[Federal Register Volume 83, Number 94 (Tuesday, May 15, 2018)]
[Notices]
[Pages 22560-22563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10246]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33094; File No. 812-14765]


TCW Direct Lending LLC, et al.;

May 9, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under sections 12(d)(1)(J), 
57(c), 57(i) and 60 of Investment Company Act of 1940 (the ``Act'') and 
rule 17d-1 under the Act to permit certain joint transactions otherwise 
prohibited by sections 12(d)(1)(A), 12(d)(1)(C), 57(a)(1), 57(a)(2) and 
57(a)(4) of the Act and rule 17d-1 under the Act.

Applicants: TCW Direct Lending LLC (the ``Fund''), TCW Middle Market 
Lending Opportunities BDC, Inc. (the ``Extension Fund''), and TCW Asset 
Management Company (the ``Adviser'').

Summary of Application: Applicants seek an order to permit the Fund (i) 
to conduct an exchange offer pursuant to which investors in the Fund 
(``Unitholders''), including certain directors and officers of the Fund 
and employees of the Adviser (collectively, the ``TCW Directors, 
Officers and Employees''), may elect to exchange all or a portion of 
their units in the Fund (``Units'') for an equivalent number of shares 
(``Shares'') in the Extension Fund (each such Unitholder, an ``Electing 
Unitholder''), and (ii) to transfer to the Extension Fund a pro rata 
portion of the Fund's assets and liabilities, including a pro rata 
portion of each of the Fund's portfolio investments, in proportion to 
the percentage of Units tendered and accepted for exchange.

Filing Dates: The application was filed on April 20, 2017, and amended 
on October 16, 2017, May 3, 2018, and May 9, 2018.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on May 30, 2018 and should be accompanied by proof of service on 
the applicants, in the form of an affidavit, or, for lawyers, a 
certificate of service. Pursuant to section 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 
Street NE, Washington, DC 20549-1090. The Applicants: c/o Adrian Rae 
Leipsic, Esq., and Adam E. Fleisher, Esq., Cleary Gottlieb Steen & 
Hamilton LLP, One Liberty Plaza, New York, New York 10006.

FOR FURTHER INFORMATION CONTACT: Asen Parachkevov, Senior Counsel, or 
David J. Marcinkus, 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 website 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. The Fund, a Delaware limited liability company, is a closed-end 
management investment company that has elected to be regulated as a 
business development company (``BDC'') under the Act. On April 18, 
2014, the Fund filed a registration statement on Form 10 to register 
Units pursuant to section 12(g) of the Exchange Act of 1934 (the 
``Exchange Act''). The Fund commenced operations on September 19, 2014. 
The Fund operates as a direct lending company that seeks to generate 
risk-adjusted returns primarily through direct investments in senior 
secured loans made to middle-market companies or other companies that 
are engaged in various businesses.
    2. The Fund conducted a private offering of its Units to investors 
in reliance on the exemption from registration provided by section 506 
of Regulation D under the Securities Act of 1933 (the ``Securities 
Act''). The Fund entered into subscription agreements with its 
Unitholders, pursuant to which the Unitholders made capital commitments 
to the Fund. The Units are not traded on an exchange and are not freely 
transferable.
    3. The Extension Fund, a Delaware corporation and a wholly-owned 
subsidiary of the Fund, intends to elect to be regulated as a BDC. 
Applicants state that the Extension Fund will have investment 
objectives and investment policies that are substantially similar to 
the Fund's. Applicants state that the Extension Fund intends to conduct 
an initial public offering or listing of its Shares immediately 
following the completion of the Proposed Transactions.
    4. The Adviser, a Delaware limited liability company, is registered 
as an investment adviser under the Investment Advisers Act of 1940 (the 
``Advisers Act''). The Adviser serves as investment adviser to the Fund 
pursuant to an investment advisory

[[Page 22561]]

agreement, and intends to serve as investment adviser to the Extension 
Fund.
    5. Applicants state that the Fund's legal interest in each of its 
existing portfolio investments is capable of being proportionally 
assigned or similarly transferred on a pro rata basis. Applicants 
further state that each of the credit agreements and loan documents 
governing the terms of the Fund's assets, which primarily consist of 
loans and other private investments in middle market companies, permits 
an assignment, participation or similar transfer by the Fund without 
the need for the written consent of any administrative or collateral 
agent, borrower or other party.
    6. Applicants state that the Fund's limited liability company 
operating agreement (the ``LLC Agreement'') provides that the Fund will 
be dissolved upon the expiration of its six-year term on September 19, 
2020 (subject to any extensions of the term in accordance with the 
procedures set forth in the LLC Agreement), whereupon the Fund's assets 
will be liquidated in an orderly manner, capital will be returned to 
the Unitholders, and the Fund will wind up. Applicants state that the 
Fund's organizational documents do not permit the Fund to conduct an 
initial public offering of its Units, and the Fund has agreed that no 
Unitholder will be required to participate in a publicly traded vehicle 
without such Unitholder's consent.
    7. Applicants state that the Fund's LLC Agreement provides for the 
ability of the Fund to engage in a ``split-off'' transaction, which, as 
described below and in greater detail in the application, would be 
implemented through the Exchange Offer, the Refinancing, the 
Contribution Transaction and the Share Issuance (each defined below, 
and, collectively, the ``Proposed Transactions''). The costs and 
expenses of the Proposed Transactions will be borne by the Adviser.\1\
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    \1\ All costs and expenses relating to the organization and 
operation of the Extension Fund will be borne by the Extension Fund 
as fully disclosed to investors prior to their decision to 
participate in the Exchange Offer.
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    8. If the requested order is granted, the Applicants propose to 
conduct an exchange offer, pursuant to which each Unitholder may elect 
to exchange a number of Units for an equivalent number of Shares (the 
``Exchange Offer''). The Exchange Offer will be conducted as a private 
placement pursuant to Regulation D and made in compliance with rule 
13e-4 under the Exchange Act and section 23(c)(2) of the Act.
    9. Applicants state that the Exchange Offer will not commence 
unless and until (1) the boards of the Fund and the Extension Fund (the 
``Fund Board'' and the ``Extension Fund Board'', and collectively, the 
``Boards''), including a ``required majority'' (as defined in section 
57(o) of the Act (``Required Majority'')) of the directors of each 
Board, authorize and approve the Proposed Transactions, and make all 
necessary determinations, including among other things, that: (i) The 
Proposed Transactions are in the best interests of the Fund or the 
Extension Fund, as applicable, (ii) the interests of Unitholders who 
elect to remain invested in the Fund and the interests of the Electing 
Unitholders will not be diluted as a result of effecting the Proposed 
Transactions, and (iii) following the Proposed Transactions, all 
Unitholders, including the Electing Unitholders, will hold the same pro 
rata interest in the same underlying portfolio investments as 
immediately prior to the Exchange; (2) the Fund Board, including a 
Required Majority, approves the participation in the Exchange by any 
``remote'' affiliate of the Fund, as described in Section 57(d) of the 
Act and as required under section 57(f) of the Act; and (3) the 
Extension Fund Board, including a Required Majority, and the Fund, in 
its capacity as initial shareholder of the Extension Fund, each approve 
the investment advisory agreement between the Extension Fund and the 
Adviser.
    10. Applicants state that simultaneously with the Share Issuance 
(as defined below), the Fund will transfer to the Extension Fund a pro 
rata portion of each of the Fund's assets and liabilities, including 
each of the Fund's portfolio investments, in proportion to the 
percentage of Units tendered by Electing Unitholders and accepted for 
exchange (the ``Contribution Transaction''). Applicants state that such 
computation will be objective and formulaic and determined solely on 
the basis of the percentage of Electing Unitholders, and will not be 
impacted by the valuation of the Fund's assets or any other factor that 
would impart an element of discretion. Applicants further state that 
material liabilities (other than those arising under the Fund's credit 
facility) will also be proportionally transferred or transferred on a 
pro rata basis by the Fund to the Extension Fund.
    11. Applicants state that simultaneously with the Contribution 
Transaction, the Extension Fund will issue the applicable number of 
Shares to each Electing Unitholder in exchange for the corresponding 
number of Units accepted by the Fund from such Electing Unitholder in 
the Exchange Offer (the ``Share Issuance'').
    12. Immediately prior to (and effectively contemporaneously with) 
the closing of the Exchange, the Contribution Transaction and the Share 
Issuance, (a) the Extension Fund will enter into a new credit facility 
and draw down an amount equal to the pro rata portion of the Fund's 
existing indebtedness immediately prior to the closing of the Exchange 
Offer attributable to the Units that have been validly tendered by 
Electing Unitholders and accepted for exchange, which amount will be 
distributed to the Fund and will be used to pay down the Fund's current 
outstanding senior secured revolving credit facility, and (b) the Fund 
will enter into a new credit facility to drawn down an amount to pay 
down the remainder of its existing credit facility (together, the 
``Refinancing'').
    13. Applicants believe that the Proposed Transactions will result 
in a number of benefits to Unitholders. Applicants state that the 
Proposed Transactions will provide Unitholders with the optionality 
that was negotiated for and was disclosed at the time of their 
investment in the Fund and will enable Unitholders to participate in 
the Extension Fund in a manner that promotes capital formation. 
Applicants state that the Proposed Transactions will position the 
Extension Fund to continue operations as a BDC with the goals of 
achieving greater economies of scale and completing an initial public 
offering or listing of its Shares. Applicants further state that by 
allowing the Unitholders to elect to participate in the Extension Fund, 
the Proposed Transactions will enable potential future retail investors 
to benefit from alignment with sophisticated institutional investors 
who elect to participate in the Extension Fund.

Legal Analysis

Section 57(a)(1) and 57(a)(2) of the Act

    1. The Applicants are requesting an exemption pursuant to section 
57(c) from the provisions of sections 57(a)(1) and 57(a)(2), in order 
to permit the Applicants to effect the Contribution Transaction and the 
Share Issuance.
    2. Sections 57(a)(1) provides that it shall be unlawful for any 
person who is related to a BDC in a manner described in section 57(b) 
\2\, acting as principal, to sell to such BDC, or to a company 
controlled by such BDC, any securities

[[Page 22562]]

or other property unless such sale involves solely (emphasis added) (i) 
securities of which the buyer is the issuer or (ii) securities of which 
the seller is the issuer and which are part of a general offering to 
the holders of a class of its securities.
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    \2\ Section 57(b) specifies the persons to whom the prohibitions 
of sections 57(a)(1), (a)(2) and (a)(4) apply.
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    3. Section 57(a)(2) provides that it shall be unlawful for any 
person who is related to a BDC in a manner described in section 57(b), 
acting as principal, to purchase from such BDC, or from a company 
controlled by such BDC, any securities or other property except for 
securities of which the seller is the issuer.
    4. Rule 57b-1 does not exempt the Fund and the Extension Fund from 
being subject to the prohibitions of section 57(a).\3\ In addition, the 
TCW Directors, Officers and Employees may be prohibited by section 
57(a)(1) and (2) from participating in the Share Issuance as a result 
of tendering their Units in the Exchange.
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    \3\ Rule 57b-1 exempts certain persons otherwise related to a 
BDC in a manner described in section 57(b)(2) from being subject to 
the prohibitions of section 57(a). Specifically, this rule states 
that the provisions of section 57(a) shall not apply to any person: 
(a) Solely because that person is directly or indirectly controlled 
by a BDC; or (b) solely because that person is directly or 
indirectly controlling, controlled by, or under common control with, 
a person described in (a) of the rule or is an officer, director, 
partner, copartner, or employee of a person described in (a) of the 
rule (emphasis added).
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    5. Section 57(c) authorizes the Commission to issue an exemptive 
order if (i) the terms of the proposed transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching of the BDC or its shareholders or partners on 
the part of any person concerned, (ii) the proposed transaction is 
consistent with the policy of the BDC, as recited in the filings made 
by such company with the Commission under the Securities Act, its 
registration statement and reports filed under the Exchange Act, and 
its reports to shareholders or partners; and, and (iii) the proposed 
transaction is consistent with the general purposes of the Act.
    6. The Applicants submit that the request for an exemption from the 
provisions of section 57(a)(1) and (a)(2) meets the standards for an 
order set forth in section 57(c). First, Applicants state that the 
terms of the Contribution Transaction, including the consideration to 
be paid or received, are fair and reasonable and involve no element of 
overreaching, since the transfer by the Fund of a pro rata portion of 
each of its assets and liabilities to the Extension Fund will be 
determined solely on the basis of the percentage of Electing 
Unitholders, which is purely an objective and formulaic exercise. 
Second, the Applicants state that the Contribution Transaction and the 
Share Issuance are consistent with the stated investment policies of 
the Fund as fully disclosed to Unitholders. Finally, the Applicants 
submit that the Boards, including a Required Majority of each, will 
have approved and authorized, as well as made all required 
determinations with respect to, the Proposed Transactions.

Section 57(a)(4) and Rule 17d-1, as Made Applicable to BDCs by Section 
57(i) of the Act

    7. The Applicants are also requesting an Order pursuant to section 
57(i) and rule 17d-1, to permit certain joint transactions that may be 
otherwise prohibited by Section 57(a)(4) and rule 17d-1.
    8. Section 57(a)(4) makes it unlawful for any person who is related 
to a BDC in a manner described in section 57(b), acting as principal, 
knowingly to effect any transaction in which the BDC or a company 
controlled by such BDC is a joint or a joint and several participant. 
Section 57(i) provides that the rules under section 17(d) applicable to 
registered closed-end investment companies are deemed to apply to 
transactions subject to section 57(a). In relevant part, rule 17d-1 
prohibits any person who is related to a BDC in a manner described in 
section 57(b), acting as principal, from participating in, or effecting 
any transaction in connection with, any joint enterprise or other joint 
arrangement in which the BDC or a company controlled by such BDC is a 
participant, unless an application has been filed with the Commission 
and an order has been granted.
    9. The Fund and the Extension Fund may be viewed as affiliated 
persons of each other in a manner described in section 57(b). 
Considered together, the Proposed Transactions will require a 
considerable degree of coordination among the Fund, the Extension Fund 
and the Adviser that may indicate the existence of a ``joint 
arrangement'' as described in rule 17d-1. Further, certain TCW 
Directors, Officers and Employees who have invested in the Fund are 
affiliated persons of the Fund pursuant to section 57(b).
    10. Rule 17d-1(b) provides that in determining whether to grant 
such an order, the Commission will consider whether the participation 
of the investment company 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.''
    11. The Applicants submit that the request for an order under 
section 57(a)(4) and rule 17d-1 meets the standards set forth to rule 
17d-1 for the same reasons as discussed above with respect to the 
request for exemption from sections 57(a)(1) and (a)(2). The Applicants 
state that TCW Directors, Officers and Employees will participate in 
the Exchange pursuant to the same terms and documentation as all other 
Unitholders, and the Proposed Transactions will not place any of the 
Fund, the Extension Fund or existing Unitholders of the Fund in a 
position less advantageous than that of any other of such persons. The 
Applicants further submit that the terms of the investment advisory 
agreement between the Extension Fund and the Adviser will be 
comprehensively disclosed to all Unitholders in the Offer to Exchange, 
the Fund and the Extension Fund will pay comparable management fees in 
respect of overlapping investments transferred by the Fund to the 
Extension Fund, and each Unitholder who wishes to remain invested in 
the Fund will be subject to the Fund's existing fee structure without 
any modification.

Sections 12(d)(1)(A) and 12(d)(1)(C), as Made Applicable to BDCs by 
Section 60 of the Act

    12. The Applicants are requesting an exemption pursuant to section 
12(d)(1)(J) from the provisions of section 12(d)(1)(A) and section 
12(d)(1)(C), to permit the Applicants to effect the Proposed 
Transactions.
    13. Sections 12(d)(1)(A) and 12(d)(1)(C) are made applicable to 
BDCs by section 60 to the same extent as if they were registered 
closed-end investment companies. The Proposed Transactions may be 
viewed as violating sections 12(d)(1)(A) \4\ and 12(d)(1)(C) \5\ 
because prior to the Exchange, the Fund will own 100% of the newly 
issued Shares of the Extension Fund, even

[[Page 22563]]

though such ownership will exist for only a momentary period of time.
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    \4\ Section 12(d)(1)(A) provides that no registered investment 
company (``acquiring company'') may acquire securities of any other 
investment company (``acquired company'') if such securities 
represent more than 3% of the acquired company's outstanding voting 
stock or more than 5% of the acquiring company's total assets, or if 
such securities, together with the securities of other investment 
companies, represent more than 10% of the acquiring company's total 
assets.
    \5\ Section 12(d)(1)(C) provides that no investment company 
(``acquiring company'') may acquire any securities issued by a 
registered closed-end investment company, if the acquiring company 
owns more than 10% of the total outstanding voting stock of such 
closed-end company.
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    14. The Applicants submit that the requested exemption from 
sections 12(d)(1)(A) and 12(d)(1)(C) meets the standards set forth in 
section 12(d)(1)(J). Section 12(d)(1)(J) provides that ``the 
Commission, by rule or regulation, upon its own motion or by order upon 
application, may conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities, or transactions from any provision of this subsection, if 
and to the extent that such exemption is consistent with the public 
interest and the protection of investors.''
    15. The Applicants state that the Proposed Transactions are 
consistent with the public interest in that they are intended to result 
in a benefit to non-electing Unitholders, Electing Unitholders and 
potential future investors in the Extension Fund. The Applicants also 
state that the Proposed Transactions are consistent with investor 
protection because the momentary holding by the Fund of Shares of the 
Existing Fund does not raise any of the concerns that Sections 
12(d)(1)(A) and (C) were intended to address.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-10246 Filed 5-14-18; 8:45 am]
 BILLING CODE 8011-01-P


