[Federal Register Volume 63, Number 217 (Tuesday, November 10, 1998)]
[Notices]
[Pages 63094-63095]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30012]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23521; 812-10872]


KBK Financial, Inc., et al.; Notice of Application

November 4, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under section 6(c) from 
sections 2(a)(48) and 55(a) of the Investment Company Act of 1940 (the 
``Act'').

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    Summary of Application: The order would permit KBK Financial, Inc. 
(``Financial''`), which will elect to be regulated as a business 
development company (``BDC'') under the Act, to look to the assets of 
its wholly-owned subsidiary, rather than Financial's interest in the 
subsidiary itself, in determining whether Financial meets certain 
requirements for BDCs under the Act.
    Applicants: Financial and KBK Receivables Corporation (the 
``Subsidiary'').
    Filing Date: The application was filed on November 21, 1997. 
Applicants have agreed to file an amendment, the substance of which is 
incorporated in this notice, during the notice period.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on November 
30, 1998, 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549. 
Applicants, 2200 City Center II, 301 Commerce Street, Fort Worth, Texas 
76102.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Senior Counsel, at (202) 942-0572, or Nadya B. 
Roytblat, Assistant Director, at (202) 942-0564 (Office of Investment 
Company Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 5th Street NW., Washington, DC 20549 
(telephone (202) 942-8090).

Applicants' Representations

    1. Applicants are Delaware corporations. All of the issued and 
outstanding shares of Financial

[[Page 63095]]

currently are owned by KBK Capital Corporation and all of the issued 
and outstanding shares of the Subsidiary are held by Financial. 
Financial provides working capital financing and asset-based loans to 
small to medium size companies through term loans, lines of credit, and 
the discounted purchase of accounts receivable. Financial also 
securitizes a portion of the accounts receivable through the 
Subsidiary, which is a bankruptcy remote subsidiary of Financial. 
Applicants state that, other than with respect to bankruptcy 
protection, Financial and the Subsidiary effectively operate as one 
company.
    2. Pursuant to a plan of reorganization, all of the issued and 
outstanding shares of Financial will become publicly owned. Financial 
will continue to own all of the issued and outstanding shares of common 
stock of the Subsidiary. Following the reorganization, Financial will 
elect to be regulated as a BDC under the Act and the Subsidiary will 
continue to rely on section 3(c)(5) of the Act.
    3. Applicants request relief to permit the assets held by the 
Subsidiary, rather than the common stock of the Subsidiary itself, to 
be treated as assets held by Financial for the purpose of determining 
whether Financial meets certain requirements for BDCs under the Act. 
Applicants request that the relief extend to any future bankruptcy-
remote subsidiaries that are wholly-owned by Financial and comply with 
the terms and conditions of the order (``Future Subsidiaries'').

Applicants' Legal Analysis

    1. Section 2(a)(48) of the Act generally 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 (3) of 
the Act and makes available significant managerial assistance with 
respect to the issuers of these securities. Section 55(a) of the Act 
requires a BDC to have at least 70% of its assets invested in assets 
described in sections 55(a)(1) through (6) (``Qualifying Assets''). 
Qualifying Assets generally include securities issued by eligible 
portfolio companies as defined in section 2(a)(46) of the Act. Section 
2(a)(46)(B) generally excludes from the definition of an eligible 
portfolio company an investment company, as defined under section 3 of 
the Act, and a company that would be an investment company but for the 
exclusion from the definition of investment company in section 3(c) of 
the Act.
    2. Applicants state that the Subsidiary may not be deemed an 
eligible portfolio company because it is relying on section 3(c)(5) of 
the Act. Applicants request relief under section 6(c) from section 
55(a) to permit the assets held by the Subsidiary, rather than the 
Subsidiary itself, to be treated as assets held by Financial for the 
purposes of: (a) Determining whether Financial is operated for the 
purpose of making investments in securities described in paragraphs (1) 
through (3) of section 55(a); (b) determining whether Financial makes 
available managerial assistance to companies as described in section 
2(a)(48); and (c) applying the 70% test in section 55(a).
    3. Section 6(c) of the Act permits the SEC to exempt any person or 
transaction from any provision of the Act, if the exemption is 
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 meets 
the section 6(c) standards for the reasons discussed below.
    4. Applicants state that all of the voting securities of the 
Subsidiary will be held by Financial and Financial will control the 
operations of the Subsidiary, including the acquisition and disposition 
of its assets. Applicants also state that the assets of the Subsidiary 
will be held by the Subsidiary and not directly by Financial only for 
bona fide business reasons that are unrelated to the policies 
underlying the Act. In addition, applicants state that any activity 
carried on by the Subsidiary will in all material respects have the 
same economic effect on Financial's shareholders as if done by 
Financial directly. Applicants also acknowledge that any assets or 
debts of the Subsidiary will be treated as assets or debts of Financial 
for purposes of the asset coverage requirements under the Act. 
Therefore, applicants state that it is appropriate to look to the 
assets held by the Subsidiary, rather than to the common stock of the 
Subsidiary held by Financial, in determining whether Financial meets 
the requirements for BDCs under the Act discussed above.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The Subsidiary, and any Future Subsidiary, may not acquire any 
asset if the acquisition would cause Financial to violate section 55(a) 
of the Act.
    2. Financial will at all times own and hold, beneficially and of 
record, all of the outstanding voting capital stock of the Subsidiary 
and any Future Subsidiary.
    3. No person will serve or act as investment adviser to the 
Subsidiary or any Future Subsidiary unless the directors and 
shareholders of Financial will have taken the action with respect 
thereto also required to be taken by the directors and shareholder of 
the Subsidiary or Future Subsidiary.
    4. No person will serve as a director of the Subsidiary or any 
Future Subsidiary who will not have been elected as a director of 
Financial at its most recent annual meeting, as contemplated by section 
16(a) of the Act and subject to the provisions thereof relating to the 
filling of vacancies, other than one additional director of the 
Subsidiary or a Future Subsidiary who is not a director or affiliated 
person of Financial. Notwithstanding the foregoing, the board of 
directors of the Subsidiary or a Future Subsidiary will be elected by 
Financial as the sole shareholder of the Subsidiary or the Future 
Subsidiary, and the boards will be composed of the same persons, other 
than as described above, that serve as directors of Financial.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-30012 Filed 11-9-98; 8:45 am]
BILLING CODE 8010-01-M