[Federal Register Volume 79, Number 141 (Wednesday, July 23, 2014)]
[Notices]
[Pages 42846-42847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17267]
[[Page 42846]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31160; 812-14249]
Stellus Capital Investment Corporation, et al.; Notice of
Application
July 17, 2014.
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: Stellus Capital Investment Corporation (the
``Company''), Stellus Capital Management, LLC (the ``Investment
Adviser''), Stellus Capital SBIC GP, LLC (the ``General Partner''), and
Stellus Capital SBIC LP (``Stellus SBIC'').
SUMMARY: Summary of the Application: The Company requests an order to
permit it to adhere to a modified asset coverage requirement.
DATES: Filing Dates: The application was filed December 12, 2013, and
amended on April 2, 2014 and July 9, 2014.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on August 11, 2014 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: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants: Robert T. Ladd,
Stellus Capital Investment Corporation, 4400 Post Oak Parkway, Suite
2200, Houston, Texas 77027.
FOR FURTHER INFORMATION CONTACT: Aaron T. Gilbride, Attorney-Adviser,
at (202) 551-6906, or Melissa R. Harke, Branch Chief, at (202) 551-6722
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or 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's investment objective is to maximize
total return to its stockholders in the form of current income and
capital appreciation by primarily investing in private middle-market
companies (typically with $5 million to $50 million of earnings before
interest, taxes, depreciation and amortization) through first lien,
second lien, unitranche and mezzanine debt financing and corresponding
equity investments. 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. Stellus SBIC, a Delaware limited partnership, is a small
business investment company (``SBIC'') licensed by the Small Business
Administration (``SBA'') under the Small Business Investment Act of
1958 (``SBIA''). Stellus SBIC is excluded from the definition of
investment company by section 3(c)(7) of the Act. The Company currently
owns a 99 percent limited partnership interest in Stellus SBIC. The
General Partner, a Delaware limited liability company, is the general
partner of Stellus SBIC. The General Partner owns 1 percent of Stellus
SBIC in the form of a general partnership interest.
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 exemption 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 the SBIC Subsidiary, 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 Stellus 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 Stellus
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
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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 Stellus SBIC or any other SBIC
Subsidiary to issue or sell any senior security of which the Company,
Stellus 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, Stellus 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 an SBIC Subsidiary if that SBIC Subsidiary has issued
indebtedness that is held or guaranteed by the SBA shall not be
considered senior securities and, for purposes of the definition of
``asset coverage'' in section 18(h), shall be treated as indebtedness
not represented by senior securities.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17267 Filed 7-22-14; 8:45 am]
BILLING CODE 8011-01-P