- 10 - principal. Properties’ bookkeeping entries reflected Bottlers’ failure to pay the full amount of rent and Properties’ corresponding failure to repay principal on the loan. The management group had not anticipated that it would take G&K so long to obtain the financing. Given this delay, the management group decided not to pay the full amount of rent for two reasons. First, they were concerned that paying the portion of the rent corresponding to the principal Properties owed would enable Properties, which was owned by the management group, to build equity in the facilities, which might alarm the limited partners. Second, the important net zero cashflow effect of the transaction would be destroyed if Bottlers paid Properties the rent corresponding to the principal. Properties would have an interest deduction for the portion of the rent corresponding to the interest but no deduction for the portion of the rent corresponding to the principal. Properties would therefore have net income and would be exposed to income tax. Buyer Financing Collapses Unexpectedly, G&K’s purchase of the bottling facilities fell through in early 1995. The insurance company G&K expected to provide the bulk of the financing was unable to complete the deal. Bottlers searched fruitlessly for alternate buyers.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011