SEC Company Response from NATIONAL TAX CREDIT PARTNERS L P (CIK 0000847415) — Jun 9, 2005
NATIONAL TAX CREDIT PARTNERS L P (CIK 0000847415)
Date: June 9, 2005 · CIK: 0000847415 · Accession: 0000711642-05-000267
AI Filing Summary & Sentiment
Referenced dates: April 26, 2005, May 25, 2005
Letter
Re: National Tax Credit Partners, L.P. Form 10-KSB for the year ended December 31, 2004 File No. 0-18541
NATIONAL TAX CREDIT PARTNERS, L.P. 55 Beattie Place, P.O. Box 1089 Greenville, SC 29602
June 9, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission Division of Corporation Finance Mail Stop 0409 450 Fifth Street, NW Washington, D.C. 20549 Attn: Mr. Steven Jacobs
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange Commission (the "Staff") addressed to National Tax Credit Partners, L.P., a California limited partnership (the "Partnership"), in a letter dated May 25, 2005, which was sent in response to the Partnership's May 10, 2005 response to the Staff's original comment letter dated April 26, 2005. The Partnership's response to the Staff's comments are set forth below and are numbered to correspond to the numbering of the Staff's comments in the Staff's letter.
* * * * *
Form 10-KSB for the year ended December 31, 2004
Financial Statements and Notes
Note 1 - Summary of Partnership Organization and Significant Accounting Policies
Recent Accounting Pronouncements
1. Comment: We have reviewed your response to prior comment 3 and it remains unclear how you concluded that you were not the primary beneficiary of the variable interest entities. Specifically, tell us how you reached your conclusions in light of your response in which you say that the Partnership "would have the greatest exposure based on provisions in the local limited partnership" and relative to any advances the Partnership has made on their behalf. In addition, tell us how you have considered each of the criteria in paragraph 17 for those variable interest entities in which the other investor is a related party under paragraph 16.
Response: The Partnership made its determination of the primary beneficiary of each of the nine local limited partnerships identified as variable interest entities ("VIE") based on qualitative analyses. In all cases, based on analysis that included consideration of paragraphs 16 and 17 of FIN 46R, the Partnership was determined to be a member of a related party group that held variable interests in the local limited partnership.
Paragraph 16 of FIN 46R states, in part, "For purposes of determining whether it is the primary beneficiary of a variable interest entity, an enterprise with a variable interest shall treat variable interests in that same entity held by its related parties as its own interests. For purposes of this Interpretation, the term related parties includes those parties identified in FASB Statement No. 57, Related Party Disclosures ("SFAS 57"), and certain other parties that are acting as de facto agents or de facto principals of the variable interest holder." Paragraph 16.d further provides that de facto agents of an enterprise include "A party that has (1) an agreement that it cannot sell, transfer, or encumber its interest in the entity without the prior approval of the enterprise... The right of prior approval creates a de facto agency relationship only if that right could constrain the other party's ability to manage the economic risks or realize the economic rewards from its interests in a variable interest entity through the sale, transfer, or encumbrance of those interests."
Applying paragraph 16 to the nine local limited partnerships that the Partnership determined were VIEs resulted in the Partnership's conclusion that the Partnership is a member of a related party group that includes the general partner, and where applicable, the administrative general partner. The administrative general partner is a wholly-owned subsidiary of National Partnership Investments Corp. ("NAPICO"), and the general partner of the Partnership is NAPICO. For those local limited partnerships where an administrative general partner exists, the Partnership concluded under SFAS 57 that the administrative general partner and the limited partner meet the definition of related parties because both entities are under the common control of NAPICO. The Partnership's analysis and conclusions varied depending on the ownership structure of each local limited partnership, as follows:
o In three of the seven local limited partnerships identified as VIEs in which an administrative general partner exists, the general partner may not sell, assign, transfer, mortgage, pledge or encumber all or any part of its interest without the consent of the administrative general partner. As contemplated in paragraph 16.d of FIN 46R, this provision of the local limited partnership agreements establishes a de facto agency relationship, between the administrative general partner and the respective general partner of those partnerships. Therefore the general partner, the administrative general partner and the limited partner (the Partnership) are members of a related party group.
o In four of the seven local limited partnerships identified as VIEs, the administrative general partner has assumed the role of general partner. The rights of the administrative general partner did not revert/transition to the respective limited partner. The general partner, formerly the administrative general partner, and the limited partner (the Partnership) are related parties due to the common control of NAPICO. Therefore the general partner and limited partner (the Partnership) are members of a related party group.
o In one of the nine local limited partnerships identified as a VIE that does not have an administrative general partner, the local limited partnership agreement contains a provision that prohibits the general partner from selling, assigning, transferring, mortgaging, pledging, or otherwise encumbering or disposing of its interest in the local limited partnership for which it serves as the general partner without the consent of the limited partner (the Partnership). This provision of the local limited partnership agreement establishes a de facto agency relationship, as contemplated in paragraph 16.d of FIN 46R, between the Partnership, as limited partner, and the general partner of this local limited partnership. Therefore the general partner and the limited partner (the Partnership) are members of a related party group.
o In one of the nine local limited partnerships identified as a VIE that does not have an administrative general partner, the limited partner (the Partnership) must first obtain the consent of the general partner prior to selling, assigning, transferring, mortgaging, pledging, or otherwise encumbering or disposing of its interest. This provision of the local limited partnership agreement establishes a de facto agency relationship, as contemplated in paragraph 16.d of FIN 46R, between the Partnership, as limited partner, and the general partner of the local limited partnership. Therefore the general partner and the limited partner (the Partnership) are members of a related party group.
Having determined under paragraph 16 that a related party relationship exists between the Partnership, the general partner and, where applicable, the administrative general partner of each local limited partnership identified as a VIE, the Partnership considered the guidance in paragraph 17 to identify the primary beneficiary of each partnership. Paragraph 17 of FIN 46R states, "If two or more related parties (including the de facto agents described in paragraph 16) hold variable interests in the same variable interest entity, and the aggregate variable interest held by those parties would, if held by a single party, identify that party as the primary beneficiary, then the party, within the related party group, that is most closely associated with the variable interest entity is the primary beneficiary." The Partnership determined that the variable interests held by the related party group, consisting of the Partnership and the general partners, would, if held by a single party, identify that party as the primary beneficiary. Accordingly, the Partnership considered the guidance in paragraph 17 of FIN 46R to determine the party within the related party group that is the primary beneficiary.
Paragraph 17 goes on to state that:
"the determination of which party within the related party group is most closely associated with the variable interest entity requires judgment and shall be based on an analysis of all relevant facts and circumstances, including:
a. The existence of a principal-agency relationship between parties within the related party group b. The relationship and significance of the activities of the variable interest entity to the various parties within the related party group c. A party's exposure to the expected losses of the variable interest entity d. The design of the variable interest entity."
The Partnership believes that in the application of paragraph 17 of FIN 46R, the factors listed need to be considered together in conjunction with the structure of each local limited partnership and how the Partnership believes other entities would view the roles of the general partner, administrative general partner and the limited partner (i.e., the Partnership).
This consideration revealed factors that individually could identify either the general partner or the Partnership as the party with the characteristics most closely associated with the respective local limited partnerships.
Ultimately, as discussed below, the Partnership concluded that the general partner is the party within the related party group that has the characteristics most closely associated with the local limited partnerships. Factors that the Partnership considered to be most relevant include:
o Although the de facto agency relationships that were identified in connection with paragraph 16 do not clearly indicate which party is principal or agent, the Partnership believes that the general partner and the administrative general partner have characteristics that are commonly associated with the principal. In this regard, the Partnership noted that the general partner and the administrative general partner are the parties an outside entity would contact regarding a local limited partnership matter. For example, regulatory agencies, such as the Internal Revenue Service or the United States Department of Housing and Urban Development would contact either the general partner or the administrative general partner when necessary. Similarly, the mortgage lenders would also contact the general partner when necessary. In all instances the general partner and/or the administrative general partner acts with authority in addressing these matters.
o The Partnership noted that each general partner's relationship with the local limited partnerships involves the following significant activities related to its rights and obligations under the related limited partnership agreements:
o The general partner shall manage and conduct the business of the local limited partnership;
o Employees of the general partner (or its affiliates) are actively involved in managing the operations of the local limited partnerships
o The general partner has the obligation to fund any recourse obligations of the local limited partnership
o The general partner is authorized to borrow funds, execute and issue mortgage notes and other evidences of indebtedness
o The general partner shall operate the local limited partnerships and shall cause the management agents to manage the properties in such a manner that the properties will be eligible to receive applicable tax credits
o The general partner shall promptly take any and all action which may be necessary or appropriate to perfect and maintain the local limited partnership, as a limited partnership under state law, and to develop, maintain, and operate the respective local limited partnerships in accordance with provisions of the local limited partnership agreement and applicable Federal, state and local laws and regulations
o The general partner shall cause the local limited partnership to obtain and maintain at all times, insurance in such amounts and at terms customary for a project similar to the local limited partnership
o The general partner is responsible for obtaining a management agent for the respective local limited partnership
In addition, the local limited partnership agreements state that the Partnership, as limited partner, shall not take part in the management or control of the business of the local limited partnerships or have the authority to bind the local limited partnerships.
These factors strongly indicate that the general partner is the party most closely associated with the local limited partnerships.
Although the Partnership has not performed a quantitative analysis to determine the relative exposures of the Partnership and general partners to the expected losses of the respective local limited partnerships, the Partnership generally believes that it would have the greatest exposure based on provisions in the local limited partnership agreements that provide for profit and loss allocations and distributions to the limited partner(s) in accordance with ownership interest. The Partnership considered in this analysis the effects of any voluntary advances made by the Partnership to the local limited partners
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NATIONAL TAX CREDIT PARTNERS, L.P.
55 Beattie Place, P.O. Box 1089
Greenville, SC 29602
June 9, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 0409
450 Fifth Street, NW
Washington, D.C. 20549
Attn: Mr. Steven Jacobs
Re: National Tax Credit Partners, L.P.
Form 10-KSB for the year ended December 31, 2004 File No. 0-18541
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange
Commission (the "Staff") addressed to National Tax Credit Partners, L.P., a
California limited partnership (the "Partnership"), in a letter dated May 25,
2005, which was sent in response to the Partnership's May 10, 2005 response to
the Staff's original comment letter dated April 26, 2005. The Partnership's
response to the Staff's comments are set forth below and are numbered to
correspond to the numbering of the Staff's comments in the Staff's letter.
* * * * *
Form 10-KSB for the year ended December 31, 2004
Financial Statements and Notes
Note 1 - Summary of Partnership Organization and Significant Accounting
Policies
Recent Accounting Pronouncements
1. Comment: We have reviewed your response to prior comment 3 and it
remains unclear how you concluded that you were not the primary
beneficiary of the variable interest entities. Specifically, tell us
how you reached your conclusions in light of your response in which you
say that the Partnership "would have the greatest exposure based on
provisions in the local limited partnership" and relative to any
advances the Partnership has made on their behalf. In addition, tell us
how you have considered each of the criteria in paragraph 17 for those
variable interest entities in which the other investor is a related
party under paragraph 16.
Response: The Partnership made its determination of the primary beneficiary
of each of the nine local limited partnerships identified as variable
interest entities ("VIE") based on qualitative analyses. In all cases,
based on analysis that included consideration of paragraphs 16 and 17 of
FIN 46R, the Partnership was determined to be a member of a related party
group that held variable interests in the local limited partnership.
Paragraph 16 of FIN 46R states, in part, "For purposes of determining
whether it is the primary beneficiary of a variable interest entity, an
enterprise with a variable interest shall treat variable interests in that
same entity held by its related parties as its own interests. For purposes
of this Interpretation, the term related parties includes those parties
identified in FASB Statement No. 57, Related Party Disclosures ("SFAS 57"),
and certain other parties that are acting as de facto agents or de facto
principals of the variable interest holder." Paragraph 16.d further
provides that de facto agents of an enterprise include "A party that has
(1) an agreement that it cannot sell, transfer, or encumber its interest in
the entity without the prior approval of the enterprise... The right of
prior approval creates a de facto agency relationship only if that right
could constrain the other party's ability to manage the economic risks or
realize the economic rewards from its interests in a variable interest
entity through the sale, transfer, or encumbrance of those interests."
Applying paragraph 16 to the nine local limited partnerships that the
Partnership determined were VIEs resulted in the Partnership's conclusion
that the Partnership is a member of a related party group that includes the
general partner, and where applicable, the administrative general partner.
The administrative general partner is a wholly-owned subsidiary of National
Partnership Investments Corp. ("NAPICO"), and the general partner of the
Partnership is NAPICO. For those local limited partnerships where an
administrative general partner exists, the Partnership concluded under SFAS
57 that the administrative general partner and the limited partner meet the
definition of related parties because both entities are under the common
control of NAPICO. The Partnership's analysis and conclusions varied
depending on the ownership structure of each local limited partnership, as
follows:
o In three of the seven local limited partnerships identified as
VIEs in which an administrative general partner exists, the
general partner may not sell, assign, transfer, mortgage, pledge
or encumber all or any part of its interest without the consent
of the administrative general partner. As contemplated in
paragraph 16.d of FIN 46R, this provision of the local limited
partnership agreements establishes a de facto agency
relationship, between the administrative general partner and the
respective general partner of those partnerships. Therefore the
general partner, the administrative general partner and the
limited partner (the Partnership) are members of a related party
group.
o In four of the seven local limited partnerships identified as
VIEs, the administrative general partner has assumed the role of
general partner. The rights of the administrative general partner
did not revert/transition to the respective limited partner. The
general partner, formerly the administrative general partner, and
the limited partner (the Partnership) are related parties due to
the common control of NAPICO. Therefore the general partner and
limited partner (the Partnership) are members of a related party
group.
o In one of the nine local limited partnerships identified as a VIE
that does not have an administrative general partner, the local
limited partnership agreement contains a provision that prohibits
the general partner from selling, assigning, transferring,
mortgaging, pledging, or otherwise encumbering or disposing of
its interest in the local limited partnership for which it serves
as the general partner without the consent of the limited partner
(the Partnership). This provision of the local limited
partnership agreement establishes a de facto agency relationship,
as contemplated in paragraph 16.d of FIN 46R, between the
Partnership, as limited partner, and the general partner of this
local limited partnership. Therefore the general partner and the
limited partner (the Partnership) are members of a related party
group.
o In one of the nine local limited partnerships identified as a VIE
that does not have an administrative general partner, the limited
partner (the Partnership) must first obtain the consent of the
general partner prior to selling, assigning, transferring,
mortgaging, pledging, or otherwise encumbering or disposing of
its interest. This provision of the local limited partnership
agreement establishes a de facto agency relationship, as
contemplated in paragraph 16.d of FIN 46R, between the
Partnership, as limited partner, and the general partner of the
local limited partnership. Therefore the general partner and the
limited partner (the Partnership) are members of a related party
group.
Having determined under paragraph 16 that a related party relationship
exists between the Partnership, the general partner and, where applicable,
the administrative general partner of each local limited partnership
identified as a VIE, the Partnership considered the guidance in paragraph
17 to identify the primary beneficiary of each partnership. Paragraph 17 of
FIN 46R states, "If two or more related parties (including the de facto
agents described in paragraph 16) hold variable interests in the same
variable interest entity, and the aggregate variable interest held by those
parties would, if held by a single party, identify that party as the
primary beneficiary, then the party, within the related party group, that
is most closely associated with the variable interest entity is the primary
beneficiary." The Partnership determined that the variable interests held
by the related party group, consisting of the Partnership and the general
partners, would, if held by a single party, identify that party as the
primary beneficiary. Accordingly, the Partnership considered the guidance
in paragraph 17 of FIN 46R to determine the party within the related party
group that is the primary beneficiary.
Paragraph 17 goes on to state that:
"the determination of which party within the related party group is most
closely associated with the variable interest entity requires judgment and
shall be based on an analysis of all relevant facts and circumstances,
including:
a. The existence of a principal-agency relationship between parties within
the related party group
b. The relationship and significance of the activities of the variable
interest entity to the various parties within the related party group
c. A party's exposure to the expected losses of the variable interest
entity
d. The design of the variable interest entity."
The Partnership believes that in the application of paragraph 17 of FIN
46R, the factors listed need to be considered together in conjunction with
the structure of each local limited partnership and how the Partnership
believes other entities would view the roles of the general partner,
administrative general partner and the limited partner (i.e., the
Partnership).
This consideration revealed factors that individually could identify either
the general partner or the Partnership as the party with the
characteristics most closely associated with the respective local limited
partnerships.
Ultimately, as discussed below, the Partnership concluded that the general
partner is the party within the related party group that has the
characteristics most closely associated with the local limited
partnerships. Factors that the Partnership considered to be most relevant
include:
o Although the de facto agency relationships that were identified
in connection with paragraph 16 do not clearly indicate which
party is principal or agent, the Partnership believes that the
general partner and the administrative general partner have
characteristics that are commonly associated with the principal.
In this regard, the Partnership noted that the general partner
and the administrative general partner are the parties an outside
entity would contact regarding a local limited partnership
matter. For example, regulatory agencies, such as the Internal
Revenue Service or the United States Department of Housing and
Urban Development would contact either the general partner or the
administrative general partner when necessary. Similarly, the
mortgage lenders would also contact the general partner when
necessary. In all instances the general partner and/or the
administrative general partner acts with authority in addressing
these matters.
o The Partnership noted that each general partner's relationship
with the local limited partnerships involves the following
significant activities related to its rights and obligations
under the related limited partnership agreements:
o The general partner shall manage and conduct the business of the
local limited partnership;
o Employees of the general partner (or its affiliates) are actively
involved in managing the operations of the local limited
partnerships
o The general partner has the obligation to fund any recourse
obligations of the local limited partnership
o The general partner is authorized to borrow funds, execute and
issue mortgage notes and other evidences of indebtedness
o The general partner shall operate the local limited partnerships
and shall cause the management agents to manage the properties in
such a manner that the properties will be eligible to receive
applicable tax credits
o The general partner shall promptly take any and all action which
may be necessary or appropriate to perfect and maintain the local
limited partnership, as a limited partnership under state law,
and to develop, maintain, and operate the respective local
limited partnerships in accordance with provisions of the local
limited partnership agreement and applicable Federal, state and
local laws and regulations
o The general partner shall cause the local limited partnership to
obtain and maintain at all times, insurance in such amounts and
at terms customary for a project similar to the local limited
partnership
o The general partner is responsible for obtaining a management
agent for the respective local limited partnership
In addition, the local limited partnership agreements state that the
Partnership, as limited partner, shall not take part in the management or
control of the business of the local limited partnerships or have the
authority to bind the local limited partnerships.
These factors strongly indicate that the general partner is the party most
closely associated with the local limited partnerships.
Although the Partnership has not performed a quantitative analysis to
determine the relative exposures of the Partnership and general partners to
the expected losses of the respective local limited partnerships, the
Partnership generally believes that it would have the greatest exposure
based on provisions in the local limited partnership agreements that
provide for profit and loss allocations and distributions to the limited
partner(s) in accordance with ownership interest. The Partnership
considered in this analysis the effects of any voluntary advances made by
the Partnership to the local limited partners