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CORRESP
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CORRESP

From: Boehm, Steven

Sent: Monday, January 29, 2007 7:30 PM

To: ‘pfordter@sec.gov’; ‘rupertk@sec.gov’; ‘distefanov@sec.gov’

Subject: Triangle

Gentlemen:

Per my earlier email, attached please find a letter responding to the issues raised during our
discussion on Friday of the pending registration statement for Triangle Capital Corporation.

I look forward to discussing this matter with you at your earliest convenience.

Many thanks.

Steve

Steven B. Boehm

Sutherland Asbill & Brennan LLP

1275 Pennsylvania Avenue, NW

Washington, DC 20004

Steven.Boehm@sablaw.com

202.383.0176 phone

202.637.3593 fax

202.489.8607 cell

<<WO_689297_1.PDF>>

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    1275 Pennsylvania Avenue, NW

    Washington, DC 20004-2415

202.383.0100

fax 202.637.3593

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STEVEN
B. BOEHM

DIRECT LINE: 202.383.0176

Internet: steven.boehm@sablaw.com

January 29, 2007

VIA EDGAR AND HAND DELIVERY

Richard Pfordte, Esq.

Mr. Kevin Rupert

Vincent Di Stefano, Esq.

Division of Investment Management

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-0504

         Re:

    Triangle Capital Corporation

    Registration Statement on Form N-2

    File No. 333-138418

Dear
Messrs. Pfordte, Rupert and Di Stefano:

     On January 26, 2006, we received additional comments from you by telephone on the
Registration Statement on Form N-2, File
No. 333-138418 (“Registration Statement”) for Triangle
Capital Corporation (the “Company” or the “BDC”). Set forth below are the Company’s responses to
your comments.

COMMENT 1: It appears that the Company is issuing the members of the general partner
(“GP”) of Triangle Mezzanine Fund, LLLP (the “SBIC”) $7.5M of the Company’s common stock as
compensation for their services. Explain why the issuance of the $7.5M of stock to the
members of the GP is not in violation of Section 23(a) of the Investment Company Act of 1940
(the “1940 Act”), as well as Section 23(b), as interpreted in the 1961 Release and the Big
Apple no action letter. Explain how the $7.5M valuation of the GP Interests was calculated.

RESPONSE: The proposed transaction does not violate Section 23(a) or (b), or any other
provision of the 1940 Act. In relevant part, Section 23(a) prohibits a closed-end investment
company (and, by reason of Section 63, a BDC) from issuing its securities for services, or for
property other than cash or securities, except in connection with a reorganization. In the
proposed transaction (the “Reorganization”), the Company will issue its securities to the
Limited Partners of the SBIC (the “LPs”) and the members of the GP to acquire 100% of the
outstanding equity interests in the ongoing business of the SBIC.

    Atlanta

§

    Austin

    §

    Houston

    §

    New York

    §

    Tallahassee

    §

    Washington, DC

Letter to SEC

January 29, 2007

Page 2 of 10

The Company is purchasing more than merely assets in the form of the SBIC and its
investment portfolio. It is acquiring an established and ongoing specialty finance
business, which includes an established and successful management team. That management
team built the SBIC’s infrastructure more than three years ago, identified and structured
the SBIC’s investments, will monitor those investments and work with the portfolio
companies to maximize the value of those investments, will determine when and under what
circumstances to dispose of those investments, and will make, manage and dispose of other
investments in the future. The GP also procured the valuable SBIC license, which enables
access to the SBA’s highly favorable leverage program, which license the Company will
effectively acquire in the Reorganization.

The terms of the Reorganization reflect an arm’s length transaction between sophisticated
parties — the GP on the one hand and the LPs (approximately 97.5% of the SBIC’s committed
capital comes from commercial banks) on the other. As with the sale of most businesses, the
sale of the SBIC will not occur at book value (or net asset value). Successful businesses
regularly sell at multiples, often significant multiples, of book value. These multiples
reflect the fact that the book value, which is approximately the liquidation value of the
SBIC’s assets, fails to adequately capture the value of a successful operating company as
an ongoing business. In this case, both immediately prior to and immediately after the
Company’s IPO, the value of the assets that the Company will hold (through its SBIC
subsidiary) will be approximately $22.744 million (per the 9/30/2006 audited balance
sheet). The proposed $15 per share IPO price will, however, value the Company at
approximately $28.75 million. This will reflect approximately a 1.26x multiple to book
value, which is somewhat lower than the multiples to book value that the market currently
assigns to other BDCs.

Investors in the Company might be willing to pay a 1.26x multiple to the net asset value for
any number of reasons. They are free to decide that is a reasonable amount to pay for the
anticipated periodic distributions from the Company, especially when combined with the
potential for gain embedded in the equity and equity-related securities held by the Company.
They may believe the Company’s strong management team will use the proceeds of the public
offering, as well as the SBA leverage available to the Company (through the SBIC), to make
other investments that also will provide debt and equity returns justifying a 1.26x multiple
to net asset value. And they may believe, based on trading patterns of comparable BDCs and
similar entities that trade at multiples in excess of 1.26x to net asset value, that
purchasing the Company’s shares at a 1.26x multiple to

Letter to SEC

January 29, 2007

Page 3 of 10

net asset value in the IPO will provide the opportunity for trading gains if in the future
the Company’s shares trade at a multiple of net asset value that is greater than
1.26x.1

There is no authority that prohibits the GP from receiving the shares proposed to be issued
to them in the Reorganization. The Commission first addressed the question of the sale of
common stock to the public at a price substantially in excess of a stock’s net asset value
in Investment Company Act of 1940 Release. No. 3187 (Feb. 8, 1961) (the “Release”). There,
the Commission was concerned that the higher offering price was “principally to benefit the
promoters by the resultant increase in the net asset value of their shares” from the IPO.
The Commission then added that “unless some other and more legitimate purpose . . . can be
shown . . . public offerings at such prices may not lawfully be made under the [1940 Act].”

In
Big Apple Capital
Corp.,2 the Staff applied the Release to a newly organized BDC selling
its shares to its organizers in contemplation of a public offering at a higher price per
share. Specifically, the promoters subscribed for 4,250,000 shares of the BDC’s common
stock at $0.05 per share. The purported purpose of their investment was to raise funds to
finance the Company’s organization and the SEC registration of the IPO. The sale to the
promoters was to be followed by a public offering of 4,000,000 shares at a price of $1.00
per share, a 2000% multiple to the price paid by the promoters. In that case, where the
only efforts of the promoters was to finance the organization of the BDC immediately prior
to its IPO, the Staff considered the private sales to violate various provisions of the
1940 Act.

We believe that Big Apple exemplifies the precise type of factual scenario anticipated, and
sought to be prohibited, by the Release. That scenario is clearly not analogous to the
present one. Rather, the circumstances of the Reorganization here are nearly directly
on-point with those of Enervest Capital, Incorporated3 There, the Staff took a
no-action position where an SBIC was to be taken public approximately three years after its
organization, at a time when its common stock was held by 36 shareholders. During the
period of its operation, the company made a number of investments as well as commitments to
provide additional capital. The shares of common stock of Enervest to

    1

    From an accounting standpoint in the N-2 filing, the Company made the decision to
provide prospective investors with audited financial statements for the SBIC as of and for the
period ended September 30, 2006. Within the scope of this audit was third party valuation
assistance provided by Duff & Phelps of 100% of our portfolio (17 companies as of September 30,
2006). The Company’s effort to present the highest quality financial and valuation information
possible compares favorably to the fact that a number of publicly held BDCs use no third-party
valuation assistance whatsoever. As a result, the Reorganization is different from other
transactions that the Staff might see on a more routine basis in that potential investors have
already been provided audited results in the N-2 filing for every period since the fund’s
inception.

    2

    Pub. avail. May 6, 1982.

    3

    Pub. avail. Feb. 18, 1981.

Letter to SEC

January 29, 2007

Page 4 of 10

be offered to the public were to be priced at between 150 and 300% of its then current net
asset value per share.

The facts surrounding our Reorganization are strikingly similar to those at issue in
Enervest. The Company has more than three years of operating history and, as of December
31, 2006, it has made 26 investments with a total cost basis of over $70 million, it has
already returned $5 million to its existing investors (representing 23.5% of their
committed capital), and it has a substantial pipeline of potential new investment
opportunities. The Reorganization has been approved by approximately 90% of the SBICs
existing LP interests, substantially all of which are sophisticated commercial banks, and
have a wealth of financial and other quantitative and qualitative information on which to
judge the merits of the proposed offering price for the ongoing business currently being
conducted by the SBIC and to be acquired by the Company.

It is instructive that the Enervest no-action letter request specifically discusses that
the Staff refused to permit that company to conduct an IPO at a multiple to net asset value
soon after it was formed, for precisely the reasons identified in Big Apple and the
Release. But, three years later — after Enervest had invested $918,000 in 11 companies and
made commitments of $710,000 to 4 additional companies — the Staff permitted Enervest to
conduct an IPO at a multiple to net asset value.

Moreover, several recently completed BDC IPOs reflected public offering prices in excess of
NAV and which, in fact, reflected multiples higher than those reflected in the Company’s
proposed offering. The offerings by Patriot Capital Funding, Inc. (“PCAP”) and Hercules
Technology Growth Capital, Inc. (“HTGC”), for example, are shown in the table
below.4

    PCAP

    HTGC

    TCAP

    Pre-

    Post

    Pre-

    Post

    Pre-

    Post

    Deal

    Deal

    Deal

    Deal

    Deai

    Deal

    NAV (Book equity)

    $
    28.433

    $
    117.753

    $
    41,440

    $
    112,650

    $
    22.744

    $
    70.099

    Shares outstanding

    3,848

    11,038

    3,802

    9,802

    1,917

    5,447

    NAV per share

    $
    7.39

    $
    10,67

    $
    10.90

    $
    11.49

    $
    11.87

    $
    12,87

    IPO Price per share

    $
    14.00

    $
    14,00

    $
    13,00

    $
    13,00

    $
    15.00

    $
    15.00

    Share price /NAV

    1.89
    x

    1.31
    x

    1.19
    x

    1.13
    x

    1.26
    x

    1.17
    x

    4

    In PCAP and HTGC offerings, the mid-point price on the front cover of the preliminary
prospectus was $15.00 per share, which would imply a larger Share Price / NAV multiple on a pre-deal basis.

Letter to SEC

January 29, 2007

Page 5 of 10

There is no basis for distinguishing the PCAP and HTGC offerings from the Company’s
proposed IPO for purposes of the issues raised here by the Staff.

Returning, then, to the Staffs concern under Section 23(a), the BDC is issuing shares to
the GP not for services, but instead as part of its acquisition of all outstanding equity
interests in the SBIC, including the GP’s interest in the SBIC. Under the current structure
of the SBIC, the LPs are, in effect, entitled to all of the SBIC’s distributions (after
payment of expenses and repayment of loans to the SBA) until they have received a return of
their invested capital, plus an amount equal to 7% per year on their invested capital (the
“Preferred Return”). Then, 100% of distributions are paid to the GP until it receives 25%
of amounts distributed pursuant to the Preferred Return. Thereafter, distributions from the
SBIC are split so that 80% is paid to the LPs, and 20% is paid to the GP. The GP’s right to
these payments is referred to as its “carried interest.”

Economically and practically, in order for the Company to acquire the entire interest in
the SBIC, it must acquire the economic interest of both the LPs and of the GPs. Valuing
these interests is, of course, not an exact science. The GP valued these interests by first
determining a going concern value for the SBIC as a whole, and then allocating an
appropriate portion of that total value to the LPs and the GP in accordance with their
respective economic interests in the SBIC. A summary of the GP’s allocations in this regard
are included in Appendix A, and these allocations were approved by approximately 90% of the
LP interests in the SBIC.

Accordingly, the amount being paid to the GP ($7.5M) represents the value of the GP
interests in the SBIC based on the present value of the future profits, cash flows and
other distributions that the GP are contractually entitled to and are giving up in agreeing
to the transaction (taking into account the increasing value of the interests over time,
decreasing discount rates over time, “value added” by the GP, and the fair market value of
the GP carried interest).

Section 23(a) permits a BDC to issue shares for other securities or property. We believe
that the BDC purchase of the GP’s carried interest — i.e., a contractual right to receive
future payments — is the purchase of a “security” for
which the Company can issue its shares within the meaning of
Section 23(a). Moreover, that provision permits a BDC to issue shares for property, even if that property is not cash or a security, if the shares are
issued in connection with a reorganization. In this case, that is precisely what has
happened. Pursuant to the Reorganization, the existing Limited Partners and the GP of the
SBIC will receive shares of the Company, and the SBIC will become wholly owned by the
Company. Regardless of whether the carried interest is a security, the carried interest
certainly is property — it is a contractual interest in the SBIC’s profits and cash flows
fully reflected in the limited partnership agreement of the SBIC. The fact that this right
may not be listed as an asse