Federal Register / Vol. 74, No. 133 / Tuesday, July 14, 2009 / Rules and Regulations 33911 

Disagreement and the FHFA concise 

statement, if any, will also be disclosed. 

§ 1204.6 What does it cost to get records 

under the Privacy Act? 

(a) Must I agree to pay fees? Your 

Privacy Act request is your agreement to 

pay all applicable fees, unless you 

specify a limit on the amount of fees 

you agree to pay. FHFA will not exceed 

the specified limit without your written 

agreement. 

(b) How does FHFA calculate fees? 

FHFA will charge a fee for duplication 

of a record under the Privacy Act in the 

same way it charges for duplication of 

records under FOIA (5 U.S.C. 552) in 12 

CFR 1202.11. There are no fees to search 

for or review records. 

§ 1204.7 Are there any exemptions from 

the Privacy Act? 

(a) What is a Privacy Act exemption? 

The Privacy Act allows the Director to 

exempt records or information in a 

system of records from some of the 

Privacy Act requirements, if the Director 

determines that the exemption is 

necessary. 

(b) How do I know if the records or 

information I want are exempt? (1) Each 

notice of a system of records will advise 

you if the Director has determined 

records or information in records are 

exempt from Privacy Act requirements. 

If the Director has claimed an 

exemption for a system of records, the 

System of Records Notice will identify 

the exemption and the provisions of the 

Privacy Act from which the system is 

exempt. 

(2) Until superseded by FHFA 

Systems of Records, the following 

OFHEO and FHFB Systems of Records 

are, under 5 U.S.C. 552a(k)(2) or (k)(5), 

exempt from the Privacy Act 

requirements of 5 U.S.C. 552a(c)(3), (d), 

(e)(1), (e)(4)(G), (e)(4)(H), (e)(4)(I), and 

(f): 

(i) OFHEO–11 Litigation and 

Enforcement Information System; 

(ii) FHFB–5 Agency Personnel 

Investigative Records; and 

(iii) FHFB–6 Office of Inspector 

General Audit and Investigative 

Records. 

§ 1204.8 How are records secured? 

(a) What controls must FHFA have in 

place? Each FHFA office must establish 

administrative and physical controls to 

prevent unauthorized access to its 

systems of records, unauthorized or 

inadvertent disclosure of records, and 

physical damage to or destruction of 

records. The stringency of these controls 

should correspond to the sensitivity of 

the records that the controls protect. At 

a minimum, the administrative and 

physical controls must ensure that: 

(1) Records are protected from public 

view; 

(2) The area in which records are kept 

is supervised during business hours to 

prevent unauthorized persons from 

having access to them; 

(3) Records are inaccessible to 

unauthorized persons outside of 

business hours; and 

(4) Records are not disclosed to 

unauthorized persons or under 

unauthorized circumstances in either 

oral or written form. 

(b) Is access to records restricted? 

Access to records is restricted only to 

authorized employees who require 

access in order to perform their official 

duties. 

§ 1204.9 Does FHFA collect and use Social 

Security numbers? 

FHFA collects Social Security 

numbers only when it is necessary and 

authorized. At least annually, the 

Privacy Act Officer or the Senior 

Agency Official for Privacy will inform 

employees who are authorized to collect 

information that: 

(a) Individuals may not be denied any 

right, benefit, or privilege as a result of 

refusing to provide their Social Security 

numbers, unless the collection is 

authorized either by a statute or by a 

regulation issued prior to 1975; and 

(b) They must inform individuals who 

are asked to provide their Social 

Security numbers: 

(1) If providing a Social Security 

number is mandatory or voluntary; 

(2) If any statutory or regulatory 

authority authorizes collection of a 

Social Security number; and 

(3) The uses that will be made of the 

Social Security number. 

§ 1204.10 What are FHFA employee 

responsibilities under the Privacy Act? 

At least annually, the Privacy Act 

Officer or the Senior Agency Official for 

Privacy will inform employees about the 

provisions of the Privacy Act, including 

the Privacy Act’s civil liability and 

criminal penalty provisions. Unless 

otherwise permitted by law, an 

authorized FHFA employee shall: 

(a) Collect from individuals only 

information that is relevant and 

necessary to discharge FHFA 

responsibilities; 

(b) Collect information about an 

individual directly from that individual 

whenever practicable; 

(c) Inform each individual from whom 

information is collected of: 

(1) The legal authority to collect the 

information and whether providing it is 

mandatory or voluntary; 

(2) The principal purpose for which 

FHFA intends to use the information; 

(3) The routine uses FHFA may make 

of the information; and 

(4) The effects on the individual, if 

any, of not providing the information. 

(d) Ensure that the employee’s office 

does not maintain a system of records 

without public notice and notify 

appropriate officials of the existence or 

development of any system of records 

that is not the subject of a current or 

planned public notice. 

(e) Maintain all records that are used 

in making any determination about an 

individual with such accuracy, 

relevance, timeliness, and completeness 

as is reasonably necessary to ensure 

fairness to the individual in the 

determination. 

(f) Except for disclosures made under 

the FOIA, make reasonable efforts, prior 

to disseminating any record about an 

individual, to ensure that the record is 

accurate, relevant, timely, and complete. 

(g) When required by the Privacy Act, 

maintain an accounting in the specified 

form of all disclosures of records by 

FHFA to persons, organizations, or 

Federal agencies. 

(h) Maintain and use records with 

care to prevent the unauthorized or 

inadvertent disclosure of a record to 

anyone. 

(i) Notify the appropriate official of 

any record that contains information 

that the Privacy Act does not permit 

FHFA to maintain. 

CHAPTER XVII—OFFICE OF FEDERAL 

HOUSING ENTERPRISE OVERSIGHT, 

DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT 

PART 1702—[REMOVED] 

■ 3. Remove part 1702. 

Dated: July 9, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–16678 Filed 7–13–09; 8:45 am] 

BILLING CODE 8070–01–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 107 

RIN 3245–AF92 

Small Business Investment 

Companies—Leverage Eligibility and 

Portfolio Diversification Requirements 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Interim final rule. 

SUMMARY: This interim final rule 

implements certain provisions of the 

American Recovery and Reinvestment 

Act of 2009 affecting small business 


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33912 Federal Register / Vol. 74, No. 133 / Tuesday, July 14, 2009 / Rules and Regulations 

investment companies (SBICs). These 

provisions increase the maximum 

amount of SBA leverage available to an 

SBIC, change the calculation of the 

maximum investment size that an SBIC 

is permitted to make, and simplify the 

requirement for an SBIC to devote a 

portion of its investment activity to 

smaller enterprises. SBA is publishing 

this rule as an interim final rule in light 

of the urgent need to help small 

businesses sustain and survive during 

this economic downturn. 

DATES: Effective Date: This rule is 

effective July 14, 2009. 

Comment Date: Comments must be 

received on or before September 14, 

2009. 

ADDRESSES: You may submit comments, 

identified by RIN: 3245–AF92 by any of 

the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Harry Haskins, Acting 

Associate Administrator for Investment, 

Small Business Administration, 409 

Third Street, SW., Washington, DC 

20416. 

• Hand Delivery/Courier: Harry 

Haskins, Acting Associate 

Administrator for Investment, 409 Third 

Street, SW., Washington, DC 20416. 

SBA will post all comments on 

http://www.regulations.gov. If you wish 

to submit confidential business 

information (CBI) as defined in the User 

Notice at http://www.regulations.gov, 

please submit the information to Harry 

Haskins, 409 Third Street, SW, 

Washington, DC 20416, or send an email to sbic@sba.gov. Highlight the 

information that you consider to be CBI 

and explain why you believe SBA 

should hold this information as 

confidential. SBA will review the 

information and make the final 

determination whether it will publish 

the information. 

FOR FURTHER INFORMATION CONTACT: 

Carol Fendler, Investment Division, 

Office of Capital Access, (202) 205–7559 

or sbic@sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

The American Recovery and 

Reinvestment Act of 2009 (Recovery 

Act), Public Law 111–05 was enacted on 

February 17, 2009, to among other 

things, promote economic recovery by 

preserving and creating jobs, and 

assisting those most impacted by the 

severe economic conditions facing the 

nation. The U.S. Small Business 

Administration is one of several 

agencies that are intended to play a role 

in achieving these goals. The SBA 

received funding and authority through 

the Recovery Act to modify existing 

loan programs or establish new loan 

programs to help re-invigorate small 

business lending. 

The specific permanent changes to the 

Small Business Investment Company 

(SBIC) program made by the Recovery 

Act increase the maximum amount of 

SBA leverage that an SBIC may have 

outstanding, change the limit on the 

maximum amount that an SBIC can 

invest in a single company and its 

affiliates, and simplify the requirement 

for SBICs to invest in smaller 

enterprises. 

II. Section by Section Analysis 

Section 107.700—Compliance with 

size standards in part 121 of this 

chapter as a condition of Assistance. 

The order of two cross-references in this 

section has been corrected, so that the 

reader is referred to § 121.301(c)(2) for 

the SBIC program financial size 

standards and to § 121.301(c)(1) for the 

industry size standards. 

Section 107.710—Requirement to 

finance Smaller Enterprises. Revised 

paragraph (b) of this section 

incorporates the Smaller Enterprise 

financing requirement established by 

the Recovery Act. As a condition of 

receiving leverage, an SBIC must now 

certify that at least 25 percent of its 

aggregate financing dollars will be 

provided to Smaller Enterprises, as 

defined in § 107.710(a). This provision 

is a simplification of the previous twopart requirement, which set a general 

minimum of 20 percent but also 

required 100 percent of any leverage 

above $90 million to be invested in 

Smaller Enterprises. 

In this rule, the Smaller Enterprise 

financing requirements must be satisfied 

not only when an SBIC applies for a 

leverage draw, but also at the close of 

each fiscal year; this year-end 

requirement applies to all SBICs, 

including those with no leverage. The 

Smaller Enterprise financing 

requirement has applied to both 

leveraged and non-leveraged SBICs 

since it was first added to the 

regulations in 1997. The financial size 

standards applicable to the SBIC 

program are considerably higher than 

those used in other SBA programs, and 

SBA considers it important for all SBICs 

to focus a portion of their investment 

activity on businesses at the lower end 

of the permitted size range. 

Any SBIC licensed after the Recovery 

Act date of enactment (February 17, 

2009), whether leveraged or nonleveraged, must satisfy the 25 percent 

requirement in revised § 107.710(b)(1). 

An SBIC licensed before the date of 

enactment must satisfy either revised 

§ 107.710(b)(2) or (b)(3). The applicable 

paragraph depends on whether or not 

the SBIC has received a leverage 

commitment from SBA after the date of 

enactment. For an SBIC that has not 

received a leverage commitment after 

February 17, 2009, paragraph (b)(2) 

provides that the SBIC must have at 

least 20 percent of its aggregate 

financing dollars (plus 100 percent for 

leverage over $90 million) invested in 

Smaller Enterprises. For an SBIC that 

has received a new SBA leverage 

commitment after February 17, 2009, 

paragraph (b)(3) provides that the SBIC 

may divide its investments into two 

segments; the SBIC must meet the old 

20 percent requirement (plus 100 

percent for leverage over $90 million), 

for investments made before the date of 

the first leverage commitment issued 

after February 17, 2009, but must meet 

the new 25 percent requirement for 

investments made on or after such date. 

For a non-leveraged SBIC licensed 

before February 17, 2009, the applicable 

paragraph would be § 107.710(b)(2). 

This rule will eliminate the phase-in 

requirement under which an SBIC must 

provide at least 10 percent of its 

investment dollars to Smaller 

Enterprises by the end of its first fiscal 

year, and at least 20 percent by the end 

of each subsequent year. SBA is making 

this change for several reasons. SBA’s 

review of the financing data submitted 

by SBICs indicated that the vast 

majority of SBICs have satisfied the 

Smaller Enterprise financing 

requirements with considerable room to 

spare, suggesting that the phase-in 

period is unnecessary. In addition, the 

Recovery Act does not provide for a 

phase-in. 

Former paragraph § 107.710(d), 

dealing with requirements related to 

leverage in excess of $90 million, is 

incorporated into revised § 107.710(b)(2) 

and (b)(3), as explained above. 

Revised paragraph § 107.710(e) 

contains updated cross-references to 

§ 107.1120, but no other changes. 

Section 107.740—Portfolio 

diversification (‘‘overline’’ limit). SBICs 

that intend to use SBA leverage are 

required to diversify their portfolios as 

a way of managing program risk. 

Diversification is accomplished by 

limiting the maximum amount that an 

SBIC can invest in a single company or 

group of affiliated companies; SBA 

regulations refer to this maximum 

investment amount as an SBIC’s 

‘‘overline’’ limit. The Recovery Act 

changed the calculation of the overline 

limit from 20 percent of an SBIC’s 

private capital to 10 percent of the sum 

of private capital and ‘‘the total amount 


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Federal Register / Vol. 74, No. 133 / Tuesday, July 14, 2009 / Rules and Regulations 33913 

of leverage projected by [the SBIC] in 

[its] business plan that was approved by 

[SBA] at the time of the grant of the 

company’s license.’’ Since most SBICs 

project the use of two tiers of leverage 

(i.e., leverage equal to two times their 

private capital), this calculation is 

generally equivalent to raising the 

overline limit to 30 percent of private 

capital. However, for the small number 

of SBICs that are approved for less than 

two tiers of leverage, the revised 

overline calculation may provide a 

smaller increase, or no increase, in the 

overline limit. 

In revised § 107.740, paragraph (a) 

provides, as a general rule, that an 

SBIC’s overline limit will be 30 percent 

of its Regulatory Capital, incorporating 

the assumption that most SBICs will be 

approved to issue two tiers of leverage. 

Paragraphs (a)(1) through (a)(3) retain 

the same adjustments to Regulatory 

Capital that are present in the current 

regulations; the purpose of these 

adjustments is to avoid penalizing an 

SBIC that realizes proceeds on one or 

more of its investments and begins to 

return capital to its investors. 

Paragraph (b) provides the overline 

limit for an SBIC that is approved for 

less than two tiers of leverage, either 20 

percent of Regulatory Capital for one 

tier or 25 percent of Regulatory Capital 

for 1.5 tiers (the rule does not specify 

percentages for other amounts of 

projected leverage because they are 

rarely requested, but they can be 

calculated by interpolation if necessary). 

Under this rule, no existing SBIC will 

have an overline limit below the level 

permitted by current regulations. 

Paragraphs (a) and (b) do not include 

the language from former § 107.740 that 

permitted an SBIC to exceed its 

prescribed overline limit with SBA’s 

prior written approval. The Recovery 

Act does allow SBA to approve overline 

exceptions, and it is not SBA’s intent to 

eliminate this possibility. However, 

SBA believes that the vast majority of 

the overline exceptions it has approved 

in the past would fall within the new 

overline formula established by the 

Recovery Act. SBA expects that 

exceptions for investments above the 

new limit will be rare. In keeping with 

that view, if an SBIC seeks to make an 

investment in excess of the amount 

permitted by revised § 107.740, it must 

request a regulatory exemption under 

§ 107.1920. To obtain a regulatory 

exemption, an SBIC must show that its 

request is not contrary to the purposes 

of the Small Business Investment Act; 

that the proposed action is fair and 

equitable; and that the exemption is 

reasonably calculated to advance the 

best interests of the SBIC program. An 

exemption must be approved in writing 

by the Associate Administrator for 

Investment. 

Section 107.740 will no longer 

provide a separate overline limit for 

specialized SBICs, which were licensed 

until 1996 under section 301(d) of the 

Small Business Investment Act. These 

companies had an overline limit of 30 

percent of Regulatory Capital under 

existing regulations and will retain that 

limit under the general rule in revised 

§ 107.740(a)(1). 

This section also removes an optional 

method for an SBIC to increase its 

overline limit by adding net unrealized 

gains on publicly traded and marketable 

securities to its Regulatory Capital 

(former § 107.740(c)). This provision has 

been unattractive to SBICs, and in fact 

SBA has strongly advised companies 

not to use it, because the consequences 

for an SBIC in the event that the 

publicly traded securities drop in value 

are likely to be extremely serious. SBA 

is not aware of any SBIC that is 

currently making use of this provision. 

Section 107.800—Financing in the 

form of Equity Securities. The only 

change in this section is the addition of 

a cross-reference in paragraph (b). The 

purpose of this revision is to make clear 

that the reference to ‘‘Equity Securities’’ 

in new § 107.1150(c)(1) encompasses 

only those securities that satisfy the 

requirements concerning redemption of 

Equity Securities in § 107.850. 

Section 107.1120—General eligibility 

requirements for Leverage. Revised 

paragraph (d) of this section provides 

for a new certification by SBICs under 

common control seeking to increase 

their aggregate outstanding leverage 

above $150 million. As explained 

further in the discussion of changes to 

§ 107.1150, the Recovery Act changes 

now permit SBICs under common 

control to have aggregate outstanding 

leverage of up to $225 million, but only 

if none of the SBICs has a condition of 

capital impairment. Former 

§ 107.1120(d) contained a certification 

regarding Smaller Enterprise financing 

with the proceeds of leverage over $90 

million, which is no longer needed 

based on the changes made in § 107.710. 

New paragraphs (e) and (f) provide for 

certifications by SBICs licensed on or 

after October 1, 2009, seeking leverage 

in excess of the general limits of $150 

million for a single SBIC and $225 

million for two or more SBICs under 

common control, pursuant to 

§ 107.1150(c)(2). As a condition of 

eligibility for this additional leverage, 

which can be as much as $25 million, 

the Recovery Act requires SBICs to 

certify that at least 50 percent of their 

total Financing dollars will be invested 

in companies located in low-income 

geographic areas. For any leverage 

request that would result in a group of 

SBICs under common control having 

aggregate outstanding leverage of more 

than $225 million, the certification 

requirement applies to each SBIC in the 

group, even those that are not 

themselves requesting additional 

leverage. 

Section 107.1150—Maximum amount 

of Leverage for a Section 301(c) 

Licensee. The Recovery Act increased 

the maximum permitted amount of 

outstanding leverage for a single SBIC 

and for two or more SBICs under 

common control. Revised § 107.1150(a) 

incorporates the new formula for an 

individual SBIC, which is the lesser of 

300 percent of Leverageable Capital or 

$150 million. In accordance with the 

Recovery Act changes, the three 

leverage brackets and the annual 

inflation adjustment of the leverage 

ceiling have been eliminated. 

Revised § 107.1150(b) provides the 

new aggregate leverage ceiling of $225 

million for two or more SBICs under 

common control. As a condition of 

eligibility for the $225 million, the 

Recovery Act requires the SBICs under 

common control to be ‘‘not under 

capital impairment’’. In this rule, for 

any leverage draw that would result in 

a group of SBICs under common control 

having aggregate outstanding leverage of 

more than $150 million, each SBIC is 

required to certify that it does not have 

a condition of capital impairment. This 

provision affects only the ability to draw 

new leverage; it does not affect any 

SBIC’s ability to receive a leverage 

commitment, nor would SBA deem an 

SBIC with leverage already outstanding 

to be in default solely because one of its 

affiliates becomes impaired. 

Although paragraphs (a) and (b) will 

provide SBICs with access to increased 

leverage, all leverage commitment and 

draw approvals remain subject to SBA’s 

current credit policies as defined in its 

standard operating procedures. One 

important aspect of those policies, 

regarding access to a third tier of 

leverage, is addressed in new 

introductory text that has been added to 

revised § 107.1150. The major points of 

this paragraph are that an SBIC seeking 

a third tier must first demonstrate 

consistently profitable financial 

performance while adhering to a 

relatively low-risk investment strategy; 

the third tier of leverage must be used 

to continue the SBIC’s successful 

investment strategy rather than 

beginning a new investment strategy; 

and there must be a high degree of 

certainty regarding the SBIC’s ability to 

repay all of its obligations to SBA. 


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This section eliminates former 

§ 107.1150(b)(2), which contained 

special rules for certain SBICs with 

leverage issued before March 31, 1993. 

As all of the subject leverage has 

matured, this provision is no longer 

needed. 

New paragraph (c) implements two 

provisions, one included in the 

Recovery Act and another that was 

previously enacted, that may provide 

additional leverage eligibility to SBICs 

that make investments in low-income 

geographic areas. The definition of 

‘‘low-income geographic area’’ was 

developed in connection with SBA’s 

New Markets Venture Capital (NMVC) 

program and can be found in the NMVC 

regulations, § 108.50. 

Paragraph (c)(1) adjusts the leverage 

eligibility formula in § 107.1150(a) by 

subtracting from an SBIC’s outstanding 

leverage the cost basis of investments 

that the SBIC has made in the Equity 

Securities (as defined in § 107.800(b)) of 

Smaller Enterprises. The amount that 

can be subtracted is limited to 50 

percent of the SBIC’s Leverageable 

Capital. 

Paragraph (c)(2) implements a 

provision of the Recovery Act that will 

be available only to new SBICs licensed 

on or after October 1, 2009. Paragraph 

(c)(2) makes a maximum of $175 million 

available to an individual SBIC and 

$250 million available to a group of 

SBICs under common control, compared 

with the respective general ceilings of 

$150 million and $225 million. To be 

eligible for the additional Leverage, an 

individual SBIC must show, at the time 

of its draw request, that at least half of 

the total dollar amount it has invested 

to date was provided to Small 

Businesses in low-income geographic 

areas; furthermore, it must certify that at 

least half of the total dollar amount it 

will invest in the future will be 

provided to Small Businesses in lowincome geographic areas. If the SBIC 

making the leverage request is under 

common control with any other SBICs, 

and the requested draw would result in 

the group having aggregate outstanding 

leverage above $225 million, then each 

SBIC in the group must meet the same 

two requirements. 

An SBIC licensed on or after October 

1, 2009 can seek leverage under either 

paragraph (c)(1) or (c)(2), but the Small 

Business Investment Act does not 

provide for the two paragraphs to be 

used together. The SBIC can obtain 

additional leverage under paragraph 

(c)(1) as an exception to paragraph (a), 

but not to paragraph (b) or paragraph 

(c)(2). Alternatively, additional Leverage 

can be obtained under paragraph (c)(2) 

by an individual SBIC as an exception 

to paragraph (a), or by a group of SBICs 

under common control as an exception 

to paragraph (b), but in neither case as 

an exception to paragraph (c)(1). 

Section 107.1160—Maximum amount 

of Leverage for a Section 301(d) 

Licensee. The only change in this 

section is an updated cross-reference in 

§ 107.1160(b), reflecting the revisions to 

§ 107.1150 made by this rule. 

Section 107.1810—Events of default 

and SBA’s remedies for Licensee’s 

noncompliance with terms of 

Debentures. Revised § 107.1810(f)(9) 

deletes a cross-reference to former 

§ 107.1150(b)(2), which has been 

removed by this rule. 

III. Justification for Publication as 

Interim Final Rule 

In general, before issuing a final rule, 

SBA publishes the rule for public 

comment in accordance with the 

Administrative Procedure Act (APA), 5 

U.S.C. 553. The APA provides an 

exception from the general rule where 

the agency finds good cause to omit 

public participation. 5 U.S.C. 

553(c)(3)(B). The good cause 

requirement is satisfied when prior 

public participation can be shown to be 

impracticable, unnecessary, or contrary 

to the public interest. Under such 

circumstances, an agency may publish 

an interim final rule without soliciting 

public comment. 

In enacting the good cause exception 

to standard rulemaking procedures, 

Congress recognized that emergency 

situations arise where an agency must 

issue a rule without public 

participation. The current turmoil in the 

financial markets is having a negative 

impact on the availability of financing 

for small businesses. There is an urgent 

need to assist viable small businesses 

that are experiencing financial 

hardships due to the current economic 

environment. Many SBICs have reported 

to SBA that cash flow lending by banks 

has been sharply reduced and that they 

are experiencing a surge in demand for 

assistance from small businesses that 

are unable to obtain financing from 

other sources. Without SBIC financing, 

these businesses must curtail expansion 

plans, postpone acquisitions or transfers 

of ownership, or forgo modernization of 

plant and equipment, thereby reducing 

their ability to contribute to the nation’s 

economic recovery. 

SBA finds that good cause exists to 

publish this rule as an interim final rule 

in light of the urgent need to help small 

businesses sustain and survive during 

this economic downturn. Advance 

solicitation of comments for this 

rulemaking would be impracticable, 

contrary to the public interest, and 

would harm those small businesses that 

need immediate access to capital. 

Although this rule is being published 

as an interim final rule, comments are 

solicited from interested members of the 

public. These comments must be 

submitted on or before September 14, 

2009. The SBA will consider these 

comments and the need for making any 

amendments as a result of these 

comments. 

IV. Justification for Immediate Effective 

Date 

The APA requires that ‘‘publication or 

service of a substantive rule shall be 

made not less than 30 days before its 

effective date, except * * * as otherwise 

provided by the agency for good cause 

found and published with the rule.’’ 5 

U.S.C. 553(d)(3). 

The purpose of this provision is to 

provide interested and affected 

members of the public sufficient time to 

adjust their behavior before the rule 

takes effect. In the case of this 

rulemaking, however, there should be 

no need for any member of the public, 

including any SBIC, to make any 

changes in order to prepare for the rule 

taking effect. This rule implements 

changes to the SBIC program in order to 

enable SBICs to continue to finance 

small businesses at a crucial time. In 

light of the current economic downturn 

and the sharp reduction in commercial 

lending, a delay in providing SBIC 

financing will, in many cases, have a 

direct impact on the survivability of 

many small businesses, making it 

necessary to implement this rule 

immediately. 

SBA finds that that there is good 

cause for making this rule effective 

immediately instead of observing the 

30-day period between publication and 

effective date. Delaying implementation 

of the rule would have a serious adverse 

impact on the nation’s small businesses. 

Compliance With Executive Orders 

12866, 12988, 13175 and 13132, the 

Paperwork Reduction Act (44 U.S.C., 

Ch. 35), and the Regulatory Flexibility 

Act (5 U.S.C. 601–612) 

Executive Order 12866 

The Office of Management and Budget 

(OMB) has determined that this rule 

constitutes a significant regulatory 

action for purposes of Executive Order 

12866. 

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 


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burden. The action does not have 

preemptive effect and portions of this 

rule are effective February 17, 2009 to 

coincide with the effective date of the 

Recovery Act. 

Executive Order 13132 

This rule does not have federalism 

implications as defined in Executive 

Order 13132. It will not have substantial 

direct effects on the States, on the 

relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government, as specified in the 

Executive Order. As such it does not 

warrant the preparation of a Federalism 

Assessment. 

Paperwork Reduction Act 

The SBA has determined that this 

interim final rule does not impose 

additional reporting or recordkeeping 

requirements under the Paperwork 

Reduction Act, 44 U.S.C. Chapter 35. 

Regulatory Flexibility Act 

Because this rule is an interim final 

rule, there is no requirement for SBA to 

prepare a Regulatory Flexibility Act 

(RFA) analysis. The RFA requires 

administrative agencies to consider the 

effect of their actions on small entities, 

small non-profit businesses, and small 

local governments. Pursuant to the RFA, 

when an agency issues a rule, the 

agency must prepare analysis that 

describes whether the impact of the rule 

will have a significant economic impact 

on a substantial number of small 

entities. However, the RFA requires 

such analysis only where notice and 

comment rulemaking is required. 

List of Subjects in 13 CFR Part 107 

Investment companies, Reporting and 

recordkeeping requirements. 

■ For the reasons stated in the preamble, 

SBA amends 13 CFR part 107 as 

follows: 

PART 107—SMALL BUSINESS 

INVESTMENT COMPANIES 

■ 1. The authority citation for part 107 

is revised to read as follows: 

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

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

106–554, 114 Stat. 2763; and Pub. L. 111–5, 

123 Stat. 115. 

■ 2. Revise the second sentence of 

§ 107.700 to read as follows: 

§ 107.700 Compliance with size standards 

in part 121 of this chapter as a condition of 

Assistance. 

* * * To determine whether an 

applicant is a Small Business, you may 

use either the financial size standards in 

§ 121.301(c)(2) of this chapter or the 

industry standard covering the industry 

in which the applicant is primarily 

engaged, as set forth in § 121.301(c)(1) of 

this chapter. 

■ 3. Amend § 107.710 by revising 

paragraph (b), removing paragraph (d), 

redesignating paragraphs (e) and (f) as 

(d) and (e), and revising the second 

sentence of redesignated paragraph (e) 

to read as follows: 

§ 107.710 Requirement to finance Smaller 

Enterprises. 

* * * * * 

(b) Smaller Enterprise Financings. At 

the close or each of your fiscal years, 

and at the time of any application to 

draw Leverage, you must satisfy the 

Smaller Enterprise financing 

requirement in this paragraph (b) that 

applies to you. 

(1) If you were licensed after February 

17, 2009, at least 25 percent (in dollars) 

of your Financings must have been 

invested in Smaller Enterprises. 

(2) If you were licensed on or before 

February 17, 2009, and you have 

received no SBA Leverage commitment 

issued after February 17, 2009, at least 

20 percent (in dollars) of your 

Financings, excluding Financings made 

in whole or in part with Leverage in 

excess of $90 million, must have been 

invested in Smaller Enterprises. In 

addition, 100 percent of all Financings 

made in whole or in part with Leverage 

in excess of $90 million (including 

aggregate Leverage over $90 million 

issued by two or more Licensees under 

Common Control) must have been 

invested in Smaller Enterprises. 

(3) If you were licensed on or before 

February 17, 2009, and you have 

received an SBA Leverage commitment 

after February 17, 2009: 

(i) For all Financings made after the 

date of the first Leverage commitment 

issued after February 17, 2009, at least 

25 percent (in dollars) of your 

Financings must have been invested in 

Smaller Enterprises, and 

(ii) For all Financings made before 

February 17, 2009, at least 20 percent 

(in dollars) of your Financings, 

excluding Financings made in whole or 

in part with Leverage in excess of $90 

million, must have been invested in 

Smaller Enterprises. In addition, 100 

percent of all Financings made in whole 

or in part with Leverage in excess of $90 

million (including aggregate Leverage 

over $90 million issued by two or more 

Licensees under Common Control) must 

have been invested in Smaller 

Enterprises. 

* * * * * 

(e) Non-compliance with this section. 

* * * However, you will not be eligible 

for additional Leverage until you reach 

the required percentage (see 

§ 107.1120(c) and (g)). 

■ 4. Revise § 107.740 to read as follows: 

§ 107.740 Portfolio diversification 

(‘‘overline’’ limitation). 

(a) General rule. This § 107.740 

applies if you have outstanding 

Leverage or intend to issue Leverage in 

the future. Unless SBA approved your 

license application based upon a plan to 

issue less than two tiers of Leverage, 

you may provide Financing or a 

Commitment to a Small Business if the 

resulting amount of your aggregate 

Financings and Commitments to such 

Small Business and its Affiliates does 

not exceed 30 percent of the sum of: 

(1) Your Regulatory Capital as of the 

date of the Financing or Commitment; 

plus 

(2) Any Distribution(s) you made 

under § 107.1570(b), during the five 

years preceding the date of the 

Financing or Commitment, which 

reduced your Regulatory Capital; plus 

(3) Any Distribution(s) you made 

under § 107.585, during the five years 

preceding the date of the Financing or 

Commitment, which reduced your 

Regulatory Capital by no more than two 

percent or which SBA approves for 

inclusion in the sum determined in this 

paragraph (a). 

(b) Lower overline limit. If SBA 

approved your license application based 

upon a plan to issue less than two tiers 

of Leverage, the applicable percentage of 

the amount computed in paragraphs 

(a)(1) though (a)(3) of this section will 

be: 

(1) 20 percent if the plan 

contemplates one tier of Leverage. 

(2) 25 percent if the plan 

contemplates 1.5 tiers of Leverage. 

(c) Outstanding Financings. For the 

purposes of paragraphs (a) and (b) of 

this section, you must measure each 

outstanding Financing at its original 

cost (including any amount of the 

Financing that was previously written 

off). 

■ 5. Amend § 107.800 by revising the 

second sentence of paragraph (b) to read 

as follows: 

§ 107.800 Financings in the form of Equity 

Securities. 

* * * * * 

(b) Definition. * * * If the Financing 

agreement contains debt-type 

acceleration provisions or includes 

redemption provisions, other than those 

permitted under § 107.850, the security 

will be considered a Debt Security for 


hsrobinson on PROD1PC76 with RULES
33916 Federal Register / Vol. 74, No. 133 / Tuesday, July 14, 2009 / Rules and Regulations 

purposes of § 107.855 and 

§ 107.1150(c)(1). 

■ 6. Amend § 107.1120 by revising 

paragraph (d), redesignating paragraphs 

(e) through (h) as (g) through (j), and 

adding new paragraphs (e) and (f), to 

read as follows: 

§ 107.1120 General eligibility requirements 

for Leverage. 

* * * * * 

(d) For any Leverage draw that would 

cause you and any other Licensees 

under Common Control to have 

aggregate outstanding Leverage in 

excess of $150 million, certify that none 

of the Licensees has a condition of 

Capital Impairment. See also 

§ 107.1150(b). 

(e) For any Leverage request pursuant 

to § 107.1150(c)(2)(i), certify that at least 

50 percent (in dollars) of your 

Financings made on or after the date of 

such request will be invested in Small 

Businesses located in low-income 

geographic areas. 

(f) For any Leverage request pursuant 

to § 107.1150(c)(2)(ii), certify at least 50 

percent (in dollars) of the Financings 

made by each Licensee under Common 

Control on or after the date of such 

request will be invested in Small 

Businesses located in low-income 

geographic areas. 

* * * * * 

■ 7. Revise § 107.1150 to read as 

follows: 

§ 107.1150 Maximum amount of Leverage 

for a Section 301(c) Licensee. 

A Section 301(c) Licensee may have 

maximum outstanding Leverage as set 

forth in paragraphs (a) through (c) of 

this section. In general, SBA will 

approve Leverage commitment requests 

in excess of 200 percent of Regulatory 

Capital and draw requests in excess of 

200 percent of Leverageable Capital only 

after a Licensee has demonstrated 

consistent, sustainable profitability 

based on a conservative investment 

strategy that limits downside risk. Any 

such Leverage request must be 

supported by an up-to-date business 

plan that reflects continuation of the 

Licensee’s successful investment 

strategy and demonstrates the Licensee’s 

ability to pay all SBA obligations in 

accordance with their terms. 

(a) Individual Licensee. Subject to 

SBA’s credit policies, if you are a 

Section 301(c) Licensee, the maximum 

amount of Leverage you may have 

outstanding at any time is the lesser of: 

(1) 300 percent of your Leverageable 

Capital, or 

(2) $150 million. 

(b) Multiple Licensees under Common 

Control. Subject to SBA’s credit 

policies, two or more Licenses under 

Common Control may have maximum 

aggregate outstanding Leverage of $225 

million. However, for any Leverage 

draw(s) by one or more such Licensees 

that would cause the aggregate 

outstanding Leverage to exceed $150 

million, each of the Licensees under 

Common Control must certify that it 

does not have a condition of Capital 

Impairment. See also § 107.1120(d). 

(c) Additional Leverage based on 

investment in low-income geographic 

areas. Subject to SBA’s credit policies, 

you may have outstanding Leverage in 

excess of the amounts permitted by 

paragraphs (a) and (b) of this section in 

accordance with this paragraph (c). If 

you were licensed before October 1, 

2009, you may seek additional Leverage 

under paragraph (c)(1) only. If you were 

licensed on or after October 1, 2009, you 

may seek additional Leverage under 

paragraph (c)(1) or paragraph (c)(2), but 

not both. In this paragraph (c), ‘‘lowincome geographic areas’’ are as defined 

in § 108.50 of this chapter. 

(1) Investment in Smaller Enterprises 

located in low-income geographic areas. 

To determine whether you may request 

a draw that would cause you to have 

outstanding Leverage in excess of the 

amount determined under paragraph (a) 

of this section: 

(i) Determine the cost basis, as 

reported on your most recent filing of 

SBA Form 468, of any investments in 

the Equity Securities of a Smaller 

Enterprise located in a low-income 

geographic area. 

(ii) Calculate the amount that equals 

50 percent of your Leverageable Capital. 

(iii) Subtract from your outstanding 

Leverage the lesser of (c)(1)(i) or 

(c)(1)(ii). 

(iv) If the amount calculated in 

paragraph (c)(1)(iii) is less than the 

maximum leverage determined under 

paragraph (a) of this section, the 

difference between the two amounts 

equals your additional Leverage 

availability. 

(2) Investment in Small Businesses 

located in low-income geographic areas. 

This paragraph (c)(2) applies only to 

Licensees licensed on or after October 1, 

2009. You may substitute a maximum 

Leverage amount of $175,000,000 for the 

$150,000,000 set forth in paragraph 

(a)(2) of this section, and a maximum 

Leverage amount of $250,000,000 for the 

$225,000,000 set forth in paragraph (b) 

of this section, if you satisfy the 

following conditions: 

(i) At least 50 percent (in dollars) of 

your Financings preceding the date of 

such request must have been invested in 

Small Businesses located in low-income 

geographic areas. In addition, you must 

certify that at least 50 percent (in 

dollars) of your Financings on or after 

the date of such request will be invested 

in Small Businesses located in lowincome geographic areas. 

(ii) If you are requesting a draw that 

would cause you and any other 

Licensees under Common Control to 

have aggregate outstanding Leverage in 

excess of $225,000,000, at least 50 

percent (in dollars) of the Financings 

made by each Licensee under Common 

Control preceding the date of such 

request must have been invested in 

Small Businesses located in low-income 

geographic areas. In addition, each such 

Licensee must certify that at least 50 

percent (in dollars) of its Financings on 

or after the date of such request will be 

invested in Small Businesses located in 

low-income geographic areas. 

■ 8. Amend § 107.1160 by revising the 

first sentence of paragraph (b) to read as 

follows: 

§ 107.1160 Maximum amount of Leverage 

for a Section 301(d) Licensee. 

* * * * * 

(b) Maximum amount of total 

Leverage. Use § 107.1150 to determine 

your maximum amount of Leverage as if 

you were a Section 301(c) Licensee. 

* * * 

* * * * * 

■ 9. Amend § 107.1810 by revising the 

first sentence of paragraph (f)(9) to read 

as follows: 

§ 107.1810 Events of default and SBA’s 

remedies for Licensee’s noncompliance 

with terms of Debenture. 

* * * * * 

(f) Events of default with opportunity 

to cure. * * * 

(9) Failure to maintain investment 

ratios. You fail to maintain the 

investment ratio for Leverage in excess 

of 300 percent of Leverageable Capital 

(see § 107.1160(c)), if applicable to you, 

as of the end of each fiscal year. * * * 

* * * * * 

Dated: July 8, 2009. 

Karen G. Mills, 

Administrator. 

[FR Doc. E9–16554 Filed 7–9–09; 11:15 am] 

BILLING CODE 8025–01–P 


hsrobinson on PROD1PC76 with RULES