§ 1738.206 Financial information. ( a ) The Applicant must submit financial information acceptable to the Agency that demonstrates that the Applicant has the financial capacity to fulfill the loan or loan/grant combination requirements in this part and to successfully complete the proposed project. ( 1 ) Applicants must provide complete copies of audited financial statements (opinion letter, balance sheet, income statement, statement of changes in financial position, and notes to the financial statement) for the two years preceding the application submission. For governmental entities financial statements must be accompanied with certifications identifying unrestricted cash that will be available on a yearly basis to the Applicant. Subsidiary operations formed from existing utility providers may provide audited financial statements for the two previous years from the parent company, as long as the parent will be a cosigner of the loan or loan/grant documents, pledging its assets in accordance with § 1738.154(a), or will guarantee the debt.
( 2 ) If the Applicant relies on services provided by a parent or affiliated operation, it must also provide complete copies of audited financial statements for those entities for the fiscal year preceding the application submission. If audited statements are not available, unaudited statements and tax returns for the previous year must be submitted.
( 3 ) Applicants must provide detailed information for all outstanding obligations. Copies of existing notes, loan agreements, security agreement, or other legal documents covering loans, grants, leases, or other loan guarantees must be included in the application.
( 4 ) Applicants must provide a detailed description of working capital requirements and the source of these funds, if internally generated funds are insufficient.
( b ) Applicants must submit the following documents that demonstrate the proposed project's financial viability and ability to repay the requested loan. ( 1 ) Customer projections for the 5-year forecast period that substantiate the projected revenues for each service that is to be provided. The projections must be provided on at least an annual basis and must be developed separately for each service area and must be clearly supported by evidence such as market surveys or current company take rates.
( 2 ) Pro forma financial forecast, including a balance sheet, income statement, and statement of cash flows. For non-regulated entities, the pro forma should be prepared in conformity with U.S. GAAP and the Agency's guidance on grant accounting found at *https://www.rd.usda.gov/files/AccountingGuidance10.pdf .* Regulated telecommunications providers may follow the USOA and RUS accounting standards for their pro forma, including accounting for grant-funded assets as a contribution, in accordance with 47 CFR 32.2, if the project assets will be treated as regulated plant. The pro forma should validate the sustainability of the project by including subscriber estimates related to all proposed service offerings; annual financial projections with balance sheets, income statements, and cash flow statements; supporting assumptions for a 5-year forecast period and a depreciation schedule for existing facilities and those funded with Federal assistance, and other funds. This pro forma should indicate the committed sources of capital funding and include a bridge year prior to the start of the forecast period. This bridge year is the year in which the application is submitted and serves as a buffer between the historical financial information and the forecast period. Including the bridge year, the pro forma statements span a 6-year period. ( i ) The financial projections submitted by Applicants must demonstrate that their entire operation will be able to meet two of the following three ratio requirements: A minimum TIER, CR, or DSCR equal to 1.25 by the end of the 5-year forecast period. Additionally, the projections must demonstrate the Applicant's ability to maintain a Net worth of at least 20 percent throughout the forecast period. Demonstrating that the operation can achieve a projected Net worth of 20 percent and TIER, CR, or DSCR of 1.25 does not ensure that the Agency will approve the loan or loan/grant combination.
( ii ) If the financial analysis suggests that the operation will not be able to achieve the Net worth requirement or two of the required TIER, CR, or DSCR in paragraph (b)(2)(i) of this section, the Agency will not approve the loan or loan/grant combination Award without additional capital, additional cash, additional security, and/or a change in the Award terms.
( c ) Based on the financial evaluation, the Award documents will specify the Net worth and TIER, CR, or DSCR requirements in paragraph (b)(2)(i) of this section that must be met throughout the amortization period.