1.This Act may be cited as the
Small Business Investment Company
Modernization Act of 2009
.
2.Qualified nonprivate
fundsSection 103(13)(C) of
the Small Business Investment Act of 1958 (15 U.S.C. 662(13)(C)) is amended by
striking 33 percent
and inserting 45
percent
.
3.Licenses for
experienced applicantsSection
301 of the Small Business Investment Act of 1958 (15 U.S.C. 681) is amended by
inserting after subsection (c) the following new subsection:
(d)Licenses for
experienced applicants
(1)Notwithstanding any other provision of this section, not
later than 60 days after the initial receipt by the Administrator of any
request (which shall be deemed to be the application) for a license to operate
as a small business investment company under this Act, the Administrator shall
approve the request and issue such license if each of the following
requirements is satisfied—
(A)At least 50
percent of the principal managers of the applicant consist of at least
two-thirds of the principal managers of a small business investment company
that has been licensed under this Act.
(B)The licensed small
business investment company specified under subparagraph (A) has operated under
such license for at least 3 years prior to the receipt specified in paragraph
(1).
(C)The licensed small
business investment company specified under subparagraph (a)—
(i)either has
invested at least 70 percent of its private capital and drawn at least 50
percent of its projected leverage at time of its initial licensure or has
invested and expensed or reserved for investment and expenses or some
combination of both at least 70 percent of its private capital in the one-year
period prior to the date on which the application referred to in paragraph (1)
was received by the Administrator;
(ii)has maintained 6
consecutive quarters of profitable net investment income; and
(iii)has made at
least 3 exits from investments in small businesses that have realized profits
from those respective investments.
(D)The applicant
submits to the Administrator, in writing, an application consisting of all of
the following:
(i)A
certification, in the form prescribed by the Administrator, that such applicant
satisfies the requirements of this subsection and that all information
contained in the application is true and complete.
(ii)A
copy of the organization documents of the applicant.
(iii)A copy of the
operating plan of the applicant demonstrating that at least 50 percent of the
amount of the planned investments of the applicant will be in the same or
substantially similar investment stage and use the same or substantially
similar type of investment instruments as the investments of the licensed small
business investment company specified under subparagraph (A).
(iv)A
certification, in a form prescribed by the Administrator, that the applicant
satisfies the requirements of subsections (a) and (c) of section 302 of this
Act.
(E)The applicant is
in good standing as set forth in paragraph (2).
(F)The applicant pays
all fees prescribed by the Administrator under subsection (e).
(2)For purposes of this subsection, an applicant is in good
standing if—
(A)the licensed
debentured or non-leveraged small business investment company specified under
paragraph (1)(A) is actively operating under this Act on the date of the
initial receipt of the application by the Administrator to which this
subsection applies;
(B)no principal
manager of the applicant has been found liable in a civil action for fraud if
the Administrator makes a reasonable determination based on evidence in the
agency record that such liability has a material adverse effect on the ability
of the applicant to perform obligations required by a licensee issued pursuant
to this Act; and
(C)no principal
manager is under investigation by a governmental agency or authority for, is
under indictment for, or has been convicted of a felony for a violation of
Federal or State securities laws, fraud, or another criminal violation if such
investigation, indictment, or conviction has a material adverse effect on the
ability of the applicant to perform obligations under a license issued under
this Act.
(3)
(A)The Administrator may remove an application from the
approval process under this subsection if the Administrator determines based on
evidence in the agency record that the approval of the license would present an
unacceptable risk to the government of United States.
(B)Such determination shall be made in writing and provided
to the applicant no later than 10 calendar days after such determination is
made. Failure to provide the applicant shall be deemed to be a permanent waiver
of the Administrator’s authority to remove an application pursuant to this
subsection.
(C)The
Administrator may rely on agency personnel to collect data or other material
relevant to establishing a record, but the decision to remove the application
may not be delegated by the Administrator to any subordinate personnel in the
agency.
(4)Notice and
opportunity to cure non-conformance
(A)Notice of
non-conformanceExcept for a determination made pursuant to
paragraph (3), the Administrator shall provide an applicant described in
paragraph (1) within 30 days after receipt of the application a written notice
and description of any nonconformance with any requirement of this subsection
based on evidence in the agency record.
(B)The applicant shall have 30 days following the receipt of
nonconformance or the receipt of removal as set forth in paragraph (3) to cure
such nonconformance.
(C)Failure to
provide noticeFailure to provide the notice within the limit set
forth in subparagraph (A) shall be deemed to be acceptance by the Administrator
of the applicant’s conformance with the requirements of this subsection.
(5)The Administrator shall ensure that a timely background
check of the principal managers of each applicant is completed with respect to
paragraphs (2)(B) and (2)(C).
(6)The
Administrator may charge an applicant additional fees for carrying out the
background reviews mandated by paragraph (5). Such fees shall be limited to the
cost of the review up to a limit of $10,000.
(7)Effect of
non-qualificationThe failure of an applicant to qualify for
expedited licensure under this subsection shall have no effect on an existing
license or the ability for the applicant or any of its individual managers to
apply for or receive a license to operate a small business investment company
under the procedures established elsewhere in this Act.
(8)The
Administrator shall develop forms and promulgate regulations to implement this
subsection after providing an opportunity for notice and comment. Regulations
promulgated pursuant to this paragraph shall be published in the Code of
Federal
Regulations.
.
4.
(a)Section 303(b)(2) of the Small Business Investment Act
of 1958 (15 U.S.C. 683(b)(2)) is amended by striking so much of paragraph (2)
as precedes subparagraph (C) and inserting the following:
(2)
(A)(i)The maximum amount of outstanding leverage
made available to any one company licensed under section 301(c) of this Act may
not exceed the lesser of—
(I)300 percent of
such company’s private capital; or
(II)$150,000,000.
(ii)In applying clause (i)(I) in the
case of a debenture licensee who is in good standing without the imposition of
additional regulatory standards whose financings are comprised of at least 50
percent of loans and debt securities, such licensee may be leveraged as
follows:
(I)the first one-third of private capital to
300 percent;
(II)the second one-third of private capital
to 200 percent; and
(III)the last third of private capital to
100 percent.
(iii)Notwithstanding clause (i), in
the case of any company operating as a business development company (as such
term is defined under section (2)(a)(48) of the Investment Company Act of 1940)
or a majority-owned subsidiary of such a company that is in good standing
without the imposition of additional regulatory requirements, the maximum
amount of outstanding leverage made available to such company shall be
$250,000,000.
(B)Multiple
licensees under common controlThe maximum amount of outstanding
leverage made available to two or more companies licensed under section 301(c)
of this Act that are commonly controlled (as determined by the Administrator)
and not under capital impairment may not exceed
$350,000,000.
.
(b)Section
303(b)(2) of the Small Business Investment Act of 1958 (15 U.S.C. 683(b)(2)) is
amended by adding a new subparagraph (E) at the end to read as follows:
(E)The
Administrator shall promulgate regulations, after notice and opportunity for
comment, establishing quantifiable objective criteria under which a licensee’s
private capital in its entirety may be leveraged up to 300 percent. Such
regulations shall be published in the Code of Federal
Regulations.
.
(c)Investments in
low-Income geographic areasSection 303(b)(2)(C) of the Small
Business Investment Act of 1958 (15 U.S.C. 683(b)(2)(C)) is amended by striking
$250,000,000
in clause (ii)(II) and inserting
$400,000,000
.
5.Long-term loans
to small business concerns
(a)Section 305(c) of the Small Business Investment Act of
1958 (15 U.S.C. 685(c)) is amended by adding the following at the end
thereof:
In addition to
the foregoing, with respect to a loan made, or debt with equity features
acquired, under this section, a company may not charge an interest rate that
exceeds the yield of 10-year Treasury note plus 16 percentage points per annum
on the date of initiating the loan or debt security except that a company may
charge up to an additional 7 percent more than the interest rate set forth in
the loan or debt security in the event of a default. For purposes of this
subsection a default means the occurrence of any of the following:
(1)Failure to pay an
amount when due.
(2)Failure to provide
information required under the applicable financing documents.
(3)Failure to observe
any material term, covenant, or other agreement contained in the applicable
financing documents.
(4)A representation,
warranty, certification, or statement of fact made by or on behalf of a
borrower in any applicable financing document or in any document delivered in
connection therewith, that was materially incorrect or misleading when
made.
(5)Any material event
of default specified in the applicable financing
documents.
.
6.Small business
concerns owned and controlled by veteransSection 303(b)(2)(C) of the Small Business
Investment Act of 1958 (15 U.S.C. 683(b)(2)(C)) is amended as follows:
(1)In the heading, by
inserting after areas
the following:
and
veterans
.
(2)In clause (i), by
inserting after 351)
the following: or in a small
business concern owned and controlled veterans (as such term is defined in
section 3(q)(3) of the Small Business Act)
.
(3)In clause (iii),
by inserting after 351)
the following: or in small
business concerns owned and controlled by veterans (as such is defined in
section 3(q)(3) of the Small Business Act)
.
7.Section 305 of the
Small Business Investment Act of 1958 (15 U.S.C. 685) is amended by adding at
the end of the following:
(g)A company may
require a small business concern to accept reasonable and customary minimum
prepayment amounts and notices of
prepayment.
.
8.Investment in
certain passive entitiesPart
A of title III of the Small Business Investment Act of 1958 (15 U.S.C. 661 and
following) is amended by adding at the end the following:
321.Investment in
certain passive entitiesA
licensee may provide financing to a passive business as defined at section
107.720(b)(1), Title 13 Code of Federal Regulations as in effect on January 1,
2009, which is a corporation or limited liability company wholly-owned by the
licensee and the sole purpose of which is to provide financing by the licensee
to such concerns would cause investors in the licensee to incur with respect to
regulated investment companies, income not qualifying under section
851(b)(2)(A) of the Internal Revenue Code of 1986, as amended. Nothing in this
section shall affect the validity of regulations permitting financings of
passive businesses previously duly promulgated by the
Administrator.
.
9.Investment in
smaller enterprisesSection
303(d) of the Small Business Investment Act of 1958 (15 U.S.C. 683(d)) is
amended by adding at the end of the following new paragraph:
(3)Notwithstanding
paragraphs (1) and (2), a licensee shall not be required to achieve any
percentage of such financings (at cost) which is higher than 25 percent which
may result from the application of prior statutory or regulatory requirements
to all or any portion of the licensee’s
portfolio.
.
10.Section 303(e) of
the Small Business Investment Act of 1958 (15 U.S.C. 683(e)) is amended by
adding at the end the following:
A
licensee with Earmarked Assets (as that term is defined by the Administrator)
will not be in capital impairment during the first 72 months after its
licensee, if its impairment does not exceed 85
percent.
11.Section 103 of the Small
Business Investment Act of 1958 (15 U.S.C. 662) is amended by striking
and
at the end of paragraph (18), by striking the period at the
end of paragraph (19) and inserting a semicolon, and by adding the new
paragraph after paragraph (19):
(20)for purposes of
the terms small-business concern in paragraph (5) and
smaller enterprise
in paragraph (12) of this section, tangible
net worth shall, to the extent used, mean the total new worth of the small
business, in accordance with General Accepted Accounting Principles, minus all
intangibles in accordance with General Accepted Accounting
Principles.
.
12.Development of
agency recordPart A of title
III of the Small Business Investment Act of 1958 is amended by adding the
following new section at the end thereof:
322.Agency record
for licensing of small business investment companies
(a)The
Associate Administrator for Investment shall establish an agency record of
evidence referring or relating to each application for a license to a small
business investment company.
(b)The Administrator shall provide a written
explanation of any denial of a license application base upon evidence in the
agency record. Absent an order by a Federal or State court of general
jurisdiction, access to applications and the agency record shall be limited to
the applicant and to the Administrator and subordinate personnel of the
Administrator.
.
13.Section 20 of the Small
Business Act is amended by inserting the following new subsection after
subsection (e):
(f)Title III of the
Small Business Investment Company Act of 1958
(1)For fiscal year 2010, in carrying out the program authorized
by Title III of the Small Business Investment Act of 1958, the Administrator is
authorized to make—
(A)$5,000,000,000 in
purchases of participating securities; and
(B)$5,000,000,000 in
guarantees of debentures.
(2)For fiscal year 2011, in carrying out the program authorized
by Title III of the Small Business Investment Act of 1958, the Administrator is
authorized to make—
(A)$5,000,000,000 in
purchases of participating securities; and
(B)$5,5000,000,000 in
guarantees of
debentures.
.