

[Federal Register: April 18, 2006 (Volume 71, Number 74)]
[Notices]               
[Page 19915-19918]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ap06-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27287; 812-13068]

 
Special Value Opportunities Fund, LLC, et al.; Notice of 
Application

April 11, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under rule 17d-1 under the 
Investment Company Act of 1940 (``Act'') to permit certain joint 
transactions.

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Applicants: Special Value Opportunities Fund, LLC (``SVOF''); Special 
Value Expansion Fund, LLC (``SVEF''); Tennenbaum Capital Partners, LLC 
(``TCP''), on behalf of itself and its successors; Babson Capital 
Management LLC (``Babson''), on behalf of itself and its successors; 
Special Value Bond Fund II, LLC (``SVBF II''); Special Value Absolute 
Return Fund, LLC (``SVARF''); Tennenbaum Multi-Strategy Master Fund 
(``MSMF''); Tennenbaum Multi-Strategy Fund I LLC (``MSFI''); and 
Tennenbaum Multi-Strategy Fund (Offshore) (``MSFO'').\1\
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    \1\ The term ``successor,'' as applied to TCP and Babson, means 
an entity that results from a reorganization into another 
jurisdiction or a change in the type of business organization.

Summary of Application: Applicants request an order to permit certain 
registered investment companies to coinvest with certain affiliated 
entities.\2\
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    \2\ All existing entities that currently intend to rely on 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.

Filing Dates: The application was filed on February 19, 2004, and 
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amended on April 10, 2006.

Hearing or Notification of Hearing: An order granting the application 
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 May 8, 2006, and should be accompanied by proof of service on 
applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, 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, Commission, 100 F Street, NE., Washington, DC 
20549. Applicants: c/o Tennenbaum Capital Partners, LLC, 2951 28th 
Street, Suite 1000, Santa Monica, CA 90405.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or Nadya B. Roytblat, Assistant Director, at (202) 
942-6821 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 20549-
0102 (tel. 202-551-5850).

Applicants' Representations

    1. TCP, a limited liability company organized under the laws of 
Delaware, is an investment adviser registered under the Investment 
Advisers Act of 1940 (``Advisers Act''). Babson, an indirect, wholly 
owned subsidiary of Massachusetts Mutual Life Insurance Company 
(``MassMutual Life''), is registered as an investment adviser under the 
Advisers Act.
    2. SVOF, a Delaware limited liability company, is registered under 
the Act as a nondiversified closed-end management investment company. 
SVOF has $1.422 billion in total available capital (``Total Available

[[Page 19916]]

Capital''), consisting of common equity capital, amounts available 
under a senior secured revolving credit facility, and preferred stock. 
SVOF's approximate target investment allocations are equity securities 
(generally with a view to influencing the governance of the issuers) 
(20%), distressed debt (generally with a view to acquiring equity 
ownership in restructuring transactions) (20%), mezzanine investments 
(20%), and high yielding debt (40%). TCP serves as SVOF's investment 
adviser and manages the day-to-day operations of SVOF. TCP and Babson 
co-manage SVOF's investments through their joint participation on 
SVOF's investment committee.
    3. SVEF, a Delaware limited liability company, is registered under 
the Act as a nondiversified closed-end management investment company. 
SVEF has $600 million in Total Available Capital, consisting of common 
equity capital commitments, amounts available under a revolving credit 
facility, and preferred stock. SVEF has the same investment objective 
and target investment allocations as SVOF. TCP acts as SVEF's 
investment adviser and manages the day-to-day operations of SVEF. From 
time to time, TCP may form other registered closed-end management 
investment companies (together with SVOF and SVEF, the ``Registered 
Funds'') to engage in investment activities similar to those engaged in 
by SVOF and SVEF.
    4. TCP currently manages, or co-manages with Babson, five accounts 
that are not registered investment companies and that expect to be 
actively investing. Two of these, SVBF II and SVARF, are investment 
pools that are excepted from the definition of investment company under 
section 3(c)(7) of the Act and have investment strategies that are 
similar to those of SVOF and SVEF. SVBF II has $450 million in Total 
Available Capital, consisting of drawn common equity, notes, and a 
revolving credit facility, and SVARF has Total Available Capital of 
$884.5 million, consisting of drawn common equity, notes, and a 
revolving credit facility. The other three unregistered accounts, MSMF, 
MSFI, and MSFO (collectively, the ``Hedge Fund''), are a set of private 
investment funds, organized as a master fund with separate domestic and 
offshore feeders, that are excepted from the definition of investment 
company under section 3(c)(7) of the Act. The Hedge Fund, which had net 
assets of $82 million as of September 30, 2005, invests primarily in 
publicly traded securities and related hedges and probably will not 
coinvest in private securities on more than an occasional basis. From 
time to time, TCP or another Adviser may manage other accounts that are 
not registered investment companies in reliance on section 3(c)(1) or 
3(c)(7) of the Act (such accounts, together with SVBF II, SVARF, MSMF, 
MSFI, and MSFO, the ``Unregistered Accounts'').
    5. Applicants seek an order under rule 17d-1 under the Act to 
permit SVOF, SVEF, and any other Registered Fund that is managed by TCP 
or an entity controlling, controlled by, or under common control with 
TCP (collectively with TCP, the ``Adviser'') and the Unregistered 
Accounts to coinvest in private placement securities, make follow-on 
investments in the issuers of private placement securities (``Follow-On 
Investments''), and exercise warrants, conversion privileges, and other 
rights associated with private placement securities.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit any affiliated person of a registered investment company, or 
affiliated person of an affiliated person, when acting as principal, 
from effecting any joint transaction in which the company participates 
unless the transaction is approved by the Commission. Rule 17d-1 under 
the Act provides that in passing upon applications under section 17(d), 
the Commission will consider whether the participation of a registered 
investment company in a joint enterprise on the basis proposed is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which the company's participation is on a basis different 
from or less advantageous than that of other participants.
    2. SVOF, SVEF, and the Unregistered Accounts have been sponsored 
and managed by TCP and, accordingly, may be deemed to be affiliated 
persons of each other and of TCP because TCP may be deemed to control 
each of them. TCP may be deemed to be an affiliated person of SVOF and 
SVEF because it acts as their investment adviser and may be deemed to 
control them. TCP also may be deemed to be an affiliated person of the 
Unregistered Accounts because it may control them. Babson may be deemed 
to be an affiliated person of SVOF because it acts as an investment 
adviser to SVOF. Babson may also be a second-tier affiliated person of 
SVOF because MassMutual Life owns 5% or more of the voting securities 
of SVOF. In addition, Babson may in certain circumstances be deemed to 
be an affiliated person of SVBF II and SVARF.
    3. Applicants state that the ability to participate in proposed 
coinvestments will benefit the Registered Funds and their shareholders 
by increasing the favorable investment opportunities available to them. 
Applicants represent that the Registered Funds will be able to (i) have 
a larger pool of capital available for investment, thereby obtaining 
access to a greater number and variety of potential investments than 
any Registered Fund could obtain on its own, and (ii) increase their 
bargaining power to negotiate more favorable terms.
    4. Applicants believe that the terms and conditions contained in 
the application ensure that the proposed coinvestments are consistent 
with the protection of each Registered Fund's investors and with the 
purposes intended by the policy and provisions of the Act. 
Specifically, all participants 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 no participant receives terms 
more favorable than any other participant. In addition, the decision to 
participate in a proposed coinvestment must be approved by the 
Independent Directors of each Registered Fund to ensure that the terms 
of the proposed coinvestment are fair and reasonable, do not involve 
overreaching, and are consistent with the investment objectives and 
policies of the Registered Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. Each time that an Unregistered Account or a Registered Fund 
proposes to acquire private placement securities, the acquisition of 
which would be consistent with the investment objectives and policies 
of another Registered Fund, the Adviser will offer the other Registered 
Fund the opportunity to acquire a pro rata amount (based on the amounts 
available for investment by such Registered Fund and the applicable 
Unregistered Account or Registered Fund) of such private placement 
securities up to the entire amount being offered to it. If one 
Registered Fund declines the offer or accepts a portion of the private 
placement securities offered to it, but one or more other Registered 
Funds accepts the private placement securities offered, that portion of 
the private placement securities declined by the Registered Fund may be 
allocated to the other Registered Fund or Unregistered Account, based 
on their amounts available for investment. For purposes

[[Page 19917]]

of the foregoing, the phrase ``amounts available for investment'' means 
the Total Available Capital, which includes available leverage so long 
as such leverage is able to be drawn.
    2. (a) Prior to any coinvestment by a Registered Fund, the Adviser 
will make an initial determination of whether the acquisition of the 
private placement security is consistent with the investment objectives 
and policies of the Registered Fund. If the Adviser determines that the 
acquisition of the private placement securities would be consistent 
with the investment objectives and policies of the Registered Fund, the 
Adviser will then determine whether participation in the investment 
opportunity is appropriate for the Registered Fund and, if so, the 
appropriate amount that the Registered Fund should invest. If the 
aggregate of the amount to be invested by the Registered Fund in such 
proposed coinvestment and the amount proposed to be invested by any 
other Registered Fund and any Unregistered Accounts in the same 
transaction exceeds the amount of the investment opportunity, the 
amount invested by each such party will be allocated among them pro 
rata based on the amount available for investment by the Registered 
Funds and the Unregistered Accounts participating in the transaction. 
The Adviser will provide the Independent Directors of the Registered 
Fund's Board (``Joint Transactions Committee'') with information 
concerning the amount of capital the Registered Funds and the 
Unregistered Accounts have available for investment in order to assist 
the Joint Transactions Committee with its review of the Registered 
Fund's investments for compliance with these allocation features.
    (b) After making the determinations required in (a) above, the 
Adviser will submit written information concerning the proposed 
coinvestment, including the amount proposed to be acquired by the 
Registered Fund, any other Registered Funds, and any Unregistered 
Account, to the members of the Joint Transactions Committee. A 
Registered Fund may coinvest in a private placement security only if a 
majority of the members of the Joint Transactions Committee who have no 
direct or indirect financial interest in the transaction (``Required 
Majority'') determine that:
    i. The terms of the transaction, including the consideration to be 
paid, are reasonable and fair to the Registered Fund and its 
shareholders and do not involve overreaching of the Registered Fund or 
its shareholders on the part of any person concerned;
    ii. the transaction is consistent with the Registered Fund's 
investment objectives and policies as recited in its registration 
statement and its reports to shareholders; and
    iii. the coinvestment by another Registered Fund or an Unregistered 
Account would not disadvantage the Registered Fund, and participation 
by the Registered Fund would not be on a basis different from or less 
advantageous than that of the other participants.
    3. If the Adviser determines that a Registered Fund should not 
acquire any private placement securities offered to it pursuant to 
condition 1 above, the Adviser will submit its determination to the 
Joint Transactions Committee for approval.
    4. The Registered Funds and any Unregistered Account shall acquire 
private placement securities in reliance on the order only if the 
terms, conditions, price, class of securities being purchased, 
registration rights, if any, and other rights are the same for each 
Registered Fund and any Unregistered Account participating in the 
coinvestment. When more than one Registered Fund proposes to coinvest 
in the same private placement securities, the Joint Transactions 
Committee of each Registered Fund shall review the transaction and make 
the determinations set forth in condition 2 above, on or about the same 
time.
    5. Except as described below, no Registered Fund may make a Follow-
On Investment or exercise warrants, conversion privileges, or other 
rights unless each Unregistered Account and any other Registered Fund 
make such Follow-On Investments or exercise such warrants, conversion 
rights, or other rights at the same time and in amounts proportionate 
to their respective holdings of such private placement securities. If 
an Unregistered Account or another Registered Fund anticipates 
participating in a Follow-On Investment or exercising warrants, 
conversion rights, or other rights in an amount disproportionate to its 
holding, the Adviser will formulate a recommendation as to the proposed 
Follow-On Investment or exercise of rights by each Registered Fund and 
submit the recommendation to each Registered Fund's Joint Transactions 
Committee. That recommendation will include an explanation why an 
Unregistered Account is not participating to the extent of, or 
exercising, its proportionate amount. Prior to any such 
disproportionate Follow-On Investment or exercise, a Registered Fund 
must obtain approval for the transaction as set forth in condition 2 
above. Transactions pursuant to this condition 5 will be subject to the 
other conditions set forth in the application.
    6. No Unregistered Account or Registered Fund will sell, exchange, 
or otherwise dispose of any interest in any private placement 
securities acquired pursuant to the order unless each Registered Fund 
has the opportunity to dispose of the interests at the same time, for 
the same unit consideration, on the same terms and conditions, and in 
amounts proportionate to their holdings of the private placement 
securities. With respect to any such transaction, the Adviser will 
formulate a recommendation as to the proposed participation by a 
Registered Fund and submit the recommendation to such Registered Fund's 
Joint Transactions Committee. The Registered Fund will dispose of such 
private placement securities to the extent the Joint Transactions 
Committee, upon the affirmative vote of the Required Majority, 
determines that the disposition is in the best interests of the 
Registered Fund, is fair and reasonable, and does not involve 
overreaching of the Registered Fund or its shareholders by any person 
concerned.
    7. The expenses, if any, associated with acquiring, holding, or 
disposing of any private placement securities (including, without 
limitation, the expenses of the distribution of any private placement 
securities registered for sale under the Securities Act of 1933) shall, 
to the extent not payable solely by the Adviser under its investment 
management agreements with the Registered Funds and the Unregistered 
Accounts, be shared by the Registered Funds and the Unregistered 
Accounts in proportion to the relative amounts of such private 
placement securities held or being acquired or disposed of, as the case 
may be, by the Registered Funds and the Unregistered Accounts.
    8. The Joint Transactions Committee of each Registered Fund will be 
provided quarterly for its review all information concerning 
coinvestments made by the Registered Fund and the Unregistered Accounts 
and other Registered Funds, including investments made by the 
Unregistered Accounts in which the Registered Fund declined to 
participate, so that the Joint Transactions Committee may determine 
whether all investments made during the preceding quarter, including 
those investments in which the Registered Fund declined to participate, 
comply with the conditions of the order. In addition, the Joint 
Transactions Committee will consider at least annually the continued 
appropriateness

[[Page 19918]]

of the standards established for coinvestment by the Registered Fund, 
including whether the use of the standards continues to be in the best 
interests of the Registered Fund and its shareholders and does not 
involve overreaching on the part of any person concerned.
    9. Except for a Follow-On Investment made pursuant to condition 5 
above, no investment will be made by a Registered Fund in reliance on 
the order in private placement securities of any entity if the Adviser 
knows or reasonably should know that another Registered Fund or 
Unregistered Account or any affiliated person of such Registered Fund 
or Unregistered Account then currently holds a security issued by that 
entity.
    10. Any transaction fee (including break-up or commitment fees but 
excluding brokerage fees contemplated by section 17(e)(2) of the Act) 
received by the applicants in connection with a transaction entered 
into in reliance on the requested order 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 transaction. If any transaction 
fee is to be held by the 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) of the Act, and the account will earn a competitive rate 
of interest that also will be divided pro rata among the participants 
based on the amounts they invested or committed, as the case may be, in 
such transaction. The Adviser will receive no additional compensation 
or remuneration of any kind as a result of or in connection with a 
coinvestment, or compensation for its services in sponsoring, 
structuring, or providing managerial assistance to an issuer of private 
placement securities that is not shared pro rata with the coinvesting 
Registered Funds and Unregistered Accounts.
    11. Each Registered Fund will comply with the fund governance 
standards as defined in Rule 0-1(a)(7) under the Act. The Registered 
Funds will not have common Independent Directors.
    12. Each applicant will maintain and preserve all records required 
by section 31 of the Act and any other provisions of the Act and the 
rules and regulations under the Act applicable to such applicant. The 
Registered Funds will maintain records required by section 57(f)(3) of 
the Act as if each of the Registered Funds were a business development 
company and the coinvestments and any Follow-On Investments (or 
exercise of warrants, conversion rights or other rights) were approved 
under section 57(f).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-5709 Filed 4-17-06; 8:45 am]

BILLING CODE 8010-01-P
