CM Finance Inc, et al., 6031-6036 [2019-03138]
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Federal Register / Vol. 84, No. 37 / Monday, February 25, 2019 / Notices
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which the Exchange has entered into a
comprehensive surveillance sharing
agreement.
(5) Prior to the commencement of trading,
the Exchange will inform its members in an
Information Circular of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Circular will discuss the
following: (a) The procedures for purchases
and redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (b) BZX Rule 3.7, which
imposes suitability obligations on Exchange
members with respect to recommending
transactions in the Shares to customers; (c)
how information regarding the IIV and the
Disclosed Portfolio is disseminated; (d) the
risks involved in trading the Shares during
the Pre-Opening 47 and After Hours Trading
Sessions 48 when an updated IIV will not be
calculated or publicly disseminated; (e) the
requirement that members deliver a
prospectus to investors purchasing newly
issued Shares prior to or concurrently with
the confirmation of a transaction; and (f)
trading information.
(6) The Fund’s investments, including
derivatives, will be consistent with the 1940
Act and the Fund’s investment objective and
policies and will not be used to enhance
leverage (although certain derivatives and
other investments may result in leverage).49
(7) The Fund’s investments will not be
used to seek performance that is the multiple
or inverse multiple (i.e., 2Xs and 3Xs) of the
Fund’s primary broad-based securities
benchmark index (as defined in Form N–1A).
(8) Credit default swaps held by the Fund
will be traded on a U.S. Swap Execution
Facility registered with the CFTC. At least
90% of the Fund’s net assets in credit default
swaps will be investment-grade at the time of
purchase.
(9) To the extent that the Fund holds listed
Inflation Swaps or interest rate swaps, all
such listed Inflation Swaps and listed
interest rate swaps held by the Fund will be
traded on a U.S. Swap Execution Facility
registered with the CFTC.
(10) The Trust is required to comply with
Rule 10A–3 under the Act 50 for the initial
and continued listing of the Shares of the
Fund, and at least 100,000 Shares will be
outstanding upon the commencement of
trading.
The Exchange represents that all
statements and representations made in
this filing regarding the description of
the portfolio or reference assets,
limitations on portfolio holdings or
reference assets, dissemination and
availability of index, reference asset,
and intraday indicative values, and the
applicability of Exchange rules specified
in this filing shall constitute continued
listing requirements for the Fund. In
addition, the issuer has represented to
47 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. Eastern Time.
48 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. Eastern Time.
49 See supra note 23.
50 See 17 CFR 240.10A–3.
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the Exchange that it will advise the
Exchange of any failure by the Fund or
the Shares to comply with the
continued listing requirements, and,
pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will surveil for compliance with the
continued listing requirements. If the
Fund or the Shares are not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
BZX Rule 14.12.
This approval order is based on all of
the Exchange’s representations and
descriptions of the Shares and the Fund,
including those set forth above and in
Amendment No. 1 to the proposed rule
change. Except as described herein, the
Commission notes that the Shares must
comply with all applicable requirements
of BZX Rule 14.11(i) to be listed and
traded on the Exchange on an initial and
continuing basis.
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Section
11A(a)(1)(C)(iii) of the Act 51 and
Section 6(b)(5) of the Act 52 and the
rules and regulations thereunder
applicable to a national securities
exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,53 that the
proposed rule change (SR–CboeBZX–
2018–077), as modified by Amendment
No. 1, be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–03175 Filed 2–22–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33377; 812–14850]
CM Finance Inc, et al.
February 19, 2019.
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
51 15
U.S.C. 78k–1(a)(1)(C)(iii).
U.S.C. 78f(b)(5).
53 15 U.S.C. 78s(b)(2).
54 17 CFR 200.30–3(a)(12).
52 15
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‘‘Act’’) and rule 17d–1 under the Act
permitting certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and under rule
17d–1 under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
closed-end management investment
companies to co-invest in portfolio
companies with each other and with
affiliated investment funds.
APPLICANTS: CM Finance Inc (‘‘CMFN’’),
CM Credit Opportunities BDC I Inc.
(‘‘CM Credit’’ and together with CMFN,
the ‘‘Existing Regulated Funds’’), CM
Investment Partners LLC (‘‘CM
Adviser’’) on behalf of itself and its
successors,1 CM Credit Opportunity
Fund I LLC (the ‘‘Existing Affiliated
Fund’’), and CM Finance SPV Ltd. (‘‘CM
SPV’’), a Wholly-Owned Investment Sub
(defined below) of CMFN.
FILING DATES: The application was filed
on December 13, 2017, and amended on
April 30, 2018 and October 25, 2018.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on March 18, 2019, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F St.
NE, Washington, DC 20549–1090.
Applicants: 601 Lexington Avenue, 26th
Floor, New York, NY 10022.
FOR FURTHER INFORMATION CONTACT:
Laura L. Solomon, Senior Counsel, at
(202) 551–6915 or David J. Marcinkus,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
1 The term ‘‘successor,’’ as applied to each
Adviser (as defined below), means an entity that
results from a reorganization into another
jurisdiction or change in the type of business
organization.
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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.
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Applicants’ Representations
1. CMFN is a Maryland corporation
organized as a closed-end management
investment company that has elected to
be regulated as a business development
company (‘‘BDC’’) under section 54(a) of
the Act.2 The Objectives and Strategies 3
of CMFN are to maximize total return by
investing primarily in privately held
middle-market companies. The board of
directors of CMFN (the ‘‘CMFN
Board’’) 4 is comprised of six directors,
four of whom are not ‘‘interested
persons,’’ within the meaning of section
2(a)(19) of the Act (‘‘Non-Interested
Directors’’).
2. CM Credit is a Maryland
corporation and will be structured as a
closed-end management investment
company that intends to file an election
to be regulated as a BDC under section
54(a) of the Act. CM Credit’s Objectives
and Strategies are to generate current
income and capital appreciation by
investing primarily in middle-market
companies and leveraged companies.
The board of directors of CM Credit (the
‘‘CM Credit Board’’) will be comprised
of a majority of Non-Interested
Directors.
3. The Existing Affiliated Fund is a
Delaware limited liability company with
the investment objective to seek current
income and capital appreciation by
investing primarily in middle-market
companies. The Existing Affiliated Fund
would be an investment company but
for the exclusion from the definition of
investment company provided by
section 3(c)(7) of the Act.
4. CM Adviser is a Delaware limited
liability company and is registered as an
investment adviser under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’). CM Adviser serves as
the investment adviser to CMFN and
will serve as the investment adviser to
2 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.
3 ‘‘Objectives and Strategies’’ means the
investment objectives and strategies of a Regulated
Fund (as defined below), as described in the
Regulated Fund’s registration statement on Form N–
2, other filings the Regulated Fund has made with
the Commission under the Securities Act of 1933
(the ‘‘Securities Act’’), or under the Securities
Exchange Act of 1934, and the Regulated Fund’s
reports to shareholders.
4 The term ‘‘Board’’ refers to the board of directors
or trustees of any Regulated Fund.
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CM Credit and the Existing Affiliated
Fund.
5. Applicants seek an order (‘‘Order’’)
to permit one or more Regulated Funds 5
and/or one or more Affiliated Funds 6 to
participate in the same investment
opportunities through a proposed coinvestment program (the ‘‘CoInvestment Program’’) where such
participation would otherwise be
prohibited under section 57(a)(4) and
rule 17d–1 by (a) co-investing with each
other in securities issued by issuers in
private placement transactions in which
an Adviser negotiates terms in addition
to price 7 and (b) making additional
investments in securities of such
issuers, including through the exercise
of warrants, conversion privileges, and
other rights to purchase securities of the
issuers (‘‘Follow-On Investments’’). ‘‘CoInvestment Transaction’’ means any
transaction in which a Regulated Fund
(or its Wholly-Owned Investment Sub,
as defined below) participated together
with one or more other Regulated Funds
and/or one or more Affiliated Funds in
reliance on the requested Order.
‘‘Potential Co-Investment Transaction’’
means any investment opportunity in
which a Regulated Fund (or its WhollyOwned Investment Sub) could not
participate together with one or more
Affiliated Funds and/or one or more
other Regulated Funds without
obtaining and relying on the Order.8
6. Applicants state any of the
Regulated Funds may, from time to
time, form one or more Wholly-Owned
Investment Subs.9 A Wholly-Owned
5 ‘‘Regulated Fund’’ means any of the Existing
Regulated Funds and any Future Regulated Fund.
‘‘Future Regulated Fund’’ means any closed-end
management investment company (a) that is
registered under the Act or has elected to be
regulated as BDC, (b) whose investment adviser is
an Adviser, and (c) that intends to participate in the
Co-Investment Program. The term ‘‘Adviser’’ means
(a) CM Adviser and (b) any future investment
adviser that controls, is controlled by or is under
common control with CM Adviser and is registered
as an investment adviser under the Advisers Act.
6 ‘‘Affiliated Fund’’ means the Existing Affiliated
Fund and any Future Affiliated Fund. ‘‘Future
Affiliated Fund’’ means any entity (a) whose
investment adviser is an Adviser, (b) that would be
an investment company but for section 3(c)(1) or
3(c)(7) of the Act, and (c) that intends to participate
in the Co-Investment Program.
7 The term ‘‘private placement transactions’’
means transactions in which the offer and sale of
securities by the issuer are exempt from registration
under the Securities Act.
8 All existing entities that currently intend to rely
upon the requested Order have been named as
applicants. Any other existing or future entity that
subsequently relies on the Order will comply with
the terms and conditions of the application.
9 The term ‘‘Wholly-Owned Investment Sub’’
means an entity (a) that is wholly-owned by a
Regulated Fund (with the Regulated Fund at all
times holding, beneficially and of record, 100% of
the voting and economic interests); (b) whose sole
business purpose is to hold one or more
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Investment Sub would be prohibited
from investing in a Co-Investment
Transaction with any Affiliated Fund or
Regulated Fund because it would be a
company controlled by its parent
Regulated Fund for purposes of section
57(a)(4) and rule 17d–1. Applicants
request that each Wholly-Owned
Investment Sub be permitted to
participate in Co-Investment
Transactions in lieu of its parent
Regulated Fund and that the WhollyOwned Investment Sub’s participation
in any such transaction be treated, for
purposes of the requested order, as
though the parent Regulated Fund were
participating directly.10 Applicants
represent that this treatment is justified
because a Wholly-Owned Investment
Sub would have no purpose other than
serving as a holding vehicle for the
Regulated Fund’s investments and,
therefore, no conflicts of interest could
arise between the Regulated Fund and
the Wholly-Owned Investment Sub. The
Regulated Fund’s Board would make all
relevant determinations under the
conditions with regard to a WhollyOwned Investment Sub’s participation
in a Co-Investment Transaction, and the
Regulated Fund’s Board would be
informed of, and take into
consideration, any proposed use of a
Wholly-Owned Investment Sub in the
Regulated Fund’s place. If the Regulated
Fund proposes to participate in the
same Co-Investment Transaction with
any of its Wholly-Owned Investment
Subs, the Board will also be informed
of, and take into consideration, the
relative participation of the Regulated
Fund and the Wholly-Owned
Investment Sub.
7. 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
investments on behalf of the Regulated Fund (and
in the case of a SBIC Subsidiary (as defined below)
maintain a license under the SBA Act (as defined
below) and issue debentures guaranteed by the SBA
(as defined below); (c) with respect to which the
Regulated Fund’s Board has the sole authority to
make all determinations with respect to the WhollyOwned Investment Sub’s participation under the
conditions of the application; and (d) that would be
an investment company but for section 3(c)(1) or
3(c)(7) of the Act. ‘‘SBIC Subsidiary’’ means a
Wholly-Owned Investment Sub that is licensed by
the Small Business Administration (‘‘SBA’’) to
operate under the Small Business Investment Act of
1958 (the ‘‘SBA Act’’) as a small business
investment company.
10 All subsidiaries of the Regulated Funds
participating in Co-Investment Transactions will be
Wholly-Owned Investment Subs and will have
Objectives and Strategies that are either the same
as, or a subset of, the Regulated Fund’s Objectives
and Strategies.
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for investment (‘‘Available Capital’’),11
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
Co-Investment Transactions.12
8. Other than pro rata dispositions
and Follow-On Investments as provided
in conditions 7 and 8, and after making
the determinations required in
conditions 1 and 2(a), the Adviser will
present each Potential Co-Investment
Transaction and the proposed allocation
to the directors of the Board eligible to
vote under section 57(o) of the Act
(‘‘Eligible Directors’’), and the ‘‘required
majority,’’ as defined in section 57(o) of
the Act (‘‘Required Majority’’) 13 will
approve each Co-Investment
Transaction prior to any investment by
the participating Regulated Fund.
9. With respect to the pro rata
dispositions and Follow-On Investments
provided in conditions 7 and 8, a
Regulated Fund may participate in a pro
rata disposition or Follow-On
Investment without obtaining prior
approval of the Required Majority if,
among other things: (i) The proposed
participation of each Regulated Fund
and Affiliated Fund in such disposition
is proportionate to its outstanding
investments in the issuer immediately
preceding the disposition or Follow-On
Investment, as the case may be; and (ii)
the Board of the Regulated Fund has
approved that Regulated Fund’s
participation in pro rata dispositions
and Follow-On Investments as being in
the best interests of the Regulated Fund.
If the Board does not so approve, any
such disposition or Follow-On
Investment will be submitted to the
Regulated Fund’s Eligible Directors. The
Board of any Regulated Fund may at any
time rescind, suspend or qualify its
approval of pro rata dispositions and
Follow-On Investments with the result
that all dispositions and/or Follow-On
Investments must be submitted to the
Eligible Directors.
11 The amount of each Regulated Fund’s
Available Capital will be determined based on the
amount of cash on hand, existing commitments and
reserves, if any, the targeted leverage level, targeted
asset mix and other investment policies and
restrictions set from time to time by the Board of
the applicable Regulated Fund or imposed by
applicable laws, rules, regulations or
interpretations.
12 The Regulated Funds, however, will not be
obligated to invest, or co-invest, when investment
opportunities are referred to them.
13 In the case of a Regulated Fund that is a
registered closed-end fund, the Board members that
make up the Required Majority will be determined
as if the Regulated Fund were a BDC subject to
section 57(o).
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10. No Non-Interested Director of a
Regulated Fund will have a financial
interest in any Co-Investment
Transaction, other than through share
ownership in one of the Regulated
Funds.
11. If the Advisers, the principal
owners of any of the Advisers (the
‘‘Principals’’), or any person controlling,
controlled by, or under common control
with the Advisers or the Principals, and
the Affiliated Funds (collectively, the
‘‘Holders’’) own in the aggregate more
than 25 percent of the outstanding
voting shares of a Regulated Fund (the
‘‘Shares’’), then the Holders will vote
such Shares as required under condition
14. Applicants believe that this
condition will ensure that the 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.
The Non-Interested Directors will
evaluate and approve any such
independent party, taking into account
its qualifications, reputation for
independence, cost to the shareholders,
and other factors that they deem
relevant.
12. Prior to the filing of the
application, certain funds managed by
Cyrus Capital Partners, L.P. (the ‘‘Cyrus
Funds’’) may have engaged in
transactions with CMFN without
obtaining an order under rule 17d–1
under the Act (the ‘‘Prior
Transactions’’). At the time of the Prior
Transactions, the Cyrus Funds were
affiliated persons of CMFN and CM
Adviser, and the Cyrus Funds may have
been deemed to indirectly control
CMFN. Mr. Mauer, Mr. Jansen, and
Stifel Venture Corp. (collectively with
Messrs. Mauer and Jansen and the Cyrus
Funds, the ‘‘Affiliated Parties’’) are also
affiliated persons of CMFN and CM
Adviser. The Order, if granted, would
not provide relief for the Prior
Transactions. Further, the Order, if
granted, would not provide relief for the
Affiliated Parties to engage in CoInvestment Transactions.
Applicants’ Legal Analysis
1. Section 57(a)(4) of the Act prohibits
certain affiliated persons of a BDC from
participating in joint transactions with
the BDC or a company controlled by a
BDC in contravention of rules as
prescribed by the Commission. Under
section 57(b)(2) of the Act, any person
who is directly or indirectly controlling,
controlled by, or under common control
with a BDC is subject to section 57(a)(4).
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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
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
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determination of the appropriateness of
the investment for such 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
shareholders and do not involve
overreaching in respect of the Regulated
Fund or its shareholders on the part of
any person concerned;
(ii) the Potential Co-Investment
Transaction is consistent with:
(A) The interests of the shareholders
of the Regulated Fund; and
(B) the Regulated Fund’s then-current
Objectives and Strategies;
(iii) the investment by any other
Regulated Funds or Affiliated Funds
would not disadvantage the Regulated
Fund, and participation by the
Regulated Fund would not be on a basis
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different from or less advantageous than
that of other Regulated Funds or
Affiliated Funds; provided that, if any
other Regulated Fund or Affiliated
Fund, but not the Regulated Fund itself,
gains the right to nominate a director for
election to a portfolio company’s board
of directors or the right to have a board
observer or any similar right to
participate in the governance or
management of the portfolio company,
such event shall not be interpreted to
prohibit the Required Majority from
reaching the conclusions required by
this condition (2)(c)(iii), if:
(A) The Eligible Directors will have
the right to ratify the selection of such
director or board observer, if any;
(B) the applicable Adviser agrees to,
and does, provide periodic reports to
the Regulated Fund’s Board with respect
to the actions of such director or the
information received by such board
observer or obtained through the
exercise of any similar right to
participate in the governance or
management of the portfolio company;
and
(C) any fees or other compensation
that any Affiliated Fund or any
Regulated Fund or any affiliated person
of any Affiliated Fund or any Regulated
Fund receives in connection with the
right of the Affiliated Fund or a
Regulated Fund to nominate a director
or appoint a board observer or otherwise
to participate in the governance or
management of the portfolio company
will be shared proportionately among
the participating Affiliated Funds (who
each may, in turn, share its portion with
its affiliated persons) and the
participating Regulated Funds in
accordance with the amount of each
party’s investment; and
(iv) the proposed investment by the
Regulated Fund will not benefit the
Advisers, the Affiliated Funds or the
other Regulated Funds or any affiliated
person of any of them (other than the
parties to the Co-Investment
Transaction), except (A) to the extent
permitted by condition 13, (B) to the
extent permitted by section 17(e) or
57(k) of the Act, as applicable, (C)
indirectly, as a result of an interest in
the securities issued by one of the
parties to the Co-Investment
Transaction, or (D) in the case of fees or
other compensation described in
condition 2(c)(iii)(C).
3. Each Regulated Fund has the right
to decline to participate in any Potential
Co-Investment Transaction or to invest
less than the amount proposed.
4. The applicable Adviser will present
to the Board of each Regulated Fund, on
a quarterly basis, a record of all
investments in Potential Co-Investment
PO 00000
Frm 00056
Fmt 4703
Sfmt 4703
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 8,14
a Regulated Fund will not invest in
reliance on the Order in any issuer in
which another Regulated Fund,
Affiliated Fund, or any affiliated person
of another Regulated Fund or Affiliated
Fund is an existing investor.
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
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
14 This exception applies only to Follow-On
Investments by a Regulated Fund in issuers in
which that Regulated Fund already holds
investments.
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Federal Register / Vol. 84, No. 37 / Monday, February 25, 2019 / Notices
prior approval of the Required Majority
if: (i) The proposed participation of each
Regulated Fund and each Affiliated
Fund in such disposition is
proportionate to its outstanding
investments in the issuer immediately
preceding the disposition; (ii) the Board
of the Regulated Fund has approved as
being in the best interests of the
Regulated Fund the ability to participate
in such dispositions on a pro rata basis
(as described in greater detail in the
application); and (iii) the Board of the
Regulated Fund is provided on a
quarterly basis with a list of all
dispositions made in accordance with
this condition. In all other cases, the
Adviser will provide its written
recommendation as to the Regulated
Fund’s participation to the Eligible
Directors, and the Regulated Fund will
participate in such disposition solely to
the extent that a Required Majority
determines that it is in the Regulated
Fund’s best interests.
(d) Each Affiliated Fund and each
Regulated Fund will bear its own
expenses in connection with any such
disposition.
8. (a) If any Affiliated Fund or any
Regulated Fund desires to make a
Follow-On Investment in a portfolio
company whose securities were
acquired in a Co-Investment
Transaction, the applicable Advisers
will:
(i) Notify each Regulated Fund that
participated in the Co-Investment
Transaction of the proposed transaction
at the earliest practical time; and
(ii) formulate a recommendation as to
the proposed participation, including
the amount of the proposed Follow-On
Investment, by each Regulated Fund.
(b) A Regulated Fund may participate
in such Follow-On Investment without
obtaining prior approval of the Required
Majority if: (i) The proposed
participation of each Regulated Fund
and each Affiliated Fund in such
investment is proportionate to its
outstanding investments in the issuer
immediately preceding the Follow-On
Investment; and (ii) the Board of the
Regulated Fund has approved as being
in the best interests of the Regulated
Fund the ability to participate in
Follow-On Investments on a pro rata
basis (as described in greater detail in
the application). In all other cases, the
Adviser will provide its written
recommendation as to the Regulated
Fund’s participation to the Eligible
Directors, and the Regulated Fund will
participate in such Follow-On
Investment solely to the extent that a
Required Majority determines that it is
in the Regulated Fund’s best interests.
VerDate Sep<11>2014
16:22 Feb 22, 2019
Jkt 247001
(c) If, with respect to any Follow-On
Investment:
(i) The amount of the opportunity is
not based on the Regulated Funds’ and
the Affiliated Funds’ outstanding
investments immediately preceding the
Follow-On Investment; and
(ii) the aggregate amount
recommended by the applicable Adviser
to be invested by the applicable
Regulated Fund in the Follow-On
Investment, together with the amount
proposed to be invested by the other
participating Regulated Funds and
Affiliated Funds, collectively, in the
same transaction, exceeds the amount of
the investment opportunity; then the
investment opportunity will be
allocated among them pro rata based on
each participant’s Available Capital, up
to the maximum amount proposed to be
invested by each.
(d) The acquisition of Follow-On
Investments as permitted by this
condition will be considered a CoInvestment Transaction for all purposes
and subject to the other conditions set
forth in this application.
9. The Non-Interested Directors of
each Regulated Fund will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions and Co-Investment
Transactions, including investments
made by other Regulated Funds or
Affiliated Funds that the Regulated
Fund considered but declined to
participate in, so that the Non-Interested
Directors may determine whether all
investments made during the preceding
quarter, including those investments
that the Regulated Fund considered but
declined to participate in, comply with
the conditions of the Order. In addition,
the Non-Interested Directors will
consider at least annually the continued
appropriateness for the Regulated Fund
of participating in new and existing 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
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
PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
6035
registered for sale under the Securities
Act) will, to the extent not payable by
the Advisers under their respective
investment advisory agreements with
Affiliated Funds and the Regulated
Funds, be shared by the Regulated
Funds and the Affiliated Funds in
proportion to the relative amounts of the
securities held or to be acquired or
disposed of, as the case may be.
13. Any transaction fee (including
break-up or commitment fees but
excluding broker’s fees contemplated by
section 17(e) or 57(k) of the Act, as
applicable), received in connection with
a Co-Investment Transaction will be
distributed to the participating
Regulated Funds and Affiliated Funds
on a pro rata basis based on the amounts
they invested or committed, as the case
may be, in such Co-Investment
Transaction. If any transaction fee is to
be held by an Adviser pending
consummation of the transaction, the
fee will be deposited into an account
maintained by such Adviser at a bank or
banks having the qualifications
prescribed in section 26(a)(1) of the Act,
and the account will earn a competitive
rate of interest that will also be divided
pro rata among the participating
Regulated Funds and Affiliated Funds
based on the amounts they invest in
such Co-Investment Transaction. None
of the Affiliated Funds, the Advisers,
the other Regulated Funds or any
affiliated person of the Regulated Funds
or Affiliated Funds will receive
additional compensation or
remuneration of any kind as a result of
or in connection with a Co-Investment
Transaction (other than (a) in the case
of the Regulated Funds and the
Affiliated Funds, the pro rata
transaction fees described above and
fees or other compensation described in
condition 2(c)(iii)(C); and (b) in the case
of an Adviser, investment advisory fees
paid in accordance with the agreement
between the Adviser and the Regulated
Fund or Affiliated Fund.
14. If the Holders own in the aggregate
more than 25% of the Shares of a
Regulated Fund, then the Holders will
vote such Shares (i) as directed by an
independent third party, or (ii) in the
same percentages as the Regulated
Fund’s other shareholders (not
including the Holders) when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
any other matter under either the Act or
applicable state law affecting the
Board’s composition, size or manner of
election.
15. Each Regulated Fund’s chief
compliance officer, as defined in rule
38a–1(a)(4) under the Act, will prepare
an annual report for its Board that
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Federal Register / Vol. 84, No. 37 / Monday, February 25, 2019 / Notices
evaluates (and documents the basis of
that evaluation) the Regulated Fund’s
compliance with the terms and
conditions of the application and the
procedures established to achieve such
compliance.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Deputy Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2019–03138 Filed 2–22–19; 8:45 am]
BILLING CODE 8011–01–P
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85164; File No. SR–
EMERALD–2019–03]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 519, MIAX Emerald Order Monitor
February 19, 2019.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on February 11, 2019, MIAX Emerald,
LLC (‘‘MIAX Emerald’’ or ‘‘Exchange’’),
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
amozie on DSK3GDR082PROD with NOTICES1
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend Exchange Rule 519, MIAX
Emerald Order Monitor, in order to
harmonize its rule to the rules of the
Exchange’s affiliate, MIAX PEARL, LLC
(‘‘MIAX PEARL’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/emerald, at MIAX Emerald’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
1 15
2 17
16:22 Feb 22, 2019
The Exchange proposes to amend
Exchange Rule 519, MIAX Emerald
Order Monitor, to align its behavior
pertaining to the handling of limit
orders to buy and limit orders to sell to
that of MIAX PEARL.
Current Functionality
In order to avoid the occurrence of
potential obvious or catastrophic errors
on the Exchange the MIAX Emerald
Order Monitor will prevent certain
orders from executing or being placed
on the Book at prices outside pre-set
standard limits. Beginning after the
Opening Process is complete, the MIAX
Emerald Order Monitor will be
operational each trading day until the
close of trading.
Paragraph (3), Limit Orders to Buy or
Sell, of the Rule, states that the System
will reject an incoming limit order that
crosses the contra-side NBBO by at least
50% or $2.50, whichever is less. The
following examples illustrate those
situations where lower priced limit
orders are rejected because they cross
the NBBO by at least 50%: (A) If the
NBBO on the offer side is $4.00, an
order to buy options for $6.00 or more
will be rejected; and (B) if the NBBO on
the bid side is $4.00, an order to sell
options for $2.00 or less will be rejected.
Additionally, the following are
examples of those situations where
higher priced limit orders are rejected
because they cross the NBBO by $2.50
or more: (A) If the NBBO on the offer
side is $12.00, an order to buy options
for $14.50 or more will be rejected; and
(B) if the NBBO on the bid side is
$12.00, an order to sell options for $9.50
or less will be rejected. Notwithstanding
the foregoing, with respect to limit
orders to sell, the MIAX Emerald Order
Monitor will not be activated when the
NBBO on the bid side is equal to or less
than $0.25. Thus, the System will accept
all limit orders to sell regardless of price
during this time.
Proposal
MIAX Emerald plans to commence
operations as a national securities
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
Jkt 247001
PO 00000
Frm 00058
Fmt 4703
Sfmt 4703
exchange registered under Section 6 of
the Act 3 on March 1, 2019. As
described more fully in MIAX Emerald’s
Form 1 application,4 the Exchange is an
affiliate of Miami International
Securities Exchange, LLC (‘‘MIAX
Options’’) and MIAX PEARL, LLC
(‘‘MIAX PEARL’’). MIAX Emerald Rules,
in their current form, were filed as
Exhibit B to its Form 1 on August 16,
2018, and at that time MIAX Emerald
Rule 519 was substantially similar to
MIAX PEARL Rule 519. In the time
between when the Exchange filed its
Form 1 and the time the Exchange
received its approval order, MIAX
PEARL made changes to its Rule 519.5
In order to ensure consistent operation
of both MIAX Emerald and MIAX
PEARL through having consistent rules,
the Exchange now proposes to amend
the MIAX Emerald Rule as described
below.
The Exchange proposes to amend
current subsection (3) to create a
separate subsection for limit orders to
buy (proposed subsection (3)), and for
limit orders to sell (proposed subsection
(4)). The Exchange proposes to
introduce a new threshold for limit
orders to buy which will provide that
for options with a National Best Offer
(‘‘NBO’’) less than or equal to $0.50 the
System 6 will reject an incoming limit
order that has a limit price that is equal
to or greater than the NBO Price by
$0.25. The Exchange believes that
creating separate subsections dedicated
to limit orders to buy and limit orders
to sell will add clarity and additional
detail to the Exchange’s rule.
Additionally, the Exchange proposes to
provide new examples demonstrating
the operation of the MIAX Emerald
Order Monitor functionality for both
limit orders to buy and limit orders to
sell.
Proposed subsection (3), Limit Orders
to Buy, will provide that for options
with a National Best Offer (‘‘NBO’’)
greater than $0.50 the System will reject
an incoming limit order that has a limit
price equal to or greater than the NBO
by the lesser of (i) $2.50, or (ii) 50% of
the NBO price. The proposed rule will
also provide that for options with an
NBO less than or equal to $0.50 the
System will reject an incoming limit
3 15
U.S.C. 78f.
Securities Exchange Act Release No. 84891
(December 20, 2018), 83 FR 67421 (December 28,
2018) (File No. 10–233) (order approving
application of MIAX Emerald, LLC for registration
as a national securities exchange.)
5 See Securities Exchange Act Release No. 84887
(December 20, 2018), 83 FR 67452 (December 28,
2018) (SR–PEARL–2018–25).
6 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
4 See
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]]>Agencies
[Federal Register Volume 84, Number 37 (Monday, February 25, 2019)]
[Notices]
[Pages 6031-6036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03138]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33377; 812-14850]
CM Finance Inc, et al.
February 19, 2019.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of application for an order under sections 17(d) and 57(i)
of the Investment Company Act of 1940 (the ``Act'') and rule 17d-1
under the Act permitting certain joint transactions otherwise
prohibited by sections 17(d) and 57(a)(4) of the Act and under rule
17d-1 under the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
closed-end management investment companies to co-invest in portfolio
companies with each other and with affiliated investment funds.
APPLICANTS: CM Finance Inc (``CMFN''), CM Credit Opportunities BDC I
Inc. (``CM Credit'' and together with CMFN, the ``Existing Regulated
Funds''), CM Investment Partners LLC (``CM Adviser'') on behalf of
itself and its successors,\1\ CM Credit Opportunity Fund I LLC (the
``Existing Affiliated Fund''), and CM Finance SPV Ltd. (``CM SPV''), a
Wholly-Owned Investment Sub (defined below) of CMFN.
---------------------------------------------------------------------------
\1\ The term ``successor,'' as applied to each Adviser (as
defined below), means an entity that results from a reorganization
into another jurisdiction or change in the type of business
organization.
FILING DATES: The application was filed on December 13, 2017, and
---------------------------------------------------------------------------
amended on April 30, 2018 and October 25, 2018.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on March 18, 2019, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
St. NE, Washington, DC 20549-1090. Applicants: 601 Lexington Avenue,
26th Floor, New York, NY 10022.
FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at
(202) 551-6915 or David J. Marcinkus, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's
[[Page 6032]]
website by searching for the file number, or for an applicant using the
Company name box, at https://www.sec.gov/search/search.htm or by calling
(202) 551-8090.
Applicants' Representations
1. CMFN is a Maryland corporation organized as a closed-end
management investment company that has elected to be regulated as a
business development company (``BDC'') under section 54(a) of the
Act.\2\ The Objectives and Strategies \3\ of CMFN are to maximize total
return by investing primarily in privately held middle-market
companies. The board of directors of CMFN (the ``CMFN Board'') \4\ is
comprised of six directors, four of whom are not ``interested
persons,'' within the meaning of section 2(a)(19) of the Act (``Non-
Interested Directors'').
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\2\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
\3\ ``Objectives and Strategies'' means the investment
objectives and strategies of a Regulated Fund (as defined below), as
described in the Regulated Fund's registration statement on Form N-
2, other filings the Regulated Fund has made with the Commission
under the Securities Act of 1933 (the ``Securities Act''), or under
the Securities Exchange Act of 1934, and the Regulated Fund's
reports to shareholders.
\4\ The term ``Board'' refers to the board of directors or
trustees of any Regulated Fund.
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2. CM Credit is a Maryland corporation and will be structured as a
closed-end management investment company that intends to file an
election to be regulated as a BDC under section 54(a) of the Act. CM
Credit's Objectives and Strategies are to generate current income and
capital appreciation by investing primarily in middle-market companies
and leveraged companies. The board of directors of CM Credit (the ``CM
Credit Board'') will be comprised of a majority of Non-Interested
Directors.
3. The Existing Affiliated Fund is a Delaware limited liability
company with the investment objective to seek current income and
capital appreciation by investing primarily in middle-market companies.
The Existing Affiliated Fund would be an investment company but for the
exclusion from the definition of investment company provided by section
3(c)(7) of the Act.
4. CM Adviser is a Delaware limited liability company and is
registered as an investment adviser under the Investment Advisers Act
of 1940 (the ``Advisers Act''). CM Adviser serves as the investment
adviser to CMFN and will serve as the investment adviser to CM Credit
and the Existing Affiliated Fund.
5. Applicants seek an order (``Order'') to permit one or more
Regulated Funds \5\ and/or one or more Affiliated Funds \6\ to
participate in the same investment opportunities through a proposed co-
investment program (the ``Co-Investment Program'') where such
participation would otherwise be prohibited under section 57(a)(4) and
rule 17d-1 by (a) co-investing with each other in securities issued by
issuers in private placement transactions in which an Adviser
negotiates terms in addition to price \7\ and (b) making additional
investments in securities of such issuers, including through the
exercise of warrants, conversion privileges, and other rights to
purchase securities of the issuers (``Follow-On Investments''). ``Co-
Investment Transaction'' means any transaction in which a Regulated
Fund (or its Wholly-Owned Investment Sub, as defined below)
participated together with one or more other Regulated Funds and/or one
or more Affiliated Funds in reliance on the requested Order.
``Potential Co-Investment Transaction'' means any investment
opportunity in which a Regulated Fund (or its Wholly-Owned Investment
Sub) could not participate together with one or more Affiliated Funds
and/or one or more other Regulated Funds without obtaining and relying
on the Order.\8\
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\5\ ``Regulated Fund'' means any of the Existing Regulated Funds
and any Future Regulated Fund. ``Future Regulated Fund'' means any
closed-end management investment company (a) that is registered
under the Act or has elected to be regulated as BDC, (b) whose
investment adviser is an Adviser, and (c) that intends to
participate in the Co-Investment Program. The term ``Adviser'' means
(a) CM Adviser and (b) any future investment adviser that controls,
is controlled by or is under common control with CM Adviser and is
registered as an investment adviser under the Advisers Act.
\6\ ``Affiliated Fund'' means the Existing Affiliated Fund and
any Future Affiliated Fund. ``Future Affiliated Fund'' means any
entity (a) whose investment adviser is an Adviser, (b) that would be
an investment company but for section 3(c)(1) or 3(c)(7) of the Act,
and (c) that intends to participate in the Co-Investment Program.
\7\ The term ``private placement transactions'' means
transactions in which the offer and sale of securities by the issuer
are exempt from registration under the Securities Act.
\8\ All existing entities that currently intend to rely upon the
requested Order have been named as applicants. Any other existing or
future entity that subsequently relies on the Order will comply with
the terms and conditions of the application.
---------------------------------------------------------------------------
6. Applicants state any of the Regulated Funds may, from time to
time, form one or more Wholly-Owned Investment Subs.\9\ A Wholly-Owned
Investment Sub would be prohibited from investing in a Co-Investment
Transaction with any Affiliated Fund or Regulated Fund because it would
be a company controlled by its parent Regulated Fund for purposes of
section 57(a)(4) and rule 17d-1. Applicants request that each Wholly-
Owned Investment Sub be permitted to participate in Co-Investment
Transactions in lieu of its parent Regulated Fund and that the Wholly-
Owned Investment Sub's participation in any such transaction be
treated, for purposes of the requested order, as though the parent
Regulated Fund were participating directly.\10\ Applicants represent
that this treatment is justified because a Wholly-Owned Investment Sub
would have no purpose other than serving as a holding vehicle for the
Regulated Fund's investments and, therefore, no conflicts of interest
could arise between the Regulated Fund and the Wholly-Owned Investment
Sub. The Regulated Fund's Board would make all relevant determinations
under the conditions with regard to a Wholly-Owned Investment Sub's
participation in a Co-Investment Transaction, and the Regulated Fund's
Board would be informed of, and take into consideration, any proposed
use of a Wholly-Owned Investment Sub in the Regulated Fund's place. If
the Regulated Fund proposes to participate in the same Co-Investment
Transaction with any of its Wholly-Owned Investment Subs, the Board
will also be informed of, and take into consideration, the relative
participation of the Regulated Fund and the Wholly-Owned Investment
Sub.
---------------------------------------------------------------------------
\9\ The term ``Wholly-Owned Investment Sub'' means an entity (a)
that is wholly-owned by a Regulated Fund (with the Regulated Fund at
all times holding, beneficially and of record, 100% of the voting
and economic interests); (b) whose sole business purpose is to hold
one or more investments on behalf of the Regulated Fund (and in the
case of a SBIC Subsidiary (as defined below) maintain a license
under the SBA Act (as defined below) and issue debentures guaranteed
by the SBA (as defined below); (c) with respect to which the
Regulated Fund's Board has the sole authority to make all
determinations with respect to the Wholly-Owned Investment Sub's
participation under the conditions of the application; and (d) that
would be an investment company but for section 3(c)(1) or 3(c)(7) of
the Act. ``SBIC Subsidiary'' means a Wholly-Owned Investment Sub
that is licensed by the Small Business Administration (``SBA'') to
operate under the Small Business Investment Act of 1958 (the ``SBA
Act'') as a small business investment company.
\10\ All subsidiaries of the Regulated Funds participating in
Co-Investment Transactions will be Wholly-Owned Investment Subs and
will have Objectives and Strategies that are either the same as, or
a subset of, the Regulated Fund's Objectives and Strategies.
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7. When considering Potential Co-Investment Transactions for any
Regulated Fund, the applicable Adviser will consider only the
Objectives and Strategies, investment policies, investment positions,
capital available
[[Page 6033]]
for investment (``Available Capital''),\11\ and other pertinent factors
applicable to that Regulated Fund. The Board of each Regulated Fund,
including the Non-Interested Directors, has (or will have prior to
relying on the requested Order) determined that it is in the best
interests of the Regulated Fund to participate in Co-Investment
Transactions.\12\
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\11\ The amount of each Regulated Fund's Available Capital will
be determined based on the amount of cash on hand, existing
commitments and reserves, if any, the targeted leverage level,
targeted asset mix and other investment policies and restrictions
set from time to time by the Board of the applicable Regulated Fund
or imposed by applicable laws, rules, regulations or
interpretations.
\12\ The Regulated Funds, however, will not be obligated to
invest, or co-invest, when investment opportunities are referred to
them.
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8. Other than pro rata dispositions and Follow-On Investments as
provided in conditions 7 and 8, and after making the determinations
required in conditions 1 and 2(a), the Adviser will present each
Potential Co-Investment Transaction and the proposed allocation to the
directors of the Board eligible to vote under section 57(o) of the Act
(``Eligible Directors''), and the ``required majority,'' as defined in
section 57(o) of the Act (``Required Majority'') \13\ will approve each
Co-Investment Transaction prior to any investment by the participating
Regulated Fund.
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\13\ In the case of a Regulated Fund that is a registered
closed-end fund, the Board members that make up the Required
Majority will be determined as if the Regulated Fund were a BDC
subject to section 57(o).
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9. With respect to the pro rata dispositions and Follow-On
Investments provided in conditions 7 and 8, a Regulated Fund may
participate in a pro rata disposition or Follow-On Investment without
obtaining prior approval of the Required Majority if, among other
things: (i) The proposed participation of each Regulated Fund and
Affiliated Fund in such disposition is proportionate to its outstanding
investments in the issuer immediately preceding the disposition or
Follow-On Investment, as the case may be; and (ii) the Board of the
Regulated Fund has approved that Regulated Fund's participation in pro
rata dispositions and Follow-On Investments as being in the best
interests of the Regulated Fund. If the Board does not so approve, any
such disposition or Follow-On Investment will be submitted to the
Regulated Fund's Eligible Directors. The Board of any Regulated Fund
may at any time rescind, suspend or qualify its approval of pro rata
dispositions and Follow-On Investments with the result that all
dispositions and/or Follow-On Investments must be submitted to the
Eligible Directors.
10. No Non-Interested Director of a Regulated Fund will have a
financial interest in any Co-Investment Transaction, other than through
share ownership in one of the Regulated Funds.
11. If the Advisers, the principal owners of any of the Advisers
(the ``Principals''), or any person controlling, controlled by, or
under common control with the Advisers or the Principals, and the
Affiliated Funds (collectively, the ``Holders'') own in the aggregate
more than 25 percent of the outstanding voting shares of a Regulated
Fund (the ``Shares''), then the Holders will vote such Shares as
required under condition 14. Applicants believe that this condition
will ensure that the Non-Interested Directors will act independently in
evaluating the Co-Investment Program, because the ability of the
Advisers or the Principals to influence the Non-Interested Directors by
a suggestion, explicit or implied, that the Non-Interested Directors
can be removed will be limited significantly. The Non-Interested
Directors will evaluate and approve any such independent party, taking
into account its qualifications, reputation for independence, cost to
the shareholders, and other factors that they deem relevant.
12. Prior to the filing of the application, certain funds managed
by Cyrus Capital Partners, L.P. (the ``Cyrus Funds'') may have engaged
in transactions with CMFN without obtaining an order under rule 17d-1
under the Act (the ``Prior Transactions''). At the time of the Prior
Transactions, the Cyrus Funds were affiliated persons of CMFN and CM
Adviser, and the Cyrus Funds may have been deemed to indirectly control
CMFN. Mr. Mauer, Mr. Jansen, and Stifel Venture Corp. (collectively
with Messrs. Mauer and Jansen and the Cyrus Funds, the ``Affiliated
Parties'') are also affiliated persons of CMFN and CM Adviser. The
Order, if granted, would not provide relief for the Prior Transactions.
Further, the Order, if granted, would not provide relief for the
Affiliated Parties to engage in Co-Investment Transactions.
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in joint transactions with the BDC or a
company controlled by a BDC in contravention of rules as prescribed by
the Commission. Under section 57(b)(2) of the Act, any person who is
directly or indirectly controlling, controlled by, or under common
control with a BDC is subject to section 57(a)(4). Applicants submit
that each of the Regulated Funds and Affiliated Funds could be deemed
to be a person related to each Regulated Fund in a manner described by
section 57(b) by virtue of being under common control. Section 57(i) of
the Act provides that, until the Commission prescribes rules under
section 57(a)(4), the Commission's rules under section 17(d) of the Act
applicable to registered closed-end investment companies will be deemed
to apply to transactions subject to section 57(a)(4). Because the
Commission has not adopted any rules under section 57(a)(4), rule 17d-1
also applies to joint transactions with Regulated Funds that are BDCs.
Section 17(d) of the Act and rule 17d-1 under the Act are applicable to
Regulated Funds that are registered closed-end investment companies.
2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons of a registered investment company from
participating in joint transactions with the company unless the
Commission has granted an order permitting such transactions. In
passing upon applications under rule 17d-1, the Commission considers
whether the company's participation in the joint transaction is
consistent with the provisions, policies, and purposes of the Act and
the extent to which such participation is on a basis different from or
less advantageous than that of other participants.
3. Applicants state that in the absence of the requested relief,
the Regulated Funds would be, in some circumstances, limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants believe that the proposed terms and
conditions will ensure that the Co-Investment Transactions are
consistent with the protection of each Regulated Fund's shareholders
and with the purposes intended by the policies and provisions of the
Act. Applicants state that the Regulated Funds' participation in the
Co-Investment Transactions will be consistent with the provisions,
policies, and purposes of the Act and on a basis that is not different
from or less advantageous than that of other participants.
Applicants' Conditions
Applicants agree that the Order will be subject to the following
conditions:
1. Each time an Adviser considers a Potential Co-Investment
Transaction for an Affiliated Fund or another Regulated Fund that falls
within a Regulated Fund's then-current Objectives and Strategies, the
Regulated Fund's Adviser will make an independent
[[Page 6034]]
determination of the appropriateness of the investment for such
Regulated Fund in light of the Regulated Fund's then-current
circumstances.
2. (a) If the Adviser deems a Regulated Fund's participation in any
Potential Co-Investment Transaction to be appropriate for the Regulated
Fund, it will then determine an appropriate level of investment for the
Regulated Fund.
(b) If the aggregate amount recommended by the applicable Adviser
to be invested by the applicable Regulated Fund in the Potential Co-
Investment Transaction, together with the amount proposed to be
invested by the other participating Regulated Funds and Affiliated
Funds, collectively, in the same transaction, exceeds the amount of the
investment opportunity, the investment opportunity will be allocated
among them pro rata based on each participant's Available Capital, up
to the amount proposed to be invested by each. The applicable Adviser
will provide the Eligible Directors of each participating Regulated
Fund with information concerning each participating party's Available
Capital to assist the Eligible Directors with their review of the
Regulated Fund's investments for compliance with these allocation
procedures.
(c) After making the determinations required in conditions 1 and
2(a), the applicable Adviser will distribute written information
concerning the Potential Co-Investment Transaction (including the
amount proposed to be invested by each participating Regulated Fund and
Affiliated Fund) to the Eligible Directors of each participating
Regulated Fund for their consideration. A Regulated Fund will co-invest
with one or more other Regulated Funds and/or one or more Affiliated
Funds only if, prior to the Regulated Fund's participation in the
Potential Co-Investment Transaction, a Required Majority concludes
that:
(i) The terms of the Potential Co-Investment Transaction, including
the consideration to be paid, are reasonable and fair to the Regulated
Fund and its shareholders and do not involve overreaching in respect of
the Regulated Fund or its shareholders on the part of any person
concerned;
(ii) the Potential Co-Investment Transaction is consistent with:
(A) The interests of the shareholders of the Regulated Fund; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Funds or Affiliated
Funds would not disadvantage the Regulated Fund, and participation by
the Regulated Fund would not be on a basis different from or less
advantageous than that of other Regulated Funds or Affiliated Funds;
provided that, if any other Regulated Fund or Affiliated Fund, but not
the Regulated Fund itself, gains the right to nominate a director for
election to a portfolio company's board of directors or the right to
have a board observer or any similar right to participate in the
governance or management of the portfolio company, such event shall not
be interpreted to prohibit the Required Majority from reaching the
conclusions required by this condition (2)(c)(iii), if:
(A) The Eligible Directors will have the right to ratify the
selection of such director or board observer, if any;
(B) the applicable Adviser agrees to, and does, provide periodic
reports to the Regulated Fund's Board with respect to the actions of
such director or the information received by such board observer or
obtained through the exercise of any similar right to participate in
the governance or management of the portfolio company; and
(C) any fees or other compensation that any Affiliated Fund or any
Regulated Fund or any affiliated person of any Affiliated Fund or any
Regulated Fund receives in connection with the right of the Affiliated
Fund or a Regulated Fund to nominate a director or appoint a board
observer or otherwise to participate in the governance or management of
the portfolio company will be shared proportionately among the
participating Affiliated Funds (who each may, in turn, share its
portion with its affiliated persons) and the participating Regulated
Funds in accordance with the amount of each party's investment; and
(iv) the proposed investment by the Regulated Fund will not benefit
the Advisers, the Affiliated Funds or the other Regulated Funds or any
affiliated person of any of them (other than the parties to the Co-
Investment Transaction), except (A) to the extent permitted by
condition 13, (B) to the extent permitted by section 17(e) or 57(k) of
the Act, as applicable, (C) indirectly, as a result of an interest in
the securities issued by one of the parties to the Co-Investment
Transaction, or (D) in the case of fees or other compensation described
in condition 2(c)(iii)(C).
3. Each Regulated Fund has the right to decline to participate in
any Potential Co-Investment Transaction or to invest less than the
amount proposed.
4. The applicable Adviser will present to the Board of each
Regulated Fund, on a quarterly basis, a record of all investments in
Potential Co-Investment Transactions made by any of the other Regulated
Funds or Affiliated Funds during the preceding quarter that fell within
the Regulated Fund's then-current Objectives and Strategies that were
not made available to the Regulated Fund, and an explanation of why the
investment opportunities were not offered to the Regulated Fund. All
information presented to the Board pursuant to this condition will be
kept for the life of the Regulated Fund and at least two years
thereafter, and will be subject to examination by the Commission and
its staff.
5. Except for Follow-On Investments made in accordance with
condition 8,\14\ a Regulated Fund will not invest in reliance on the
Order in any issuer in which another Regulated Fund, Affiliated Fund,
or any affiliated person of another Regulated Fund or Affiliated Fund
is an existing investor.
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\14\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which that 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
[[Page 6035]]
prior approval of the Required Majority if: (i) The proposed
participation of each Regulated Fund and each Affiliated Fund in such
disposition is proportionate to its outstanding investments in the
issuer immediately preceding the disposition; (ii) the Board of the
Regulated Fund has approved as being in the best interests of the
Regulated Fund the ability to participate in such dispositions on a pro
rata basis (as described in greater detail in the application); and
(iii) the Board of the Regulated Fund is provided on a quarterly basis
with a list of all dispositions made in accordance with this condition.
In all other cases, the Adviser will provide its written recommendation
as to the Regulated Fund's participation to the Eligible Directors, and
the Regulated Fund will participate in such disposition solely to the
extent that a Required Majority determines that it is in the Regulated
Fund's best interests.
(d) Each Affiliated Fund and each Regulated Fund will bear its own
expenses in connection with any such disposition.
8. (a) If any Affiliated Fund or any Regulated Fund desires to make
a Follow-On Investment in a portfolio company whose securities were
acquired in a Co-Investment Transaction, the applicable Advisers will:
(i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed transaction at the earliest
practical time; and
(ii) formulate a recommendation as to the proposed participation,
including the amount of the proposed Follow-On Investment, by each
Regulated Fund.
(b) A Regulated Fund may participate in such Follow-On Investment
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of each Regulated Fund and each Affiliated Fund
in such investment is proportionate to its outstanding investments in
the issuer immediately preceding the Follow-On Investment; and (ii) the
Board of the Regulated Fund has approved as being in the best interests
of the Regulated Fund the ability to participate in Follow-On
Investments on a pro rata basis (as described in greater detail in the
application). In all other cases, the Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Directors, and the Regulated Fund will participate in such Follow-On
Investment solely to the extent that a Required Majority determines
that it is in the Regulated Fund's best interests.
(c) If, with respect to any Follow-On Investment:
(i) The amount of the opportunity is not based on the Regulated
Funds' and the Affiliated Funds' outstanding investments immediately
preceding the Follow-On Investment; and
(ii) the aggregate amount recommended by the applicable Adviser to
be invested by the applicable Regulated Fund in the Follow-On
Investment, together with the amount proposed to be invested by the
other participating Regulated Funds and Affiliated Funds, collectively,
in the same transaction, exceeds the amount of the investment
opportunity; then the investment opportunity will be allocated among
them pro rata based on each participant's Available Capital, up to the
maximum amount proposed to be invested by each.
(d) The acquisition of Follow-On Investments as permitted by this
condition will be considered a Co-Investment Transaction for all
purposes and subject to the other conditions set forth in this
application.
9. The Non-Interested Directors of each Regulated Fund will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including
investments made by other Regulated Funds or Affiliated Funds that the
Regulated Fund considered but declined to participate in, so that the
Non-Interested Directors may determine whether all investments made
during the preceding quarter, including those investments that the
Regulated Fund considered but declined to participate in, comply with
the conditions of the Order. In addition, the Non-Interested Directors
will consider at least annually the continued appropriateness for the
Regulated Fund of participating in new and existing Co-Investment
Transactions.
10. Each Regulated Fund will maintain the records required by
section 57(f)(3) of the Act as if each of the Regulated Funds were a
BDC and each of the investments permitted under these conditions were
approved by the Required Majority under section 57(f) of the Act.
11. No Non-Interested Director of a Regulated Fund will also be a
director, general partner, managing member or principal, or otherwise
an ``affiliated person'' (as defined in the Act) of an Affiliated Fund.
12. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the Securities Act) will, to
the extent not payable by the Advisers under their respective
investment advisory agreements with Affiliated Funds and the Regulated
Funds, be shared by the Regulated Funds and the Affiliated Funds in
proportion to the relative amounts of the securities held or to be
acquired or disposed of, as the case may be.
13. Any transaction fee (including break-up or commitment fees but
excluding broker's fees contemplated by section 17(e) or 57(k) of the
Act, as applicable), received in connection with a Co-Investment
Transaction will be distributed to the participating Regulated Funds
and Affiliated Funds on a pro rata basis based on the amounts they
invested or committed, as the case may be, in such Co-Investment
Transaction. If any transaction fee is to be held by an Adviser pending
consummation of the transaction, the fee will be deposited into an
account maintained by such Adviser at a bank or banks having the
qualifications prescribed in section 26(a)(1) of the Act, and the
account will earn a competitive rate of interest that will also be
divided pro rata among the participating Regulated Funds and Affiliated
Funds based on the amounts they invest in such Co-Investment
Transaction. None of the Affiliated Funds, the Advisers, the other
Regulated Funds or any affiliated person of the Regulated Funds or
Affiliated Funds will receive additional compensation or remuneration
of any kind as a result of or in connection with a Co-Investment
Transaction (other than (a) in the case of the Regulated Funds and the
Affiliated Funds, the pro rata transaction fees described above and
fees or other compensation described in condition 2(c)(iii)(C); and (b)
in the case of an Adviser, investment advisory fees paid in accordance
with the agreement between the Adviser and the Regulated Fund or
Affiliated Fund.
14. If the Holders own in the aggregate more than 25% of the Shares
of a Regulated Fund, then the Holders will vote such Shares (i) as
directed by an independent third party, or (ii) in the same percentages
as the Regulated Fund's other shareholders (not including the Holders)
when voting on (1) the election of directors; (2) the removal of one or
more directors; or (3) any other matter under either the Act or
applicable state law affecting the Board's composition, size or manner
of election.
15. Each Regulated Fund's chief compliance officer, as defined in
rule 38a-1(a)(4) under the Act, will prepare an annual report for its
Board that
[[Page 6036]]
evaluates (and documents the basis of that evaluation) the Regulated
Fund's compliance with the terms and conditions of the application and
the procedures established to achieve such compliance.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03138 Filed 2-22-19; 8:45 am]
BILLING CODE 8011-01-P
