An applicant must demonstrate its ability to repay debt from cash flow. As a general rule, the aggregate debt of the issuer on completion of the offering should not exceed an amount which can be serviced as to principal and interest with one-third of applicant's cash flow. The general rule notwithstanding, an applicant may justify incurring a larger indebtedness by demonstrating: 1) ability to devote more cash flow to the service of indebtedness; 2) that an increase in cash flow is to be anticipated in line with past experience or as a result of the improvements to be provided with the proceeds of the proposed financing; or 3) other appropriate reasons.

Note: Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

History

1. New section filed 2-8-89; operative 3-10-89 (Register 89, No. 8).