Notice2021-27697
Neuberger Berman BDC LLC, et al.
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 22, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 243 (Wednesday, December 22, 2021)</title>
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[Federal Register Volume 86, Number 243 (Wednesday, December 22, 2021)]
[Notices]
[Pages 72658-72667]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27697]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 34443; File No. 812-15124]
Neuberger Berman BDC LLC, et al.
December 16, 2021.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of application for an order under sections 17(d) and 57(i)
of the Investment Company Act of 1940 (the ``Act'') and rule 17d-1
under the Act to permit certain joint transactions otherwise prohibited
by sections 17(d) and 57(a)(4) of the Act and rule 17d-1 under the Act.
Summary of Application: Applicants request an order to permit certain
business development companies (``BDCs'') and closed-end management
investment companies to co-invest in portfolio companies with each
other and with certain affiliated investment funds and accounts.
Applicants: Neuberger Berman BDC LLC (``NBBDC''); NB Private Markets
Fund II (Master) LLC (``NB Private Markets II''); NB Private Markets
Fund III (Master) LLC (``NB Private Markets III''); NB Crossroads
Private Markets Fund IV Holdings LLC (``NB Private Markets IV''); NB
Crossroads Private Markets Fund V Holdings LP (``NB Private Markets
V''); NB Crossroads Private Markets Fund VI Holdings LP (``NB Private
Markets VI''); NB Crossroads Private Markets Fund VII Holdings LP (``NB
Private Markets VII''); NB Crossroads Private Markets Access Fund LLC
(``NB Private Markets Access'' and, together with NB Private Markets
II, NB Private Markets III, NB Private Markets IV, NB Private Markets
V, NB Private Markets VI, and NB Private Markets VII, the ``Existing
Regulated Funds''); NB Alternatives Advisers LLC (``NBAA''); Neuberger
Berman Investment Advisers LLC (``NBIA''); Columbia NB Crossroads Fund
II LP; Golden Road Capital Pooling L.P.; MEP Opportunities Fund
Holdings LP; NB--Iowa's Public Universities LP; NB 1 PE Investment
Holdings LP; NB 1911 LP; NB AGI PE Portfolio II Fund LP; NB ASGA Fund
Holdings LP; NB AYAME Holdings LP; NB Blue Ensign Fund LP; NB Caspian
Holdings LP; NB CPEG Fund Holdings LP; NB Credit Opportunities Co-
Invest Affordable Care I LP; NB Credit Opportunities Co-Invest I LP; NB
Credit Opportunities Fund II LP; NB Credit Opportunities II Cayman LP;
NB Credit Opportunities II Co-Investment Fund (Cayman) LP; NB Credit
Opportunities II Co-Investment (Whistler) LP; NB Crossroads 23 LC
Holdings LP; NB Crossroads 23 MC Holdings LP; NB Crossroads 23 SS
Holdings LP; NB Crossroads 23 VC Holdings LP; NB Crossroads 24 LC
Holdings LP; NB Crossroads 24 MC Holdings LP; NB Crossroads 24 SS
Holdings LP; NB Crossroads 24 VC Holdings LP; NB Crossroads XXII--MC
Holdings LP; NB Crossroads XXII--VC Holdings LP; NB Crystal PE Holdings
LP; NB Enhanced Income Holdings LP; NB Enstar PE Opportunities Fund,
LP; NB Euro Crossroads 2018 Holdings SCSP; NB Euro Crossroads 2021
Holdings SCSP; NB Flamingo Private Debt LP; NB Flat Corner PE Holdings
LP; NB Gemini Fund LP; NB Granite Private Debt LP; NB Greencastle LP;
NB Initium Infrastructure (Eur) Holdings LP; NB Initium Infrastructure
(USD) Holdings LP; NB Initium PE (Eur) Holdings LP; NB Initium PE (USD)
Holdings LP; NB K-P Loan Partners LP; NB Oak LP; NB PA Co-Investment
Fund LP; NB PD III Holdings (LO) LP; NB PD III Holdings (LS) LP; NB PD
III Holdings (UO) LP; NB PD III Holdings (US) LP; NB PD IV Equity LP;
NB PD IV Holdings (LO-A) LP; NB PD IV Holdings (LS-A) LP; NB PD IV
Holdings (US-A) (Levered) LP; NB PD IV Holdings (US-B) (Unlevered) LP;
NB PD IV Holdings (UO-A) LP; NB PEP Holdings Limited; NB Pinnacol
Assurance Fund LP; NB Private Debt Fund LP; NB Private Debt II Holdings
LP; NB Private Equity Credit Opportunities Holdings LP; NB Private
Package LP; NB Rembrandt Holdings 2018 LP; NB Rembrandt Holdings 2020
LP; NB Rembrandt Holdings 2022 LP; NB Renaissance Partners Holdings S.A
R.L.; NB RESOF Holdings LP; NB RESOF II Cayman Holdings LP; NB RESOF II
Holdings LP; NB Resof SP1 LP; NB RP Co-Investment & Secondary Fund LLC;
NB RPPE Partners LP; NB SBS US 3 Fund LP; NB Select Opps III MHF LP; NB
Select Opps IV MHF LP; NB Select Opps V MHF LP; NB SHP Fund Holdings
LP; NB Si-Apollo Sengai Fund Holdings LP; NB SOF III Holdings LP; NB
SOF IV Cayman Holdings LP; NB SOF IV Holdings LP; NB SOF V Cayman
Holdings LP; NB SOF V Holdings LP; NB Sonoran Fund Limited Partnership;
NB Star Buyout Strategy 2020 Holdings Ltd; NB Star Buyout Strategy 2021
Holdings Ltd; NB Strategic Capital LP; NB Strategic Co-Investment
Partners IV Holdings LP; NB TCC Strategic Holdings LP; NB Wildcats Fund
LP; NB ZCF LP; NBAL Holdings LP; NBFOF Impact--Holdings LP; NBPD III
Equity Co-Invest Holdings A LP; NB-Sompo RA Holdings LP; Neub Holdings
LP; Neub Infrastructure Holdings LP; Neuberger Berman/New Jersey Custom
Investment Fund III LP; NYC-Northbound Emerging Managers Program LP;
NYSCRF NB Co-Investment Fund LLC; NYSCRF NB Co-Investment Fund II LLC;
Olive Cayman Holdings Ltd; PECO-PD III Borrower LP; SJFED Private
Equity Strategic Partnership, L.P.; SJPF Private Equity Strategic
Partnership, L.P.; Soleil 2020 Cayman
[[Page 72659]]
Holdings Ltd; Sunberg PE Opportunities Fund LLC; Sunbern Alternative
Opportunities Fund LLC; and Toranomon Private Equity 1, L.P.
DATES: The application was filed on April 17, 2020, and amended on
September 11, 2020, January 22, 2021, August 6, 2021, and November 18,
2021.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by emailing the Commission's
Secretary at <a href="/cdn-cgi/l/email-protection#491a2c2a3b2c3d283b303a64062f2f202a2c093a2c2a672e263f"><span class="__cf_email__" data-cfemail="40132523322534213239336d0f2626292325003325236e272f36">[email protected]</span></a> and serving applicants with a
copy of the request, by email. Hearing requests should be received by
the Commission by 5:30 p.m. on January 10, 2022, and should be
accompanied by proof of service on the applicants, in the form of an
affidavit, or for lawyers, a certificate of service. Pursuant to rule
0-5 under the Act, hearing requests should state the nature of the
writer's interest, any facts bearing upon the desirability of a hearing
on the matter, the reason for the request, and the issues contested.
Persons who wish to be notified of a hearing may request notification
by emailing the Commission's Secretary at <a href="/cdn-cgi/l/email-protection#4516202637203124373c36680a23232c2620053620266b222a33"><span class="__cf_email__" data-cfemail="7f2c1a1c0d1a0b1e0d060c52301919161c1a3f0c1a1c51181009">[email protected]</span></a>.
ADDRESSES: The Commission: <a href="/cdn-cgi/l/email-protection#f3a0969081968792818a80debc95959a9096b3809690dd949c85"><span class="__cf_email__" data-cfemail="51023432233425302328227c1e3737383234112234327f363e27">[email protected]</span></a>. Applicants:
<a href="/cdn-cgi/l/email-protection#0b6864796e722562787862656c4b656925686466"><span class="__cf_email__" data-cfemail="c8aba7baadb1e6a1bbbba1a6af88a6aae6aba7a5">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Kieran G. Brown, Senior Counsel, at
(202) 551-6773 or Terri G. Jordan, Branch Chief, at (202) 551-6825
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
applicant using the Company name box, at <a href="http://www.sec.gov/search/search.htm">http://www.sec.gov/search/search.htm</a> or by calling (202) 551-8090.
Introduction
1. The applicants request an order of the Commission under sections
17(d) and 57(i) and rule 17d-1 thereunder (the ``Order'') to permit,
subject to the terms and conditions set forth in the application (the
``Conditions''), a Regulated Fund \1\ and one or more other Regulated
Funds and/or one or more Affiliated Funds \2\ to enter into Co-
Investment Transactions with each other. ``Co-Investment Transaction''
means any transaction in which a Regulated Fund (or its Wholly-Owned
Investment Sub) participated together with one or more Regulated Funds
and/or one or more Affiliated Funds in reliance on the Order.
``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 other Regulated
Funds and/or one or more Affiliated Funds without obtaining and relying
on the Order.\3\
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\1\ ``Regulated Funds'' means NBBDC, any Existing Regulated Fund
and any Future Regulated Fund. ``Future Regulated Fund'' means a
closed-end management investment company formed in the future (a)
that is registered under the Act or has elected to be regulated as a
BDC, (b) whose investment adviser (and sub-adviser, if any) is an
Adviser, and (c) that intends to participate in the Co-investment
Program. ``Adviser'' means NBAA and NBIA, together with any future
investment adviser that (i) controls, is controlled by or is under
common control with NBAA or NBIA, as applicable, (ii) is registered
as an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''), and (iii) is not a Regulated Fund or a
subsidiary of a Regulated Fund.
\2\ ``Affiliated Fund'' means the Existing Affiliated Funds
(identified in Appendix A to the application), the Existing NB
Proprietary Accounts (as defined below), any Future NB Proprietary
Account, and any entity formed in the future (a) whose investment
adviser (and sub-adviser, if any) is an Adviser, (b) that either (i)
would be an investment company but for section 3(c)(1), 3(c)(5)(C)
or 3(c)(7) of the Act or (ii) relies on rule 3a-7 under the Act, and
(c) that intends to participate in the Co-Investment Program.
``Future NB Proprietary Account'' means any direct or indirect,
wholly- or majority-owned subsidiary of NBAA, or any other Adviser,
formed in the future that, from time to time, may hold various
financial assets in a principal capacity. Affiliated Funds may
include funds that are ultimately structured as collateralized loan
obligation funds (``CLOs''). Such CLOs would be investment companies
but for the exception provided in section 3(c)(7) of the Act or
their ability to rely on rule 3a-7 of the Act. During the investment
period of a CLO, the CLO may engage in certain transactions
customary in CLO formations with another Affiliated Fund on a
secondary basis at fair market value. For purposes of the Order, any
securities that were acquired by an Affiliated Fund in a particular
Co-Investment Transaction (as defined below) that are then
transferred in such customary transactions to an Affiliated Fund
that is or will become a CLO (an ``Affiliated Fund CLO'') will be
treated as if the Affiliated Fund CLO acquired such securities in
the Co-Investment Transaction. For the avoidance of doubt, any such
transfer from an Affiliated Fund to an Affiliated Fund CLO will be
treated as a Disposition and completed pursuant to terms and
conditions of the Application, though Applicants note that the
Regulated Funds would be prohibited from participating in such
Disposition by Section 17(a)(2) or Section 57(a)(2) of the Act, as
applicable. The participation by any Affiliated Fund CLO in any such
Co-Investment Transaction will remain subject to the Order.
\3\ All existing entities that currently intend to rely on the
Order have been named as applicants and any existing or future
entities that may rely on the Order in the future will comply with
the terms and Conditions set forth in the application.
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Applicants
2. NBBDC was organized as a Maryland limited liability company and
prior to relying on the relief requested in the application will file
an election to be regulated as a BDC under the Act.\4\ Following the
election to be regulated as a BDC, NBBDC will be a closed-end
management investment company. NBBDC intends to have a Board,\5\ a
majority of which will be Independent Directors.\6\ The Board will
approve NBAA to serve as investment adviser to NBBDC prior to the
commencement of NBBDC's operations and the reliance by NBBDC on the
relief requested in the application.
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\4\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in section 55(a)(1) through
55(a)(3) and makes available significant managerial assistance with
respect to the issuers of such securities.
\5\ ``Board'' means with respect to a Regulated Fund, the board
of directors (or the equivalent) of the Regulated Fund.
\6\ ``Independent Director'' means a member of the Board of any
relevant entity who is not an ``interested person'' 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.
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3. NB Private Markets II was organized as a Delaware limited
liability company and is a closed-end management investment company
registered under the Act. The Board of NB Private Markets II has six
members, each of whom is an Independent Director.
4. NB Private Markets III was organized as a Delaware limited
liability company and is a closed-end management investment company
registered under the Act. The Board of NB Private Markets III has six
members, each of whom is an Independent Director.
5. NB Private Markets IV was organized as a Delaware limited
liability company and is a closed-end management investment company
registered under the Act. The Board of NB Private Markets IV has six
members, each of whom is an Independent Director.
6. NB Private Markets V was organized as a Delaware limited
partnership and is a closed-end management investment company
registered under the Act. The Board of NB Private Markets V has six
members, each of whom is an Independent Director.
7. NB Private Markets VI was organized as a Delaware limited
partnership and is a closed-end management investment company
registered under the Act. The Board of NB Private Markets VI has six
members, each of whom is an Independent Director.
[[Page 72660]]
8. NB Private Markets VII was organized as a Delaware limited
partnership and is a closed-end management investment company
registered under the Act. The Board of NB Private Markets VII has six
members, each of whom is an Independent Director.
9. NB Private Markets Access was organized as a Delaware limited
liability company and is a closed-end management investment company
registered under the Act. The Board of NB Private Markets Access has
six members, each of whom is an Independent Director.
10. NBAA, a Delaware limited liability company that is registered
under the Advisers Act: (i) Is investment adviser to the Existing
Affiliated Funds; (ii) will serve as investment adviser to NBBDC at the
time NBBDC relies on the order requested in the application; and (iii)
is sub-investment adviser to the Existing Regulated Funds. NBIA, a
Delaware limited liability company that is registered as an investment
adviser under the Advisers Act, serves as investment adviser to the
Existing Regulated Funds and may serve as investment adviser to Future
Regulated Funds. NBAA, and its direct and indirect wholly-owned
subsidiaries, from time to time may hold various financial assets in a
principal capacity (the ``Existing NB Proprietary Accounts'' and
together with any Future NB Proprietary Account, the ``NB Proprietary
Accounts'').
11. The Existing Affiliated Funds are the investment funds
identified in Appendix A to the application. Applicants represent that
each Existing Affiliated Fund is a separate and distinct legal entity
and each would be an investment company but for section 3(c)(1) or
3(c)(7) of the Act.
12. Each of the applicants may be deemed to be controlled by
Neuberger Berman Group LLC (``NBG''). NBG owns controlling interests in
the Advisers and, thus, may be deemed to control the Regulated Funds
and the Affiliated Funds. Applicants state that NBG does not currently
offer investment advisory services to any person and is not expected to
do so in the future. Applicants state that as a result, NBG has not
been included as an applicant. NBG's voting equity is owned by NBSH
Acquisition, LLC (``NBSH''). NBSH is owned by current and former NBG
employees, directors, consultants and, in certain instances, their
permitted transferees.
13. Applicants state that a Regulated Fund may, from time to time,
form one or more Wholly-Owned Investment Subs.\7\ Such a subsidiary may
be prohibited from investing in a Co-Investment Transaction with a
Regulated Fund (other than its parent) or any Affiliated Fund because
it would be a company controlled by its parent Regulated Fund for
purposes of section 57(a)(4) and rule 17d-1. Applicants request that
each Wholly-Owned Investment Sub be permitted to participate in Co-
Investment Transactions in lieu of the Regulated Fund that owns it and
that the Wholly-Owned Investment Sub's 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 Fund's investments and, therefore, no conflicts of interest
could arise between the parent Regulated Fund and the Wholly-Owned
Investment Sub. The Board of the parent Regulated Fund 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 the parent Regulated Fund proposes to participate in the same
Co-Investment Transaction with any of its Wholly-Owned Investment Subs,
the Board of the parent Regulated Fund will also be informed of, and
take into consideration, the relative participation of the Regulated
Fund and the Wholly-Owned Investment Sub.
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\7\ ``Wholly-Owned Investment Sub'' means an entity (i) that is
wholly-owned by NBBDC, an Existing Regulated Fund or a Future
Regulated Fund (with such 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 such Regulated Fund; (iii) with respect to
which such Regulated Fund's Board has the sole authority to make all
determinations with respect to the entity's participation under the
Conditions; and (iv) that would be an investment company but for
section 3(c)(1) or 3(c)(7) of the Act.
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Applicants' Representations
A. Allocation Process
14. Applicants state that NBAA maintains relationships with more
than 540 private equity firms across a diverse range of geographies,
enterprise value sizes, industries and transaction types, and this
broad coverage of the private equity space generates a significant
volume of investment opportunities. Applicants state that, as a result,
the Advisers must determine how to allocate those opportunities in a
manner that is, over time, fair and equitable to all of their clients.
Such investment opportunities may be Potential Co-Investment
Transactions.
15. Applicants represent that the Advisers have established, and
any future Advisers will establish, processes for allocating initial
investment opportunities, opportunities for subsequent investments in
an issuer and dispositions of securities holdings reasonably designed
to treat all clients fairly and equitably over time. Further,
applicants represent that these processes will be extended and modified
in a manner reasonably designed to ensure that the additional
transactions permitted under the Order will both (i) be fair and
equitable to the Regulated Funds and the Affiliated Funds and (ii)
comply with the Conditions.
16. Specifically, applicants state that the Advisers are organized
and managed such that investment committees (``Investment Committees'')
responsible for evaluating investment opportunities and making
investment decisions on behalf of Regulated Funds and other clients
employing similar strategies are promptly notified of the
opportunities. If the requested Order is granted, the Advisers will
establish, maintain and implement policies and procedures reasonably
designed to ensure that, when such opportunities arise, the Advisers to
the relevant Regulated Funds are promptly notified and receive the same
information about the opportunity as any other Advisers considering the
opportunity for their clients. In particular, consistent with Condition
1, if a Potential Co-Investment Transaction falls within the then-
current Objectives and Strategies \8\ and any Board-Established
Criteria \9\ of a
[[Page 72661]]
Regulated Fund, the policies and procedures will require that the
Adviser to such Regulated Fund receives sufficient information to allow
such Adviser's Investment Committee to make its independent
determination and recommendations under the Conditions.
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\8\ ``Objectives and Strategies'' means with respect to any
Regulated Fund, its investment objectives and strategies, as
described in its most current registration statement on Form N-2,
other current filings with the Commission under the Securities Act
of 1933 (the ``Securities Act'') or under the Securities Exchange
Act of 1934, as amended, and its most current report to
stockholders.
\9\ ``Board-Established Criteria'' means criteria that the Board
of a Regulated Fund may establish from time to time to describe the
characteristics of Potential Co-Investment Transactions regarding
which the Adviser to the Regulated Fund should be notified under
Condition 1. The Board-Established Criteria will be consistent with
the Regulated Fund's Objectives and Strategies. If no Board-
Established Criteria are in effect, then the Regulated Fund's
Adviser will be notified of all Potential Co-Investment Transactions
that fall within the Regulated Fund's then-current Objectives and
Strategies. Board-Established Criteria will be objective and
testable, meaning that they will be based on observable information,
such as industry/sector of the issuer, minimum EBITDA of the issuer,
asset class of the investment opportunity or required commitment
size, and not on characteristics that involve a discretionary
assessment. The Adviser to the Regulated Fund may from time to time
recommend criteria for the Board's consideration, but Board-
Established Criteria will only become effective if approved by a
majority of the Independent Directors. The Independent Directors of
a Regulated Fund may at any time rescind, suspend or qualify their
approval of any Board-Established Criteria, although applicants
anticipate that, under normal circumstances, a Board would not
modify these criteria more often than quarterly.
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17. The Adviser to each applicable Regulated Fund will then make an
independent determination of the appropriateness of the investment for
the Regulated Fund in light of the Regulated Fund's then-current
circumstances. If the Adviser to a Regulated Fund deems the Regulated
Fund's participation in such Potential Co-Investment Transaction to be
appropriate, then it will formulate a recommendation regarding the
proposed order amount for the Regulated Fund.
18. Applicants state that, for each Regulated Fund and Affiliated
Fund whose Adviser recommends participating in a Potential Co-
Investment Transaction, the applicable Investment Committee will
approve the investment and the investment amount. Prior to the External
Submission (as defined below), each proposed order or investment amount
may be reviewed and adjusted, in accordance with the applicable
Advisers' written allocation policies and procedures, by the Advisers'
Investment Committee.\10\ The order of a Regulated Fund or Affiliated
Fund resulting from this process is referred to as its ``Internal
Order.'' The Internal Order will be submitted for approval by the
Required Majority of any participating Regulated Funds in accordance
with the Conditions.\11\
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\10\ The reason for any such adjustment to a proposed order will
be documented in writing and preserved in the records of each
Adviser.
\11\ ``Required Majority'' means a ``required majority'' as
defined in section 57(o) of the Act. 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).
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19. Applicants acknowledge that some of the Affiliated Funds may
not be funds advised by Advisers to Affiliated Funds \12\ because they
are NB Proprietary Accounts. Applicants do not believe participation by
these NB Proprietary Accounts should raise issues under the Conditions
because the allocation policies and procedures of the Advisers provide
that investment opportunities are offered to client accounts before
they are offered to NB Proprietary Accounts.
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\12\ ``Advisers to Affiliated Funds'' means NBAA, NBIA and any
other Adviser that, in the future, serves as investment adviser (or
sub-adviser, if any) to one or more Affiliated Funds.
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20. If the aggregate Internal Orders for a Potential Co-Investment
Transaction do not exceed the size of the investment opportunity
immediately prior to the submission of the orders to the underwriter,
broker, dealer or issuer, as applicable (the ``External Submission''),
then each Internal Order will be fulfilled as placed and to the extent
there is excess amount available to invest, the NB Proprietary Accounts
will be permitted to invest. If, on the other hand, the aggregate
Internal Orders for a Potential Co-Investment Transaction exceed the
size of the investment opportunity immediately prior to the External
Submission, then the allocation of the opportunity will be made pro
rata on the basis of the size of the Internal Orders and the NB
Proprietary Accounts will not be permitted to invest.\13\ If,
subsequent to such External Submission, the size of the opportunity is
increased or decreased, or if the terms of such opportunity, or the
facts and circumstances applicable to the Regulated Funds' or the
Affiliated Funds' consideration of the opportunity, change, the
participants will be permitted to submit revised Internal Orders in
accordance with written allocation policies and procedures that the
Advisers will establish, implement and maintain.\14\
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\13\ The Advisers will maintain records of all proposed order
amounts, Internal Orders and External Submissions in conjunction
with Potential Co-Investment Transactions. Each applicable Adviser
will provide the Eligible Directors with information concerning the
Affiliated Funds' and Regulated Funds' order sizes to assist the
Eligible Directors with their review of the applicable Regulated
Fund's investments for compliance with the Conditions. ``Eligible
Directors'' means, with respect to a Regulated Fund and a Potential
Co-Investment Transaction, the members of the Regulated Fund's Board
eligible to vote on that Potential Co-Investment Transaction under
section 57(o) of the Act.
\14\ However, if the size of the opportunity is decreased such
that the aggregate of the original Internal Orders would exceed the
amount of the remaining investment opportunity, then upon submitting
any revised order amount to the Board of a Regulated Fund for
approval, the Adviser to the Regulated Fund will also notify the
Board promptly of the amount that the Regulated Fund would receive
if the remaining investment opportunity were allocated pro rata on
the basis of the size of the original Internal Orders. The Board of
the Regulated Fund will then either approve or disapprove of the
investment opportunity in accordance with Condition 2, 6, 7, 8 or 9,
as applicable.
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B. Follow-On Investments
21. Applicants state that from time to time the Regulated Funds and
Affiliated Funds may have opportunities to make Follow-On Investments
\15\ in an issuer in which a Regulated Fund and one or more other
Regulated Funds and/or Affiliated Funds previously have invested.
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\15\ ``Follow-On Investment'' means an additional investment in
the same issuer, including, but not limited to, through the exercise
of warrants, conversion privileges or other rights to purchase
securities of the issuer.
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22. Applicants propose that Follow-On Investments would be divided
into two categories depending on whether the prior investment was a Co-
Investment Transaction or a Pre-Boarding Investment.\16\ If the
Regulated Funds and Affiliated Funds had previously participated in a
Co-Investment Transaction with respect to the issuer, then the terms
and approval of the Follow-On Investment would be subject to the
Standard Review Follow-Ons described in Condition 8. If the Regulated
Funds and Affiliated Funds have not previously participated in a Co-
Investment Transaction with respect to the issuer but hold a Pre-
Boarding Investment, then the terms and approval of the Follow-On
Investment would be subject to the Enhanced-Review Follow-Ons described
in Condition 9. All Enhanced Review Follow-Ons require the approval of
the Required Majority. For a given issuer, the participating Regulated
Funds and Affiliated Funds must comply with the requirements of
Enhanced-Review Follow-Ons only for the first Co-Investment
Transaction. Subsequent Co-Investment Transactions with respect to the
issuer would be governed by the requirements of Standard Review Follow-
Ons.
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\16\ ``Pre-Boarding Investments'' are investments in an issuer
held by a Regulated Fund as well as one or more other Regulated
Funds and/or one or more Affiliated Funds that were acquired prior
to participating in any Co-Investment Transaction in: (i)
Transactions in which the only term negotiated by or on behalf of
such funds was price in reliance on one of the JT No-Action Letters
(defined below); or (ii) transactions occurring at least 90 days
apart and without coordination between the Regulated Fund and any
Affiliated Fund or other Regulated Fund.
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23. A Regulated Fund would be permitted to invest in a Standard
Review Follow-On either with the approval of the Required Majority
under Condition 8(c) or without obtaining the prior approval of the
Required Majority if the Standard Review Follow-On is (i) a Pro Rata
Follow-On Investment \17\ and
[[Page 72662]]
meets the other requirements of Condition 8(b)(i) or (ii) a Non-
Negotiated Follow-On Investment.\18\ Applicants believe that these Pro
Rata Follow-On Investments and Non-Negotiated Follow-On Investments do
not present a significant opportunity for overreaching on the part of
any Adviser and thus do not warrant the time or attention of the Board.
Pro Rata Follow-On Investments and Non-Negotiated Follow-On Investments
remain subject to the Board's periodic review in accordance with
Condition 10.
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\17\ A ``Pro Rata Follow-On Investment'' is a Follow-On
Investment in which (i) the participation of each Regulated Fund and
each Affiliated Fund is proportionate to its outstanding investments
in the issuer or security, as appropriate, immediately preceding the
Follow-On Investment, and (ii), in the case of a Regulated Fund, a
majority of such fund's Board has approved the Regulated Fund's
participation in the pro rata Follow-On Investment as being in the
best interests of the Regulated Fund. The Regulated Fund's Board may
refuse to approve, or at any time rescind, suspend or qualify, its
approval of Pro Rata Follow-On Investments, in which case all
subsequent Follow-On Investments will be submitted to the Regulated
Fund's Eligible Directors in accordance with Condition 8(c).
\18\ A ``Non-Negotiated Follow-On Investment'' is a Follow-On
Investment in which a Regulated Fund participates together with one
or more other Regulated Funds and/or one or more Affiliated Funds
(i) in which the only term negotiated by or on behalf of the funds
is price and (ii) with respect to which, if the transaction were
considered on its own, the funds would be entitled to rely on one of
the JT No-Action Letters. ``JT No-Action Letters'' means SMC
Capital, Inc., SEC No-Action Letter (pub. avail. Sept. 5, 1995) and
Massachusetts Mutual Life Insurance Company, SEC No-Action Letter
(pub. avail. June 7, 2000).
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C. Dispositions
24. Applicants propose that Dispositions \19\ would be divided into
two categories. If the Regulated Funds and Affiliated Funds holding
investments in an issuer had previously participated in a Co-Investment
Transaction with respect to the issuer, then the terms and approval of
the Disposition would be subject to the Standard Review Dispositions
described in Condition 6. If the Regulated Funds and Affiliated Funds
have not previously participated in a Co-Investment Transaction with
respect to the issuer but hold a Pre-Boarding Investment, then the
terms and approval of the Disposition would be subject to the Enhanced
Review Dispositions described in Condition 7. Subsequent Dispositions
with respect to the same issuer would be governed by Condition 6 under
the Standard Review Dispositions.\20\
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\19\ ``Disposition'' means the sale, exchange or other
disposition of an interest in a security of an issuer.
\20\ However, with respect to an issuer, if a Regulated Fund's
first Co-Investment Transaction is an Enhanced Review Disposition
and the Regulated Fund does not dispose of its entire position in
the Enhanced Review Disposition, then before such Regulated Fund may
complete its first Standard Review Follow-On in such issuer, the
Eligible Directors must review the proposed Follow-On Investment not
only on a stand-alone basis but also in relation to the total
economic exposure in such issuer (i.e., in combination with the
portion of the Pre-Boarding Investment not disposed of in the
Enhanced Review Disposition) and the other terms of the investments.
This additional review would be required because such findings would
not have been required in connection with the prior Enhanced Review
Disposition, but would have been required had the first Co-
Investment Transaction been an Enhanced Review Follow-On.
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25. A Regulated Fund may participate in a Standard Review
Disposition either with the approval of the Required Majority under
Condition 6(d) or without obtaining the prior approval of the Required
Majority if (i) the Disposition is a Pro Rata Disposition \21\ and
meets the other requirements of Condition 6(c)(i); or (ii) the
securities are Tradable Securities \22\ and the Disposition meets the
other requirements of Condition 6(c)(ii). Pro Rata Dispositions and
Dispositions of a Tradable Security remain subject to the Board's
periodic review in accordance with Condition 10.
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\21\ A ``Pro Rata Disposition'' is a Disposition in which (i)
the participation of each Regulated Fund and each Affiliated Fund is
proportionate to its outstanding investment in the security subject
to Disposition immediately preceding the Disposition; and (ii) in
the case of a Regulated Fund, a majority of the Board has approved
the Regulated Fund's participation in pro rata Dispositions as being
in the best interests of the Regulated Fund. The Regulated Fund's
Board may refuse to approve, or at any time rescind, suspend or
qualify, its approval of Pro Rata Dispositions, in which case all
subsequent Dispositions will be submitted to the Regulated Fund's
Eligible Directors.
\22\ ``Tradable Security'' means a security that at the time of
Disposition: (i) Trades on a national securities exchange or
designated offshore securities market as defined in rule 902(b)
under the Securities Act; (ii) is not subject to restrictive
agreements with the issuer or other security holders; and (iii)
trades with sufficient volume and liquidity (findings as to which
are documented by the Advisers to any Regulated Funds holding
investments in the issuer and retained for the life of the Regulated
Fund) to allow each Regulated Fund to dispose of its entire position
remaining after the proposed Disposition within a short period of
time not exceeding 30 days at approximately the value (as defined by
section 2(a)(41) of the Act) at which the Regulated Fund has valued
the investment.
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D. Delayed Settlement
26. Applicants represent that under the terms and Conditions of the
application, all Regulated Funds and Affiliated Funds participating in
a Co-Investment Transaction 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 no such fund receives terms more
favorable than any other. However, the settlement date for an
Affiliated Fund in a Co-Investment Transaction may occur up to ten
business days after the settlement date for the Regulated Fund, and
vice versa.\23\ Nevertheless, in all cases, (i) the date on which the
commitment of the Regulated Funds and Affiliated Funds is made will be
the same even where the settlement date is not and (ii) the earliest
settlement date and the latest settlement date of any Regulated Fund
and Affiliated Fund participating in the transaction will occur within
ten business days of each other.
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\23\ Applicants state this may occur for two reasons. First,
when the Regulated Fund or Affiliated Fund is not yet fully funded
because, when the Regulated Fund or Affiliated Fund desires to make
an investment, it must call capital from its investors to obtain the
financing to make the investment, and in these instances, the notice
requirement to call capital could be as much as ten business days.
Second, where, for tax or regulatory reasons, a Regulated Fund or an
Affiliated Fund does not purchase new issuances immediately upon
issuance but only after a short seasoning period of up to ten
business days.
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E. Holders
27. Under Condition 15, if an Adviser, its principals, or any
person controlling, controlled by, or under common control with the
Adviser or its 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 in the same percentages as the
Regulated Fund's other shareholders (not including the Holders).
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
participation by a registered investment company and an affiliated
person 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 17(d) of the Act and rule
17d-1 under the Act are applicable to Regulated Funds that are
registered closed-end investment companies.
2. Similarly, with regard to BDCs, section 57(a)(4) of the Act
generally prohibits certain persons specified in section 57(b) from
participating in joint transactions with the BDC or a company
controlled by the BDC in contravention of rules as prescribed by the
Commission. Section 57(i) of the Act provides that, until the
Commission prescribes rules under section 57(a)(4), the Commission's
rules under section 17(d) of the Act applicable to registered closed-
end investment companies will be deemed to apply to transactions
subject to section 57(a)(4). Because the Commission has not adopted any
rules under section 57(a)(4), rule 17d-1 also
[[Page 72663]]
applies to joint transactions with Regulated Funds that are BDCs.
3. Co-Investment Transactions are prohibited by either or both of
rule 17d-1 and section 57(a)(4) without a prior exemptive order of the
Commission to the extent that the Regulated Funds and Affiliated Funds
participating in such transactions fall within the category of persons
described by rule 17d-1 and/or section 57(b), as applicable, vis-
[agrave]-vis each participating Regulated Fund. Each of the
participating Regulated Funds and Affiliated Funds may be deemed to be
``affiliated persons'' vis-[agrave]-vis a Regulated Fund within the
meaning of section 2(a)(3) of the Act by reason of common control
because (i) the NBAA manages, and may be deemed to control, each of the
Existing Affiliated Funds and any other Affiliated Fund will be managed
by, and may be deemed to be controlled by, an Adviser to Affiliated
Funds; (ii) at the time that NBBDC relies on the order requested in the
application, NBAA will serve as investment adviser to NBBDC and may be
deemed to control NBBDC; (iii) NBIA and NBAA currently serve as
investment adviser and sub-adviser, respectively, to and may be deemed
to control the Existing Regulated Funds, and an Adviser to Regulated
Funds \24\ will be the investment adviser (and sub-adviser, if any) to,
and may be deemed to control, any Future Regulated Fund; and (iv) the
Advisers to Regulated Funds and the Advisers to Affiliated Funds will
be under common control. Thus, each of the Affiliated Funds could be
deemed to be a person related to the Regulated Funds in a manner
described by section 57(b) and related to the other Regulated Funds in
a manner described by rule 17d-1; and therefore, the prohibitions of
rule 17d-1 and section 57(a)(4) would apply respectively to prohibit
the Affiliated Funds from participating in Co-Investment Transactions
with the Regulated Funds. In addition, because the NB Proprietary
Accounts are controlled by NBAA and, therefore, under common control
with NBBDC, the Existing Regulated Funds, any future Advisers, and any
Future Regulated Funds, the NB Proprietary Accounts could be deemed to
be persons related to the Regulated Funds (or a company controlled by
the Regulated Funds) in a manner described by section 57(b) and also
prohibited from participating in the Co-Investment Program.
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\24\ ``Advisers to Regulated Funds'' means NBAA and NBIA, with
respect to their management of NBBDC and the Existing Regulated
Funds, and any other Adviser that, in the future, serves as
investment adviser (or sub-adviser, if any) to one or more Regulated
Funds.
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4. In passing upon applications under rule 17d-1, the Commission
considers whether the company's participation in the joint transaction
is consistent with the provisions, policies, and purposes of the Act
and the extent to which such participation is on a basis different from
or less advantageous than that of other participants.
5. Applicants state that in the absence of the requested relief, in
many circumstances the Regulated Funds would be limited in their
ability to participate in attractive and appropriate investment
opportunities. Applicants state that, as required by rule 17d-1(b), the
Conditions ensure that the terms on which Co-Investment Transactions
may be made will be consistent with the participation of the Regulated
Funds and on a basis that it is neither different from nor less
advantageous than other participants, thus protecting the equity
holders of any participant from being disadvantaged. Applicants further
state that the Conditions ensure that all Co-Investment Transactions
are reasonable and fair to the Regulated Funds and their stockholders
and do not involve overreaching by any person concerned, including the
Advisers. Applicants state that the Regulated Funds' participation in
the Co-Investment Transactions in accordance with the Conditions will
be consistent with the provisions, policies, and purposes of the Act
and would be done in a manner such that each Regulated Fund's
participation is not different from, or less advantageous than, that of
the other participants.
Applicants' Conditions
Applicants agree that the Order will be subject to the following
Conditions:
1. Identification and Referral of Potential Co-Investment
Transactions.
(a) The Advisers will establish, maintain and implement policies
and procedures reasonably designed to ensure that each Adviser is
promptly notified of all Potential Co-Investment Transactions that fall
within the then-current Objectives and Strategies and Board-Established
Criteria of any Regulated Fund the Adviser manages.
(b) When an Adviser to a Regulated Fund is notified of a Potential
Co-Investment Transaction under Condition 1(a), the 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.
2. Board Approvals of Co-Investment Transactions.
(a) If the Adviser deems a Regulated Fund's participation in any
Potential Co-Investment Transaction to be appropriate for the Regulated
Fund, it will then determine an appropriate level of investment for the
Regulated Fund.
(b) If the aggregate amount recommended by the Advisers to be
invested in the Potential Co-Investment Transaction by the
participating Regulated Funds and any participating Affiliated Funds,
collectively, exceeds the amount of the investment opportunity, the
investment opportunity will be allocated among them pro rata based on
the size of the Internal Orders, as described in section III.1.a.ii. of
the application. Each Adviser to a participating Regulated Fund will
promptly notify and provide the Eligible Directors with information
concerning the Affiliated Funds' and Regulated Funds' order sizes to
assist the Eligible Directors with their review of the applicable
Regulated Fund's investments for compliance with these Conditions.
(c) After making the determinations required in Condition 1(b),
each Adviser to a participating Regulated Fund will distribute written
information concerning the Potential Co-Investment Transaction
(including the amount proposed to be invested by each participating
Regulated Fund and each participating Affiliated Fund) to the Eligible
Directors of its participating Regulated Fund(s) for their
consideration. A Regulated Fund will enter into a Co-Investment
Transaction with one or more other Regulated Funds or Affiliated Funds
only if, prior to the Regulated Fund's participation in the Potential
Co-Investment Transaction, a Required Majority concludes that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair to the Regulated Fund and its equity
holders and do not involve overreaching in respect of the Regulated
Fund or its equity holders on the part of any person concerned;
(ii) The transaction is consistent with:
(A) The interests of the Regulated Fund's equity holders; and
(B) the Regulated Fund's then-current Objectives and Strategies;
(iii) the investment by any other Regulated Fund(s) or Affiliated
Fund(s) 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(s) or Affiliated
Fund(s) participating in the transaction; provided, that the Required
Majority shall not be prohibited from reaching
[[Page 72664]]
the conclusions required by this Condition 2(c)(iii) if:
(A) The settlement date for another Regulated Fund or an Affiliated
Fund in a Co-Investment Transaction is later than the settlement date
for the Regulated Fund by no more than ten business days or earlier
than the settlement date for the Regulated Fund by no more than ten
business days, in either case, so long as: (x) The date on which the
commitment of the Regulated Funds and Affiliated Funds is made is the
same and (y) the earliest settlement date and the latest settlement
date of any Regulated Fund or Affiliated Fund participating in the
transaction will occur within ten business days of each other; or
(B) any other Regulated Fund or Affiliated Fund, but not the
Regulated Fund itself, gains the right to nominate a director for
election to a portfolio company's board of directors, the right to have
a board observer or any similar right to participate in the governance
or management of the portfolio company so long as: (x) The Eligible
Directors will have the right to ratify the selection of such director
or board observer, if any; (y) the Adviser agrees to, and does, provide
periodic reports to the Regulated Fund's Board with respect to the
actions of such director or the information received by such board
observer or obtained through the exercise of any similar right to
participate in the governance or management of the portfolio company;
and (z) any fees or other compensation that any other Regulated Fund or
Affiliated Fund, or any affiliated person of any other Regulated Fund
or Affiliated Fund, receives in connection with the right of one or
more Regulated Funds or Affiliated Funds 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 any participating Affiliated Funds (who may, in turn, share their
portion with their affiliated persons) and any participating Regulated
Fund(s) in accordance with the amount of each such party's investment;
and
(iv) the proposed investment by the Regulated Fund will not involve
compensation, remuneration or a direct or indirect \25\ financial
benefit to the Advisers, any other Regulated Fund, the Affiliated 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 14, (B) to the extent permitted by section 17(e) or 57(k), 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)(B).
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\25\ For example, procuring the Regulated Fund's investment in a
Potential Co-Investment Transaction to permit an affiliate to
complete or obtain better terms in a separate transaction would
constitute an indirect financial benefit.
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3. Right to Decline. 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. General Limitation. Except for Follow-On Investments made in
accordance with Conditions 8 and 9,\26\ a Regulated Fund will not
invest in reliance on the Order in any issuer in which a Related Party
has an investment.\27\
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\26\ This exception applies only to Follow-On Investments by a
Regulated Fund in issuers in which such Regulated Fund already holds
investments.
\27\ ``Related Party'' means (i) any Close Affiliate and (ii) in
respect of matters as to which any Adviser has knowledge, any Remote
Affiliate. ``Close Affiliate'' means the Advisers, the Regulated
Funds, the Affiliated Funds and any other person described in
section 57(b) (after giving effect to rule 57b-1) in respect of any
Regulated Fund (treating any registered investment company or series
thereof as a BDC for this purpose), except for limited partners
included solely by reason of the reference in section 57(b) to
section 2(a)(3)(D). ``Remote Affiliate'' means any person described
in section 57(e) in respect of any Regulated Fund (treating any
registered investment company or series thereof as a BDC for this
purpose) and any limited partner holding 5% or more of the relevant
limited partner interests that would be a Close Affiliate but for
the exclusion in the definition of such term.
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5. Same Terms and Conditions. A Regulated Fund will not participate
in any Potential Co-Investment Transaction unless (i) the terms,
conditions, price, class of securities to be purchased, date on which
the commitment is entered into and registration rights (if any) will be
the same for each participating Regulated Fund and Affiliated Fund and
(ii) the earliest settlement date and the latest settlement date of any
participating Regulated Fund or Affiliated Fund will occur as close in
time as practicable and in no event more than ten business days apart.
The grant to one or more Regulated Funds or Affiliated Funds, but not
the respective 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 5, if Condition
2(c)(iii)(B) is met.
6. Standard Review Dispositions.
(a) General. If any Regulated Fund or Affiliated Fund elects to
sell, exchange or otherwise dispose of an interest in a security and
one or more Regulated Funds and Affiliated Funds have previously
participated in a Co-Investment Transaction with respect to the issuer,
then:
(i) The Adviser to such Regulated Fund or Affiliated Fund \28\ will
notify each Regulated Fund that holds an investment in the issuer of
the proposed Disposition at the earliest practical time; and
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\28\ Any NB Proprietary Account that is not advised by an
Adviser is itself deemed to be an Adviser for purposes of Conditions
6(a)(i), 7(a)(i), 8(a)(i) and 9(a)(i).
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(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition.
(b) Same Terms and Conditions. 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 other Regulated Fund and the Affiliated Funds.
(c) No Board Approval Required. A Regulated Fund may participate in
such a Disposition without obtaining prior approval of the Required
Majority if:
(i) (A) The participation of each Regulated Fund and Affiliated
Fund in such Disposition is proportionate to its then-current holding
of the security (or securities) of the issuer that is (or are) the
subject of the Disposition; \29\ (B) the Board of the Regulated Fund
has approved as being in the best interests of the Regulated Fund the
ability to participate in such Dispositions on a pro rata basis (as
described in greater detail in the application); and (C) the Board of
the Regulated Fund is provided on a quarterly basis with a list of all
Dispositions made in accordance with this Condition 6; or
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\29\ In the case of any Disposition, proportionality will be
measured by each participating Regulated Fund's and Affiliated
Fund's outstanding investment in the security in question
immediately preceding the Disposition.
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(ii) each security is a Tradable Security and (A) the Disposition
is not to the issuer or any affiliated person of the issuer; and (B)
the security is sold for cash in a transaction in which the only term
negotiated by or on behalf of the participating Regulated Funds and
Affiliated Funds is price.
(d) Standard Board Approval. In all other cases, the Adviser will
provide its written recommendation as to the Regulated Fund's
participation to the
[[Page 72665]]
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.
7. Enhanced Review Dispositions.
(a) General. If any Regulated Fund or Affiliated Fund elects to
sell, exchange or otherwise dispose of a Pre-Boarding Investment in a
Potential Co-Investment Transaction and the Regulated Funds and
Affiliated Funds have not previously participated in a Co-Investment
Transaction with respect to the issuer:
(i) The Adviser to such Regulated Fund or Affiliated Fund will
notify each Regulated Fund that holds an investment in the issuer of
the proposed Disposition at the earliest practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to participation by such
Regulated Fund in the Disposition; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Funds, including the terms of such investments and how they
were made, that is necessary for the Required Majority to make the
findings required by this Condition 7.
(b) Enhanced Board Approval. The Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Directors, and the Regulated Fund will participate in such Disposition
solely to the extent that a Required Majority determines that:
(i) The Disposition complies with Conditions 2(c)(i), (ii),
(iii)(A) and (iv); and
(ii) the making and holding of the Pre-Boarding Investments were
not prohibited by section 57 or rule 17d-1, as applicable, and records
the basis for the finding in the Board minutes.
(c) Additional Requirements. The Disposition may only be completed
in reliance on the Order if:
(i) Same Terms and Conditions. Each Regulated Fund has 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
other Regulated Fund and the Affiliated Funds;
(ii) Original Investments. All of the Affiliated Funds' and
Regulated Funds' investments in the issuer are Pre-Boarding
Investments;
(iii) Advice of Counsel. Independent counsel to the Board advises
that the making and holding of the investments in the Pre-Boarding
Investments were not prohibited by section 57 (as modified by rule 57b-
1) or rule 17d-1, as applicable;
(iv) Multiple Classes of Securities. All Regulated Funds and
Affiliated Funds that hold Pre-Boarding Investments in the issuer
immediately before the time of completion of the Co-Investment
Transaction hold the same security or securities of the issuer. For the
purpose of determining whether the Regulated Funds and Affiliated Funds
hold the same security or securities, they may disregard any security
held by some but not all of them if, prior to relying on the Order, the
Required Majority is presented with all information necessary to make a
finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's
holding of a different class of securities (including for this purpose
a security with a different maturity date) is immaterial \30\ in
amount, including immaterial relative to the size of the issuer; and
(y) the Board records the basis for any such finding in its minutes. In
addition, securities that differ only in respect of issuance date,
currency or denominations may be treated as the same security; and
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\30\ In determining whether a holding is ``immaterial'' for
purposes of the Order, the Required Majority will consider whether
the nature and extent of the interest in the transaction or
arrangement is sufficiently small that a reasonable person would not
believe that the interest affected the determination of whether to
enter into the transaction or arrangement or the terms of the
transaction or arrangement.
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(v) No Control. The Affiliated Funds, the other Regulated Funds and
their ``affiliated persons'' (within the meaning of section 2(a)(3)(C)
of the Act), individually or in the aggregate, do not ``control'' the
issuer of the securities (within the meaning of section 2(a)(9) of the
Act).
8. Standard Review Follow-Ons.
(a) General. If any Regulated Fund or Affiliated Fund desires to
make a Follow-On Investment in an issuer and the Regulated Funds and
Affiliated Funds holding investments in the issuer previously
participated in a Co-Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Fund will
notify each Regulated Fund that holds securities of the portfolio
company of the proposed transaction at the earliest practical time; and
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund.
(b) No Board Approval Required. A Regulated Fund may participate in
the Follow-On Investment without obtaining prior approval of the
Required Majority if:
(i) (A) The proposed participation of each Regulated Fund and each
Affiliated Fund in such investment is proportionate to its outstanding
investments in the issuer or the security at issue, as appropriate,\31\
immediately preceding the Follow-On Investment; and (B) the Board of
the Regulated Fund has approved as being in the best interests of the
Regulated Fund the ability to participate in Follow-On Investments on a
pro rata basis (as described in greater detail in the application); or
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\31\ To the extent that a Follow-On Investment opportunity is in
a security or arises in respect of a security held by the
participating Regulated Funds and Affiliated Funds, proportionality
will be measured by each participating Regulated Fund's and
Affiliated Fund's outstanding investment in the security in question
immediately preceding the Follow-On Investment using the most recent
available valuation thereof. To the extent that a Follow-On
Investment opportunity relates to an opportunity to invest in a
security that is not in respect of any security held by any of the
participating Regulated Funds or Affiliated Funds, proportionality
will be measured by each participating Regulated Fund's and
Affiliated Fund's outstanding investment in the issuer immediately
preceding the Follow-On Investment using the most recent available
valuation thereof.
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(ii) it is a Non-Negotiated Follow-On Investment.
(c) Standard Board Approval. In all other cases, the Adviser will
provide its written recommendation as to the Regulated Fund's
participation to the Eligible Directors, and the Regulated Fund will
participate in such Follow-On Investment solely to the extent that a
Required Majority makes the determinations set forth in Condition 2(c).
If the only previous Co-Investment Transaction with respect to the
issuer was an Enhanced Review Disposition, the Eligible Directors must
complete this review of the proposed Follow-On Investment both on a
stand-alone basis and together with the Pre-Boarding Investments in
relation to the total economic exposure and other terms of the
investment.
(d) Allocation. If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Funds' outstanding investments in the issuer or the security
at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount recommended by the Advisers to be
invested in the Follow-On Investment
[[Page 72666]]
by the participating Regulated Funds and any participating Affiliated
Funds, collectively, exceeds the amount of the investment opportunity,
then the Follow-On Investment opportunity will be allocated among them
pro rata based on the size of the Internal Orders, as described in
section III.1.a.ii of the application.
(e) Other Conditions. The acquisition of Follow-On Investments as
permitted by this Condition 8 will be considered a Co-Investment
Transaction for all purposes and subject to the other Conditions set
forth in the application.
9. Enhanced Review Follow-Ons.
(a) General. If any Regulated Fund or Affiliated Fund desires to
make a Follow-On Investment in an issuer that is a Potential Co-
Investment Transaction and the Regulated Funds and Affiliated Funds
holding investments in the issuer have not previously participated in a
Co-Investment Transaction with respect to the issuer:
(i) The Adviser to each such Regulated Fund or Affiliated Fund will
notify each Regulated Fund that holds securities of the portfolio
company of the proposed transaction at the earliest practical time;
(ii) the Adviser to each Regulated Fund that holds an investment in
the issuer will formulate a recommendation as to the proposed
participation, including the amount of the proposed investment, by such
Regulated Fund; and
(iii) the Advisers will provide to the Board of each Regulated Fund
that holds an investment in the issuer all information relating to the
existing investments in the issuer of the Regulated Funds and
Affiliated Funds, including the terms of such investments and how they
were made, that is necessary for the Required Majority to make the
findings required by this Condition 9.
(b) Enhanced Board Approval. The Adviser will provide its written
recommendation as to the Regulated Fund's participation to the Eligible
Directors, and the Regulated Fund will participate in such Follow-On
Investment solely to the extent that a Required Majority reviews the
proposed Follow-On Investment both on a stand-alone basis and together
with the Pre-Boarding Investments in relation to the total economic
exposure and other terms and makes the determinations set forth in
Condition 2(c). In addition, the Follow-On Investment may only be
completed in reliance on the Order if the Required Majority of each
participating Regulated Fund determines that the making and holding of
the Pre-Boarding Investments were not prohibited by section 57 (as
modified by rule 57b-1) or rule 17d-1, as applicable. The basis for the
Board's findings will be recorded in its minutes.
(c) Additional Requirements. The Follow-On Investment may only be
completed in reliance on the Order if:
(i) Original Investments. All of the Affiliated Funds' and
Regulated Funds' investments in the issuer are Pre-Boarding
Investments;
(ii) Advice of Counsel. Independent counsel to the Board advises
that the making and holding of the investments in the Pre-Boarding
Investments were not prohibited by section 57 (as modified by rule 57b-
1) or rule 17d-1, as applicable;
(iii) Multiple Classes of Securities. All Regulated Funds and
Affiliated Funds that hold Pre-Boarding Investments in the issuer
immediately before the time of completion of the Co-Investment
Transaction hold the same security or securities of the issuer. For the
purpose of determining whether the Regulated Funds and Affiliated Funds
hold the same security or securities, they may disregard any security
held by some but not all of them if, prior to relying on the Order, the
Required Majority is presented with all information necessary to make a
finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's
holding of a different class of securities (including for this purpose
a security with a different maturity date) is immaterial in amount,
including immaterial relative to the size of the issuer; and (y) the
Board records the basis for any such finding in its minutes. In
addition, securities that differ only in respect of issuance date,
currency or denominations may be treated as the same security; and
(iv) No Control. The Affiliated Funds, the other Regulated Funds
and their ``affiliated persons'' (within the meaning of section
2(a)(3)(C) of the Act), individually or in the aggregate, do not
``control'' the issuer of the securities (within the meaning of section
2(a)(9) of the Act).
(d) Allocation. If, with respect to any such Follow-On Investment:
(i) The amount of the opportunity proposed to be made available to
any Regulated Fund is not based on the Regulated Funds' and the
Affiliated Funds' outstanding investments in the issuer or the security
at issue, as appropriate, immediately preceding the Follow-On
Investment; and
(ii) the aggregate amount recommended by the Advisers to be
invested in the Follow-On Investment by the participating Regulated
Funds and any participating Affiliated Funds, collectively, exceeds the
amount of the investment opportunity, then the Follow-On Investment
opportunity will be allocated among them pro rata based on the size of
the Internal Orders, as described in section III.1.a.ii of the
application.
(e) Other Conditions. The acquisition of Follow-On Investments as
permitted by this Condition will be considered a Co-Investment
Transaction for all purposes and subject to the other Conditions set
forth in the application.
10. Board Reporting, Compliance and Annual Re-Approval.
(a) Each Adviser to a Regulated Fund will present to the Board of
each Regulated Fund, on a quarterly basis, and at such other times as
the Board may request, (i) a record of all investments in Potential Co-
Investment Transactions made by any of the other Regulated Funds or any
of the Affiliated Funds during the preceding quarter that fell within
the Regulated Fund's then-current Objectives and Strategies and Board-
Established Criteria that were not made available to the Regulated Fund
and an explanation of why such investment opportunities were not made
available to the Regulated Fund; (ii) a record of all Follow-On
Investments in and Dispositions of investments in any issuer in which
the Regulated Fund holds any investments by any Affiliated Fund or
other Regulated Fund during the prior quarter; and (iii) all
information concerning Potential Co-Investment Transactions and Co-
Investment Transactions, including investments made by other Regulated
Funds or Affiliated Funds that the Regulated Fund considered but
declined to participate in, so that the Independent Directors may
determine whether all Potential Co-Investment Transactions and Co-
Investment Transactions during the preceding quarter, including those
investments that the Regulated Fund considered but declined to
participate in, comply with the Conditions.
(b) All information presented to the Regulated Fund's Board
pursuant to this Condition 10 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.
(c) Each Regulated Fund's chief compliance officer, as defined in
rule 38a-1(a)(4), will prepare an annual report for its Board each year
that evaluates (and documents the basis of that evaluation) the
Regulated Fund's compliance with the terms and Conditions of the
application and the procedures established to achieve such compliance.
[[Page 72667]]
(d) The Independent Directors will consider at least annually
whether continued participation in new and existing Co-Investment
Transactions is in the Regulated Fund's best interests.
11. Record Keeping. 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).
12. Director Independence. No Independent Director of a Regulated
Fund will also be a director, general partner, managing member or
principal, or otherwise be an ``affiliated person'' (as defined in
section 2(a)(3) of the Act) of any Affiliated Fund.
13. Expenses. The expenses, if any, associated with acquiring,
holding or disposing of any securities acquired in a Co-Investment
Transaction (including, without limitation, the expenses of the
distribution of any such securities registered for sale under the
Securities Act) will, to the extent not payable by the Advisers under
their respective advisory agreements with the Regulated Funds and the
Affiliated Funds, be shared by the Regulated Funds and the
participating Affiliated Funds in proportion to the relative amounts of
the securities held or being acquired or disposed of, as the case may
be.
14. Transaction Fees.\32\ Any transaction fee (including break-up,
structuring, monitoring or commitment fees but excluding brokerage or
underwriting compensation permitted by section 17(e) or 57(k)) received
in connection with any Co-Investment Transaction will be distributed to
the participants 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 the Adviser at a bank or banks having the qualifications prescribed
in section 26(a)(1), and the account will earn a competitive rate of
interest that will also be divided pro rata among the participants.
None of the Advisers, the Affiliated Funds, the other Regulated Funds
or any affiliated person of the Affiliated Funds or the Regulated Funds
will receive any additional compensation or remuneration of any kind as
a result of or in connection with a Co-Investment Transaction other
than (i), 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)(B), (ii) brokerage or
underwriting compensation permitted by section 17(e) or 57(k) or (iii),
in the case of the Advisers, investment advisory compensation paid in
accordance with investment advisory agreements between the applicable
Regulated Fund(s) or Affiliated Fund(s) and its Adviser.
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\32\ Applicants are not requesting, and the Commission is not
providing, any relief for transaction fees received in connection
with any Co-Investment Transaction.
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15. Independence. 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 in the same percentages as the Regulated Fund's 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 Act or applicable state law affecting
the Board's composition, size or manner of election.
16. Proprietary Accounts. The NB Proprietary Accounts will not be
permitted to invest in a Potential Co-Investment Transaction except to
the extent the aggregate demand from the Regulated Funds and the other
Affiliated Funds is less than the total investment opportunity.
For the Commission, by the Division of Investment Management,
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27697 Filed 12-21-21; 8:45 am]
BILLING CODE P
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</html>Indexed from Federal Register on December 22, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.