
[Federal Register Volume 82, Number 101 (Friday, May 26, 2017)]
[Notices]
[Pages 24418-24424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10795]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32642; 812-14408]


Corporate Capital Trust, Inc., et al.

May 22, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    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'') and closed-end management investment 
companies to co-invest in portfolio companies with each other and with 
certain affiliated investment funds and accounts.\1\
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    \1\ The requested order (``Order'') would supersede an exemptive 
order issued by the Commission on May 21, 2013 (In the Matter of 
Corporate Capital Trust, et al., Investment Company Act Release Nos. 
30494 (Apr. 25, 2013) (notice) and 30526 (May 21, 2013) (order)) 
(the ``Prior Order''), with the result that no person will continue 
to rely on the Prior Order if the Order is granted.

Applicants:  Corporate Capital Trust, Inc. (``CCT I''); Corporate 
Capital Trust II (``CCT II''); KKR Income Opportunities Fund (``KIO,'' 
and together with CCT I and CCT II, the ``Existing Regulated 
Entities''); CNL Fund Advisors Company (``CFA''); CNL Fund Advisors II, 
LLC (``CFA II''); KKR Credit Advisors (US) LLC (``KKR Credit''); the 
investment advisory subsidiaries and relying advisers of KKR Credit set 
forth on Schedule A to the application (collectively, with KKR Credit, 
the ``Existing KKR Credit Advisers''); KKR Capital Markets Holdings 
L.P. and its capital markets subsidiaries and other indirect, wholly- 
or majority-owned subsidiaries of KKR & Co. L.P. (``KKR'') set forth on 
Schedule A to the application (collectively, the ``KCM Companies''); 
\2\ KKR Financial Holdings LLC (``KFN'') and its wholly-owned 
subsidiaries set forth on Schedule A to the application (together with 
wholly-owned subsidiaries of KFN that may be formed in the future, the 
``KFN Subsidiaries.''); the Existing Affiliated Funds set forth on 
Schedule A to the application \3\; and Prisma Capital Partners LP (the 
``Existing KKR Primary Adviser'').
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    \2\ These entities are all indirect, wholly- or majority-owned 
subsidiaries of KKR and, from time to time, may hold various 
financial assets in a principal capacity (in such capacity, 
``Existing KKR Proprietary Accounts'').
    \3\ The Existing Affiliated Funds, together with their direct 
and indirect wholly-owned subsidiaries, are entities (i) (A) whose 
primary investment adviser is an Existing KKR Credit Adviser or (B) 
whose primary investment adviser is the Existing KKR Primary Adviser 
and whose sub-adviser is an Existing KKR Credit Adviser (``Sub-
Advised Affiliated Fund'') and (ii) that either (A) would be an 
investment company but for section 3(c)(1) or 3(c)(7) of the Act or 
(B) may rely on the rule 3a-7 exemption from investment company 
status. Certain Existing Affiliated Funds are collateralized loan 
obligation (``CLO'') entities that rely on rule 3a-7 under the Act 
in addition to section 3(c)(7) thereof. These Existing Affiliated 
Funds are all advised by Existing KKR Credit Advisers.

Filing Dates:  The application was filed on December 24, 2014, and 
amended on June 1, 2015, December 7, 2015, July 14, 2016, and May 8, 
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2017.

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 June 16, 2017, and

[[Page 24419]]

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: Secretary, U.S. Securities and Exchange Commission, 100 F 
St. NE., Washington, DC 20549-1090. Applicants: CCT I, CCT II, CFA, and 
CFA II, 450 S. Orange Avenue, Orlando, FL 32801; KIO, KKR Credit, KKR 
the KCM Companies, KFN, the KFN Subsidiaries, the Existing Affiliated 
Funds, and the Existing KKR Primary Adviser, 555 California Street, 
50th Floor, San Francisco, CA 94104.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812 or David J. Marcinkus, Branch Chief, at (202) 551-
6821 (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. CCT I, a Maryland corporation, and CCT II, a Delaware statutory 
trust, are closed-end management investment companies that have elected 
to be regulated as BDCs under the Act.\4\ Each of CCT I and CCT II's 
investment objective is to provide shareholders with current income 
and, to a lesser extent, long-term capital appreciation. CCT I and CCT 
II each have a five-member Board, of which three members are 
Independent Directors.\5\
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    \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 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.
    \5\ ``Board'' means the board of directors of CCT I, CCT II, 
KIO, and any other Regulated Entity.
    ``Independent Directors'' means the independent directors of CCT 
I, CCT II, KIO, and the independent directors or trustees of any 
other Regulated Entity who are not ``interested persons'' within the 
meaning of section 2(a)(19) of the Act.
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    2. KIO, a Delaware statutory trust, is a non-diversified, closed-
end management investment company registered under the Act. KIO's 
primary investment objective is to seek a high level of current income 
with a secondary objective of capital appreciation. KIO has a four 
member Board, of which three members are Independent Directors.
    3. Each of CFA and CFA II is a subsidiary of CNL Financial Group, 
LLC and is registered as an investment adviser under the Investment 
Advisers Act of 1940 (the ``Advisers Act''). CFA serves as CCT I's 
investment adviser. CFA II serves as CCT II's investment adviser. A CFA 
Adviser (as defined below) will serve as the investment adviser and 
administrator to each Regulated Entity with KKR Credit as Sub-Adviser.
    4. KKR is a global investment firm structured as a holding company 
that conducts its business through various subsidiaries, which include 
investment advisers and broker-dealers. KKR also holds various 
financial assets in a principal capacity. KKR Credit, a subsidiary of 
KKR, is a Delaware limited liability company registered as an 
investment adviser under the Advisers Act. KKR Credit serves as 
investment adviser to KIO and as sub-adviser to CCT I and CCT II. The 
CFA Advisers and the KKR Credit Advisers are not affiliated persons or 
affiliated persons of affiliated persons (as defined in the Act), 
except for the affiliation that arises as a result of serving as the 
advisers of any Regulated Entity with KKR Credit as Sub-Adviser.
    5. The Existing KKR Primary Adviser is registered as an investment 
adviser under the Advisers Act and serves as the primary investment 
adviser to the Sub-Advised Affiliated Funds. A KKR Primary Adviser will 
serve as the primary investment adviser to any Sub-Advised Affiliated 
Fund.
    6. KFN, a majority-owned subsidiary of KKR, is a specialty finance 
company that is externally advised by an Existing KKR Credit Adviser. 
KFN, which was acquired by KKR on April 30, 2014, is a holding company 
that engages in its specialty finance business through the wholly-owned 
KFN Subsidiaries, which rely on one or more exemptions or exceptions 
from the definition of an investment company.
    7. The KCM Companies are indirect, wholly- or majority-owned 
subsidiaries of KKR and, from time to time, may hold various financial 
assets in a principal capacity (in such capacity, together with KFN and 
the KFN Subsidiaries, the ``Existing KKR Proprietary Accounts,'' and, 
together with any Future KKR Proprietary Account, the ``KKR Proprietary 
Accounts''). Each KKR Proprietary Account, other than the KCM 
Companies, is or will be advised by a KKR Credit Adviser.
    8. Applicants seek an order to permit one or more Regulated 
Entities \6\ and/or one or more Affiliated Investors \7\ 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 sections 17(d) and 57(a)(4) of the Act 
and rule 17d-1 thereunder.
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    \6\ ``Regulated Entity'' means any of the Existing Regulated 
Entities and any Future Regulated Entity.
    ``Future Regulated Entity'' means any closed-end management 
investment company formed in the future (a) that is registered under 
the Act or has elected to be regulated as a BDC, (b)(i) whose 
investment adviser is KKR Credit or (ii) whose investment adviser is 
a CFA Adviser and whose sub-adviser is KKR Credit.
    ``Regulated Entity with KKR Credit as Sub-Adviser'' means a 
Regulated Entity whose investment adviser is a CFA Adviser and whose 
sub-adviser is KKR Credit.
    ``CFA Adviser'' means CFA, CFA II, or any future investment 
adviser that (i) controls, is controlled by, or is under common 
control with CFA, (ii) is registered as an investment adviser under 
the Advisers Act, and (iii) is not a Regulated Entity or a 
subsidiary of a Regulated Entity.
    ``KKR Credit Adviser'' means any Existing KKR Credit Adviser or 
any future investment adviser that (i) is controlled by, or a 
relying adviser of, KKR Credit, (ii) is registered as an investment 
adviser under the Advisers Act, and (iii) is not a Regulated Entity 
or a subsidiary of a Regulated Entity.
    ``Adviser'' means any KKR Credit Adviser or any CFA Adviser. The 
term Adviser does not include any KKR Primary Adviser.
    ``KKR Primary Adviser'' means the Existing KKR Primary Adviser 
or any future investment adviser that (i) is controlled by KKR, (ii) 
is registered as an investment adviser under the Advisers Act, and 
(iii) is not a KKR Credit Adviser.
    \7\ ``Affiliated Investor'' means (a) any Existing Affiliated 
Fund, (b) any Future Affiliated Fund, (c) any Existing KKR 
Proprietary Account; or (d) any Future KKR Proprietary Account.
    ``Future Affiliated Fund'' means an entity formed in the future 
(a)(i) whose primary investment adviser is a KKR Credit Adviser or 
(ii) whose primary adviser is a KKR Primary Adviser and whose sub-
adviser is a KKR Credit Adviser (``a ``Sub-Advised Affiliated 
Fund''), and (b)(i) that would be an investment company but for 
section 3(c)(1) or 3(c)(7) of the Act or (ii) with respect to CLO 
entities, may rely on Rule 3a-7 under the 1940 Act in addition to 
Section 3(c)(7) of the 1940 Act.
    ``Future KKR Proprietary Account'' means an indirect, wholly- or 
majority-owned subsidiary of KKR that is formed in the future and, 
from time to time, may hold various financial assets in a principal 
capacity.
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    9. For purposes of the requested Order, ``Co-Investment 
Transaction'' means any transaction in which a Regulated Entity (or its 
Blocker Subsidiary) participated together with one or more other 
Regulated Entities and/or one or more Affiliated Investors in reliance 
on the requested Order or the Prior Order. ``Potential Co-Investment 
Transaction'' means any investment opportunity in which a Regulated 
Entity (or its Blocker Subsidiary) could not

[[Page 24420]]

participate together with one or more Affiliated Investors and/or one 
or more other Regulated Entities without obtaining and relying on the 
Order.\8\ Neither any CFA Adviser nor any KKR Primary Adviser will be 
the source of any Potential Co-Investment Transaction.
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    \8\ 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.
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    10. Applicants state that a Regulated Entity may, from time to 
time, form a special purpose subsidiary (a ``Blocker Subsidiary'').\9\ 
A Blocker Subsidiary would be prohibited from investing in a Co-
Investment Transaction with any Affiliated Investor or Regulated Entity 
because it would be a company controlled by its parent Regulated Entity 
for purposes of section 57(a)(4) and rule 17d-1. Applicants request 
that a Blocker Subsidiary be permitted to participate in Co-Investment 
Transactions in lieu of its parent Regulated Entity and that the 
Blocker Subsidiary's participation in any such transaction be treated, 
for purposes of the requested Order, as though the parent Regulated 
Entity were participating directly.
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    \9\ ``Blocker Subsidiary'' means an entity (i) whose sole 
business purpose is to hold one or more investments on behalf of the 
Regulated Entity; (ii) that is wholly-owned by a Regulated Entity 
(with the Regulated Entity at all times holding, beneficially and of 
record, 100% of the voting and economic interests); (iii) with 
respect to which the Regulated Entity'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 
does not pay a separate advisory fee, including any performance-
based fee, to any person; and (v) that is an entity that would be an 
investment company but for section 3(c)(1) or 3(c)(7) of the Act.
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    11. Applicants note that CFA is responsible for the overall 
management of CCT I, while KKR Credit is responsible for the day-to-day 
management of CCT I's investment portfolio. CFA II is responsible for 
the overall management of CCT II, while KKR Credit is responsible for 
the day-to-day management of CCT II's investment portfolio. Applicants 
represent that although KKR Credit will identify and recommend 
investments for the Regulated Entities with KKR Credit as Sub-Adviser, 
the CFA Advisers will have ultimate authority to approve or reject the 
investments proposed by KKR Credit, subject to the oversight of the 
Board of each Regulated Entity.
    12. Applicants state that opportunities for Potential Co-Investment 
Transactions may arise when advisory personnel of a KKR Credit Adviser 
become aware of investment opportunities that may be appropriate for a 
Regulated Entity, one or more other Regulated Entities and/or one or 
more Affiliated Investors. In such cases, Applicants state that the 
Adviser to a Regulated Entity will be notified of such Potential Co-
Investment Transactions and of KKR Credit's recommended allocation. 
Applicants submit that the Adviser will then independently analyze and 
evaluate the investment opportunity as to its appropriateness for each 
Regulated Entity for which it serves as investment adviser, taking into 
consideration the Regulated Entity's Objectives and Strategies \10\ and 
any Board-Established Criteria.\11\ Applicants represent that, if the 
CFA Adviser to a Regulated Entity determines that the opportunity is 
appropriate for the Regulated Entity, the CFA Adviser will present the 
investment opportunity to the CFA Adviser's investment committee for 
its approval. If the CFA Adviser's investment committee approves the 
investment for the Regulated Entity, the CFA Adviser will present the 
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'') \12\ will approve such 
Co-Investment Transaction prior to any investment by the participating 
Regulated Entity.
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    \10\ ``Objectives and Strategies'' means a Regulated Entity's 
investment objectives and strategies, as described in the Regulated 
Entity's registration statement on Form N-2, other filings the 
Regulated Entity has made with the Commission under the Securities 
Act of 1933, as amended (the ``1933 Act''), or under the Securities 
and Exchange Act of 1934, as amended, and the Regulated Entity's 
reports to shareholders.
    \11\ ``Board-Established Criteria'' means criteria that the 
Board of a Regulated Entity may establish from time to time to 
describe the characteristics of Potential Co-Investment Transactions 
regarding which each Adviser to the Regulated Entity should be 
notified under condition 1. The Board-Established Criteria will be 
consistent with a Regulated Entity's Objectives and Strategies. If 
no Board-Established Criteria are in effect, then each Adviser to a 
Regulated Entity will be notified of all Potential Co-Investment 
Transactions that fall within the Regulated Entity's then-current 
Objectives and Strategies. Board-Established Criteria will be 
objective and testable, meaning that they will be based on 
observable information, such as industry/sector of the issuer, 
minimum EBITDA of the issuer, asset class of the investment 
opportunity or required commitment size, and not on characteristics 
that involve a discretionary assessment. Each Adviser to a Regulated 
Entity may from time to time recommend criteria for the Board's 
consideration, but Board-Established Criteria will only become 
effective if approved by a majority of the Independent Directors. 
The Independent Directors of a Regulated Entity may at any time 
rescind, suspend, or qualify its approval of any Board-Established 
Criteria, though applicants anticipate that, under normal 
circumstances, the Board would not modify these criteria more often 
than quarterly.
    \12\ In the case of a Regulated Entity that is a registered 
closed-end fund, the Board members that make up the Required 
Majority will be determined as if the Regulated Entity were a BDC 
subject to section 57(o).
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    13. Applicants state that KKR Credit has an investment committee 
through which KKR Credit will carry out its obligation under condition 
1 to make a determination as to the appropriateness of the Potential 
Co-Investment Transaction for any Regulated Entity. Applicants 
represent that in the case of a Potential Co-Investment Transaction, 
KKR Credit would apply its allocation policies and procedures in 
determining the proposed allocation for the Regulated Entity consistent 
with the requirements of condition 2(a). Applicants further note that 
each CFA Adviser and KKR Credit has adopted its own allocation policies 
and procedures that take into account the allocation policies and 
procedures for the Regulated Entities. Applicants believe that while 
each KKR Credit client may not participate in each investment 
opportunity, over time each KKR Credit client would participate in 
investment opportunities fairly and equitably.
    14. Applicants submit that, if a Potential Co-Investment 
Transaction were within the investment objectives and strategies of a 
Sub-Advised Affiliated Fund, the KKR Credit Adviser would have primary 
responsibility for the investment, including making the initial 
investment recommendation. Applicants further note that the KKR Credit 
Adviser will be responsible for complying with the conditions of the 
Order that relate to any Sub-Advised Affiliated Fund. Applicants state 
that if the KKR Credit Adviser and KKR Primary Adviser agree that the 
Sub-Advised Affiliated Fund should invest in the Potential Co-
Investment Transaction and at what size of investment, the KKR Credit 
Adviser would then determine an allocation for the Regulated Entities 
and Affiliated Investors, including the Sub-Advised Affiliated Fund.
    15. Applicants acknowledge that some of the Affiliated Investors 
may not be funds advised by a KKR Credit Adviser because they are KKR 
Proprietary Accounts. The KKR Proprietary Accounts are either entities 
that are advised by a KKR Credit Adviser pursuant to an investment 
management agreement or, in the case of KCM Companies, are broker-
dealers that may hold financial assets in a principal capacity. 
Applicants do not believe the participation of these KKR Proprietary 
Accounts in Co-Investment Transactions should raise issues under the 
conditions

[[Page 24421]]

of this Application because KKR's and a KKR Credit Adviser's allocation 
policies and procedures provide that investment opportunities are 
offered to client accounts before they are offered to KKR Proprietary 
Accounts, even if the KKR Proprietary Accounts are the first to learn 
of an investment opportunity.
    16. Under condition 16, if an Adviser or its principals, or any 
person controlling, controlled by, or under common control with the 
Adviser or its principals, and any Affiliated Investor (collectively, 
the ``Holders'') own in the aggregate more than 25 percent of the 
outstanding voting shares of a Regulated Entity (``Shares''), 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) all other matters under either the Act or 
applicable state law affecting the Board's composition, size or manner 
of election.
    17. No Independent Director of a Regulated Entity will have a 
financial interest in any Co-Investment Transaction, other than 
indirectly through share ownership in one of the Regulated Entities.

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). 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 
applies.
    2. Rule 17d-1 under the Act prohibits 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 considering whether to grant an application under 
rule 17d-1, the Commission considers whether the participation by the 
company 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 submit that each of the Affiliated Investors and the 
Regulated Entities could be deemed to be a person related to each other 
Regulated Entity in a manner described by section 57(b) by virtue of 
being under common control. In addition, section 57(b) applies to any 
investment adviser to a Regulated Entity, including sub-advisers. 
Applicants submit that KKR Credit, in its role as sub-adviser to CCT I 
and CCT II, could be deemed to be a person related to CCT I and CCT II 
in a manner described in section 57(b). Therefore, KKR Credit and any 
person under common control with KKR Credit (such as the Regulated 
Entities and the Affiliated Investors) could be prohibited from 
participating in the Co-Investment Program with CCT I and CCT II by 
section 57(a)(4) and Rule 17d-1.
    4. 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.
    5. Applicants state that in the absence of the requested relief, 
the Regulated Entities 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 Entity's shareholders 
and with the purposes intended by the policies and provisions of the 
Act. Applicants state that the Regulated Entities' 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.

Applicants' Conditions

    Applicants agree that the Order will be subject to the following 
conditions:
    1. Each time a KKR Credit Adviser considers a Potential Co-
Investment Transaction for an Affiliated Investor or another Regulated 
Entity that falls within a Regulated Entity's then-current Objectives 
and Strategies and Board-Established Criteria, each Adviser to a 
Regulated Entity will make an independent determination of the 
appropriateness of the investment for the Regulated Entity in light of 
the Regulated Entity's then-current circumstances.
    2. (a) If each Adviser to a Regulated Entity deems participation in 
any Potential Co-Investment Transaction to be appropriate for the 
Regulated Entity, the Adviser (or Advisers, if there are more than one) 
will then determine an appropriate level of investment for such 
Regulated Entity.
    (b) If the aggregate amount recommended by the Adviser (or 
Advisers, if there are more than one) to a Regulated Entity to be 
invested by the Regulated Entity in the Potential Co-Investment 
Transaction, together with the amount proposed to be invested by the 
other participating Regulated Entities and Affiliated Investors, 
collectively, in the same transaction, exceeds the amount of the 
investment opportunity, the amount of the investment opportunity will 
be allocated among the Regulated Entities and such Affiliated 
Investors, pro rata based on each participant's Available Capital for 
investment in the asset class being allocated, up to the amount 
proposed to be invested by each.\13\ The Adviser (or Advisers, if there 
are more than one) to a Regulated Entity will provide the Eligible 
Directors of a Regulated Entity with information concerning each 
participating party's Available Capital to assist the Eligible 
Directors with their review of the Regulated Entity's investments for 
compliance with these allocation procedures.
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    \13\ ``Available Capital'' means (a) for each Regulated Entity, 
the amount of capital available for investment determined based on 
the amount of cash on hand, existing commitments and reserves, if 
any, the targeted leverage level, targeted asset mix and other 
investment policies and restrictions set from time to time by the 
Board of the applicable Regulated Entity or imposed by applicable 
laws, rules, regulations or interpretations, and (b) for each 
Affiliated Investor (excluding KKR Proprietary Accounts), the amount 
of capital available for investment determined based on the amount 
of cash on hand, existing commitments and reserves, if any, the 
targeted leverage level, targeted asset mix and other investment 
policies and restrictions set by the Affiliated Investors' 
directors, general partners, or adviser or imposed by applicable 
laws, rules, regulations or interpretations.
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    (c) After making the determinations required in conditions 1 and 
2(a) above, the Adviser to the Regulated Entity (or Advisers, if there 
are more than one) will distribute written information concerning the 
Potential Co-Investment Transaction, including the amount proposed to 
be invested by each Regulated Entity and any Affiliated Investor, to 
the Eligible Directors for their consideration. A Regulated Entity

[[Page 24422]]

will co-invest with one or more other Regulated Entities and/or an 
Affiliated Investor only if, prior to the Regulated Entities' and the 
Affiliated Investors' 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 
Entity and its shareholders and do not involve overreaching in respect 
of the Regulated Entity or its shareholders on the part of any person 
concerned;
    (ii) the Potential Co-Investment Transaction is consistent with:
    (A) The interests of the Regulated Entity's shareholders; and
    (B) the Regulated Entity's then-current Objectives and Strategies 
and Board-Established Criteria;
    (iii) the investment by any other Regulated Entity or an Affiliated 
Investor would not disadvantage the Regulated Entity, and participation 
by the Regulated Entity would not be on a basis different from or less 
advantageous than that of any other Regulated Entity or Affiliated 
Investor; provided that, if another Regulated Entity or Affiliated 
Investor, but not the Regulated Entity 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 a 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; and
    (B) the Adviser to the Regulated Entity (or Advisers, if there are 
more than one) agrees to, and does, provide periodic reports to the 
Regulated Entity'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 other Regulated Entity 
or any Affiliated Investor or any affiliated person of any other 
Regulated Entity or an Affiliated Investor receives in connection with 
the right of one or more Regulated Entities or Affiliated Investors 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 
Investors (who may, in turn, share their portion with their affiliated 
persons) and any participating Regulated Entity in accordance with the 
amount of each party's investment; and
    (iv) the proposed investment by the Regulated Entity will not 
benefit the Adviser to the Regulated Entity (or Advisers, if there are 
more than one), any other Regulated Entity, any KKR Primary Adviser or 
the Affiliated Investors 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 under 
sections 17(e) or 57(k) of the Act, as applicable, (C) in the case of 
fees or other compensation described in condition 2(c)(iii)(C), or (D) 
indirectly, as a result of an interest in the securities issued by one 
of the parties to the Co-Investment Transaction.
    3. A Regulated Entity will have the right to decline to participate 
in any Potential Co-Investment Transaction or to invest less than the 
amount proposed.
    4. The Adviser to the Regulated Entity (or Advisers, if there are 
more than one) will present to the Board of each Regulated Entity, on a 
quarterly basis, a record of all investments in Potential Co-Investment 
Transactions made by any of the other Regulated Entities or any of the 
Affiliated Investors during the preceding quarter that fell within the 
Regulated Entity's then-current Objectives and Strategies and Board-
Established Criteria that were not made available to the Regulated 
Entity, and an explanation of why the investment opportunities were not 
offered to the Regulated Entity. All information presented to the Board 
pursuant to this condition will be kept for the life of the Regulated 
Entity 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,\14\ a Regulated Entity will not invest in reliance on the 
Order in any issuer in which another Regulated Entity or an Affiliated 
Investor, or any affiliated person of another Regulated Entity or 
Affiliated Investor is an existing investor.
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    \14\ This exception applies only to Follow-On Investments by a 
Regulated Entity in issuers in which that Regulated Entity already 
holds investments.
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    6. A Regulated Entity 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 Entity and Affiliated 
Investor. The grant to one or more Regulated Entities or Affiliated 
Investors, but not the Regulated Entity itself, 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 Regulated Entity or Affiliated Investor elects to 
sell, exchange or otherwise dispose of an interest in a security that 
was acquired by one or more Regulated Entities and/or Affiliated 
Investors in a Co-Investment Transaction, the applicable Adviser(s) 
will: \15\
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    \15\ Any KCM Company that is not advised by an Adviser is itself 
deemed to be an Adviser for purposes of Conditions 7(a)(i) and 
8(a)(i).
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    (i) notify each Regulated Entity of the proposed disposition at the 
earliest practical time; and
    (ii) formulate a recommendation as to participation by the 
Regulated Entity in the disposition.
    (b) Each Regulated Entity 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 Affiliated 
Investors and any other Regulated Entity.
    (c) A Regulated Entity may participate in such disposition without 
obtaining prior approval of the Required Majority if:
    (i) The proposed participation of each Regulated Entity and each 
Affiliated Investor in such disposition is proportionate to its 
outstanding investments in the issuer immediately preceding the 
disposition;
    (ii) the Regulated Entity's Board has approved as being in the best 
interests of the Regulated Entity the ability to participate in such 
dispositions on a pro rata basis (as described in greater detail in the 
application); and
    (iii) the Regulated Entity's Board is provided on a quarterly basis 
with a list of all dispositions made in accordance with this condition. 
In all other cases, the Adviser to the Regulated Entity (or Advisers, 
if there are more than one) will provide their written recommendation 
as to the Regulated Entity's participation to the Eligible Directors, 
and the Regulated Entity will participate in such disposition solely to 
the extent that a Required Majority determines that it is in the 
Regulated Entity's best interests.

[[Page 24423]]

    (d) Each Regulated Entity and each Affiliated Investor will bear 
its own expenses in connection with the disposition.
    8. (a) If any Regulated Entity or Affiliated Investor desires to 
make a Follow-On Investment in a portfolio company whose securities 
were acquired by the Regulated Entity and the Affiliated Investor in a 
Co-Investment Transaction, the applicable Adviser(s) will:
    (i) Notify the Regulated Entity of the proposed transaction at the 
earliest practical time; and
    (ii) formulate a recommendation as to the proposed participation, 
including the amount of the proposed Follow-On Investment, by the 
Regulated Entity.
    (b) A Regulated Entity may participate in such Follow-On Investment 
without obtaining prior approval of the Required Majority if:
    (i) The proposed participation of each Regulated Entity and each 
Affiliated Investor in such investment is proportionate to its 
outstanding investments in the issuer immediately preceding the Follow-
On Investment; and
    (ii) the Regulated Entity's Board has approved as being in the best 
interests of such Regulated Entity 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 to the 
Regulated Entity (or Advisers, if there are more than one) will provide 
their written recommendation as to such Regulated Entity's 
participation to the Eligible Directors, and the Regulated Entity will 
participate in such Follow-On Investment solely to the extent that a 
Required Majority determines that it is in such Regulated Entity's best 
interests.
    (c) If, with respect to any Follow-On Investment:
    (i) The amount of a Follow-On Investment is not based on the 
Regulated Entities' and the Affiliated Investors' outstanding 
investments immediately preceding the Follow-On Investment; and
    (ii) the aggregate amount recommended by the Adviser (or Advisers 
if there are more than one) to a Regulated Entity to be invested by the 
Regulated Entity in the Follow-On Investment, together with the amount 
proposed to be invested by the other Regulated Entities and the 
participating Affiliated Investors 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 
Available Capital 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 Independent Directors of each Regulated Entity will be 
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including 
investments made by other Regulated Entities or Affiliated Investors 
that the Regulated Entity considered but declined to participate in, so 
that the Independent Directors may determine whether all investments 
made during the preceding quarter, including those investments that the 
Regulated Entity considered but declined to participate in, comply with 
the conditions of the Order. In addition, the Independent Directors 
will consider at least annually (a) the continued appropriateness for 
the Regulated Entity of participating in new and existing Co-Investment 
Transactions, and (b) the continued appropriateness of any Board-
Established Criteria.
    10. Each Regulated Entity will maintain the records required by 
section 57(f)(3) of the Act as if each of the Regulated Entities were a 
BDC and each of the investments permitted under these conditions were 
approved by a Required Majority under section 57(f) of the Act.
    11. No Independent Director of a Regulated Entity will also be a 
director, general partner, managing member or principal, or otherwise 
an ``affiliated person'' (as defined in the Act) of any Affiliated 
Investor.
    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 1933 Act) shall, to the 
extent not payable by the applicable Adviser(s) under their respective 
advisory agreements with the Regulated Entities and the Affiliated 
Investors, be shared by the Regulated Entities and the Affiliated 
Investors 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 (including break-up or commitment fees but 
excluding broker's fees contemplated by section 17(e) or 57(k) of the 
Act, as applicable) \16\ received in connection with a Co-Investment 
Transaction will be distributed to the participating Regulated Entities 
and Affiliated Investors on a pro rata basis based on the amount 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) of the Act, and the 
account will earn a competitive rate of interest that will also be 
divided pro rata among the participating Regulated Entities and 
Affiliated Investors based on the amount they invest in the Co-
Investment Transaction. None of the other Regulated Entities, 
Affiliated Investors, the applicable Adviser(s), any KKR Primary 
Adviser nor any affiliated person of the Regulated Entities or the 
Affiliated Investors 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 
Entities and the Affiliated Investors, 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 the Advisers and KKR Primary 
Advisers, investment advisory fees paid in accordance with the 
Regulated Entities' and the Affiliated Investors' investment advisory 
agreements).
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    \16\ Applicants are not requesting and the Commission is not 
providing any relief for transaction fees received in connection 
with any Co-Investment Transaction.
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    14. The KKR Proprietary Accounts will not be permitted to invest in 
a Potential Co-Investment Transaction, except to the extent the demand 
from the Regulated Entities and the other Affiliated Investors is less 
than the total investment opportunity.
    15. The Advisers to the Regulated Entities and Affiliated Investors 
will maintain written policies and procedures reasonably designed to 
ensure compliance with the foregoing conditions. These policies and 
procedures will require, among other things, that each of the Advisers 
to each Regulated Entity will be notified of all Potential Co-
Investment Transactions that fall within such Regulated Entity's then-
current Objectives and Strategies and Board-Established Criteria and 
will be given sufficient information to make its independent 
determination and recommendations under conditions 1, 2(a), 7 and 8.
    16. If the Holders own in the aggregate more than 25 percent of the 
Shares of a Regulated Entity, then the Holders

[[Page 24424]]

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) all other matters 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.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10795 Filed 5-25-17; 8:45 am]
 BILLING CODE 8011-01-P


