83 FR 52860 - Audax Credit BDC Inc., et al.; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 202 (October 18, 2018)

Page Range		52860-52865
FR Document		2018-22676
Federal Register, Volume 83 Issue 202 (Thursday, October 18, 2018)
[Federal Register Volume 83, Number 202 (Thursday, October 18, 2018)]
[Notices]
[Pages 52860-52865]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-22676]



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SECURITIES AND EXCHANGE COMMISSION



[Investment Company Act Release No. 33270; File No. 812-14862]




Audax Credit BDC Inc., et al.; Notice of Application



October 12, 2018.

AGENCY: Securities and Exchange Commission (``Commission'').



ACTION: Notice.



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    Notice of an application for an order under sections 17(d) and 

57(i) of the Investment Company Act of 1940 (the ``Act'') and rule 17d-

1 under the Act permitting certain joint transactions otherwise 

prohibited by sections 17(d) and 57(a)(4) of the Act and rule 17d-1 

under the Act.



Summary of Application: Applicants request an order to permit a 

business development company (``BDC'') and certain closed-end 

investment companies to co-invest in portfolio companies with each 

other and with affiliated investment funds.



Applicants: Audax Credit BDC Inc. (the ``Company''), Audax Credit 

Strategies (SCS), L.P. (``SCS''), Audax Credit Opportunities (SBA), LLC 

(``SBA''), Audax Senior Debt (MP), LLC (``MP''), Audax Senior Debt 

(WCTPT), LLC (``WCTPT''), Audax Senior Debt (AZ), LLC (``AZ''), Audax 

Senior Loan Fund I, L.P. (``SLF I''), Audax Senior Loan Fund I 

(Offshore), L.P. (``SLF I(O)''), Audax Senior Loan Fund, L.P. 

(``SLF''), Audax Senior Loan Fund III, L.P. (``SLF III''), Audax Senior 

Loan Fund III (Offshore), L.P. (``SLF III(O)''), Audax Senior Loan Fund 

(ST), LP (``SLF(ST)''), Audax Direct Lending Solutions Fund-A, L.P. 

(``Direct Lending-A''), Audax Direct Lending Solutions Fund-B, L.P. 

(``Direct Lending-B''), Audax Direct Lending Solutions Fund-C, L.P. 

(``Direct Lending-C''), Audax Direct Lending Solutions Fund-D, L.P. 

(``Direct Lending-D'' and, collectively with SCS, SBA, MP, WCTPT, AZ, 

SLF I, SLF I(O), SLF, SLF III, SLF III(O), SLF(ST), Direct Lending-A, 

Direct Lending-B, and Direct Lending-C, the ``Private Funds''), and 

Audax Management Company (NY), LLC (the ``Company Adviser,'' and 

collectively with the Company and the Private Funds, the 

``Applicants'').



Filing Dates: The application was filed on December 29, 2017 and 

amended on June 14, 2018.



Hearing or Notification of Hearing: An order granting the requested 

relief will be issued unless the Commission orders a hearing. 

Interested persons may request a hearing by writing to the Commission's 

Secretary and serving applicants with a copy of the request, personally 

or by mail. Hearing requests should be received by the Commission by 

5:30 p.m. on November 6, 2018 and should be accompanied by proof of 

service on applicants, in the form of an affidavit or, for lawyers, a 

certificate of service. Pursuant to rule 0-5 under the Act, hearing 

requests should state the nature of the writer's interest, any facts 

bearing upon the desirability of a hearing on the matter, the reason 

for the request, and the issues contested. Persons who wish to be 

notified of a hearing may request notification by writing to the 

Commission's Secretary.



ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 

St. NE, Washington, DC 20549-1090. Applicants: 101 Huntington Avenue, 

Boston, Massachusetts 02199.



FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202) 

551-6819, or Andrea Ottomanelli Magovern, Branch Chief, at (202) 551-

6821 (Chief Counsel's Office, Division of Investment Management).



SUPPLEMENTARY INFORMATION: The following is a summary of the 

application. The complete application may be obtained via the 

Commission's website by searching for the file number, or for an 

applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.



Applicants' Representations



    1. The Company was organized as a corporation under the General 

Corporation Law of the State of Delaware on January 29, 2015 and 

elected to be treated as a BDC \1\ through a notification of election 

to be subject to sections 55 through 65 of the Act on Form N-54A. The 

Company's ``Objectives and Strategies'' \2\ are to generate current 

income and, to a lesser extent, long-term capital appreciation by 

investing primarily in senior secured debt of privately owned U.S. 

middle-market companies. The Company has a five-member board of 

directors (the ``Board''), of which three members are not ``interested 

persons'' of the Company within the meaning of section 2(a)(19) of the 

Act (the ``Non-Interested Directors''). No Non-Interested Director will 

have any direct or indirect financial interest in any Co-Investment 

Transaction (defined below) or any interest in any portfolio company, 

other than indirectly through share ownership (if any) in the Company 

or a Future Regulated Fund (defined below).

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    \1\ Section 2(a)(48) of the Act defines a BDC to be any closed-

end investment company that operates for the purpose of making 

investments in securities described in section 55(a)(1) through 

55(a)(3) of the Act and makes available significant managerial 

assistance with respect to the issuers of such securities.

    \2\ ``Objectives and Strategies'' means, with respect to a 

Regulated Fund (defined below), the investment objectives and 

strategies of such Regulated Fund, as described in such Regulated 

Fund's registration statement, other filings the Regulated Fund has 

made with the Commission under the Act, Securities Act of 1933 (the 

``1933 Act''), or under the Securities Exchange Act of 1934, or in 

the Regulated Fund's reports to stockholders.

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    2. SCS was formed as a Delaware limited partnership on March 10, 

2014 and would be an investment company but for the exclusion from the 

definition of investment company provided by section 3(c)(7) of the 

Act. SCS's investment objective is to invest primarily in a portfolio 

of secured and unsecured loans and other debt instruments, seeking low 

volatility, principal protection and current income. SCS has an 

investment strategy that is similar to the Company's investment 

strategy.

    3. SBA was formed as a Delaware limited liability company on March 

10, 2010 and would be an investment company but for the exclusion from 

the definition of investment company provided by section 3(c)(7) of the 

Act. SBA's investment objective is to invest primarily in a portfolio 

of secured and unsecured loans and other debt instruments, seeking low 

volatility, principal protection and current



[[Page 52861]]



income. SBA has an investment strategy that is similar to the Company's 

investment strategy.

    4. MP was formed as a Delaware limited liability company on June 

28, 2017 and would be an investment company but for the exclusion from 

the definition of investment company provided by section 3(c)(7) of the 

Act. MP's investment objective is to invest primarily in a portfolio of 

secured and unsecured loans and other debt instruments, seeking low 

volatility, principal protection and current income. MP has an 

investment strategy that is similar to the Company's investment 

strategy.

    5. WCTPT was formed as a Delaware limited liability company on 

October 25, 2011 and would be an investment company but for the 

exclusion from the definition of investment company provided by section 

3(c)(7) of the Act. WCTPT's investment objective is to invest in a 

portfolio of first lien senior secured loans, seeking low volatility, 

principal protection and current income for WCTPT. WCTPT has an 

investment strategy that is similar to the Company's investment 

strategy.

    6. AZ was formed as a Delaware limited liability company on 

November 20, 2017 and would be an investment company but for the 

exclusion from the definition of investment company provided by section 

3(c)(7) of the Act. AZ's investment objective is to invest primarily in 

a portfolio of secured and unsecured loans and other debt instruments, 

seeking low volatility, principal protection and current income. AZ has 

an investment strategy that is similar to the Company's investment 

strategy.

    7. SLF I was formed as a Delaware limited partnership on July 23, 

2007 and would be an investment company but for the exclusion from the 

definition of investment company provided by section 3(c)(7) of the 

Act. SLF I's investment objective is to invest primarily in a portfolio 

of secured and unsecured loans and other debt instruments, seeking low 

volatility, principal protection and current income. SLF I has an 

investment strategy that is similar to the Company's investment 

strategy.

    8. SLF I(O) was formed as a Cayman Islands exempted limited 

partnership on October 2, 2007 and would be an investment company but 

for the exclusion from the definition of investment company provided by 

section 3(c)(7) of the Act. SLF I(O)'s investment objective is to 

invest primarily in a portfolio of secured and unsecured loans and 

other debt instruments, seeking low volatility, principal protection 

and current income. SLF(IO) has an investment strategy that is similar 

to the Company's investment strategy.

    9. SLF was formed as a Delaware limited partnership on August 10, 

2012 and would be an investment company but for the exclusion from the 

definition of investment company provided by section 3(c)(7) of the 

Act. The investment objective of SLF is to invest primarily in a 

portfolio of first lien senior secured loans to North American middle 

market companies, although a portion of the its portfolio may be 

invested in mezzanine, second lien, distressed and other securities or 

instruments, including securities or instruments of non-North American 

companies. SLF has an investment strategy that is similar to the 

Company's investment strategy.

    10. SLF III was formed as a Delaware limited partnership on January 

19, 2016 and would be an investment company but for the exclusion from 

the definition of investment company provided by section 3(c)(7) of the 

Act. The investment objective of SLF III is to invest primarily in a 

portfolio of first lien senior secured loans to North American middle 

market companies, although a portion of the its portfolio may be 

invested in mezzanine, second lien, distressed and other securities or 

instruments, including securities or instruments of non-North American 

companies. SLF III has an investment strategy that is similar to the 

Company's investment strategy.

    11. SLF III(O) was formed as a Cayman Islands exempted limited 

partnership on May 25, 2016 and would be an investment company but for 

the exclusion from the definition of investment company provided by 

section 3(c)(7) of the Act. The investment objective of SLF III(O) is 

to invest primarily in a portfolio of first lien senior secured loans 

to North American middle market companies, although a portion of the 

its portfolio may be invested in mezzanine, second lien, distressed and 

other securities or instruments, including securities or instruments of 

non-North American companies. SLF III(O) has an investment strategy 

that is similar to the Company's investment strategy.

    12. SLF (ST) was formed as a Delaware limited partnership on May 

16, 2018 and would be an investment company but for the exclusion from 

the definition of investment company provided by section 3(c)(7) of the 

Act. The investment objective of SLF (ST) is to invest primarily in a 

portfolio of secured and unsecured loans and other debt instruments, 

seeking low volatility, principal protection and current income. SLF 

(ST) has an investment strategy that is similar to the Company's 

investment strategy.

    13. Direct Lending-A, Direct Lending-B and Direct Lending-C were 

each formed as a Delaware limited partnership on October 12, 2017, 

October 12, 2017 and April 5, 2017, respectively, and each would be an 

investment company but for the exclusion from the definition of 

investment company provided by section 3(c)(7) of the Act. Direct 

Lending-D was formed as a Cayman Islands exempted limited partnership 

on April 10, 2018 and would be an investment company but for the 

exclusion from the definition of investment company provided by section 

3(c)(7) of the Act. The investment objective of each of Direct Lending-

A, Direct Lending-B, Direct Lending-C, and Direct Lending-D is to 

engage in direct lending to private middle market companies based in 

the United States and Canada through a variety of structures, and 

primarily via unitranche and stretch senior secured loans, with 

selected positions in senior secured first or second lien loans, equity 

and similar investments. The investment strategy of each of Direct 

Lending-A, Direct Lending-B, Direct Lending-C, and Direct Lending-D 

overlaps with the Company's investment strategy.

    14. The Company Adviser, a Delaware limited liability company and 

an investment adviser registered with the Commission under the 

Investment Advisers Act of 1940 (``Advisers Act''), serves as 

investment adviser to both the Company and each of the Private Funds. 

Under the investment advisory agreements of the Company and the Private 

Funds, the Company Adviser manages the portfolio of each entity in 

accordance with the investment objective and policies of each, makes 

investment decisions for each entity, places purchase and sale orders 

for portfolio transactions for each entity, and otherwise manages the 

day-to-day operations of each entity, subject, in the case of the 

Company, to the oversight of its Board.

    15. Applicants seek an order (``Order'') to permit one or more 

Regulated Funds \3\ and/or one or more



[[Page 52862]]



Affiliated Funds \4\ to participate in the same investment 

opportunities through a proposed co-investment program (the ``Co-

Investment Program'') where such participation would otherwise be 

prohibited under section 57(a)(4) and rule 17d-1 by (a) co-investing 

with each other in securities issued by issuers in private placement 

transactions in which an Adviser negotiates terms in addition to price; 

\5\ and (b) making additional investments in securities of such 

issuers, including through the exercise of warrants, conversion 

privileges, and other rights to purchase securities of the issuers 

(``Follow-On Investments''). ``Co-Investment Transaction'' means any 

transaction in which a Regulated Fund (or its Wholly-Owned Investment 

Subsidiary) participates together with one or more other Regulated 

Funds and/or one or more Affiliated Funds in reliance on the requested 

Order.\6\ ``Potential Co-Investment Transaction'' means any investment 

opportunity in which a Regulated Fund (or its Wholly-Owned Investment 

Subsidiary) could not participate together with one or more Affiliated 

Funds and/or one or more other Regulated Funds without obtaining and 

relying on the Order.\7\

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    \3\ ``Regulated Fund'' means the Company and any Future 

Regulated Fund. ``Future Regulated Fund'' means any closed-end 

management investment company (a) that is registered under the Act 

or has elected to be regulated as a BDC, (b) whose investment 

adviser is an Adviser, and (c) that intends to participate in the 

Co-Investment Program. The term ``Adviser'' means (a) the Company 

Adviser and (b) any future investment adviser that controls, is 

controlled by or is under common control with the Company Adviser or 

its successor and is registered as an investment adviser under the 

Advisers Act. The term ``successor,'' as applied to each Adviser, 

means an entity that results from a reorganization into another 

jurisdiction or change in the type of business organization.

    \4\ ``Affiliated Fund'' means the Private Funds and any Future 

Affiliated Fund. ``Future Affiliated Fund'' means any entity (a) 

whose investment adviser is an Adviser, (b) that would be an 

investment company but for section 3(c)(1) or 3(c)(7) of the Act, 

and (c) that intends to participate in the Co-Investment Program.

    \5\ The term ``private placement transactions'' means 

transactions in which the offer and sale of securities by the issuer 

are exempt from registration under the 1933 Act.

    \6\ The term ``Wholly-Owned Investment Subsidiary'' means an 

entity (i) that is wholly-owned by a Regulated Fund (with the 

Regulated Fund at all times holding, beneficially and of record, 

100% of the voting and economic interests); (ii) whose sole business 

purpose is to hold one or more investments and incur debt (which is 

or would be consolidated with other indebtedness of such Regulated 

Fund for financial reporting or compliance purposes under the Act) 

on behalf of the Regulated Fund; (iii) with respect to which the 

Regulated Fund's Board has the sole authority to make all 

determinations with respect to the entity's participation under the 

conditions of the application; and (iv) that would be an investment 

company but for sections 3(c)(1) or 3(c)(7) of the Act.

    \7\ All existing entities that currently intend to rely upon the 

requested Order have been named as applicants. Any other existing or 

future entity that subsequently relies on the Order will comply with 

the terms and conditions of the application.

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    16. Applicants state that a Regulated Fund may, from time to time, 

form one or more Wholly-Owned Investment Subsidiaries. Such a 

subsidiary would be prohibited from investing in a Co-Investment 

Transaction with any Affiliated Fund or Regulated Fund because it would 

be a company controlled by its parent Regulated Fund for purposes of 

section 57(a)(4) and rule 17d-1. Applicants request that each Wholly-

Owned Investment Subsidiary be permitted to participate in Co-

Investment Transactions in lieu of its parent Regulated Fund and that 

the Wholly-Owned Investment Subsidiary's participation in any such 

transaction be treated, for purposes of the requested Order, as though 

the parent Regulated Fund were participating directly. Applicants 

represent that this treatment is justified because a Wholly-Owned 

Investment Subsidiary would have no purpose other than serving as a 

holding vehicle for the parent Regulated Fund's investments and, 

therefore, no conflicts of interest could arise between a Regulated 

Fund and its Wholly-Owned Investment Subsidiary. The applicable 

Regulated Fund's Board would make all relevant determinations under the 

conditions with regard to a Wholly-Owned Investment Subsidiary's 

participation in a Co-Investment Transaction, and the Regulated Fund's 

Board would be informed of, and take into consideration, any proposed 

use of a Wholly-Owned Investment Subsidiary in the Regulated Fund's 

place. If the Regulated Fund proposes to participate in the same Co-

Investment Transaction with any of its Wholly-Owned Investment 

Subsidiaries, the Board will also be informed of, and take into 

consideration, the relative participation of the Regulated Fund and the 

Wholly-Owned Investment Subsidiary.

    17. When considering Potential Co-Investment Transactions for any 

Regulated Fund, the applicable Adviser will consider only the 

Objectives and Strategies, investment policies, investment positions, 

capital available for investment (``Available Capital''), and other 

pertinent factors applicable to that Regulated Fund. The Board of each 

Regulated Fund, including the Non-Interested Directors, has (or will 

have prior to relying on the requested Order) determined that it is in 

the best interests of the Regulated Fund to participate in the Co-

Investment Transaction.

    18. Other than pro rata dispositions and Follow-On Investments as 

provided in conditions 7 and 8, and after making the determinations 

required in conditions 1 and 2(a), the Adviser will present each 

Potential Co-Investment Transaction and the proposed allocation to the 

directors of the Board eligible to vote under section 57(o) of the Act 

(``Eligible Directors''), and the ``required majority,'' as defined in 

section 57(o) of the Act (``Required Majority'') \8\ will approve each 

Co-Investment Transaction prior to any investment by the participating 

Regulated Fund.

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    \8\ In the case of a Regulated Fund that is a registered closed-

end fund, the Board members that make up the Required Majority will 

be determined as if the Regulated Fund were a BDC subject to section 

57(o).

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    19. With respect to the pro rata dispositions and Follow-On 

Investments provided in conditions 7 and 8, a Regulated Fund may 

participate in a pro rata disposition or Follow-On Investment without 

obtaining prior approval of the Required Majority if, among other 

things: (i) The proposed participation of each Regulated Fund and 

Affiliated Fund in such disposition is proportionate to its outstanding 

investments in the issuer immediately preceding the disposition or 

Follow-On Investment, as the case may be; and (ii) the Board of the 

Regulated Fund has approved that Regulated Fund's participation in pro 

rata dispositions and Follow-On Investments as being in the best 

interests of the Regulated Fund. If the Board does not so approve, any 

such disposition or Follow-On Investment will be submitted to the 

Regulated Fund's Eligible Directors. The Board of any Regulated Fund 

may at any time rescind, suspend or qualify its approval of pro rata 

dispositions and Follow-On Investments with the result that all 

dispositions and/or Follow-On Investments must be submitted to the 

Eligible Directors.

    20. Applicants also represent that if the Advisers, the principals 

of the Advisers (``Principals''), or any person controlling, controlled 

by, or under common control with an Adviser or the Principals, and the 

Affiliated Funds (collectively, the ``Holders'') own in the aggregate 

more than 25% of the outstanding voting shares of a Regulated Fund (the 

``Shares''), then the Holders will vote such Shares as required under 

condition 14. Applicants believe this condition will ensure that the 

Non-Interested Directors will act independently in evaluating the Co-

Investment Program, because the ability of the Advisers or the 

Principals to influence the Non-Interested Directors by a suggestion, 

explicit or implied, that the Non-Interested Directors can be removed 

will be limited significantly. Applicants represent that the Non-

Interested Directors will evaluate and approve any such independent 

third party, taking into account its qualifications, reputation for 

independence, cost to the stockholders, and other factors that they 

deem relevant.



[[Page 52863]]



Applicants' Legal Analysis



    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 

of a BDC from participating in joint transactions with the BDC or a 

company controlled by a BDC in contravention of rules as prescribed by 

the Commission. Under section 57(b)(2) of the Act, any person who is 

directly or indirectly controlling, controlled by, or under common 

control with a BDC is subject to section 57(a)(4). Applicants submit 

that each of the Regulated Funds and Affiliated Funds could be deemed 

to be a person related to each Regulated Fund in a manner described by 

section 57(b) by virtue of being under common control. Section 57(i) of 

the Act provides that, until the Commission prescribes rules under 

section 57(a)(4), the Commission's rules under section 17(d) of the Act 

applicable to registered closed-end investment companies will be deemed 

to apply to transactions subject to section 57(a)(4). Because the 

Commission has not adopted any rules under section 57(a)(4), rule 17d-1 

also applies to joint transactions with Regulated Funds that are BDCs. 

Section 17(d) of the Act and rule 17d-1 under the Act are applicable to 

Regulated Funds that are registered closed-end investment companies.

    2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 

affiliated persons of a registered investment company from 

participating in joint transactions with the company unless the 

Commission has granted an order permitting such transactions. In 

passing upon applications under rule 17d-1, the Commission considers 

whether the company's participation in the joint transaction is 

consistent with the provisions, policies, and purposes of the Act and 

the extent to which such participation is on a basis different from or 

less advantageous than that of other participants.

    3. Applicants state that in the absence of the requested relief, 

the Regulated Funds would be, in some circumstances, limited in their 

ability to participate in attractive and appropriate investment 

opportunities. Applicants believe that the proposed terms and 

conditions will ensure that the Co-Investment Transactions are 

consistent with the protection of each Regulated Fund's shareholders 

and with the purposes intended by the policies and provisions of the 

Act. Applicants state that the Regulated Funds' participation in the 

Co-Investment Transactions will be consistent with the provisions, 

policies, and purposes of the Act and on a basis that is not different 

from or less advantageous than that of other participants.



Applicants' Conditions



    Applicants agree that the Order will be subject to the following 

conditions:

    1. Each time an Adviser considers a Potential Co-Investment 

Transaction for an Affiliated Fund or another Regulated Fund that falls 

within a Regulated Fund's then-current Objectives and Strategies, the 

Regulated Fund's Adviser will make an independent determination of the 

appropriateness of the investment for the Regulated Fund in light of 

the Regulated Fund's then-current circumstances.

    2.

    (a) If the Adviser deems a Regulated Fund's participation in any 

Potential Co-Investment Transaction to be appropriate for the Regulated 

Fund, it will then determine an appropriate level of investment for the 

Regulated Fund.

    (b) If the aggregate amount recommended by the applicable Adviser 

to be invested by the applicable Regulated Fund in the Potential Co-

Investment Transaction, together with the amount proposed to be 

invested by the other participating Regulated Funds and Affiliated 

Funds, collectively, in the same transaction, exceeds the amount of the 

investment opportunity, the investment opportunity will be allocated 

among them pro rata based on each participant's Available Capital, up 

to the amount proposed to be invested by each. The applicable Adviser 

will provide the Eligible Directors of each participating Regulated 

Fund with information concerning each participating party's Available 

Capital to assist the Eligible Directors with their review of the 

Regulated Fund's investments for compliance with these allocation 

procedures.

    (c) After making the determinations required in conditions 1 and 

2(a), the applicable Adviser will distribute written information 

concerning the Potential Co-Investment Transaction (including the 

amount proposed to be invested by each participating Regulated Fund and 

Affiliated Fund) to the Eligible Directors of each participating 

Regulated Fund for their consideration. A Regulated Fund will co-invest 

with one or more other Regulated Funds and/or one or more Affiliated 

Funds only if, prior to the Regulated Fund's participation in the 

Potential Co-Investment Transaction, a Required Majority concludes 

that:

    (i) The terms of the Potential Co-Investment Transaction, including 

the consideration to be paid, are reasonable and fair to the Regulated 

Fund and its stockholders and do not involve overreaching in respect of 

the Regulated Fund or its stockholders on the part of any person 

concerned;

    (ii) the Potential Co-Investment Transaction is consistent with:

    (A) The interests of the Regulated Fund's stockholders; and

    (B) the Regulated Fund's then-current Objectives and Strategies;

    (iii) the investment by any other Regulated Funds or Affiliated 

Funds would not disadvantage the Regulated Fund, and participation by 

the Regulated Fund would not be on a basis different from or less 

advantageous than that of any other Regulated Funds or Affiliated 

Funds; provided that if any other Regulated Funds or Affiliated Funds, 

but not the Regulated Fund itself, gains the right to nominate a 

director for election to a portfolio company's board of directors or 

the right to have a board observer or any similar right to participate 

in the governance or management of the portfolio company, such event 

shall not be interpreted to prohibit the Required Majority from 

reaching the conclusions required by this condition (2)(c)(iii), if:

    (A) The Eligible Directors will have the right to ratify the 

selection of such director or board observer, if any;

    (B) the applicable Adviser agrees to, and does, provide periodic 

reports to the Regulated Fund's Board with respect to the actions of 

such director or the information received by such board observer or 

obtained through the exercise of any similar right to participate in 

the governance or management of the portfolio company; and

    (C) any fees or other compensation that any Affiliated Fund or any 

Regulated Fund or any affiliated person of any Affiliated Fund or any 

Regulated Fund receives in connection with the right of the Affiliated 

Fund or Regulated Fund to nominate a director or appoint a board 

observer or otherwise to participate in the governance or management of 

the portfolio company will be shared proportionately among the 

participating Affiliated Funds (who each may, in turn, share its 

portion with its affiliated persons) and the participating Regulated 

Fund in accordance with the amount of each party's investment; and

    (iv) the proposed investment by the Regulated Fund will not benefit 

the Advisers, any Affiliated Funds or other Regulated Funds or any 

affiliated person of any of them (other than the parties to the Co-

Investment Transaction), except (A) to the extent permitted by 

condition 13, (B) to the extent permitted by section 17(e) or 57(k) of 

the Act, as applicable, (C) indirectly, as a result of



[[Page 52864]]



an interest in the securities issued by one of the parties to the Co-

Investment Transaction, or (D) in the case of fees or other 

compensation described in condition 2(c)(iii)(C).

    3. Each Regulated Fund has the right to decline to participate in 

any Potential Co-Investment Transaction or to invest less than the 

amount proposed.

    4. The applicable Adviser will present to the Board of each 

Regulated Fund, on a quarterly basis, a record of all investments in 

Potential Co-Investment Transactions made by any of the other Regulated 

Funds or Affiliated Funds during the preceding quarter that fell within 

the Regulated Fund's then-current Objectives and Strategies that were 

not made available to the Regulated Fund, and an explanation of why the 

investment opportunities were not offered to the Regulated Fund. All 

information presented to the Board pursuant to this condition will be 

kept for the life of the Regulated Fund and at least two years 

thereafter, and will be subject to examination by the Commission and 

its staff.

    5. Except for Follow-On Investments made in accordance with 

condition 8,\9\ a Regulated Fund will not invest in reliance on the 

Order in any issuer in which another Regulated Fund, an Affiliated Fund 

or any affiliated person of another Regulated Fund or Affiliated Fund 

is an existing investor.

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    \9\ This exception applies only to Follow-On Investments by a 

Regulated Fund in issuers in which the Regulated Fund already holds 

investments.

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    6. A Regulated Fund will not participate in any Potential Co-

Investment Transaction unless the terms, conditions, price, class of 

securities to be purchased, settlement date, and registration rights 

will be the same for each participating Regulated Fund and Affiliated 

Fund. The grant to an Affiliated Fund or another Regulated Fund, but 

not the Regulated Fund, of the right to nominate a director for 

election to a portfolio company's board of directors, the right to have 

an observer on the board of directors or similar rights to participate 

in the governance or management of the portfolio company will not be 

interpreted so as to violate this condition 6, if conditions 

2(c)(iii)(A), (B) and (C) are met.

    7.

    (a) If any Affiliated Fund or any Regulated Fund elects to sell, 

exchange or otherwise dispose of an interest in a security that was 

acquired in a Co-Investment Transaction, the applicable Advisers will:

    (i) Notify each Regulated Fund that participated in the Co-

Investment Transaction of the proposed disposition at the earliest 

practical time; and

    (ii) formulate a recommendation as to participation by each 

Regulated Fund in the disposition.

    (b) Each Regulated Fund will have the right to participate in such 

disposition on a proportionate basis, at the same price and on the same 

terms and conditions as those applicable to the participating 

Affiliated Funds and Regulated Funds.

    (c) A Regulated Fund may participate in such disposition without 

obtaining prior approval of the Required Majority if: (i) The proposed 

participation of each Regulated Fund and each Affiliated Fund in such 

disposition is proportionate to its outstanding investments in the 

issuer immediately preceding the disposition; (ii) the Board of the 

Regulated Fund has approved as being in the best interests of the 

Regulated Fund the ability to participate in such dispositions on a pro 

rata basis (as described in greater detail in the application); and 

(iii) the Board of the Regulated Fund is provided on a quarterly basis 

with a list of all dispositions made in accordance with this condition. 

In all other cases, the Adviser will provide its written recommendation 

as to the Regulated Fund's participation to the Eligible Directors, and 

the Regulated Fund will participate in such disposition solely to the 

extent that a Required Majority determines that it is in the Regulated 

Fund's best interests.

    (d) Each Affiliated Fund and each Regulated Fund will bear its own 

expenses in connection with any such disposition.

    8.

    (a) If any Affiliated Fund or Regulated Fund desires to make a 

Follow-On Investment in a portfolio company whose securities were 

acquired in a Co-Investment Transaction, the applicable Advisers will:

    (i) Notify each Regulated Fund that participated in the co-

investment transaction of the proposed Follow-On Investment at the 

earliest practical time; and

    (ii) formulate a recommendation as to the proposed participation, 

including the amount of the proposed Follow-On Investment, by each 

Regulated Fund.

    (b) A Regulated Fund may participate in such Follow-On Investment 

without obtaining prior approval of the Required Majority if: (i) The 

proposed participation of each Regulated Fund and each Affiliated Fund 

in such investment is proportionate to its outstanding investments in 

the issuer immediately preceding the Follow-On Investment; and (ii) the 

Board of the Regulated Fund has approved as being in the best interests 

of the Regulated Fund the ability to participate in Follow-On 

Investments on a pro rata basis (as described in greater detail in the 

application). In all other cases, the Adviser will provide its written 

recommendation as to the Regulated Fund's participation to the Eligible 

Directors, and the Regulated Fund will participate in such Follow-On 

Investment solely to the extent that a Required Majority determines 

that it is in the Regulated Fund's best interests.

    (c) If, with respect to any Follow-On Investment:

    (i) The amount of the opportunity is not based on the Regulated 

Funds' and the Affiliated Funds' outstanding investments immediately 

preceding the Follow-On Investment; and

    (ii) the aggregate amount recommended by the applicable Adviser to 

be invested by the applicable Regulated Fund in the Follow-On 

Investment, together with the amount proposed to be invested by other 

participating Regulated Funds and Affiliated Funds, collectively, in 

the same transaction, exceeds the amount of the investment opportunity, 

then the investment opportunity will be allocated among them pro rata 

based on each participant's Available Capital, up to the amount 

proposed to be invested by each.

    (d) The acquisition of Follow-On Investments as permitted by this 

condition will be considered a Co-Investment Transaction for all 

purposes and subject to the other conditions set forth in the 

application.

    9. The Non-Interested Directors of each Regulated Fund will be 

provided quarterly for review all information concerning Potential Co-

Investment Transactions and Co-Investment Transactions, including 

investments made by any other Regulated Funds or Affiliated Funds that 

the Regulated Fund considered but declined to participate in, so that 

the Non-Interested Directors may determine whether all investments made 

during the preceding quarter, including those investments that the 

Regulated Fund considered but declined to participate in, comply with 

the conditions of the Order. In addition, the Non-Interested Directors 

will consider at least annually the continued appropriateness for the 

Regulated Fund of participating in new and existing Co-Investment 

Transactions.

    10. Each Regulated Fund will maintain the records required by 

section 57(f)(3) of the Act as if each of the Regulated Funds were a 

BDC and each of the investments permitted under these conditions were 

approved by the



[[Page 52865]]



Required Majority under section 57(f) of the Act.

    11. No Non-Interested Director of a Regulated Fund will also be a 

director, general partner, managing member or principal, or otherwise 

an ``affiliated person'' (as defined in the Act) of an Affiliated Fund.

    12. The expenses, if any, associated with acquiring, holding or 

disposing of any securities acquired in a Co-Investment Transaction 

(including, without limitation, the expenses of the distribution of any 

such securities registered for sale under the 1933 Act) will, to the 

extent not payable by the Advisers under their respective investment 

advisory agreements with Affiliated Funds and the Regulated Funds, be 

shared by the Regulated Funds and the Affiliated Funds in proportion to 

the relative amounts of the securities held or to be acquired or 

disposed of, as the case may be.

    13. Any transaction fee \10\ (including break-up or commitment fees 

but excluding broker's fees contemplated section 17(e) or 57(k) of the 

Act, as applicable) received in connection with a Co-Investment 

Transaction will be distributed to the participating Regulated Funds 

and Affiliated Funds on a pro rata basis based on the amounts they 

invested or committed, as the case may be, in such Co-Investment 

Transaction. If any transaction fee is to be held by an Adviser pending 

consummation of the Co-Investment Transaction, the fee will be 

deposited into an account maintained by such Adviser at a bank or banks 

having the qualifications prescribed in section 26(a)(1) of the Act, 

and the account will earn a competitive rate of interest that will also 

be divided pro rata among the participating Regulated Funds and 

Affiliated Funds based on the amounts they invest in such Co-Investment 

Transaction. None of the Affiliated Funds, the Advisers, the other 

Regulated Funds, or any affiliated person of the Regulated Funds or 

Affiliated Funds will receive additional compensation or remuneration 

of any kind as a result of or in connection with a Co-Investment 

Transaction (other than (a) in the case of the Regulated Funds and the 

Affiliated Funds, the pro rata transaction fees described above and 

fees or other compensation described in condition 2(c)(iii)(C); and (b) 

in the case of an Adviser, investment advisory fees paid in accordance 

with the investment advisory agreements between such Adviser and the 

Regulated Fund or Affiliated Fund).

---------------------------------------------------------------------------



    \10\ The Applicants are not requesting, and the staff is not 

providing, any relief for transaction fees received in connection 

with any Co-Investment Transaction.

---------------------------------------------------------------------------



    14. If the Holders own in the aggregate more than 25% of the Shares 

of a Regulated Fund, then the Holders will vote such Shares as directed 

by an independent third party when voting on (1) the election of 

directors; (2) the removal of one or more directors; or (3) any other 

matter under either the Act or applicable state law affecting the 

Board's composition, size or manner of election.

    15. Each Regulated Fund's chief compliance officer, as defined in 

rule 38a-1(a)(4) under the Act, will prepare an annual report for the 

Board of such Regulated Fund that evaluates (and documents the basis of 

that evaluation) the Regulated Fund's compliance with the terms and 

conditions of the application and procedures established to achieve 

such compliance.



    For the Commission, by the Division of Investment Management, 

under delegated authority.

Eduardo A. Aleman,

Assistant Secretary.

[FR Doc. 2018-22676 Filed 10-17-18; 8:45 am]

 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 202 / Thursday, October 18, 2018 / Notices 52861

income. SBA has an investment strategy principal protection and current principal protection and current
that is similar to the Company’s income. SLF(IO) has an investment income. SLF (ST) has an investment
investment strategy. strategy that is similar to the Company’s strategy that is similar to the Company’s
4. MP was formed as a Delaware investment strategy. investment strategy.
limited liability company on June 28, 9. SLF was formed as a Delaware 13. Direct Lending-A, Direct Lending-
2017 and would be an investment limited partnership on August 10, 2012 B and Direct Lending-C were each
company but for the exclusion from the and would be an investment company formed as a Delaware limited
definition of investment company but for the exclusion from the definition partnership on October 12, 2017,
provided by section 3(c)(7) of the Act. of investment company provided by October 12, 2017 and April 5, 2017,
MP’s investment objective is to invest section 3(c)(7) of the Act. The respectively, and each would be an
primarily in a portfolio of secured and investment objective of SLF is to invest investment company but for the
unsecured loans and other debt primarily in a portfolio of first lien exclusion from the definition of
instruments, seeking low volatility, senior secured loans to North American investment company provided by
principal protection and current middle market companies, although a section 3(c)(7) of the Act. Direct
income. MP has an investment strategy portion of the its portfolio may be Lending-D was formed as a Cayman
that is similar to the Company’s invested in mezzanine, second lien, Islands exempted limited partnership
investment strategy. distressed and other securities or on April 10, 2018 and would be an
5. WCTPT was formed as a Delaware instruments, including securities or investment company but for the
limited liability company on October instruments of non-North American exclusion from the definition of
25, 2011 and would be an investment companies. SLF has an investment investment company provided by
company but for the exclusion from the strategy that is similar to the Company’s section 3(c)(7) of the Act. The
definition of investment company investment strategy. investment objective of each of Direct
provided by section 3(c)(7) of the Act. 10. SLF III was formed as a Delaware Lending-A, Direct Lending-B, Direct
WCTPT’s investment objective is to limited partnership on January 19, 2016 Lending-C, and Direct Lending-D is to
invest in a portfolio of first lien senior and would be an investment company engage in direct lending to private
secured loans, seeking low volatility, but for the exclusion from the definition middle market companies based in the
principal protection and current income of investment company provided by United States and Canada through a
for WCTPT. WCTPT has an investment section 3(c)(7) of the Act. The variety of structures, and primarily via
strategy that is similar to the Company’s investment objective of SLF III is to unitranche and stretch senior secured
investment strategy. invest primarily in a portfolio of first loans, with selected positions in senior
6. AZ was formed as a Delaware lien senior secured loans to North secured first or second lien loans, equity
limited liability company on November American middle market companies, and similar investments. The
20, 2017 and would be an investment although a portion of the its portfolio investment strategy of each of Direct
company but for the exclusion from the may be invested in mezzanine, second Lending-A, Direct Lending-B, Direct
definition of investment company lien, distressed and other securities or Lending-C, and Direct Lending-D
provided by section 3(c)(7) of the Act. instruments, including securities or overlaps with the Company’s
AZ’s investment objective is to invest instruments of non-North American
investment strategy.
primarily in a portfolio of secured and companies. SLF III has an investment 14. The Company Adviser, a Delaware
unsecured loans and other debt strategy that is similar to the Company’s limited liability company and an
instruments, seeking low volatility, investment strategy.
investment adviser registered with the
principal protection and current 11. SLF III(O) was formed as a
Commission under the Investment
income. AZ has an investment strategy Cayman Islands exempted limited
that is similar to the Company’s partnership on May 25, 2016 and would Advisers Act of 1940 (‘‘Advisers Act’’),
investment strategy. be an investment company but for the serves as investment adviser to both the
7. SLF I was formed as a Delaware exclusion from the definition of Company and each of the Private Funds.
limited partnership on July 23, 2007 and investment company provided by Under the investment advisory
would be an investment company but section 3(c)(7) of the Act. The agreements of the Company and the
for the exclusion from the definition of investment objective of SLF III(O) is to Private Funds, the Company Adviser
investment company provided by invest primarily in a portfolio of first manages the portfolio of each entity in
section 3(c)(7) of the Act. SLF I’s lien senior secured loans to North accordance with the investment
investment objective is to invest American middle market companies, objective and policies of each, makes
primarily in a portfolio of secured and although a portion of the its portfolio investment decisions for each entity,
unsecured loans and other debt may be invested in mezzanine, second places purchase and sale orders for
instruments, seeking low volatility, lien, distressed and other securities or portfolio transactions for each entity,
principal protection and current instruments, including securities or and otherwise manages the day-to-day
income. SLF I has an investment instruments of non-North American operations of each entity, subject, in the
strategy that is similar to the Company’s companies. SLF III(O) has an investment case of the Company, to the oversight of
investment strategy. strategy that is similar to the Company’s its Board.
8. SLF I(O) was formed as a Cayman investment strategy. 15. Applicants seek an order
Islands exempted limited partnership 12. SLF (ST) was formed as a (‘‘Order’’) to permit one or more
on October 2, 2007 and would be an Delaware limited partnership on May Regulated Funds 3 and/or one or more
investment company but for the 16, 2018 and would be an investment
khammond on DSK30JT082PROD with NOTICES

3 ‘‘Regulated Fund’’ means the Company and any
exclusion from the definition of company but for the exclusion from the Future Regulated Fund. ‘‘Future Regulated Fund’’
investment company provided by definition of investment company means any closed-end management investment
section 3(c)(7) of the Act. SLF I(O)’s provided by section 3(c)(7) of the Act. company (a) that is registered under the Act or has
investment objective is to invest The investment objective of SLF (ST) is elected to be regulated as a BDC, (b) whose
investment adviser is an Adviser, and (c) that
primarily in a portfolio of secured and to invest primarily in a portfolio of intends to participate in the Co-Investment
unsecured loans and other debt secured and unsecured loans and other Program. The term ‘‘Adviser’’ means (a) the
instruments, seeking low volatility, debt instruments, seeking low volatility, Continued

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52862 Federal Register / Vol. 83, No. 202 / Thursday, October 18, 2018 / Notices

Affiliated Funds 4 to participate in the Subsidiaries. Such a subsidiary would majority,’’ as defined in section 57(o) of
same investment opportunities through be prohibited from investing in a Co- the Act (‘‘Required Majority’’) 8 will
a proposed co-investment program (the Investment Transaction with any approve each Co-Investment
‘‘Co-Investment Program’’) where such Affiliated Fund or Regulated Fund Transaction prior to any investment by
participation would otherwise be because it would be a company the participating Regulated Fund.
prohibited under section 57(a)(4) and controlled by its parent Regulated Fund 19. With respect to the pro rata
rule 17d–1 by (a) co-investing with each for purposes of section 57(a)(4) and rule dispositions and Follow-On Investments
other in securities issued by issuers in 17d–1. Applicants request that each provided in conditions 7 and 8, a
private placement transactions in which Wholly-Owned Investment Subsidiary Regulated Fund may participate in a pro
an Adviser negotiates terms in addition be permitted to participate in Co- rata disposition or Follow-On
to price; 5 and (b) making additional Investment Transactions in lieu of its Investment without obtaining prior
investments in securities of such parent Regulated Fund and that the approval of the Required Majority if,
issuers, including through the exercise Wholly-Owned Investment Subsidiary’s among other things: (i) The proposed
of warrants, conversion privileges, and participation in any such transaction be participation of each Regulated Fund
other rights to purchase securities of the treated, for purposes of the requested and Affiliated Fund in such disposition
issuers (‘‘Follow-On Investments’’). ‘‘Co- Order, as though the parent Regulated is proportionate to its outstanding
Investment Transaction’’ means any Fund were participating directly. investments in the issuer immediately
transaction in which a Regulated Fund Applicants represent that this treatment preceding the disposition or Follow-On
(or its Wholly-Owned Investment is justified because a Wholly-Owned Investment, as the case may be; and (ii)
Subsidiary) participates together with Investment Subsidiary would have no the Board of the Regulated Fund has
one or more other Regulated Funds and/ purpose other than serving as a holding approved that Regulated Fund’s
or one or more Affiliated Funds in vehicle for the parent Regulated Fund’s participation in pro rata dispositions
reliance on the requested Order.6 investments and, therefore, no conflicts and Follow-On Investments as being in
‘‘Potential Co-Investment Transaction’’ of interest could arise between a the best interests of the Regulated Fund.
means any investment opportunity in Regulated Fund and its Wholly-Owned If the Board does not so approve, any
which a Regulated Fund (or its Wholly- Investment Subsidiary. The applicable such disposition or Follow-On
Owned Investment Subsidiary) could Regulated Fund’s Board would make all Investment will be submitted to the
not participate together with one or relevant determinations under the Regulated Fund’s Eligible Directors. The
more Affiliated Funds and/or one or conditions with regard to a Wholly- Board of any Regulated Fund may at any
more other Regulated Funds without Owned Investment Subsidiary’s time rescind, suspend or qualify its
obtaining and relying on the Order.7 participation in a Co-Investment approval of pro rata dispositions and
16. Applicants state that a Regulated Transaction, and the Regulated Fund’s Follow-On Investments with the result
Fund may, from time to time, form one Board would be informed of, and take that all dispositions and/or Follow-On
or more Wholly-Owned Investment into consideration, any proposed use of Investments must be submitted to the
a Wholly-Owned Investment Subsidiary Eligible Directors.
Company Adviser and (b) any future investment in the Regulated Fund’s place. If the 20. Applicants also represent that if
adviser that controls, is controlled by or is under Regulated Fund proposes to participate the Advisers, the principals of the
common control with the Company Adviser or its
successor and is registered as an investment adviser in the same Co-Investment Transaction Advisers (‘‘Principals’’), or any person
under the Advisers Act. The term ‘‘successor,’’ as with any of its Wholly-Owned controlling, controlled by, or under
applied to each Adviser, means an entity that Investment Subsidiaries, the Board will common control with an Adviser or the
results from a reorganization into another Principals, and the Affiliated Funds
jurisdiction or change in the type of business
also be informed of, and take into
organization. consideration, the relative participation (collectively, the ‘‘Holders’’) own in the
4 ‘‘Affiliated Fund’’ means the Private Funds and of the Regulated Fund and the Wholly- aggregate more than 25% of the
any Future Affiliated Fund. ‘‘Future Affiliated Owned Investment Subsidiary. outstanding voting shares of a Regulated
Fund’’ means any entity (a) whose investment 17. When considering Potential Co- Fund (the ‘‘Shares’’), then the Holders
adviser is an Adviser, (b) that would be an
investment company but for section 3(c)(1) or Investment Transactions for any will vote such Shares as required under
3(c)(7) of the Act, and (c) that intends to participate Regulated Fund, the applicable Adviser condition 14. Applicants believe this
in the Co-Investment Program. will consider only the Objectives and condition will ensure that the Non-
5 The term ‘‘private placement transactions’’
Strategies, investment policies, Interested Directors will act
means transactions in which the offer and sale of independently in evaluating the Co-
securities by the issuer are exempt from registration
investment positions, capital available
under the 1933 Act. for investment (‘‘Available Capital’’), Investment Program, because the ability
6 The term ‘‘Wholly-Owned Investment and other pertinent factors applicable to of the Advisers or the Principals to
Subsidiary’’ means an entity (i) that is wholly- that Regulated Fund. The Board of each influence the Non-Interested Directors
owned by a Regulated Fund (with the Regulated Regulated Fund, including the Non- by a suggestion, explicit or implied, that
Fund at all times holding, beneficially and of
record, 100% of the voting and economic interests); Interested Directors, has (or will have the Non-Interested Directors can be
(ii) whose sole business purpose is to hold one or prior to relying on the requested Order) removed will be limited significantly.
more investments and incur debt (which is or determined that it is in the best interests Applicants represent that the Non-
would be consolidated with other indebtedness of of the Regulated Fund to participate in Interested Directors will evaluate and
such Regulated Fund for financial reporting or
compliance purposes under the Act) on behalf of the Co-Investment Transaction. approve any such independent third
the Regulated Fund; (iii) with respect to which the 18. Other than pro rata dispositions party, taking into account its
Regulated Fund’s Board has the sole authority to and Follow-On Investments as provided qualifications, reputation for
make all determinations with respect to the entity’s in conditions 7 and 8, and after making independence, cost to the stockholders,
khammond on DSK30JT082PROD with NOTICES

participation under the conditions of the
application; and (iv) that would be an investment the determinations required in and other factors that they deem
company but for sections 3(c)(1) or 3(c)(7) of the conditions 1 and 2(a), the Adviser will relevant.
Act. present each Potential Co-Investment
7 All existing entities that currently intend to rely
Transaction and the proposed allocation 8 In the case of a Regulated Fund that is a

upon the requested Order have been named as registered closed-end fund, the Board members that
applicants. Any other existing or future entity that
to the directors of the Board eligible to make up the Required Majority will be determined
subsequently relies on the Order will comply with vote under section 57(o) of the Act as if the Regulated Fund were a BDC subject to
the terms and conditions of the application. (‘‘Eligible Directors’’), and the ‘‘required section 57(o).

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52864 Federal Register / Vol. 83, No. 202 / Thursday, October 18, 2018 / Notices

an interest in the securities issued by Transaction of the proposed disposition Regulated Fund has approved as being
one of the parties to the Co-Investment at the earliest practical time; and in the best interests of the Regulated
Transaction, or (D) in the case of fees or (ii) formulate a recommendation as to Fund the ability to participate in
other compensation described in participation by each Regulated Fund in Follow-On Investments on a pro rata
condition 2(c)(iii)(C). the disposition. basis (as described in greater detail in
3. Each Regulated Fund has the right (b) Each Regulated Fund will have the the application). In all other cases, the
to decline to participate in any Potential right to participate in such disposition Adviser will provide its written
Co-Investment Transaction or to invest on a proportionate basis, at the same recommendation as to the Regulated
less than the amount proposed. price and on the same terms and Fund’s participation to the Eligible
4. The applicable Adviser will present conditions as those applicable to the Directors, and the Regulated Fund will
to the Board of each Regulated Fund, on participating Affiliated Funds and participate in such Follow-On
a quarterly basis, a record of all Regulated Funds. Investment solely to the extent that a
investments in Potential Co-Investment (c) A Regulated Fund may participate Required Majority determines that it is
Transactions made by any of the other in such disposition without obtaining in the Regulated Fund’s best interests.
Regulated Funds or Affiliated Funds prior approval of the Required Majority (c) If, with respect to any Follow-On
during the preceding quarter that fell if: (i) The proposed participation of each Investment:
within the Regulated Fund’s then- Regulated Fund and each Affiliated (i) The amount of the opportunity is
current Objectives and Strategies that Fund in such disposition is not based on the Regulated Funds’ and
were not made available to the proportionate to its outstanding the Affiliated Funds’ outstanding
Regulated Fund, and an explanation of investments in the issuer immediately investments immediately preceding the
why the investment opportunities were preceding the disposition; (ii) the Board Follow-On Investment; and
not offered to the Regulated Fund. All of the Regulated Fund has approved as (ii) the aggregate amount
information presented to the Board being in the best interests of the recommended by the applicable Adviser
pursuant to this condition will be kept Regulated Fund the ability to participate to be invested by the applicable
for the life of the Regulated Fund and in such dispositions on a pro rata basis Regulated Fund in the Follow-On
at least two years thereafter, and will be (as described in greater detail in the Investment, together with the amount
subject to examination by the application); and (iii) the Board of the proposed to be invested by other
Commission and its staff. Regulated Fund is provided on a participating Regulated Funds and
5. Except for Follow-On Investments quarterly basis with a list of all Affiliated Funds, collectively, in the
made in accordance with condition 8,9 dispositions made in accordance with same transaction, exceeds the amount of
a Regulated Fund will not invest in this condition. In all other cases, the the investment opportunity, then the
reliance on the Order in any issuer in Adviser will provide its written investment opportunity will be
which another Regulated Fund, an recommendation as to the Regulated allocated among them pro rata based on
Affiliated Fund or any affiliated person Fund’s participation to the Eligible each participant’s Available Capital, up
of another Regulated Fund or Affiliated Directors, and the Regulated Fund will to the amount proposed to be invested
Fund is an existing investor. participate in such disposition solely to by each.
6. A Regulated Fund will not the extent that a Required Majority (d) The acquisition of Follow-On
participate in any Potential Co- determines that it is in the Regulated Investments as permitted by this
Investment Transaction unless the Fund’s best interests. condition will be considered a Co-
terms, conditions, price, class of (d) Each Affiliated Fund and each Investment Transaction for all purposes
securities to be purchased, settlement Regulated Fund will bear its own and subject to the other conditions set
date, and registration rights will be the expenses in connection with any such forth in the application.
same for each participating Regulated disposition. 9. The Non-Interested Directors of
Fund and Affiliated Fund. The grant to 8. each Regulated Fund will be provided
an Affiliated Fund or another Regulated (a) If any Affiliated Fund or Regulated quarterly for review all information
Fund, but not the Regulated Fund, of Fund desires to make a Follow-On concerning Potential Co-Investment
the right to nominate a director for Investment in a portfolio company Transactions and Co-Investment
election to a portfolio company’s board whose securities were acquired in a Co- Transactions, including investments
of directors, the right to have an Investment Transaction, the applicable made by any other Regulated Funds or
observer on the board of directors or Advisers will: Affiliated Funds that the Regulated
similar rights to participate in the (i) Notify each Regulated Fund that Fund considered but declined to
governance or management of the participated in the co-investment participate in, so that the Non-Interested
portfolio company will not be transaction of the proposed Follow-On Directors may determine whether all
interpreted so as to violate this Investment at the earliest practical time; investments made during the preceding
condition 6, if conditions 2(c)(iii)(A), (B) and quarter, including those investments
and (C) are met. (ii) formulate a recommendation as to that the Regulated Fund considered but
7. the proposed participation, including declined to participate in, comply with
(a) If any Affiliated Fund or any the amount of the proposed Follow-On the conditions of the Order. In addition,
Regulated Fund elects to sell, exchange Investment, by each Regulated Fund. the Non-Interested Directors will
or otherwise dispose of an interest in a (b) A Regulated Fund may participate consider at least annually the continued
security that was acquired in a Co- in such Follow-On Investment without appropriateness for the Regulated Fund
Investment Transaction, the applicable obtaining prior approval of the Required
khammond on DSK30JT082PROD with NOTICES

of participating in new and existing Co-
Advisers will: Majority if: (i) The proposed Investment Transactions.
(i) Notify each Regulated Fund that participation of each Regulated Fund 10. Each Regulated Fund will
participated in the Co-Investment and each Affiliated Fund in such maintain the records required by section
9 This exception applies only to Follow-On
investment is proportionate to its 57(f)(3) of the Act as if each of the
Investments by a Regulated Fund in issuers in
outstanding investments in the issuer Regulated Funds were a BDC and each
which the Regulated Fund already holds immediately preceding the Follow-On of the investments permitted under
investments. Investment; and (ii) the Board of the these conditions were approved by the

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Federal Register / Vol. 83, No. 202 / Thursday, October 18, 2018 / Notices 52865

Required Majority under section 57(f) of Adviser and the Regulated Fund or longer period within which to approve
the Act. Affiliated Fund). the proposed rule change, disapprove
11. No Non-Interested Director of a 14. If the Holders own in the aggregate the proposed rule change, or institute
Regulated Fund will also be a director, more than 25% of the Shares of a proceedings to determine whether to
general partner, managing member or Regulated Fund, then the Holders will approve or disapprove the proposed
principal, or otherwise an ‘‘affiliated vote such Shares as directed by an rule change.5 The Commission received
person’’ (as defined in the Act) of an independent third party when voting on no comments on the proposal. This
Affiliated Fund. (1) the election of directors; (2) the order approves the proposed rule
12. The expenses, if any, associated removal of one or more directors; or (3) change.
with acquiring, holding or disposing of any other matter under either the Act or
any securities acquired in a Co- applicable state law affecting the II. Description of the Proposed Rule
Investment Transaction (including, Board’s composition, size or manner of Change
without limitation, the expenses of the election.
distribution of any such securities 15. Each Regulated Fund’s chief The Exchange proposes to list and
registered for sale under the 1933 Act) compliance officer, as defined in rule trade cash-settled, European-style
will, to the extent not payable by the 38a–1(a)(4) under the Act, will prepare options on the Index, which measures
Advisers under their respective an annual report for the Board of such expected thirty-day volatility of SPY.6
investment advisory agreements with Regulated Fund that evaluates (and As more fully set forth in the Notice,
Affiliated Funds and the Regulated documents the basis of that evaluation) the Index is calculated using a
Funds, be shared by the Regulated the Regulated Fund’s compliance with methodology developed by T3i Pty Ltd,
Funds and the Affiliated Funds in the terms and conditions of the which uses published real-time prices
proportion to the relative amounts of the application and procedures established and bid/ask quotes of SPY options.7 The
securities held or to be acquired or to achieve such compliance. Index will be calculated and maintained
disposed of, as the case may be. For the Commission, by the Division of by the Exchange. The Index uses a
13. Any transaction fee 10 (including Investment Management, under delegated proprietary ‘‘price dragging’’ technique
break-up or commitment fees but authority. to determine the ongoing price for each
excluding broker’s fees contemplated Eduardo A. Aleman, individual option used in the
section 17(e) or 57(k) of the Act, as Assistant Secretary. calculation of the Index (‘‘Reference
applicable) received in connection with [FR Doc. 2018–22676 Filed 10–17–18; 8:45 am] Price’’), which the Exchange believes
a Co-Investment Transaction will be should materially reduce erratic
BILLING CODE 8011–01–P
distributed to the participating movements of the Index value as
Regulated Funds and Affiliated Funds
quotations on out-of-the-money options
on a pro rata basis based on the amounts SECURITIES AND EXCHANGE are rapidly altered during times of low
they invested or committed, as the case COMMISSION liquidity.8 The Exchange also notes the
may be, in such Co-Investment
[Release No. 34–84417; File No. SR–MIAX– Index’s exclusion rule (‘‘truncation
Transaction. If any transaction fee is to
be held by an Adviser pending 2018–14] method’’), which determines how far
consummation of the Co-Investment away from the money to exclude strikes
Self-Regulatory Organizations; Miami from the volatility calculation. When
Transaction, the fee will be deposited
International Securities Exchange, two consecutive option prices of $0.05
into an account maintained by such
LLC; Order Granting Approval of a or less are encountered when moving
Adviser at a bank or banks having the
Proposed Rule Change To List and away from the at-the-money strike, the
qualifications prescribed in section
Trade Options on the SPIKESTM Index truncation method excludes all the
26(a)(1) of the Act, and the account will
earn a competitive rate of interest that October 12, 2018. strikes beyond that level, from each of
will also be divided pro rata among the the put and call side.9 The Exchange
participating Regulated Funds and I. Introduction believes that this exclusion
Affiliated Funds based on the amounts On June 28, 2018, Miami International methodology should result in a
they invest in such Co-Investment Securities Exchange, LLC (‘‘MIAX calculation outcome that better reflects
Transaction. None of the Affiliated Options’’ or ‘‘Exchange’’) filed with the the expected measure of volatility.10
Funds, the Advisers, the other Securities and Exchange Commission The Index will be updated on a real-
Regulated Funds, or any affiliated (‘‘Commission’’), pursuant to Section time basis on each trading day
person of the Regulated Funds or 19(b)(1) of the Securities Exchange Act beginning at 9:30 a.m. and ending at
Affiliated Funds will receive additional of 1934 (‘‘Act’’),1 and Rule 19b–4
compensation or remuneration of any thereunder,2 a proposed rule change to 5 See Securities Exchange Act Release No. 83975,

kind as a result of or in connection with list and trade options on the SPIKESTM 83 FR 44929 (September 4, 2018). The Commission
a Co-Investment Transaction (other than Index (‘‘SPIKES’’ or the ‘‘Index’’), which designated October 14, 2018 as the date by which
measures expected 30-day volatility of the Commission shall approve or disapprove, or
(a) in the case of the Regulated Funds institute proceedings to determine whether to
and the Affiliated Funds, the pro rata the SPDR S&P 500 ETF Trust (‘‘SPY’’). approve or disapprove, the proposed rule change.
transaction fees described above and The proposed rule change was 6 According to the Exchange, SPY is historically

fees or other compensation described in published for comment in the Federal the largest and most actively-traded exchange-
condition 2(c)(iii)(C); and (b) in the case Register on July 16, 2018.3 On August traded fund in the United States as measured by its
khammond on DSK30JT082PROD with NOTICES

assets under management and the value of shares
of an Adviser, investment advisory fees 28, 2018, pursuant to Section 19(b)(2) of traded. See Notice, supra note 3, at 32936.
paid in accordance with the investment the Act,4 the Commission designated a 7 See id. at 32933–36 (describing in more detail

advisory agreements between such the calculation methodology for the Index).
1 15 U.S.C. 78s(b)(1). 8 See id. at 32934–35 (describing in more detail

10 The 2 17 CFR 240.19b–4. the ‘‘price dragging’’ methodology).
Applicants are not requesting, and the staff
3 See Securities Exchange Act Release No. 83619 9 See id. at 32935 (describing in more detail the
is not providing, any relief for transaction fees
received in connection with any Co-Investment (July 11, 2018), 83 FR 32932 (‘‘Notice’’). truncation method).
Transaction. 4 15 U.S.C. 78s(b)(2). 10 See id.

VerDate Sep<11>2014 17:28 Oct 17, 2018 Jkt 247001 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 E:\FR\FM\18OCN1.SGM 18OCN1
Document Created: 2018-10-18 03:05:39
Document Modified: 2018-10-18 03:05:39
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice.
Dates		The application was filed on December 29, 2017 and
Contact		Jill Ehrlich, Senior Counsel, at (202)
FR Citation		83 FR 52860