[Federal Register Volume 79, Number 206 (Friday, October 24, 2014)]
[Notices]
[Pages 63654-63657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25302]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31296; File No. 812-14296]
Tennenbaum Opportunities Fund V, LLC, et al.; Notice of
Application
October 20, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order pursuant to sections
6(c), 17(b), and 57(c) of the Investment Company Act of 1940 (the
``Act'') for an exemption from sections 17(a) and 57(a) of the Act
permitting certain transactions.
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Summary of the Application: Applicants request a time-limited exemptive
order (the ``Order'') that would permit applicant investment companies
registered under the Act to sell certain assets to applicant business
development companies (``BDCs'') that share a common investment adviser
in transactions that would otherwise be prohibited by sections 17(a)(2)
and 57(a)(1) of the Act.
Applicants: Tennenbaum Opportunities Fund V, LLC (``TOF''); Tennenbaum
Opportunities Partners V, LP (``TOP,'' and, together with TOF, the
``Registered Fund''); TCP Capital Corp. (``TCPC''); Special Value
Continuation Partners, LP (``SVCP,'' and, together with TCPC, the ``BDC
Applicant''); and Tennenbaum Capital Partners, LLC (the ``Manager'')
(collectively, the ``Applicants'').
Filing Dates: The application was filed on April 2, 2014, and amended
on May 16, 2014, June 9, 2014, July 11, 2014, August 8, 2014, October
14, 2014, and October 17, 2014.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on November 14, 2014, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to Rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: The Commission: Brent J. Fields, Secretary, U.S. Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
Applicants: Howard M. Levkowitz, c/o Tennenbaum Capital Partners, LLC,
2951 28th Street, Suite 1000, Santa Monica, CA 90405.
FOR FURTHER INFORMATION CONTACT: Anil K. Abraham, Senior Special
Counsel, at (202) 551-2614, or Daniele Marchesani, Branch Chief, at
(202) 551-6821 (Division of Investment Management, Chief Counsel's
Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. TOF is a limited liability company organized in Delaware and
registered under the Act as a non-diversified closed-end management
investment company. TOP is a limited partnership organized in Delaware
and registered under the Act as a non-diversified closed-end management
investment company. TOF invests substantially all of its assets in, and
operates through, TOP. All of TOP's common limited partner interests
are owned by TOF. TOP also has preferred limited partner interests and
debt outstanding.
2. TCPC is a Delaware corporation and a non-diversified closed-end
management investment company that has elected to be regulated as a BDC
under the Act.\1\ TCPC's common shares trade on the NASDAQ Global
Select Market. SVCP is a Delaware limited partnership and a non-
diversified closed-end management investment company that also has
elected to be regulated as a BDC under the Act. TCPC invests
substantially all of its assets in, and operates through, SVCP. All of
SVCP's common limited partner interests are owned by TCPC. SVCP also
has issued preferred limited partner interests under its leverage
program to the same institutions that acquired its debt.
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\1\ Section 2(a)(48) of the Act defines a BDC to be any closed-
end investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
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3. The Manager is a Delaware limited liability company registered
as an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). The Manager serves as investment adviser both to
the Registered Fund and the BDC Applicant (each, a ``Fund,'' and,
collectively, the ``Funds'') and manages both Funds in accordance with
their respective investment objectives and strategies. Each Fund is
governed by a board of directors (``Board'').
4. The Registered Fund seeks to achieve high total returns while
minimizing losses and invests in high yielding debt, distressed debt,
equity
[[Page 63655]]
securities and mezzanine investments of all kinds (the Registered
Fund's investment objectives, strategies, and limitations, as stated in
its registration statement and periodic shareholder reports, are the
``Registered Fund Objectives and Strategies''). The BDC Applicant's
investment objective is to achieve high total returns through current
income and capital appreciation, with an emphasis on principal
protection. It seeks to achieve this investment objective primarily
through investments in debt securities of middle-market companies, and
its primary investment focus is investing in and originating leveraged
loans to performing middle-market companies (the BDC Applicant's
investment objectives, strategies, and limitations, as stated in its
registration statement and periodic shareholder reports, are the ``BDC
Applicant Objectives and Strategies'').
5. The BDC Applicant expects to continue to grow as attractive
investment opportunities arise and as additional capital becomes
available on attractive terms. However, both TOF and TOP are scheduled
to terminate their existence in October 2016. TOF may extend its
existence for up to two one-year extensions if requested by the Manager
and approved by the holders of a majority of its common shares, and TOP
may do so if requested by the Manager and approved by the holders of a
majority of its common and preferred limited partner interests.
6. The Registered Fund is considering how best to conduct its
remaining operations and plan for the unwinding of its leverage and its
scheduled termination, including the disposition of its portfolio
assets. The Applicants seek the requested relief to permit the
Registered Fund to sell to the BDC Applicant certain portfolio assets
that are consistent with the BDC Applicant Objectives and
Strategies.\2\
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\2\ The Registered Fund and the BDC Applicant have co-invested
in various Eligible Assets (defined below) in reliance on a prior
Commission order pursuant to rule 17d-1 under the Act (the ``Co-
Investment Order'') permitting certain joint transactions among
themselves and certain other entities. Special Value Opportunities
Fund, LLC, et al., Investment Company Act Release Nos. IC-27287
(April 11, 2006) (notice) and 27316 (May 9, 2006) (order).
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7. As of September 30, 2014, the Registered Fund's portfolio
included 52 assets with a fair value of $460,735,948 that were
consistent with the BDC Applicant Objectives and Strategies (``Eligible
Assets''). As of that date, the Eligible Assets were composed of: (1)
$289.1 million of floating rate fully performing commercial loans; (2)
$127.5 million of fixed rate fully performing commercial debt maturing
between 2015 and 2021; (3) $12.8 million in equity received in
connection with the foregoing debt investments; and (4) $31.3 million
in aircraft mortgage and lease interests.\3\
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\3\ All of the Eligible Assets are securities under the Act
except for the aircraft lease interests, which, as of September 30,
2014, comprised approximately 7% of the value of the Eligible
Assets.
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8. Any follow-on investments in the securities of issuers of
Eligible Assets owned by the Registered Fund that may be made
subsequent to the issuance of the requested Order (``follow-on
investments'') also would be considered Eligible Assets for purposes of
the requested relief. The Applicants represent that the Registered Fund
might undertake such follow-on investments to protect or enhance
existing investments by, for example, enhancing the Registered Fund's
legal rights in a bankruptcy of the issuer.
9. Subject to the terms and conditions of the Order, the Registered
Fund would seek to sell to the BDC Applicant all of the Eligible Assets
owned by the Registered Fund prior to the expiration of the requested
Order. The only Eligible Assets held by the Registered Fund that would
not be sold to the BDC Applicant would be those that are sold in Bona
Fide Third-Party Transactions to a third party pursuant to Conditions 3
and 4 below, those that do not satisfy the Conditions below, and those
that the Manager believes would not be appropriate for the BDC
Applicant to acquire based on investment considerations, such as
concerns about credit quality or overconcentration in a particular
industry sector.
10. The Manager's determination to sell any particular Eligible
Asset of the Registered Fund to the BDC Applicant would be required to
be approved by a ``Required Majority'' \4\ of the Board of each
Fund.\5\ The Applicants note that there is no overlap among the
directors of the Registered Fund and the BDC Applicant who are not
``interested persons,'' as defined in section 2(a)(19) of the Act, of
their respective Funds (``Independent Directors''), so that both sets
of Independent Directors would have no conflict of interest in
reviewing and determining whether to approve each Proposed Transaction
(defined below) undertaken in reliance on the requested relief. The
Eligible Assets that the Manager determines to sell from the Registered
Fund to the BDC Applicant, that satisfy the Conditions below, and that
are approved for such sale by a Required Majority of each Fund are
referred to hereinafter as the ``Qualifying Assets,'' and the proposed
sales of the Qualifying Assets by the Registered Fund to the BDC
Applicant are referred to hereinafter as the ``Proposed Transactions.''
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\4\ In the case of the Registered Fund, the Board members that
make up the Required Majority will be determined as if the
Registered Fund were a BDC subject to section 57(o) of the Act.
\5\ In approving any Proposed Transaction, as defined below, the
Required Majority of each Fund will be required specifically to
consider the effect that such transaction, and the Proposed
Transactions taken together, would have on the investment advisory
fees paid by the relevant Fund.
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11. The Applicants believe that the Proposed Transactions would be
in the best interests of both Funds. The Registered Fund earns income
on those assets that may be Qualifying Assets at a rate in excess of
the expense associated with its outstanding debt and preferred stock,
and in excess of the rate at which it expects it could prudently
reinvest the proceeds of a sale of Qualifying Assets, in light of its
scheduled termination. As a result, the Applicants believe that it
would be beneficial to the Registered Fund and its shareholders to own
its assets, including Qualifying Assets, for as long as practicable
before needing to sell them in order to repay its debt and wind down
its operations. The Applicants believe that having a known potential
buyer--the BDC Applicant--for substantially all of the Eligible Assets
would permit the Registered Fund to hold and earn a favorable return on
such assets for a longer period of time than if the requested relief
was not granted. Additionally, a sale of such assets directly from the
Registered Fund to the BDC Applicant would permit the Registered Fund
to conduct the transactions without paying intermediary compensation,
such as a sales commission or a known spread.
12. The Applicants also believe that the BDC Applicant's
acquisition of the Qualifying Assets directly from the Registered Fund
would be in the best interests of the BDC Applicant and its
shareholders. The Manager believes that the Proposed Transactions would
benefit the BDC Applicant and its shareholders because the BDC
Applicant is growing, is familiar with the assets held in the
Registered Fund's portfolio,\6\ would have an interest in acquiring all
or a portion of the Registered Fund's Eligible Assets, and could do so
without paying any commission or spread.
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\6\ See note 2, supra.
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13. As of September 30, 2014, approximately 97.8% by value of the
Eligible Assets were owned by both Funds and were valued identically.
Each of the Funds employs the same valuation methods, policies, and
[[Page 63656]]
procedures, which have been reviewed and approved by each Fund's
Board.\7\ Each Fund's Independent Directors review and approve the
valuations quarterly.
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\7\ The Funds' valuation policies and procedures differ with
respect to the procedures to obtain approvals from their respective
Boards, but those differences are immaterial for purposes of the
requested relief.
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14. Before selling a Qualifying Asset to the BDC Applicant in
reliance on the requested relief, the Registered Fund would establish a
bona fide market price by selling an institutional-sized portion of the
Qualifying Asset, as prescribed in Conditions 3 and 6 below, to an
independent third-party buyer at arm's-length. Such third-party
transactions are defined in the application as ``Bona Fide Third-Party
Transactions.'' Applicants will be able to enter into a Proposed
Transaction in reliance on the requested Order only if the price of the
related Bona Fide Third-Party Transaction falls within a certain range
above or below the Registered Fund's valuation of the relevant
Qualifying Asset, as described in Condition 4.\8\ In such cases, the
BDC Applicant would contemporaneously pay the same price in the
Proposed Transaction for the balance of the asset held by the
Registered Fund (less any intermediary compensation, such as a sales
commission or known spread, paid by the Registered Fund on the Bona
Fide Third-Party Transaction).
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\8\ As described in the application, the Applicants proposed the
ranges specified in Condition 4 below based on the results of
forensic testing that compared the sale prices of assets to their
most recent valuations over a period of several years.
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15. Finally, the Manager would be required to represent to the
Independent Directors of each Fund that it has no reason to believe
that the sale price of the Qualifying Asset in each Bona Fide Third-
Party Transaction does not reasonably approximate (on a pro rata basis)
the sale price of such Qualifying Asset--had the Registered Fund's
entire interest been sold--and that, in the Manager's judgment, the
Proposed Transaction would not preclude the BDC Applicant from
acquiring an asset more beneficial to its shareholders' interests.
Applicants' Legal Analysis
1. The Applicants request an Order under sections 6(c), 17(b), and
57(c) of the Act granting them exemptive relief from sections 17(a) and
57(a) of the Act in order to permit the Registered Fund to sell to the
BDC Applicant the Qualifying Assets.
2. Section 17(a)(2) of the Act generally prohibits an affiliated
person of a registered investment company, acting as principal, from
purchasing from such company any security or other property. Section
2(a)(3)(C) of the Act defines an ``affiliated person'' of another
person to include any person directly or indirectly controlling,
controlled by, or under common control with, the other person. Section
57(a)(1) of the Act generally prohibits a person related to the BDC in
a manner described in section 57(b) from selling any security or other
property to such BDC. Section 57(b) includes, among others, any person
directly or indirectly controlling, controlled by, or under common
control with the BDC. By virtue of being under the common control of
the Manager or common executive officers, the BDC Applicant could be
viewed as an affiliated person of the Registered Fund within the
meaning of section 2(a)(3)(C), and the Registered Fund could be viewed
as a person related to the BDC Applicant within the meaning of section
57(b). Consequently, section 17(a)(2) would prohibit the BDC Applicant
from purchasing the Qualifying Assets from the Registered Fund, and
section 57(a)(1) would prohibit the Registered Fund from selling the
Qualifying Assets to the BDC Applicant.
3. Sections 17(b) and 57(c) of the Act authorize the Commission
upon application to exempt a transaction from the prohibitions of
sections 17(a)(2) and 57(a)(1), respectively, if the evidence
establishes that (1) the terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and
do not involve overreaching on the part of any person concerned; (2)
the proposed transaction is consistent with the policy of each
registered investment company or business development company involved;
and (3) the proposed transaction is consistent with the general
purposes of the Act. Section 6(c) authorizes the Commission upon
application to conditionally or unconditionally exempt any person or
transaction or any class or classes of persons or transactions from any
provision or provisions of the Act or of any rule or regulation
thereunder, if and to the extent that such exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act.
4. Applicants state that the Proposed Transactions satisfy the
standards of sections 6(c), 17(b), and 57(c) of the Act. Applicants
believe that the proposed safeguards described in the application
provide a basis for the Commission to conclude that the Proposed
Transactions will satisfy such standards.
5. The Applicants believe the terms of the Proposed Transactions
would benefit both Funds and are in the best interests of their
respective shareholders. The Applicants also believe that the fact that
the Proposed Transactions would involve substantially all of the
Eligible Assets held by the Registered Fund would serve to reduce any
potential for overreaching. The Applicants further point to the fact
that both Funds already own many of the same Eligible Assets and have
the same valuation methods, policies, and procedures, which have been
approved by each Fund's Board.\9\
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\9\ See note 7, supra.
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6. The Applicants also state that, before selling any Qualifying
Assets to the BDC Applicant in reliance on the requested Order, the
Registered Fund would be required to establish a bona fide market price
for the Qualifying Asset by executing a Bona Fide Third-Party
Transaction in that asset, as prescribed in Conditions 3 and 6
below.\10\ The price for such Bona Fide Third-Party Transaction would
be required to fall within a certain range above or below the
Registered Fund's valuation of the relevant Qualifying Asset, as
described in Condition 4 below, in order for a Proposed Transaction to
occur in reliance on the requested Order. The Applicants believe that
these price range constraints will help to ensure that the sale is fair
and approximates the appropriate price of each Qualifying Asset, while
recognizing that it is unlikely that the sale price of each Qualifying
Asset will be exactly the same as the value assigned by the Registered
Fund to such Qualifying Asset.
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\10\ The Applicants note that the asset sale amounts set forth
in Condition 3 below seek to balance the interest of the Funds in
transacting with each other for as much of the Qualifying Assets as
possible against the interest of ensuring that the Bona Fide Third-
Party Transactions are executed at a genuine and current market
price. The Applicants believe that the Bona Fide Third-Party
Transactions would achieve an appropriate balance by providing for a
sale of a portion of the Qualifying Asset in an amount approximating
what the Manager believes is, for this type of asset, a bid size
that will attract sufficient attention from the institutional debt
market. The Manager believes that the dollar and percentage amounts
set forth in Condition 3 below will result in the sale of a
sufficiently large amount of each Qualifying Asset to obtain a
representative market price for the asset.
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7. Finally, the Proposed Transactions will be presented to the
Required Majority of each Fund and must be approved by such Required
Majority in order to be consummated. The Required Majority of each Fund
will be required specifically to consider the effect that each such
transaction, and such transactions taken together, would have
[[Page 63657]]
on the investment advisory fees paid by the relevant Fund.
Applicants' Conditions
Applicants agree that the Order granting the requested relief will
be subject to the following Conditions:
1. The Registered Fund will sell to the BDC Applicant, prior to the
expiration of the requested Order, all of the Qualifying Assets owned
by the Registered Fund. In approving any Proposed Transaction under the
requested Order, the Required Majority of each Fund will be required
specifically to consider the effect that such transaction, and the
Proposed Transactions taken together, would have on the investment
advisory fees paid by the relevant Fund. If any Eligible Assets are
acquired in follow-on investments made after the date the Order was
granted, the Manager will document contemporaneously why it believes
each follow-on investment helps protect the assets previously owned by
the Registered Fund to which the follow-on investment relates.
2. Each of the Eligible Assets shall have been subject to periodic
valuation in accordance with methods adopted and reviewed at least
annually by the independent directors, as defined in section 2(a)(19)
of the 1940 Act, of each Fund in accordance with rule 38a-1 under the
1940 Act.
3. The Registered Fund shall have sold in Bona Fide Third-Party
Transactions subject to broad market exposure or competitive bidding to
independent third-party buyers (none of whom are the issuer of the
respective asset to the knowledge of the Applicants or are affiliated
persons of the Applicants under the 1940 Act) (i) for each Qualifying
Asset valued at greater than $10 million, at least the greater of (A)
10% of the holdings by the Registered Fund of each Qualifying Asset or
(B) $5,000,000 in proceeds of such Qualifying Asset or (ii) for each
Qualifying Asset valued at $10,000,000 or less, at least 30% of the
holdings by the Registered Fund of each Qualifying Asset.
4. In any transaction between the Funds under the requested Order,
(i) the trade date for sale to the BDC Applicant shall be the same as
the trade date for the independent sale of a portion of the Qualifying
Asset under Condition 3, (ii) the transaction price shall be such
independent sale price less any intermediary compensation, such as a
sales commission or known spread, paid by the Registered Fund in the
open market sale, (iii) 66.7%, or two-thirds, of the transactions will
have a sale price within 1.5% of the fair value most recently assigned
by the Registered Fund pursuant to its valuation methods, policies, and
procedures, and 100% of the transactions will have a sale price in the
market within 2.5% of the fair value most recently assigned by the
Registered Fund pursuant to its valuation methods, policies, and
procedures (iv) the Manager shall represent to the Independent
Directors of the Registered Fund and the BDC Applicant that it has no
reason to believe that the sale price received by the Registered Fund
pursuant to Condition 3 above does not reasonably approximate (on a pro
rata basis) the sale price that would have been received by the
Registered Fund had the Registered Fund's entire interest been sold in
such transaction and that, in the Manager's judgment, the Proposed
Transaction between the Funds would not, at the time of such
transaction, preclude the BDC Applicant from acquiring an asset more
beneficial to its shareholders' interests, and (v) the price shall be
payable in cash at settlement.
5. Any transaction under the requested Order involving Eligible
Assets jointly owned under the Co-Investment Order (including a
decision not to include an Eligible Asset as a Qualifying Asset) shall
comply with the terms and conditions of the Co-Investment Order, as
applicable.
6. No Proposed Transaction or Bona Fide Third-Party Transaction
shall involve any consideration other than cash payment against prompt
delivery of Qualifying Assets. No brokerage commission, fee, or other
remuneration shall be paid in connection with any Proposed Transaction.
A Bona Fide Third-Party Transaction may include customary transaction
expenses paid to persons who are not affiliated persons of the
Applicants, but no Bona Fide Third-Party Transaction will involve any
arrangement, understanding, or any direct or indirect quid pro quo that
goes beyond the market terms of such transaction. No Bona Fide Third-
Party Transaction shall involve any arrangement or understanding
directed at facilitating the Applicants' reliance on the requested
Order. For any Bona Fide Third-Party Transaction, the Registered Fund
will not knowingly sell any Qualifying Asset to the issuer of such
asset. The Applicants will not attempt to circumvent the above
restrictions by entering into any arrangements or understandings that
are economically similar to the ones proscribed by the above
restrictions.
7. The Registered Fund and the BDC Applicant shall maintain records
demonstrating satisfaction of each of the foregoing Conditions in the
manner and for the periods set forth in rule 17a-7(g) under the 1940
Act.
8. The requested Order, if granted, shall expire upon the earlier
of the date of termination of TOF or October 10, 2018.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25302 Filed 10-23-14; 8:45 am]
BILLING CODE 8011-01-P