Eversheds Sutherland (US) LLP 700 Sixth Street, NW, Suite 700 Washington, DC 20001-3980   D: +1 202.383.0176 F: +1 202.637.3593   cynthiakrus@eversheds-sutherland.com

 

 

January 21, 2021

 

Anu Dubey, Senior Counsel

Lauren Hamilton, Staff Accountant

Michael Spratt

Michael Shaffer

Securities and Exchange Commission

Division of Investment Management

100 F Street NE

Washington, DC 20549

 

Re:	Trinity Capital Inc.
	Registration Statement on Form N-2
	(File No. 333-251395)

 

Dear Ms. Dubey:

 

On behalf of Trinity Capital Inc. (the “Company”), set forth below are the Company’s responses to the oral legal and accounting comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on January 6, 2021 regarding the Company’s registration statement on Form N-2 (File No. 333-251395) (as amended, the “Registration Statement”), including the prospectus contained therein (the “Prospectus”), which was publicly filed with the SEC under the Securities Act of 1933, as amended, on December 16, 2020. The Staff’s comments are set forth below and are followed by the Company’s responses. Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Registration Statement.

 

LEGAL COMMENTS

 

Prospectus Summary (page 3)

 

1.

Reference is made to the Company’s 6.00% Convertible Notes due 2025 (the “Convertible Notes”). Please explain supplementally how the issuance of the Convertible Notes complies with Section 61(a) of the Investment Company Act of 1940, as amended (the “1940 Act”).

 

Response: The Company respectfully advises the Staff supplementally that, consistent with the Staff’s position in Bunker Hill Income Securities, Inc. (“Bunker Hill”),¹ an October 29, 1982 SEC no-action letter, the issuance of the Convertible Notes complied with and was permitted under the Investment Company Act of 1940, as amended (the “1940 Act”), including Section 61(a) thereof (“Section 61(a)”).

 

As you are aware, a business development company (“BDC”) may only issue convertible debt securities (“Convertible Debt”) in compliance with the requirements of Section 18(d) of the 1940 Act (“Section 18(d)”), as modified by Section 61(a), and/or consistent with SEC no-action and exemptive relief. Under the 1940 Act, a BDC is permitted to issue warrants, options, or rights to subscribe to purchase or convert to voting securities of the BDC, provided that the requirements of Section 18(d), as modified by Section 61(a), are satisfied. Bunker Hill, however, provides relief from the limitations of Section 18(d) in certain circumstances, as discussed below. In issuing Bunker Hill, the Staff relied on In the Matter of Alleghany Corp. (“Alleghany”),² a 1956 SEC release.

 

 

¹ File No. 811-2392 (Sept. 29, 1982).

² Release No. IC-2446 (Nov. 30, 1956).

 

 

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Anu Dubey, Senior Counsel Lauren Hamilton, Staff Accountant January 21, 2021 Page 2

 

 

Alleghany involved a registered closed-end fund³ requesting SEC exemptive relief from the application of Section 18(d) with respect to the exchange of existing preferred stock for a new series of convertible preferred stock, which were deemed to be a “right to purchase” under Section 18(d) and subject to the limitations thereof. Alleghany stands for the proposition that a derivative security, such as Convertible Debt, should be viewed analytically as consisting of two components – the basic security and the conversion feature. To the extent that the value of the conversion feature is “dominant” vis-à-vis the value of the entire instrument, the instrument should be deemed to be covered by Section 18(d) and subject to the limitations thereof. However, if the basic security, rather than the conversion feature, constitutes the “dominant” value of the instrument, then the instrument would not be considered to include a warrant or right to purchase within the meaning of Section 18(d) and, thus, could be issued without constraint under the 1940 Act. It would, however, constitute a senior security for purposes of the asset coverage test of the 1940 Act.

 

In Bunker Hill, the Staff squarely acknowledged the precedential value of Alleghany. There, the Staff stated that it was its position that “where the conversion feature predominates among a security’s investment characteristics, the bar of Section 18(d) applies, and where it does not, Section 18(d) does not apply.”

 

Consistent with the Staff’s position in Bunker Hill, the Convertible Notes are structured such that basic security (the note), rather than the conversion feature, constitutes the “dominant” value of the Convertible Notes. As such, the basic security predominates among the Convertible Notes’ investment characteristics, and the Convertible Notes are not considered to include a warrant or right to purchase within the meaning of Section 18(d) and, thus, could be issued without constraint under the 1940 Act.

 

Similar to other BDCs’ Convertible Debt offerings, the Company received a valuation letter (the “Valuation Letter”) from Keefe, Bruyette & Woods, Inc. (“KBW”), the initial purchaser and placement agent in the Convertible Notes offering, supporting and evidencing this. After reviewing and considering certain variables and inputs based on existing market conditions, KBW confirmed in the Valuation Letter that the basic security of the Convertible Notes represented greater than 90.0% of the value of the Convertible Notes and the conversion feature represented less than 10.0% of the value of the Convertible Notes.

 

Accordingly, the issuance of the Convertible Notes was not subject to the requirements of Section 18(d), as modified by Section 61(a), and could be issued without constraint under the 1940 Act.

 

The Company also respectfully refers the Staff to the following similar Convertible Debt offerings completed by other BDCs: Ares Capital Corporation, Prospectus Supplement dated March 5, 2019 and filed on March 7, 2019 (File No. 333-223482); Prospect Capital Corporation, Prospectus Supplement dated February 27, 2019 and filed on February 28, 2019 (File No. 333-227124); Goldman Sachs BDC, Inc., Prospectus Supplement dated June 28, 2018 and filed on June 29, 2018 (File No. 333-224296); New Mountain Finance Corporation, Prospectus Supplement dated August 15, 2018 and filed on August 16, 2018 (File No. 333-218040); GSV Capital Corp. (now known as SuRo Capital Corp.), Prospectus Supplement dated March 22, 2018 and filed on March 27, 2018 (File No. 333-191307); BlackRock Capital Investment Corporation, Prospectus Supplement dated June 7, 2017 and filed on June 9, 2017 (File No. 333-216928); and Capitala Finance Corp., Prospectus Supplement dated May 23, 2017 and filed on May 24, 2017 (File No. 333-204582).

 

 

³ BDCs were not added to the statute until 1980.

 

 

Anu Dubey, Senior Counsel Lauren Hamilton, Staff Accountant January 21, 2021 Page 3

  

 

2.

Reference is made to the disclosure regarding the Convertible Notes on page 3 of the Prospectus. Please disclose the conversion rate.

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 3 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

The Offering Summary (page 10)

 

3.

Reference is made to the defined term “Private Common Stock Offering” on page 10 of the Prospectus. Please revise the disclosure to define the term at first use or indicate that it is defined later in the Prospectus.

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 10 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

Fees and Expenses (page 15)

 

4.

The final sentence in footnote 5 to the fees and expenses table discloses that the Company may “issue additional debt securities or preferred stock”. Please confirm supplementally whether the Company currently intends to issue debt securities or preferred stock within the next twelve months.

 

Response: The Company respectfully advises the Staff supplementally that it does not currently intend to issue debt securities or preferred stock within the next twelve months.

 

Risk Factors (pages 54, 63–66)

 

5.

Please disclose the risk of possible dilution upon conversion of the Convertible Notes under the subsection “Risks Related to an Investment in Our Common Stock” beginning on page 54 of the Prospectus.

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 56 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

6.

Reference is made to the first full risk factor on page 63 of the Prospectus. Please briefly describe in plain English the meaning of a “fundamental change.”

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 63 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

7.

Reference is made to the first sentence of the third full paragraph of the second full risk factor on page 64 of the Prospectus and the first sentence of the last full paragraph on page 65 of the Prospectus related to there being no market for the Convertible Notes and the registration rights granted to the holders thereof. Please reconcile the referenced disclosure.

  

 

Anu Dubey, Senior Counsel Lauren Hamilton, Staff Accountant January 21, 2021 Page 4

 

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on pages 64 and 65 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

8.

Reference is made to the second sentence of the first full risk factor on page 66 of the Prospectus that includes a reference to 30 days following December 4, 2020. Please update the referenced disclosure as necessary as such time period has passed.

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 66 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

9.

Reference is made to the last risk factor on page 66 of the Prospectus. Please briefly describe in plain English the meaning of a “make-whole adjustment event”.

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 67 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

ACCOUNTING COMMENTS

 

Senior Securities (page 117)

 

1.

The total asset coverage per unit as of September 30, 2020 (unaudited) is disclosed as $1,989 in the Senior Securities table on page 117 of the Prospectus. Elsewhere in the Prospectus, the Company’s asset coverage ratio is disclosed as 198.6%. Please explain or reconcile these disclosure differences.

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 117 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

2.

Please include a footnote to the Senior Securities table on page 117 of the Prospectus regarding the issuance of the Convertible Notes, including the amount issued and the Company’s estimated asset coverage ratio following the issuance of the Convertible Notes.

 

Response: The Company respectfully advises the Staff that it has revised its disclosure on page 117 of the Prospectus in response to the Staff’s comment. Please see the changed pages attached hereto as Annex A.

 

 

*      *      *

 

 

Anu Dubey, Senior Counsel Lauren Hamilton, Staff Accountant January 21, 2021 Page 5

  

 

If you have any questions or additional comments concerning the foregoing, please contact me at (202) 383-0218 or Stephani M. Hildebrandt at (202) 383-0845.

 

 

	Sincerely,
	/s/ Cynthia M. Krus
	Cynthia M. Krus

 

 

cc:	Steven L. Brown Stephani M. Hildebrandt

 

  

Anu Dubey, Senior Counsel Lauren Hamilton, Staff Accountant January 21, 2021 Page 6

 

 

ANNEX A

 

 

 

   

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