
[Federal Register: September 25, 2008 (Volume 73, Number 187)]
[Notices]               
[Page 55564-55568]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se08-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28383; 812-13355]

 
Triangle Capital Corporation, et al.; Notice of Application

September 19, 2008.

AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an order under sections 6(c), 
12(d)(1)(J), and 57(c) of the Investment Company Act of 1940 (``Act'') 
granting exemptions from sections 12(d)(1)(A) and (C), 18(a), 21(b), 
57(a)(1)-(a)(3), and 61(a) of the Act; under section 57(i) of the Act 
and rule 17d-1 under the Act to permit certain joint transactions 
otherwise prohibited by section 57(a)(4) of the Act; and under section 
12(h) of the Securities Exchange Act of 1934 (``Exchange Act'') 
granting an exemption from section 13(a) of the Exchange Act.

Summary of Application: Applicants, Triangle Capital Corporation 
(``Triangle''), Triangle Mezzanine Fund, LLLP (``Triangle SBIC''), and 
New Triangle GP, LLC (``General Partner''), request an order permitting 
a business development company (``BDC'') and its wholly-owned small 
business investment company (``SBIC'') subsidiary to (1) engage in 
certain transactions that otherwise would be permitted if the BDC and 
its SBIC subsidiary were one company, (2) adhere to a modified asset 
coverage requirement, and (3) file certain reports on a consolidated 
basis.

Filing Dates: The application was filed on January 3, 2007 and amended 
on November 5, 2007, and September 16, 2008.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5.30 pm 
on October 10, 2008, and should be accompanied by proof of service on 
applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, c/o Garland S. 
Tucker III, Triangle Capital Corporation, 3700 Glenwood Avenue, Suite 
530, Raleigh, NC 27612.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Desk,

[[Page 55565]]

100 F Street, NE., Washington, DC 20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. Triangle, a Maryland corporation organized in October 2006, is 
an internally managed, non-diversified, closed-end investment company 
that has elected to be regulated as a BDC under the Act.\1\ In 
addition, Triangle will elect to be treated for tax purposes as a 
regulated investment company (``RIC'') as defined under Subchapter M of 
the Internal Revenue Code of 1986, as amended. Triangle operates as a 
specialty finance company that provides customized financing solutions 
to lower middle market companies that have annual revenues between $10 
and $100 million. Triangle's investment objective is to seek attractive 
returns by generating current income from debt investments and capital 
appreciation from equity related investments.
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    \1\ Section 2(a)(48) of the Act defines a BDC to be any closed-
end investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. Triangle has a seven member board of directors (``Board''), four 
of whom are not ``interested persons'' of Triangle within the meaning 
of section 2(a)(19) of the Act. Triangle is internally managed by its 
executive officers under the supervision of the Board. As a result, 
Triangle does not pay external investment advisory fees, but instead 
incurs operating costs associated with employing investment and 
portfolio management professionals.
    3. Triangle SBIC, a North Carolina limited liability limited 
partnership, is an SBIC licensed by the Small Business Administration 
(``SBA'') to operate under the Small Business Investment Act of 1958. 
Triangle SBIC filed a registration statement on Form N-5 with the 
Commission and has elected to be regulated as a BDC under the Act. 
Triangle SBIC has the same investment objectives and strategies as 
Triangle. Triangle owns a 99.9 percent limited partnership interest in 
Triangle SBIC, and the General Partner, a wholly-owned subsidiary of 
Triangle, owns a 0.1 percent general partnership interest in Triangle 
SBIC. Triangle SBIC, therefore, is functionally a 100 percent owned 
subsidiary of Triangle, because Triangle and the General Partner own 
all of the equity and voting interest in Triangle SBIC. Triangle SBIC 
is consolidated with Triangle for financial reporting purposes. 
Triangle SBIC has a Board consisting of four persons who are not 
interested persons of Triangle SBIC within the meaning of section 
2(a)(19) of the Act and three persons who are interested persons of 
Triangle SBIC.
    4. All investments for Triangle SBIC are approved by the investment 
committee of Triangle SBIC, which is a committee of Triangle SBIC and 
is subject to approval by the SBA. In addition, Triangle and Triangle 
SBIC have entered into a management services agreement whereby Triangle 
provides management services to Triangle SBIC, including prospective 
investment identification, due diligence and analytical services, 
preparation of reports, research and economic/statistical data relating 
to potential and existing investments for use by the Triangle SBIC 
Board in overseeing the Triangle SBIC investment portfolio, monitoring 
of existing investments, including enforcement of rights under 
operative agreements, bookkeeping, accounting and other administrative 
services, preparation of financial reports and tax returns, preparation 
of reports filed with the SBA, provision of office space and clerical 
staff, and maintenance of relationships with professionals retained by 
Triangle SBIC.
    5. The General Partner is a limited liability company organized 
under the laws of the state of North Carolina. The General Partner has 
irrevocably delegated its authority to manage the business and affairs 
of Triangle SBIC to the Triangle SBIC Board. As a consequence, the 
General Partner's only role is to perform certain ministerial functions 
that result from decisions made by the Triangle SBIC Board.

Applicants' Legal Analysis

    1. Applicants request an order under sections 6(c), 12(d)(1)(J), 
57(c) and 57(i) of the Act and rule 17d-1 under the Act granting 
exemptions from sections 12(d)(1), 18(a), 21(b), 57(a)(1), 57(a)(2), 
57(a)(3), 57(a)(4) and 61(a) of the Act to permit Triangle and Triangle 
SBIC to engage in certain transactions that otherwise would be 
permitted if Triangle and Triangle SBIC were one company and to permit 
Triangle to adhere to a modified asset coverage requirement. Applicants 
also request an exemption under section 12(h) of the Exchange Act for 
an exemption from section 13(a) of the Exchange Act.
    2. Section 12(d)(1)(A) of the Act, made applicable to BDCs by 
section 60 of the Act, limits the amount of securities a registered 
investment company or BDC may hold of other investment companies. 
Section 12(d)(1)(C) of the Act limits the amount of securities of a 
closed-end investment company that may be acquired by an investment 
company. Rule 60a-1 exempts a BDC's acquisition of the securities of a 
wholly-owned SBIC subsidiary from sections 12(d)(1)(A) and (C). 
Accordingly, the transfer of assets from Triangle to Triangle SBIC will 
be exempt from the provisions of sections 12(d)(1)(A) and 12(d)(1)(C) 
by virtue of rule 60a-1. However, any loans or advances by Triangle 
SBIC to Triangle might be deemed to violate section 12(d)(1) if the 
loans or advances are construed as purchases by Triangle SBIC of the 
securities of Triangle.
    3. Applicants request an exemption under section 12(d)(1)(J) from 
section 12(d)(1) to permit the acquisition by Triangle SBIC of any 
securities of Triangle representing indebtedness. Section 12(d)(1)(J) 
of the Act provides that the Commission may exempt persons or 
transactions from any provision of section 12(d)(1) if and to the 
extent such exception is consistent with the public interest and the 
protection of investors. Applicants state that the requested relief 
meets this standard because Triangle SBIC's wholly-owned subsidiary 
status and consolidated financial reporting with Triangle will both 
eliminate the possibility of overreaching and prevent confusion as to 
the financial status of Triangle to Triangle's stockholders, who are 
the investors that the Act is intended to protect.
    4. Section 18(a) prohibits a registered close-end investment 
company from issuing any class of senior security or selling any such 
security of which it is the issuer unless the company complies with the 
asset coverage requirements set forth in that section. Section 61(a) of 
the Act makes section 18 applicable to BDCs, with certain 
modifications. Section 18(k) exempts an investment company operating as 
an SBIC from the asset coverage requirements of section 18(a)(1)(A) and 
(B) (with respect to senior securities representing indebtedness).
    5. Applicants state that a question exists as to whether Triangle 
must comply with the asset coverage requirements of section 18(a) on a 
consolidated basis because Triangle may be deemed to be an indirect 
issuer of senior securities issued by Triangle SBIC. For Triangle to 
comply with these asset coverage requirements would mean that, with 
certain exceptions, Triangle would treat as its own all assets held 
directly by Triangle and Triangle SBIC and any liabilities of Triangle 
SBIC, including liabilities of Triangle SBIC with respect to senior 
securities as to which Triangle SBIC is exempt from the asset coverage 
requirements of section 18(a)(1)(A) and (B) by virtue of

[[Page 55566]]

section 18(k). Accordingly, applicants request relief under section 
6(c) of the Act from sections 18(a) and 61(a) of the Act to permit 
Triangle to exclude from its consolidated asset coverage ratio any 
senior security representing indebtedness that is issued by Triangle 
SBIC.
    6. Section 6(c) of the Act, in relevant part, permits the 
Commission to exempt any transaction or class of transactions from any 
provision of the Act if, and to the extent that, such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Applicants state that, without the requested 
relief from sections 18(a) and 61(a), the ability of Triangle SBIC to 
obtain the kind of financing that would be available to Triangle if it 
were to conduct the SBIC operations itself would be restricted. 
Moreover, the exclusion by Triangle from its consolidated asset 
coverage ratio of any senior security representing indebtedness that is 
issued by Triangle SBIC would not harm the public interest because the 
SBA regulates the capital structure of Triangle SBIC.
    7. Sections 57(a)(1) and (2) of the Act generally prohibit, with 
certain exceptions, sales or purchases of any security or other 
property between BDCs and certain of their affiliates as described in 
section 57(b) of the Act. Section 57(b) includes a person, directly or 
indirectly, either controlling, controlled by or under common control 
with the BDC. Applicants state that Triangle directly owns all of the 
limited partnership interests in Triangle SBIC and indirectly owns all 
of the general partnership interests in Triangle SBIC through its 100% 
ownership of the General Partner. Accordingly, Triangle and Triangle 
SBIC are related to each other in the manner set forth in section 
57(b).
    8. Applicants state that there may be circumstances when it is in 
the interests of Triangle and its stockholders that Triangle SBIC 
invest in securities of an issuer that may be deemed to be a controlled 
affiliate of Triangle or that Triangle invest in securities of an 
issuer that may be deemed to be a controlled affiliate of Triangle 
SBIC. Applicants therefore request an exemption from sections 57(a)(1) 
and 57(a)(2) of the Act to permit any transaction solely between 
Triangle and Triangle SBIC with respect to the purchase or sale of 
securities or other property. Applicants also seek an exemption from 
these provisions to allow any transaction involving Triangle and/or 
Triangle SBIC and portfolio affiliates of either or both of Triangle 
and/or Triangle SBIC. Applicants state that the requested relief is 
intended only to permit Triangle and Triangle SBIC to do that which 
they otherwise would be permitted to do if they were one company.
    9. Section 57(c) provides that the Commission will exempt a 
proposed transaction from the provisions of section 57(a)(1), (2), and 
(3) of the Act if the terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching of any person concerned, and the proposed 
transaction is consistent with the policy of the BDC concerned and the 
general purposes of the Act.
    10. Applicants submit that the requested relief from section 
57(a)(1) and (2) meets this standard. Applicants represent that the 
proposed operation of Triangle and Triangle SBIC as one company will 
enhance the efficient operations of both companies and allow them to 
deal with portfolio companies as if Triangle and Triangle SBIC were one 
company. Applicants contend that the terms of the proposed transactions 
are reasonable and fair and do not involve overreaching of Triangle or 
its stockholders by any person, and that the requested order would 
permit applicants to carry out more effectively their purposes and 
objectives of investing primarily in small business concerns. 
Applicants also state that since Triangle SBIC will be a wholly-owned 
subsidiary of Triangle and no officers or directors of Triangle or 
Triangle SBIC (or any controlling persons or other ``upstream 
affiliates'' of Triangle) will have any prohibited financial interest 
in the transactions described, there can be no overreaching on the part 
of any persons in transactions solely between Triangle and Triangle 
SBIC. Finally, applicants note that the proposed transactions are 
consistent with the policy of Triangle and Triangle SBIC as specified 
in filings with the Commission and reports to stockholders, as well as 
consistent with the policies and provisions of the Act.
    11. Section 57(a)(3) of the Act makes it unlawful for certain 
affiliated persons of a BDC, and certain affiliated persons of those 
persons, to borrow money or other property from such BDC or from any 
company controlled by the BDC, except as permitted by section 21(b) or 
section 62. Section 21(b) of the Act (made applicable to BDCs by 
section 62) provides that it shall be unlawful for a BDC to lend any 
money or property, directly or indirectly, to any person that controls 
or is under common control with the BDC, except for loans to any 
company that owns all of the outstanding securities of the BDC (other 
than directors' qualifying shares).
    12. Triangle is an affiliated person of Triangle SBIC by reason of 
its direct ownership of all of the limited partnership interests in 
Triangle SBIC and its indirect ownership of all of the general 
partnership interests in Triangle SBIC through its 100% ownership of 
the General Partner. Triangle does not directly own all of the 
outstanding securities of Triangle SBIC because the General Partner 
holds a 0.1 percent general partnership interest in Triangle SBIC and 
Triangle SBIC has issued SBA-guaranteed debentures and, in the future, 
may have other outstanding securities in the form of indebtedness not 
owned by Triangle. Triangle SBIC is an affiliated person of Triangle 
because it is deemed to be under the control of Triangle.
    13. Applicants state that there may be instances when it would be 
in the best interests of Triangle and its stockholders for Triangle to 
make loans to Triangle SBIC or for Triangle SBIC to make loans to 
Triangle. Applicants note that, in the case of loans from Triangle SBIC 
to Triangle, the loans would be prohibited by section 21(b) and section 
57(a)(3) because the borrower controls the lender and the lender may 
have outstanding securities not owned by the borrower. Accordingly, 
applicants request an order under section 6(c) to exempt the lending of 
money or other property by Triangle SBIC to Triangle and by Triangle to 
Triangle SBIC from the provisions of section 21(b). Applicants argue 
that because these transactions are solely between Triangle and 
Triangle SBIC, its wholly-owned subsidiary, they will have no 
substantive economic effect and there will be no basis for overreaching 
or harm to the public interest. Applicants also request an order under 
section 57(c) to exempt the borrowing of money or property by Triangle 
from Triangle SBIC from the provisions of section 57(a)(3). Applicants 
submit that the requested relief meets the standards of section 57(c).
    14. Section 17(d) of the Act and rule 17d-1 under the Act (made 
applicable to BDCs by section 57(i)) prohibit affiliated persons of a 
registered investment company, or an affiliated person of such person, 
acting as principal, from participating in any joint transaction or 
arrangement in which the registered company or a company it controls is 
a participant, unless the Commission has issued an order authorizing 
the arrangement. Section 57(a)(4) of the Act imposes substantially the 
same prohibitions on joint transactions involving any BDC and an

[[Page 55567]]

affiliated person of such BDC, or an affiliated person of such 
affiliated person, as specified in section 57(b) of the Act. Section 
57(i) of the Act provides that rules and regulations under section 
17(d) of the Act will apply to transactions subject to section 57(a)(4) 
in the absence of rules under that section. The Commission has not 
adopted rules under section 57(a)(4) with respect to joint transactions 
and, accordingly, the standards set forth in rule 17d-1 govern 
applicants' request for relief.
    15. Applicants request relief under section 57(i) and rule 17d-1 to 
permit any transaction solely between Triangle and Triangle SBIC with 
respect to any transfer of assets to Triangle SBIC or operations 
thereafter, and any transaction involving investments by Triangle or 
Triangle SBIC in portfolio companies in which either is or is proposed 
to become an investor, but only to the extent that the transaction 
would not be prohibited if Triangle SBIC were deemed to be part of 
Triangle.
    16. In determining whether to grant an order under section 57(i) 
and rule 17d-1, the Commission considers whether the participation of 
the BDC in the joint transaction is consistent with the provisions, 
policies, and purposes of the Act, and the extent to which such 
participation is on a basis different from or less advantageous than 
that of other participants. Applicants note that the proposed 
transactions are consistent with the policy and provisions of the Act 
and will enhance the interests of Triangle's stockholders while 
retaining for them the important protections afforded by the Act. In 
addition, because the joint participants will conduct their operations 
as though they comprise one company, the participation of one will not 
be on a basis different from or less advantageous than the others. 
Accordingly, applicants believe that the standard for relief under 
section 57(i) and rule 17d-1 is satisfied.
    17. Section 54 of the Act provides that a closed-end company may 
elect BDC treatment under the Act if the company has either a class of 
equity securities registered under section 12 of the Exchange Act or 
has filed a registration statement pursuant to section 12 of the 
Exchange Act for a class of its equity securities. Section 12(g) of the 
Exchange Act requires issuers with specified assets and a specified 
number of security holders to register under the Exchange Act. As a 
BDC, Triangle has registered its common stock under section 12(b) of 
the Exchange Act. In order to elect BDC treatment, Triangle SBIC has 
voluntarily registered its securities under the Exchange Act, even 
though it is not required to do so by section 12(g) of the Exchange 
Act.
    18. By filing a registration statement under section 12 of the 
Exchange Act, absent an exemption, Triangle SBIC would be required by 
section 13(a) of the Exchange Act to file periodically with the 
Commission, even though Triangle SBIC will have only one equity holder. 
Accordingly, applicants request an order under section 12(h) of the 
Exchange Act exempting Triangle SBIC from the reporting requirements of 
section 13(a) of the Exchange Act to permit it to file consolidated 
reports with Triangle.
    19. Section 12(h) of the Exchange Act provides that the Commission 
may exempt an issuer from section 13 of the Exchange Act if the 
Commission finds that by reason of the number of public investors, 
amount of trading interest in the securities, the nature and extent of 
the activities of the issuer, income or assets of the issuer, or 
otherwise, that such action is not inconsistent with the public 
interest or the protection of investors. Triangle SBIC will have only 
one investor, which is itself a reporting company, and no public 
investors. There will be no trading in Triangle SBIC securities, so no 
public interest or investor protective purpose will be served by 
separate Triangle SBIC reporting. Further, applicants state that the 
nature and extent of Triangle SBIC's activities are such that its 
activities will be fully reported through consolidated reporting in 
accordance with normal accounting rules. Accordingly, applicants 
believe that the requested exemption meets the standards of section 
12(h) of the Exchange Act.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:

A. Capital Structure Conditions

    1. Triangle will at all times own and hold, beneficially and of 
record, all of the outstanding limited partnership interests in 
Triangle SBIC and all of the outstanding membership interests in the 
General Partner, or otherwise own and hold beneficially all of the 
outstanding voting securities and other equity interests in Triangle 
SBIC.
    2. Triangle SBIC will have investment policies not inconsistent 
with those of Triangle, as set forth in Triangle's registration 
statement.
    3. No person shall serve as a member of the Board of Triangle SBIC 
unless such person shall also be a member of the Board of Triangle. The 
Board of Triangle SBIC will be appointed by the equity owners of 
Triangle SBIC.
    4. Triangle will not itself issue or sell any senior security, and 
Triangle will not cause or permit Triangle SBIC to issue or sell any 
senior security of which Triangle or Triangle SBIC is the issuer except 
to the extent permitted by section 18 (as modified for BDCs by section 
61) of the Act; provided that immediately after the issuance or sale of 
any such notes or evidence of indebtedness by either Triangle or 
Triangle SBIC, Triangle and Triangle SBIC on a consolidated basis, and 
Triangle individually, shall have the asset coverage required by 
section 18(a) (as modified by section 61(a)), except that, in 
determining whether Triangle and Triangle SBIC on a consolidated basis 
have the asset coverage required by section 61(a), any borrowings by 
Triangle SBIC shall not be considered senior securities and, for 
purposes of the definition of ``asset coverage'' in section 18(h), 
shall be treated as indebtedness not represented by senior securities.
    5. Triangle will acquire securities of Triangle SBIC representing 
indebtedness only if, in each case, the prior approval of the SBA has 
been obtained. In addition, Triangle and Triangle SBIC will purchase 
and sell portfolio securities between themselves only if, in each case, 
the prior approval of the SBA has been obtained.

B. Consolidated Reporting

    1. Triangle will: (a) File with the Commission, on behalf of itself 
and Triangle SBIC, all information and reports required to be filed 
with the Commission under the Exchange Act and other applicable federal 
securities laws, including information and financial statements 
prepared solely on a consolidated basis as to Triangle and Triangle 
SBIC, such information and reports to be in satisfaction of the 
separate reporting obligations of Triangle SBIC; and (b) provide to its 
stockholders such information and reports required to be disseminated 
to Triangle's stockholders, including information and financial 
statements prepared solely on a consolidated basis as to Triangle and 
Triangle SBIC, such reports to be in satisfaction of the separate 
reporting obligations of Triangle SBIC. Notwithstanding anything in 
this condition, Triangle will not be relieved of any of its reporting 
obligations including, but not limited to, any consolidating statements 
setting forth the individual statements of Triangle SBIC required by 
rule 6-03(c) of Regulation S-X.
    2. Triangle and Triangle SBIC may file on a consolidated basis 
pursuant to the

[[Page 55568]]

above condition only so long as the amount of Triangle's total 
consolidated assets invested in assets other than (a) securities issued 
by Triangle SBIC or (b) securities similar to those in which Triangle 
SBIC invests, does not exceed 10%.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E8-22508 Filed 9-24-08; 8:45 am]

BILLING CODE 8010-01-P
