
[Federal Register Volume 79, Number 206 (Friday, October 24, 2014)]
[Notices]
[Pages 63654-63657]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-25302]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31296; File No. 812-14296]


Tennenbaum Opportunities Fund V, LLC, et al.; Notice of 
Application

October 20, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order pursuant to sections 
6(c), 17(b), and 57(c) of the Investment Company Act of 1940 (the 
``Act'') for an exemption from sections 17(a) and 57(a) of the Act 
permitting certain transactions.

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

Summary of the Application: Applicants request a time-limited exemptive 
order (the ``Order'') that would permit applicant investment companies 
registered under the Act to sell certain assets to applicant business 
development companies (``BDCs'') that share a common investment adviser 
in transactions that would otherwise be prohibited by sections 17(a)(2) 
and 57(a)(1) of the Act.

Applicants: Tennenbaum Opportunities Fund V, LLC (``TOF''); Tennenbaum 
Opportunities Partners V, LP (``TOP,'' and, together with TOF, the 
``Registered Fund''); TCP Capital Corp. (``TCPC''); Special Value 
Continuation Partners, LP (``SVCP,'' and, together with TCPC, the ``BDC 
Applicant''); and Tennenbaum Capital Partners, LLC (the ``Manager'') 
(collectively, the ``Applicants'').

Filing Dates: The application was filed on April 2, 2014, and amended 
on May 16, 2014, June 9, 2014, July 11, 2014, August 8, 2014, October 
14, 2014, and October 17, 2014.

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 November 14, 2014, 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: The Commission: Brent J. Fields, Secretary, U.S. Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. 
Applicants: Howard M. Levkowitz, c/o Tennenbaum Capital Partners, LLC, 
2951 28th Street, Suite 1000, Santa Monica, CA 90405.

FOR FURTHER INFORMATION CONTACT: Anil K. Abraham, Senior Special 
Counsel, at (202) 551-2614, or Daniele Marchesani, Branch Chief, at 
(202) 551-6821 (Division of Investment Management, Chief Counsel's 
Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. TOF is a limited liability company organized in Delaware and 
registered under the Act as a non-diversified closed-end management 
investment company. TOP is a limited partnership organized in Delaware 
and registered under the Act as a non-diversified closed-end management 
investment company. TOF invests substantially all of its assets in, and 
operates through, TOP. All of TOP's common limited partner interests 
are owned by TOF. TOP also has preferred limited partner interests and 
debt outstanding.
    2. TCPC is a Delaware corporation and a non-diversified closed-end 
management investment company that has elected to be regulated as a BDC 
under the Act.\1\ TCPC's common shares trade on the NASDAQ Global 
Select Market. SVCP is a Delaware limited partnership and a non-
diversified closed-end management investment company that also has 
elected to be regulated as a BDC under the Act. TCPC invests 
substantially all of its assets in, and operates through, SVCP. All of 
SVCP's common limited partner interests are owned by TCPC. SVCP also 
has issued preferred limited partner interests under its leverage 
program to the same institutions that acquired its debt.
---------------------------------------------------------------------------

    \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 sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
---------------------------------------------------------------------------

    3. The Manager is a Delaware limited liability company registered 
as an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). The Manager serves as investment adviser both to 
the Registered Fund and the BDC Applicant (each, a ``Fund,'' and, 
collectively, the ``Funds'') and manages both Funds in accordance with 
their respective investment objectives and strategies. Each Fund is 
governed by a board of directors (``Board'').
    4. The Registered Fund seeks to achieve high total returns while 
minimizing losses and invests in high yielding debt, distressed debt, 
equity

[[Page 63655]]

securities and mezzanine investments of all kinds (the Registered 
Fund's investment objectives, strategies, and limitations, as stated in 
its registration statement and periodic shareholder reports, are the 
``Registered Fund Objectives and Strategies''). The BDC Applicant's 
investment objective is to achieve high total returns through current 
income and capital appreciation, with an emphasis on principal 
protection. It seeks to achieve this investment objective primarily 
through investments in debt securities of middle-market companies, and 
its primary investment focus is investing in and originating leveraged 
loans to performing middle-market companies (the BDC Applicant's 
investment objectives, strategies, and limitations, as stated in its 
registration statement and periodic shareholder reports, are the ``BDC 
Applicant Objectives and Strategies'').
    5. The BDC Applicant expects to continue to grow as attractive 
investment opportunities arise and as additional capital becomes 
available on attractive terms. However, both TOF and TOP are scheduled 
to terminate their existence in October 2016. TOF may extend its 
existence for up to two one-year extensions if requested by the Manager 
and approved by the holders of a majority of its common shares, and TOP 
may do so if requested by the Manager and approved by the holders of a 
majority of its common and preferred limited partner interests.
    6. The Registered Fund is considering how best to conduct its 
remaining operations and plan for the unwinding of its leverage and its 
scheduled termination, including the disposition of its portfolio 
assets. The Applicants seek the requested relief to permit the 
Registered Fund to sell to the BDC Applicant certain portfolio assets 
that are consistent with the BDC Applicant Objectives and 
Strategies.\2\
---------------------------------------------------------------------------

    \2\ The Registered Fund and the BDC Applicant have co-invested 
in various Eligible Assets (defined below) in reliance on a prior 
Commission order pursuant to rule 17d-1 under the Act (the ``Co-
Investment Order'') permitting certain joint transactions among 
themselves and certain other entities. Special Value Opportunities 
Fund, LLC, et al., Investment Company Act Release Nos. IC-27287 
(April 11, 2006) (notice) and 27316 (May 9, 2006) (order).
---------------------------------------------------------------------------

    7. As of September 30, 2014, the Registered Fund's portfolio 
included 52 assets with a fair value of $460,735,948 that were 
consistent with the BDC Applicant Objectives and Strategies (``Eligible 
Assets''). As of that date, the Eligible Assets were composed of: (1) 
$289.1 million of floating rate fully performing commercial loans; (2) 
$127.5 million of fixed rate fully performing commercial debt maturing 
between 2015 and 2021; (3) $12.8 million in equity received in 
connection with the foregoing debt investments; and (4) $31.3 million 
in aircraft mortgage and lease interests.\3\
---------------------------------------------------------------------------

    \3\ All of the Eligible Assets are securities under the Act 
except for the aircraft lease interests, which, as of September 30, 
2014, comprised approximately 7% of the value of the Eligible 
Assets.
---------------------------------------------------------------------------

    8. Any follow-on investments in the securities of issuers of 
Eligible Assets owned by the Registered Fund that may be made 
subsequent to the issuance of the requested Order (``follow-on 
investments'') also would be considered Eligible Assets for purposes of 
the requested relief. The Applicants represent that the Registered Fund 
might undertake such follow-on investments to protect or enhance 
existing investments by, for example, enhancing the Registered Fund's 
legal rights in a bankruptcy of the issuer.
    9. Subject to the terms and conditions of the Order, the Registered 
Fund would seek to sell to the BDC Applicant all of the Eligible Assets 
owned by the Registered Fund prior to the expiration of the requested 
Order. The only Eligible Assets held by the Registered Fund that would 
not be sold to the BDC Applicant would be those that are sold in Bona 
Fide Third-Party Transactions to a third party pursuant to Conditions 3 
and 4 below, those that do not satisfy the Conditions below, and those 
that the Manager believes would not be appropriate for the BDC 
Applicant to acquire based on investment considerations, such as 
concerns about credit quality or overconcentration in a particular 
industry sector.
    10. The Manager's determination to sell any particular Eligible 
Asset of the Registered Fund to the BDC Applicant would be required to 
be approved by a ``Required Majority'' \4\ of the Board of each 
Fund.\5\ The Applicants note that there is no overlap among the 
directors of the Registered Fund and the BDC Applicant who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
their respective Funds (``Independent Directors''), so that both sets 
of Independent Directors would have no conflict of interest in 
reviewing and determining whether to approve each Proposed Transaction 
(defined below) undertaken in reliance on the requested relief. The 
Eligible Assets that the Manager determines to sell from the Registered 
Fund to the BDC Applicant, that satisfy the Conditions below, and that 
are approved for such sale by a Required Majority of each Fund are 
referred to hereinafter as the ``Qualifying Assets,'' and the proposed 
sales of the Qualifying Assets by the Registered Fund to the BDC 
Applicant are referred to hereinafter as the ``Proposed Transactions.''
---------------------------------------------------------------------------

    \4\ In the case of the Registered Fund, the Board members that 
make up the Required Majority will be determined as if the 
Registered Fund were a BDC subject to section 57(o) of the Act.
    \5\ In approving any Proposed Transaction, as defined below, the 
Required Majority of each Fund will be required specifically to 
consider the effect that such transaction, and the Proposed 
Transactions taken together, would have on the investment advisory 
fees paid by the relevant Fund.
---------------------------------------------------------------------------

    11. The Applicants believe that the Proposed Transactions would be 
in the best interests of both Funds. The Registered Fund earns income 
on those assets that may be Qualifying Assets at a rate in excess of 
the expense associated with its outstanding debt and preferred stock, 
and in excess of the rate at which it expects it could prudently 
reinvest the proceeds of a sale of Qualifying Assets, in light of its 
scheduled termination. As a result, the Applicants believe that it 
would be beneficial to the Registered Fund and its shareholders to own 
its assets, including Qualifying Assets, for as long as practicable 
before needing to sell them in order to repay its debt and wind down 
its operations. The Applicants believe that having a known potential 
buyer--the BDC Applicant--for substantially all of the Eligible Assets 
would permit the Registered Fund to hold and earn a favorable return on 
such assets for a longer period of time than if the requested relief 
was not granted. Additionally, a sale of such assets directly from the 
Registered Fund to the BDC Applicant would permit the Registered Fund 
to conduct the transactions without paying intermediary compensation, 
such as a sales commission or a known spread.
    12. The Applicants also believe that the BDC Applicant's 
acquisition of the Qualifying Assets directly from the Registered Fund 
would be in the best interests of the BDC Applicant and its 
shareholders. The Manager believes that the Proposed Transactions would 
benefit the BDC Applicant and its shareholders because the BDC 
Applicant is growing, is familiar with the assets held in the 
Registered Fund's portfolio,\6\ would have an interest in acquiring all 
or a portion of the Registered Fund's Eligible Assets, and could do so 
without paying any commission or spread.
---------------------------------------------------------------------------

    \6\ See note 2, supra.
---------------------------------------------------------------------------

    13. As of September 30, 2014, approximately 97.8% by value of the 
Eligible Assets were owned by both Funds and were valued identically. 
Each of the Funds employs the same valuation methods, policies, and

[[Page 63656]]

procedures, which have been reviewed and approved by each Fund's 
Board.\7\ Each Fund's Independent Directors review and approve the 
valuations quarterly.
---------------------------------------------------------------------------

    \7\ The Funds' valuation policies and procedures differ with 
respect to the procedures to obtain approvals from their respective 
Boards, but those differences are immaterial for purposes of the 
requested relief.
---------------------------------------------------------------------------

    14. Before selling a Qualifying Asset to the BDC Applicant in 
reliance on the requested relief, the Registered Fund would establish a 
bona fide market price by selling an institutional-sized portion of the 
Qualifying Asset, as prescribed in Conditions 3 and 6 below, to an 
independent third-party buyer at arm's-length. Such third-party 
transactions are defined in the application as ``Bona Fide Third-Party 
Transactions.'' Applicants will be able to enter into a Proposed 
Transaction in reliance on the requested Order only if the price of the 
related Bona Fide Third-Party Transaction falls within a certain range 
above or below the Registered Fund's valuation of the relevant 
Qualifying Asset, as described in Condition 4.\8\ In such cases, the 
BDC Applicant would contemporaneously pay the same price in the 
Proposed Transaction for the balance of the asset held by the 
Registered Fund (less any intermediary compensation, such as a sales 
commission or known spread, paid by the Registered Fund on the Bona 
Fide Third-Party Transaction).
---------------------------------------------------------------------------

    \8\ As described in the application, the Applicants proposed the 
ranges specified in Condition 4 below based on the results of 
forensic testing that compared the sale prices of assets to their 
most recent valuations over a period of several years.
---------------------------------------------------------------------------

    15. Finally, the Manager would be required to represent to the 
Independent Directors of each Fund that it has no reason to believe 
that the sale price of the Qualifying Asset in each Bona Fide Third-
Party Transaction does not reasonably approximate (on a pro rata basis) 
the sale price of such Qualifying Asset--had the Registered Fund's 
entire interest been sold--and that, in the Manager's judgment, the 
Proposed Transaction would not preclude the BDC Applicant from 
acquiring an asset more beneficial to its shareholders' interests.

Applicants' Legal Analysis

    1. The Applicants request an Order under sections 6(c), 17(b), and 
57(c) of the Act granting them exemptive relief from sections 17(a) and 
57(a) of the Act in order to permit the Registered Fund to sell to the 
BDC Applicant the Qualifying Assets.
    2. Section 17(a)(2) of the Act generally prohibits an affiliated 
person of a registered investment company, acting as principal, from 
purchasing from such company any security or other property. Section 
2(a)(3)(C) of the Act defines an ``affiliated person'' of another 
person to include any person directly or indirectly controlling, 
controlled by, or under common control with, the other person. Section 
57(a)(1) of the Act generally prohibits a person related to the BDC in 
a manner described in section 57(b) from selling any security or other 
property to such BDC. Section 57(b) includes, among others, any person 
directly or indirectly controlling, controlled by, or under common 
control with the BDC. By virtue of being under the common control of 
the Manager or common executive officers, the BDC Applicant could be 
viewed as an affiliated person of the Registered Fund within the 
meaning of section 2(a)(3)(C), and the Registered Fund could be viewed 
as a person related to the BDC Applicant within the meaning of section 
57(b). Consequently, section 17(a)(2) would prohibit the BDC Applicant 
from purchasing the Qualifying Assets from the Registered Fund, and 
section 57(a)(1) would prohibit the Registered Fund from selling the 
Qualifying Assets to the BDC Applicant.
    3. Sections 17(b) and 57(c) of the Act authorize the Commission 
upon application to exempt a transaction from the prohibitions of 
sections 17(a)(2) and 57(a)(1), respectively, if the evidence 
establishes that (1) the terms of the proposed transaction, including 
the consideration to be paid or received, are reasonable and fair and 
do not involve overreaching on the part of any person concerned; (2) 
the proposed transaction is consistent with the policy of each 
registered investment company or business development company involved; 
and (3) the proposed transaction is consistent with the general 
purposes of the Act. Section 6(c) authorizes the Commission upon 
application to conditionally or unconditionally exempt any person or 
transaction or any class or classes of persons or transactions from any 
provision or provisions of the Act or of any rule or regulation 
thereunder, if and to the extent that such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act.
    4. Applicants state that the Proposed Transactions satisfy the 
standards of sections 6(c), 17(b), and 57(c) of the Act. Applicants 
believe that the proposed safeguards described in the application 
provide a basis for the Commission to conclude that the Proposed 
Transactions will satisfy such standards.
    5. The Applicants believe the terms of the Proposed Transactions 
would benefit both Funds and are in the best interests of their 
respective shareholders. The Applicants also believe that the fact that 
the Proposed Transactions would involve substantially all of the 
Eligible Assets held by the Registered Fund would serve to reduce any 
potential for overreaching. The Applicants further point to the fact 
that both Funds already own many of the same Eligible Assets and have 
the same valuation methods, policies, and procedures, which have been 
approved by each Fund's Board.\9\
---------------------------------------------------------------------------

    \9\ See note 7, supra.
---------------------------------------------------------------------------

    6. The Applicants also state that, before selling any Qualifying 
Assets to the BDC Applicant in reliance on the requested Order, the 
Registered Fund would be required to establish a bona fide market price 
for the Qualifying Asset by executing a Bona Fide Third-Party 
Transaction in that asset, as prescribed in Conditions 3 and 6 
below.\10\ The price for such Bona Fide Third-Party Transaction would 
be required to fall within a certain range above or below the 
Registered Fund's valuation of the relevant Qualifying Asset, as 
described in Condition 4 below, in order for a Proposed Transaction to 
occur in reliance on the requested Order. The Applicants believe that 
these price range constraints will help to ensure that the sale is fair 
and approximates the appropriate price of each Qualifying Asset, while 
recognizing that it is unlikely that the sale price of each Qualifying 
Asset will be exactly the same as the value assigned by the Registered 
Fund to such Qualifying Asset.
---------------------------------------------------------------------------

    \10\ The Applicants note that the asset sale amounts set forth 
in Condition 3 below seek to balance the interest of the Funds in 
transacting with each other for as much of the Qualifying Assets as 
possible against the interest of ensuring that the Bona Fide Third-
Party Transactions are executed at a genuine and current market 
price. The Applicants believe that the Bona Fide Third-Party 
Transactions would achieve an appropriate balance by providing for a 
sale of a portion of the Qualifying Asset in an amount approximating 
what the Manager believes is, for this type of asset, a bid size 
that will attract sufficient attention from the institutional debt 
market. The Manager believes that the dollar and percentage amounts 
set forth in Condition 3 below will result in the sale of a 
sufficiently large amount of each Qualifying Asset to obtain a 
representative market price for the asset.
---------------------------------------------------------------------------

    7. Finally, the Proposed Transactions will be presented to the 
Required Majority of each Fund and must be approved by such Required 
Majority in order to be consummated. The Required Majority of each Fund 
will be required specifically to consider the effect that each such 
transaction, and such transactions taken together, would have

[[Page 63657]]

on the investment advisory fees paid by the relevant Fund.

Applicants' Conditions

    Applicants agree that the Order granting the requested relief will 
be subject to the following Conditions:
    1. The Registered Fund will sell to the BDC Applicant, prior to the 
expiration of the requested Order, all of the Qualifying Assets owned 
by the Registered Fund. In approving any Proposed Transaction under the 
requested Order, the Required Majority of each Fund will be required 
specifically to consider the effect that such transaction, and the 
Proposed Transactions taken together, would have on the investment 
advisory fees paid by the relevant Fund. If any Eligible Assets are 
acquired in follow-on investments made after the date the Order was 
granted, the Manager will document contemporaneously why it believes 
each follow-on investment helps protect the assets previously owned by 
the Registered Fund to which the follow-on investment relates.
    2. Each of the Eligible Assets shall have been subject to periodic 
valuation in accordance with methods adopted and reviewed at least 
annually by the independent directors, as defined in section 2(a)(19) 
of the 1940 Act, of each Fund in accordance with rule 38a-1 under the 
1940 Act.
    3. The Registered Fund shall have sold in Bona Fide Third-Party 
Transactions subject to broad market exposure or competitive bidding to 
independent third-party buyers (none of whom are the issuer of the 
respective asset to the knowledge of the Applicants or are affiliated 
persons of the Applicants under the 1940 Act) (i) for each Qualifying 
Asset valued at greater than $10 million, at least the greater of (A) 
10% of the holdings by the Registered Fund of each Qualifying Asset or 
(B) $5,000,000 in proceeds of such Qualifying Asset or (ii) for each 
Qualifying Asset valued at $10,000,000 or less, at least 30% of the 
holdings by the Registered Fund of each Qualifying Asset.
    4. In any transaction between the Funds under the requested Order, 
(i) the trade date for sale to the BDC Applicant shall be the same as 
the trade date for the independent sale of a portion of the Qualifying 
Asset under Condition 3, (ii) the transaction price shall be such 
independent sale price less any intermediary compensation, such as a 
sales commission or known spread, paid by the Registered Fund in the 
open market sale, (iii) 66.7%, or two-thirds, of the transactions will 
have a sale price within 1.5% of the fair value most recently assigned 
by the Registered Fund pursuant to its valuation methods, policies, and 
procedures, and 100% of the transactions will have a sale price in the 
market within 2.5% of the fair value most recently assigned by the 
Registered Fund pursuant to its valuation methods, policies, and 
procedures (iv) the Manager shall represent to the Independent 
Directors of the Registered Fund and the BDC Applicant that it has no 
reason to believe that the sale price received by the Registered Fund 
pursuant to Condition 3 above does not reasonably approximate (on a pro 
rata basis) the sale price that would have been received by the 
Registered Fund had the Registered Fund's entire interest been sold in 
such transaction and that, in the Manager's judgment, the Proposed 
Transaction between the Funds would not, at the time of such 
transaction, preclude the BDC Applicant from acquiring an asset more 
beneficial to its shareholders' interests, and (v) the price shall be 
payable in cash at settlement.
    5. Any transaction under the requested Order involving Eligible 
Assets jointly owned under the Co-Investment Order (including a 
decision not to include an Eligible Asset as a Qualifying Asset) shall 
comply with the terms and conditions of the Co-Investment Order, as 
applicable.
    6. No Proposed Transaction or Bona Fide Third-Party Transaction 
shall involve any consideration other than cash payment against prompt 
delivery of Qualifying Assets. No brokerage commission, fee, or other 
remuneration shall be paid in connection with any Proposed Transaction. 
A Bona Fide Third-Party Transaction may include customary transaction 
expenses paid to persons who are not affiliated persons of the 
Applicants, but no Bona Fide Third-Party Transaction will involve any 
arrangement, understanding, or any direct or indirect quid pro quo that 
goes beyond the market terms of such transaction. No Bona Fide Third-
Party Transaction shall involve any arrangement or understanding 
directed at facilitating the Applicants' reliance on the requested 
Order. For any Bona Fide Third-Party Transaction, the Registered Fund 
will not knowingly sell any Qualifying Asset to the issuer of such 
asset. The Applicants will not attempt to circumvent the above 
restrictions by entering into any arrangements or understandings that 
are economically similar to the ones proscribed by the above 
restrictions.
    7. The Registered Fund and the BDC Applicant shall maintain records 
demonstrating satisfaction of each of the foregoing Conditions in the 
manner and for the periods set forth in rule 17a-7(g) under the 1940 
Act.
    8. The requested Order, if granted, shall expire upon the earlier 
of the date of termination of TOF or October 10, 2018.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25302 Filed 10-23-14; 8:45 am]
BILLING CODE 8011-01-P


