[Federal Register Volume 84, Number 102 (Tuesday, May 28, 2019)]
[Notices]
[Pages 24553-24562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10975]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33480; 812-14955]
BlackRock Capital Investment Corporation, et al.
May 21, 2019.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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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 to permit certain joint transactions otherwise prohibited
by sections 17(d) and 57(a)(4) of the Act and rule 17d-1 under the Act.
Summary of Application: Applicants request an order to permit certain
business development companies and closed-end management investment
companies to co-invest in portfolio companies with each other and with
affiliated investment funds.
Applicants: Blackrock Capital Investment Corporation (``BCIC''),
BlackRock Credit Strategies Fund (``BCSF''), Blackrock Capital
Investment Advisors, LLC (``Blackrock Capital Advisor''), BlackRock
Advisors, LLC (``BAL''), Middle Market Senior Fund, L.P., BlackRock TCP
Capital Corp. (``TCPC''), Special Value Continuation Partners LLC
(``SVCP''), Tennenbaum Opportunities Partners V, LP, Tennenbaum
Opportunities Fund V, LLC, SVOF/MM, LLC (``SVOF/MM''), Tennenbaum
Capital Partners, LLC (``TCP''), Tennenbaum Heartland Co-Invest, LP,
SEB DIP Investor, LP, Special Value Expansion Fund, LLC, Special Value
Opportunities Fund, LLC, TCP Direct Lending Fund VIII--L (Ireland), TCP
Direct Lending Fund VIII--U (Ireland), TCP Direct Lending Fund VIII-S,
LLC, TCP Direct Lending Fund VIII-T, LLC, TCP DLF VIII 2018 CLO LLC,
TCP Enhanced Yield Funding I, LLC, TCP Rainier, LLC, TCP Direct Lending
Fund VIII, LLC, TCP Direct
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Lending Fund VIII-L, LLC, TCP Direct Lending Fund VIII-A, LLC, TCPC
SBIC, LP (``TCPC SBIC''), Tennenbaum Energy Opportunities Co., LLC,
Tennenbaum Energy Opportunities Fund, LP, Tennenbaum Enhanced Yield
Fund I, LLC, Tennenbaum Opportunities Fund VI, LLC, TCP Waterman Fund,
LLC, Tennenbaum Senior Loan Fund III, LP, Tennenbaum Senior Loan
Funding III, LLC, Tennenbaum Senior Loan Fund IV-A, LP, Tennenbaum
Senior Loan Fund IV-B, LP, Tennenbaum Special Situations Fund IX, LLC,
Tennenbaum Special Situations Fund IX-A, LLC, Tennenbaum Special
Situations IX-C, L.P., Tennenbaum Special Situations IX-O, L.P.,
Tennenbaum Special Situations Fund IX-S, L.P., Tennenbaum Senior Loan
Fund II, LP, Tennenbaum Senior Loan Fund V, LLC, TCPC Funding I, LLC
(``TCPC Funding''), Tennenbaum Enhanced Yield Operating I, LLC, TCP
Waterman CLO, LLC, TCP Whitney CLO, LLC, TCP Whitney CLO, Ltd,
Tennenbaum Senior Loan Operating III, LLC, Tennenbaum Senior Loan SPV
IV-A, LLC, TCPC SBIC GP, LLC (``TCPC SBIC GP''), TCP Direct Lending
Fund VIII-N, LLC
Filing Dates: The application was filed on September 21, 2018, and
amended on January 11, 2019, and March 19, 2019. Applicants have agreed
to file an amendment during the notice period, the substance of which
is reflected in this notice.
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 June 17, 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
Street NE, Washington, DC 20549-1090. Applicants: Laurence D. Paredes,
General Counsel, BlackRock Capital Investment Corporation, 40 East 52nd
Street New York, NY 10022 and Howard M. Levkowitz, Managing Director
and Elizabeth Greenwood, Managing Director, Tennenbaum Capital
Partners, LLC, 2951 28th Street, Suite 1000, Santa Monica, California
90405.
FOR FURTHER INFORMATION CONTACT: Kieran G. Brown, Senior Counsel, at
202-551-6773, 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 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.
Introduction
1. The applicants request an order of the Commission under sections
17(d) and 57(i) and rule 17d-1 thereunder (the ``Order'') to permit,
subject to the terms and conditions set forth in the application (the
``Conditions''), a Regulated Fund \1\ and one or more other Regulated
Funds and/or one or more Affiliated Funds \2\ to enter into Co-
Investment Transactions with each other. ``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 Affiliated Funds and/or one or more other Regulated Funds in
reliance on the 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.\3\
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\1\ ``Regulated Funds'' means BCIC, BCSF, TCPC, the Future
Regulated Funds and the BDC Downstream Funds. ``Future Regulated
Fund'' means a 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 or sub-adviser is an Adviser, and (c)
that intends to participate in the proposed co-investment program
(the ``Co-Investment Program'').
``Adviser'' means BlackRock Capital Advisor, TCP and SVOF/MM and
any Future Adviser. The term Adviser does not include BAL or any
other investment adviser to an Affiliated Fund or a Regulated Fund
whose sub-adviser is an Adviser (a ``Sub-Advised Fund''), except
that such investment adviser is deemed to be an Adviser for purposes
of Conditions 2(c)(iv), 13 and 14 only. BAL and any investment
adviser to a Sub-Advised Fund will not be the source of any
Potential Co-Investment Transactions under the Order.
``Future Adviser'' means any future investment adviser that (i)
is controlled by BlackRock Capital Advisor, (ii) (a) is registered
as an investment adviser under the Advisers Act or (b) is a relying
adviser of an investment adviser that is registered under the
Advisers Act and that is controlled by BlackRock Capital Advisor,
and (iii) is not a Regulated Fund or a subsidiary of a Regulated
Fund.
\2\ ``Affiliated Fund'' means any Existing Affiliated Fund
(identified in Appendix A to the application) or any entity (a)
whose investment adviser or sub-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, (c) that is not a BDC Downstream Fund, and
(d) that intends to participate in the Co-Investment Program;
provided that an entity sub-advised by an Adviser is not included in
this term if: (i) Such Adviser serving as sub-adviser does not
control the entity, and (ii) the primary investment adviser is not
an Adviser. Applicants represent that no Existing Affiliated Fund is
a BDC Downstream Fund.
\3\ All existing entities that currently intend to rely on the
Order have been named as applicants and any existing or future
entities that may rely on the Order in the future will comply with
its terms and Conditions set forth in the application.
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2. The Order sought by the application would supersede the
exemptive orders issued by the Commission to BlackRock Capital
Investment Corporation, et al. on January 16, 2018 \4\ under sections
17(d) and 57(i) of the Act and rule 17d-1 under the Act and to
Tennenbaum Capital Partners, LLC, et al. on May 9, 2006 \5\ under rule
17d-1 under the Act (the ``Prior Orders''), with the result that no
person will continue to rely on the Prior Orders if the Order is
granted.
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\4\ BlackRock Capital Investment Corporation, et al. (File No.
812-14582) Investment Company Act Release Nos. 32943 (December 19,
2017) (notice) and 32968 (January 16, 2018) (order).
\5\ Special Value Opportunities Fund, LLC, et al. (File No. 812-
13068) Investment Company Act Release Nos. IC-27287 (April 11, 2006)
(notice) and 27316 (May 9, 2006) (order).
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Applicants
3. BCIC is a Delaware corporation organized as a closed-end
management investment company that has elected to be regulated as a
business development company (``BDC'') under the Act.\6\ BCIC is
managed by a Board \7\ currently comprised of seven persons, six of
whom are Independent Directors.\8\
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\6\ 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 section 55(a)(1) through
55(a)(3) and makes available significant managerial assistance with
respect to the issuers of such securities.
\7\ ``Board'' means (i) with respect to a Regulated Fund other
than a BDC Downstream Fund, the board of directors (or the
equivalent) of the Regulated Fund and (ii) with respect to a BDC
Downstream Fund, the Independent Party of the BDC Downstream Fund.
``Independent Party'' means, with respect to a BDC Downstream
Fund, (i) if the BDC Downstream Fund has a board of directors (or
the equivalent), the board or (ii) if the BDC Downstream Fund does
not have a board of directors (or the equivalent), a transaction
committee or advisory committee of the BDC Downstream Fund.
\8\ ``Independent Director'' means a member of the Board of any
relevant entity who is not an ``interested person'' as defined in
section 2(a)(19) of the Act. No Independent Director of a Regulated
Fund (including any non-interested member of an Independent Party)
will have a financial interest in any Co-Investment Transaction,
other than indirectly through share ownership in one of the
Regulated Funds.
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[[Page 24555]]
4. BCSF is a statutory trust under the laws of Delaware. BCSF is
registered as a non-diversified, closed-end management investment
company under the Act. BCSF will be managed by a board of trustees. A
majority of BCSF's trustees will be independent trustees.
5. TCPC is a BDC incorporated in Delaware and its common stock is
traded on the NASDAQ Global Select Market. TCPC's business and affairs
are managed under the direction of its Board. TCPC has an eight-member
Board, six of whom are Independent Directors.
6. SVCP is a limited liability company under the laws of the State
of Delaware. SVCP is a wholly-owned subsidiary of TCPC.
7. TCPC Funding is a limited liability company under the laws of
the State of Delaware and is a wholly-owned subsidiary of SVCP.
10. TCPC SBIC is a limited partnership under the laws of the state
of Delaware. SVCP directly owns a 100% limited partnership interest in
TCPC SBIC. TCPC SBIC will not be registered under the Act based on the
exclusion from the definition of investment company contained in
section 3(c)(7). TCPC SBIC is a wholly-owned consolidated subsidiary
that is licensed by the Small Business Administration (the ``SBA'') to
operate under the Small Business Investment Act of 1958 (the ``SBA
Act'') as a small business investment company (such a subsidiary, an
``SBIC Subsidiary'').
12. TCPC SBIC GP is a limited liability company under the laws of
the state of Delaware, and is a wholly-owned subsidiary of SVCP, which
is the sole member of the TCPC SBIC GP. TCPC SBIC GP is the sole
general partner of TCPC SBIC.
13. TCPC effectively controls TCPC SBIC because TCPC SBIC GP is a
wholly-owned subsidiary of SVCP.
14. BlackRock Capital Advisor is an indirect wholly-owned
subsidiary of BlackRock, Inc., which is a New York based global
investment management firm. BlackRock Capital Advisor is a Delaware
limited liability company and an investment adviser that is registered
with the Commission under the Investment Advisers Act of 1940, as
amended (the ``Advisers Act''). BlackRock Capital Advisor serves as the
investment adviser to BCIC and will serve as the investment adviser to
Middle Market Senior Fund, L.P. and sub-adviser to BCSF.
15. BAL is a Delaware limited liability company that is registered
with the Commission as an investment adviser under the Advisers Act.
BAL will serve as the investment adviser to BCSF and may serve as the
investment adviser to Future Regulated Funds and future Affiliated
Funds that are sub-advised by an Adviser. BAL is an indirect wholly-
owned subsidiary of BlackRock, Inc.
16. TCP is a wholly-owned subsidiary of BlackRock Capital Advisor.
TCP, a Delaware limited liability company registered under the Advisers
Act, serves as the investment adviser to TCPC.
17. SVOF/MM is a controlled subsidiary of TCP. SVOF/MM is an
investment adviser registered under the Advisers Act. Certain classes
and series of SVOF/MM also serve as managing member and/or investment
adviser to certain Existing Affiliated Funds.
18. The Existing Affiliated Funds are the investment funds
identified in Appendix A to the application. Applicants represent that
each Existing Affiliated Fund is a separate and distinct legal entity
and would be an investment company but for section 3(c)(1) or 3(c)(7)
of the Act. TCP is the investment adviser to all the Existing
Affiliated Funds, except for four, three of which have Series I of
SVOF/MM as their respective investment adviser and the other of which
has BlackRock Capital Advisor as its investment adviser.
19. Applicants state that a Regulated Fund may, from time to time,
form one or more Wholly-Owned Investment Subs.\9\ Such a subsidiary may
be prohibited from investing in a Co-Investment Transaction with a
Regulated Fund (other than its parent) or any Affiliated 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 the Regulated Fund that owns it 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.
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\9\ ``Wholly-Owned Investment Sub'' means an entity (i) that is
wholly-owned by a Regulated Fund (with such Regulated Fund at all
times holding, beneficially and of record, directly or indirectly,
100% of the voting and economic interests); (ii) whose sole business
purpose is to hold one or more investments on behalf of such
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 such Regulated Fund's Board has
the sole authority to make all determinations with respect to the
entity's participation under the Conditions; and (iv) that would be
an investment company but for section 3(c)(1) or 3(c)(7) of the Act.
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Applicants' Representations
A. Allocation Process
20. Applicants represent that the Advisers have established
processes for ensuring compliance with the Prior Orders and for
allocating initial investment opportunities, opportunities for
subsequent investments in an issuer and dispositions of securities
holdings reasonably designed to treat all clients fairly and equitably.
Further, applicants represent that these processes will be extended and
modified in a manner reasonably designed to ensure that the additional
transactions permitted under the Order will both (i) be fair and
equitable to the Regulated Funds and the Affiliated Funds and (ii)
comply with the Conditions.
21. Specifically, applicants state that the Advisers are organized
and managed such that the individual portfolio managers, as well as the
teams and committees of portfolio managers, analysts and senior
management (``Investment Teams'' and ``Investment Committees''),
responsible for evaluating investment opportunities and making
investment decisions on behalf of clients are promptly notified of the
opportunities. If the Order is granted, the Advisers will establish,
maintain and implement policies and procedures reasonably designed to
ensure that, when such opportunities arise, the Advisers to the
relevant Regulated Funds are promptly notified and receive the same
information about the opportunity as any other Advisers considering the
opportunity for their clients. The Advisers will undertake to perform
these duties regardless of whether the Advisers serve as investment
adviser or sub-adviser to the Regulated Fund or Affiliated Funds. In
particular, consistent with Condition 1, if a Potential Co-Investment
Transaction falls within the then-current Objectives and Strategies
\10\ and any Board-Established Criteria \11\ of a Regulated
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Fund, the policies and procedures will require that the relevant
portfolio managers, Investment Teams and/or Investment Committees
responsible for that Regulated Fund receive sufficient information to
allow the Regulated Fund's Adviser to make its independent
determination and recommendations under the Conditions.
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\10\ ``Objectives and Strategies'' means (i) with respect to any
Regulated Fund other than a BDC Downstream Fund, its investment
objectives and strategies, as described in its most current
registration statement on Form N-2, other current filings with the
Commission under the Securities Act of 1933 (the ``Securities Act'')
or under the Securities Exchange Act of 1934, as amended, and its
most current report to stockholders, and (ii) with respect to any
BDC Downstream Fund, those investment objectives and strategies
described in its disclosure documents (including private placement
memoranda and reports to equity holders) and organizational
documents (including operating agreements).
\11\ ``Board-Established Criteria'' means criteria that the
Board of a Regulated Fund may establish from time to time to
describe the characteristics of Potential Co-Investment Transactions
regarding which the Adviser to the Regulated Fund should be notified
under Condition 1. The Board-Established Criteria will be consistent
with the Regulated Fund's Objectives and Strategies. If no Board-
Established Criteria are in effect, then the Regulated Fund's
Adviser will be notified of all Potential Co-Investment Transactions
that fall within the Regulated Fund's then-current Objectives and
Strategies. Board-Established Criteria will be objective and
testable, meaning that they will be based on observable information,
such as industry/sector of the issuer, minimum EBITDA of the issuer,
asset class of the investment opportunity or required commitment
size, and not on characteristics that involve a discretionary
assessment. The Adviser to the Regulated Fund may from time to time
recommend criteria for the Board's consideration, but Board-
Established Criteria will only become effective if approved by a
majority of the Independent Directors. The Independent Directors of
a Regulated Fund may at any time rescind, suspend or qualify their
approval of any Board-Established Criteria, though applicants
anticipate that, under normal circumstances, the Board would not
modify these criteria more often than quarterly.
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22. The Adviser to each applicable Regulated Fund will then make an
independent determination of the appropriateness of the investment for
the Regulated Fund in light of the Regulated Fund's then-current
circumstances. If the Adviser to a Regulated Fund deems the Regulated
Fund's participation in such Potential Co-Investment Transaction to be
appropriate, then it will formulate a recommendation regarding the
proposed order amount for the Regulated Fund.
23. Applicants state that, for each Regulated Fund and Affiliated
Fund whose Adviser recommends participating in a Potential Co-
Investment Transaction, the Adviser will formulate a proposed order
amount. Prior to the External Submission (as defined below), each
proposed order amount may be reviewed and adjusted, in accordance with
the Advisers' written allocation policies and procedures, by an
allocation committee for the area in question (e.g., credit, private
equity, real estate) on which senior management, legal and compliance
personnel from that area participate or, in the case of issues
involving multiple areas, an Adviser-wide allocation committee on which
senior management, legal and compliance personnel for the Advisers
participate.\12\ The order of a Regulated Fund or Affiliated Fund
resulting from this process is referred to as its ``Internal Order''.
The Internal Order will be submitted for approval by the Required
Majority of any participating Regulated Funds in accordance with the
Conditions.\13\
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\12\ The reason for any such adjustment to a proposed order
amount will be documented in writing and preserved in the records of
the Advisers.
\13\ ``Required Majority'' means a required majority, as defined
in section 57(o) of the Act. 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). In the case of a BDC Downstream Fund
with a board of directors (or the equivalent), the members that make
up the Required Majority will be determined as if the BDC Downstream
Fund were a BDC subject to section 57(o). In the case of a BDC
Downstream Fund with a transaction committee or advisory committee,
the committee members that make up the Required Majority will be
determined as if the BDC Downstream Fund were a BDC subject to
section 57(o) and as if the committee members were directors of the
fund.
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24. If the aggregate Internal Orders for a Potential Co-Investment
Transaction do not exceed the size of the investment opportunity
immediately prior to the submission of the orders to the underwriter,
broker, dealer or issuer, as applicable (the ``External Submission''),
then each Internal Order will be fulfilled as placed. If, on the other
hand, the aggregate Internal Orders for a Potential Co-Investment
Transaction exceed the size of the investment opportunity immediately
prior to the External Submission, then the allocation of the
opportunity will be made pro rata on the basis of the size of the
Internal Orders.\14\ If, subsequent to such External Submission, the
size of the opportunity is increased or decreased, or if the terms of
such opportunity, or the facts and circumstances applicable to the
Regulated Funds' or the Affiliated Funds' consideration of the
opportunity, change, the participants will be permitted to submit
revised Internal Orders in accordance with written allocation policies
and procedures that the Advisers will establish, implement and
maintain.\15\
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\14\ The Advisers will maintain records of all proposed order
amounts, Internal Orders and External Submissions in conjunction
with Potential Co-Investment Transactions. Each applicable Adviser
will provide the Eligible Directors with information concerning the
Affiliated Funds' and Regulated Funds' order sizes to assist the
Eligible Directors with their review of the applicable Regulated
Fund's investments for compliance with the Conditions.
``Eligible Directors'' means, with respect to a Regulated Fund
and a Potential Co-Investment Transaction, the members of the
Regulated Fund's Board eligible to vote on that Potential Co-
Investment Transaction under section 57(o) of the Act (treating any
registered investment company or series thereof as a BDC for this
purpose).
\15\ The Board of the Regulated Fund will then either approve or
disapprove of the investment opportunity in accordance with
Condition 2, 6, 7, 8 or 9, as applicable.
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B. Follow-On Investments
25. Applicants state that from time to time the Regulated Funds and
Affiliated Funds may have opportunities to make Follow-On Investments
\16\ in an issuer in which a Regulated Fund and one or more other
Regulated Funds and/or Affiliated Funds previously have invested.
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\16\ ``Follow-On Investment'' means an additional investment in
the same issuer, including, but not limited to, through the exercise
of warrants, conversion privileges or other rights to purchase
securities of the issuer.
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26. Applicants propose that Follow-On Investments would be divided
into two categories depending on whether the prior investment was a Co-
Investment Transaction or a Pre-Boarding Investment.\17\ If the
Regulated Funds and Affiliated Funds had previously participated in a
Co-Investment Transaction with respect to the issuer and only such
funds are participating in the Follow-On Investment, then the terms and
approval of the Follow-On Investment would be subject to the Standard
Review Follow-Ons described in Condition 8. If the Regulated Funds and
Affiliated Funds have not previously participated in a Co-Investment
Transaction with respect to the issuer but hold a Pre-Boarding
Investment and only such funds are participating in the Follow-On
Investment, then the terms and approval of the Follow-On Investment
would be subject to the Enhanced-Review Follow-Ons described in
Condition 9. All Enhanced Review Follow-Ons require the approval of the
Required Majority. For a given issuer, the participating Regulated
Funds and Affiliated Funds would need to comply with the requirements
of Enhanced-Review Follow-Ons only for the first Co-Investment
Transaction. Subsequent Co-Investment Transactions with respect to the
issuer would be governed by the requirements of Standard Review Follow-
Ons.
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\17\ ``Pre-Boarding Investments'' are investments in an issuer
held by a Regulated Fund as well as one or more Affiliated Funds
and/or one or more other Regulated Funds that were acquired prior to
participating in any Co-Investment Transaction: (i) In transactions
in which the only term negotiated by or on behalf of such funds was
price in reliance on one of the JT No-Action Letters; (ii) in
transactions occurring at least 90 days apart and without
coordination between the Regulated Fund and any Affiliated Fund or
other Regulated Fund.
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27. A Regulated Fund would be permitted to invest in Standard
Review Follow-Ons either with the approval of the Required Majority
under Condition 8(c) or without Board approval under Condition 8(b) if
it is (i) a Pro Rata
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Follow-On Investment \18\ or (ii) a Non-Negotiated Follow-On
Investment.\19\ Applicants believe that these Pro Rata and Non-
Negotiated Follow-On Investments do not present a significant
opportunity for overreaching on the part of any Adviser and thus do not
warrant the time or the attention of the Board. Pro Rata Follow-On
Investments and Non-Negotiated Follow-On Investments remain subject to
the Board's periodic review in accordance with Condition 10.
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\18\ A ``Pro Rata Follow-On Investment'' is a Follow-On
Investment (i) in which the participation of each Affiliated Fund
and each Regulated Fund is proportionate to its outstanding
investments in the issuer or security, as appropriate, immediately
preceding the Follow-On Investment, and (ii) in the case of a
Regulated Fund, a majority of the Board has approved the Regulated
Fund's participation in the pro rata Follow-On Investments as being
in the best interests of the Regulated Fund. The Regulated Fund's
Board may refuse to approve, or at any time rescind, suspend or
qualify, its approval of Pro Rata Follow-On Investments, in which
case all subsequent Follow-On Investments will be submitted to the
Regulated Fund's Eligible Directors in accordance with Condition
8(c).
\19\ A ``Non-Negotiated Follow-On Investment'' is a Follow-On
Investment in which a Regulated Fund participates together with one
or more Affiliated Funds and/or one or more other Regulated Funds
(i) in which the only term negotiated by or on behalf of the funds
is price and (ii) with respect to which, if the transaction were
considered on its own, the funds would be entitled to rely on one of
the JT No-Action Letters.
``JT No-Action Letters'' means SMC Capital, Inc., SEC No-Action
Letter (pub. avail. Sept. 5, 1995) and Massachusetts Mutual Life
Insurance Company, SEC No-Action Letter (pub. avail. June 7, 2000).
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C. Dispositions
28. Applicants propose that Dispositions \20\ would be divided into
two categories. If the Regulated Funds and Affiliated Funds holding
investments in the issuer had previously participated in a Co-
Investment Transaction with respect to the issuer, then the terms and
approval of the Disposition would be subject to the Standard Review
Dispositions described in Condition 6. If the Regulated Funds and
Affiliated Funds have not previously participated in a Co-Investment
Transaction with respect to the issuer but hold a Pre-Boarding
Investment, then the terms and approval of the Disposition would be
subject to the Enhanced Review Dispositions described in Condition 7.
Subsequent Dispositions with respect to the same issuer would be
governed by Condition 6 under the Standard Review Dispositions.\21\
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\20\ ``Disposition'' means the sale, exchange or other
disposition of an interest in a security of an issuer.
\21\ However, with respect to an issuer, if a Regulated Fund's
first Co-Investment Transaction is an Enhanced Review Disposition,
and the Regulated Fund does not dispose of its entire position in
the Enhanced Review Disposition, then before such Regulated Fund may
complete its first Standard Review Follow-On in such issuer, the
Eligible Directors must review the proposed Follow-On Investment not
only on a stand-alone basis but also in relation to the total
economic exposure in such issuer (i.e., in combination with the
portion of the Pre-Boarding Investment not disposed of in the
Enhanced Review Disposition), and the other terms of the
investments. This additional review would be required because such
findings would not have been required in connection with the prior
Enhanced Review Disposition, but they would have been required had
the first Co-Investment Transaction been an Enhanced Review Follow-
On.
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29. A Regulated Fund may participate in a Standard Review
Disposition either with the approval of the Required Majority under
Condition 6(d) or without Board approval under Condition 6(c) if (i)
the Disposition is a Pro Rata Disposition \22\ or (ii) the securities
are Tradable Securities \23\ and the Disposition meets the other
requirements of Condition 6(c)(ii). Pro Rata Dispositions and
Dispositions of a Tradable Security remain subject to the Board's
periodic review in accordance with Condition 10.
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\22\ A ``Pro Rata Disposition'' is a Disposition (i) in which
the participation of each Affiliated Fund and each Regulated Fund is
proportionate to its outstanding investment in the security subject
to Disposition immediately preceding the Disposition; and (ii) in
the case of a Regulated Fund, a majority of the Board has approved
the Regulated Fund's participation in pro rata Dispositions as being
in the best interests of the Regulated Fund. The Regulated Fund's
Board may refuse to approve, or at any time rescind, suspend or
qualify, its approval of Pro Rata Dispositions, in which case all
subsequent Dispositions will be submitted to the Regulated Fund's
Eligible Directors.
\23\ ``Tradable Security'' means a security that meets the
following criteria at the time of Disposition: (i) It trades on a
national securities exchange or designated offshore securities
market as defined in rule 902(b) under the Securities Act; (ii) it
is not subject to restrictive agreements with the issuer or other
security holders; and (iii) it trades with sufficient volume and
liquidity (findings as to which are documented by the Advisers to
any Regulated Funds holding investments in the issuer and retained
for the life of the Regulated Fund) to allow each Regulated Fund to
dispose of its entire position remaining after the proposed
Disposition within a short period of time not exceeding 30 days at
approximately the value (as defined by section 2(a)(41) of the Act)
at which the Regulated Fund has valued the investment.
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D. Delayed Settlement
30. Applicants represent that under the terms and Conditions of the
application, all Regulated Funds and Affiliated Funds participating in
a Co-Investment Transaction will invest at the same time, for the same
price and with the same terms, conditions, class, registration rights
and any other rights, so that none of them receives terms more
favorable than any other. However, the settlement date for an
Affiliated Fund in a Co-Investment Transaction may occur up to ten
business days after the settlement date for the Regulated Fund, and
vice versa. Nevertheless, in all cases, (i) the date on which the
commitment of the Affiliated Funds and Regulated Funds is made will be
the same even where the settlement date is not and (ii) the earliest
settlement date and the latest settlement date of any Affiliated Fund
or Regulated Fund participating in the transaction will occur within
ten business days of each other.
E. Holders
31. Under Condition 15, if an Adviser, its principals, or any
person controlling, controlled by, or under common control with the
Adviser or its 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 directed by an independent third
party when voting on matters specified in the Condition. Applicants
believe that this Condition will ensure that the Independent Directors
will act independently in evaluating Co-Investment Transactions,
because the ability of the Adviser or its principals to influence the
Independent Directors by a suggestion, explicit or implied, that the
Independent Directors can be removed will be limited significantly. The
Independent Directors shall evaluate and approve any independent 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 17(d) of the Act and rule 17d-1 under the Act prohibit
participation by a registered investment company and an affiliated
person in any ``joint enterprise or other joint arrangement or profit-
sharing plan,'' as defined in the rule, without prior approval by the
Commission by order upon application. 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. Similarly, with regard to BDCs, section 57(a)(4) of the Act
generally prohibits certain persons specified in section 57(b) from
participating in joint transactions with the BDC or a company
controlled by the BDC in contravention of rules as prescribed by the
Commission. 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
[[Page 24558]]
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.
3. Co-Investment Transactions are prohibited by either or both of
rule 17d-1 and section 57(a)(4) without a prior exemptive order of the
Commission to the extent that the Affiliated Funds and the Regulated
Funds participating in such transactions fall within the category of
persons described by rule 17d-1 and/or section 57(b), as modified by
rule 57b-1 thereunder, as applicable, vis-[agrave]-vis each
participating Regulated Fund. Each of the participating Regulated Funds
and Affiliated Funds may be deemed to be affiliated persons vis-
[agrave]-vis a Regulated Fund within the meaning of section 2(a)(3) by
reason of common control because (i) BlackRock Capital Advisor or an
Adviser controlled by BlackRock Capital Advisor manages each of the
Existing Affiliated Funds and may be deemed to control the Existing
Affiliated Funds, and an Adviser will advise or sub-advise and will
control any future Affiliated Fund, (ii) BlackRock Capital Advisor or
an Adviser controlled by BlackRock Capital Advisor serves or will serve
an investment adviser or sub-adviser to each of the Regulated Funds,
including BCIC, TCPC and BCSF and may be deemed to control the
Regulated Funds, and (iii) each BDC Downstream Fund \24\ will be,
deemed to be controlled by an Adviser, its parent BDC or certain of its
parent BDC's subsidiaries. Thus, each of the Affiliated Funds could be
deemed to be a person related to the BDC Regulated Funds or the BDC
Downstream Funds in a manner described by section 57(b) and related to
other Regulated Funds in a manner described by rule 17d-1; and
therefore the prohibitions of rule 17d-1 and section 57(a)(4) would
apply respectively to prohibit the Affiliated Funds from participating
in Co-Investment Transactions with the Regulated Funds. Each Regulated
Fund would also be related to each other Regulated Fund in a manner
described by 57(b) or rule 17d-1, as applicable, and thus prohibited
from participating in Co-Investment Transactions with each other.
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\24\ ``BDC Downstream Fund'' means, with respect to any
Regulated Fund that is a BDC, an entity (i) that the BDC directly or
indirectly controls, (ii) that is not controlled by any person other
than the BDC (except a person that indirectly controls the entity
solely because it controls the BDC), (iii) that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act,
(iv) whose investment adviser or sub-adviser is an Adviser, (v) that
is not a Wholly-Owned Investment Sub and (vi) that intends to
participate in the Co-Investment Program.
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4. 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.
5. Applicants state that in the absence of the requested relief, in
many circumstances the Regulated Funds would be limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants state that, as required by rule 17d-1(b), the
Conditions ensure that the terms on which Co-Investment Transactions
may be made will be consistent with the participation of the Regulated
Funds being on a basis that it is neither different from nor less
advantageous than other participants, thus protecting the equity
holders of any participant from being disadvantaged. Applicants further
state that the Conditions ensure that all Co-Investment Transactions
are reasonable and fair to the Regulated Funds and their shareholders
and do not involve overreaching by any person concerned, including the
Advisers. Applicants state that the Regulated Funds' participation in
the Co-Investment Transactions in accordance with the Conditions will
be consistent with the provisions, policies, and purposes of the Act
and would be done in a manner 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. Identification and Referral of Potential Co-Investment
Transactions.
(a) The Advisers will establish, maintain and implement policies
and procedures reasonably designed to ensure that each Adviser is
promptly notified of all Potential Co-Investment Transactions that fall
within the then-current Objectives and Strategies and Board-Established
Criteria of any Regulated Fund the Adviser manages.
(b) When an Adviser to a Regulated Fund is notified of a Potential
Co-Investment Transaction under Condition 1(a), the Adviser will make
an independent determination of the appropriateness of the investment
for the Regulated Fund in light of the Regulated Fund's then-current
circumstances.\25\
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\25\ BAL and any investment adviser to a Sub-Advised Fund will
not be the source of any Potential Co-Investment Transactions under
the Order.
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2. Board Approvals of Co-Investment Transactions.
(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 Advisers to be
invested in the Potential Co-Investment Transaction by the
participating Regulated Funds and any participating Affiliated Funds,
collectively, exceeds the amount of the investment opportunity, the
investment opportunity will be allocated among them pro rata based on
the size of the Internal Orders, as described in section III.A.1.b. of
the application. Each Adviser to a participating Regulated Fund will
promptly notify and provide the Eligible Directors with information
concerning the Affiliated Funds' and Regulated Funds' order sizes to
assist the Eligible Directors with their review of the applicable
Regulated Fund's investments for compliance with these Conditions.
(c) After making the determinations required in Condition 1(b)
above, each Adviser to a participating Regulated Fund will distribute
written information concerning the Potential Co-Investment Transaction
(including the amount proposed to be invested by each participating
Regulated Fund and each participating Affiliated Fund) to the Eligible
Directors of its participating Regulated Fund(s) for their
consideration. A Regulated Fund will enter into a Co-Investment
Transaction with one or more other Regulated Funds or 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 transaction, including the consideration to be
paid, are reasonable and fair to the Regulated Fund and its equity
holders and do not involve overreaching in respect of the Regulated
Fund or its equity holders on the part of any person concerned;
(ii) the transaction is consistent with:
(A) The interests of the Regulated Fund's equity holders; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Fund(s) or Affiliated
Fund(s) 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 any other Regulated
[[Page 24559]]
Fund(s) or Affiliated Fund(s) participating in the transaction;
provided that the Required Majority shall not be prohibited from
reaching the conclusions required by this Condition 2(c)(iii) if:
(A) The settlement date for another Regulated Fund or an Affiliated
Fund in a Co-Investment Transaction is later than the settlement date
for the Regulated Fund by no more than ten business days or earlier
than the settlement date for the Regulated Fund by no more than ten
business days, in either case, so long as: (x) The date on which the
commitment of the Affiliated Funds and Regulated Funds is made is the
same; and (y) the earliest settlement date and the latest settlement
date of any Affiliated Fund or Regulated Fund participating in the
transaction will occur within ten business days of each other; or
(B) 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, the right to have
a board observer or any similar right to participate in the governance
or management of the portfolio company so long as: (x) The Eligible
Directors will have the right to ratify the selection of such director
or board observer, if any; (y) the 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 (z) any fees or other compensation that any other Regulated Fund or
Affiliated Fund or any affiliated person of any other Regulated Fund or
Affiliated Fund receives in connection with the right of one or more
Regulated Funds or Affiliated Funds 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 any participating Affiliated Funds (who may, in turn, share their
portion with their affiliated persons) and any participating Regulated
Fund(s) in accordance with the amount of each such party's investment;
and
(iv) the proposed investment by the Regulated Fund will not involve
compensation, remuneration or a direct or indirect \26\ financial
benefit to the Advisers, any other Regulated Fund, the Affiliated 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 14, (B) to the extent permitted by section 17(e) or 57(k), 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)(B)(z).
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\26\ For example, procuring the Regulated Fund's investment in a
Potential Co-Investment Transaction to permit an affiliate to
complete or obtain better terms in a separate transaction would
constitute an indirect financial benefit.
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3. Right to Decline. 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. General Limitation. Except for Follow-On Investments made in
accordance with Conditions 8 and 9 below,\27\ a Regulated Fund will not
invest in reliance on the Order in any issuer in which a Related Party
has an investment.\28\
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\27\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which that Regulated Fund already holds
investments.
\28\ ``Related Party'' means (i) any Close Affiliate and (ii) in
respect of matters as to which any Adviser has knowledge, any Remote
Affiliate.
``Close Affiliate'' means the Advisers, the other Regulated
Funds, the Affiliated Funds and any other person described in
section 57(b) (after giving effect to rule 57b-1) in respect of any
Regulated Fund (treating any registered investment company or series
thereof as a BDC for this purpose) except for limited partners
included solely by reason of the reference in section 57(b) to
section 2(a)(3)(D).
``Remote Affiliate'' means any person described in section 57(e)
in respect of any Regulated Fund (treating any registered investment
company or series thereof as a BDC for this purpose) and any limited
partner holding 5% or more of the relevant limited partner interests
that would be a Close Affiliate but for the exclusion in that
definition.
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5. Same Terms and Conditions. A Regulated Fund will not participate
in any Potential Co-Investment Transaction unless (i) the terms,
conditions, price, class of securities to be purchased, date on which
the commitment is entered into and registration rights (if any) will be
the same for each participating Regulated Fund and Affiliated Fund and
(ii) the earliest settlement date and the latest settlement date of any
participating Regulated Fund or Affiliated Fund will occur as close in
time as practicable and in no event more than ten business days apart.
The grant to one or more Regulated Funds or Affiliated Funds, but not
the respective 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 5, if Condition
2(c)(iii)(B) is met.
6. Standard Review Dispositions.
(a) General. If any Regulated Fund or Affiliated Fund elects to
sell, exchange or otherwise dispose of an interest in a security and
one or more Regulated Funds and Affiliated Funds have previously
participated in a Co-Investment Transaction with respect to the issuer,
then:
(i) The Adviser to such Regulated Fund or Affiliated Fund will
notify each Regulated Fund that holds an investment in the issuer of
the proposed Disposition at the earliest practical time; and
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition.
(b) Same Terms and Conditions. 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 Affiliated Funds and any other Regulated Fund.
(c) No Board Approval Required. A Regulated Fund may participate in
such a Disposition without obtaining prior approval of the Required
Majority if:
(i) (A) the participation of each Regulated Fund and Affiliated
Fund in such Disposition is proportionate to its then-current holding
of the security (or securities) of the issuer that is (or are) the
subject of the Disposition; \29\ (B) 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 (C) the Board of
the Regulated Fund is provided on a quarterly basis with a list of all
Dispositions made in accordance with this Condition; or
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\29\ In the case of any Disposition, proportionality will be
measured by each participating Regulated Fund's and Affiliated
Fund's outstanding investment in the security in question
immediately preceding the Disposition.
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(ii) each security is a Tradable Security and (A) the Disposition
is not to the issuer or any affiliated person of the issuer; and (B)
the security is sold for cash in a transaction in which the only term
negotiated by or on behalf of the participating Regulated Funds and
Affiliated Funds is price.
(d) Standard Board Approval. In all other cases, the Adviser will
provide its written recommendation as to the Regulated Fund's
participation to the
[[Page 24560]]
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.
7. Enhanced Review Dispositions.
(a) General. If any Regulated Fund or Affiliated Fund elects to
sell, exchange or otherwise dispose of a Pre-Boarding Investment in a
Potential Co-Investment Transaction and the Regulated Funds and
Affiliated Funds have not previously participated in a Co-Investment
Transaction with respect to the issuer:
(i) The Adviser to such Regulated Fund or Affiliated Fund will
notify each Regulated Fund that holds an investment in the issuer of
the proposed Disposition at the earliest practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Funds, including the terms of such investments and how they
were made, that is necessary for the Required Majority to make the
findings required by this Condition.
(b) Enhanced Board Approval. 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:
(i) The Disposition complies with Condition 2(c)(i), (ii),
(iii)(A), and (iv).
(ii) the making and holding of the Pre-Boarding Investments were
not prohibited by section 57 or rule 17d-1, as applicable, and records
the basis for the finding in the Board minutes.
(c) Additional Requirements. The Disposition may only be completed
in reliance on the Order if:
(i) Same Terms and Conditions. Each Regulated Fund has 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
Affiliated Funds and any other Regulated Fund;
(ii) Original Investments. All of the Affiliated Funds' and
Regulated Funds' investments in the issuer are Pre-Boarding
Investments;
(iii) Advice of counsel. Independent counsel to the Board advises
that the making and holding of the investments in the Pre-Boarding
Investments were not prohibited by section 57 (as modified by rule 57b-
1) or rule 17d-1, as applicable;
(iv) Multiple Classes of Securities. All Regulated Funds and
Affiliated Funds that hold Pre-Boarding Investments in the issuer
immediately before the time of completion of the Co-Investment
Transaction hold the same security or securities of the issuer. For the
purpose of determining whether the Regulated Funds and Affiliated Funds
hold the same security or securities, they may disregard any security
held by some but not all of them if, prior to relying on the Order, the
Required Majority is presented with all information necessary to make a
finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's
holding of a different class of securities (including for this purpose
a security with a different maturity date) is immaterial \30\ in
amount, including immaterial relative to the size of the issuer; and
(y) the Board records the basis for any such finding in its minutes. In
addition, securities that differ only in respect of issuance date,
currency, or denominations may be treated as the same security; and
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\30\ In determining whether a holding is ``immaterial'' for
purposes of the Order, the Required Majority will consider whether
the nature and extent of the interest in the transaction or
arrangement is sufficiently small that a reasonable person would not
believe that the interest affected the determination of whether to
enter into the transaction or arrangement or the terms of the
transaction or arrangement.
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(v) No control. The Affiliated Funds, the other Regulated Funds and
their affiliated persons (within the meaning of section 2(a)(3)(C) of
the Act), individually or in the aggregate, do not control the issuer
of the securities (within the meaning of section 2(a)(9) of the Act).
8. Standard Review Follow-Ons.
(a) General. If any Regulated Fund or Affiliated Fund desires to
make a Follow-On Investment in an issuer and the Regulated Funds and
Affiliated Funds holding investments in the issuer previously
participated in a Co-Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Fund will
notify each Regulated Fund that holds securities of the portfolio
company of the proposed transaction at the earliest practical time; and
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund.
(b) No Board Approval Required. A Regulated Fund may participate in
the Follow-On Investment without obtaining prior approval of the
Required Majority if:
(i) (A) The proposed participation of each Regulated Fund and each
Affiliated Fund in such investment is proportionate to its outstanding
investments in the issuer or the security at issue, as appropriate,\31\
immediately preceding the Follow-On Investment; and
(B) 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); or
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\31\ To the extent that a Follow-On Investment opportunity is in
a security or arises in respect of a security held by the
participating Regulated Funds and Affiliated Funds, proportionality
will be measured by each participating Regulated Fund's and
Affiliated Fund's outstanding investment in the security in question
immediately preceding the Follow-On Investment using the most recent
available valuation thereof. To the extent that a Follow-On
Investment opportunity relates to an opportunity to invest in a
security that is not in respect of any security held by any of the
participating Regulated Funds or Affiliated Funds, proportionality
will be measured by each participating Regulated Fund's and
Affiliated Fund's outstanding investment in the issuer immediately
preceding the Follow-On Investment using the most recent available
valuation thereof.
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(ii) it is a Non-Negotiated Follow-On Investment.
(c) Standard Board Approval. 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 makes the determinations set forth in Condition 2(c).
If the only previous Co-Investment Transaction with respect to the
issuer was an Enhanced Review Disposition the Eligible Directors must
complete this review of the proposed Follow-On Investment both on a
stand-alone basis and together with the Pre-Boarding Investments in
relation to the total economic exposure and other terms of the
investment.
(d) Allocation. If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Funds' outstanding investments in the issuer or the security
at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount recommended by the Advisers to be
invested in the Follow-On Investment by the participating Regulated
Funds
[[Page 24561]]
and any participating Affiliated Funds, collectively, exceeds the
amount of the investment opportunity, then the Follow-On Investment
opportunity will be allocated among them pro rata based on the size of
the Internal Orders, as described in section III.A.1.b. of the
application.
(e) Other Conditions. 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. Enhanced Review Follow-Ons.
(a) General. If any Regulated Fund or Affiliated Fund desires to
make a Follow-On Investment in an issuer that is a Potential Co-
Investment Transaction and the Regulated Funds and Affiliated Funds
holding investments in the issuer have not previously participated in a
Co-Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Fund will
notify each Regulated Fund that holds securities of the portfolio
company of the proposed transaction at the earliest practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Funds, including the terms of such investments and how they
were made, that is necessary for the Required Majority to make the
findings required by this Condition.
(b) Enhanced Board Approval. 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 reviews the
proposed Follow-On Investment both on a stand-alone basis and together
with the Pre-Boarding Investments in relation to the total economic
exposure and other terms and makes the determinations set forth in
Condition 2(c). In addition, the Follow-On Investment may only be
completed in reliance on the Order if the Required Majority of each
participating Regulated Fund determines that the making and holding of
the Pre-Boarding Investments were not prohibited by section 57 (as
modified by rule 57b-1) or rule 17d-1, as applicable. The basis for the
Board's findings will be recorded in its minutes.
(c) Additional Requirements. The Follow-On Investment may only be
completed in reliance on the Order if:
(i) Original Investments. All of the Affiliated Funds' and
Regulated Funds' investments in the issuer are Pre-Boarding
Investments;
(ii) Advice of counsel. Independent counsel to the Board advises
that the making and holding of the investments in the Pre-Boarding
Investments were not prohibited by section 57 (as modified by rule 57b-
1) or rule 17d-1, as applicable;
(iii) Multiple Classes of Securities. All Regulated Funds and
Affiliated Funds that hold Pre-Boarding Investments in the issuer
immediately before the time of completion of the Co-Investment
Transaction hold the same security or securities of the issuer. For the
purpose of determining whether the Regulated Funds and Affiliated Funds
hold the same security or securities, they may disregard any security
held by some but not all of them if, prior to relying on the Order, the
Required Majority is presented with all information necessary to make a
finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's
holding of a different class of securities (including for this purpose
a security with a different maturity date) is immaterial in amount,
including immaterial relative to the size of the issuer; and (y) the
Board records the basis for any such finding in its minutes. In
addition, securities that differ only in respect of issuance date,
currency, or denominations may be treated as the same security; and
(iv) No control. The Affiliated Funds, the other Regulated Funds
and their affiliated persons (within the meaning of section 2(a)(3)(C)
of the Act), individually or in the aggregate, do not control the
issuer of the securities (within the meaning of section 2(a)(9) of the
Act).
(d) Allocation. If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Funds' outstanding investments in the issuer or the security
at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount recommended by the Advisers to be
invested in the Follow-On Investment by the participating Regulated
Funds and any participating Affiliated Funds, collectively, exceeds the
amount of the investment opportunity, then the Follow-On Investment
opportunity will be allocated among them pro rata based on the size of
the Internal Orders, as described in section III.A.1.b. of the
application.
(e) Other Conditions. 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.
10. Board Reporting, Compliance and Annual Re-Approval.
(a) Each Adviser to a Regulated Fund will present to the Board of
each Regulated Fund, on a quarterly basis, and at such other times as
the Board may request, (i) a record of all investments in Potential Co-
Investment Transactions made by any of the other Regulated Funds or any
of the Affiliated Funds during the preceding quarter that fell within
the Regulated Fund's then-current Objectives and Strategies and Board-
Established Criteria that were not made available to the Regulated
Fund, and an explanation of why such investment opportunities were not
made available to the Regulated Fund; (ii) a record of all Follow-On
Investments in and Dispositions of investments in any issuer in which
the Regulated Fund holds any investments by any Affiliated Fund or
other Regulated Fund during the prior quarter; and (iii) 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 Independent Directors, may
determine whether all Potential Co-Investment Transactions and Co-
Investment Transactions during the preceding quarter, including those
investments that the Regulated Fund considered but declined to
participate in, comply with the Conditions.
(b) All information presented to the Regulated Fund's 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.
(c) 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.
In the case of a BDC Downstream Fund that does not have a chief
compliance officer, the chief
[[Page 24562]]
compliance officer of the BDC that controls the BDC Downstream Fund
will prepare the report for the relevant Independent Party.
(d) The Eligible Directors will consider at least annually: (i) The
continued appropriateness for the Regulated Fund of participating in
new and existing Co-Investment Transactions; and (ii) the continued
appropriateness of any Board-Established Criteria.
11. Record Keeping. 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).
12. Director Independence. No Independent Director (including the
non-interested members of any Independent Party) of a Regulated Fund
will also be a director, general partner, managing member or principal,
or otherwise be an ``affiliated person'' (as defined in the Act) of any
Affiliated Fund.
13. Expenses. 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 advisory agreements with the Regulated Funds and the
Affiliated Funds, be shared by the Regulated Funds and the
participating Affiliated Funds in proportion to the relative amounts of
the securities held or being acquired or disposed of, as the case may
be.
14. Transaction Fees.\32\ Any transaction fee (including break-up,
structuring, monitoring or commitment fees but excluding brokerage or
underwriting compensation permitted by section 17(e) or 57(k)) received
in connection with any Co-Investment Transaction will be distributed to
the participants 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 the Adviser at a bank or banks having the qualifications prescribed
in section 26(a)(1), and the account will earn a competitive rate of
interest that will also be divided pro rata among the participants.
None of the Advisers, the Affiliated Funds, the other Regulated Funds
or any affiliated person of the Affiliated Funds or the Regulated Funds
will receive any additional compensation or remuneration of any kind as
a result of or in connection with a Co-Investment Transaction other
than (i) 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)(B)(z), (ii) brokerage or
underwriting compensation permitted by section 17(e) or 57(k) or (iii)
in the case of the Advisers, investment advisory compensation paid in
accordance with investment advisory agreements between the applicable
Regulated Fund(s) or Affiliated Fund(s) and its Adviser.
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\32\ Applicants are not requesting and the Commission is not
providing any relief for transaction fees received in connection
with any Co-Investment Transaction.
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15. Independence. 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) any other matter under either the Act or applicable
State law affecting the Board's composition, size or manner of
election.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10975 Filed 5-24-19; 8:45 am]
BILLING CODE 8011-01-P