FINANCIAL CONSIDERATIONS
§ 73.131. Industrial development projects.
(a) The act requires that an industrial development project be sold or leased to a responsible buyer or responsible tenant. The PIDA interprets this statutory requirement to mean not only the financial ability to repay the PIDA’s loan, but also the financial ability to repay all working capital and equipment financing necessary for the establishment and operation of a complete project. The analysis described in this section would be the same whether the responsible buyer is a beneficial owner related to the industrial occupant or an unrelated investor-developer.
(b) The application for an industrial development project must include financial statements of the proposed responsible buyer or tenant, parent company and proposed guarantors, if any, for the latest 3 years of operations, prepared by an independent certified public accountant. Complete financial statements include the independent accountants’ report and all notes to the financial statements. When required by PIDA, personal financial statements of investor-stockholders may be prepared by a certified public accountant or by the individuals themselves on bank forms acceptable to PIDA and signed and dated. The personal financial statements must state all assets and direct liabilities on the face thereof, and include appropriate footnotes concerning the existence of contingent liabilities, or, in the alternative, specifically indicate that none exists to the best of the preparer’s knowledge. PIDA may request additional financial information it deems appropriate in support of financial statements furnished with an application. A conference at the PIDA office in Harrisburg may be requested to develop adequate information for a complete presentation of pertinent aspects of the financial situation of a responsible buyer or tenant to PIDA. Generally, representatives of PIDA and its independent financial consultant will meet with representatives of the industrial development agency and management of the responsible buyer or tenant to discuss the financial statements of the responsible buyer or tenant, management background and experience, industrial products, operations and other project details.
(c) The establishment of a new entity as the responsible buyer or tenant will necessitate the submission of other financial information. In this event, PIDA may require the personal financial statements of the major investors. PIDA will require pro forma balance sheets and projected income statements and cash flows of the new entity for at least the first 3 full years of proposed operations, ideally prepared by an independent certified public accountant, although plain paper statements are also acceptable. These projections must include footnotes which disclose, among other things, the methods of accounting to be used, proposed sources of financing—both debt and equity—interest rate and terms of proposed financing, and all significant assumptions regarding projected income and expenses, including projected quantities, prices, customers and market areas, number of employees, labor rates, pension and fringe benefits and administrative and other operating expenses.
(d) The requirements in subsection (c) for projected financial statements may not be necessary in the case of a new entity being formed by a parent company whose acceptable, historical financial statements are submitted to PIDA and whose guaranty is to be relied on for repayment of the PIDA loan.
(e) The financial analysis which PIDA causes to be made to assist it in its determination as to whether there is a responsible buyer or tenant is a broad based analysis of the complete operations of the entity, including the proposed financing of the project. Each application is analyzed on a case by case basis. In determining whether there is a responsible buyer or tenant, PIDA will consider the following financial aspects:
(1) Form and content of financial statements, whether audited, reviewed or compiled.
(2) Equity of the responsible buyer or tenant and guarantors, if any, in relation to the total project cost.
(3) Income in relation to the total project cost.
(4) Extraordinary items of income and expenses reflected in the statements of income.
(5) Cash flow in relation to project debt service.
(6) Current working capital ratio.
(7) Total debt to equity ratio.
(8) Trends of sales and net income.
(9) Contingent liabilities.
(10) Financial ability to adequately finance the working capital and equipment requirements of the industrial development project.
(11) Industry factors relevant to a particular industrial development project.
(f) PIDA may require additional security for its loan to establish the project as creditworthy. Kinds of additional security that may be requested include a participating first lien mortgage on the proposed project; guaranties of the repayment of a PIDA loan by principal shareholders or other interested parties, the parent, subsidiaries or affiliated corporations of the respective responsible buyers or tenants; subordination of debt of the respective responsible buyers or tenants to the repayment of a PIDA loan; assignments of life insurance on the lives of the principals of the respective responsible buyer or tenant; assignments of agreements of lease, sublease or installment sale; additional collateral liens on other real estate owned by the respective responsible buyers or tenants or guarantors; a letter of credit; limitations on the purchase of Treasury stock, payment of dividends and payment of salaries of officers of the respective responsible buyers or tenants; additional equity participation in the proposed project resulting in a reduced participation by the first mortgage lender or PIDA; additional equity investment in the responsible buyer or tenant by outside investors; in rare cases, a collateral lien on machinery and equipment; and a reduction of the size and scope of the project which will reduce the total amount of the debt incurred by the respective buyer or tenant and also reduce the amount of a PIDA loan requested.
(g) Additional security requested by PIDA will be determined on a case-by-case basis and will depend on the financial strength reflected in the proposed responsible buyer’s or tenant’s financial statements. The specific additional collateral requested will depend on the availability of the items of security in each specific case.
Source The provisions of this § 73.131 amended October 19, 2007, effective October 20, 2007, 37 Pa.B. 5601. Immediately preceding text appears at serial pages (230893) to (230895).
Cross References This section cited in 12 Pa. Code § 73.132 (relating to industrial parks and multiple-tenancy building projects).
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