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(of rent) would return to Bottlers when Properties made payments
to Bottlers (of loan repayment), and Properties could not divert
any cash to other uses. Prudential approved the loan on these
terms.
Petitioner and respondent stipulated that Properties’
purchase of the bottling facilities from CPA7 was not motivated
in any significant way by tax considerations and that Bottlers
and Properties were not related parties under the Code.
The management group had a reasonable expectation that G&K
would acquire the necessary financing to purchase the facilities
to satisfy the loan or that the loan would be repaid through
rental income. They expected that once the transaction with G&K
closed and G&K paid the $18 million purchase price to Properties,
Properties would pay Bottlers the balance due on the Properties
loan, and Bottlers would pay Prudential the balance due on its
loan. The parties intended that Properties would be liquidated
once G&K bought the facilities.
The management group continued working with G&K through the
end of 1994, when the first full payment of principal and
interest on the Properties loan was due. Given the short-term
solution that creating Properties was intended to be, the
management group decided Bottlers should not make full lease
payments to Properties. Bottlers paid only enough so that
Properties could pay interest on the Properties loan, not the
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Last modified: May 25, 2011