NATIONAL TAX CREDIT PARTNERS, L.P.
55 Beattie Place, P.O. Box 1089
Greenville, SC 29602
June 9, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 0409
450 Fifth Street, NW
Washington, D.C. 20549
Attn: Mr. Steven Jacobs
Re: National Tax Credit Partners, L.P.
Form 10-KSB for the year ended December 31, 2004 File No. 0-18541
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange
Commission (the "Staff") addressed to National Tax Credit Partners, L.P., a
California limited partnership (the "Partnership"), in a letter dated May 25,
2005, which was sent in response to the Partnership's May 10, 2005 response to
the Staff's original comment letter dated April 26, 2005. The Partnership's
response to the Staff's comments are set forth below and are numbered to
correspond to the numbering of the Staff's comments in the Staff's letter.
* * * * *
Form 10-KSB for the year ended December 31, 2004
Financial Statements and Notes
Note 1 - Summary of Partnership Organization and Significant Accounting
Policies
Recent Accounting Pronouncements
1. Comment: We have reviewed your response to prior comment 3 and it
remains unclear how you concluded that you were not the primary
beneficiary of the variable interest entities. Specifically, tell us
how you reached your conclusions in light of your response in which you
say that the Partnership "would have the greatest exposure based on
provisions in the local limited partnership" and relative to any
advances the Partnership has made on their behalf. In addition, tell us
how you have considered each of the criteria in paragraph 17 for those
variable interest entities in which the other investor is a related
party under paragraph 16.
Response: The Partnership made its determination of the primary beneficiary
of each of the nine local limited partnerships identified as variable
interest entities ("VIE") based on qualitative analyses. In all cases,
based on analysis that included consideration of paragraphs 16 and 17 of
FIN 46R, the Partnership was determined to be a member of a related party
group that held variable interests in the local limited partnership.
Paragraph 16 of FIN 46R states, in part, "For purposes of determining
whether it is the primary beneficiary of a variable interest entity, an
enterprise with a variable interest shall treat variable interests in that
same entity held by its related parties as its own interests. For purposes
of this Interpretation, the term related parties includes those parties
identified in FASB Statement No. 57, Related Party Disclosures ("SFAS 57"),
and certain other parties that are acting as de facto agents or de facto
principals of the variable interest holder." Paragraph 16.d further
provides that de facto agents of an enterprise include "A party that has
(1) an agreement that it cannot sell, transfer, or encumber its interest in
the entity without the prior approval of the enterprise... The right of
prior approval creates a de facto agency relationship only if that right
could constrain the other party's ability to manage the economic risks or
realize the economic rewards from its interests in a variable interest
entity through the sale, transfer, or encumbrance of those interests."
Applying paragraph 16 to the nine local limited partnerships that the
Partnership determined were VIEs resulted in the Partnership's conclusion
that the Partnership is a member of a related party group that includes the
general partner, and where applicable, the administrative general partner.
The administrative general partner is a wholly-owned subsidiary of National
Partnership Investments Corp. ("NAPICO"), and the general partner of the
Partnership is NAPICO. For those local limited partnerships where an
administrative general partner exists, the Partnership concluded under SFAS
57 that the administrative general partner and the limited partner meet the
definition of related parties because both entities are under the common
control of NAPICO. The Partnership's analysis and conclusions varied
depending on the ownership structure of each local limited partnership, as
follows:
o In three of the seven local limited partnerships identified as
VIEs in which an administrative general partner exists, the
general partner may not sell, assign, transfer, mortgage, pledge
or encumber all or any part of its interest without the consent
of the administrative general partner. As contemplated in
paragraph 16.d of FIN 46R, this provision of the local limited
partnership agreements establishes a de facto agency
relationship, between the administrative general partner and the
respective general partner of those partnerships. Therefore the
general partner, the administrative general partner and the
limited partner (the Partnership) are members of a related party
group.
o In four of the seven local limited partnerships identified as
VIEs, the administrative general partner has assumed the role of
general partner. The rights of the administrative general partner
did not revert/transition to the respective limited partner. The
general partner, formerly the administrative general partner, and
the limited partner (the Partnership) are related parties due to
the common control of NAPICO. Therefore the general partner and
limited partner (the Partnership) are members of a related party
group.
o In one of the nine local limited partnerships identified as a VIE
that does not have an administrative general partner, the local
limited partnership agreement contains a provision that prohibits
the general partner from selling, assigning, transferring,
mortgaging, pledging, or otherwise encumbering or disposing of
its interest in the local limited partnership for which it serves
as the general partner without the consent of the limited partner
(the Partnership). This provision of the local limited
partnership agreement establishes a de facto agency relationship,
as contemplated in paragraph 16.d of FIN 46R, between the
Partnership, as limited partner, and the general partner of this
local limited partnership. Therefore the general partner and the
limited partner (the Partnership) are members of a related party
group.
o In one of the nine local limited partnerships identified as a VIE
that does not have an administrative general partner, the limited
partner (the Partnership) must first obtain the consent of the
general partner prior to selling, assigning, transferring,
mortgaging, pledging, or otherwise encumbering or disposing of
its interest. This provision of the local limited partnership
agreement establishes a de facto agency relationship, as
contemplated in paragraph 16.d of FIN 46R, between the
Partnership, as limited partner, and the general partner of the
local limited partnership. Therefore the general partner and the
limited partner (the Partnership) are members of a related party
group.
Having determined under paragraph 16 that a related party relationship
exists between the Partnership, the general partner and, where applicable,
the administrative general partner of each local limited partnership
identified as a VIE, the Partnership considered the guidance in paragraph
17 to identify the primary beneficiary of each partnership. Paragraph 17 of
FIN 46R states, "If two or more related parties (including the de facto
agents described in paragraph 16) hold variable interests in the same
variable interest entity, and the aggregate variable interest held by those
parties would, if held by a single party, identify that party as the
primary beneficiary, then the party, within the related party group, that
is most closely associated with the variable interest entity is the primary
beneficiary." The Partnership determined that the variable interests held
by the related party group, consisting of the Partnership and the general
partners, would, if held by a single party, identify that party as the
primary beneficiary. Accordingly, the Partnership considered the guidance
in paragraph 17 of FIN 46R to determine the party within the related party
group that is the primary beneficiary.
Paragraph 17 goes on to state that:
"the determination of which party within the related party group is most
closely associated with the variable interest entity requires judgment and
shall be based on an analysis of all relevant facts and circumstances,
including:
a. The existence of a principal-agency relationship between parties within
the related party group
b. The relationship and significance of the activities of the variable
interest entity to the various parties within the related party group
c. A party's exposure to the expected losses of the variable interest
entity
d. The design of the variable interest entity."
The Partnership believes that in the application of paragraph 17 of FIN
46R, the factors listed need to be considered together in conjunction with
the structure of each local limited partnership and how the Partnership
believes other entities would view the roles of the general partner,
administrative general partner and the limited partner (i.e., the
Partnership).
This consideration revealed factors that individually could identify either
the general partner or the Partnership as the party with the
characteristics most closely associated with the respective local limited
partnerships.
Ultimately, as discussed below, the Partnership concluded that the general
partner is the party within the related party group that has the
characteristics most closely associated with the local limited
partnerships. Factors that the Partnership considered to be most relevant
include:
o Although the de facto agency relationships that were identified
in connection with paragraph 16 do not clearly indicate which
party is principal or agent, the Partnership believes that the
general partner and the administrative general partner have
characteristics that are commonly associated with the principal.
In this regard, the Partnership noted that the general partner
and the administrative general partner are the parties an outside
entity would contact regarding a local limited partnership
matter. For example, regulatory agencies, such as the Internal
Revenue Service or the United States Department of Housing and
Urban Development would contact either the general partner or the
administrative general partner when necessary. Similarly, the
mortgage lenders would also contact the general partner when
necessary. In all instances the general partner and/or the
administrative general partner acts with authority in addressing
these matters.
o The Partnership noted that each general partner's relationship
with the local limited partnerships involves the following
significant activities related to its rights and obligations
under the related limited partnership agreements:
o The general partner shall manage and conduct the business of the
local limited partnership;
o Employees of the general partner (or its affiliates) are actively
involved in managing the operations of the local limited
partnerships
o The general partner has the obligation to fund any recourse
obligations of the local limited partnership
o The general partner is authorized to borrow funds, execute and
issue mortgage notes and other evidences of indebtedness
o The general partner shall operate the local limited partnerships
and shall cause the management agents to manage the properties in
such a manner that the properties will be eligible to receive
applicable tax credits
o The general partner shall promptly take any and all action which
may be necessary or appropriate to perfect and maintain the local
limited partnership, as a limited partnership under state law,
and to develop, maintain, and operate the respective local
limited partnerships in accordance with provisions of the local
limited partnership agreement and applicable Federal, state and
local laws and regulations
o The general partner shall cause the local limited partnership to
obtain and maintain at all times, insurance in such amounts and
at terms customary for a project similar to the local limited
partnership
o The general partner is responsible for obtaining a management
agent for the respective local limited partnership
In addition, the local limited partnership agreements state that the
Partnership, as limited partner, shall not take part in the management or
control of the business of the local limited partnerships or have the
authority to bind the local limited partnerships.
These factors strongly indicate that the general partner is the party most
closely associated with the local limited partnerships.
Although the Partnership has not performed a quantitative analysis to
determine the relative exposures of the Partnership and general partners to
the expected losses of the respective local limited partnerships, the
Partnership generally believes that it would have the greatest exposure
based on provisions in the local limited partnership agreements that
provide for profit and loss allocations and distributions to the limited
partner(s) in accordance with ownership interest. The Partnership
considered in this analysis the effects of any voluntary advances made by
the Partnership to the local limited partnerships. These advances are
designated a specific priority within the distribution provisions of the
local limited partnership agreements. The Partnership's exposure to
expected losses is greatly reduced for those local limited partnerships in
which the Partnership holds a limited partner interest of less than 50%
and/or does not have any voluntary advances outstanding. Although the
Partnership's generally greater exposure to expected losses is a factor
that tends to indicate the Partnership is the primary beneficiary, the
Partnership concluded that this factor is not sufficient to offset the
other factors described above which predominantly indicate that the general
partner is the party most closely associated with the local limited
partnerships.
As an additional note, the Partnership is unable to make a clear
determination as to which parties were more involved with the design of the
local limited partnerships due to the length of time since the local
limited partnerships were created and the lack of individuals associated
with that process available for consultation. The Partnership presumes that
both the general partner and the Partnership were highly involved in the
negotiation of local limited partnership provisions. Those negotiations
ultimately resulted in the general partner having more substantial rights
and obligations under each local limited partnership agreement.
The Partnership concluded, based on its qualitative consideration of the
factors in paragraph 17 of FIN 46R as noted above, that the general partner
is the party in the related party group that is most closely associated
with, and therefore is the primary beneficiary of, the respective local
limited partnership. Accordingly, the Partnership is not the primary
beneficiary of any of the nine local limited partnerships identified as
VIEs and is not required to consolidate any of the local limited
partnerships.
* * * * *
As requested by the Staff in its letter dated April 26, 2005, the Partnership
again acknowledges that: (a) the Partnership is responsible for the adequacy
and accuracy of the disclosure in the filings; (b) Staff comments or changes
to disclosure in response to Staff comments do not foreclose the Commission
from taking any action with respect to the filings; and (c) the Partnership
may not assert Staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United
States.
If you have further questions regarding the information provided, please
contact the undersigned or Stephen Waters. Mr. Waters can be reached directly
at (864) 239-1554 or by fax at (864) 239-5824.
Sincerely,
/s/ David R. Robertson
David R. Robertson
President and Chief Executive Officer
National Partnership Investments Corp.,
the general partner of National Tax
Credit Partners, L.P.