---
kind: "section"
citation: "7 C.F.R. § 4290.1840"
title: "7"
number: "4290.1840"
heading: "Computation of RBIC's Capital Impairment Percentage."
url: "https://uscodex.org/cfr/7/4290.1840"
---

# §4290.1840. Computation of RBIC's Capital Impairment Percentage.

- (a) **General.** This section contains the procedures you must use to determine your Capital Impairment Percentage. You must compare your Capital Impairment Percentage to the maximum permitted under [§ 4290.1830(b)](/cfr/7/4290.1830.md?p=b) to determine whether you have a condition of Capital Impairment.
- (b) **Preliminary impairment test.** If you satisfy the preliminary impairment test, your Capital Impairment Percentage is zero and you do not have to perform any more procedures in this § 4290.1840. Otherwise, you must continue with [paragraph (c)](#c) of this section. You satisfy the test if each of the following amounts is zero or greater:
  - (1) The sum of Undistributed Net Realized Earnings, as reported on SBA Form 468 or other USDA-approved form(s) and Includible Non-Cash Gains.
  - (2) **Unrealized Gain (Loss) on Securities Held.**
- (c) **How to compute your Capital Impairment Percentage.**
  - (1) If you have an Unrealized Gain on Securities Held, compute your Adjusted Unrealized Gain using [paragraph (d)](#d) of this section. If you have an Unrealized Loss on Securities Held, continue with [paragraph (c)(2)](#c-2) of this section.
  - (2) Add together your Undistributed Net Realized Earnings, your Includible Non-cash Gains, and either your Unrealized Loss on Securities Held or your Adjusted Unrealized Gain.
  - (3) If the sum in [paragraph (c)(2)](#c-2) of this section is zero or greater, your Capital Impairment Percentage is zero.
  - (4) If the sum in [paragraph (c)(2)](#c-2) of this section is less than zero, drop the negative sign, divide by your Regulatory Capital (excluding Treasury Stock), and multiply by 100. The result is your Capital Impairment Percentage.
- (d) **How to compute your Adjusted Unrealized Gain.**
  - (1) **Subtract Unrealized Depreciation from Unrealized Appreciation.** This is your “Net Appreciation”.
  - (2) **Determine your Unrealized Appreciation on Publicly Traded and Marketable securities.** This is your ”Class I Appreciation”.
  - (3) Determine your Unrealized Appreciation on securities that are not Publicly Traded and Marketable and meet the following criteria, which must be substantiated to the Agency's satisfaction (this is your “Class 2 Appreciation”):
    - (i) The Portfolio Concern that issued the security received a significant subsequent equity financing by an investor whose objectives were not primarily strategic and at a price that conclusively supports the Unrealized Appreciation;
    - (ii) Such financing represents a substantial investment in the form of an arm's-length transaction by a sophisticated new investor in the issuer's securities; and
    - (iii) Such financing occurred within 24 months of the date of the Capital Impairment computation, or the Portfolio Concern's pre-tax cash flow from operations for its most recent fiscal year was at least 10 percent of its average contributed capital for such fiscal year.
  - (4) Perform the appropriate computation from the table in [13 CFR 107.1840(d)(4)](/cfr/13/107.1840.md?p=d-4).
  - (5) Reduce the gain computed in [paragraph (d)(4)](#d-4) of this section by your estimate of related future income tax expense. Subject to any adjustment required by [paragraph (d)(6)](#d-6) of this section, the result is your Adjusted Unrealized Gain for use in [paragraph (c)(2)](#c-2) of this section.
  - (6) If any securities that are the source of either Class 1 or Class 2 Appreciation are pledged or encumbered in any way, you must reduce the Adjusted Unrealized Gain computed in [paragraph (d)(5)](#d-5) of this section by the amount of the related borrowing or other obligation, up to the amount of the Unrealized Appreciation on the securities.

## Notes

### Amendments

[69 FR 32204, June 8, 2004, as amended at 76 FR 80225, Dec. 23, 2011]

### Authority

Authority: 7 U.S.C. 1989 and 2009cc et seq.

### Source

Source: 69 FR 32204, June 8, 2004, unless otherwise noted.

### Amendments

[69 FR 32204, June 8, 2004, as amended at 76 FR 80225, Dec. 23, 2011]