[Federal Register Volume 84, Number 37 (Monday, February 25, 2019)]
[Notices]
[Pages 6031-6036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03138]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33377; 812-14850]
CM Finance Inc, et al.
February 19, 2019.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an 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
closed-end management investment companies to co-invest in portfolio
companies with each other and with affiliated investment funds.
APPLICANTS: CM Finance Inc (``CMFN''), CM Credit Opportunities BDC I
Inc. (``CM Credit'' and together with CMFN, the ``Existing Regulated
Funds''), CM Investment Partners LLC (``CM Adviser'') on behalf of
itself and its successors,\1\ CM Credit Opportunity Fund I LLC (the
``Existing Affiliated Fund''), and CM Finance SPV Ltd. (``CM SPV''), a
Wholly-Owned Investment Sub (defined below) of CMFN.
---------------------------------------------------------------------------
\1\ The term ``successor,'' as applied to each Adviser (as
defined below), 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 December 13, 2017, and
---------------------------------------------------------------------------
amended on April 30, 2018 and October 25, 2018.
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 March 18, 2019, 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: 601 Lexington Avenue,
26th Floor, New York, NY 10022.
FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at
(202) 551-6915 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
[[Page 6032]]
website 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. CMFN is a Maryland corporation organized as a closed-end
management investment company that has elected to be regulated as a
business development company (``BDC'') under section 54(a) of the
Act.\2\ The Objectives and Strategies \3\ of CMFN are to maximize total
return by investing primarily in privately held middle-market
companies. The board of directors of CMFN (the ``CMFN Board'') \4\ is
comprised of six directors, four of whom are not ``interested
persons,'' within the meaning of section 2(a)(19) of the Act (``Non-
Interested Directors'').
---------------------------------------------------------------------------
\2\ Section 2(a)(48) 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.
\3\ ``Objectives and Strategies'' means the investment
objectives and strategies of a Regulated Fund (as defined below), 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 under
the Securities Exchange Act of 1934, and the Regulated Fund's
reports to shareholders.
\4\ The term ``Board'' refers to the board of directors or
trustees of any Regulated Fund.
---------------------------------------------------------------------------
2. CM Credit is a Maryland corporation and will be structured as a
closed-end management investment company that intends to file an
election to be regulated as a BDC under section 54(a) of the Act. CM
Credit's Objectives and Strategies are to generate current income and
capital appreciation by investing primarily in middle-market companies
and leveraged companies. The board of directors of CM Credit (the ``CM
Credit Board'') will be comprised of a majority of Non-Interested
Directors.
3. The Existing Affiliated Fund is a Delaware limited liability
company with the investment objective to seek current income and
capital appreciation by investing primarily in middle-market companies.
The Existing Affiliated Fund would be an investment company but for the
exclusion from the definition of investment company provided by section
3(c)(7) of the Act.
4. CM Adviser is a Delaware limited liability company and is
registered as an investment adviser under the Investment Advisers Act
of 1940 (the ``Advisers Act''). CM Adviser serves as the investment
adviser to CMFN and will serve as the investment adviser to CM Credit
and the Existing Affiliated Fund.
5. Applicants seek an order (``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, as defined below)
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\
---------------------------------------------------------------------------
\5\ ``Regulated Fund'' means any of the Existing Regulated Funds
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 BDC, (b) whose
investment adviser is an Adviser, and (c) that intends to
participate in the Co-Investment Program. The term ``Adviser'' means
(a) CM Adviser and (b) any future investment adviser that controls,
is controlled by or is under common control with CM Adviser and is
registered as an investment adviser under the Advisers Act.
\6\ ``Affiliated Fund'' means the Existing Affiliated Fund and
any Future Affiliated Fund. ``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) 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.
---------------------------------------------------------------------------
6. Applicants state any of the Regulated Funds may, from time to
time, form one or more Wholly-Owned Investment Subs.\9\ A Wholly-Owned
Investment Sub 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) and rule 17d-1. 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 requested order, as though the parent
Regulated Fund were participating directly.\10\ 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.
---------------------------------------------------------------------------
\9\ The term ``Wholly-Owned Investment Sub'' means an entity (a)
that is wholly-owned by a Regulated Fund (with the Regulated Fund at
all times holding, beneficially and of record, 100% of the voting
and economic interests); (b) whose sole business purpose is to hold
one or more investments on behalf of the Regulated Fund (and in the
case of a SBIC Subsidiary (as defined below) maintain a license
under the SBA Act (as defined below) and issue debentures guaranteed
by the SBA (as defined below); (c) with respect to which the
Regulated Fund's Board has the sole authority to make all
determinations with respect to the Wholly-Owned Investment Sub's
participation under the conditions of the application; and (d) that
would be an investment company but for section 3(c)(1) or 3(c)(7) of
the Act. ``SBIC Subsidiary'' means a Wholly-Owned Investment Sub
that is licensed by the Small Business Administration (``SBA'') to
operate under the Small Business Investment Act of 1958 (the ``SBA
Act'') as a small business investment company.
\10\ All subsidiaries of the Regulated Funds participating in
Co-Investment Transactions will be Wholly-Owned Investment Subs and
will have Objectives and Strategies that are either the same as, or
a subset of, the Regulated Fund's Objectives and Strategies.
---------------------------------------------------------------------------
7. 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
[[Page 6033]]
for investment (``Available Capital''),\11\ and other pertinent factors
applicable to that Regulated Fund. The Board of each Regulated Fund,
including the Non-Interested Directors, has (or will have prior to
relying on the requested Order) determined that it is in the best
interests of the Regulated Fund to participate in Co-Investment
Transactions.\12\
---------------------------------------------------------------------------
\11\ The amount of each Regulated Fund's Available Capital will
be determined based on the amount of cash on hand, existing
commitments and reserves, if any, the targeted leverage level,
targeted asset mix and other investment policies and restrictions
set from time to time by the Board of the applicable Regulated Fund
or imposed by applicable laws, rules, regulations or
interpretations.
\12\ The Regulated Funds, however, will not be obligated to
invest, or co-invest, when investment opportunities are referred to
them.
---------------------------------------------------------------------------
8. 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'') \13\ will approve each
Co-Investment Transaction prior to any investment by the participating
Regulated Fund.
---------------------------------------------------------------------------
\13\ 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).
---------------------------------------------------------------------------
9. 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, 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.
10. No Non-Interested Director of a Regulated Fund will have a
financial interest in any Co-Investment Transaction, other than through
share ownership in one of the Regulated Funds.
11. If the Advisers, the principal owners of any of the Advisers
(the ``Principals''), or any person controlling, controlled by, or
under common control with the Advisers or the Principals, and the
Affiliated Funds (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 the
Advisers 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 will evaluate and approve any such independent party, taking
into account its qualifications, reputation for independence, cost to
the shareholders, and other factors that they deem relevant.
12. Prior to the filing of the application, certain funds managed
by Cyrus Capital Partners, L.P. (the ``Cyrus Funds'') may have engaged
in transactions with CMFN without obtaining an order under rule 17d-1
under the Act (the ``Prior Transactions''). At the time of the Prior
Transactions, the Cyrus Funds were affiliated persons of CMFN and CM
Adviser, and the Cyrus Funds may have been deemed to indirectly control
CMFN. Mr. Mauer, Mr. Jansen, and Stifel Venture Corp. (collectively
with Messrs. Mauer and Jansen and the Cyrus Funds, the ``Affiliated
Parties'') are also affiliated persons of CMFN and CM Adviser. The
Order, if granted, would not provide relief for the Prior Transactions.
Further, the Order, if granted, would not provide relief for the
Affiliated Parties to engage in Co-Investment Transactions.
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
[[Page 6034]]
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 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,\14\ 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.
---------------------------------------------------------------------------
\14\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which that Regulated Fund already holds
investments.
---------------------------------------------------------------------------
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
[[Page 6035]]
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 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 this
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 (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.
14. If the Holders own in the aggregate more than 25% of the Shares
of a Regulated Fund, then the Holders will vote such Shares (i) as
directed by an independent third party, or (ii) in the same percentages
as the Regulated Fund's other shareholders (not including the Holders)
when voting on (1) the election of directors; (2) the removal of one or
more directors; or (3) any other matter 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) under the Act, will prepare an annual report for its
Board that
[[Page 6036]]
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,
Deputy Secretary.
[FR Doc. 2019-03138 Filed 2-22-19; 8:45 am]
BILLING CODE 8011-01-P