SEC Company Response from Main Street Capital (MAIN) — May 7, 2014
Main Street Capital CORP
Date: May 7, 2014 · CIK: 0001396440 · Accession: 0001104659-14-035642
AI Filing Summary & Sentiment
File numbers found in text: 333-183555
Letter
Senior Counsel U.S. Securities and Exchange Commission Division of Investment Management — Disclosure Review Office 100 F Street N.E. Washington, D.C. 20549 RE: Main Street Capital Corporation — Post-Effective Amendment No. 6 to Registration Statement on Form N-2 (File No. 333-183555) (the “Registration Statement”)
Dear Ms. Fettig and Mr. O’Connor:
On behalf of Main Street Capital Corporation (the “Company”), set forth below are the Company’s responses to the comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) to the Company on April 15, 2014 and May 4, 2014 relating to the Registration Statement. The Staff’s comments are set forth below and are followed by the Company’s responses. Where revisions to the Registration Statement are referenced in the Company’s responses set forth below, such revisions have been included in Post-Effective Amendment No. 8 to the Registration Statement.
Accounting Comments
1. Please revise the format of the chart set forth under the caption “Price Range of Common Stock and Distributions” on page 37 of the Registration Statement to disclose the premium or discount as a percentage of net asset value (“NAV”). Currently, the chart discloses the percentage of the high and low sales price to NAV. Please refer to Instruction 4 to Item 8.5.b of Form N-2.
Response: The Company has revised the disclosure accordingly.
ATLANTA
AUSTIN
HOUSTON
NEW YORK
SACRAMENTO
WASHINGTON DC
2. Please explain why the auditors’ internal control report dated February 28, 2014 does not accompany the auditors’ report on the Company’s financial statements.
Response: Pursuant to Rule 2-02(f) of Regulation S-X, the auditors’ attestation report on internal control over financial reporting is only required to be included in an annual report on Form 10-K that contains an assessment by management of the effectiveness of the company’s internal control over financial reporting. As a result, the Company is not required to include its auditors’ attestation report on the Company’s internal control over financial reporting in the Registration Statement.
Consolidated Balance Sheets
3. What is the composition of “Cash and Cash Equivalents” at December 31, 2013 ($34,701,000)? 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 are included in the fee table.
Response: “Cash and cash equivalents” on the consolidated balance sheet at December 31, 2013 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, (i) such investments will be included separately in the Company’s schedule of investments to the extent required by Rule 12-12 of Regulation S-X and (ii) any AFFE related to such investments will be included in the fee table.
4. Should the “Commitments and Contingencies” line item reference Note N as opposed to Note M (Share-Based Compensation)?
Response: The “Commitments and Contingencies” line item should reference Note N as opposed to Note M (Share-Based Compensation). The Company has revised the disclosure accordingly.
Consolidated Statement of Operations:
5. General and administrative expenses represent 11.87% 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, Rule 6-07.2(b). Consider including detail of general and administrative expenses in the notes to financial statements.
Response: The Company confirms that all individual expense items that are greater than 5% of total expenses are broken out in the consolidated statements of operations. Due to the lack of significance of the individual general and administrative expense items, the Company does not believe that providing detail in the notes to the financial statements of the individual expenses included within the general and administrative expenses line item provides any significant value to its investors.
Consolidated Schedule of Investments
6. Confirm that the securities in the category “Other Marketable Securities and Idle Funds Investments” meet the disclosure requirements of concealed securities as set forth in footnote 1 to Rule 12-12 of Regulation S-X:
“Each issue shall be listed separately: Provided, however, that an amount not exceeding five percent of the total of Column C may be listed in one amount as Miscellaneous securities, provided the securities so listed are not restricted, have been held for not more than one year prior to the date of the related balance sheet, and have not previously been reported by name to the shareholders of the person for which the schedule is filed or to any exchange, or set forth in any registration statement, application, or annual report or otherwise made available to the public.”
Response: The Company confirms that the securities in the category “Other Marketable Securities and Idle Funds Investments” meet the disclosure requirements of concealed securities as set forth in footnote 1 to Rule 12-12 of Regulation S-X.
7. Please confirm that any AFFE related to investments in “Other Marketable Securities and Idle Funds Investments” are included in the prospectus fee table AFFE calculation.
Response: The Company confirms that any AFFE related to investments in “Other Marketable Securities and Idle Funds Investments” are included in the prospectus fee table AFFE calculation.
8. We note that the portfolio investment Integrated Printing Solutions, LLC 8% PIK Secured Debt with a scheduled maturity date of January 31, 2014 is identified as a “non-accrual and non-income producing investment”. Please explain why the investment was valued at cost/par and if the investment matured on January 31, 2014, what amount was received?
Response: The Company’s investment in the 8% PIK Secured Debt investment in Integrated Printing Solutions, LLC (“IPS”) represents a debt investment with first lien and “first out” repayment rights, and an investment which is senior in its repayment rights to IPS’s other outstanding indebtedness. In addition, as of December 31, 2013, IPS was in the middle of completing a transaction through which it was being acquired by a third party, and the result of this transaction would result in a 100% payoff of the 8% PIK Secured Debt in IPS. As a result of this pending transaction and the senior/”first out” nature of the 8% PIK Secured Debt investment, the Company determined that it was appropriate to record the investment fair value at an amount equal to its cost basis, while providing for the “non-accrual and non-income producing investment” status to reflect the current operating performance of the portfolio company and the risk associated with closing the pending transaction. Subsequent to December 31, 2013, the transaction closed and the 8% PIK Secured Debt investment was repaid in full, consistent with the Company’s valuation of this investment at December 31, 2013.
9. We note that footnote (15) on page F-29 identifies “fully impaired and non-income producing investment”, but we noted no securities with this footnote.
Response: The Company confirms that this footnote was inadvertently included on Schedule of Investments, as the Company had no fully impaired and non-income producing investments as of December 31, 2013.
10. We note that investments have interest rates related to LIBOR. Disclose what LIBOR rate is used in determining the interest rate.
Response: The Company’s schedule of investments lists the current weighted average stated interest rate earned on each loan (i.e., current weighted average stated interest rate of all of the tranches underlying the loan) by the Company at the end of the applicable period, plus the components of cash and PIK interest income and the LIBOR spread with respect to each LIBOR-based investment. In addition, given the manner in which the debt investments held by the Company function, it is not possible to specify the LIBOR rate (e.g., the 30-day, 60-day or 180-day LIBOR rate) for a particular debt investment. In this regard, the Company’s borrowers have the option to elect various LIBOR rates for portions of the aggregate funds borrowed by them from the Company. Moreover, the Company’s loans typically allow the borrowers to partition the aggregate loan amount into a large number of tranches. For example, a $4 million loan to a portfolio company may be composed four $1 million tranches that accrue interest based on four different LIBOR rates. In such a situation it would be cumbersome for the Company to have to separately list each tranche of the same loan as well as the LIBOR rate that the borrower has elected with respect thereto. Based on the above, the Company does not believe that the requested granular disclosure would be meaningful to investors. However, the Company understands that the Staff is continuing to review this issue, and the Company agrees to consider any future administrative position taken by the Staff.
11. Footnote (13) identifies those securities that are not qualifying assets. Consider disclosing the percentage of non-qualifying assets at the reporting period date.
Response: Based on the current industry reporting practice of not disclosing the percentage of non-qualifying assets, the Company respectfully declines to disclose the percentage of the Company’s non-qualifying assets at the reporting period date. The Company believes such added disclosure provides little benefit to a reader of the Company’s financial statements.
12. We note that certain investments have PIK interest. Also, please see the item addressed in the AICPA Audit Risk Alert-Investment Company Industry Developments 2013/14 relating thereto and set forth below in pertinent part:
“Certain registrants have debt investments that pay both PIK and cash interest. The SEC staff has noticed certain registrants hold debt instruments that have a provision permitting the issuer to determine a range of PIK interest that will be paid, along with a minimum cash percentage to be paid. For example, a bond may have a 15-percent stated interest rate that includes two rate components: (a) a minimum cash interest rate of 10 percent and (b) a PIK interest rate with a range between 0 percent and 5 percent. The SEC staff believes that if an issuer has the ability to pay a range of PIK interest, the current PIK and cash interest rates should be disclosed on the schedule of investments, along with the possible PIK interest rate range or the maximum PIK interest rate that could be paid. For example, if the issuer of the bond previously referenced with a 15-percent stated interest rate is currently paying 12 percent cash interest and 3 percent PIK interest as of the date of the financial statements, then the schedule of investments would disclose the current 12 percent cash and 3 percent PIK interest rates, along with the range of possible PIK interest rates that could be paid (0-5 percent) or the maximum allowable amount of PIK interest (0 percent to 5 percent).”
Response: The Company confirms that the maximum allowable amount of PIK interest with respect to each investment with a PIK component is disclosed on the Consolidated Schedule of Investments.
13. Footnote (5) to the Consolidated Schedule of Investments identifies control investments. Has the Company performed an analysis as to whether the disclosure requirements of Rules 3-09 or 4-08(g) of Regulation S-X should be applied?
· The Staff believes that Rules 3-09 and 4-08(g) of Regulation S-X apply to BDCs. Rule 3-09 of Regulation S-X is applicable for a majority owned subsidiary (greater than 50% ownership) which is not consolidated by the BDC. Rule 4-08(g) of Regulation S-X is applicable for subsidiaries (generally, 25% or more ownership) not consolidated.
· Subsidiary is defined by Rule 1-02(x) of Regulation S-X an “an affiliate controlled by such person directly or indirectly through one or more intermediaries”. An affiliate is defined by Rule 6-02(a) of Regulation S-X by reference to Section 2(a)(3) of the Investment Company Act of 1940. The term “control” has the meaning given in section 2(a)(9) of the Investment Company Act of 1940. Section 2(a)(9) of the Investment Company Act of 1940 defines control as having “the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position of such company . . .” Moreover, Section 2(a)(9) provides that “[a]ny person who owns beneficially, either directly or through one or more controlled companies, more than 25 per centum of the voting securities of a company shall be presumed to control such company”.
Response: The Company has undertaken an analysis related to Rules 3-09 or 4-08(g) of Regulation S-X and confirms that no additional financial disclosure relating to its investment portfolio is required to be included as a result thereof. The Company confirms that it will continue to perform the analysis required by Rules 3-09 or 4-08(g) of Regulation S-X on a quarterly basis and will include any additional financial disclosure in accordance therewith as required.
14. Please confirm that the Company has performed the three tests outlines in Article 1-02(w) of Regulation S-X and identify any of those companies that have met any of the three tests/conditions. (Note C contains disclosure that for the years ended December 31, 2013 and December 31, 2012, Main Street did not record investment income from any single portfolio company in excess of 10% of total investment income.) How does Main Street calculate this metric? Is this calculation performed in accordance with the guidance set forth in the Division of Corporation Finance Financial Reporting manual for calculations in Regulation S-X, 1-02(w)(3)?
Response: The Company confirms that that it has performed the tests outlined in Rule 1-02(w) of Regulation S-X, and no companies meet any of the three tests/conditions. The Company also confirms that its calculation of individual portfolio company investment income compared to total investment income in performed in accordance with the guidance set forth in the Financial Reporting Manual issued by the SEC’s Division of Corporation Finance for calculations in Rule 1-02(w)(3) of Regulation S-X.
15. Footnote (9) discloses that the index based floating interest rate is subject to contractual minimum interest rate. Disclose this minimum interest rate.
Response: Similar to the response to Comment No. 10, the Company notes that its schedule of investments lists the current stated interest rate earned on each index-based floating rate loan by the Company at the end of the applicable period, plus the components of cash and PIK interest income and the index-based spread with respect to each index-based loan. In addition, the Company has included footnote (9) to indicate which index-based floating rate investments are subject to a contractual minimum interest rate. The Company will also undertake to revise its disclosure to indicate the minimum contractual interest rate
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CORRESP 1 filename1.htm HARRY S. PANGAS DIRECT LINE: 202.383.0805 E-mail: harry.pangas@sutherland.com May 7, 2014 Ms. Christina DiAngelo Fettig Senior Staff Accountant U.S. Securities and Exchange Commission Division of Investment Management — Disclosure Review Office 100 F Street N.E. Washington, D.C. 20549 James E. O’Connor Senior Counsel U.S. Securities and Exchange Commission Division of Investment Management — Disclosure Review Office 100 F Street N.E. Washington, D.C. 20549 RE: Main Street Capital Corporation — Post-Effective Amendment No. 6 to Registration Statement on Form N-2 (File No. 333-183555) (the “Registration Statement”) Dear Ms. Fettig and Mr. O’Connor: On behalf of Main Street Capital Corporation (the “Company”), set forth below are the Company’s responses to the comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) to the Company on April 15, 2014 and May 4, 2014 relating to the Registration Statement. The Staff’s comments are set forth below and are followed by the Company’s responses. Where revisions to the Registration Statement are referenced in the Company’s responses set forth below, such revisions have been included in Post-Effective Amendment No. 8 to the Registration Statement. Accounting Comments 1. Please revise the format of the chart set forth under the caption “Price Range of Common Stock and Distributions” on page 37 of the Registration Statement to disclose the premium or discount as a percentage of net asset value (“NAV”). Currently, the chart discloses the percentage of the high and low sales price to NAV. Please refer to Instruction 4 to Item 8.5.b of Form N-2. Response: The Company has revised the disclosure accordingly. ATLANTA AUSTIN HOUSTON NEW YORK SACRAMENTO WASHINGTON DC 2. Please explain why the auditors’ internal control report dated February 28, 2014 does not accompany the auditors’ report on the Company’s financial statements. Response: Pursuant to Rule 2-02(f) of Regulation S-X, the auditors’ attestation report on internal control over financial reporting is only required to be included in an annual report on Form 10-K that contains an assessment by management of the effectiveness of the company’s internal control over financial reporting. As a result, the Company is not required to include its auditors’ attestation report on the Company’s internal control over financial reporting in the Registration Statement. Consolidated Balance Sheets 3. What is the composition of “Cash and Cash Equivalents” at December 31, 2013 ($34,701,000)? 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 are included in the fee table. Response: “Cash and cash equivalents” on the consolidated balance sheet at December 31, 2013 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, (i) such investments will be included separately in the Company’s schedule of investments to the extent required by Rule 12-12 of Regulation S-X and (ii) any AFFE related to such investments will be included in the fee table. 4. Should the “Commitments and Contingencies” line item reference Note N as opposed to Note M (Share-Based Compensation)? Response: The “Commitments and Contingencies” line item should reference Note N as opposed to Note M (Share-Based Compensation). The Company has revised the disclosure accordingly. Consolidated Statement of Operations: 5. General and administrative expenses represent 11.87% 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, Rule 6-07.2(b). Consider including detail of general and administrative expenses in the notes to financial statements. 2 Response: The Company confirms that all individual expense items that are greater than 5% of total expenses are broken out in the consolidated statements of operations. Due to the lack of significance of the individual general and administrative expense items, the Company does not believe that providing detail in the notes to the financial statements of the individual expenses included within the general and administrative expenses line item provides any significant value to its investors. Consolidated Schedule of Investments 6. Confirm that the securities in the category “Other Marketable Securities and Idle Funds Investments” meet the disclosure requirements of concealed securities as set forth in footnote 1 to Rule 12-12 of Regulation S-X: “Each issue shall be listed separately: Provided, however, that an amount not exceeding five percent of the total of Column C may be listed in one amount as Miscellaneous securities, provided the securities so listed are not restricted, have been held for not more than one year prior to the date of the related balance sheet, and have not previously been reported by name to the shareholders of the person for which the schedule is filed or to any exchange, or set forth in any registration statement, application, or annual report or otherwise made available to the public.” Response: The Company confirms that the securities in the category “Other Marketable Securities and Idle Funds Investments” meet the disclosure requirements of concealed securities as set forth in footnote 1 to Rule 12-12 of Regulation S-X. 7. Please confirm that any AFFE related to investments in “Other Marketable Securities and Idle Funds Investments” are included in the prospectus fee table AFFE calculation. Response: The Company confirms that any AFFE related to investments in “Other Marketable Securities and Idle Funds Investments” are included in the prospectus fee table AFFE calculation. 8. We note that the portfolio investment Integrated Printing Solutions, LLC 8% PIK Secured Debt with a scheduled maturity date of January 31, 2014 is identified as a “non-accrual and non-income producing investment”. Please explain why the investment was valued at cost/par and if the investment matured on January 31, 2014, what amount was received? 3 Response: The Company’s investment in the 8% PIK Secured Debt investment in Integrated Printing Solutions, LLC (“IPS”) represents a debt investment with first lien and “first out” repayment rights, and an investment which is senior in its repayment rights to IPS’s other outstanding indebtedness. In addition, as of December 31, 2013, IPS was in the middle of completing a transaction through which it was being acquired by a third party, and the result of this transaction would result in a 100% payoff of the 8% PIK Secured Debt in IPS. As a result of this pending transaction and the senior/”first out” nature of the 8% PIK Secured Debt investment, the Company determined that it was appropriate to record the investment fair value at an amount equal to its cost basis, while providing for the “non-accrual and non-income producing investment” status to reflect the current operating performance of the portfolio company and the risk associated with closing the pending transaction. Subsequent to December 31, 2013, the transaction closed and the 8% PIK Secured Debt investment was repaid in full, consistent with the Company’s valuation of this investment at December 31, 2013. 9. We note that footnote (15) on page F-29 identifies “fully impaired and non-income producing investment”, but we noted no securities with this footnote. Response: The Company confirms that this footnote was inadvertently included on Schedule of Investments, as the Company had no fully impaired and non-income producing investments as of December 31, 2013. 10. We note that investments have interest rates related to LIBOR. Disclose what LIBOR rate is used in determining the interest rate. Response: The Company’s schedule of investments lists the current weighted average stated interest rate earned on each loan (i.e., current weighted average stated interest rate of all of the tranches underlying the loan) by the Company at the end of the applicable period, plus the components of cash and PIK interest income and the LIBOR spread with respect to each LIBOR-based investment. In addition, given the manner in which the debt investments held by the Company function, it is not possible to specify the LIBOR rate (e.g., the 30-day, 60-day or 180-day LIBOR rate) for a particular debt investment. In this regard, the Company’s borrowers have the option to elect various LIBOR rates for portions of the aggregate funds borrowed by them from the Company. Moreover, the Company’s loans typically allow the borrowers to partition the aggregate loan amount into a large number of tranches. For example, a $4 million loan to a portfolio company may be composed four $1 million tranches that accrue interest based on four different LIBOR rates. In such a situation it would be cumbersome for the Company to have to separately list each tranche of the same loan as well as the LIBOR rate that the borrower has elected with respect thereto. Based on the above, the Company does not believe that the requested granular disclosure would be meaningful to investors. However, the Company understands that the Staff is continuing to review this issue, and the Company agrees to consider any future administrative position taken by the Staff. 4 11. Footnote (13) identifies those securities that are not qualifying assets. Consider disclosing the percentage of non-qualifying assets at the reporting period date. Response: Based on the current industry reporting practice of not disclosing the percentage of non-qualifying assets, the Company respectfully declines to disclose the percentage of the Company’s non-qualifying assets at the reporting period date. The Company believes such added disclosure provides little benefit to a reader of the Company’s financial statements. 12. We note that certain investments have PIK interest. Also, please see the item addressed in the AICPA Audit Risk Alert-Investment Company Industry Developments 2013/14 relating thereto and set forth below in pertinent part: “Certain registrants have debt investments that pay both PIK and cash interest. The SEC staff has noticed certain registrants hold debt instruments that have a provision permitting the issuer to determine a range of PIK interest that will be paid, along with a minimum cash percentage to be paid. For example, a bond may have a 15-percent stated interest rate that includes two rate components: (a) a minimum cash interest rate of 10 percent and (b) a PIK interest rate with a range between 0 percent and 5 percent. The SEC staff believes that if an issuer has the ability to pay a range of PIK interest, the current PIK and cash interest rates should be disclosed on the schedule of investments, along with the possible PIK interest rate range or the maximum PIK interest rate that could be paid. For example, if the issuer of the bond previously referenced with a 15-percent stated interest rate is currently paying 12 percent cash interest and 3 percent PIK interest as of the date of the financial statements, then the schedule of investments would disclose the current 12 percent cash and 3 percent PIK interest rates, along with the range of possible PIK interest rates that could be paid (0-5 percent) or the maximum allowable amount of PIK interest (0 percent to 5 percent).” Response: The Company confirms that the maximum allowable amount of PIK interest with respect to each investment with a PIK component is disclosed on the Consolidated Schedule of Investments. 13. Footnote (5) to the Consolidated Schedule of Investments identifies control investments. Has the Company performed an analysis as to whether the disclosure requirements of Rules 3-09 or 4-08(g) of Regulation S-X should be applied? · The Staff believes that Rules 3-09 and 4-08(g) of Regulation S-X apply to BDCs. Rule 3-09 of Regulation S-X is applicable for a majority owned subsidiary (greater than 50% ownership) which is not consolidated by the BDC. Rule 4-08(g) of Regulation S-X is applicable for subsidiaries (generally, 25% or more ownership) not consolidated. 5 · Subsidiary is defined by Rule 1-02(x) of Regulation S-X an “an affiliate controlled by such person directly or indirectly through one or more intermediaries”. An affiliate is defined by Rule 6-02(a) of Regulation S-X by reference to Section 2(a)(3) of the Investment Company Act of 1940. The term “control” has the meaning given in section 2(a)(9) of the Investment Company Act of 1940. Section 2(a)(9) of the Investment Company Act of 1940 defines control as having “the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position of such company . . .” Moreover, Section 2(a)(9) provides that “[a]ny person who owns beneficially, either directly or through one or more controlled companies, more than 25 per centum of the voting securities of a company shall be presumed to control such company”. Response: The Company has undertaken an analysis related to Rules 3-09 or 4-08(g) of Regulation S-X and confirms that no additional financial disclosure relating to its investment portfolio is required to be included as a result thereof. The Company confirms that it will continue to perform the analysis required by Rules 3-09 or 4-08(g) of Regulation S-X on a quarterly basis and will include any additional financial disclosure in accordance therewith as required. 14. Please confirm that the Company has performed the three tests outlines in Article 1-02(w) of Regulation S-X and identify any of those companies that have met any of the three tests/conditions. (Note C contains disclosure that for the years ended December 31, 2013 and December 31, 2012, Main Street did not record investment income from any single portfolio company in excess of 10% of total investment income.) How does Main Street calculate this metric? Is this calculation performed in accordance with the guidance set forth in the Division of Corporation Finance Financial Reporting manual for calculations in Regulation S-X, 1-02(w)(3)? Response: The Company confirms that that it has performed the tests outlined in Rule 1-02(w) of Regulation S-X, and no companies meet any of the three tests/conditions. The Company also confirms that its calculation of individual portfolio company investment income compared to total investment income in performed in accordance with the guidance set forth in the Financial Reporting Manual issued by the SEC’s Division of Corporation Finance for calculations in Rule 1-02(w)(3) of Regulation S-X. 15. Footnote (9) discloses that the index based floating interest rate is subject to contractual minimum interest rate. Disclose this minimum interest rate. 6 Response: Similar to the response to Comment No. 10, the Company notes that its schedule of investments lists the current stated interest rate earned on each index-based floating rate loan by the Company at the end of the applicable period, plus the components of cash and PIK interest income and the index-based spread with respect to each index-based loan. In addition, the Company has included footnote (9) to indicate which index-based floating rate investments are subject to a contractual minimum interest rate. The Company will also undertake to revise its disclosure to indicate the minimum contractual interest rate