Audax Credit BDC Inc., et al.; Notice of Application, 52860-52865 [2018-22676]
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merit.55 However, the Commission
notes FINRA’s statement that a
mechanism for checking arbitrators’
assessments of fees associated with an
arbitration proceeding already exists.56
Accordingly, the Commission
acknowledges FINRA’s decisions not to
provide additional formal guidance to
its arbitrators.57
V. Conclusion
It is therefore ordered pursuant to
Section 19(b)(2) of the Exchange Act 58
that the proposal (SR–FINRA–2018–
026), be and hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.59
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–22681 Filed 10–17–18; 8:45 am]
Audax Credit BDC Inc., et al.; Notice of
Application
October 12, 2018.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
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AGENCY:
Notice of an application for an order
under sections 17(d) and 57(i) of the
Investment Company Act of 1940 (the
‘‘Act’’) and rule 17d–1 under the Act
permitting certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit a business
development company (‘‘BDC’’) and
certain closed-end investment
companies to co-invest in portfolio
companies with each other and with
affiliated investment funds.
APPLICANTS: Audax Credit BDC Inc. (the
‘‘Company’’), Audax Credit Strategies
(SCS), L.P. (‘‘SCS’’), Audax Credit
Opportunities (SBA), LLC (‘‘SBA’’),
Audax Senior Debt (MP), LLC (‘‘MP’’),
Audax Senior Debt (WCTPT), LLC
(‘‘WCTPT’’), Audax Senior Debt (AZ),
LLC (‘‘AZ’’), Audax Senior Loan Fund I,
L.P. (‘‘SLF I’’), Audax Senior Loan Fund
I (Offshore), L.P. (‘‘SLF I(O)’’), Audax
Senior Loan Fund, L.P. (‘‘SLF’’), Audax
supra notes 33 and 34.
supra note 37.
57 See supra note 38.
58 15 U.S.C. 78s(b)(2).
59 17 CFR 200.30–3(a)(12).
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The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
1 Section 2(a)(48) of the Act defines a BDC to be
any closed-end investment company that operates
for the purpose of making investments in securities
described in section 55(a)(1) through 55(a)(3) of the
Act and makes available significant managerial
assistance with respect to the issuers of such
securities.
2 ‘‘Objectives and Strategies’’ means, with respect
to a Regulated Fund (defined below), the
investment objectives and strategies of such
Regulated Fund, as described in such Regulated
Fund’s registration statement, other filings the
Regulated Fund has made with the Commission
under the Act, Securities Act of 1933 (the ‘‘1933
Act’’), or under the Securities Exchange Act of
1934, or in the Regulated Fund’s reports to
stockholders.
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 November 6, 2018 and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
HEARING OR NOTIFICATION OF HEARING:
[Investment Company Act Release No.
33270; File No. 812–14862]
56 See
FOR FURTHER INFORMATION CONTACT:
The application was filed
on December 29, 2017 and amended on
June 14, 2018.
SECURITIES AND EXCHANGE
COMMISSION
Applicants’ Representations
1. The Company was organized as a
corporation under the General
Corporation Law of the State of
Delaware on January 29, 2015 and
elected to be treated as a BDC 1 through
a notification of election to be subject to
sections 55 through 65 of the Act on
Form N–54A. The Company’s
‘‘Objectives and Strategies’’ 2 are to
generate current income and, to a lesser
extent, long-term capital appreciation by
investing primarily in senior secured
debt of privately owned U.S. middlemarket companies. The Company has a
five-member board of directors (the
‘‘Board’’), of which three members are
not ‘‘interested persons’’ of the
Company within the meaning of section
2(a)(19) of the Act (the ‘‘Non-Interested
Directors’’). No Non-Interested Director
will have any direct or indirect financial
interest in any Co-Investment
Transaction (defined below) or any
interest in any portfolio company, other
than indirectly through share ownership
(if any) in the Company or a Future
Regulated Fund (defined below).
2. SCS was formed as a Delaware
limited partnership on March 10, 2014
and would be an investment company
but for the exclusion from the definition
of investment company provided by
section 3(c)(7) of the Act. SCS’s
investment objective is to invest
primarily in a portfolio of secured and
unsecured loans and other debt
instruments, seeking low volatility,
principal protection and current
income. SCS has an investment strategy
that is similar to the Company’s
investment strategy.
3. SBA was formed as a Delaware
limited liability company on March 10,
2010 and would be an investment
company but for the exclusion from the
definition of investment company
provided by section 3(c)(7) of the Act.
SBA’s investment objective is to invest
primarily in a portfolio of secured and
unsecured loans and other debt
instruments, seeking low volatility,
principal protection and current
FILING DATES:
BILLING CODE 8011–01–P
55 See
Senior Loan Fund III, L.P. (‘‘SLF III’’),
Audax Senior Loan Fund III (Offshore),
L.P. (‘‘SLF III(O)’’), Audax Senior Loan
Fund (ST), LP (‘‘SLF(ST)’’), Audax
Direct Lending Solutions Fund-A, L.P.
(‘‘Direct Lending-A’’), Audax Direct
Lending Solutions Fund-B, L.P. (‘‘Direct
Lending-B’’), Audax Direct Lending
Solutions Fund-C, L.P. (‘‘Direct
Lending-C’’), Audax Direct Lending
Solutions Fund-D, L.P. (‘‘Direct
Lending-D’’ and, collectively with SCS,
SBA, MP, WCTPT, AZ, SLF I, SLF I(O),
SLF, SLF III, SLF III(O), SLF(ST), Direct
Lending-A, Direct Lending-B, and Direct
Lending-C, the ‘‘Private Funds’’), and
Audax Management Company (NY),
LLC (the ‘‘Company Adviser,’’ and
collectively with the Company and the
Private Funds, the ‘‘Applicants’’).
Secretary, U.S. Securities
and Exchange Commission, 100 F St.
NE, Washington, DC 20549–1090.
Applicants: 101 Huntington Avenue,
Boston, Massachusetts 02199.
ADDRESSES:
Jill
Ehrlich, Senior Counsel, at (202) 551–
6819, or Andrea Ottomanelli Magovern,
Branch Chief, at (202) 551–6821 (Chief
Counsel’s Office, Division of Investment
Management).
SUPPLEMENTARY INFORMATION:
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income. SBA has an investment strategy
that is similar to the Company’s
investment strategy.
4. MP was formed as a Delaware
limited liability company on June 28,
2017 and would be an investment
company but for the exclusion from the
definition of investment company
provided by section 3(c)(7) of the Act.
MP’s investment objective is to invest
primarily in a portfolio of secured and
unsecured loans and other debt
instruments, seeking low volatility,
principal protection and current
income. MP has an investment strategy
that is similar to the Company’s
investment strategy.
5. WCTPT was formed as a Delaware
limited liability company on October
25, 2011 and would be an investment
company but for the exclusion from the
definition of investment company
provided by section 3(c)(7) of the Act.
WCTPT’s investment objective is to
invest in a portfolio of first lien senior
secured loans, seeking low volatility,
principal protection and current income
for WCTPT. WCTPT has an investment
strategy that is similar to the Company’s
investment strategy.
6. AZ was formed as a Delaware
limited liability company on November
20, 2017 and would be an investment
company but for the exclusion from the
definition of investment company
provided by section 3(c)(7) of the Act.
AZ’s investment objective is to invest
primarily in a portfolio of secured and
unsecured loans and other debt
instruments, seeking low volatility,
principal protection and current
income. AZ has an investment strategy
that is similar to the Company’s
investment strategy.
7. SLF I was formed as a Delaware
limited partnership on July 23, 2007 and
would be an investment company but
for the exclusion from the definition of
investment company provided by
section 3(c)(7) of the Act. SLF I’s
investment objective is to invest
primarily in a portfolio of secured and
unsecured loans and other debt
instruments, seeking low volatility,
principal protection and current
income. SLF I has an investment
strategy that is similar to the Company’s
investment strategy.
8. SLF I(O) was formed as a Cayman
Islands exempted limited partnership
on October 2, 2007 and would be an
investment company but for the
exclusion from the definition of
investment company provided by
section 3(c)(7) of the Act. SLF I(O)’s
investment objective is to invest
primarily in a portfolio of secured and
unsecured loans and other debt
instruments, seeking low volatility,
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principal protection and current
income. SLF(IO) has an investment
strategy that is similar to the Company’s
investment strategy.
9. SLF was formed as a Delaware
limited partnership on August 10, 2012
and would be an investment company
but for the exclusion from the definition
of investment company provided by
section 3(c)(7) of the Act. The
investment objective of SLF is to invest
primarily in a portfolio of first lien
senior secured loans to North American
middle market companies, although a
portion of the its portfolio may be
invested in mezzanine, second lien,
distressed and other securities or
instruments, including securities or
instruments of non-North American
companies. SLF has an investment
strategy that is similar to the Company’s
investment strategy.
10. SLF III was formed as a Delaware
limited partnership on January 19, 2016
and would be an investment company
but for the exclusion from the definition
of investment company provided by
section 3(c)(7) of the Act. The
investment objective of SLF III is to
invest primarily in a portfolio of first
lien senior secured loans to North
American middle market companies,
although a portion of the its portfolio
may be invested in mezzanine, second
lien, distressed and other securities or
instruments, including securities or
instruments of non-North American
companies. SLF III has an investment
strategy that is similar to the Company’s
investment strategy.
11. SLF III(O) was formed as a
Cayman Islands exempted limited
partnership on May 25, 2016 and would
be an investment company but for the
exclusion from the definition of
investment company provided by
section 3(c)(7) of the Act. The
investment objective of SLF III(O) is to
invest primarily in a portfolio of first
lien senior secured loans to North
American middle market companies,
although a portion of the its portfolio
may be invested in mezzanine, second
lien, distressed and other securities or
instruments, including securities or
instruments of non-North American
companies. SLF III(O) has an investment
strategy that is similar to the Company’s
investment strategy.
12. SLF (ST) was formed as a
Delaware limited partnership on May
16, 2018 and would be an investment
company but for the exclusion from the
definition of investment company
provided by section 3(c)(7) of the Act.
The investment objective of SLF (ST) is
to invest primarily in a portfolio of
secured and unsecured loans and other
debt instruments, seeking low volatility,
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principal protection and current
income. SLF (ST) has an investment
strategy that is similar to the Company’s
investment strategy.
13. Direct Lending-A, Direct LendingB and Direct Lending-C were each
formed as a Delaware limited
partnership on October 12, 2017,
October 12, 2017 and April 5, 2017,
respectively, and each would be an
investment company but for the
exclusion from the definition of
investment company provided by
section 3(c)(7) of the Act. Direct
Lending-D was formed as a Cayman
Islands exempted limited partnership
on April 10, 2018 and would be an
investment company but for the
exclusion from the definition of
investment company provided by
section 3(c)(7) of the Act. The
investment objective of each of Direct
Lending-A, Direct Lending-B, Direct
Lending-C, and Direct Lending-D is to
engage in direct lending to private
middle market companies based in the
United States and Canada through a
variety of structures, and primarily via
unitranche and stretch senior secured
loans, with selected positions in senior
secured first or second lien loans, equity
and similar investments. The
investment strategy of each of Direct
Lending-A, Direct Lending-B, Direct
Lending-C, and Direct Lending-D
overlaps with the Company’s
investment strategy.
14. The Company Adviser, a Delaware
limited liability company and an
investment adviser registered with the
Commission under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’),
serves as investment adviser to both the
Company and each of the Private Funds.
Under the investment advisory
agreements of the Company and the
Private Funds, the Company Adviser
manages the portfolio of each entity in
accordance with the investment
objective and policies of each, makes
investment decisions for each entity,
places purchase and sale orders for
portfolio transactions for each entity,
and otherwise manages the day-to-day
operations of each entity, subject, in the
case of the Company, to the oversight of
its Board.
15. Applicants seek an order
(‘‘Order’’) to permit one or more
Regulated Funds 3 and/or one or more
3 ‘‘Regulated Fund’’ means the Company and any
Future Regulated Fund. ‘‘Future Regulated Fund’’
means any closed-end management investment
company (a) that is registered under the Act or has
elected to be regulated as a BDC, (b) whose
investment adviser is an Adviser, and (c) that
intends to participate in the Co-Investment
Program. The term ‘‘Adviser’’ means (a) the
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Affiliated Funds 4 to participate in the
same investment opportunities through
a proposed co-investment program (the
‘‘Co-Investment Program’’) where such
participation would otherwise be
prohibited under section 57(a)(4) and
rule 17d–1 by (a) co-investing with each
other in securities issued by issuers in
private placement transactions in which
an Adviser negotiates terms in addition
to price; 5 and (b) making additional
investments in securities of such
issuers, including through the exercise
of warrants, conversion privileges, and
other rights to purchase securities of the
issuers (‘‘Follow-On Investments’’). ‘‘CoInvestment Transaction’’ means any
transaction in which a Regulated Fund
(or its Wholly-Owned Investment
Subsidiary) participates together with
one or more other Regulated Funds and/
or one or more Affiliated Funds in
reliance on the requested Order.6
‘‘Potential Co-Investment Transaction’’
means any investment opportunity in
which a Regulated Fund (or its WhollyOwned Investment Subsidiary) could
not participate together with one or
more Affiliated Funds and/or one or
more other Regulated Funds without
obtaining and relying on the Order.7
16. Applicants state that a Regulated
Fund may, from time to time, form one
or more Wholly-Owned Investment
Company Adviser and (b) any future investment
adviser that controls, is controlled by or is under
common control with the Company Adviser or its
successor and is registered as an investment adviser
under the Advisers Act. The term ‘‘successor,’’ as
applied to each Adviser, means an entity that
results from a reorganization into another
jurisdiction or change in the type of business
organization.
4 ‘‘Affiliated Fund’’ means the Private Funds and
any Future Affiliated Fund. ‘‘Future Affiliated
Fund’’ means any entity (a) whose investment
adviser is an Adviser, (b) that would be an
investment company but for section 3(c)(1) or
3(c)(7) of the Act, and (c) that intends to participate
in the Co-Investment Program.
5 The term ‘‘private placement transactions’’
means transactions in which the offer and sale of
securities by the issuer are exempt from registration
under the 1933 Act.
6 The term ‘‘Wholly-Owned Investment
Subsidiary’’ means an entity (i) that is whollyowned by a Regulated Fund (with the Regulated
Fund at all times holding, beneficially and of
record, 100% of the voting and economic interests);
(ii) whose sole business purpose is to hold one or
more investments and incur debt (which is or
would be consolidated with other indebtedness of
such Regulated Fund for financial reporting or
compliance purposes under the Act) on behalf of
the Regulated Fund; (iii) with respect to which the
Regulated Fund’s Board has the sole authority to
make all determinations with respect to the entity’s
participation under the conditions of the
application; and (iv) that would be an investment
company but for sections 3(c)(1) or 3(c)(7) of the
Act.
7 All existing entities that currently intend to rely
upon the requested Order have been named as
applicants. Any other existing or future entity that
subsequently relies on the Order will comply with
the terms and conditions of the application.
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Subsidiaries. Such a subsidiary would
be prohibited from investing in a CoInvestment Transaction with any
Affiliated Fund or Regulated Fund
because it would be a company
controlled by its parent Regulated Fund
for purposes of section 57(a)(4) and rule
17d–1. Applicants request that each
Wholly-Owned Investment Subsidiary
be permitted to participate in CoInvestment Transactions in lieu of its
parent Regulated Fund and that the
Wholly-Owned Investment Subsidiary’s
participation in any such transaction be
treated, for purposes of the requested
Order, as though the parent Regulated
Fund were participating directly.
Applicants represent that this treatment
is justified because a Wholly-Owned
Investment Subsidiary would have no
purpose other than serving as a holding
vehicle for the parent Regulated Fund’s
investments and, therefore, no conflicts
of interest could arise between a
Regulated Fund and its Wholly-Owned
Investment Subsidiary. The applicable
Regulated Fund’s Board would make all
relevant determinations under the
conditions with regard to a WhollyOwned Investment Subsidiary’s
participation in a Co-Investment
Transaction, and the Regulated Fund’s
Board would be informed of, and take
into consideration, any proposed use of
a Wholly-Owned Investment Subsidiary
in the Regulated Fund’s place. If the
Regulated Fund proposes to participate
in the same Co-Investment Transaction
with any of its Wholly-Owned
Investment Subsidiaries, the Board will
also be informed of, and take into
consideration, the relative participation
of the Regulated Fund and the WhollyOwned Investment Subsidiary.
17. When considering Potential CoInvestment Transactions for any
Regulated Fund, the applicable Adviser
will consider only the Objectives and
Strategies, investment policies,
investment positions, capital available
for investment (‘‘Available Capital’’),
and other pertinent factors applicable to
that Regulated Fund. The Board of each
Regulated Fund, including the NonInterested Directors, has (or will have
prior to relying on the requested Order)
determined that it is in the best interests
of the Regulated Fund to participate in
the Co-Investment Transaction.
18. Other than pro rata dispositions
and Follow-On Investments as provided
in conditions 7 and 8, and after making
the determinations required in
conditions 1 and 2(a), the Adviser will
present each Potential Co-Investment
Transaction and the proposed allocation
to the directors of the Board eligible to
vote under section 57(o) of the Act
(‘‘Eligible Directors’’), and the ‘‘required
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majority,’’ as defined in section 57(o) of
the Act (‘‘Required Majority’’) 8 will
approve each Co-Investment
Transaction prior to any investment by
the participating Regulated Fund.
19. With respect to the pro rata
dispositions and Follow-On Investments
provided in conditions 7 and 8, a
Regulated Fund may participate in a pro
rata disposition or Follow-On
Investment without obtaining prior
approval of the Required Majority if,
among other things: (i) The proposed
participation of each Regulated Fund
and Affiliated Fund in such disposition
is proportionate to its outstanding
investments in the issuer immediately
preceding the disposition or Follow-On
Investment, as the case may be; and (ii)
the Board of the Regulated Fund has
approved that Regulated Fund’s
participation in pro rata dispositions
and Follow-On Investments as being in
the best interests of the Regulated Fund.
If the Board does not so approve, any
such disposition or Follow-On
Investment will be submitted to the
Regulated Fund’s Eligible Directors. The
Board of any Regulated Fund may at any
time rescind, suspend or qualify its
approval of pro rata dispositions and
Follow-On Investments with the result
that all dispositions and/or Follow-On
Investments must be submitted to the
Eligible Directors.
20. Applicants also represent that if
the Advisers, the principals of the
Advisers (‘‘Principals’’), or any person
controlling, controlled by, or under
common control with an Adviser or the
Principals, and the Affiliated Funds
(collectively, the ‘‘Holders’’) own in the
aggregate more than 25% of the
outstanding voting shares of a Regulated
Fund (the ‘‘Shares’’), then the Holders
will vote such Shares as required under
condition 14. Applicants believe this
condition will ensure that the NonInterested Directors will act
independently in evaluating the CoInvestment Program, because the ability
of the Advisers or the Principals to
influence the Non-Interested Directors
by a suggestion, explicit or implied, that
the Non-Interested Directors can be
removed will be limited significantly.
Applicants represent that the NonInterested Directors will evaluate and
approve any such independent third
party, taking into account its
qualifications, reputation for
independence, cost to the stockholders,
and other factors that they deem
relevant.
8 In the case of a Regulated Fund that is a
registered closed-end fund, the Board members that
make up the Required Majority will be determined
as if the Regulated Fund were a BDC subject to
section 57(o).
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Applicants’ Legal Analysis
1. Section 57(a)(4) of the Act prohibits
certain affiliated persons of a BDC from
participating in joint transactions with
the BDC or a company controlled by a
BDC in contravention of rules as
prescribed by the Commission. Under
section 57(b)(2) of the Act, any person
who is directly or indirectly controlling,
controlled by, or under common control
with a BDC is subject to section 57(a)(4).
Applicants submit that each of the
Regulated Funds and Affiliated Funds
could be deemed to be a person related
to each Regulated Fund in a manner
described by section 57(b) by virtue of
being under common control. Section
57(i) of the Act provides that, until the
Commission prescribes rules under
section 57(a)(4), the Commission’s rules
under section 17(d) of the Act
applicable to registered closed-end
investment companies will be deemed
to apply to transactions subject to
section 57(a)(4). Because the
Commission has not adopted any rules
under section 57(a)(4), rule 17d–1 also
applies to joint transactions with
Regulated Funds that are BDCs. Section
17(d) of the Act and rule 17d–1 under
the Act are applicable to Regulated
Funds that are registered closed-end
investment companies.
2. Section 17(d) of the Act and rule
17d–1 under the Act prohibit affiliated
persons of a registered investment
company from participating in joint
transactions with the company unless
the Commission has granted an order
permitting such transactions. In passing
upon applications under rule 17d–1, the
Commission considers whether the
company’s participation in the joint
transaction is consistent with the
provisions, policies, and purposes of the
Act and the extent to which such
participation is on a basis different from
or less advantageous than that of other
participants.
3. Applicants state that in the absence
of the requested relief, the Regulated
Funds would be, in some
circumstances, limited in their ability to
participate in attractive and appropriate
investment opportunities. Applicants
believe that the proposed terms and
conditions will ensure that the CoInvestment Transactions are consistent
with the protection of each Regulated
Fund’s shareholders and with the
purposes intended by the policies and
provisions of the Act. Applicants state
that the Regulated Funds’ participation
in the Co-Investment Transactions will
be consistent with the provisions,
policies, and purposes of the Act and on
a basis that is not different from or less
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advantageous than that of other
participants.
Applicants’ Conditions
Applicants agree that the Order will
be subject to the following conditions:
1. Each time an Adviser considers a
Potential Co-Investment Transaction for
an Affiliated Fund or another Regulated
Fund that falls within a Regulated
Fund’s then-current Objectives and
Strategies, the Regulated Fund’s Adviser
will make an independent
determination of the appropriateness of
the investment for the Regulated Fund
in light of the Regulated Fund’s thencurrent circumstances.
2.
(a) If the Adviser deems a Regulated
Fund’s participation in any Potential
Co-Investment Transaction to be
appropriate for the Regulated Fund, it
will then determine an appropriate level
of investment for the Regulated Fund.
(b) If the aggregate amount
recommended by the applicable Adviser
to be invested by the applicable
Regulated Fund in the Potential CoInvestment Transaction, together with
the amount proposed to be invested by
the other participating Regulated Funds
and Affiliated Funds, collectively, in the
same transaction, exceeds the amount of
the investment opportunity, the
investment opportunity will be
allocated among them pro rata based on
each participant’s Available Capital, up
to the amount proposed to be invested
by each. The applicable Adviser will
provide the Eligible Directors of each
participating Regulated Fund with
information concerning each
participating party’s Available Capital to
assist the Eligible Directors with their
review of the Regulated Fund’s
investments for compliance with these
allocation procedures.
(c) After making the determinations
required in conditions 1 and 2(a), the
applicable Adviser will distribute
written information concerning the
Potential Co-Investment Transaction
(including the amount proposed to be
invested by each participating Regulated
Fund and Affiliated Fund) to the
Eligible Directors of each participating
Regulated Fund for their consideration.
A Regulated Fund will co-invest with
one or more other Regulated Funds and/
or one or more Affiliated Funds only if,
prior to the Regulated Fund’s
participation in the Potential 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 Fund and its
stockholders and do not involve
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52863
overreaching in respect of the Regulated
Fund or its stockholders on the part of
any person concerned;
(ii) the Potential Co-Investment
Transaction is consistent with:
(A) The interests of the Regulated
Fund’s stockholders; and
(B) the Regulated Fund’s then-current
Objectives and Strategies;
(iii) the investment by any other
Regulated Funds or Affiliated Funds
would not disadvantage the Regulated
Fund, and participation by the
Regulated Fund would not be on a basis
different from or less advantageous than
that of any other Regulated Funds or
Affiliated Funds; provided that if any
other Regulated Funds or Affiliated
Funds, but not the Regulated Fund
itself, gains the right to nominate a
director for election to a portfolio
company’s board of directors or the
right to have a board observer or any
similar right to participate in the
governance or management of the
portfolio company, such event shall not
be interpreted to prohibit the Required
Majority from reaching the conclusions
required by this condition (2)(c)(iii), if:
(A) The Eligible Directors will have
the right to ratify the selection of such
director or board observer, if any;
(B) the applicable Adviser agrees to,
and does, provide periodic reports to
the Regulated Fund’s Board with respect
to the actions of such director or the
information received by such board
observer or obtained through the
exercise of any similar right to
participate in the governance or
management of the portfolio company;
and
(C) any fees or other compensation
that any Affiliated Fund or any
Regulated Fund or any affiliated person
of any Affiliated Fund or any Regulated
Fund receives in connection with the
right of the Affiliated Fund or Regulated
Fund to nominate a director or appoint
a board observer or otherwise to
participate in the governance or
management of the portfolio company
will be shared proportionately among
the participating Affiliated Funds (who
each may, in turn, share its portion with
its affiliated persons) and the
participating Regulated Fund in
accordance with the amount of each
party’s investment; and
(iv) the proposed investment by the
Regulated Fund will not benefit the
Advisers, any Affiliated Funds or other
Regulated Funds or any affiliated person
of any of them (other than the parties to
the Co-Investment Transaction), except
(A) to the extent permitted by condition
13, (B) to the extent permitted by
section 17(e) or 57(k) of the Act, as
applicable, (C) indirectly, as a result of
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an interest in the securities issued by
one of the parties to the Co-Investment
Transaction, or (D) in the case of fees or
other compensation described in
condition 2(c)(iii)(C).
3. Each Regulated Fund has the right
to decline to participate in any Potential
Co-Investment Transaction or to invest
less than the amount proposed.
4. The applicable Adviser will present
to the Board of each Regulated Fund, on
a quarterly basis, a record of all
investments in Potential Co-Investment
Transactions made by any of the other
Regulated Funds or Affiliated Funds
during the preceding quarter that fell
within the Regulated Fund’s thencurrent Objectives and Strategies that
were not made available to the
Regulated Fund, and an explanation of
why the investment opportunities were
not offered to the Regulated Fund. All
information presented to the Board
pursuant to this condition will be kept
for the life of the Regulated Fund and
at least two years thereafter, and will be
subject to examination by the
Commission and its staff.
5. Except for Follow-On Investments
made in accordance with condition 8,9
a Regulated Fund will not invest in
reliance on the Order in any issuer in
which another Regulated Fund, an
Affiliated Fund or any affiliated person
of another Regulated Fund or Affiliated
Fund is an existing investor.
6. A Regulated Fund will not
participate in any Potential CoInvestment Transaction unless the
terms, conditions, price, class of
securities to be purchased, settlement
date, and registration rights will be the
same for each participating Regulated
Fund and Affiliated Fund. The grant to
an Affiliated Fund or another Regulated
Fund, but not the Regulated Fund, of
the right to nominate a director for
election to a portfolio company’s board
of directors, the right to have an
observer on the board of directors or
similar rights to participate in the
governance or management of the
portfolio company will not be
interpreted so as to violate this
condition 6, if conditions 2(c)(iii)(A), (B)
and (C) are met.
7.
(a) If any Affiliated Fund or any
Regulated Fund elects to sell, exchange
or otherwise dispose of an interest in a
security that was acquired in a CoInvestment Transaction, the applicable
Advisers will:
(i) Notify each Regulated Fund that
participated in the Co-Investment
9 This exception applies only to Follow-On
Investments by a Regulated Fund in issuers in
which the Regulated Fund already holds
investments.
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Transaction of the proposed disposition
at the earliest practical time; and
(ii) formulate a recommendation as to
participation by each Regulated Fund in
the disposition.
(b) Each Regulated Fund will have the
right to participate in such disposition
on a proportionate basis, at the same
price and on the same terms and
conditions as those applicable to the
participating Affiliated Funds and
Regulated Funds.
(c) A Regulated Fund may participate
in such disposition without obtaining
prior approval of the Required Majority
if: (i) The proposed participation of each
Regulated Fund and each Affiliated
Fund in such disposition is
proportionate to its outstanding
investments in the issuer immediately
preceding the disposition; (ii) the Board
of the Regulated Fund has approved as
being in the best interests of the
Regulated Fund the ability to participate
in such dispositions on a pro rata basis
(as described in greater detail in the
application); and (iii) the Board of the
Regulated Fund is provided on a
quarterly basis with a list of all
dispositions made in accordance with
this condition. In all other cases, the
Adviser will provide its written
recommendation as to the Regulated
Fund’s participation to the Eligible
Directors, and the Regulated Fund will
participate in such disposition solely to
the extent that a Required Majority
determines that it is in the Regulated
Fund’s best interests.
(d) Each Affiliated Fund and each
Regulated Fund will bear its own
expenses in connection with any such
disposition.
8.
(a) If any Affiliated Fund or Regulated
Fund desires to make a Follow-On
Investment in a portfolio company
whose securities were acquired in a CoInvestment Transaction, the applicable
Advisers will:
(i) Notify each Regulated Fund that
participated in the co-investment
transaction of the proposed Follow-On
Investment at the earliest practical time;
and
(ii) formulate a recommendation as to
the proposed participation, including
the amount of the proposed Follow-On
Investment, by each Regulated Fund.
(b) A Regulated Fund may participate
in such Follow-On Investment without
obtaining prior approval of the Required
Majority if: (i) The proposed
participation of each Regulated Fund
and each Affiliated Fund in such
investment is proportionate to its
outstanding investments in the issuer
immediately preceding the Follow-On
Investment; and (ii) the Board of the
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Regulated Fund has approved as being
in the best interests of the Regulated
Fund the ability to participate in
Follow-On Investments on a pro rata
basis (as described in greater detail in
the application). In all other cases, the
Adviser will provide its written
recommendation as to the Regulated
Fund’s participation to the Eligible
Directors, and the Regulated Fund will
participate in such Follow-On
Investment solely to the extent that a
Required Majority determines that it is
in the Regulated Fund’s best interests.
(c) If, with respect to any Follow-On
Investment:
(i) The amount of the opportunity is
not based on the Regulated Funds’ and
the Affiliated Funds’ outstanding
investments immediately preceding the
Follow-On Investment; and
(ii) the aggregate amount
recommended by the applicable Adviser
to be invested by the applicable
Regulated Fund in the Follow-On
Investment, together with the amount
proposed to be invested by other
participating Regulated Funds and
Affiliated Funds, collectively, in the
same transaction, exceeds the amount of
the investment opportunity, then the
investment opportunity will be
allocated among them pro rata based on
each participant’s Available Capital, up
to the 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 Non-Interested Directors of
each Regulated Fund will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions and Co-Investment
Transactions, including investments
made by any other Regulated Funds or
Affiliated Funds that the Regulated
Fund considered but declined to
participate in, so that the Non-Interested
Directors may determine whether all
investments made during the preceding
quarter, including those investments
that the Regulated Fund considered but
declined to participate in, comply with
the conditions of the Order. In addition,
the Non-Interested Directors will
consider at least annually the continued
appropriateness for the Regulated Fund
of participating in new and existing CoInvestment Transactions.
10. Each Regulated Fund will
maintain the records required by section
57(f)(3) of the Act as if each of the
Regulated Funds were a BDC and each
of the investments permitted under
these conditions were approved by the
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Required Majority under section 57(f) of
the Act.
11. No Non-Interested Director of a
Regulated Fund will also be a director,
general partner, managing member or
principal, or otherwise an ‘‘affiliated
person’’ (as defined in the Act) of an
Affiliated Fund.
12. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the 1933 Act)
will, to the extent not payable by the
Advisers under their respective
investment advisory agreements with
Affiliated Funds and the Regulated
Funds, be shared by the Regulated
Funds and the Affiliated Funds in
proportion to the relative amounts of the
securities held or to be acquired or
disposed of, as the case may be.
13. Any transaction fee 10 (including
break-up or commitment fees but
excluding broker’s fees contemplated
section 17(e) or 57(k) of the Act, as
applicable) received in connection with
a Co-Investment Transaction will be
distributed to the participating
Regulated Funds and Affiliated Funds
on a pro rata basis based on the amounts
they invested or committed, as the case
may be, in such Co-Investment
Transaction. If any transaction fee is to
be held by an Adviser pending
consummation of the Co-Investment
Transaction, the fee will be deposited
into an account maintained by such
Adviser at a bank or banks having the
qualifications prescribed in section
26(a)(1) of the Act, and the account will
earn a competitive rate of interest that
will also be divided pro rata among the
participating Regulated Funds and
Affiliated Funds based on the amounts
they invest in such Co-Investment
Transaction. None of the Affiliated
Funds, the Advisers, the other
Regulated Funds, or any affiliated
person of the Regulated Funds or
Affiliated Funds will receive additional
compensation or remuneration of any
kind as a result of or in connection with
a Co-Investment Transaction (other than
(a) in the case of the Regulated Funds
and the Affiliated Funds, the pro rata
transaction fees described above and
fees or other compensation described in
condition 2(c)(iii)(C); and (b) in the case
of an Adviser, investment advisory fees
paid in accordance with the investment
advisory agreements between such
Adviser and the Regulated Fund or
Affiliated Fund).
14. If the Holders own in the aggregate
more than 25% of the Shares of a
Regulated Fund, then the Holders will
vote such Shares as directed by an
independent third party when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
any other matter under either the Act or
applicable state law affecting the
Board’s composition, size or manner of
election.
15. Each Regulated Fund’s chief
compliance officer, as defined in rule
38a–1(a)(4) under the Act, will prepare
an annual report for the Board of such
Regulated Fund that evaluates (and
documents the basis of that evaluation)
the Regulated Fund’s compliance with
the terms and conditions of the
application and procedures established
to achieve such compliance.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–22676 Filed 10–17–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84417; File No. SR–MIAX–
2018–14]
Self-Regulatory Organizations; Miami
International Securities Exchange,
LLC; Order Granting Approval of a
Proposed Rule Change To List and
Trade Options on the SPIKESTM Index
October 12, 2018.
I. Introduction
On June 28, 2018, Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade options on the SPIKESTM
Index (‘‘SPIKES’’ or the ‘‘Index’’), which
measures expected 30-day volatility of
the SPDR S&P 500 ETF Trust (‘‘SPY’’).
The proposed rule change was
published for comment in the Federal
Register on July 16, 2018.3 On August
28, 2018, pursuant to Section 19(b)(2) of
the Act,4 the Commission designated a
1 15
10 The
Applicants are not requesting, and the staff
is not providing, any relief for transaction fees
received in connection with any Co-Investment
Transaction.
VerDate Sep<11>2014
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 83619
(July 11, 2018), 83 FR 32932 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
2 17
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52865
longer period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change.5 The Commission received
no comments on the proposal. This
order approves the proposed rule
change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade cash-settled, European-style
options on the Index, which measures
expected thirty-day volatility of SPY.6
As more fully set forth in the Notice,
the Index is calculated using a
methodology developed by T3i Pty Ltd,
which uses published real-time prices
and bid/ask quotes of SPY options.7 The
Index will be calculated and maintained
by the Exchange. The Index uses a
proprietary ‘‘price dragging’’ technique
to determine the ongoing price for each
individual option used in the
calculation of the Index (‘‘Reference
Price’’), which the Exchange believes
should materially reduce erratic
movements of the Index value as
quotations on out-of-the-money options
are rapidly altered during times of low
liquidity.8 The Exchange also notes the
Index’s exclusion rule (‘‘truncation
method’’), which determines how far
away from the money to exclude strikes
from the volatility calculation. When
two consecutive option prices of $0.05
or less are encountered when moving
away from the at-the-money strike, the
truncation method excludes all the
strikes beyond that level, from each of
the put and call side.9 The Exchange
believes that this exclusion
methodology should result in a
calculation outcome that better reflects
the expected measure of volatility.10
The Index will be updated on a realtime basis on each trading day
beginning at 9:30 a.m. and ending at
5 See Securities Exchange Act Release No. 83975,
83 FR 44929 (September 4, 2018). The Commission
designated October 14, 2018 as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
6 According to the Exchange, SPY is historically
the largest and most actively-traded exchangetraded fund in the United States as measured by its
assets under management and the value of shares
traded. See Notice, supra note 3, at 32936.
7 See id. at 32933–36 (describing in more detail
the calculation methodology for the Index).
8 See id. at 32934–35 (describing in more detail
the ‘‘price dragging’’ methodology).
9 See id. at 32935 (describing in more detail the
truncation method).
10 See id.
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]]>Agencies
[Federal Register Volume 83, Number 202 (Thursday, October 18, 2018)]
[Notices]
[Pages 52860-52865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22676]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33270; File No. 812-14862]
Audax Credit BDC Inc., et al.; Notice of Application
October 12, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of an application for an order under sections 17(d) and
57(i) of the Investment Company Act of 1940 (the ``Act'') and rule 17d-
1 under the Act permitting certain joint transactions otherwise
prohibited by sections 17(d) and 57(a)(4) of the Act and rule 17d-1
under the Act.
Summary of Application: Applicants request an order to permit a
business development company (``BDC'') and certain closed-end
investment companies to co-invest in portfolio companies with each
other and with affiliated investment funds.
Applicants: Audax Credit BDC Inc. (the ``Company''), Audax Credit
Strategies (SCS), L.P. (``SCS''), Audax Credit Opportunities (SBA), LLC
(``SBA''), Audax Senior Debt (MP), LLC (``MP''), Audax Senior Debt
(WCTPT), LLC (``WCTPT''), Audax Senior Debt (AZ), LLC (``AZ''), Audax
Senior Loan Fund I, L.P. (``SLF I''), Audax Senior Loan Fund I
(Offshore), L.P. (``SLF I(O)''), Audax Senior Loan Fund, L.P.
(``SLF''), Audax Senior Loan Fund III, L.P. (``SLF III''), Audax Senior
Loan Fund III (Offshore), L.P. (``SLF III(O)''), Audax Senior Loan Fund
(ST), LP (``SLF(ST)''), Audax Direct Lending Solutions Fund-A, L.P.
(``Direct Lending-A''), Audax Direct Lending Solutions Fund-B, L.P.
(``Direct Lending-B''), Audax Direct Lending Solutions Fund-C, L.P.
(``Direct Lending-C''), Audax Direct Lending Solutions Fund-D, L.P.
(``Direct Lending-D'' and, collectively with SCS, SBA, MP, WCTPT, AZ,
SLF I, SLF I(O), SLF, SLF III, SLF III(O), SLF(ST), Direct Lending-A,
Direct Lending-B, and Direct Lending-C, the ``Private Funds''), and
Audax Management Company (NY), LLC (the ``Company Adviser,'' and
collectively with the Company and the Private Funds, the
``Applicants'').
Filing Dates: The application was filed on December 29, 2017 and
amended on June 14, 2018.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on November 6, 2018 and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
St. NE, Washington, DC 20549-1090. Applicants: 101 Huntington Avenue,
Boston, Massachusetts 02199.
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202)
551-6819, or Andrea Ottomanelli Magovern, 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 website 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. The Company was organized as a corporation under the General
Corporation Law of the State of Delaware on January 29, 2015 and
elected to be treated as a BDC \1\ through a notification of election
to be subject to sections 55 through 65 of the Act on Form N-54A. The
Company's ``Objectives and Strategies'' \2\ are to generate current
income and, to a lesser extent, long-term capital appreciation by
investing primarily in senior secured debt of privately owned U.S.
middle-market companies. The Company has a five-member board of
directors (the ``Board''), of which three members are not ``interested
persons'' of the Company within the meaning of section 2(a)(19) of the
Act (the ``Non-Interested Directors''). No Non-Interested Director will
have any direct or indirect financial interest in any Co-Investment
Transaction (defined below) or any interest in any portfolio company,
other than indirectly through share ownership (if any) in the Company
or a Future Regulated Fund (defined below).
---------------------------------------------------------------------------
\1\ Section 2(a)(48) of the Act defines a BDC to be any closed-
end investment company that operates for the purpose of making
investments in securities described in section 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
\2\ ``Objectives and Strategies'' means, with respect to a
Regulated Fund (defined below), the investment objectives and
strategies of such Regulated Fund, as described in such Regulated
Fund's registration statement, other filings the Regulated Fund has
made with the Commission under the Act, Securities Act of 1933 (the
``1933 Act''), or under the Securities Exchange Act of 1934, or in
the Regulated Fund's reports to stockholders.
---------------------------------------------------------------------------
2. SCS was formed as a Delaware limited partnership on March 10,
2014 and would be an investment company but for the exclusion from the
definition of investment company provided by section 3(c)(7) of the
Act. SCS's investment objective is to invest primarily in a portfolio
of secured and unsecured loans and other debt instruments, seeking low
volatility, principal protection and current income. SCS has an
investment strategy that is similar to the Company's investment
strategy.
3. SBA was formed as a Delaware limited liability company on March
10, 2010 and would be an investment company but for the exclusion from
the definition of investment company provided by section 3(c)(7) of the
Act. SBA's investment objective is to invest primarily in a portfolio
of secured and unsecured loans and other debt instruments, seeking low
volatility, principal protection and current
[[Page 52861]]
income. SBA has an investment strategy that is similar to the Company's
investment strategy.
4. MP was formed as a Delaware limited liability company on June
28, 2017 and would be an investment company but for the exclusion from
the definition of investment company provided by section 3(c)(7) of the
Act. MP's investment objective is to invest primarily in a portfolio of
secured and unsecured loans and other debt instruments, seeking low
volatility, principal protection and current income. MP has an
investment strategy that is similar to the Company's investment
strategy.
5. WCTPT was formed as a Delaware limited liability company on
October 25, 2011 and would be an investment company but for the
exclusion from the definition of investment company provided by section
3(c)(7) of the Act. WCTPT's investment objective is to invest in a
portfolio of first lien senior secured loans, seeking low volatility,
principal protection and current income for WCTPT. WCTPT has an
investment strategy that is similar to the Company's investment
strategy.
6. AZ was formed as a Delaware limited liability company on
November 20, 2017 and would be an investment company but for the
exclusion from the definition of investment company provided by section
3(c)(7) of the Act. AZ's investment objective is to invest primarily in
a portfolio of secured and unsecured loans and other debt instruments,
seeking low volatility, principal protection and current income. AZ has
an investment strategy that is similar to the Company's investment
strategy.
7. SLF I was formed as a Delaware limited partnership on July 23,
2007 and would be an investment company but for the exclusion from the
definition of investment company provided by section 3(c)(7) of the
Act. SLF I's investment objective is to invest primarily in a portfolio
of secured and unsecured loans and other debt instruments, seeking low
volatility, principal protection and current income. SLF I has an
investment strategy that is similar to the Company's investment
strategy.
8. SLF I(O) was formed as a Cayman Islands exempted limited
partnership on October 2, 2007 and would be an investment company but
for the exclusion from the definition of investment company provided by
section 3(c)(7) of the Act. SLF I(O)'s investment objective is to
invest primarily in a portfolio of secured and unsecured loans and
other debt instruments, seeking low volatility, principal protection
and current income. SLF(IO) has an investment strategy that is similar
to the Company's investment strategy.
9. SLF was formed as a Delaware limited partnership on August 10,
2012 and would be an investment company but for the exclusion from the
definition of investment company provided by section 3(c)(7) of the
Act. The investment objective of SLF is to invest primarily in a
portfolio of first lien senior secured loans to North American middle
market companies, although a portion of the its portfolio may be
invested in mezzanine, second lien, distressed and other securities or
instruments, including securities or instruments of non-North American
companies. SLF has an investment strategy that is similar to the
Company's investment strategy.
10. SLF III was formed as a Delaware limited partnership on January
19, 2016 and would be an investment company but for the exclusion from
the definition of investment company provided by section 3(c)(7) of the
Act. The investment objective of SLF III is to invest primarily in a
portfolio of first lien senior secured loans to North American middle
market companies, although a portion of the its portfolio may be
invested in mezzanine, second lien, distressed and other securities or
instruments, including securities or instruments of non-North American
companies. SLF III has an investment strategy that is similar to the
Company's investment strategy.
11. SLF III(O) was formed as a Cayman Islands exempted limited
partnership on May 25, 2016 and would be an investment company but for
the exclusion from the definition of investment company provided by
section 3(c)(7) of the Act. The investment objective of SLF III(O) is
to invest primarily in a portfolio of first lien senior secured loans
to North American middle market companies, although a portion of the
its portfolio may be invested in mezzanine, second lien, distressed and
other securities or instruments, including securities or instruments of
non-North American companies. SLF III(O) has an investment strategy
that is similar to the Company's investment strategy.
12. SLF (ST) was formed as a Delaware limited partnership on May
16, 2018 and would be an investment company but for the exclusion from
the definition of investment company provided by section 3(c)(7) of the
Act. The investment objective of SLF (ST) is to invest primarily in a
portfolio of secured and unsecured loans and other debt instruments,
seeking low volatility, principal protection and current income. SLF
(ST) has an investment strategy that is similar to the Company's
investment strategy.
13. Direct Lending-A, Direct Lending-B and Direct Lending-C were
each formed as a Delaware limited partnership on October 12, 2017,
October 12, 2017 and April 5, 2017, respectively, and each would be an
investment company but for the exclusion from the definition of
investment company provided by section 3(c)(7) of the Act. Direct
Lending-D was formed as a Cayman Islands exempted limited partnership
on April 10, 2018 and would be an investment company but for the
exclusion from the definition of investment company provided by section
3(c)(7) of the Act. The investment objective of each of Direct Lending-
A, Direct Lending-B, Direct Lending-C, and Direct Lending-D is to
engage in direct lending to private middle market companies based in
the United States and Canada through a variety of structures, and
primarily via unitranche and stretch senior secured loans, with
selected positions in senior secured first or second lien loans, equity
and similar investments. The investment strategy of each of Direct
Lending-A, Direct Lending-B, Direct Lending-C, and Direct Lending-D
overlaps with the Company's investment strategy.
14. The Company Adviser, a Delaware limited liability company and
an investment adviser registered with the Commission under the
Investment Advisers Act of 1940 (``Advisers Act''), serves as
investment adviser to both the Company and each of the Private Funds.
Under the investment advisory agreements of the Company and the Private
Funds, the Company Adviser manages the portfolio of each entity in
accordance with the investment objective and policies of each, makes
investment decisions for each entity, places purchase and sale orders
for portfolio transactions for each entity, and otherwise manages the
day-to-day operations of each entity, subject, in the case of the
Company, to the oversight of its Board.
15. Applicants seek an order (``Order'') to permit one or more
Regulated Funds \3\ and/or one or more
[[Page 52862]]
Affiliated Funds \4\ to participate in the same investment
opportunities through a proposed co-investment program (the ``Co-
Investment Program'') where such participation would otherwise be
prohibited under section 57(a)(4) and rule 17d-1 by (a) co-investing
with each other in securities issued by issuers in private placement
transactions in which an Adviser negotiates terms in addition to price;
\5\ and (b) making additional investments in securities of such
issuers, including through the exercise of warrants, conversion
privileges, and other rights to purchase securities of the issuers
(``Follow-On Investments''). ``Co-Investment Transaction'' means any
transaction in which a Regulated Fund (or its Wholly-Owned Investment
Subsidiary) participates together with one or more other Regulated
Funds and/or one or more Affiliated Funds in reliance on the requested
Order.\6\ ``Potential Co-Investment Transaction'' means any investment
opportunity in which a Regulated Fund (or its Wholly-Owned Investment
Subsidiary) could not participate together with one or more Affiliated
Funds and/or one or more other Regulated Funds without obtaining and
relying on the Order.\7\
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\3\ ``Regulated Fund'' means the Company and any Future
Regulated Fund. ``Future Regulated Fund'' means any closed-end
management investment company (a) that is registered under the Act
or has elected to be regulated as a BDC, (b) whose investment
adviser is an Adviser, and (c) that intends to participate in the
Co-Investment Program. The term ``Adviser'' means (a) the Company
Adviser and (b) any future investment adviser that controls, is
controlled by or is under common control with the Company Adviser or
its successor and is registered as an investment adviser under the
Advisers Act. The term ``successor,'' as applied to each Adviser,
means an entity that results from a reorganization into another
jurisdiction or change in the type of business organization.
\4\ ``Affiliated Fund'' means the Private Funds and any Future
Affiliated Fund. ``Future Affiliated Fund'' means any entity (a)
whose investment adviser is an Adviser, (b) that would be an
investment company but for section 3(c)(1) or 3(c)(7) of the Act,
and (c) that intends to participate in the Co-Investment Program.
\5\ The term ``private placement transactions'' means
transactions in which the offer and sale of securities by the issuer
are exempt from registration under the 1933 Act.
\6\ The term ``Wholly-Owned Investment Subsidiary'' means an
entity (i) that is wholly-owned by a Regulated Fund (with the
Regulated Fund at all times holding, beneficially and of record,
100% of the voting and economic interests); (ii) whose sole business
purpose is to hold one or more investments and incur debt (which is
or would be consolidated with other indebtedness of such Regulated
Fund for financial reporting or compliance purposes under the Act)
on behalf of the Regulated Fund; (iii) with respect to which the
Regulated Fund's Board has the sole authority to make all
determinations with respect to the entity's participation under the
conditions of the application; and (iv) that would be an investment
company but for sections 3(c)(1) or 3(c)(7) of the Act.
\7\ All existing entities that currently intend to rely upon the
requested Order have been named as applicants. Any other existing or
future entity that subsequently relies on the Order will comply with
the terms and conditions of the application.
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16. Applicants state that a Regulated Fund may, from time to time,
form one or more Wholly-Owned Investment Subsidiaries. Such a
subsidiary would be prohibited from investing in a Co-Investment
Transaction with any Affiliated Fund or Regulated Fund because it would
be a company controlled by its parent Regulated Fund for purposes of
section 57(a)(4) and rule 17d-1. Applicants request that each Wholly-
Owned Investment Subsidiary be permitted to participate in Co-
Investment Transactions in lieu of its parent Regulated Fund and that
the Wholly-Owned Investment Subsidiary's participation in any such
transaction be treated, for purposes of the requested Order, as though
the parent Regulated Fund were participating directly. Applicants
represent that this treatment is justified because a Wholly-Owned
Investment Subsidiary would have no purpose other than serving as a
holding vehicle for the parent Regulated Fund's investments and,
therefore, no conflicts of interest could arise between a Regulated
Fund and its Wholly-Owned Investment Subsidiary. The applicable
Regulated Fund's Board would make all relevant determinations under the
conditions with regard to a Wholly-Owned Investment Subsidiary's
participation in a Co-Investment Transaction, and the Regulated Fund's
Board would be informed of, and take into consideration, any proposed
use of a Wholly-Owned Investment Subsidiary in the Regulated Fund's
place. If the Regulated Fund proposes to participate in the same Co-
Investment Transaction with any of its Wholly-Owned Investment
Subsidiaries, the Board will also be informed of, and take into
consideration, the relative participation of the Regulated Fund and the
Wholly-Owned Investment Subsidiary.
17. When considering Potential Co-Investment Transactions for any
Regulated Fund, the applicable Adviser will consider only the
Objectives and Strategies, investment policies, investment positions,
capital available for investment (``Available Capital''), and other
pertinent factors applicable to that Regulated Fund. The Board of each
Regulated Fund, including the Non-Interested Directors, has (or will
have prior to relying on the requested Order) determined that it is in
the best interests of the Regulated Fund to participate in the Co-
Investment Transaction.
18. Other than pro rata dispositions and Follow-On Investments as
provided in conditions 7 and 8, and after making the determinations
required in conditions 1 and 2(a), the Adviser will present each
Potential Co-Investment Transaction and the proposed allocation to the
directors of the Board eligible to vote under section 57(o) of the Act
(``Eligible Directors''), and the ``required majority,'' as defined in
section 57(o) of the Act (``Required Majority'') \8\ will approve each
Co-Investment Transaction prior to any investment by the participating
Regulated Fund.
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\8\ In the case of a Regulated Fund that is a registered closed-
end fund, the Board members that make up the Required Majority will
be determined as if the Regulated Fund were a BDC subject to section
57(o).
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19. With respect to the pro rata dispositions and Follow-On
Investments provided in conditions 7 and 8, a Regulated Fund may
participate in a pro rata disposition or Follow-On Investment without
obtaining prior approval of the Required Majority if, among other
things: (i) The proposed participation of each Regulated Fund and
Affiliated Fund in such disposition is proportionate to its outstanding
investments in the issuer immediately preceding the disposition or
Follow-On Investment, as the case may be; and (ii) the Board of the
Regulated Fund has approved that Regulated Fund's participation in pro
rata dispositions and Follow-On Investments as being in the best
interests of the Regulated Fund. If the Board does not so approve, any
such disposition or Follow-On Investment will be submitted to the
Regulated Fund's Eligible Directors. The Board of any Regulated Fund
may at any time rescind, suspend or qualify its approval of pro rata
dispositions and Follow-On Investments with the result that all
dispositions and/or Follow-On Investments must be submitted to the
Eligible Directors.
20. Applicants also represent that if the Advisers, the principals
of the Advisers (``Principals''), or any person controlling, controlled
by, or under common control with an Adviser or the Principals, and the
Affiliated Funds (collectively, the ``Holders'') own in the aggregate
more than 25% of the outstanding voting shares of a Regulated Fund (the
``Shares''), then the Holders will vote such Shares as required under
condition 14. Applicants believe this condition will ensure that the
Non-Interested Directors will act independently in evaluating the Co-
Investment Program, because the ability of the Advisers or the
Principals to influence the Non-Interested Directors by a suggestion,
explicit or implied, that the Non-Interested Directors can be removed
will be limited significantly. Applicants represent that the Non-
Interested Directors will evaluate and approve any such independent
third party, taking into account its qualifications, reputation for
independence, cost to the stockholders, and other factors that they
deem relevant.
[[Page 52863]]
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in joint transactions with the BDC or a
company controlled by a BDC in contravention of rules as prescribed by
the Commission. Under section 57(b)(2) of the Act, any person who is
directly or indirectly controlling, controlled by, or under common
control with a BDC is subject to section 57(a)(4). Applicants submit
that each of the Regulated Funds and Affiliated Funds could be deemed
to be a person related to each Regulated Fund in a manner described by
section 57(b) by virtue of being under common control. Section 57(i) of
the Act provides that, until the Commission prescribes rules under
section 57(a)(4), the Commission's rules under section 17(d) of the Act
applicable to registered closed-end investment companies will be deemed
to apply to transactions subject to section 57(a)(4). Because the
Commission has not adopted any rules under section 57(a)(4), rule 17d-1
also applies to joint transactions with Regulated Funds that are BDCs.
Section 17(d) of the Act and rule 17d-1 under the Act are applicable to
Regulated Funds that are registered closed-end investment companies.
2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons of a registered investment company from
participating in joint transactions with the company unless the
Commission has granted an order permitting such transactions. In
passing upon applications under rule 17d-1, the Commission considers
whether the company's participation in the joint transaction is
consistent with the provisions, policies, and purposes of the Act and
the extent to which such participation is on a basis different from or
less advantageous than that of other participants.
3. Applicants state that in the absence of the requested relief,
the Regulated Funds would be, in some circumstances, limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants believe that the proposed terms and
conditions will ensure that the Co-Investment Transactions are
consistent with the protection of each Regulated Fund's shareholders
and with the purposes intended by the policies and provisions of the
Act. Applicants state that the Regulated Funds' participation in the
Co-Investment Transactions will be consistent with the provisions,
policies, and purposes of the Act and on a basis that is not different
from or less advantageous than that of other participants.
Applicants' Conditions
Applicants agree that the Order will be subject to the following
conditions:
1. Each time an Adviser considers a Potential Co-Investment
Transaction for an Affiliated Fund or another Regulated Fund that falls
within a Regulated Fund's then-current Objectives and Strategies, the
Regulated Fund's Adviser will make an independent determination of the
appropriateness of the investment for the Regulated Fund in light of
the Regulated Fund's then-current circumstances.
2.
(a) If the Adviser deems a Regulated Fund's participation in any
Potential Co-Investment Transaction to be appropriate for the Regulated
Fund, it will then determine an appropriate level of investment for the
Regulated Fund.
(b) If the aggregate amount recommended by the applicable Adviser
to be invested by the applicable Regulated Fund in the Potential Co-
Investment Transaction, together with the amount proposed to be
invested by the other participating Regulated Funds and Affiliated
Funds, collectively, in the same transaction, exceeds the amount of the
investment opportunity, the investment opportunity will be allocated
among them pro rata based on each participant's Available Capital, up
to the amount proposed to be invested by each. The applicable Adviser
will provide the Eligible Directors of each participating Regulated
Fund with information concerning each participating party's Available
Capital to assist the Eligible Directors with their review of the
Regulated Fund's investments for compliance with these allocation
procedures.
(c) After making the determinations required in conditions 1 and
2(a), the applicable Adviser will distribute written information
concerning the Potential Co-Investment Transaction (including the
amount proposed to be invested by each participating Regulated Fund and
Affiliated Fund) to the Eligible Directors of each participating
Regulated Fund for their consideration. A Regulated Fund will co-invest
with one or more other Regulated Funds and/or one or more Affiliated
Funds only if, prior to the Regulated Fund's participation in the
Potential Co-Investment Transaction, a Required Majority concludes
that:
(i) The terms of the Potential Co-Investment Transaction, including
the consideration to be paid, are reasonable and fair to the Regulated
Fund and its stockholders and do not involve overreaching in respect of
the Regulated Fund or its stockholders on the part of any person
concerned;
(ii) the Potential Co-Investment Transaction is consistent with:
(A) The interests of the Regulated Fund's stockholders; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Funds or Affiliated
Funds would not disadvantage the Regulated Fund, and participation by
the Regulated Fund would not be on a basis different from or less
advantageous than that of any other Regulated Funds or Affiliated
Funds; provided that if any other Regulated Funds or Affiliated Funds,
but not the Regulated Fund itself, gains the right to nominate a
director for election to a portfolio company's board of directors or
the right to have a board observer or any similar right to participate
in the governance or management of the portfolio company, such event
shall not be interpreted to prohibit the Required Majority from
reaching the conclusions required by this condition (2)(c)(iii), if:
(A) The Eligible Directors will have the right to ratify the
selection of such director or board observer, if any;
(B) the applicable Adviser agrees to, and does, provide periodic
reports to the Regulated Fund's Board with respect to the actions of
such director or the information received by such board observer or
obtained through the exercise of any similar right to participate in
the governance or management of the portfolio company; and
(C) any fees or other compensation that any Affiliated Fund or any
Regulated Fund or any affiliated person of any Affiliated Fund or any
Regulated Fund receives in connection with the right of the Affiliated
Fund or Regulated Fund to nominate a director or appoint a board
observer or otherwise to participate in the governance or management of
the portfolio company will be shared proportionately among the
participating Affiliated Funds (who each may, in turn, share its
portion with its affiliated persons) and the participating Regulated
Fund in accordance with the amount of each party's investment; and
(iv) the proposed investment by the Regulated Fund will not benefit
the Advisers, any Affiliated Funds or other Regulated Funds or any
affiliated person of any of them (other than the parties to the Co-
Investment Transaction), except (A) to the extent permitted by
condition 13, (B) to the extent permitted by section 17(e) or 57(k) of
the Act, as applicable, (C) indirectly, as a result of
[[Page 52864]]
an interest in the securities issued by one of the parties to the Co-
Investment Transaction, or (D) in the case of fees or other
compensation described in condition 2(c)(iii)(C).
3. Each Regulated Fund has the right to decline to participate in
any Potential Co-Investment Transaction or to invest less than the
amount proposed.
4. The applicable Adviser will present to the Board of each
Regulated Fund, on a quarterly basis, a record of all investments in
Potential Co-Investment Transactions made by any of the other Regulated
Funds or Affiliated Funds during the preceding quarter that fell within
the Regulated Fund's then-current Objectives and Strategies that were
not made available to the Regulated Fund, and an explanation of why the
investment opportunities were not offered to the Regulated Fund. All
information presented to the Board pursuant to this condition will be
kept for the life of the Regulated Fund and at least two years
thereafter, and will be subject to examination by the Commission and
its staff.
5. Except for Follow-On Investments made in accordance with
condition 8,\9\ a Regulated Fund will not invest in reliance on the
Order in any issuer in which another Regulated Fund, an Affiliated Fund
or any affiliated person of another Regulated Fund or Affiliated Fund
is an existing investor.
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\9\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which the Regulated Fund already holds
investments.
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6. A Regulated Fund will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of
securities to be purchased, settlement date, and registration rights
will be the same for each participating Regulated Fund and Affiliated
Fund. The grant to an Affiliated Fund or another Regulated Fund, but
not the Regulated Fund, of the right to nominate a director for
election to a portfolio company's board of directors, the right to have
an observer on the board of directors or similar rights to participate
in the governance or management of the portfolio company will not be
interpreted so as to violate this condition 6, if conditions
2(c)(iii)(A), (B) and (C) are met.
7.
(a) If any Affiliated Fund or any Regulated Fund elects to sell,
exchange or otherwise dispose of an interest in a security that was
acquired in a Co-Investment Transaction, the applicable Advisers will:
(i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed disposition at the earliest
practical time; and
(ii) formulate a recommendation as to participation by each
Regulated Fund in the disposition.
(b) Each Regulated Fund will have the right to participate in such
disposition on a proportionate basis, at the same price and on the same
terms and conditions as those applicable to the participating
Affiliated Funds and Regulated Funds.
(c) A Regulated Fund may participate in such disposition without
obtaining prior approval of the Required Majority if: (i) The proposed
participation of each Regulated Fund and each Affiliated Fund in such
disposition is proportionate to its outstanding investments in the
issuer immediately preceding the disposition; (ii) the Board of the
Regulated Fund has approved as being in the best interests of the
Regulated Fund the ability to participate in such dispositions on a pro
rata basis (as described in greater detail in the application); and
(iii) the Board of the Regulated Fund is provided on a quarterly basis
with a list of all dispositions made in accordance with this condition.
In all other cases, the Adviser will provide its written recommendation
as to the Regulated Fund's participation to the Eligible Directors, and
the Regulated Fund will participate in such disposition solely to the
extent that a Required Majority determines that it is in the Regulated
Fund's best interests.
(d) Each Affiliated Fund and each Regulated Fund will bear its own
expenses in connection with any such disposition.
8.
(a) If any Affiliated Fund or Regulated Fund desires to make a
Follow-On Investment in a portfolio company whose securities were
acquired in a Co-Investment Transaction, the applicable Advisers will:
(i) Notify each Regulated Fund that participated in the co-
investment transaction of the proposed Follow-On Investment at the
earliest practical time; and
(ii) formulate a recommendation as to the proposed participation,
including the amount of the proposed Follow-On Investment, by each
Regulated Fund.
(b) A Regulated Fund may participate in such Follow-On Investment
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of each Regulated Fund and each Affiliated Fund
in such investment is proportionate to its outstanding investments in
the issuer immediately preceding the Follow-On Investment; and (ii) the
Board of the Regulated Fund has approved as being in the best interests
of the Regulated Fund the ability to participate in Follow-On
Investments on a pro rata basis (as described in greater detail in the
application). In all other cases, the Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Directors, and the Regulated Fund will participate in such Follow-On
Investment solely to the extent that a Required Majority determines
that it is in the Regulated Fund's best interests.
(c) If, with respect to any Follow-On Investment:
(i) The amount of the opportunity is not based on the Regulated
Funds' and the Affiliated Funds' outstanding investments immediately
preceding the Follow-On Investment; and
(ii) the aggregate amount recommended by the applicable Adviser to
be invested by the applicable Regulated Fund in the Follow-On
Investment, together with the amount proposed to be invested by other
participating Regulated Funds and Affiliated Funds, collectively, in
the same transaction, exceeds the amount of the investment opportunity,
then the investment opportunity will be allocated among them pro rata
based on each participant's Available Capital, up to the amount
proposed to be invested by each.
(d) The acquisition of Follow-On Investments as permitted by this
condition will be considered a Co-Investment Transaction for all
purposes and subject to the other conditions set forth in the
application.
9. The Non-Interested Directors of each Regulated Fund will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including
investments made by any other Regulated Funds or Affiliated Funds that
the Regulated Fund considered but declined to participate in, so that
the Non-Interested Directors may determine whether all investments made
during the preceding quarter, including those investments that the
Regulated Fund considered but declined to participate in, comply with
the conditions of the Order. In addition, the Non-Interested Directors
will consider at least annually the continued appropriateness for the
Regulated Fund of participating in new and existing Co-Investment
Transactions.
10. Each Regulated Fund will maintain the records required by
section 57(f)(3) of the Act as if each of the Regulated Funds were a
BDC and each of the investments permitted under these conditions were
approved by the
[[Page 52865]]
Required Majority under section 57(f) of the Act.
11. No Non-Interested Director of a Regulated Fund will also be a
director, general partner, managing member or principal, or otherwise
an ``affiliated person'' (as defined in the Act) of an Affiliated Fund.
12. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the 1933 Act) will, to the
extent not payable by the Advisers under their respective investment
advisory agreements with Affiliated Funds and the Regulated Funds, be
shared by the Regulated Funds and the Affiliated Funds in proportion to
the relative amounts of the securities held or to be acquired or
disposed of, as the case may be.
13. Any transaction fee \10\ (including break-up or commitment fees
but excluding broker's fees contemplated section 17(e) or 57(k) of the
Act, as applicable) received in connection with a Co-Investment
Transaction will be distributed to the participating Regulated Funds
and Affiliated Funds on a pro rata basis based on the amounts they
invested or committed, as the case may be, in such Co-Investment
Transaction. If any transaction fee is to be held by an Adviser pending
consummation of the Co-Investment Transaction, the fee will be
deposited into an account maintained by such Adviser at a bank or banks
having the qualifications prescribed in section 26(a)(1) of the Act,
and the account will earn a competitive rate of interest that will also
be divided pro rata among the participating Regulated Funds and
Affiliated Funds based on the amounts they invest in such Co-Investment
Transaction. None of the Affiliated Funds, the Advisers, the other
Regulated Funds, or any affiliated person of the Regulated Funds or
Affiliated Funds will receive additional compensation or remuneration
of any kind as a result of or in connection with a Co-Investment
Transaction (other than (a) in the case of the Regulated Funds and the
Affiliated Funds, the pro rata transaction fees described above and
fees or other compensation described in condition 2(c)(iii)(C); and (b)
in the case of an Adviser, investment advisory fees paid in accordance
with the investment advisory agreements between such Adviser and the
Regulated Fund or Affiliated Fund).
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\10\ The Applicants are not requesting, and the staff is not
providing, any relief for transaction fees received in connection
with any Co-Investment Transaction.
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14. If the Holders own in the aggregate more than 25% of the Shares
of a Regulated Fund, then the Holders will vote such Shares as directed
by an independent third party when voting on (1) the election of
directors; (2) the removal of one or more directors; or (3) any other
matter under either the Act or applicable state law affecting the
Board's composition, size or manner of election.
15. Each Regulated Fund's chief compliance officer, as defined in
rule 38a-1(a)(4) under the Act, will prepare an annual report for the
Board of such Regulated Fund that evaluates (and documents the basis of
that evaluation) the Regulated Fund's compliance with the terms and
conditions of the application and procedures established to achieve
such compliance.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22676 Filed 10-17-18; 8:45 am]
BILLING CODE 8011-01-P
