SOURCES SOUGHT
R -- REQUEST FOR INFORMATION on LIQUIDATION OF ASSETS OR PERFERRED LIMITED PARTNER INTERESTS IN SMALL BUSINESS INVESTMENT COMPANIES WITHIN THE CURRENT OPERATIONAL FRAMEWORK
- Notice Date
- 5/18/2006
- Notice Type
- Sources Sought
- NAICS
- 522190
— Other Depository Credit Intermediation
- Contracting Office
- Small Business Administration, Office of Administration, Office of Procurement and Grants Management, 409 Third Street, S.W., 5th Floor, Washington, DC, 20416
- ZIP Code
- 20416
- Solicitation Number
- SBAHQ-06-RFI-0001
- Response Due
- 5/26/2006
- Archive Date
- 5/26/2006
- Description
- The purpose of this Request for Information (RFI) is to solicit input from interested parties on ways in which SBA can liquidate the assets or Preferred Limited Partnership interests of Small Business Investment Companies (SBICs) in the Office of Liquidation within the current legal and operational framework. The goal of this RFI is to solicit information on marketing and selling these assets to interested secondary market buyers at reasonable fair market prices. BACKGROUND: The Small Business Investment Company (SBIC) program was created to stimulate and supplement the flow of private equity capital and long term loans to Small Business Companies (SBCs). SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds from SBA (?leverage?), in the form of SBA-guaranteed debentures or participating securities (?SBA-guaranteed leverage?) to make investments in eligible small businesses. (Attachment describes the different types of SBA-guaranteed leverage.) SBIC?s may invest only in qualifying small business concerns as defined by SBA regulations. Detailed regulations for SBICs are found at www.sba.gov/library/lawroom.html#Part107. SBICs are monitored by the Investment Division?s Office of SBIC Operations. SBA has the right to transfer to the Office of Liquidation those SBICs that fail to comply with the statutory or regulatory requirements for the SBIC program, including capital impairment (a regulatory measure that the SBA uses to assess an SBIC?s ability to repay its leverage), and in those cases, SBA can repurchase the SBA-guaranteed leverage issued by the SBIC (?repurchased leverage?). The Office of Liquidation is responsible for overseeing the liquidation of these SBICs until the SBIC either repays all leverage or all assets have been sold or written off, at which time they are categorized as ?closed?. For the purposes of this document, an SBIC is considered ?transferred? if the SBIC has been assigned to the Office of Liquidation and has not been closed by that office. As of March 31, 2006, the Investment Division had 124 transferred SBICs, with outstanding leverage exceeding $1.7 billion. The transferred SBICs had almost 1800 underlying assets (both debt and equity securities) in connection with over 800 small business concerns . The original costs of these assets exceed $1 billion. SBICs that issued participating securities (?PS SBICs?) comprise the majority of the transferred SBICs, with over $1.5 billion in outstanding repurchased leverage. PS SBICs typically have more equity investments, with 94% by cost of the transferred PS SBICs assets in equity securities. Transferred Debenture SBICs, in contrast, only hold 44% by cost in equity securities. It is anticipated that the number of transfers will continue to grow in the next few years, especially for PS SBICs. It is critical for the Investment Division to ensure that it has the capabilities and processes in place to be able to liquidate current and future transferred SBIC assets. The key objective is to maximize recoveries for the Federal government, while maximizing recoveries and minimizing the time required to liquidate these assets at reasonable fair market prices. GENERAL MODELS: There are two general models for liquidating funds in the Office of Liquidation. The first is the Receivership model. Under this approach, the SBA seeks a court order to place the SBIC in Receivership. When the order is granted, a Receiver is appointed to manage the SBIC for the benefit of the creditors and limited partners and the former managers are dismissed. Frequently, the SBA serves as the Receiver and appoints an independent contractor as agent to manage the day-to-day affairs of the SBIC and explore liquidation options. Under this option, the Receiver has the flexibility to sell the SBIC?s interest in specific assets, subject to transfer restrictions, or to sell the SBA?s Preferred Limited Partnership Interest, subject to the SBA?s approval. The second model is the Self-Liquidation/Wind-Down model. Under this approach the SBIC in Liquidation has presented an acceptable liquidation plan, which among other things, includes repayment of the SBA?s leverage in a reasonable timeframe. The SBIC?s managers remain in control of the SBIC under the close overview of the Office of Liquidation. Under this model, the SBA would consider opportunities to market its Preferred Limited Partnership interest or assist the SBIC in marketing the SBIC?s interest in portfolio assets, subject to transfer restrictions. Both models are permitted under the Small Business Investment Act of 1958. SBA?s Preferred Interest Participating Securities are redeemable hybrid securities that are issued in the form of a preferred limited partnership interest, with SBA as the preferred limited partner. SBA?s Preferred Limited Partnership interest is not a typical LP interest, particularly with regard to its distribution rights. As a Preferred Limited Partner, the SBA is entitled to receive a preferred return (referred to as the ?Prioritized Payment?) prior to any profit distributions being made to the General and private Limited Partners, but this return is payable by the SBIC to SBA only from profits. In a typical limited partnership distribution, principal would be returned before profits. However, the PS distribution scheme requires for profit to be distributed before a return of principal except when the SBIC is in liquidation or restricted operations status (discussed below). In addition, the PS instrument also provides SBA with profit participation typically in the range of 6 to 12%. This structure also differs from that of a traditional fund in that the SBA?s share of profits is substantially lower than its pro-rata share of capital contributed. In exchange for the substantially lower portion of the SBIC?s profits, the SBA receives a preference in liquidation. When an SBIC is placed in a restricted or liquidation status, the distribution hierarchy changes to provide for priority of payment to SBA. The Preferred Limited Partnership interest also differs from typical LP rights in that it lacks certain control provisions that are typical in other LP interests such as voting rights, the ability to curtail management costs, remove the GP, suspend new investments, and/or require liquidation of the portfolio/fund. SBA's protective rights come primarily from regulatory powers set forth in the Small Business Investment Act and in SBA?s Regulations: Section 107 of Title 13 (Business Credit and Assistance) of the Code of Federal Regulations. SBA?s regulatory rights, however, are not transferable to a buyer of SBA?s Preferred Limited Partnership interest. As a result the buyer of SBA?s Preferred Limited Partnership interest would obtain the distribution rights but not the other rights present in a typical LP interest. SBIC Assets The individual sale of SBIC assets in liquidation status is challenged by the lack of consistency in deal documents (each transaction is unique) and the frequent existence of negative covenants. AREAS OF COMMENTS: Specifically, the Agency seeks comments on improving the implementation and liquidation timeframe for both of the models described above: Receivership and Self-Liquidation/Wind-Down. The response should specifically address the following needs of the Federal government: 1. Sale of Preferred Limited Partnership Interest: What would be the market for selling the SBA?s Preferred Limited Partnership interest in Participating Securities SBICs? What key elements are considered when assessing potential purchases (i.e. pricing, terms, transfer provisions, etc.)? What factors could increase the marketability of the SBA?s Preferred LP interest? 2. Sale of SBIC Assets: In receivership, there is more flexibility to market the SBIC?s ownership position in specific portfolio assets. In this scenario, what types of assets would be most attractive to secondary funds? What type of information would be needed to make a decision on the assets? What is the best manner to make potential parties aware of the ?available? Receivership assets? 3. Timeline: What would be the typical timeline for the sale of (i) SBA?s Preferred LP interest and (ii) a Receivership asset? 4. Legal/Structural Issues: What legal and/or structural issues would you see as a barrier to selling either SBA?s LP interest or Receivership assets? 5. Best Value: How can SBA ensure that it is realizing the best value for the assets it sells? DATES and ADDRESSES: Responses should be submitted to SBA, Office of SBIC Liquidation on or before 5:00 pm EST on May 26, 2006. Electronic Responses are preferred and should be addressed to RFIResponse@SBA.GOV. Include SBIC Liq RFI Responses in the subject line. SBA is not accepting questions in any format. Non-electronic responses will also be accepted. Please send to: Office of SBIC Liquidation U.S. Small Business Administration 409 3rd Street, SW Washington, DC 20416 Note: Any data which is provided which is either confidential or proprietary should be clearly noted in the submission. DISCLAIMER: This RFI is issued solely for information and planning purposes and does not constitute a solicitation. All information received in response to this RFI that is marked Proprietary will be handled accordingly. Responses to the RFI will not be returned. In accordance with FAR 15.202(e), responses to this notice are not an offer and cannot be accepted by the Government to form a binding contract. Respondents are solely responsible for all expenses associated with responding to this RFI.
- Place of Performance
- Address: Office of SBIC Liquidation, 409 3rd Street, Sutie 6600
- Zip Code: 20735
- Country: US
- Zip Code: 20735
- Record
- SN01053380-W 20060520/060519135107 (fbodaily.com)
- Source
-
FedBizOpps Link to This Notice
(may not be valid after Archive Date)
| FSG Index | This Issue's Index | Today's FBO Daily Index Page |