As
filed with the Securities and Exchange Commission on January 29, 20082010
File
No. 812-13583
——————————————————————————————————
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDED
AND RESTATED APPLICATION FOR
A
SUPERCEDING
ORDER UNDER RULE
17d-1
OF THE INVESTMENT COMPANY ACT OF 1940
TO
PERMIT CERTAIN JOINT TRANSACTIONS
SPECIAL
VALUE OPPORTUNITIES FUND, LLC
SPECIAL
VALUE EXPANSION FUND, LLC
SPECIAL
VALUE CONTINUATION FUND, LLC
SPECIAL
VALUE CONTINUATION PARTNERS, LP
TENNENBAUM
OPPORTUNITIES FUND V, LLC
TENNENBAUM
OPPORTUNITIES PARTNERS V, LP
TENNENBAUM
CAPITAL PARTNERS, LLC
BABSON
CAPITAL MANAGEMENT LLC
TENNENBAUM
DIP OPPORTUNITY FUND, LLC
SPECIAL
VALUE ABSOLUTE RETURN FUND, LLC
TENNENBAUM
MULTI-STRATEGY
MASTER
FUND
TENNENBAUM
MULTI-STRATEGY
FUND
I LLC
TENNENBAUM
MULTI-STRATEGY
FUND
(OFFSHORE)
Communications,
Notice and Order to:
Richard
Prins
Skadden,
Arps, Slate, Meagher & Flom LLP
Four
Times Square
New
York, New York 10036
(212)
735-2790
With
copies to:
Howard
M. Levkowitz
c/o
Tennenbaum Capital Partners, LLC
2951
28th
Street, Suite 1000
Santa
Monica, California 90405
(310)
566-1000
and
Rodney J.
Dillman
Patricia
Walsh
General
Counsel
Babson
Capital Management LLC
1500
Main Street, Suite 2800
Springfield,
Massachusetts 01115
(413)
226-1050
——————————————————————————————————
UNITED
STATES OF AMERICA
BEFORE
THE
SECURITIES
AND EXCHANGE COMMISSION
|
In
the matter of:
SPECIAL VALUE OPPORTUNITIES FUND, LLC; SPECIAL
VALUE EXPANSION FUND, LLC; SPECIAL VALUE CONTINUATION FUND, LLC; SPECIAL
VALUE CONTINUATION PARTNERS, LP; TENNENBAUM OPPORTUNITIES FUND V, LLC;
TENNENBAUM OPPORTUNITIES PARTNERS V, LP,; TENNENBAUM CAPITAL PARTNERS, LLC; BABSON CAPITAL
MANAGEMENT LLC;
TENNENBAUM
DIP OPPORTUNITY FUND, LLC; SPECIAL
VALUE ABSOLUTE RETURN FUND, LLC; TENNENBAUM MULTI-STRATEGY MASTER
FUND;
TENNENBAUM
MULTI-STRATEGY FUND I LLC; AND TENNENBAUM MULTI-STRATEGY FUND
(OFFSHORE)
File
No. 812-13583
|
Application
for a Superceding Order under Rule 17d-1 under the Investment Company Act
of 1940 To Permit Certain Joint
Transactions
|
|
I.
|
Summary
of Application
|
Special Value Opportunities Fund, LLC ("SVOF"); Special Value Expansion Fund, LLC ("SVEF");
Tennenbaum Capital Partners, LLC, on behalf of itself and its successors
1
("TCP"); Babson Capital Management LLC, on behalf of itself
and its successors)
1 ("Babson"); Special Value Bond Fund II, LLC ("SVBF II"); Special Value Absolute Return Fund, LLC
("SVARF"); Tennenbaum Multi-Strategy Master Fund ("MSMF"); Tennenbaum Multi-Strategy Fund I, LLC ("MSFI"); and Tennenbaum Multi-Strategy Fund (Offshore)
("MSFO") obtained an order (the "Original
Order") from the Securities and Exchange
Commission (the "Commission") under Rule 17d-1 under the Investment Company Act of
1940 (the "Act") on May 9, 2006 permitting SVOF, SVEF and any other
Registered Fund (as defined below) that now or in the future is advised by TCP
or an entity controlling, controlled by, or under common control with TCP
(collectively, with TCP, the "Adviser") to (a) coinvest with the Unregistered Accounts (as
defined below) in private placement securities; (b) make follow-on investments
in private placement securities of such issuers ("Follow-On
Investments"); and (c) exercise warrants,
conversion privileges, and other rights associated with private placement
securities acquired under (a) and (b) above (the potential actions described in
(a), (b) and (c) being collectively referred to herein as the "proposed
coinvestments").2
Since the granting of the Original Order, TCP has formed
two additional sets of Registered Funds and an
additional unregistered fund and has had
twoover
three years of experience conducting
operations under the conditions set forth in the Original Order. TCP
and the boards of directors of the Registered Funds have concluded in light of
their experience with the Original Order to seek modification of certain of the
conditions set forth in the Original Order. Accordingly, SVOF, SVEF,
TCP, Babson, SVARF, MSMF, MSFI, MSFO, and
the new Registered Funds, Special Value
Continuation Fund, LLC ("SVCF"), Special Value Continuation Partners, LP
("SVCP"), Tennenbaum Opportunities Fund V, LLC ("TOF
V") and Tennenbaum Opportunities Partners
V, LP ("TOP
V") and
one new unregistered fund that is making investments, Tennenbaum DIP Opportunity
Fund, LLC ("DIPF") (collectively, the
"Applicants")3 hereby seek a
superceding order to permit the Registered Funds to (a) coinvest with the
Unregistered Accounts in private placement securities; (b) make follow-on
investments in private placement securities ("Follow-On
Investments"); and
(c) exercise warrants, conversion
privileges, and other rights associated with private placement securities
acquired under (a) and (b) above; and (d)
engage in the activities covered by (a), (b) and (c) above with accounts) (both
investment companies registered under the Act and investment funds and other
accounts not registered under the Act) managed by Babson and its affiliates that
are controlled by any of them or in which any of them has a financial interest
("Babson Accounts"). For
purposes of this application, the term "private placement securities" (i) refers
to private placements with respect to which TCP has concluded that coinvestment
by Registered Funds,
and/or Unregistered Accounts and/or
Babson Accounts, as applicable, is not
eligible for exception from the prohibitions of Rule 17d-1 under no-action
letters or exemptive provisions of Rule 17d-1 and (ii) ceases to apply to such
securities once they become publicly salable without restriction under the
securities laws so long as the Adviser adheres to allocation guidelines that
require pro rata disposition unless the Investment Committee (as
defined below) and either senior compliance
personnel
or internal counsel make an exception in
accordance with the Advisoer's allocation
policies.
|
II.
|
Background
|
A. SVOF,
SVEF, SVCF, SVCP, TOF V and TOP V
1.
SVOF. SVOF is a Delaware limited liability
company that is registered as a nondiversified closed-end management investment
company under the Act. Pursuant
to a private placement offering, SVOF obtained $711 million in common equity
capital commitments from accredited investors within and outside the United
States who are also "qualified clients" within the meaning of Rule 205-3 under
the Investment Advisers Act of 1940 (the "Advisers
Act"). SVOF
has fully drawn these commitments and currently has 155 investors in its common
stock, a substantial portion of whom are persons who are not "qualified
purchasers" under the Act and who have sizable investments ($10,000 or more) in
SVOF, 400 holders of its preferred stock and six holders of its debt
securities. Of its 555 security holders, all but seven are U.S.
persons. SVOF has
$1.422 billion in total available capital ("Total
Available Capital"),
consisting of the $711 million in common equity capital drawn drawn
from investors, $473 million available to be drawn and redrawn from time to time
under a senior secured revolving credit facility and up to $238 million of
preferred stock (all of which has been issued) available to be issued over the
same period as the common shares pursuant to an underwriting
commitment. Attached
as Exhibit
“A”
is a chart showing the capitalization of each of SVOF, SVEF, SVCF, SVCP, TOF V
and TOP V.
SVOF's investment objective is to seek to achieve high
total returns while minimizing losses. SVOF's
target investment allocations are equity securities (generally with a view to
influence the governance of the issuers) (approximately 20%); distressed debt
(sometimes with a view to acquire equity ownership in restructuring
transactions) (approximately 20%); mezzanine investments (approximately 20%) and
high yielding debt (approximately 40%), provided, however, that SVOF's actual
investment allocations may vary from the foregoing target investment
allocations. SVOF may also originate loans and other investment
transactions and may engage in various transactions in futures, forward
contracts, swaps and other instruments to manage or hedge interest rate,
currency exchange, industry, equity and other risks. SVOF will
seek to invest its assets so as to qualify for U.S. federal income tax treatment
as a regulated investment company. Under applicable income tax
regulations, this will require, among other things, that at the end of each
quarter, subject to certain exceptions, no more than 25% of the value of SVOF's
consolidated gross assets be invested in the securities of any single issuer or
affiliated issuers and no more than 50% of the value of SVOF's consolidated
gross assets be invested in the securities of issuers representing in the case
of any single issuer more than 5% of SVOF's consolidated gross assets or more
than 10% of that issuer's voting securities. SVOF is a nondiversified fund and accordingly is not
subject to any limitations under the Act on the proportion of its assets that it
can invest in a single issuer. However, the various
overcollateralization tests in its senior revolving credit facility and
preferred stock terms effectively require that most of its assets be invested in
such a way that less than 5% of its assets are invested in any single
issuer.
SVOF's offerings of its
securities were not registered under the Securities Act of 1933 in reliance upon
the exemption from registration thereunder provided by Section 4(2) and
Regulation D promulgated thereunder.
SVOF will not provide any
liquidity to its investors through re-purchases, self tenders or
otherwise. The holders of its money market preferred shares will be
afforded some liquidity through a periodic auction process, generally 28 days,
conducted by an auction agent on the basis of bids placed through various
broker-dealers.
SVOF intends to invest
over approximately a two-year period, to reinvest proceeds of dispositions over
an additional six to seven years and to terminate approximately ten years after
commencement of investment activities.
The board of directors (the "Board") of SVOF consists of threefour persons, twothree of whom are not "interested persons" within the meaning
of Section 2(a)(19) of the Act (the "Independent
Directors"). No Independent
Directors of SVOF are
directorsis
a director of any other investment fund
managed by TCP. The Independent Directors select and nominate any
other Independent Directors. Any person who acts as legal counsel for
the Independent Directors is an independent legal counsel, as defined in Rule
0-1(a)(6) under the Act and SVOF abides by the applicable governance standards
set forth in Rule 0-1(a)(7) under the Act. The Board sets broad
policies for SVOF. TCP serves as SVOF's investment manager and
manages the day-to-day operations of SVOF, subject to the oversight of the
Board. Babson also is an investment adviser to SVOF although its only role is
through its participation on TCP's investment committee (the "Investment
Committee"). The
separate investment advisory agreements of TCP and Babson have been approved by
the Board and shareholders of SVOF. The Investment Committee is
currently comprised of five voting members (four of whom have been designated by
TCP and one of whom has been designated by Babson with the approval of
TCP). The Investment Committee reviews and discusses the purchase and
sale of all of SVOF's investments, and approval by a majority vote of the
Investment Committee is required prior to the purchase or sale of any of SVOF's
investments (other than cash, short-term securities and hedging
activities). In the event that Michael E. Tennenbaum, the senior
member of the Investment Committee and the controlling person of TCP, dies,
becomes incapacitated or departs from TCP, Babson is entitled to designate
additional voting members of the Investment Committee such that its
representatives' votes on Investment Committee decisions equal the votes of the
remaining TCP representatives until TCP names a replacement for Mr. Tennenbaum
who is reasonably acceptable to Babson.
2.
SVEF. SVEF is a Delaware limited liability
company that is registered as a nondiversified closed-end management investment
company under the Act. SVEF was formed after the completion of the
offering for SVOF and was designed to accommodate investors who missed the
deadline for investing in SVOF. Pursuant
to its private placement offering, SVEF obtained $300 million in common equity
capital commitments from accredited investors who are also qualified clients
under Rule 205-3 under the Advisers Act. SVEF has fully drawn these
commitments and currently has 138 holders of its securities. SVEF has
also entered into a revolving credit facility for up to $200 million and has
issued an additional $100 million in preferred stock. SVEF has $600
million in Total Available Capital, consisting of the $300 million in common
equity capital and an equal amount of leverage.Please
see Exhibit
“A”
showing the fund’s capitalization. SVEF has the same investment objective, target
investment allocations and tax structure as SVOF. Its offering was
also not registered under the Securities Act of 1933 in reliance on Section 4(2)
and Regulation D, and SVEF will provide no liquidity for its
investors
as SVOF.
SVEF's Board consists of three persons, two of whom are
Independent Directors. No Independent Directors of SVEF are
directorsis
a director of any other investment fund
managed by TCP. The Independent Directors select and nominate any
other Independent Directors, any counsel who acts for them is
an independent legal counsel, as defined in Rule 0-1(a)(6) under the
Act, and SVEF abides by the governance standards of Rule 0-1(a)(7) under the
Act. TCP acts as SVEF's investment adviser and manages the day-to-day
operations of SVEF, subject to the oversight of the Board. The SVEF
investment committee has four voting members who review and discuss the purchase
and sale of all of SVEF's investments. Approval by a majority vote of the
investment committee is required prior to the purchase or sale of any of SVEF's
investments (other than cash, short-term securities and hedging activities).
Unlike in SVOF, Babson does not have a representative on the investment
committee for SVEF and
there are no provisions for a greater Babson role if Mr. Tennenbaum dies,
becomes incapacitated or departs from TCP.
3.
SVCF and SVCP. SVCF and SVCP were formed in July,
2006. On
July 31, 2006 SVCF and SVCP engaged in a series of transactions pursuant to
which (1) SVCP issued 6,700 units of preferred limited partner interests,
liquidation preference $20,000 per unit, to three banks, and also issued
approximately $427 million in net asset value of its common limited partner
interests and admitted SVOF/MM as its general partner to acquire a portfolio of
securities (subject to $145 million outstanding debt associated with such
securities as part of a credit facility for up to $266 million assumed by SVCP)
at net asset value from two private unregistered funds managed by TCP; (2) SVCF
issued 418,956 shares of common stock with a net asset value of approximately
$427 million to the two private funds in exchange for their common limited
partner interests in SVCP; (3) the two private funds distributed the SVCF shares
to 71 investors in complete redemption of their interests in the two private
funds; and (4) SVCF subsequently issued 47 shares of its Series Z preferred
stock, liquidation preference $500 per share, to 47 investors, at which point
SVCF owned all of the common limited partner interests in SVCP, which in turn
owned a portfolio of investment securities, and both SVCF and SVCP became
obligated to register as investment companies under the ICA. The preferred
limited partner interests of SVCP pay periodic dividends at a rate that varies
periodically with LIBOR plus a spread and are callable at any time by
SVCP. The Series Z preferred stock of SVCF pays annual dividends at a
fixed rate of $40 (8% of liquidation preference) per share and are callable at
any time by SVCF. Each series of preferred securities is preferred
over the common securities of SVCP or SVCF, as applicable, as to dividends and
liquidation and junior to any borrowings by SVCP or SVCF, as
applicable. In its capacity as general partner, SVOF/MM manages the
day-to-day activities of SVCP and is paid in its capacity as general partner any
carried interest due as incentive compensation under SVCP's advisory
arrangements. SVCF and SVCP will wind up their affairs by July, 2016,
subject to up to two one year extensions.
SVCF is a Delaware limited liability company and SVCP is a Delaware limited
partnership. Both SVCF and SVCP are registered as a nondiversified
closed-end management investment companies under the Act. Please see
Exhibit
“A”
showing each fund's capitalization.
SVCF's Board consists of three persons, two of whom are
Independent
Directors. SVCF invests
substantially all of its assets in SVCP. Each of the directors of
SVCF also serves as a director of SVCP. No Independent
Directors of SVCF and SVCP are
directorsis
a director of any other investment fund
managed by TCP. The Independent Directors select and nominate any
other Independent Directors. Any person who acts as legal counsel for
the Independent Directors is an independent legal counsel, as defined in Rule
0-1(a)(6) under the Act and SVCF and SVCP abide by the applicable governance
standards set forth in Rule 0-1(a)(7) under the Act. The Board sets
broad policies for SVCF and SVCP. TCP serves as SVCF's and SVCP's
investment manager and manages the day-to-day operations of SVCF, subject to the
oversight of the Board. SVCP's general partner manages its day-to-day
operations, subject to the oversight of the Board. Babson also is an
investment adviser to SVCF and SVCP although its only role is through its
participation on the Investment Committee. The
separate investment advisory agreements of TCP and Babson have been approved by
the Boards of Directors and shareholders of SVCF and SVCP. The
Investment Committee is currently comprised of five voting members (four of whom
have been designated by TCP and one of whom has been designated by Babson with
the approval of TCP). The Investment Committee reviews and discusses
the purchase and sale of all of SVCP's investments, and approval by a majority
vote of the Investment Committee is required prior to the purchase or sale of
any of SVCP's investments (other than cash, short-term securities and hedging
activities).
4.
TOF V and TOP V. TOF V,
a Delaware limited liability company, was
formed in August, 2006 and as a
result ofheld private placement offerings closing
in October 2006, February 2007 and July
2007
obtained common stock commitments of $1.105 billion, 70% million of which has
been called, from 188 investors. TOF V also issued in connection with
the October, 2006 closing, 560 shares of Series Z Preferred Stock to 420
investors. The Series Z preferred stock pays annual dividends of $40
(8% of liquidation preference of $500 per share).2007. On December 15, 2006, TOF V formed
Tennenbaum Opportunities Partners V, LP ("TOP
V"),
a Delaware limited partnership, and
contributed all of its assets to TOP V in exchange for all of the common limited
partner interests in TOP V. At the same time TOP V admitted
SVOF/MM,
LLC as its general partner, which
contributed $1000 for such interest. Each of
TOF V and TOP V is authorized to issue Series A preferred interests that would
pay periodic dividends at a rate varying periodically with LIBOR plus a spread
and would have a liquidation preference of $20,000 per
interest. TOP V is also party to a secured credit facility
structured in the same manner as the credit facility of SVCP. As in
SVOF, SVEF and SVCP, the total preferred stock issued will approximate 20% of
TOF V's total capitalization, the total amount of debt incurred under its credit
facility will not exceed the debt leverage limitation in Section 18 of the ICA
and the total amount of debt and preferred interests issued will not exceed the
combined preferred stock and debt leverage limitation in Section
18. Each of TOP V and TOF V is scheduled to wind up its affairs by
the end of 2016, subject to up to two one year extensions. Please
see Exhibit
“A”
showing each fund's capitalization. In its
capacity as general partner
of TOP V, SVOF/MM,
LLC manages the day-to-day activities of
TOP V and is paid in its capacity as general partner any carried interest due as
incentive compensation under TOP V's advisory arrangements.
TOP V's
Board consistsThe
Boards of TOF V and TOP V each consist of
three persons, two of whom are Independent Directors. TOP
V invests substantially all of its assets in SVCP. Each of the
directors of TOP V also serves as a director of SVCPTOF
V. No Independent
Directors of TOF V and TOP V are
directorsis
a director of any other investment fund
managed by TCP. The Independent Directors select and nominate any
other Independent Directors. Any person who acts as legal counsel for
the Independent Directors is an independent legal counsel, as defined in Rule
0-1(a)(6) under the Act and TOF V and TOP V abide by the applicable governance
standards set forth in Rule 0-1(a)(7) under the Act. The Board sets
broad policies for TOP V and SVCPTOF
V. TCP serves as TOP V's
investment manager for
both TOF V and TOP V and manages the
day-to-day operations of TOF
V and TOP V, subject to the oversight of
the Board. TOP V's general partner manages its day-to-day operations, subject to
the oversight of the Board. Babson also is an investment adviser to
TOF V and TOP V although its only role is through its participation on the
Investment Committee. The
separate investment advisory agreements of TCP and Babson have been approved by
the Boards of Directors and shareholders of TOF V and TOP V. The
Investment Committee is currently comprised of five voting members (four of whom
have been designated by TCP and one of whom has been designated by Babson with
the approval of TCP). The Investment Committee reviews and discusses
the purchase and sale of all of TOP V's investments, and approval by a majority
vote of the Investment Committee is required prior to the purchase or sale of
any of TOP V's investments (other than cash, short-term securities and hedging
activities).
From
time to time, TCP may form other registered closed-end management investment
companies (each a "Registered Fund" and
together with SVOF, SVEF, SVCF, SVCP, TOF V and TOP V, the "Registered Funds") to
engage in investment activities similar to those engaged in by SVOF, SVEF, SVCF,
SVCP, TOF V and TOP V.
B. Unregistered
Accounts
TCP currently manages threefour accounts that are not registered investment companies
and that expect to be actively investing.
The
threeThree
of the unregistered accounts, MSMF, MSFI
and MSFO, are a set of private investment funds organized as a master fund with
separate domestic and offshore feedersfeeder
funds (collectively, the "Hedge
Fund")
managed by TCP. The Hedge Fund
employs a multi-strategy approach to seek superior risk adjusted
returns. It invests primarily in hedged equity positions, convertible
bond arbitrage, risk arbitrage, capital structure arbitrage, and deep value
equity and distressed debt. As a consequence, it invests primarily in publicly traded securities and
related hedges. Each of MSMF, MSFI and MSFO qualifies for exception
from the definition of investment company by reason of Section 3(c)(7) of the
Act. MSMF, the master fund, is organized as a Cayman Islands unit
trust, while its feeder funds, MSFI and MSFO, are organized as a Delaware
limited liability company and a Cayman Islands unit trust,
respectively. It is not expected that the Hedge Fund will co-invest
with SVOF, SVEF, SVCP or TOP V in private securities on more than an occasional
basis although its investment guidelines do not prohibit it from doing
so. As of
June 30, 2008, the Hedge Fund has approximately $695 million in net
assets.
TCP
also manages DIPF, which is not registered under the Act pursuant to the
exception set forth in Section 3(c)(1) of the Act. DIPF, a Delaware
limited liability company, was formed in 2009 to invest in debtor-in-possession
financings in the context of bankruptcy proceedings and currently has equity
capital commitments of $454 million. It is expected that the
Registered Funds may wish on occasion to co-invest with DIPF. TCP serves as the investment manager for the Hedge
Fund and is compensated with an advisory fee of 2% of net assets and a Carried
Interest (as defined below) equal to 20% of incremental increases in total
return since inception.DIPF
and SVOF/MM, LLC is the Managing Member.
TCP also manages onetwo unregistered accounts, SVARF,
and Special Value Bond Fund, LLC (“SVBF”), both of which isare in itsthe wind down phase. SVARF
is an
and are no longer actively investing. Both are investment pools organized as a
Delaware limited liability
companyies that qualifiesy for exception from the definition of investment company
by reason of Section 3(c)(7) of the Act. SVARF has
investment objectives and utilizes investment strategies that are similar to
those of SVOF and SVEF. TCP is
the primary investment
adviser to SVARF. SVARF also has a managing member (SVAR/MM, LLC) that is
an investment adviser registered under the
Advisers Act. with
the Commission under the Investment Advisers Act of 1940 (the "Advisers Act").
SVBF
also has a managing member (SVIM/MSM, LLC) that is an investment adviser
registered with the Commission under the Advisers Act. The managing members performs certain investment management functions relating to
negotiated transactions and various administrative functions for SVARF
and
SVBF pursuant to agreement
therewith. The managing members hasve no employees who are not employees of TCP, have no
investment in any of the applicants and serve no function in relation to SVOF or
SVEF. SVARF isand
SVBF are co-managed by Babson under an
arrangement substantially the same as that described above for
SVOF.
SVARF has less than $2012 million in total assets. SVARF is scheduled
to terminate operations in June
2009 (subject to extension). no
later than December 2011. SVBF
has less than $6 million in total assets and is in
dissolution.
TCP
also manages a new unregistered account, Tennenbaum Multi-Strategy Fund SPV
(Cayman), Ltd. (MSSPV”), pursuant to a liquidation services
agreement. MSSPV is a Cayman Islands exempted
company. MSSPV is a liquidation vehicle, is not actively investing
and accordingly is not an Applicant. The estimated net asset value of
MSSPV is approximately $373 million.
From time to time TCP or another Adviser may manage other accounts that are not registered
investment companies in reliance on Section 3(c)(1) or 3(c)(7) of the Act (such
accounts, together with DIPF,
SVARF, MSMF, MSFI and MSFO, the
"Unregistered
Accounts").
C.
TCP
TCP is a limited liability company organized under the
laws of Delaware and is an investment adviser registered with the Commission
under the Advisers Act. The managing member of TCP is Tennenbaum
& Co. LLC ("TCO"), whose managing member is Michael E.
Tennenbaum. TCP, which has approximately $6.14 billion (including unrealized appreciation) of
committed capital under management, seeks to create value by, among other
things, acquiring control of companies, changing their boards and managements
and improving their operations; by leading debt restructuring efforts; and by
providing refinancing of existing holdings.
SVOF will pay aggregate
management fees to TCP equal to 1.25% of the Total Available Capital, subject to
reduction by the amount of the senior credit facility after all debt has been
repaid and by the amount of preferred stock when less than $1 million in
liquidation value of preferred stock is outstanding. TCP will pay
Babson 10% of these amounts.
SVEF will pay aggregate
management fees to TCP effectively equal to 1.20% of Total Available Capital,
subject to reduction by the amount of the debt when no credit facility is
outstanding and the amount of the preferred stock when less than $1 million in
liquidation value of preferred stock is outstanding. In recognition of the fact
that TCP originally sought to include SVEF's investors in SVOF but was unable to
accommodate them in view of timing and other constraints, TCP has on its own
volition determined to pay Babson 10% of these amounts.
SVCF and SVCP will pay
aggregate management fees to TCP effectively equal to 1% of its Total Available
Capital, subject to reduction by the amount of the debt when no credit facility
is outstanding and the amount of the preferred stock when less than $1 million
in liquidation value of preferred stock is outstanding. TCP will pay Babson 10%
of these amounts.
TOF V and TOP V will pay
aggregate management fees to TCP effectively equal to 1.50% of its Total Available
Capital, subject to reduction by the amount of the debt when no credit facility
is outstanding and the amount of the preferred stock when less than $1 million
in liquidation value of preferred stock is outstanding. TCP will pay Babson 10%
of these amounts.
SVOF and SVEF will also
pay to TCP and SVCP and TOP V will each pay to its general partner (i) 100% of
the amount by which the cumulative distributions and amounts distributable to
the holders of the common shares out of realized income and gain exceed an 8%
annual weighted average return on undistributed capital attributable to the
common shares (12% in the case of SVEF) until TCP has received from the fund an
amount equal to 25% of the cumulative aggregate distributions of net income and
gain to the holders of the common shares and (ii) thereafter an amount (payable
at the same time as any distributions to the holders of the common shares) such
that after receipt thereof TCP has received from the fund an amount equal to
20%, and the holders of the common shares have received 80%, of the incremental
aggregate distributions of net income and gain to the holders of the common
shares prior to such fee. Such amounts paid to TCP are referred to
herein as the "Carried Interest". All
investors in securities of SVOF, SVEF, SVCF, SVCP, TOF V and TOP V that are
charged the Carried Interest are qualified clients under Rule 205-3 under the
Advisers Act.
Each
of the Registered Funds and Unregistered Accounts other than MSSPV, pays asset
management fees to TCP. On certain of the Registered Funds and
Unregistered Accounts, TCP pays a portion of such fees to
Babson.
The principals of TCP and MassMutual Life each have
larger investments in the Registered Funds than in any of the existing
Unregistered Accounts. Specifically, the principals of TCP have
committed an aggregate of $60 million to the equity of SVOF, SVEF, SVCF and TOF
V in contrast to a maximum of $4045 million to the equity of the Unregistered Accounts,
while MassMutual Life has committed $200 million to the equity of the Registered
Funds and $3 million to the Unregistered
Accounts. Consequently, their financial interest is more closely
aligned with that of the Registered Funds than with that of any of the
Unregistered Accounts.
D. Babson
Babson, a member of the MassMutual Financial Group
("MassMutual"), is an indirect wholly-owned subsidiary of
Massachusetts Mutual Life Insurance Company ("MassMutual Life"). Babson is an investment adviser
registered under the Advisers Act. With approximately $9699 billion of assets under management as of JuneSeptember 30, 2008,2009, Babson is a provider of specialized investment
management services to both institutional investors and high net worth
individuals. Babson is a co-manager of SVOF, SVCF, SVCP, TOF V and
TOP V, in each case pursuant to a separate investment management agreement with
the relevant fund and TCP
and participates in the Investment Committee with respect to such
funds.4 Thus,
Babson is a first-tier affiliated person of SVOF, SVEF, SVCF, SVCP, TOF V and
TOP V. In addition, Babson is a second-tier affiliated person of
SVOF, SVCF and TOF V because its parent company, MassMutual Life, owns more than
5% of the voting securities of each of SVOF, SVCF and TOF V.
E. Co-Investment
The Applicants believe that it is in the best interests
of SVOF, SVEF, SVCF, SVCP, TOF V and TOP V to be able to co-invest with each
other and with the Unregistered Accounts and
Babson Accounts. However, such
coinvestments may be prohibited pursuant to Section 17(d) of the Act and Rule
17d-1 thereunder. Section 17(d), as implemented by Rule 17d-1
thereunder, prohibits affiliated persons (within the meaning of Section 2(a)(3)
of the Act) and principal underwriters of a registered investment company and
affiliated persons of such affiliated persons and principal underwriters from
participating as principals in any joint arrangement with such registered
investment company unless the joint arrangement is approved by the Commission or
qualifies for one of the exceptions under Rule 17d-1. The
Unregistered Accounts may be subject to the prohibitions of Rule 17d-1 because
each of SVOF, SVEF, SVCF, SVCP, TOF V and TOP V and the Unregistered Accounts
have been sponsored and managed by TCP and, accordingly, may be under the common
control of TCP within the meaning of Section 2(a)(3)(C) of the
Act. The Applicants are not aware of any other reason why the
Registered Funds and the Unregistered Accounts would be affiliated persons or
affiliated persons of affiliated persons of each other. In addition,
the principals of TCP have investments that are material to them in each of the
currently existing Unregistered Accounts and in SVOF, SVCF and TOF
V. The principals of TCP are Michael E. Tennenbaum, Howard M.
Levkowitz, Mark Holdsworth, H. Steven Wilson, Michael E. Leitner, and Eric
Pagel. None of these individuals separately or collectively
beneficially owns a 5% or greater interest in SVOF, SVEF, SVCF, SVCP, TOF V or
TOP V or,
except for Michael E. Tennenbaum, in any of
the Unregistered Accounts. The
Babson Accounts may be subject to the prohibitions of Rule 17d-1 with respect to
coinvestments with the Registered Funds and the Unregistered Accounts because
Babson is a co-manager of SVOF, SVEF, SVCF, SVCP, TOF V and TOP V and because
its parent company, MassMutual Life, owns, controls or holds with power to vote
5% or more of the voting securities of SVOF, SVCF, SVCP and TOF V and TOP
V.
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III.
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Relief
Requested
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The Applicants respectfully request an order (the
"Order") of the Commission under Rule 17d-1 under the Act to
permit, subject to the terms and conditions set forth below in this application
(the "Conditions"), any or all of the Unregistered Accounts and
Babson Accounts to engage in the proposed
coinvestments with any or all of the Registered Funds.
Applicants
believe that the Conditions will ensure the protection of shareholders of the
Registered Funds and compliance with the purposes and policies of the Act with
respect to the proposed transactions.
This Application seeks relief on a prospective basis (i)
in order to avoid the significant expenditures of time on the part of the
Commission that would be required to process individual applications with
respect to each proposed coinvestment that arises in the future, (ii) in order
to enable the Registered Funds and the Unregistered Accounts and
Babson Accounts to avoid the practical
difficulties of trying to structure, negotiate and persuade counterparties to
enter into transactions while awaiting the granting of such individual
applications, and (iii) in order to enable the Registered Funds and the
Unregistered Accounts
and Babson Accounts to avoid the
significant legal and other expenses that would be incurred in preparing such
individual applications.
A. Section
17(d)
Section
2(a)(3) of the Act defines an "affiliated person" of another person to include
(1) any person directly or indirectly owning, controlling, or holding with power
to vote, five percent or more of the outstanding voting securities of such other
person; (2) any person five percent or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with power to
vote, by such other person; (3) any person directly or indirectly controlling,
controlled by, or under common control with, such other person; (4) any officer,
director, partner, copartner or employee of such other person; (5) any
investment adviser of or any member of an advisory board of an investment
company; and (6) any depositor of an unincorporated investment company not
having a board of directors. Section 2(a)(9) of the 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.
Section
17(d) of the Act prohibits first-tier and second-tier affiliated persons of an
investment company registered under the Act or a company controlled by such a
company from engaging as principals in any joint transactions in which such
registered company or a company controlled by such a company is a participant in
contravention of rules adopted by the Commission. The Commission has
adopted Rule 17d-1, which prohibits such transactions in the absence of an order
from the Commission, with exceptions for certain classes of
transactions. SVOF, SVEF, SVCF, SVCP, TOF V and TOP V and the
Unregistered Accounts have been sponsored and managed by TCP and, accordingly,
may be deemed to be affiliated persons of each other and of TCP because TCP may
be deemed to control each of such persons. TCP may be deemed to be an
affiliated person of SVOF, SVEF, SVCF, SVCP, TOF V and TOP V because it acts as
their investment adviser and may be deemed to control them and may be deemed to
be an affiliated person of the Unregistered Accounts because it may control
them. Babson may be deemed to be an affiliated person of SVOF, SVCF,
SVCP, TOF V and TOP V because it acts as an investment adviser to each of them
and may also be a second-tier affiliated person of SVOF, SVCF, SVCP, TOF V and
TOP V because MassMutual Life owns, controls or holds with power to vote 5% or
more of the voting securities of SVOF, SVCF, SVCP, TOF V and TOP V.
The prohibition in Section 17(d) and Rule 17d-1 could
force a Registered Fund to refrain from making an attractive investment simply
because another Registered Fund or one or more of the Unregistered Accounts
or Babson
Accounts are contemplating making the same
investment.
B. Source
of Exemption Authority
Applicants
seek relief pursuant to Rule 17d-1, which permits the Commission to authorize
joint transactions upon application. In passing upon applications
filed pursuant to Rule 17d-1, the Commission is directed by Rule 17d-1(b) 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 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.
The
Commission has stated that Section 17(d) 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
which 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).
Applicants believe that the terms
and Conditions of the application would
ensure that the conflicts of interest that Section 17(d) was designed to prevent
would be addressed and the standards for an order under Rule 17d-1 are
met.
C. Proposed
Conditions
Applicants
agree that the Order would be subject to the following Conditions:
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1.
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Each time that an Unregistered Account or a
Registered Fund proposes to acquire private placement securities, the
acquisition of which would be consistent with the investment objectives
and policies of another Registered Fund, the Adviser will offer the other
Registered Fund the opportunity to acquire a pro rata amount (based upon amounts available for
investment by such Registered Fund and the applicable Unregistered Account
or Registered Fund) of such private placement securities up to the entire
amount being offered to it. If one Registered Fund declines the
offer or accepts a portion of the private placement securities offered to
it, but one or more other Registered Funds accepts the private placement
securities offered, that portion of the private placement securities
declined by the Registered Fund may be allocated to the other Registered
Fund or Unregistered Account, based on their amounts available for
investment. For purposes of the foregoing, the phrase "amounts
available for investment" means the Ttotal Aavailable Ccapital, which
includes available leverage so long as such leverage is able to be
drawn.
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2.
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(a) Prior
to any coinvestment by a Registered Fund, the Adviser will make an initial
determination of whether the acquisition of the private placement security
is consistent with the investment objectives and policies of the
Registered Fund. If the Adviser determines that the acquisition
of the private placement securities would be consistent with the
investment objectives and policies of the Registered Fund, the Adviser
will then determine whether participation in the investment opportunity is
appropriate for the Registered Fund and, if so, the appropriate amount
that the Registered Fund should invest. If the aggregate of the
amount recommended by the Adviser to be invested by the Registered Fund in
such proposed coinvestment and the amount proposed to be invested by any
other Registered Fund and any Unregistered Accounts in the same
transaction exceeds the amount of the investment opportunity, the amount
invested by each such party will be allocated among them pro rata based on the
amount available for investment by the Registered Funds and the
Unregistered Accounts participating in the transaction. The
Adviser will provide the Independent Directors of the Registered Fund's
Board ("Joint
Transactions Committee") with information concerning the amount of
capital the Registered Funds and the Unregistered Accounts have available
for investment in order to assist the Joint Transactions Committee with
its review of the Registered Fund's investments for compliance with these
allocation features.
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(b) After
making the determinations required in (a) above, the Adviser will submit written
information concerning the proposed coinvestment, including the amount proposed
to be acquired by the Registered Fund, any other Registered Funds, and any
Unregistered Account, to the members of the Joint Transactions
Committee. A Registered Fund may coinvest in a private placement
security only if a majority of the members of the Joint Transactions Committee
who have no direct or indirect financial interest in the transaction ("Required Majority")
determine that:
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(i)
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the
terms of the transaction, including the consideration to be paid, are
reasonable and fair to the Registered Fund and its shareholders and do not
involve overreaching of the Registered Fund or its shareholders on the
part of any person concerned;
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(ii)
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the
transaction is consistent with the Registered Fund's investment objectives
and policies as recited in its registration statement and its reports to
shareholders; and
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(iii)
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the
coinvestment by another Registered Fund or Unregistered Account would not
disadvantage the Registered Fund, and participation by the Registered Fund
would not be on a basis different from or less advantageous than that of
the other participants.
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3.
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If
the Adviser determines that a Registered Fund should not acquire any
private placement securities offered to it pursuant to Condition 1 above,
the Adviser will submit its determination to the Joint Transactions
Committee for approval.
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4.
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The
Registered Funds and any Unregistered Account shall acquire private
placement securities in reliance on the order only if the terms,
conditions, price, class of securities being purchased, registration
rights, if any, and other rights are the same for each Registered Fund and
any Unregistered Account participating in the
coinvestment. When more than one Registered Fund proposes to
coinvest in the same private placement securities, the Joint Transactions
Committee of each Registered Fund shall review the transaction and make
the determinations set forth in Condition 2 above, on or about the same
time.
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5.
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Except
as described below, no Registered Fund may make a Follow-On Investment or
exercise warrants, conversion privileges, or other rights unless each
Unregistered Account and any other Registered Fund make such Follow-On
Investment or exercise such warrants, conversion rights, or other rights
at the same time and in amounts proportionate to their respective holdings
of such private placement securities. If an Unregistered
Account or another Registered Fund anticipates participating in a
Follow-On Investment or exercising warrants, conversion rights, or other
rights in an amount disproportionate to its holding, the Adviser will
formulate a recommendation as to the proposed Follow-On Investment or
exercise of rights by each Registered Fund and submit the recommendation
to each Registered Fund's Joint Transactions Committee. That
recommendation will include an explanation why an Unregistered Account is
not participating to the extent of, or exercising, its proportionate
amount. Prior to any such disproportionate Follow-On Investment
or exercise, a Registered Fund must obtain approval for the transaction as
set forth in Condition 2 above. Transactions pursuant to this
Condition 5 will be subject to the other Conditions set forth in this
Application.
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6.
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NoExcept
as described below, no Unregistered
Account or Registered Fund will sell, exchange or otherwise dispose of any
interest in any private placement securities acquired pursuant to the
Order that
may not be sold to the public, unless
each other
Registered Fund has
the opportunity to disposeand
Unregistered Account disposes of the
interests at the same time, for the same unit consideration, on the same
terms and conditions and in amounts proportionate to its holdings of the
private placement securities. With respect to any such
transaction, the Adviser will formulate a recommendation as to
the proposed participation by aeach Registered Fund
and Unregistered Account that holds such private placement
securities and, unless the proposed
participation by each such
Registered Fund and Unregistered
Account is
proportionate to its holdings of such private placement
securities,satisfies
the requirements of the preceding sentence, will submit the recommendation to such Registered
Fund's Joint Transactions Committee. The Registered
FundFunds
and Unregistered Accounts will make a
disproportionate
disposition of such private placement
securities
that is not proportionate or that is on different terms or conditions or
at a different per unit consideration or time only to the extent the Joint Transactions
Committee, upon the affirmative vote of the Required Majority, determines
that the disposition is in the best interests of the Registered Fund, is
fair and reasonable, and does not involve overreaching of the Registered
Fund or its shareholders by any person
concerned.
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7.
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The
expenses, if any, associated with acquiring, holding, or disposing of any
private placement securities (including, without limitation, the expenses
of the distribution of any securities registered for sale under the
Securities Act of 1933) shall, to the extent not payable solely by the
Adviser under its investment management agreements with the Registered
Funds and the Unregistered Accounts, be shared by the Registered Funds and
the Unregistered Accounts in proportion to the relative amounts of such
private placement securities held or being acquired or disposed of, as the
case may be, by the Registered Funds and the Unregistered
Accounts.
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8.
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The
Joint Transactions Committee of each Registered Fund will be provided
quarterly for its review all information concerning coinvestments made by
the Registered Fund and the Unregistered Accounts and other Registered
Funds, including investments made by the Unregistered Accounts in which
the Registered Fund declined to participate, so that the Joint
Transactions Committee may determine whether all investments made during
the preceding quarter, including those investments in which the Registered
Fund declined to participate, comply with the conditions of the Order. In
addition, the Joint Transactions Committee will consider at least annually
the continued appropriateness of the standards established for
coinvestment by the Registered Fund, including whether the use of the
standards continues to be in the best interests of the Registered Fund and
its shareholders and does not involve overreaching on the part of any
person concerned.
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9.
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Except for a Follow-On Investment made pursuant to
Condition 5 above, no investment will be made by a Registered Fund in
reliance on the Order in private placement securities of any entity if the
Adviser knows, or reasonably should know, that another Registered Fund or Unregistered
Account or any affiliated person of such Registered Fund or Unregistered
Account then currently holds a security issued by that
entity.
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10.
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Any transaction fee (including break-up or
commitment fees but excluding brokerage fees contemplated by sSection
17(e)(2) of the Act) received in connection with a transaction entered
into in reliance on the requested Order 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 transaction. If any
transaction fee is to be held by the 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) of the Act, and the account will earn a competitive rate of interest
that also will be divided pro rata among the participants based on the amounts they
invested or committed, as the case may be, in such
transaction. The Adviser will receive no additional
compensation or remuneration of any kind as a result of or in connection
with a coinvestment, or compensation for its services in sponsoring,
structuring, or providing managerial assistance to an issuer of private
placement securities that is not shared pro rata with the coinvesting Registered Funds and
Unregistered Accounts.
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11.
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Each
Registered Fund will comply with the fund governance standards as defined
in Rule 0-1(a)(7) under the Act.
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12.
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If TCP proposes an
acquisition of private placement securities subject to Condition 1 above
and determines that the amount of such securities available for purchase
exceeds the amount that is appropriate for the Registered Funds and
Unregistered Accounts to purchase, Babson Accounts may purchase all or any
portion of the amount of such securities that are available in excess of
the amounts approved by the Required Majority of the Joint Transactions
Committee in accordance with Condition 2(b). In order for
Babson to be able to rely on this Condition 12 with respect to a
particular investment, (i) TCP must include the excess amount being made
available to Babson and its affiliates for investment by Babson Accounts
in TCP’s submission to the Joint Transactions Committee, (ii) such
submission must explain TCP’s determination that excess amounts are
available, (iii) Babson may not participate in the consideration of such
investment by TCP and the investment committee relating to any Registered
Fund and (iv) Babson and its affiliates shall comply with each of the
relevant conditions of the MassMutual 17(d) Order. Conditions 4
and 7 (with respect to acquisition expenses) shall apply to any
acquisitions by Babson Accounts pursuant to this Condition 12 as if the
Babson Accounts were Unregistered Accounts and Babson or its applicable
affiliate were the Adviser. Condition 13 will apply to Babson
as an Applicant in accordance with its terms and parallel requirements
will apply to the Babson Accounts through the operation of the MassMutual
17(d) Order. Conditions 5, 6, 9 and 10 shall not apply to
activities by Babson and its affiliates on behalf of Babson Accounts with
respect to private placement securities acquired by such Babson Accounts
pursuant to this Condition
12.
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12.
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13.
Each Applicant will maintain and
preserve all records required by Section 31 of the Act and any other
provisions of the Act and the rules and regulations under the Act
applicable to such Applicant. The Registered Funds will
maintain the records required by Section 57(f)(3) of the Act as if each of
the Registered Funds were a business development company and the
coinvestments and any Follow-On Investments (or exercise of warrants,
conversion rights or other rights) were approved under Section
57(f).
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IV.
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Statement
in Support of Relief Requested
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Applicants submit that allowing the proposed
coinvestments as proposed by this Application is justified on the basis of (i)
the potential benefits to the Registered Funds and the shareholders thereof and
(ii) the protections found in the terms and
conditionsConditions set forth in this application.
A. Potential
Benefits
In
the absence of the relief sought hereby, the Registered Funds would be limited
in their ability to participate in attractive and appropriate investment
opportunities. Section 17(d) should not prevent investment companies from making
investments that are in the best interests of their shareholders.
The
ability to participate in proposed coinvestments will benefit the Registered
Funds and their shareholders by increasing favorable investment opportunities
available to them. The Registered Funds will be able to (i) have a larger pool
of capital available for investment, thereby obtaining access to a greater
number and variety of potential investments than any Registered Fund could
obtain on its own and (ii) increase their bargaining power to negotiate more
favorable terms.
At a meeting of the Boards of Directors of SVOF, SVCF,
SVCP, TOF V and TOP V held on April 7, 2008, and by unanimous written consent
dated April 7, 2008 signed by the Board of Directors of SVEF, the Independent
Directors made findings that it is in the best interests of these funds to be
able to co-invest with the other Registered Funds and Unregistered Accounts
managed by the Adviser and with
the Babson Accounts because, among other
matters, the existing Registered Funds will be able to participate in a larger
number and greater variety of transactions; they will be able to participate in
larger transactions; they will have an easier time participating in investments
during its ramp-up period when the size of its investments is limited by tax
diversification requirements applicable to its called capital rather than its
capital commitments; they will be able to participate in all opportunities
approved by the Investment Committee rather than risk underperformance through
rotational allocation of opportunities between the Unregistered Accounts, on the
one hand, and the Registered Funds on the other hand; they and any other
Registered Funds and Unregistered Accounts 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; they will be able to obtain
greater attention and better deal flow from investment bankers and others who
act as sources of investments; they will be able to avoid rotational allocation,
which is less attractive than pro rata participation by eligible accounts; and
the general terms and conditions of the proposed exemptive order are fair to
these funds and its shareholders.
The
proposed order contains certain modifications from the Original Order, which are
discussed below.
5. 1. Separate Independent
Directors for Each Registered Fund. Condition 11 of the Original Order required
that each Registered Fund have separate Independent Directors. This
has proven to be onerous and expensive without producing benefits for
shareholders that the Independent Directors or TCP have been able to
identify. In 2007, for
example, the Joint Transaction Committees
approved more than 30 separate co-investment actions. This has
necessitated convening three or four separate Joint Transaction Committee
special meetings at or about the same time for each of these investments, which
has proven to be logistically difficult, particularly as the directors have
expressed a desire to meet jointly when possible. The differences
among the Registered Funds in respect of particular investments have not
involved issues the Independent Directors have thought would require separate
boards in order to resolve. Differences have generally resulted from
the differing ages, available liquidity levels and existing concentration levels
of the Registered Funds. The Independent Directors have found the
issues and their decision-making to be very straightforward in this regard and
have endorsed elimination of this requirement. In addition,
in
making decisions under the proposed order, the Independent Directors would be
obligated to act in the best interests of each fund on whose board they would
serve. Applicants also submit that many open-end fund complexes with common boards
routinely make co-investments under Rules 17a-6 and 17d-1(d)(5) without any
board involvement, so it is difficult to see the utility of or regulatory need
for separate boards. The fund governance standards set forth in Rule
0-1(a)(7) under the Act do not include separate boards or even suggest the
practice is beneficial. Until recently, SEC co-investment orders did
not have a separate board requirement. See, e.g., the MassMutual 17d
Order (2000); Lincoln National Convertible
Securities Fund, Inc. (Release No. IC-19837, 11/15/1993); and Prospect High
Yield Mezzanine Fund, Inc. (Release No. IC- 16,774, 1/30/1989). In
addition, a group of similar Rule 17d-1 exemptive orders permitting mutual funds
within a complex to invest in affiliated mutual funds have not contained a
requirement for separate independent directors for each participating
fund. See, e.g., INVESCO Bond Funds, Inc. (Release No. IC-23788,
4/23/1999); CIGNA Funds Group (Release No. IC-23606, 12/23/1998); and SIT Mutual
Funds, Inc. (Release No. IC-23388, 8/19/1998). Finally, the
additional cost – averaging approximately $100,000 per year per Independent
Director in fair part because of the large number of Joint Transaction Committee
meetings – is not in the interests of investors in the Registered
Funds. The proposed order removes thise requirement
that each Registered Fund have separate Independent Directors.
2. 6.
Pro Rata
Dispositions. Condition 6 of the
Original Order required Joint Transaction Committee approval of all dispositions
even when proportionate to the holdings of each of the Registered Funds and
Unregistered Accounts. The proposed order removes this requirement
with respect to dispositions
that are proportionate dispositionsand
are made at the same time and on the same terms and conditions. The Independent Directors have found that
they have never had an issue with a pro rata disposition proposed by
TCP. In addition, disposition transactions often have a very short
opportunity for decision, as the securities have usually become aged at that
point and active institutional secondary markets may have
developed. As a consequence, the most favorable transaction may be
available for only a few minutes or hours. It is not in the best
interests of shareholders of the Registered Funds to miss these opportunities
because each of the Joint Transaction Committees needs to review the
transaction. Condition 6 is expressly premised on the principle that
each Registered Fund should have an opportunity to participate pro rata in any
disposition. Where pro rata participation on
the same terms is assured, it is difficult
to see how the Adviser could overreach for the benefit of itself or its
affiliates, and there seems to be very little benefit to be gained - - and
significant opportunity costs incurred - - by requiring formal
approval. Making this change would bring pro rata disposition
on
the same terms in line with fFollow-on-On iInvestments in
Condition 5, which do not require any board approval when done pro rata to
existing holdings
and on the same terms. In
addition, at least some earlier coinvestment exemptive orders did not require
Joint Transaction Committee approval for proportionate
dispositions. See, e.g., Lincoln National Convertible Securities
Fund, Inc. (Release No. IC-19837, 11/15/1993).
3. 7.
Dispositions of
Securities that have Become Publicly Tradabled. Although Condition 6 of the Original Order
did not specify that private placement securities could only be sold pursuant to
Condition 6 even if they had become publicly tradabled, during the processing of the application for the
Original Order it became apparent that this was the interpretation of the
staff. The Independent Directors and TCP believe that the protections
of Condition 6 are not necessary once the securities in question have become
publicly salable. First of all, no negotiation other than as to price
would be possible in this situation, thereby satisfying one of the primary
requirements that enables Registered Funds and Unregistered Accounts in which
the Adviser and its Affiliates have investments to coinvest and disinvest in
private placements without the need for an exemptive order under the staff's
no-action positions.5 Second, there is no opportunity present in
this situation for overreaching on the part of the Adviser or any other person
that is not present whenever an investment adviser has invested in the same
securities on behalf of multiple accounts. Accordingly, there would
not seem to be any need for extraordinary mandatory oversight by the Independent
Directors
and Applicants believe that the absence of a requirement for approval is
consistent with the principles underlying the staff’s no-action positions
relating to the purchase and sale of securities where only price related terms
are negotiated. The Applicants
believe that the use of allocation guidelines that would require pro rata
disposition in the absence of a fiduciary determination to the contrary by the
investment committee and a senior compliance officer or counsel would be
sufficient in these circumstances.
8. Inclusion of Babson Accounts
in Certain Coinvestments. As noted
earlier, Babson is a first-tier affiliated person of each of SVOF, SVCF, SVCP,
TOF and TOP and its parent company, MassMutual Life, is a first-tier affiliated
person of each of the foregoing and SVARF. To the extent Babson or an
affiliate is viewed as controlling an account managed by it or to the extent
Babson or MassMutual Life or their affiliates have a financial interest in such
accounts, a co-investment by any such account may be deemed to be a joint
arrangement prohibited by Rule 17d-1 in the absence of an exception
therefrom. Although in some cases the Independent Directors may be
able to make a finding under Rule 17d-1(d)(5)(i) that Babson and its affiliates
do not have a material financial interest in the transaction, in some cases the
issuer may not be a "portfolio affiliate" for purposes of Rule 17d-1(d)(5) or a
finding of immaterial financial interest may not be possible. Where
the Registered Funds have obtained as much of the private placement security as
they are interested in acquiring, the Applicants believe that Babson should also
be able to acquire all or a portion of remaining amounts of such security that
are available.
Acquisitions and
dispositions by Babson and its affiliates on behalf of their managed accounts
are already subject to a co-investment exemptive order as among
themselves. Consequently, the Applicants believe that the requested
Order need only address conditions appropriate to the relationship between
Babson and its affiliates, on the one hand, and the Registered Funds and
Unregistered Accounts, on the other hand. Further, because Babson has
only one vote out of five on decisions by the Investment Committee relating to
investments by the Registered Funds and is not responsible for originating or
diligencing investment opportunities for TCP's accounts, Applicants believe that
Babson is not in a position to overreach with respect to the Registered
Funds. As a further protective measure, Babson would not participate
in the Investment Committee process in relation to transactions in which Babson
has an interest in having Babson Accounts participate. On the basis
of the foregoing and in light of the fact that TCP does not advise any of the
Babson Accounts in any respect and that Babson does not make investment
decisions for the Registered Funds or the Unregistered Accounts, the Applicants
believe that it is appropriate that the Joint Transaction Committees must
approve participation by the Babson Accounts as part of their approval of the
initial investment under Condition 2(b) but that Joint Transaction Committee
approval of follow-on investments and dispositions by Babson Accounts is not
necessary. Condition 4 requiring the same price, terms and other
elements would apply, as would condition 7 relating to expenses. The
Applicants believe that Conditions 8, 9 and 10 of the proposed Order need not
apply as Babson will be subject to similar conditions under the MassMutual 17(d)
Order. Condition 13 will apply to Babson as an Applicant and parallel
provisions will apply to the Babson Accounts under the MassMutual 17(d)
Order.
B. Protective
Representations and Conditions
The terms and
conditionsConditions set forth in this application ensure that the proposed
coinvestments are consistent with the protection of each Registered Fund's
investors and with the purposes intended by the policy and provisions of the
Act. Specifically, the Conditions incorporate the following critical
protections: (i) all participants 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 participant receives terms more favorable than any
other participant, (ii) the decision to participate in a proposed coinvestment
will need to be approved by the Independent Directors of each Registered Fund to
ensure that the terms of the proposed coinvestment are fair and reasonable, do
not involve overreaching and are consistent with the investment objectives and
policies set forth in filings with the Commission and (iii) the Registered Funds
are required to retain and maintain certain records.
|
V.
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Precedents
|
The Commission previously
has issued an order, subsequently amended, permitting certain registered
investment companies and their affiliates to coinvest in private placement
securities. See Gladstone Capital Corp.,
Investment Company Act Rel. Nos. 27120 (Oct. 25, 2005) (notice) and 27150 (Nov.
22, 2005) (order).
Relevant
precedent for the modifications to the original Order proposed by Applicants are
set forth in Paragraphs IV.A.1, 2 and 3.
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VI.
|
Procedural
Matters
|
Pursuant
to Rule 0-2(f) under the Act, each Applicant states that its address is as
indicated below:
Special
Value Opportunities Fund, LLC
Special
Value Expansion Fund, LLC
Special
Value Continuation Fund, LLC
Special
Value Continuation Partners, LP
Tennenbaum Opportunities Fund
V, LLC
Tennenbaum Opportunities Partners
V, LP
Special
Value Absolute Return Fund, LLC
Tennenbaum
DIP Opportunity Fund, LLC
Tennenbaum
Multi-Strategy Master Fund
Tennenbaum
Multi-Strategy Fund I, LLC
Tennenbaum
Multi-Strategy Fund (Offshore)
Attn:
Howard M. Levkowitz
c/o Tennenbaum Capital Partners, LLC
(310)
566-1000
Tennenbaum Capital Partners, LLC
Attn:
Howard M. Levkowitz
2951
28th
Street, Suite 1000
Santa
Monica, California 90405
(310)
566-1000
Babson
Capital Management LLC
Attn: Rodney J.
DillmanPatricia
Walsh
1500
Main Street, Suite 2800
Springfield,
Massachusetts 01115
(413)
226-1000
Applicants
further state that all written or oral communications concerning this
Application should be directed to:
Richard
Prins
Skadden,
Arps, Slate, Meagher & Flom LLP
Four
Times Square
New
York, New York 10036
(212)
735-2790
with
copies to:
Howard
M. Levkowitz
Tennenbaum Capital Partners, LLC
2951
28th
Street, Suite 1000
Santa
Monica, California 90405
(310)
566-1000
and
Rodney J.
Dillman
Patricia
Walsh
General
Counsel
Babson
Capital Management LLC
1500
Main Street, Suite 2800
Springfield,
Massachusetts 01115
(413)
226-1050
Applicants
desire that the Commission issue an Order pursuant to Rule 0-5 under the Act
without conducting a hearing.
The
verifications required by Rule 0-2(d) under the Act are attached to this
Application as Exhibits A-1, A-2, A-3, A-4 and A-5. The proposed
notice of the proceeding initiated by the filing of the Application pursuant to
Rule 0-2(g) under the Act is attached to this Application as Exhibit
B.
Pursuant to Rule 0-2(c)(1) under the Act, each of SVOF,
SVEF, SVCF, SVCP, TOF V, TOP V, DIPF,
SVARF, MSMF, MSFI and MSFO states that its
governing documents authorize Howard M. Levkowitz to make any filing with any
regulatory body without action by any other person.
Pursuant
to Rule 0-2(c)(1) under the Act, TCP states that its Limited Liability Company
Agreement vests in its Managing Member full authority to conduct its business
without approval by any other person and that TCO, the Managing Member of such
entity, vests in each of its Principals, including Howard Levkowitz, full
authority to file any document, on behalf of itself or the entities it directly
or indirectly manages, with regulatory authorities without approval by any other
person.
Pursuant
to Rule 0-2(c)(1) under the Act, Babson states that its organizational documents
vest in its Board of Managers full authority to conduct its business without
approval by any other person and that resolutions of its Board of Managers vest
in its officers full authority to file any document, on behalf of itself or the
entities it directly or indirectly manages, with regulatory authorities without
approval by any other person.
|
VII.
|
Request
for Order of Exemption
|
For
the foregoing reasons, Applicants request that the Commission enter an Order
under Rule 17d-1 of the Act granting Applicants the relief sought by the
Application. Applicants submit that the requested exemption is
consistent with the protection of investors.
Dated __________,
2008January
15, 2010
SPECIAL
VALUE OPPORTUNITIES FUND, LLC
SPECIAL
VALUE EXPANSION FUND, LLC
SPECIAL
VALUE CONTINUATION FUND, LLC
SPECIAL
VALUE CONTINUATION PARTNERS, LP
TENNENBAUM
OPPORTUNITIES FUND V, LLC
TENNENBAUM
OPPORTUNITIES PARTNERS V, LP
SPECIAL
VALUE ABSOLUTE RETURN FUND, LLC
TENNENBAUM
DIP OPPORTUNITY FUND, LLC
On
behalf of each of the above-referenced Funds
By:
Tennenbaum Capital Partners, LLC
Its: Investment
Manager
By:
/s/ Howard M. Levkowitz
Name:
Howard M. Levkowitz
Its:
Managing Partner
TENNENBAUM
CAPITAL PARTNERS, LLC
By: s/Howard
Levkowitz
Name: Howard
Levkowitz
Title: Managing
Partner
BABSON
CAPITAL MANAGEMENT LLC
By: s/Rodney J.
Dillman
By: s/Patricia
Walsh
Name: Rodney J.
DillmanPatricia
Walsh
Title: General
Counsel
TENNENBAUM
MULTI-STRATEGY MASTER FUND
TENNENBAUM
MULTI-STRATEGY FUND I, LLC
TENNENBAUM
MULTI-STRATEGY FUND (OFFSHORE)
On
behalf of each of the above-referenced Funds
By:
Tennenbaum Capital Partners, LLC
Its: Investment
Adviser
By:
/s/ Howard M. Levkowitz
Name:
Howard M. Levkowitz
Its:
Managing Partner
|
1
|
The
term "successor", as applied to TCP and Babson, means an entity that
results from a reorganization into another jurisdiction or change in the
type of business organization.
|
|
2
|
All
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.
|
|
3
|
SVBF
II, which was an applicant with respect to the Original Order, has ceased
operations and is not named as an applicant for the proposed superceding
order.
|
|
4
|
Babson
and MassMutual Life have obtained an order pursuant to Section 17(d) of
the Act and Rule 17d-1 thereunder (the "MassMutual 17(d)
Order"), which was last amended on August 8, 2000 (Release No.
IC-24595), which permits MassMutual Life, two registered investment
companies and private investment funds for which Babson or MassMutual Life
serves as investment adviser to co-invest in certain types of debt
securities acquired in private placements, subject to various
conditions. The Registered Funds and Unregistered Accounts are
not parties to or covered by the MassMutual 17(d)
Order.
|
|
5
|
See
Massachusetts Mutual Life Insurance Company, SEC No-Action 7/28/2000; and
SMC Capital Inc., SEC No-Action
9/5/1995.
|
EXHIBIT
“A”
EXHIBIT
A-1
VERIFICATION
State
of
California
)
: SS:
County
of Los Angeles)
The undersigned, being duly sworn, deposes and says that
he has duly executed the foregoing attached application for and on behalf of
Special Value Opportunities Fund, LLC ("SVOF"), Special Value Expansion Fund,
LLC ("SVEF"), Special Value Continuation Fund, LLC (“SVCF”), Special Value
Continuation Partners, LP (“SVCP”), Tennenbaum Opportunities Fund
V, LLC (“TOF
V”), Tennenbaum Opportunities
Partners, LP
(“TOP
V, LP (“TOP V”), Special Value Absolute Return Fund, LLC ("SVARF"), Tennenbaum
DIP Opportunity Fund, LLC (“DIPF”),
Tennenbaum Multi-Strategy Master Fund ("MSMF"), Tennenbaum Multi-Strategy Fund
I, LLC ("MSFI") and Tennenbaum Multi-Strategy Fund (Offshore) ("MSFO") that he
is authorized to file such application and to take all necessary actions in
connection therewith pursuant to the terms of the limited liability company
agreement of SVOF, SVEF, SVCF, TOF V,
SVARF, DIPF and MSFI, the limited
partnership agreement of SVCP and TOP V,
and the trust agreement of MSMFI and MSFO, and that all actions necessary to authorize
deponent to execute and file such application have been taken. The
undersigned further states that he is familiar with such application and the
contents thereof, and that the facts therein set forth are true to the best of
his knowledge, information and belief.
| s/Howard Levkowitz | |
| Howard Levkowitz |
Subscribed
and sworn to before
me,
the undersigned Notary Public,
this ____15th day of ______,
2008. Januray,
2010.
s/ A. Thompson
Notary
Public
My
Commission expires: May 13, 2011
EXHIBIT
A-2
VERIFICATION
State
of
California
)
: SS:
County
of Los Angeles)
The
undersigned, being duly sworn, deposes and says that he has duly executed the
foregoing attached application for and on behalf of Tennenbaum Capital Partners,
LLC, that he is a managing partner of such company and
that all actions by the holders and other bodies necessary to authorize deponent
to execute and file such application have been taken. The undersigned
further states that he is familiar with such application and the contents
thereof, and that the facts therein set forth are true to the best of his
knowledge, information and belief.
| s/Howard Levkowitz | |
| Howard Levkowitz |
Subscribed
and sworn to before
me,
the undersigned Notary Public,
this ____15th day of _______,
2008.January,
2010.
s/ A. Thompson
Notary Public
Notary Public
My
Commission expires: May 13, 2011
EXHIBIT
A-3
VERIFICATION
Commonwealth
of Massachusetts
: SS:
County
of Hampden
The
undersigned, being duly sworn, deposes and says that he has duly executed the
foregoing attached application for and on behalf of Babson Capital Management
LLC, that he is General Counsel of such company and
that all actions necessary to authorize deponent to execute and file such
application have been taken. The undersigned further states that he
is familiar with such application and the contents thereof, and that the facts
therein set forth are true to the best of his knowledge, information and
belief.
| s/ Rodney J. Dillman | |
|
s/ Patricia Walsh
|
|
| General Counsel |
Subscribed
and sworn to before
me,
the undersigned Notary Public,
this ____15th day of _________,
____.January,
2010.
s/ Apryl A. Bovino
Notary Public
Notary Public
My
Commission expires: March 7, 2014
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