
[Federal Register: October 6, 2010 (Volume 75, Number 193)]
[Notices]               
[Page 61788-61790]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06oc10-145]                         


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29453; 812-13771]

 
Triangle Capital Corporation, et al.; Notice of Application

September 30, 2010.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application to amend a prior 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.

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Applicants: Triangle Capital Corporation (``Triangle''), Triangle 
Mezzanine Fund, LLLP (``TMF''), New Triangle GP, LLC (``General 
Partner''), New Triangle GP, LLC (``GP II''), and Triangle Mezzanine 
Fund II LP (``SBIC II'').

Summary of Application: Applicants request an order (``Amended Order'') 
to amend a prior order permitting a parent business development company 
(``BDC'') and its wholly-owned small business investment company 
(``SBIC'') subsidiary to engage in certain transactions that otherwise 
would be permitted if such parent BDC and such SBIC subsidiary were one 
company and to file certain reports on a consolidated basis, and 
permitting such parent BDC to adhere to a modified asset coverage 
requirement (``Prior Order'').\1\ Applicants seek to amend the Prior 
Order in order to permit such SBIC subsidiary, which is also a BDC, and 
a newly formed SBIC subsidiary or any future SBIC subsidiary to engage 
in certain transactions that otherwise would be permitted if such 
parent BDC and the SBIC subsidiaries were one company and to permit 
such parent BDC to adhere to a modified asset coverage requirement.
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    \1\ Triangle Capital Corporation, et al., Investment Company Act 
Release Nos. 28383 (Sept. 19, 2008) (notice) and 28437 (Oct. 14, 
2008) (order).

DATES: Filing Dates: The application was filed on May 11, 2010 and 
amended on September 28, 2010. Applicants have agreed to file an 
amendment during the notice period, the substance of which is reflected 
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in this notice.

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 
p.m. on October 21, 2010, 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: Jill Ehrlich, Attorney Adviser, at 
(202) 551-6819, 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 via the 
Commission's website by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Triangle, a Maryland corporation, is an internally managed, non-
diversified, closed-end investment company that has elected to be 
regulated as a BDC under the Act.\2\ 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. Triangle has an eight 
member board of directors (``Triangle Board''), five 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 Triangle Board.
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    \2\ 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. TMF, 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 (``SBA Act''). 
TMF has elected to be regulated as a BDC under the Act. TMF has the 
same investment objectives and strategies as Triangle. Triangle owns a 
99.9% limited partnership interest in TMF, and the General Partner, a 
wholly-owned subsidiary of Triangle, owns a 0.1% general partnership 
interest in TMF. TMF, therefore, is functionally a 100% owned 
subsidiary of Triangle because Triangle and the General Partner own all 
of the equity and voting interest in TMF. TMF is consolidated with 
Triangle for financial reporting purposes. TMF has a board of directors 
(``TMF Board'') consisting of five persons who are not interested 
persons of TMF within the meaning of section 2(a)(19) of the Act and 
three persons who are interested persons of TMF.
    3. SBIC II, a Delaware limited partnership, is an SBIC licensed by 
the SBA. Unlike TMF, SBIC II will not be registered under the Act based 
on the exclusion from the definition of investment company contained in 
section 3(c)(7) of the Act. Triangle directly owns a 99.9% limited 
partnership interest in SBIC II. GP II, a wholly owned subsidiary of 
Triangle, owns a 0.1% general partnership interest in SBIC II. 
Therefore, SBIC II is functionally a 100% owned subsidiary of Triangle 
because Triangle and GP II own all of the equity and voting interest in 
SBIC II. SBIC II is consolidated with Triangle for financial reporting 
purposes.
    4. Each of TMF and SBIC II has entered into a management services 
agreement with Triangle, whereby Triangle provides management services 
to TMF and SBIC II. The General Partner is a limited liability company 
organized under the laws of North Carolina and the sole general partner 
of TMF. GP II is a limited liability company organized under the laws 
of Delaware and the sole general partner of SBIC II.
    5. The Prior Order permits Triangle and TMF to operate effectively 
as one company. At the time of the Prior Order, TMF was Triangle's only 
wholly-owned SBIC subsidiary. Subsequent to the Prior Order, Triangle 
has formed SBIC II and may in the future create other direct or 
indirect wholly-owned subsidiaries of Triangle (collectively, with TMF 
and SBIC II, the ``Subsidiaries,'' and each a ``Subsidiary''). The 
Subsidiaries may also be licensed by the SBA to operate

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as SBICs (collectively, the ``SBIC Subsidiaries,'' and each an ``SBIC 
Subsidiary'') or in some cases may not be SBICs.\3\
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    \3\ The terms and conditions of the Prior Order will continue to 
apply to Triangle, TMF and the General Partner, except as described 
in the current application. Any existing entities that currently 
intend to rely on the Amended Order have been named as applicants, 
and any other existing or future entities that may rely on the 
Amended Order in the future would comply with its terms and 
conditions.
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    6. Applicants seek the Amended Order to request the same exemptive 
relief for SBIC II and any future Subsidiaries that was granted under 
the Prior Order with respect to TMF, except to the extent that such 
relief is not necessary due to the fact that SBIC II is not (and no 
future Subsidiary will be) a BDC or a registered investment company 
under the Act.

Applicants' Legal Analysis

    1. Applicants request the Amended Order under sections 6(c), 57(c) 
and 57(i) of the Act and rule 17d-1 under the Act to permit TMF and 
another Subsidiary to engage in certain transactions that otherwise 
would be permitted if Triangle and its Subsidiaries were one company 
and to permit Triangle to adhere to a modified asset coverage 
requirement.
    2. Section 18(a) prohibits a registered closed-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).
    3. Applicants state that a question exists as to whether Triangle 
must comply with the asset coverage requirements of section 18(a) (as 
modified by section 61(a)) solely on an individual basis or whether it 
must also comply with the asset coverage requirements on a consolidated 
basis because Triangle may be deemed to be an indirect issuer of any 
class of senior security issued by any SBIC Subsidiary. Applicants 
state that they wish to treat SBIC II (and any future SBIC Subsidiary) 
as if it were a BDC subject to sections 18 and 61 of the Act. 
Applicants state that companies operating under the SBA Act, such as 
SBIC II (and future SBIC Subsidiaries), are subject to the SBA's 
substantial regulation of permissible leverage in their capital 
structure.
    4. The Prior Order granted relief under section 6(c) from sections 
18(a) and 61(a) to permit Triangle to exclude from its consolidated 
asset coverage ratio any senior security representing indebtedness 
issued by TMF (not any future SBIC Subsidiary). 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 
issued by any SBIC Subsidiary.
    5. 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 the requested relief 
satisfies the section 6(c) standard. Applicants contend that, since 
SBIC II (or any future SBIC Subsidiary) would be entitled to rely on 
section 18(k) if it were a BDC itself, there is no policy reason to 
deny the benefit of such exemption to Triangle.
    6. 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 TMF and SBIC II and indirectly owns 
all of the general partnership interests in TMF and SBIC II through its 
100% ownership of the General Partner and GP II, respectively. 
Accordingly, SBIC II and TMF would each be a person related to each 
other in a manner described in section 57(b) because each is deemed to 
be under the control of Triangle and thus under common control. In 
addition, each future Subsidiary would also each be a person related to 
each other Subsidiary in a manner described in section 57(b) as long as 
they remain under the common control of Triangle.
    7. Applicants state that there may be circumstances when one or 
more of Triangle, TMF, SBIC II or any future Subsidiary would purchase 
all or a portion of the portfolio investments held by one of the others 
in order to enhance the liquidity of the selling company or for other 
reasons, subject in each case to the requirements of the SBA and the 
regulations thereunder, as applicable. In addition, there may be 
circumstances when a Subsidiary would invest in securities of an issuer 
that may be deemed to be a person related to either Triangle or TMF in 
a manner described in section 57(b), or for Triangle to invest in 
securities of an issuer that may be deemed to be a person related to a 
Subsidiary in a manner described in section 57(b).
    8. The Prior Order only extends relief from sections 57(a)(1) and 
(2) to transactions between Triangle and TMF. Applicants therefore 
request an exemption from sections 57(a)(1) and 57(a)(2) of the Act to 
permit any transaction between TMF (as a BDC) and any other Subsidiary 
with respect to the purchase or sale of securities or other property. 
Applicants also seek an exemption from these provisions to allow any 
transaction between TMF and a controlled portfolio affiliate of another 
Subsidiary. Applicants state that the requested relief is intended only 
to permit Triangle and its Subsidiaries 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) and (2) 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 operations as one company will enhance efficient operations of 
Triangle and its wholly owned subsidiaries, including TMF, and allow 
them to deal with portfolio companies as if Triangle and such 
Subsidiaries were one company. Applicants contend that the terms of the 
proposed transactions are reasonable and fair and do not involve 
overreaching of Triangle or TMF by any person, and that the requested 
order would permit Triangle and the Subsidiaries to carry out more 
effectively their purposes and objectives of investing primarily in 
small business concerns. Finally, applicants note that the proposed 
transactions are consistent with the policies of Triangle and TMF as 
specified in filings with the Commission and Triangle's reports to 
stockholders, as well as consistent with the policies and provisions of 
the Act.
    11. Section 17(d) of the Act and rule 17d-1 under the Act (made 
applicable

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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 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.
    12. The Prior Order only extends relief from section 57(a)(4) and 
rule 17d-1 for joint transactions between Triangle and TMF. 
Accordingly, applicants request relief under section 57(i) and rule 
17d-1 to permit any joint transaction that would otherwise be 
prohibited by section 57(a)(4), in which TMF (as a BDC) and another 
Subsidiary participate, but only to the extent that the transaction 
would not be prohibited if Triangle and the Subsidiaries were a single 
company.
    13. 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 and TMF while retaining 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.
    14. Applicants note that the conditions in the Prior Order will be 
replaced by the conditions set forth herein. These conditions are the 
same conditions as in the Prior Order, except that (a) the defined 
terms have been revised to include all current and future Subsidiaries, 
(b) condition 6 has been added in the event that a person serves or 
acts as an investment adviser to SBIC II or a future Subsidiary, and 
(c) the two conditions relating to consolidated reporting, which 
applicants no longer believe to be necessary, will be deleted from the 
Prior Order.

Applicants' Conditions

    Applicants agree that the Amended Order will be subject to the 
following conditions:
    1. Triangle will at all times own and hold, beneficially and of 
record, all of the outstanding equity interests in any Subsidiary, 
including all of the outstanding membership interests in any general 
partner of any Subsidiary, or otherwise own and hold beneficially, all 
of the outstanding voting securities and other equity interests in such 
Subsidiary.
    2. The SBIC Subsidiaries 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 any board of directors of 
any Subsidiary unless such person shall also be a member of the 
Triangle Board. The board of directors or the managers, as applicable, 
of any Subsidiary will be appointed by the equity owners of such 
Subsidiary.
    4. Triangle will not itself issue or sell any senior security, and 
Triangle will not cause or permit any SBIC Subsidiary to issue or sell 
any senior security of which Triangle or such SBIC Subsidiary 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 senior security by either Triangle or any 
SBIC Subsidiary, Triangle individually and on a consolidated basis 
shall have the asset coverage required by section 18(a) (as modified by 
section 61(a)), except that, in determining whether Triangle and any 
SBIC Subsidiary on a consolidated basis have the asset coverage 
required by section 61(a), any borrowings by any SBIC Subsidiary 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 any SBIC Subsidiary 
representing indebtedness only if, in each case, the prior approval of 
the SBA has been obtained. In addition, Triangle and any SBIC 
Subsidiary will purchase and sell portfolio securities between 
themselves only if, in each case, the prior approval of the SBA has 
been obtained.
    6. No person shall serve or act as investment adviser to SBIC II or 
any future Subsidiary unless the Triangle Board and the stockholders of 
Triangle shall have taken such action with respect thereto that is 
required to be taken pursuant to the Act by the functional equivalent 
of the board of directors of SBIC II or any future Subsidiary and the 
stockholders of SBIC II or any future Subsidiary as if SBIC II or such 
future Subsidiary were a BDC.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25073 Filed 10-5-10; 8:45 am]
BILLING CODE 8010-01-P

