SEC Company Response from Main Street Capital (MAIN) — May 16, 2016
Main Street Capital CORP
Date: May 16, 2016 · CIK: 0001396440 · Accession: 0001104659-16-121267
AI Filing Summary & Sentiment
File numbers found in text: 333-203147
Letter
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 — Registration Statement on Form N-2 (File No. 333-203147) (the “Registration Statement”)
Dear Ms. Fettig and Mr. Rakestraw:
On behalf of Main Street Capital Corporation (the “Company”), set forth below are the Company’s responses to the comments provided orally by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) to the Company on April 25, 2016 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. 4 to the Registration Statement.
Legal Comments
1. General
1. Please confirm whether there have been any changes to the terms of the Company’s underwriting arrangements that would require the Company to submit those terms to the Financial Industry Regulatory Authority, Inc., or FINRA, for review.
ATLANTA
AUSTIN
HOUSTON
NEW YORK
SACRAMENTO
WASHINGTON DC
Response: The Company confirms to the Staff that there has been no change to the terms of any current underwriting arrangement that would require additional review by FINRA. Further, the Company confirms that it will submit, or ensure that the applicable underwriter submits, any underwritten offering to FINRA for its prior approval of the underwriting terms.
2. Prospectus Summary
2. Please disclose any amounts payable by the Company to the External Investment Manager and confirm that the disclosure is consistent with the appropriate accounting treatment for income derived from the External Investment Manager.
Response: The Company confirms that no amounts were paid or are payable to the External Investment Manager by the Company.
3. With regard to the Company’s “Private Loan” portfolio, please clarify in the disclosure what is meant by the term “private”.
Response: The Company has revised the disclosure accordingly. See page 3 of Post-Effective Amendment No. 4.
4. The Staff refers to the disclosure describing the correlation between the Company’s lower middle market, or LMM, investment strategy and the broader debt and equity markets. Consider including similar disclosure explaining the Company’s view of the correlation between its other investment strategies and the broader debt and equity markets.
Response: The Company has deleted the disclosure regarding the correlation between the Company’s LMM investment strategy and the broader debt and equity markets as this concept is adequately covered for all of the Company’s investment strategies in discussions describing the Company’s portfolio investment valuation process and procedures elsewhere in the prospectus. See page 2 of Post-Effective Amendment No. 4.
5. Consider expanding the disclosure describing the Company’s “Other Portfolio” investments, including a discussion of what the “Other Portfolio” investments typically consist of and how the Company decides to make an investment in “Other Portfolio” investments.
Response: The Company believes its current disclosure that the “Other Portfolio” consists “of investments which are not consistent with the typical profiles for [its] LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third parties” is adequate disclosure in the prospectus summary as
investments that are held in this portfolio do not fit into the other categories and may not necessarily have any common characteristics. The Company further advises the Staff that the Company makes Other Portfolio investments when it determines that making an investment outside of its core investment strategies would be beneficial to the investment portfolio and that additional clarification in the disclosure is not necessary, especially given the fact that the entire “Other Portfolio” is less than 5% of the Company’s total investment portfolio. In addition, each of the “Other Portfolio” investments is identified on the Consolidated Schedule of Investments with a description of each individual investment’s “Business Description”.
6. Under the heading “Business Strategies”, the disclosure states that the Company plans to invest in companies with “proven revenue streams”, while the disclosure below the heading “Risk Factors” notes that the Company’s investments “may have shorter operating histories”. Please confirm whether the Company believes that these two statements are consistent and consider clarifying in the disclosure that these two points are consistent.
Response: The Company respectfully submits that the two statements identified are not inconsistent since companies can establish proven revenue streams over a shorter operating history. A business strategy of the Company is to “generally invest in companies with…proven revenue streams”, but a risk factor to consider when investing in the Company is that certain portfolio companies “may have shorter operating histories.”
3. Risk Factors
7. In the risk factor titled “Regulations governing our operations as a BDC…”, please include disclosure that the Company’s unsecured debt securities are “structurally subordinated” and are “effectively subordinated” to all existing and future secured indebtedness of the Company and other obligations of its subsidiaries.
Response: The Company has revised the disclosure accordingly. See page 18 of Post-Effective Amendment No. 4.
8. In the risk factor titled “Regulations governing our operations as a BDC…”, consider referencing in the first bullet point an explanation of the modified asset coverage test applicable to the Company under its exemptive relief.
Response: The Company has revised the disclosure accordingly. See page 18 of Post-Effective Amendment No. 4.
9. In the risk factor titled “Regulations governing our operations as a BDC…”, consider clarifying that the Company does not currently have authorization from its shareholders to issue common stock at a price below its then current net asset value per share and is not seeking such approval at its 2016 annual shareholder meeting.
Response: The Company has revised the disclosure accordingly. See page 18 of Post-Effective Amendment No. 4.
10. In the risk factor titled “Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy” explain why “federal immigration laws” are singled out in the disclosure.
Response: The Company has revised the disclosure to remove the reference to “federal immigration laws”. See page 27 of Post-Effective Amendment No. 4.
11. In the risk factor titled “We are highly dependent on information systems…” please explain how “disease pandemics” could effect to the Company’s information systems or otherwise revise the risk factor.
Response: The Company has revised the disclosure to remove the reference to “disease pandemics.” See page 28 of Post-Effective Amendment No. 4.
12. The Staff refers to the risk factor titled “Continuation of the current decline in oil and natural gas…”Please clarify if there is any investment focus on oil and gas companies that makes this risk more pronounced, and if so, consider including this focus in the “Investment Strategies” section.
Response: The Company confirms that it does not have an investment focus on oil and gas companies that makes this risk more pronounced, and therefore no change to the Company’s “Investment Strategies” section is necessary.
13. The Staff refers to the risk factor titled “We may not have the funds or ability to make additional investments in our portfolio companies.” Please confirm whether the Company is contractually obligated to make any of the investments identified in this risk factor.
Response: The Company advises the Staff that it is under no obligation to fund additional investments in its portfolio companies except as disclosed in “Note N — Commitments and Contingencies” included in its Notes to Consolidated Financial Statements.
14. In the risk factor titled “Our Marketable securities and idle funds investments…” where the disclosure refers to below investment grade investments, add disclosure stating that these investments are commonly referred to as “junk”.
Response: The Company has revised the disclosure accordingly. See page 33 of Post-Effective Amendment No. 4.
15. Explain in the response letter why the removal from an index, such as the Russell U.S. Indices and Standard and Poor’s Dow Jones Indices, would cause the market price of the Company’s common stock to fluctuate and provide the background for the inclusion of this risk. Consider clarifying the disclosure to identify the event referred to in the risk.
Response: The Company advises the Staff that the removal of a certain type of security from a market index, such as the removal of business development company (“BDC”) common stock from the Russell and S&P indices, eliminates a built-in price support system for the Company’s common stock. Further, removal from a market index would require funds that track that market index to sell their shares in the security removed from the index. The Company has revised the disclosure to clarify that the example referred to in the risk factor is the removal of BDC common stock from the Russell and S&P indices.
4. Management’s Discussion and Analysis of Financial Condition and Results of Operations
16. The Staff notes that the disclosure under the heading “Organization” notes that the Company’s Middle Market investments are generally headquartered in the United States. Please confirm that any Middle Market investments headquartered outside of the United States are not considered good assets in determining the Company’s compliance with the 70% asset test.
Response: The Company confirms to the Staff that Middle Market investments headquartered outside of the United States are not considered good assets in determining the Company’s compliance with the 70% asset test.
17. Consider whether it is necessary to revise the disclosure stating that Private Loan investments are “typically similar in size, structure, terms and conditions” to investments in the Company’s LMM and Middle Market portfolios given that the Private Loan investments currently appear to more closely resemble the Company’s LMM investments on.
Response: The Private Loan portfolio contains investments that are similar in size, structure, terms and conditions to investments the Company holds in both its LMM portfolio and its Middle Market portfolio, but Private Loan investments are originated through strategic relationships with other investment funds on a collaborative basis.
18. Confirm whether the Company invests in other investment companies or private funds, and if so, consider adding a risk factor to that extent.
Response: The Company advises the Staff that while the Company has made, and may in the future continue to make, investments in other investment companies or private funds, the amount of such investments is immaterial relative to the Company’s investment portfolio (< 5%) and it does not believe additional risk disclosure is necessary at this time.
19. Where the disclosure states that because the External Investment Manager may receive performance-based fee compensation that this may have an incentive to allocate opportunities to managed funds instead of the Company, add disclosure stating that there are currently policies and procedures in place to avoid this conflict.
Response: The Company has revised the disclosure accordingly. See pages 4, 50 and 77 of Post-Effective Amendment No. 4.
20. In the chart below the heading “Comparison of years ended December 31, 2015 and 2014” include a percentage for the net change in net realized gain (loss) from investments.
Response: Beginning with the Company’s quarterly report on Form 10-Q for the quarter ending June 30, 2015, the Company will exclude a “% Net Change” for “Net realized gain (loss) from investments”, “Net change in net unrealized appreciation (depreciation)” and “Income tax benefit (provision)” amounts for consistency as these amounts can move from positive to negative in any given period and could result in a percentage change that is not relevant or meaningful.
5. Management
21. Under the heading “Non-Director Officers,” please clarify which individuals are responsible for the Company’s daily portfolio management as required by Item 9(1)(c).
Response: The Company has revised the disclosure accordingly. See page 127 of Post-Effective Amendment No. 4.
22. Under the heading “Executive Compensation Components” confirm whether reference should be made to the 2015 Equity and Incentive Plan rather than the 2008 Equity Incentive Plan.
Response: The reference to the 2008 Equity Incentive Plan is correct as used since grants of restricted stock in 2015 were made under the 2008 Equity Incentive Plan. There is a reference to the 2015 Equity and Incentive Plan later in the section to note that that plan has been approved by the Company’s Board of Directors and will be used for future grants.
Accounting Comments
Portfolio Companies, Page 82
1. Please disclose the percentage of class held as required by Item 8.6(a) of Form N-2.
Response: The Company has revised the disclosure accordingly. See pages 87 to 125 of Post-Effective Amendment No. 4.
Consolidated Balance Sheets, F-3
2. What is the composition of “Cash and Cash Equivalents” at 12/31/15 ($20,331,000)? If any investments are in money market mutual funds or other investment companies, these investments should be disclosed separately on the Schedule of Investments.
Response: “Cash and cash equivalents” on the consolidated balance sheet at December 31, 2015 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 Rule 12-12 of Regulation S-X.
Consolidated Statements of Operations, Page F-4
3. The Staff notes that the amount of expenses charged to the External Investment Manager is accounted for as a negative expense. Please explain the accounting guidance that led the Company to present the amount as a negative expense.
Response: As noted in the footnotes to the Company’s financial statements, the Company advises the Staff that the Company performs its third party advisory services through the
External Investment Manager in order to continue to comply with the “source-income” requirements contained in the regulated investment company (“RIC”) tax provisions under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). This structure also required the Company to obtain exemptive relief from the SEC to allow the Company to own the External Investment Manager upon its registration as a registered investment adviser (“RIA”) under Investment Advisers Act of 1940, as amended.
The Company maintains a contractual sharing agreement with the External Investment Manager whereby the Company has agreed to share employees with the External Investment
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CORRESP 1 filename1.htm HARRY S. PANGAS DIRECT LINE: 202.383.0805 E-mail: harry.pangas@sutherland.com May 16, 2016 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 Mr. Trace W. Rakestraw Attorney Advisor 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 — Registration Statement on Form N-2 (File No. 333-203147) (the “Registration Statement”) Dear Ms. Fettig and Mr. Rakestraw: On behalf of Main Street Capital Corporation (the “Company”), set forth below are the Company’s responses to the comments provided orally by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) to the Company on April 25, 2016 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. 4 to the Registration Statement. Legal Comments 1. General 1. Please confirm whether there have been any changes to the terms of the Company’s underwriting arrangements that would require the Company to submit those terms to the Financial Industry Regulatory Authority, Inc., or FINRA, for review. ATLANTA AUSTIN HOUSTON NEW YORK SACRAMENTO WASHINGTON DC Response: The Company confirms to the Staff that there has been no change to the terms of any current underwriting arrangement that would require additional review by FINRA. Further, the Company confirms that it will submit, or ensure that the applicable underwriter submits, any underwritten offering to FINRA for its prior approval of the underwriting terms. 2. Prospectus Summary 2. Please disclose any amounts payable by the Company to the External Investment Manager and confirm that the disclosure is consistent with the appropriate accounting treatment for income derived from the External Investment Manager. Response: The Company confirms that no amounts were paid or are payable to the External Investment Manager by the Company. 3. With regard to the Company’s “Private Loan” portfolio, please clarify in the disclosure what is meant by the term “private”. Response: The Company has revised the disclosure accordingly. See page 3 of Post-Effective Amendment No. 4. 4. The Staff refers to the disclosure describing the correlation between the Company’s lower middle market, or LMM, investment strategy and the broader debt and equity markets. Consider including similar disclosure explaining the Company’s view of the correlation between its other investment strategies and the broader debt and equity markets. Response: The Company has deleted the disclosure regarding the correlation between the Company’s LMM investment strategy and the broader debt and equity markets as this concept is adequately covered for all of the Company’s investment strategies in discussions describing the Company’s portfolio investment valuation process and procedures elsewhere in the prospectus. See page 2 of Post-Effective Amendment No. 4. 5. Consider expanding the disclosure describing the Company’s “Other Portfolio” investments, including a discussion of what the “Other Portfolio” investments typically consist of and how the Company decides to make an investment in “Other Portfolio” investments. Response: The Company believes its current disclosure that the “Other Portfolio” consists “of investments which are not consistent with the typical profiles for [its] LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third parties” is adequate disclosure in the prospectus summary as 2 investments that are held in this portfolio do not fit into the other categories and may not necessarily have any common characteristics. The Company further advises the Staff that the Company makes Other Portfolio investments when it determines that making an investment outside of its core investment strategies would be beneficial to the investment portfolio and that additional clarification in the disclosure is not necessary, especially given the fact that the entire “Other Portfolio” is less than 5% of the Company’s total investment portfolio. In addition, each of the “Other Portfolio” investments is identified on the Consolidated Schedule of Investments with a description of each individual investment’s “Business Description”. 6. Under the heading “Business Strategies”, the disclosure states that the Company plans to invest in companies with “proven revenue streams”, while the disclosure below the heading “Risk Factors” notes that the Company’s investments “may have shorter operating histories”. Please confirm whether the Company believes that these two statements are consistent and consider clarifying in the disclosure that these two points are consistent. Response: The Company respectfully submits that the two statements identified are not inconsistent since companies can establish proven revenue streams over a shorter operating history. A business strategy of the Company is to “generally invest in companies with…proven revenue streams”, but a risk factor to consider when investing in the Company is that certain portfolio companies “may have shorter operating histories.” 3. Risk Factors 7. In the risk factor titled “Regulations governing our operations as a BDC…”, please include disclosure that the Company’s unsecured debt securities are “structurally subordinated” and are “effectively subordinated” to all existing and future secured indebtedness of the Company and other obligations of its subsidiaries. Response: The Company has revised the disclosure accordingly. See page 18 of Post-Effective Amendment No. 4. 8. In the risk factor titled “Regulations governing our operations as a BDC…”, consider referencing in the first bullet point an explanation of the modified asset coverage test applicable to the Company under its exemptive relief. Response: The Company has revised the disclosure accordingly. See page 18 of Post-Effective Amendment No. 4. 3 9. In the risk factor titled “Regulations governing our operations as a BDC…”, consider clarifying that the Company does not currently have authorization from its shareholders to issue common stock at a price below its then current net asset value per share and is not seeking such approval at its 2016 annual shareholder meeting. Response: The Company has revised the disclosure accordingly. See page 18 of Post-Effective Amendment No. 4. 10. In the risk factor titled “Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy” explain why “federal immigration laws” are singled out in the disclosure. Response: The Company has revised the disclosure to remove the reference to “federal immigration laws”. See page 27 of Post-Effective Amendment No. 4. 11. In the risk factor titled “We are highly dependent on information systems…” please explain how “disease pandemics” could effect to the Company’s information systems or otherwise revise the risk factor. Response: The Company has revised the disclosure to remove the reference to “disease pandemics.” See page 28 of Post-Effective Amendment No. 4. 12. The Staff refers to the risk factor titled “Continuation of the current decline in oil and natural gas…”Please clarify if there is any investment focus on oil and gas companies that makes this risk more pronounced, and if so, consider including this focus in the “Investment Strategies” section. Response: The Company confirms that it does not have an investment focus on oil and gas companies that makes this risk more pronounced, and therefore no change to the Company’s “Investment Strategies” section is necessary. 13. The Staff refers to the risk factor titled “We may not have the funds or ability to make additional investments in our portfolio companies.” Please confirm whether the Company is contractually obligated to make any of the investments identified in this risk factor. Response: The Company advises the Staff that it is under no obligation to fund additional investments in its portfolio companies except as disclosed in “Note N — Commitments and Contingencies” included in its Notes to Consolidated Financial Statements. 4 14. In the risk factor titled “Our Marketable securities and idle funds investments…” where the disclosure refers to below investment grade investments, add disclosure stating that these investments are commonly referred to as “junk”. Response: The Company has revised the disclosure accordingly. See page 33 of Post-Effective Amendment No. 4. 15. Explain in the response letter why the removal from an index, such as the Russell U.S. Indices and Standard and Poor’s Dow Jones Indices, would cause the market price of the Company’s common stock to fluctuate and provide the background for the inclusion of this risk. Consider clarifying the disclosure to identify the event referred to in the risk. Response: The Company advises the Staff that the removal of a certain type of security from a market index, such as the removal of business development company (“BDC”) common stock from the Russell and S&P indices, eliminates a built-in price support system for the Company’s common stock. Further, removal from a market index would require funds that track that market index to sell their shares in the security removed from the index. The Company has revised the disclosure to clarify that the example referred to in the risk factor is the removal of BDC common stock from the Russell and S&P indices. 4. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16. The Staff notes that the disclosure under the heading “Organization” notes that the Company’s Middle Market investments are generally headquartered in the United States. Please confirm that any Middle Market investments headquartered outside of the United States are not considered good assets in determining the Company’s compliance with the 70% asset test. Response: The Company confirms to the Staff that Middle Market investments headquartered outside of the United States are not considered good assets in determining the Company’s compliance with the 70% asset test. 17. Consider whether it is necessary to revise the disclosure stating that Private Loan investments are “typically similar in size, structure, terms and conditions” to investments in the Company’s LMM and Middle Market portfolios given that the Private Loan investments currently appear to more closely resemble the Company’s LMM investments on. Response: The Private Loan portfolio contains investments that are similar in size, structure, terms and conditions to investments the Company holds in both its LMM portfolio and its Middle Market portfolio, but Private Loan investments are originated through strategic relationships with other investment funds on a collaborative basis. 5 18. Confirm whether the Company invests in other investment companies or private funds, and if so, consider adding a risk factor to that extent. Response: The Company advises the Staff that while the Company has made, and may in the future continue to make, investments in other investment companies or private funds, the amount of such investments is immaterial relative to the Company’s investment portfolio (< 5%) and it does not believe additional risk disclosure is necessary at this time. 19. Where the disclosure states that because the External Investment Manager may receive performance-based fee compensation that this may have an incentive to allocate opportunities to managed funds instead of the Company, add disclosure stating that there are currently policies and procedures in place to avoid this conflict. Response: The Company has revised the disclosure accordingly. See pages 4, 50 and 77 of Post-Effective Amendment No. 4. 20. In the chart below the heading “Comparison of years ended December 31, 2015 and 2014” include a percentage for the net change in net realized gain (loss) from investments. Response: Beginning with the Company’s quarterly report on Form 10-Q for the quarter ending June 30, 2015, the Company will exclude a “% Net Change” for “Net realized gain (loss) from investments”, “Net change in net unrealized appreciation (depreciation)” and “Income tax benefit (provision)” amounts for consistency as these amounts can move from positive to negative in any given period and could result in a percentage change that is not relevant or meaningful. 5. Management 21. Under the heading “Non-Director Officers,” please clarify which individuals are responsible for the Company’s daily portfolio management as required by Item 9(1)(c). Response: The Company has revised the disclosure accordingly. See page 127 of Post-Effective Amendment No. 4. 6 22. Under the heading “Executive Compensation Components” confirm whether reference should be made to the 2015 Equity and Incentive Plan rather than the 2008 Equity Incentive Plan. Response: The reference to the 2008 Equity Incentive Plan is correct as used since grants of restricted stock in 2015 were made under the 2008 Equity Incentive Plan. There is a reference to the 2015 Equity and Incentive Plan later in the section to note that that plan has been approved by the Company’s Board of Directors and will be used for future grants. Accounting Comments Portfolio Companies, Page 82 1. Please disclose the percentage of class held as required by Item 8.6(a) of Form N-2. Response: The Company has revised the disclosure accordingly. See pages 87 to 125 of Post-Effective Amendment No. 4. Consolidated Balance Sheets, F-3 2. What is the composition of “Cash and Cash Equivalents” at 12/31/15 ($20,331,000)? If any investments are in money market mutual funds or other investment companies, these investments should be disclosed separately on the Schedule of Investments. Response: “Cash and cash equivalents” on the consolidated balance sheet at December 31, 2015 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 Rule 12-12 of Regulation S-X. Consolidated Statements of Operations, Page F-4 3. The Staff notes that the amount of expenses charged to the External Investment Manager is accounted for as a negative expense. Please explain the accounting guidance that led the Company to present the amount as a negative expense. Response: As noted in the footnotes to the Company’s financial statements, the Company advises the Staff that the Company performs its third party advisory services through the 7 External Investment Manager in order to continue to comply with the “source-income” requirements contained in the regulated investment company (“RIC”) tax provisions under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). This structure also required the Company to obtain exemptive relief from the SEC to allow the Company to own the External Investment Manager upon its registration as a registered investment adviser (“RIA”) under Investment Advisers Act of 1940, as amended. The Company maintains a contractual sharing agreement with the External Investment Manager whereby the Company has agreed to share employees with the External Investment