Document ID: SEC-2014-0936-0001
Agency: sec
Document Type: Notice
Title: Applications: Fidus Investment Corp., et al.
Posted Date: 2014-06-06T04:00Z

[Federal Register Volume 79, Number 109 (Friday, June 6, 2014)]
[Notices]
[Pages 32776-32779]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13103]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31067; 812-14156]

Fidus Investment Corporation, et al.; Notice of Application

June 2, 2014.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application to amend a prior order issued under 
sections 6(c), 12(d)(1)(J), and 57(c) of the Investment Company Act of 
1940 (``Act'') granting exemptions from sections 12(d)(1)(A), 18(a), 
21(b), 57(a)(1)-(a)(3), and 61(a) of the Act; under section 57(i) of 
the Act and rule 17d-1 under the Act to permit certain joint 
transactions otherwise prohibited by section 57(a)(4) of the Act; and 
under section 12(h) of the Securities Exchange Act of 1934 (``Exchange 
Act'') granting an exemption from section 13(a) of the Exchange Act.

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    Applicants: Fidus Investment Corporation (``Company''), Fidus 
Mezzanine Capital, L.P., (``Fidus SBIC''), Fidus Investment GP, LLC 
(``New General Partner''), Fidus Investment Advisors, LLC (``Fidus 
Advisors''), and Fidus Mezzanine Capital II, L.P. (``Fidus SBIC II'') 
(collectively, the ``Applicants'').
SUMMARY: Summary of Application: Applicants request an order (``Amended 
Order'') that would amend, and in part supersede, a prior order 
permitting a parent business development company (``BDC'') and its 
wholly-owned small business investment company (``SBIC'') subsidiary to 
engage in certain transactions that otherwise would be

[[Page 32777]]

permitted if such parent BDC and such SBIC subsidiary were one company 
and to file certain reports on a consolidated basis, and permitting 
such parent BDC to adhere to a modified asset coverage requirement 
(``Prior Order'').\1\ Applicants seek to amend the Prior Order in order 
to permit such SBIC subsidiary, which is also a BDC, and a newly formed 
SBIC subsidiary or any future subsidiary to engage in certain 
transactions that otherwise would be permitted if such parent BDC and 
the subsidiaries were one company and to permit such parent BDC to 
adhere to a modified asset coverage requirement.
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    \1\ Fidus Investment Corporation, et al., Investment Company Act 
Release Nos. 29974 (Mar. 1, 2012) (notice) and 30012 (Mar. 27, 2012) 
(order).

DATES:  Filing Dates: The application was filed on May 15, 2013, and 
amended on December 6, 2013, April 2, 2014, and May 30, 2014.
    Hearing or Notification of Hearing: An order granting the 
application 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 by 
5:30 p.m. on June 27, 2014 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 
Street NE., Washington, DC 20549-1090. Applicants, c/o Edward H. Ross, 
Fidus Investment Corporation, 1603 Orrington Avenue, Suite 1005, 
Evanston, Illinois 60201.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Attorney, 
at (202) 551-6990, or MaryKay Frech, Branch Chief, at (202) 551-6821 
(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 Web site by searching for the file number, or 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 Maryland corporation, is an externally-managed, 
non-diversified, closed-end investment company that has elected to be 
regulated as a BDC under the Act.\2\ The Company provides customized 
mezzanine debt and equity financing solutions to lower middle-market 
companies located throughout the United States that have revenues 
between $10 million and $150 million. The Company's investment 
objective is to provide attractive risk-adjusted returns by generating 
both current income from debt investments and capital appreciation from 
equity related investments. The Company's board of directors (the 
``Board'') consists of five members, three of whom are not ``interested 
persons'' of the Company within the meaning of section 2(a)(19) of the 
Act.
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    \2\ Section 2(a)(48) of the Act 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. Fidus SBIC, a Delaware limited partnership, received its license 
from the Small Business Administration (``SBA'') to operate as a SBIC 
under the Small Business Investment Act of 1958 (``SBA Act''). Fidus 
SBIC has elected to be regulated as a BDC under the Act. Fidus SBIC has 
the same investment objectives and strategies as the Company. The 
Company owns a 99.99% limited partnership interest in Fidus SBIC, and 
the New General Partner, a Delaware limited liability company and a 
wholly-owned subsidiary of the Company, owns a 0.01% general 
partnership interest in Fidus SBIC. Fidus SBIC is a wholly owned 
subsidiary of the Company because the Company and the New General 
Partner own all of the partnership and voting interests in Fidus SBIC. 
Fidus SBIC is and will remain, at all times, a Subsidiary \3\ of the 
Company and consolidated with the Company for financial reporting 
purposes. Fidus SBIC has a board of directors (``Fidus SBIC Board'') 
consisting of three persons who are not interested persons of Fidus 
SBIC within the meaning of section 2(a)(19) of the Act and two persons 
who are interested persons of Fidus SBIC.
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    \3\ For purposes of this application, references to 
``Subsidiaries'' include Fidus SBIC and Fidus SBIC II, which are the 
Company's only Subsidiaries currently in existence, as well as any 
future direct or indirect wholly-owned subsidiaries of the Company 
(collectively, the ``Subsidiaries'' and each a ``Subsidiary'').
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    3. Fidus SBIC II, a Delaware limited partnership, is a Subsidiary 
of the Company. Fidus SBIC II received its license from the SBA to 
operate as a SBIC under the SBA Act. Unlike Fidus SBIC, Fidus SBIC II 
will not be registered under the Act and will rely on the exclusion 
from the definition of investment company contained in section 3(c)(7) 
of the Act. The Company directly owns a 99.99% limited partnership 
interest in Fidus SBIC II. The New General Partner owns a 0.01% general 
partnership interest in Fidus SBIC II. Therefore, Fidus SBIC II is a 
Subsidiary of the Company because the Company and the New General 
Partner own all of the equity and voting interests in Fidus SBIC II. 
Fidus SBIC II is consolidated with the Company for financial reporting 
purposes.
    4. Fidus Advisors, a Delaware limited liability company, is 
registered as an investment adviser under the Investment Advisers Act 
of 1940. Fidus Advisors serves as the investment adviser to the 
Company, Fidus SBIC, and Fidus SBIC II and manages the consolidated 
assets of the Company, including those of Fidus SBIC and Fidus SBIC II. 
Fidus Advisors does not currently provide management and advisory 
services to any other Subsidiary. It is anticipated that Fidus Advisors 
will also provide management and advisory services to future 
Subsidiaries.
    5. The Prior Order permits the Company and Fidus SBIC to operate 
effectively as one company. At the time of the Prior Order, Fidus SBIC 
was the Company's only wholly-owned SBIC subsidiary. Subsequent to the 
Prior Order, the Company has formed Fidus SBIC II and may in the future 
create other Subsidiaries. The Subsidiaries may also be licensed by the 
SBA to operate as SBICs (collectively, the ``SBIC Subsidiaries,'' and 
each an ``SBIC Subsidiary'') or in some cases may not be SBICs.\4\
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    \4\ Any existing entities that currently intend to rely on the 
Amended Order have been named as Applicants, and any other existing 
or future entities that may rely on the Amended Order in the future 
will comply with its terms and conditions.
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    6. Applicants seek the Amended Order to request the same exemptive 
relief for Fidus SBIC II and any future Subsidiary that was granted 
under the Prior Order with respect to Fidus SBIC, except to the extent 
that such relief is not necessary due to the fact that Fidus SBIC II is 
not (and no future Subsidiary will be) a BDC or a registered investment 
company under the Act.

[[Page 32778]]

Applicants' Legal Analysis

    1. Applicants request the Amended Order under sections 6(c), 57(c) 
and 57(i) of the Act and rule 17d-1 under the Act to permit Fidus SBIC 
and one or more other Subsidiaries to engage in certain transactions 
that otherwise would be permitted if the Company and its Subsidiaries 
were one company and to permit the Company to adhere to modified asset 
coverage requirements.
    2. Section 18(a) prohibits a registered closed-end investment 
company from issuing any class of senior security or selling any such 
security of which it is the issuer, unless 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) provides an exemption from section 
18(a)(1)(A) and (B) (relating to senior securities representing 
indebtedness) for SBICs.
    3. Applicants state that a question exists as to whether the 
Company must comply with the asset coverage requirements of section 
18(a) (as modified by section 61(a) for BDCs) solely on an individual 
basis or whether it must also comply with the asset coverage 
requirements on a consolidated basis because the Company may be deemed 
to be an indirect issuer of any class of senior securities issued by 
any SBIC Subsidiary. Applicants state that they wish to treat Fidus 
SBIC II (and any future SBIC Subsidiary) as if it were a BDC subject to 
sections 18 and 61 of the Act. Applicants state that companies 
operating under the SBA Act, such as Fidus SBIC II (and other SBIC 
Subsidiaries), are subject to the SBA's substantial regulation of 
permissible leverage in their capital structure.
    4. The Prior Order granted relief under section 6(c) from sections 
18(a) and 61(a) to permit the Company to exclude from its consolidated 
asset coverage ratio any senior security representing indebtedness 
issued by Fidus SBIC (not any future SBIC Subsidiary). Accordingly, 
Applicants request relief under section 6(c) of the Act from sections 
18(a) and 61(a) of the Act to permit the Company to exclude from its 
consolidated asset coverage ratio any senior security representing 
indebtedness issued by any SBIC Subsidiary.
    5. 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, since 
Fidus SBIC is entitled to rely on section 18(k) and since Fidus SBIC II 
(or any future SBIC Subsidiary) would be entitled to rely on section 
18(k) if it were a BDC itself, there is no policy reason to deny the 
benefit of such exemptions to the Company.
    6. Sections 57(a)(1) and (2) of the Act generally prohibit, with 
certain exceptions, sales or purchases of any security or other 
property between BDCs and certain of their affiliates as described in 
section 57(b) of the Act. Section 57(b) includes a person, directly or 
indirectly, either controlling, controlled by or under common control 
with the BDC. Applicants state that the Company directly owns all of 
the limited partnership interests in Fidus SBIC and Fidus SBIC II and 
indirectly owns all of the general partnership interests in Fidus SBIC 
and Fidus SBIC II through its 100% ownership of the New General 
Partner. Accordingly, Fidus SBIC and Fidus SBIC II would each be a 
person related to each other in a manner described in section 57(b) 
because each is deemed to be under the control of the Company and thus 
under common control. In addition, each of Fidus SBIC and Fidus SBIC II 
and each other Subsidiary would also be a person related to each other 
Subsidiary in a manner described in section 57(b).
    7. Applicants state that there may be circumstances when one or 
more of the Company, Fidus SBIC, Fidus SBIC II or any future Subsidiary 
would purchase all or a portion of the portfolio investments held by 
one of the others in order to enhance the liquidity of the selling 
company or for other reasons, subject in each case to the requirements 
of the SBA and the regulations thereunder, as applicable. In addition, 
there may be circumstances when it is in the interest of the Company, 
Fidus SBIC and/or Fidus SBIC II for Fidus SBIC II, or for any future 
Subsidiaries, to invest in securities of an issuer that may be deemed 
to be a person related to either the Company or Fidus SBIC in a manner 
described in section 57(b), or for the Company to invest in securities 
of an issuer that may be deemed to be a person related to a Subsidiary 
in a manner described in section 57(b).
    8. The Prior Order only extends relief from sections 57(a)(1) and 
(2) to transactions between the Company and Fidus SBIC. Applicants 
therefore request an exemption from sections 57(a)(1) and 57(a)(2) of 
the Act to permit any transaction between Fidus SBIC (as a BDC) and any 
other Subsidiary with respect to the purchase or sale of securities or 
other property. Applicants also seek an exemption from these provisions 
to allow any transaction between Fidus SBIC and a controlled portfolio 
affiliate of another Subsidiary. Applicants state that the requested 
relief is intended only to permit the Company and its Subsidiaries to 
do that which they otherwise would be permitted to do if they were one 
company.
    9. Section 57(c) provides that the Commission will exempt a 
proposed transaction from the provisions of section 57(a)(1) and (2) of 
the Act if the terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching of any person concerned, and the proposed 
transaction is consistent with the policy of the BDC concerned and the 
general purposes of the Act.
    10. Applicants submit that the requested relief from section 
57(a)(1) and (2) meets this standard. Applicants represent that the 
proposed operations as one company will enhance efficient operations of 
the Company and its Subsidiaries, including Fidus SBIC, and allow them 
to deal with portfolio companies as if the Company and such 
Subsidiaries were one company. Applicants contend that the terms of the 
proposed transactions, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching of 
the Company or Fidus SBIC (the BDC) by any person, and that the 
requested order would permit the Company and the Subsidiaries to carry 
out more effectively their purposes and objectives of investing 
primarily in small business concerns. Finally, Applicants note that the 
proposed transactions are consistent with the policies of the Company 
and Fidus SBIC as specified in filings with the Commission and the 
Company's reports to stockholders, as well as consistent with the 
policies and provisions of the Act.
    11. Section 17(d) of the Act and rule 17d-1 under the Act (made 
applicable to BDCs by section 57(i)) prohibit affiliated persons of a 
registered investment company, or an affiliated person of such person, 
acting as principal, from participating in any joint transaction or 
arrangement in which the registered company or a company it controls is 
a participant, unless the Commission has issued an order authorizing 
the arrangement. Section 57(a)(4) of the Act imposes substantially the 
same prohibitions on joint transactions involving any BDC and an

[[Page 32779]]

affiliated person of such BDC, or an affiliated person of such 
affiliated person, as specified in section 57(b) of the Act. Section 
57(i) of the Act provides that rules and regulations under section 
17(d) of the Act will apply to transactions subject to section 57(a)(4) 
in the absence of rules under that section. The Commission has not 
adopted rules under section 57(a)(4) with respect to joint transactions 
and, accordingly, the standards set forth in rule 17d-1 govern 
Applicants' request for relief.
    12. The Prior Order only extends relief from section 57(a)(4) and 
rule 17d-1 for joint transactions between the Company and Fidus SBIC. 
Accordingly, the Applicants request relief under section 57(i) and rule 
17d-1 to permit any joint transaction that would otherwise be 
prohibited by section 57(a)(4), in which Fidus SBIC (as a BDC) and 
another Subsidiary participate, but only to the extent that the 
transaction would not be prohibited if the Subsidiaries participating 
were deemed to be part of the Company, and not separate companies.
    13. In determining whether to grant an order under section 57(i) 
and rule 17d-1, the Commission considers whether the participation of 
the BDC 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. Applicants note that the proposed 
transactions are consistent with the policy and provisions of the Act 
and will enhance the interests of the Company, Fidus SBIC and other 
Subsidiaries, while retaining the important protections afforded by the 
Act. In addition, because the joint participants will conduct their 
operations as though they comprise one company, the participation of 
one will not be on a basis different from or less advantageous than the 
others. Accordingly, Applicants believe that the standard for relief 
under section 57(i) and rule 17d-1 is satisfied.
    14. Applicants state that the conditions in the Prior Order will be 
replaced by the conditions set forth below.

Applicants' Conditions

    Applicants agree that the Amended Order will be subject to the 
following conditions:
    1. The Company will at all times own and hold, beneficially and of 
record, all of the outstanding limited partnership interests in any 
Subsidiary and all of the outstanding membership interests in the New 
General Partner, or otherwise own and hold beneficially, all of the 
outstanding voting securities and equity interests of such Subsidiary.
    2. The Subsidiaries will have investment policies not inconsistent 
with those of the Company, as set forth in the Company's registration 
statement.
    3. No person shall serve as a member of any board of directors of 
any Subsidiary, including any manager under a different form of legal 
organization that might perform the function of a director, unless such 
person shall also be a member of the Company's Board. The board of 
directors or the managers, as applicable, of any Subsidiary will be 
appointed by the equity owners of such Subsidiary.
    4. The Company will not itself issue or sell any senior security 
and the Company will not cause or permit any SBIC Subsidiary to issue 
or sell any senior security of which the Company or such 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 either the Company 
or any 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)), except that, in determining whether the 
Company and any SBIC Subsidiary on a consolidated basis have the asset 
coverage required by section 61(a), any senior securities representing 
indebtedness of a 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.
    5. The Company will acquire securities of any SBIC Subsidiary 
representing indebtedness only if, in each case, the prior approval of 
the SBA has been obtained. In addition, the Company and any SBIC 
Subsidiary will purchase and sell portfolio securities between 
themselves only if, in each case, the prior approval of the SBA has 
been obtained.
    6. No person will serve or act as investment adviser to Fidus SBIC 
II or any future Subsidiary unless the Board and the stockholders of 
the Company will have taken such action with respect thereto that is 
required to be taken under the Act by the functional equivalent of the 
board of directors of Fidus SBIC II or any future Subsidiary and the 
stockholders of Fidus SBIC II or any future Subsidiary including as if 
Fidus SBIC II or such future Subsidiary were a BDC.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
 Deputy Secretary.
[FR Doc. 2014-13103 Filed 6-5-14; 8:45 am]
BILLING CODE 8011-01-P