
[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)]
[Notices]
[Pages 51523-51527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18467]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32197; File No. 812-14575]


Bain Capital Specialty Finance, Inc., et al.; Notice of 
Application

July 29, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION:  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 
business development companies (``BDCs'') to co-invest in portfolio 
companies with each other and with affiliated investment funds.
    Applicants: Bain Capital Specialty Finance, Inc. (the ``Fund''); 
BCSF Advisors, LP (``BCSFA''), on behalf of itself and its successors; 
\1\ Bain Capital Credit, LP (``Bain''), Bain Capital Credit 
(Australia), Pty. Ltd, Bain Capital Credit Asia, LLC, Bain Capital 
Credit (European Advisors), Ltd., Bain Capital Credit, Ltd. (together 
with BCSFA, the ``Existing Bain Advisers''), on behalf of themselves 
and their successors; Avery Point II CLO, Limited, Avery Point III CLO, 
Limited, Avery Point IV CLO, Limited, Avery Point V CLO, Limited, Avery 
Point VI CLO, Limited, Newhaven II CLO, Designated Activity Company, 
Race Point IX CLO, Limited, Race Point X CLO, Limited, Race Point V 
CLO, Limited, Race Point VI CLO, Limited, Race Point VII CLO, Limited, 
Race Point VIII CLO, Limited, Bain Capital CLO Partners, L.P., Sankaty 
Credit Opportunities (Offshore Master) IV, L.P., Sankaty Credit 
Opportunities II, L.P., Sankaty Credit Opportunities III, L.P., Sankaty 
Credit Opportunities IV, L.P., Bain Capital Distressed and Special 
Situations 2013 (AIV I), L.P., Bain Capital Distressed and Special 
Situations 2013 (AIV II Master), L.P., Bain Capital Distressed and 
Special Situations 2013 (A), L.P., Sankaty Credit Opportunities V-A2 
(Master), L.P., Bain Capital Distressed and Special Situations 2013 
(B), L.P., Bain Capital Direct Lending 2015 (L), L.P., SDLF (L-A), LLC, 
Bain Capital Direct Lending 2015 (U), L.P., Sankaty Drawbridge 
Opportunities, L.P., Sankaty High Income Feeder II, L.P., Sankaty High 
Income Feeder, Ltd., Bain Capital High Income Partnership, L.P., Bain 
Capital Credit Managed Account (CalPERS), L.P., Bain Capital Credit 
Managed Account (E), L.P., Bain Capital Credit Managed Account (Newport 
Mobile), L.P., Sankaty Managed Account (NZSF), L.P., Bain Capital 
Credit Managed Account (PSERS), L.P., Bain Capital Credit Managed 
Account (TCCC), L.P., Bain Capital Credit Managed Account (UCAL), L.P., 
Sankaty Middle Market Opportunities Fund (Offshore Master II), L.P., 
Sankaty Middle Market Opportunities Fund (Offshore Master), L.P., Bain 
Capital Middle Market Credit 2014, L.P., Sankaty Middle Market 
Opportunities Fund II-A (Master), L.P., Bain Capital Middle Market 
Credit 2014 (F), L.P., Bain Capital Middle Market Credit 2010, L.P., 
Bain Capital Credit Rio Grande FMC, L.P., Bain Capital Senior Loan Fund 
(SRI), L.P., Sankaty Senior Loan Fund Public Limited Company, Bain 
Capital Senior Loan Fund, L.P., Warehouse Funding Avery Point VII, LLC, 
Queenscliff Trust, Bain Capital Credit Managed Account (CLO), L.P., 
Cape Schanck Direct Lending Trust, Bain Capital Distressed and Special 
Situations 2016 (A), L.P., Bain Capital Distressed and Special 
Situations 2016 (B Master), L.P., Sankaty Credit Opportunities VI-B, 
L.P., Sankaty Credit Opportunities VI-EU, L.P., Sankaty Credit 
Opportunities VI-EU (Master), L.P., Bain Capital Distressed and Special 
Situations 2016 (F), L.P., Sankaty Credit Opportunities (F) Europe, 
L.P. (collectively, the ``Existing Affiliated Funds'').
---------------------------------------------------------------------------

    \1\ The term ``successor,'' as applied to each Adviser (defined 
below), means an entity that results from a reorganization into 
another jurisdiction or change in the type of business organization.
---------------------------------------------------------------------------

    Filing Dates: The application was filed on November 6, 2015 and 
amended on April 1, 2016 and July 18, 2016.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on August 23, 2016, 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, U.S. Securities and Exchange Commission, 100 F 
St. NE., Washington, DC 20549-1090. Applicants: Ranesh Ramanathan, 
Esq., General Counsel, Bain Capital Credit, LP, 200 Clarendon Street, 
37th Floor, Boston, MA, 02116.

FOR FURTHER INFORMATION CONTACT: Elizabeth G. Miller, Senior Counsel, 
at (202) 551-8707 or Holly Hunter-Ceci, Branch Chief, at (202) 551-6825 
(Chief Counsel's Office, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's 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.
    Applicants' Representations:
    1. The Fund is a Delaware corporation organized as a closed-end 
management investment company that has elected to be regulated as a BDC 
under Section 54(a) of the Act.\2\ The Fund's Objectives and Strategies 
\3\ are to provide risk-

[[Page 51524]]

adjusted returns and current income to investors. The Fund invests 
primarily in middle-market companies with between $10 million and $150 
million in annual earnings before interest, taxes, depreciation and 
amortization. The Fund intends to focus on senior investments with a 
first or second lien on collateral and strong structures and 
documentation intended to protect the lender.
---------------------------------------------------------------------------

    \2\ 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 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\ ``Objectives and Strategies'' means a Regulated Fund's 
investment objectives and strategies, as described in the Regulated 
Fund's registration statement on Form 10, other filings the 
Regulated Fund has made with the Commission under the Securities Act 
of 1933 (the ``Securities Act''), or under the Securities Exchange 
Act of 1934 and the Regulated Fund's reports to shareholders.
---------------------------------------------------------------------------

    2. The board of directors of the Fund (the ``Board'') is comprised 
of five directors, three of whom are not ``interested persons,'' within 
the meaning of Section 2(a)(19) of the 1940 Act (the ``Non-Interested 
Directors''), of the Fund.
    3. BCSFA is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act''). BCSFA serves as 
investment adviser to the Fund. It is a wholly-owned subsidiary of 
Bain.
    4. Bain is registered as an investment adviser under the Advisers 
Act. Bain serves as investment adviser to certain Existing Affiliated 
Funds and either it or another Adviser will serve as the investment 
adviser to any Future Affiliated Funds (defined below).
    5. Bain Capital Credit (Australia), Pty. Ltd., an Australian 
proprietary company formed in 2012, is authorized and regulated by the 
Australian Securities and Investments Commission. It is a wholly-owned 
subsidiary of Bain.
    6. Bain Capital Credit (European Advisors), Ltd., a United Kingdom 
private limited company formed in 2014, and Bain Capital Credit, Ltd., 
a United Kingdom private limited company formed in 2005, are authorized 
and regulated by the U.K. Financial Conduct Authority. They are both 
wholly-owned subsidiaries of Bain.
    7. Bain Capital Credit Asia, LLC is a limited liability company 
organized in the State of Delaware in 2014 that has been registered in 
Hong Kong under the Hong Kong Companies Ordinance. It is a wholly-owned 
subsidiary of Bain.
    8. As Bain Capital, LP controls Bain, and will control any other 
Adviser, it may be deemed to control the Regulated Funds and the 
Affiliated Funds. Applicants state that Bain Capital, LP is a holding 
company and does not currently offer investment advisory services to 
any person and is not expected to do so in the future. Applicants state 
that as a result, Bain Capital, LP has not been included as an 
Applicant.
    9. Applicants seek an order (``Order'') to permit a Regulated Fund 
\4\ and one or more Regulated Funds and/or one or more Affiliated Funds 
\5\ to participate in the same investment opportunities through a 
proposed co-investment program (the ``Co-Investment Program'') where 
such participation would otherwise be prohibited under section 57(a)(4) 
and rule 17d-1 by (a) co-investing with each other in securities issued 
by issuers in private placement transactions in which an Adviser 
negotiates terms in addition to price; \6\ and (b) making additional 
investments in securities of such issuers, including through the 
exercise of warrants, conversion privileges, and other rights to 
purchase securities of the issuers (``Follow-On Investments''). ``Co-
Investment Transaction'' means any transaction in which a Regulated 
Fund (or its Wholly-Owned Investment Sub, as defined below) 
participated together with one or more other Regulated Funds and/or one 
or more Affiliated Funds in reliance on the requested Order. 
``Potential Co-Investment Transaction'' means any investment 
opportunity in which a Regulated Fund (or its Wholly-Owned Investment 
Sub, as defined below) could not participate together with one or more 
Affiliated Funds and/or one or more other Regulated Funds without 
obtaining and relying on the Order.\7\
---------------------------------------------------------------------------

    \4\ ``Regulated Fund'' means the Fund and any Future Regulated 
Fund. ``Future Regulated Fund'' means any closed-end management 
investment company (a) that is registered under the Act or has 
elected to be regulated as a BDC, (b) whose investment adviser is an 
Adviser, and (c) that intends to participate in the Co-Investment 
Program.
    The term ``Adviser'' means BCSFA and any Existing Bain Adviser 
and any future investment adviser that (i) controls, is controlled 
by or is under common control with Bain Capital, LP, and (ii) is 
registered as an investment adviser under the Advisers Act and (iii) 
is not a Regulated Fund or a subsidiary of a Regulated Fund.
    \5\ ``Future Affiliated Fund'' means any entity (a) whose 
investment adviser is an Adviser, (b) that would be an investment 
company but for section 3(c)(1) or 3(c)(7) of the Act, and (c) that 
intends to participate in the Co-Investment Program.
    \6\ The term ``private placement transactions'' means 
transactions in which the offer and sale of securities by the issuer 
are exempt from registration under the Securities Act.
    \7\ All existing entities that currently intend to rely upon the 
requested Order have been named as applicants. Any other existing or 
future entity that subsequently relies on the Order will comply with 
the terms and conditions of the application.
---------------------------------------------------------------------------

    10. Applicants state that a Regulated Fund may, from time to time, 
form one or more Wholly-Owned Investment Subs.\8\ Such a subsidiary 
would be prohibited from investing in a Co-Investment Transaction with 
any Affiliated Fund or Regulated Fund because it would be a company 
controlled by its parent Regulated Fund for purposes of section 
57(a)(4) and rule 17d-1. Applicants request that each Wholly-Owned 
Investment Sub be permitted to participate in Co-Investment 
Transactions in lieu of its parent Regulated Fund and that the Wholly-
Owned Investment Sub's participation in any such transaction be 
treated, for purposes of the requested Order, as though the parent 
Regulated Fund were participating directly. Applicants represent that 
this treatment is justified because a Wholly-Owned Investment Sub would 
have no purpose other than serving as a holding vehicle for the 
Regulated Fund's investments and, therefore, no conflicts of interest 
could arise between the Regulated Fund and the Wholly-Owned Investment 
Sub. The Regulated Fund's Board would make all relevant determinations 
under the conditions with regard to a Wholly-Owned Investment Sub's 
participation in a Co-Investment Transaction, and the Regulated Fund's 
Board would be informed of, and take into consideration, any proposed 
use of a Wholly-Owned Investment Sub in the Regulated Fund's place. If 
the Regulated Fund proposes to participate in the same Co-Investment 
Transaction with any of its Wholly-Owned Investment Subs, the Board 
will also be informed of, and take into consideration, the relative 
participation of the Regulated Fund and the Wholly-Owned Investment 
Sub.
---------------------------------------------------------------------------

    \8\ The term ``Wholly-Owned Investment Sub'' means an entity (i) 
that is wholly-owned by a Regulated Fund (with the Regulated Fund at 
all times holding, beneficially and of record, 100% of the voting 
and economic interests); (ii) whose sole business purpose is to hold 
one or more investments on behalf of the Regulated Fund; (iii) with 
respect to which the Regulated Fund's Board has the sole authority 
to make all determinations with respect to the entity's 
participation under the conditions of the Application; and (iv) that 
would be an investment company but for section 3(c)(1) or 3(c)(7) of 
the Act.
---------------------------------------------------------------------------

    11. When considering Potential Co-Investment Transactions for any 
Regulated Fund, the applicable Adviser will consider only the 
Objectives and Strategies, investment policies, investment positions, 
capital available for investment, and other pertinent factors 
applicable to that Regulated Fund. The Regulated Fund Advisers expect 
that any portfolio company that is an appropriate investment for a 
Regulated Fund should also be an appropriate investment for one or more 
other Regulated Funds and/or one or more Affiliated Funds, with certain 
exceptions based on available capital or diversification.\9\
---------------------------------------------------------------------------

    \9\ The Regulated Funds, however, will not be obligated to 
invest, or co-invest, when investment opportunities are referred to 
them.
---------------------------------------------------------------------------

    12. Other than pro rata dispositions and Follow-On Investments as 
provided in conditions 7 and 8, and after making

[[Page 51525]]

the determinations required in conditions 1 and 2(a), the Adviser will 
present each Potential Co-Investment Transaction and the proposed 
allocation to the directors of the Board eligible to vote under section 
57(o) of the Act (``Eligible Directors''), and the ``required 
majority,'' as defined in section 57(o) of the Act (``Required 
Majority'') \10\ will approve each Co-Investment Transaction prior to 
any investment by the participating Regulated Fund.
---------------------------------------------------------------------------

    \10\ In the case of a Regulated Fund that is a registered 
closed-end fund, the Board members that make up the Required 
Majority will be determined as if the Regulated Fund were a BDC 
subject to Section 57(o).
---------------------------------------------------------------------------

    13. With respect to the pro rata dispositions and Follow-On 
Investments provided in conditions 7 and 8, a Regulated Fund may 
participate in a pro rata disposition or Follow-On Investment without 
obtaining prior approval of the Required Majority if, among other 
things: (i) the proposed participation of each Regulated Fund and 
Affiliated Fund in such disposition is proportionate to its outstanding 
investments in the issuer immediately preceding the disposition or 
Follow-On Investment, as the case may be; and (ii) the Board of the 
Regulated Fund has approved that Regulated Fund's participation in pro 
rata dispositions and Follow-On Investments as being in the best 
interests of the Regulated Fund. If the Board does not so approve, any 
such disposition or Follow-On Investment will be submitted to the 
Regulated Fund's Eligible Directors. The Board of any Regulated Fund 
may at any time rescind, suspend or qualify its approval of pro rata 
dispositions and Follow-On Investments with the result that all 
dispositions and/or Follow-On Investments must be submitted to the 
Eligible Directors.
    14. No Non-Interested Director of a Regulated Fund will have a 
financial interest in any Co-Investment Transaction, other than through 
share ownership in one of the Regulated Funds.
    Applicants' Legal Analysis:
    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
of a BDC from participating in joint transactions with the BDC or a 
company controlled by a BDC in contravention of rules as prescribed by 
the Commission. Under section 57(b)(2) of the Act, any person who is 
directly or indirectly controlling, controlled by, or under common 
control with a BDC is subject to section 57(a)(4). Applicants submit 
that each of the Regulated Funds and Affiliated Funds be deemed to be a 
person related to each Regulated Fund in a manner described by section 
57(b) by virtue of being under common control. Section 57(i) of the Act 
provides that, until the Commission prescribes rules under section 
57(a)(4), the Commission's rules under section 17(d) of the Act 
applicable to registered closed-end investment companies will be deemed 
to apply to transactions subject to section 57(a)(4). Because the 
Commission has not adopted any rules under section 57(a)(4), rule 17d-1 
also applies to joint transactions with Regulated Funds that are BDCs. 
Section 17(d) of the Act and rule 17d-1 under the Act are applicable to 
Regulated Funds that are registered closed-end investment companies.
    2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
affiliated persons of a registered investment company from 
participating in joint transactions with the company unless the 
Commission has granted an order permitting such transactions. In 
passing upon applications under rule 17d-1, the Commission considers 
whether the company's participation in the joint transaction is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which such participation is on a basis different from or 
less advantageous than that of other participants.
    3. Applicants state that in the absence of the requested relief, 
the Regulated Funds would be, in some circumstances, limited in their 
ability to participate in attractive and appropriate investment 
opportunities. Applicants believe that the proposed terms and 
conditions will ensure that the Co-Investment Transactions are 
consistent with the protection of each Regulated Fund's shareholders 
and with the purposes intended by the policies and provisions of the 
Act. Applicants state that the Regulated Funds' participation in the 
Co-Investment Transactions will be consistent with the provisions, 
policies, and purposes of the Act and on a basis that is not different 
from or less advantageous than that of other participants.
    4. Applicants also represent that if the Advisers, certain 
employees and principals of Bain and its affiliated advisers 
(collectively, the ``Principals''), any person controlling, controlled 
by, or under common control with the Advisers or the Principals, and 
the Affiliated Funds (collectively, the ``Holders'') own in the 
aggregate more than 25 percent of the outstanding voting securities of 
a Regulated Fund (``Shares''), then the Holders will vote such Shares 
as required under Condition 14. Applicants believe that this condition 
will ensure that the Non-Interested Directors will act independently in 
evaluating the Co-Investment Program, because the ability of the 
Advisers or the Principals to influence the Non-Interested Directors by 
a suggestion, explicit or implied, that the Non-Interested Directors 
can be removed will be limited significantly. Applicants represent that 
the Non-Interested Directors will evaluate and approve any such 
independent party, taking into account its qualifications, reputation 
for independence, cost to the shareholders, and other factors that they 
deem relevant.
    Applicants' Conditions:
    Applicants agree that the Order will be subject to the following 
conditions:
    1. Each time an Adviser considers a Potential Co-Investment 
Transaction for an Affiliated Fund or another Regulated Fund that falls 
within a Regulated Fund's then-current Objectives and Strategies, the 
Regulated Fund's Adviser will make an independent determination of the 
appropriateness of the investment for such Regulated Fund in light of 
the Regulated Fund's then-current circumstances.
    2. (a) If the Adviser deems a Regulated Fund's participation in any 
Potential Co-Investment Transaction to be appropriate for the Regulated 
Fund, it will then determine an appropriate level of investment for the 
Regulated Fund.
    (b) If the aggregate amount recommended by the applicable Adviser 
to be invested by the applicable Regulated Fund in the Potential Co-
Investment Transaction, together with the amount proposed to be 
invested by the other participating Regulated Funds and Affiliated 
Funds, collectively, in the same transaction, exceeds the amount of the 
investment opportunity, the investment opportunity will be allocated 
among them pro rata based on each participant's capital available for 
investment in the asset class being allocated, up to the amount 
proposed to be invested by each. The applicable Adviser will provide 
the Eligible Directors of each participating Regulated Fund with 
information concerning each participating party's available capital to 
assist the Eligible Directors with their review of the Regulated Fund's 
investments for compliance with these allocation procedures.
    (c) After making the determinations required in conditions 1 and 
2(a), the applicable Adviser will distribute written information 
concerning the Potential Co-Investment Transaction (including the 
amount proposed to be invested by each participating Regulated Fund and 
Affiliated Fund) to the Eligible Directors of each participating 
Regulated Fund for their consideration. A Regulated Fund will co-invest 
with

[[Page 51526]]

one or more other Regulated Funds and/or one or more Affiliated Funds 
only if, prior to the Regulated Fund's participation in the Potential 
Co-Investment Transaction, a Required Majority concludes that:
    (i) the terms of the Potential Co-Investment Transaction, including 
the consideration to be paid, are reasonable and fair to the Regulated 
Fund and its shareholders and do not involve overreaching in respect of 
the Regulated Fund or its shareholders on the part of any person 
concerned;
    (ii) the Potential Co-Investment Transaction is consistent with:
    (A) the interests of the shareholders of the Regulated Fund; and
    (B) the Regulated Fund's then-current Objectives and Strategies;
    (iii) the investment by any other Regulated Funds or Affiliated 
Funds would not disadvantage the Regulated Fund, and participation by 
the Regulated Fund would not be on a basis different from or less 
advantageous than that of other Regulated Funds or Affiliated Funds; 
provided that, if any other Regulated Fund or Affiliated Fund, but not 
the Regulated Fund itself, gains the right to nominate a director for 
election to a portfolio company's board of directors or the right to 
have a board observer or any similar right to participate in the 
governance or management of the portfolio company, such event shall not 
be interpreted to prohibit the Required Majority from reaching the 
conclusions required by this condition 2(c)(iii), if:
    (A) the Eligible Directors will have the right to ratify the 
selection of such director or board observer, if any;
    (B) the applicable Adviser agrees to, and does, provide periodic 
reports to the Regulated Fund's Board with respect to the actions of 
such director or the information received by such board observer or 
obtained through the exercise of any similar right to participate in 
the governance or management of the portfolio company; and
    (C) any fees or other compensation that any Affiliated Fund or any 
Regulated Fund or any affiliated person of any Affiliated Fund or any 
Regulated Fund receives in connection with the right of an Affiliated 
Fund or a Regulated Fund to nominate a director or appoint a board 
observer or otherwise to participate in the governance or management of 
the portfolio company will be shared proportionately among the 
participating Affiliated Funds (who each may, in turn, share its 
portion with its affiliated persons) and the participating Regulated 
Funds in accordance with the amount of each party's investment; and
    (iv) the proposed investment by the Regulated Fund will not benefit 
the Advisers, the Affiliated Funds or the other Regulated Funds or any 
affiliated person of any of them (other than the parties to the Co-
Investment Transaction), except (A) to the extent permitted by 
condition 13, (B) to the extent permitted by sections 17(e) or 57(k) of 
the Act, as applicable, (C) indirectly, as a result of an interest in 
the securities issued by one of the parties to the Co-Investment 
Transaction, or (D) in the case of fees or other compensation described 
in condition 2(c)(iii)(C).
    3. Each Regulated Fund has the right to decline to participate in 
any Potential Co-Investment Transaction or to invest less than the 
amount proposed.
    4. The applicable Adviser will present to the Board of each 
Regulated Fund, on a quarterly basis, a record of all investments in 
Potential Co-Investment Transactions made by any of the other Regulated 
Funds or Affiliated Funds during the preceding quarter that fell within 
the Regulated Fund's then-current Objectives and Strategies that were 
not made available to the Regulated Fund, and an explanation of why the 
investment opportunities were not offered to the Regulated Fund. All 
information presented to the Board pursuant to this condition will be 
kept for the life of the Regulated Fund and at least two years 
thereafter, and will be subject to examination by the Commission and 
its staff.
    5. Except for Follow-On Investments made in accordance with 
condition 8,\11\ a Regulated Fund will not invest in reliance on the 
Order in any issuer in which another Regulated Fund, Affiliated Fund, 
or any affiliated person of another Regulated Fund or Affiliated Fund 
is an existing investor.
---------------------------------------------------------------------------

    \11\ This exception applies only to Follow-On Investments by a 
Regulated Fund in issuers in which that Regulated Fund already holds 
investments.
---------------------------------------------------------------------------

    6. A Regulated Fund will not participate in any Potential Co-
Investment Transaction unless the terms, conditions, price, class of 
securities to be purchased, settlement date, and registration rights 
will be the same for each participating Regulated Fund and Affiliated 
Fund. The grant to an Affiliated Fund or another Regulated Fund, but 
not the Regulated Fund, of the right to nominate a director for 
election to a portfolio company's board of directors, the right to have 
an observer on the board of directors or similar rights to participate 
in the governance or management of the portfolio company will not be 
interpreted so as to violate this condition 6, if conditions 
2(c)(iii)(A), (B) and (C) are met.
    7. (a) If any Affiliated Fund or any Regulated Fund elects to sell, 
exchange or otherwise dispose of an interest in a security that was 
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed disposition at the earliest 
practical time; and
    (ii) formulate a recommendation as to participation by each 
Regulated Fund in the disposition.
    (b) Each Regulated Fund will have the right to participate in such 
disposition on a proportionate basis, at the same price and on the same 
terms and conditions as those applicable to the participating 
Affiliated Funds and any other Regulated Fund.
    (c) A Regulated Fund may participate in such disposition without 
obtaining prior approval of the Required Majority if: (i) The proposed 
participation of each Regulated Fund and each Affiliated Fund in such 
disposition is proportionate to its outstanding investments in the 
issuer immediately preceding the disposition; (ii) the Board of the 
Regulated Fund has approved as being in the best interests of the 
Regulated Fund the ability to participate in such dispositions on a pro 
rata basis (as described in greater detail in the application); and 
(iii) the Board of the Regulated Fund is provided on a quarterly basis 
with a list of all dispositions made in accordance with this condition. 
In all other cases, the Adviser will provide its written recommendation 
as to the Regulated Fund's participation to the Eligible Directors, and 
the Regulated Fund will participate in such disposition solely to the 
extent that a Required Majority determines that it is in the Regulated 
Fund's best interests.
    (d) Each Affiliated Fund and each Regulated Fund will bear its own 
expenses in connection with any such disposition.
    8. (a) If any Affiliated Fund or any Regulated Fund desires to make 
a Follow-On Investment in a portfolio company whose securities were 
acquired in a Co-Investment Transaction, the applicable Advisers will:
    (i) Notify each Regulated Fund that participated in the Co-
Investment Transaction of the proposed transaction at the earliest 
practical time; and
    (ii) formulate a recommendation as to the proposed participation, 
including

[[Page 51527]]

the amount of the proposed Follow-On Investment, by each Regulated 
Fund.
    (b) A Regulated Fund may participate in such Follow-On Investment 
without obtaining prior approval of the Required Majority if: (i) The 
proposed participation of each Regulated Fund and each Affiliated Fund 
in such investment is proportionate to its outstanding investments in 
the issuer immediately preceding the Follow-On Investment; and (ii) the 
Board of the Regulated Fund has approved as being in the best interests 
of the Regulated Fund the ability to participate in Follow-On 
Investments on a pro rata basis (as described in greater detail in the 
application). In all other cases, the Adviser will provide its written 
recommendation as to the Regulated Fund's participation to the Eligible 
Directors, and the Regulated Fund will participate in such Follow-On 
Investment solely to the extent that a Required Majority determines 
that it is in the Regulated Fund's best interests.
    (c) If, with respect to any Follow-On Investment:
    (i) The amount of the opportunity is not based on the Regulated 
Funds' and the Affiliated Funds' outstanding investments immediately 
preceding the Follow-On Investment; and
    (ii) the aggregate amount recommended by the Adviser to be invested 
by each Regulated Fund in the Follow-On Investment, together with the 
amount proposed to be invested by the participating Affiliated Funds in 
the same transaction, exceeds the amount of the opportunity; then the 
amount invested by each such party will be allocated among them pro 
rata based on each participant's capital available for investment in 
the asset class being allocated, up to the amount proposed to be 
invested by each.
    (d) The acquisition of Follow-On Investments as permitted by this 
condition will be considered a Co-Investment Transaction for all 
purposes and subject to the other conditions set forth in the 
application.
    9. The Non-Interested Directors of each Regulated Fund will be 
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including 
investments made by other Regulated Funds or Affiliated Funds that the 
Regulated Fund considered but declined to participate in, so that the 
Non-Interested Directors may determine whether all investments made 
during the preceding quarter, including those investments that the 
Regulated Fund considered but declined to participate in, comply with 
the conditions of the Order. In addition, the Non-Interested Directors 
will consider at least annually the continued appropriateness for the 
Regulated Fund of participating in new and existing Co-Investment 
Transactions.
    10. Each Regulated Fund will maintain the records required by 
section 57(f)(3) of the Act as if each of the Regulated Funds were a 
BDC and each of the investments permitted under these conditions were 
approved by the Required Majority under section 57(f) of the Act.
    11. No Non-Interested Director of a Regulated Fund will also be a 
director, general partner, managing member or principal, or otherwise 
an ``affiliated person'' (as defined in the Act), of an Affiliated 
Fund.
    12. The expenses, if any, associated with acquiring, holding or 
disposing of any securities acquired in a Co-Investment Transaction 
(including, without limitation, the expenses of the distribution of any 
such securities registered for sale under the Securities Act) will, to 
the extent not payable by the Advisers under their respective 
investment advisory agreements with Affiliated Funds and the Regulated 
Funds, be shared by the Regulated Funds and the Affiliated Funds in 
proportion to the relative amounts of the securities held or to be 
acquired or disposed of, as the case may be.
    13. Any transaction fee \12\ (including break-up or commitment fees 
but excluding broker's fees contemplated by section 17(e) or 57(k) of 
the Act, as applicable) received in connection with a Co-Investment 
Transaction will be distributed to the participating Regulated Funds 
and Affiliated Funds on a pro rata basis based on the amounts they 
invested or committed, as the case may be, in such Co-Investment 
Transaction. If any transaction fee is to be held by an Adviser pending 
consummation of the transaction, the fee will be deposited into an 
account maintained by such Adviser at a bank or banks having the 
qualifications prescribed in section 26(a)(1) of the Act, and the 
account will earn a competitive rate of interest that will also be 
divided pro rata among the participating Regulated Funds and Affiliated 
Funds based on the amounts they invest in such Co-Investment 
Transaction. None of the Affiliated Funds, the Advisers, the other 
Regulated Funds or any affiliated person of the Regulated Funds or 
Affiliated Funds will receive additional compensation or remuneration 
of any kind as a result of or in connection with a Co-Investment 
Transaction (other than (a) in the case of the Regulated Funds and the 
Affiliated Funds, the pro rata transaction fees described above and 
fees or other compensation described in condition 2(c)(iii)(C); and (b) 
in the case of an Adviser, investment advisory fees paid in accordance 
with the agreement between the Adviser and the Regulated Fund or 
Affiliated Fund.
---------------------------------------------------------------------------

    \12\ Applicants are not requesting and the staff is not 
providing any relief for transaction fees received in connection 
with any Co-Investment Transaction.
---------------------------------------------------------------------------

    14. If the Holders own in the aggregate more than 25 percent of the 
Shares of a Regulated Fund, then the Holders will vote such Shares as 
directed by an independent third party when voting on (1) the election 
of directors; (2) the removal of one or more directors; or (3) any 
other matter under either the Act or applicable State law affecting the 
Board's composition, size or manner of election.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18467 Filed 8-3-16; 8:45 am]
 BILLING CODE 8011-01-P


