File No. 812-
Before the
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
In the Matter of
the Application of:
CM FINANCE INC, CM CREDIT OPPORTUNITIES BDC I INC., CM INVESTMENT
PARTNERS LLC, CM CREDIT OPPORTUNITY FUND I LLC AND CM FINANCE SPV LTD.
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
UNDER THE INVESTMENT COMPANY ACT OF 1940
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Please direct all communications,
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Copies to:
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notices and orders to:
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Michael C. Mauer
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Steven B. Boehm, Esq.
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CM Finance Inc
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Stephani M. Hildebrandt, Esq.
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601 Lexington Avenue, 26
th
Floor
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Eversheds Sutherland (US) LLP
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New York, NY 10022
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700 Sixth Street, NW, Suite 700
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(212)
255-5199
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Washington, DC 20001-3980
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(202)
637-3593
(fax)
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December 13, 2017
This document contains 24 pages (including exhibits), which have been numbered sequentially.
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UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND
EXCHANGE COMMISSION
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In the Matter of:
CM FINANCE INC, CM CREDIT
OPPORTUNITIES BDC I INC.,
CM
INVESTMENT PARTNERS LLC, CM
CREDIT
OPPORTUNITY FUND I LLC
AND CM FINANCE SPV LTD.
601 Lexington Avenue, 26
th
Floor
New York, NY 10022
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)
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Application for an Order under Sections 17(d) and 57(i) of the Investment Company Act of 1940 and Rule 17d1 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 17d1 under the Investment Company Act of 1940.
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I.
Summary of Application
The following entities hereby request 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
1940 Act
), and Rule 17d1 promulgated under the 1940 Act, authorizing certain
joint transactions that otherwise may be prohibited by either or both of Sections 17(d) and 57(a)(4) as modified by the exemptive rules adopted by the Commission under the 1940 Act:
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CM Finance Inc (
CMFN
),
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CM Credit Opportunities BDC I Inc. (
CM Credit
and together with CMFN, the
Existing Regulated Funds
)
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CM Finance SPV Ltd., a Wholly-Owned Investment Sub (as defined below) of CMFN (
CM SPV
),
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CM Credit Opportunity Fund I LLC (the
Existing Affiliated Fund
), and
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CM Investment Partners LLC (
CM Adviser
) on behalf of itself and its successors,
1
and together with the Existing Regulated Funds, CM SPV and the
Existing Affiliated Fund, the
Applicants
).
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In particular, the relief requested in this application (the
Application
) would permit a Regulated Fund
2
and one or more other Regulated Funds and/or one or more Affiliated Funds
3
to
participate in the same investment
1
The term successor, as applied to each Adviser (as defined below), means an entity that
results from a reorganization into another jurisdiction or change in the type of business organization.
2
Regulated Fund
means the Existing Regulated Funds and any Future Regulated Fund.
Future Regulated Fund
means
any closed-end
management investment company (a) that is registered under the 1940 Act or has elected to be regulated as a BDC (as defined below),
(b) whose investment adviser is an Adviser, and (c) that intends to participate in the Co-Investment Program. The term
Adviser
means (a) CM Adviser and (b) any future investment adviser that controls, is
controlled by or
2
opportunities through a proposed
co-investment
program (the
Co-Investment
Program
) where such
participation would otherwise be prohibited under Section 57(a)(4) and
Rule 17d-1
by
(a) co-investing
with each other in securities issued by issuers in
private placement transactions in which an Adviser negotiates terms in addition to price (
Private Placement Securities
);
4
and (b) making additional investments in
securities of such issuers, including through the exercise of warrants, conversion privileges, and other rights to purchase securities of the issuers (
Follow-On
Investments
).
Co-Investment
Transaction
means any transaction in which a Regulated Fund (or its Wholly-Owned Investment Sub (as defined below)) participated together with one or more other Regulated Funds and/or one or
more Affiliated Funds in reliance on the requested Order.
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Potential
Co-Investment
Transaction
means any investment opportunity in which
a Regulated Fund (or its Wholly-Owned Investment Sub) could not participate together with one or more Affiliated Funds and/or one or more other Regulated Funds without obtaining and relying on the Order.
A Regulated Fund may, from time to time, form a special purpose subsidiary (a
Wholly-Owned Investment Sub
) (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 an SBIC Subsidiary,
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maintain a license under the SBA Act and issue debentures guaranteed by the SBA); (iii) with respect to which the Regulated Funds Board has the sole
authority to make all determinations with respect to the entitys 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 1940 Act. All
subsidiaries of the Regulated Funds participating in
Co-Investment
Transactions will be Wholly-Owned Investment Subs and will have Objectives and Strategies (as defined below) that are either the same as, or a
subset of, the respective Regulated Funds Objectives and Strategies.
All existing entities that currently intend to rely upon the requested Order
have been named as Applicants. Any other existing or future entity that subsequently relies on the Order will comply with the terms and conditions of the Application. Applicants do not seek relief for transactions that would be permitted under other
regulatory or interpretive guidance, including, for example, transactions effected consistent with Commission staff
no-action
positions.
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is under common control with CM Adviser and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the
Advisers
Act
).
3
Affiliated Fund
means the Existing Affiliated Fund and any
Future Affiliated Fund.
Future Affiliated Fund
means any entity (a) whose investment adviser is an Adviser, (b) that would be an investment company but for Section 3(c)(1) or 3(c)(7) of the 1940 Act, and
(c) that intends to participate in the Co-Investment Program.
4
The term private placement
transactions means transactions in which the offer and sale of securities by the issuer are exempt from registration under the Securities Act of 1933, as amended (the
1933 Act
).
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No
Non-Interested
Director (as defined below) 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.
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SBIC Subsidiary
means any Wholly-Owned Investment Sub (as defined below) that is
licensed by the Small Business Administration (the
SBA
) to operate under the Small Business Investment Act of 1958, as amended, (the
SBA Act
) as a small business investment company (an
SBIC
).
7
See, e.g.
, Massachusetts Mutual Life Insurance Co. (pub. avail. June 7, 2000),
Massachusetts Mutual Life Insurance Co. (pub. avail. July 28, 2000) and SMC Capital, Inc. (pub. avail. Sept. 5, 1995).
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II.
Background
The Existing Regulated Funds
CMFN
CMFN is a Maryland corporation
that is an externally managed,
non-diversified,
closed-end
management investment company that has elected to be regulated as a business development company
(
BDC
) under the 1940 Act.
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The common stock of CMFN trades on the
NASDAQ Global Select Market under the symbol CMFN. CMFN was formed in February 2012 as CM Finance LLC. Immediately prior to CMFNs initial public offering, CM Finance LLC was merged with and into CMFN. CMFN completed its initial
public offering on February 11, 2014. CMFN is managed by CM Adviser, which also provides CMFN with administrative services. CM SPV is a Wholly-Owned Investment Sub of CMFN. In addition, for income tax purposes, CMFN has elected to be treated as
a regulated investment company under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the
Code
), and intends to continue to so qualify for so long as it maintains its BDC status. CMFNs principal place of
business is 601 Lexington Avenue, 26
th
Floor, New York, New York 10022.
CMFN invests primarily
in U.S. middle-market companies that have annual revenues of at least $50 million and earnings before interest, taxes, depreciation and amortization (
EBITDA
) of at least $15 million. CMFN invests in unitranche loans and
standalone second and first lien loans. CMFN also selectively invests in unsecured debt, bonds and in the equity of portfolio companies through warrants, in most cases taking such upside participation interests as part of a broader investment
relationship. CMFNs Objectives and Strategies
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are to maximize total return to shareholders in the form of current income and capital appreciation by investing directly in privately held
middle-market companies.
The board of directors of CMFN (the
CMFN Board
)
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is
comprised of six directors, four of whom are not interested persons, within the meaning of Section 2(a)(19) of the 1940 Act (the
Non-Interested
Directors
). No
Non-Interested
Director will have any direct or indirect financial interest in any Co-Investment Transaction or any interest in any portfolio company, other than through an interest (if any) in the securities of
CMFN.
Each of Michael C. Mauer, Christopher E. Jansen, Stifel Venture Corp. (
Stifel
), and certain funds (the
Cyrus
Funds
) managed by Cyrus Capital Advisors, L.L.C. own a direct or indirect interest in both CMFN and CM Adviser, as discussed below.
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Section 2(a)(48) of the 1940 Act defines a BDC to be any
closed-end
investment company that operates for the purpose of making investments in securities described in Sections 55(a)(1) through 55(a)(3) of the 1940 Act and makes available significant managerial
assistance with respect to the issuers of such securities.
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Objectives and
Strategies
means a Regulated Funds investment objectives and strategies, as described in its most current registration statement on Form
N-2
(or, if applicable, Form 10), 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 Funds reports to shareholders.
10
The term
Board
refers to the board of directors or trustees of any Regulated Fund.
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Stifel owns approximately 15.9% of CMFNs common stock. Stifel is a wholly-owned subsidiary of Stifel
Financial Corp. Pursuant to an irrevocable proxy granted by Stifel to CMFN, Stifel has granted CMFN the right to vote the shares of CMFNs common stock held by Stifel in excess of 4.9% of its total outstanding common stock in the same
percentages that CMFNs other shareholders vote their shares. Stifel has the right to nominate for election a member of the CMFN Board, who would be considered interested for purposes of the 1940 Act. Stifel has not exercised its
right to nominate for election a member of the CMFN Board.
Stifel has agreed to use its commercially reasonable efforts to present to CM Adviser the
opportunity to review and bid on certain Stifel Nicolaus & Company, Incorporated-originated leveraged finance and high yield corporate debt opportunities consistent with CMFNs investment strategy. Subject to the approval of the
CMFN Board, including the required majority of the CMFN Board as defined in Section 57(o) of the 1940 Act, and certain other limitations, Stifel may invest in the same portfolio companies that CMFN invests in (including any
Co-Investment
Transaction).
Cyrus Capital Advisors, L.L.C. is currently the investment manager to the Cyrus Funds,
which, in the aggregate, own approximately 27.9% of CMFNs common stock. Pursuant to an irrevocable proxy granted by the Cyrus Funds, the shares of CMFN held by the Cyrus Funds must be voted in the same manner that CMFNs other
shareholders, excluding Stifel, vote their shares.
Subject to the approval of the CMFN Board, including the required majority of the CMFN
Board as defined in Section 57(o) of the 1940 Act, and certain other limitations, the Cyrus Funds or another fund managed by Cyrus Capital Advisors, L.L.C. has in the past and may in the future invest in the same portfolio companies that CMFN
invests in (including any
Co-Investment
Transaction) to the extent that any such investment in a portfolio company is consistent with the strategy of the Cyrus Funds or another fund managed by Cyrus Capital
Advisors, L.L.C.
None of Stifel, Mr. Mauer or Mr. Jansen are affiliated with the Cyrus Funds or Cyrus Capital Advisors, L.L.C. The Cyrus Funds
and Cyrus Capital Advisors, L.L.C. are affiliated because Cyrus Capital Advisors, L.L.C. is the investment adviser to each of the Cyrus Funds.
CM Credit
CM Credit was formed as a
Maryland corporation on August 14, 2017 and is structured as an externally managed,
non-diversified
closed-end
management investment company. CM Credit intends
to file an election to be regulated as a BDC prior to the issuance of its common stock to investors in a private placement transaction.
CM Credit
expects to elect to be treated as a regulated investment company under Subchapter M of the Code, and thereafter intends to continue to so qualify for so long as it maintains BDC status. CM Credits principal place of business is 601 Lexington
Avenue, 26
th
Floor, New York, New York 10022.
CM Credits Objectives and Strategies are to
generate current income and capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. CM Credit will seek to invest primarily in middle-market companies and leveraged companies that have annual revenues of
at least $50 million and EBITDA of at least $15 million. CM Credit will be managed by CM Adviser.
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The board of directors of CM Credit (the
CM Credit Board
) will be comprised of a majority of
Non-Interested
Directors. No
Non-Interested
Director will have any direct or indirect financial interest in any
Co-Investment
Transaction or any interest in any portfolio company, other than through an interest (if any) in the securities of CM Credit.
The Existing Affiliated
Fund
The Existing Affiliated Fund was formed as a Delaware limited liability company on September 4, 2014. The Existing Affiliated Funds
investment objective is to seek current income and capital appreciation by investing primarily in middle-market companies that have annual revenues of at least $50 million and EBITDA of at least $15 million. The Existing Affiliated Fund
will be managed by CM Adviser. The Existing Affiliated Fund would be an investment company but for the exclusion from the definition of investment company provided by Section 3(c)(7) of the 1940 Act. Its investment objective and investment
policies overlap to an extent with those of CMFN and CM Credit.
CM Adviser
CM Adviser was formed as a Delaware limited liability company on July 25, 2013 and is an investment adviser registered with the Commission under the
Advisers Act. CM Adviser serves as the investment adviser to CMFN and manages its portfolio in accordance with CMFNs Objectives and Strategies. In addition, CM Adviser will serve as the investment adviser to CM Credit and the Existing
Affiliated Fund, respectively, and will manage their portfolios in accordance with CM Credits and the Existing Affiliated Funds respective Objectives and Strategies.
Mr. Mauer, the Existing Regulated Funds Chief Executive Officer, and Mr. Jansen, the Existing Regulated Funds President, Treasurer and
Secretary, each own an interest in CM Adviser, and Mr. Mauer, through a wholly-owned limited liability company, acts as managing member of CM Adviser.
CM Adviser manages CMFN, and will manage CM Credit, pursuant to the terms of their respective investment advisory agreements. Under the terms of CMFNs
investment advisory agreement with CM Adviser, CM Adviser, subject to the overall supervision of the CMFN Board, manages the
day-to-day
operations of, and provides
investment advisory services to, CMFN. CM Adviser, among other things, determines the composition of CMFNs portfolio, the nature and timing of the changes to CMFNs portfolio and the manner of implementing such changes; identifies,
evaluates and negotiates the structure of the investments that CMFN makes; executes, closes, monitors and services the investments the CMFN makes; and determines what investments CMFN will purchase, retain or sell. Pursuant to CM Credits
investment advisory agreement, subject to the overall supervision of the CM Credit Board, CM Adviser will manage the
day-to-day
operations of, and provide investment
advisory services to, CM Credit.
Stifel owns an interest in CM Adviser. Pursuant to CM Advisers Limited Liability Company Agreement, Stifel has the
right to appoint a representative to CM Advisers three-member board of managers, who has a 20% vote on any matter brought before the board of managers. Stifel also has the right to designate one of the members of CM Advisers investment
committee. Stifel does not have any rights to exercise a controlling influence over CMFNs
day-to-day
operations or CM Advisers investment management
functions.
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CM Advisers board of managers currently consists of Messrs. Mauer and Jansen, the
Co-Chief
Investment Officers, and Mr. Victor Nesi, Stifels appointee to the board of managers. CM Advisers investment team (the
Investment Team
) is led by Messrs. Mauer and Jansen
and supported by four additional investment professionals. CM Advisers investment committee consists of Messrs. Mauer and Jansen and Andrew Muns, each a senior member of the Investment Team, and Michael Nitka, Stifels designee to CM
Advisers investment committee. Every initial investment requires the approval of a majority of CM Advisers investment committee and such majority must include both Messrs. Mauer and Jansen.
Follow-on
investments in an existing portfolio company and investment dispositions require approval by a majority of CM Advisers investment committee. Mr. Muns may also provide services to Stifel
pursuant to a personnel sharing arrangement under the Stifel arrangement. Although Mr. Muns dedicates substantially all of his time to the business and activities of CM Adviser, he may continue to engage in investment advisory activities for
Stifel from time to time. Messrs. Mauer and Jansen monitor the activities of the members of the Investment Team for any conflicts of interest and will seek to resolve them on the Regulated Funds behalf, subject to the oversight of the
applicable Regulated Funds Board. As members of CM Advisers investment committee, Messrs. Nitka and Muns will recuse themselves from consideration of any potential conflict related to Stifel, should any such conflicts arise.
Each of the Cyrus Funds owns an indirect economic interest in CM Adviser. The Cyrus Funds have granted Mr. Mauer through his wholly-owned limited
liability company an irrevocable proxy to vote on any matters that come before the members of CM Adviser. Cyrus Capital Advisors, L.L.C. is controlled by Stephen C. Freidheim.
III.
Order Requested
The Applicants request the Order
of the Commission under Sections 17(d) and 57(i) under the 1940 Act, and
Rule 17d-l
under the 1940 Act to permit, subject to the terms and conditions set forth below in this
Application (the
Conditions
), one or more Regulated Funds to be able to participate in
Co-Investment
Transactions with one or more other Regulated Funds and/or one or more Affiliated Funds.
The Regulated Funds and the Affiliated Funds seek relief to invest in
Co-Investment
Transactions because such
Co-Investment
Transactions would otherwise be prohibited by Sections 17(d) and 57(a)(4) of the 1940 Act and
Rule 17d-l
under the 1940 Act. This
Application seeks relief in order to (i) enable the Regulated Funds and the Affiliated Funds to avoid the practical difficulties of trying to structure, negotiate and persuade counterparties to enter into transactions while awaiting the
granting of the relief requested in individual applications with respect to each
Co-Investment
Transaction that arises in the future, and (ii) enable the Regulated Funds and the Affiliated Funds to avoid
the significant legal and other expenses that would be incurred in preparing such individual applications.
A. Section 17(d) and
Section 57(a)(4)
Section 17(d) of the 1940 Act generally prohibits an affiliated person (as defined in Section 2(a)(3) of
the 1940 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 17d1 under the 1940 Act generally prohibits participation by a registered
investment company and an affiliated person (as defined in Section 2(a)(3) of
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the 1940 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.
Similarly, with
regard to BDCs, Section 57(a)(4) of the 1940 Act prohibits certain persons specified in Section 57(b) of the 1940 Act from participating in a joint transaction with a BDC or a company controlled by a BDC in contravention of rules
as prescribed by the Commission. In particular Section 57(a)(4) of the 1940 Act applies to:
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Any director, officer, employee, or member of an advisory board of a BDC, or any person (other than the BDC itself) who is an affiliated person of the foregoing pursuant to Section 2(a)(3)(C) of the 1940 Act;
or
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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,
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or any person who is an affiliated person of any of the foregoing within the meaning of Section 2(a)(3)(C) or (D) of the 1940 Act.
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Section 2(a)(3)(C) of the 1940 Act defines an affiliated person of another person to include any person directly or indirectly
controlling, controlled by, or under common control with, such other person. Section 2(a)(9) of the 1940 Act 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 that company. Under Section 2(a)(9) of the 1940 Act, a person who beneficially owns, either directly or through one or more controlled companies, more than 25% of the voting
securities of a company is presumed to control such company. The Commission and its staff have indicated on a number of occasions their belief that an investment adviser controls the fund that it advises, absent compelling evidence to the contrary.
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CM Adviser is the investment adviser to CMFN, and will serve as the investment adviser to CM Credit
and the Existing Affiliated Fund, and an Adviser will serve as the investment adviser to each of the Future Regulated Funds and each of the Future Affiliated Funds. CM Adviser may be deemed to control the Existing Regulated Funds and the Existing
Affiliated Fund, and any other Adviser will be controlling, controlled by, or under common control with CM Adviser. As a result, the Regulated Funds may be deemed to be under common control, and thus affiliated persons of each other under
Section 2(a)(3)(C) of the 1940 Act. In addition, the Affiliated Funds may be deemed to be under common control with the Regulated Funds, and thus affiliated persons of each Regulated Fund under Section 2(a)(3)(C) of the 1940 Act.
As a result, these relationships might cause a Regulated Fund and one or more other Regulated Funds and/or one or more Affiliated Funds participating in
Co-Investment
Transactions to be subject to
Sections 17(d) or 57(a)(4) of the 1940 Act, and thus subject to the provisions of
Rule 17d-l
of the 1940 Act.
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Excluded from this category are the BDC itself and any person who, if it were not directly or
indirectly controlled by the BDC, would not otherwise be under common control with the BDC.
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See,
e.g.,
In re Investment Company Mergers
, SEC Rel. No. IC25259 (Nov. 8, 2001);
In re Steadman Security Corp
., 46 S.E.C. 896, 920 n.81 (1977) ([T]he investment adviser almost always controls the fund. Only in the very
rare case where the advisers role is simply that of advising others who may or may not elect to be guided by his advice
can the adviser realistically be deemed not in control.).
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B. Rule 17d1
Rule 17dl under the 1940 Act generally prohibits participation by a registered investment company and an affiliated person (as defined in
Section 2(a)(3) of the 1940 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.
Rule 17d1 was promulgated by the
Commission pursuant to Section 17(d) of the 1940 Act and made applicable to BDCs by Section 57(i) of the 1940 Act. Section 57(i) of the 1940 Act provides that, until the Commission prescribes rules under
Section 57(a)(4) of the 1940 Act, the Commissions rules under Section 17(d) of the 1940 Act applicable to registered
closed-end
investment companies will be deemed to apply. Because
the Commission has not adopted any rules under Section 57(a)(4) of the 1940 Act, Rule 17dI under the 1940 Act applies.
Applicants seek relief pursuant to
Rule 17d-l
under the 1940 Act, which permits the Commission to authorize
joint transactions upon application. In passing upon applications filed pursuant to Rule 17dl under the 1940 Act, the Commission is directed by Rule 17d1(b) under the 1940 Act to consider whether the participation of
a registered investment company or controlled company thereof in the joint enterprise or joint arrangement under scrutiny is consistent with provisions, policies and purposes of the 1940 Act and the extent to which such participation is on a
basis different from or less advantageous than that of other participants.
The Commission has stated that Section 17(d) of the 1940 Act, upon
which Rule 17d1 under the 1940 Act is based, and upon which Section 57(a)(4) of the 1940 Act was modeled, was designed to protect investment companies from self-dealing and overreaching by insiders. The Commission has also
taken notice that there may be transactions subject to these prohibitions that do not present the dangers of overreaching. See
Protecting Investors: A Half-Century of Investment Company Regulation
, 1504 Fed. Sec. L. Rep., Extra Edition
(May 29, 1992) at 488
et seq
. The Court of Appeals for the Second Circuit has enunciated a like rationale for the purpose behind Section 17(d): The objective of [Section] 17(d) . . . is to prevent . . . injuring the
interest of stockholders of registered investment companies by causing the company to participate on a basis different from or less advantageous than that of such other participants.
Securities and Exchange Commission v. Talley Industries.
Inc.
, 399 F.2d 396, 405 (2d Cir. 1968),
cert. denied
393 U.S. 1015 (1969). Furthermore, Congress acknowledged that the protective system established by the enactment of Section 57 is similar to that applicable to
registered investment companies under section 17 of the 1940 Act, and rules thereunder, but is modified to address concerns relating to unique characteristics presented by business development companies. H.Rep.
No. 96-1341,
96th Cong., 2d Sess. 45 (1980)
reprinted in
1980 U.S.C.C.A.N. 4827.
Applicants
believe that the terms and conditions of this Application would ensure that the conflicts of interest that Section 17(d) and Section 57(a)(4) of the 1940 Act were designed to prevent would be addressed and the standards for an order
under Rule 17d1 under the 1940 Act are met.
C. Protection Provided by the Proposed Conditions
Applicants believe that the proposed conditions, as discussed more fully in Section III.D. of this Application (the
Conditions
), will
ensure the protection of shareholders of the Regulated Funds and compliance with the purposes and policies of the 1940 Act with respect to the
Co-Investment
Transactions. In particular, the Conditions, as
outlined below, would ensure that each Regulated Fund would only invest in investments
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that are appropriate to the interests of shareholders and the investment needs and abilities of that Regulated Fund. In addition, each Regulated Fund would be able to invest on equal footing with
each other Regulated Fund and the Affiliated Funds, including identical terms, conditions, price, class of securities purchased, settlement date, and registration rights. Each Regulated Fund would have the ability to engage in
Follow-On
Investments in a fair manner consistent with the protections of the other conditions. Each Regulated Fund would have the ability to participate on a proportionate basis, at the same price and on the same
terms and conditions in any sale of a security purchased in a
Co-Investment
Transaction. Fees and expenses of
Co-Investment
Transactions would be borne by the applicable
Adviser, or shared
pro-rata
among the Regulated Funds and Affiliated Funds who participate in the
Co-Investment
Transactions. The conditions would also prevent a
Regulated Fund from investing in any current investments of an affiliated person, which eliminates the possibility of a Regulated Fund from being forced to invest in a manner that would benefit an affiliated persons existing investment. Also,
sufficient records of the transactions would be maintained to permit the examination staff of the Commission to monitor compliance with the terms of the requested order.
The Conditions impose a variety of duties on the Advisers with respect to
Co-Investment
Transactions and Potential
Co-Investment
Transactions by the Regulated Funds. These duties include determinations regarding investment appropriateness, the appropriate level of investment, and the provision of information to the Board of any
Regulated Fund. In addition, when considering Potential
Co-Investment
Transactions for any Regulated Fund, the applicable Adviser will consider only the Objectives and Strategies, investment policies,
investment positions, Available Capital (defined below), and other pertinent factors applicable to that Regulated Fund. Each Adviser, as applicable, undertakes to perform these duties consistently for each Regulated Fund, as applicable, regardless
of which of them serves as investment adviser to these entities. The participation of a Regulated Fund in a Potential
Co-Investment
Transaction may only be approved by a required majority, as defined in
Section 57(o) (a
Required Majority
), of the directors of the Board eligible to vote on that
Co-Investment
Transaction under Section 57(o) (the
Eligible
Directors
).
13
The amount of each Regulated Funds capital available for investment
(
Available Capital
) 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, an Affiliated Funds 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 by the Affiliated Funds directors, general partner, managing member or adviser or imposed by
applicable laws, rules, regulations or interpretations.
If the Advisers, the principal owners of any of the Advisers (the
Principals
),
or any person controlling, controlled by, or under common control with the Advisers or the Principals, and the Affiliated Funds (collectively, the
Holders
) own in the aggregate more than 25 percent of the outstanding voting
shares of a Regulated Fund (the
Shares
), then the Holders will vote such Shares as required under Condition 14.
13
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).
10
Applicants believe that this condition will ensure that the
Non-Interested
Directors will act independently in evaluating the
Co-Investment
Program, because the ability of the Advisers or the Principals to influence the
Non-Interested
Directors by a suggestion, explicit or implied, that the
Non-Interested
Directors can be removed will be limited significantly. If an independent party is
engaged pursuant to Condition 14, the
Non-Interested
Directors shall evaluate and approve such independent party, taking into account its qualifications, reputation for independence, cost to the shareholders,
and other factors that they deem relevant.
In sum, the Applicants believe that the proposed conditions would ensure that each Regulated Fund that
participates in a
Co-Investment
Transaction does not participate on a basis different from, or less advantageous than, that of such other participants. As a result, the Applicants believe that the
participation of the Regulated Funds in
Co-Investment
Transactions done in accordance with the Conditions would be consistent with the provisions, policies, and purposes of the 1940 Act, and would be done
in a manner that was not different from, or less advantageous than, the other participants.
With respect to each Wholly-Owned Investment Sub, such a
subsidiary would be prohibited from investing in a
Co-Investment
Transaction with an Affiliated Fund or Regulated Fund because it would be a company controlled by its parent Regulated Fund for purposes of
Section 57(a)(4) of the 1940 Act and
Rule 17d-l
under the 1940 Act. Applicants request that each Wholly-Owned Investment Sub be permitted to participate in
Co-Investment
Transactions in lieu of its parent Regulated Fund and that the Wholly-Owned Investment Subs participation in any such transaction be treated, for purposes of the Order, as though the parent
Regulated Fund were participating directly. Applicants represent that this treatment is justified because a Wholly-Owned Investment Sub would have no purpose other than serving as a holding vehicle for the Regulated Funds investments and,
therefore, no conflicts of interest could arise between the Regulated Fund and the Wholly-Owned Investment Sub. The Regulated Funds Board would make all relevant determinations under the Conditions with regard to a Wholly-Owned Investment
Subs participation in a
Co-Investment
Transaction, and the Regulated Funds Board would be informed of, and take into consideration, any proposed use of a Wholly-Owned Investment Sub in the
Regulated Funds place. If the Regulated Fund proposes to participate in the same
Co-Investment
Transaction with any of its Wholly-Owned Investment Subs, the Board will also be informed of, and take into
consideration, the relative participation of the Regulated Fund and the Wholly-Owned Investment Sub.
D. Proposed Conditions
Applicants agree that any Order granting the requested relief shall be subject to the following Conditions:
1. Each time an Adviser considers a Potential
Co-Investment
Transaction for an Affiliated Fund or another Regulated
Fund that falls within a Regulated Funds then-current Objectives and Strategies, the Regulated Funds Adviser will make an independent determination of the appropriateness of the investment for such Regulated Fund in light of the
Regulated Funds then-current circumstances.
2. (a) If the Adviser deems a Regulated Funds
participation in any Potential
Co-Investment
Transaction to be appropriate for the Regulated Fund, it will then determine an appropriate level of investment for the Regulated Fund.
(b) If the aggregate amount recommended by the applicable Adviser to be invested by the applicable Regulated Fund in the Potential
Co-Investment
Transaction, together with the amount proposed to be invested
11
by the other participating Regulated Funds and Affiliated Funds, collectively, in the same transaction, exceeds the amount of the investment opportunity, the investment opportunity will be
allocated among them pro rata based on each participants Available Capital, 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 partys Available Capital to assist the Eligible Directors with their review of the Regulated Funds investments for compliance with these allocation procedures.
(c) After making the determinations required in conditions 1 and 2(a), the applicable Adviser will distribute written information
concerning the Potential
Co-Investment
Transaction (including the amount proposed to be invested by each participating Regulated Fund and Affiliated Fund) to the Eligible Directors of each participating
Regulated Fund for their consideration. A Regulated Fund will
co-invest
with one or more other Regulated Funds and/or one or more Affiliated Funds only if, prior to the Regulated Funds participation in
the Potential
Co-Investment
Transaction, a Required Majority concludes that:
(i)
the terms of the Potential
Co-Investment
Transaction, including the consideration to be paid, are reasonable and fair to the Regulated Fund and its shareholders and do not involve overreaching in respect of
the Regulated Fund or its shareholders on the part of any person concerned;
(ii) the Potential
Co-Investment
Transaction is consistent with:
(A) the interests of the shareholders of
the Regulated Fund; and
(B) the Regulated Funds then-current Objectives and Strategies;
(iii) the investment by any other Regulated Funds or Affiliated Funds would not disadvantage the Regulated Fund, and
participation by the Regulated Fund would not be on a basis different from or less advantageous than that of other Regulated Funds or Affiliated Funds;
provided that
, if any other Regulated Fund or Affiliated Fund, but not the Regulated Fund
itself, gains the right to nominate a director for election to a portfolio companys board of directors or the right to have a board observer or any similar right to participate in the governance or management of the portfolio company, such
event shall not be interpreted to prohibit the Required Majority from reaching the conclusions required by this condition (2)(c)(iii), if:
(A) the Eligible Directors will have the right to ratify the selection of such director or board observer, if any;
(B) the applicable Adviser agrees to, and does, provide periodic reports to the Regulated Funds Board with respect to
the actions of such director or the information received by such board observer or obtained through the exercise of any similar right to participate in the governance or management of the portfolio company; and
(C) any fees or other compensation that any Affiliated Fund or any Regulated Fund or any affiliated person of any Affiliated
Fund or any Regulated Fund receives in connection with the right of the Affiliated Fund or a Regulated Fund to nominate a director or appoint a board observer or otherwise to participate in the governance or management of the portfolio company will
be shared proportionately among the participating Affiliated Funds (who each may, in turn, share its portion with its affiliated persons) and the participating Regulated Funds in accordance with the amount of each partys investment; and
12
(iv) the proposed investment by the Regulated Fund will not benefit the Advisers,
the Affiliated Funds or the other Regulated Funds or any affiliated person of any of them (other than the parties to the
Co-Investment
Transaction), except (A) to the extent permitted by
condition 13, (B) to the extent permitted by Section 17(e) or 57(k) of the 1940 Act, as applicable, (C) indirectly, as a result of an interest in the securities issued by one of the parties to the
Co-Investment
Transaction, or (D) in the case of fees or other compensation described in condition 2(c)(iii)(C).
3. Each Regulated Fund has the right to decline to participate in any Potential
Co-Investment
Transaction or to invest
less than the amount proposed.
4. The applicable Adviser will present to the Board of each Regulated Fund, on a quarterly basis, a record of all
investments in Potential
Co-Investment
Transactions made by any of the other Regulated Funds or Affiliated Funds during the preceding quarter that fell within the Regulated Funds 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,
14
a Regulated Fund will not invest in reliance on the Order in any issuer in which another
Regulated Fund, Affiliated Fund, or any affiliated person of another Regulated Fund or Affiliated Fund is an existing investor.
6. A Regulated Fund will
not participate in any Potential
Co-Investment
Transaction unless the terms, conditions, price, class of securities to be purchased, settlement date, and registration rights will be the same for each
participating Regulated Fund and Affiliated Fund. The grant to an Affiliated Fund or another Regulated Fund, but not the Regulated Fund, of the right to nominate a director for election to a portfolio companys board of directors, the right to
have an observer on the board of directors or similar rights to participate in the governance or management of the portfolio company will not be interpreted so as to violate this condition 6, if conditions 2(c)(iii)(A), (B) and
(C) are met.
7. (a) If any Affiliated Fund or any Regulated Fund elects to sell, exchange or
otherwise dispose of an interest in a security that was acquired in a
Co-Investment
Transaction, the applicable Advisers will:
(i) notify each Regulated Fund that participated in the
Co-Investment
Transaction of
the proposed disposition at the earliest practical time; and
(ii) formulate a recommendation as to participation by each
Regulated Fund in the disposition.
(b) Each Regulated Fund will have the right to participate in such disposition on a proportionate
basis, at the same price and on the same terms and conditions as those applicable to the participating Affiliated Funds and Regulated Funds.
14
This exception applies only to
Follow-On
Investments by a
Regulated Fund in issuers in which the Regulated Fund already holds investments.
13
(c) A Regulated Fund may participate in such disposition without obtaining prior approval of the
Required Majority if: (i) the proposed participation of each Regulated Fund and each Affiliated Fund in such disposition is proportionate to its outstanding investments in the issuer immediately preceding the disposition; (ii) the Board of
the Regulated Fund has approved as being in the best interests of the Regulated Fund the ability to participate in such dispositions on a pro rata basis (as described in greater detail in 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 Adviser will provide its written recommendation as to the Regulated Funds participation to the Eligible
Directors, and the Regulated Fund will participate in such disposition solely to the extent that a Required Majority determines that it is in the Regulated Funds best interests.
(d) Each Affiliated Fund and each Regulated Fund will bear its own expenses in connection with any such disposition.
8. (a) If any Affiliated Fund or any Regulated Fund desires to make a
Follow-On
Investment in a portfolio company whose securities were acquired in a
Co-Investment
Transaction, the applicable Advisers will:
(i) notify each Regulated Fund that participated in the
Co-Investment
Transaction of
the proposed transaction at the earliest practical time; and
(ii) formulate a recommendation as to the proposed
participation, including the amount of the proposed
Follow-On
Investment, by each Regulated Fund.
(b) A Regulated Fund may participate in such
Follow-On
Investment without obtaining prior approval of
the Required Majority if: (i) the proposed participation of each Regulated Fund and each Affiliated Fund in such investment is proportionate to its outstanding investments in the issuer immediately preceding the
Follow-On
Investment; and (ii) the Board of the Regulated Fund has approved as being in the best interests of the Regulated Fund the ability to participate in
Follow-On
Investments on a pro rata basis (as described in greater detail in this application). In all other cases, the Adviser will provide its written recommendation as to the Regulated Funds
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 Funds
best interests.
(c) If, with respect to any
Follow-On
Investment:
(i) the amount of the opportunity is not based on the Regulated Funds and the Affiliated Funds outstanding
investments immediately preceding the
Follow-On
Investment; and
(ii) the aggregate
amount recommended by the applicable Adviser to be invested by the applicable Regulated Fund in the
Follow-On
Investment, together with the amount proposed to be invested by the other participating Regulated
Funds and Affiliated Funds, collectively, in the same transaction, exceeds the amount of the investment opportunity, then the investment opportunity will be allocated among them pro rata based on each participants Available Capital, up to the
maximum 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
Non-Interested
Directors of each Regulated Fund will be provided quarterly for review all information concerning
Potential
Co-Investment
Transactions and
Co-Investment
Transactions, including investments
14
made by other Regulated Funds or Affiliated Funds that the Regulated Fund considered but declined to participate in, so that the
Non-Interested
Directors
may determine whether all investments made during the preceding quarter, including those investments that the Regulated Fund considered but declined to participate in, comply with the conditions of the Order. In addition, the
Non-Interested
Directors will consider at least annually the continued appropriateness for the Regulated Fund of participating in new and existing
Co-Investment
Transactions.
10. Each Regulated Fund will maintain the records required by Section 57(f)(3) of the 1940 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 1940 Act.
11. No
Non-Interested
Director of a Regulated Fund will also be a director, general partner, managing member or principal, or otherwise an affiliated person (as defined in the 1940 Act) of an Affiliated
Fund.
12. The expenses, if any, associated with acquiring, holding or disposing of any securities acquired in a
Co-Investment
Transaction (including, without limitation, the expenses of the distribution of any such securities registered for sale under the 1933 Act) will, to the extent not payable by the Advisers
under their respective investment advisory agreements with Affiliated Funds and the Regulated Funds, be shared by the Regulated Funds and the Affiliated Funds in proportion to the relative amounts of the securities held or to be acquired or disposed
of, as the case may be.
13. Any transaction fee (including
break-up
or commitment fees but excluding brokers
fees contemplated by Section 17(e) or 57(k) of the 1940 Act, as applicable), received in connection with a
Co-Investment
Transaction will be distributed to the participating Regulated Funds and
Affiliated Funds on a pro rata basis based on the amounts they invested or committed, as the case may be, in such
Co-Investment
Transaction. If any transaction fee is to be held by an Adviser pending
consummation of the transaction, the fee will be deposited into an account maintained by such Adviser at a bank or banks having the qualifications prescribed in Section 26(a)(1) of the 1940 Act, and the account will earn a competitive rate
of interest that will also be divided pro rata among the participating Regulated Funds and Affiliated Funds based on the amounts they invest in such
Co-Investment
Transaction. None of the Affiliated Funds, the
Advisers, the other Regulated Funds or any affiliated person of the Regulated Funds or Affiliated Funds will receive additional compensation or remuneration of any kind as a result of or in connection with a
Co-Investment
Transaction (other than (a) in the case of the Regulated Funds and the Affiliated Funds, the pro rata transaction fees described above and fees or other compensation described in
condition 2(c)(iii)(C); and (b) in the case of an Adviser, investment advisory fees paid in accordance with the agreement between the Adviser and the Regulated Fund or Affiliated Fund.
14. If the Holders own in the aggregate more than 25% of the Shares of a Regulated Fund, then the Holders will vote such Shares (i) as directed by an
independent third party, or (ii) in the same percentages as the Companys other shareholders (not including the Holders) when voting on (1) the election of directors; (2) the removal of one or more directors; or (3) any
other matter under either the 1940 Act or applicable State law affecting the Boards composition, size or manner of election.
15. Each Regulated
Funds chief compliance officer, as defined in Rule
38a-1(a)(4)
under the 1940 Act, will prepare an annual report for its Board that evaluates (and documents the basis of that evaluation) the Regulated
Funds compliance with the terms and conditions of the Application and the procedures established to achieve such compliance.
15
IV.
Statement in Support of Relief Requested
Applicants submit that allowing the
Co-Investment
Transactions described by this Application is justified on the basis
of (i) the potential benefits to the Regulated Funds and the shareholders thereof and (ii) the protections found in the terms and conditions set forth in this Application.
A. Potential Benefits
In the absence of the relief sought
hereby, in some circumstances the Regulated Funds would be limited in their ability to participate in attractive and appropriate investment opportunities. Section 17(d) and Section 57(a)(4) of the 1940 Act and Rule 17d1
under the 1940 Act should not prevent BDCs and registered closedend investment companies from making investments that are in the best interests of their shareholders.
In cases where the Advisers identify investment opportunities requiring larger capital commitments, they must seek the participation of other entities with
similar investment styles. The ability to participate in
Co-Investment
Transactions that involve committing larger amounts of financing would enable each Regulated Fund to participate with one or more of the
Affiliated Funds and the other Regulated Funds in larger financing commitments, which would, in turn, be expected to obtain discounted prices and increase income, expand investment opportunities and provide better access to due diligence information
for the Regulated Funds. Indeed, each Regulated Funds inability to
co-invest
with one or more of the Affiliated Funds and the other Regulated Funds could potentially result in the loss of beneficial
investment opportunities for such Regulated Fund and, in turn, adversely affect such Regulated Funds shareholders. For example, a Regulated Fund may lose investment opportunities if the 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 Funds 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). To the extent there is an investment that falls
within the Objectives and Strategies of a Regulated Fund and one or more other Regulated Funds and/or the investment objectives and strategies of one or more Affiliated Funds, it is expected that a Regulated Fund will
co-invest
with one or more other Regulated Funds and/or one or more Affiliated Funds, with certain exceptions based on available capital or diversification. The Regulated Funds, however, will not be obligated
to invest, or
co-invest,
when investment opportunities are referred to them.
Each Regulated Fund and its
shareholders will benefit from the ability to participate in
Co-Investment
Transactions. The Board of each Regulated Fund, including the
Non-Interested
Directors, has
(or will have prior to relying on the requested Order) determined that it is in the best interests of the Regulated Fund to participate in
Co-Investment
Transactions because, among other matters, (i) the
Regulated Fund will be able to participate in a larger number and greater variety of transactions; (ii) the Regulated Fund will be able to participate in larger transactions; (iii) the Regulated Fund will be able to participate in all
opportunities approved by a Required Majority or otherwise permissible under the Order rather than risk underperformance through rotational allocation of opportunities among the Regulated Funds; (iv) the Regulated Fund and any other Regulated
Funds participating in the proposed investment will have greater bargaining power, more control over the investment and less need to bring in other external investors or structure investments to satisfy the different needs of external investors;
(v) the Regulated Fund will be able to obtain greater attention and better deal flow from investment bankers and others who act as sources of investments; and (vi) the general terms and conditions of the proposed
16
Order are fair to the Regulated Funds and their shareholders. The Board of each of the Existing Regulated Funds, including the
Non-Interested
Directors,
also determined that it is in the best interests of the Existing Regulated Funds and their shareholders to obtain the Order at the earliest possible time and instructed the officers of the Existing Regulated Funds, the Advisers and counsel to use
all appropriate efforts to accomplish such goal. For these reasons, the CMFN Board and the CM Credit Board have determined (or will have prior to relying on the requested Order) that it is proper and desirable for the CMFN and CM Credit,
respectively, to participate in
Co-Investment
Transactions with one or more other Regulated Funds and/or one or more Affiliated Funds.
B. Protective Representations and Conditions
The terms and
conditions set forth in this application ensure that the proposed
Co-Investment
Transactions are consistent with the protection of each Regulated Funds shareholders and with the purposes intended by the
policies and provisions of the 1940 Act. Specifically, the Conditions incorporate the following critical protections: (i) in each
Co-Investment
Transaction, all Regulated Funds and Affiliated Funds
participating in the
Co-Investment
Transactions will invest at the same time for the same price and with the same terms, conditions, class, registration rights and any other rights, so that none of them
receives terms more favorable than any other; (ii) a Required Majority of each Regulated Fund must approve various investment decisions with respect to such Regulated Fund in accordance with the Conditions; and (iii) the Regulated Funds
are required to retain and maintain certain records.
Other than pro rata dispositions and
Follow-On
Investments
as provided in conditions 7 and 8, and after making the determinations required in conditions 1 and 2(a), 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 participating Regulated Fund. With respect to the pro
rata dispositions and
Follow-On
Investments provided in conditions 7 and 8, a Regulated Fund may participate in a pro rata disposition or
Follow-On
Investment
without obtaining prior approval of the Required Majority if, among other things: (i) the proposed participation of each Regulated Fund and Affiliated Fund in such disposition is proportionate to its outstanding investments in the issuer
immediately preceding the disposition or
Follow-On
Investment, as the case may be; and (ii) the Board of the Regulated Fund has approved that Regulated Funds 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 Funds 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
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 1940 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. The Applicants note that the Commission has adopted a similar pro rata approach in the context of
Rule 23c-2
under the 1940 Act, which relates to the redemption by a
closed-end
investment company of less than all of a class of its securities, indicating the
general fairness and lack of overreaching that such approach provides.
17
The foregoing analysis applies equally where a Wholly-Owned Investment Sub is involved in a
Co-Investment
Transaction as each Wholly-Owned Investment Sub will be treated as one company with its parent for purposes of this Application.
V.
Precedents
The Commission previously has issued
orders permitting certain investment companies subject to regulation under the 1940 Act and their affiliated persons to
co-invest
in Private Placement Securities.
See
MVC Capital, Inc., et al.
(File
No. 812-14720)
Investment Company Act Rel. Nos. 32769 (August 1, 2017) (notice) and 32797 (August 28, 2017) (order); 1989 BDC, Inc., et al. (File
No. 812-14682)
Investment Company Act Rel. Nos. 32687 (June 21, 2017) (notice) and 32735 (July 18, 2017) (order); Corporate Capital Trust, Inc., et al. (File
No. 812-14408)
Investment Company Act Rel. Nos. 32642 (May 22, 2017) (notice) and 32683 (June 19, 2017) (order); TICC Capital Corp., et al. (File
No. 812-14707)
Investment Company Act Rel. Nos. 32641 (May 19, 2017) (notice) and 32680 (June 14, 2017) (order); Solar Capital Ltd., et al. (File
No. 812-14735)
Investment Company Act Rel. Nos. 32638 (May 17, 2017) (notice) and 32677 (June 13, 2017) (order).
VI.
Procedural Matters
Pursuant to
Rule 0-2(f)
under the 1940 Act, each Applicant states that its address is as indicated below:
CM Finance Inc
601 Lexington
Avenue, 26
th
Floor
Attention: Michael C. Mauer
(212)
255-5199
(Tel.)
Applicants further state that all written or oral communications concerning this Application should be directed to:
Eversheds Sutherland (US) LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001-3980
Attention: Steven B. Boehm, Esq.
Stephani M. Hildebrandt, Esq.
(202)
383-0100
(Tel.)
(202)
637-3593
(Fax)
The Applicants desire that the Commission issue an Order pursuant to
Rule 0-5
under the 1940 Act without
conducting a hearing.
The verifications required by
Rule 0-2(d)
under the 1940 Act are attached hereto as
Exhibit A.
Pursuant to Rule
0-2
under the 1940 Act, each Applicant declares that this Application for a
Commission order is signed on behalf of each Applicant, pursuant to the general authority vested in each signatory by the Certificate of Incorporation and
By-laws,
Certificate of Formation and Limited
Liability Company Agreement of each Applicant, or other similar document, or, with regard to CMFN and CM Credit, pursuant to the resolutions attached hereto as Exhibits B and C, respectively.
18
Applicants request that any questions regarding this Application be directed to the persons listed on the facing
page of this Application.
VII.
Request for Order of Exemption
For the foregoing reasons, the Applicants request that the Commission enter an Order under Sections 17(d) and 57(i) of the 1940 Act and
Rule 17d1 under the 1940 Act granting Applicants the relief sought by the Application. Applicants submit that the requested exemption is consistent with the protection of investors.
Dated: December 13, 2017
|
|
|
CM FINANCE INC
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Chief Executive Officer and Chairman of the Board
|
|
CM CREDIT OPPORTUNITIES BDC I INC.
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Chief Executive Officer and Chairman of the Board
|
|
CM INVESTMENT PARTNERS LLC
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title:
Co-Chief
Investment Officer
|
|
CM CREDIT OPPORTUNITY FUND I
LLC
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Authorized Person
|
|
CM FINANCE SPV LTD.
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Authorized Person
|
19
Exhibit A
Verification
The undersigned states that he has duly executed the attached 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, dated as of December 13, 2017 for and on behalf of each entity listed below; that he is the authorized person of each such entity; and
that all action by officers, directors, and other bodies 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 therein set forth are true to the best of his knowledge, information and belief.
|
|
|
CM FINANCE INC
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Chief Executive Officer and Chairman of the Board
|
|
CM CREDIT OPPORTUNITIES BDC I INC.
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Chief Executive Officer and Chairman of the Board
|
|
CM INVESTMENT PARTNERS LLC
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title:
Co-Chief
Investment Officer
|
|
CM CREDIT OPPORTUNITY FUND I
LLC
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Authorized Person
|
|
CM FINANCE SPV LTD.
|
|
By:
/s/ Michael C. Mauer
|
Name: Michael C. Mauer
|
Title: Authorized Person
|
20
Exhibit B
Resolutions Adopted by the Board of Directors of CM Finance Inc
WHEREAS
, the Board believes it is in the best interests of CM Finance Inc (the
Company
) to file an application with the Commission for an order pursuant to Sections 17(d) and 57(i) of the 1940 Act and Rule
17d-l
promulgated under the 1940 Act (the
Application
), to authorize the entering into of certain joint transactions and
co-investments
by the Company with certain entities which may be deemed to be affiliates of
the Company pursuant to the provisions of the 1940 Act, which such joint transactions and
co-investments
would otherwise be prohibited by Sections 17(d) and 57(a)(4) of the 1940 Act, all as more fully set
forth in the draft Application that has been presented to the Board; and
WHEREAS
, the Board has
reviewed the Application, a copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, BE IT
RESOLVED
, that the Chief Executive Officer, Chief Financial Officer and Secretary of the Company (each an
Authorized Officer
and, collectively, the
Authorized Officers
) be, and they hereby are,
authorized, empowered and directed, in the name and on behalf of the Company, to cause to be prepared, executed, delivered and filed with the Commission the Application, and to do such other acts or things and execute such other documents, including
amendments to the Application, as they deem necessary or desirable to cause the Application to conform to comments received from the Staff of the Commission and otherwise to comply with the 1940 Act and the rules and regulations promulgated
thereunder, in such form and accompanied by such exhibits and other documents, as the Authorized Officers preparing the same shall approve, such approval to be conclusively evidenced by the filing of the Application; and it is further
RESOLVED
, that the Authorized Officers be, and each of them hereby is, authorized, empowered and
directed, in the name and on behalf of Company, to perform all of the agreements and obligations of the Company in connection with the foregoing resolutions, to take or cause to be taken any and all further actions, to execute and deliver, or cause
to be executed and delivered, all other documents, instruments, agreements, undertakings, and certificates of any kind and nature whatsoever, to incur and pay all fees and expenses and to engage such persons as the Authorized Officers may determine
to be necessary, advisable or appropriate to effectuate or carry out the purposes and intent of the foregoing resolutions, and the execution by the Authorized Officers of any such documents, instruments, agreements, undertakings and certificates,
the payment of any fees and expenses or the engagement of such persons or the taking by them of any action in connection with the foregoing matters shall conclusively establish the Authorized Officers authority therefore and the authorization,
acceptance, adoption, ratification, approval and confirmation by the Company thereof.
(Adopted on November 7, 2017)
21
Exhibit C
Resolutions Adopted by the Sole Director of CM Credit Opportunities BDC I Inc.
WHEREAS
, the Board believes it is in the best interests of CM Credit Opportunities BDC I Inc. (the
Company
) to file an application with the Commission for an order pursuant to Sections 17(d) and 57(i) of the 1940 Act and Rule
17d-l
promulgated under the 1940 Act (the
Application
), to authorize the entering into of certain joint transactions and
co-investments
by the Company with certain entities which may be deemed to be affiliates of
the Company pursuant to the provisions of the 1940 Act, which such joint transactions and
co-investments
would otherwise be prohibited by Sections 17(d) and 57(a)(4) of the 1940 Act, all as more fully set
forth in the draft Application that has been presented to the Board; and
WHEREAS
, the Board has
reviewed the Application, a copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, BE IT
RESOLVED
, that the Chief Executive Officer, Chief Financial Officer and Secretary of the Company (each an
Authorized Officer
and, collectively, the
Authorized Officers
) be, and they hereby are,
authorized, empowered and directed, in the name and on behalf of the Company, to cause to be prepared, executed, delivered and filed with the Commission the Application, and to do such other acts or things and execute such other documents, including
amendments to the Application, as they deem necessary or desirable to cause the Application to conform to comments received from the Staff of the Commission and otherwise to comply with the 1940 Act and the rules and regulations promulgated
thereunder, in such form and accompanied by such exhibits and other documents, as the Authorized Officers preparing the same shall approve, such approval to be conclusively evidenced by the filing of the Application; and it is further
RESOLVED
, that the Authorized Officers be, and each of them hereby is, authorized, empowered and
directed, in the name and on behalf of Company, to perform all of the agreements and obligations of the Company in connection with the foregoing resolutions, to take or cause to be taken any and all further actions, to execute and deliver, or cause
to be executed and delivered, all other documents, instruments, agreements, undertakings, and certificates of any kind and nature whatsoever, to incur and pay all fees and expenses and to engage such persons as the Authorized Officers may determine
to be necessary, advisable or appropriate to effectuate or carry out the purposes and intent of the foregoing resolutions, and the execution by the Authorized Officers of any such documents, instruments, agreements, undertakings and certificates,
the payment of any fees and expenses or the engagement of such persons or the taking by them of any action in connection with the foregoing matters shall conclusively establish the Authorized Officers authority therefore and the authorization,
acceptance, adoption, ratification, approval and confirmation by the Company thereof.
(Adopted by Written Consent dated December 7,
2017)
22
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