Capitala Finance Corp., et al.;, 29821-29826 [2014-11965]
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29821
Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Notices
III. Ordering Paragraphs
It is ordered:
1. The Commission establishes Docket
No. CP2014–49 for consideration of the
matters raised by the Postal Service’s
Notice.
2. Pursuant to 39 U.S.C. 505, James F.
Callow is appointed to serve as an
officer of the Commission to represent
the interests of the general public in this
proceeding (Public Representative).
3. Comments are due no later than
May 27, 2014.
4. The Secretary shall arrange for
publication of this order in the Federal
Register.
By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2014–11943 Filed 5–22–14; 8:45 am]
BILLING CODE 7710–FW–P
RAILROAD RETIREMENT BOARD
Proposed Collection; Comment
Request
Summary: In accordance with the
requirement of Section 3506 (c)(2)(A) of
the Paperwork Reduction Act of 1995
which provides opportunity for public
comment on new or revised data
collections, the Railroad Retirement
Board (RRB) will publish periodic
summaries of proposed data collections.
Comments are invited on: (a) Whether
the proposed information collection is
necessary for the proper performance of
the functions of the agency, including
whether the information has practical
utility; (b) the accuracy of the RRB’s
estimate of the burden of the collection
of the information; (c) ways to enhance
the quality, utility, and clarity of the
information to be collected; and (d)
ways to minimize the burden related to
the collection of information on
respondents, including the use of
automated collection techniques or
other forms of information technology.
Title and purpose of information
collection: Certification of Termination
of Service and Relinquishment of
Rights; OMB 3220–0016.
Under Section 2(e)(2) of the Railroad
Retirement Act (RRA), an age and
service annuity, spouse annuity, or
divorced spouse annuity cannot be paid
unless the Railroad Retirement Board
(RRB) has evidence that the applicant
has ceased railroad employment and
relinquished rights to return to the
service of a railroad employer. Under
Section 2(f)(6) of the RRA, earnings
deductions are required for each month
an annuitant works in certain nonrailroad employment termed Last PreRetirement Non-Railroad Employment.
Normally, the employee, spouse, or
divorced spouse relinquishes rights and
certifies that employment has ended as
part of the annuity application process.
However, this is not always the case. In
limited circumstances, the RRB utilizes
Form G–88, Certification of Termination
of Service and Relinquishment of
Rights, to obtain an applicant’s report of
termination of employment and
relinquishment of rights. One response
is required of each respondent.
Completion is required to obtain or
retain benefits. The RRB proposes no
changes to Form G–88.
Estimate of Annual Respondent Burden
The estimated annual respondent
burden is as follows:
Form No.
Annual responses
Time
(minutes)
Burden
(hours)
G–88 ............................................................................................................................................
3,600
6
360
Additional Information or Comments:
To request more information or to
obtain a copy of the information
collection justification, forms, and/or
supporting material, contact Dana
Hickman at (312) 751–4981 or
Dana.Hickman@RRB.GOV. Comments
regarding the information collection
should be addressed to Charles
Mierzwa, Railroad Retirement Board,
844 North Rush Street, Chicago, Illinois
60611–2092 or emailed to
Charles.Mierzwa@RRB.GOV. Written
comments should be received within 60
days of this notice.
Charles Mierzwa,
Chief of Information Resources Management.
[FR Doc. 2014–11970 Filed 5–22–14; 8:45 am]
BILLING CODE 7905–01–P
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RAILROAD RETIREMENT BOARD
Actuarial Advisory Committee with
respect to the Railroad Retirement
Account; Notice of Public Meeting
Notice is hereby given in accordance
with Public Law 92–463 that the
Actuarial Advisory Committee will hold
a meeting on June 5, 2014, at 10:00 a.m.
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18:44 May 22, 2014
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at the office of the Chief Actuary of the
U. S. Railroad Retirement Board, 844
North Rush Street, Chicago, Illinois, on
the conduct of the 26th Actuarial
Valuation of the Railroad Retirement
System. The agenda for this meeting
will include a discussion of the
assumptions to be used in the 26th
Actuarial Valuation. A report containing
recommended assumptions and the
experience on which the
recommendations are based will have
been sent by the Chief Actuary to the
Committee before the meeting.
The meeting will be open to the
public. Persons wishing to submit
written statements or make oral
presentations should address their
communications or notices to the
Actuarial Advisory Committee, c/o
Chief Actuary, U. S. Railroad Retirement
Board, 844 North Rush Street, Chicago,
Illinois 60611–2092.
Dated: May 16, 2014.
Martha P. Rico,
Secretary to the Board.
[FR Doc. 2014–11975 Filed 5–22–14; 8:45 am]
BILLING CODE 7905–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31050; 812–14239]
Capitala Finance Corp., et al.; Notice of
Application
May 19, 2014.
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.
AGENCY:
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,
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Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Notices
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
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18:44 May 22, 2014
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(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 https://
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.
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
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.’’
3 Subsidiary means Fund II SBIC, Fund III SBIC,
Florida Sidecar and any direct or indirect whollyowned subsidiary of the Company. References to
‘‘Subsidiary’’ include Subsidiaries currently in
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to these transactions, (a) the Company
owns 100% of the membership interests
in Fund II SBIC General Partner, Fund
III SBIC General Partner and CSPFlorida, 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. 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.
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,
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.
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.
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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. CSPFlorida 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
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
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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
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.
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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
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29823
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
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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
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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
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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
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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
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18:44 May 22, 2014
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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 profitsharing 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.
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
29825
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
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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
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–31051; 812–14313]
Credit Suisse Asset Management, LLC,
et al.; Notice of Application and
Temporary Order
May 19, 2014.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Temporary order and notice of
application for a permanent order under
section 9(c) of the Investment Company
Act of 1940 (‘‘Act’’).
AGENCY:
Applicants have received a
temporary order exempting them from
section 9(a) of the Act, with respect to
a guilty plea entered on May 19, 2014,
by Credit Suisse AG (‘‘CSAG’’) in the
U.S. District Court for the Eastern
District of Virginia (‘‘District Court’’) in
connection with a plea agreement
between CSAG and the U.S. Department
of Justice (‘‘DOJ’’), until the Commission
takes final action on an application for
a permanent order. Applicants have also
applied for a permanent order.
APPLICANTS: Credit Suisse Asset
Management, LLC (‘‘CSAM’’), Credit
Suisse Asset Management Limited
(‘‘CSAML’’), Credit Suisse HedgingGriffo Servicos Internacionais S.A.
(‘‘CSHG’’), Credit Suisse Securities
(USA) LLC (‘‘CSSU’’), and CSAG (each
an ‘‘Applicant’’ and collectively, the
‘‘Applicants’’),1 and Credit Suisse
Group AG (‘‘CS Group’’).2
DATES: Filing Date: The application was
accepted on EDGAR on May 19, 2014,
with a filing date of May 20, 2014.
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 13, 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
SUMMARY:
1 Applicants request that any relief granted
pursuant to the application also apply to any
existing or future company of which CSAG is or
may become an affiliated person within the
meaning of section 2(a)(3) of the Act (together with
the Applicants, the ‘‘Covered Persons’’) with
respect to any activity contemplated by section 9(a)
of the Act.
2 CS Group is a party to the application solely for
purposes of agreeing to the portion of condition 4
that applies to it.
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
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 Credit Suisse Asset
Management, LLC, Eleven Madison
Avenue, New York, NY 10010.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel,
at (202) 551–6812 or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a temporary order and 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 https://www.sec.gov/search/
search.htm or by calling (202) 551–
8090.
Applicants’ Representations
1. Each of the Applicants is a direct
or indirect wholly owned subsidiary of
CS Group, the parent company of CSAG.
CSAM, a limited liability company
formed under Delaware law, is
registered as an investment adviser
under the Investment Advisers Act of
1940 (‘‘Advisers Act’’). CSAML, a
corporation formed under the laws of
the United Kingdom, is registered as an
investment adviser under the Advisers
Act. CSHG, a corporation formed under
the laws of Brazil, is registered as an
investment adviser under the Advisers
Act. CSSU, a limited liability company
formed under Delaware law, is
registered as a broker-dealer under the
Securities Exchange Act of 1934 and as
an investment adviser under the
Advisers Act, and is registered as a
member of the Financial Industry
Regulatory Authority. CSAM, CSAML,
CSHG, and CSSU serve either as
investment adviser (as defined in
section 2(a)(20) of the Act) to
investment companies (or series thereof)
registered under the Act (‘‘Funds’’) and
employees’ securities companies
(‘‘ESCs’’), or as principal underwriter (as
defined in section 2(a)(29) of the Act) to
open-end management investment
companies registered under the Act
(‘‘Open-End Funds’’) (such activities,
collectively, ‘‘Fund Service Activities’’).
CSAG is the principal operating
subsidiary of CS Group, which operates
as a holding company. Both CSAG and
CS Group are corporations organized
under the laws of Switzerland; both are
engaged in the private banking,
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[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]
=======================================================================
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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 https://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
