On July 2, 2013, the U.S. Small Business Administration (SBA) clarified how
Small Business Investment Companies (SBIC funds) report their portfolio
valuations. The recently issued TechNote 4 replaces the TechNote 4 that was
issued in July 1998.
SBIC funds are required to prepare, document and report the valuations of
loans and investments in accordance with the valuation guidelines issued by SBA.
These valuations must be submitted semi-annually for leveraged SBIC funds and
annually for non-levered SBIC funds.
TechNote 4 provides a detailed summary of items that need to be submitted
annually and semi-annually. First, SBIC Form 468 and its schedules are required
to be submitted electronically. Second, SBIC funds are required to identify
material adverse changes, defined as a decrease of more than 20 percent in the
asset value of any individual portfolio security since the end of the
immediately prior fiscal year, excluding changes due to repayment of principal
by the portfolio concern, to their portfolio securities. The materiality
threshold had previously been 10 percent. Third, SBIC valuation meeting minutes
signed by each director or general partner should be uploaded as a PDF into
SBA’s web-based system, with the original signature page mailed to SBA. Finally,
a statement by the SBIC’s independent public accountant on the SBIC’s audited
annual financial statement indicating that the valuations were prepared in
accordance with the SBIC’s approved valuation policy should uploaded as a PDF
into SBA’s web-based system, with the original signature page mailed to SBA.
TechNote 12 provides further clarification regarding specific valuation
issues and the use of third-party valuation contractors. In addition, if SBA has
questions or concerns with any portfolio valuation, SBA may require additional
information on a case-by-case basis.
Each SBIC should review TechNote 4 to ensure it complies with its ongoing
private equity practice group at McGuireWoods LLP is dedicated to keeping
clients advised of new legislative and business developments as they occur. If
you have any questions regarding these issues, please feel free to contact Mark
A. Kromkowski (312.849.8170), Bryan P. Bylica (312.750.3617), your primary
attorney at McGuireWoods LLP or any of the authors.