F reorg with partial change of ownership/SBA
May 29, 2024
by a lender from Bloomsburg University of Pennsylvania in Ambler, PA 19002, USA
Working a unique circumstance and trying to get legal opinion of viability of a f reorg, but as part of a partial change of ownership (acquirer purchasing 90%) with SBA funding being the senior debt. Any experience from the community? Full change of ownership I know is a non-issue, but curious on SBA eligibility impact on partial change of ownership with the added complexion/newness of the rule
from The University of Chicago in Chicago, IL, USA
1) There are no new legal issues arising from new SBA SOP on partial change of ownership (PCO).
2) Often deal falls apart when seller finds that seller's cost for 10% equity going forward is 10% of the price whereas buyer owns 90% of the company for more or less the same amount.
3) PCO requires stock purchase of existing company. In a stock purchase, shareholder is selling the shares, not the company. But banks do not write check to the shareholder. They write check to the company. Seller then has to redeem the 90 shares. This may create negative book value. Parties need to be aware of pros/cons of this.
4) Assume 90% being acquired. Per the SOP lenders are supposed to calculate DSCR based on 90% of cash flow. Not sure this is followed.
5) I am finding many transactions are getting done w/o addressing these issues. Sometimes the deal falls apart or the issue gets discovered at the time of tax-filing creating tensions
from University of Michigan in Detroit, MI, USA