- 61 -
which to repay. Estate of Mixon v. United States, supra at 405;21
Segel v. Commissioner, 89 T.C. 816, 830-831 (1987).
Petitioners contend that they had enough cash and liquid
assets to pay interest or principal on the $975,153,806 that they
owed to LIIBV on August 31, 1988, and to continue operations.
Petitioners contend that they had EBITDA of $2.87 billion and
capital contributions of $585 million, less interest payments to
LIIBV and banks of $1.3 billion, for a total cash-flow of $2.9
billion to repay the $975,153,806. We disagree.
Petitioners' liquid assets and cash-flow were insufficient
to pay the interest or the principal balance. LTI's and LII's
cash-flow ((EBITDA - CAPEX) and (EBITDA - CAPEX)/Interest)) for
each of the 3 years in issue were negative (from negative
$3,177,391 to negative $351,973,233). Petitioners could not
repay the advances with their liquid assets. Transit from 1985
to 1988 and Tree in 1987 and 1988 had negative tangible net
worth. By the last year in issue, LII's tangible net worth was
negative $22,630,000, and LTI's tangible net worth was negative
$58,027,000.
Petitioners allege that use of EBITDA minus CAPEX as a
measure of available cash-flow is incorrect because petitioners
could defer spending capital. We disagree. To repay
21 This factor is somewhat anomalous because most loans are
repaid out of earnings. Estate of Mixon v. United States, 464
F.2d 394, 405 n. 15 (5th Cir. 1972).
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