[Federal Register Volume 64, Number 215 (Monday, November 8, 1999)]
[Notices]
[Pages 60859-60862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29155]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24121; 812-11420]
Elk Associates Funding Corporation, et al.; Notice of Application
November 2, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application: (i) under sections 6(c), 12(d)(1)(J),
and 57(c) of the Investment Company Act of 1940 (``Act'') for
exemptions from sections 12(d)(1)(A) and (C), 18(a), 21(b), 57(a)(1)
through (a)(3), and 61(a) of the Act; (ii) 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 (iii) under
section 12(h) of the Securities Exchange Act of 1934 (``Exchange Act'')
for an exemption from section 13(a) of the Exchange Act.
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SUMMARY OF THE APPLICATION: The requested order would permit a business
development company (``BDC'') to implement a reorganization plan under
which it would become a wholly-owned subsidiary of a newly-formed BDC.
The order would permit the two companies, and any additional wholly-
owned BDC subsidiaries of the parent established in the future, to
engage in certain transactions that would otherwise be permitted if the
parent and its BDC subsidiaries were one company, adhere to modified
asset coverage requirements, and file certain reports on a consolidated
basis.
Applicants: Elk Associates Funding Corporation (``Elk''),
Ameritrans Capital Corporation (``Ameritrans''), and Gary C. Granoff
(``Granoff'').
Filing Dates: The application was filed on November 27, 1998.
Applicants have agreed to file an amendment, the substance of which is
reflected in this notice, during the notice period.
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 November 29, 1999, 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 may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, DC 20549-0609. Applicants, c/o Stursberg &
Veith, Attn: C. Walter Stursberg, Jr., 405 Lexington Avenue, Suite
4949, New York, NY 10174-4902.
FOR FURTHER INFORMATION CONTACT:
Rachel H. Graham, Senior Counsel, at (202) 942-0583, or Christine Y.
Greenlees, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Commission's Public Reference Branch, 450 Fifth Street, N.W.,
Washington, DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. Elk, a New York corporation, is a closed-end management
investment company registered under the Act that has elected to be
regulated as a BDC, as defined in section 2(a)(48) of the Act.\1\ Elk
also is licensed as a small business investment company (``SBIC'')
under the Small Business Investment Act of 1958 (``1958 Act''). Granoff
is Elk's president and the chairman of its board of directors
(``Board'').
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\1\ Section 2(a)(48) generally defines a BDC to be any closed-
end management 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 such securities.
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2. Ameritrans, a Delaware corporation, is a closed-end management
investment company registered under the Act that has elected to be
regulated as a BDC. Granoff, who also is a Ameritrans' president and
the chairman of its Board, has purchased for $10 the sole outstanding
share of Ameritrans' common stock.
[[Page 60860]]
3. Applicants have proposed a reorganization in which Elk would
become a wholly-owned subsidiary of Ameritrans. Ameritrans would
acquire all of the outstanding voting capital stock of Elk by means of
a share-for-share exchange with Elk's public shareholders (``Share
Exchange''). Following the Share Exchange, Ameritrans will repurchase
for $10 the share of its stock owned by Granoff. Ameritrans will engage
in lending and investment activities not subject to the restrictions of
the 1958 Act. Elk will continue to operate as a BDC and an SBIC, making
loans to or investments in small business concerns as permitted by the
1958 Act.
4. On September 22, 1998, Elk's Board approve the Share Exchange
and voted to recommend that the proposal be submitted to Elk's
shareholders for approval. On October 20, 1999, Ameritrans filed a
proxy statement with the Commission. Applicants anticipate that Elk
will distribute proxy materials to its shareholders on or about
November 10, 1999, and hold the shareholder meeting on or about
December 10, 1999.
5. Ameritrans may in the future establish additional wholly-owned
subsidiaries (collectively, ``Future Subsidiaries''), some of which may
be regulated as BDCs (``Future BDC Subsidiaries''). Any Future
Subsidiary that is not a BDC will not be an investment company. Elk and
the Future Subsidiaries collectively are referred to in this notice as
the ``Subsidiaries.'' Any Future Subsidiary that relies on the
requested order will do so only in accordance with the terms and
conditions of the application.
6. Applicants request an order to permit the Share Exchange. The
requested order also would permit Ameritrans, Elk, and any Future BDC
Subsidiaries to engage in certain transactions that otherwise would be
permitted if Ameritrans, Elk, and the Future BDC Subsidiaries were a
single company, adhere to modified asset coverage requirements, and
file certain reports on a consolidated basis.
Applicants' Legal Analysis
A. The Share Exchange
1. Sections 57(a) (1) and (2) of the Act generally prohibit, with
certain exceptions, sales or purchases of securities or other property
between BDCs and certain of their affiliates as described in section
57(b) of the Act. Section 57(b) includes any director of officer of a
BDC and any person who directly or indirectly controls a BDC.
Applicants state that Ameritrans could be deemed to be an affiliate of
Elk under section 57(b)(1) because Ameritrans is controlled by Granoff,
an officer and director of Elk. Applicants state that the transfer of
Ameritrans' shares to the shareholders of Elk may be deemed to be a
prohibited sale of securities to Elk within the meaning of section
57(a)(1). Applicants accordingly request relief under section 57(c) of
the Act from section 57(a)(1) to permit such transfer as part of the
Share Exchange.
2. Section 57(c) provides, in relevant part, that the Commission
will exempt a proposed transaction from the prohibitions in section
57(a)(1) if the terms of the proposed transaction are reasonable and
fair and do not involve overreaching of the BDC or its shareholders on
the part of any person concerned, and the proposed transaction is
consistent with the policy of the BDC and the general purposes of the
Act. Applicants submit that the requested relief meets this standard.
3. Applicants state that the Share Exchange will benefit Elk's
shareholders because Ameritrans will be able to take advantage of
business opportunities not otherwise available to Elk as an SBIC.
Applicants also state that there will be no threat of overreaching
because Granoff is the nominal owner of a single Ameritrans share,
which share will be repurchased for its original purchase price of $10
following the Share Exchange.
B. Operation as One Company
Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act, made applicable to BDCs by
section 60 of the Act, limits the amount of securities that a BDC, or a
company controlled by the BDC, may hold of other investment companies.
Section 12(d)(1)(C) of the Act, which also applies to BDCs by reason of
section 60, limits the amount of securities of a registered closed-end
investment company that a BDC, or a company controlled by the BDC, may
require.
2. Applicants state that any acquisition of the debt or equity
securities of, or any contribution to capital of, a Future BDC
Subsidiary by Ameritrans may violate sections 12(d)(1)(A) and (C).\2\
Applicants state that these provisions also may preclude each
Subsidiary from: (i) acquiring debt securities issued by Ameritrans or
any other Subsidiary, and (ii) making loans or advances to Ameritrans
or any other Subsidiary. Applicants request relief from sections
12(d)(1)(A) and (C) in order to permit these types of transactions, but
only to the extent that the transactions would not be prohibited if
each Subsidiary were deemed to be part of Ameritrans and not a separate
company.
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\2\ Rule 60a-1 under the Act exempts from sections 12(d)(1)(A)
and (C) the acquisition by a BDC of the securities of an SBIC
licensed under the 1958 Act that is operated as a wholly-owned
subsidiary of the BDC. The rule exempts Ameritrans' acquisition of
Elk's securities, and any loans or advances from Ameritrans to Elk,
from the limits in sections 12(d)(1)(A) and (C).
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3. Section 12(d)(1)(J) of the Act, in relevant part, provided that
the Commission may exempt transactions from any provisions of section
12(d)(1) if, and to the extent that, the exemption is consistent with
the public interest and the protection of investors. Applicants submit
that the requested relief meets this standard.
4. Applicants state that the proposed transactions among Ameritrans
and the Subsidiaries will not entail the types of abuses that the
provisions of sections 12(d)(1)(A) and (C) were designed to prevent.
Applicants further state that Ameritrans, as the sole shareholder of
the Subsidiaries, will have no incentive to act contrary to the
interests of any Subsidiary.
Sections 57(a)(1) and (2)
1. As discussed above, sections 57(a)(1) and (2) of the Act
generally prohibit, with certain exceptions, sales or purchases of
securities 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 under common control with a BDC. Each Subsidiary
could be deemed to be an affiliate of each other Subsidiary under
section 57(b) because they will be under the common control of
Ameritrans.
2. Applicants request relief from sections 57(a)(1) and (2) under
section 57(c) to exempt any transaction between Ameritrans and Elk or a
Future BDC Subsidiary, and any transaction between Elk or a Future BDC
Subsidiary, on the one hand, and any other Subsidiary on the other
hand, with respect to the purchase or sale of securities or other
property. Applicants also request relief from sections 57(a)(1) and (2)
to exempt any purchase or sale transaction between Ameritrans and a
controlled portfolio affiliate of Elk or a Future BDC Subsidiary, and
any purchase or sale transaction between Elk or a Future BDC Subsidiary
and a controlled portfolio affiliate of Ameritrans or of another Future
BDC Subsidiary or Elk, but only to the extent that any such transaction
would not be prohibited if Elk and the Future BDC Subsidiaries were
deemed to be part of Ameritrans and not separate companies. Applicants
submit that the requested relief meets the
[[Page 60861]]
section 57(c) standard because it would permit Ameritrans, Elk, and the
Future BDC Subsidiaries to do what the Act would otherwise permit if
Elk and the Future BDC Subsidiaries were part of Ameritrans and not
separate companies.
Sections 21(b) and 57(a)(3)
1. Section 57(a)(3) of the Act generally prohibits the borrowing of
money or other property from a BDC by a person related to the BDC
within the meaning of section 57(b), except as permitted under section
21(b) of the Act. Section 21(b) (made applicable to BDCs by section 62
of the Act, with certain exceptions) generally prohibits loans from a
BDC to a person who controls or is under common control with the BDC,
except for loans to a company that owns all of the outstanding
securities of the BDC. As described above, each Subsidiary will be
under the common control of Ameritrans and, therefore, will be
affiliated with each other Subsidiary within the meaning of section
57(b).
2. Applicants request relief from section 57(a)(3) under section
57(c) to exempt any borrowing of money or other property from Elk or a
Future BDC Subsidiary by Ameritrans or any other Subsidiary. Applicants
also request relief from section 21(b) under section 6(c) of the Act to
exempt any lending of money or other property by Elk or a Future BDC
Subsidiary to Ameritrans or another Subsidiary. Applicants state that
the proposed transactions will have no substantive economic effect
because they will be among Ameritrans and its wholly-owned
subsidiaries.
3. Applicants state that it may be in the interests of Ameritrans'
shareholders for Ameritrans, Elk, or any Future BDC Subsidiary to loan
money or other property to portfolio companies controlled by any other
of Ameritrans, Elk, and the Future BDC Subsidiaries. Accordingly,
applicants also request relief from sections 21(b) and 57(a)(3) to
exempt any lending of money or other property from Elk or a Future BDC
Subsidiary to a controlled portfolio affiliate of Ameritrans or of
another Future BDC Subsidiary or Elk, but only to the extent that any
such transaction would not be prohibited if Elk and the Future BDC
Subsidiaries were deemed to be part of Ameritrans and not separate
companies.
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 proposed lending
transactions discussed above will satisfy the standards for relief in
sections 6(c) and 57(c). Applicants note that the requested relief
would permit Ameritrans, Elk, and the Future BDC Subsidiaries to do
what the Act would permit if they were one company.
Section 57(a)(4) and Rule 17d-1
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, or an
affiliated person of such a person, acting as principal, from
participating in any joint enterprise 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 arrangements involving BDCs and certain of their affiliates as
described in section 57(b). Section 57(i) of the Act provides that the
rules and regulations under section 17(d) 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 standard set forth
in rule 17d-1 governs applicants' request for relief.
2. Applicants state that a joint transaction in which Elk or a
Future BDC Subsidiary and Ameritrans or another Subsidiary participates
may be prohibited under section 57(a)(4). Applicants request relief
under section 57(i) and rule 17d-1 to permit any joint transaction in
which Elk or a Future BDC Subsidiary and Ameritrans or another
Subsidiary participate, but only to the extent that the transaction
would not be prohibited if Elk and the Future BDC Subsidiaries were
deemed to be part of Ameritrans and not separate companies.
3. In determining whether to grant an order under section 57(i) and
rule 17d-1, the Commission may consider 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 in the transaction. Applicants state that
this standard is satisfied because the requested relief would simply
permit Ameritrans and the Subsidiaries to conduct their operations as
if they were one company.
Section 18(a)
1. Section 18(a) of the Act prohibits a registered closed-end
investment company from issuing any class of senior security unless the
company complies with the asset coverage requirements set forth in that
section. 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 sections 18(a)(1)(A)
and (B). Section 61(a) of the Act makes section 18 applicable to BDCs,
with certain modifications.
2. Applicants state that Ameritrans, Elk, and the Future BDC
Subsidiaries may be required to comply with the asset coverage
requirements of section 18(a), as modified by section 61(a) for BDCs,
on a consolidated basis if Ameritrans were deemed to be an indirect
issuer of any class of senior security issued by the Subsidiaries.
Applicants request relief under section 6(c) from sections 18(a) and
61(a) to permit Ameritrans to exclude from its consolidated asset
coverage ratio any senior security representing indebtedness that is
issued by Elk.
3. Applicants state that the requested relief satisfies the section
6(c) standard. Applicants contend that, to the extent that any
Subsidiary is entitled to rely on section 18(k) for an exemption from
the asset coverage requirements of sections 18(a) and 61(a), there is
no policy reason to deny Ameritrans the benefit of that exemption when
Ameritrans consolidates its assets with those of the Subsidiaries for
the purpose of compliance with those requirements.
C. Consolidated Reporting
1. Section 54 of the Act provides that a closed-end investment
company may elect BDC treatment under the Act if the company has
registered or filed a registration statement under section 12 of the
Exchange Act for a class of its equity securities. Section 13(a) of the
Exchange Act requires that issuers of securities registered under the
Exchange Act file certain information and reports with the Commission.
Applicants request an order under section 12(h) of the Exchange Act to
exempt Elk and each Future BDC Subsidiary from the reporting
requirements of section 13(a) of the Exchange Act so that Ameritrans,
Elk, and the Future BDC Subsidiaries may file consolidated reports.
Absent the requested relief, Elk and each Future BDC Subsidiary, on an
unconsolidated basis, would have to make periodic filings with the
Commission, even though Ameritrans will be the sole equity holder of
each such Subsidiary.
[[Page 60862]]
2. Section 12(h) of the Exchange Act provides that the Commission
may exempt an issuer from section 13 of the Exchange Act if the
Commission finds that the exemption is not inconsistent with the public
interest and the protection of investors. Applicants state that the
requested exemption meets this standard because applicants will be
providing the same information required by the Exchange Act's reporting
requirements on a consolidated basis.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Ameritrans will at all times own and hold beneficially and of
record all of the outstanding voting capital stock of Elk and the
Future Subsidiaries.
2. Elk and any Future BDC Subsidiaries will have the same
fundamental investment policies as Ameritrans, as set forth in
Ameritrans' registration statement, and will not engage in any other
activities described in section 13(a) of the Act, except in each case
as authorized by the vote of a majority of the outstanding voting
securities of Ameritrans.
3. No person will serve or act as investment adviser or principal
underwriter to Elk or any Future BDC Subsidiary unless the directors
and shareholders of Ameritrans will have taken the action with respect
thereto also required to be taken by the directors and sole shareholder
of such Subsidiary.
4. Ameritrans will not itself issue or sell any senior security and
Ameritrans will not cause or permit Elk or any Future BDC Subsidiary to
issue or sell any senior security of which Ameritrans, Elk, or any
Future BDC Subsidiary is the issuer, except to the extent permitted by
section 18 (as modified for BDCs by section 61) of the Act; provided
that, immediately after the issuance or sale by any of Ameritrans, Elk,
or any Future BDC Subsidiary of any such notes or evidences of
indebtedness, Ameritrans and its Subsidiaries on a consolidated basis,
and Ameritrans individually, will have the asset coverage required by
section 18(a) of the Act (as modified by section 61(a) for Ameritrans),
except that, in determining whether Ameritrans and its Subsidiaries on
a consolidated basis have the asset coverage required by section 18(a)
of the Act, as modified by section 61(a), any Small Business
Administration (``SBA'') preferred stock interest in Elk and the Future
BDC Subsidiaries and any borrowings by Elk and any Future BDC
Subsidiaries will not be considered senior securities and, for purposes
of the definition of ``asset coverage'' in section 18(h), will be
treated as indebtedness not represented by senior securities.
5. No person shall serve as a director of Elk or of a Future
Subsidiary unless elected as a director of Ameritrans at its most
recent annual meeting, as contemplated by section 16(a) of the Act.
Vacancies on Ameritrans' Board will be filled in the manner provided
for in section 16(a). Notwithstanding the foregoing, the Board of Elk
and of any Future Subsidiary will be elected by Ameritrans as the sole
shareholder of such Subsidiary, and such Board will be composed of the
same persons that serve as directors of Ameritrans.
6. Ameritrans and any Subsidiary will acquire securities
representing indebtedness of Elk or of any Future BDC Subsidiary
operating as a SBIC only if, in each case, the prior approval of the
SBA has been obtained. In addition. Elk or any Future BDC Subsidiary
operating as a SBIC, on the one hand, and Ameritrans or any other
Subsidiary on the other hand, will purchase and sell portfolio
securities between themselves only if, in each case, the prior approval
of the SBA has been obtained.
7. Ameritrans will: (i) File with the Commission, on behalf of
itself, Elk, and any Future BDC Subsidiaries, all information and
reports required to be filed with the Commission under the Exchange Act
and other federal securities laws, including information and financial
statements prepared solely on a consolidated basis as to Ameritrans,
Elk, and any Future BDC Subsidiaries, such information and reports to
be in satisfaction of any separate reporting obligations of Elk and any
Future BDC Subsidiaries; and (ii) provide to its shareholders such
information and reports required to be disseminated to Ameritrans'
shareholders, including information and financial statements prepared
solely on a consolidated basis as to Ameritrans, Elk, and any Future
BDC Subsidiaries, such information and reports to be in satisfaction of
any separate reporting obligations of Elk and any Future BDC
Subsidiaries. Notwithstanding anything in this condition, Ameritrans
will not be relieved of any of its reporting obligations including, but
not limited to, any consolidating statement setting forth the
individual statements of Elk and any Future BDC Subsidiaries required
by rule 6-03(c) of Regulation S-X.
8. Ameritrans, Elk, and any Future BDC Subsidiaries may file on a
consolidated basis under condition 7 above only so long as the amount
of Ameritrans' total consolidated assets invested in assets other than
securities issued by Elk and any Future BDC Subsidiaries, or securities
similar to those in which Elk and any Future BDC Subsidiaries invest,
does not exceed ten percent.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-29155 Filed 11-5-99; 8:45 am]
BILLING CODE 8010-01-M