As filed
with the Securities and Exchange Commission on July 9, 2010
No.
812-__________
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
APPLICATION
FOR AN ORDER PURSUANT TO SECTIONS 6(c), 57(c) AND 57(i) OF THE INVESTMENT
COMPANY ACT OF 1940, AND RULE 17d-1 THEREUNDER, GRANTING EXEMPTIONS FROM
SECTIONS 18(a), 57(a)(1), 57(a)(2) AND 61(a) OF THE ACT, AND AUTHORIZING CERTAIN
JOINT TRANSACTIONS OTHERWISE PROHIBITED BY SECTION 57(a)(4)
GOLUB
CAPITAL BDC, INC.
GC
SBIC IV – GP, INC.
GC
SBIC IV – GP, LLC
GC
SBIC IV, L.P.
LEG
PARTNERS DEBENTURE SBIC, L.P.
LEG
PARTNERS III SBIC, L.P.
and
GC
ADVISORS LLC
150 South
Wacker Drive, Suite 800
Chicago,
Illinois 60606
(312)
205-5050
All
Communications, Notices and Orders to:
David B.
Golub
GC
Advisors LLC
150 South
Wacker Drive, Suite 800
Chicago,
Illinois 60606
(312)
205-5050
Copies
to:
David J.
Harris
Thomas J.
Friedmann
DECHERT
LLP
1775 I
Street, N.W.
Washington,
D.C. 20006
July 9,
2010
UNITED
STATES OF AMERICA
Before
the
SECURITIES
AND EXCHANGE COMMISSION
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In
the Matter of:
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APPLICATION
FOR AN
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GOLUB
CAPITAL BDC, INC.
GC
SBIC IV – GP, INC.
GC
SBIC IV – GP, LLC
GC
SBIC IV, L.P.
LEG
PARTNERS DEBENTURE SBIC, L.P.
LEG
PARTNERS III SBIC, L.P.
and
GC
ADVISORS LLC
150
South Wacker Drive, Suite 800
Chicago,
Illinois 60606
(312)
205-5050
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ORDER
PURSUANT TO
SECTIONS
6(c), 57(c) AND
57(i)
OF THE INVESTMENT
COMPANY
ACT OF 1940, AND
RULE
17d-1 THEREUNDER,
GRANTING
EXEMPTIONS
FROM
SECTIONS 18(a),
57(a)(1),
57(a)(2) AND 61(a)
OF
THE ACT, AND
AUTHORIZING
CERTAIN
JOINT
TRANSACTIONS
OTHERWISE
PROHIBITED BY
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File
No. 812-_________
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SECTION
57(a)(4)
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Investment
Company Act of 1940
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Golub
Capital BDC, Inc. (the “Company”), GC Advisors LLC (the “Investment Adviser”),
GC SBIC IV – GP, Inc. (the “GP Managing Member”), GC SBIC IV – GP, LLC (the
“General Partner”), GC SBIC IV, L.P. (“Golub SBIC”), LEG Partners Debenture
SBIC, L.P. (“LEG Partners Debenture”) and LEG Partners III SBIC, L.P. (“LEG
Partners III,” and together with LEG Partners Debenture, the “Golub SBIC
Entities”) (collectively, the “Applicants”), hereby apply for an order (the
“Order”) of the U.S. Securities and Exchange Commission (the “Commission”)
pursuant to Sections 6(c), 57(c), and 57(i) of the Investment Company Act of
1940, as amended (the “1940 Act” ),1 and Rule
17d-1 thereunder,2 granting
exemptions from Sections 18(a), 57(a)(1), 57(a)(2) and 61(a), and authorizing
certain joint transactions otherwise prohibited by Section
57(a)(4).
_________________________
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Unless
otherwise indicated, all section references herein are to the 1940
Act.
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Unless
otherwise indicated, all rule references herein are to rules under the
1940 Act.
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In
particular, the relief requested in this application (the “Application”) would
permit the Company and any direct or indirect wholly owned subsidiaries of the
Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”) to engage
in certain transactions that would otherwise be permitted if the Company and its
Subsidiaries were one company, and to the extent that any of the Company’s
Subsidiaries is licensed by the U.S. Small Business Administration (“SBA”) to
operate under the Small Business Investment Act of 1958 (“SBIA”) as a small
business investment company (“SBIC”) and relies on Section 3(c)(7) for an
exemption from the definition of “investment company” under the 1940 Act (each
an “SBIC Subsidiary” and, collectively, the “SBIC Subsidiaries”), to adhere to
modified asset coverage requirements under Section 61. The
relief requested would also permit the Golub SBIC Entities, existing SBICs, to
transfer unused SBA approved commitments currently held by the Golub SBIC
Entities to Golub SBIC and permit Golub SBIC to reimburse the Golub SBIC
Entities for the one percent commitment fee they paid the SBA at the time the
commitments were issued.
Any
existing entities that currently intend to rely on the Order have been named as
Applicants, and any other existing or future entities that may rely on the Order
in the future would comply with its terms and conditions.
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I.
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GENERAL
DESCRIPTION OF APPLICANTS
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A. The
Company
The
Company was organized under the General Corporation Law of the State of Delaware
on April 13, 2010 for the purpose of operating as an externally managed,
non-diversified, closed-end management investment company that has elected to be
regulated as a business development company (“BDC”)3 under
the 1940 Act.4 In
addition, the Company has made an election to be treated for tax purposes as a
regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as
amended (the “Code”), and intends to continue to make such election in the
future. The Company’s principal place of business is 150 South Wacker
Drive, Suite 800, Chicago, Illinois 60606.
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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 1940 Act and makes available
significant managerial assistance with respect to the issuers of such
securities.
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The
Company’s predecessor and wholly owned subsidiary, Golub Capital Master
Funding LLC, a Delaware limited liability company, was formed in July
2007.
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In
connection with its initial public offering of common stock (the “IPO”),
effective April 14, 2010 the Company filed a registration statement on Form N-2
(File No. 333-163279) (the “N-2”) and a notice under Form N-6F to be subject to
Sections 55 through 65 of the 1940 Act. Effective April 13, 2010, the
Company filed a registration statement on Form 8-A to register its common stock
under Section 12 of the Securities Exchange Act of 1934, as amended (the “1934
Act”). The registration statement was declared effective on April 14,
2010. Accordingly, the Company is subject to the periodic reporting
requirements under Section 13(a) of the 1934 Act. The Company’s
common stock is listed on the NASDAQ Global Select Market and trades under the
ticker symbol “GBDC”.
The
Company seeks to maximize the total return to its stockholders through both
current income and capital appreciation through debt and minority equity
investments. The Company intends to achieve its investment objective
by (1) accessing the established loan origination channels developed by Golub
Capital Incorporated and Golub Capital Management LLC (collectively “Golub
Capital”), (2) selecting investments within its core middle-market company
focus, (3) partnering with experienced private equity firms, or sponsors, (4)
implementing the disciplined underwriting standards of Golub Capital and (5)
drawing upon the aggregate experience and resources of Golub Capital, a leading
lender to middle-market companies with more than $4.0 billion of capital as of
March 31, 2010.
The board
of directors of the Company (the “Board”) has five members, of which three
members are not “interested persons” of the Company within the meaning of
Section 2(a)(19). As of July 1, 2010, the Company had no employees
and three officers.
B. The
GP Managing Member and the General Partner
The GP
Managing Member was organized as a corporation under the laws of the state of
Delaware on July 6, 2010, and is a Subsidiary of the Company. The GP
Managing Member serves as the managing member of the General
Partner.
The
General Partner was organized as a limited liability company under the laws of
the state of Delaware on July 6, 2010, and is a Subsidiary of the
Company. The GP Managing Member and the Company are the sole members
of the General Partner. The General Partner is the general partner of
Golub SBIC.
C. Golub
SBIC
Golub
SBIC submitted an application to the SBA for a license to operate as an SBIC on
December 18, 2009 and the application was accepted for filing on January 20,
2010 (“SBIC Application”).5 The
SBIC Application is currently pending. Upon approval of the SBIC
Application and the SBA’s grant of the SBIC license to Golub SBIC, the Company
would directly own 99% of Golub SBIC in the form of a limited partner
interest. Additionally, the General Partner would own 1% of Golub
SBIC in the form of a general partner interest. Golub SBIC was
organized as a limited partnership under the laws of the state of Delaware on
July 6, 2010.
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Although
the SBIC Application was filed prior to the formation of the Company, the
SBIC Application was modified on April 23, 2010 to reflect the Company as
the parent of Golub SBIC.
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Upon
Golub SBIC’s receipt of the SBIC license, the General Partner will be the
general partner of Golub SBIC, and the Company will act as Golub SBIC’s manager
and investment adviser. Golub SBIC is not registered under the 1940
Act as it relies on the exemption from the definition of investment company
contained in Section 3(c)(7).
Golub
SBIC has the same investment objective and strategies as the Company, as
summarized above. Although Golub SBIC has not originated any debt or
equity investments as of June 30, 2010, it intends to originate such investments
in the near future and may acquire SBA approved commitments from the Golub SBIC
Entities through the Transfer (as defined below) or directly from the
SBA.
As an
SBIC, Golub SBIC will be examined periodically by the SBA’s staff to determine
its compliance with SBIC regulations. In addition, Golub SBIC will be
audited on an annual basis by a third-party accounting firm. SBICs
are designed to stimulate the flow of private equity capital to eligible small
businesses. Under present SBA regulations, eligible small businesses
include businesses that have a tangible net worth not exceeding $18 million and
have average net income after federal taxes not exceeding $6 million for the two
most recent fiscal years. In addition, an SBIC must devote generally
at least 25 percent of its investment activity to “smaller” concerns as defined
by the SBA. A smaller concern is one that has a tangible net worth
not exceeding $6 million and has average net income after federal taxes not
exceeding $2 million for the two most recent fiscal years. SBA
regulations also provide alternative size criteria to determine eligibility,
which depend on the industry in which the business is engaged and typically
include such factors as number of employees or gross sales. According
to SBA regulations, SBICs may make long-term loans to small businesses or invest
in the equity securities of such businesses. In addition to size
criteria, SBA regulations also contain other limitations, including limits
related to permitted industries, terms of investment, conflicts of interest and
co-investments.
D. The
Investment Adviser
Subject
to the overall supervision of the Board, GC Advisors, a Delaware limited
liability company that is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, will serve as the investment
adviser to the Company pursuant to an investment advisory agreement dated March
5, 2010 (as re-approved from time to time by the Board, the “Investment Advisory
Agreement”). The Investment Adviser is registered under the
Investment Advisers Act of 1940, as amended. The Investment Adviser
is a member of the Golub Capital group of companies. Affiliates of
the Investment Adviser that are managed by the same members of the Investment
Adviser’s senior management team have experience operating SBICs, including the
Golub SBIC Entities.
E. The
Golub SBIC Entities
LEG
Partners Debenture was organized as a limited partnership under the laws of the
state of Delaware on January 15, 1999 and is a subsidiary of Golub Capital
Company IV, LLC. Golub Debenture GP, LLC is the general partner of
LEG Partners Debenture. LEG Partners Debenture received a license
from the SBA to operate as an SBIC on February 5, 1999. As of March
31, 2010, LEG Partners Debenture had approximately $45 million of net
assets.
LEG
Partners III was organized as a limited partnership under the laws of the state
of Delaware on January 5, 1999 and is a subsidiary of Golub Capital Company IV,
LLC. Golub PS-GP, LLC is the general partner of LEG Partners
III. LEG Partners III received a license from the SBA to operate as
an SBIC on February 5, 1999. As of March 31, 2010, LEG Partners III
had approximately $22 million of net assets.
The Golub
SBIC Entities fund their activities by issuing equity to investors and issuing
debentures to the SBA pursuant to outstanding SBA approved
commitments. As of May 31, 2010, the Golub SBIC Entities held
approximately $85 million of unused SBA approved commitments.
Following
approval of the SBIC Application, it is anticipated that Golub SBIC will become
the primary vehicle through which Golub Capital participates in SBIC eligible
deals. In order to facilitate Golub SBIC’s investment activities, the
Golub SBIC Entities would transfer up to $60.0 million of their unused SBA
approved commitments to Golub SBIC (the “Transfer”) and Golub SBIC would
reimburse the Golub SBIC Entities for the one percent up-front commitment fee
that the Golub SBIC Entities paid to the SBA at the time the commitments were
issued. Golub SBIC would be required to pay the exact same up-front
commitment fee to the SBA were it to obtain a comparable amount of commitments
from the SBA directly.
1. Section
6(c)
Section
6(c) authorizes the Commission to exempt any person, security, or transaction or
any class or classes of persons, securities, or transactions from any provision
or provisions of the 1940 Act or any rule thereunder 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 1940 Act.
2. Section
18
Section
18(a) prohibits a registered closed-end investment company from issuing any
class of senior security or selling any such security of which it is the issuer,
unless it complies with the asset coverage requirements set forth in that
Section. “Asset coverage” is defined in Section 18(h) to mean, with
respect to a class of senior security representing an indebtedness of an issuer,
the ratio that the value of the total assets of an issuer, less all liabilities
and indebtedness not represented by senior securities, bears to the aggregate
amount of senior securities representing indebtedness of such
issuer. Under the provisions of Section 18(a)(1)(A) of the 1940 Act,
senior securities of closed-end investment companies representing indebtedness
must have an asset coverage of 300 percent immediately after their issuance or
sale. Section 61(a) of the 1940 Act applies Section 18 of the 1940
Act to a BDC to the same extent as if the BDC were a registered closed-end
investment company, subject to certain exceptions. One of the
exceptions provides that the asset coverage requirement of
Section 18(a)(1)(A) applicable to BDCs is 200 percent.
Section
18(k) makes the asset coverage and other requirements of subparagraphs (A) and
(B) of paragraph (1) of Section 18(a) inapplicable to investment companies
operating under the SBIA. However, companies operating under the
SBIA, such as SBIC Subsidiaries, are subject to the SBA’s substantial regulation
of permissible leverage in their capital structure. An SBIC with
outstanding SBA financial assistance may not incur any secured, third-party debt
or refinance any debt with secured, third-party debt without prior written
approval of the SBA. Golub SBIC and any other SBIC Subsidiary will be
regulated by the SBA and operate under the SBIA. There will be no
difference in the SBA’s regulation of Golub SBIC or other SBIC Subsidiaries due
to the fact that it and any other SBIC Subsidiaries will not be registered under
the 1940 Act or be BDCs.
3. Need for
Relief
The
Company is a closed-end investment company for purposes of Section 18 of the
1940 Act, which is made applicable to BDCs by Section 61(a)
thereof. Since Golub SBIC is, and other SBIC Subsidiaries would be,
Subsidiaries of the Company, a question exists as to whether the Company must
comply with the asset coverage requirements of Section 18(a) (as modified by
Section 61(a) for BDCs) solely on an individual basis or whether the Company
must also comply with these asset coverage requirements on a consolidated basis,
because the Company may be deemed to be an indirect issuer of any class of
senior security issued by Golub SBIC or another SBIC
Subsidiary. 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 held directly either by itself, by Golub SBIC, or by another SBIC
Subsidiary and also to treat as its own any liabilities of the Company, Golub
SBIC and the other SBIC Subsidiaries (with intercompany receivables and
liabilities eliminated).
4. Requested
Order
While the
Applicants do not concede that they must comply with the asset coverage
requirements of Section 18(a) (as modified by Section 61(a)) on a consolidated
basis, the Applicants wish to avoid any question regarding their compliance with
Section 18(a) (as modified by Section 61(a)). For the purposes of the
requested relief, and only for such purposes, the Applicants wish to treat Golub
SBIC and any other SBIC Subsidiaries as if each were a BDC subject to Sections
18 and 61 of the 1940 Act. Accordingly, the Applicants respectfully
request on behalf of themselves and any other SBIC Subsidiaries an Order of the
Commission, pursuant to Section 6(c) of the 1940 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 its
individual 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. The Applicants believe that the Order requested in this
Application would, if granted, be consistent with orders issued by the
Commission pursuant to Section 6(c) of the 1940 Act in the past.
B.
Sections 57(a)(1), 57(a)(2) and 57(c)(1)
1. Section
57(c)
Section
57(c) of the 1940 Act provides that the Commission will exempt a proposed
transaction from Section 57(a) if the terms of the proposed transaction,
including the consideration to be paid or received, are reasonable and fair and
do not involve overreaching on the part of any person concerned; and the
proposed transaction is consistent with the policy of the business development
company concerned and consistent with the general purposes of the 1940
Act. Applicants believe that the requested relief from Section 57(a)
meets these standards for the reasons discussed below.
2. Sections 57(a)(1) and
57(a)(2)
Sections
57(a)(1) and (2) of the 1940 Act make it unlawful for certain persons related to
a BDC in the manner set forth in Section 57(b), acting as principal: (1)
knowingly to sell any security or other property to the BDC or to any company
controlled by the BDC (except securities of which the buyer is the issuer or
securities of which the seller is the issuer and which are part of a general
offering to the holders of a class of its securities); or (2) knowingly to
purchase from the BDC or from any company controlled by the BDC any security
(except securities of which the seller is the issuer).
Section
57(b) specifies the persons to whom the prohibitions of Sections 57(a)(1) and
(2) apply. These persons include the following: (1) any director,
officer, employee or other member of an advisory board of the BDC or any person
who controls, is controlled by, or is under common control with, such director,
officer, employee or advisory board member; or (2) (A) any investment adviser or
promoter of, general partner in, principal underwriter for, or person directly
or indirectly either controlling, controlled by, or under common control with,
the BDC (except for the BDC itself and any person who, if it were not directly
or indirectly controlled by the BDC, would not be directly or indirectly under
the control of a person who controls the BDC), or (B) any person (i) who
controls, is controlled by, or is in common control with, such adviser,
promoter, general partner, principal underwriter, or person controlling,
controlled by, or under common control with, the BDC or (ii) who is an officer,
director, partner, co-partner or employee of such adviser, promoter, general
partner, principal underwriter or person controlling, controlled by, or under
common control with, the BDC.
Rule
57b-1 under the 1940 Act exempts certain persons otherwise related to a BDC in a
manner described in Section 57(b)(2) of the 1940 Act from being subject to the
prohibitions of Section 57(a). Specifically, this rule states that
the provisions of Section 57(a) shall not apply to any person: (a) solely
because that person is directly or indirectly controlled by a BDC or (b) solely
because that person is directly or indirectly controlling, controlled by, or
under common control with, a person described in (a) of the rule or is an
officer, director, partner, copartner or employee of a person described in (a)
of the rule.
Section
2(a)(9) of the 1940 Act defines “control” as the power to exercise a controlling
influence over the management or policies of a company, unless such power is
solely the result of an official position with such company. Section
2(a)(9) also provides that any person who owns beneficially, either directly or
through one or more controlled companies, more than 25 percent of the voting
securities of a company shall be presumed to control such company and that any
person who does not so own more than 25 percent of the voting securities of a
company shall be presumed not to control such company. Section
2(a)(9) also states that a natural person shall be presumed not to be a
controlled person.
3. Need for
Relief
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a.
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Relief to Transfer SBA
Approved Commitments from the Golub SBIC Entities to Golub
SBIC
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The Golub
SBIC Entities would be persons related to Golub SBIC in a manner described in
Section 57(b) because each Golub SBIC Entity is, either directly or indirectly,
under common control with GC Advisors, the Company’s investment adviser, and
Golub SBIC is controlled by the Company.
Following
approval of the SBIC Application and over time as the Golub SBIC Entities manage
out their investments, Golub SBIC will become Golub Capital’s primary SBIC
investment vehicle. Accordingly, the Golub SBIC Entities propose to
transfer up to $60 million of their unused SBA approved commitments to Golub
SBIC, which will reimburse the Golub SBIC Entities for the one percent up-front
commitment fee they paid to the SBA at the time the commitments were
issued. Golub SBIC would be required to pay the same up-front
commitment fee to the SBA were it to obtain such commitments directly from the
SBA. The SBA approved commitments that are the subject of the
Transfer are not assets in the traditional sense, and arguably should not be
subject to Section 57(a)’s restrictions. Moreover, because Golub SBIC
is acquiring the commitments from the Golub SBIC Entities for the amount it
would be required to pay the SBA for the same commitments in a direct
qualification, the concerns that Section 57(a) are intended to address are not
present. Nevertheless, to avoid any concern in this area, Applicants
respectfully request relief from Section 57(a)(1).
b. Relief for Transactions
Between Company and Subsidiaries
The
Company would be a person related to the Subsidiaries in a manner described in
Section 57(b) because it will, either directly or indirectly, own more than
99.9% of the voting securities of each Subsidiary. Each Subsidiary
would be a person related to the Company in a manner described in Section 57(b)
because more than 99.9% of their voting securities are or will be owned by the
Company. Each Subsidiary would also each be a person related to each
other Subsidiary in a manner described in Section 57(b) as long as they remain
under the common control of the Company.
With
respect to the prohibitions of Sections 57(a)(1) and (2), every purchase or sale
transaction between any two of the Company and a Subsidiary must be analyzed
from the point of view of each participant. For example, it is
conceivable that the acquisition by the Company of a limited partner interest in
Golub SBIC in exchange for part of the Company’s investment portfolio could be
deemed to be prohibited as: (i) a sale of a security (i.e., Golub SBIC’s limited
partner interest) to a BDC (the Company); (ii) a sale of a security (i.e., a
portfolio security of a BDC (the Company)) to Golub SBIC; and (iii) a purchase
by Golub SBIC from a BDC (the Company) of a security (a portfolio security of
the Company). Similarly, any purchase or sale transaction between
Golub SBIC and another Subsidiary could be deemed to be in violation of Section
57(a)(1) or (2). This would be the case even though the Company’s
shareholders would be the ultimate owners of all entities involved and therefore
should be indifferent to transactions among such entities. Thus,
relief is required from Sections 57(a)(1) and (2).
In
addition, there may be circumstances when it is in the interest of either the
Company or its stockholders for a Subsidiary to invest in securities of an
issuer that may be deemed to be a person related to the Company in a manner
described in Section 57(b), or for the Company to invest in securities of an
issuer that may be deemed to be a person related to a Subsidiary in a manner
described in Section 57(b), as in the case of a portfolio company deemed to be
related to the Company or a Subsidiary as a result of such person’s ownership of
more than 25% of the portfolio company’s stock. Similarly, it may be
desirable for a Subsidiary to invest in securities of an issuer that may be
deemed to be a person related to another Subsidiary in the manner described in
Section 57(b).
If the
Company were to engage in these activities other than through Subsidiaries, such
purchase or sale transactions with controlled affiliates would be permissible
without Commission approval by virtue of Rule 57b-1. The Commission
made this clear in 1980 when, in adopting Rule 57b-1, it stated in relevant
part:
However,
non-controlled portfolio affiliates of a business development company are not
among those persons whose participation in transactions with the business
development company requires Commission approval (under Section 57(c) [15 U.S.C.
80a-56(c)]) or specific statutory findings regarding the transaction by the
company’s board of directors (under Section 57(f) [15 U.S.C.
80a-56(f)]). The legislative history of the 1980 Amendments indicates
that Congress also did not intend to require Commission approval or such
specific statutory findings by the board of directors of a business development
company for transactions between the company and a controlled portfolio
affiliate. As the House Committee Report on the bill which became the
1980 Amendments states:
Conspicuously
absent from the prohibitions in Section 57 against transactions with the
business development company are persons which it controls or of which
it holds at least 5% of the outstanding securities. Also omitted from
the prohibitions are persons affiliated with such so-called “downstream
affiliates” of the business development company. In this regard, it
should be noted that the Commission has undertaken through rulemaking to exempt
all investment companies from prohibitions relating to transactions solely
between investment companies and such downstream affiliates. The
Committee again wishes to note that if experience demonstrates that under such
exclusion from statutory prohibitions investors are not being adequately
protected, the Committee would expect to revisit this area.
H.R. Rep.
No. 1341, 96th Cong., 2d Sess. 48 (1980) [“Committee Report”] (emphasis
added). However, due to an apparently inadvertent drafting error,
business development company transactions involving controlled portfolio
affiliates and certain affiliated persons of such affiliates must be approved by
the Commission. The Commission proposes to correct this error by the
instant rulemaking.6
As
pointed out in the foregoing Committee Report, even if the Company were a
registered investment company rather than a BDC, it would be exempt from
prohibitions relating to transactions between itself and its downstream
affiliates.7 Thus,
it appears that purchase or sale transactions between a BDC and its downstream
affiliates are exempt from the prohibitions of Sections 57(a)(1) and
(2).
However,
without the relief requested by this Application, purchase or sale transactions
between any of the Subsidiaries and downstream controlled affiliates of the
Company may violate Section 57(a)(1) or (2) of the 1940
Act. Similarly, purchase or sale transactions between the Company and
downstream controlled affiliates of a Subsidiary may violate Section 57(a)(1) or
(2) because Rule 57b-1 may be read to exempt from the prohibitions of Section
57(a) only those affiliates of downstream controlled affiliates of a BDC that
are affiliated within the meaning of Section 2(a)(3)(C) or (D) of the 1940
Act.8 Thus,
purchase or sale transactions between the Company and a portfolio company of
which a Subsidiary owns more than 25 percent of the outstanding voting
securities, and transactions between a Subsidiary and a portfolio company of
which the Company or a Subsidiary owns more than 25 percent of the outstanding
voting securities, might not be exempted by Rule 57b-1 from the prohibitions of
Sections 57(a)(1) and (2).
________________________
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6
|
Investment
Company Act Release No. 11493 (December 16,
1980).
|
|
7
|
See Rules 17a-6 and
17d-1(d)(5) and (6).
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|
8
|
According
to Section 2(a)(3)(C) and (D): “‘Affiliated person’ of another person
means . . . (C) any person directly or indirectly controlling,
controlled by, or under common control with, such other person; (D) any
officer, director, partner, copartner, or employee of such other
person[.]” These subsections do not cover an entity that is deemed an
affiliate because such entity owns 5 per centum or more of the voting
power of the affiliate or vice
versa.
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4. Requested
Order
Golub
SBIC and the Golub SBIC Entities respectfully request an Order of the Commission
pursuant to Section 57(i) of the 1940 Act to permit the Transfer and the payment
by Golub SBIC to a Golub SBIC Entity of an amount no greater than the costs
Golub SBIC would incur in obtaining the SBA approved commitments through a
direct qualification.
Additionally,
the Applicants respectfully request, on behalf of themselves and any future
Subsidiaries, an Order of the Commission pursuant to Section 57(c) of the 1940
Act, exempting from the provisions of Sections 57(a)(1) and (2) any transaction
between the Company and one or more Subsidiaries, and any transaction between
one Subsidiary and any other Subsidiary, with respect to the purchase or sale of
securities or other property. The Applicants also respectfully
request an Order of the Commission exempting from the provisions of Sections
57(a)(1) and (2) any purchase or sale transaction between the Company and a
controlled portfolio affiliate of a Subsidiary, and any purchase or sale
transaction between a Subsidiary and a controlled portfolio affiliate of the
Company or of another Subsidiary, but in either case only to the extent that any
such purchase or sale transaction would not be prohibited if the Subsidiaries
involved in the transaction were deemed to be part of the Company and not
separate companies. It is the intent of this request only to permit
the Company and the Subsidiaries, all of whom are owned, directly or indirectly,
by the Company’s shareholders, to do that which they otherwise would be
permitted to do within the provisions of the 1940 Act if they were one company,
as opposed to their being structured as a parent and Subsidiaries of such
parent.
C. Section
57(i), Rule 17d-1 and Section 57(a)(4)
1. Sections 57(a)(4), 57(i) and
Rule 17d-1
Section
57(a)(4) of the 1940 Act makes it unlawful for certain persons related to a BDC
in the manner set forth in Section 57(b), acting as principal, knowingly to
effect any transaction in which the BDC, or a company controlled by the BDC, is
a joint or joint and several participant with that person in contravention of
such rules and regulations as the Commission may prescribe for the purpose of
limiting or preventing participation by the BDC or controlled company on a basis
less advantageous than that of the other participant. Section 57(i)
of the 1940 Act states that the rules and regulations of the Commission under
Sections 17(a) and 17(d) of the 1940 Act applicable to registered closed-end
investment companies (e.g., Rule 17d-1) shall be
deemed to apply to transactions subject to Section 57(a) of the 1940 Act until
the adoption by the Commission of rules and regulations under Section
57(a).
Rule
17d-1 under the 1940 Act prohibits an affiliate (or, when applying Rule 17d-1 to
implement Section 57(a)(4), a person related to a BDC in a manner described in
Section 57(b)) acting as principal, from participating in, or effecting any
transaction in connection with, any joint enterprise or other joint arrangement
or profit-sharing plan in which any such BDC, or a company controlled by such
BDC, is a participant, unless an application regarding such joint enterprise,
arrangement or profit-sharing plan has been filed with the Commission and has
been granted by an order entered prior to the submission of such plan or
modification to security holders for approval, or prior to such adoption or
modification if not so submitted. Rule 17d-1(b) provides that, with
respect to such an application,
the
Commission will consider whether the participation of such registered or
controlled company in such joint enterprise, joint arrangement or profit sharing
plan on the basis proposed is consistent with the provisions, policies and
purposes of the [1940] Act, and the extent to which such participation is on a
basis different from or less advantageous than that of other
participants.
2. Need for
Relief
As
described previously, the Company and the Subsidiaries would be related to one
another in a manner described in Section 57(b), based on the Company’s control
of the Subsidiaries. The joint transaction prohibition of Section
57(a)(4) and Rule 17d-1, taken together, would not apply to transactions
involving two or more of the Company and the Subsidiaries because the Section
57(b) relationship would arise solely from the Company’s owning more than 25
percent of the voting securities of, or otherwise controlling, each of the
Subsidiaries. Therefore, Rule 57b-1 would exempt the Company and its
controlled affiliates from the prohibitions of Section
57(a)(4). However, a joint transaction in which a Subsidiary and the
Company or another Subsidiary participates could be deemed to be prohibited
under Section 57(a)(4) because the Company would not be a controlled affiliate
of the Subsidiaries.
3. Requested
Order
Accordingly,
the Company and its Subsidiaries respectfully request, on behalf of themselves
and any future Subsidiaries, an Order of the Commission pursuant to Section
57(i) of the 1940 Act and Rule 17d-1 thereunder, permitting any joint
transaction that would otherwise be prohibited by Section 57(a)(4) of the 1940
Act in which a Subsidiary and the Company or another Subsidiary participate to
the extent that such transaction would not be prohibited if the Subsidiaries
participating in the transaction were deemed to be part of the Company and not
separate companies. As stated above, the intent of this request is
only to permit the Company and its Subsidiaries to conduct their business in a
manner otherwise permitted by the 1940 Act as if they were one
company.
D. Conditions
The
Applicants agree that any Order granting the requested relief will be subject to
the following conditions:
1. The
Company will at all times be the sole limited partner of any Subsidiary and the
sole owner of the Subsidiary’s general partner, or otherwise own and hold
beneficially all of the outstanding voting securities or other equity interests
in the Subsidiary.
2. No
person shall serve or act as investment adviser to Golub SBIC or another
Subsidiary unless the Board and the shareholders of the Company shall have taken
such action with respect thereto that is required to be taken by the functional
equivalent of the board of directors of Golub SBIC or of another Subsidiary and
the shareholders of Golub SBIC or another Subsidiary as if Golub SBIC or such
other Subsidiary were a BDC.
3. Each
of the managers of each Subsidiary shall be the Company, a Subsidiary of the
Company or a person elected or appointed by the Company.
4. The
Company shall not issue or sell any senior security, and the Company shall not
cause or permit Golub SBIC or any other SBIC Subsidiary to issue or sell any
senior security of which the Company, Golub 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 1940 Act; provided that, immediately after the issuance or
sale by any of the Company, Golub 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 1940 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 1940 Act (as
modified by Section 61(a)), any senior securities representing indebtedness of
Golub 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.
5. Upon
approval of the SBIC Application by the SBA, the consideration paid by Golub
SBIC to a Golub SBIC Entity with respect to the Transfer will not exceed the one
percent up-front commitment fee the Golub SBIC Entities paid to the SBA at the
time the commitments were issued.
A. Communications
Please
address all communications concerning this Application and the Notice and Order
to:
David B.
Golub
GC
Advisors LLC
150 South
Wacker Drive, Suite 800
Chicago,
Illinois 60606
(312)
205-5050
Please
address any questions and a copy of any communications concerning this
Application, the Notice and the Order to:
David J.
Harris
Thomas J.
Friedmann
DECHERT
LLP
1775 I
Street, N.W.
Washington,
D.C. 20006
B. Authorizations
Pursuant
to Rule 02-(c) under the Act, Applicants hereby state that the Company, by
resolutions duly adopted by its Board on May 11, 2010 (attached hereto as
Exhibit A), has authorized its officers to cause to be prepared and to execute
and file with the Commission this Application and any amendment thereto under
Sections 6(c), 57(c) and 57(i) of the Act and Rule 17d-1 under the Act, for an
order granting exemptions from Sections 18(a), 57(a)(1), 57(a)(2) and 61(a) of
the Act and authorizing certain joint transactions otherwise prohibited by
Section 57(a)(4) of the Act. The Board also authorized the filing of
this Application on behalf of its Subsidiaries: Golub SBIC, GP Managing Member
and the General Partner. Each person executing the Application on
behalf of the Company, the Subsidiaries and the Adviser says that he has duly
executed the Application for and on behalf of the Company, Subsidiaries or the
Adviser; that he is authorized to execute the Application pursuant to the terms
of an operating agreement, management agreement or otherwise; and that all
actions by members, directors or other bodies necessary to authorize each
deponent to execute and file the Application have been taken.
The
Applicants have caused this Application to be duly signed on their behalf on the
8th
day of July, 2010.
GOLUB
CAPITAL BDC, INC.
By: /s/ David B. Golub
Name: David
B. Golub
Title:
Chief Executive Officer
GC
SBIC IV – GP, INC.
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Vice President & Treasurer
GC
SBIC IV – GP, LLC
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Manager
GC
SBIC IV, L.P.
By: GC
SBIC IV – GP, LLC, its general partner
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Manager
LEG
PARTNERS DEBENTURE SBIC, L.P.
By: Golub
Debenture GP, LLC, its general partner
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Vice President
LEG
PARTNERS III SBIC, L.P.
By: Golub
PS – GP, LLC, its general partner
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Vice President
GC
ADVISORS LLC
By: /s/ David B. Golub
Name: David
B. Golub
Title:
Vice Chairman
VERIFICATION
The
undersigned states that he has duly executed the foregoing Application, dated
July 8, 2010, for and on behalf of Golub Capital BDC, Inc.,
GC SBIC IV – GP, Inc., GC SBIC IV – GP, LLC, GC SBIC IV, L.P., LEG Partners
Debenture SBIC, L.P., LEG Partners III SBIC, L.P. and GC Advisors LLC, as the
case may be, that he holds the office with such entity as indicated below and
that all actions by the directors, stockholders, general partners, trustees or
members of each entity, as applicable, necessary to authorize the undersigned to
execute and file such instrument has been taken. The undersigned
further states that he is familiar with such instrument and the contents thereof
and that the facts set forth therein are true to the best of his knowledge,
information and belief.
GOLUB
CAPITAL BDC, INC.
By: /s/ David B. Golub
Name: David
B. Golub
Title:
Chief Executive Officer
GC
SBIC IV – GP, INC.
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Vice President & Treasurer
GC
SBIC IV – GP, LLC
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Manager
GC
SBIC IV, L.P.
By: GC
SBIC IV – GP, LLC, its general partner
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Manager
LEG
PARTNERS DEBENTURE SBIC, L.P.
By: Golub
Debenture GP, LLC, its general partner
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Vice President
LEG
PARTNERS III SBIC, L.P.
By: Golub
PS – GP, LLC, its general partner
By: /s/ Gregory W. Cashman
Name: Gregory
W. Cashman
Title:
Vice President
GC
ADVISORS LLC
By: /s/ David B. Golub
Name: David
B. Golub
Title:
Vice Chairman
EXHIBIT
A
Resolutions
of the Board of Directors
WHEREAS, taking into account
the Company’s capital structure, investment portfolio, sources of financing and
business objectives, the Board of Directors has determined that it is in the
best interests of the Company to diversify its assets and liabilities by forming
and developing a small business investment company (“SBIC”), licensed with
the United States Small Business Administration (the “SBA”);
WHEREAS, the Board of
Directors has observed the synergies between operating the Company and an SBIC
and recognizes that other industry peers have drawn the same conclusion and have
successfully formed and are operating SBICs; and
WHEREAS, the Company desires
to establish a wholly-owned subsidiary of the Company to act as the investment
vehicle for the SBA venture.
NOW,
THEREFORE, BE IT:
RESOLVED, that the Independent
Directors, voting separately, and the entire Board of Directors hereby accept
and approve to delegate to the Authorized Officers the process of forming an
SBIC as a wholly-owned subsidiary of the Company and obtaining an SBIC license
from the SBA and all prior actions of the Authorized Officers in such respect
are hereby accepted, approved and ratified;
FURTHER RESOLVED, that the
Authorized Officers be, and each of them hereby is, individually authorized,
empowered and directed in the name and on behalf of the Company, to execute and
caused to be filed with the SEC any applications for exemptive relief, and any
amendments deemed necessary or proper thereto, and any related documents,
including but not limited to requests for no-action relief or interpretative
positions under the 1940 Act, or any other applicable federal or state
securities law, as such Authorized Officers, in their sole discretion, deem
necessary or appropriate to effect such actions or pursue such activities or
transactions of the Company as are duly authorized; and
FURTHER RESOLVED, that the
Authorized Officers be, and each of them hereby is, individually authorized,
empowered and directed in the name of and on behalf of the Company, to do or
cause to be done each and every act necessary or convenient in connection with
the preparation and execution of the foregoing resolutions.