SEC Division of Investment Management staff letter: NGP Capital Resources Company

December 28, 2007
Our Ref. No.: 2005831125
RESPONSE OF THE OFFICE OF CHIEF COUNSEL NGP Capital Resources Co.
DIVISION OF INVESTMENT MANAGEMENT File No. 814-00672 In your letter dated December 26, 2007, you request our assurance that we:
(i) would not recommend enforcement action to the Securities and Exchange Commission (“Commission”) against NGP Capital Resources Company (“NGP”) under section 55(a) of the Investment Company Act of 1940 (“Company Act”) if, as more fully described below, NGP acquires certain assets other than those assets described in section 55(a)(1)-(7) of the Company Act when NGP’s ratio calculated in accordance with section 55(a) of the Company Act is below 70%; (ii) concur with your view that, for purposes of section 58 of the Company Act, NGP would not have changed the nature of its business so as to cease to be a business development company by owning the LLC interests, as defined below; and (iii) would not recommend enforcement action to the Commission against NGP under sections 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”), or the rules thereunder, if NGP treats the passive intermediary entities in the three-tier conduit structure more fully described below as investment companies with respect to NGP’s financial statements. FACTS You state that NGP is a Maryland corporation that has elected to be regulated as a business development company under section 54(a) of the Company Act (a “BDC”). You state that NGP has its principal place of business in Houston, Texas, and is externally managed by NGP Investment Advisor, LP (the “Adviser”). You note that NGP was formed to invest primarily in small and mid-sized U.S.- based energy companies that meet the definition of “eligible portfolio company” contained in section 2(a)(46) of the Company Act. You state that, effective January 1, 2008, the State of Texas will impose an annual margin tax generally upon all entities with limited liability protection in Texas1 equal to 1% of a taxable entity’s taxable margin, which is generally equivalent to the entity’s gross revenue on a combined group basis,2 less certain limited deductions, that is apportioned or allocated to Texas. You state that NGP expects to generate substantial revenue as a result of its capital gains and investment income earned on its portfolio investments. You state that it is likely 1 You note that the margin tax replaces Texas’s earlier franchise tax system. 2 You note that the Texas margin tax requires “combined group reporting” of certain entities that are owned 50% or more, directly or indirectly, by one or more common owners, and are engaged in a unitary business.