Order Under Sections 6(c), 17(d), 38(a), and 57(i) of the Investment Company Act of 1940 and Rule 17d-1 Thereunder Granting Exemptions From Specified Provisions of the Investment Company Act and Certain Rules Thereunder, 20739-20741 [2020-07788]
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Federal Register / Vol. 85, No. 72 / Tuesday, April 14, 2020 / Notices
share of executed volume of multiplylisted equity & ETF options trades.13
The Exchange believes that the
proposed rule change reflects this
competitive environment because it
modifies the Exchange’s fees in a
manner designed to ease the financial
burden and allow affected participants
to reallocate funds to assist with the cost
of shifting operations from on-Floor to
off-Floor. Absent this change, such
participants may experience an
unintended increase in the cost of doing
business on the Exchange, which would
make the Exchange a less competitive
venue on which to trade as compared to
other options exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 14 of the Act and
subparagraph (f)(2) of Rule 19b–4 15
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 16 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
jbell on DSKJLSW7X2PROD with NOTICES
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
13 Based on OCC data, supra note 10, the
Exchange’s market share in equity-based options
was 9.82% for the month of January 2019 and
8.08% for the month of January, 2020.
14 15 U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4(f)(2).
16 15 U.S.C. 78s(b)(2)(B).
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEAMER–2020–25 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEAMER–2020–25. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEAMER–2020–25 and
should be submitted on or before May
5, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–07774 Filed 4–13–20; 8:45 am]
BILLING CODE 8011–01–P
17 17
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20739
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 33837]
Order Under Sections 6(c), 17(d), 38(a),
and 57(i) of the Investment Company
Act of 1940 and Rule 17d–1
Thereunder Granting Exemptions From
Specified Provisions of the Investment
Company Act and Certain Rules
Thereunder
April 8, 2020.
The outbreak of coronavirus disease
2019 (COVID–19) has had far-reaching
and unanticipated effects, including in
our financial markets, and, in particular,
our credit markets. In light of the
current situation, we are issuing this
Order providing exemptions from
certain requirements of the Investment
Company Act. The exemptions provide
additional temporary flexibility for
closed-end investment companies that
have elected to be regulated as business
development companies (‘‘BDCs’’) to
issue and sell senior securities and
participate in certain joint enterprises or
other joint arrangements that would
otherwise be prohibited by section
57(a)(4) of the Investment Company Act
and Rule 17d–1 thereunder. BDCs were
created to provide capital to smaller
domestic operating companies that
otherwise may not be able to readily
access the capital markets (we refer to
such companies as ‘‘portfolio
companies’’). The Commission
recognizes that, in the current
environment, many BDCs may face
challenges absent these exemptions in
providing capital to their affected
portfolio companies, and therefore, in
fulfilling their statutory mandate. A
BDC may face such challenges if (i) it is
unable to satisfy the asset coverage
requirements under the Investment
Company Act due to temporary markdowns in the value of the loans to such
portfolio companies, or (ii) certain of its
affiliates are prohibited from
participating in additional investments
in the BDC’s portfolio companies due to
restrictions in its current exemptive
order permitting co-investments. In
recognition of the current facts and
circumstances, and for the reasons
identified above, the Commission has
determined that certain BDCs may be
unable to meet their statutory mandate.
Therefore, the temporary exemptions
herein are necessary and appropriate in
order for BDCs to continue providing
credit support to portfolio companies
impacted by COVID–19.
In light of the current and potential
effects of COVID–19, the Commission
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Federal Register / Vol. 85, No. 72 / Tuesday, April 14, 2020 / Notices
finds that the exemptions set forth
below, as applicable:
Are necessary and appropriate in the
public interest and consistent with the
protection of investors and the purposes
fairly intended by the policy and provisions
of the Investment Company Act;
Permit transactions under the terms of
which the participation of each registered
investment company is consistent with the
provisions, policies, and purposes of the
Investment Company Act, and not on a basis
different from or less advantageous than that
of other participants; and
Are necessary and appropriate to the
exercise of the powers conferred on it by the
Investment Company Act.
The necessity for prompt action of the
Commission does not permit prior
notice of the Commission’s action.
jbell on DSKJLSW7X2PROD with NOTICES
I. Time Period for the Exemptive Relief
The relief provided in each of the
following Sections of this Order is
limited to the period from (and
including) the date of this Order to the
earlier of (i) December 31, 2020
(including such date), or (ii) the date by
which the BDC ceases to rely on this
Order (the ‘‘Exemption Period’’).
The Commission intends to continue
to monitor the situation as it develops.
The time period for any or all of the
relief may, if necessary, be extended
with any additional conditions that are
deemed appropriate, and the
Commission may issue other relief as
necessary or appropriate.
II. Issuance and Sale of Senior
Securities by BDCs
It is Ordered, pursuant to sections 6(c)
and 38(a) of the Investment Company
Act that:
During the Exemption Period,
notwithstanding the asset coverage
requirements of sections 18(a)(1)(A) and
18(a)(2)(A) of the Investment Company
Act, as modified for BDCs by sections
61(a)(1) and 61(a)(2), and the
requirement of section 18(b) of the
Investment Company Act to determine
asset coverage on the basis of values
calculated as of a time within forty-eight
hours (not including Sundays or
holidays) next preceding the time of
such determination, a BDC may issue or
sell a senior security that represents an
indebtedness or that is a stock (together,
the ‘‘covered senior securities’’),
provided that:
(a) Adjusted Portfolio Value. At the
time of any issuance or sale of a covered
senior security, the BDC shall calculate
asset coverage ratios in accordance with
section 18(b) of the Investment
Company Act, except that, in reliance
on this Order, with respect to portfolio
company holdings (i) that the BDC held
at December 31, 2019; (ii) that the BDC
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continues to hold at the time of such
issuance or sale; and (iii) for which the
BDC is not recognizing a realized loss,1
the BDC may use values calculated as of
December 31, 2019, to calculate
portfolio value (the ‘‘Adjusted Portfolio
Value’’) to meet an Adjusted Asset
Coverage Ratio.2 To calculate the
Adjusted Asset Coverage Ratio, a BDC
must reduce its asset coverage ratio
using the Adjusted Portfolio Value by an
amount equal to 25% of the difference
between the asset coverage ratio
calculated using the Adjusted Portfolio
Value and the asset coverage ratio
calculated in accordance with section
18(b) of the Investment Company Act.3
For example a BDC has a 220% asset
coverage ratio on December 31, 2019.4
Its asset coverage ratio declines to 160%
on March 31, 2020, not using the
Adjusted Portfolio Value, and 200% if it
calculated the ratio (without the 25%
decrease) using the Adjusted Portfolio
Value. This BDC would have an
Adjusted Asset Coverage Ratio of 190%
(200% minus 10% (25% of the
difference between 200% and 160%)).
(b) Election. Prior to relying on
section II of this Order, a BDC must
make an election by filing on Form 8–
K. Similarly, a BDC may withdraw its
election through filing on Form 8–K.
1 BDCs may not include a December 31, 2019, fair
value measurement in their Adjusted Asset
Coverage Ratio if the portfolio company holding is
permanently impaired. For purposes of this Order,
a permanently impaired holding is a holding where
a BDC recognized a realized loss subsequent to
December 31, 2019, and the loss is not recoverable.
For example, a BDC’s portfolio company may have
been impacted by events occurring in 2020, such as
a natural disaster, the permanent loss of an
operating license, or an enacted temporary shelterin-place policy, and such BDC may have
determined that a permanent valuation write down
or a portion thereof was necessary as the loss will
not be recoverable.
2 As described, the adjustment permitted by this
Order applies only to portfolio company holdings
that are not permanently impaired, and that are
held both at December 31, 2019, and at the date of
issuance of the covered senior security subject to
this Order. The adjustment does not apply to
portfolio company holdings acquired after
December 31, 2019. For purposes of this Order, all
assets acquired and all senior securities issued after
December 31, 2019, that are held or outstanding at
the date of the calculation of the Adjusted Asset
Coverage Ratio shall be included in the calculation
without adjustment.
3 Further, the Adjusted Portfolio Value is solely
for purposes of calculating the BDC’s asset coverage
ratio. BDCs must adhere to generally accepted
accounting principles in the United States for
purposes of financial reporting, which requires
application of fair value measurement for portfolio
holdings under the Financial Accounting Standards
Board Accounting Standards Codification Topic
820: Fair Value Measurements.
4 For BDCs, sections 61(a)(1) and 61(a)(2) of the
Investment Company Act modify the asset coverage
requirements of section 18(a) to be either 200
percent or 150 percent (provided certain conditions
have been met).
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(c) Limitation on New Investments. A
BDC that has elected to rely on section
II of this Order shall not, for 90 days
from the date of such election, make an
initial investment in any portfolio
company in which the BDC was not
already invested as of the date of this
Order, provided that a BDC may make
an initial investment in such a portfolio
company if at the time of investment its
asset coverage ratio complies with the
asset coverage ratio applicable to it
under section 18 of the Investment
Company Act, as modified by section
61.
(d) Board Approval of Reliance on
this Order. Prior to the BDC’s election to
rely on section II of this Order, the
BDC’s board of directors or trustees
(‘‘Board’’), including a required majority
of the Board, as defined in section 57(o)
of the Investment Company Act (a
‘‘Required Majority’’), shall have
determined that the issuance or sale of
covered senior securities is permitted by
this Order and is in the best interests of
the BDC and its shareholders.
(e) Board Approval of Each Issuance
of Senior Securities. Prior to a BDC
issuing or selling covered senior
securities, the Board, including a
Required Majority, shall determine that
each such issuance is in the best
interests of the BDC and its
shareholders. Prior to making such
determination, the Board must obtain
and consider (i) a certification from the
BDC’s investment adviser that the
issuance of covered senior securities is
in the best interests of the BDC and its
shareholders; such certification shall
include not only the investment
adviser’s recommendation, but also the
reasons therefore, including whether the
adviser has considered other reasonable
alternatives that would not result in the
issuance or sale of a covered senior
security; and (ii) advice from an
Independent Evaluator 5 regarding
whether the terms and conditions of the
proposed issuance or sale of a covered
senior security are fair and reasonable
compared to similar issuances, if any,
by unaffiliated third parties in light of
current market conditions.
(f) No Sunset Period. The Board of
any BDC that has elected to rely on
section II of this Order shall receive and
review, no less frequently than monthly,
reports prepared by the BDC’s
investment adviser regarding and
assessing the efforts that the investment
adviser has undertaken, and progress
5 The term ‘‘Independent Evaluator’’ shall mean
a person who has expertise in the valuation of
securities and other financial assets and who is not
an interested person, as defined in section 2(a)(19)
of the Investment Company Act, of the BDC, or any
affiliate thereof.
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Federal Register / Vol. 85, No. 72 / Tuesday, April 14, 2020 / Notices
that the BDC has made, towards
achieving compliance with the asset
coverage requirements under section 18
of the Investment Company Act, as
modified by section 61, by the
expiration of the Exemption Period.
Upon expiration of the Exemption
Period, any BDC not in compliance with
the asset coverage requirements
applicable to such BDC at that time as
described in sections 18(a)(1)(A) and
18(a)(2)(A), as modified by sections
61(a)(1) and 61(a)(2), shall immediately
make a filing on Form 8–K that includes
the following information: (i) The BDC’s
current asset coverage ratio; (ii) the
reasons why the BDC was unable to
comply with the asset coverage
requirements; (iii) the time frame within
which the BDC expects to come into
compliance with the asset coverage
requirements; and (iv) the specific steps
that the BDC will be undertaking to
bring itself into compliance with the
asset coverage requirements.6
(g) Recordkeeping. Each BDC shall
make and preserve, for a period of not
less than six years, the first two years in
an easily accessible place, minutes
describing (i) the Board’s deliberations
in connection with paragraph (e) above,
including the factors considered by the
board in connection with such
determinations, as well as all
information, documents and reports
provided to the Board in connection
therewith; and (ii) the reports made to
the Board pursuant to paragraph (f)
above, including copies of all other
information provided to or relied upon
by the Board.
(h) No Compensation or
Remuneration of Any Kind. Except (i) to
the extent permitted by section 57(k) of
the Investment Company Act; or (ii) for
payments or distributions made by an
issuer to all holders of a security in
accordance with the security’s terms, no
affiliated person of the BDC nor any
affiliated person of such a person, shall
receive any transaction fees (including
break-up, structuring, monitoring or
commitment fees) or other remuneration
from an issuer in which the BDC invests
during the Exemption Period. For the
avoidance of doubt, this condition does
not apply to the receipt of investment
advisory fees by an investment adviser
to the BDC under an investment
management agreement entered into in
accordance with section 15 of the
Investment Company Act.
(i) This Order provides relief only to
issue or sell senior securities
6 Sections 18 and 61 of the Investment Company
Act generally prohibit a BDC that is not in
compliance with its asset coverage requirements
from paying a cash dividend or issuing additional
senior securities.
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representing an indebtedness or that is
a stock. This Order does not provide
relief in connection with the declaration
or payment of any dividend or any other
distribution.
III. Expansion of Relief for BDCs With
Existing Co-Investment Orders
It is Ordered, pursuant to sections
17(d) and 57(i) of the Investment
Company Act and rule 17d–1
thereunder that:
During the Exemption Period,
notwithstanding sections 17(d) and
57(a)(4) of the Investment Company Act
and rule 17d–1 thereunder, any BDC to
which a Commission order permitting
co-investment transactions in portfolio
companies with certain affiliated
persons is currently applicable
(‘‘existing co-investment order’’) may:
Participate in a Follow-On Investment
(which may include a Non-Negotiated
Follow-On Investment) with one or
more Regulated Funds and/or Affiliated
Funds, provided that (i) if such
participant is a Regulated Fund, it has
previously participated in a CoInvestment Transaction with the BDC
with respect to the issuer, and (ii) if
such participant is an Affiliated Fund,
it either (X) has previously participated
in a Co-Investment Transaction with the
BDC with respect to the issuer, or (Y) is
not invested in the issuer; 7 provided
that:
(a) Any such transaction is otherwise
effected in accordance with the terms
and conditions of the existing coinvestment order; and
(b) Board Oversight.
(1) Non-Negotiated Follow-On
Investments. Non-Negotiated Follow-On
Investments do not require prior
approval by the Board; however they are
subject to the periodic reporting
requirements set forth in the BDC’s
existing co-investment order.
(2) Follow-On Investments other than
Non-Negotiated Follow-On Investments.
In connection with making the findings
required by the BDC’s existing coinvestment order with respect to
Follow-On Investments that are not
7 The terms Follow-On Investment, Regulated
Fund, Affiliated Fund and Co-Investment
Transaction shall have the same meanings ascribed
to them in the BDC’s existing co-investment order,
or, if the BDC’s existing co-investment order uses
a substantially similar term, the substantially
similar term. For purposes of this Order, the term
Affiliated Fund does not include any open or
closed-end investment company registered under
the Investment Company Act or a BDC.
The term ‘‘Non-Negotiated Follow-On
Investment’’ shall be given the meaning ascribed to
it in existing co-investment orders. For purposes of
this Order, a BDC may participate in a NonNegotiated Follow-On Investment in reliance on
this Order whether or not such term is used in its
existing co-investment order.
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20741
Non-Negotiated Follow-On Investments,
the Board, and a Required Majority,
shall review the proposed Follow-On
Investment both on a stand-alone basis
and in relation to the total economic
exposure of the BDC to the issuer.8
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–07788 Filed 4–13–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88604; File No. SR–
NYSECHX–2020–12]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 7.37 To
Update the Exchange’s Source of Data
Feeds From the Long-Term Stock
Exchange, Inc.
April 8, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 6,
2020, NYSE Chicago, Inc. (‘‘NYSE
Chicago’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 7.37 to update the Exchange’s
source of data feeds from the Long-Term
Stock Exchange, Inc. (‘‘LTSE’’) for
purposes of order handling, order
execution, order routing, and regulatory
compliance. The proposed rule change
is available on the Exchange’s website at
www.nyse.com, at the principal office of
8 For purposes of complying with this condition
of this Order, the Board, and a Required Majority,
need not make the findings required with respect
to Enhanced Review Follow-On Investments, as
such term is defined in existing co-investment
orders.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
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]]>Agencies
[Federal Register Volume 85, Number 72 (Tuesday, April 14, 2020)]
[Notices]
[Pages 20739-20741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07788]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 33837]
Order Under Sections 6(c), 17(d), 38(a), and 57(i) of the
Investment Company Act of 1940 and Rule 17d-1 Thereunder Granting
Exemptions From Specified Provisions of the Investment Company Act and
Certain Rules Thereunder
April 8, 2020.
The outbreak of coronavirus disease 2019 (COVID-19) has had far-
reaching and unanticipated effects, including in our financial markets,
and, in particular, our credit markets. In light of the current
situation, we are issuing this Order providing exemptions from certain
requirements of the Investment Company Act. The exemptions provide
additional temporary flexibility for closed-end investment companies
that have elected to be regulated as business development companies
(``BDCs'') to issue and sell senior securities and participate in
certain joint enterprises or other joint arrangements that would
otherwise be prohibited by section 57(a)(4) of the Investment Company
Act and Rule 17d-1 thereunder. BDCs were created to provide capital to
smaller domestic operating companies that otherwise may not be able to
readily access the capital markets (we refer to such companies as
``portfolio companies''). The Commission recognizes that, in the
current environment, many BDCs may face challenges absent these
exemptions in providing capital to their affected portfolio companies,
and therefore, in fulfilling their statutory mandate. A BDC may face
such challenges if (i) it is unable to satisfy the asset coverage
requirements under the Investment Company Act due to temporary mark-
downs in the value of the loans to such portfolio companies, or (ii)
certain of its affiliates are prohibited from participating in
additional investments in the BDC's portfolio companies due to
restrictions in its current exemptive order permitting co-investments.
In recognition of the current facts and circumstances, and for the
reasons identified above, the Commission has determined that certain
BDCs may be unable to meet their statutory mandate. Therefore, the
temporary exemptions herein are necessary and appropriate in order for
BDCs to continue providing credit support to portfolio companies
impacted by COVID-19.
In light of the current and potential effects of COVID-19, the
Commission
[[Page 20740]]
finds that the exemptions set forth below, as applicable:
Are necessary and appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Investment Company Act;
Permit transactions under the terms of which the participation
of each registered investment company is consistent with the
provisions, policies, and purposes of the Investment Company Act,
and not on a basis different from or less advantageous than that of
other participants; and
Are necessary and appropriate to the exercise of the powers
conferred on it by the Investment Company Act.
The necessity for prompt action of the Commission does not permit
prior notice of the Commission's action.
I. Time Period for the Exemptive Relief
The relief provided in each of the following Sections of this Order
is limited to the period from (and including) the date of this Order to
the earlier of (i) December 31, 2020 (including such date), or (ii) the
date by which the BDC ceases to rely on this Order (the ``Exemption
Period'').
The Commission intends to continue to monitor the situation as it
develops. The time period for any or all of the relief may, if
necessary, be extended with any additional conditions that are deemed
appropriate, and the Commission may issue other relief as necessary or
appropriate.
II. Issuance and Sale of Senior Securities by BDCs
It is Ordered, pursuant to sections 6(c) and 38(a) of the
Investment Company Act that:
During the Exemption Period, notwithstanding the asset coverage
requirements of sections 18(a)(1)(A) and 18(a)(2)(A) of the Investment
Company Act, as modified for BDCs by sections 61(a)(1) and 61(a)(2),
and the requirement of section 18(b) of the Investment Company Act to
determine asset coverage on the basis of values calculated as of a time
within forty-eight hours (not including Sundays or holidays) next
preceding the time of such determination, a BDC may issue or sell a
senior security that represents an indebtedness or that is a stock
(together, the ``covered senior securities''), provided that:
(a) Adjusted Portfolio Value. At the time of any issuance or sale
of a covered senior security, the BDC shall calculate asset coverage
ratios in accordance with section 18(b) of the Investment Company Act,
except that, in reliance on this Order, with respect to portfolio
company holdings (i) that the BDC held at December 31, 2019; (ii) that
the BDC continues to hold at the time of such issuance or sale; and
(iii) for which the BDC is not recognizing a realized loss,\1\ the BDC
may use values calculated as of December 31, 2019, to calculate
portfolio value (the ``Adjusted Portfolio Value'') to meet an Adjusted
Asset Coverage Ratio.\2\ To calculate the Adjusted Asset Coverage
Ratio, a BDC must reduce its asset coverage ratio using the Adjusted
Portfolio Value by an amount equal to 25% of the difference between the
asset coverage ratio calculated using the Adjusted Portfolio Value and
the asset coverage ratio calculated in accordance with section 18(b) of
the Investment Company Act.\3\ For example a BDC has a 220% asset
coverage ratio on December 31, 2019.\4\ Its asset coverage ratio
declines to 160% on March 31, 2020, not using the Adjusted Portfolio
Value, and 200% if it calculated the ratio (without the 25% decrease)
using the Adjusted Portfolio Value. This BDC would have an Adjusted
Asset Coverage Ratio of 190% (200% minus 10% (25% of the difference
between 200% and 160%)).
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\1\ BDCs may not include a December 31, 2019, fair value
measurement in their Adjusted Asset Coverage Ratio if the portfolio
company holding is permanently impaired. For purposes of this Order,
a permanently impaired holding is a holding where a BDC recognized a
realized loss subsequent to December 31, 2019, and the loss is not
recoverable. For example, a BDC's portfolio company may have been
impacted by events occurring in 2020, such as a natural disaster,
the permanent loss of an operating license, or an enacted temporary
shelter-in-place policy, and such BDC may have determined that a
permanent valuation write down or a portion thereof was necessary as
the loss will not be recoverable.
\2\ As described, the adjustment permitted by this Order applies
only to portfolio company holdings that are not permanently
impaired, and that are held both at December 31, 2019, and at the
date of issuance of the covered senior security subject to this
Order. The adjustment does not apply to portfolio company holdings
acquired after December 31, 2019. For purposes of this Order, all
assets acquired and all senior securities issued after December 31,
2019, that are held or outstanding at the date of the calculation of
the Adjusted Asset Coverage Ratio shall be included in the
calculation without adjustment.
\3\ Further, the Adjusted Portfolio Value is solely for purposes
of calculating the BDC's asset coverage ratio. BDCs must adhere to
generally accepted accounting principles in the United States for
purposes of financial reporting, which requires application of fair
value measurement for portfolio holdings under the Financial
Accounting Standards Board Accounting Standards Codification Topic
820: Fair Value Measurements.
\4\ For BDCs, sections 61(a)(1) and 61(a)(2) of the Investment
Company Act modify the asset coverage requirements of section 18(a)
to be either 200 percent or 150 percent (provided certain conditions
have been met).
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(b) Election. Prior to relying on section II of this Order, a BDC
must make an election by filing on Form 8-K. Similarly, a BDC may
withdraw its election through filing on Form 8-K.
(c) Limitation on New Investments. A BDC that has elected to rely
on section II of this Order shall not, for 90 days from the date of
such election, make an initial investment in any portfolio company in
which the BDC was not already invested as of the date of this Order,
provided that a BDC may make an initial investment in such a portfolio
company if at the time of investment its asset coverage ratio complies
with the asset coverage ratio applicable to it under section 18 of the
Investment Company Act, as modified by section 61.
(d) Board Approval of Reliance on this Order. Prior to the BDC's
election to rely on section II of this Order, the BDC's board of
directors or trustees (``Board''), including a required majority of the
Board, as defined in section 57(o) of the Investment Company Act (a
``Required Majority''), shall have determined that the issuance or sale
of covered senior securities is permitted by this Order and is in the
best interests of the BDC and its shareholders.
(e) Board Approval of Each Issuance of Senior Securities. Prior to
a BDC issuing or selling covered senior securities, the Board,
including a Required Majority, shall determine that each such issuance
is in the best interests of the BDC and its shareholders. Prior to
making such determination, the Board must obtain and consider (i) a
certification from the BDC's investment adviser that the issuance of
covered senior securities is in the best interests of the BDC and its
shareholders; such certification shall include not only the investment
adviser's recommendation, but also the reasons therefore, including
whether the adviser has considered other reasonable alternatives that
would not result in the issuance or sale of a covered senior security;
and (ii) advice from an Independent Evaluator \5\ regarding whether the
terms and conditions of the proposed issuance or sale of a covered
senior security are fair and reasonable compared to similar issuances,
if any, by unaffiliated third parties in light of current market
conditions.
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\5\ The term ``Independent Evaluator'' shall mean a person who
has expertise in the valuation of securities and other financial
assets and who is not an interested person, as defined in section
2(a)(19) of the Investment Company Act, of the BDC, or any affiliate
thereof.
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(f) No Sunset Period. The Board of any BDC that has elected to rely
on section II of this Order shall receive and review, no less
frequently than monthly, reports prepared by the BDC's investment
adviser regarding and assessing the efforts that the investment adviser
has undertaken, and progress
[[Page 20741]]
that the BDC has made, towards achieving compliance with the asset
coverage requirements under section 18 of the Investment Company Act,
as modified by section 61, by the expiration of the Exemption Period.
Upon expiration of the Exemption Period, any BDC not in compliance with
the asset coverage requirements applicable to such BDC at that time as
described in sections 18(a)(1)(A) and 18(a)(2)(A), as modified by
sections 61(a)(1) and 61(a)(2), shall immediately make a filing on Form
8-K that includes the following information: (i) The BDC's current
asset coverage ratio; (ii) the reasons why the BDC was unable to comply
with the asset coverage requirements; (iii) the time frame within which
the BDC expects to come into compliance with the asset coverage
requirements; and (iv) the specific steps that the BDC will be
undertaking to bring itself into compliance with the asset coverage
requirements.\6\
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\6\ Sections 18 and 61 of the Investment Company Act generally
prohibit a BDC that is not in compliance with its asset coverage
requirements from paying a cash dividend or issuing additional
senior securities.
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(g) Recordkeeping. Each BDC shall make and preserve, for a period
of not less than six years, the first two years in an easily accessible
place, minutes describing (i) the Board's deliberations in connection
with paragraph (e) above, including the factors considered by the board
in connection with such determinations, as well as all information,
documents and reports provided to the Board in connection therewith;
and (ii) the reports made to the Board pursuant to paragraph (f) above,
including copies of all other information provided to or relied upon by
the Board.
(h) No Compensation or Remuneration of Any Kind. Except (i) to the
extent permitted by section 57(k) of the Investment Company Act; or
(ii) for payments or distributions made by an issuer to all holders of
a security in accordance with the security's terms, no affiliated
person of the BDC nor any affiliated person of such a person, shall
receive any transaction fees (including break-up, structuring,
monitoring or commitment fees) or other remuneration from an issuer in
which the BDC invests during the Exemption Period. For the avoidance of
doubt, this condition does not apply to the receipt of investment
advisory fees by an investment adviser to the BDC under an investment
management agreement entered into in accordance with section 15 of the
Investment Company Act.
(i) This Order provides relief only to issue or sell senior
securities representing an indebtedness or that is a stock. This Order
does not provide relief in connection with the declaration or payment
of any dividend or any other distribution.
III. Expansion of Relief for BDCs With Existing Co-Investment Orders
It is Ordered, pursuant to sections 17(d) and 57(i) of the
Investment Company Act and rule 17d-1 thereunder that:
During the Exemption Period, notwithstanding sections 17(d) and
57(a)(4) of the Investment Company Act and rule 17d-1 thereunder, any
BDC to which a Commission order permitting co-investment transactions
in portfolio companies with certain affiliated persons is currently
applicable (``existing co-investment order'') may:
Participate in a Follow-On Investment (which may include a Non-
Negotiated Follow-On Investment) with one or more Regulated Funds and/
or Affiliated Funds, provided that (i) if such participant is a
Regulated Fund, it has previously participated in a Co-Investment
Transaction with the BDC with respect to the issuer, and (ii) if such
participant is an Affiliated Fund, it either (X) has previously
participated in a Co-Investment Transaction with the BDC with respect
to the issuer, or (Y) is not invested in the issuer; \7\ provided that:
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\7\ The terms Follow-On Investment, Regulated Fund, Affiliated
Fund and Co-Investment Transaction shall have the same meanings
ascribed to them in the BDC's existing co-investment order, or, if
the BDC's existing co-investment order uses a substantially similar
term, the substantially similar term. For purposes of this Order,
the term Affiliated Fund does not include any open or closed-end
investment company registered under the Investment Company Act or a
BDC.
The term ``Non-Negotiated Follow-On Investment'' shall be given
the meaning ascribed to it in existing co-investment orders. For
purposes of this Order, a BDC may participate in a Non-Negotiated
Follow-On Investment in reliance on this Order whether or not such
term is used in its existing co-investment order.
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(a) Any such transaction is otherwise effected in accordance with
the terms and conditions of the existing co-investment order; and
(b) Board Oversight.
(1) Non-Negotiated Follow-On Investments. Non-Negotiated Follow-On
Investments do not require prior approval by the Board; however they
are subject to the periodic reporting requirements set forth in the
BDC's existing co-investment order.
(2) Follow-On Investments other than Non-Negotiated Follow-On
Investments. In connection with making the findings required by the
BDC's existing co-investment order with respect to Follow-On
Investments that are not Non-Negotiated Follow-On Investments, the
Board, and a Required Majority, shall review the proposed Follow-On
Investment both on a stand-alone basis and in relation to the total
economic exposure of the BDC to the issuer.\8\
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\8\ For purposes of complying with this condition of this Order,
the Board, and a Required Majority, need not make the findings
required with respect to Enhanced Review Follow-On Investments, as
such term is defined in existing co-investment orders.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07788 Filed 4-13-20; 8:45 am]
BILLING CODE 8011-01-P
