SEC Company Response from Main Street Capital (MAIN) — Jul 31, 2013
Main Street Capital CORP
Date: July 31, 2013 · CIK: 0001396440 · Accession: 0001104659-13-058235
AI Filing Summary & Sentiment
File numbers found in text: 333-183555
Letter
Washington, DC 20549 Attn: James E. O’Connor, Esq. Registration Statement on Form N-2 (File No. 333-183555)
Re: Main Street Capital Corporation
Dear Mr. O’Connor:
In accordance with Rule 461 of the General Rules and Regulations under the Securities Act of 1933, as amended, Main Street Capital Corporation (the “Company”) hereby respectfully requests that the above-captioned registration statement, including all amendments thereto, be ordered effective on July 31, 2013 at 4:30 p.m., or as soon thereafter as practicable.
In connection with the submission of the Company’s request for accelerated effectiveness of the above-captioned Registration Statement, the Company hereby acknowledges that:
· the Company is responsible for the adequacy and accuracy of the disclosure in the filing;
· should the Securities and Exchange Commission (the “Commission”) or the staff thereof (the “Staff”), acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing;
· the action of the Commission or the Staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the Company from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and
· the Company may not assert this action as defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
* * *
If you have any questions or comments regarding the foregoing, please feel free to contact me at (713) 350-6043.
MAIN STREET CAPITAL CORPORATION
By:
/s/ Jason B. Beauvais
Jason B. Beauvais
Senior Vice President, General Counsel,
Chief Compliance Officer and Secretary
July 31, 2013
Ms. Christina L. DiAngelo
Accountant
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Mr. James E. O’Connor, Esq.
Attorney/Advisor
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
RE: Main Street Capital Corporation — Annual Report on Form 10-K for the Year Ended December 31, 2012 (the “Annual Report”)
Dear Ms. DiAngelo and Mr. O’Connor:
On behalf of Main Street Capital Corporation (the “Company”), set forth below are the Company’s responses to the oral comments of the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) that you provided to us regarding the Annual Report. The Staff’s comments are set forth below and are followed by the Company’s responses.
Audit Opinion:
1. (page 72) The audit opinion contains the language “Our procedures included verification by confirmation of securities as of December 31, 2012 and 2011, or by other appropriate auditing procedures where replies were not received.” The audit opinion should state from whom the confirmations were received. Refer to the following IM Issue of Interest on the SEC website:
Business Development Companies — Auditor Verification of Securities Owned
Under section 30(g) of the Investment Company Act and the Commission’s Accounting Series Release No. 118 (Dec. 23, 1970), the certificate of independent public accountants (“auditor”) contained in the financial statements of investment companies registered under the Investment Company Act must include a statement “that such independen
public accountants have verified securities owned, either by actual examination, or by receipt of a certificate from the custodian.” Although section 59 of the Investment Company Act does not make section 30(g) applicable to business development companies (“BDCs”), a BDC’s auditor plays an important role under the Investment Company Act in preventing a BDC’s assets from being lost, misused or misappropriated. Therefore, the staff believes that it is a best practice for a BDC to have its auditor verify all of the securities owned by the BDC, either by actual examination or by receipt of a certificate from the custodian, and affirmatively state in the audit opinion whether the auditor has confirmed the existence of all such securities. [March 12, 2012] http://www.sec.gov/divisions/investment/issues-of-interest.shtml#auditorverification
Response: We have discussed this comment with Grant Thornton LLP, our external auditors (“Grant”). We note that the procedures performed by Grant as of December 31, 2012 and 2011 included confirmation from our custodians and portfolio companies, along with other appropriate auditing procedures that were necessary, such as verifying source documentation, to obtain verification of the securities owned by the Company. Grant has indicated that for their audit opinion in the 2013 10-K that they would continue to include language indicating their verification procedures and will add language to the opinion to indicate to whom the confirmations were addressed, specifically including reference to the custodians. As all outstanding balances will be confirmed as of December 31, 2013, which may create the need for additional parties to be confirmed, the actual language cannot be finalized until completion of Grant’s audit, but, for your benefit, an example is provided below based on the 2012 outstanding balances.
“Our procedures included verification by confirmation of securities as of December 31, 2013 and 2012, by correspondence with the portfolio companies and custodians, or by other appropriate auditing procedures where replies where not received.”
Consolidated Balance Sheets:
2. What is the composition of “Cash and Cash Equivalents” at 12/31/12 ($63,517,000)? If any investments are in money market mutual funds or other investment companies, these investments should be disclosed separately on the Schedule of Investments. Additionally, confirm that any acquired fund fees and expenses (“AFFE”) related to these investments is included in the fee table.
Response: “Cash and cash equivalents” on the consolidated balance sheet only includes cash. The Company confirms that such line item does not include investments in any money market mutual funds or other investment companies. However, to the extent the Company has investments in any money market mutual funds or other investment companies in the future, such investments will be included separately in the Company’s schedule of investments to the extent required by Regulation S-X Rule 12-12.
3. Are there any payables to the Board of Directors at year-end? If so, these should be disclosed separately, in accordance with Regulation S-X, Article 6-04.12(b)(1).
Response: The Company confirms that there are no payables to any member of its Board of Directors as of December 31, 2012.
4. Explain why there is a line item entitled “Commitments and Contingencies” with no numbers on the Consolidated Balance Sheets.
Response: The Company believes that this line item is commonly used on balance sheets both in the BDC industry and for publicly-traded companies in general, and, as an example, specifically references Ares Capital Corporation and Gladstone Capital Corporation, which both incorporate this line item. We believe that this line item provides the financial statement reader with an indication that information regarding certain commitments and contingencies that do not qualify for inclusion in the Company’s balance sheets under Generally Accepted Accounting Procedures (“GAAP”) are included as is required under GAAP as footnote disclosure to provide more information regarding the Company’s potential future commitments and/or contingencies. The Company will add a reference to the specific note describing the Company’s commitments and contingencies to make this more clear to readers beginning with its financial statements for the quarter ended June 30, 2013.
Consolidated Statement of Operations:
5. General and administrative expenses represent 7.47% of total expenses. Is there any individual expense representing more than 5% of total expenses? If so, these expenses should be disclosed separately in accordance with Regulation S-X, Article 6-07(2)(b). Consider including detail of general and administrative expenses in the notes to financial statements.
Response: The Company verifies for each consolidated statement of operations that it has broken out all expense items that are greater than 5% of total expenses and that there are no additional expenses that require breakout in these consolidated statements of operations. However, to the extent the Company has any such expense items greater than 5% of total expenses in the future, they will be separately reported within the Company’s consolidated statement of operations in compliance with Rule 6-07(2)(b) of Regulation S-X. Due to lack of significance of the individual general and administrative expense items, the Company does not believe that providing a detail of the individual expenses included within general and administrative expenses provides significant value to its investors.
6. Regarding the “Income tax provision” of $10,820 disclosed in the “Net Change in Unrealized Appreciation/(Depreciation),” this disclosure does not appear to meet the disclosure requirements of Regulation S-X. The Notes to Financial Statements (page 137) disclose the separate components of this amount of “Current tax expense (benefit),”
“Deferred tax expense (benefit)” and “Excise Tax.” Regulation S-X, Article 6-07 requires the following to be disclosed on the face of the Statement of Operations:
6-07.5: Income tax expense- (disclosure before the net investment income line item)
6-07.7(e): State separately any (1) federal income taxes and (2) other income taxes applicable to realized and unrealized gain (loss) on investments, distinguishing taxes payable currently from deferred income taxes.
Refer to the following example: http://www.sec.gov/Archives/edgar/data/1502711/000110465913008412/a12-29955_2ncsr.htm
Response: The Company has determined that the amount of excise tax applicable to items above net investment income is not material and, thus, believes that putting all income taxes below the net investment income line item is appropriate. Beginning with its financial statements for the quarter ended June 30, 2013, the Company will separate the components of taxes below the net investment income line item in the manner requested. In addition, at any time that the amount of excise tax applicable to items above net investment income is determined to be material, the Company will include applicable taxes above the net investment income line item.
Consolidated Statements of Cash Flows:
7. Please move the information included in “Note N- Supplemental Cash Flow Disclosures” to the Consolidated Statements of Cash Flows.
Response: The Company confirms that it will comply with this comment in the future beginning with its financial statements for the quarter ended June 30, 2013.
Consolidated Schedule of Investments:
8. We note that a significant amount of the debt investments are valued at cost or par. For example, 84% of the debt “Control Investments” are valued at cost or par and 100% of the “Affiliate Investments” are valued at cost or par. Total investments valued at cost/par equal 27% of total assets. Please explain the appropriateness of the valuations for these investments.
Response: The Company accounts for its investment portfolio at fair value, as determined on a quarterly basis in accordance with the provisions of the Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”) as discussed in further detail in the notes to the Company’s financial statements. The Company believes that its debt investments valued at par or cost are marked
appropriately, in accordance with ASC 820, at the price that such investments would be sold in the principal market to independent buyers and sellers that are independent, knowledgeable and willing and able to transact, which may be a hypothetical market.
Certain of the debt investments valued at cost or par are Middle Market portfolio investments. The valuations for these debt investments represent market quoted prices, which the Company believes reflect exit prices consistent with GAAP.
Other debt investments valued at cost or par are Lower Middle Market debt investments. These debt investments do not have an established trading market and therefore have limited marketability and do not have market quoted prices. Due to the lack of an active trading market, the Lower Middle Market debt investments are valued using a yield to maturity analysis (which is a discounted cash flow analysis, as disclosed in the summary of the significant unobservable inputs table in Note C to the Company’s financial statements) to derive an exit price that would be paid by a hypothetical market participant. As part of such analysis, the Company considers the credit quality of its investments and adjusts their value accordingly. In addition, Lower Middle Market debt investments are generally issued at fixed interest rates generally between 12% and 14% per annum. These interest rates have been consistent in our experience in investing in this market for twelve plus years with very little if any sensitivity to broader interest rate fluctuations. As such, the Company does not believe it could sell these investments in a real or hypothetical market above par value. Therefore, to date, the Company has limited the valuation for Lower Middle Market debt investments to a maximum amount equal to the par or principal amount of the debt investment. If the interest rates for the Lower Middle Market debt market as a whole were to change significantly, the Company’s yield to maturity analysis could either result in a change in the valuations of its current investments above par or change in valuations to lower valuations for reasons other than company-specific performance.
The Company has generally made these Lower Middle Market debt investments with the intention to hold them until maturity, and the Company has historically held such investments to maturity, unless earlier prepaid by the portfolio company. The yield to maturity analysis results for portfolio companies that are performing at or above the Company’s original expectations will eventually equal the par value due either to amortization of the difference between cost and par value (deferred fees and/or original issue discount) over the term of the debt investment and/or increases in the fair value of these debt investments if the applicable portfolio company’s credit profile improves.
9. We have specific valuation questions about the following investments:
i. On Asset Intelligence, Inc. — Please explain why the debt investment continues to be valued at principal when the maturity date of the debt appears to have been extended from 10/18/2012 to 4/18/2013. Has this debt been paid off? If so, for how much? Additionally, why did the cost increase?
12/31/11 disclosure (top) vs. 12/31/12 disclosure (bottom):
Principal
Cost
Fair Value
OnAsset Intelligence, Inc.
Transportation Monitoring / Tracking Services
12% Secured Debt (Maturity — October 18, 2012)
1,500
Preferred Stock (7% cumulative) (Fully diluted 5.75%)(8)
1,577
1,577
Warrants (Fully diluted 4.0%)
OnAsset Intelligence, Inc.
Transportation Monitoring / Tracking Services
12% Secured Debt (Maturity — April 18, 2013)
1,500
1,500
1,500
Preferred Stock (7% cumulati
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CORRESP 1 filename1.htm Main Street Capital Corporation July 31, 2013 U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Attn: James E. O’Connor, Esq. Re: Main Street Capital Corporation Registration Statement on Form N-2 (File No. 333-183555) Dear Mr. O’Connor: In accordance with Rule 461 of the General Rules and Regulations under the Securities Act of 1933, as amended, Main Street Capital Corporation (the “Company”) hereby respectfully requests that the above-captioned registration statement, including all amendments thereto, be ordered effective on July 31, 2013 at 4:30 p.m., or as soon thereafter as practicable. In connection with the submission of the Company’s request for accelerated effectiveness of the above-captioned Registration Statement, the Company hereby acknowledges that: · the Company is responsible for the adequacy and accuracy of the disclosure in the filing; · should the Securities and Exchange Commission (the “Commission”) or the staff thereof (the “Staff”), acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing; · the action of the Commission or the Staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the Company from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and · the Company may not assert this action as defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. * * * If you have any questions or comments regarding the foregoing, please feel free to contact me at (713) 350-6043. MAIN STREET CAPITAL CORPORATION By: /s/ Jason B. Beauvais Jason B. Beauvais Senior Vice President, General Counsel, Chief Compliance Officer and Secretary July 31, 2013 Ms. Christina L. DiAngelo Accountant United States Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Mr. James E. O’Connor, Esq. Attorney/Advisor United States Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 RE: Main Street Capital Corporation — Annual Report on Form 10-K for the Year Ended December 31, 2012 (the “Annual Report”) Dear Ms. DiAngelo and Mr. O’Connor: On behalf of Main Street Capital Corporation (the “Company”), set forth below are the Company’s responses to the oral comments of the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) that you provided to us regarding the Annual Report. The Staff’s comments are set forth below and are followed by the Company’s responses. Audit Opinion: 1. (page 72) The audit opinion contains the language “Our procedures included verification by confirmation of securities as of December 31, 2012 and 2011, or by other appropriate auditing procedures where replies were not received.” The audit opinion should state from whom the confirmations were received. Refer to the following IM Issue of Interest on the SEC website: Business Development Companies — Auditor Verification of Securities Owned Under section 30(g) of the Investment Company Act and the Commission’s Accounting Series Release No. 118 (Dec. 23, 1970), the certificate of independent public accountants (“auditor”) contained in the financial statements of investment companies registered under the Investment Company Act must include a statement “that such independen public accountants have verified securities owned, either by actual examination, or by receipt of a certificate from the custodian.” Although section 59 of the Investment Company Act does not make section 30(g) applicable to business development companies (“BDCs”), a BDC’s auditor plays an important role under the Investment Company Act in preventing a BDC’s assets from being lost, misused or misappropriated. Therefore, the staff believes that it is a best practice for a BDC to have its auditor verify all of the securities owned by the BDC, either by actual examination or by receipt of a certificate from the custodian, and affirmatively state in the audit opinion whether the auditor has confirmed the existence of all such securities. [March 12, 2012] http://www.sec.gov/divisions/investment/issues-of-interest.shtml#auditorverification Response: We have discussed this comment with Grant Thornton LLP, our external auditors (“Grant”). We note that the procedures performed by Grant as of December 31, 2012 and 2011 included confirmation from our custodians and portfolio companies, along with other appropriate auditing procedures that were necessary, such as verifying source documentation, to obtain verification of the securities owned by the Company. Grant has indicated that for their audit opinion in the 2013 10-K that they would continue to include language indicating their verification procedures and will add language to the opinion to indicate to whom the confirmations were addressed, specifically including reference to the custodians. As all outstanding balances will be confirmed as of December 31, 2013, which may create the need for additional parties to be confirmed, the actual language cannot be finalized until completion of Grant’s audit, but, for your benefit, an example is provided below based on the 2012 outstanding balances. “Our procedures included verification by confirmation of securities as of December 31, 2013 and 2012, by correspondence with the portfolio companies and custodians, or by other appropriate auditing procedures where replies where not received.” Consolidated Balance Sheets: 2. What is the composition of “Cash and Cash Equivalents” at 12/31/12 ($63,517,000)? If any investments are in money market mutual funds or other investment companies, these investments should be disclosed separately on the Schedule of Investments. Additionally, confirm that any acquired fund fees and expenses (“AFFE”) related to these investments is included in the fee table. Response: “Cash and cash equivalents” on the consolidated balance sheet only includes cash. The Company confirms that such line item does not include investments in any money market mutual funds or other investment companies. However, to the extent the Company has investments in any money market mutual funds or other investment companies in the future, such investments will be included separately in the Company’s schedule of investments to the extent required by Regulation S-X Rule 12-12. 2 3. Are there any payables to the Board of Directors at year-end? If so, these should be disclosed separately, in accordance with Regulation S-X, Article 6-04.12(b)(1). Response: The Company confirms that there are no payables to any member of its Board of Directors as of December 31, 2012. 4. Explain why there is a line item entitled “Commitments and Contingencies” with no numbers on the Consolidated Balance Sheets. Response: The Company believes that this line item is commonly used on balance sheets both in the BDC industry and for publicly-traded companies in general, and, as an example, specifically references Ares Capital Corporation and Gladstone Capital Corporation, which both incorporate this line item. We believe that this line item provides the financial statement reader with an indication that information regarding certain commitments and contingencies that do not qualify for inclusion in the Company’s balance sheets under Generally Accepted Accounting Procedures (“GAAP”) are included as is required under GAAP as footnote disclosure to provide more information regarding the Company’s potential future commitments and/or contingencies. The Company will add a reference to the specific note describing the Company’s commitments and contingencies to make this more clear to readers beginning with its financial statements for the quarter ended June 30, 2013. Consolidated Statement of Operations: 5. General and administrative expenses represent 7.47% of total expenses. Is there any individual expense representing more than 5% of total expenses? If so, these expenses should be disclosed separately in accordance with Regulation S-X, Article 6-07(2)(b). Consider including detail of general and administrative expenses in the notes to financial statements. Response: The Company verifies for each consolidated statement of operations that it has broken out all expense items that are greater than 5% of total expenses and that there are no additional expenses that require breakout in these consolidated statements of operations. However, to the extent the Company has any such expense items greater than 5% of total expenses in the future, they will be separately reported within the Company’s consolidated statement of operations in compliance with Rule 6-07(2)(b) of Regulation S-X. Due to lack of significance of the individual general and administrative expense items, the Company does not believe that providing a detail of the individual expenses included within general and administrative expenses provides significant value to its investors. 6. Regarding the “Income tax provision” of $10,820 disclosed in the “Net Change in Unrealized Appreciation/(Depreciation),” this disclosure does not appear to meet the disclosure requirements of Regulation S-X. The Notes to Financial Statements (page 137) disclose the separate components of this amount of “Current tax expense (benefit),” 3 “Deferred tax expense (benefit)” and “Excise Tax.” Regulation S-X, Article 6-07 requires the following to be disclosed on the face of the Statement of Operations: 6-07.5: Income tax expense- (disclosure before the net investment income line item) 6-07.7(e): State separately any (1) federal income taxes and (2) other income taxes applicable to realized and unrealized gain (loss) on investments, distinguishing taxes payable currently from deferred income taxes. Refer to the following example: http://www.sec.gov/Archives/edgar/data/1502711/000110465913008412/a12-29955_2ncsr.htm Response: The Company has determined that the amount of excise tax applicable to items above net investment income is not material and, thus, believes that putting all income taxes below the net investment income line item is appropriate. Beginning with its financial statements for the quarter ended June 30, 2013, the Company will separate the components of taxes below the net investment income line item in the manner requested. In addition, at any time that the amount of excise tax applicable to items above net investment income is determined to be material, the Company will include applicable taxes above the net investment income line item. Consolidated Statements of Cash Flows: 7. Please move the information included in “Note N- Supplemental Cash Flow Disclosures” to the Consolidated Statements of Cash Flows. Response: The Company confirms that it will comply with this comment in the future beginning with its financial statements for the quarter ended June 30, 2013. Consolidated Schedule of Investments: 8. We note that a significant amount of the debt investments are valued at cost or par. For example, 84% of the debt “Control Investments” are valued at cost or par and 100% of the “Affiliate Investments” are valued at cost or par. Total investments valued at cost/par equal 27% of total assets. Please explain the appropriateness of the valuations for these investments. Response: The Company accounts for its investment portfolio at fair value, as determined on a quarterly basis in accordance with the provisions of the Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”) as discussed in further detail in the notes to the Company’s financial statements. The Company believes that its debt investments valued at par or cost are marked 4 appropriately, in accordance with ASC 820, at the price that such investments would be sold in the principal market to independent buyers and sellers that are independent, knowledgeable and willing and able to transact, which may be a hypothetical market. Certain of the debt investments valued at cost or par are Middle Market portfolio investments. The valuations for these debt investments represent market quoted prices, which the Company believes reflect exit prices consistent with GAAP. Other debt investments valued at cost or par are Lower Middle Market debt investments. These debt investments do not have an established trading market and therefore have limited marketability and do not have market quoted prices. Due to the lack of an active trading market, the Lower Middle Market debt investments are valued using a yield to maturity analysis (which is a discounted cash flow analysis, as disclosed in the summary of the significant unobservable inputs table in Note C to the Company’s financial statements) to derive an exit price that would be paid by a hypothetical market participant. As part of such analysis, the Company considers the credit quality of its investments and adjusts their value accordingly. In addition, Lower Middle Market debt investments are generally issued at fixed interest rates generally between 12% and 14% per annum. These interest rates have been consistent in our experience in investing in this market for twelve plus years with very little if any sensitivity to broader interest rate fluctuations. As such, the Company does not believe it could sell these investments in a real or hypothetical market above par value. Therefore, to date, the Company has limited the valuation for Lower Middle Market debt investments to a maximum amount equal to the par or principal amount of the debt investment. If the interest rates for the Lower Middle Market debt market as a whole were to change significantly, the Company’s yield to maturity analysis could either result in a change in the valuations of its current investments above par or change in valuations to lower valuations for reasons other than company-specific performance. The Company has generally made these Lower Middle Market debt investments with the intention to hold them until maturity, and the Company has historically held such investments to maturity, unless earlier prepaid by the portfolio company. The yield to maturity analysis results for portfolio companies that are performing at or above the Company’s original expectations will eventually equal the par value due either to amortization of the difference between cost and par value (deferred fees and/or original issue discount) over the term of the debt investment and/or increases in the fair value of these debt investments if the applicable portfolio company’s credit profile improves. 9. We have specific valuation questions about the following investments: i. On Asset Intelligence, Inc. — Please explain why the debt investment continues to be valued at principal when the maturity date of the debt appears to have been extended from 10/18/2012 to 4/18/2013. Has this debt been paid off? If so, for how much? Additionally, why did the cost increase? 5 12/31/11 disclosure (top) vs. 12/31/12 disclosure (bottom): Principal Cost Fair Value OnAsset Intelligence, Inc. Transportation Monitoring / Tracking Services 12% Secured Debt (Maturity — October 18, 2012) 1,500 916 916 Preferred Stock (7% cumulative) (Fully diluted 5.75%)(8) 1,577 1,577 Warrants (Fully diluted 4.0%) 830 830 OnAsset Intelligence, Inc. Transportation Monitoring / Tracking Services 12% Secured Debt (Maturity — April 18, 2013) 1,500 1,500 1,500 Preferred Stock (7% cumulati