[Federal Register Volume 86, Number 138 (Thursday, July 22, 2021)]
[Notices]
[Pages 38770-38772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15545]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34333; 812-15219]


Capital Southwest Corporation, et al.; Notice of Application

July 16, 2021.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Notice.

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    Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 18(a) and 61(a) of the Act.

Applicants:  Capital Southwest Corporation (the ``Company''), Capital 
Southwest SBIC I, LP (the ``Capital Southwest SBIC''), and Capital 
Southwest SBIC I GP, LLC (the ``SBIC GP'').

Summary of the Application:  The Company requests an order to permit it 
to adhere to a modified asset coverage requirement.

Filing Dates:  The application was filed on April 21, 2021, and amended 
on July 14, 2021.

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 emailing the Commission's 
Secretary at <a href="/cdn-cgi/l/email-protection#faa99f99889f8e9b888389d7b59c9c93999fba899f99d49d958c"><span class="__cf_email__" data-cfemail="40132523322534213239336d0f2626292325003325236e272f36">[email protected]</span></a> and serving applicants with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on August 10, 2021, and should be 
accompanied by proof of service on applicants, in the form of an 
affidavit or, for lawyers, a certificate of service. Pursuant to rule 
0-

[[Page 38771]]

5 under the Act, hearing requests should state the nature of the 
writer's interest, any facts bearing upon the desirability of a hearing 
on the matter, the reason for the request, and the issues contested. 
Persons who wish to be notified of a hearing may request notification 
by emailing the Commission's Secretary at <a href="/cdn-cgi/l/email-protection#5201373120372633202b217f1d34343b3137122137317c353d24"><span class="__cf_email__" data-cfemail="a5f6c0c6d7c0d1c4d7dcd688eac3c3ccc6c0e5d6c0c68bc2cad3">[email protected]</span></a>.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 
<a href="/cdn-cgi/l/email-protection#5b083e38293e2f3a29222876143d3d32383e1b283e38753c342d"><span class="__cf_email__" data-cfemail="4310262031263722313a306e0c25252a2026033026206d242c35">[email protected]</span></a>. Applicants: Mr. Bowen S. Diehl, Chief 
Executive Officer and President, Capital Southwest Corporation, at 
<a href="/cdn-cgi/l/email-protection#5634323f333e3a163537263f22373a253923223e213325227835393b"><span class="__cf_email__" data-cfemail="3052545955585c705351405944515c435f454458475543441e535f5d">[email protected]</span></a> and Mr. Michael S. Sarner, Chief Financial 
Officer, Secretary and Treasurer, Capital Southwest Corporation at 
<a href="/cdn-cgi/l/email-protection#d6bba5b7a4b8b3a496b5b7a6bfa2b7baa5b9a3a2bea1b3a5a2f8b5b9bb"><span class="__cf_email__" data-cfemail="c2afb1a3b0aca7b082a1a3b2abb6a3aeb1adb7b6aab5a7b1b6eca1adaf">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 551-6811, or Kaitlin C. Bottock, Branch Chief, at (202) 551-6825 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Company, a Texas corporation, is an internally managed, non-
diversified, closed-end management investment company that has elected 
to be regulated as a business development company (``BDC'') under the 
Act.\1\ The Company's investment objective is to produce attractive 
risk-adjusted returns by generating current income from its debt 
investments and capital appreciation from its equity and equity related 
investments.
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    \1\ Section 2(a)(48) defines a BDC to be any closed-end 
investment company that operates for the purpose of making 
investments in securities described in section 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. Capital Southwest SBIC, a Delaware limited partnership, received 
approval for a license from the Small Business Administration (``SBA'') 
to operate as a small business investment company (``SBIC'') under the 
Small Business Investment Act of 1958 (``SBIA''). Capital Southwest 
SBIC relies on the exclusion from the definition of investment company 
contained in section 3(c)(7) of the Act. The SBIC GP is the sole 
general partner of Capital Southwest SBIC and the Company is the sole 
member of the SBIC GP. The Company is the sole limited partner of 
Capital Southwest SBIC. The Company, directly through the SBIC GP, 
wholly owns Capital Southwest SBIC.

Applicants' Legal Analysis

    1. The Company requests an exemption pursuant to section 6(c) of 
the Act from the provisions of sections 18(a) and 61(a) of the Act to 
permit it to adhere to a modified asset coverage requirement with 
respect to any direct or indirect wholly-owned subsidiary of the 
Company that is licensed by the SBA to operate under the SBIA as an 
SBIC and relies on section 3(c)(7) for an exclusion from the definition 
of ``investment company'' under the Act (each, a ``SBIC 
Subsidiary'').\2\ Applicants state that companies operating under the 
SBIA, such as the Capital Southwest SBIC, are subject to the SBA's 
substantial regulation of permissible leverage in their capital 
structure.
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    \2\ All existing entities that currently intend to rely on the 
order are named as applicants. Any other existing or future entity 
that may rely on the order in the future will comply with the terms 
and condition of the order.
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    2. Section 18(a) of the Act prohibits a registered closed-end 
investment company from issuing any class of senior security or selling 
any such security of which it is the issuer unless the company complies 
with the asset coverage requirements set forth in that section. Section 
61(a) of the Act makes section 18 applicable to BDCs, with certain 
modifications. Section 18(k) exempts an investment company operating as 
an SBIC from the asset coverage requirements for senior securities 
representing indebtedness that are contained in section 18(a)(1)(A) and 
(B).
    3. Applicants state that the Company may be required to comply with 
the asset coverage requirements of section 18(a) (as modified by 
section 61(a)) on a consolidated basis because the Company may be 
deemed to be an indirect issuer of any class of senior security issued 
by Capital Southwest SBIC or another SBIC Subsidiary. Applicants state 
that applying section 18(a) (as modified by section 61(a)) on a 
consolidated basis generally would require that the Company treat as 
its own all assets and any liabilities held directly either by itself, 
by Capital Southwest SBIC, or by another SBIC Subsidiary. Accordingly, 
the Company requests an order under section 6(c) of the Act exempting 
the Company from the provisions of section 18(a) (as modified by 
section 61(a)), such that senior securities issued by each SBIC 
Subsidiary that would be excluded from 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.
    4. Section 6(c) of the Act, in relevant part, permits the 
Commission to exempt any transaction or class of transactions from any 
provision of the Act if and to the extent that such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Applicants state that the requested relief 
satisfies the section 6(c) standard. Applicants contend that, because 
the Capital Southwest SBIC would be entitled to rely on section 18(k) 
if it were a BDC, there is no policy reason to deny the benefit of that 
exemption to the Company.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    The Company will not itself issue or sell any senior security and 
the Company will not cause or permit Capital Southwest SBIC or any 
other SBIC Subsidiary to issue or sell any senior security of which the 
Company, Capital Southwest SBIC or any other SBIC Subsidiary is the 
issuer except to the extent permitted by section 18 (as modified for 
BDCs by section 61); provided that, immediately after the issuance or 
sale of any such senior security by any of the Company, Capital 
Southwest SBIC or any other SBIC Subsidiary, the Company, individually 
and on a consolidated basis, shall have the asset coverage required by 
section 18(a) (as modified by section 61(a)). In determining whether 
the Company, Capital Southwest SBIC and any other SBIC Subsidiary on a 
consolidated basis have the asset coverage required by section 18(a) 
(as modified by section 61(a)), any senior securities representing 
indebtedness of Capital Southwest SBIC or another SBIC Subsidiary if 
that SBIC Subsidiary has issued indebtedness that is held or guaranteed 
by the SBA shall not be considered senior securities and, for purposes 
of the definition of ``asset coverage'' in section 18(h), shall be 
treated as indebtedness not represented by senior securities.


[[Page 38772]]


    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15545 Filed 7-21-21; 8:45 am]
BILLING CODE 8011-01-P


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