
[Federal Register Volume 79, Number 100 (Friday, May 23, 2014)]
[Notices]
[Pages 29821-29826]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11965]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31050; 812-14239]


Capitala Finance Corp., et al.; Notice of Application

May 19, 2014.
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), 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.

-----------------------------------------------------------------------

    Applicants: Capitala Finance Corp. (the ``Company''), CapitalSouth 
Partners Fund II Limited Partnership (``Fund II SBIC''), CapitalSouth 
Partners F-II, LLC (``Fund II SBIC General Partner''), CapitalSouth 
Partners SBIC Fund III,

[[Page 29822]]

L.P. (``Fund III SBIC''), CapitalSouth Partners SBIC F-III, LLC, 
(``Fund III SBIC General Partner''), CapitalSouth Partners Florida 
Sidecar Fund I, L.P., (``Florida Sidecar''), CSP-Florida Mezzanine Fund 
I, LLC, (``CSP-Florida'' together with Fund II SBIC General Partner and 
Fund III SBIC General Partner, the ``General Partners'') and Capitala 
Investment Advisors, LLC, (``Capitala Investment Advisors'').
SUMMARY:  Summary of Application: Applicants request an order 
permitting the Company, a business development company (``BDC'') and 
its Subsidiaries (defined below) to operate effectively as one company, 
specifically allowing them to: (1) Engage in certain transactions with 
each other; (2) invest in securities in which the other is or proposes 
to be an investor that would otherwise be permitted if the Company and 
the Subsidiaries were one company; (3) be subject to modified 
consolidated asset coverage requirements for senior securities issued 
by a BDC and its small business investment company (``SBIC'') 
subsidiaries; and (4) file consolidated reports with the Commission.

DATES:  Filing Dates: The application was filed on November 19, 2013, 
and amended on March 31, 2014, and April 17, 2014. Applicants have 
agreed to file an amendment during the notice period, the substance of 
which is reflected 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 June 9, 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 
Street NE., Washington, DC 20549-1090. Applicants, c/o Joseph B. Alala, 
III, Chief Executive Officer and President, Capitala Finance Corp., 
4201 Congress Street, Suite 360, Charlotte, NC 28209.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or James M. Curtis, Branch Chief, at (202) 551-6712 
(Division of Investment Management, Chief Counsel's Office).

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, a Maryland corporation, is an externally-managed, 
non-diversified, closed-end management investment company that has 
elected to be regulated as a BDC under the Act.\1\ On September 24, 
2013, the Company filed a registration statement on Form 8-A to 
register its common stock under section 12 of the Exchange Act and a 
notice of its election to be regulated as a BDC within the meaning of 
section 2(a)(48) of the 1940 Act on Form N-54A.\2\ The Company intends 
to elect to be treated as a regulated investment company (``RIC'') as 
defined under Subchapter M of the Internal Revenue Code of 1986, as 
amended, and intends to continue to make such election in the future. 
The Company states that it expects to invest primarily in traditional 
mezzanine and senior subordinated debt, as well as senior and second-
lien loans, and to a lesser extent, equity securities issued by smaller 
and lower middle-market companies. The Company's board of directors 
(``Board''), consists of five members, three of whom are not 
``interested persons'' of the Company within the meaning of section 
2(a)(19) of the Act (``Independent Directors''). The Company's 
investment objective is to generate both current income and capital 
appreciation through debt and equity investments.
---------------------------------------------------------------------------

    \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.
    \2\ The Company completed the initial public offering of its 
shares of common stock on September 30, 2013. The Company's common 
stock is traded on the NASDAQ Global Market under the symbol 
``CPTA.''
---------------------------------------------------------------------------

    2. On September 24, 2013, through a series of transactions, the 
Company acquired all of the interests in Fund II SBIC, Fund III SBIC 
and Florida Sidecar, as well as the General Partners (the 
``Subsidiaries'').\3\ After giving effect to these transactions, (a) 
the Company owns 100% of the membership interests in Fund II SBIC 
General Partner, Fund III SBIC General Partner and CSP-Florida, which 
are the sole general partners of Fund II SBIC, Fund III SBIC, and 
Florida Sidecar, respectively, and (b) the Company directly or 
indirectly owns 100% of the limited partnership interests in Fund II 
SBIC, Fund III SBIC and Florida Sidecar.
---------------------------------------------------------------------------

    \3\ Subsidiary means Fund II SBIC, Fund III SBIC, Florida 
Sidecar and any direct or indirect wholly-owned subsidiary of the 
Company. References to ``Subsidiary'' include Subsidiaries currently 
in existence, as well as any future Subsidiaries. No Subsidiary 
other than Fund II SBIC and Fund III SBIC will be a BDC, and no 
Subsidiary will be a registered investment company.
---------------------------------------------------------------------------

    3. Fund II SBIC, a North Carolina limited partnership, and Fund III 
SBIC, a Delaware limited partnership, are SBICs licensed by the Small 
Business Administration (``SBA'') to operate under the Small Business 
Investment Act of 1958 (``SBA Act''). On September 24, 2013, Fund II 
SBIC and Fund III SBIC each filed an election to be regulated as a BDC 
within the meaning of section 2(a)(48) on Form N-54A under the Act, and 
each also filed a registration statement on Form 8-A to register its 
common stock under section 12 of the Exchange Act.
    4. Fund II SBIC and Fund III SBIC are consolidated with the Company 
for financial reporting purposes.\4\ Fund II SBIC and Fund III SBIC 
each have a board of directors (``Fund II SBIC Board'' and ``Fund III 
SBIC Board,'' respectively) consisting of three persons who are 
Independent Directors of Fund II SBIC and Fund III SBIC, respectively, 
and two persons who are ``interested persons'' of each of Fund II SBIC 
and Fund III SBIC. The members of Fund II SBIC Board and the Fund III 
SBIC Board are appointed each year by the equity owners of Fund II SBIC 
and Fund III SBIC, respectively. Fund II SBIC General Partner and Fund 
III SBIC General Partner, have irrevocably delegated the authority to 
manage the business affairs of Fund II SBIC and Fund III SBIC to the 
Fund II SBIC Board and Fund III SBIC Board. The SBA has approved the 
members of the Fund II SBIC Board and Fund III SBIC Board pursuant to 
SBA regulations.
---------------------------------------------------------------------------

    \4\ The Company may, in the future, create additional wholly-
owned subsidiaries that may also be licensed by the SBA to operate 
under the SBA Act as SBICs (collectively, with Fund II SBIC and Fund 
III SBIC, the ``SBIC Subsidiaries''). Any existing entities that 
currently intend to rely on the order have been named as applicants, 
and any other existing or future entities that may rely on the order 
in the future will comply with its terms and conditions.
---------------------------------------------------------------------------

    5. Florida Sidecar, a Delaware limited partnership, is not 
registered under the Act under the exclusion from the definition of 
investment company contained in section 3(c)(7) of the Act,

[[Page 29823]]

and its financial statements are consolidated with the Company's 
financial statements. Florida Sidecar's sole business purpose is to 
hold one or more investments on behalf of the Company. CSP-Florida is a 
limited liability company organized under the laws of the state of 
North Carolina. CSP-Florida serves as general partner to Florida 
Sidecar and its only role is to perform ministerial functions that 
result from decisions made by Capitala Investment Advisors; CSP-Florida 
is not able to prevent Capitala Investment Advisors from acting 
independently.\5\
---------------------------------------------------------------------------

    \5\ The Company may in the future form one or more direct or 
indirect wholly-owned non-SBIC Subsidiaries each of whose sole 
business purpose is to hold one or more investments on behalf of the 
Company. Any such non-SBIC Subsidiary would be an investment company 
but for an exclusion in section 3(c) or in reliance on rule 3a-7 and 
its financial statements would be consolidated with the Company's 
financial statements.
---------------------------------------------------------------------------

    6. Capitala Investment Advisors is a Delaware limited liability 
company and serves as the investment adviser to the Company, the SBIC 
Subsidiaries and Florida Sidecar. Capitala Investment Advisors is 
registered as an investment adviser under the Investment Advisers Act 
of 1940. Pursuant to an investment management agreement with the 
Company that satisfies the requirements under sections 15(a) and (c) of 
the Act, Capitala Investment Advisors manages the consolidated assets 
of the Company, including Fund II SBIC, Fund III SBIC and Florida 
Sidecar. The investment professionals of Capitala Investment Advisors 
are responsible for sourcing potential investments, conducting research 
and diligence on potential investments and equity sponsors, analyzing 
investment opportunities, structuring investments and monitoring the 
investments and portfolio companies of the Company and its wholly-owned 
subsidiaries, including Fund II SBIC, Fund III SBIC and Florida 
Sidecar. Applicants anticipate that Capitala Investment Advisors will 
also provide management and advisory services to all Subsidiaries.

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)(A), 18(a), 21(b), 57(a)(1), 57(a)(2), 
57(a)(3), and 61(a) of the Act and permitting certain joint 
transactions otherwise prohibited by section 57(a)(4) of the Act to 
permit the Company and its Subsidiaries to operate effectively as one 
company, specifically to: (a) Engage in certain transactions with each 
other; (b) invest in securities in which the other is or proposes to be 
an investor that would otherwise be permitted if the Company and the 
Subsidiaries were one company; and (c) be subject to modified 
consolidated asset coverage requirements for senior securities issued 
by a BDC and its SBIC Subsidiaries. Applicants also request an order 
under section 12(h) of the Exchange Act for an exemption for Fund II 
SBIC and Fund III SBIC from section 13(a) of the Exchange Act, so as to 
allow filing of consolidated reports with the Commission.
    2. Section 12 of the Act is made applicable to BDCs by section 60 
of the Act. Section 12(d)(1)(A) makes it unlawful for any registered 
investment company to purchase or otherwise acquire the securities of 
another investment company, except to the extent permitted by sections 
12(d)(1)(A)(i), (ii) and (iii). Rule 60a-1 exempts the acquisition by a 
BDC of the securities of an SBIC that is operated as a wholly-owned 
subsidiary of the BDC from section 12(d)(1)(A) of the Act. Accordingly, 
since the Company has elected BDC status, and since Fund II SBIC and 
Fund III SBIC are operated as wholly-owned subsidiaries of the Company, 
the transfer of assets from the Company to Fund II SBIC or Fund III 
SBIC should be exempt from the provisions of section 12(d)(1)(A) by 
virtue of rule 60a-1. However, the provisions of section 12(d)(1) also 
apply to the activities of Fund II SBIC and Fund III SBIC since each 
has elected BDC status under the Act. Any loans or advances by Fund II 
SBIC or Fund III SBIC to the Company might be deemed to violate section 
12(d)(1)(A)(ii) or (iii) if the loans or advances are construed as 
purchases of the securities of the Company by Fund II SBIC or Fund III 
SBIC.
    3. Applicants request an exemption under section 12(d)(1)(J) from 
section 12(d)(1)(ii) and (iii) of the Act to permit the acquisition by 
either of Fund II SBIC or Fund III SBIC of any securities of the 
Company 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 
Fund II SBIC's or Fund III SBIC's wholly owned subsidiary status and 
consolidated financial reporting with the Company will both eliminate 
the possibility of overreaching and prevent confusion as to the 
financial status of the Company to the Company's stockholders, who are 
the investors that the Act is intended to protect.
    4. 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) 
applies section 18, with certain modifications, to a BDC. Section 
18(k), however, provides an exemption from sections 18(a)(1)(A) and (B) 
(relating to senior securities representing indebtedness) for SBICs.
    5. Applicants state that a question exists as to whether the 
Company must comply with the asset coverage requirements of section 
18(a) on a consolidated basis because the Company may be an indirect 
issuer of senior securities issued by either of the SBIC Subsidiaries. 
To do so would mean that the Company would treat as its own all assets 
held directly by the Company and the SBIC Subsidiaries and would also 
treat as its own any liabilities of the SBIC Subsidiaries, including 
senior securities as to which the SBIC Subsidiaries are exempt from the 
provisions of sections 18(a)(1)(A) and (B) by virtue of 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 the Company to 
exclude from its consolidated asset coverage ratio any senior security 
representing indebtedness that is issued by either of the SBIC 
Subsidiaries.
    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 the SBIC 
Subsidiaries to obtain the kind of financing that would be available to 
the Company if it were to conduct the SBIC operations itself would be 
restricted. Applicants state that applying section 18(k) to the Company 
with respect to any senior security representing indebtedness that is 
issued by the SBIC Subsidiaries would not harm the public interest by 
exposing investors to risks of unconstrained leverage, because the SBA 
regulates the capital structure of the SBIC Subsidiaries. Companies 
operating under the SBA Act, such as the SBIC Subsidiaries, are subject 
to the SBA's substantial regulation of permissible

[[Page 29824]]

leverage in their capital structure. An SBIC with outstanding SBA 
financial assistance may not incur any secured third-party debt or 
refinance any debt with secured third-party debt without prior written 
approval of the SBA.
    7. Sections 57(a)(1) and (2) of the Act make it unlawful, with 
certain exceptions, for any person related to a BDC in the manner 
described in section 57(b), or any affiliated person of that person (a) 
to sell any security or other property to the BDC or to any company 
controlled by the BDC, or (b) to purchase from any BDC or from any 
company controlled by such BDC any security or other property. Section 
57(b) includes any person who, directly or indirectly, controls, is 
controlled by, or is under common control with the BDC or any person 
who controls, is controlled by, or is under common control with that 
person. Applicants state that the Company is an affiliated person of 
Fund II SBIC, Fund III SBIC and Florida Sidecar by reason of its direct 
or indirect ownership of all of the limited partnership interests in 
each of Fund II SBIC, Fund III SBIC and Florida Sidecar and its 
indirect ownership of 100% of the general partnership interests in Fund 
II SBIC, Fund III SBIC and Florida Sidecar through its 100% ownership 
of the General Partners. Fund II SBIC, Fund III SBIC and Florida 
Sidecar each is a person related to each other in a manner described in 
section 57(b) because each is deemed to be under the control of the 
Company and thus under common control. Any Subsidiary would also each 
be a person related to Fund II SBIC and Fund III SBIC in a manner 
described in section 57(b) as long as it is under the common control of 
the Company.
    8. Applicants state that there may be circumstances when one or 
more of the Company and a 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 
it is in the interest of the Company and/or its Subsidiaries for any 
non-BDC Subsidiary to invest in securities of an issuer that may be 
deemed to be a person related to either the Company or Fund II SBIC or 
Fund III SBIC in a manner described in section 57(b), or for the 
Company 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).
    9. Accordingly, applicants request relief under sections 57(a)(1) 
and (2) to permit any transaction in which one or more of the Company, 
Fund II SBIC, Fund III SBIC or any other Subsidiary would purchase all 
or a portion of the portfolio investments or other property held by one 
of the others. Applicants also request relief under sections 57(a)(1) 
and (2) to permit any transaction in which any non-BDC Subsidiary 
invests in securities of an issuer that may be deemed to be a person 
related to either the Company or Fund II SBIC or Fund III SBIC in a 
manner described in section 57(b), but only to the extent that any such 
transaction would not be prohibited if such Subsidiary were deemed to 
be part of the Company and not a separate company. Additionally, 
applicants request relief to permit the Company 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) and permitting Fund II SBIC or 
Fund III SBIC to invest in securities of an issuer that may be deemed 
to be a person related to the Company or the Subsidiaries in a manner 
described in section 57(b). It is the intent of this request only to 
permit the Company and the Subsidiaries to do that which they otherwise 
would be permitted to do within the provisions of the Act if they were 
one company.
    10. Section 57(c) directs the Commission to exempt a transaction 
from one or more provisions of sections 57(a)(1), (2) and (3) 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 the BDC or its stockholders or partners on the part of 
any person concerned, the proposed transaction is consistent with the 
policy of the BDC concerned and the proposed transaction is consistent 
with the general purposes of the Act.
    11. Applicants submit that the requested relief from sections 
57(a)(1) and (2) meets this standard. Applicants represent that the 
proposed operations as one company will enhance the efficient 
operations of the Company and its wholly-owned Subsidiaries, and allow 
them to deal with portfolio companies as if the Company and its 
Subsidiaries were one company. Applicants contend that the terms of the 
proposed transactions are reasonable and fair and do not involve 
overreaching of the Company, its stockholders, or the Subsidiaries that 
are BDCs by any person, and that the requested order would permit the 
Company and the Subsidiaries to carry out more effectively their 
purposes and objectives of investing primarily in small business 
concerns. Applicants also state that since Fund II SBIC and Fund III 
SBIC and any Subsidiary are wholly-owned subsidiaries of the Company 
and since no officers or directors of Fund II SBIC and Fund III SBIC, 
any Subsidiary or of the Company, or any controlling persons or other 
``upstream affiliates'' of the Company will have any prohibited 
financial interest in the transactions described, there can be no 
overreaching on the part of any persons and no harm to the public 
interest in transactions solely between the Company and Fund II SBIC 
and Fund III SBIC. Finally, applicants note that the proposed 
transactions are consistent with the policy of the Company and Fund II 
SBIC and Fund III SBIC as specified in filings with the Commission and 
reports to stockholders, as well as consistent with the policies and 
provisions of the Act.
    12. Section 57(a)(3) of the Act makes it unlawful for certain 
affiliated persons of a BDC, and certain affiliated persons of those 
persons, set out in section 57(b) 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 to any company that owns all of the outstanding 
securities of the BDC other than directors' qualifying shares.
    13. The Company is an affiliated person of Fund II SBIC and Fund 
III SBIC by reason of its direct or indirect ownership of all of the 
limited partnership interests in Fund II SBIC and Fund III SBIC and its 
indirect ownership of all of the general partnership interests in Fund 
II SBIC and Fund III SBIC through its 100% ownership of the Fund II 
SBIC General Partner and Fund III SBIC General Partner. The Company 
does not directly own all of the outstanding securities of Fund II SBIC 
or Fund III SBIC because Fund II SBIC General Partner holds a 1.03% 
general partnership interest in Fund II SBIC and Fund III SBIC General 
Partner holds a 0.95% general partnership interest in Fund III SBIC and 
both SBIC Subsidiaries have issued SBA guaranteed debentures and, in 
the future, may have other outstanding securities in the form of 
indebtedness. Fund II SBIC and Fund III SBIC are affiliated persons of 
the Company because they are deemed to be under the control of the 
Company. Accordingly, the Company is related to Fund II SBIC and Fund 
III SBIC in the manner set

[[Page 29825]]

forth in section 57(b) and Fund II SBIC and Fund III SBIC are related 
to the Company in the manner set forth in section 57(b).
    14. Applicants state that there may be instances when it would be 
in the best interests of the Company and its stockholders for the 
Company to make loans to its Subsidiaries that are BDCs. There may also 
be instances when it would be in the best interests of the Company and 
its stockholders for its Subsidiaries that are BDCs to make loans to 
the Company. Applicants note that, in the case of loans from Fund II 
SBIC or Fund III SBIC to the Company, 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) 
exempting from the provisions of section 21(b) the lending of money or 
other property by Fund II SBIC or Fund III SBIC to the Company and by 
the Company to Fund II SBIC or Fund III SBIC. Applicants argue that 
because these transactions are solely between the Company and Fund II 
SBIC, Fund III SBIC, or its wholly-owned subsidiaries, they will have 
no substantive economic effect and there is be no basis for 
overreaching or harm to the public interest. Applicants also request an 
order under section 57(c) exempting from the provisions of section 
57(a)(3) the borrowing of money or property by the Company from Fund II 
SBIC or Fund III SBIC. Applicants submit that the requested relief 
meets the standards of section 57(c).
    15. Section 57(a)(4) of the Act makes it unlawful for certain 
persons related to a BDC in the manner set forth in section 57(b), 
acting as principal, to knowingly effect any transaction in which the 
BDC or a company controlled by the BDC is a joint or joint and several 
participant with that person in contravention of such rules and 
regulations as the Commission may prescribe for the purpose of limiting 
or preventing participation by the BDC or controlled company on a basis 
less advantageous than that of the other participant. Section 57(i) of 
the Act provides that rules and regulations under section 17(d) of the 
Act, e.g., rule 17d-1, will apply to transactions subject to section 
57(a) 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. Rule 17d-1(a) prohibits an 
affiliate or, when applying rule 17d-1 to implement section 57(a)(4), a 
person related to a BDC in a manner described in section 57(b) acting 
as principal, from participating in, or effecting any transaction in 
connection with any joint enterprise or joint arrangement or profit-
sharing plan in which any such BDC, or a company controlled by such 
BDC, is a participant.
    16. 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) between the Company and either or both of Fund II SBIC 
or Fund III SBIC with respect to any transaction involving investments 
by the Company or Fund II SBIC or Fund III SBIC in portfolio companies 
in which any is or is proposed to become an investor, but only to the 
extent that the transaction would not be prohibited if Fund II SBIC and 
Fund III SBIC (and all of their respective assets and liabilities) were 
deemed to be part of the Company, and not separate companies.
    17. 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 state that the proposed 
transactions are consistent with the policy and provisions of the Act 
and will enhance the interests of the Company and the Subsidiaries 
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 submit that the standard for relief under 
section 57(i) and rule 17d-1 is satisfied.
    18. 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, the Company has registered its common stock under section 12(b) of 
the Exchange Act. In order to elect BDC treatment under the Act, Fund 
II SBIC and Fund III SBIC voluntarily registered their securities under 
the Exchange Act.
    19. By filing a registration statement under section 12 of the 
Exchange Act, absent an exemption, Fund II SBIC and Fund III SBIC would 
be required to make periodic filings with the Commission, even though 
Fund II SBIC and Fund III SBIC have only one equity holder. Section 13 
of the Exchange Act is the primary section requiring such filings. 
Accordingly, applicants request an order under section 12(h) of the 
Exchange Act exempting Fund II SBIC and Fund III SBIC from the 
reporting requirements of section 13(a) of the Exchange Act.
    20. 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. Fund II SBIC and Fund III SBIC 
each have only one investor, which is itself a reporting company, and 
no public investors. There will be no trading in Fund II SBIC or Fund 
III SBIC securities, so no public interest or investor protective 
purpose will be served by separate Fund II SBIC and Fund III SBIC 
reporting. Further, applicants state that the nature and extent of each 
of Fund II SBIC's and Fund III 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:
    1. The Company will at all times own and hold, beneficially and of 
record, all of the outstanding limited partnership interests in any 
Subsidiary and all of the outstanding membership interests in the 
General Partners, or otherwise own and hold beneficially all of the 
outstanding voting securities and equity interests of such Subsidiary.
    2. The Subsidiaries will have investment policies not inconsistent 
with those of the Company, as set forth in the Company's registration 
statement.
    3. No person shall serve as a member of any of the Subsidiaries' 
board of directors, including as a manager under a different form of 
legal organization that might perform the function of a director, 
unless such person shall also

[[Page 29826]]

be a member of the Company's Board. The board of directors or the 
managers, as applicable, of any Subsidiary will be appointed by the 
equity owners of that Subsidiary.
    4. The Company shall not issue or sell any senior security and the 
Company shall not cause or permit any SBIC Subsidiaries to issue or 
sell any senior security of which the Company 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 by either of the Company or any SBIC Subsidiary of 
any such senior security, the Company, individually and on a 
consolidated basis, shall have the asset coverage required by section 
18(a) of the Act (as modified by section 61(a)). In determining whether 
the Company has the asset coverage on a consolidated basis required by 
section 18(a) of the Act, (as modified by section 61(a)), any senior 
securities representing indebtedness of an SBIC Subsidiary if that SBIC 
Subsidiary has issued indebtedness that is held or guaranteed by the 
SBA 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. The Company 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, the Company and the SBIC 
Subsidiaries 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 the 
Subsidiaries unless the Board and the stockholders of the Company shall 
have taken such action with respect thereto that is required to be 
taken pursuant to the Act by the functional equivalent of the 
Subsidiary's Board and the equity holders of the Subsidiary, including 
as if such Subsidiary were a BDC.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11965 Filed 5-22-14; 8:45 am]
BILLING CODE 8011-01-P


