[Federal Register Volume 87, Number 7 (Tuesday, January 11, 2022)]
[Notices]
[Pages 1446-1451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00244]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 34465; File No. 812-15190]
HPS Corporate Lending Fund, et al.
January 5, 2022.
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: HPS Corporate Lending Fund (``HPS Fund''); HPS Investment
Partners, LLC (``HPS''); Brickyard Direct Lending Fund, L.P.; Core
Senior Lending Fund (A-A), L.P.; Core Senior Lending Fund, L.P.; HPS
DPT Direct Lending Fund, L.P.; Hinode Direct Lending 2017 Fund, L.P.;
Kitty Hawk Credit Fund, L.P.; HPS Investment Partners (UK) LLP; HPS
Investment Partners (HK), Limited; HPS Investments Partners (AUS) Pty
Ltd.; HPS ALSC Management, LLC; HPS Mezzanine Partners, LLC; HPS
Mezzanine Partners II, LLC; HPS Mezzanine Management III, LLC; HPS
Mezzanine Management 2019, LLC; HPS Opportunities SL Management, LLC;
HPS RE Management, LLC; HPS Investment Partners CLO (US), LLC; HPS
Investment Partners CLO (UK) LLP; HPS EF GP, LLC; HPS EL SLF 2016 GP,
LLC; CGC, LLC; CGC III Partners LLC; Core Senior Lending Master Fund
(PB), L.P.; HPS Core Senior Lending Portfolio (PB) II, L.P.; Credit
Value Master Fund 2016, L.P.; Credit Value Master Fund V, L.P.; Credit
Value Ontario Fund V, L.P.; Credit Value Master Fund VI, L.P.; European
Asset Value Fund (USD) II, L.P.; European Asset Value Offshore Fund
(USD) II, L.P.; European Asset Value Offshore Fund II, L.P.; HPS
European Liquid Loan Opportunities Master Fund, L.P.; HPS Mezzanine
Partners 2019, L.P.; HPS Offshore Mezzanine Partners 2019 Co-Invest,
L.P.; HPS Offshore Mezzanine Partners 2019 Europe, SCSp; HPS Offshore
Mezzanine Partners 2019, L.P.; HPS Special Situations Opportunity Fund,
L.P.; HPS Special Situations Opportunity Offshore Fund, L.P.; HPS
Specialty Loan Europe Fund V, SCSp; HPS Specialty Loan Fund (JPY) V,
L.P.; HPS Specialty Loan Fund V, L.P.; HPS Specialty Loan Fund V-L,
L.P.; HPS Specialty Loan International Fund V, SCSp; HPS Specialty Loan
International Fund V-L, L.P.; Institutional Credit Master Fund, L.P.;
Liquid Loan Opportunities Master Fund, L.P.; Mayfair Alternative Credit
Funds ICAV; Mezzanine Partners III, L.P.; Offshore Mezzanine Partners
III Co-Invest, L.P.; Offshore Mezzanine Partners III, L.P.; Real Estate
Credit Solutions Fund II, L.P.; Real Estate Credit Solutions Offshore
Fund II, L.P.; Specialty Loan Fund 2016, L.P.; Specialty Loan Fund
2016-L, L.P.; Specialty Loan Institutional Fund 2016-L, L.P.; Aspen Co-
Invest, L.P.; Bronco Co-Invest, L.P; Endurance II Co-Invest, L.P.;
Galaxy III Co-Invest, L.P.; Milano Co-Invest, L.P.; Neptune Co-Invest,
L.P.; Patriot Co-Invest, L.P.; Aiguilles Rouges Irish Specialty Loan
Fund plc; Aiguilles Rouges Specialty Loan Fund, L.P.; Cactus Direct
Lending Fund, L.P.; Cardinal Fund, L.P.; CST Specialty Loan Fund, L.P.;
Falcon Credit Fund, L.P.; GIM Credit Lux S.A.; GIM Credit Master Lux
S.[agrave] r.l.; GIM II, L.P.; GIM, L.P.; HC Direct Lending Fund, L.P.;
HN Co-Investment Fund, L.P.; HPS Core Senior Lending Co-Invest, L.P.;
HPS Halite 2020 Direct Lending Fund Limited; HPS KP Mezz 2019 Co-
Invest, L.P.; HPS Magnetite Energy & Power Credit Fund, L.P.; HPS
Magnetite Energy & Power Credit Offshore Fund, L.P.; HPS Ocoee
Specialty Loan Fund, L.P.; HPS OH Co-Investment Fund, L.P.; HPS PA Co-
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Investment Fund, L.P.; HPS RR Specialty Loan Fund, L.P.; HPS VG Co-
Investment Fund, L.P.; Jade Real Assets Fund, L.P.; Mauna Kea Fund,
L.P.; Moreno Street Direct Lending Fund, L.P.; NDT Senior Loan Fund,
L.P.; Presidio Loan Fund, L.P.; Private Loan Opportunities Fund, L.P.;
Red Cedar Fund 2016, L.P.; Sandlapper Credit Fund, L.P.; SC Strategic
Investment Fund, L.P.; Specialty Loan Fund--CX-2, L.P.; Specialty Loan
VG Fund, L.P.; AP Mezzanine Partners III, L.P.; HPS AP Mezzanine
Partners 2019, L.P.; HPS Hinode Mezzanine Partners 2020, L.P.;
Specialty Loan Ontario Fund 2016, L.P.; EL Specialty Loan Secondary
Fund, L.P.; HPS Offshore Strategic Investment Partners V, L.P.; HPS
Strategic Investment Partners V, L.P.; HPS AP Strategic Investment
Partners V, L.P.; HPS AD Co-Investment Holdings, L.P.; HPS Strategic
Investment Management V, LLC; HPS Elbe Unlevered Direct Lending Fund,
SCSp; HPS Specialty Loan Ontario Fund V, L.P.; Shelby Co-Invest, L.P.;
Core Senior Lending Fund II, SCSp; Core Senior Lending International
Fund II, SCSp; HPS Offshore Strategic Investment Partners V Europe,
SCSp; Segovia Loan Advisors (UK) LLP; HPS Core Senior Lending
International Fund (EUR) II, SCSp; HPS Specialty Loan Fund (EUR) V,
L.P.; Proxima Co-Invest, L.P.; Proxima Onshore Co-Invest, L.P.; HPS
Specialty Loan Fund TX, L.P.; Salus Co-Invest, L.P.; Credit Value Fund
VII, L.P.; Credit Value Offshore Fund VII, LP.; HPS Mint Co-Invest,
L.P.; HPS Special Situations Opportunity Fund II, L.P.; HPS Specialty
Situations Opportunity Offshore Fund II; SCSp; Credit Value Ontario
Fund VII; L.P; HPS Specialty Situation Opportunity Fund II; HN SIP Co-
Investment Fund, L.P.; Core Senior Lending Fund II Feeder, L.P; and HPS
KP SIP V Co-Investment Fund, L.P.
Filing Dates: The application was filed on December 30, 2020, and
amended on April 21, 2021, August 5, 2021, November 5, 2021, and
December 23, 2021.
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 emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request by email. Hearing requests should be received by
the Commission by 5:30 p.m. on January 31, 2022, and should be
accompanied by proof of service on the 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 emailing the Commission's Secretary at [email protected].
ADDRESSES:
The Commission: [email protected].
Applicants: Yoohyun K. Choi at [email protected] and
Richard Horowitz, Esq. at [email protected].
FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at
(202) 551-3038, or Trace W. Rakestraw, Branch Chief, at (202) 551-6825
(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.
Applicants' Representations
1. HPS Fund is a Delaware statutory trust that is a non-diversified
closed-end management investment company that has elected to be
regulated as a business development company (``BDC'') under section
54(a) of the Act.\1\ HPS Fund's Objectives and Strategies \2\ are to
generate attractive risk adjusted returns, predominately in the form of
current income, with select investments exhibiting the ability to
capture long-term capital appreciation, by investing primarily in newly
originated senior secured debt and other securities of private U.S.
companies within the middle market and upper middle market. The board
of trustees (the ``Board'') \3\ of HPS Fund has five members, three of
whom are not ``interested persons'' of HPS Fund within the meaning of
section 2(a)(19) of the Act (``Independent Trustees'').\4\
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\1\ HPS Fund filed a Form N-54A on January 3, 2022. See https://www.sec.gov/Archives/edgar/data/1838126/000114036122000146/0001140361-22-000146-index.htm. Section 2(a)(48) of the Act defines
a BDC to be any closed-end investment company that operates for the
purpose of making investments in securities described in sections
55(a)(1) through 55(a)(3) of the Act and makes available significant
managerial assistance with respect to the issuers of such
securities.
\2\ ``Objectives and Strategies'' means the investment
objectives and strategies of a Regulated Entity (as defined below),
as described in the Regulated Entity's registration statement, other
filings the Regulated Entity 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 Entity's reports
to shareholders.
\3\ ``Board'' means the board of directors or equivalent of any
Regulated Entity.
\4\ ``Independent Trustees'' means, with respect to any Board,
the directors or trustees who are not ``interested persons'' within
the meaning of section 2(a)(19) of the Act.
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2. HPS, a Delaware limited liability company, is registered with
the Commission as an investment adviser under the Investment Advisers
Act of 1940 (``Advisers Act''). HPS serves as the investment adviser to
HPS Fund.
3. The Existing Affiliated Funds are the investment funds
identified on Schedule A to the application. Each Existing Affiliated
Fund would be an investment company but for section 3(c)(1) or section
3(c)(7) of the Act.
4. The investment advisory subsidiaries and relying advisers of HPS
identified on Schedule A to the application (each such investment
adviser and HPS, an ``Existing Adviser'' and collectively, the
``Existing Advisers''), serve as investment advisers to the respective
Existing Affiliated Funds. HPS controls the other Existing Advisers.
5. Applicants seek an order (``Order'') to permit a Regulated
Entity \5\ and one or more other Regulated Entities and one or more
Affiliated Funds \6\ to (a) participate in the same investment
opportunities through a proposed co-investment program where such
participation would otherwise be prohibited under section 17(d) or
section 57(a)(4) and the rules under the Act; and (b) make additional
investments in securities of such issuers (``Follow-On Investments''),
including through the exercise of warrants, conversion privileges, and
other rights
[[Page 1448]]
to purchase securities of the issuers. ``Co-Investment Transaction''
means any transaction in which a Regulated Entity (or its Wholly-Owned
Investment Sub, as defined below) participate together with one or more
other Regulated Entities and/or Affiliated Funds in reliance on the
requested Order. ``Potential Co-Investment Transaction'' means any
investment opportunity in which a Regulated Entity (or its Wholly-Owned
Investment Subs) could not participate together with one or more other
Regulated Entities and/or one or more Affiliated Funds without
obtaining and relying on the Order.\7\
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\5\ ``Regulated Entity'' means HPS Fund and any Future Regulated
Entity. ``Future Regulated Entity'' means any closed-end management
investment company formed in the future that is registered under the
1940 Act or any closed-end management investment company that has
elected to be regulated as a BDC, whose investment adviser is an
Adviser, and that intends to participate in the co-investment
program described in the application. ``Adviser'' means any Existing
Adviser and any Future Adviser. ``Future Adviser'' means any future
investment adviser that (i) controls, is controlled by or is under
common control with HPS, (ii) is registered as an investment adviser
under the Advisers Act, and (iii) is not a Regulated Entity or a
subsidiary of a Regulated Entity.
\6\ ``Affiliated Fund'' means any Existing Affiliated Fund or
any Future Affiliated Fund. ``Future Affiliated Fund'' means any
investment fund that would be an ``investment company'' but for
section 3(c)(1) or 3(c)(7) of the Act, is formed in the future,
whose investment adviser is an Adviser, and that intends to
participate in the co-investment program described in the
application. No Affiliated Fund is or will be a subsidiary of a
Regulated Entity.
\7\ All existing entities that currently intend to rely upon the
requested Order have been named as applicants. Any other existing or
future entity that subsequently relies on the Order will comply with
the terms and conditions of the application.
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6. Applicants state that any of the Regulated Entities, from time
to time, form one or more Wholly-Owned Investment Subs.\8\ Such a
subsidiary would be prohibited from investing in a Co-Investment
Transaction with any other Regulated Entity or Affiliated Fund because
it would be a company controlled by its parent Regulated Entity 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 Entity 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
Entity were participating directly. Applicants represent that this
treatment is justified because a Wholly-Owned Investment Sub would have
no purpose other than serving as a holding vehicle for the Regulated
Entity's investments and, therefore, no conflicts of interest could
arise between the Regulated Entity and the Wholly-Owned Investment Sub.
The Regulated Entity'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
Entity's Board would be informed of, and take into consideration, any
proposed use of a Wholly-Owned Investment Sub in the Regulated Entity's
place. If the Regulated Entity 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 Entity and the Wholly-Owned
Investment Sub.
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\8\ The term ``Wholly-Owned Investment Sub'' means an entity (a)
whose sole business purpose is to hold one or more investments on
behalf of a Regulated Entity (and, in the case of an SBIC Subsidiary
(as defined below), maintain a license under the Small Business
Investment Act of 1958, as amended (the ``SBA Act'') and issue
debentures guaranteed by the Small Business Administration (the
``SBA''); (b) that is wholly-owned by the Regulated Entity (with the
Regulated Entity at all times holding, beneficially and of record,
100% of the voting and economic interests); (c) with respect to
which the Regulated Entity's Board has the sole authority to make
all determinations with respect to the entity'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.
All subsidiaries of the Regulated Entity participating in the Co-
Investment Transactions will be Wholly-Owned Investment Subs. The
term ``SBIC Subsidiary'' means a Wholly-Owned Investment Sub that is
licensed by the SBA to operate under the SBA Act as a small business
investment company (an ``SBIC'').
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7. The Advisers expects that any portfolio company that is an
appropriate investment for a Regulated Entity should also be an
appropriate investment for one or more other Regulated Entities and/or
one or more Affiliated Funds, with certain exceptions based on
available capital or diversification.\9\ When considering Potential Co-
Investment Transactions for any Regulated Entity, the applicable
Adviser will consider only the Objectives and Strategies, Board-
Established Criteria,\10\ investment policies, investment positions,
capital available for investment, and other pertinent factors
applicable to that Regulated Entity. Applicants believe that the use of
Board-Established Criteria for each of the Regulated Entities is
appropriate based on the potential size and scope of HPS' advisory
business. Applicants argue that in addition to the other protections
offered by the conditions, using Board-Established Criteria in the
allocation of Potential Co-Investment Transactions will further reduce
the risk of subjectivity in the Adviser's determination of whether an
investment opportunity is appropriate for a Regulated Entity. In
connection with the Board's annual review of the continued
appropriateness of any Board-Established Criteria under condition 9,
the Regulated Entity's Adviser will provide information regarding any
Co-Investment Transaction (including, but not limited to, Follow-On
Investments) effected by the Regulated Entity that did not fit within
the then-current Board-Established Criteria.
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\9\ The Regulated Entities, however, will not be obligated to
invest, or co-invest, when investment opportunities are referred to
them.
\10\ ``Board-Established Criteria'' means criteria that the
Board of the applicable Regulated Entity may establish from time to
time to describe the characteristics of Potential Co-Investment
Transactions which would be within the Regulated Entity's then-
current Objectives and Strategies that the applicable Adviser should
consider as appropriate for the Regulated Entity. If no Board-
Established Criteria are in effect for a Regulated Entity, then such
Adviser will consider all Potential Co-Investment Transactions that
fall within the then-current Objectives and Strategies for that
Regulated Entity. Board-Established Criteria will be objective and
testable, meaning that they will be based on observable information,
such as such as industry/sector of the issuer, minimum earnings
before interest, taxes, depreciation and amortization of the issuer,
asset class of the investment opportunity or required commitment
size, and not on characteristics that involve discretionary
assessment. The Adviser to a Regulated Entity may from time to time
recommend criteria for the applicable Board's consideration, but
Board-Established Criteria will only become effective if approved by
a majority of the Independent Trustees. The Independent Trustees of
a Regulated Entity may at any time rescind, suspend, or qualify its
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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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), for each Regulated Entity, the
applicable Adviser will present each Potential Co-Investment
Transaction and the proposed allocation to the directors or trustees of
the Board eligible to vote under section 57(o) of the Act (``Eligible
Trustees''), and the ``required majority,'' as defined in section 57(o)
of the Act (``Required Majority'') \11\ will approve each Co-Investment
Transaction prior to any investment by the participating Regulated
Entity.
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\11\ In the case of a Regulated Entity that is a registered
fund, the Board members that make up the Required Majority will be
determined as if the Regulated Entity were a BDC subject to section
57(o).
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9. With respect to the pro rata dispositions and Follow-On
Investments provided in conditions 7 and 8, a Regulated Entity 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 Entity and
each 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 Entity has approved that Regulated Entity's
participation in pro rata dispositions and Follow-On Investments as
being in the best interests of the Regulated Entity. If the Board does
not so approve, any such disposition or Follow-On Investment will be
submitted to the Regulated Entity's Eligible Trustees. The Board of any
Regulated Entity may at any time rescind, suspend, or qualify its
approval of pro rata dispositions and Follow-On
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Investments with the result that all dispositions and/or Follow-On
Investments must be submitted to the Eligible Trustees.
10. No Independent Trustee of a Regulated Entity will have a direct
or indirect financial interest in any Co-Investment Transaction (other
than indirectly through share ownership in one of the Regulated
Entities), including any interest in any company whose securities would
be acquired in a Co-Investment Transaction.
11. Applicants also represent that 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% of the outstanding
voting shares of a Regulated Entity (the ``Shares''), then the Holders
will vote such Shares as required under condition 14.
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 Entities and Affiliated Funds could be
deemed to be a person related to each Regulated Entity 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 Entities that are BDCs. Section 17(d) of the Act and rule
17d-1 under the Act are applicable to Regulated Entities 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 Entities would be, in many 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 Entity's shareholders
and with the purposes intended by the policies and provisions of the
Act. Applicants state that the Regulated Entities' 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. (a) Each Adviser will establish, maintain and implement policies
and procedures reasonably designed to ensure that it identifies for
each Regulated Entity all Potential Co-Investment Transactions that (i)
the Adviser considers for any other Regulated Entity or Affiliated Fund
and (ii) fall within the Regulated Entity's then-current Objectives and
Strategies and Board-Established Criteria.
(b) When an Adviser identifies a Potential Co-Investment
Transaction for a Regulated Entity under condition 1(a), the Adviser
will make an independent determination of the appropriateness of the
investment for the Regulated Entity in light of the Regulated Entity's
then-current circumstances.
2. (a) If an Adviser deems a Regulated Entity's participation in
any Potential Co-Investment Transaction to be appropriate for the
Regulated Entity, the Adviser will then determine an appropriate level
of investment for the Regulated Entity.
(b) If the aggregate amount recommended by an Adviser to be
invested by the applicable Regulated Entity in the Potential Co-
Investment Transaction, together with the amount proposed to be
invested by the other participating Regulated Entities 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 capital available for
investment in the asset class being allocated, up to the amount
proposed to be invested by each. Each Adviser will provide the Eligible
Trustees of each participating Regulated Entity with information
concerning each participating party's available capital to assist the
Eligible Trustees with their review of the applicable Regulated
Entity's investments for compliance with these allocation procedures.
(c) After making the determinations required in conditions 1(b) 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 Entity
and each participating Affiliated Fund) to the Eligible Trustees of its
participating Regulated Entity for their consideration. A Regulated
Entity will enter into a Co-Investment Transaction with one or more
other Regulated Entities or Affiliated Funds only if, prior to the
Regulated Entity'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
Entity and its equity holders and do not involve overreaching in
respect of the Regulated Entity or its equity holders on the part of
any person concerned;
(ii) the Potential Co-Investment Transaction is consistent with:
(A) The interests of the Regulated Entity's equity holders; and
(B) the Regulated Entity's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Entities or any
Affiliated Funds would not disadvantage the Regulated Entity, and
participation by the Regulated Entity would not be on a basis different
from or less advantageous than that of any other Regulated Entities or
any Affiliated Funds; provided that, if any other Regulated Entity or
any Affiliated Fund, but not the Regulated Entity 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 Trustees will have the right to ratify the
selection of such director or board observer, if any; and
(B) the Adviser agrees to, and does, provide periodic reports to
the Board of
[[Page 1450]]
the Regulated Entity 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 Regulated Entity or any
Affiliated Fund or any affiliated person of any Regulated Entity or any
Affiliated Fund receives in connection with the right of a Regulated
Entity or an Affiliated 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 may each, in turn, share its
portion with its affiliated persons) and the participating Regulated
Entities in accordance with the amount of each party's investment; and
(iv) the proposed investment by the Regulated Entity will not
benefit any Adviser, the other Regulated Entities, 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 13, (B) to the extent permitted by sections 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 Entity 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 Entity, on a quarterly basis, a record of all investments in
Potential Co-Investment Transactions made by any other Regulated Entity
or Affiliated Fund during the preceding quarter that fell within the
Regulated Entity's then-current Objectives and Strategies and Board-
Established Criteria that were not made available to the Regulated
Entity, and an explanation of why the investment opportunities were not
offered to the Regulated Entity. All information presented to the Board
pursuant to this condition will be kept for the life of the Regulated
Entity and at least two years thereafter, and will be subject to
examination by the Commission and its staff.
5. Except for Follow-On Investments made in accordance with
condition 8,\12\ a Regulated Entity will not invest in reliance on the
Order in any issuer in which another Regulated Entity, Affiliated Fund,
or any affiliated person of another Regulated Entity or Affiliated Fund
is an existing investor. The applicable Adviser will maintain books and
records that demonstrate compliance with this condition for such
Regulated Entity.
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\12\ This exception applies only to Follow-On Investments by a
Regulated Entity in issuers in which that Regulated Entity already
holds investments.
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6. A Regulated Entity 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 Entity and Affiliated
Fund. The grant to another Regulated Entity or an Affiliated Fund, but
not the Regulated Entity, 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 Regulated Entity or Affiliated 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 Entity 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 Entity in the disposition.
(b) Each Regulated Entity 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
Regulated Entities and Affiliated Funds.
(c) A Regulated Entity may participate in such disposition without
obtaining prior approval of the Required Majority if: (i) The proposed
participation of each Regulated Entity 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 Entity has approved as being in the best interests of the
Regulated Entity 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 Entity 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 such Regulated Entity's participation to such
Regulated Entity's Eligible Trustees, and such Regulated Entity will
participate in such disposition solely to the extent that a Required
Majority determines that it is in such Regulated Entity's best
interests.
(d) Each Regulated Entity and each Affiliated Fund will bear its
own expenses in connection with any such disposition.
8. (a) If a Regulated Entity or an Affiliated 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 Entity 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 Entity.
(b) A Regulated Entity may participate in such Follow-On Investment
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of each Regulated Entity 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 Entity has approved as being in the best
interests of the Regulated Entity 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 Entity's participation to
the Eligible Trustees, and the Regulated Entity will participate in
such Follow-On Investment solely to the extent that a Required Majority
determines that it is in the Regulated Entity's best interests.
(c) If, with respect to any Follow-On Investment:
(i) The amount of a Follow-On Investment is not based on the
Regulated Entities' and the Affiliated Funds' outstanding investments
immediately preceding the Follow-On Investment; and
(ii) the aggregate amount recommended by the applicable Advisers to
be invested by each
[[Page 1451]]
Regulated Entity in the Follow-On Investment, together with the amount
proposed to be invested by the participating Affiliated Funds in the
same transaction, exceeds the amount of the opportunity; then the
amount invested by each such party will be allocated among them pro
rata based on each party's capital available for investment in the
asset class being allocated, up to the amount proposed to be invested
by each.
(d) The acquisition of Follow-On Investments as permitted by this
condition will be considered a Co-Investment Transaction for all
purposes and subject to the other conditions set forth in the
application.
9. The Independent Trustees of each Regulated Entity will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions that fell within the Regulated Entity's then-
current Objectives and Strategies and Board-Established Criteria,
including investments in Potential Co-Investment Transactions made by
other Regulated Entities and Affiliated Funds, that the Regulated
Entity considered but declined to participate in, and concerning Co-
Investment Transactions in which the Regulated Entity participated, so
that the Independent Trustees may determine whether all Potential Co-
Investment Transactions and Co-Investment Transactions during the
preceding quarter, including those Potential Co-Investment Transactions
which the Regulated Entity considered but declined to participate in,
comply with the conditions of the Order. In addition, the Independent
Trustees will consider at least annually (a) the continued
appropriateness for the Regulated Entity of participating in new and
existing Co-Investment Transactions and (b) the continued
appropriateness of any Board-Established Criteria.
10. Each Regulated Entity will maintain the records required by
section 57(f)(3) of the Act as if each of the Regulated Entities were a
BDC and each of the investments permitted under these conditions were
approved by the Required Majority under section 57(f).
11. No Independent Trustee of a Regulated Entity 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.
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 the Regulated Entities and the
Affiliated Funds, be shared by the Affiliated Funds and the Regulated
Entities in proportion to the relative amounts of the securities held
or to be acquired or disposed of, as the case may be.
13. Any transaction fee \13\ (including break-up or commitment fees
but excluding brokerage or underwriting compensation permitted 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 Entities 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 the 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
Entities and Affiliated Funds based on the amounts they invest in such
Co-Investment Transaction. None of the Advisers, the Affiliated Funds,
the other Regulated Entities or any affiliated person of the Regulated
Entities 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
Entities and Affiliated Funds, the pro rata transaction fees described
above and fees or other compensation described in condition
2(c)(iii)(C), (b) brokerage or underwriting compensation permitted by
section 17(e) or 57(k) of the Act or (c) in the case of an Adviser,
investment advisory fees paid in accordance with the investment
advisory agreement between the Adviser and the Regulated Entity or
Affiliated Fund).
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\13\ Applicants are not requesting and the staff of the
Commission is not providing any relief for transaction fees received
in connection with any Co-Investment Transaction.
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14. If the Holders own in the aggregate more than 25 percent of the
Shares of a Regulated Entity, then the Holders will vote such Shares in
the same percentages as the Regulated Entity'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) all other matters
under either the Act or applicable State law affecting the Board's
composition, size or manner of election.
15. Each Regulated Entity'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 Entity'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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00244 Filed 1-10-22; 8:45 am]
BILLING CODE 8011-01-P