[Federal Register Volume 82, Number 226 (Monday, November 27, 2017)]
[Notices]
[Pages 56093-56097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25462]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32900; 812-14799]


New Mountain Finance Corporation, et al.

November 20, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION:  Notice.

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    Notice of application for an order (``Order'') to amend a prior 
order under sections 17(d) and 57(i) of the Investment Company Act of 
1940 (the ``Act'') and rule 17d-1 under the Act permitting certain 
joint transactions otherwise prohibited by sections 17(d) and 57(a)(4) 
of the Act and under rule 17d-1 under the Act.

SUMMARY OF APPLICATION: Applicants request an order to permit certain 
business development companies (each, a ``BDC'') and certain closed-end 
investment companies to co-invest in portfolio companies with each 
other and with affiliated investment funds. The Order would supersede 
the prior order.\1\
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    \1\ New Mountain Finance Corporation, et al., Investment Company 
Act Rel. Nos. 32630 (May 8, 2017) (notice) and 32668 (Jun. 5, 2017).

APPLICANTS: New Mountain Finance Corporation (``NMFC''); NMF Ancora 
Holdings, Inc., NMF QID NGL Holdings, Inc., and NMF YP Holdings, Inc. 
(collectively, the ``NMFC Subsidiaries''); New Mountain Finance SBIC, 
L.P. (``SBIC LP''); New Mountain Net Lease Corporation (``NMNLC''); New 
Mountain Guardian Partners II, L.P. (``Guardian II''); New Mountain 
Guardian II Master Fund-A, L.P. (``Guardian II Master A''); New 
Mountain Guardian II Master Fund-B, L.P. (``Guardian II Master B,'' and 
together with Guardian II and Guardian II Master A, the ``Guardian II 
Funds''); and New Mountain Finance Advisers BDC, L.L.C. (the BDC 
Adviser'') on behalf of itself and its successors.\2\
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    \2\ The term ``successor,'' means an entity that results from a 
reorganization into another jurisdiction or change in the type of 
business organization.

FILING DATES: The application was filed on July 10, 2017 and amended on 
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October 31, 2017.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief 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 December 15, 2017, 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: Secretary, U.S. Securities and Exchange Commission, 100 F 
St., NE., Washington, DC 20549-1090. Applicants: Robert A. Hamwee, New 
Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, 
NY 10019.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, 
at (202) 551-6990 or David J. Marcinkus, 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 for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. NMFC, a Delaware corporation, is an externally managed, non-
diversified, closed-end management investment company that has elected 
to be regulated as a BDC under section 54(a) of the Act.\3\ Applicants 
state that NMFC's Objectives and Strategies \4\ are to generate both 
current income and capital appreciation through the sourcing and 
origination of debt securities at all levels of the capital structure, 
including first and second lien debt, notes, bonds and mezzanine 
securities. The board of directors (``Board'') of NMFC is comprised of 
seven directors, four of whom are not ``interested directors'' as 
defined in section 2(a)(19) of the Act (``Non-Interested Directors''), 
of NMFC.
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    \3\ 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.
    \4\ ``Objectives and Strategies'' means a Regulated Fund's 
investment objectives and strategies as described in the Regulated 
Fund's registration statement on Form N-2, other filings the 
Regulated Fund has made with the Commission under the Securities Act 
of 1933 (the ``Securities Act''), or the Securities Exchange Act of 
1934, and the Regulated Fund's reports to shareholders.
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    2. The NMFC Subsidiaries are Wholly-Owned Investment Subs (as 
defined below) of NMFC, each structured as a Delaware corporation to 
hold equity or equity-like investments in portfolio companies organized 
as limited liability companies or other forms of pass-through entities. 
The NMFC Subsidiaries are not registered under the Act in reliance on 
the exclusion from the definition of ``investment company'' in section 
3(a)(7) of the Act.
    3. SBIC LP, a Wholly-Owned Investment Sub of NMFC, is structured as 
a Delaware limited partnership. SBIC LP received a license from the 
Small Business Administration (``SBA'') to operate under the Small 
Business Investment Act of 1958 (``SBA Act'') as a small business 
investment company (each such licensed entity, a ``SBIC Subsidiary'').
    4. NMNLC, a Maryland corporation, is a Wholly-Owned Investment Sub 
of NMFC. NMNLC was formed to acquire real properties that are subject 
to ``triple net'' leases and will qualify as a real

[[Page 56094]]

estate investment trust (``REIT'') within the meaning of section 856 of 
the Internal Revenue Code (``Code''). NMNLC is not registered under the 
Act because substantially all of its assets consist of real properties.
    5. Guardian II is a private fund organized in Delaware. Both 
Guardian II Master A and Guardian II Master B are private funds 
organized as Cayman Islands exempted limited partnerships. Applicants 
state that the investment objective of each of these funds is to 
generate both current income and capital appreciation by investing 
primarily in first lien and second lien secured loans as well as 
subordinated debt. None of the Guardian II Funds is registered under 
the Act in reliance on the exclusion from the definition of 
``investment company'' in section 3(c)(7) of the Act. The investment 
activities of each of the Guardian II Funds is managed by the BDC 
Adviser pursuant to an investment management agreement.
    6. BDC Adviser, a Delaware limited liability company, is registered 
with the Commission as an investment adviser under the Investment 
Advisers Act of 1940 (the ``Advisers Act'') and serves as the 
investment adviser to NMFC and each of the Guardian II Funds.
    7. Applicants seek an Order to permit one or more Regulated Funds 
\5\ and/or one or more Affiliated Funds \6\ to participate in the same 
investment opportunities through a proposed co-investment program (the 
``Co-Investment Program'') where such participation would otherwise be 
prohibited under section 57(a)(4) and rule 17d-1 by (a) co-investing 
with each other in securities issued by issuers in private placement 
transactions in which an Adviser negotiates terms in addition to price; 
\7\ and (b) making additional investments in securities of such 
issuers, including through the exercise of warrants, conversion 
privileges, and other rights to purchase securities of the issuers 
(``Follow-On Investments''). ``Co-Investment Transaction'' means any 
transaction in which a Regulated Fund (or its Wholly-Owned Investment 
Sub) participated together with one or more other Regulated Funds and/
or one or more Affiliated Funds in reliance on the requested Order. 
``Potential Co-Investment Transaction'' means any investment 
opportunity in which a Regulated Fund (or its Wholly-Owned Investment 
Sub) could not participate together with one or more Affiliated Funds 
and/or one or more other Regulated Funds without obtaining and relying 
on the Order.\8\
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    \5\ ``Regulated Fund'' means any of NMFC and any Future 
Regulated Fund. ``Future Regulated Fund'' means any closed-end 
management investment company (a) that is registered under the Act 
or has elected to be regulated as a BDC, (b) whose investment 
adviser is an Adviser, and (c) that intends to participate in the 
Co-Investment Program. The term ``Adviser'' means (a) the BDC 
Adviser, and (b) any future investment adviser that controls, is 
controlled by, or is under common control with the BDC Adviser and 
is registered as an investment adviser under the Advisers Act.
    \6\ ``Affiliated Fund'' means the Guardian II Funds and any 
Future Affiliated Funds. ``Future Affiliated Fund'' means any entity 
(a) whose investment adviser is an Adviser, (b) that would be an 
investment company but for section 3(c)(1), 3(c)(5)(C), or 3(c)(7) 
of the Act, and (c) that intends to participate in the Co-Investment 
Program.
    \7\ The term ``private placement transactions'' means 
transactions in which the offer and sale of securities by the issuer 
are exempt from registration under the Securities Act.
    \8\ All existing entities that currently intend to rely upon the 
requested Order have been named as applicants. Any other existing or 
future entity that subsequently relies on the Order will comply with 
the terms and conditions of the application.
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    8. Applicants state any of the Regulated Funds may, from time to 
time, form a Wholly-Owned Investment Sub.\9\ Such a subsidiary would be 
prohibited from investing in a Co-Investment Transaction with any 
Affiliated Fund or Regulated Fund because it would be a company 
controlled by its parent Regulated Fund for purposes of section 
57(a)(4) of the Act and rule 17d-1 under the Act. Applicants request 
that each Wholly-Owned Investment Sub be permitted to participate in 
Co-Investment Transactions in lieu of its parent Regulated Fund and 
that the Wholly-Owned Investment Sub's participation in any such 
transaction be treated, for purposes of the Order, as though the parent 
Regulated Fund were participating directly. Applicants represent that 
this treatment is justified because a Wholly-Owned Investment Sub would 
have no purpose other than serving as a holding vehicle for the 
Regulated Fund's investments and, therefore, no conflicts of interest 
could arise between the Regulated Fund and the Wholly-Owned Investment 
Sub. The Regulated Fund's Board would make all relevant determinations 
under the conditions with regard to a Wholly-Owned Investment Sub's 
participation in a Co-Investment Transaction, and the Regulated Fund's 
Board would be informed of, and take into consideration, any proposed 
use of a Wholly-Owned Investment Sub in the Regulated Fund's place. If 
the Regulated Fund proposes to participate in the same Co-Investment 
Transaction with any of its Wholly-Owned Investment Subs, the Board 
will also be informed of, and take into consideration, the relative 
participation of the Regulated Fund and the Wholly-Owned Investment 
Sub.
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    \9\ The term ``Wholly-Owned Investment Sub'' means an entity (i) 
that is a wholly-owned subsidiary of a Regulated Fund (with the 
Regulated Fund at all times holding, beneficially and of record, 95% 
or more of the voting and economic interests); (ii) whose sole 
business purpose is to hold one or more investments on behalf of the 
Regulated Fund (and, in the case of an SBIC Subsidiary, maintain a 
license under the SBA Act and issue debentures guaranteed by the 
SBA; (iii) with respect to which the Regulated Fund's Board has the 
sole authority to make all determinations with respect to the 
entity's participation under the conditions of the application; and 
(iv)(A) that would be an investment company but for section 3(c)(1), 
3(c)(5)(C), or 3(c)(7) of the Act, or (B) that qualifies as a REIT 
within the meaning of section 856 of the Code because substantially 
all of its assets would consist of real properties. Each of the NMFC 
Subsidiaries, SBIC LP, and NMNLC is a Wholly-Owned Investment Sub of 
NMFC, and any future subsidiaries of the Regulated Funds that 
participate in Co-Investment Transactions will be Wholly-Owned 
Investment Subs.
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    9. When considering Potential Co-Investment Transactions for any 
Regulated Fund, the applicable Adviser will consider only the 
Objectives and Strategies, investment policies, investment positions, 
capital available for investment as described in the application 
(``Available Capital''), and other pertinent factors applicable to that 
Regulated Fund. The Advisers expect that any portfolio company that is 
an appropriate investment for a Regulated Fund should also be an 
appropriate investment for one or more other Regulated Funds and/or one 
or more Affiliated Funds, with certain exceptions based on available 
capital or diversification.\10\
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    \10\ The Regulated Funds, however, will not be obligated to 
invest, or co-invest, when investment opportunities are referred to 
them.
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    10. Other than pro rata dispositions and Follow-On Investments as 
provided in conditions 7 and 8, and after making the determinations 
required in conditions 1 and 2(a), the Adviser will present each 
Potential Co-Investment Transaction and the proposed allocation to the 
directors of the Board eligible to vote under section 57(o) of the Act 
(``Eligible Directors''), and the ``required majority,'' as defined in 
section 57(o) of the Act (``Required Majority'') \11\ will approve each 
Co-Investment Transaction prior to any investment by the participating 
Regulated Fund.
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    \11\ In the case of a Regulated Fund that is a registered 
closed-end fund, the Board members that make up the Required 
Majority will be determined as if the Regulated Fund were a BDC 
subject to section 57(o).
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    11. With respect to the pro rata dispositions and Follow-On 
Investments provided in conditions 7 and 8, a Regulated Fund may 
participate in a pro rata disposition or Follow-On Investment without 
obtaining prior approval of the Required Majority if,

[[Page 56095]]

among other things: (i) The proposed participation of each Regulated 
Fund and Affiliated Fund in such disposition is proportionate to its 
outstanding investments in the issuer immediately preceding the 
disposition or Follow-On Investment, as the case may be; and (ii) the 
Board of the Regulated Fund has approved that Regulated Fund's 
participation in pro rata dispositions and Follow-On Investments as 
being in the best interests of the Regulated Fund. If the Board does 
not so approve, any such disposition or Follow-On Investment will be 
submitted to the Regulated Fund's Eligible Directors. The Board of any 
Regulated Fund may at any time rescind, suspend or qualify its approval 
of pro rata dispositions and Follow-On Investments with the result that 
all dispositions and/or Follow-On Investments must be submitted to the 
Eligible Directors.
    12. No Non-Interested Director of a Regulated Fund will have a 
financial interest in any Co-Investment Transaction, other than 
indirectly through share ownership in one of the Regulated Funds.
    13. Applicants state that if an Adviser or its principal owners 
(the ``Principals''), or any person controlling, controlled by, or 
under common control with an Adviser or the Principals, and any 
Affiliated Fund (collectively, the ``Holders'') own in the aggregate 
more than 25 percent of the outstanding voting shares of a Regulated 
Fund (the ``Shares''), then the Holders will vote such Shares as 
required under condition.
    14. Applicants believe that this condition will ensure that the 
Non-Interested Directors will act independently in evaluating the Co-
Investment Program, because the ability of an Adviser or the Principals 
to influence the Non-Interested Directors by a suggestion, explicit or 
implied, that the Non-Interested Directors can be removed will be 
limited significantly. The Non-Interested Directors shall evaluate and 
approve any such independent third party, taking into account its 
qualifications, reputation for independence, cost to the shareholders, 
and other factors that they deem relevant.

Applicants' Legal Analysis

    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
of a BDC from participating in joint transactions with the BDC or a 
company controlled by a BDC in contravention of rules as prescribed by 
the Commission. Under section 57(b)(2) of the Act, any person who is 
directly or indirectly controlling, controlled by, or under common 
control with a BDC is subject to section 57(a)(4). Applicants submit 
that each of the Regulated Funds and Affiliated Funds could be deemed 
to be a person related to each Regulated Fund in a manner described by 
section 57(b) by virtue of being under common control. Section 57(i) of 
the Act provides that, until the Commission prescribes rules under 
section 57(a)(4), the Commission's rules under section 17(d) of the Act 
applicable to registered closed-end investment companies will be deemed 
to apply to transactions subject to section 57(a)(4). Because the 
Commission has not adopted any rules under section 57(a)(4), rule 17d-1 
also applies to joint transactions with Regulated Funds that are BDCs. 
Section 17(d) of the Act and rule 17d-1 under the Act are applicable to 
Regulated Funds that are registered closed-end investment companies.
    2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
affiliated persons of a registered investment company from 
participating in joint transactions with the company unless the 
Commission has granted an order permitting such transactions. In 
passing upon applications under rule 17d-1, the Commission considers 
whether the company's participation in the joint transaction is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which such participation is on a basis different from or 
less advantageous than that of other participants.
    3. Applicants state that in the absence of the requested relief, 
the Regulated Funds would be, in some circumstances, limited in their 
ability to participate in attractive and appropriate investment 
opportunities. Applicants believe that the proposed terms and 
conditions will ensure that the Co-Investment Transactions are 
consistent with the protection of each Regulated Fund's shareholders 
and with the purposes intended by the policies and provisions of the 
Act. Applicants state that the Regulated Funds' participation in the 
Co-Investment Transactions will be consistent with the provisions, 
policies, and purposes of the Act and on a basis that is not different 
from or less advantageous than that of other participants.

Applicants' Conditions

    Applicants agree that the Order will be subject to the following 
conditions:
    1. Each time an Adviser considers a Potential Co-Investment 
Transaction for an Affiliated Fund or another Regulated Fund that falls 
within a Regulated Fund's then-current Objectives and Strategies, the 
Regulated Fund's Adviser will make an independent determination of the 
appropriateness of the investment for such Regulated Fund in light of 
the Regulated Fund's then-current circumstances.
    2. (a) If the Adviser deems a Regulated Fund's participation in any 
Potential Co-Investment Transaction to be appropriate for the Regulated 
Fund, it will then determine an appropriate level of investment for the 
Regulated Fund.
    (b) If the aggregate amount recommended by the applicable Adviser 
to be invested by the applicable Regulated Fund in the Potential Co-
Investment Transaction, together with the amount proposed to be 
invested by the other participating Regulated Funds and Affiliated 
Funds, collectively, in the same transaction, exceeds the amount of the 
investment opportunity, the investment opportunity will be allocated 
among them pro rata based on each participant's Available Capital, up 
to the amount proposed to be invested by each. The applicable Adviser 
will provide the Eligible Directors of each participating Regulated 
Fund with information concerning each participating party's Available 
Capital to assist the Eligible Directors with their review of the 
Regulated Fund's investments for compliance with these allocation 
procedures.
    (c) After making the determinations required in conditions 1 and 
2(a), the applicable Adviser will distribute written information 
concerning the Potential Co-Investment Transaction (including the 
amount proposed to be invested by each participating Regulated Fund and 
Affiliated Fund) to the Eligible Directors of each participating 
Regulated Fund for their consideration. A Regulated Fund will co-invest 
with one or more other Regulated Funds and/or one or more Affiliated 
Funds only if, prior to the Regulated Fund's participation in the 
Potential Co-Investment Transaction, a Required Majority concludes 
that:
    (i) The terms of the Potential Co-Investment Transaction, including 
the consideration to be paid, are reasonable and fair to the Regulated 
Fund and its shareholders and do not involve overreaching in respect of 
the Regulated Fund or its shareholders on the part of any person 
concerned;
    (ii) The Potential Co-Investment Transaction is consistent with:
    (A) The interests of the shareholders of the Regulated Fund; and
    (B) the Regulated Fund's then-current Objectives and Strategies;
    (iii) the investment by any other Regulated Funds or Affiliated 
Funds would not disadvantage the Regulated Fund, and participation by 
the

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Regulated Fund would not be on a basis different from or less 
advantageous than that of other Regulated Funds or Affiliated Funds; 
provided that, if any other Regulated Fund or Affiliated Fund, but not 
the Regulated Fund itself, gains the right to nominate a director for 
election to a portfolio company's board of directors or the right to 
have a board observer or any similar right to participate in the 
governance or management of the portfolio company, such event shall not 
be interpreted to prohibit the Required Majority from reaching the 
conclusions required by this condition (2)(c)(iii), if:
    (A) The Eligible Directors will have the right to ratify the 
selection of such director or board observer, if any;
    (B) the applicable Adviser agrees to, and does, provide periodic 
reports to the Regulated Fund's Board with respect to the actions of 
such director or the information received by such board observer or 
obtained through the exercise of any similar right to participate in 
the governance or management of the portfolio company; and
    (C) any fees or other compensation that any Affiliated Fund or any 
Regulated Fund or any affiliated person of any Affiliated Fund or any 
Regulated Fund receives in connection with the right of the Affiliated 
Fund or a Regulated Fund to nominate a director or appoint a board 
observer or otherwise to participate in the governance or management of 
the portfolio company will be shared proportionately among the 
participating Affiliated Funds (who each may, in turn, share its 
portion with its affiliated persons) and the participating Regulated 
Funds in accordance with the amount of each party's investment; and
    (iv) the proposed investment by the Regulated Fund will not benefit 
the Advisers, the Affiliated Funds or the other Regulated Funds or any 
affiliated person of any of them (other than the parties to the Co-
Investment Transaction), except (A) to the extent permitted by 
condition 13, (B) to the extent permitted by section 17(e) or 57(k) of 
the Act, as applicable, (C) indirectly, as a result of an interest in 
the securities issued by one of the parties to the Co-Investment 
Transaction, or (D) in the case of fees or other compensation described 
in condition 2(c)(iii)(C).
    3. Each Regulated Fund has the right to decline to participate in 
any Potential Co-Investment Transaction or to invest less than the 
amount proposed.
    4. The applicable Adviser will present to the Board of each 
Regulated Fund, on a quarterly basis, a record of all investments in 
Potential Co-Investment Transactions made by any of the other Regulated 
Funds or Affiliated Funds during the preceding quarter that fell within 
the Regulated Fund's then-current Objectives and Strategies that were 
not made available to the Regulated Fund, and an explanation of why the 
investment opportunities were not offered to the Regulated Fund. All 
information presented to the Board pursuant to this condition will be 
kept for the life of the Regulated Fund and at least two years 
thereafter, and will be subject to examination by the Commission and 
its staff.
    5. Except for Follow-On Investments made in accordance with 
condition 8,\12\ a Regulated Fund will not invest in reliance on the 
Order in any issuer in which another Regulated Fund, Affiliated Fund, 
or any affiliated person of another Regulated Fund or Affiliated Fund 
is an existing investor.
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    \12\ This exception applies only to Follow-On Investments by a 
Regulated Fund in issuers in which that Regulated Fund already holds 
investments.
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    6. A Regulated Fund will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of 
securities to be purchased, settlement date, and registration rights 
will be the same for each participating Regulated Fund and Affiliated 
Fund. The grant to an Affiliated Fund or another Regulated Fund, but 
not the Regulated Fund, of the right to nominate a director for 
election to a portfolio company's board of directors, the right to have 
an observer on the board of directors or similar rights to participate 
in the governance or management of the portfolio company will not be 
interpreted so as to violate this condition 6, if conditions 
2(c)(iii)(A), (B) and (C) are met.
    7. (a) If any Affiliated Fund or any Regulated Fund elects to sell, 
exchange or otherwise dispose of an interest in a security that was 
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed disposition at the earliest 
practical time; and
    (ii) formulate a recommendation as to participation by each 
Regulated Fund in the disposition.
    (b) Each Regulated Fund will have the right to participate in such 
disposition on a proportionate basis, at the same price and on the same 
terms and conditions as those applicable to the participating 
Affiliated Funds and Regulated Funds.
    (c) A Regulated Fund may participate in such disposition without 
obtaining prior approval of the Required Majority if: (i) The proposed 
participation of each Regulated Fund and each Affiliated Fund in such 
disposition is proportionate to its outstanding investments in the 
issuer immediately preceding the disposition; (ii) the Board of the 
Regulated Fund has approved as being in the best interests of the 
Regulated Fund the ability to participate in such dispositions on a pro 
rata basis (as described in greater detail in the application); and 
(iii) the Board of the Regulated Fund is provided on a quarterly basis 
with a list of all dispositions made in accordance with this condition. 
In all other cases, the Adviser will provide its written recommendation 
as to the Regulated Fund's participation to the Eligible Directors, and 
the Regulated Fund will participate in such disposition solely to the 
extent that a Required Majority determines that it is in the Regulated 
Fund's best interests.
    (d) Each Affiliated Fund and each Regulated Fund will bear its own 
expenses in connection with any such disposition.
    8. (a) If any Affiliated Fund or any Regulated Fund desires to make 
a Follow-On Investment in a portfolio company whose securities were 
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed transaction at the earliest 
practical time; and
    (ii) formulate a recommendation as to the proposed participation, 
including the amount of the proposed Follow-On Investment, by each 
Regulated Fund.
    (b) A Regulated Fund may participate in such Follow-On Investment 
without obtaining prior approval of the Required Majority if: (i) The 
proposed participation of each Regulated Fund and each Affiliated Fund 
in such investment is proportionate to its outstanding investments in 
the issuer immediately preceding the Follow-On Investment; and (ii) the 
Board of the Regulated Fund has approved as being in the best interests 
of the Regulated Fund the ability to participate in Follow-On 
Investments on a pro rata basis (as described in greater detail in the 
application). In all other cases, the Adviser will provide its written 
recommendation as to the Regulated Fund's participation to the Eligible 
Directors, and the Regulated Fund will participate in such Follow-On 
Investment solely to the extent that a

[[Page 56097]]

Required Majority determines that it is in the Regulated Fund's best 
interests.
    (c) If, with respect to any Follow-On Investment:
    (i) The amount of the opportunity is not based on the Regulated 
Funds' and the Affiliated Funds' outstanding investments immediately 
preceding the Follow-On Investment; and
    (ii) the aggregate amount recommended by the applicable Adviser to 
be invested by the applicable Regulated Fund in the Follow-On 
Investment, together with the amount proposed to be invested by the 
other participating Regulated Funds and Affiliated Funds, collectively, 
in the same transaction, exceeds the amount of the investment 
opportunity; then the investment opportunity will be allocated among 
them pro rata based on each participant's Available Capital, up to the 
maximum amount proposed to be invested by each.
    (d) The acquisition of Follow-On Investments as permitted by this 
condition will be considered a Co-Investment Transaction for all 
purposes and subject to the other conditions set forth in the 
application.
    9. The Non-Interested Directors of each Regulated Fund will be 
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including 
investments made by other Regulated Funds or Affiliated Funds that the 
Regulated Fund considered but declined to participate in, so that the 
Non-Interested Directors may determine whether all investments made 
during the preceding quarter, including those investments that the 
Regulated Fund considered but declined to participate in, comply with 
the conditions of the Order. In addition, the Non-Interested Directors 
will consider at least annually the continued appropriateness for the 
Regulated Fund of participating in new and existing Co-Investment 
Transactions.
    10. Each Regulated Fund will maintain the records required by 
section 57(f)(3) of the Act as if each of the Regulated Funds were a 
BDC and each of the investments permitted under these conditions were 
approved by the Required Majority under section 57(f) of the Act.
    11. No Non-Interested Director of a Regulated Fund will also be a 
director, general partner, managing member or principal, or otherwise 
an ``affiliated person'' (as defined in the Act) of an Affiliated Fund.
    12. The expenses, if any, associated with acquiring, holding or 
disposing of any securities acquired in a Co-Investment Transaction 
(including, without limitation, the expenses of the distribution of any 
such securities registered for sale under the Securities Act) will, to 
the extent not payable by the Advisers under their respective 
investment advisory agreements with Affiliated Funds and the Regulated 
Funds, be shared by the Regulated Funds and the Affiliated Funds in 
proportion to the relative amounts of the securities held or to be 
acquired or disposed of, as the case may be.
    13. Any transaction fee \13\ (including break-up or commitment fees 
but excluding broker's fees contemplated by section 17(e) or 57(k) of 
the Act, as applicable), received in connection with a Co-Investment 
Transaction will be distributed to the participating Regulated Funds 
and Affiliated Funds on a pro rata basis based on the amounts they 
invested or committed, as the case may be, in such Co-Investment 
Transaction. If any transaction fee is to be held by an Adviser pending 
consummation of the transaction, the fee will be deposited into an 
account maintained by such Adviser at a bank or banks having the 
qualifications prescribed in section 26(a)(1) of the Act, and the 
account will earn a competitive rate of interest that will also be 
divided pro rata among the participating Regulated Funds and Affiliated 
Funds based on the amounts they invest in such Co-Investment 
Transaction. None of the Affiliated Funds, the Advisers, the other 
Regulated Funds or any affiliated person of the Regulated Funds or 
Affiliated Funds will receive additional compensation or remuneration 
of any kind as a result of or in connection with a Co-Investment 
Transaction (other than (a) in the case of the Regulated Funds and the 
Affiliated Funds, the pro rata transaction fees described above and 
fees or other compensation described in condition 2(c)(iii)(C); and (b) 
in the case of an Adviser, investment advisory fees paid in accordance 
with the agreement between the Adviser and the Regulated Fund or 
Affiliated Fund).
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    \13\ Applicants are not requesting and the staff is not 
providing any relief for transaction fees received in connection 
with any Co-Investment Transaction.
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    14. If the Holders own in the aggregate more than 25 percent of the 
Shares of a Regulated Fund, then the Holders will vote such Shares as 
directed by an independent third party when voting on (1) the election 
of directors; (2) the removal of one or more directors; or (3) all 
other matters under either the Act or applicable state law affecting 
the Board's composition, size or manner of election.
    15. Each Regulated Fund's chief compliance officer, as defined in 
rule 38a-1(a)(4), will prepare an annual report for its Board each year 
that evaluates (and documents the basis of that evaluation) the 
Regulated Fund's compliance with the terms and conditions of the 
application and the procedures established to achieve such compliance.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25462 Filed 11-24-17; 8:45 am]
BILLING CODE P