[Federal Register Volume 77, Number 42 (Friday, March 2, 2012)]
[Notices]
[Pages 12892-12896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5061]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-29968; File No. 812-13787]


Medley Capital Corporation, et al.; Notice of Application

February 27, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 57(a)(4) and 
57(i) of 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 
affiliated investment funds in portfolio companies.

Applicants:  Medley Capital Corporation (the ``Company''); Medley LLC; 
MCC Advisors LLC (the ``Adviser''); Medley Capital LLC and MOF II 
Management LLC (collectively, the ``Affiliated Investment Advisers,'' 
and together with any future investment advisers controlling, 
controlled by, or under common control with the Adviser or the 
Affiliated Investment Advisers that manage Future Affiliated Funds (as 
defined below), ``Medley Management''); Medley Opportunity Fund LP, 
Medley Opportunity Fund Ltd., Medley Opportunity Fund II LP, and Medley 
Opportunity Fund II (Cayman) LP (collectively, the ``Existing 
Affiliated Funds''); and Medley GP LLC, MOF II GP LLC, and MOF II GP 
(Cayman) Ltd. (collectively, the ``Affiliated General Partners'').

DATES: Filing Dates: The application was filed on June 23, 2010, and 
amended on November 5, 2010, July 8, 2011, December 7, 2011, February 
13, 2012, and February 24, 2012.

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

[[Page 12893]]

by 5:30 p.m. on March 23, 2012, 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 Brooke Taube, 
Medley Capital Corporation, 375 Park Avenue, Suite 3304, New York, NY 
10152.

FOR FURTHER INFORMATION CONTACT: David P. Bartels, Branch Chief, 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 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 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 
current income and capital appreciation by lending directly to 
privately-held middle market companies. The Company's board of 
directors currently consists of seven-members (the ``Board''), four of 
whom are not ``interested persons'' of the Company within the meaning 
of section 2(a)(19) of the Act (the ``Independent Directors''). Each of 
Andrew Fentress, Brooke Taube and Seth Taube (the ``Principals'') 
serves as a director on the Board.
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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. The Adviser is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') and serves as 
the investment adviser to the Company. The Affiliated Investment 
Advisers are registered under the Advisers Act and currently serve as 
investment advisers to the Existing Affiliated Funds. Medley LLC, which 
is controlled by the Principals, serves as the direct or indirect 
holding company for the Adviser and the Affiliated Investment Advisers. 
The Affiliated General Partners are the general partners of certain of 
the Existing Affiliated Funds. The Affiliated General Partners are 
direct, wholly-owned subsidiaries of Medley GP Holdings LLC, which is 
controlled by the Principals.
    3. Each of the Existing Affiliated Funds is a separate legal entity 
and is excluded from the definition of ``investment company'' under 
section 3(c)(1) or 3(c)(7) of the Act. Any Future Affiliated Fund (as 
defined below) will either be registered under the Act or excluded from 
the definition of ``investment company'' under section 3(c)(1) or 
3(c)(7) of the Act. Any Existing Affiliated Fund or Future Affiliated 
Fund that co-invests with the Company will have substantially the same 
investment objectives and strategies as the Company.
    4. Applicants request relief permitting the Company (or, as the 
case may be, another business development company advised by the 
Adviser), on the one hand, and the Existing Affiliated Funds and any 
future entities advised by the Adviser or Medley Management (``Future 
Affiliated Funds,'' together with the Existing Affiliated Funds, the 
``Affiliated Funds''), on the other hand, to participate in the same 
investment opportunities through a proposed co-investment program (the 
``Co-Investment Program'') where such participation would otherwise be 
prohibited under section 57 of the Act.\2\ For purposes of the 
application, a ``Co-Investment Transaction'' means any investment 
opportunity in which the Company could not participate together with 
one or more Affiliated Funds without obtaining and relying on the Order 
and any transaction in which the Company participated together with one 
or more Affiliated Funds in reliance on the Order. Affiliated Funds 
that have the capacity to, and elect to, co-invest with the Company are 
referred to as ``Participating Funds.''
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    \2\ All existing entities that currently intend to rely on the 
order have been named as applicants. Any other existing or future 
entity that relies on the order in the future will comply with the 
terms and conditions of the application.
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    5. Each Co-Investment Transaction would be allocated among the 
Company, on the one hand, and the Participating Funds, on the other 
hand. In selecting investments for the Company, the Adviser will 
consider the investment objective, investment policies, investment 
position, capital available for investment, and other factors relevant 
to the Company. The Adviser expects that any portfolio company that is 
an appropriate investment for the Company should also be an appropriate 
investment for one or more Affiliated Funds, with certain exceptions 
based on available capital or diversification. The Adviser will present 
each potential Co-Investment Transaction and the proposed allocation to 
the directors eligible to vote under section 57(o) of the Act (the 
``Eligible Directors''). The ``required majority,'' as defined in 
section 57(o) of the Act (``Required Majority''), will approve each Co-
Investment Transaction prior to any investment by the Company.
    6. Applicants state that none of the Principals will benefit 
directly or indirectly from any Co-Investment Transaction (other than 
by virtue of the ownership of securities of the Company and the 
Affiliated Investment Advisers) or participate individually in any Co-
Investment Transaction. In addition, no Independent Director will have 
any direct or indirect financial interest in any Co-Investment 
Transaction or any interest in any portfolio company, other than 
through an interest (if any) in the securities of the Company.

Applicants' Legal Analysis

    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
of a BDC from participating in joint transactions with the BDC in 
contravention of rules as prescribed by the Commission. 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 submit that each of the 
Affiliated Funds could be deemed to be a person related to the Company 
in a manner described by section 57(b) by virtue of being under common 
control with the Company.
    2. 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 to BDCs. Because the Commission has 
not adopted any rules under section 57(a)(4), rule 17d-1 applies.
    3. 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

[[Page 12894]]

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.
    4. Applicants state that they expect that co-investment in 
portfolio companies by the Company and the Affiliated Funds will 
increase the number of favorable investment opportunities for the 
Company and that the Co-Investment Program will be implemented only if 
the Required Majority approves it.
    5. Applicants submit that the Required Majority's approval of each 
Co-Investment Transaction before investment, and other protective 
conditions set forth in the application, 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 Act and on a basis that 
is not different from or less advantageous than that of other 
participants.
    6. Under condition 14, if the Adviser, the Principals, any person 
controlling, controlled by, or under common control with the Adviser or 
the Principals, and the Affiliated Funds (collectively, the 
``Holders'') own in the aggregate more than 25% of the outstanding 
voting securities of the Company (``Shares''), then the Holders will 
vote such Shares as directed by an independent third party when voting 
on matters specified in the condition. Applicants believe that this 
condition will ensure that the Independent Directors will act 
independently in evaluating the Co-Investment Program, because the 
ability of the Adviser or the Principals to influence the Independent 
Directors by a suggestion, explicit or implied, that the Independent 
Directors can be removed will be limited significantly. Applicants 
represent that the Independent Directors will evaluate and approve any 
such voting trust or proxy adviser, taking into accounts its 
qualifications, reputation for independence, cost to the shareholders, 
and other factors that they deem relevant.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each time the Adviser or any member of Medley Management 
considers a potential Co-Investment Transaction for an Affiliated Fund 
that falls within the Company's then current investment objectives and 
strategies, it will make an independent determination of the 
appropriateness of the investment for the Company in light of the 
Company's then-current circumstances.
    2. (a) If the Adviser deems the Company's participation in any Co-
Investment Transaction to be appropriate for the Company, it will then 
determine an appropriate level of investment for the Company.
    (b) 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 Participating Funds, 
collectively, in the same transaction, exceeds the amount of the 
investment opportunity, the amount proposed to be invested by each such 
party will be allocated among them pro rata based on the ratio of the 
Company's capital available for investment in the asset class being 
allocated, on one hand, and the Participating Funds' capital available 
for investment in the asset class being allocated, on the other hand, 
to the aggregated capital available for investment for the asset class 
being allocated of all parties involved in the investment opportunity, 
up to the amount proposed to be invested by each. The Adviser will 
provide the Eligible Directors with information concerning each party's 
available capital to assist the Eligible Directors with their review of 
the Company's investments for compliance with these allocation 
procedures.
    (c) After making the determinations required in conditions 1 and 
2(a), the Adviser will distribute written information concerning the 
Co-Investment Transaction, including the amount proposed to be invested 
by each Participating Fund, to the Eligible Directors for their 
consideration. The Company will co-invest with a Participating Fund 
only if, prior to the Company's and the Participating Fund's 
participation in the Co-Investment Transaction, a Required Majority 
concludes 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 strategies (as 
described in the Company's registration statement on Form N-2 and other 
filings made with the Commission by the Company under the 1933 Act, any 
reports filed by the Company with the Commission under the Securities 
Exchange Act of 1934, as amended, and the Company's reports to 
stockholders);
    (iii) The investment by the Participating Funds would not 
disadvantage the Company, and participation by the Company is not on a 
basis different from or less advantageous than that of any 
Participating Fund; provided, that if any Participating Fund, 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 Required Majority from reaching the 
conclusions required by this condition (2)(c)(iii), if
    (A) The Eligible Directors shall have the right to ratify the 
selection of such director or board observer, if any;
    (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
    (C) Any fees or other compensation that any Participating Fund or 
any affiliated person of a Participating Fund receives in connection 
with the right of the Participating Fund to nominate a director or 
appoint a board observer or otherwise to participate in the governance 
or management of the portfolio company will be shared proportionately 
among Participating Funds (who may, in turn, share their portion with 
their affiliated persons) and the Company in accordance with the amount 
of each party's investment; and
    (iv) The proposed investment by the Company will not benefit The 
Adviser or the Affiliated Funds or any affiliated person of either of 
them (other than the other parties to the Co-Investment Transaction), 
except (a) to the extent provided by condition 13; (b) to the extent 
provided by Sections 17(e) or

[[Page 12895]]

57(k); (c) indirectly, as a result of an interest in securities issued 
by one of the parties to the Co-Investment Transaction; or (d) in the 
case of fees or other compensation described in condition 2(c)(iii)(C).
    3. The Company has the right to decline to participate in any Co-
Investment Transaction or to invest less than the amount proposed.
    4. The Adviser will present to the Board, on a quarterly basis, a 
record of all investments made by the Affiliated Funds during the 
preceding quarter that fell within the Company's then-current 
investment objectives and strategies that were not made available to 
the Company, and an explanation of why the investment opportunities 
were not offered to the Company. All information presented to the Board 
pursuant to this condition will be kept for the life of the Company and 
at least two years thereafter, and will be subject to examination by 
the Commission and its staff.
    5. Except for follow-on investments made pursuant to condition 8 
below, the Company will not invest in reliance on the Order in any 
portfolio company in which the Adviser, any Participating Fund, or any 
affiliated person of either of them is an existing investor.
    6. 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 Participating Funds. The grant to an 
Affiliated Fund, 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 6, if 
conditions 2(c)(iii)(A), (B) and (C) are met.
    7. If any of the Participating Funds elects to sell, exchange, or 
otherwise dispose of an interest in a security that was acquired by the 
Company and such Participating Funds in a Co-Investment Transaction, 
the Adviser will:
    (a) Notify the Company of the proposed disposition at the earliest 
practical time; and
    (b) Formulate a recommendation as to participation by the Company 
in any such disposition and provide a written recommendation to the 
Eligible Directors. The Company will have the right to participate in 
such disposition on a proportionate basis, at the same price and on the 
same terms and conditions as those applicable to the Participating 
Funds. The Company will participate in such disposition to the extent 
that a Required Majority determines that it is in the Company's best 
interests to do so. The Company and each of the Participating Funds 
will bear its own expenses in connection with any such disposition.
    8. If any Affiliated Fund desires to make a ``follow-on 
investment'' (i.e., an additional investment in the same entity) in a 
portfolio company whose securities were acquired by the Company and 
such Affiliated Fund in a Co-Investment Transaction or to exercise 
warrants or other rights to purchase securities of the issuer, the 
Adviser will:
    (a) Notify the Company of the proposed transaction at the earliest 
practical time; and
    (b) Formulate a recommendation as to the proposed participation, 
including the amount of the proposed follow-on investment, by the 
Company and provide a written recommendation to the Eligible Directors.
    The Eligible Directors will make their own determination with 
respect to follow-on investments. To the extent that:
    (i) The amount of a follow-on investment is not based on the 
Company's and the Participating Funds' outstanding investments 
immediately preceding the follow-on investment; and
    (ii) 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 Participating Funds, 
collectively, in the same transaction, exceeds the amount of the 
investment opportunity, the amount proposed to be invested by each such 
party will be allocated among them pro rata based on the ratio of the 
Company's capital available for investment in the asset class being 
allocated, on one hand, and the Participating Funds' capital available 
for investment in the asset class being allocated, on the other hand, 
to the aggregated capital available for investment for the asset class 
being allocated of all parties involved in the investment opportunity, 
up to the amount proposed to be invested by each. The Company will 
participate in such investment to the extent that a Required Majority 
determines that it is in the Company's best interest. The acquisition 
of follow-on investments as permitted by this condition will be subject 
to the other conditions set forth in the Application.
    9. The Independent Directors will be provided quarterly for review 
all information concerning Co-Investment Transactions during the 
preceding quarter, including investments made by any Affiliated Funds 
which the Company considered but declined to participate in, so that 
the Independent Directors may determine whether all investments made 
during the preceding quarter, including those investments which the 
Company considered but declined to participate, comply with the 
conditions of the order. In addition, the Independent Directors will 
consider at least annually the continued appropriateness for the 
Company of participating in new and existing Co-Investment 
Transactions.
    10. 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 Required Majority under Section 57(f).
    11. No Independent Director will also be a director, general 
partner, managing member or principal, or otherwise an ``affiliated 
person'' (as defined in the Act) of, any of the Affiliated Funds.
    12. 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 1933 Act) shall, to the 
extent not payable by the Adviser or the Affiliated Investment Advisers 
under their respective investment advisory agreements with the Company 
and the Participating Funds, be shared by the Company and the 
Participating Funds in proportion to the relative amounts of their 
securities to be acquired or disposed of, as the case may be.
    13. Any transaction fee (including break-up or commitment fees but 
excluding brokers' fees contemplated by Section 57(k)(2) or 17(e)(2) of 
the Act, as applicable) received in connection with a Co-Investment 
Transaction will be distributed to the Company and the Participating 
Funds 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 or any other adviser 
that is part of Medley Management pending consummation of the 
transaction, the fee will be deposited into an account maintained by 
the Adviser or such other adviser, as the case may be, 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 Participating 
Funds based on the amount they invest in such Co-

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Investment Transaction. None of the Participating Funds nor any 
affiliated person of the Company will receive additional compensation 
or remuneration of any kind (other than (a) in the case of the Company 
and the Funds, the pro rata transaction fees described above and fees 
or other compensation described in condition 2(c)(iii)(C) and (b) in 
the case of the Adviser, investment advisory fees paid in accordance 
with the Funds' Agreements) as a result of or in connection with a Co-
Investment Transaction.
    14. If the Holders own in the aggregate more than 25% of the 
outstanding Shares, then the Holders will vote such Shares as directed 
by an independent third party (such as the trustee of a voting trust or 
a proxy adviser) when voting on (1) the election of directors; (2) the 
removal of one or more directors; or (3) any matters requiring approval 
by the vote of a majority of the outstanding voting securities, as 
defined in section 2(a)(42) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5061 Filed 3-1-12; 8:45 am]
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