[Federal Register Volume 76, Number 199 (Friday, October 14, 2011)]
[Notices]
[Pages 63960-63964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26525]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-29831; 812-13695]
NGP Capital Resources Company, et al.; Notice of Application
October 7, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 57(a)(4) and
57(i) of
[[Page 63961]]
the Investment Company Act of 1940 (the ``Act'') and rule 17d-1 under
the Act to permit certain joint transactions otherwise prohibited by
section 57(a)(4) of the Act.
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SUMMARY: Summary of Application: Applicants request an order to permit
a business development company (``BDC'') to co-invest with certain
affiliates in portfolio companies.
Applicants: NGP Capital Resources Company (the ``Company''), NGP
Co-Investment Opportunity Fund, LP (``NGPC'') and NGP Investment
Advisor, L.P. (the ``Adviser'').
DATES: Filing Dates: The application was filed on September 8, 2009,
and amended on December 17, 2009, January 5, 2011, August 25, 2011, and
October 6, 2011.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on November 1, 2011, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
St., NE., Washington, DC 20549-1090. Applicants: c/o Stephen K.
Gardner, NGP Capital Resources Company, 1221 McKinney Street, Suite
2975, Houston, TX 77010.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817, or Janet M. Grossnickle, Assistant Director, at (202)
551-6821 (Office of Investment Company Regulation, Division of
Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Company, a Maryland corporation, is an externally managed,
non-diversified, closed-end management investment company that has
elected to be regulated as a BDC under the Act.\1\ The Company's
investment objective is to generate both current income and capital
appreciation primarily through debt investments with certain equity
components. The Company's operations are conducted by the Adviser. The
Company has a five-member board of directors (``Board'') of which three
members are not interested persons of the Company within the meaning of
section 2(a)(19) of the Act (``Independent Directors'').
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\1\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
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2. NGPC is organized as a limited partnership and, in reliance on
the exclusion from the definition of investment company contained in
section 3(c)(1), it is anticipated that NGPC will not register under
the Act. NGP Energy Capital Management, LLC (the ``Affiliated
Adviser'') owns 99.9% of the ownership interest in NGPC, with the
Company's administrator, NGP Administration, LLC (the
``Administrator''), owning the remaining 0.1%. The Affiliated Adviser's
99.9% ownership interest will be diluted as NGPC offers its interests
to outside investors. NGPC has not commenced operations and does not
anticipate doing so unless and until the relief sought by this
application is obtained. NGPC and any Future Co-Investment Affiliate
(as defined below) will operate pursuant to an investment objective and
investment strategies that are identical to those of the Company. The
Adviser will manage the investment activities of NGPC.
3. Applicants state that as of August 15, 2011, the Company's
capital available for investment was $145 million. The Company does not
have any specific plans to raise additional capital but may do so in
the future to the extent there are opportunities. Applicants also state
that NGPC anticipates raising $250 to $500 million in a private
offering.
The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Affiliated Adviser owns 99.9% of
the ownership interest in the Adviser, with the Administrator owning
the remaining 0.1%. The Adviser may in the future advise other entities
that are affiliated persons of the Company, as defined in section
2(a)(3)(C) of the Act (the ``Future Co-Investment Affiliates,'' and
together with NGPC, the ``Co-Investment Affiliates'').\2\ Applicants
request relief permitting the Company and the Co-Investment Affiliates
to co-invest in portfolio companies (the ``Co-Investment Program'' and
each investment, a ``Co-Investment Transaction'').\3\ In selecting
investments for the Company the Adviser will consider only the
investment objective, investment strategies, investment position,
capital available for investment, and other pertinent factors
applicable to the Company. Likewise, when selecting investments for the
Co-Investment Affiliates, the Advisor will consider only the investment
objective, investment strategies, investment position, capital
available for investment, and other pertinent factors applicable to the
Co-Investment Affiliates. However, as the Company and the Co-Investment
Affiliates have the same investment objectives and investment
strategies, the Adviser anticipates that any investment that is an
appropriate investment for one entity will be an appropriate investment
for the other. Applicants state that under the Co-Investment Program,
co-investments between the Company and the Co-Investment Affiliates
would be the norm, rather than the exception. The Company, NGPC and any
Future Co-Investment Affiliate will disclose in offering documents and
periodic financial reports that they will routinely co-invest with each
other pursuant to the Co-Investment Program and will disclose how Co-
Investment Transactions will be allocated.
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\2\ Section 2(a)(3)(C) defines an ``affiliated person'' of
another person as any person directly or indirectly controlling,
controlled by, or under common control with, such other person.
\3\ All existing entities that currently intend to rely on the
order have been named as applicants and any future entities that may
rely on the order in the future will comply with its terms and
conditions.
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4. Under the Co-Investment Program, each Co-Investment Transaction
would be allocated among the Company and the Co-Investment Affiliates
based upon on the relative capital of each entity available for
investment (``Available Capital'').\4\ These relative allocation
percentages (``Relative Allocation Percentages'') would be approved
each quarter or, as necessary or appropriate, between quarters by both
the full Board and the required majority (within the meaning of Section
57(o)) (the ``Eligible
[[Page 63962]]
Directors'').\5\ The Company will not deviate from its co-investment
policies except as may be required by applicable law.\6\ The Co-
Investment Program as a whole has been approved by both the full Board
and the Eligible Directors. The Relative Allocation Percentages will be
approved by both the full Board and the Eligible Directors prior to the
implementation of the Co-Investment Program, and any deviations from
the Relative Allocation Percentages for any investment, by the Company
or the Co-Investment Affiliates, would require prior approval by both
the full Board and the Eligible Directors.
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\4\ ``Available Capital'' consists solely of liquid assets not
held for permanent investment, including cash, amounts that can
currently be drawn down from lines of credit, and marketable
securities held for short-term purposes. In addition, for the Co-
Investment Affiliates, Available Capital would include bona fide
uncalled capital commitments that can be called by the settlement
date of the Co-Investment Transaction.
\5\ The term ``Eligible Directors,'' when used with respect to
the approval of a proposed transaction, plan, or arrangement, means
both a majority of a BDC's directors or general partners who have no
financial interest in such transaction, plan, or arrangement and a
majority of such directors or general partners who are not
interested persons of such company.
\6\ Applicants are not aware of any such requirement at this
time.
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Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in a joint transaction with the BDC in
contravention of rules as prescribed by the Commission. In addition,
under section 57(b)(2) of the Act, any person who is directly or
indirectly controlling, controlled by or under common control with a
BDC is subject to section 57(a)(4). Applicants state that the Co-
Investment Affiliates could be deemed to be a person related to the
Company in a manner described by section 57(b) by virtue of their being
under common control with the Company. Section 57(i) of the Act
provides that, until the Commission prescribes rules under section
57(a)(4), the Commission's rules under section 17(d) of the Act
applicable to registered closed-end investment companies will be deemed
to apply. Because the Commission has not adopted any rules under
section 57(a)(4), rule 17d-1 applies.
2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons of a registered investment company from
participating in joint transactions with the company unless the
Commission has granted an order permitting such transactions. Rule 17d-
1, as made applicable to BDCs by section 57(i), prohibits any person
who is 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 other joint arrangement or
profit-sharing plan in which the BDC is a participant, absent an order
from the Commission. In passing upon applications under rule 17d-1, the
Commission considers whether the company's participation in the joint
transaction is consistent with the provisions, policies, and purposes
of the Act and the extent to which such participation is on a basis
different from or less advantageous than that of other participants.
3. Applicants state that allowing co-investment in portfolio
companies by the Company and the Co-Investment Affiliates will increase
favorable investment opportunities for the Company. The Co-Investment
Program has been approved by the Board and the Eligible Directors on
the basis that it would be mutually advantageous for the Company to
have the additional capital from the Co-Investment Affiliates available
to meet the funding requirements of attractive investments in portfolio
companies.
4. Applicants state that the formulae for the allocation of co-
investment opportunities among the Company and Co-Investment
Affiliates, and the protective conditions set forth below will ensure
that the Company will be treated fairly. Applicants state that the
Company's participation in the Co-Investment Transactions will be
consistent with the provisions, policies, and purposes of the 1940 Act
and on a basis that is not different from or less advantageous than
that of other participants.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each time the Adviser considers an investment for the Co-
Investment Affiliates, the Adviser will make an independent
determination of the appropriateness of the investment for the Company.
2. (a) If the Adviser deems that the Company's participation in the
investment is appropriate, then such investment will be made pursuant
to the Relative Allocation Percentages, unless the Adviser determines
that investment pursuant to the Relative Allocation Percentages is not
appropriate for that investment. The Relative Allocation Percentages
will be determined by both the full Board and the Eligible Directors in
advance and will be based upon the Available Capital of the Company, on
the one hand, and the Co-Investment Affiliates, on the other hand. The
Relative Allocation Percentages will be approved each quarter, or as
necessary or appropriate, between quarters, by both the full Board and
the Eligible Directors, and may be adjusted, for subsequent
transactions, in their sole discretion for any reason, including, among
other things, changes in the Available Capital of the Company vis-
[agrave]-vis the Available Capital of the Co-Investment Affiliates.
(b) If the Adviser deems that the Company's participation in the
Co-Investment Transaction is appropriate, but that investment pursuant
to the Relative Allocation Percentages is not appropriate, then the
Adviser will recommend an appropriate level of investment for the
Company and the Co-Investment Affiliates. If the aggregate amount
recommended by the Adviser to be invested by the Company in such Co-
Investment Transaction, together with the amount proposed to be
invested by the Co-Investment Affiliates, exceeds the amount of the
investment opportunity, the amount proposed to be invested by the
Company will be based on a ratio of the Company's Available Capital to
the aggregate Available Capital of the Company and the Co-Investment
Affiliates, up to the maximum amount proposed to be invested by each.
The Adviser will provide the Eligible Directors with information
concerning the Company's and the Co-Investment Affiliates' Available
Capital to assist the Eligible Directors with their review of the
Company's investments for compliance with these allocation procedures.
After making the determinations required in this paragraph (b), the
Adviser will distribute written information concerning the Co-
Investment Transaction, including the amount proposed to be invested by
the Co-Investment Affiliates, to the Independent Directors for their
consideration. Outside of the Relative Allocation Percentages, the
Company will co-invest with the Co-Investment Affiliates only if, prior
to the Company's and the Co-Investment Affiliates' participation in the
Co-Investment Transaction, the Eligible Directors conclude that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair and do not involve overreaching of the
Company or its stockholders on the part of any person concerned;
(ii) the transaction is consistent with
(A) the interests of the stockholders of the Company; and
(B) the Company's investment objectives and policies (as described
in the Company's registration statements on Form N-2 and other filings
made with the Commission by the Company under the Securities Act of
1933, as amended (``Securities Act''), any reports filed by the Company
with the Commission under the Securities
[[Page 63963]]
Exchange Act of 1934, as amended, and the Company's reports to
stockholders);
(iii) the investment by the Co-Investment Affiliates would not
disadvantage the Company, and participation by the Company is not on a
basis different from or less advantageous than that of the Co-
Investment Affiliates; provided, that if the Co-Investment Affiliates,
but not the Company, gains the right to nominate a director for
election to a portfolio company's board of directors or the right to
have a board observer or any similar right to participate in the
governance or management of the portfolio company, such event shall not
be interpreted to prohibit the Eligible Directors from reaching the
conclusions required by this condition (2)(b)(iii), if
(A) the Eligible Directors shall have the right to ratify the
selection of such director or board observer, if any, and
(B) the Adviser agrees to, and does, provide, periodic reports to
the Company's Board with respect to the actions of such director or the
information received by such board observer or obtained through the
exercise of any similar right to participate in the governance or
management of the portfolio company; and
(iv) the proposed investment by the Company will not benefit any
affiliated person of the Company, other than the Co-Investment
Affiliates, except (A) to the extent permitted by condition 12; (B) to
the extent permitted by section 57(k); or (C) indirectly, as a result
of an interest in securities issued by the Co-Investment Affiliates or
the Company.\7\
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\7\ Co-Investment Affiliates or an affiliate of the Co-
Investment Affiliates will not receive any fees or other
compensation in connection with the Co-Investment Affiliates' right
to nominate a director or board observer to otherwise participate in
the governance or management of the portfolio company.
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3. The Company has the right to decline to participate in any Co-
Investment Transaction or to invest less than the amount proposed.
4. Except for follow-on investments made pursuant to condition 7,
the Company will not invest in reliance on this order in any portfolio
company in which the Adviser, or any Co-Investment Affiliates or any
person controlling, controlled by, or under common control with the
Investment Adviser or the Co-Investment Affiliates is an existing
investor.
5. The Company will not participate in any Co-Investment
Transaction unless the terms, conditions, price, class of securities to
be purchased, settlement date, and registration rights will be the same
for the Company as for the Co-Investment Affiliates. The grant to the
Co-Investment Affiliates, but not the Company, of the right to nominate
a director for election to a portfolio company's board of directors,
the right to have an observer on the board of directors or similar
rights to participate in the governance or management of the portfolio
company will not be interpreted so as to violate this condition 5, if
conditions 2(b)(iii)(A) and (B) are met.\8\
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\8\ Id.
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6. Any sale, exchange, or other disposition by the Company or the
Co-Investment Affiliates of an interest in a security that was acquired
in a Co-Investment Transaction will be accomplished pro rata based on
the original investment of each participant unless the Adviser
formulates a recommendation for participation in a disposition on a
non-pro rata basis and such recommendation is approved by the Eligible
Directors on the basis that such non-pro rata disposition is in the
best interest of the Company. The Company and the Co-Investment
Affiliates will each bear its own expenses in connection with any
disposition, and the terms and conditions of any disposition will apply
equally to all participants.
7. Any ``follow-on investment'' (i.e., an additional investment in
the same entity) by the Company or the Co-Investment Affiliates, or any
exercising of warrants or other rights to purchase securities of the
issuer in a portfolio company whose securities were acquired in a Co-
Investment Transaction will be accomplished pro rata based on the
original investment of each participant, unless the Adviser formulates
a recommendation for participation in the proposed transaction on a
non-pro rata basis and such recommendation is approved by the Eligible
Directors on the basis that such non-pro rata participation is in the
best interest of the Company. The acquisition of follow-on investments
as permitted by this condition will be subject to the other conditions
set forth in the application.
8. The Independent Directors will be provided quarterly for review
all information concerning (a) all investments made by the Co-
Investment Affiliate during the preceding quarter and (b) Co-Investment
Transactions during the preceding quarter, including investments made
by the Co-Investment Affiliates which the Company considered but
declined to participate in, so that the Independent Directors may
determine whether the conditions of the order have been met.
9. The Company will maintain the records required by section
57(f)(3) of the Act as if each of the investments permitted under these
conditions were approved by the Independent Directors under section
57(f).
10. No Independent Directors will also be a director, general
partner or principal, or otherwise an ``affiliated person'' (as defined
in the Act) of, the Co-Investment Affiliates.
11. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the Securities Act) shall, to
the extent not payable by the Adviser under its investment advisory
agreements with the Co-Investment Affiliates, be shared by the Company
and the Co-Investment Affiliates in proportion to the relative amounts
of their securities to be acquired or disposed of, as the case may be.
12. Any transaction fee (including break-up or commitment fees but
excluding broker's fees contemplated by section 57(k)(2) of the Act)
received in connection with a Co-Investment Transaction will be
distributed to the Company and the Co-Investment Affiliates on a pro
rata basis based on the amount they invested or committed, as the case
may be, in such Co-Investment Transaction. If any transaction fee is to
be held by the Adviser pending consummation of the transaction, the fee
will be deposited into an account maintained by the Adviser at a bank
or banks having the qualifications prescribed in section 26(a)(1) of
the Act, and the account will earn a competitive rate of interest that
will also be divided pro rata between the Company and the Co-Investment
Affiliates based on the amount they invest in such Co-Investment
Transaction. The Co-Investment Affiliates or any affiliated person of
the Company will not receive additional compensation or remuneration of
any kind (other than (a) the pro rata transaction fees described above
and (b) investment advisory fees paid in accordance with investment
advisory agreements with the Company and the Co-Investment Affiliates)
as a result of or in connection with a Co-Investment Transaction.
[[Page 63964]]
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26525 Filed 10-13-11; 8:45 am]
BILLING CODE 8011-01-P