[Federal Register Volume 77, Number 146 (Monday, July 30, 2012)]
[Notices]
[Pages 44700-44701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-18449]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30145; 812-14022]
Saratoga Investment Corp., et al.; Notice of Application
July 23, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 18(a) and 61(a) of the Act.
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Applicants: Saratoga Investment Corp. (the ``Company''), Saratoga
Investment Advisors, LLC (the ``Investment Adviser''), Saratoga
Investment Corp. SBIC GP, LLC (the ``General Partner''), and Saratoga
Investment Corp. SBIC LP (``Saratoga SBIC'').
Summary of the Application: The Company requests an order to permit it
to adhere to a modified asset coverage requirement.
Filing Dates: The application was filed April 2, 2012. Applicants have
agreed to file an amendment during the notice period, the substance of
which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on August 17, 2012, and should be accompanied by proof of service
on the 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: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants:
535 Madison Avenue, NY, NY 10022.
[[Page 44701]]
FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at
(202) 551-6919, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the 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 business development company (``BDC'')
under the Act.\1\ The Company seeks to generate both current income and
capital appreciation on its investments primarily through mezzanine
debt, leveraged loans and to a lesser extent equity. The Investment
Adviser, a Delaware limited liability company, is the investment
adviser to the Company. The Investment Adviser is registered under the
Investment Advisers Act of 1940.
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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 section 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. Saratoga SBIC, a Delaware limited partnership, is a small
business investment company (``SBIC'') licensed by the Small Business
Administration (``SBA'') to operate under the Small Business Investment
Act of 1958 (``SBIA''). Saratoga SBIC is excluded from the definition
of investment company by section 3(c)(7) of the Act. The Company
directly owns 99% of Saratoga SBIC in the form of a limited partnership
interest and is the sole member of the General Partner. The General
Partner, a Delaware limited liability company that is a wholly-owned
subsidiary of the Company, owns 1% of Saratoga SBIC in the form of a
general partnership interest. The Company acts as manager of and
investment adviser to Saratoga SBIC.
Applicants' Legal Analysis
1. The Company requests an exemption pursuant to section 6(c) of
the Act from the provisions of sections 18(a) and 61(a) of the Act to
permit it to adhere to a modified asset coverage requirement with
respect to any direct or indirect wholly owned subsidiary of the
Company that is licensed by the SBA to operate under the SBIA as a SBIC
and relies on Section 3(c)(7) for an exception from the definition of
``investment company'' under the 1940 Act (each, a ``SBIC
Subsidiary'').\2\ Applicants state that companies operating under the
SBIA, such as SBIC Subsidiaries, will be subject to the SBA's
substantial regulation of permissible leverage in their capital
structure.
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\2\ All existing entities that currently intend to rely on the
order are named as applicants. Any other existing or future entity
that may rely on the order in the future will comply with the terms
and condition of the order.
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2. Section 18(a) of the Act prohibits a registered closed-end
investment company from issuing any class of senior security or selling
any such security of which it is the issuer unless the company complies
with the asset coverage requirements set forth in that section. Section
61(a) of the Act makes section 18 applicable to BDCs, with certain
modifications. Section 18(k) exempts an investment company operating as
an SBIC from the asset coverage requirements for senior securities
representing indebtedness that are contained in section 18(a)(1)(A) and
(B).
3. Applicants state that the Company may be required to comply with
the asset coverage requirements of section 18(a) (as modified by
section 61(a)) on a consolidated basis because the Company may be
deemed to be an indirect issuer of any class of senior security issued
by Saratoga SBIC or another SBIC Subsidiary. Applicants state that
applying section 18(a) (as modified by section 61(a)) on a consolidated
basis generally would require that the Company treat as its own all
assets and any liabilities held directly either by itself, by Saratoga
SBIC, or by another SBIC Subsidiary. Accordingly, the Company requests
an order under section 6(c) of the Act exempting the Company from the
provisions of section 18(a) (as modified by section 61(a)), such that
senior securities issued by each SBIC Subsidiary that would be excluded
from the SBIC Subsidiary's asset coverage ratio by section 18(k) if it
were itself a BDC would also be excluded from the Company's
consolidated asset coverage ratio.
4. Section 6(c) of the Act, in relevant part, permits the
Commission to exempt any transaction or class of transactions from any
provision of the Act if and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act. Applicants state that the requested relief
satisfies the section 6(c) standard. Applicants contend that, because
the SBIC Subsidiary would be entitled to rely on section 18(k) if it
were a BDC itself, there is no policy reason to deny the benefit of
that exemption to the Company.
Applicants' Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
The Company shall not issue or sell any senior security and the
Company shall not cause or permit Saratoga SBIC or any other SBIC
Subsidiary to issue or sell any senior security of which the Company,
Saratoga SBIC or any other SBIC Subsidiary is the issuer except to the
extent permitted by section 18 (as modified for BDCs by section 61) of
the Act; provided that, immediately after the issuance or sale by any
of the Company, Saratoga SBIC or any other SBIC Subsidiary of any such
senior security, the Company, individually and on a consolidated basis,
shall have the asset coverage required by section 18(a) of the Act (as
modified by section 61(a)). In determining whether the Company has the
asset coverage on a consolidated basis required by section 18(a) of the
Act (as modified by section 61(a)), any senior securities representing
indebtedness of Saratoga SBIC or another SBIC Subsidiary shall not be
considered senior securities and, for purposes of the definition of
``asset coverage'' in section 18(h), shall be treated as indebtedness
not represented by senior securities.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-18449 Filed 7-27-12; 8:45 am]
BILLING CODE 8011-01-P