[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
