Great Elm Capital Corp., et al., 22217-22222 [2020-08350]
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Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices
proposed rule change (SR–CboeEDGA–
2019–013).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–08380 Filed 4–20–20; 8:45 am]
BILLING CODE 8011–01–P
the proposed rule change.9 On April 9,
2020, the Exchange withdrew the
proposed rule change (SR–CboeBZX–
2019–069).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–08383 Filed 4–20–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88646; File No. SR–
CboeBZX–2019–069]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of
Withdrawal of a Proposed Rule Change
To Introduce a Small Retail Broker
Distribution Program
April 15, 2020.
On August 1, 2019, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend the BZX fee schedule
to introduce a Small Retail Broker
Distribution Program. The proposed rule
change was immediately effective upon
filing with the Commission pursuant to
Section 19(b)(3)(A) of the Act.3 The
proposed rule change was published for
comment in the Federal Register on
August 20, 2019.4 The Commission
received no comment letters regarding
the proposed rule change. On
September 30, 2019, the Commission
issued an order temporarily suspending
the proposed rule change pursuant to
Section 19(b)(3)(C) of the Act 5 and
simultaneously instituting proceedings
under Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change
(‘‘OIP’’).7 The Commission received no
comment letters in response to the OIP.
On February 12, 2020, pursuant to
Section 19(b)(2) of the Act,8 the
Commission designated a longer period
within which to approve or disapprove
10 17
CFR 200.30–3(a)(57) and (58).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 See Securities Exchange Act Release No. 86667
(August 14, 2019), 84 FR 43233 (August 20, 2019).
5 15 U.S.C. 78s(b)(3)(C).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 87164
(September 30, 2019), 84 FR 53208 (October 4,
2019).
8 15 U.S.C. 78s(b)(2).
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[Investment Company Act Release No.
33839; File No. 812–15019]
Great Elm Capital Corp., et al.
April 15, 2020.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
under sections 17(d) and 57(i) of the
Investment Company Act of 1940 (the
‘‘Act’’) and rule 17d–1 under the Act to
permit certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
business development companies
(‘‘BDCs’’) and closed-end management
investment companies to co-invest in
portfolio companies with each other and
with affiliated investment funds.
APPLICANTS: Great Elm Capital Corp.
(‘‘GECC’’), Great Elm Capital
Management, Inc. (‘‘Great Elm
Adviser’’), each on behalf of itself and
its successors,1 and Great Elm
Opportunities Fund I, LP (‘‘Existing
Affiliated Fund’’).
FILING DATES: The application was filed
on April 11, 2019, and amended on
October 2, 2019 and January 16, 2020.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov and serving applicants
with a copy of the request by email.
Hearing requests should be received by
the Commission by 5:30 p.m. on May
9 See Securities Exchange Act Release No. 88180
(February 12, 2020), 85 FR 9504 (February 19,
2020).
10 17 CFR 200.30–3(a)(57) and (58).
1 For the purposes of the requested order, a
‘‘successor’’ includes an entity or entities that result
from a reorganization into another jurisdiction or a
change in the type of business organization.
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11, 2020 and should be accompanied by
proof of service on the applicants, in the
form of an affidavit, or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
emailing the Commission’s Secretary at
Secretarys-Office@sec.gov.
ADDRESSES: The
Commission: Secretarys-Office@sec.gov.
Applicants: Great Elm Capital Corp.
geccoperations@greatelmcap.com.
ADDRESSES:
Jill
Ehrlich, Senior Counsel, at (202) 551–
6819, or Andrea Ottomanelli Magovern,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
FOR FURTHER INFORMATION CONTACT:
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. GECC is a Maryland corporation
organized as a closed-end management
investment company that has elected to
be regulated as a BDC under section
54(a) of the Act.2 GECC’s Objectives and
Strategies 3 are to seek to generate both
current income and capital
appreciation, while seeking to protect
against risk of capital loss, by investing
predominantly in the debt securities of
middle market companies, which GECC
defines as companies with enterprise
values between $100.0 million and $2.0
billion. The business and affairs of
GECC are managed under the direction
of a Board,4 a majority of whose
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, 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’’ means, with respect to any
Regulated Fund, the board of directors of that
Regulated Fund.
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members are persons who are NonInterested Directors.5
2. The Existing Affiliated Fund was
formed as a Delaware limited
partnership and would be an investment
company but for section 3(c)(7) of the
Act. The Existing Affiliated Fund’s
investment objective is to seek total
returns by investing throughout the
capital structures of leveraged issuers.
From time to time, certain positions that
are suitable for the Existing Affiliated
Fund may also fit the investment
objectives of GECC.
3. Great Elm Adviser, a Delaware
corporation, is registered with the
Commission as an investment adviser
under the Investment Advisers Act of
1940 (‘‘Advisers Act’’). Great Elm
Adviser serves as the investment adviser
to GECC and the Existing Affiliated
Fund.
4. Applicants seek an order (‘‘Order’’)
to permit a Regulated Fund 6 and one or
more other Regulated Funds and/or one
or more Affiliated Funds 7 to (a) coinvest with each other in investment
opportunities in which an Adviser (as
defined below) negotiates terms in
addition to price and (b) make
additional investments in such issuers,
including through the exercise of
warrants, conversion privileges, and
other rights to purchase securities of the
issuers (‘‘Follow-On Investments’’)
through a proposed co-investment
program (the ‘‘Co-Investment Program’’)
where such participation would
otherwise be prohibited under section
17(d) or section 57(a)(4) and the rules
under the Act. ‘‘Co-Investment
Transaction’’ means any transaction in
which a Regulated Fund (or its
5 The term ‘‘Non-Interested Directors’’ means,
with respect to any Board, the directors who are not
‘‘interested persons’’ within the meaning of section
2(a)(19) of the Act.
6 ‘‘Regulated Fund’’ refers to GECC and any
Future Regulated Fund. ‘‘Future Regulated Fund’’
means any closed-end management investment
company (a) that is registered under the Act or has
elected to be regulated as a BDC under the Act, (b)
whose investment adviser is an Adviser, and (c)
that intends to participate in the Co-Investment
Program. The term ‘‘Adviser’’ means (a) Great Elm
Adviser and (b) any future investment adviser that
(i) controls, is controlled by or is under common
control with Great Elm Adviser, (ii) (A) is registered
as an investment adviser under the Advisers Act or
(B) is a relying adviser of an investment adviser that
is registered under the Advisers Act and that
controls, is controlled by, or is under common
control with, Great Elm Adviser, and (iii) is not a
Regulated Fund or a subsidiary of a Regulated
Fund.
7 An ‘‘Affiliated Fund’’ means (a) the Existing
Affiliated Fund and (b) 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), 3(c)(5)(C) or 3(c)(7) of the Act, and (c) that
intends to participate in the Co-Investment
Program.
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‘‘Wholly-Owned Investment Sub,’’ as
defined below) participates 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
other Regulated Funds and/or one or
more Affiliated Funds without obtaining
and relying on the Order.8
5. Applicants state that any of the
Regulated Funds may, from time to
time, form one or more Wholly-Owned
Investment Subs.9 Such a subsidiary
would be prohibited from investing in a
Co-Investment Transaction with any
other Regulated Fund or Affiliated 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 CoInvestment 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 Order, as
though the parent Regulated Fund were
participating directly. Applicants
represent that this treatment is justified
because a Wholly-Owned Investment
Sub would have no purpose other than
serving as a holding vehicle for the
Regulated 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 Wholly8 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) whose sole business purpose is
to hold one or more investments on behalf of a
Regulated Fund (and, in the case of an SBIC
Subsidiary (as defined below), maintain a license
under the Small Business Investment Act of 1958,
as amended (the ‘‘SBA Act’’) and issue debentures
guaranteed by the Small Business Administration
(the ‘‘SBA’’); (b) that is wholly-owned by the
Regulated Fund (with the Regulated Fund at all
times holding, beneficially and of record, 100% of
the voting and economic interests); (c) with respect
to which the Regulated Fund’s Board has the sole
authority to make all determinations with respect
to the entity’s participation under the conditions of
the application; and (d) that would be an
investment company but for section 3(c)(1) or
3(c)(7) of the Act. All subsidiaries of the Regulated
Fund participating in the Co-Investment
Transactions will be Wholly-Owned Investment
Subs. The term ‘‘SBIC Subsidiary’’ means a WhollyOwned Investment Sub that is licensed by the SBA
to operate under the SBA Act as a small business
investment company (an ‘‘SBIC’’).
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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.
6. Great Elm Adviser expects that any
portfolio company that is an appropriate
investment for a Regulated Fund should
also be an appropriate investment for
one or more other Regulated Funds and/
or one or more Affiliated Funds, with
certain exceptions based on available
capital or diversification.10 When
considering Potential Co-Investment
Transactions for any Regulated Fund,
the applicable Adviser will consider
only the Objectives and Strategies,
Board-Established Criteria,11 investment
policies, investment positions, capital
available for investment, and other
pertinent factors applicable to that
Regulated Fund. Applicants believe that
the use of Board-Established Criteria for
each of the Regulated Funds is
appropriate based on the potential size
and scope of Great Elm Adviser’s
advisory business. Applicants argue that
in addition to the other protections
offered by the conditions, using BoardEstablished Criteria in the allocation of
Potential Co-Investment Transactions
10 The Regulated Funds, however, will not be
obligated to invest, or co-invest, when investment
opportunities are referred to them.
11 The term ‘‘Board-Established Criteria’’ means
criteria that the Board of the applicable Regulated
Fund may establish from time to time to describe
the characteristics of Potential Co-Investment
Transactions which would be within the Regulated
Fund’s then-current Objectives and Strategies that
the applicable Adviser should consider as
appropriate for the Regulated Fund. If no BoardEstablished Criteria are in effect for a Regulated
Fund, then such Adviser will consider all Potential
Co-Investment Transactions that fall within the
then-current Objectives and Strategies for that
Regulated Fund. Board-Established Criteria will be
objective and testable, meaning that they will be
based on observable information, such as industry/
sector of the issuer, minimum EBITDA of the issuer,
asset class of the investment opportunity or
required commitment size, and not on
characteristics that involve discretionary
assessment. The Adviser to a Regulated Fund may
from time to time recommend criteria for the
applicable Board’s consideration, but BoardEstablished Criteria will only become effective if
approved by a majority of the Non-Interested
Directors. The Non-Interested Directors of a
Regulated Fund may at any time rescind, suspend
or qualify its approval of any Board-Established
Criteria, though applicants anticipate that, under
normal circumstances, the Board would not modify
these criteria more often than quarterly.
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will further reduce the risk of
subjectivity in the Adviser’s
determination of whether an investment
opportunity is appropriate for a
Regulated Fund. In connection with the
Board’s annual review of the continued
appropriateness of any BoardEstablished Criteria under condition 9,
the Regulated Fund’s Adviser will
provide information regarding any CoInvestment Transaction (including, but
not limited to, Follow-On Investments)
effected by the Regulated Fund that did
not fit within the then-current BoardEstablished Criteria.
7. Other than pro rata dispositions
and Follow-On Investments as provided
in conditions 7 and 8, and after making
the determinations required in
conditions 1 and 2(a), for each
Regulated Fund, the applicable Adviser
will present each Potential CoInvestment Transaction and the
proposed allocation to the directors of
the Board eligible to vote under section
57(o) of the Act (‘‘Eligible Directors’’),
and the ‘‘required majority,’’ as defined
in section 57(o) of the Act (‘‘Required
Majority’’) 12 will approve each CoInvestment Transaction prior to any
investment by the participating
Regulated Fund.
8. 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 each Affiliated Fund in such
disposition is proportionate to its
outstanding investments in the issuer
immediately preceding the disposition
or Follow-On Investment, as the case
may be; and (ii) the Board of the
Regulated 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.
12 In the case of a Regulated Fund that is a
registered 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. No Non-Interested Director of a
Regulated Fund will have a direct or
indirect financial interest in any CoInvestment Transaction (other than
indirectly through share ownership in
one of the Regulated Funds), including
any interest in any company whose
securities would be acquired in a CoInvestment Transaction.
10. Applicants also represent that if
the Advisers, the principal owners of
any of the Advisers (the ‘‘Principals’’),
or any person controlling, controlled by,
or under common control with the
Advisers or the Principals, and the
Affiliated Funds (collectively, the
‘‘Holders’’) own in the aggregate more
than 25% of the outstanding voting
shares of a Regulated Fund (the
‘‘Shares’’), then the Holders will vote
such Shares as required under condition
14. Applicants believe this condition
will ensure that the Non-Interested
Directors will act independently in
evaluating the Co-Investment Program,
because the ability of the Advisers or
the Principals to influence the NonInterested Directors by a suggestion,
explicit or implied, that the NonInterested Directors can be removed will
be limited significantly. Applicants
represent that the Non-Interested
Directors will evaluate and approve any
such independent third party, taking
into account its qualifications,
reputation for independence, cost to the
shareholders, and other factors that they
deem relevant.
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
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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 many
circumstances, limited in their ability to
participate in attractive and appropriate
investment opportunities. Applicants
believe that the proposed terms and
conditions will ensure that the 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. (a) Each Adviser will establish,
maintain and implement policies and
procedures reasonably designed to
ensure that it identifies for each
Regulated Fund all Potential CoInvestment Transactions that (i) the
Adviser considers for any other
Regulated Fund or Affiliated Fund and
(ii) fall within the Regulated Fund’s
then-current Objectives and Strategies
and Board-Established Criteria.
(b) When an Adviser identifies a
Potential Co-Investment Transaction for
a Regulated Fund under condition 1(a),
the Adviser will make an independent
determination of the appropriateness of
the investment for the Regulated Fund
in light of the Regulated Fund’s thencurrent circumstances.
2. (a) If an Adviser deems a Regulated
Fund’s participation in any Potential
Co-Investment Transaction to be
appropriate for the Regulated Fund, the
Adviser will then determine an
appropriate level of investment for the
Regulated Fund.
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(b) If the aggregate amount
recommended by an 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 capital available for
investment in the asset class being
allocated, up to the amount proposed to
be invested by each. Each Adviser will
provide the Eligible 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 applicable Regulated
Fund’s investments for compliance with
these allocation procedures.
(c) After making the determinations
required in conditions 1(b) and 2(a), the
applicable Adviser will distribute
written information concerning the
Potential Co-Investment Transaction
(including the amount proposed to be
invested by each participating Regulated
Fund and each participating Affiliated
Fund) to the Eligible Directors of its
participating Regulated Fund(s) for their
consideration. A Regulated Fund will
enter into a Co-Investment Transaction
with one or more other Regulated Funds
or 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 CoInvestment Transaction, including the
consideration to be paid, are reasonable
and fair to the Regulated Fund and its
equity holders and do not involve
overreaching in respect of the Regulated
Fund or its equity holders on the part
of any person concerned;
(ii) the Potential Co-Investment
Transaction is consistent with:
(A) The interests of the Regulated
Fund’s equity holders; and
(B) the Regulated Fund’s then-current
Objectives and Strategies;
(iii) the investment by any other
Regulated Fund(s) or any Affiliated
Fund(s) would not disadvantage the
Regulated Fund, and participation by
the Regulated Fund would not be on a
basis different from or less advantageous
than that of any other Regulated Funds
or any Affiliated Funds; provided that,
if any other Regulated Fund or any
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
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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; and
(B) the Adviser agrees to, and does,
provide periodic reports to the Board of
the Regulated Fund with respect to the
actions of such director or the
information received by such board
observer or obtained through the
exercise of any similar right to
participate in the governance or
management of the portfolio company;
and
(C) any fees or other compensation
that any Regulated Fund or any
Affiliated Fund or any affiliated person
of any Regulated Fund or any Affiliated
Fund receives in connection with the
right of a Regulated Fund or an
Affiliated Fund to nominate a director
or appoint a board observer or otherwise
to participate in the governance or
management of the portfolio company
will be shared proportionately among
the participating Affiliated Funds (who
may each, in turn, share its portion with
its affiliated persons) and the
participating Regulated Funds in
accordance with the amount of each
party’s investment; and
(iv) the proposed investment by the
Regulated Fund will not benefit any
Adviser, the other Regulated Funds, the
Affiliated Funds, or any affiliated
person of any of them (other than the
parties to the Co-Investment
Transaction), except (A) to the extent
permitted by condition 13, (B) to the
extent permitted by sections 17(e) or
57(k) of the Act, as applicable, (C)
indirectly, as a result of an interest in
the securities issued by one of the
parties to the Co-Investment
Transaction, or (D) in the case of fees or
other compensation described in
condition 2(c)(iii)(C).
3. Each Regulated 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 other
Regulated Fund or Affiliated Fund
during the preceding quarter that fell
within the Regulated Fund’s thencurrent Objectives and Strategies and
Board-Established Criteria that were not
made available to the Regulated Fund,
and an explanation of why the
investment opportunities were not
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Fmt 4703
Sfmt 4703
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 8,13
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. The
applicable Adviser will maintain books
and records that demonstrate
compliance with this condition for such
Regulated Fund.
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
another Regulated Fund or an Affiliated
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 Regulated Fund or
Affiliated 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 Regulated Funds and
Affiliated Funds.
(c) A Regulated Fund may participate
in such disposition without obtaining
prior approval of the Required Majority
if: (i) The proposed participation of each
Regulated Fund and each Affiliated
13 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. 85, No. 77 / Tuesday, April 21, 2020 / Notices
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 such Regulated
Fund’s participation to such Regulated
Fund’s Eligible Directors, and such
Regulated Fund will participate in such
disposition solely to the extent that a
Required Majority determines that it is
in such Regulated Fund’s best interests.
(d) Each Regulated Fund and each
Affiliated Fund will bear its own
expenses in connection with any such
disposition.
8. (a) If a Regulated Fund or an
Affiliated Fund desires to make a
Follow-On Investment in a portfolio
company whose securities were
acquired in a Co-Investment
Transaction, the applicable Advisers
will:
(i) Notify each Regulated 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 a Follow-On
Investment is not based on the
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21:19 Apr 20, 2020
Jkt 250001
Regulated Funds’ and the Affiliated
Funds’ outstanding investments
immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount
recommended by the applicable
Advisers to be invested by each
Regulated Fund in the Follow-On
Investment, together with the amount
proposed to be invested by the
participating Affiliated Funds in the
same transaction, exceeds the amount of
the opportunity; then the amount
invested by each such party will be
allocated among them pro rata based on
each party’s capital available for
investment in the asset class being
allocated, up to the amount proposed to
be invested by each.
(d) The acquisition of Follow-On
Investments as permitted by this
condition will be considered a CoInvestment Transaction for all purposes
and subject to the other conditions set
forth in the application.
9. The Non-Interested Directors of
each Regulated Fund will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions that fell within the
Regulated Fund’s then-current
Objectives and Strategies and BoardEstablished Criteria, including
investments in Potential Co-Investment
Transactions made by other Regulated
Funds and Affiliated Funds, that the
Regulated Fund considered but declined
to participate in, and concerning CoInvestment Transactions in which the
Regulated Fund participated, so that the
Non-Interested Directors may determine
whether all Potential Co-Investment
Transactions and Co-Investment
Transactions during the preceding
quarter, including those Potential CoInvestment Transactions which 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 (a) the continued
appropriateness for the Regulated Fund
of participating in new and existing CoInvestment Transactions and (b) the
continued appropriateness of any
Board-Established Criteria.
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).
11. No Non-Interested Director of a
Regulated Fund will also be a director,
general partner, managing member or
principal, or otherwise be an ‘‘affiliated
person’’ (as defined in the Act), of any
Affiliated Fund.
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Fmt 4703
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22221
12. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the Securities
Act) will, to the extent not payable by
the Advisers under their respective
investment advisory agreements with
the Regulated Funds and the Affiliated
Funds, be shared by the Affiliated
Funds and the Regulated 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 14 (including
break-up or commitment fees but
excluding brokerage or underwriting
compensation permitted by section
17(e) or 57(k) of the Act, as applicable)
received in connection with a CoInvestment 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 the Adviser at a bank or
banks having the qualifications
prescribed in section 26(a)(1) of the Act,
and the account will earn a competitive
rate of interest that will also be divided
pro rata among the participating
Regulated Funds and Affiliated Funds
based on the amounts they invest in
such Co-Investment Transaction. None
of the Advisers, the Affiliated Funds,
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 Affiliated
Funds, the pro rata transaction fees
described above and fees or other
compensation described in condition
2(c)(iii)(C), (b) brokerage or
underwriting compensation permitted
by section 17(e) or 57(k) of the Act or
(c) in the case of an Adviser, investment
advisory fees paid in accordance with
the investment advisory agreement
between the Adviser and the Regulated
Fund or Affiliated Fund).
14. If the Holders own in the aggregate
more than 25 percent of the Shares of
a Regulated Fund, then the Holders will
14 Applicants are not requesting and the staff of
the Commission is not providing any relief for
transaction fees received in connection with any
Co-Investment Transaction.
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Federal Register / Vol. 85, No. 77 / Tuesday, April 21, 2020 / Notices
vote such Shares as directed by an
independent third party when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
all other matters under either the Act or
applicable State law affecting the
Board’s composition, size or manner of
election.
15. Each Regulated Fund’s chief
compliance officer, as defined in rule
38a–1(a)(4), will prepare an annual
report for its Board each year that
evaluates (and documents the basis of
that evaluation) the Regulated 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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–08350 Filed 4–20–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88637; File No. SR–NSCC–
2020–008]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of
Proposed Rule Change To Modify the
Clearing Agency Model Risk
Management Framework
April 15, 2020.
lotter on DSKBCFDHB2PROD with NOTICES
Pursuant to 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 April 10,
2020, National Securities Clearing
Corporation (‘‘NSCC’’) 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 clearing agency. The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
(a) The proposed rule change of NSCC
would amend the Clearing Agency
Model Risk Management Framework
(‘‘Framework’’) of NSCC and its
affiliates The Depository Trust Company
(‘‘DTC’’) and Fixed Income Clearing
Corporation (‘‘FICC,’’ and FICC together
with NSCC, the ‘‘CCPs,’’ and the CCPs
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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21:19 Apr 20, 2020
Jkt 250001
together with DTC, the ‘‘Clearing
Agencies’’).3 Specifically, the proposed
rule change would amend the
Framework to (i) change the governance
structure for approval of a model 4
validation (‘‘Model Validation’’), (ii)
incorporate a model risk tolerance
statement (‘‘Model Risk Tolerance
Statement’’) and related provisions, (iii)
clarify the definition of Model Owner
(as defined below), (iv) reflect changes
in the role of the Model Risk
Governance Committee and a change of
its name, (v) redefine the first and
second line responsibilities and
incentives relating to model
performance monitoring and oversight
and (vi) make other technical and
clarifying changes to the text, as more
fully described below.
Although the Clearing Agencies
consider the Framework to be a rule, the
proposed rule change does not require
any changes to the Rules, By-Laws and
Organization Certificate of DTC (‘‘DTC
Rules’’), the Rulebook of the
Government Securities Division
(‘‘GSD’’) of Fixed Income Clearing
Corporation (such Rulebook hereinafter
referred to as ‘‘GSD Rules’’), the
Clearing Rules of the Mortgage-Backed
Securities Division (‘‘MBSD’’) of Fixed
Income Clearing Corporation (‘‘such
Clearing Rules hereinafter referred to as
‘‘MBSD Rules’’), or the Rules &
3 The Framework sets forth the model risk
management practices adopted by the Clearing
Agencies, which have been designed to assist the
Clearing Agencies in identifying, measuring,
monitoring, and managing the risks associated with
the design, development, implementation, use, and
validation of quantitative models. See Securities
Exchange Act Release No. 81485 (August 25, 2017),
82 FR 41433 (August 31, 2017) (File Nos. SR–DTC–
2017–008; SR–FICC–2017–014; SR–NSCC–2017–
008) (‘‘2017 Notice’’). The Framework is managed
by the Clearing Agencies’ risk management areas
generally responsible for model validation and
control matters, DTCC Model Validation and
Control (‘‘MVC’’), on behalf of each Clearing
Agency, with review and oversight by senior
management and the Risk Committee of the Board
of Directors of each of DTC, FICC, and NSCC
(collectively, ‘‘Boards’’). See Id.
4 The Clearing Agencies have adopted the
following definition for the term ‘‘model’’:
‘‘[M]odel’’ refers to a quantitative method, system,
or approach that applies statistical, economic,
financial, or mathematical theories, techniques, and
assumptions to process input data into quantitative
estimates. A ‘‘model’’ consists of three components:
An information input component, which delivers
assumptions and data to the model; a processing
component, which transforms inputs into estimates;
and a reporting component, which translates the
estimates into useful business information. The
definition of ‘‘model’’ also covers quantitative
approaches whose inputs are partially or wholly
qualitative or based on expert judgment, provided
that the output is quantitative in nature. See
Supervisory Guidance on Model Risk Management,
SR Letter 11–7, dated April 4, 2011, issued by the
Board of Governors of the Federal Reserve System
and the Office of the Comptroller of the Currency,
at 3.
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Frm 00100
Fmt 4703
Sfmt 4703
Procedures of NSCC (‘‘NSCC Rules’’), as
the Framework would be a standalone
document.5
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
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
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The proposed rule change would
amend the Framework to (i) change the
governance structure for approval of a
Model Validation, (ii) incorporate the
Model Risk Tolerance Statement with
respect to related forward-looking
provisions associated with maintaining
multiple model risk-related tolerance
statements, (iii) clarify the definition of
Model Owner, (iv) reflect changes in the
role of the Model Risk Governance
Committee and a change of its name, (v)
redefine the first and second line
responsibilities and incentives relating
to model performance monitoring and
oversight and (vi) make other technical
and clarifying changes to the text, as
more fully described below.
Although the Clearing Agencies
consider the Framework to be a rule, the
proposed rule change does not require
any changes to the DTC Rules, GSD
Rules, MBSD Rules, or NSCC Rules, as
the Framework would be a standalone
document.
Background
The Framework is maintained by the
Clearing Agencies for compliance with
Rule 17Ad–22 (e)(4)(i), (e)(4)(vii),
(e)(6)(iii), (e)(6)(vi), (e)(6)(vii), and
(e)(7)(vii) under the Act,6 and sets forth
the model risk management practices
5 Capitalized terms not defined herein are defined
in the DTC Rules, NSCC Rules, GSD Rules or MBSD
Rules, as applicable, available at https://dtcc.com/
legal/rules-and-procedures.
6 17 CFR 240.17Ad–22 (e)(4)(i), (e)(4)(vii),
(e)(6)(iii), (e)(6)(vi), (e)(6)(vii), and (e)(7)(vii). Each
of DTC, NSCC and FICC is a ‘‘covered clearing
agency’’ as defined in Rule 17Ad–22(a)(5) and must
comply with subsection (e) of Rule 17Ad–22.
References to Rule 17Ad–22(e)(6) and its
subparagraphs cited herein, and compliance
therewith, apply to the CCPs only and do not apply
to DTC.
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]]>Agencies
[Federal Register Volume 85, Number 77 (Tuesday, April 21, 2020)]
[Notices]
[Pages 22217-22222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08350]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33839; File No. 812-15019]
Great Elm Capital Corp., et al.
April 15, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an order under sections 17(d) and 57(i)
of the Investment Company Act of 1940 (the ``Act'') and rule 17d-1
under the Act to permit certain joint transactions otherwise prohibited
by sections 17(d) and 57(a)(4) of the Act and rule 17d-1 under the Act.
Summary of Application: Applicants request an order to permit certain
business development companies (``BDCs'') and closed-end management
investment companies to co-invest in portfolio companies with each
other and with affiliated investment funds.
Applicants: Great Elm Capital Corp. (``GECC''), Great Elm Capital
Management, Inc. (``Great Elm Adviser''), each on behalf of itself and
its successors,\1\ and Great Elm Opportunities Fund I, LP (``Existing
Affiliated Fund'').
---------------------------------------------------------------------------
\1\ For the purposes of the requested order, a ``successor''
includes an entity or entities that result from a reorganization
into another jurisdiction or a change in the type of business
organization.
Filing Dates: The application was filed on April 11, 2019, and amended
---------------------------------------------------------------------------
on October 2, 2019 and January 16, 2020.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request by email. Hearing requests should be received by
the Commission by 5:30 p.m. on May 11, 2020 and should be accompanied
by proof of service on the applicants, in the form of an affidavit, or,
for lawyers, a certificate of service. Pursuant to rule 0-5 under the
Act, hearing requests should state the nature of the writer's interest,
any facts bearing upon the desirability of a hearing on the matter, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by emailing the
Commission's Secretary at [email protected].
ADDRESSES: ADDRESSES: The Commission: [email protected].
Applicants: Great Elm Capital Corp. [email protected].
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at
(202) 551-6819, or Andrea Ottomanelli Magovern, 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 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. GECC is a Maryland corporation organized as a closed-end
management investment company that has elected to be regulated as a BDC
under section 54(a) of the Act.\2\ GECC's Objectives and Strategies \3\
are to seek to generate both current income and capital appreciation,
while seeking to protect against risk of capital loss, by investing
predominantly in the debt securities of middle market companies, which
GECC defines as companies with enterprise values between $100.0 million
and $2.0 billion. The business and affairs of GECC are managed under
the direction of a Board,\4\ a majority of whose
[[Page 22218]]
members are persons who are Non-Interested Directors.\5\
---------------------------------------------------------------------------
\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, 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'' means, with respect to any Regulated
Fund, the board of directors of that Regulated Fund.
\5\ The term ``Non-Interested Directors'' means, with respect to
any Board, the directors who are not ``interested persons'' within
the meaning of section 2(a)(19) of the Act.
---------------------------------------------------------------------------
2. The Existing Affiliated Fund was formed as a Delaware limited
partnership and would be an investment company but for section 3(c)(7)
of the Act. The Existing Affiliated Fund's investment objective is to
seek total returns by investing throughout the capital structures of
leveraged issuers. From time to time, certain positions that are
suitable for the Existing Affiliated Fund may also fit the investment
objectives of GECC.
3. Great Elm Adviser, a Delaware corporation, is registered with
the Commission as an investment adviser under the Investment Advisers
Act of 1940 (``Advisers Act''). Great Elm Adviser serves as the
investment adviser to GECC and the Existing Affiliated Fund.
4. Applicants seek an order (``Order'') to permit a Regulated Fund
\6\ and one or more other Regulated Funds and/or one or more Affiliated
Funds \7\ to (a) co-invest with each other in investment opportunities
in which an Adviser (as defined below) negotiates terms in addition to
price and (b) make additional investments in such issuers, including
through the exercise of warrants, conversion privileges, and other
rights to purchase securities of the issuers (``Follow-On
Investments'') through a proposed co-investment program (the ``Co-
Investment Program'') where such participation would otherwise be
prohibited under section 17(d) or section 57(a)(4) and the rules under
the Act. ``Co-Investment Transaction'' means any transaction in which a
Regulated Fund (or its ``Wholly-Owned Investment Sub,'' as defined
below) participates 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 other Regulated
Funds and/or one or more Affiliated Funds without obtaining and relying
on the Order.\8\
---------------------------------------------------------------------------
\6\ ``Regulated Fund'' refers to GECC and any Future Regulated
Fund. ``Future Regulated Fund'' means any closed-end management
investment company (a) that is registered under the Act or has
elected to be regulated as a BDC under the Act, (b) whose investment
adviser is an Adviser, and (c) that intends to participate in the
Co-Investment Program. The term ``Adviser'' means (a) Great Elm
Adviser and (b) any future investment adviser that (i) controls, is
controlled by or is under common control with Great Elm Adviser,
(ii) (A) is registered as an investment adviser under the Advisers
Act or (B) is a relying adviser of an investment adviser that is
registered under the Advisers Act and that controls, is controlled
by, or is under common control with, Great Elm Adviser, and (iii) is
not a Regulated Fund or a subsidiary of a Regulated Fund.
\7\ An ``Affiliated Fund'' means (a) the Existing Affiliated
Fund and (b) 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),
3(c)(5)(C) or 3(c)(7) of the Act, and (c) that intends to
participate in the Co-Investment Program.
\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.
---------------------------------------------------------------------------
5. Applicants state that any of the Regulated Funds may, from time
to time, form one or more Wholly-Owned Investment Subs.\9\ Such a
subsidiary would be prohibited from investing in a Co-Investment
Transaction with any other Regulated Fund or Affiliated 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 Order, as though the parent Regulated
Fund were participating directly. Applicants represent that this
treatment is justified because a Wholly-Owned Investment Sub would have
no purpose other than serving as a holding vehicle for the Regulated
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)
whose sole business purpose is to hold one or more investments on
behalf of a Regulated Fund (and, in the case of an SBIC Subsidiary
(as defined below), maintain a license under the Small Business
Investment Act of 1958, as amended (the ``SBA Act'') and issue
debentures guaranteed by the Small Business Administration (the
``SBA''); (b) that is wholly-owned by the Regulated Fund (with the
Regulated Fund at all times holding, beneficially and of record,
100% of the voting and economic interests); (c) with respect to
which the Regulated Fund's Board has the sole authority to make all
determinations with respect to the entity's participation under the
conditions of the application; and (d) that would be an investment
company but for section 3(c)(1) or 3(c)(7) of the Act. All
subsidiaries of the Regulated Fund participating in the Co-
Investment Transactions will be Wholly-Owned Investment Subs. The
term ``SBIC Subsidiary'' means a Wholly-Owned Investment Sub that is
licensed by the SBA to operate under the SBA Act as a small business
investment company (an ``SBIC'').
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6. Great Elm Adviser expects that any portfolio company that is an
appropriate investment for a Regulated Fund should also be an
appropriate investment for one or more other Regulated Funds and/or one
or more Affiliated Funds, with certain exceptions based on available
capital or diversification.\10\ When considering Potential Co-
Investment Transactions for any Regulated Fund, the applicable Adviser
will consider only the Objectives and Strategies, Board-Established
Criteria,\11\ investment policies, investment positions, capital
available for investment, and other pertinent factors applicable to
that Regulated Fund. Applicants believe that the use of Board-
Established Criteria for each of the Regulated Funds is appropriate
based on the potential size and scope of Great Elm Adviser's advisory
business. Applicants argue that in addition to the other protections
offered by the conditions, using Board-Established Criteria in the
allocation of Potential Co-Investment Transactions
[[Page 22219]]
will further reduce the risk of subjectivity in the Adviser's
determination of whether an investment opportunity is appropriate for a
Regulated Fund. In connection with the Board's annual review of the
continued appropriateness of any Board-Established Criteria under
condition 9, the Regulated Fund's Adviser will provide information
regarding any Co-Investment Transaction (including, but not limited to,
Follow-On Investments) effected by the Regulated Fund that did not fit
within the then-current Board-Established Criteria.
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\10\ The Regulated Funds, however, will not be obligated to
invest, or co-invest, when investment opportunities are referred to
them.
\11\ The term ``Board-Established Criteria'' means criteria that
the Board of the applicable Regulated Fund may establish from time
to time to describe the characteristics of Potential Co-Investment
Transactions which would be within the Regulated Fund's then-current
Objectives and Strategies that the applicable Adviser should
consider as appropriate for the Regulated Fund. If no Board-
Established Criteria are in effect for a Regulated Fund, then such
Adviser will consider all Potential Co-Investment Transactions that
fall within the then-current Objectives and Strategies for that
Regulated Fund. Board-Established Criteria will be objective and
testable, meaning that they will be based on observable information,
such as industry/sector of the issuer, minimum EBITDA of the issuer,
asset class of the investment opportunity or required commitment
size, and not on characteristics that involve discretionary
assessment. The Adviser to a Regulated Fund may from time to time
recommend criteria for the applicable Board's consideration, but
Board-Established Criteria will only become effective if approved by
a majority of the Non-Interested Directors. The Non-Interested
Directors of a Regulated Fund may at any time rescind, suspend or
qualify its approval of any Board-Established Criteria, though
applicants anticipate that, under normal circumstances, the Board
would not modify these criteria more often than quarterly.
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7. Other than pro rata dispositions and Follow-On Investments as
provided in conditions 7 and 8, and after making the determinations
required in conditions 1 and 2(a), for each Regulated Fund, the
applicable 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'') \12\ will approve each Co-
Investment Transaction prior to any investment by the participating
Regulated Fund.
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\12\ In the case of a Regulated Fund that is a registered 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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8. 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 each
Affiliated Fund in such disposition is proportionate to its outstanding
investments in the issuer immediately preceding the disposition or
Follow-On Investment, as the case may be; and (ii) the Board of the
Regulated 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.
9. No Non-Interested Director of a Regulated Fund will have a
direct or indirect financial interest in any Co-Investment Transaction
(other than indirectly through share ownership in one of the Regulated
Funds), including any interest in any company whose securities would be
acquired in a Co-Investment Transaction.
10. Applicants also represent that if the Advisers, the principal
owners of any of the Advisers (the ``Principals''), or any person
controlling, controlled by, or under common control with the Advisers
or the Principals, and the Affiliated Funds (collectively, the
``Holders'') own in the aggregate more than 25% of the outstanding
voting shares of a Regulated Fund (the ``Shares''), then the Holders
will vote such Shares as required under condition 14. Applicants
believe this condition will ensure that the Non-Interested Directors
will act independently in evaluating the Co-Investment Program, because
the ability of the Advisers or the Principals to influence the Non-
Interested Directors by a suggestion, explicit or implied, that the
Non-Interested Directors can be removed will be limited significantly.
Applicants represent that the Non-Interested Directors will evaluate
and approve any such independent third party, taking into account its
qualifications, reputation for independence, cost to the shareholders,
and other factors that they deem relevant.
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 many circumstances, limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants believe that the proposed terms and
conditions will ensure that the Co-Investment Transactions are
consistent with the protection of each Regulated 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. (a) Each Adviser will establish, maintain and implement policies
and procedures reasonably designed to ensure that it identifies for
each Regulated Fund all Potential Co-Investment Transactions that (i)
the Adviser considers for any other Regulated Fund or Affiliated Fund
and (ii) fall within the Regulated Fund's then-current Objectives and
Strategies and Board-Established Criteria.
(b) When an Adviser identifies a Potential Co-Investment
Transaction for a Regulated Fund under condition 1(a), the Adviser will
make an independent determination of the appropriateness of the
investment for the Regulated Fund in light of the Regulated Fund's
then-current circumstances.
2. (a) If an Adviser deems a Regulated Fund's participation in any
Potential Co-Investment Transaction to be appropriate for the Regulated
Fund, the Adviser will then determine an appropriate level of
investment for the Regulated Fund.
[[Page 22220]]
(b) If the aggregate amount recommended by an 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 capital available for
investment in the asset class being allocated, up to the amount
proposed to be invested by each. Each Adviser will provide the Eligible
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 applicable Regulated Fund's
investments for compliance with these allocation procedures.
(c) After making the determinations required in conditions 1(b) and
2(a), the applicable Adviser will distribute written information
concerning the Potential Co-Investment Transaction (including the
amount proposed to be invested by each participating Regulated Fund and
each participating Affiliated Fund) to the Eligible Directors of its
participating Regulated Fund(s) for their consideration. A Regulated
Fund will enter into a Co-Investment Transaction with one or more other
Regulated Funds or 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 equity holders and do not involve overreaching in respect
of the Regulated Fund or its equity holders on the part of any person
concerned;
(ii) the Potential Co-Investment Transaction is consistent with:
(A) The interests of the Regulated Fund's equity holders; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Fund(s) or any
Affiliated Fund(s) would not disadvantage the Regulated Fund, and
participation by the Regulated Fund would not be on a basis different
from or less advantageous than that of any other Regulated Funds or any
Affiliated Funds; provided that, if any other Regulated Fund or any
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; and
(B) the Adviser agrees to, and does, provide periodic reports to
the Board of the Regulated Fund with respect to the actions of such
director or the information received by such board observer or obtained
through the exercise of any similar right to participate in the
governance or management of the portfolio company; and
(C) any fees or other compensation that any Regulated Fund or any
Affiliated Fund or any affiliated person of any Regulated Fund or any
Affiliated Fund receives in connection with the right of a Regulated
Fund or an Affiliated Fund to nominate a director or appoint a board
observer or otherwise to participate in the governance or management of
the portfolio company will be shared proportionately among the
participating Affiliated Funds (who may each, in turn, share its
portion with its affiliated persons) and the participating Regulated
Funds in accordance with the amount of each party's investment; and
(iv) the proposed investment by the Regulated Fund will not benefit
any Adviser, the other Regulated Funds, the Affiliated Funds, or any
affiliated person of any of them (other than the parties to the Co-
Investment Transaction), except (A) to the extent permitted by
condition 13, (B) to the extent permitted by sections 17(e) or 57(k) of
the Act, as applicable, (C) indirectly, as a result of an interest in
the securities issued by one of the parties to the Co-Investment
Transaction, or (D) in the case of fees or other compensation described
in condition 2(c)(iii)(C).
3. Each Regulated 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 other Regulated Fund
or Affiliated Fund during the preceding quarter that fell within the
Regulated Fund's then-current Objectives and Strategies and Board-
Established Criteria 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,\13\ 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. The applicable Adviser will maintain books and
records that demonstrate compliance with this condition for such
Regulated Fund.
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\13\ 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 another Regulated Fund or an Affiliated 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 Regulated Fund or Affiliated Fund elects to sell,
exchange or otherwise dispose of an interest in a security that was
acquired in a Co-Investment Transaction, the applicable Advisers will:
(i) Notify each Regulated 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 Regulated
Funds and Affiliated Funds.
(c) A Regulated Fund may participate in such disposition without
obtaining prior approval of the Required Majority if: (i) The proposed
participation of each Regulated Fund and each Affiliated
[[Page 22221]]
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 such Regulated Fund's participation to
such Regulated Fund's Eligible Directors, and such Regulated Fund will
participate in such disposition solely to the extent that a Required
Majority determines that it is in such Regulated Fund's best interests.
(d) Each Regulated Fund and each Affiliated Fund will bear its own
expenses in connection with any such disposition.
8. (a) If a Regulated Fund or an Affiliated Fund desires to make a
Follow-On Investment in a portfolio company whose securities were
acquired in a Co-Investment Transaction, the applicable Advisers will:
(i) Notify each Regulated 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 a Follow-On Investment 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 Advisers to
be invested by each Regulated Fund in the Follow-On Investment,
together with the amount proposed to be invested by the participating
Affiliated Funds in the same transaction, exceeds the amount of the
opportunity; then the amount invested by each such party will be
allocated among them pro rata based on each party's capital available
for investment in the asset class being allocated, up to the amount
proposed to be invested by each.
(d) The acquisition of Follow-On Investments as permitted by this
condition will be considered a Co-Investment Transaction for all
purposes and subject to the other conditions set forth in the
application.
9. The Non-Interested Directors of each Regulated Fund will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions that fell within the Regulated Fund's then-
current Objectives and Strategies and Board-Established Criteria,
including investments in Potential Co-Investment Transactions made by
other Regulated Funds and Affiliated Funds, that the Regulated Fund
considered but declined to participate in, and concerning Co-Investment
Transactions in which the Regulated Fund participated, so that the Non-
Interested Directors may determine whether all Potential Co-Investment
Transactions and Co-Investment Transactions during the preceding
quarter, including those Potential Co-Investment Transactions which the
Regulated 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 (a) the continued appropriateness for
the Regulated Fund of participating in new and existing Co-Investment
Transactions and (b) the continued appropriateness of any Board-
Established Criteria.
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).
11. No Non-Interested Director of a Regulated Fund will also be a
director, general partner, managing member or principal, or otherwise
be an ``affiliated person'' (as defined in the Act), of any Affiliated
Fund.
12. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the Securities Act) will, to
the extent not payable by the Advisers under their respective
investment advisory agreements with the Regulated Funds and the
Affiliated Funds, be shared by the Affiliated Funds and the Regulated
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 \14\ (including break-up or commitment fees
but excluding brokerage or underwriting compensation permitted by
section 17(e) or 57(k) of the Act, as applicable) received in
connection with a Co-Investment Transaction will be distributed to the
participating Regulated 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 the Adviser at a bank or banks
having the qualifications prescribed in section 26(a)(1) of the Act,
and the account will earn a competitive rate of interest that will also
be divided pro rata among the participating Regulated Funds and
Affiliated Funds based on the amounts they invest in such Co-Investment
Transaction. None of the Advisers, the Affiliated Funds, 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
Affiliated Funds, the pro rata transaction fees described above and
fees or other compensation described in condition 2(c)(iii)(C), (b)
brokerage or underwriting compensation permitted by section 17(e) or
57(k) of the Act or (c) in the case of an Adviser, investment advisory
fees paid in accordance with the investment advisory agreement between
the Adviser and the Regulated Fund or Affiliated Fund).
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\14\ Applicants are not requesting and the staff of the
Commission is not providing any relief for transaction fees received
in connection with any Co-Investment Transaction.
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14. If the Holders own in the aggregate more than 25 percent of the
Shares of a Regulated Fund, then the Holders will
[[Page 22222]]
vote such Shares as directed by an independent third party when voting
on (1) the election of directors; (2) the removal of one or more
directors; or (3) all other matters under either the Act or applicable
State law affecting the Board's composition, size or manner of
election.
15. Each Regulated Fund's chief compliance officer, as defined in
rule 38a-1(a)(4), will prepare an annual report for its Board each year
that evaluates (and documents the basis of that evaluation) the
Regulated 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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08350 Filed 4-20-20; 8:45 am]
BILLING CODE 8011-01-P
