Corporate Capital Trust, Inc., et al., 24418-24424 [2017-10795]
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Federal Register / Vol. 82, No. 101 / Friday, May 26, 2017 / Notices
messaging as the HAL, SAL, and COA
mechanisms.13
To substantiate that its members can
receive, process, and communicate a
response back to the Exchange within
100 milliseconds, the Exchange states
that it surveyed its top 15 AIM and SAM
responders.14 According to the
Exchange, each of the 15 TPHs it
surveyed indicated that they can
receive, process, and communicate a
response back to the Exchange within
100 milliseconds.15 In addition, the
Exchange states that it reviewed all AIM
and SAM responses that resulted in
traded orders in December 2016, and its
review indicated that approximately
63% of AIM responses and 63% of SAM
responses resulting in price improving
executions at the conclusion of the
auction occurred within 100
milliseconds of the initial order.16
Furthermore, with regard to the impact
of the proposal on system capacity, the
Exchange states that it has analyzed its
capacity and represents that it has the
necessary systems capacity to handle
the potential additional traffic
associated with the additional
transactions that may occur with the
implementation of the proposed
reduction in the AIM and SAM duration
to no less than 100 milliseconds.17 The
Exchange also represents that its
systems will be able to sufficiently
maintain an audit trail for order and
trade information with the reduction in
the AIM and SAM duration.18
Upon effectiveness of the proposed
rule change, and at least six weeks prior
to implementation of the proposed rule
change, the Exchange will issue a
circular to TPHs, informing them of the
implementation date of the reduction of
the AIM and SAM duration from 1
second to the auction time designated
by the Exchange to allow TPHs to
perform any necessary systems
changes.19 The Exchange also represents
that it will issue a circular at least four
weeks prior to any future changes, as
13 See
id.
Notice, supra note 3, at 18050.
15 See id.
16 See id. In addition to the 63% of AIM
responses and 63% of SAM responses that occur
within 100 milliseconds of the initial order,
approximately 20% of AIM responses and 15% of
SAM responses that resulted in price improving
executions at the conclusion of the auction
occurred in the final 800–1000 milliseconds (i.e.,
within 200 milliseconds of the end of the RFR). See
id. The Exchange believes that the timing of these
responses indicates that TPHs have configured their
trading systems to either respond immediately to an
AIM or SAM auction, or to wait until the end of
an auction period to reduce the risk of the market
moving. See id.
17 See id.
18 See id.
19 See id.
14 See
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permitted by its rules, to the auction
response time.20
Based on the Exchange’s statements,
the Commission believes that market
participants should continue to have
opportunities to compete to trade with
the exposed order by submitting
responses to the auctions within an
exposure period of no less than 100
milliseconds and no more than 1
second.21 Accordingly, for the reasons
discussed above, the Commission
believes that the Exchange’s proposal is
consistent with the Act.
IV. Conclusion
It is Therefore Ordered, pursuant to
Section 19(b)(2) of the Act,22 that the
proposed rule change (SR–CBOE–2017–
029) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–10790 Filed 5–25–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32642; 812–14408]
Corporate Capital Trust, Inc., et al.
May 22, 2017.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
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 business
development companies (‘‘BDCs’’) and
closed-end management investment
companies to co-invest in portfolio
companies with each other and with
certain affiliated investment funds and
accounts.1
20 See
id.
Commission notes that the ability to
designate such an exposure time period is
consistent with the rules of other options
exchanges. See supra note 7. See also NASDAQ
Phlx Rule 1080(n)(ii)(A)(4), NASDAQ BX Options
Rules Chapter VI, Section 9(ii)(A)(3), Nasdaq ISE
Rule 716, Supplementary Material .04, and Nasdaq
ISE Rule 723(c)(1).
22 15 U.S.C. 78s(b)(2).
23 17 CFR 200.30–3(a)(12).
1 The requested order (‘‘Order’’) would supersede
an exemptive order issued by the Commission on
21 The
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Corporate Capital Trust,
Inc. (‘‘CCT I’’); Corporate Capital Trust
II (‘‘CCT II’’); KKR Income
Opportunities Fund (‘‘KIO,’’ and
together with CCT I and CCT II, the
‘‘Existing Regulated Entities’’); CNL
Fund Advisors Company (‘‘CFA’’); CNL
Fund Advisors II, LLC (‘‘CFA II’’); KKR
Credit Advisors (US) LLC (‘‘KKR
Credit’’); the investment advisory
subsidiaries and relying advisers of KKR
Credit set forth on Schedule A to the
application (collectively, with KKR
Credit, the ‘‘Existing KKR Credit
Advisers’’); KKR Capital Markets
Holdings L.P. and its capital markets
subsidiaries and other indirect, whollyor majority-owned subsidiaries of KKR
& Co. L.P. (‘‘KKR’’) set forth on
Schedule A to the application
(collectively, the ‘‘KCM Companies’’); 2
KKR Financial Holdings LLC (‘‘KFN’’)
and its wholly-owned subsidiaries set
forth on Schedule A to the application
(together with wholly-owned
subsidiaries of KFN that may be formed
in the future, the ‘‘KFN Subsidiaries.’’);
the Existing Affiliated Funds set forth
on Schedule A to the application 3; and
Prisma Capital Partners LP (the
‘‘Existing KKR Primary Adviser’’).
FILING DATES: The application was filed
on December 24, 2014, and amended on
June 1, 2015, December 7, 2015, July 14,
2016, and May 8, 2017.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on June 16, 2017, and
APPLICANTS:
May 21, 2013 (In the Matter of Corporate Capital
Trust, et al., Investment Company Act Release Nos.
30494 (Apr. 25, 2013) (notice) and 30526 (May 21,
2013) (order)) (the ‘‘Prior Order’’), with the result
that no person will continue to rely on the Prior
Order if the Order is granted.
2 These entities are all indirect, wholly- or
majority-owned subsidiaries of KKR and, from time
to time, may hold various financial assets in a
principal capacity (in such capacity, ‘‘Existing KKR
Proprietary Accounts’’).
3 The Existing Affiliated Funds, together with
their direct and indirect wholly-owned subsidiaries,
are entities (i) (A) whose primary investment
adviser is an Existing KKR Credit Adviser or (B)
whose primary investment adviser is the Existing
KKR Primary Adviser and whose sub-adviser is an
Existing KKR Credit Adviser (‘‘Sub-Advised
Affiliated Fund’’) and (ii) that either (A) would be
an investment company but for section 3(c)(1) or
3(c)(7) of the Act or (B) may rely on the rule 3a–
7 exemption from investment company status.
Certain Existing Affiliated Funds are collateralized
loan obligation (‘‘CLO’’) entities that rely on rule
3a–7 under the Act in addition to section 3(c)(7)
thereof. These Existing Affiliated Funds are all
advised by Existing KKR Credit Advisers.
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should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F St.
NE., Washington, DC 20549–1090.
Applicants: CCT I, CCT II, CFA, and
CFA II, 450 S. Orange Avenue, Orlando,
FL 32801; KIO, KKR Credit, KKR the
KCM Companies, KFN, the KFN
Subsidiaries, the Existing Affiliated
Funds, and the Existing KKR Primary
Adviser, 555 California Street, 50th
Floor, San Francisco, CA 94104.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel,
at (202) 551–6812 or David J.
Marcinkus, Branch Chief, at (202) 551–
6821 (Chief Counsel’s Office, Division of
Investment Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. CCT I, a Maryland corporation, and
CCT II, a Delaware statutory trust, are
closed-end management investment
companies that have elected to be
regulated as BDCs under the Act.4 Each
of CCT I and CCT II’s investment
objective is to provide shareholders
with current income and, to a lesser
extent, long-term capital appreciation.
CCT I and CCT II each have a fivemember Board, of which three members
are Independent Directors.5
2. KIO, a Delaware statutory trust, is
a non-diversified, closed-end
management investment company
registered under the Act. KIO’s primary
4 Section 2(a)(48) defines a BDC to be any closedend 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.
5 ‘‘Board’’ means the board of directors of CCT I,
CCT II, KIO, and any other Regulated Entity.
‘‘Independent Directors’’ means the independent
directors of CCT I, CCT II, KIO, and the
independent directors or trustees of any other
Regulated Entity who are not ‘‘interested persons’’
within the meaning of section 2(a)(19) of the Act.
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investment objective is to seek a high
level of current income with a
secondary objective of capital
appreciation. KIO has a four member
Board, of which three members are
Independent Directors.
3. Each of CFA and CFA II is a
subsidiary of CNL Financial Group, LLC
and is registered as an investment
adviser under the Investment Advisers
Act of 1940 (the ‘‘Advisers Act’’). CFA
serves as CCT I’s investment adviser.
CFA II serves as CCT II’s investment
adviser. A CFA Adviser (as defined
below) will serve as the investment
adviser and administrator to each
Regulated Entity with KKR Credit as
Sub-Adviser.
4. KKR is a global investment firm
structured as a holding company that
conducts its business through various
subsidiaries, which include investment
advisers and broker-dealers. KKR also
holds various financial assets in a
principal capacity. KKR Credit, a
subsidiary of KKR, is a Delaware limited
liability company registered as an
investment adviser under the Advisers
Act. KKR Credit serves as investment
adviser to KIO and as sub-adviser to
CCT I and CCT II. The CFA Advisers
and the KKR Credit Advisers are not
affiliated persons or affiliated persons of
affiliated persons (as defined in the
Act), except for the affiliation that arises
as a result of serving as the advisers of
any Regulated Entity with KKR Credit as
Sub-Adviser.
5. The Existing KKR Primary Adviser
is registered as an investment adviser
under the Advisers Act and serves as
the primary investment adviser to the
Sub-Advised Affiliated Funds. A KKR
Primary Adviser will serve as the
primary investment adviser to any SubAdvised Affiliated Fund.
6. KFN, a majority-owned subsidiary
of KKR, is a specialty finance company
that is externally advised by an Existing
KKR Credit Adviser. KFN, which was
acquired by KKR on April 30, 2014, is
a holding company that engages in its
specialty finance business through the
wholly-owned KFN Subsidiaries, which
rely on one or more exemptions or
exceptions from the definition of an
investment company.
7. The KCM Companies are indirect,
wholly- or majority-owned subsidiaries
of KKR and, from time to time, may
hold various financial assets in a
principal capacity (in such capacity,
together with KFN and the KFN
Subsidiaries, the ‘‘Existing KKR
Proprietary Accounts,’’ and, together
with any Future KKR Proprietary
Account, the ‘‘KKR Proprietary
Accounts’’). Each KKR Proprietary
Account, other than the KCM
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Companies, is or will be advised by a
KKR Credit Adviser.
8. Applicants seek an order to permit
one or more Regulated Entities 6 and/or
one or more Affiliated Investors 7 to
participate in the same investment
opportunities through a proposed coinvestment program (the ‘‘CoInvestment Program’’) where such
participation would otherwise be
prohibited under sections 17(d) and
57(a)(4) of the Act and rule 17d–1
thereunder.
9. For purposes of the requested
Order, ‘‘Co-Investment Transaction’’
means any transaction in which a
Regulated Entity (or its Blocker
Subsidiary) participated together with
one or more other Regulated Entities
and/or one or more Affiliated Investors
in reliance on the requested Order or the
Prior Order. ‘‘Potential Co-Investment
Transaction’’ means any investment
opportunity in which a Regulated Entity
(or its Blocker Subsidiary) could not
6 ‘‘Regulated Entity’’ means any of the Existing
Regulated Entities and any Future Regulated Entity.
‘‘Future Regulated Entity’’ means any closed-end
management investment company formed in the
future (a) that is registered under the Act or has
elected to be regulated as a BDC, (b)(i) whose
investment adviser is KKR Credit or (ii) whose
investment adviser is a CFA Adviser and whose
sub-adviser is KKR Credit.
‘‘Regulated Entity with KKR Credit as SubAdviser’’ means a Regulated Entity whose
investment adviser is a CFA Adviser and whose
sub-adviser is KKR Credit.
‘‘CFA Adviser’’ means CFA, CFA II, or any future
investment adviser that (i) controls, is controlled
by, or is under common control with CFA, (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.
‘‘KKR Credit Adviser’’ means any Existing KKR
Credit Adviser or any future investment adviser that
(i) is controlled by, or a relying adviser of, KKR
Credit, (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.
‘‘Adviser’’ means any KKR Credit Adviser or any
CFA Adviser. The term Adviser does not include
any KKR Primary Adviser.
‘‘KKR Primary Adviser’’ means the Existing KKR
Primary Adviser or any future investment adviser
that (i) is controlled by KKR, (ii) is registered as an
investment adviser under the Advisers Act, and (iii)
is not a KKR Credit Adviser.
7 ‘‘Affiliated Investor’’ means (a) any Existing
Affiliated Fund, (b) any Future Affiliated Fund, (c)
any Existing KKR Proprietary Account; or (d) any
Future KKR Proprietary Account.
‘‘Future Affiliated Fund’’ means an entity formed
in the future (a)(i) whose primary investment
adviser is a KKR Credit Adviser or (ii) whose
primary adviser is a KKR Primary Adviser and
whose sub-adviser is a KKR Credit Adviser (‘‘a
‘‘Sub-Advised Affiliated Fund’’), and (b)(i) that
would be an investment company but for section
3(c)(1) or 3(c)(7) of the Act or (ii) with respect to
CLO entities, may rely on Rule 3a–7 under the 1940
Act in addition to Section 3(c)(7) of the 1940 Act.
‘‘Future KKR Proprietary Account’’ means an
indirect, wholly- or majority-owned subsidiary of
KKR that is formed in the future and, from time to
time, may hold various financial assets in a
principal capacity.
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participate together with one or more
Affiliated Investors and/or one or more
other Regulated Entities without
obtaining and relying on the Order.8
Neither any CFA Adviser nor any KKR
Primary Adviser will be the source of
any Potential Co-Investment
Transaction.
10. Applicants state that a Regulated
Entity may, from time to time, form a
special purpose subsidiary (a ‘‘Blocker
Subsidiary’’).9 A Blocker Subsidiary
would be prohibited from investing in a
Co-Investment Transaction with any
Affiliated Investor or Regulated Entity
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 a Blocker
Subsidiary be permitted to participate in
Co-Investment Transactions in lieu of its
parent Regulated Entity and that the
Blocker Subsidiary’s participation in
any such transaction be treated, for
purposes of the requested Order, as
though the parent Regulated Entity were
participating directly.
11. Applicants note that CFA is
responsible for the overall management
of CCT I, while KKR Credit is
responsible for the day-to-day
management of CCT I’s investment
portfolio. CFA II is responsible for the
overall management of CCT II, while
KKR Credit is responsible for the dayto-day management of CCT II’s
investment portfolio. Applicants
represent that although KKR Credit will
identify and recommend investments
for the Regulated Entities with KKR
Credit as Sub-Adviser, the CFA
Advisers will have ultimate authority to
approve or reject the investments
proposed by KKR Credit, subject to the
oversight of the Board of each Regulated
Entity.
12. Applicants state that opportunities
for Potential Co-Investment
Transactions may arise when advisory
personnel of a KKR Credit Adviser
become aware of investment
8 All existing entities that currently intend to rely
upon the requested Order have been named as
applicants. Any other existing or future entity that
subsequently relies on the Order will comply with
the terms and conditions of the application.
9 ‘‘Blocker Subsidiary’’ means an entity (i) whose
sole business purpose is to hold one or more
investments on behalf of the Regulated Entity; (ii)
that is wholly-owned by a Regulated Entity (with
the Regulated Entity at all times holding,
beneficially and of record, 100% of the voting and
economic interests); (iii) 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 (iv) that does not pay a separate
advisory fee, including any performance-based fee,
to any person; and (v) that is an entity that would
be an investment company but for section 3(c)(1) or
3(c)(7) of the Act.
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opportunities that may be appropriate
for a Regulated Entity, one or more other
Regulated Entities and/or one or more
Affiliated Investors. In such cases,
Applicants state that the Adviser to a
Regulated Entity will be notified of such
Potential Co-Investment Transactions
and of KKR Credit’s recommended
allocation. Applicants submit that the
Adviser will then independently
analyze and evaluate the investment
opportunity as to its appropriateness for
each Regulated Entity for which it
serves as investment adviser, taking into
consideration the Regulated Entity’s
Objectives and Strategies 10 and any
Board-Established Criteria.11 Applicants
represent that, if the CFA Adviser to a
Regulated Entity determines that the
opportunity is appropriate for the
Regulated Entity, the CFA Adviser will
present the investment opportunity to
the CFA Adviser’s investment
committee for its approval. If the CFA
Adviser’s investment committee
approves the investment for the
Regulated Entity, the CFA Adviser will
present the Potential Co-Investment
Transaction and the proposed allocation
to the directors of the Board eligible to
vote under section 57(o) of the Act
(‘‘Eligible Directors’’), and the ‘‘required
majority,’’ as defined in section 57(o) of
the Act (‘‘Required Majority’’) 12 will
10 ‘‘Objectives and Strategies’’ means a Regulated
Entity’s investment objectives and strategies, as
described in the Regulated Entity’s registration
statement on Form N–2, other filings the Regulated
Entity has made with the Commission under the
Securities Act of 1933, as amended (the ‘‘1933
Act’’), or under the Securities and Exchange Act of
1934, as amended, and the Regulated Entity’s
reports to shareholders.
11 ‘‘Board-Established Criteria’’ means criteria
that the Board of a Regulated Entity may establish
from time to time to describe the characteristics of
Potential Co-Investment Transactions regarding
which each Adviser to the Regulated Entity should
be notified under condition 1. The BoardEstablished Criteria will be consistent with a
Regulated Entity’s Objectives and Strategies. If no
Board-Established Criteria are in effect, then each
Adviser to a Regulated Entity will be notified of all
Potential Co-Investment Transactions that fall
within the Regulated Entity’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. Each Adviser to a Regulated Entity 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 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.
12 In the case of a Regulated Entity that is a
registered closed-end fund, the Board members that
make up the Required Majority will be determined
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approve such Co-Investment
Transaction prior to any investment by
the participating Regulated Entity.
13. Applicants state that KKR Credit
has an investment committee through
which KKR Credit will carry out its
obligation under condition 1 to make a
determination as to the appropriateness
of the Potential Co-Investment
Transaction for any Regulated Entity.
Applicants represent that in the case of
a Potential Co-Investment Transaction,
KKR Credit would apply its allocation
policies and procedures in determining
the proposed allocation for the
Regulated Entity consistent with the
requirements of condition 2(a).
Applicants further note that each CFA
Adviser and KKR Credit has adopted its
own allocation policies and procedures
that take into account the allocation
policies and procedures for the
Regulated Entities. Applicants believe
that while each KKR Credit client may
not participate in each investment
opportunity, over time each KKR Credit
client would participate in investment
opportunities fairly and equitably.
14. Applicants submit that, if a
Potential Co-Investment Transaction
were within the investment objectives
and strategies of a Sub-Advised
Affiliated Fund, the KKR Credit Adviser
would have primary responsibility for
the investment, including making the
initial investment recommendation.
Applicants further note that the KKR
Credit Adviser will be responsible for
complying with the conditions of the
Order that relate to any Sub-Advised
Affiliated Fund. Applicants state that if
the KKR Credit Adviser and KKR
Primary Adviser agree that the SubAdvised Affiliated Fund should invest
in the Potential Co-Investment
Transaction and at what size of
investment, the KKR Credit Adviser
would then determine an allocation for
the Regulated Entities and Affiliated
Investors, including the Sub-Advised
Affiliated Fund.
15. Applicants acknowledge that
some of the Affiliated Investors may not
be funds advised by a KKR Credit
Adviser because they are KKR
Proprietary Accounts. The KKR
Proprietary Accounts are either entities
that are advised by a KKR Credit
Adviser pursuant to an investment
management agreement or, in the case of
KCM Companies, are broker-dealers that
may hold financial assets in a principal
capacity. Applicants do not believe the
participation of these KKR Proprietary
Accounts in Co-Investment Transactions
should raise issues under the conditions
as if the Regulated Entity were a BDC subject to
section 57(o).
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of this Application because KKR’s and
a KKR Credit Adviser’s allocation
policies and procedures provide that
investment opportunities are offered to
client accounts before they are offered to
KKR Proprietary Accounts, even if the
KKR Proprietary Accounts are the first
to learn of an investment opportunity.
16. Under condition 16, if an Adviser
or its principals, or any person
controlling, controlled by, or under
common control with the Adviser or its
principals, and any Affiliated Investor
(collectively, the ‘‘Holders’’) own in the
aggregate more than 25 percent of the
outstanding voting shares of a Regulated
Entity (‘‘Shares’’), then the Holders will
vote such Shares as directed by an
independent third party when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
all other matters under either the Act or
applicable state law affecting the
Board’s composition, size or manner of
election.
17. No Independent Director of a
Regulated Entity will have a financial
interest in any Co-Investment
Transaction, other than indirectly
through share ownership in one of the
Regulated Entities.
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).
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
applies.
2. Rule 17d–1 under the Act prohibits
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
considering whether to grant an
application under rule 17d–1, the
Commission considers whether the
participation by the company 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.
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3. Applicants submit that each of the
Affiliated Investors and the Regulated
Entities could be deemed to be a person
related to each other Regulated Entity in
a manner described by section 57(b) by
virtue of being under common control.
In addition, section 57(b) applies to any
investment adviser to a Regulated
Entity, including sub-advisers.
Applicants submit that KKR Credit, in
its role as sub-adviser to CCT I and CCT
II, could be deemed to be a person
related to CCT I and CCT II in a manner
described in section 57(b). Therefore,
KKR Credit and any person under
common control with KKR Credit (such
as the Regulated Entities and the
Affiliated Investors) could be prohibited
from participating in the Co-Investment
Program with CCT I and CCT II by
section 57(a)(4) and Rule 17d–1.
4. 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.
5. Applicants state that in the absence
of the requested relief, the Regulated
Entities would be, in some
circumstances, limited in their ability to
participate in attractive and appropriate
investment opportunities. Applicants
believe that the proposed terms and
conditions will ensure that the CoInvestment 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. Each time a KKR Credit Adviser
considers a Potential Co-Investment
Transaction for an Affiliated Investor or
another Regulated Entity that falls
within a Regulated Entity’s then-current
Objectives and Strategies and BoardEstablished Criteria, each Adviser to a
Regulated Entity will make an
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24421
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 each Adviser to a Regulated
Entity deems participation in any
Potential Co-Investment Transaction to
be appropriate for the Regulated Entity,
the Adviser (or Advisers, if there are
more than one) will then determine an
appropriate level of investment for such
Regulated Entity.
(b) If the aggregate amount
recommended by the Adviser (or
Advisers, if there are more than one) to
a Regulated Entity to be invested by the
Regulated Entity in the Potential CoInvestment Transaction, together with
the amount proposed to be invested by
the other participating Regulated
Entities and Affiliated Investors,
collectively, in the same transaction,
exceeds the amount of the investment
opportunity, the amount of the
investment opportunity will be
allocated among the Regulated Entities
and such Affiliated Investors, pro rata
based on each participant’s Available
Capital for investment in the asset class
being allocated, up to the amount
proposed to be invested by each.13 The
Adviser (or Advisers, if there are more
than one) to a Regulated Entity will
provide the Eligible Directors of a
Regulated Entity with information
concerning each participating party’s
Available Capital to assist the Eligible
Directors with their review of the
Regulated Entity’s investments for
compliance with these allocation
procedures.
(c) After making the determinations
required in conditions 1 and 2(a) above,
the Adviser to the Regulated Entity (or
Advisers, if there are more than one)
will distribute written information
concerning the Potential Co-Investment
Transaction, including the amount
proposed to be invested by each
Regulated Entity and any Affiliated
Investor, to the Eligible Directors for
their consideration. A Regulated Entity
13 ‘‘Available Capital’’ means (a) for each
Regulated Entity, the amount of capital available for
investment determined based on the amount of cash
on hand, existing commitments and reserves, if any,
the targeted leverage level, targeted asset mix and
other investment policies and restrictions set from
time to time by the Board of the applicable
Regulated Entity or imposed by applicable laws,
rules, regulations or interpretations, and (b) for each
Affiliated Investor (excluding KKR Proprietary
Accounts), the amount of capital available for
investment determined based on the amount of cash
on hand, existing commitments and reserves, if any,
the targeted leverage level, targeted asset mix and
other investment policies and restrictions set by the
Affiliated Investors’ directors, general partners, or
adviser or imposed by applicable laws, rules,
regulations or interpretations.
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will co-invest with one or more other
Regulated Entities and/or an Affiliated
Investor only if, prior to the Regulated
Entities’ and the Affiliated Investors’
participation in the Potential CoInvestment Transaction, a Required
Majority concludes that:
(i) The terms of the Potential CoInvestment Transaction, including the
consideration to be paid, are reasonable
and fair to the Regulated Entity and its
shareholders and do not involve
overreaching in respect of the Regulated
Entity or its shareholders on the part of
any person concerned;
(ii) the Potential Co-Investment
Transaction is consistent with:
(A) The interests of the Regulated
Entity’s shareholders; and
(B) the Regulated Entity’s then-current
Objectives and Strategies and BoardEstablished Criteria;
(iii) the investment by any other
Regulated Entity or an Affiliated
Investor 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 Entity
or Affiliated Investor; provided that, if
another Regulated Entity or Affiliated
Investor, 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 a Required
Majority from reaching the conclusions
required by this condition (2)(c)(iii), if:
(A) The Eligible Directors will have
the right to ratify the selection of such
director or board observer, if any; and
(B) the Adviser to the Regulated
Entity (or Advisers, if there are more
than one) agrees to, and does, provide
periodic reports to the Regulated
Entity’s Board with respect to the
actions of such director or the
information received by such board
observer or obtained through the
exercise of any similar right to
participate in the governance or
management of the portfolio company;
and
(C) any fees or other compensation
that any other Regulated Entity or any
Affiliated Investor or any affiliated
person of any other Regulated Entity or
an Affiliated Investor receives in
connection with the right of one or more
Regulated Entities or Affiliated Investors
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
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19:14 May 25, 2017
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the participating Affiliated Investors
(who may, in turn, share their portion
with their affiliated persons) and any
participating Regulated Entity in
accordance with the amount of each
party’s investment; and
(iv) the proposed investment by the
Regulated Entity will not benefit the
Adviser to the Regulated Entity (or
Advisers, if there are more than one),
any other Regulated Entity, any KKR
Primary Adviser or the Affiliated
Investors or any affiliated person of any
of them (other than the parties to the CoInvestment Transaction), except (A) to
the extent permitted by condition 13,
(B) to the extent permitted under
sections 17(e) or 57(k) of the Act, as
applicable, (C) in the case of fees or
other compensation described in
condition 2(c)(iii)(C), or (D) indirectly,
as a result of an interest in the securities
issued by one of the parties to the CoInvestment Transaction.
3. A Regulated Entity will have the
right to decline to participate in any
Potential Co-Investment Transaction or
to invest less than the amount proposed.
4. The Adviser to the Regulated Entity
(or Advisers, if there are more than one)
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 of the other Regulated Entities or
any of the Affiliated Investors during
the preceding quarter that fell within
the Regulated Entity’s then-current
Objectives and Strategies and BoardEstablished 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 8,14
a Regulated Entity will not invest in
reliance on the Order in any issuer in
which another Regulated Entity or an
Affiliated Investor, or any affiliated
person of another Regulated Entity or
Affiliated Investor is an existing
investor.
6. A Regulated Entity will not
participate in any Potential CoInvestment Transaction unless the
terms, conditions, price, class of
securities to be purchased, settlement
14 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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date, and registration rights will be the
same for each participating Regulated
Entity and Affiliated Investor. The grant
to one or more Regulated Entities or
Affiliated Investors, but not the
Regulated Entity itself, 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 Investor elects to sell,
exchange or otherwise dispose of an
interest in a security that was acquired
by one or more Regulated Entities and/
or Affiliated Investors in a CoInvestment Transaction, the applicable
Adviser(s) will: 15
(i) notify each Regulated Entity of the
proposed disposition at the earliest
practical time; and
(ii) formulate a recommendation as to
participation by the 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 Affiliated Investors and any other
Regulated Entity.
(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
Investor in such disposition is
proportionate to its outstanding
investments in the issuer immediately
preceding the disposition;
(ii) the Regulated Entity’s Board 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 Regulated Entity’s Board is
provided on a quarterly basis with a list
of all dispositions made in accordance
with this condition. In all other cases,
the Adviser to the Regulated Entity (or
Advisers, if there are more than one)
will provide their written
recommendation as to the Regulated
Entity’s participation to the Eligible
Directors, and the Regulated Entity will
participate in such disposition solely to
the extent that a Required Majority
determines that it is in the Regulated
Entity’s best interests.
15 Any KCM Company that is not advised by an
Adviser is itself deemed to be an Adviser for
purposes of Conditions 7(a)(i) and 8(a)(i).
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(d) Each Regulated Entity and each
Affiliated Investor will bear its own
expenses in connection with the
disposition.
8. (a) If any Regulated Entity or
Affiliated Investor desires to make a
Follow-On Investment in a portfolio
company whose securities were
acquired by the Regulated Entity and
the Affiliated Investor in a CoInvestment Transaction, the applicable
Adviser(s) will:
(i) Notify the Regulated Entity 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 the 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
Investor in such investment is
proportionate to its outstanding
investments in the issuer immediately
preceding the Follow-On Investment;
and
(ii) the Regulated Entity’s Board has
approved as being in the best interests
of such 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 to the Regulated
Entity (or Advisers, if there are more
than one) will provide their written
recommendation as to such Regulated
Entity’s participation to the Eligible
Directors, and the Regulated Entity will
participate in such Follow-On
Investment solely to the extent that a
Required Majority determines that it is
in such 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
Investors’ outstanding investments
immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount
recommended by the Adviser (or
Advisers if there are more than one) to
a Regulated Entity to be invested by the
Regulated Entity in the Follow-On
Investment, together with the amount
proposed to be invested by the other
Regulated Entities and the participating
Affiliated Investors 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
participant’s Available Capital for
investment in the asset class being
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19:14 May 25, 2017
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24423
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 CoInvestment Transaction for all purposes
and subject to the other conditions set
forth in the application.
9. The Independent Directors of each
Regulated Entity will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions and Co-Investment
Transactions, including investments
made by other Regulated Entities or
Affiliated Investors that the Regulated
Entity considered but declined to
participate in, so that the Independent
Directors may determine whether all
investments made during the preceding
quarter, including those investments
that the Regulated Entity considered but
declined to participate in, comply with
the conditions of the Order. In addition,
the Independent Directors will consider
at least annually (a) the continued
appropriateness for the Regulated Entity
of participating in new and existing CoInvestment 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 a
Required Majority under section 57(f) of
the Act.
11. No Independent Director of a
Regulated Entity will also be a director,
general partner, managing member or
principal, or otherwise an ‘‘affiliated
person’’ (as defined in the Act) of any
Affiliated Investor.
12. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the 1933 Act)
shall, to the extent not payable by the
applicable Adviser(s) under their
respective advisory agreements with the
Regulated Entities and the Affiliated
Investors, be shared by the Regulated
Entities and the Affiliated Investors in
proportion to the relative amounts of the
securities held or to be acquired or
disposed of, as the case may be.
13. Any transaction fee (including
break-up or commitment fees but
excluding broker’s fees contemplated by
section 17(e) or 57(k) of the Act, as
applicable) 16 received in connection
with a Co-Investment Transaction will
be distributed to the participating
Regulated Entities and Affiliated
Investors on a pro rata basis based on
the amount they invested or committed,
as the case may be, in such CoInvestment 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 Investors based on the amount
they invest in the Co-Investment
Transaction. None of the other
Regulated Entities, Affiliated Investors,
the applicable Adviser(s), any KKR
Primary Adviser nor any affiliated
person of the Regulated Entities or the
Affiliated Investors 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 the
Affiliated Investors, the pro rata
transaction fees described above and
fees or other compensation described in
condition 2(c)(iii)(C), and (b) in the case
of the Advisers and KKR Primary
Advisers, investment advisory fees paid
in accordance with the Regulated
Entities’ and the Affiliated Investors’
investment advisory agreements).
14. The KKR Proprietary Accounts
will not be permitted to invest in a
Potential Co-Investment Transaction,
except to the extent the demand from
the Regulated Entities and the other
Affiliated Investors is less than the total
investment opportunity.
15. The Advisers to the Regulated
Entities and Affiliated Investors will
maintain written policies and
procedures reasonably designed to
ensure compliance with the foregoing
conditions. These policies and
procedures will require, among other
things, that each of the Advisers to each
Regulated Entity will be notified of all
Potential Co-Investment Transactions
that fall within such Regulated Entity’s
then-current Objectives and Strategies
and Board-Established Criteria and will
be given sufficient information to make
its independent determination and
recommendations under conditions 1,
2(a), 7 and 8.
16. If the Holders own in the aggregate
more than 25 percent of the Shares of
a Regulated Entity, then the Holders
16 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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Federal Register / Vol. 82, No. 101 / Friday, May 26, 2017 / Notices
will vote such Shares as directed by an
independent third party when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
all other matters under either the Act or
applicable state law affecting the
Board’s composition, size or manner of
election.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–10795 Filed 5–25–17; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Reporting and Recordkeeping
Requirements Under OMB Review
Small Business Administration.
30-Day notice.
AGENCY:
ACTION:
The Small Business
Administration (SBA) is publishing this
notice to comply with requirements of
the Paperwork Reduction Act, which
requires agencies to submit proposed
reporting and recordkeeping
requirements to OMB for review and
approval, and to publish a notice in the
Federal Register notifying the public
that the agency has made such a
submission. This notice also allows an
additional 30 days for public comments.
DATES: Submit comments on or before
June 26, 2017.
ADDRESSES: Comments should refer to
the information collection by name and/
or OMB Control Number and should be
sent to: Agency Clearance Officer, Curtis
Rich, Small Business Administration,
409 3rd Street SW., 5th Floor,
Washington, DC 20416; and SBA Desk
Officer, Office of Information and
Regulatory Affairs, Office of
Management and Budget, New
Executive Office Building, Washington,
DC 20503.
FOR FURTHER INFORMATION CONTACT:
Curtis Rich, Agency Clearance Officer,
(202) 205–7030 curtis.rich@sba.gov.
Copies: A copy of the Form OMB 83–
1, supporting statement, and other
documents submitted to OMB for
review may be obtained from the
Agency Clearance Officer.
SUPPLEMENTARY INFORMATION: Section
7(a) of the Small Business Act
authorizes the Small Business
Administration to guaranty loans in
each of the 7(a) Programs. The
regulations at 13 CFR part 120, which
cover this loan program, require certain
information from loan applicants and
lenders that is used to determine
SUMMARY:
VerDate Sep<11>2014
19:14 May 25, 2017
Jkt 241001
program eligibility and compliance with
the requirements. The forms identified
below are used to collect the
information outlined in the regulations.
SBA has made a few changes to the
forms, in part to address feedback from
the 7(a) lenders and others who
routinely use the forms. These changes
are intended to improve usability of the
forms and generally include: Clarifying
questions and instructions for
responding, providing additional
information, such as definitions of
terms, removing certain questions
entirely, or adding them to another form
where they are more appropriate. Form
1919—Borrower Information Form—
was of particular concern to users. SBA
has reformatted it into two distinct
sections. One section is to be completed
by the small business loan applicant,
and a separate section completed by
each of the applicant’s associates/
principals. The current form’s layout
sometimes resulted in multiple
associates or principals unnecessarily
providing the same information
pertaining to the applicant business.
This change should resolve that
confusion.
DEPARTMENT OF STATE
Solicitation of Public Comments
[Public Notice: 10004]
SBA is requesting comments on (a)
Whether the collection of information is
necessary for the agency to properly
perform its functions; (b) whether the
burden estimates are accurate; (c)
whether there are ways to minimize the
burden, including through the use of
automated techniques or other forms of
information technology; and (d) whether
there are ways to enhance the quality,
utility, and clarity of the information.
U.S. National Commission for UNESCO
Notice of Teleconference Meeting
Summary of Information Collection
Title: Borrower Information Form,
Lenders Application for Guaranty, and
7(a) Loan Post Approval Action
Checklist.
Description of Respondents: 7(a)
Program Participants.
Form Number: SBA Forms 1919,
1920, 1971, 2237, and 2449.
Total Estimated Annual Responses:
110,000.
Total Estimated Annual Hour Burden:
27,959.
Curtis B. Rich,
Management Analyst.
[FR Doc. 2017–10896 Filed 5–25–17; 8:45 am]
BILLING CODE 8025–01–P
PO 00000
[Public Notice: 10006]
Determination and Certification Under
Section 40A of the Arms Export
Control Act
Pursuant to section 40A of the Arms
Export Control Act (22 U.S.C. 2781), and
Executive Order 13637, as amended, I
hereby determine and certify to the
Congress that the following countries
are not cooperating fully with United
States antiterrorism efforts:
Eritrea
Iran
Democratic People’s Republic of Korea
(DPRK, or North Korea)
Syria
Venezuela
This determination and certification
shall be transmitted to the Congress and
published in the Federal Register.
Dated: May 1, 2017.
Rex Tillerson,
Secretary of State.
[FR Doc. 2017–10948 Filed 5–25–17; 8:45 am]
BILLING CODE P
DEPARTMENT OF STATE
The U.S. National Commission for
UNESCO will hold a conference call on
Friday, June 9, 2017 from 11:00 a.m.
until 12:00 p.m. Eastern Daylight Time.
This will be a single issue, technical
teleconference meeting to consider the
recommendations of the Commission’s
National Committee for the
Intergovernmental Oceanographic
Commission (IOC). There will be no
other items on the agenda. The
Commission will accept brief oral
comments during a portion of this
conference call. The public comment
period will be limited to approximately
10 minutes in total, with two minutes
allowed per speaker. For more
information, or to arrange to participate
in the conference call, individuals must
make arrangements with the Executive
Director of the National Commission by
June 6, 2017.
The National Commission may be
contacted via email at DCUNESCO@
state.gov or Telephone (202) 663–2407.
Paul Mungai,
Acting Executive Director, U.S. National
Commission for UNESCO, Department of
State.
[FR Doc. 2017–10768 Filed 5–25–17; 8:45 am]
BILLING CODE 4710–19–P
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]]>Agencies
[Federal Register Volume 82, Number 101 (Friday, May 26, 2017)]
[Notices]
[Pages 24418-24424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10795]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 32642; 812-14408]
Corporate Capital Trust, Inc., et al.
May 22, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an order under sections 17(d) and 57(i)
of the Investment Company Act of 1940 (the ``Act'') and rule 17d-1
under the Act 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 business
development companies (``BDCs'') and closed-end management investment
companies to co-invest in portfolio companies with each other and with
certain affiliated investment funds and accounts.\1\
---------------------------------------------------------------------------
\1\ The requested order (``Order'') would supersede an exemptive
order issued by the Commission on May 21, 2013 (In the Matter of
Corporate Capital Trust, et al., Investment Company Act Release Nos.
30494 (Apr. 25, 2013) (notice) and 30526 (May 21, 2013) (order))
(the ``Prior Order''), with the result that no person will continue
to rely on the Prior Order if the Order is granted.
Applicants: Corporate Capital Trust, Inc. (``CCT I''); Corporate
Capital Trust II (``CCT II''); KKR Income Opportunities Fund (``KIO,''
and together with CCT I and CCT II, the ``Existing Regulated
Entities''); CNL Fund Advisors Company (``CFA''); CNL Fund Advisors II,
LLC (``CFA II''); KKR Credit Advisors (US) LLC (``KKR Credit''); the
investment advisory subsidiaries and relying advisers of KKR Credit set
forth on Schedule A to the application (collectively, with KKR Credit,
the ``Existing KKR Credit Advisers''); KKR Capital Markets Holdings
L.P. and its capital markets subsidiaries and other indirect, wholly-
or majority-owned subsidiaries of KKR & Co. L.P. (``KKR'') set forth on
Schedule A to the application (collectively, the ``KCM Companies'');
\2\ KKR Financial Holdings LLC (``KFN'') and its wholly-owned
subsidiaries set forth on Schedule A to the application (together with
wholly-owned subsidiaries of KFN that may be formed in the future, the
``KFN Subsidiaries.''); the Existing Affiliated Funds set forth on
Schedule A to the application \3\; and Prisma Capital Partners LP (the
``Existing KKR Primary Adviser'').
---------------------------------------------------------------------------
\2\ These entities are all indirect, wholly- or majority-owned
subsidiaries of KKR and, from time to time, may hold various
financial assets in a principal capacity (in such capacity,
``Existing KKR Proprietary Accounts'').
\3\ The Existing Affiliated Funds, together with their direct
and indirect wholly-owned subsidiaries, are entities (i) (A) whose
primary investment adviser is an Existing KKR Credit Adviser or (B)
whose primary investment adviser is the Existing KKR Primary Adviser
and whose sub-adviser is an Existing KKR Credit Adviser (``Sub-
Advised Affiliated Fund'') and (ii) that either (A) would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act or
(B) may rely on the rule 3a-7 exemption from investment company
status. Certain Existing Affiliated Funds are collateralized loan
obligation (``CLO'') entities that rely on rule 3a-7 under the Act
in addition to section 3(c)(7) thereof. These Existing Affiliated
Funds are all advised by Existing KKR Credit Advisers.
Filing Dates: The application was filed on December 24, 2014, and
amended on June 1, 2015, December 7, 2015, July 14, 2016, and May 8,
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2017.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on June 16, 2017, and
[[Page 24419]]
should be accompanied by proof of service on applicants, in the form of
an affidavit or, for lawyers, a certificate of service. Pursuant to
rule 0-5 under the Act, hearing requests should state the nature of the
writer's interest, any facts bearing upon the desirability of a hearing
on the matter, the reason for the request, and the issues contested.
Persons who wish to be notified of a hearing may request notification
by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
St. NE., Washington, DC 20549-1090. Applicants: CCT I, CCT II, CFA, and
CFA II, 450 S. Orange Avenue, Orlando, FL 32801; KIO, KKR Credit, KKR
the KCM Companies, KFN, the KFN Subsidiaries, the Existing Affiliated
Funds, and the Existing KKR Primary Adviser, 555 California Street,
50th Floor, San Francisco, CA 94104.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel,
at (202) 551-6812 or David J. Marcinkus, Branch Chief, at (202) 551-
6821 (Chief Counsel's Office, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. CCT I, a Maryland corporation, and CCT II, a Delaware statutory
trust, are closed-end management investment companies that have elected
to be regulated as BDCs under the Act.\4\ Each of CCT I and CCT II's
investment objective is to provide shareholders with current income
and, to a lesser extent, long-term capital appreciation. CCT I and CCT
II each have a five-member Board, of which three members are
Independent Directors.\5\
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\4\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
\5\ ``Board'' means the board of directors of CCT I, CCT II,
KIO, and any other Regulated Entity.
``Independent Directors'' means the independent directors of CCT
I, CCT II, KIO, and the independent directors or trustees of any
other Regulated Entity who are not ``interested persons'' within the
meaning of section 2(a)(19) of the Act.
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2. KIO, a Delaware statutory trust, is a non-diversified, closed-
end management investment company registered under the Act. KIO's
primary investment objective is to seek a high level of current income
with a secondary objective of capital appreciation. KIO has a four
member Board, of which three members are Independent Directors.
3. Each of CFA and CFA II is a subsidiary of CNL Financial Group,
LLC and is registered as an investment adviser under the Investment
Advisers Act of 1940 (the ``Advisers Act''). CFA serves as CCT I's
investment adviser. CFA II serves as CCT II's investment adviser. A CFA
Adviser (as defined below) will serve as the investment adviser and
administrator to each Regulated Entity with KKR Credit as Sub-Adviser.
4. KKR is a global investment firm structured as a holding company
that conducts its business through various subsidiaries, which include
investment advisers and broker-dealers. KKR also holds various
financial assets in a principal capacity. KKR Credit, a subsidiary of
KKR, is a Delaware limited liability company registered as an
investment adviser under the Advisers Act. KKR Credit serves as
investment adviser to KIO and as sub-adviser to CCT I and CCT II. The
CFA Advisers and the KKR Credit Advisers are not affiliated persons or
affiliated persons of affiliated persons (as defined in the Act),
except for the affiliation that arises as a result of serving as the
advisers of any Regulated Entity with KKR Credit as Sub-Adviser.
5. The Existing KKR Primary Adviser is registered as an investment
adviser under the Advisers Act and serves as the primary investment
adviser to the Sub-Advised Affiliated Funds. A KKR Primary Adviser will
serve as the primary investment adviser to any Sub-Advised Affiliated
Fund.
6. KFN, a majority-owned subsidiary of KKR, is a specialty finance
company that is externally advised by an Existing KKR Credit Adviser.
KFN, which was acquired by KKR on April 30, 2014, is a holding company
that engages in its specialty finance business through the wholly-owned
KFN Subsidiaries, which rely on one or more exemptions or exceptions
from the definition of an investment company.
7. The KCM Companies are indirect, wholly- or majority-owned
subsidiaries of KKR and, from time to time, may hold various financial
assets in a principal capacity (in such capacity, together with KFN and
the KFN Subsidiaries, the ``Existing KKR Proprietary Accounts,'' and,
together with any Future KKR Proprietary Account, the ``KKR Proprietary
Accounts''). Each KKR Proprietary Account, other than the KCM
Companies, is or will be advised by a KKR Credit Adviser.
8. Applicants seek an order to permit one or more Regulated
Entities \6\ and/or one or more Affiliated Investors \7\ to participate
in the same investment opportunities through a proposed co-investment
program (the ``Co-Investment Program'') where such participation would
otherwise be prohibited under sections 17(d) and 57(a)(4) of the Act
and rule 17d-1 thereunder.
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\6\ ``Regulated Entity'' means any of the Existing Regulated
Entities and any Future Regulated Entity.
``Future Regulated Entity'' means any closed-end management
investment company formed in the future (a) that is registered under
the Act or has elected to be regulated as a BDC, (b)(i) whose
investment adviser is KKR Credit or (ii) whose investment adviser is
a CFA Adviser and whose sub-adviser is KKR Credit.
``Regulated Entity with KKR Credit as Sub-Adviser'' means a
Regulated Entity whose investment adviser is a CFA Adviser and whose
sub-adviser is KKR Credit.
``CFA Adviser'' means CFA, CFA II, or any future investment
adviser that (i) controls, is controlled by, or is under common
control with CFA, (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.
``KKR Credit Adviser'' means any Existing KKR Credit Adviser or
any future investment adviser that (i) is controlled by, or a
relying adviser of, KKR Credit, (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.
``Adviser'' means any KKR Credit Adviser or any CFA Adviser. The
term Adviser does not include any KKR Primary Adviser.
``KKR Primary Adviser'' means the Existing KKR Primary Adviser
or any future investment adviser that (i) is controlled by KKR, (ii)
is registered as an investment adviser under the Advisers Act, and
(iii) is not a KKR Credit Adviser.
\7\ ``Affiliated Investor'' means (a) any Existing Affiliated
Fund, (b) any Future Affiliated Fund, (c) any Existing KKR
Proprietary Account; or (d) any Future KKR Proprietary Account.
``Future Affiliated Fund'' means an entity formed in the future
(a)(i) whose primary investment adviser is a KKR Credit Adviser or
(ii) whose primary adviser is a KKR Primary Adviser and whose sub-
adviser is a KKR Credit Adviser (``a ``Sub-Advised Affiliated
Fund''), and (b)(i) that would be an investment company but for
section 3(c)(1) or 3(c)(7) of the Act or (ii) with respect to CLO
entities, may rely on Rule 3a-7 under the 1940 Act in addition to
Section 3(c)(7) of the 1940 Act.
``Future KKR Proprietary Account'' means an indirect, wholly- or
majority-owned subsidiary of KKR that is formed in the future and,
from time to time, may hold various financial assets in a principal
capacity.
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9. For purposes of the requested Order, ``Co-Investment
Transaction'' means any transaction in which a Regulated Entity (or its
Blocker Subsidiary) participated together with one or more other
Regulated Entities and/or one or more Affiliated Investors in reliance
on the requested Order or the Prior Order. ``Potential Co-Investment
Transaction'' means any investment opportunity in which a Regulated
Entity (or its Blocker Subsidiary) could not
[[Page 24420]]
participate together with one or more Affiliated Investors and/or one
or more other Regulated Entities without obtaining and relying on the
Order.\8\ Neither any CFA Adviser nor any KKR Primary Adviser will be
the source of any Potential Co-Investment Transaction.
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\8\ All existing entities that currently intend to rely upon the
requested Order have been named as applicants. Any other existing or
future entity that subsequently relies on the Order will comply with
the terms and conditions of the application.
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10. Applicants state that a Regulated Entity may, from time to
time, form a special purpose subsidiary (a ``Blocker Subsidiary'').\9\
A Blocker Subsidiary would be prohibited from investing in a Co-
Investment Transaction with any Affiliated Investor or Regulated Entity
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 a Blocker Subsidiary be permitted to participate in Co-Investment
Transactions in lieu of its parent Regulated Entity and that the
Blocker Subsidiary's participation in any such transaction be treated,
for purposes of the requested Order, as though the parent Regulated
Entity were participating directly.
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\9\ ``Blocker Subsidiary'' means an entity (i) whose sole
business purpose is to hold one or more investments on behalf of the
Regulated Entity; (ii) that is wholly-owned by a Regulated Entity
(with the Regulated Entity at all times holding, beneficially and of
record, 100% of the voting and economic interests); (iii) 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 (iv) that
does not pay a separate advisory fee, including any performance-
based fee, to any person; and (v) that is an entity that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act.
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11. Applicants note that CFA is responsible for the overall
management of CCT I, while KKR Credit is responsible for the day-to-day
management of CCT I's investment portfolio. CFA II is responsible for
the overall management of CCT II, while KKR Credit is responsible for
the day-to-day management of CCT II's investment portfolio. Applicants
represent that although KKR Credit will identify and recommend
investments for the Regulated Entities with KKR Credit as Sub-Adviser,
the CFA Advisers will have ultimate authority to approve or reject the
investments proposed by KKR Credit, subject to the oversight of the
Board of each Regulated Entity.
12. Applicants state that opportunities for Potential Co-Investment
Transactions may arise when advisory personnel of a KKR Credit Adviser
become aware of investment opportunities that may be appropriate for a
Regulated Entity, one or more other Regulated Entities and/or one or
more Affiliated Investors. In such cases, Applicants state that the
Adviser to a Regulated Entity will be notified of such Potential Co-
Investment Transactions and of KKR Credit's recommended allocation.
Applicants submit that the Adviser will then independently analyze and
evaluate the investment opportunity as to its appropriateness for each
Regulated Entity for which it serves as investment adviser, taking into
consideration the Regulated Entity's Objectives and Strategies \10\ and
any Board-Established Criteria.\11\ Applicants represent that, if the
CFA Adviser to a Regulated Entity determines that the opportunity is
appropriate for the Regulated Entity, the CFA Adviser will present the
investment opportunity to the CFA Adviser's investment committee for
its approval. If the CFA Adviser's investment committee approves the
investment for the Regulated Entity, the CFA Adviser will present the
Potential Co-Investment Transaction and the proposed allocation to the
directors of the Board eligible to vote under section 57(o) of the Act
(``Eligible Directors''), and the ``required majority,'' as defined in
section 57(o) of the Act (``Required Majority'') \12\ will approve such
Co-Investment Transaction prior to any investment by the participating
Regulated Entity.
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\10\ ``Objectives and Strategies'' means a Regulated Entity's
investment objectives and strategies, as described in the Regulated
Entity's registration statement on Form N-2, other filings the
Regulated Entity has made with the Commission under the Securities
Act of 1933, as amended (the ``1933 Act''), or under the Securities
and Exchange Act of 1934, as amended, and the Regulated Entity's
reports to shareholders.
\11\ ``Board-Established Criteria'' means criteria that the
Board of a Regulated Entity may establish from time to time to
describe the characteristics of Potential Co-Investment Transactions
regarding which each Adviser to the Regulated Entity should be
notified under condition 1. The Board-Established Criteria will be
consistent with a Regulated Entity's Objectives and Strategies. If
no Board-Established Criteria are in effect, then each Adviser to a
Regulated Entity will be notified of all Potential Co-Investment
Transactions that fall within the Regulated Entity'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. Each Adviser to a Regulated
Entity 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 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.
\12\ In the case of a Regulated Entity that is a registered
closed-end 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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13. Applicants state that KKR Credit has an investment committee
through which KKR Credit will carry out its obligation under condition
1 to make a determination as to the appropriateness of the Potential
Co-Investment Transaction for any Regulated Entity. Applicants
represent that in the case of a Potential Co-Investment Transaction,
KKR Credit would apply its allocation policies and procedures in
determining the proposed allocation for the Regulated Entity consistent
with the requirements of condition 2(a). Applicants further note that
each CFA Adviser and KKR Credit has adopted its own allocation policies
and procedures that take into account the allocation policies and
procedures for the Regulated Entities. Applicants believe that while
each KKR Credit client may not participate in each investment
opportunity, over time each KKR Credit client would participate in
investment opportunities fairly and equitably.
14. Applicants submit that, if a Potential Co-Investment
Transaction were within the investment objectives and strategies of a
Sub-Advised Affiliated Fund, the KKR Credit Adviser would have primary
responsibility for the investment, including making the initial
investment recommendation. Applicants further note that the KKR Credit
Adviser will be responsible for complying with the conditions of the
Order that relate to any Sub-Advised Affiliated Fund. Applicants state
that if the KKR Credit Adviser and KKR Primary Adviser agree that the
Sub-Advised Affiliated Fund should invest in the Potential Co-
Investment Transaction and at what size of investment, the KKR Credit
Adviser would then determine an allocation for the Regulated Entities
and Affiliated Investors, including the Sub-Advised Affiliated Fund.
15. Applicants acknowledge that some of the Affiliated Investors
may not be funds advised by a KKR Credit Adviser because they are KKR
Proprietary Accounts. The KKR Proprietary Accounts are either entities
that are advised by a KKR Credit Adviser pursuant to an investment
management agreement or, in the case of KCM Companies, are broker-
dealers that may hold financial assets in a principal capacity.
Applicants do not believe the participation of these KKR Proprietary
Accounts in Co-Investment Transactions should raise issues under the
conditions
[[Page 24421]]
of this Application because KKR's and a KKR Credit Adviser's allocation
policies and procedures provide that investment opportunities are
offered to client accounts before they are offered to KKR Proprietary
Accounts, even if the KKR Proprietary Accounts are the first to learn
of an investment opportunity.
16. Under condition 16, if an Adviser or its principals, or any
person controlling, controlled by, or under common control with the
Adviser or its principals, and any Affiliated Investor (collectively,
the ``Holders'') own in the aggregate more than 25 percent of the
outstanding voting shares of a Regulated Entity (``Shares''), then the
Holders will vote such Shares as directed by an independent third party
when voting on (1) the election of directors; (2) the removal of one or
more directors; or (3) all other matters under either the Act or
applicable state law affecting the Board's composition, size or manner
of election.
17. No Independent Director of a Regulated Entity will have a
financial interest in any Co-Investment Transaction, other than
indirectly through share ownership in one of the Regulated Entities.
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). 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
applies.
2. Rule 17d-1 under the Act prohibits 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 considering whether to grant an application under
rule 17d-1, the Commission considers whether the participation by the
company 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 submit that each of the Affiliated Investors and the
Regulated Entities could be deemed to be a person related to each other
Regulated Entity in a manner described by section 57(b) by virtue of
being under common control. In addition, section 57(b) applies to any
investment adviser to a Regulated Entity, including sub-advisers.
Applicants submit that KKR Credit, in its role as sub-adviser to CCT I
and CCT II, could be deemed to be a person related to CCT I and CCT II
in a manner described in section 57(b). Therefore, KKR Credit and any
person under common control with KKR Credit (such as the Regulated
Entities and the Affiliated Investors) could be prohibited from
participating in the Co-Investment Program with CCT I and CCT II by
section 57(a)(4) and Rule 17d-1.
4. 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.
5. Applicants state that in the absence of the requested relief,
the Regulated Entities would be, in some circumstances, limited in
their ability to participate in attractive and appropriate investment
opportunities. Applicants believe that the proposed terms and
conditions will ensure that the Co-Investment Transactions are
consistent with the protection of each Regulated 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. Each time a KKR Credit Adviser considers a Potential Co-
Investment Transaction for an Affiliated Investor or another Regulated
Entity that falls within a Regulated Entity's then-current Objectives
and Strategies and Board-Established Criteria, each Adviser to a
Regulated Entity 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 each Adviser to a Regulated Entity deems participation in
any Potential Co-Investment Transaction to be appropriate for the
Regulated Entity, the Adviser (or Advisers, if there are more than one)
will then determine an appropriate level of investment for such
Regulated Entity.
(b) If the aggregate amount recommended by the Adviser (or
Advisers, if there are more than one) to a Regulated Entity to be
invested by the Regulated Entity in the Potential Co-Investment
Transaction, together with the amount proposed to be invested by the
other participating Regulated Entities and Affiliated Investors,
collectively, in the same transaction, exceeds the amount of the
investment opportunity, the amount of the investment opportunity will
be allocated among the Regulated Entities and such Affiliated
Investors, pro rata based on each participant's Available Capital for
investment in the asset class being allocated, up to the amount
proposed to be invested by each.\13\ The Adviser (or Advisers, if there
are more than one) to a Regulated Entity will provide the Eligible
Directors of a Regulated Entity with information concerning each
participating party's Available Capital to assist the Eligible
Directors with their review of the Regulated Entity's investments for
compliance with these allocation procedures.
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\13\ ``Available Capital'' means (a) for each Regulated Entity,
the amount of capital available for investment determined based on
the amount of cash on hand, existing commitments and reserves, if
any, the targeted leverage level, targeted asset mix and other
investment policies and restrictions set from time to time by the
Board of the applicable Regulated Entity or imposed by applicable
laws, rules, regulations or interpretations, and (b) for each
Affiliated Investor (excluding KKR Proprietary Accounts), the amount
of capital available for investment determined based on the amount
of cash on hand, existing commitments and reserves, if any, the
targeted leverage level, targeted asset mix and other investment
policies and restrictions set by the Affiliated Investors'
directors, general partners, or adviser or imposed by applicable
laws, rules, regulations or interpretations.
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(c) After making the determinations required in conditions 1 and
2(a) above, the Adviser to the Regulated Entity (or Advisers, if there
are more than one) will distribute written information concerning the
Potential Co-Investment Transaction, including the amount proposed to
be invested by each Regulated Entity and any Affiliated Investor, to
the Eligible Directors for their consideration. A Regulated Entity
[[Page 24422]]
will co-invest with one or more other Regulated Entities and/or an
Affiliated Investor only if, prior to the Regulated Entities' and the
Affiliated Investors' 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 shareholders and do not involve overreaching in respect
of the Regulated Entity or its shareholders on the part of any person
concerned;
(ii) the Potential Co-Investment Transaction is consistent with:
(A) The interests of the Regulated Entity's shareholders; and
(B) the Regulated Entity's then-current Objectives and Strategies
and Board-Established Criteria;
(iii) the investment by any other Regulated Entity or an Affiliated
Investor 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 Entity or Affiliated
Investor; provided that, if another Regulated Entity or Affiliated
Investor, 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 a Required Majority
from reaching the conclusions required by this condition (2)(c)(iii),
if:
(A) The Eligible Directors will have the right to ratify the
selection of such director or board observer, if any; and
(B) the Adviser to the Regulated Entity (or Advisers, if there are
more than one) agrees to, and does, provide periodic reports to the
Regulated Entity's Board with respect to the actions of such director
or the information received by such board observer or obtained through
the exercise of any similar right to participate in the governance or
management of the portfolio company; and
(C) any fees or other compensation that any other Regulated Entity
or any Affiliated Investor or any affiliated person of any other
Regulated Entity or an Affiliated Investor receives in connection with
the right of one or more Regulated Entities or Affiliated Investors 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
Investors (who may, in turn, share their portion with their affiliated
persons) and any participating Regulated Entity in accordance with the
amount of each party's investment; and
(iv) the proposed investment by the Regulated Entity will not
benefit the Adviser to the Regulated Entity (or Advisers, if there are
more than one), any other Regulated Entity, any KKR Primary Adviser or
the Affiliated Investors 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 under
sections 17(e) or 57(k) of the Act, as applicable, (C) in the case of
fees or other compensation described in condition 2(c)(iii)(C), or (D)
indirectly, as a result of an interest in the securities issued by one
of the parties to the Co-Investment Transaction.
3. A Regulated Entity will have the right to decline to participate
in any Potential Co-Investment Transaction or to invest less than the
amount proposed.
4. The Adviser to the Regulated Entity (or Advisers, if there are
more than one) 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 of the other Regulated Entities or any of the
Affiliated Investors 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,\14\ a Regulated Entity will not invest in reliance on the
Order in any issuer in which another Regulated Entity or an Affiliated
Investor, or any affiliated person of another Regulated Entity or
Affiliated Investor is an existing investor.
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\14\ 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
Investor. The grant to one or more Regulated Entities or Affiliated
Investors, but not the Regulated Entity itself, 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 Investor elects to
sell, exchange or otherwise dispose of an interest in a security that
was acquired by one or more Regulated Entities and/or Affiliated
Investors in a Co-Investment Transaction, the applicable Adviser(s)
will: \15\
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\15\ Any KCM Company that is not advised by an Adviser is itself
deemed to be an Adviser for purposes of Conditions 7(a)(i) and
8(a)(i).
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(i) notify each Regulated Entity of the proposed disposition at the
earliest practical time; and
(ii) formulate a recommendation as to participation by the
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 Affiliated
Investors and any other Regulated Entity.
(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 Investor in such disposition is proportionate to its
outstanding investments in the issuer immediately preceding the
disposition;
(ii) the Regulated Entity's Board 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 Regulated Entity's Board is provided on a quarterly basis
with a list of all dispositions made in accordance with this condition.
In all other cases, the Adviser to the Regulated Entity (or Advisers,
if there are more than one) will provide their written recommendation
as to the Regulated Entity's participation to the Eligible Directors,
and the Regulated Entity will participate in such disposition solely to
the extent that a Required Majority determines that it is in the
Regulated Entity's best interests.
[[Page 24423]]
(d) Each Regulated Entity and each Affiliated Investor will bear
its own expenses in connection with the disposition.
8. (a) If any Regulated Entity or Affiliated Investor desires to
make a Follow-On Investment in a portfolio company whose securities
were acquired by the Regulated Entity and the Affiliated Investor in a
Co-Investment Transaction, the applicable Adviser(s) will:
(i) Notify the Regulated Entity 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 the
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 Investor in such investment is proportionate to its
outstanding investments in the issuer immediately preceding the Follow-
On Investment; and
(ii) the Regulated Entity's Board has approved as being in the best
interests of such 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 to the
Regulated Entity (or Advisers, if there are more than one) will provide
their written recommendation as to such Regulated Entity's
participation to the Eligible Directors, and the Regulated Entity will
participate in such Follow-On Investment solely to the extent that a
Required Majority determines that it is in such 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 Investors' outstanding
investments immediately preceding the Follow-On Investment; and
(ii) the aggregate amount recommended by the Adviser (or Advisers
if there are more than one) to a Regulated Entity to be invested by the
Regulated Entity in the Follow-On Investment, together with the amount
proposed to be invested by the other Regulated Entities and the
participating Affiliated Investors 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 participant's
Available Capital 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 Directors of each Regulated Entity will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including
investments made by other Regulated Entities or Affiliated Investors
that the Regulated Entity considered but declined to participate in, so
that the Independent Directors may determine whether all investments
made during the preceding quarter, including those investments that the
Regulated Entity considered but declined to participate in, comply with
the conditions of the Order. In addition, the Independent Directors
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 a Required Majority under section 57(f) of the Act.
11. No Independent Director of a Regulated Entity will also be a
director, general partner, managing member or principal, or otherwise
an ``affiliated person'' (as defined in the Act) of any Affiliated
Investor.
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 1933 Act) shall, to the
extent not payable by the applicable Adviser(s) under their respective
advisory agreements with the Regulated Entities and the Affiliated
Investors, be shared by the Regulated Entities and the Affiliated
Investors in proportion to the relative amounts of the securities held
or to be acquired or disposed of, as the case may be.
13. Any transaction fee (including break-up or commitment fees but
excluding broker's fees contemplated by section 17(e) or 57(k) of the
Act, as applicable) \16\ received in connection with a Co-Investment
Transaction will be distributed to the participating Regulated Entities
and Affiliated Investors on a pro rata basis based on the amount 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 Investors based on the amount they invest in the Co-
Investment Transaction. None of the other Regulated Entities,
Affiliated Investors, the applicable Adviser(s), any KKR Primary
Adviser nor any affiliated person of the Regulated Entities or the
Affiliated Investors 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 the Affiliated Investors, the pro rata transaction fees
described above and fees or other compensation described in condition
2(c)(iii)(C), and (b) in the case of the Advisers and KKR Primary
Advisers, investment advisory fees paid in accordance with the
Regulated Entities' and the Affiliated Investors' investment advisory
agreements).
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\16\ 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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14. The KKR Proprietary Accounts will not be permitted to invest in
a Potential Co-Investment Transaction, except to the extent the demand
from the Regulated Entities and the other Affiliated Investors is less
than the total investment opportunity.
15. The Advisers to the Regulated Entities and Affiliated Investors
will maintain written policies and procedures reasonably designed to
ensure compliance with the foregoing conditions. These policies and
procedures will require, among other things, that each of the Advisers
to each Regulated Entity will be notified of all Potential Co-
Investment Transactions that fall within such Regulated Entity's then-
current Objectives and Strategies and Board-Established Criteria and
will be given sufficient information to make its independent
determination and recommendations under conditions 1, 2(a), 7 and 8.
16. If the Holders own in the aggregate more than 25 percent of the
Shares of a Regulated Entity, then the Holders
[[Page 24424]]
will vote such Shares as directed by an independent third party when
voting on (1) the election of directors; (2) the removal of one or more
directors; or (3) all other matters under either the Act or applicable
state law affecting the Board's composition, size or manner of
election.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10795 Filed 5-25-17; 8:45 am]
BILLING CODE 8011-01-P
