June 26, 2014
Sheila Stout
Mary Cole, Esq.
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F. St., N.E.
Washington, DC 20549
| Re: | VII Peaks Co-Optivist Income BDC II, Inc. (the “Company”) |
Comments to Form N-2, Post-Effective Amendment No. 5
Filed April 3, 2014
File No. 333-176182
Dear Ms. Stout and Ms. Cole:
I am writing to supplement our letter from yesterday regarding the receivable due to the Company from its investment manager, VII Peaks Capital, LLC (the “VII Peaks”), which was repaid in full on June 24, 2014. In particular, I am writing to confirm that the Company will accrue interest on the receivable at the rate of 7.35% per annum. By our calculation, the interest accrual will be $103,132.38 based on accruing the interest on a quarterly basis on the outstanding balance of the receivable as of the end of each calendar quarter when it was outstanding.
I am also writing to follow-up the issue we discussed regarding whether the accrual of interest on the receivable constitutes a material adjustment that might require restating prior financial statements. We have reviewed the issue in light of applicable accounting guidance, and have concluded that no restatement of prior period financial statements is necessary. In particular, we reviewed the guidance in “SEC Staff Accounting Bulletin: No. 99 – Materiality.”
SAB 99 generally provides that a company and its auditor should consider all relevant factors in determining whether an adjustment is material. SAB 99 also takes note of widespread use of 5% or 10% thresholds in determining materiality, but concludes that use of a threshold only provides the basis for a preliminary assumption that an item is not material, and that an analysis of all relevant factors is still required. SAB 99 also lists a variety of factors that should be considered on a case by case basis in evaluating materiality.
We evaluated the materiality of the interest accrual in several ways. First, we evaluated the interest accrual using a 5% numerical threshold for determining materiality. Attached hereto is a chart that shows the amount of the interest that will be accrued for each quarter, and for fiscal 2012 and 2013, and the cumulative amount of the receivable at the end of each quarter and each fiscal year end. In comparing the interest receivable against net assets at each quarter end and fiscal year end, the percentage change would be substantially below 5%. In fact, the highest percentage change would occur in the most recent quarter, where the percentage change was only 0.31%. We also compared the amount of interest accrued in each quarter and each fiscal year with the amount of interest otherwise accrued in each quarter and fiscal year. The percentage change in all quarters was less than 5% with the exception of the quarter ended December 31, 2012, but in that case it was just barely in excess of 5% (5.27%). The percentage change in the fiscal years ended December 31, 2012 and 2013 would be 4.55% and 4.30%, respectively.
We also evaluated the materiality in light of the factors identified in SAB 99 as follows:
| · | The interest receivable did not mask a change in earnings or other trends; |
| · | The interest receivable did not hide a failure to meet analysts’ consensus expectations for the Company; |
| · | The interest receivable would not have changed a loss into income in any period; |
| · | The interest receivable did not affect the Company’s compliance with regulatory requirements, such as net worth or net capital requirements; |
| · | The interest receivable did not affect the Company’s compliance with loan covenants or contractual requirements; |
| · | The interest receivable did not have the effect of increasing management’s compensation, and in fact the absence of the accrual decreased the amount of base management fees that its investment manager was allowed to charge; |
| · | The interest receivable did not involve the concealment of an unlawful transaction, as the receivables balance was fully disclosed in all SEC filings and prospectuses provided to investors. |
Based on all of the factors cited above, the Company and its auditors firmly believe that no restatement is necessary or appropriate under the circumstances.
I acknowledge that the Company is responsible for the adequacy and accuracy of the statements in this letter, that staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Please let us know if you have any questions.
VII Peaks Co-Optivist Income BDC II, Inc.
/s/ Gurpreet S. Chandhoke
Gurpreet S. Chandhoke, Chief Executive Officer
| Cc: | Robert J. Mottern, Esq. |
| Brian Finnegan |
10-Q Analysis
Receivable ('000) | Accrued Interest | Accrued Interest Payable | Net Assets | % of Net Assets | Gross Interest Income | Interest Payable - % of Interest Income | |||||||||||||||||||||||
| December 31, 2011 | $ | — | $ | — | $ | — | $ | 197,000 | 0.00 | % | $ | — | 0.00 | % | |||||||||||||||
| March 31, 2012 | 5 | — | — | 162,000 | 0.00 | % | — | 0.00 | % | ||||||||||||||||||||
| June 30, 2012 | 30 | 90.62 | 90.62 | 106,000 | 0.09 | % | — | 0.00 | % | ||||||||||||||||||||
| September 30, 2012 | 324 | 549.74 | 640.36 | 4,260,000 | 0.02 | % | 32,000 | 1.72 | % | ||||||||||||||||||||
| December 31, 2012 | 555 | 6,002.43 | 6,642.79 | 8,336,000 | 0.08 | % | 114,000 | 5.27 | % | ||||||||||||||||||||
| March 31, 2013 | 846 | 10,281.95 | 16,924.73 | 15,197,000 | 0.11 | % | 244,000 | 4.21 | % | ||||||||||||||||||||
| June 30, 2013 | 1,130 | 15,332.30 | 32,257.04 | 17,661,000 | 0.18 | % | 401,000 | 3.82 | % | ||||||||||||||||||||
| September 30, 2013 | 1,354 | 20,706.86 | 52,963.90 | 25,228,000 | 0.21 | % | 456,000 | 4.54 | % | ||||||||||||||||||||
| December 31, 2013 | 1,354 | 25,084.24 | 78,048.14 | 27,373,000 | 0.29 | % | 558,000 | 4.50 | % | ||||||||||||||||||||
| March 31, 2014 | 1,337 | 25,084.24 | 103,132.38 | 33,795,000 | 0.31 | % | 710,000 | 3.53 | % | ||||||||||||||||||||
| $ | 103,132.38 |
10-K Analysis
Receivable ('000) | Annual Interest | Accrued Interest Payable | Net Assets | % of Net Assets | Gross Interest Income | Interest Payable - % of Interest Income | |||||||||||||||||||||||
| December 31, 2012 | 555 | 6,642.79 | 6,642.79 | 8,336,000 | 0.08 | % | 146,000 | 4.55 | % | ||||||||||||||||||||
| December 31, 2013 | 1,354 | 71,405.35 | 78,048.14 | 27,373,000 | 0.29 | % | 1,659,000 | 4.30 | % |