Oaktree Strategic Income, LLC, et al.
Notice.
Citation: "82 FR 45331"
Document Number: "Investment Company Act Release No. 32831; File No. 812-14758"
Page Number: "45331"
"Notices"
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. Applicants request an order to permit a business development company to co-invest in portfolio companies with affiliated investment funds.
Emerging Market Opportunities Fund, L.P.,
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 Web site 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) and Rule 17d-1 thereunder (the "Order") to permit, subject to the terms and conditions set forth in the application (the "Conditions"), a
FOOTNOTE 1 "Regulated Funds" means OSI and any other Future Regulated Funds. "
FOOTNOTE 2 "
FOOTNOTE 3 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 its terms and Conditions set forth in the application. END FOOTNOTE
Applicants
2. OSI is a
FOOTNOTE 4 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
FOOTNOTE 5 "Board" means the board of directors (or the equivalent) of a
FOOTNOTE 6 "Independent Director" 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 Director of a
3.
4. The Existing Affiliated Funds are the investment funds identified in Appendix A to the application. Applicants represent that each
5. Each of the Applicants may be deemed to be controlled by
6. Applicants state that a
FOOTNOTE 7 "Wholly-Owned Investment Sub" means an entity (i) that is wholly-owned by a
Applicants' Representations
A. Allocation Process
7. Applicants state that the Adviser is presented with thousands of investment opportunities each year on behalf of its clients and after OSI elects to be regulated as a BDC, the Adviser will determine how to allocate those opportunities in a manner that, over time, is fair and equitable to all of its clients. Such investment opportunities may be Potential Co-Investment Transactions.
8. 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.
9. Specifically, applicants state that the Adviser is organized and managed such that the portfolio managers and analysts ("Investment Teams"), responsible for evaluating investment opportunities and making investment decisions on behalf of clients are promptly notified of the opportunities. If the requested Order is granted, the Advisers will establish, maintain and implement policies and procedures reasonably designed to ensure that, when such opportunities arise, the Advisers to the relevant Regulated Funds are promptly notified and receive the same information about the opportunity as any other Advisers considering the opportunity for their clients. In particular, consistent with Condition 1, if a Potential Co-Investment Transaction falls within the then-current Objectives and Strategies /8/ and any Board-Established Criteria /9/ of a
FOOTNOTE 8 "Objectives and Strategies" means with respect to any
FOOTNOTE 9 "Board-Established Criteria" means criteria that the Board of a
10. The Adviser to each applicable
11. Applicants state that, for each
FOOTNOTE 10 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 11 "Required Majority" means a required majority, as defined in Section 57(o) of the Act. In the case of a
12. 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. /12/ 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 Affiliated Funds' consideration of the opportunity, change, the participants will be permitted to submit revised Internal Orders in accordance with written allocation policies and procedures that the Advisers will establish, implement and maintain. /13/
FOOTNOTE 12 The Advisers 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 Directors with information concerning the Affiliated Funds' and Regulated Funds' order sizes to assist the Eligible Directors with their review of the applicable
FOOTNOTE 13 However, if the size of the opportunity is decreased such that the aggregate of the original Internal Orders would exceed the amount of the remaining investment opportunity, then upon submitting any revised order amount to the Board of a
B. Follow-On Investments
13. Applicants state that from time to time the Regulated Funds and Affiliated Funds may have opportunities to make Follow-On Investments /14/ in an issuer in which a
FOOTNOTE 14 "
14. 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 15 "Pre-Boarding Investments" are investments in an issuer held by a
15. A
FOOTNOTE 16 A "
FOOTNOTE 17 A "
C. Dispositions
16. Applicants propose that Dispositions /18/ would be divided into two categories. If the Regulated Funds and Affiliated Funds holding investments in the issuer had previously participated in a Co-Investment Transaction with respect to the issuer, then the terms and approval of the Disposition would be subject to the Standard Review Dispositions described in Condition 6. If the Regulated Funds and Affiliated Funds have not previously participated in a Co-Investment Transaction with respect to the issuer but hold a
FOOTNOTE 18 "Disposition" means the sale, exchange or other disposition of an interest in a security of an issuer. END FOOTNOTE
FOOTNOTE 19 However, with respect to an issuer, if a
17. A
FOOTNOTE 20 A "Pro Rata Disposition" is a Disposition (i) in which the participation of each
FOOTNOTE 21 "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
18. 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 an
FOOTNOTE 22 Applicants state this may occur for two reasons. First, when the
E. Holders
19. 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 Affiliated Funds (collectively, the "Holders") own in the aggregate more than 25 percent of the outstanding voting shares of a
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 transactions fall within the category of persons described by Rule 17d-1 and/or Section 57(b), 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 will 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 the 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 Affiliated Funds, collectively, exceeds the amount of the investment opportunity, the investment opportunity will be allocated among them pro rata based on the size of the Internal Orders, as described in section III.A.1.b. of the application. Each Adviser to a 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 23 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, /24/ a
FOOTNOTE 24 This exception applies only to Follow-On Investments by a
FOOTNOTE 25 "
5. Same Terms and Conditions. A
6. Standard Review Dispositions.
(a) General. If any
(i) The Adviser to such
(ii) the Adviser to each
(b) Same Terms and Conditions.
(c) No Board Approval Required. A
(i) (A) The participation of each
FOOTNOTE 26 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 Conditions 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 Affiliated Funds' and Regulated Funds' investments in the issuer are Pre-Boarding Investments;
(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 Regulated Funds and Affiliated Funds hold the same security or securities, they may disregard any security held by some but not all of them if, prior to relying on the Order, the Required Majority is presented with all information necessary to make a finding, and finds, that: (x)
FOOTNOTE 27 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. The Affiliated Funds, the other Regulated Funds and their affiliated persons (within the meaning of Section 2(a)(
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 28 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 Affiliated Funds' and Regulated Funds' investments in the issuer are Pre-Boarding Investments;
(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 Regulated Funds and Affiliated Funds hold the same security or securities, they may disregard any security held by some but not all of them if, prior to relying on the Order, the Required Majority is presented with all information necessary to make a finding, and finds, that: (x)
(iv) No control. The Affiliated Funds, the other Regulated Funds and their affiliated persons (within the meaning of Section 2(a)(
(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 Directors will consider at least annually whether continued participation in new and existing Co-Investment Transactions is in the
11. Record Keeping.
12. Director Independence. No Independent Director 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 Affiliated Funds, be shared by the Regulated Funds and the participating Affiliated Funds in proportion to the relative amounts of the securities held or being acquired or disposed of, as the case may be.
14. Transaction Fees. /29/ 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 Affiliated Funds, the other Regulated Funds or any affiliated person of the Affiliated Funds or the Regulated Funds will receive any additional compensation or remuneration of any kind as a result of or in connection with a Co-Investment Transaction other than (i) 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)(B)(z), (ii) brokerage or underwriting compensation permitted by Section 17(e) or 57(k) or (iii) in the case of the Advisers, investment advisory compensation paid in accordance with investment advisory agreements between the applicable
FOOTNOTE 29 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. 2017-20757 Filed 9-27-17;
BILLING CODE 8011-01-P
Agency Information Collection Activities: Submission for OMB Review; Comment Request (OMB Nos. 3064-0085 and 3064-0120)
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