
[Federal Register Volume 79, Number 56 (Monday, March 24, 2014)]
[Notices]
[Pages 16066-16071]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06306]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30984; File No. 812-14016]


HMS Income Fund, Inc., et al.; Notice of Application

March 18, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under sections 57(a)(4) and 
57(i) of the Investment Company Act of 1940 (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 rule 17d-1 under the Act.

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    Summary of Application: Applicants request an order to permit 
business development companies (``BDCs'') to co-invest with one another 
in portfolio companies.
    Applicants: HMS Income Fund, Inc. (the ``Company''); HMS Adviser LP 
(``HMS Adviser''); \1\ Main Street Capital Corporation (``MSCC'' and, 
together with the Company, the ``Investing BDCs''); Main Street Capital 
Partners, LLC (``Partners''); Main Street Mezzanine Fund, LP (``SBIC 
Fund I''); Main Street Capital II, LP (``SBIC Fund II'' and, together 
with SBIC Fund I, the ``SBIC Funds''); MSCII Equity Interests, LLC; 
Main Street Equity Interests, Inc.; and MSC Adviser I, LLC (``HMS Sub-
Adviser'').
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    \1\ The term ``Adviser'' means HMS Adviser, HMS Sub-Adviser (as 
defined below), Partners (as defined below), any other investment 
adviser to an Investing BDC (as defined below), and, with respect to 
MSCC (as defined below), an internally managed business development 
company, MSCC.
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    Filing Dates: The application was filed on March 22, 2012, and 
amended on July 27, 2012, December 28, 2012, June 18, 2013, October 3, 
2013, February 24, 2014 and March 17, 2014.
    Hearing or Notification of Hearing: An order granting the requested 
relief 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 April 14, 2014, 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 
St. NE., Washington, DC 20549-1090. Applicants: the Company and HMS 
Adviser, 2800 Post Oak Boulevard, Suite 5000, Houston, Texas 77056; 
MSCC, Partners, the SBIC Funds, MSCII Equity Interests, LLC, Main 
Street Equity Interests, Inc., and HMS Sub-Adviser, 1300 Post Oak 
Boulevard, Suite 800, Houston, Texas 77056.

FOR FURTHER INFORMATION CONTACT: Mark Zaruba, Senior Counsel, at (202) 
551-6878 or Dalia Osman Blass, Assistant Chief Counsel, at (202) 551-
6821 (Chief Counsel's Office, Division of Investment Management).

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 for an 
applicant using the

[[Page 16067]]

Company name box, at http://www.sec.gov/search/search.htm or by calling 
(202) 551-8090.
    Applicants' Representations:
    1. The Company is a closed-end management investment company that 
has elected to be regulated as a BDC under the Act.\2\ The Company's 
primary investment objective is to generate current income through debt 
and equity investments. The Company has a five-member board of 
directors (the ``Company Board''), of which a majority are not 
``interested persons'' of the Company as defined in section 2(a)(19) of 
the Act (for any board of directors, the ``Independent Directors'').
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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. HMS Adviser is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') and serves as 
the Company's investment adviser. All investment decisions made by HMS 
Adviser require the approval of its investment committee.
    3. MSCC is a closed-end management investment company that has 
elected to be regulated as a BDC under the Act. MSCC is a principal 
investment firm that provides long-term debt and equity capital to 
lower middle market companies and debt capital to middle market 
companies. MSCC has a six-member board of directors (the ``MSCC 
Board''),\3\ of which five members are Independent Directors. MSCC is 
an internally managed BDC. All of MSCC's and its subsidiaries' 
personnel (the ``MSCC Employees''), including all investment 
professionals, are employed by Partners.\4\ Partners is a wholly-owned 
subsidiary of MSCC.
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    \3\ The term ``Investing BDC Board'' means the board of 
directors of an Investing BDC (i.e., the Company Board or the MSCC 
Board, as applicable).
    \4\ The MSCC Employees perform all of the day to day functions 
and activities of MSCC and its subsidiaries, including HMS Sub-
Adviser. As such, the same investment professionals who advise MSCC 
and its Wholly-Owned Investment Subsidiaries also sub-advise the 
Company through HMS Sub-Adviser. The MSCC Employees are supervised 
by the MSCC Board, and when they are acting as investment 
professionals for HMS Sub-Adviser, they are supervised by HMS Sub-
Adviser consistent with the policies and procedures adopted by HMS 
Sub-Adviser in accordance with the Advisers Act. The MSCC Employees 
are subject to the policies and procedures of MSCC and HMS Sub-
Adviser, including, with respect to MSCC, those required by rule 
38a-1 and section 57(h) of the Act and, with respect to HMS Sub-
Adviser, those required by rule 206(4)-7 of the Advisers Act.
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    4. Applicants represent that the SBIC Funds were organized as 
limited partnerships under the laws of the state of Delaware and are 
each licensed by the Small Business Administration (the ``SBA'') to 
operate under the Small Business Investment Act of 1958 (the ``SBA 
Act'') as small business investment companies. Applicants state that 
the SBIC Funds 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. Main Street Mezzanine Management, LLC and 
Main Street Capital II GP, LLC, each of which is a wholly-owned 
subsidiary of MSCC, are the general partners of SBIC Fund I and SBIC 
Fund II, respectively. Partners is the manager and investment adviser 
of both SBIC Fund I and SBIC Fund II. Applicants represent that each of 
the SBIC Funds are Wholly-Owned Investment Subsidiaries \5\ of MSCC 
because MSCC directly or indirectly owns 100% of the economic and 
voting interests in the SBIC Funds.
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    \5\ A ``Wholly-Owned Investment Subsidiary'' is a special 
purpose subsidiary formed by an Investing BDC (a) whose sole 
business purpose is to hold one or more investments on behalf of the 
Investing BDC (or, in the case of certain subsidiaries, maintain a 
license under the SBA Act and issue debentures guaranteed by the 
SBA); (b) that is wholly-owned by the Investing BDC (with the 
Investing BDC at all times, directly or indirectly, holding, 
beneficially and of record, 100% of the economic and voting 
interests); (c) with respect to which the Investing BDC Board has 
the sole authority to make all determinations with respect to the 
Wholly-Owned Investment Subsidiary's participation under the 
conditions to the application; and (d) that is an entity that would 
be an investment company but for section 3(c)(1) or 3(c)(7) of the 
Act.
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    5. HMS Sub-Adviser is a wholly-owned subsidiary of MSCC. HMS Sub-
Adviser is registered as an investment adviser under the Advisers Act. 
Pursuant to the terms of the investment advisory agreement among the 
Company, HMS Adviser, MSCC, and HMS Sub-Adviser, HMS Adviser has 
engaged HMS Sub-Adviser as the Company's sub-adviser.\6\ Applicants 
represent that no employee or representative of MSCC, Partners, or HMS 
Sub-Adviser serves or will serve on the investment committee of HMS 
Adviser, and HMS Adviser and its investment committee are in all other 
respects completely independent of MSCC, Partners, and HMS Sub-Adviser. 
Applicants represent that neither HMS Sub-Adviser, Partners nor MSCC 
are otherwise affiliated with the Company or HMS Adviser.
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    \6\ The agreement does not, however, permit HMS Adviser to 
delegate its authority to approve investments on behalf of the 
Company. Therefore, as discussed below, HMS Adviser will ultimately 
approve all investments made by the Company.
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    6. Applicants seek an order (``Order'') to permit the Company, on 
one hand, and MSCC, on the other hand, to participate in the same 
investment opportunities through a proposed co-investment program where 
such participation would otherwise be prohibited under section 57 of 
the Act and the rules under the Act (the ``Co-Investment Program''). 
For purposes of the application, a ``Co-Investment Transaction'' means 
any transaction in which the Company (or a Wholly-Owned Investment 
Subsidiary) participated together with MSCC (or a Wholly-Owned 
Investment Subsidiary) in reliance on the Order. ``Potential Co-
Investment Transaction'' means any investment opportunity in which the 
Company (or a Wholly-Owned Investment Subsidiary) could not participate 
together with MSCC (or a Wholly-Owned Investment Subsidiary) without 
obtaining and relying on the Order.\7\
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    \7\ All existing entities that currently intend to rely on the 
Order have been named as applicants and any existing or future 
entities that may rely on the Order in the future will comply with 
the terms and conditions of the application.
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    7. Each Investing BDC may, from time to time, form one or more 
Wholly-Owned Investment Subsidiaries. A Wholly-Owned Investment 
Subsidiary of an Investing BDC would be prohibited from investing in a 
Co-Investment Transaction with the other Investing BDC (or its Wholly-
Owned Investment Subsidiaries) because it would be a company controlled 
by the Investing BDC for purposes of section 57(a)(4) and rule 17d-1. 
Applicants request that a Wholly-Owned Investment Subsidiary be 
permitted to participate in Co-Investment Transactions in lieu of an 
Investing BDC and that the Wholly-Owned Investment Subsidiary's 
participation in any such transaction be treated, for purposes of the 
Order, as though the Investing BDC were participating directly. 
Applicants represent that this treatment is justified because a Wholly-
Owned Investment Subsidiary would have no purpose other than serving as 
a holding vehicle for the Investing BDC's investments and, therefore, 
no conflicts of interest could arise between the Investing BDC and the 
Wholly-Owned Investment Subsidiary. The Investing BDC Board would make 
all relevant determinations under the conditions with regard to a 
Wholly-Owned Investment Subsidiary's participation in a Co-Investment 
Transaction, and the Investing BDC Board would be informed of, and take 
into consideration, any proposed use of a Wholly-Owned Investment 
Subsidiary in the Investing BDC's place. If an Investing BDC proposes 
to participate in the same Co-Investment Transaction with any of its 
Wholly-Owned

[[Page 16068]]

Investment Subsidiaries, the Investing BDC Board will also be informed 
of, and take into consideration, the relative participation of the 
Investing BDC and the Wholly-Owned Investment Subsidiary.
    8. HMS Sub-Adviser and MSCC will generally originate and 
independently analyze the appropriateness of investments by the 
Investing BDCs.\8\ Applicants expect that almost all investments that 
are appropriate investments for one Investing BDC will be appropriate 
for the other Investing BDC, with limited exceptions based on Available 
Capital,\9\ diversification, investment size, borrow and sponsor 
limitations and other relevant factors.\10\ HMS Adviser serves as the 
Company's investment adviser and administrator, and HMS Sub-Adviser 
serves as the Company's sub-adviser. In these roles, HMS Adviser is 
responsible for the overall management of the Company's activities, and 
HMS Sub-Adviser is responsible for the day-to-day management of the 
Company's investment portfolio, in each case consistent with their 
fiduciary duties. Although HMS Sub-Adviser will identify, determine the 
appropriateness of and recommend investments for the Company, the Sub-
Advisory Agreement requires that, prior to any investment by the 
Company, HMS Sub-Adviser must present to HMS Adviser each investment 
that HMS Sub-Adviser determines is appropriate for, and seeks to 
recommend to, the Company, and HMS Adviser has the authority to approve 
or reject all investments proposed for the Company by HMS Sub-Adviser. 
Through this authority to approve or reject any investment proposed by 
HMS Sub-Adviser, HMS Adviser will have ultimate authority with respect 
to the Company's investments, subject in each case to the oversight of 
the Company Board.
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    \8\ While it is currently anticipated that substantially all 
origination and evaluation of Potential Co-Investment Transactions 
will be conducted by HMS Sub-Adviser, nothing precludes HMS Adviser 
from independently identifying and evaluating a Potential Co-
Investment Transaction. In such a case, HMS Adviser will follow the 
same process for approval of Co-Investment Transactions that HMS 
Sub-Adviser is required to follow under the terms of the 
application.
    \9\ ``Available Capital'' refers to the liquid assets not held 
for permanent investment, including bona fide uncalled capital 
commitments that can be called by the settlement date of the Co-
Investment Transaction, cash, amounts that can currently be drawn 
down from lines of credit, and marketable securities held for short-
term purposes.
    \10\ Neither the Company nor MSCC will be obligated to invest, 
or co-invest, when investment opportunities are referred to them.
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    9. In selecting investments for the Investing BDCs, the Advisers 
will consider only the investment objective, investment policies, 
investment position, Available Capital, and other factors relevant to 
the respective Investing BDC they advise. For each Potential Co-
Investment Transaction that HMS Sub-Adviser determines is an 
appropriate investment for the Company, HMS Sub-Adviser will provide to 
HMS Adviser, in advance, information about such transaction, and will 
propose an allocation for the Company for such transaction. HMS Adviser 
will then evaluate whether the Potential Co-Investment Transaction fits 
within the Company's Objectives and Strategies, is appropriate from a 
size and risk standpoint based on the Company's Available Capital, is 
appropriately structured for co-investment by the Company and has 
undergone sufficient due diligence to justify approval by HMS Adviser. 
If HMS Adviser independently determines that the Potential Co-
Investment as proposed by HMS Sub-Adviser (including the proposed 
allocation between the Company and MSCC) is an appropriate investment 
for the Company, HMS Adviser will present the Potential Co-Investment 
Transaction to the Eligible Directors of the Company Board for their 
approval.
    10. For any Potential Co-Investment Transaction, the applicable 
Adviser will present the investment opportunity and the proposed 
allocation to the directors eligible to vote under section 57(o) of the 
Act (``Eligible Directors'') of each Investing BDC prior to any actual 
investment by an Investing BDC. A Co- Investment Transaction will be 
consummated only upon approval by a required majority of the Eligible 
Directors within the meaning of section 57(o) of the Act (``Required 
Majority'') \11\ of each Investing BDC.
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    \11\ Applicants state that no Independent Director will have a 
financial interest in any Co-Investment Transaction or any interest 
in any related portfolio company, other than through an interest (if 
any) in the securities of the Investing BDC.
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    11. With respect to the pro rata dispositions and Follow-On 
Investments \12\ provided in conditions 7 and 8, an Investing BDC may 
participate in a pro rata disposition or Follow-On Investment without 
obtaining prior approval of the Required Majority of the Investing BDC 
if, among other things: (i) the proposed participation of each 
Investing BDC in such disposition is proportionate to its outstanding 
investments in the issuer immediately preceding the disposition or 
Follow-On Investment, as the case may be; and (ii) the Investing BDC 
Board has approved the Investing BDC's participation in pro rata 
dispositions and Follow-On Investments as being in the best interests 
of the Investing BDC. If the Investing BDC Board does not so approve, 
any such disposition or Follow-On Investment will be submitted to the 
Investing BDC's Eligible Directors. The Investing BDC Board may at any 
time rescind, suspend or qualify its approval of pro rata dispositions 
and Follow-On Investments with the result that all dispositions and/or 
Follow-On Investments must be submitted to the Eligible Directors of 
the Investing BDC.
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    \12\ With respect to any security obtained in a Co-Investment 
Transaction, a ``Follow-On Investment'' is an additional investment 
in securities of the issuer of the security, including through the 
exercise of warrants, conversion privileges, and other rights to 
purchase securities of the issuer.
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    Applicants' Legal Analysis:
    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
of a BDC from participating in joint transactions with the BDC (or a 
company controlled by such BDC) in contravention of rules as prescribed 
by the Commission. Under section 57(b)(2) of the Act, in general, any 
person who is directly or indirectly controlling, controlled by, or 
under common control with a BDC, is subject to section 57(a)(4). 
Section 57(i) of the Act provides that, until the Commission prescribes 
rules under section 57(a)(4), the Commission's rules under section 
17(d) of the Act applicable to registered closed-end investment 
companies will be deemed to apply to transactions subject to section 
57(a)(4). Because the Commission has not adopted any rules under 
section 57(a)(4), rule 17d-1 applies.
    2. Rule 17d-1 under the Act prohibits affiliated persons of a 
registered investment company from participating in joint transactions 
with the company unless the Commission has granted an order permitting 
such transactions. In passing upon applications under rule 17d-1, the 
Commission considers whether the company's participation 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.
    3. Transactions effected as part of the Co-Investment Program would 
be prohibited by Section 57(a)(4) and Rule 17d-1 without a prior order 
of the Commission to the extent that each of the Company or MSCC falls 
within the category of persons described by Section 57(b), as modified 
by Rule 57b-1 thereunder, vis-[agrave]-vis MSCC or the Company, 
respectively. Section 57(b) applies to any investment adviser to a 
business development company, including a sub-adviser. Therefore, HMS 
Sub-Adviser could be deemed to be

[[Page 16069]]

related to the Company in a manner described by Section 57(b). MSCC 
controls HMS Sub-Adviser and therefore MSCC (or a Wholly-Owned 
Investment Subsidiary of MSCC) could be deemed to be related to the 
Company in a manner described by Section 57(b) and prohibited by 
Section 57(a)(4) and Rule 17d-1 from participating in the Co-Investment 
Program with the Company.\13\
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    \13\ As discussed in the application, applicants do not believe 
that the Company would be related to MSCC in a manner described by 
section 57(b) because applicants assert that HMS Sub-Adviser does 
not control the Company. However, if HMS Sub-Adviser were deemed to 
control the Company, then the Company would be related to MSCC in a 
manner described by section 57(b) and, therefore, prohibited by 
section 57(1)(4) and rule 17d-1 from participating in the Co-
Investment Program.
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    4. Applicants state that they expect that increasing the 
opportunities available to the Investing BDCs with a co-investment 
structure would generate greater deal flow, broaden the market 
relationships of the Company and MSCC, and posture them to make the 
most attractive risk-adjusted investments and optimize performance of 
their portfolios. Applicants represent that the Co-Investment Program 
will be implemented only if a Required Majority of each Investing BDC 
approves it on the basis that it would be advantageous to the Investing 
BDC.
    5. Applicants submit that the Required Majority of an Investing 
BDC's approval of each Co-Investment Transaction before investment, and 
other protective conditions set forth in the application, will ensure 
that each Investing BDC will be treated fairly and reasonably. 
Applicants state that an Investing BDC's participation in the Co-
Investment Transactions will be consistent with the provisions, 
policies and purposes of the Act and on a basis that is not different 
from or less advantageous than that of other. Applicants further state 
that the terms and conditions of the application will ensure that all 
such transactions are reasonable and fair to each Investing BDC and do 
not involve overreaching by any person concerned, including the 
Advisers.
    Applicants' Conditions:
    Applicants agree that any Order granting the requested relief will 
be subject to the following conditions:
    1. Each time an Adviser, other than HMS Adviser, considers a 
Potential Co-Investment Transaction for an Investing BDC that falls 
within the other Investing BDC's then-current Objectives and 
Strategies,\14\ the Adviser(s) to an Investing BDC will make an 
independent determination of the appropriateness of the investment for 
the Investing BDC in light of the Investing BDC's then-current 
circumstances. If HMS Adviser refers a Potential Co-Investment 
Transaction to MSCC, MSCC will make an independent determination of the 
appropriateness of the investment itself in light of MSCC's then-
current circumstances.
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    \14\ ``Objectives and Strategies'' means an Investing BDC's 
investment objectives and strategies, as described in the Investing 
BDC's registration statement on Form N-2, other filings the 
Investing BDC has made with the Commission under the Securities Act 
of 1933, as amended (the ``1933 Act''), or under the Securities and 
Exchange Act of 1934, as amended, and the Investing BDC's reports to 
shareholders.
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    2. a. If the Adviser(s) to an Investing BDC deems the Investing 
BDC's participation in any Potential Co-Investment Transaction to be 
appropriate for the Investing BDC, the Adviser(s) to the Investing BDC 
will then determine an appropriate level of investment for the 
Investing BDC.
    b. If the aggregate amount recommended by the Adviser(s) to an 
Investing BDC to be invested in the Potential Co-Investment 
Transaction, together with the amount proposed to be invested by the 
other Investing BDC, in the same transaction, exceeds the amount of the 
investment opportunity, the amount of the investment opportunity will 
be allocated between the Investing BDCs pro rata based on the ratio of 
each Investing BDC's Available Capital in the asset class being 
allocated to the aggregated Available Capital for the asset class being 
allocated of both Investing BDCs, up to the amount proposed to be 
invested by each. The Adviser(s) to an Investing BDC will provide the 
Eligible Directors of the Investing BDC, with information concerning 
each Investing BDC's Available Capital to assist the Eligible Directors 
with their review of the Investing BDC's investments for compliance 
with these allocation procedures.
    c. After making the determinations required in conditions 1 and 
2(a), the Adviser(s) to an Investing BDC will distribute written 
information concerning the Potential Co-Investment Transaction, 
including the amount proposed to be invested by each Investing BDC, to 
the Eligible Directors of the Investing BDC for their consideration. 
The Investing BDCs will co-invest with one another only if, prior to 
participating in the Potential Co-Investment Transaction, a Required 
Majority of each Investing BDC concludes that:
    (i) the terms of the Potential Co-Investment Transaction, including 
the consideration to be paid, are reasonable and fair and do not 
involve overreaching in respect of the Investing BDC or its 
stockholders on the part of any person concerned;
    (ii) the Potential Co-Investment Transaction is consistent with:
    (a) the interests of the Investing BDC's stockholders; and
    (b) the Investing BDC's then-current Objectives and Strategies;
    (iii) the investment by the other Investing BDC would not 
disadvantage the Investing BDC, and the participation of the Investing 
BDC is not on a basis different from or less advantageous than that of 
the other Investing BDC; provided, that if one Investing BDC but not 
the other gains the right to nominate a director for election to a 
portfolio company's board of directors or the right to have a board 
observer or any similar right to participate in the governance or 
management of the portfolio company, such event will not be interpreted 
to prohibit a Required Majority of the Investing BDC from reaching the 
conclusions required by this condition 2(c)(iii), if:
    (a) the Eligible Directors of the Investing BDC will have the right 
to ratify the selection of such director or board observer, if any;
    (b) the Adviser(s) to an Investing BDC agrees to, and does, provide 
periodic reports to the Board of the Investing BDC with respect to the 
actions of the director or the information received by the board 
observer or obtained through the exercise of any similar right to 
participate in the governance or management of the portfolio company; 
and
    (c) any fees or other compensation that the Investing BDC or any 
affiliated person thereof, as applicable, receives in connection with 
the right of the Investing BDCs to nominate a director or appoint a 
board observer or otherwise to participate in the governance or 
management of the portfolio company will be shared proportionately 
between the Investing BDCs in accordance with the amount of each 
party's investment; and
    (iv) the proposed investment by the Investing BDC would not benefit 
the other Investing BDC or any affiliated person of either of them 
(other than the parties to the Co-Investment Transaction), except (a) 
to the extent permitted by condition 13; (b) to the extent permitted by 
section 57(k) of the Act; (c) indirectly, as a result of an interest in 
the securities issued by one of the parties to the Co-Investment 
Transaction; or (d) in the case of fees or other compensation described 
in condition 2(c)(iii)(C).

[[Page 16070]]

    3. Each Investing BDC has the right to decline to participate in 
any Potential Co-Investment Transaction or to invest less than the 
amount proposed.
    4. The Adviser(s) to an Investing BDC will present to the Board of 
the Investing BDC, on a quarterly basis, a record of all investments 
made by the other Investing BDC during the preceding quarter that fell 
within the Investing BDC's then-current Objectives and Strategies that 
were not made available to the Investing BDC, and an explanation of why 
the investment opportunities were not offered to the Investing BDC. All 
information presented to the Investing BDC Board under this condition 
will be kept for the life of the Investing BDC and at least two years 
thereafter, and will be subject to examination by the Commission and 
its staff.
    5. Except for Follow-On Investments made in accordance with 
condition 8, an Investing BDC will not invest in reliance on the Order 
in any issuer in which the other Investing BDC or any affiliated person 
of the other Investing BDC is an existing investor.
    6. An Investing BDC will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of 
securities to be purchased, settlement date, and registration rights 
will be the same for the Investing BDC as for the other Investing BDC. 
The grant to one Investing BDC, but not to the other, of the right to 
nominate a director for election to a portfolio company's board of 
directors, the right to have an observer on the board of directors or 
similar rights to participate in the governance or management of the 
portfolio company will not be interpreted so as to violate this 
condition 6, if conditions 2(c)(iii)(A), (B) and (C) are met.
    7. a. If an Investing BDC elects to sell, exchange or otherwise 
dispose of an interest in a security that was acquired in a Co-
Investment Transaction:
    (i) The Adviser(s) to the Investing BDC will notify the other 
Investing BDC of the proposed disposition at the earliest practical 
time; and
    (ii) The Adviser(s) to the Investing BDC will formulate a 
recommendation as to participation by the Investing BDC in the 
disposition.
    b. Each Investing BDC will have the right to participate in such 
disposition on a proportionate basis, at the same price and on the same 
terms and conditions as those applicable to the other Investing BDC.
    c. An Investing BDC may participate in such disposition without 
obtaining prior approval of a Required Majority of the Investing BDC 
if: (i) the proposed participation of each Investing BDC in such 
disposition is proportionate to its outstanding investments in the 
issuer immediately preceding the disposition; (ii) the Investing BDC 
Board has approved as being in the best interests of the Investing BDC 
the ability to participate in such dispositions on a pro rata basis (as 
described in greater detail in the application); and (iii) the 
Investing BDC Board is provided on a quarterly basis with a list of all 
dispositions made in accordance with this condition. In all other 
cases, (i) the Adviser(s) to an Investing BDC will provide the 
Advisers' written recommendation as to the Investing BDC's 
participation in such disposition to the Eligible Directors of the 
Investing BDC and (ii) the Investing BDC will participate in such 
disposition solely to the extent that a Required Majority of the 
Investing BDC determines that it is in the Investing BDC's best 
interests.
    d. Each Investing BDC will bear its own expenses in connection with 
any such disposition.
    8. a. If an Investing BDC desires to make a Follow-On Investment in 
a portfolio company whose securities were acquired in a Co-Investment 
Transaction:
    (i) The Adviser(s) to the Investing BDC will notify the other 
Investing BDC of the proposed Follow-On Investment at the earliest 
practical time; and
    (ii) The Adviser(s) to the Investing BDC will formulate a 
recommendation as to participation by the Investing BDC in the Follow-
On Investment.
    b. An Investing BDC may participate in such Follow-On Investment 
without obtaining prior approval of a Required Majority of the 
Investing BDC if: (i) the proposed participation of each Investing BDC 
in such Follow-On Investment is proportionate to its outstanding 
investments in the issuer immediately preceding the Follow-On 
Investment; (ii) the Investing BDC Board has approved as being in the 
best interests of the Investing BDC the ability to participate in such 
Follow-On Investment on a pro rata basis (as described in greater 
detail in the application); and (iii) the Investing BDC Board is 
provided on a quarterly basis with a list of all Follow-On Investments 
made in accordance with this condition. In all other cases, (i) the 
Adviser(s) to an Investing BDC will provide the Advisers' written 
recommendation as to the Investing BDC's participation in such Follow-
On Investment to the Eligible Directors of the Investing BDC and (ii) 
the Investing BDC will participate in such Follow-On Investment solely 
to the extent that a Required Majority of the Investing BDC determines 
that it is in the Investing BDC's best interests.
    c. If, with respect to any Follow-On Investment: (i) the amount of 
the Follow-On Investment is not based on the Investing BDCs' 
outstanding investments in the issuer immediately preceding the Follow-
On Investment; and (ii) the aggregate amount recommended by the 
Adviser(s) to an Investing BDC to be invested by the Investing BDCs in 
the same Follow-On Investment exceeds the amount of the opportunity; 
then the amount invested by each such party will be allocated between 
them pro rata based on the ratio of each Investing BDC's Available 
Capital for investment in the asset class being allocated to the 
aggregated Available Capital for investment for the asset class being 
allocated of both Investing BDCs, up to the amount proposed to be 
invested by each.
    d. The acquisition of Follow-On Investments as permitted by this 
condition will be considered a Co-Investment Transaction for all 
purposes and subject to the other conditions set forth in the 
application.
    9. The Eligible Directors of each Investing BDC will be provided 
quarterly for review all information concerning Potential Co-Investment 
Transactions and Co-Investment Transactions, including investments made 
by the other Investing BDC that the Investing BDC considered but 
declined to participate in, so that the Eligible Directors may 
determine whether all investments made during the preceding quarter, 
including those investments that the Investing BDC considered but 
declined to participate in, comply with the conditions of the Order. In 
addition, the Eligible Directors of each Investing BDC will consider at 
least annually the continued appropriateness for the Investing BDC of 
participating in new and existing Co-Investment Transactions. All 
information presented to the Investing BDC Board under this condition 
will be kept for the life of the Investing BDC and at least two years 
thereafter, and will be subject to examination by the Commission and 
its staff.
    10. Each Investing BDC will maintain the records required by 
section 57(f)(3) of the Act as if each of the investments permitted 
under these conditions were approved by the Required Majority of the 
Investing BDC under section 57(f).
    11. No Independent Director of an Investing BDC will also be a 
director, general partner, managing member or principal, or otherwise 
an ``affiliated person'' (as defined in the Act), of the other 
Investing BDC.

[[Page 16071]]

    12. The expenses, if any, associated with acquiring, holding or 
disposing of any securities acquired in a Co-Investment Transaction 
(including, without limitation, the expenses of the distribution of any 
such securities registered for sale under the 1933 Act) will, to the 
extent not payable by the Advisers under an Investing BDC's investment 
advisory agreements, be shared by the Investing BDCs with respect to a 
Co-Investment Transaction, in proportion to the relative amounts of the 
securities to be acquired or disposed of, as the case may be.
    13. Any transaction fee (including break-up or commitment fees but 
excluding broker's fees contemplated by section 57(k) of the Act) 
received in connection with a Co-Investment Transaction will be 
distributed to the Investing BDCs on a pro rata basis based on the 
amount they invested or committed, as the case may be, in such Co-
Investment Transaction. If any transaction fee is to be held by an 
Adviser pending consummation of the transaction, the fee will be 
deposited into an account maintained by the Adviser at a bank or banks 
having the qualifications prescribed in section 26(a)(1) of the Act, 
and the account will earn a competitive rate of interest that will also 
be divided pro rata between the Investing BDCs based on the amount they 
invest in the Co-Investment Transaction. No Investing BDC or any 
affiliated person of the Investing BDC will receive additional 
compensation or remuneration of any kind as a result of or in 
connection with a Co-Investment Transaction (other than (a) in the case 
of the Investing BDCs, the pro rata transaction fees described above 
and fees or other compensation described in condition 2(c)(iii)(C) and 
(b) in the case of the Advisers, investment advisory fees paid in 
accordance with the Investing BDC's investment advisory agreements).
    14. The Advisers will each maintain written policies and procedures 
reasonably designed to ensure compliance with the foregoing conditions. 
These policies and procedures will require, among other things, that 
HMS Adviser will be notified of all Potential Co-Investment 
Transactions that fall within the Company's then-current Objectives and 
Strategies and will be given sufficient information to make its 
independent determination and recommendations under conditions 1, 2(a), 
7 and 8.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06306 Filed 3-21-14; 8:45 am]
BILLING CODE 8011-01-P


