Regulatory Reform Initiative: Small Business Investment Company-Regulatory Streamlining, 61654-61659 [2020-19432]
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Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Proposed Rules
Signed in Washington, DC, on September
22, 2020.
Treena V. Garrett,
Federal Register Liaison Officer, U.S.
Department of Energy.
[FR Doc. 2020–21210 Filed 9–29–20; 8:45 am]
BILLING CODE 6450–01–P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 107
RIN 3245–AG93
Regulatory Reform Initiative: Small
Business Investment Company—
Regulatory Streamlining
AGENCY:
I. Background Information
The U.S. Small Business
Administration (‘‘SBA’’ or ‘‘Agency’’) is
proposing to remove from the Code of
Federal Regulations (‘‘CFR’’) eighteen
regulations that are no longer necessary
because they are obsolete, inefficient or
redundant. Many of the regulations SBA
is proposing to remove apply to
Specialized Small Business Investment
Companies (‘‘SSBICs’’) licensed under
the now-repealed Section 301(d) of the
Small Business Investment Act of 1958,
as amended, and certain other types of
Small Business Investment Companies
(‘‘SBICs’’) that SBA no longer licenses,
such as Participating Securities SBICs
and Early Stage SBICs. The removal of
these regulations will assist the public
by simplifying SBA’s regulations in the
CFR. In addition, SBA is proposing to
amend its regulations, consistent with
recent statutory changes, to increase the
maximum amount of Leverage available
to a single SBIC from $150 million to
$175 million.
DATES: Comments must be received on
or before November 30, 2020.
ADDRESSES: You may submit comments,
identified by RIN: 3245–AG93, by any of
the following methods:
• Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Mail or Hand Delivery/Courier:
Louis Cupp, New Markets Policy
Analyst, Office of Investment and
Innovation, U.S. Small Business
Administration, 409 Third Street SW,
Washington, DC 20416.
SBA will post all comments on
https://www.regulations.gov. If you wish
to submit confidential business
information (‘‘CBI’’), as defined in the
User Notice at https://
www.regulations.gov, please submit the
information to Louis Cupp, New
A. Small Business Investment Company
Program
SBA’s SBIC program is designed to
enhance small business access to capital
by stimulating and supplementing ‘‘the
flow of private equity capital and longterm loan funds which small-business
concerns need for the sound financing
of their business operations and for their
growth, expansion, and modernization,
and which are not available in adequate
supply.’’ Small Business Investment Act
of 1958, as amended, 15 U.S.C. 661, et
seq. (the ‘‘Act’’). The SBIC program’s
primary objective is to ‘‘improve and
stimulate the national economy in
general and the small-business segment
thereof in particular.’’ Id.
SBICs are privately owned and
managed investment funds, licensed
and regulated by SBA, that use capital
raised from private investors (what SBA
generally refers to as ‘‘Regulatory
Capital’’) to make equity and debt
investments in qualifying small
businesses. SBICs pursue investments in
a broad range of industries, geographic
areas, and stages of investment. SBA
licenses many SBICs to issue SBAguaranteed debentures (‘‘Debentures’’),
an unsecured debt instrument, typically
with a 10-year term, the repayment of
which is guaranteed by SBA using the
full faith and credit of the United States.
SBA typically authorizes SBICs to issue
Debentures up to a maximum of two
times an SBIC’s Regulatory Capital, but
not to exceed $175 million per SBIC.
Debentures are typically sold in public
offerings twice a year. This process
allows SBICs to borrow at favorable
interest rates and increases the amount
of investable capital available to SBICs
to invest in small businesses.
From the inception of the SBIC
program to December 31, 2019, SBICs
have invested approximately $103.5
billion in approximately 184,135
financings to small businesses. In fiscal
U. S. Small Business
Administration.
ACTION: Proposed rule.
SUMMARY:
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Markets Policy Analyst, Office of
Investment and Innovation, Small
Business Administration, 409 Third
Street SW, Washington, DC 20416, or
send an email to Louis.Cupp@sba.gov.
Highlight the information that you
consider to be CBI and explain why you
believe SBA should hold this
information as confidential. SBA will
review the information and make the
final determination on whether it will
publish the information.
FOR FURTHER INFORMATION CONTACT:
Louis Cupp, New Markets Policy
Analyst, 202–619–0511, Louis.Cupp@
sba.gov.
SUPPLEMENTARY INFORMATION:
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year 2019, SBICs invested $5.86 billion
in 1,191 small businesses. As of
December 31, 2019, there were a total of
299 licensed and operating SBICs with
Regulatory Capital of approximately $17
billion. In addition, as of December 31,
2019, SBA had guaranteed outstanding
Debentures or had outstanding
commitments to guarantee Debentures
to SBICs in the approximate aggregate
amount of $14.5 billion.
B. Part 107, Small Business Investment
Companies
SBA is proposing to remove from the
CFR eighteen regulations that are no
longer necessary, because the rules
reflect statutes that have been repealed,
do not have any current or future
applicability, or are otherwise
inefficient or unnecessary. Specifically,
SBA is proposing to remove eight
regulations relating to SSBICs (also
referred to as ‘‘Section 301(d)
Licensees’’). Prior to 1996, Section
301(d) of the Act authorized SBA to
issue licenses to SSBICs, which were
required to invest ‘‘solely in small
business concerns which will contribute
to a well-balanced national economy by
facilitating ownership in such concerns
by persons whose participation in the
free enterprise system is hampered
because of social or economic
disadvantages[.]’’ Section 301(d) was
repealed by Section 208(b)(3)(A) of
Public Law 104–208, enacted September
30, 1996 (the ‘‘Improvement Act of
1996’’). Section 208(b)(3)(B) of the
Improvement Act of 1996 provided,
‘‘[t]he repeal under subparagraph (A)
shall not be construed to require the
Administrator to cancel, revoke,
withdraw, or modify any license issued
under section 301(d) of the Small
Business Investment Act of 1958 before
the date of enactment of this Act.’’ As
a result, no new SSBIC licenses have
been issued since October 1, 1996, but
existing SSBICs have been allowed to
remain in the program. The
Improvement Act of 1996 also repealed
the special kinds of financial assistance
(‘‘Subsidized Leverage’’) that SBA
previously made available to SSBICs
under former Section 303(c) of the Act.
Such Subsidized Leverage was
previously available to SSBICs in the
form of Debentures with an interest rate
subsidy or certain types of preferred
stock (‘‘Preferred Securities’’) with a
specified dividend. Although
Subsidized Leverage can no longer be
issued, the Improvement Act of 1996
did not require SSBICs to prepay or
redeem such Subsidized Leverage prior
to its scheduled maturity.
Approximately six SSBICs are currently
operating, but no Subsidized Leverage
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Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Proposed Rules
remains outstanding, so SBA proposes
to remove the regulations related to
Subsidized Leverage. The SSBICs
remaining in the program will not be
impacted by the changes proposed in
this rule and, if eligible, those SSBICs
may continue to apply to issue standard
Debentures.
SBA is proposing to remove four
regulations relating to Participating
Securities (as defined in 13 CFR 107.50)
and SBICs that issued Participating
Securities (‘‘Participating Securities
SBICs’’). The fees payable by
Participating Securities SBICs were not
sufficient to cover the projected net
losses of the Participating Securities
program and no funds have been
appropriated for this program for over
15 years. As a result, since October 1,
2004, SBA has not been able to issue
new commitments for Participating
Securities. Approximately 25
Participating Securities SBICs remain
operating in the program, but the last
Participating Securities issued by
Participating Securities SBICs were
required to be redeemed by February
2019. The changes proposed in this rule
will not impact any licensed
Participating Securities SBIC.
SBA is proposing to remove two
regulations relating to a category of
SBICs created in 2012 by regulation, in
which SBICs were required to invest at
least fifty percent of their capital in
early stage small businesses (‘‘Early
Stage SBICs’’). The final rule (77 FR
25042, April 27, 2012) defining this
category of Early Stage SBICs stated that
SBA’s intent was to license Early Stage
SBICs over a 5-year period (fiscal years
2012 through 2016). SBA published a
rule on September 19, 2016 (81 FR
64075) proposing to make the Early
Stage SBIC initiative a permanent part
of the SBIC program, but withdrew the
proposed rule on June 11, 2018 (83 FR
26875) because, among other things, few
qualified funds applied to the Early
Stage SBIC initiative and the comments
to the proposed rule did not
demonstrate broad support for a
permanent Early Stage SBIC program.
SBA proposes to remove the licensing
regulations related to Early Stage SBICs
since SBA is no longer licensing these
funds. The removal of these regulations
will have no impact on the Early Stage
SBICs remaining in the program.
Finally, SBA is proposing to remove
four regulations that are duplicative,
redundant, or otherwise inefficient or
unnecessary. In connection with this
rulemaking, SBA proposes certain nonsubstantive amendments to other
regulations to remove internal
references to the removed regulations or
make certain other clarifying changes.
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SBA is also proposing one clarifying
change unrelated to the removal of these
regulations, but which is required by
amendments to the Act that occurred in
2018. SBA is proposing to increase the
maximum amount of Leverage (as
defined in 13 CFR 107.50) available to
a single SBIC from $150 million to $175
million.
C. Comments Received in Response To
Request for Information
On August 15, 2017 (82 FR 38617),
SBA published in the Federal Register
a request for information seeking input
from the public on identifying which of
the Agency’s regulations should be
repealed, replaced, or modified because
they are obsolete, unnecessary,
ineffective, or burdensome. On October
13, 2017 (82 FR 47645), SBA extended
the comment period. SBA has reviewed
the comments submitted by the public
in response to that request. Further, in
an effort to obtain additional feedback
from SBIC program stakeholders, SBA
held a series of roundtables with SBICs,
third-party service providers, and
investors on May 22, 2018, July 17,
2018, and August 7, 2018, respectively.
The comments SBA received
addressed many aspects of the SBIC
program and provided SBA with a better
understanding of certain focus-areas of
the regulations that program
participants and stakeholders are
concerned about. In this rule, SBA is
proposing to remove certain regulations
that commenters suggested removing—
e.g., certain Participating Securities
SBIC and Early Stage SBIC regulations—
and proposing to remove certain others,
which SBA believes will have broad
support among program participants.
SBA understands that this rulemaking
does not address all comments and
suggestions SBA has received from the
public. To that end, SBA is continuing
to review the regulations in part 107,
and those in part 121 that are applicable
to the SBIC program, to determine
which regulations SBA believes are
most appropriate for removal,
streamlining, clarification, or updating.
Once that process is complete, SBA
intends to propose certain additional
changes to its regulations.
D. Executive Order 13771
On January 30, 2017, President Trump
signed Executive Order 13771, Reducing
Regulation and Controlling Regulatory
Costs, which, among other objectives, is
intended to ensure that an agency’s
regulatory costs are prudently managed
and controlled so as to minimize the
compliance burden imposed on the
public. For every new regulation an
agency proposes to implement, unless
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prohibited by law, this Executive Order
requires the agency to: (i) Identify at
least two existing regulations that the
agency can cancel; and (ii) use the cost
savings from the cancelled regulations
to offset the cost of the new regulation.
SBA believes the removal of the
regulations identified herein will make
part 107 less confusing and less
burdensome for the reader and
quantifies the amount of cost savings
that may result from this rulemaking in
the Executive Order 13771 discussion in
Section III below.
E. Executive Order 13777
On February 24, 2017, the President
issued Executive Order 13777,
Enforcing the Regulatory Reform
Agenda, which further emphasized the
goal of the Administration to alleviate
the regulatory burdens placed on the
public. Under Executive Order 13777,
agencies must evaluate their existing
regulations to determine which ones
should be repealed, replaced, or
modified. In doing so, agencies should
focus on identifying regulations that,
among other things: Eliminate jobs or
inhibit job creation; are outdated,
unnecessary, or ineffective; impose
costs that exceed benefits; create a
serious inconsistency or otherwise
interfere with regulatory reform
initiatives and policies; or are associated
with Executive Orders or other
Presidential directives that have been
rescinded or substantially modified.
SBA has engaged in this process and has
identified the regulations in this
rulemaking as appropriate for removal
in accordance with Executive Order
13777.
II. Section by Section Analysis
A. Section 107.50—Definition of Terms
SBA is proposing to amend 13 CFR
107.50 to revise the definition of
‘‘Venture Capital Financing.’’ Currently,
this definition states that the term is as
defined in 13 CFR 107.1160. SBA is
proposing to remove 13 CFR 107.1160,
but needs to retain this definition in the
regulations because other sections use
the defined term. Therefore, SBA is
proposing to move the current
definition in 13 CFR 107.1160 to 13 CFR
107.50. SBA is not proposing
substantive changes to the definition.
In addition, SBA is proposing to
revise the definition of ‘‘Early Stage
SBIC’’ in 13 CFR 107.50 to remove the
reference to 13 CFR 107.310, because
SBA is proposing to remove that
regulation. SBA is proposing to revise
the definition to clarify that an Early
Stage SBIC is one that was licensed in
connection with SBA’s Early Stage SBIC
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initiative. SBA is also proposing to
revise the definition to reference
redesignated 13 CFR 107.1810(f)(10)
rather than current 13 CFR
107.1810(f)(11) but is not proposing any
substantive changes to the definition.
B. Section 107.120—Special Rules for a
Section 301(d) Licensee Owned by
Another Licensee
This regulation currently addresses
the requirements for ownership of an
SSBIC by another SBIC. SBA no longer
licenses SSBICs and no SBIC has
utilized the structure authorized under
this regulation in the recent history of
the program. Further, because
Subsidized Leverage is no longer
available to SSBICs, such a structure
would provide little to no benefit to an
SBIC, economic or otherwise. For that
reason, SBA believes that no SBIC will
seek to be structured in the form
authorized under this regulation going
forward and, accordingly, proposes to
remove this section.
C. Section 107.160—Special Rules for
Licensees Formed as Limited
Partnerships
This regulation currently provides for
special rules applicable to SBICs formed
as limited partnerships. SBA is not
proposing substantive changes to this
regulation. Rather, since this regulation
contains a reference to a regulation that
SBA is proposing to remove, 13 CFR
107.460, SBA is proposing to amend
subsection (d) of 13 CFR 107.160 solely
to remove this reference.
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D. Section 107.250—Exclusion of Stock
Options Issued by Licensee From
Management Expenses
This regulation currently provides
that stock options issued by any SBIC
are not considered compensation and do
not count as part of an SBIC’s
management expenses. Substantially all
SBICs are formed as limited
partnerships, which do not issue stock
options. Further, Management Expenses
are expressly defined in current 13 CFR
107.520(a), and that definition does not
include stock options. Accordingly, the
few SBICs formed as corporations do
not rely on current 13 CFR 107.250.
SBA proposes to remove this section,
because it is no longer necessary.
E. Section 107.310—When and How To
Apply for Licensing as an Early Stage
SBIC
This regulation currently sets forth
the application procedures for Early
Stage SBIC applicants. As described
above, SBA no longer licenses Early
Stage SBICs. Therefore, SBA proposes to
remove this section.
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F. Section 107.320—Evaluation of Early
Stage SBICs
This regulation currently sets forth
the special evaluation requirements for
Early Stage SBIC applicants. Since SBA
no longer licenses Early Stage SBICs,
SBA is proposing to remove this section.
G. Section 107.460—Restrictions on
Common Control or Ownership of Two
(or More) Licensees
This regulation currently provides
that certain individuals and entities may
not, without SBA’s prior written
approval, exercise control over, or have
a greater than ten percent beneficial
ownership interest in, two or more
SBICs. This regulation is duplicative of
the requirements in other SBA
regulations. Specifically, sections
107.160, 107.400, and 107.410 require
SBA prior approval for any individual
or entity to exercise control over, or
have a greater than ten percent
beneficial ownership interest in, any
individual SBIC. Accordingly, this
section is not necessary, and SBA
proposes to remove it.
H. Section 107.585—Voluntary Decrease
in Licensee’s Regulatory Capital
SBA does not propose substantive
changes to this section but proposes to
amend this section to remove internal
references to 13 CFR 107.1160 and
107.1170, which sections SBA is
proposing to remove in this rulemaking.
I. Sections 107.830—Minimum
Duration/Term of Financing and
107.840—Maximum Term of Financing
13 CFR 107.830 (Minimum duration/
term of financing) and 13 CFR 107.840
(Maximum term of Financing) each
address the term of financing
permissible in the SBIC Program—the
minimum term and maximum term,
respectively. SBA believes that having
two regulations that address the same
concept is inefficient. Accordingly, SBA
is proposing to streamline these
regulations by moving the substance of
section 107.840 into section 107.830
and proposes to remove section 107.840.
SBA does not intend any substantive
changes to the minimum or maximum
term of financing permitted under the
regulations.
J. Section 107.1120—General Eligibility
Requirements for Leverage
Subsection (d) of this regulation
currently requires, in connection with
any Leverage draw that would cause an
SBIC and any other commonly
controlled SBIC to have aggregate
outstanding Leverage in excess of $150
million, that the SBIC drawing such
Leverage certify that none of the
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commonly controlled SBICs has a
condition of capital impairment.
Consistent with the Small Business
Investment Opportunity Act of 2017
(Pub. L. 115–187, June 21, 2018), which
increased the maximum amount of
Leverage available to a single SBIC from
$150 million to $175 million, SBA
proposes to amend this regulation to
revise the dollar amount from $150
million to $175 million. In addition, in
connection with the proposed
redesignation of certain regulations
discussed below, SBA is proposing to
amend a reference in subsection (k) of
this regulation to refer to 13 CFR
107.1810(f)(10). SBA is not proposing
any substantive changes to subsection
(k).
K. Section 107.1140—Licensee’s
Acceptance of SBA Remedies Under
§§ 107.1800 Through 107.1820
This regulation provides that all
SBICs issuing Leverage after April 25,
1994, automatically agree to the terms
and conditions in sections 107.1800
through 107.1820, as they exist at the
time of issuance. The section is
duplicative of 13 CFR 107.1800, 13 CFR
107.1810 and 13 CFR 107.1820. SBA
proposes to remove the section because
it is unnecessary. For the avoidance of
doubt, all outstanding Leverage remains
subject to 13 CFR 107.1810 or 107.1820,
as applicable.
L. Section 107.1150—Maximum
Amount of Leverage for a Section 301(c)
Licensee
This regulation currently addresses
the maximum amount of Leverage that
SBICs other than SSBICs and Early
Stage SBICs may draw. SBA is
proposing three changes to this section.
First, consistent with the Small
Business Investment Opportunity Act of
2017 (Pub. L. 115–187, June 21, 2018),
SBA proposes to amend this regulation
to increase the maximum amount of
Leverage available to a single SBIC from
$150 million to $175 million. Second,
SBA proposes to amend this regulation
to make it expressly applicable to
Section 301(d) Licensees. Currently, 13
CFR 107.1160 (the regulation that
applies to Subsidized Leverage for
Section 301(d) Licensees) limits Section
301(d) Licensees to the maximum
amount of non-Subsidized Leverage
available to Section 301(c) licensees.
Because SBA is proposing in this
rulemaking to remove 13 CFR 107.1160,
SBA is proposing to amend 13 CFR
107.1150 to clarify that it applies to
Section 301(d) Licensees. Third, SBA is
proposing to remove 13 CFR
107.1150(d)(2). Paragraph (d)(2)
implemented Section 303(b)(2)(C)(ii) of
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the Act, which gave SBICs access to
additional Leverage if they made at least
fifty percent (in dollar amount) of their
investments in low-income geographic
areas. See Public Law 111–5 (Feb. 17,
2009). When the maximum Leverage
available under Section 303(b)(2)(A)(ii)
of the Act to an individual SBIC and
under Section 303(b)(2)(B) of the Act to
SBICs under common control was
increased to $175 million (Pub. L. 115–
187, June 21, 2018) and $350 million
(Pub. L. 114–113, Dec. 18, 2015),
respectively, no corresponding change
was made to Section 303(b)(2)(C)(ii). As
a result, the maximum Leverage limits
set forth in that Section of the Act and
the implementing regulation at 13 CFR
107.1150(d)(2) are currently lower than
the maximum amounts of Leverage
available to all debenture SBICs.
Paragraph (d)(2) of the regulation,
therefore, is not necessary and SBA
proposes to remove it.
P. Section 107.1585—Exchange of
Debentures for Participating Securities
M. Section 107.1160—Maximum
Amount of Leverage for a Section 301(d)
Licensee
SBA proposes to remove 13 CFR
107.1810(f)(9) in its entirety, which is
an event of default based solely on the
failure to satisfy the investment ratios
required under 13 CFR 107.1160(c), a
regulation which SBA is proposing to
remove in this rulemaking.
This regulation currently addresses
Subsidized Leverage for Section 301(d)
Licensees. No Section 301(d) Licensee
currently has any form of Subsidized
Leverage outstanding, and, as a result of
the Improvement Act of 1996 discussed
above, no Section 301(d) Licensee is
authorized to issue or draw Subsidized
Leverage in the future. SBA proposes to
remove this section because it is no
longer necessary.
N. Section 107.1170—Maximum
Amount of Participating Securities for
Any Licensee
This regulation addresses the
maximum amount of Participating
Securities an SBIC may issue. As
discussed above, since October 1, 2004,
SBA has not been able to issue new
commitments for Participating
Securities. Because this section is no
longer necessary, SBA proposes to
remove it.
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O. Sections 107.1400—107.1450
Preferred Securities Leverage—Section
301(d) Licensees
Sections 107.1400 through 107.1450
currently address Subsidized Leverage
for Section 301(d) Licensees. No Section
301(d) Licensee currently has any form
of Subsidized Leverage outstanding,
and, as a result of the Improvement Act
of 1996 discussed above, no Section
301(d) Licensee is authorized to issue or
draw Subsidized Leverage in the future.
SBA proposes to remove these sections
because they are no longer necessary.
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This section currently addresses the
requirements of an exchange of
Debentures for Participating Securities.
No Participating Securities will be
issued in the future. This section,
therefore, is obsolete, and SBA proposes
to remove it.
Q. Section 107.1590—Special Rules for
Companies Licensed on or Before March
31, 1993
This regulation applies to SBICs
licensed on or before March 31, 1993,
that apply to issue Participating
Securities. No SBIC may apply to issue
Participating Securities and this rule
does not have any current applicability.
SBA proposes to remove this section.
R. Section 107.1810—Events of Default
and SBA’s Remedies for Licensee’s
Noncompliance With Terms of
Debentures
S. Section 107.1820—Conditions
Affecting Issuers of Preferred Securities
and/or Participating Securities
SBA is proposing to amend 13 CFR
107.1820(e)(9) to remove the events of
default triggered by noncompliance
with 13 CFR 107.1160, a regulation
which SBA is proposing to remove in
this rulemaking.
T. Section 107.1850—Exceptions to
Capital Impairment provisions for
Licensees With Outstanding
Participating Securities
This regulation currently provides for
a forbearance period from application of
SBA’s capital impairment regulations
for Participating Securities SBICs but
only up to the first six years after the
first issuance of Participating Securities.
Since the last Participating Securities
were required to be redeemed in
February of 2019, this section has not
applied to any SBIC for at least four
years. This section is obsolete, and SBA
proposes to remove it.
III. Compliance With Executive Orders
12866, 13771, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C.,
Ch. 35), and the Regulatory Flexibility
Act (5 U.S.C. 601–612)
proposed rule does not constitute a
significant regulatory action for
purposes of Executive Order 12866 and
is not a major rule under the
Congressional Review Act, 5 U.S.C. 801,
et seq.
B. Executive Order 13771
This proposed rule is expected to be
an Executive Order 13771 deregulatory
action with an annualized net savings of
$16,694 and a net present value of
$238,485, both in 2016 dollars. This rule
would remove information that is
redundant or about obsolete programs,
which would reduce confusion around
whether these programs still exist. In
addition, SBA proposes to increase the
maximum amount of Leverage available
to a single SBIC from $150 million to
$175 million, consistent with the Small
Business Investment Opportunity Act of
2017 (Pub. L. 115–187, June 21, 2018).
There are currently 300 SBIC
licensees in operation. These
calculations assume that 20% of SBIC
licensees (60) read the regulations per
year and that they will save 4 hours
each from reading less burdensome and
less confusing regulations because they
will no longer contain obsolete
information. This time is valued at
$75.57 per hour—the median wage of an
attorney based on 2018 Bureau of Labor
Statistics (‘‘BLS’’) data adding 30%
more for benefits. This produces total
savings per year of $18,137.
In the first year this rule is published,
it is expected that 25% of existing SBIC
licensees (75) will read this Federal
Register notice, which will take 2 hours
to read. Assuming $75.57 per hour, the
cost in the first year will be $11,336.
This cost is not expected to continue
into subsequent years.
Quantifying the effect of an increase
in the maximum amount of Leverage
available to a single SBIC is difficult,
but this will provide SBICs more
flexibility and will be beneficial to these
entities.
Table 1 displays the costs and savings
of this rule over the first two years it is
published, with the savings and costs in
the second year expected to continue
into perpetuity. Table 2 presents the
annualized net savings in 2016 dollars.
TABLE 1—SCHEDULE OF COSTS/(SAVINGS) OVER 2 YEAR HORIZON, CURRENT DOLLARS
Savings
Year 1 ...............
A. Executive Order 12866
The Office of Management and Budget
(‘‘OMB’’) has determined that this
PO 00000
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Year 2 ...............
E:\FR\FM\30SEP1.SGM
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240 hours
($18,137)
240 hours
($18,137)
Costs
150 hours
$11,336
0 hours
$0
61658
Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Proposed Rules
Executive Order 13771 discussion
TABLE 2—ANNUALIZED SAVINGS IN
PERPETUITY WITH 7% DISCOUNT above. Quantifying the effect of an
increase in the maximum amount of
RATE, 2016 DOLLARS
Leverage available to a single SBIC is
difficult, but this will provide SBICs
more flexibility and will be beneficial to
Annualized Savings ..................
($17,406) these entities.
Annualized Costs ......................
712
Therefore, SBA hereby certifies that
Annualized Net Savings ...........
(16,694) this rule will not have a significant
economic impact on a substantial
C. Executive Order 12988
number of small entities. SBA invites
comments from the public on this
This action meets applicable
certification.
standards set forth in Sections 3(a) and
3(b)(2) of Executive Order 12988, Civil
List of Subjects in 13 CFR Part 107
Justice Reform, to minimize litigation,
Investment companies, Loan
eliminate ambiguity, and reduce
programs-business, Reporting and
burden. The action does not have
recordkeeping requirements, Small
retroactive or preemptive effect.
businesses.
D. Executive Order 13132
Accordingly, for the reasons stated in
This proposed rule does not have
the preamble, SBA proposes to amend
federalism implications as defined in
13 CFR part 107 as follows:
Executive Order 13132. It would not
have substantial direct effects on the
PART 107—SMALL BUSINESS
States, on the relationship between the
INVESTMENT COMPANIES
national government and the States, or
■ 1. The authority citation for part 107
on the distribution of power and
is revised to read as follows:
responsibilities among the various
levels of government, as specified in the
Authority: 15 U.S.C. 662, 681–687, 687b–
Executive Order. As such it does not
h, 687k–m.
warrant the preparation of a Federalism
■ 2. Amend § 107.50 by revising the
Assessment.
definitions of ‘‘Early Stage SBIC’’ and
E. Paperwork Reduction Act, 44 U.S.C.,
‘‘Venture Capital Financing’’ to read as
Ch. 35
follows:
SBA has determined that this
§ 107.50 Definition of terms.
proposed rule does not affect any
*
*
*
*
*
existing collection of information and
Early
Stage
SBIC
means
a Section
does not propose any new collection of
301(c) Partnership Licensee, licensed
information.
pursuant to SBA’s Early Stage initiative,
F. Regulatory Flexibility Act, 5 U.S.C.
in which at least 50 percent of all Loans
601–612
and Investments (in dollars) must be
made to Small Businesses that are
When an agency issues a rulemaking
‘‘early stage’’ companies at the time of
proposal, the Regulatory Flexibility Act
(‘‘RFA’’) requires the agency to ‘‘prepare the Licensee’s initial Financing (see also
§ 107.1810(f)(10)). For the purposes of
and make available for public comment
an initial regulatory flexibility analysis’’ this definition, an ‘‘early stage’’
company is one that has never achieved
that will ‘‘describe the impact of the
positive cash flow from operations in
proposed rule on small entities.’’ (5
any fiscal year.
U.S.C. 603(a)). Section 605 of the RFA
*
*
*
*
allows an agency to certify a rule, in lieu *
Venture Capital Financing means an
of preparing an analysis, if the proposed
investment represented by common or
rulemaking is not expected to have a
preferred stock, a limited partnership
significant economic impact on a
interest, or a similar ownership interest;
substantial number of small entities.
There are currently 300 SBIC
or by an unsecured debt instrument that
licensees in operation and this rule can
is subordinated by its terms to all other
affect all SBIC licensees. This rule
borrowings of the issuer. A debt secured
would remove regulations that are no
by any agreement with a third party is
longer necessary, because they are either not a Venture Capital Financing,
redundant, inefficient or obsolete. These whether or not you have a security
changes will afford these entities more
interest in any asset of the third party
certainty on how to operate their
or have recourse against the third party.
business in a regulated environment.
A Financing that originally qualified as
The annualized net savings to these
a Venture Capital Financing will
SBIC licensees is about $16,694 in
continue to qualify (at its original cost),
current dollars or $56 per SBIC licensee, even if you later must report it on SBA
as quantified in 2016 dollars in the
Form 468 under either Assets Acquired
jbell on DSKJLSW7X2PROD with PROPOSALS
Estimate
VerDate Sep<11>2014
16:31 Sep 29, 2020
Jkt 250001
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in Liquidation of Portfolio Securities or
Operating Concerns Acquired.
*
*
*
*
*
§ 107.120
[Removed and Reserved]
3. Remove and reserve § 107.120.
4. Amend § 107.160(d) by revising the
second sentence to read as follows:
■
■
§ 107.160 Special rules for Licensees
formed as limited partnerships.
*
*
*
*
*
(d) * * * The term Licensee, as used
in §§ 107.30 and 107.680, includes all of
the Licensee’s Control Persons. * * *
*
*
*
*
*
§ § 107.250, 107.310, 107.320, and 107.460
[Removed and Reserved]
5. Remove and reserve §§ 107.250,
107.310, 107.320, and 107.460.
■ 6. Amend § 107.585 by revising the
second sentence to read as follows:
■
§ 107.585 Voluntary decrease in
Licensee’s Regulatory Capital.
* * * At all times, you must retain
sufficient Regulatory Capital to meet the
minimum capital requirements in the
Act and § 107.210, and sufficient
Leverageable Capital to avoid having
excess Leverage in violation of section
303 of the Act and § 107.1150.
■ 7. Amend § 107.830 by revising the
section heading, and paragraphs (a) and
(c)(1) to read as follows:
§ 107.830
Duration/term of financing.
(a) General rule. The duration/term of
all your Financings must be for a
minimum period of one year and the
maximum term of any Loan or Debt
Security Financing must be no longer
than 20 years.
*
*
*
*
*
(c) * * *
(1) Term. The term for Loans and Debt
Securities starts with the first
disbursement of the Financing.
*
*
*
*
*
§ 107.840
[Removed and Reserved]
8. Remove and reserve § 107.840.
9. Amend § 107.1120 by revising
paragraphs (d) and (k) to read as
follows:
■
■
§ 107.1120 General eligibility requirements
for Leverage.
*
*
*
*
*
(d) For any Leverage draw that would
cause you and any other Licensees
under Common Control to have
aggregate outstanding Leverage in
excess of $175 million, certify that none
of the Licensees has a condition of
Capital Impairment. See also
§ 107.1150(b).
*
*
*
*
*
E:\FR\FM\30SEP1.SGM
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Federal Register / Vol. 85, No. 190 / Wednesday, September 30, 2020 / Proposed Rules
(k) If you are an Early Stage SBIC,
certify in writing that in accordance
with § 107.1810(f)(10), at least 50
percent of the aggregate dollar amount
of your Financings will be provided to
‘‘early stage’’ companies as defined
under the definition of Early Stage SBIC
in § 107.50 of this part.
§ 107.1140
Jovita Carranza,
Administrator.
[FR Doc. 2020–19432 Filed 9–29–20; 8:45 am]
BILLING CODE P
16 CFR Part 660
RIN 3084–AB63
Duties of Furnishers of Information to
Consumer Reporting Agencies Rule
Federal Trade Commission.
Notice of proposed rulemaking;
request for public comment.
AGENCY:
ACTION:
(a) * * *
(2) $175 million.
(b) * * * However, for any Leverage
draw(s) by one or more such Licensees
that would cause the aggregate
outstanding Leverage to exceed $175
million, each of the Licensees under
Common Control must certify that it
does not have a condition of Capital
Impairment. See also § 107.1120(d).
*
*
*
*
*
§ § 107.1160, 107.1170, 107.1400 through
107.1450, 107.1585, and 107.1590
[Removed and Reserved]
12. Remove and reserve § 107.1160,
107.1170, 107.1400 through 107.1450,
107.1585, and 107.1590.
■
[Amended]
13. Amend § 107.1810 by removing
paragraph (f)(9) and redesignating
paragraphs (f)(10) through (f)(12) as
(f)(9) through (f)(11).
■ 14. Amend § 107.1820 by revising
paragraph (e)(9) to read as follows:
■
§ 107.1820 Conditions affecting issuers of
Preferred Securities and/or Participating
Securities.
*
*
*
*
*
(e) * * *
(9) Failure to meet investment
requirements. You fail to make the
amount of Equity Capital Investments
required for Participating Securities
(§ 107.1500(b)(4)), if applicable to you.
*
*
*
*
*
16:31 Sep 29, 2020
Jkt 250001
The Federal Trade
Commission (‘‘FTC’’ or ‘‘Commission’’)
requests public comment on its Duties
of Furnishers of Information to
Consumer Reporting Agencies Rule
(‘‘Furnisher Rule’’) as part of the FTC’s
systematic review of all current
Commission regulations and guides. In
addition, the FTC is proposing to amend
the Rule to correspond to changes made
to the Fair Credit Reporting Act
(‘‘FCRA’’) by the Dodd-Frank Act.
DATES: Written comments must be
received on or before December 14,
2020.
SUMMARY:
§ 107.1150 Maximum amount of Leverage.
A Licensee, other than an Early Stage SBIC,
may have maximum outstanding Leverage
as set forth in paragraphs (a), (b), (d), and
(e) of this section. * * *
jbell on DSKJLSW7X2PROD with PROPOSALS
[Removed and Reserved]
15. Remove and reserve § 107.1850.
FEDERAL TRADE COMMISSION
10. Remove and reserve § 107.1140.
■ 11. Amend § 107.1150 by:
■ a. Revising the section heading;
■ b. Revising the first sentence of the
introductory paragraph;
■ c. Revising paragraph (a)(2);
■ d. Revising the second sentence of
paragraph (b); and
■ e. Removing paragraph (d)(2).
The revisions read as follows:
VerDate Sep<11>2014
■
[Removed and Reserved]
■
§ 107.1810
§ 107.1850
Interested parties may file a
comment online or on paper by
following the Request for Comment part
of the SUPPLEMENTARY INFORMATION
section below. Write ‘‘Furnisher Rule,
16 CFR part 660, Project No. P205408’’
on your comment and file your
comment online at https://
www.regulations.gov by following the
instructions on the web-based form. If
you prefer to file your comment on
paper, mail your comment to the
following address: Federal Trade
Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Suite
CC–5610 (Annex B), Washington, DC
20580, or deliver your comment to the
following address: Federal Trade
Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW,
5th Floor, Suite 5610 (Annex B),
Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT:
David Lincicum (202–326–2773),
Division of Privacy and Identity
Protection, Bureau of Consumer
Protection, Federal Trade Commission,
600 Pennsylvania Avenue NW,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
ADDRESSES:
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61659
I. Background
A. The Furnisher Rule
The Fair and Accurate Credit
Transactions Act of 2003 (‘‘FACT Act’’)
was signed into law on December 4,
2003. Public Law 108–159, 117 Stat.
1952. Section 312 of the FACT Act
amended section 623 1 of the FCRA by
requiring the FTC, with other agencies,
to issue guidelines for use by furnishers
regarding the accuracy and integrity of
the information about consumers that
they furnish to consumer reporting
agencies (‘‘CRAs’’) and to prescribe
regulations requiring furnishers to
establish reasonable policies and
procedures for implementing the
guidelines. Section 312 also required
the Commission and the other agencies
to issue regulations identifying the
circumstances under which a furnisher
must reinvestigate direct consumer
disputes concerning the accuracy of
information provided by the furnisher to
a CRA. On July 1, 2009, the Commission
issued the Furnisher Rule and the
accompanying guidelines that became
effective July 1, 2010.2
The Rule requires furnishers to
establish and implement reasonable
written policies and procedures
regarding the accuracy and integrity of
the information relating to consumers
that they furnish to a CRA.3 The Rule
also requires that furnishers respond to
direct disputes from consumers.4
B. Dodd-Frank Act
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (‘‘DoddFrank Act’’) was signed into law in
2010.5 The Dodd-Frank Act
substantially changed the federal legal
framework for financial services
providers. Among the changes, the
Dodd-Frank Act transferred to the
Consumer Financial Protection Bureau
(‘‘CFPB’’) the Commission’s rulemaking
authority under portions of the FCRA.6
Accordingly, in 2012, the Commission
rescinded several of its FCRA rules that
had been replaced by rules issued by the
CFPB.7 The FTC retained rulemaking
authority for other rules to the extent
the rules apply to motor vehicle dealers
described in section 1029(a) of the
1 15
U.S.C. 1681s–2.
FR 31484.
3 16 CFR 660.3.
4 16 CFR 660.4
5 Public Law 111–203 (2010).
6 15 U.S.C. 1681 et seq. The Dodd-Frank Act does
not transfer to the CFPB rulemaking authority for
section 615(e) of the FCRA (‘‘Red Flag Guidelines
and Regulations Required’’) and section 628 of the
FCRA (‘‘Disposal of Records’’). See 15 U.S.C.
1681s(e).
7 77 FR 22200 (April 13, 2012); 12 U.S.C. 5519.
2 74
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]]>Agencies
[Federal Register Volume 85, Number 190 (Wednesday, September 30, 2020)]
[Proposed Rules]
[Pages 61654-61659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19432]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 107
RIN 3245-AG93
Regulatory Reform Initiative: Small Business Investment Company--
Regulatory Streamlining
AGENCY: U. S. Small Business Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Small Business Administration (``SBA'' or ``Agency'')
is proposing to remove from the Code of Federal Regulations (``CFR'')
eighteen regulations that are no longer necessary because they are
obsolete, inefficient or redundant. Many of the regulations SBA is
proposing to remove apply to Specialized Small Business Investment
Companies (``SSBICs'') licensed under the now-repealed Section 301(d)
of the Small Business Investment Act of 1958, as amended, and certain
other types of Small Business Investment Companies (``SBICs'') that SBA
no longer licenses, such as Participating Securities SBICs and Early
Stage SBICs. The removal of these regulations will assist the public by
simplifying SBA's regulations in the CFR. In addition, SBA is proposing
to amend its regulations, consistent with recent statutory changes, to
increase the maximum amount of Leverage available to a single SBIC from
$150 million to $175 million.
DATES: Comments must be received on or before November 30, 2020.
ADDRESSES: You may submit comments, identified by RIN: 3245-AG93, by
any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Mail or Hand Delivery/Courier: Louis Cupp, New Markets
Policy Analyst, Office of Investment and Innovation, U.S. Small
Business Administration, 409 Third Street SW, Washington, DC 20416.
SBA will post all comments on https://www.regulations.gov. If you
wish to submit confidential business information (``CBI''), as defined
in the User Notice at https://www.regulations.gov, please submit the
information to Louis Cupp, New Markets Policy Analyst, Office of
Investment and Innovation, Small Business Administration, 409 Third
Street SW, Washington, DC 20416, or send an email to
[email protected]. Highlight the information that you consider to be
CBI and explain why you believe SBA should hold this information as
confidential. SBA will review the information and make the final
determination on whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: Louis Cupp, New Markets Policy
Analyst, 202-619-0511, [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
A. Small Business Investment Company Program
SBA's SBIC program is designed to enhance small business access to
capital by stimulating and supplementing ``the flow of private equity
capital and long-term loan funds which small-business concerns need for
the sound financing of their business operations and for their growth,
expansion, and modernization, and which are not available in adequate
supply.'' Small Business Investment Act of 1958, as amended, 15 U.S.C.
661, et seq. (the ``Act''). The SBIC program's primary objective is to
``improve and stimulate the national economy in general and the small-
business segment thereof in particular.'' Id.
SBICs are privately owned and managed investment funds, licensed
and regulated by SBA, that use capital raised from private investors
(what SBA generally refers to as ``Regulatory Capital'') to make equity
and debt investments in qualifying small businesses. SBICs pursue
investments in a broad range of industries, geographic areas, and
stages of investment. SBA licenses many SBICs to issue SBA-guaranteed
debentures (``Debentures''), an unsecured debt instrument, typically
with a 10-year term, the repayment of which is guaranteed by SBA using
the full faith and credit of the United States. SBA typically
authorizes SBICs to issue Debentures up to a maximum of two times an
SBIC's Regulatory Capital, but not to exceed $175 million per SBIC.
Debentures are typically sold in public offerings twice a year. This
process allows SBICs to borrow at favorable interest rates and
increases the amount of investable capital available to SBICs to invest
in small businesses.
From the inception of the SBIC program to December 31, 2019, SBICs
have invested approximately $103.5 billion in approximately 184,135
financings to small businesses. In fiscal year 2019, SBICs invested
$5.86 billion in 1,191 small businesses. As of December 31, 2019, there
were a total of 299 licensed and operating SBICs with Regulatory
Capital of approximately $17 billion. In addition, as of December 31,
2019, SBA had guaranteed outstanding Debentures or had outstanding
commitments to guarantee Debentures to SBICs in the approximate
aggregate amount of $14.5 billion.
B. Part 107, Small Business Investment Companies
SBA is proposing to remove from the CFR eighteen regulations that
are no longer necessary, because the rules reflect statutes that have
been repealed, do not have any current or future applicability, or are
otherwise inefficient or unnecessary. Specifically, SBA is proposing to
remove eight regulations relating to SSBICs (also referred to as
``Section 301(d) Licensees''). Prior to 1996, Section 301(d) of the Act
authorized SBA to issue licenses to SSBICs, which were required to
invest ``solely in small business concerns which will contribute to a
well-balanced national economy by facilitating ownership in such
concerns by persons whose participation in the free enterprise system
is hampered because of social or economic disadvantages[.]'' Section
301(d) was repealed by Section 208(b)(3)(A) of Public Law 104-208,
enacted September 30, 1996 (the ``Improvement Act of 1996''). Section
208(b)(3)(B) of the Improvement Act of 1996 provided, ``[t]he repeal
under subparagraph (A) shall not be construed to require the
Administrator to cancel, revoke, withdraw, or modify any license issued
under section 301(d) of the Small Business Investment Act of 1958
before the date of enactment of this Act.'' As a result, no new SSBIC
licenses have been issued since October 1, 1996, but existing SSBICs
have been allowed to remain in the program. The Improvement Act of 1996
also repealed the special kinds of financial assistance (``Subsidized
Leverage'') that SBA previously made available to SSBICs under former
Section 303(c) of the Act. Such Subsidized Leverage was previously
available to SSBICs in the form of Debentures with an interest rate
subsidy or certain types of preferred stock (``Preferred Securities'')
with a specified dividend. Although Subsidized Leverage can no longer
be issued, the Improvement Act of 1996 did not require SSBICs to prepay
or redeem such Subsidized Leverage prior to its scheduled maturity.
Approximately six SSBICs are currently operating, but no Subsidized
Leverage
[[Page 61655]]
remains outstanding, so SBA proposes to remove the regulations related
to Subsidized Leverage. The SSBICs remaining in the program will not be
impacted by the changes proposed in this rule and, if eligible, those
SSBICs may continue to apply to issue standard Debentures.
SBA is proposing to remove four regulations relating to
Participating Securities (as defined in 13 CFR 107.50) and SBICs that
issued Participating Securities (``Participating Securities SBICs'').
The fees payable by Participating Securities SBICs were not sufficient
to cover the projected net losses of the Participating Securities
program and no funds have been appropriated for this program for over
15 years. As a result, since October 1, 2004, SBA has not been able to
issue new commitments for Participating Securities. Approximately 25
Participating Securities SBICs remain operating in the program, but the
last Participating Securities issued by Participating Securities SBICs
were required to be redeemed by February 2019. The changes proposed in
this rule will not impact any licensed Participating Securities SBIC.
SBA is proposing to remove two regulations relating to a category
of SBICs created in 2012 by regulation, in which SBICs were required to
invest at least fifty percent of their capital in early stage small
businesses (``Early Stage SBICs''). The final rule (77 FR 25042, April
27, 2012) defining this category of Early Stage SBICs stated that SBA's
intent was to license Early Stage SBICs over a 5-year period (fiscal
years 2012 through 2016). SBA published a rule on September 19, 2016
(81 FR 64075) proposing to make the Early Stage SBIC initiative a
permanent part of the SBIC program, but withdrew the proposed rule on
June 11, 2018 (83 FR 26875) because, among other things, few qualified
funds applied to the Early Stage SBIC initiative and the comments to
the proposed rule did not demonstrate broad support for a permanent
Early Stage SBIC program. SBA proposes to remove the licensing
regulations related to Early Stage SBICs since SBA is no longer
licensing these funds. The removal of these regulations will have no
impact on the Early Stage SBICs remaining in the program.
Finally, SBA is proposing to remove four regulations that are
duplicative, redundant, or otherwise inefficient or unnecessary. In
connection with this rulemaking, SBA proposes certain non-substantive
amendments to other regulations to remove internal references to the
removed regulations or make certain other clarifying changes. SBA is
also proposing one clarifying change unrelated to the removal of these
regulations, but which is required by amendments to the Act that
occurred in 2018. SBA is proposing to increase the maximum amount of
Leverage (as defined in 13 CFR 107.50) available to a single SBIC from
$150 million to $175 million.
C. Comments Received in Response To Request for Information
On August 15, 2017 (82 FR 38617), SBA published in the Federal
Register a request for information seeking input from the public on
identifying which of the Agency's regulations should be repealed,
replaced, or modified because they are obsolete, unnecessary,
ineffective, or burdensome. On October 13, 2017 (82 FR 47645), SBA
extended the comment period. SBA has reviewed the comments submitted by
the public in response to that request. Further, in an effort to obtain
additional feedback from SBIC program stakeholders, SBA held a series
of roundtables with SBICs, third-party service providers, and investors
on May 22, 2018, July 17, 2018, and August 7, 2018, respectively.
The comments SBA received addressed many aspects of the SBIC
program and provided SBA with a better understanding of certain focus-
areas of the regulations that program participants and stakeholders are
concerned about. In this rule, SBA is proposing to remove certain
regulations that commenters suggested removing--e.g., certain
Participating Securities SBIC and Early Stage SBIC regulations--and
proposing to remove certain others, which SBA believes will have broad
support among program participants. SBA understands that this
rulemaking does not address all comments and suggestions SBA has
received from the public. To that end, SBA is continuing to review the
regulations in part 107, and those in part 121 that are applicable to
the SBIC program, to determine which regulations SBA believes are most
appropriate for removal, streamlining, clarification, or updating. Once
that process is complete, SBA intends to propose certain additional
changes to its regulations.
D. Executive Order 13771
On January 30, 2017, President Trump signed Executive Order 13771,
Reducing Regulation and Controlling Regulatory Costs, which, among
other objectives, is intended to ensure that an agency's regulatory
costs are prudently managed and controlled so as to minimize the
compliance burden imposed on the public. For every new regulation an
agency proposes to implement, unless prohibited by law, this Executive
Order requires the agency to: (i) Identify at least two existing
regulations that the agency can cancel; and (ii) use the cost savings
from the cancelled regulations to offset the cost of the new
regulation. SBA believes the removal of the regulations identified
herein will make part 107 less confusing and less burdensome for the
reader and quantifies the amount of cost savings that may result from
this rulemaking in the Executive Order 13771 discussion in Section III
below.
E. Executive Order 13777
On February 24, 2017, the President issued Executive Order 13777,
Enforcing the Regulatory Reform Agenda, which further emphasized the
goal of the Administration to alleviate the regulatory burdens placed
on the public. Under Executive Order 13777, agencies must evaluate
their existing regulations to determine which ones should be repealed,
replaced, or modified. In doing so, agencies should focus on
identifying regulations that, among other things: Eliminate jobs or
inhibit job creation; are outdated, unnecessary, or ineffective; impose
costs that exceed benefits; create a serious inconsistency or otherwise
interfere with regulatory reform initiatives and policies; or are
associated with Executive Orders or other Presidential directives that
have been rescinded or substantially modified. SBA has engaged in this
process and has identified the regulations in this rulemaking as
appropriate for removal in accordance with Executive Order 13777.
II. Section by Section Analysis
A. Section 107.50--Definition of Terms
SBA is proposing to amend 13 CFR 107.50 to revise the definition of
``Venture Capital Financing.'' Currently, this definition states that
the term is as defined in 13 CFR 107.1160. SBA is proposing to remove
13 CFR 107.1160, but needs to retain this definition in the regulations
because other sections use the defined term. Therefore, SBA is
proposing to move the current definition in 13 CFR 107.1160 to 13 CFR
107.50. SBA is not proposing substantive changes to the definition.
In addition, SBA is proposing to revise the definition of ``Early
Stage SBIC'' in 13 CFR 107.50 to remove the reference to 13 CFR
107.310, because SBA is proposing to remove that regulation. SBA is
proposing to revise the definition to clarify that an Early Stage SBIC
is one that was licensed in connection with SBA's Early Stage SBIC
[[Page 61656]]
initiative. SBA is also proposing to revise the definition to reference
redesignated 13 CFR 107.1810(f)(10) rather than current 13 CFR
107.1810(f)(11) but is not proposing any substantive changes to the
definition.
B. Section 107.120--Special Rules for a Section 301(d) Licensee Owned
by Another Licensee
This regulation currently addresses the requirements for ownership
of an SSBIC by another SBIC. SBA no longer licenses SSBICs and no SBIC
has utilized the structure authorized under this regulation in the
recent history of the program. Further, because Subsidized Leverage is
no longer available to SSBICs, such a structure would provide little to
no benefit to an SBIC, economic or otherwise. For that reason, SBA
believes that no SBIC will seek to be structured in the form authorized
under this regulation going forward and, accordingly, proposes to
remove this section.
C. Section 107.160--Special Rules for Licensees Formed as Limited
Partnerships
This regulation currently provides for special rules applicable to
SBICs formed as limited partnerships. SBA is not proposing substantive
changes to this regulation. Rather, since this regulation contains a
reference to a regulation that SBA is proposing to remove, 13 CFR
107.460, SBA is proposing to amend subsection (d) of 13 CFR 107.160
solely to remove this reference.
D. Section 107.250--Exclusion of Stock Options Issued by Licensee From
Management Expenses
This regulation currently provides that stock options issued by any
SBIC are not considered compensation and do not count as part of an
SBIC's management expenses. Substantially all SBICs are formed as
limited partnerships, which do not issue stock options. Further,
Management Expenses are expressly defined in current 13 CFR 107.520(a),
and that definition does not include stock options. Accordingly, the
few SBICs formed as corporations do not rely on current 13 CFR 107.250.
SBA proposes to remove this section, because it is no longer necessary.
E. Section 107.310--When and How To Apply for Licensing as an Early
Stage SBIC
This regulation currently sets forth the application procedures for
Early Stage SBIC applicants. As described above, SBA no longer licenses
Early Stage SBICs. Therefore, SBA proposes to remove this section.
F. Section 107.320--Evaluation of Early Stage SBICs
This regulation currently sets forth the special evaluation
requirements for Early Stage SBIC applicants. Since SBA no longer
licenses Early Stage SBICs, SBA is proposing to remove this section.
G. Section 107.460--Restrictions on Common Control or Ownership of Two
(or More) Licensees
This regulation currently provides that certain individuals and
entities may not, without SBA's prior written approval, exercise
control over, or have a greater than ten percent beneficial ownership
interest in, two or more SBICs. This regulation is duplicative of the
requirements in other SBA regulations. Specifically, sections 107.160,
107.400, and 107.410 require SBA prior approval for any individual or
entity to exercise control over, or have a greater than ten percent
beneficial ownership interest in, any individual SBIC. Accordingly,
this section is not necessary, and SBA proposes to remove it.
H. Section 107.585--Voluntary Decrease in Licensee's Regulatory Capital
SBA does not propose substantive changes to this section but
proposes to amend this section to remove internal references to 13 CFR
107.1160 and 107.1170, which sections SBA is proposing to remove in
this rulemaking.
I. Sections 107.830--Minimum Duration/Term of Financing and 107.840--
Maximum Term of Financing
13 CFR 107.830 (Minimum duration/term of financing) and 13 CFR
107.840 (Maximum term of Financing) each address the term of financing
permissible in the SBIC Program--the minimum term and maximum term,
respectively. SBA believes that having two regulations that address the
same concept is inefficient. Accordingly, SBA is proposing to
streamline these regulations by moving the substance of section 107.840
into section 107.830 and proposes to remove section 107.840. SBA does
not intend any substantive changes to the minimum or maximum term of
financing permitted under the regulations.
J. Section 107.1120--General Eligibility Requirements for Leverage
Subsection (d) of this regulation currently requires, in connection
with any Leverage draw that would cause an SBIC and any other commonly
controlled SBIC to have aggregate outstanding Leverage in excess of
$150 million, that the SBIC drawing such Leverage certify that none of
the commonly controlled SBICs has a condition of capital impairment.
Consistent with the Small Business Investment Opportunity Act of 2017
(Pub. L. 115-187, June 21, 2018), which increased the maximum amount of
Leverage available to a single SBIC from $150 million to $175 million,
SBA proposes to amend this regulation to revise the dollar amount from
$150 million to $175 million. In addition, in connection with the
proposed redesignation of certain regulations discussed below, SBA is
proposing to amend a reference in subsection (k) of this regulation to
refer to 13 CFR 107.1810(f)(10). SBA is not proposing any substantive
changes to subsection (k).
K. Section 107.1140--Licensee's Acceptance of SBA Remedies Under
Sec. Sec. 107.1800 Through 107.1820
This regulation provides that all SBICs issuing Leverage after
April 25, 1994, automatically agree to the terms and conditions in
sections 107.1800 through 107.1820, as they exist at the time of
issuance. The section is duplicative of 13 CFR 107.1800, 13 CFR
107.1810 and 13 CFR 107.1820. SBA proposes to remove the section
because it is unnecessary. For the avoidance of doubt, all outstanding
Leverage remains subject to 13 CFR 107.1810 or 107.1820, as applicable.
L. Section 107.1150--Maximum Amount of Leverage for a Section 301(c)
Licensee
This regulation currently addresses the maximum amount of Leverage
that SBICs other than SSBICs and Early Stage SBICs may draw. SBA is
proposing three changes to this section. First, consistent with the
Small Business Investment Opportunity Act of 2017 (Pub. L. 115-187,
June 21, 2018), SBA proposes to amend this regulation to increase the
maximum amount of Leverage available to a single SBIC from $150 million
to $175 million. Second, SBA proposes to amend this regulation to make
it expressly applicable to Section 301(d) Licensees. Currently, 13 CFR
107.1160 (the regulation that applies to Subsidized Leverage for
Section 301(d) Licensees) limits Section 301(d) Licensees to the
maximum amount of non-Subsidized Leverage available to Section 301(c)
licensees. Because SBA is proposing in this rulemaking to remove 13 CFR
107.1160, SBA is proposing to amend 13 CFR 107.1150 to clarify that it
applies to Section 301(d) Licensees. Third, SBA is proposing to remove
13 CFR 107.1150(d)(2). Paragraph (d)(2) implemented Section
303(b)(2)(C)(ii) of
[[Page 61657]]
the Act, which gave SBICs access to additional Leverage if they made at
least fifty percent (in dollar amount) of their investments in low-
income geographic areas. See Public Law 111-5 (Feb. 17, 2009). When the
maximum Leverage available under Section 303(b)(2)(A)(ii) of the Act to
an individual SBIC and under Section 303(b)(2)(B) of the Act to SBICs
under common control was increased to $175 million (Pub. L. 115-187,
June 21, 2018) and $350 million (Pub. L. 114-113, Dec. 18, 2015),
respectively, no corresponding change was made to Section
303(b)(2)(C)(ii). As a result, the maximum Leverage limits set forth in
that Section of the Act and the implementing regulation at 13 CFR
107.1150(d)(2) are currently lower than the maximum amounts of Leverage
available to all debenture SBICs. Paragraph (d)(2) of the regulation,
therefore, is not necessary and SBA proposes to remove it.
M. Section 107.1160--Maximum Amount of Leverage for a Section 301(d)
Licensee
This regulation currently addresses Subsidized Leverage for Section
301(d) Licensees. No Section 301(d) Licensee currently has any form of
Subsidized Leverage outstanding, and, as a result of the Improvement
Act of 1996 discussed above, no Section 301(d) Licensee is authorized
to issue or draw Subsidized Leverage in the future. SBA proposes to
remove this section because it is no longer necessary.
N. Section 107.1170--Maximum Amount of Participating Securities for Any
Licensee
This regulation addresses the maximum amount of Participating
Securities an SBIC may issue. As discussed above, since October 1,
2004, SBA has not been able to issue new commitments for Participating
Securities. Because this section is no longer necessary, SBA proposes
to remove it.
O. Sections 107.1400--107.1450 Preferred Securities Leverage--Section
301(d) Licensees
Sections 107.1400 through 107.1450 currently address Subsidized
Leverage for Section 301(d) Licensees. No Section 301(d) Licensee
currently has any form of Subsidized Leverage outstanding, and, as a
result of the Improvement Act of 1996 discussed above, no Section
301(d) Licensee is authorized to issue or draw Subsidized Leverage in
the future. SBA proposes to remove these sections because they are no
longer necessary.
P. Section 107.1585--Exchange of Debentures for Participating
Securities
This section currently addresses the requirements of an exchange of
Debentures for Participating Securities. No Participating Securities
will be issued in the future. This section, therefore, is obsolete, and
SBA proposes to remove it.
Q. Section 107.1590--Special Rules for Companies Licensed on or Before
March 31, 1993
This regulation applies to SBICs licensed on or before March 31,
1993, that apply to issue Participating Securities. No SBIC may apply
to issue Participating Securities and this rule does not have any
current applicability. SBA proposes to remove this section.
R. Section 107.1810--Events of Default and SBA's Remedies for
Licensee's Noncompliance With Terms of Debentures
SBA proposes to remove 13 CFR 107.1810(f)(9) in its entirety, which
is an event of default based solely on the failure to satisfy the
investment ratios required under 13 CFR 107.1160(c), a regulation which
SBA is proposing to remove in this rulemaking.
S. Section 107.1820--Conditions Affecting Issuers of Preferred
Securities and/or Participating Securities
SBA is proposing to amend 13 CFR 107.1820(e)(9) to remove the
events of default triggered by noncompliance with 13 CFR 107.1160, a
regulation which SBA is proposing to remove in this rulemaking.
T. Section 107.1850--Exceptions to Capital Impairment provisions for
Licensees With Outstanding Participating Securities
This regulation currently provides for a forbearance period from
application of SBA's capital impairment regulations for Participating
Securities SBICs but only up to the first six years after the first
issuance of Participating Securities. Since the last Participating
Securities were required to be redeemed in February of 2019, this
section has not applied to any SBIC for at least four years. This
section is obsolete, and SBA proposes to remove it.
III. Compliance With Executive Orders 12866, 13771, 12988, and 13132,
the Paperwork Reduction Act (44 U.S.C., Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
A. Executive Order 12866
The Office of Management and Budget (``OMB'') has determined that
this proposed rule does not constitute a significant regulatory action
for purposes of Executive Order 12866 and is not a major rule under the
Congressional Review Act, 5 U.S.C. 801, et seq.
B. Executive Order 13771
This proposed rule is expected to be an Executive Order 13771
deregulatory action with an annualized net savings of $16,694 and a net
present value of $238,485, both in 2016 dollars. This rule would remove
information that is redundant or about obsolete programs, which would
reduce confusion around whether these programs still exist. In
addition, SBA proposes to increase the maximum amount of Leverage
available to a single SBIC from $150 million to $175 million,
consistent with the Small Business Investment Opportunity Act of 2017
(Pub. L. 115-187, June 21, 2018).
There are currently 300 SBIC licensees in operation. These
calculations assume that 20% of SBIC licensees (60) read the
regulations per year and that they will save 4 hours each from reading
less burdensome and less confusing regulations because they will no
longer contain obsolete information. This time is valued at $75.57 per
hour--the median wage of an attorney based on 2018 Bureau of Labor
Statistics (``BLS'') data adding 30% more for benefits. This produces
total savings per year of $18,137.
In the first year this rule is published, it is expected that 25%
of existing SBIC licensees (75) will read this Federal Register notice,
which will take 2 hours to read. Assuming $75.57 per hour, the cost in
the first year will be $11,336. This cost is not expected to continue
into subsequent years.
Quantifying the effect of an increase in the maximum amount of
Leverage available to a single SBIC is difficult, but this will provide
SBICs more flexibility and will be beneficial to these entities.
Table 1 displays the costs and savings of this rule over the first
two years it is published, with the savings and costs in the second
year expected to continue into perpetuity. Table 2 presents the
annualized net savings in 2016 dollars.
Table 1--Schedule of Costs/(Savings) Over 2 Year Horizon, Current
Dollars
------------------------------------------------------------------------
Savings Costs
------------------------------------------------------------------------
Year 1........................................ 240 hours 150 hours
($18,137) $11,336
Year 2........................................ 240 hours 0 hours
($18,137) $0
------------------------------------------------------------------------
[[Page 61658]]
Table 2--Annualized Savings in Perpetuity With 7% Discount Rate, 2016
Dollars
------------------------------------------------------------------------
Estimate
------------------------------------------------------------------------
Annualized Savings......................................... ($17,406)
Annualized Costs........................................... 712
Annualized Net Savings..................................... (16,694)
------------------------------------------------------------------------
C. Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
D. Executive Order 13132
This proposed rule does not have federalism implications as defined
in Executive Order 13132. It would not have substantial direct effects
on the States, on the relationship between the national government and
the States, or on the distribution of power and responsibilities among
the various levels of government, as specified in the Executive Order.
As such it does not warrant the preparation of a Federalism Assessment.
E. Paperwork Reduction Act, 44 U.S.C., Ch. 35
SBA has determined that this proposed rule does not affect any
existing collection of information and does not propose any new
collection of information.
F. Regulatory Flexibility Act, 5 U.S.C. 601-612
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (``RFA'') requires the agency to ``prepare and make
available for public comment an initial regulatory flexibility
analysis'' that will ``describe the impact of the proposed rule on
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an
agency to certify a rule, in lieu of preparing an analysis, if the
proposed rulemaking is not expected to have a significant economic
impact on a substantial number of small entities.
There are currently 300 SBIC licensees in operation and this rule
can affect all SBIC licensees. This rule would remove regulations that
are no longer necessary, because they are either redundant, inefficient
or obsolete. These changes will afford these entities more certainty on
how to operate their business in a regulated environment. The
annualized net savings to these SBIC licensees is about $16,694 in
current dollars or $56 per SBIC licensee, as quantified in 2016 dollars
in the Executive Order 13771 discussion above. Quantifying the effect
of an increase in the maximum amount of Leverage available to a single
SBIC is difficult, but this will provide SBICs more flexibility and
will be beneficial to these entities.
Therefore, SBA hereby certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
SBA invites comments from the public on this certification.
List of Subjects in 13 CFR Part 107
Investment companies, Loan programs-business, Reporting and
recordkeeping requirements, Small businesses.
Accordingly, for the reasons stated in the preamble, SBA proposes
to amend 13 CFR part 107 as follows:
PART 107--SMALL BUSINESS INVESTMENT COMPANIES
0
1. The authority citation for part 107 is revised to read as follows:
Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.
0
2. Amend Sec. 107.50 by revising the definitions of ``Early Stage
SBIC'' and ``Venture Capital Financing'' to read as follows:
Sec. 107.50 Definition of terms.
* * * * *
Early Stage SBIC means a Section 301(c) Partnership Licensee,
licensed pursuant to SBA's Early Stage initiative, in which at least 50
percent of all Loans and Investments (in dollars) must be made to Small
Businesses that are ``early stage'' companies at the time of the
Licensee's initial Financing (see also Sec. 107.1810(f)(10)). For the
purposes of this definition, an ``early stage'' company is one that has
never achieved positive cash flow from operations in any fiscal year.
* * * * *
Venture Capital Financing means an investment represented by common
or preferred stock, a limited partnership interest, or a similar
ownership interest; or by an unsecured debt instrument that is
subordinated by its terms to all other borrowings of the issuer. A debt
secured by any agreement with a third party is not a Venture Capital
Financing, whether or not you have a security interest in any asset of
the third party or have recourse against the third party. A Financing
that originally qualified as a Venture Capital Financing will continue
to qualify (at its original cost), even if you later must report it on
SBA Form 468 under either Assets Acquired in Liquidation of Portfolio
Securities or Operating Concerns Acquired.
* * * * *
Sec. 107.120 [Removed and Reserved]
0
3. Remove and reserve Sec. 107.120.
0
4. Amend Sec. 107.160(d) by revising the second sentence to read as
follows:
Sec. 107.160 Special rules for Licensees formed as limited
partnerships.
* * * * *
(d) * * * The term Licensee, as used in Sec. Sec. 107.30 and
107.680, includes all of the Licensee's Control Persons. * * *
* * * * *
Sec. Sec. 107.250, 107.310, 107.320, and 107.460 [Removed and
Reserved]
0
5. Remove and reserve Sec. Sec. 107.250, 107.310, 107.320, and
107.460.
0
6. Amend Sec. 107.585 by revising the second sentence to read as
follows:
Sec. 107.585 Voluntary decrease in Licensee's Regulatory Capital.
* * * At all times, you must retain sufficient Regulatory Capital
to meet the minimum capital requirements in the Act and Sec. 107.210,
and sufficient Leverageable Capital to avoid having excess Leverage in
violation of section 303 of the Act and Sec. 107.1150.
0
7. Amend Sec. 107.830 by revising the section heading, and paragraphs
(a) and (c)(1) to read as follows:
Sec. 107.830 Duration/term of financing.
(a) General rule. The duration/term of all your Financings must be
for a minimum period of one year and the maximum term of any Loan or
Debt Security Financing must be no longer than 20 years.
* * * * *
(c) * * *
(1) Term. The term for Loans and Debt Securities starts with the
first disbursement of the Financing.
* * * * *
Sec. 107.840 [Removed and Reserved]
0
8. Remove and reserve Sec. 107.840.
0
9. Amend Sec. 107.1120 by revising paragraphs (d) and (k) to read as
follows:
Sec. 107.1120 General eligibility requirements for Leverage.
* * * * *
(d) For any Leverage draw that would cause you and any other
Licensees under Common Control to have aggregate outstanding Leverage
in excess of $175 million, certify that none of the Licensees has a
condition of Capital Impairment. See also Sec. 107.1150(b).
* * * * *
[[Page 61659]]
(k) If you are an Early Stage SBIC, certify in writing that in
accordance with Sec. 107.1810(f)(10), at least 50 percent of the
aggregate dollar amount of your Financings will be provided to ``early
stage'' companies as defined under the definition of Early Stage SBIC
in Sec. 107.50 of this part.
Sec. 107.1140 [Removed and Reserved]
0
10. Remove and reserve Sec. 107.1140.
0
11. Amend Sec. 107.1150 by:
0
a. Revising the section heading;
0
b. Revising the first sentence of the introductory paragraph;
0
c. Revising paragraph (a)(2);
0
d. Revising the second sentence of paragraph (b); and
0
e. Removing paragraph (d)(2).
The revisions read as follows:
Sec. 107.1150 Maximum amount of Leverage. A Licensee, other than an
Early Stage SBIC, may have maximum outstanding Leverage as set forth in
paragraphs (a), (b), (d), and (e) of this section. * * *
(a) * * *
(2) $175 million.
(b) * * * However, for any Leverage draw(s) by one or more such
Licensees that would cause the aggregate outstanding Leverage to exceed
$175 million, each of the Licensees under Common Control must certify
that it does not have a condition of Capital Impairment. See also Sec.
107.1120(d).
* * * * *
Sec. Sec. 107.1160, 107.1170, 107.1400 through 107.1450, 107.1585,
and 107.1590 [Removed and Reserved]
0
12. Remove and reserve Sec. 107.1160, 107.1170, 107.1400 through
107.1450, 107.1585, and 107.1590.
Sec. 107.1810 [Amended]
0
13. Amend Sec. 107.1810 by removing paragraph (f)(9) and redesignating
paragraphs (f)(10) through (f)(12) as (f)(9) through (f)(11).
0
14. Amend Sec. 107.1820 by revising paragraph (e)(9) to read as
follows:
Sec. 107.1820 Conditions affecting issuers of Preferred Securities
and/or Participating Securities.
* * * * *
(e) * * *
(9) Failure to meet investment requirements. You fail to make the
amount of Equity Capital Investments required for Participating
Securities (Sec. 107.1500(b)(4)), if applicable to you.
* * * * *
Sec. 107.1850 [Removed and Reserved]
0
15. Remove and reserve Sec. 107.1850.
Jovita Carranza,
Administrator.
[FR Doc. 2020-19432 Filed 9-29-20; 8:45 am]
BILLING CODE P
