[Federal Register Volume 77, Number 45 (Wednesday, March 7, 2012)]
[Notices]
[Pages 13660-13663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5515]



[[Page 13660]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29974; 812-13879]


Fidus Investment Corporation, et al.; Notice of Application

March 1, 2012.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an order 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''), and Fidus Investment Advisors, LLC (``Fidus Advisors'').

Summary of Application: Applicants request an order permitting the 
Company, a business development company (``BDC'') and Fidus SBIC, its 
wholly-owned small business investment company (``SBIC'') subsidiary 
that is also a BDC, to operate effectively as one company, specifically 
allowing them to (1) engage in certain transactions with each other; 
(2) invest in securities in which the other is or proposes to be an 
investor; (3) be subject to modified asset coverage requirement for 
senior securities issued by a BDC and its SBIC subsidiary; and (4) file 
certain reports with the Commission on a consolidated basis.

DATES: Filing Dates: The application was filed on March 15, 2011, and 
amended on August 9, 2011, and February 28, 2012.

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 March 26, 2012, 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 820, 
Evanston, Illinois 60201.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, 
at (202) 551-6990, or Jennifer L. Sawin, Branch Chief, at (202) 551-
6821 (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 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 management investment company that has 
elected to be regulated as a BDC under the Act.\1\ On June 16, 2011, 
the Company filed a registration statement to register its common stock 
under Section 12 of the Exchange Act.\2\ In addition, the Company 
intends to elect to be treated as a regulated investment company 
(``RIC'') as defined under Subchapter M of the Internal Revenue Code of 
1986, as amended and intends to continue to make such election in the 
future. The Company provides customized mezzanine debt and equity 
financing solutions to lower middle market companies that have revenues 
between $10 and $150 million. The Company's board of directors 
(``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. 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.
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    \1\ 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.
    \2\ The Company completed the initial public offering (``IPO'') 
of its shares of common stock on June 24, 2011. The Company's common 
stock is traded on the NASDAQ Global Market under the symbol 
``FDUS''. Prior to the closing of the IPO, through a series of 
transactions (``Formation Transactions''), the Company acquired all 
of the limited partnership interests in Fidus SBIC and all of the 
membership interests in the New General Partner, and each of these 
entities operates as a subsidiary of the Company.
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    2. Fidus SBIC, a Delaware limited partnership, is an SBIC licensed 
by the Small Business Administration (``SBA'') to operate under the 
Small Business Investment Act of 1958. On June 20, 2011, Fidus SBIC 
filed an election to be regulated as a BDC within the meaning of 
Section 2(a)(48) on Form N-54A under the Act in connection with the 
effectiveness of its registration statement on Form N-5. On June 16, 
2011, Fidus SBIC also filed a registration statement on Form 8-A to 
register its common stock under Section 12 of the Exchange 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; 
the New General Partner, a wholly-owned subsidiary of the Company, owns 
a 0.01% general partnership interest in Fidus SBIC. Fidus SBIC, 
therefore, 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 wholly-owned subsidiary 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. The members of Fidus SBIC Board are appointed each year by 
the equity owners of Fidus SBIC. The New General Partner has 
irrevocably delegated the authority to manage the business affairs of 
Fidus SBIC to the Fidus SBIC Board. The SBA has approved the members of 
the Fidus SBIC Board pursuant to SBA regulations. No person who is not 
also a member of the Board of the Company can serve as a member of the 
Fidus SBIC Board.
    3. Fidus Advisors is a Delaware limited liability company and 
serves as the investment adviser to the Company and Fidus SBIC. Fidus 
Advisors is registered as an investment adviser under the Investment 
Advisers Act of 1940. Pursuant to an investment management agreement 
with the Company that satisfies the requirements

[[Page 13661]]

under Sections 15(a) and (c), Fidus Advisors manages the consolidated 
assets of the Company and Fidus SBIC. The investment professionals of 
Fidus Advisors are responsible for sourcing potential investments, 
conducting research and diligence on potential investments and equity 
sponsors, analyzing investment opportunities, structuring investments 
and monitoring the investments and portfolio companies of the Company 
and its wholly-owned subsidiaries, including Fidus SBIC.
    4. The New General Partner is a limited liability company organized 
under the laws of the state of Delaware. The New General Partner is the 
sole general partner of Fidus SBIC and its only role is to perform 
ministerial functions that result from decisions made by Fidus 
Advisors; the New General Partner is not able to prevent Fidus Advisors 
from acting independently.

Applicants' Legal Analysis

    1. Applicants request an order under sections 6(c), 12(d)(1)(J), 
57(c) and 57(i) of the Act and rule 17d-1 under the Act granting 
exemptions from sections 12(d)(1)(A), 18(a), 21(b), 57(a)(1), 57(a)(2), 
57(a)(3), and 61(a) of the Act and permitting certain joint 
transactions otherwise prohibited by section 57(a)(4) of the Act to 
permit the Company and Fidus SBIC to operate effectively as one 
company, specifically to: (a) Engage in certain transactions with each 
other; (b) invest in securities in which the other is or proposes to be 
an investor; and (c) be subject to modified consolidated asset coverage 
requirements for senior securities issued by a BDC and its subsidiary 
SBIC. Applicants also request an order under section 12(h) of the 
Exchange Act for an exemption for Fidus SBIC from section 13(a) of the 
Exchange Act, so as to allow filing of consolidated reports with the 
Commission.
    2. Section 12 of the Act is made applicable to BDCs by section 60 
of the Act. Section 12(d)(1)(A) makes it unlawful for any registered 
investment company to purchase or otherwise acquire the securities of 
another investment company, except to the extent permitted by sections 
12(d)(1)(A)(i), (ii) and (iii). Rule 60a-1 exempts the acquisition by a 
BDC of the securities of an SBIC that is operated as a wholly-owned 
subsidiary of the BDC from section 12(d)(1)(A) of the Act. Accordingly, 
since the Company has elected BDC status and since Fidus SBIC is, and 
will at all times be, operated as a wholly owned subsidiary of the 
Company, the transfer of assets from the Company to Fidus SBIC should 
be exempt from the provisions of section 12(d)(1)(A) by virtue of rule 
60a-1. However, the provisions of section 12(d)(1) also apply to the 
activities of Fidus SBIC since Fidus SBIC has elected BDC status under 
the Act. Any loans or advances by Fidus SBIC to the Company might be 
deemed to violate section 12(d)(1)(A)(ii) or (iii) if the loans or 
advances are construed as purchases of the securities of the Company by 
Fidus SBIC.
    3. Applicants request an exemption under section 12(d)(1)(J) from 
section 12(d)(1)(ii) and (iii) of the Act to permit the acquisition by 
Fidus SBIC of any securities of the Company representing indebtedness. 
Section 12(d)(1)(J) of the Act provides that the Commission may exempt 
persons or transactions from any provision of section 12(d)(1) if and 
to the extent such exception is consistent with the public interest and 
the protection of investors. Applicants state that the requested relief 
meets this standard because Fidus SBIC's wholly owned subsidiary status 
and consolidated financial reporting with the Company will both 
eliminate the possibility of overreaching and prevent confusion as to 
the financial status of the Company to the Company's stockholders, who 
are the investors that the Act is intended to protect.
    4. 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) 
applies section 18 to a BDC to the same extent as if the BDC were a 
registered closed-end investment company, subject to certain 
exceptions. Section 18(k), however, provides an exemption from sections 
18(a)(1)(A) and (B) (relating to senior securities representing 
indebtedness) for SBICs.
    5. Applicants state that a question exists as to whether the 
Company must comply with the asset coverage requirements of section 
18(a) on a consolidated basis because the Company may be an indirect 
issuer of senior securities with respect to Fidus SBIC indebtedness. To 
do so would mean that the Company would treat as its own all assets 
held directly by the Company and Fidus SBIC and would also treat as its 
own any liabilities of Fidus SBIC, including liabilities of Fidus SBIC 
with respect to senior securities as to which Fidus SBIC is exempt from 
the provisions of sections 18(a)(1)(A) and (B) by virtue of section 
18(k). 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 that is issued by Fidus SBIC.
    6. 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, without the requested 
relief from sections 18(a) and 61(a), the ability of Fidus SBIC to 
obtain the kind of financing that would be available to the Company if 
it were to conduct the SBIC operations itself would be restricted. 
Applicants state that applying section 18(k) to the Company with 
respect to any senior security representing indebtedness that is issued 
by Fidus SBIC would not harm the public interest by exposing investors 
to risks of unconstrained leverage, because the SBA regulates the 
capital structure of Fidus SBIC.
    7. 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 any person, directly 
or indirectly, who controls, is controlled by, or is under common 
control with the BDC. Applicants state that the Company is an 
affiliated person of Fidus SBIC by reason of its direct ownership of 
all of the limited partnership interests in Fidus SBIC and its indirect 
ownership of all the general partnership interests in Fidus SBIC 
through its 100% ownership of the New General Partner. Fidus SBIC is an 
affiliated person of the Company because it is deemed to be under the 
control of the Company. Accordingly, the Company and Fidus SBIC are 
related to each other in the manner set forth in section 57(b).
    8. Applicants state that there may be circumstances when it is in 
the interests of the Company and its stockholders that Fidus SBIC 
invest in securities of an issuer that may be deemed to be a controlled 
portfolio affiliate of the Company or that the Company invest in 
securities of an issuer that may be deemed to be a controlled portfolio 
affiliate of Fidus SBIC. Applicants therefore request an exemption from 
sections 57(a)(1) and 57(a)(2) of the Act to permit any transaction 
solely between the Company and Fidus SBIC with

[[Page 13662]]

respect to the purchase or sale of securities or other property. 
Applicants also seek an exemption from the provisions 57(a)(1) and (2) 
to allow any transaction involving the Company and/or Fidus SBIC and 
portfolio affiliates of either or both of the Company and/or Fidus 
SBIC, but only to the extent that the transaction would not be 
prohibited if the Company and Fidus SBIC were one company.
    9. Section 57(c) provides that the Commission will exempt a 
proposed transaction from the provisions of sections 57(a)(1), (2), and 
(3) 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 sections 
57(a)(1) and (2) meets this standard. Applicants represent that the 
proposed operations as one company will enhance the efficient 
operations of the Company and its wholly owned subsidiary, Fidus SBIC, 
and allow them to deal with portfolio companies as if the Company and 
Fidus SBIC were one company. Applicants contend that the terms of the 
proposed transactions are reasonable and fair and do not involve 
overreaching of the Company or its stockholders by any person, and that 
the requested order would permit the Company and Fidus SBIC to carry 
out more effectively their purposes and objectives of investing 
primarily in small business concerns. Applicants also state that since 
Fidus SBIC will be a wholly owned subsidiary of the Company and since 
no officers or directors of the Company or Fidus SBIC (or any 
controlling persons or other ``upstream affiliates'' of the Company) 
will have any prohibited financial interest in the transactions 
described, there can be no overreaching on the part of any persons and 
no harm to the public interest in transactions solely between the 
Company and Fidus SBIC. Finally, applicants note that the proposed 
transactions are consistent with the policy of the Company and Fidus 
SBIC as specified in filings with the Commission and reports to 
stockholders, as well as consistent with the policies and provisions of 
the Act.
    11. Section 57(a)(3) of the Act makes it unlawful for certain 
affiliated persons of a BDC, and certain affiliated persons of those 
persons, set out in section 57(b) to borrow money or other property 
from such BDC or from any company controlled by the BDC, except as 
permitted by section 21(b) or section 62. Section 21(b) of the Act 
(made applicable to BDCs by section 62) provides that it shall be 
unlawful for a BDC to lend any money or property, directly or 
indirectly, to any person that controls or is under common control with 
the BDC, except to any company that owns all of the outstanding 
securities of the BDC other than directors' qualifying shares.
    12. The Company is an affiliated person of Fidus SBIC by reason of 
its direct ownership of all of the limited partnership interests in 
Fidus SBIC and its indirect ownership of all of the general partnership 
interests in Fidus SBIC through its 100% ownership of the New General 
Partner. The Company does not directly own all of the outstanding 
securities of Fidus SBIC because the New General Partner holds a 0.01% 
general partnership interest in Fidus SBIC and Fidus SBIC has issued 
SBA guaranteed debentures and, in the future, may have other 
outstanding securities in the form of indebtedness. Fidus SBIC is an 
affiliated person of the Company because it is deemed to be under the 
control of the Company. Accordingly, the Company is related to Fidus 
SBIC in the manner set forth in section 57(b) and Fidus SBIC is related 
to the Company in the manner set forth in section 57(b).
    13. Applicants state that there may be instances when it would be 
in the best interests of the Company and its stockholders for the 
Company to make loans to Fidus SBIC or for Fidus SBIC to make loans to 
the Company. Applicants note that, in the case of loans from Fidus SBIC 
to the Company, the loans would be prohibited by section 21(b) and 
section 57(a)(3) because the borrower controls the lender and the 
lender may have outstanding securities not owned by the borrower. 
Accordingly, applicants request an order under section 6(c) exempting 
from the provisions of section 21(b) the lending of money or other 
property by Fidus SBIC to the Company. Applicants argue that because 
these transactions are solely between the Company and Fidus SBIC, its 
wholly-owned subsidiary, they will have no substantive economic effect 
and there is be no basis for overreaching or harm to the public 
interest. Applicants also request an order under section 57(c) 
exempting from the provisions of section 57(a)(3) the borrowing of 
money or property by the Company from Fidus SBIC.\3\ Applicants submit 
that the requested relief meets the standards of section 57(c).
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    \3\ Applicants state that they are not seeking relief from 
Section 57(a)(3) for loans from the Company to Fidus SBIC because 
under the existing control structure, no such relief is necessary.
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    14. Section 57(a)(4) of the Act generally prohibits joint 
transactions involving any BDC or a company it controls and certain 
persons related to the BDC as specified in section 57(b) of the Act, 
acting as principal in contravention of such rules and regulations as 
the Commission may prescribe for the purpose of limiting or preventing 
participation by the BDC or controlled company on a basis less 
advantageous than that of the other participant. Section 57(i) of the 
Act provides that rules and regulations under section 17(d) of the Act, 
such as rule 17d-1, 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. Rule 17d-1 under the Act (made 
applicable to BDCs by section 57(i)) prohibits affiliated persons of a 
registered investment company, or an affiliated person of such person, 
or, when applying rule 17d-1 to implement section 57(a)(4), a person 
related to a BDC in a manner described in Section 57(b), acting as 
principal, from participating in any joint transaction or arrangement 
in which the BDC or a company it controls is a participant, unless the 
Commission has issued an order authorizing the arrangement.
    15. Applicants request relief under section 57(i) and rule 17d-1to 
permit any joint transaction that would otherwise be prohibited by 
section 57(a)(4) between the Company and Fidus SBIC with respect to any 
transaction involving investments by the Company or Fidus SBIC in 
portfolio companies in which either is or is proposed to become an 
investor, but only to the extent that the transaction would not be 
prohibited if Fidus SBIC (and all of its assets and liabilities) were 
deemed to be part of the Company, and not a separate company.
    16. 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 state that the proposed 
transactions are consistent with the policy and provisions of the

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Act and will enhance the interests of the Company's stockholders while 
retaining for them 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 submit that the standard for relief under 
section 57(i) and rule 17d-1 is satisfied.
    17. Section 54 of the Act provides that a closed-end company may 
elect BDC treatment under the Act if the company has either a class of 
equity securities registered under section 12 of the Exchange Act or 
has filed a registration statement pursuant to section 12 of the 
Exchange Act for a class of its equity securities. Section 12(g) of the 
Exchange Act requires issuers with specified assets and a specified 
number of security holders to register under the Exchange Act. As a 
BDC, the Company has registered its common stock under section 12(b) of 
the Exchange Act. In order to elect BDC treatment under the Act, Fidus 
SBIC voluntarily registered its securities under the Exchange Act even 
though it is not required to do so by section 12(g) of the Exchange 
Act.
    18. By filing a registration statement under section 12 of the 
Exchange Act, absent an exemption, Fidus SBIC would be required to make 
periodic filings with the Commission, even though Fidus SBIC will have 
only one equity holder. Section 13 of the Exchange Act is the primary 
section requiring such filings. Accordingly, applicants request an 
order under section 12(h) of the Exchange Act exempting Fidus SBIC from 
the reporting requirements of section 13(a) of the Exchange Act.
    19. 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 by reason of the number of public investors, 
amount of trading interest in the securities, the nature and extent of 
the activities of the issuer, income or assets of the issuer, or 
otherwise, that such action is not inconsistent with the public 
interest or the protection of investors. Fidus SBIC has only one 
investor, which is itself a reporting company, and no public investors. 
There will be no trading in Fidus SBIC securities, so no public 
interest or investor protective purpose will be served by separate 
Fidus SBIC reporting. Further, applicants state that the nature and 
extent of Fidus SBIC's activities are such that its activities will be 
fully reported through consolidated reporting in accordance with normal 
accounting rules. Accordingly, applicants believe that the requested 
exemption meets the standards of section 12(h) of the Exchange Act.

Applicants' Conditions

    Applicants agree that the requested 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 Fidus 
SBIC 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 Fidus SBIC.
    2. Fidus SBIC 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 the Fidus SBIC Board unless 
such person shall also be a member of the Company's Board. The Fidus 
SBIC Board will be appointed by the equity owners of Fidus SBIC.
    4. The Company will not itself issue or sell any senior security 
and the Company will not cause or permit Fidus SBIC to issue or sell 
any senior security of which the Company or Fidus SBIC 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 Fidus SBIC, the 
Company and Fidus SBIC on a consolidated basis, and the Company 
individually, shall have the asset coverage required by section 18(a) 
(as modified by section 61(a)). In determining whether the Company and 
Fidus SBIC on a consolidated basis have the asset coverage required by 
section 18, as modified by section 61(a), any senior securities 
representing indebtedness of Fidus SBIC 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 Fidus SBIC representing 
indebtedness only if, in each case, the prior approval of the SBA has 
been obtained. In addition, the Company and Fidus SBIC 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 shall serve or act as investment adviser to Fidus SBIC 
unless the Board and the stockholders of the Company shall have taken 
such action with respect thereto that is required to be taken pursuant 
to the Act by the functional equivalent of the Fidus SBIC Board and the 
equity holders of Fidus SBIC.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5515 Filed 3-6-12; 8:45 am]
BILLING CODE 8011-01-P