HMS Income Fund, Inc., et al.; Notice of Application, 16066-16071 [2014-06306]
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Federal Register / Vol. 79, No. 56 / Monday, March 24, 2014 / Notices
access to such materials, appears at 39
CFR part 3007. The Commission
appoints Pamela A. Thompson to serve
as Public Representative in this docket.
IV. Ordering Paragraphs
It is ordered:
1. The Commission establishes Docket
No. R2014–7 to consider matters raised
by the Notice of United States Postal
Service of Type 2 Rate Adjustment, and
Notice of Filing Functionally Equivalent
Agreement, filed March 14, 2014.
2. Pursuant to 39 U.S.C. 505, Pamela
A. Thompson is appointed to serve as
an officer of the Commission (Public
Representative) to represent the
interests of the general public in this
proceeding.
3. Comments by interested persons in
this proceeding are due no later than
March 24, 2014.
4. The Secretary shall arrange for
publication of this Order in the Federal
Register.
By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2014–06235 Filed 3–21–14; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
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Submission for OMB Review;
Comment Request
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of Investor
Education and Advocacy,
Washington, DC 20549–0213.
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Extension:
Form 6–K; OMB Control No. 3235–0116,
SEC File No. 270–107.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) the request for extension of the
previously approved collection of
information discussed below.
Form 6–K (17 CFR 249.306) is a
disclosure document under the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.) that must be filed by
a foreign private issuer to report
material information promptly after the
occurrence of specified or other
important corporate events that are
disclosed in the foreign private issuer’s
home country. The purpose of Form 6–
K is to ensure that U.S. investors have
access to the same information that
foreign investors do when making
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investment decisions. Form 6–K is a
public document and all information
provided is mandatory. Form 6–K takes
approximately 8.7 hours per response
and is filed by approximately 20,812
issuers annually. We estimate 75% of
the 8.7 hours per response (6.525 hours)
is prepared by the issuer for a total
annual reporting burden of 135,798
hours (6.525 hours per response ×
20,812 responses). The remaining
burden hours are reflected as a cost to
the foreign private issuers.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number.
The public may view the background
documentation for this information
collection at the following Web site,
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to: Shagufta_
Ahmed@omb.eop.gov; and (ii) Thomas
Bayer, Chief Information Officer,
Securities and Exchange Commission, c/
o Remi Pavlik-Simon, 100 F Street NE.,
Washington, DC 20549 or send an email
to: PRA_Mailbox@sec.gov. Comments
must be submitted to OMB within 30
days of this notice.
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.
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 SubAdviser’’).
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
Summary of Application: Applicants
request an order to permit business
development companies (‘‘BDCs’’) to coinvest with one another in portfolio
companies.
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.
Dated: March 18, 2014.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–06305 Filed 3–21–14; 8:45 am]
BILLING CODE 8011–01–P
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:
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Federal Register / Vol. 79, No. 56 / Monday, March 24, 2014 / Notices
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Company name box, at https://
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 fivemember 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’’).
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 sixmember 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 whollyowned subsidiary of MSCC.
4. Applicants represent that the SBIC
Funds were organized as limited
partnerships under the laws of the state
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.
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 SubAdviser, 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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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.
5. HMS Sub-Adviser is a whollyowned subsidiary of MSCC. HMS SubAdviser 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.
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
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.
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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opportunities through a proposed coinvestment program where such
participation would otherwise be
prohibited under section 57 of the Act
and the rules under the Act (the ‘‘CoInvestment Program’’). For purposes of
the application, a ‘‘Co-Investment
Transaction’’ means any transaction in
which the Company (or a WhollyOwned Investment Subsidiary)
participated together with MSCC (or a
Wholly-Owned Investment Subsidiary)
in reliance on the Order. ‘‘Potential CoInvestment 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
7. Each Investing BDC may, from time
to time, form one or more WhollyOwned Investment Subsidiaries. A
Wholly-Owned Investment Subsidiary
of an Investing BDC would be
prohibited from investing in a CoInvestment 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 WhollyOwned 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
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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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 SubAdviser. 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.
9. In selecting investments for the
Investing BDCs, the Advisers will
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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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 CoInvestment 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 CoInvestment 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.
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
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.
12 With respect to any security obtained in a CoInvestment 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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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.
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-a-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
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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 CoInvestment Program with the
Company.13
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 CoInvestment 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 CoInvestment Transaction for an Investing
BDC that falls within the other Investing
BDC’s then-current Objectives and
Strategies,14 the Adviser(s) to an
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.
14 ‘‘Objectives and Strategies’’ means an Investing
BDC’s investment objectives and strategies, as
described in the Investing BDC’s registration
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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.
2. a. If the Adviser(s) to an Investing
BDC deems the Investing BDC’s
participation in any Potential CoInvestment 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 CoInvestment Transaction, a Required
Majority of each Investing BDC
concludes that:
(i) the terms of the Potential CoInvestment Transaction, including the
consideration to be paid, are reasonable
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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16069
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).
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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 CoInvestment 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
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14:29 Mar 21, 2014
Jkt 232001
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
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Fmt 4703
Sfmt 4703
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 CoInvestment 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 CoInvestment 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.
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12. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment 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.
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14:29 Mar 21, 2014
Jkt 232001
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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 33–9562; 34–71742; IA–3799;
File No. 4–673]
Cybersecurity Roundtable
Securities and Exchange
Commission.
ACTION: Notice of roundtable discussion;
request for comment.
AGENCY:
The Securities and Exchange
Commission will host a cybersecurity
roundtable. Roundtable panelists will
discuss the cybersecurity landscape and
cybersecurity issues faced by exchanges
and other key market systems, brokerdealers, investment advisers, transfer
agents, and public companies. Panelists
also will be invited to discuss industry
and public-private sector coordination
efforts relating to assessing and
responding to cybersecurity issues.
The roundtable discussion will be
held in the auditorium of the Securities
and Exchange Commission headquarters
at 100 F Street NE., Washington, DC on
March 26, 2014 from 9:30 a.m. to
approximately 3:00 p.m. The public is
invited to observe the roundtable
discussion. Seating will be available on
a first-come, first-serve basis. The
roundtable discussion will also be
available via webcast on the
Commission’s Web site at www.sec.gov.
DATES: The roundtable discussion will
take place on March 26, 2014. The
Commission will accept comments
regarding issues addressed at the
roundtable until May 2, 2014.
ADDRESSES: Comments may be
submitted by any of the following
methods:
SUMMARY:
Electronic Comments
• Use the Commission’s Internet
comment form (https://sec.gov/rules/
other.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number 4–
673 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number 4–673. This file number should
PO 00000
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16071
be included on the subject line if email
is used. To help us process and review
your comments more efficiently, please
only use one method. The Commission
will post all comments on the
Commission’s Internet Web site (https://
www.sec.gov/rules/other.shtml).
Comments are also available for Web
site viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE., Washington, DC
20549, on official business days
between the hours of 10:00 a.m. and
3:00 p.m. All comments received will be
posted without change; we do not edit
personal identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
FOR FURTHER INFORMATION CONTACT:
Cristie March, Senior Special Counsel,
Division of Trading and Markets, at
202–551–5574, David Joire, Senior
Counsel, Division of Investment
Management, at 202–551–6866, or
Jennifer Riegel, Senior Special Counsel,
Division of Corporation Finance, at 202–
551–3575, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
By the Commission.
Dated: March 19, 2014.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–06336 Filed 3–21–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, March 27, 2014 at 10:30
a.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matter at the Closed Meeting.
Commissioner Piwowar, as duty
officer, voted to consider the items
listed for the Closed Meeting in closed
session.
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]]>Agencies
[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 https://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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
