive 
provisions of the Act or regulations and that the Licensee has not 
repeatedly violated non-substantive provisions of the Act or 
regulations or
    (ii) The Licensee has agreed with SBA as to a course of action for 
the resolution of its violations and such agreement does not preclude 
the issuance of Leverage by the Licensee.
    (3) Procedures for funding draws. (i) General. A request for a 
draw, which may be submitted at any time, is submitted in the form of a 
request that the Licensee's Preferred Security be purchased by SBA; or 
that its Debenture or Participating Security be guaranteed by SBA, sold 
to a short-term investor and subsequently included in the next pool for 
which the Licensee's securities are eligible. The following 
documentation shall accompany each such request for a draw:
    (A) If such request is submitted within 30 days following the close 
of the Licensee's fiscal quarter, the request shall be accompanied by a 
Financial Statement on SBA Form 468 (Short Form) reflecting the 
Licensee's condition as of the close of that fiscal quarter; otherwise, 
the request shall be accompanied by a formal statement of no material 
adverse change in financial condition since the filing of the most 
recent SBA Form 468 (Long or Short Form).
    (B) A certified statement executed by an officer of the Licensee or 
of a corporate general partner of the Licensee, or by an individual 
that is authorized to act as or for a general partner of the Licensee, 
as the case may be, representing that to the best of its knowledge and 
belief the Licensee is in compliance with all provisions of the Act and 
SBA regulations (i.e., no unresolved regulatory or statutory 
violations) or a statement as to the specific nature of any violations 
of which it is aware.
    (C) A statement that the proceeds are needed to fund a particular 
Small Concern, which statement shall also include the name and address 
of the Small Concern, the amount of the Licensee's proposed Financing, 
and the scheduled closing date thereof. Within 30 calendar days after 
the actual closing date, the Licensee shall submit an SBA Form 1031 
confirming the closing of the transaction(s) with the proceeds of the 
draw or, within 60 calendar days after the scheduled closing date, the 
Licensee shall submit a written explanation of the failure to close. 
Failure to submit an accurate Form 1031 or satisfactory written 
explanation of failure to close will preclude consideration of any 
subsequent draw requests, and may be deemed an event affecting the 
Licensee's good standing or constituting consent to restricted 
operations, as the case may be.
    (ii) Draw process. (A) General. By submitting a request for a draw, 
a Licensee is conclusively presumed to have authorized SBA to purchase 
its Preferred Security, or to have authorized SBA or any agent or 
trustee designated by SBA to guaranty its Debenture or Participating 
Security and to sell it with SBA's guarantee, to enter into any 
agreements (and to bind the Licensee to such agreements) that may be 
necessary to effect:
    (1) The sale of the Licensee's security to a short-term investor,
    (2) Its purchase on the Licensee's behalf (or by the Licensee 
itself), and
    (3) The subsequent pooling of that security with other securities 
with the same maturity date: Provided, however, That the Licensee shall 
retain the right to repurchase its securities upon notice to SBA at 
least 10 days prior to the cut-off date for the pool in which the 
Licensee's security is to be included by tendering the face amount of 
the Debenture, or the face amount of the Participating Security plus 
Earned Prioritized Payments, as the case may be, to the short-term 
investor.
    (B) Debentures. An SBA guaranteed Debenture shall be sold to a 
short-term investor at a discount calculated with reference to a rate 
determined by the Secretary of the Treasury in accordance with Section 
303(b) of the Act (but without regard to any interest subsidy to which 
the Licensee may be otherwise entitled), as if the maturity date of the 
Debenture were the next scheduled date for the sale of pool 
certificates: Provided, however, That if the actual sale of pool 
certificates shall take place after the scheduled date, the Licensee 
shall pay to the short-term investor, on the actual sale date, an 
additional sum equal to daily interest as scheduled on the Debenture, 
at the same rate, from the scheduled sale date to the actual sale date. 
Failure to make such interest payment on the closing date shall 
constitute an event giving rise to a condition affecting the Licensee's 
good standing.
    (C) Participating securities. The Licensee's Participating Security 
shall be sold to a short-term investor for a sum equal to the face 
amount thereof. The Licensee shall undertake, with SBA's guarantee, to 
pay the short-term investor, at the closing of the next scheduled sale 
of pool certificates, Prioritized Payments as scheduled on the Security 
at a rate determined by the Secretary of the Treasury in accordance 
with Section 303(b) of the Act, as if the maturity date of the 
Participating Security were the next scheduled date for the sale pool 
certificates.

    Dated: September 15, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-23338 Filed 9-21-94; 8:45 am]
BILLING CODE 8025-01-M