FS Global Credit Opportunities Fund, et al.
Notice.
Citation: "85 FR 44117"
Document Number: "Investment Company Act Release No. 33927; File No. 812-14987"
Page Number: "44117"
"Notices"
Agency: "
AGENCY:
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") /1/ and closed-end management investment companies to co-invest in portfolio companies with each other and with affiliated investment funds and accounts.
FOOTNOTE 1 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 section 55(a)(1) through 55(a)(3) and makes available significant managerial assistance with respect to the issuers of such securities. END FOOTNOTE
Applicants:
Filing Dates: The application was filed on
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
ADDRESSES: Secretary,
FOR FURTHER INFORMATION CONTACT:
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.
Introduction
1. The Applicants request an order of the Commission under sections 17(d) and 57(i) of the Act and rule 17d-1 thereunder (the "Order") to permit, subject to the terms and conditions set forth in the application (the "Conditions"), a
FOOTNOTE 2 "Regulated Funds" means the Fund and any Future Regulated Funds. "
"Adviser" means FS, the Affiliated Fund Advisor and any future investment adviser that is (i) controlling, under common control with, or controlled by FS Investments (as defined below), (ii) registered as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"), and (iii) not a
FOOTNOTE 3 "
FOOTNOTE 4 All existing entities that currently intend to rely on the Order have been named as Applicants and any existing or future entities that may rely on the Order in the future will comply with the terms and Conditions set forth in the application. END FOOTNOTE
Applicants
2. The Fund is a closed-end management investment company registered under the Act and organized as a
FOOTNOTE 5 "Board" means the board of trustees (or the equivalent) of the applicable
FOOTNOTE 6 "Independent Trustee" means a member of the Board of any relevant entity who is not an "interested person" as defined in Section 2(a)(19) of the Act. No Independent Trustee of a
3. FS, a
4.
FOOTNOTE 7 FS and the Affiliated Fund Advisor are each a subsidiary of
5. FS Proprietary Accounts /8/ may hold various financial assets in a principal capacity. Currently there are no FS Proprietary Accounts.
FOOTNOTE 8 "FS Proprietary Account" means any account of an Adviser or its affiliates or any company that is a direct or indirect, wholly- or majority-owned subsidiary of the Adviser or its affiliates, which, from time to time, may hold various financial assets in a principal capacity. END FOOTNOTE
6. Applicants state that a
FOOTNOTE 9 "Wholly-Owned Investment Sub" means an entity (i) that is wholly-owned by a
Applicants' Representations
A. Allocation Process
7. Applicants represent that the Adviser has established processes for allocating initial investment opportunities, opportunities for subsequent investments in an issuer and dispositions of securities holdings reasonably designed to treat all clients fairly and equitably. Further, Applicants represent that these processes will be extended and modified in a manner reasonably designed to ensure that the additional transactions permitted under the Order will both (i) be fair and equitable to the Regulated Funds and the Affiliated Funds and (ii) comply with the Conditions.
8. Opportunities for Potential Co-Investment Transactions may arise when investment advisory personnel of an Adviser becomes aware of investment opportunities that may be appropriate for one or more Regulated Funds and one or more Affiliated Funds. If the requested Order is granted, the Adviser will establish, maintain and implement policies and procedures reasonably designed to ensure that, when such opportunities arise, the Adviser to the relevant Regulated Funds is promptly notified and receives the same information about the opportunity as any other Adviser considering the opportunity for its clients. In particular, consistent with Condition 1, if a Potential Co-Investment Transaction falls within the then-current Objectives and Strategies /10/ and any Board-Established Criteria /11/ of a
FOOTNOTE 10 "Objectives and Strategies" means a
FOOTNOTE 11 "Board-Established Criteria" means criteria that the Board of a
9. Applicants state that, for each
FOOTNOTE 12 The reason for any such adjustment to a proposed order amount will be documented in writing and preserved in the records of the Advisers. END FOOTNOTE
FOOTNOTE 13 "Required Majority" means a required majority, as defined in section 57(o) of the Act. In the case of a
10. If the aggregate Internal Orders for a Potential Co-Investment Transaction do not exceed the size of the investment opportunity immediately prior to the submission of the orders to the underwriter, broker, dealer or issuer, as applicable (the "External Submission"), then each Internal Order will be fulfilled as placed. If, on the other hand, the aggregate Internal Orders for a Potential Co-Investment Transaction exceed the size of the investment opportunity immediately prior to the External Submission, then the allocation of the opportunity will be made pro rata on the basis of the size of the Internal Orders. /14/ If, subsequent to such External Submission, the size of the opportunity is increased or decreased, or if the terms of such opportunity, or the facts and circumstances applicable to the Regulated Funds' or the
FOOTNOTE 14 Each Adviser will maintain records of all proposed order amounts, Internal Orders and External Submissions in conjunction with Potential Co-Investment Transactions. Each applicable Adviser will provide the Eligible Trustees with information concerning the
FOOTNOTE 15
B. Follow-On Investments
11. Applicants state that from time to time the Regulated Funds and Affiliated Funds may have opportunities to make Follow-On Investments /16/ in an issuer in which a
FOOTNOTE 16 "
12. Applicants propose that Follow-On Investments would be divided into two categories depending on whether the prior investment was a Co-Investment Transaction or a
FOOTNOTE 17 "Pre-Boarding Investments" are investments in an issuer held by a
13. A
FOOTNOTE 18 A "
FOOTNOTE 19 A "
C. Dispositions
14. Applicants propose that Dispositions /20/ would be divided into two categories. If the
FOOTNOTE 20 "Disposition" means the sale, exchange or other disposition of an interest in a security of an issuer. END FOOTNOTE
FOOTNOTE 21 However, with respect to an issuer, if a
15. A
FOOTNOTE 22 A "Pro Rata Disposition" is a Disposition (i) in which the participation of each
FOOTNOTE 23 "Tradable Security" means a security that meets the following criteria at the time of Disposition: (i) It trades on a national securities exchange or designated offshore securities market as defined in rule 902(b) under the Securities Act; (ii) it is not subject to restrictive agreements with the issuer or other security holders; and (iii) it trades with sufficient volume and liquidity (findings as to which are documented by the Advisers to any Regulated Funds holding investments in the issuer and retained for the life of the
D. Delayed Settlement
16. Applicants represent that under the terms and Conditions of the application, all Regulated Funds and Affiliated Funds participating in a Co-Investment Transaction will invest at the same time, for the same price and with the same terms, conditions, class, registration rights and any other rights, so that none of them receives terms more favorable than any other. However, the settlement date for the
E. Holders
17. Under Condition 15, if an Adviser, its principals, or any person controlling, controlled by, or under common control with the Adviser or its principals, and the
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit participation by a registered investment company and an affiliated person in any "joint enterprise or other joint arrangement or profit-sharing plan," as defined in the rule, without prior approval by the Commission by order upon application. 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. Similarly, with regard to BDCs, section 57(a)(4) of the Act generally prohibits certain persons specified in section 57(b) from participating in joint transactions with the BDC or a company controlled by the BDC in contravention of rules as prescribed by the Commission. 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.
3. Co-Investment Transactions are prohibited by either or both of rule 17d-1 and section 57(a)(4) without a prior exemptive order of the Commission to the extent that the Affiliated Funds and the Regulated Funds participating in such transaction fall within the category of persons described by rule 17d-1 and/or section 57(b), as modified by rule 57b-1 thereunder, as applicable, vis-a-vis each participating
4. 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.
5. Applicants state that in the absence of the requested relief, in many circumstances the Regulated Funds would be limited in their ability to participate in attractive and appropriate investment opportunities. Applicants state that, as required by rule 17d-1(b), the Conditions ensure that the terms on which Co-Investment Transactions may be made will be consistent with the participation of the Regulated Funds being on a basis that it is neither different from nor less advantageous than other participants, thus protecting the equity holders of any participant from being disadvantaged. Applicants further state that the Conditions ensure that all Co-Investment Transactions are reasonable and fair to the Regulated Funds and their shareholders and do not involve overreaching by any person concerned, including the Advisers. Applicants state that the Regulated Funds' participation in the Co-Investment Transactions in accordance with the Conditions will be consistent with the provisions, policies, and purposes of the Act and would be done in a manner that is not different from, or less advantageous than, that of other participants.
Applicants' Conditions
Applicants agree that the Order shall be subject to the following Conditions:
1. Identification and Referral of Potential Co-Investment Transactions.
(a) The Advisers will establish, maintain and implement policies and procedures reasonably designed to ensure that each Adviser is promptly notified of all Potential Co-Investment Transactions that fall within the then-current Objectives and Strategies and Board-Established Criteria of any
(b) When an Adviser to a
2. Board Approvals of Co-Investment Transactions.
(a) If an Adviser deems a
(b) If the aggregate amount recommended by the Advisers to be invested in the Potential Co-Investment Transaction by the participating Regulated Funds and any participating
(c) After making the determinations required in Condition 1(b) above, each Adviser to a participating
(i) The terms of the transaction, including the consideration to be paid, are reasonable and fair to the
(ii) the transaction is consistent with:
(A) The interests of the
(B) the
(iii) the investment by any other
(A) The settlement date for another
(B) any other
(iv) the proposed investment by the
FOOTNOTE 24 For example, procuring the
3. Right to Decline.
4. General Limitation. Except for Follow-On Investments made in accordance with Conditions 8 and 9 below, /25/ a
FOOTNOTE 25 This exception applies only to Follow-On Investments by a
FOOTNOTE 26 "
5. Same Terms and Conditions. A
6. Standard Review Dispositions.
(a) General. If any
(i) The Adviser to such
FOOTNOTE 27 Any FS Proprietary Account that is not advised by the Adviser is itself deemed to be an Adviser for purposes of Conditions 6(a)(i), 7(a)(i), 8(a)(i) and 9(a)(i). END FOOTNOTE
(ii) the Adviser to each
(b) Same Terms and Conditions.
(c) No Board Approval Required. A
(i) (A) The participation of each
FOOTNOTE 28 In the case of any Disposition, proportionality will be measured by each participating
(ii) each security is a Tradable Security and (A) the Disposition is not to the issuer or any affiliated person of the issuer; and (B) the security is sold for cash in a transaction in which the only term negotiated by or on behalf of the participating Regulated Funds and Affiliated Funds is price.
(d) Standard Board Approval. In all other cases, the Adviser will provide its written recommendation as to the
7. Enhanced Review Dispositions.
(a) General. If any
(i) The Adviser to such
(ii) the Adviser to each
(iii) the Advisers will provide to the Board of each
(b) Enhanced Board Approval. The Adviser will provide its written recommendation as to the
(i) The Disposition complies with Condition 2(c)(i), (ii), (iii)(A), and (iv); and
(ii) the making and holding of the Pre-Boarding Investments were not prohibited by section 57 or rule 17d-1, as applicable, and records the basis for the finding in the Board minutes.
(c) Additional Requirements. The Disposition may only be completed in reliance on the Order if:
(i) Same Terms and Conditions.
(ii) Original Investments. All of the
(iii) Advice of counsel. Independent counsel to the Board advises that the making and holding of the investments in the Pre-Boarding Investments were not prohibited by section 57 (as modified by rule 57b-1) or rule 17d-1, as applicable;
(iv) Multiple Classes of Securities. All Regulated Funds and Affiliated Funds that hold Pre-Boarding Investments in the issuer immediately before the time of completion of the Co-Investment Transaction hold the same security or securities of the issuer. For the purpose of determining whether the
FOOTNOTE 29 In determining whether a holding is "immaterial" for purposes of the Order, the Required Majority will consider whether the nature and extent of the interest in the transaction or arrangement is sufficiently small that a reasonable person would not believe that the interest affected the determination of whether to enter into the transaction or arrangement or the terms of the transaction or arrangement. END FOOTNOTE
(v) No control.
8. Standard Review Follow-Ons.
(a) General. If any
(i) The Adviser to each such
(ii) the Adviser to each
(b) No Board Approval Required. A
(i) (A) The proposed participation of each
FOOTNOTE 30 To the extent that a
(ii) it is a
(c) Standard Board Approval. In all other cases, the Adviser will provide its written recommendation as to the
(d) Allocation. If, with respect to any such
(i) The amount of the opportunity proposed to be made available to any
(ii) the aggregate amount recommended by the Advisers to be invested in the
(e) Other Conditions. 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. Enhanced Review Follow-Ons.
(a) General. If any
(i) The Adviser to each such
(ii) the Adviser to each
(iii) the Advisers will provide to the Board of each
(b) Enhanced Board Approval. The Adviser will provide its written recommendation as to the
(c) Additional Requirements.
(i) Original Investments. All of the
(ii) Advice of counsel. Independent counsel to the Board advises that the making and holding of the investments in the Pre-Boarding Investments were not prohibited by section 57 (as modified by rule 57b-1) or rule 17d-1, as applicable;
(iii) Multiple Classes of Securities. All Regulated Funds and Affiliated Funds that hold Pre-Boarding Investments in the issuer immediately before the time of completion of the Co-Investment Transaction hold the same security or securities of the issuer. For the purpose of determining whether the
(iv) No control.
(d) Allocation. If, with respect to any such
(i) The amount of the opportunity proposed to be made available to any
(ii) the aggregate amount recommended by the Advisers to be invested in the
(e) Other Conditions. 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.
10. Board Reporting, Compliance and Annual Re-Approval.
(a) Each Adviser to a
(b) All information presented to the
(c)
(d) The Independent Trustees will consider at least annually whether continued participation in new and existing Co-Investment Transactions is in the
11. Record Keeping.
12. Trustee Independence. No Independent Trustee of a
13. Expenses. 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 advisory agreements with the Regulated Funds and the
14. Transaction Fees. /31/ Any transaction fee (including break-up, structuring, monitoring or commitment fees but excluding brokerage or underwriting compensation permitted by section 17(e) or 57(k)) received in connection with any Co-Investment Transaction will be distributed to the participants 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), and the account will earn a competitive rate of interest that will also be divided pro rata among the participants. None of the Advisers, the
FOOTNOTE 31 Applicants are not requesting and the Commission is not providing any relief for transaction fees received in connection with any Co-Investment Transaction. END FOOTNOTE
15. Independence. If the Holders own in the aggregate more than 25 percent of the Shares of a
For the Commission, by the
Assistant Secretary.
[FR Doc. 2020-15685 Filed 7-20-20;
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