
[Federal Register Volume 77, Number 14 (Monday, January 23, 2012)]
[Notices]
[Pages 3292-3294]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1166]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29922; 812-13804]


Main Street Capital Corporation, et al.; Notice of Application

January 17, 2012.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an order pursuant to section 57(c) 
of the Investment Company Act of 1940 (``Act'') for an exemption from 
section 57(a)(1) of the Act.

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Applicants: Main Street Capital Corporation (the ``Company''), Haley 
Ventures, LLC, HHMS Investments, LLC, Reppert Investments LP, Joseph E. 
Canon, Arthur L. French, Vincent D. Foster, and Todd A. Reppert 
(collectively, the ``Applicants'').

SUMMARY: Summary of Application: The order would permit the Company to 
purchase equity interests in Main Street Capital II, LP (``MSC'') from 
certain persons who are affiliated with the Company.

DATES: Filing Dates: The application was filed on July 23, 2010 and 
amended on December 7, 2010 and October 24, 2011.
    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 February 13, 2012, 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, 1300 Post Oak 
Boulevard, Suite 800, Houston, Texas 77056.

FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202) 
551-6819, or David P. Bartels, Branch Chief, at (202) 551-6388 
(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 Web site 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. The Company is an internally-managed, non-diversified, closed-
end management investment company that has elected to be regulated as a 
business development company (``BDC'') under the Act.\1\ The Company 
operates as a principal investment firm that primarily provides long-
term debt and equity capital to lower middle market companies. The 
Company's common stock trades on the New York Stock Exchange.
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    \1\ Section 2(a)(48) 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. Haley Ventures, LLC is owned and controlled by Travis Haley, an 
employee of the Company. Haley Ventures, LLC currently owns less than 
0.2% of the partnership interests in MSC.
    HHMS Investments, LLC is owned and controlled by Dwayne L. Hyzak, 
Curtis L. Hartman, David L. Magdol, and Rodger A. Stout, each of whom 
is a senior officer of the Company. HHMS Investments, LLC currently 
owns less than 1% of the partnership interests in MSC.
    Reppert Investments LP is a partnership that is controlled by Todd 
Reppert and his spouse. Reppert Investments LP currently owns less than 
0.5% of the partnership interests in MSC.
    Mr. Foster is the chairman of the Company's seven-member board of 
directors (the ``Board'') and the chief executive officer of the 
Company. Mr. Reppert is the president and chief financial officer of 
the Company. Both individuals also serve on the investment committee 
and the credit committee of the Company. Mr. Foster currently owns 
approximately 3% of the partnership interests in MSC. Mr. Reppert 
currently owns less than 0.5% of the partnership interests in MSC.
    Mr. Canon and Mr. French serve as two of the five directors of the 
Company who are not ``interested persons'' of the Company within the 
meaning of section 2(a)(19) (the ``Independent Directors''). Each of 
Mr. Canon and Mr. French currently owns less than 0.5% of the 
partnership interests in MSC.
    3. MSC is a limited partnership that has received a license from 
the United States Small Business Administration (``SBA'') to operate as 
a Small Business Investment Company (``SBIC''). MSC relies on section 
3(c)(1) for an exclusion from the definition of ``investment company'' 
under the Act.
    4. The Company owns, directly or indirectly, all of the equity 
interests in Main Street Mezzanine Fund, LP (``MSMF''), which is 
licensed as an SBIC by the SBA. Both MSMF and MSC have the same 
investment objective and strategies as the Company, and both are 
advised by Main Street Capital Partners, LLC (the ``Investment 
Adviser''). Pursuant to exemptive relief described in the 
application,\2\ both generally invest in the same companies at the same 
time and on the same terms.
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    \2\ Main Street Capital Corporation, et al., Investment Company 
Act Release Nos. 28265 (May 5, 2008) (notice) and 28295 (June 3, 
2008) (order).
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    5. On January 7, 2010, the Company consummated transactions to 
exchange 1,239,695 shares of its common stock for approximately 87.7% 
of the total dollar value of the partnership interests in MSC (the 
``Exchange Offer''). In connection with the Exchange Offer, individuals 
that comprise the management of the Company transferred 100% of the 
membership interests in the general partner of MSC, Main Street Capital 
II GP, LLC (``MSC II GP''), to the Company for no consideration. MSC II 
GP owns 0.4% of the total dollar value of the partnership interests in 
MSC as its general partner. Since the Exchange Offer, the Company has 
purchased an additional 0.5% of the total dollar value of partnership 
interests in MSC from individual owners who are not affiliated with the 
Company in exchange for shares of the Company's common stock based on 
the same formula used in the Exchange Offer, as adjusted for cash 
capital contributed by the Company in connection with the Exchange 
Offer (the ``Post Exchange Offer Non-Affiliate Purchases'').\3\
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    \3\ At the time of the Exchange Offer, the SBA required the 
Company to fully fund any committed capital contributions tied to 
those limited partnership interests that it acquired. As a result, 
the Company contributed $24,250,000 to MSC at the time of the 
Exchange Offer (the ``MSCC Capital Contributed Post Exchange 
Offer'').
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    6. Accordingly, the Company owns a total of 88.6% of the total 
dollar value of the partnership interests in MSC. Fifteen individuals 
and entities own the remaining 11.4% of the total dollar value of the 
partnership interests. Of those interests, 6.4% are held by persons not 
affiliated with the Company (the ``Non-Affiliated Limited Partners''), 
while 5.0% are held by certain individuals who comprise the management 
of the Company or are

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Independent Directors of the Company or by entities controlled by 
individuals who comprise the management of the Company or are employees 
of the Company (the ``Affiliated Limited Partners'' and together with 
the Non-Affiliated Limited Partners, the ``Limited Partners'').
    7. Subsequent to the Exchange Offer, the Board, including the 
required majority (within the meaning of section 57(o)) (the ``Required 
Majority''), authorized the management of the Company to acquire the 
interests in MSC that had not been acquired during the Exchange Offer. 
Accordingly, the Company desires to purchase the Affiliated Limited 
Partners' interests in MSC (the ``Purchases'' and each, a ``Purchase'') 
in exchange for newly issued shares of the Company's common stock (the 
``Shares'').\4\ Applicants request the order to the extent necessary to 
permit the Company to make the Purchases.
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    \4\ The Company also intends to continue to pursue additional 
Post Exchange Offer Non-Affiliate Purchases from the remaining Non-
Affiliated Limited Partners.
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    8. In connection with the Exchange Offer, the interests of the 
selling limited partners of MSC were valued at a 30% premium to the net 
asset value (``NAV'') per interest of MSC (the ``Exchange Offer 
Valuation Formula''). The Exchange Offer Valuation Formula was approved 
by the Board, including the Required Majority, after consultation with 
an independent financial adviser retained by the Board. The Board 
approved the Exchange Offer Valuation Formula as being fair and 
reasonable to the shareholders of the Company based on a number of 
factors, including the perceived value of the long-term, low-cost SBIC 
debt that MSC has incurred and the perceived value of the SBIC license 
held by MSC. The Company believes that, in order to ensure that the 
Affiliated Limited Partners are not treated any differently from those 
former limited partners who participated in the Exchange Offer, none of 
which were affiliated with the Company, the same Exchange Offer 
Valuation Formula should be used to value the Affiliated Limited 
Partners' interests in MSC. However, because of additional capital that 
has been, or may be, contributed to MSC after the Exchange Offer, some 
adjustments to the Exchange Offer Valuation Formula will be necessary 
to determine the value of each Affiliated Limited Partner's interest in 
MSC (the Exchange Offer Valuation Formula as so adjusted, the 
``Adjusted Value'').\5\ The aggregate number of Shares issued to each 
Affiliated Limited Partner in connection with the Purchases will be 
determined by dividing the Adjusted Value of that Affiliated Limited 
Partner's interest in MSC by the greater of the market price per share 
\6\ or the NAV per share of the Company's common stock at the time of 
the Purchase. In addition, in connection with the Purchases, each 
Affiliated Limited Partner will receive one dollar for each dollar 
value of any cash contributed to MSC by that Affiliated Limited Partner 
after the Exchange Offer.
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    \5\ In order to ensure that the Affiliated Limited Partners do 
not unfairly benefit from the MSCC Capital Contributed Post Exchange 
Offer, the amount of that contribution will be excluded from the 
calculation of the NAV of MSC in calculating the Adjusted Value. 
Additionally, in order for MSC to continue its operations, a capital 
call may need to be made on any remaining unfunded limited partner 
capital before the time that the Purchases can be completed. In 
order to further ensure that the Affiliated Limited Partners are not 
being provided with a more favorable offer for their interests in 
MSC than were those former limited partners who participated in the 
Exchange Offer, any cash contributed to MSC by the Affiliated 
Limited Partners after the Exchange Offer will not be multiplied by 
130% but, instead, will be exchanged in connection with the Purchase 
on a dollar for dollar basis.
    \6\ Market price will be determined by using the 20-day volume 
weighted average price at the time of the purchase.
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Applicants' Legal Analysis

    1. Section 57(a) of the Act provides that it is unlawful for any 
person who is related to a BDC in a manner described in section 57(b), 
acting as principal, knowingly to sell any security or other property 
to the BDC or to any company controlled by the BDC except securities of 
which the buyer is the issuer or of which the seller is the issuer and 
which are part of a general offering to holders of a class of its 
securities. Section 57(b) provides that section 57(a) applies to any 
director, officer, or employee of a BDC or any person who is an 
affiliated person of any such person within the meaning of section 
2(a)(3)(C) of the Act. Section 2(a)(3)(C) defines an ``affiliated 
person'' to include any person directly or indirectly controlling, 
controlled by, or under common control with such other person. Section 
2(a)(9) of the Act provides that any person owning more than 25% of the 
outstanding voting securities of a company is presumed to control the 
company.
    2. As noted above, certain of the Affiliated Limited Partners are 
either officers or directors of the Company. Additionally, certain of 
the Affiliated Limited Partners are companies that would, pursuant to 
the definition in section 2(a)(9), be considered to be controlled by 
the officers or employees of the Company. Thus, section 57 would 
prohibit the Affiliated Limited Partners from entering into the 
Purchases with the Company.
    3. Section 57(c) of the Act provides that the Commission may exempt 
a proposed transaction from section 57(a) if evidence establishes that 
(i) the terms of the proposed transaction, including the consideration 
to be paid or received, are reasonable, fair, and do not involve 
overreaching of the BDC or its shareholders on the part of any person 
concerned; (ii) the proposed transaction is consistent with the policy 
of the BDC, as recited in its filings with the Commission, its 
registration statement, and its reports to shareholders; and (iii) the 
proposed transaction is consistent with the general purposes of the 
Act.
    4. The Company represents that the acquisition of interests in MSC 
owned by the Affiliated Limited Partners serves a valid business 
purpose. The Company believes that its ownership of MSC is important 
for the stable capitalization and strategic growth of the Company. The 
Company also believes that a simplified ownership structure for MSC 
will be less confusing for the shareholders of the Company to 
understand and will make its financial statements more clear. In 
addition, the Company believes that the Purchases would be beneficial 
to shareholders of the Company in so far as they would eliminate any 
perceived conflicts of interest that may occur when the Investment 
Adviser allocates investment opportunities among the Company, MSMF, and 
MSC, given that MSC is now partially owned by affiliates of the 
Company. Applicants represent that the Purchases will not be made 
unless approved by the Board, including the Required Majority, and 
also, separately, by all of the Independent Directors who are not 
Limited Partners. Applicants also represent that the terms and the 
pricing of the Purchases will be reviewed by these parties at the time 
of each of their approval. Additionally, applicants state that the 
Purchases will not be made unless the Company obtains an opinion from 
an independent financial adviser stating that the terms of each 
Purchase are fair, from a financial point of view, to the shareholders 
of the Company.
    5. Applicants represent that the terms of the Purchases are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned. Applicants note that the Company, MSC, and MSMF share 
the same investment strategies and criteria. Applicants also note that 
the portfolio companies in which MSC is invested are generally the same 
portfolio companies in which MSMF and/or the

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Company are invested and these companies are valued in the same way for 
MSC, the Company, and MSMF. Additionally, applicants assert that, 
because the Shares issued by the Company in exchange for the additional 
interests in MSC will be valued at or higher than the applicable NAV 
per share of the Company at the time of the Purchases, shareholders of 
the Company will not experience dilution in the NAV per share of the 
Company's common stock in connection with the Purchases. Furthermore, 
applicants note that the Company will merely be acquiring additional 
interests in a company (MSC) in which it already owns a majority 
interest and will be doing so at a price calculated using the same 
formula which was used to acquire its current majority interest.
    6. For these reasons, applicants represent that the terms of the 
Purchases meet the standards set forth in section 57(c).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1166 Filed 1-20-12; 8:45 am]
BILLING CODE 8011-01-P


