File No. 812-14476
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FIRST
AMENDED AND RESTATED APPLICATION FOR AN ORDER UNDER SECTIONS 17(d) AND 57(i) OF THE INVESTMENT COMPANY ACT OF 1940 AND RULE
17d-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 PERMITTING CERTAIN JOINT TRANSACTIONS OTHERWISE PROHIBITED BY SECTIONS 17(d) AND
57(a)(4) OF THE INVESTMENT COMPANY ACT OF 1940 AND RULE 17d-1.
FIFTH STREET FINANCE CORP., Fifth
Street Senior Floating Rate Corp., FIFTH STREET MANAGEMENT LLC, FIFTH STREET MEZZANINE PARTNERS IV, L.P., FSMP IV GP, LLC,
FIFTH STREET MEZZANINE PARTNERS V, L.P., FSMP V GP, LLC, FSFC HOLDINGS, INC., FIFTH STREET FUND OF FUNDS LLC,
Fifth Street Funding, LLC, Fifth Street Funding II, LLC, FS SENIOR FUNDING LLC, FS SENIOR FUNDING II LLC, FS SENIOR FUNDING
LTD., FIFTH STREET OPPORTUNITIES FUND, L.P., FSCO GP LLC, FIFTH STREET SENIOR LOAN FUND I, LLC, FIFTH STREET SENIOR LOAN FUND
II OPERATING ENTITY, LLC, FIFTH STREET SENIOR LOAN FUND II, LLC, FIFTH STREET HOLDINGS L.P.
777 West Putman Avenue, 3rd Floor
Greenwich, CT 06830
(203) 681-3600
All Communications, Notices and Orders
to:
Ivelin M. Dimitrov
Fifth Street Finance Corp.
777 West Putman Avenue, 3rd Floor
Greenwich, CT 06830
(203) 681-3600
Copies to:
Steven B. Boehm, Esq.
Harry S. Pangas, Esq.
Sutherland Asbill & Brennan LLP
700 6th Street NW
Washington, DC 20001
Tel: (202) 383-0100
Fax: (202) 637-3593
July 17,
2015
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
In the Matter of:
FIFTH STREET FINANCE CORP.,
Fifth Street Senior Floating Rate Corp.,
FIFTH STREET MANAGEMENT LLC,
FIFTH STREET MEZZANINE PARTNERS IV, L.P.,
FSMP IV GP, LLC,
FIFTH STREET MEZZANINE PARTNERS V, L.P.,
FSMP V GP, LLC,
FSFC HOLDINGS, INC.,
FIFTH STREET FUND OF FUNDS LLC,
Fifth Street Funding, LLC,
Fifth Street Funding II, LLC,
FS SENIOR FUNDING LLC,
FS SENIOR FUNDING II LLC,
FS SENIOR FUNDING LTD.,
FIFTH STREET OPPORTUNITIES FUND, L.P.,
FSCO GP LLC,
FIFTH STREET SENIOR LOAN FUND I, LLC,
FIFTH STREET SENIOR LOAN FUND II OPERATING ENTITY, LLC,
FIFTH STREET SENIOR LOAN FUND II, LLC,
FIFTH STREET HOLDINGS L.P.
777 West Putman Avenue, 3rd Floor
Greenwich, CT 06830
(203) 681-3600
File No. 812-14476
Investment Company Act of 1940 |
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FIRST AMENDED AND RESTATED APPLICATION FOR AN ORDER UNDER SECTIONS
17(d) AND 57(i) OF THE INVESTMENT COMPANY ACT OF 1940 AND RULE 17d-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 PERMITTING CERTAIN
JOINT TRANSACTIONS OTHERWISE PROHIBITED BY SECTIONS 17(d) AND 57(a)(4) OF THE INVESTMENT COMPANY ACT OF 1940 AND RULE 17d-1. |
INTRODUCTION
The
following entities hereby apply for an order (the “Order”) of the U.S. Securities and Exchange Commission
(the “Commission”) pursuant to Sections 17(d) and 57(i) of the Investment Company Act of 1940, as amended
(the “Act”),1 and Rule 17d-1
thereunder,2
authorizing certain joint transactions that may otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4)
of the Act:
1 Unless otherwise
indicated, all section references herein are to the Act.
2 Unless otherwise
indicated, all rule references herein are to rules under the Act.
| · | Fifth Street Finance Corp. (“Fifth Street”),
|
| | |
| · | Fifth Street Senior Floating Rate Corp. (“Fifth Street Senior,” and together with Fifth Street, the
“Existing Regulated Funds”),
|
| | |
| · | Fifth Street Mezzanine Partners IV, L.P., (“SBIC Subsidiary IV”), and its general partner, FSMP IV
GP, LLC (the “SBIC IV General Partner”), |
| · | Fifth Street Mezzanine Partners V, L.P., (“SBIC Subsidiary V” and together with Fifth Street SBIC
Subsidiary IV, the “SBIC Subsidiaries”) and its general partner, FSMP V GP, LLC (the “SBIC
V General Partner” and together with the SBIC IV General Partner, the “SBIC General Partners”),
|
| · | FSFC Holdings, Inc., Fifth Street Fund of Funds LLC, Fifth Street Funding, LLC, Fifth Street Funding II, LLC (collectively,
and together with the SBIC Subsidiaries, the “Fifth Street Subsidiaries”), |
| · | FS Senior Funding LLC, FS Senior Funding II LLC and FS Senior Funding Ltd. (the “Fifth Street Senior Subsidiaries,”
and together with the Fifth Street Subsidiaries, the “Subsidiaries”) |
| · | Fifth Street Opportunities Fund, L.P., Fifth Street Senior Loan Fund I, LLC, Fifth Street Senior Loan Fund II Operating Entity,
LLC, and Fifth Street Senior Loan Fund II, LLC (together with the Existing Fifth Street Proprietary Accounts (as defined below),
the “Existing Co-Investment Affiliates”), |
| · | Fifth Street Holdings L.P. (“Fifth Street Holdings”) and its subsidiary set forth on Schedule
A hereto (collectively, the “Fifth Street Companies”). The Fifth Street Companies are direct or
indirect, wholly- or majority-owned subsidiaries of Fifth Street Asset Management Inc., and, from time to time, may hold
various financial assets in a principal capacity (in such
capacity, “Existing Fifth Street Proprietary Accounts” and, together with any Future Fifth Street
Proprietary Account (as defined below), the “Fifth Street Proprietary Accounts”), |
| · | FSCO GP LLC, Fifth Street Opportunities Fund, L.P.’s general partner, and |
| · | Fifth Street Management LLC (the “BDC Adviser,” and together with the Existing Regulated Funds, the
SBIC General Partners, the Subsidiaries, the Existing Co-Investment Affiliates, the Fifth Street Proprietary Accounts, and FSCO
GP LLC, the “Applicants”). |
The Order would supersede an exemptive order issued by the Commission
on September 9, 2014 (the “Prior Order”)3
that was granted pursuant to Sections 57(a)(4) and 57(i) of the Act and Rule 17d-1 promulgated under the Act, with the result that
no person will continue to rely on the Prior Order if the Order is granted.
3 Fifth
Street Finance Corp. et al., (File No. 812-14132) Release No. IC-31247 (September 9, 2014) (order) and Release No. IC-31212
(August 14, 2014) (notice).
The relief requested in this application
for an Order (the “Application”) would allow a Regulated Fund4
(or a Wholly-Owned Investment Sub, as defined below) and one or more other Regulated Funds (or a Wholly-Owned Investment Sub) and/or
one or more Co-Investment Affiliates5 to participate
in the same investment opportunities through a proposed co-investment program (the “Co-Investment Program”)
where such participation would otherwise be prohibited by Sections 17(d) and 57(a)(4) and Rule 17d-1. As
used herein, “Co-Investment Transaction” means any transaction in which a Regulated Fund (or a
Wholly-Owned Investment Sub) participated together with one or more other
Regulated Funds (or a Wholly-Owned Investment Sub) and/or one or more Co-Investment Affiliates in reliance on the Order. “Potential
Co-Investment Transaction” means any investment opportunity in which a Regulated Fund (or a Wholly-Owned
Investment Sub) could not participate together with one or more other Regulated Funds (or a Wholly-Owned Investment Sub) and/or
one or more Co-Investment Affiliates without obtaining and relying on the Order.
“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 (and, in the case of the SBIC Subsidiaries, to maintain a license under the SBA Act and issue debentures
guaranteed by the SBA); (iii) with respect to which the Board of a Regulated Fund6
has the sole authority to make all determinations with respect to the Wholly-Owned Investment Sub’s participation under the
conditions to this Application; and (iv) that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act. The
Subsidiaries are Wholly-Owned Investment Subs, and any future subsidiaries of the Regulated Funds that participate in the Co-Investment
Program will be Wholly-Owned Investment Subs. The SBIC Subsidiaries are Wholly-Owned Investment Subs because they satisfy the conditions
in this definition.
A Regulated Fund may, from time to time,
form one or more Wholly-Owned Investment Subs. Such a subsidiary would be prohibited from investing in a CoInvestment Transaction
with any Co-Investment Affiliate or another Regulated Fund because it would be a company controlled by the Regulated Fund for purposes
of Sections 17(d) and 57(a)(4) and Rule 17d-l. Applicants request that a Wholly-Owned Investment Sub be permitted to participate
in Co-Investment Transactions in lieu of the Regulated Fund that owns it and that the Wholly-Owned
4
The term “Regulated Funds” means the Existing
Regulated Funds and any future closed-end investment companies that (a) are registered under the Act or have elected to be regulated
as a business development company (“BDC”) under the Act, (b) will be advised by an Adviser, and (c) that
intend to participate in the Co-Investment Program. The term “Adviser” means (a) the BDC Adviser, and
(b) any other investment adviser controlling, controlled by or under common control with the BDC Adviser.
5
The term “Co-Investment Affiliates” means (a)
any Existing Co-Investment Affiliates; (b) any Future Fifth Street Proprietary Account; or (c) any Future Co-Investment Affiliate.
“Future Fifth Street Proprietary Account” means a direct or indirect, wholly- or majority-owned subsidiary
of Fifth Street Holdings that is formed in the future and, from time to time, may hold various financial assets in a principal
capacity and that intends to participate in the Co-Investment Program. “Future Co-Investment Affiliate”
means any entity whose (i) investment adviser is an Adviser, (ii) that would be an investment company but for section 3(c)(1) or
3(c)(7) of the Act, (iii) that is not a subsidiary of a Regulated Fund, and (iv) that intends to participate in the Co-Investment
Program.
6 The term
“Board” means, with respect to any Regulated Fund, the board of directors of that Regulated Fund (including
the “Fifth Street Board” (as defined below) and the “Fifth Street Senior Board”
(as defined below)).
Investment Sub’s participation in any such transaction
be treated, for purposes of the Order, as though the 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 Subs. The 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 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 a 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.
All existing entities that currently intend
to rely on the Order have been named as Applicants. Any other existing or future entity that relies on the Order in the future
will comply with the terms and conditions of the Application.
A. FIFTH STREET FINANCE CORP.
Fifth Street is an externally managed, closed-end,
non-diversified management investment company. Fifth Street commenced operations on February 15, 2007 as Fifth Street Mezzanine
Partners III, L.P., a Delaware limited partnership. Effective as of January 2, 2008, Fifth Street Mezzanine Partners III, L.P.
merged with and into Fifth Street, a Delaware corporation. Fifth Street filed a registration statement on Form N-2 under the Securities
Act of 1933, as amended (the “1933 Act”) in connection with its initial public offering on October 16,
2007, which became effective on June 11, 2008. Fifth Street filed an election to be regulated as a business development company
(“BDC”) under the Act on January 2, 2008.7
In addition, Fifth Street has elected to be treated as a regulated investment company (“RIC”) under Subchapter
M of the Internal Revenue Code of 1986 (the “Code”) and intends to continue to qualify as a RIC in the
future. Fifth Street’s principal place of business is 777 West Putman Avenue, 3rd Floor, Greenwich, CT 06830.
Fifth Street is a specialty finance company
that lends to and invests in small and mid-sized companies, primarily in connection with investments by private equity sponsors.
Fifth Street’s investments generally range in size from $10 million to $100 million and are principally in the form of first
lien, second lien and subordinated debt investments, which may also include an equity
component. Fifth Street’s investment objective is to maximize its portfolio’s total return by generating current income
from its debt investments and capital appreciation from its equity investments. Fifth Street is advised by the BDC Adviser pursuant
to an investment advisory agreement (the “Fifth Street Advisory Agreement”). Fifth Street believes
that its proposed investment strategy will allow it to generate cash for distribution to stockholders and provide competitive total
returns to stockholders.
7 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 section 55(a)(1) through 55(a)(3) of the Act and makes available significant managerial assistance with respect to the issuers
of such securities.
Fifth Street’s business and affairs
are managed under the direction of a board of directors (the “Fifth Street Board”). The Fifth Street
Board currently consists of nine members, five of whom are not “interested persons” of Fifth Street as defined in Section 2(a)(19)
of the Act (the “Independent Directors”).8
Todd G. Owens, Ivelin M. Dimitrov, Bernard D. Berman and Sandeep K. Khorana serve as directors on the Fifth Street Board and are
“interested persons” of Fifth Street as defined in Section 2(a)(19) of the Act because each is an officer or employee
of Fifth Street, the BDC Adviser, or FSC CT LLC (“FSC CT”), Fifth Street’s administrator. Mr. Owens
serves as Fifth Street’s Chief Executive Officer, Mr. Dimitrov serves as Fifth Street’s President, Mr. Berman serves
as President of the BDC Adviser and Mr. Khorana serves as Managing Director of FSC CT. None of Messrs. Owens, Dimitrov, Berman
or Khorana will participate individually in any Co-Investment Transaction. The Fifth Street Board delegates daily management and
investment authority to the BDC Adviser pursuant to the Fifth Street Advisory Agreement.
The Fifth Street Subsidiaries are each Wholly-Owned
Investment Subs, as defined above, whose sole business purpose is to hold one or more
investments on behalf of Fifth Street. As a result, none of the Fifth Street Subsidiaries has a specific investment objective and
strategies. Because they are each wholly-owned, consolidated subsidiaries of Fifth Street, and Fifth Street’s investment
adviser is the BDC Adviser, the BDC Adviser also manages the assets of each of the Fifth Street Subsidiaries. Each of the Fifth
Street Subsidiaries is a Delaware entity.
B.
FIFTH STREET SENIOR FLOATING RATE CORP.
Fifth Street Senior is an externally managed,
closed-end, non-diversified management investment company. Fifth Street Senior was formed in May 2013 as a Delaware corporation.
Fifth Street Senior filed a registration statement on Form N-2 under the 1933 Act in connection with its initial public offering,
which became effective on July 11, 2013. Fifth Street Senior filed an election to be regulated as a BDC under the Act on July 11,
2013. In addition, Fifth Street Senior has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M
of the Code for U.S. federal income tax purposes, commencing with its first taxable year ending after the completion of its initial
public offering and intends to continue to qualify as a RIC in the future. Fifth Street Senior’s principal place of business
is 777 West Putman Avenue, 3rd Floor, Greenwich, CT 06830.
Fifth Street Senior’s investment objective
is to maximize its portfolio’s total return by generating current income from its debt investments while seeking to preserve
its capital. Fifth Street Senior is a specialty finance company that lends to and invests in senior secured loans, including first
lien, unitranche and second lien debt instruments, that pay interest at rates which are determined periodically on the basis of
a floating base lending rate, made to private middle market companies whose debt is rated below investment grade, which Fifth Street
Senior refers to collectively as “senior loans.” Fifth Street Senior may also invest in debt of public companies. Fifth
Street Senior is advised by the BDC Adviser pursuant to an investment advisory agreement (the “Fifth Street Senior
Advisory Agreement,” and together with the Fifth Street Advisory Agreement, the “Advisory Agreements”).
Fifth Street Senior believes that its proposed investment strategy will allow it to generate cash for distribution
to stockholders and provide competitive total returns to stockholders.
8 The term
“Independent Directors” as used in this application, interchangeably refers to the directors of
a Regulated Fund who are not “interested persons” of the Regulated Fund as defined in Section 2(a)(19) of the Act.
No Independent Director of a Regulated Fund will have a financial interest in any Co-Investment Transaction, other than indirectly
through share ownership in one of the Regulated Funds.
Fifth Street Senior’s business and
affairs are managed under the direction of a board of directors (the “Fifth Street Senior Board”). The
Fifth Street Senior Board currently consists of seven members, four of whom are Independent Directors. Ivelin M. Dimitrov, Bernard
D. Berman and Alexander C. Frank serve as directors on the Fifth Street Senior Board and are “interested persons” of
Fifth Street Senior as defined in Section 2(a)(19) of the Act because Mr. Dimitrov is an officer of Fifth Street Senior, and Mr.
Berman and Mr. Frank are officers of the BDC Adviser. Mr. Dimitrov serves as Fifth Street Senior’s Chief Executive Officer,
Mr. Berman serves as the BDC Adviser’s President, and Mr. Frank serves as the BDC Adviser’s Chief Operating Officer
and Treasurer. None of Messrs. Dimitrov, Berman or Frank will participate individually in any Co-Investment Transaction. The Fifth
Street Senior Board delegates daily management and investment authority to the BDC Adviser pursuant to the Fifth Street Senior
Advisory Agreement.
Each of the Fifth Street Senior Subsidiaries
is a Wholly-Owned Investment Sub, as defined above, whose sole business purpose is
to hold one or more investments on behalf of Fifth Street Senior. As a result, the Fifth Street Senior Subsidiaries do not have
specific investment objectives and strategies. Because they are wholly-owned, consolidated subsidiaries of Fifth Street Senior,
and Fifth Street Senior’s investment adviser is the BDC Adviser, the BDC Adviser also manages the assets of the Fifth Street
Senior Subsidiaries. The Fifth Street Senior Subsidiaries are Delaware entities.
C.
Fifth Street Mezzanine Partners IV, L.P., FSMP IV GP, LLC, Fifth Street Mezzanine Partners V, L.P., and FSMP V GP, LLC
The SBIC Subsidiaries are Wholly-Owned Investment
Subs of Fifth Street. SBIC Subsidiary IV was organized as a limited partnership under the laws of the state of Delaware on August
13, 2009 and received a license to operate as a Small Business Investment Company (an “SBIC”) under the
Small Business Investment Act of 1958 (the “SBA Act”) from the Small Business Administration (the “SBA”),
effective February 1, 2010. SBIC Subsidiary IV has the same investment objective and strategies as Fifth Street, as summarized
above.
SBIC Subsidiary V was organized as a limited
partnership under the laws of the state of Delaware on October 31, 2011 and received a license to operate as an SBIC under the
SBA Act from the SBA, effective May 10, 2012. SBIC Subsidiary V has the same investment objective and strategies as Fifth Street,
as summarized above.
On August 13, 2009 and October 31, 2011,
Fifth Street organized the SBIC IV General Partner and the SBIC V General Partner, respectively, as limited liability companies
under the laws of the State of Delaware. Fifth Street is each SBIC General Partner’s sole member and owner. The managers
of the SBIC General Partners are officers of Fifth Street and serve at the discretion of the Fifth Street Board and the SBA, and
thus are subject to the oversight of Fifth Street through the Fifth Street Board. Fifth Street directly owns all of the ownership
interests in the SBIC General Partners, which each owns 1% of their respective SBIC Subsidiary. Fifth Street also owns 99% of the
ownership interests in each SBIC Subsidiary directly. Therefore, Fifth Street, directly or indirectly through the SBIC General
Partners, wholly owns each SBIC Subsidiary. Thus, there is no possibility that the SBIC General Partners or SBIC Subsidiaries will
obtain a benefit that will not also be obtained by Fifth Street.
The SBIC Subsidiaries’ licenses allow
Fifth Street, through the SBIC Subsidiaries, to issue SBA-guaranteed debentures at favorable interest rates. The SBIC Subsidiaries
will not be registered under the Act based on the exclusion from the definition of investment company contained in Section 3(c)(7).
D. FIFTH STREET MANAGEMENT LLC
The BDC Adviser is a Delaware limited liability
company that is registered under the Investment Advisers Act of 1940. The BDC Adviser is a wholly-owned subsidiary of Fifth Street
Holdings, which is a subsidiary of Fifth Street Asset Management Inc., a publicly traded alternative asset manager with more than
$6.3 billion of assets under management. Subject to the overall supervision of the applicable Board, the BDC Adviser manages the
day-to-day operations of, and provides investment advisory and management services to, the Existing Regulated Funds. Under the
terms of the Advisory Agreement, the BDC Adviser determines the composition of Existing Regulated Funds’ portfolio; identifies
and negotiates the structure of the investments Existing Regulated Funds make; continuously monitors Existing Regulated Funds’
investments; and determines the purchase, retention or sale of Existing Regulated Funds’ investments and assets.
E. EXISTING CO-INVESTMENT AFFILIATES
1. Fifth Street Opportunities Fund,
L.P.
Fifth Street Opportunities Fund, L.P. is
a Delaware limited partnership that was formed on January 6, 2014. Its general partner is FSCO GP LLC and its investment adviser
is the BDC Adviser. Fifth Street Opportunities Fund, L.P. has an investment objective and strategies that are similar to or overlap
with those of the Existing Regulated Funds. In reliance on the exclusion from the definition of “investment company”
provided by Section 3(c)(7) of the Act, Fifth Street Opportunities Fund, L.P. is not registered under the Act.
2. Fifth Street Senior Loan Fund I, LLC
Fifth
Street Senior Loan Fund I, LLC is a Delaware limited liability company that was formed on November 19, 2013. Fifth Street
Senior Loan Fund I, LLC’s investment adviser is the BDC Adviser. Fifth Street Senior Loan Fund I, LLC has an investment objective
and strategies that are similar to or overlap with those of the Existing Regulated Funds. In reliance on the exclusion from the
definition of “investment company” provided by Section 3(c)(7) of the Act, Fifth Street Senior Loan Fund I, LLC
is not registered under the Act.
3.
Fifth Street Senior Loan Fund II Operating Entity, LLC and Fifth Street Senior Loan Fund II, LLC
Fifth
Street Senior Loan Fund II Operating Entity, LLC and Fifth Street Senior Loan Fund II, LLC are Delaware limited liability companies
that were formed on July 10, 2014 and September 2, 2014, respectively. Fifth Street Senior Loan Fund II Operating Entity, LLC and
Fifth Street Senior Loan Fund II, LLC’s investment adviser is the BDC Adviser. Fifth Street Senior Loan Fund II Operating
Entity, LLC wholly owns Fifth Street Senior Loan Fund II, LLC. Fifth Street Senior Loan Fund II Operating Entity, LLC and Fifth
Street Senior Loan Fund II, LLC have investment objectives and strategies that are similar to or overlap with those of the
Existing Regulated Funds.
In reliance on the exclusion from the definition of “investment company” provided by Section 3(c)(7) of the Act,
Fifth Street Senior Loan Fund II Operating Entity, LLC and Fifth Street Senior Loan Fund II, LLC are not registered under the Act.
4. Existing Fifth Street Proprietary Accounts
Currently, there are two Existing Fifth
Street Proprietary Accounts that invest for their own accounts. These accounts are as follows: Fifth Street Holdings and the BDC
Adviser.
Fifth Street Holdings is a Delaware limited
partnership that was formed on June 27, 2014. Fifth Street Holdings is a subsidiary of Fifth Street Asset Management Inc., a publicly
traded alternative asset manager with more than $6.3 billion of assets under management. The BDC Adviser, described above, is a
wholly-owned subsidiary of Fifth Street Holdings.
II. |
RELIEF FOR PROPOSED CO-INVESTMENT TRANSACTIONS |
A. Co-Investment Transactions by the
Regulated Funds and the Co-Investment Affiliates
1. Mechanics of the Co-Investment Program
Upon issuance of
the requested Order, the Advisers will manage the Regulated Funds and the Co-Investment Affiliates in the same manner that they
have managed them in the past. However, rather than making separate investments, Regulated Funds and Co-Investment Affiliates could
co-invest in the Co-Investment Program.
Applicants acknowledge
that some of the Co-Investment Affiliates may not be funds advised by the BDC Adviser or an affiliate because they are Fifth Street
Proprietary Accounts (i.e., a Fifth Street Company investing in a principal capacity). Applicants do not believe that these
Fifth Street Proprietary Accounts should raise issues under the conditions of this Application because the Advisers’ allocation
policies and procedures provide that investment opportunities are offered to client accounts before they are offered to Fifth Street
Proprietary Accounts. We do not believe that the participation of Fifth Street Proprietary Accounts in the Co-Investment Program
would raise any regulatory or mechanical concerns different from those discussed with respect to the Co-Investment Affiliates that
are clients. In accordance with the Advisers’ allocation policies and procedures, Potential Co-Investment Transactions will
be offered to, and allocated among, Adviser-advised funds, including the Regulated Funds, based on each client’s particular
Objectives and Strategies and in accordance with the conditions. If the aggregate amount recommended by the Advisers to be invested
by the Adviser-advised funds, including any Regulated Funds, in a Potential Co-Investment Transaction were equal to or more than
the amount of the investment opportunity, a Fifth Street Proprietary Account would not participate in the investment opportunity.
If the aggregate amount recommended by the Advisers to be invested by the Adviser-advised funds, including any Regulated Funds,
in a Potential Co-Investment Transaction were less than the amount of the investment opportunity, a Fifth Street
Proprietary Account would then have
the opportunity to participate in the Potential Co-Investment Transaction in a principal capacity. Each Adviser has, or will have
prior to relying on the Order, implemented a robust allocation process to ensure the Regulated Funds are treated fairly in respect
of the allocation of Potential Co-Investment Transactions. Each Regulated Fund’s Board will be provided with all relevant
information regarding each Adviser’s proposed allocations to the Regulated Funds and Co-Investment Affiliates, including
Fifth Street Proprietary Accounts, as contemplated by the conditions hereof.
In selecting investments
for the Regulated Funds, an Adviser will consider only the investment objective, investment policies, investment position, capital
available for investment, and other pertinent factors applicable to each Regulated Fund. Likewise, when selecting investments for
the Co-Investment Affiliates, the Advisers will select investments for the Co-Investment Affiliates, considering only the investment
objective, investment policies, investment position, capital available for investment, and other pertinent factors applicable to
each Co-Investment Affiliate. As described herein, each of the Co-Investment Affiliates has or will have investment objectives
and strategies that are similar to or overlap with the Objectives and Strategies9 of each of the Regulated Funds.
To the extent there is an investment that falls within the Objectives and Strategies of one or more Regulated Funds and the investment
objectives and strategies of one or more of the Co-Investment Affiliates, the Advisers would expect such Regulated Funds and Co-Investment
Affiliates to co-invest with each other, with certain exceptions based on available capital or diversification, as discussed below.10
Under the Co-Investment
Program, each Co-Investment Transaction would be allocated among the participating Regulated Funds and Co-Investment Affiliates.
Each Potential Co-Investment Transaction and the proposed allocation of each investment opportunity would be approved prior to
the actual investment by the Required Majority of each Regulated Fund.11
All subsequent
activity, meaning either to: (a) sell, exchange or otherwise dispose of an investment
(collectively, a “Disposition”) or (b) complete a Follow-On Investment12, in respect of
an investment acquired in a Co-Investment Transaction will be made in accordance with the terms and conditions set forth in this
Application. 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 Co-Investment Affiliate
9 The term
“Objectives and Strategies,” with respect to each Regulated Fund, means the Regulated Fund’s
investment objectives and strategies, as described in the Regulated Fund’s registration statement on Form N-2, other filings
the Regulated Fund has made with the Commission under the 1933 Act, or under the Securities Exchange Act of 1934, as amended, and
the Regulated Fund’s reports to stockholders.
10 The Regulated
Funds, however, will not be obligated to invest, or co-invest, when investment opportunities are referred to them.
11 The term
“Required Majority” has the meaning provided in Section 57(o) of the Act. The term “Eligible Directors”
means the directors who are eligible to vote under section 57(o). 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).
12 The term
“Follow-On Investment” means any additional investment in an existing portfolio company, including
the exercise of warrants, conversion privileges or other similar rights to acquire additional securities of the portfolio company.
and Regulated Fund in such Disposition
or Follow-On Investment 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.
The Co-Investment
Program stipulates that the terms, conditions, price, class of securities, settlement date, and registration rights applicable
to each Regulated Fund’s and to each Co-Investment Affiliate’s purchase be the same.
The amount of each
Regulated Fund’s capital available for investment will be 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 Fund or imposed by applicable laws, rules, regulations or interpretations. Likewise,
a Co-Investment Affiliate’s capital available for investment is 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 Co-Investment Affiliate’s directors, general partners or adviser or imposed by applicable laws, rules, regulations
or interpretations.
2. Reasons for
Co-Investing
It is expected
that co-investment in portfolio companies by the Regulated Funds and the Co-Investment Affiliates will increase the number of favorable
investment opportunities for each Regulated Fund. The Co-Investment Program will be effected for a Regulated Fund only if it is
approved by the Regulated Fund’s Required Majority on the basis that it would be advantageous for the Regulated Fund to have
the additional capital from the Co-Investment Affiliates and/or other Regulated Funds available to meet the funding requirements
of attractive investments in portfolio companies. A BDC that makes investments of the type contemplated by the Regulated Funds
typically limits its participation in any one transaction to a specific dollar amount, which may be determined by legal or internally
imposed prudential limits on exposure in a single investment.
In view of the foregoing, in cases where
an Adviser identifies investment opportunities requiring larger capital commitments, the Adviser must seek the participation of
other entities with similar investment styles. The availability of the Co-Investment Affiliates or additional Regulated Funds as
investing partners of a Regulated Fund may alleviate some of that necessity in certain circumstances. A Regulated Fund could lose
some investment opportunities if its Adviser cannot provide “one-stop” financing to a potential portfolio company.
Portfolio companies may reject an offer of funding arranged by an Adviser due to a Regulated Fund’s inability to commit the
full amount of financing required by the portfolio company in a timely manner (i.e., without the delay that typically would be
associated with obtaining single-transaction exemptive relief from the Commission). By reducing the number of occasions on which
a Regulated Fund’s individual or aggregate investment limits require the Advisers to arrange a syndication with unaffiliated
entities, such Regulated Fund will likely be required to forego fewer suitable investment opportunities. With the assets of the
other Regulated Funds and the Co-Investment Affiliates available for co-investment, there
should be an increase in the number of opportunities accessible to each Regulated Fund.
The Advisers and the Board of each Regulated
Fund believe that it will be advantageous for each Regulated Fund to co-invest with one or more other Regulated Funds and/or one
or more Co-Investment Affiliates and that these co-investments would be consistent with the investment objectives, investment policies,
investment positions, investment strategies, investment restrictions, regulatory requirements and other pertinent factors applicable
to each Regulated Fund.
The Advisers also
believe that co-investment among the Regulated Funds and the Co-Investment Affiliates will afford each Regulated Fund the ability
to achieve greater diversification and, together with the other Regulated Funds and the Co-Investment Affiliates, the opportunity
to exercise greater influence on the portfolio companies in which they co-invest.
B. Applicable Law
1. Sections 17(d), 57(a)(4) and 57(i)
of the Act, and Rule 17d-1 thereunder
Section 17(d) of
the Act generally prohibits an affiliated person (as defined in Section 2(a)(3) of the Act), or an affiliated person of such affiliated
person, of a registered closed end investment company acting as principal, from effecting any transaction in which the registered
closed-end investment company is a joint or a joint and several participant, in contravention of such rules as the Commission may
prescribe for the purpose of limiting or preventing participation by the registered closed-end investment company on a basis different
from or less advantageous than that of such other participant. Rule 17d-1 under the Act generally prohibits participation by a
registered investment company and an affiliated person (as defined in Section 2(a)(3) of the Act) or principal underwriter for
that investment company, or an affiliated person of such affiliated person or principal underwriter, in any “joint enterprise
or other joint arrangement or profit-sharing plan,” as defined in the rule, without prior approval by the Commission by order
upon application.
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 is a joint or a joint and several participant with that person in contravention of rules and regulations
as the Commission may prescribe for the purpose of limiting or preventing participation by the BDC on a basis less advantageous
than that of the other participant. Although the Commission has not adopted any rules expressly under Section 57(a)(4),
Section 57(i) provides that the rules under Section 17(d) applicable to registered closed-end investment companies (e.g.,
Rule 17d-1) are, in the interim, deemed to apply to transactions subject to Section 57(a). Rule 17d-1, as made applicable
to BDCs by Section 57(i), prohibits any person who is related to a BDC in a manner described in Section 57(b), as modified
by Rule 57b-1, acting as principal, from participating in, or effecting any transaction in connection with, any joint enterprise
or other joint arrangement or profit-sharing plan in which the BDC is a participant, unless an application regarding the joint
enterprise, arrangement, or profit-sharing plan has been filed with the Commission and has been granted by an order entered prior
to the submission of the plan or any modification thereof to security holders for approval, or prior to its adoption or modification
if not so submitted.
In passing upon applications under Rule
17d-1, the Commission will consider whether the participation by the BDC in such 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.
2. Section 57(b) of the Act and Rule
57b-1 thereunder
Section 57(b), as modified by Rule
57b-1, specifies the persons to whom the prohibitions of Section 57(a)(4) apply. These persons include the following: (1)
any director, officer, employee, or member of an advisory board of a BDC or any person (other than the BDC itself) who is, within
the meaning of Section 2(a)(3)(C), an affiliated person of any such person; or (2) any investment adviser or promoter
of, general partner in, principal underwriter for, or person directly or indirectly either controlling, controlled by, or under
common control with a BDC (except the BDC itself and any person who, if it were not directly or indirectly controlled by the BDC,
would not be directly or indirectly under the control of a person who controls the BDC), or any person who is, within the meaning
of Section 2(a)(3)(C) or (D), an affiliated person of such person.
Rule 57b-1 under the Act exempts certain
persons otherwise related to a BDC in a manner described in Section 57(b)(2) of the Act 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.
Section 2(a)(9) defines “control”
as the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the
result of an official position with such company. The statute also sets forth the interpretation that any person who owns
beneficially, either directly or through one or more controlled companies, more than 25 percent of the voting securities of a company
shall be presumed to control such company; any person who does not so own more than 25 percent of the voting securities of a company
shall be presumed not to control such company; and a natural person shall be presumed not to be a controlled person.
Sections 2(a)(3)(C) defines an “affiliated
person” of another person as “any person directly or indirectly controlling, controlled by, or under common control
with, such other person.”
C. Need for Relief
Co-Investment Transactions may be prohibited
by Sections 17(d) and/or 57(a)(4) and Rule 17d-1 without a prior order of the Commission to the extent that the Co-Investment
Affiliates and the other Regulated Funds fall within the category of persons described by Section 57(b), as modified by Rule
57b-1 thereunder vis-à-vis each Regulated Fund. Each of the other Regulated
Funds and the Co-Investment Affiliates may be deemed to be affiliated persons of a Regulated Fund within the meaning of Section 2(a)(3)
by reason of common control because (i) the BDC Adviser advises and may be deemed to control the Existing Co-Investment Affiliates
and any Future Co-Investment Affiliate will be advised and may be deemed to be controlled by an Adviser, (ii) the BDC Adviser
advises and may be deemed to control the Existing Regulated
Funds and any Future Regulated
Fund will be advised and may be deemed to be controlled by an Adviser, and (iii) the Advisers are controlled by the same persons.
Thus, each other Regulated Fund and Co-Investment Affiliate could be deemed to be a person related to a Regulated Fund in a
manner described by Section 57(b) and therefore prohibited by Sections 17(d) and 57(a)(4) and Rule 17d-1 from participating
in Co-Investment Transactions with each Regulated Fund. In addition, because Fifth Street Proprietary Accounts are under common
control with the BDC Adviser and, therefore, are “affiliated persons” of the BDC Adviser, Fifth Street Proprietary
Accounts could be deemed to be persons related to the Regulated Funds (or a company controlled by a Regulated Fund) in a manner
described by Sections 17(d) and 57(b) and also prohibited from participating in the Co-Investment Program.
D. Requested Relief
Accordingly, Applicants respectfully request
an Order of the Commission, pursuant to Sections 17(d) and 57(i) and Rule 17d-1, permitting a Regulated Fund and one or more other
Regulated Funds and/or one or more Co-Investment Affiliates to participate in the same investment opportunities through the Co-Investment
Program.
E. Precedents
The Commission has granted co-investment
relief on numerous occasions in recent years.13 Applicants
submit that the formulae and procedures set forth as conditions for the relief requested herein are consistent with the range of
investor protection found in the cited orders. We note, in particular, that the co-investment protocol to be followed by the
Applicants here is substantially similar to the protocol followed by Fifth Street and its affiliates, for which an order was issued
on September 9, 2014,14 and to that followed by Corporate
Capital Trust, Inc. and its affiliates, for which an order was issued on May 21, 2013.15
13 See Benefit
Street Partners BDC, Inc., et al. (File No. 812-14126) Investment Company Act Rel. No. 31651 (May 27, 2015) (notice) and
31686 (June 23, 2015) (order); TCW Direct Lending LLC, et al. (File No. 812-14382) Investment Company Act Rel. No.
31589 (April 30, 2015) (notice) and 31649 (May 27, 2015) (order); Garrison Capital Inc., et al. (File No. 812-14097)
Investment Company Act Rel. No. 31373 (December 15, 2014) (notice) and 31409 (January 12, 2015)(order); TPG Specialty
Lending, Inc., et al. (File No. 812-13980) Investment Company Act Rel. No. 31338 (November 18, 2014) (notice) and 31379
(December 16, 2014) (order); Monroe Capital Corporation, et al. (File No. 812-14028) Investment Company Act Rel. No. 31253
(September 19, 2014) (notice) and 31286 (October 15, 2014) (order); Fifth Street Finance Corp., et al. (File No. 812-14132)
Investment Company Act Rel. No. 31212 (August 14, 2014) (notice) and 31247 (September 9, 2014) (order); Solar Capital Ltd.,
et al. (File No. 812-14195) Investment Company Act Rel. No. 31143 (July 1, 2014) (notice) and 31187 (July 28, 2014)
(order); WhiteHorse Finance, Inc., et al. (File No. 812-14120) Investment Company Act Rel. No. 31080 (June 12, 2014) (notice)
and 31152 (July 8, 2014) (order); PennantPark Investment Corp., et al. (File No. 812-14134) Investment Company Act Rel. No.
30985 (March 19, 2014) (notice) and 31015 (April 15, 2014) (order); NF Investment Corp., et al. (File No. 812-14161)
Investment Company Act Rel. No. 30900 (January 31, 2014) (notice) and 30968 (February 26, 2014) (order); Prospect Capital
Corporation, et al. (File No. 812-14199) Investment Company Act Rel. No. 30855 (January 13, 2014) (notice) and 30909
(February 10, 2014) (order); Medley Capital Corporation, et al. (File No. 812-14020) Investment Company Act
Rel. No. 30769 (Oct. 28, 2013) (notice) and 30807 (Nov. 25, 2013) (order).
14 Fifth Street
Finance Corp., et al. (File No. 812-14132) Investment Company Act Rel. No. 31212 (August 14, 2014) (notice) and 31247 (September
9, 2014) (order).
15 Corporate
Capital Trust, Inc., et. al. (File No. 812-13844) Investment Company Act Rel. No. 30494 (April 25, 2013) (notice) and 30526 (May
21, 2013) (order).
F. Applicants’ Legal Arguments
Rule 17d-1 was promulgated by the Commission
pursuant to Section 17(d) and made applicable to BDCs by Section 57(i). Paragraph (a) of Rule 17d-1 permits
an otherwise prohibited person, acting as principal, to participate in, or effect a transaction in connection with, a joint enterprise
or other joint arrangement or profit-sharing plan in which a BDC is a participant if an application regarding the joint enterprise,
arrangement, or profit-sharing plan has been filed with the Commission and has been granted by an order issued prior to the submission
of such plan or any modification thereof to security holders for approval, or prior to its adoption or modification if not so submitted. Paragraph
(b) of Rule 17d-1 states that in passing upon applications under that rule, the Commission will consider whether the participation
by the investment company in such joint enterprise, joint arrangement, or profit-sharing plan on the basis proposed 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.
Applicants submit that the fact that the
Required Majority will approve each Co-Investment Transaction before the investment is made, and other protective conditions set
forth in this Application will ensure that the Regulated Funds will be treated fairly.
If an Adviser or its principals,
or any person controlling, controlled by, or under common control with an Adviser or its principals, and the Co-Investment Affiliates
(collectively, the “Holders”) own in the aggregate more than 25 percent of the outstanding voting shares
of a Regulated Fund (the “Shares”), then the Holders will vote such Shares as required under condition
15.
Applicants believe that this
condition will ensure that the Independent Directors will act independently in evaluating the Co-Investment Program, because the
ability of an Adviser or the principals to influence the Independent Directors by a suggestion, explicit or implied, that the Independent
Directors can be removed will be limited significantly. The Independent Directors shall evaluate and approve any such voting trust
or proxy adviser, taking into account its qualifications, reputation for independence, cost to the shareholders, and other factors
that they deem relevant.
The conditions to which the requested relief
will be subject are designed to ensure that the Advisers or the principals of the Advisers would not be able to favor the Co-Investment
Affiliates over the Regulated Funds, or one Regulated Fund over another Regulated Fund, through the allocation of investment opportunities
among them. Because many attractive investment opportunities for a Regulated Fund will also be attractive investment opportunities
for one or more Co-Investment Affiliates and/or one or more other Regulated Funds, Applicants submit that the Co-Investment Program
presents an attractive alternative to the institution of some form of equitable allocation protocol for the allocation of 100%
of individual investment opportunities to one Regulated Fund or the Co-Investment Affiliates as opportunities arise.
Applicants submit that each Regulated Fund’s
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 believe that the conditions
will ensure that the Advisers would not be able to favor the Co-Investment Affiliates over the Regulated Funds, or one Regulated
Fund over another Regulated Fund, through the allocation of investment opportunities among them.
After making the determinations required
in conditions 1 and 2(a), other than in the case of pro rata Dispositions and Follow-On Investments as provided for in conditions
7 and 8, the
applicable Adviser will present each Potential Co-Investment
Transaction and the proposed allocation to the Eligible Directors, and the Required Majority will approve each Co-Investment Transaction
prior to any investment by the Regulated Fund.
Applicants
believe that participation by the Regulated Funds in pro rata Dispositions and Follow-On Investments, as provided in conditions
7 and 8, is consistent with the provisions, policies and purposes of the Act and will not be made on a basis different from or
less advantageous than that of other participants. A formulaic approach, such as pro rata dispositions and Follow-On Investments,
eliminates the discretionary ability to make allocation determinations, and in turn eliminates the possibility for overreaching
and promotes fairness.
G. Conditions
Applicants agree that any Order of the Commission
granting the requested relief will be subject to the following conditions:
| 1. | Each time an Adviser considers a Potential Co-Investment
Transaction for a Co-Investment Affiliate 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 the Regulated Fund in light of the Regulated Fund’s then-current circumstances. |
| | |
| a. | If
the applicable Adviser deems a Regulated Fund’s participation in any Potential Co-Investment Transaction to be appropriate
for the Regulated Fund, the Adviser 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 Co-Investment Affiliates,
collectively, in the same transaction, exceeds the amount of the investment opportunity, the amount proposed to be invested be
each such party will be allocated among them pro rata based on each participating party’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 Regulated Fund and each Co-Investment
Affiliate to the Eligible Directors of each participating Regulated Fund for their consideration. A Regulated Fund will co-invest
with one or more other Regulated Funds and/or one or more Co-Investment Affiliates 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 stockholders and do not involve
overreaching in respect of the Regulated Fund or its stockholders on the part of any person concerned; |
| | |
| ii. | the Potential Co-Investment Transaction is consistent
with:
|
| A. | the interests of the Regulated Fund’s stockholders; and
|
| B. | the Regulated Fund’s then-current Objectives and Strategies; |
| | |
| iii. | the investment by the other Regulated Funds or any Co-Investment
Affiliates 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 any other Regulated Fund or Co-Investment Affiliate; provided that, if any other Regulated
Fund or Co-Investment Affiliate, 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 Adviser agrees to, and does, provide periodic reports to the Board of the Regulated Fund 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 Fund, or any Co-Investment Affiliate, or any affiliated person of either
receives in connection with the right of any other Regulated Fund or a Co-Investment Affiliate 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 Co-Investment Affiliates (which 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 Co-Investment Affiliates, 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 and Co-Investment Affiliates 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 below,16 a Regulated Fund will not invest in reliance
on the Order in any issuer in which another Regulated Fund, Co-Investment Affiliate, or any affiliated person of another Regulated
Fund or Co-Investment Affiliate is an existing investor.
|
| 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 Co-Investment
Affiliate. The grant to a Co-Investment Affiliate 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.
|
| a. | If
any Co-Investment Affiliate 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. |
16 This exception
applies only to Follow-On Investments by a Regulated Fund in issuers in which that Regulated Fund already holds investments.
| 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 any participating Co-Investment Affiliates and any other Regulated Funds.
|
| c. | A
Regulated Fund may participate in such Disposition without obtaining prior approval of the Required Majority if: (i) the proposed
participation of each Co-Investment Affiliate and Regulated 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 this
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 applicable Adviser will provide its written recommendation as to the
Regulated Fund’s participation to the Regulated Fund’s 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
Co-Investment Affiliate and each Regulated Fund will bear its own expenses in connection with any such Disposition.
|
| a. | If
any Co-Investment Affiliate 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 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 Co-Investment Affiliate and each Regulated Fund in such investment is proportionate to its
outstanding investments in the issuer immediately preceding the Follow-On Investment; (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 this Application); and (iii) the Board of the Regulated Fund is provided on a quarterly
basis with a list of all Follow-On Investments made in accordance with this condition. In all other cases, the applicable 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 Follow-On Investment is not based on
the Co-Investment Affiliates’ and the Regulated Funds’ outstanding investments immediately preceding the Follow-On
Investment; and
|
| ii. | the
aggregate amount recommended by the applicable Adviser to be invested by each Regulated Fund in the Follow-On Investment, together
with the amount proposed to be invested by the participating Co-Investment Affiliates in the same transaction, exceeds the amount
of the opportunity, then the amount to be invested by each such party will be allocated among them pro rata based on each
participating party’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 this Application.
|
| 9. | The
Independent 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 the Co-Investment Affiliates and the other Regulated
Funds that the Regulated Fund 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 Fund considered but declined
to participate in, comply with the conditions of the Order. In addition, the Independent 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
Independent 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 any Co-Investment Affiliate.
|
| 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) will, to the
extent not payable by the Advisers under their respective advisory agreements with the Co-Investment Affiliates and the Regulated
Funds, be shared by the participating Co-Investment Affiliates and the participating Regulated Funds in proportion to the relative
amounts of the securities held or being 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) received in connection with a Co-Investment Transaction will be distributed to the participating Co-Investment
Affiliates and Regulated Funds on a pro rata basis based on the amount they each |
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 Co-Investment
Affiliates and Regulated Funds based on the amount each invests in such Co-Investment Transaction. None of the Co-Investment Affiliates,
the Regulated Funds, the Advisers nor any affiliated person of the Regulated Funds or Co-Investment Affiliates 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 Co-Investment Affiliates and the Regulated 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 the Advisers, investment advisory fees paid in accordance with their
respective investment advisory agreements with the Regulated Funds and Co-Investment Affiliates).
| 14. | The
Fifth Street Proprietary Accounts will not be permitted to invest in a Potential Co-Investment Transaction except to the extent
the demand from the Regulated Funds and the other Co-Investment Affiliates is less than the total investment opportunity. |
| 15. | 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 (such as the trustee of a voting trust or a proxy adviser) when voting on (1) the election
of directors; (2) the removal of one or more directors; or (3) any matters requiring approval by the vote of a majority of the
outstanding voting securities, as defined in Section 2(a)(42) of the Act. |
A. Communications
Please address all communications concerning
this Application and the Notice and Order to:
Ivelin M. Dimitrov
Fifth Street Finance Corp.
777 West Putman Avenue, 3rd Floor
Greenwich, CT 06830
(203) 681-3600
Please address any questions, and a copy
of any communications, concerning this Application, the Notice and Order to:
Steven B. Boehm, Esq.
Harry S. Pangas, Esq.
Sutherland Asbill & Brennan LLP
700 6th Street NW
Washington, DC 20001
Tel: (202) 383-0100
Fax: (202) 637-3593
B. Authorization
Pursuant to Rule 0-2(c) under the Act, Applicants
hereby state that each Regulated Fund, by resolution duly adopted by each Board, in the case of Fifth Street, on May 26, 2015 (attached
hereto as Exhibit A), and, in the case of Fifth Street Senior, on May 26, 2015 (attached hereto as Exhibit B), has authorized to
cause to be prepared and to execute and file with the Commission this Application and any amendment thereto under Section 57(i)
of the Act and Rule 17d-1 under the Act, for an order pursuant to Section 57(i) of the Act, and Rule 17d-1 under the Act, permitting
certain joint transactions otherwise prohibited by Sections 17(d) and 57(a)(4) of such Act and Rule 17d-1. Each person
executing the Application on behalf of the Applicants says that he has duly executed the Application for and on behalf of the Applicants;
that he is authorized to execute the Application pursuant to the terms of an operating agreement, management agreement or otherwise;
and that all actions by members, directors or other bodies necessary to authorize each such deponent to execute and file the Application
have been taken.
All requirements for the execution and filing
of this Application in the name and on behalf of each Applicant by the undersigned have been complied with and the undersigned
is fully authorized to do so and has duly executed this Application this 17th day of July, 2015.
FIFTH STREET FINANCE CORP.
By: /s/Ivelin M. Dimitrov
Name: Ivelin M. Dimitrov
Title: President
Fifth
Street Senior Floating Rate Corp.
By: /s/ Ivelin M. Dimitrov
Name: Ivelin M. Dimitrov
Title: Chief Executive Officer
FIFTH STREET MANAGEMENT LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FIFTH STREET MEZZANINE PARTNERS IV, L.P.
By: FSMP IV GP, LLC, its general partner
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FSMP IV GP, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FIFTH STREET MEZZANINE PARTNERS V, L.P.
By: FSMP V GP, LLC, its general partner
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FSMP V GP, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FSFC HOLDINGS, INC.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FIFTH STREET FUND OF FUNDS LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Funding, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Funding II, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FS SENIOR FUNDING LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FS SENIOR FUNDING II LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FS SENIOR FUNDING LTD.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: Authorized Signatory
FIFTH STREET OPPORTUNITIES FUND, L.P.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: Authorized Signatory
FSCO GP LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: Authorized Signatory
FIFTH STREET SENIOR LOAN FUND I, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Senior Loan Fund II Operating Entity, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Senior Loan Fund II, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Holdings L.P.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
VERIFICATION
The undersigned states that he has duly executed the foregoing
Application, dated July 17, 2015, for and on behalf of the Applicants, as the case may be, that he holds the office with such entity
as indicated below and that all action by the directors, stockholders, general partners, trustees or members of each entity, as
applicable, necessary to authorize the undersigned to execute and file such instrument has been taken. The undersigned further
states that he is familiar with such instrument and the contents thereof and that the facts set forth therein are true to the best
of his knowledge, information and belief.
FIFTH STREET FINANCE CORP.
By: /s/ Ivelin M. Dimitrov
Name: Ivelin M. Dimitrov
Title: President
Fifth
Street Senior Floating Rate Corp.
By: /s/ Ivelin M. Dimitrov
Name: Ivelin M. Dimitrov
Title: Chief Executive Officer
FIFTH STREET MANAGEMENT LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FIFTH STREET MEZZANINE PARTNERS IV, L.P.
By: FSMP IV GP, LLC, its general partner
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FSMP IV GP, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FIFTH STREET MEZZANINE PARTNERS V, L.P.
By: FSMP V GP, LLC, its general partner
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FSMP V GP, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FSFC HOLDINGS, INC.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FIFTH STREET FUND OF FUNDS LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Funding, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Funding II, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FS SENIOR FUNDING LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FS SENIOR FUNDING II LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FS SENIOR FUNDING LTD.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: Authorized Signatory
FIFTH STREET OPPORTUNITIES FUND, L.P.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
FSCO GP LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: Authorized Signatory
FIFTH STREET SENIOR LOAN FUND I, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Senior Loan Fund II Operating Entity, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Senior Loan Fund II, LLC
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
Fifth
Street Holdings L.P.
By: /s/ Bernard D. Berman
Name: Bernard D. Berman
Title: President
SCHEDULE A
Fifth Street Companies
Fifth Street Holdings L.P.
Fifth Street Management LLC
EXHIBIT A
Resolutions of the Board of
FIFTH STREET FINANCE CORP. (the “Company”)
WHEREAS,
the Board of Directors has reviewed the Company’s Co-Investment Exemptive Application (the “Exemptive Application”),
a copy of which is attached hereto as Exhibit A, for an amended order of the U.S. Securities and Exchange Commission (the
“SEC”) pursuant to Section 57(i) of the Investment Company Act of 1940, as amended (the “1940
Act”), and Rule 17d-1 promulgated under the 1940 Act, permitting certain joint transactions that otherwise may be
prohibited by Section 57(a)(4) of the 1940 Act;
NOW, THEREFORE,
BE IT RESOLVED, that the Authorized Officers (as defined below), shall be, and each of them individually hereby is, authorized,
empowered and directed, in the name and on behalf of the Company, to cause to be executed, delivered and filed with the SEC the
Exemptive Application, in substantially the form attached hereto as Exhibit A; and
FURTHER
RESOLVED, that the Authorized Officers shall be, and each of them individually hereby is, authorized, empowered and directed,
in the name and on behalf of the Company, to cause to be made, executed, delivered and filed with the SEC any amendments to the
Exemptive Application and any additional applications for exemptive relief as are determined necessary, advisable or appropriate
by any such officers in order to effectuate the foregoing, such determination to be conclusively evidenced by the taking of any
such action; and
FURTHER
RESOLVED, that all acts and things previously done by any of the Authorized Officers, on or prior to the date hereof, in the
name and on behalf of the Company in connection with the foregoing resolutions are in all respects authorized, ratified, approved,
confirmed and adopted as the acts and deeds by and on behalf of the Company; and
FURTHER
RESOLVED, that any officer of the Company be, and each of them hereby is, authorized, empowered and directed to certify and
deliver copies of these resolutions to such governmental bodies, agencies, persons, firms or corporations as such officer may deem
necessary and to identify by such officer’s signature or certificate, or in such form as may be required, the documents and
instruments presented to and approved herein and to furnish evidence of the approval, by an officer authorized to give such approval,
of any document, instrument or provision or any addition, deletion or change in any document or instrument; and
FURTHER
RESOLVED, that for purposes of the foregoing resolutions, the Authorized Officers of the Company shall be the Chief Executive
Officer, the President, the Chief Compliance Officer & Secretary, and the Chief Financial Officer of the Company (collectively,
the “Authorized Officers”).
(Adopted
by Unanimous Written Consent dated May 26, 2015)
EXHIBIT B
Resolutions of the Board of
FIFTH STREET SENIOR FLOATING RATE CORP.
(the “Company”)
WHEREAS,
the Board of Directors has reviewed the Company’s Co-Investment Exemptive Application (the “Exemptive Application”),
a copy of which is attached hereto as Exhibit A, for an amended order of the U.S. Securities and Exchange Commission (the
“SEC”) pursuant to Section 57(i) of the Investment Company Act of 1940, as amended (the “1940
Act”), and Rule 17d-1 promulgated under the 1940 Act, permitting certain joint transactions that otherwise may be
prohibited by Section 57(a)(4) of the 1940 Act;
NOW, THEREFORE,
BE IT RESOLVED, that the Authorized Officers (as defined below), shall be, and each of them individually hereby is, authorized,
empowered and directed, in the name and on behalf of the Company, to cause to be executed, delivered and filed with the SEC the
Exemptive Application, in substantially the form attached hereto as Exhibit A; and
FURTHER
RESOLVED, that the Authorized Officers shall be, and each of them individually hereby is, authorized, empowered and directed,
in the name and on behalf of the Company, to cause to be made, executed, delivered and filed with the SEC any amendments to the
Exemptive Application and any additional applications for exemptive relief as are determined necessary, advisable or appropriate
by any such officers in order to effectuate the foregoing, such determination to be conclusively evidenced by the taking of any
such action; and
FURTHER
RESOLVED, that all acts and things previously done by any of the Authorized Officers, on or prior to the date hereof, in the
name and on behalf of the Company in connection with the foregoing resolutions are in all respects authorized, ratified, approved,
confirmed and adopted as the acts and deeds by and on behalf of the Company; and
FURTHER
RESOLVED, that any officer of the Company be, and each of them hereby is, authorized, empowered and directed to certify and
deliver copies of these resolutions to such governmental bodies, agencies, persons, firms or corporations as such officer may deem
necessary and to identify by such officer’s signature or certificate, or in such form as may be required, the documents and
instruments presented to and approved herein and to furnish evidence of the approval, by an officer authorized to give such approval,
of any document, instrument or provision or any addition, deletion or change in any document or instrument; and
FURTHER
RESOLVED, that for purposes of the foregoing resolutions, the Authorized Officers of the Company shall be the Chief Executive
Officer, the President, the Chief Compliance Officer & Secretary, and the Chief Financial Officer of the Company (collectively,
the “Authorized Officers”).
(Adopted by Unanimous
Written Consent dated May 26, 2015)
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