SBA to take control of fund that owes money - bizjournals:

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In papers filed this month in federapl district courtin Dallas, the SBA says the fund, Mesbicd Ventures Inc., owes it $23.8i million. The agency says in the filinfg that Mesbic hasa greater-than-acceptablse “capital impairment” ratio of 121.34%, a measurre of the fund’s ability to repay its debt by comparing its realized and potential losses to its private capital. The SBA’s filingb says that number representsa “conditiohn of extreme capital impairment.” The litigation does not take issue with the financial condition of Pacesetter Capital Group, which managess Mesbic, or any other fund that Pacesettetr controls.
Neither Pacesetter nor anyone associated with the firm or with Mesbic are accused of wrongdoing bythe SBA’z lawsuit in connection with Mesbic’s demise. In an e-mail, Don Lawhorne, presideny and CEO of Pacesetter Capital, says that Mesbic’s liquidatiom “has no operational and/or legal impact” on Pacesetter’s other small-businesws investments or its other economi cdevelopment efforts. “We have consistently enjoyed a good workingb relationship withthe SBA, and (we are) looking forward to helping the SBA with (Mesbic) in any way his e-mail says. The SBA’se legal team at the U.S. Attorney’zs Office in Dallas declinedx to comment.
Formed in 1970, Mesbic is what’s known as a Small Business Investment Company, or meaning it is licensed by the SBA to investr in small companies and is thereforw regulated bythe agency. SBICsw like Mesbic that make debt investments can in turn get governmenr debt to use in investments in conjunction with privatre capital that they raisefrom investors. Mesbic also made equitgy investments, according to Securities and Exchange Commission Lawhorne saysthe SBA’s takeover of Mesbicv is associated with the agency’s recenr approval of Pacesetter’s plan to merge two other SBICsz that Pacesetter manages, Alliance Enterprise Corp. and Powerd Equities.
Pacesetter earlier this year mergef those two funds into a new Pacesetter SBICFund Inc., with a littl e more than $100 million in asset s under management, Lawhorne says. “With threee funds, you do thres audits. If you consolidate them, you do one he says in an interview. “We eliminated the impairment.” ‘Increasingly impaired’ In his Lawhorne says Mesbic, which was the smallest of the three funds thatPacesetterf operated, “had become increasingly impaired durin g the past three years and requirede another $7 million to $10 millio n of new private capitall to be included in the Unfortunately, we were unable to raise the additional capital against the backdrop of the financial marketa tsunami of the past 18 The merger of Alliancwe Enterprise and Power Equities included an infusion of some $10 milliob of a planned $20 million round of new according to Lawhorne.
That $10 million came from San Calif.-based Wells Fargo Community Development Corp. Accordingh to Lawhorne, Mesbic had two majofr problems. One, the companies into which it had made debt investments fell behinde ontheir payments, which meantr less cash flow. In addition, he adds, Mesbic last year had planner “exits,” or cashing in of its worth about $20 million. Of those exits, some $15 millionb represented initialpublic offerings. The other $5 million represented salesx of companies or refinancings of theifr debtand equity. But the financial markets shut he adds. “That blew out our liquidity.
” Bill a shareholder at Cowles Thompson in Dallas who is not affiliated with theMesbix matter, says the chances are that the court-appointed receiver in the case “will take controll over Mesbic’s assets and sell them.” The appointmentr of the receiver should result “ibn an orderly liquidation,” he adds.