20292 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Rules and Regulations 

of Energy, Office of Energy Efficiency 

and Renewable Energy, Building 

Technologies Program, EE–2J, 1000 

Independence Avenue SW., 

Washington, DC 20585–0121. 

Telephone: (202) 586–7463. Email: 

Stephen.Witkowski@ee.doe.gov. 

Elizabeth Kohl, Esq., U.S. Department 

of Energy, Office of General Counsel, 

GC–71, 1000 Independence Avenue 

SW., Washington, DC 20585–0121. 

Telephone: (202) 586–7796. Email: 

Elizabeth.Kohl@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: DOE 

published new and amended test 

procedures for residential clothes 

washers on March 7, 2012 (hereafter, the 

‘‘March 2012 final rule’’). 77 FR 13888. 

The current test procedure is codified at 

appendix J1 in 10 CFR part 430 subpart 

B (hereafter, ‘‘appendix J1’’). The March 

2012 final rule amended certain 

provisions in appendix J1 and also 

established new clothes washer test 

procedures, codified in a new appendix 

J2. Residential clothes washer 

manufacturers must continue to use 

appendix J1 to determine compliance of 

their products with energy conservation 

standards until the compliance date of 

any amended standards. 

In the preamble to the March 2012 

final rule, DOE described its intention to 

remove an obsolete parenthetical note in 

section 4.2 of appendix J1, which states 

that the water factor calculations need 

not be performed to determine 

compliance with the energy 

conservation standards for clothes 

washers. The Energy Independence and 

Security Act of 2007 (EISA 2007) 

amended the Energy Policy and 

Conservation Act (42 U.S.C. 6291, et 

seq.) by establishing a water factor 

standard for top-loading and frontloading standard-size residential clothes 

washers manufactured on or after 

January 1, 2011 (42 U.S.C. 

6295(g)(9)(A)(ii)); accordingly, this 

parenthetical note is now obsolete. The 

calculations in section 4.2 must be 

performed to determine compliance 

with energy conservation standards for 

these clothes washers. In the March 

2012 final rule, DOE erroneously 

omitted regulatory language to remove 

the obsolete parenthetical note from the 

water factor calculation section of 

appendix J1. This final rule corrects 

section 4.2 of appendix J1 to remove 

this obsolete note. 

In FR Doc. 2012–4819 appearing on 

page 13888 in the Federal Register of 

Wednesday, March 7, 2012, the 

following corrections are made: 

Appendix J1 [Corrected] 

■ 1. On page 13937, correct amendatory 

instruction 7.m. to read as follows: 

■ m. Revising section 4.2 introductory 

text; 

■ 2. On page 13938, third column, 

before 4.2.3, add the following text: 

■ 4.2 Water consumption of clothes 

washers. 

* * * * * 

Issued in Washington, DC, on March 29, 

2012. 

Kathleen B. Hogan, 

Deputy Assistant Secretary, Energy Efficiency 

and Renewable Energy. 

[FR Doc. 2012–8073 Filed 4–3–12; 8:45 am] 

BILLING CODE 6450–01–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 107 

RIN 3245–AF56 

Small Business Investment 

Companies—Conflicts of Interest and 

Investment of Idle Funds 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Final rule. 

SUMMARY: The U.S. Small Business 

Administration is revising a rule which 

prohibits a small business investment 

company (SBIC) from providing 

financing to an Associate, as defined in 

the rules, unless it first obtains a 

conflict of interest exemption from SBA. 

The revision eliminates the requirement 

for an exemption in the case of a followon investment in a small business 

concern by an SBIC and an Associate 

investment fund, where both parties 

invested previously on the same terms 

and conditions and where the follow-on 

investment would also be on the same 

terms and conditions as well as in the 

same proportions. In addition, this rule 

implements two provisions of the Small 

Business Investment Act of 1958, as 

amended. First, it brings the public 

notice requirement for conflict of 

interest transactions into conformity 

with statutory requirements. Second, it 

expands the types of investments an 

SBIC is permitted to make with its ‘‘idle 

funds’’ (cash that is not immediately 

needed for fund operations or 

investments in small business 

concerns). Finally, the rule makes two 

technical corrections: Removing an 

outdated cross-reference; and 

eliminating a section that exactly 

duplicates a provision found elsewhere 

in part 107. 

DATES: This rule is effective May 4, 

2012. 

FOR FURTHER INFORMATION CONTACT: 

Carol Fendler, Office of Investment, 

(202) 205–7559 or sbic@sba.gov. 

SUPPLEMENTARY INFORMATION: On 

October 14, 2010, SBA published a 

proposed rule (75 FR 63110) to: (1) 

Remove the requirement for an SBIC to 

obtain a conflict of interest exemption 

from SBA for certain follow-on 

financings; (2) revise the public notice 

requirements for conflict of interest 

financings to conform with statutory 

requirements under the Small Business 

Investment Act of 1958, as amended 

(SBI Act); and (3) expand the types of 

investments an SBIC is permitted to 

make with its ‘‘idle funds’’, in 

conformity with the SBI Act. The rule 

also included two non-substantive 

technical corrections. 

SBA received no relevant comments 

on the proposed rule, which is being 

finalized without change. SBA’s sectionby-section explanation of the proposed 

regulatory changes, all of which have 

been implemented in this final rule, is 

repeated here as a convenience to the 

reader. 

Section 107.730—Financings which 

constitute conflicts of interest. The SBI 

Act authorizes SBA to adopt regulations 

to govern transactions that may 

constitute a conflict of interest and 

which may be detrimental to small 

business concerns, small business 

investment companies, their investors, 

or SBA. Accordingly, SBA promulgated 

13 CFR 107.730, which generally 

prohibits financing transactions that 

involve a conflict of interest, unless the 

SBIC obtains a prior written exemption 

from SBA. The most common type of 

transaction requiring an exemption is 

‘‘financing an Associate.’’ Associates of 

an SBIC, as defined in § 107.50, 

encompass a broad range of related 

parties based on business, economic and 

family ties, both direct and indirect. 

In addition to identifying transactions 

requiring a conflict of interest 

exemption, § 107.730 sets forth the 

circumstances under which an SBIC is 

permitted to co-invest with its 

Associates. The primary purpose of 

these provisions is to ensure that the 

terms of such co-investments are ‘‘fair 

and equitable’’ to the SBIC, i.e. that the 

SBIC is not being disadvantaged relative 

to an Associate. The co-investment rules 

include a number of ‘‘safe harbor’’ 

provisions under which the transaction 

is presumed to be fair and equitable to 

the SBIC; one of these safe harbors 

covers financings where the SBIC and 

its Associate invest at the same time and 

on the same terms and conditions. SBIC 

managers frequently seek to rely on this 

provision because they are involved in 


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Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Rules and Regulations 20293 

the management of more than one fund 

and would like to have the funds coinvest in a small business. SBA 

generally considers such co-investments 

to be beneficial because risk is spread 

across more than one entity. The small 

business may also benefit from having 

access to multiple investors. 

It became apparent after adoption of 

the current § 107.730 that certain types 

of transactions could be characterized as 

both ‘‘co-investment with an Associate’’ 

and ‘‘financing an Associate’’. As with 

all other transactions that involve the 

financing of an Associate, SBA has 

required the SBIC to obtain a prior 

written exemption even if the financing 

would fall under the safe harbor for coinvestments with Associates. 

However, SBA believes the exemption 

requirement is unnecessarily 

burdensome for one particular type of 

transaction: The SBIC and an Associate 

investment fund (most typically a fund 

under common management) make an 

initial investment in a small business 

under the same terms and conditions, 

which include the acquisition by each 

fund of at least a 10% equity interest in 

the small business. This initial round of 

financing is a ‘‘co-investment with an 

Associate’’ and does not require a 

conflict of interest exemption. However, 

when the same two parties want to 

make a follow-on investment in the 

same small business, again under the 

same terms and conditions, the second 

and subsequent round(s) of financing 

are considered to be ‘‘financing an 

Associate’’ and do require a prior 

written exemption. This is because the 

Associate fund’s 10% or greater equity 

interest causes the small business itself 

to be defined as an Associate of the 

SBIC under paragraph (8)(ii) of the 

definition in § 107.50. While SBA 

would approve a conflict of interest 

exemption for a follow-on financing 

transaction on the same terms and 

conditions by an SBIC and its Associate 

fund, the Agency is concerned that the 

exemption requirement may cause 

unnecessary delays in making financing 

available to the small business, and 

imposes a significant administrative 

burden on both the SBIC and SBA. 

To address this concern, the final rule 

adds an exception to 13 CFR 

107.730(a)(1). This paragraph previously 

prohibited any financing of an Associate 

without a prior written conflict of 

interest exemption. Under the new 

exception, a prior written exemption is 

not required for an Associate financing 

that satisfies all of the following 

conditions: 

1. The small business that will receive 

the financing is an Associate of the 

SBIC, pursuant to paragraph (8)(ii) of 

the Associate definition, only because 

an Associate investment fund already 

holds a 10% or greater equity interest in 

the small business. 

2. The SBIC and the Associate fund 

previously invested in the small 

business at the same time and on the 

same terms and conditions. 

3. The SBIC and the Associate fund 

will provide follow-on financing to the 

small business at the same time and on 

the same terms and conditions. 

4. The SBIC and the Associate fund 

will provide follow-on financing to the 

small business in the same 

proportionate dollar amounts as their 

respective investments in the previous 

round of financing (e.g., if the SBIC 

invested $2 million and the Associate 

invested $1 million in the previous 

round, their follow-on investments 

would be in the same 2:1 ratio). 

The revision will allow transactions 

meeting these specific conditions to be 

governed only by the co-investment 

provisions of § 107.730(d) rather than by 

the ‘‘Associate financing’’ provisions of 

the current § 107.730(a), thereby 

returning to SBA’s original intent when 

it promulgated the co-investment rules. 

SBA expects that this change will help 

to eliminate delays in making follow-on 

financing available to small businesses 

while providing appropriate protection 

for small business concerns, investors in 

SBICs and the Federal government. 

SBA has also revised § 107.730(g), 

which requires public notice of all 

requests by SBICs for conflict of interest 

exemptions. The previous language 

required public notice by both SBA (via 

publication in the Federal Register) and 

the requesting SBIC (via publication in 

a newspaper in the locality most 

directly affected by the transaction). 

These disclosure requirements exceeded 

those required by section 312 of the SBI 

Act, from which the local publication 

requirement was removed by section 3 

of Public Law 107–100 (December 21, 

2001). The final rule brings the 

regulation into conformity with the 

statute by eliminating the requirement 

for public notice in the affected locality; 

the requirement for public notice in the 

Federal Register is not affected. 

Section 107.530—Restrictions on 

investments of idle funds by leveraged 

Licensees. An SBIC holding idle funds 

may invest those funds only as 

permitted by § 107.530(b). The 

permitted investments are all relatively 

short term and bear minimal or no risk 

of loss, such as direct obligations of the 

United States that mature within 15 

months of the date of investment. The 

final rule revises this section to reflect 

an amendment to section 308(b) of the 

SBI Act (15 U.S.C. 687(b)) made by 

Public Law 108–447, Division K, section 

202 (December 8, 2004) that allows an 

SBIC to invest ‘‘in mutual funds, 

securities, or other instruments that 

consist of, or represent pooled assets of’’ 

the various direct investment vehicles 

permitted by section 308(b). 15 U.S.C. 

687(b)(3). For example, this provision 

allows an SBIC to invest idle funds in 

a money market account, as long as the 

money market fund invests exclusively 

in permitted instruments. 

Section 107.855—Interest rate ceiling 

and limitations on fees charged to Small 

Businesses (‘‘Cost of Money’’). The final 

rule corrects an error by removing 

§ 107.855(g)(10). This paragraph 

provided an exclusion from the Cost of 

Money calculation in the form of a 

cross-reference to the non-existent 

§ 107.855(i). 

Section 107.505—Facsimile 

requirement. The final rule eliminates 

duplication by removing § 107.505, 

which required an SBIC to have the 

capability to receive fax messages. This 

section repeated language already found 

in § 107.504(b). 

Compliance With Executive Orders 

12866, 12988 and 13132, the Paperwork 

Reduction Act (44 U.S.C. Chapter 35) 

and the Regulatory Flexibility Act 

(5 U.S.C. 601–612) 

Executive Order 12866 

The Office of Management and Budget 

has determined that this rule is not a 

significant regulatory action under 

Executive Order 12866. This rule also is 

not a major rule under the 

Congressional Review Act (CRA). 

Executive Order 12988 

This action meets applicable 

standards set forth in Sections 3(a) and 

3(b)(2) of Executive Order 12988, Civil 

Justice Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. The action does not have 

retroactive or presumptive effect. 

Executive Order 13132 

For the purposes of Executive Order 

13132, SBA has determined that this 

final rule will not have substantial 

direct effects on the States, or the 

distribution of power and 

responsibilities among the various 

levels of government. Therefore, SBA 

has determined that this final rule has 

no federalism implications warranting 

the preparation of a federalism 

assessment. 

Paperwork Reduction Act, 44 U.S.C. 

Chapter 35 

For purposes of the Paperwork 

Reduction Act (PRA), 44 U.S.C. chapter 

35, SBA has determined that this rule 


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20294 Federal Register / Vol. 77, No. 65 / Wednesday, April 4, 2012 / Rules and Regulations 

will not impose any new reporting or 

recordkeeping requirements. The 

requirement for SBICs to submit 

requests for conflict of interest 

exemptions is not an information 

collection as that term is defined by the 

PRA because the requests do not involve 

any standardized or identical reporting, 

recordkeeping or disclosure 

requirements. Rather, each request for 

exemption is unique to the 

circumstances of the particular SBIC. In 

any event, to the extent that SBICs have 

been required to submit conflict of 

interest exemptions under the 

circumstances described in this rule, 

that requirement no longer exists. 

Compliance With the Regulatory 

Flexibility Act, 5 U.S.C. 601–612 

When an agency promulgates a final 

rule following publication of the 

proposed rule, the Regulatory Flexibility 

Act (RFA) (5 U.S.C. 601–612) requires 

the agency to prepare a final regulatory 

flexibility analysis (FRFA) which 

describes the potential economic impact 

of the rule on small entities and 

alternatives that may minimize that 

impact. Section 605 of the RFA allows 

an agency to certify a rule, in lieu of 

preparing a FRFA, if the rulemaking is 

not expected to have a significant 

economic impact on a substantial 

number of small entities. This final rule 

affects all SBICs, of which there are 

currently 294, most of which are small 

entities. Therefore, SBA has determined 

that this rule will have an impact on a 

substantial number of small entities. 

However, SBA has determined that the 

impact on entities affected by the rule 

will not be significant. The new conflict 

of interest exception eliminates the 

requirement for SBICs to obtain a 

conflict of interest exemption for a 

particular type of transaction. This 

change is expected to reduce the 

regulatory burden on SBICs and allow 

them to close such financing 

transactions with less delay. 

SBA asserts that the economic impact 

of the rule, if any, will be minimal and 

entirely beneficial to small SBICs. 

Accordingly, the Administrator of the 

SBA hereby certifies that this rule will 

not have a significant impact on a 

substantial number of small entities. 

List of Subjects in 13 CFR Part 107 

Investment companies, Loan 

programs—business, Reporting and 

recordkeeping requirements, Small 

businesses. 

For the reasons stated in the 

preamble, the Small Business 

Administration amends part 107 of title 

13 of the Code of Federal Regulations as 

follows: 

PART 107—SMALL BUSINESS 

INVESTMENT COMPANIES 

■ 1. The authority citation for part 107 

continues to read as follows: 

Authority: 15 U.S.C. 681 et seq., 683, 

687(c), 687b, 687d, 687g, 687m, Pub. L. 106– 

554, 114 Stat. 2763; and Pub. L. 111–5, 123 

Stat. 115. 

§ 107.505 [Removed] 

■ 2. Remove § 107.505. 

■ 3. Amend § 107.530 by redesignating 

paragraphs (b)(3) through (b)(6) as (b)(4) 

through (b)(7), and adding a new 

paragraph (b)(3) to read as follows: 

§ 107.530 Restrictions on investments of 

idle funds by leveraged Licensees. 

* * * * * 

(b) Permitted investments of idle 

funds. * * * 

(3) Mutual funds, securities, or other 

instruments that exclusively consist of, 

or represent pooled assets of, 

investments described in paragraphs 

(b)(1) or (b)(2) of this section; or 

* * * * * 

■ 4. Amend § 107.730 by revising 

paragraphs (a)(1) and (g) to read as 

follows: 

§ 107.730 Financings which constitute 

conflicts of interest. 

(a) * * * 

(1) Provide Financing to any of your 

Associates, except for a Financing to an 

Associate that meets all of the following 

conditions: 

(i) The Small Business that receives 

the Financing is your Associate, 

pursuant to paragraph (8)(ii) of the 

Associate definition in § 107.50, only 

because an investment fund that is your 

Associate holds a 10% or greater equity 

interest in the Small Business. 

(ii) You and the Associate investment 

fund previously invested in the Small 

Business at the same time and on the 

same terms and conditions. 

(iii) You and the Associate investment 

fund are providing follow-on financing 

to the Small Business at the same time, 

on the same terms and conditions, and 

in the same proportionate dollar 

amounts as your respective investments 

in the previous round(s) of financing 

(for example, if you invested $2 million 

and your Associate invested $1 million 

in the previous round, your respective 

follow-on investments would be in the 

same 2:1 ratio). 

* * * * * 

(g) Public notice. Before granting an 

exemption under this § 107.730, SBA 

will publish notice of the transaction in 

the Federal Register. 

§ 107.855 [Amended] 

■ 5. Amend § 107.855 by removing 

paragraph (g)(10) and redesignating 

current paragraphs (g)(11) through 

(g)(13) as (g)(10) through (g)(12). 

Karen G. Mills, 

Administrator. 

[FR Doc. 2012–8017 Filed 4–3–12; 8:45 am] 

BILLING CODE 8025–01–P 

DEPARTMENT OF STATE 

22 CFR Parts 22 and 42 

[Public Notice 7838] 

RIN 1400–AD06 

Revision to the Schedule of Fees for 

Consular Services, Department of 

State and Overseas Embassies and 

Consulates; Correction 

AGENCY: Bureau of Consular Affairs, 

Department of State. 

ACTION: Interim Final Rule; Correction. 

SUMMARY: This document contains a 

correction to the Schedule of Fees for 

Consular Services, Department of State 

and Overseas Embassies and Consulates 

published in the Federal Register on 

March 29, 2012 [Public Notice 7835]. 

DATES: Effective April 13, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Special Assistant, Office of the 

Comptroller, Bureau of Consular Affairs, 

Department of State; phone: 202–663– 

1576, telefax: 202–663–2526; email: 

fees@state.gov. 

SUPPLEMENTARY INFORMATION: 

Correction 

The interim final rule published on 

March 29, 2012, 77 FR 18907–18914, is 

corrected as follows: 

1. In the chart on pg. 18912 detailing 

the proposed fee changes, the total 

estimated change in annual fees 

collected amount, at the bottom of the 

far right column, is corrected so that the 

decimal places are correct. The correct 

figure is 94,813,970. 

Dated: March 30, 2012. 

Alexandra C. Gianinno, 

Comptroller, Office of the Comptroller, 

Bureau of Consular Affairs, U.S. Department 

of State. 

[FR Doc. 2012–8109 Filed 4–3–12; 8:45 am] 

BILLING CODE 4710–06–P 


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