The Evolving Landscape of Co-Investment Relief

Transcription

1 September 7, 2016 The Evolving Landscape of Co-Investment Relief

2 Basic Scenario Middle of the Fairway Without relief, coinvestment in negotiated transactions is not permitted. With middle of the fairway exemptive relief, The BDC is permitted to co invest at the same time, on the same terms. * Private fund relying on 3(c)1 or 3(c)7, another BDC, or a registered investment company under common control with the BDC. 2

3 Basic Scenario with Wholly Owned Sub Middle of the Fairway With middle of the fairway exemptive relief, The BDC and its wholly owned subsidiary are permitted to co invest at the same time, on the same terms. * Private fund relying on 3(c)1 or 3(c)7, another BDC, or a registered investment company under common control with the BDC. 3

4 Less Than Wholly Owned Subsidiary Exemptive relief has never been granted to co invest with a subsidiary that is less than 100% owned. * Private fund relying on 3(c)1 or 3(c)7, another BDC, or a registered investment company under common control with the BDC. 4

5 Standard Allocation for Oversubscriptions 5 $20M opportunity Allocation Factors Asset class Industry Portfolio diversity Available capital Other $10M opportunity According to standard coinvestment relief, it must be allocated based on available capital, up to the original allocation. The BDC $100M of available capital Oversubscription Affiliated Fund $50M of available capital Allocation $16M $4M Allocation $6.67M $3.33M $8M $2M NOT

6 TPG Relief: Allocation for Oversubscriptions 6 $20M opportunity Allocation Factors Asset class Industry Portfolio diversity Available capital Other $10M opportunity According to TPG s relief, the BDC s allocation is fulfilled first, and any portion available thereafter is allocated to others. TPG $100M of available capital Oversubscription Affiliated Fund $50M of available capital Allocation $12M $8M Allocation $10M $0 $6M $4M NOT

7 Investment Adviser is Sub-Adviser to Another BDC If the Investment Adviser is sub adviser to a BDC (or registered investment company) managed by an Unaffiliated Adviser, middle of the fairway exemptive relief permits Another BDC (or the registered investment company) to coinvest with The BDC only if the Unaffiliated Adviser is a named party to the exemptive application and subject to the same conditions. Investment advisory Affiliated Private or Registered Fund* Investment advisory The BDC Investment (debt or equity) Investment Adviser Portfolio Company Sub advisory Sub- Adviser Investment advisory Another BDC Investment (debt or equity) Unaffiliated Adviser Investment advisory * Private fund relying on 3(c)1 or 3(c)7, another BDC, or a registered investment company under common control with the BDC. 7

8 Investment Adviser is Sub-Adviser to a Private Fund If the Investment Adviser is sub adviser to a Private Fund managed by an Unaffiliated Adviser, middle of the fairway exemptive relief does not permit the Private Fund to coinvest with The BDC. This relief has never been given. Investment advisory Affiliated Private or Registered Fund* Investment advisory The BDC Investment Adviser Sub advisory Sub- Adviser Investment advisory Private Fund Unaffiliated Adviser Investment advisory Investment (debt or equity) Portfolio Company Investment (debt or equity) * Private fund relying on 3(c)1 or 3(c)7, another BDC, or a registered investment company under common control with the BDC. 8

9 Solution to Roach Motel in Restructuring 17d-1(d)(6) permits exchange of securities same securities and pro rata. BDC $10M Term Loan A Original Investment: Term Loan A Affiliated Fund $5M Term Loan A Portfolio Company Restructuring $15M Term Loan B $7.5M Term Loan B BDC Restructured Investment: Term Loan B Affiliated Fund 9

10 Solution to Roach Motel in Restructuring Rule 17d-1(d)(6) permits exchange of securities same securities and pro rata. BDC $10M Term Loan A Original Investment: Term Loan A Affiliated Fund $5M Term Loan A Portfolio Company Restructuring $15M Term Loan B $5M Term Loan B $2.5M Equity BDC Restructured Investment: Term Loan B and Equity Affiliated Fund 10

11 Person in Addition to Adviser Controls Affiliated Fund 57(b) Person of the BDC If a 57(b) Person other than the Investment Adviser owns >25% of equity of the Affiliated Private or Registered Fund, middle of the fairway exemptive relief does not permit the BDC to co invest with the Affiliated Private Fund or Registered Fund. Investment advisory The BDC Investment (debt or equity) Investment Adviser Investment advisory Affiliated Private or Registered Fund* Investment (debt or equity) >25% of equity * Private fund relying on 3(c)1 or 3(c)7, another BDC, or a registered investment company under common control with the BDC. Portfolio Company 11

12 Affiliated Fund Controls Portfolio Company If the Private Fund owns a >25% of equity of Portfolio Company, middle of the fairway exemptive relief does not permit the BDC or its 100% owned subsidiary to co invest. * Private fund relying on 3(c)1 or 3(c)7, another BDC, or a registered investment company under common control with the BDC. 12

13 Staff Position on Joint Transactions Portfolio Holdings of Companies Electing Status as BDCs The staff is aware that certain private funds that plan to elect status as business development companies under the Investment Company Act ( Planned BDCs ), hold securities (typically, debt securities) issued by companies ( Portfolio Companies ) controlled by other private funds ( BDC Affiliates ) advised by the Planned BDC s investment adviser or an entity controlling, controlled by or under common control with the Planned BDC s investment adviser. The staff is of the view that if, following the election of BDC status, the BDC holds securities issued by a Portfolio Company controlled by a BDC Affiliate, the BDC and the BDC Affiliate may be participating in a joint enterprise or other joint arrangement or profit-sharing plan within the meaning of section 57(a)(4) of the Investment Company Act and rule 17d-1 under that Act ( Joint Transaction ). Section 57(i) of the Investment Company Act makes rule 17d-1 applicable to BDC Affiliates. Under rule 17d-1, a BDC Affiliate may not participate in a Joint Transaction unless an application regarding the Joint Transaction has been filed with the Commission and granted by an order. [November 27, 2012] 13

14 Apollo Investment Corporation Exemptive Application vs. Standard Middle of the Fairway Application Apollo first filed its application for co investment relief in From the outset, it attempted to modify the 13 conditions included in every standard middle of the fairway application ( Standard Application ) in two basic ways: (1) to address problems that large platforms, like its own, face in complying with the standard conditions found in middle of the fairway applications, and (2) to have the relief cover a broader array of transactions. The order was granted in As discussed in more detail below, the order extended the previously granted relief so that, among other things: (1) the board of directors of a Regulated Fund may establish criteria to limit the universe of co investment opportunities that must be shared with the Regulated Fund; (2) certain transactions that previously could not be completed in reliance on the order may be completed in reliance on the order through an onboarding process ; (3) additional types of co investment transactions may be completed without board approval; and (4) there is an exception to the same time requirement for delayed settlement dates. Below is a summary of the main differences between the standard middle of the fairway application ( Standard Application ) and the Apollo precedent. Capitalized terms not defined below or in Appendix A below are as defined in the Apollo application. The summary below is not intended to be fully inclusive, and there may be other requirements that apply. Issue Standard Condition Apollo Application A Regulated Fund must be advised of, and be given the opportunity to, participate in any co investment transaction that falls within its investment objectives and strategies. 1. Is there a way to limit the opportunities that the Regulated Fund s Adviser must be made aware of and consider whether appropriate for the Regulated Fund? The Investment objectives and strategies of a Regulated Fund are typically broad and general with the resulting effect that almost all opportunities that come into a platform must be considered for the Regulated Fund and must comply with the conditions. Large platforms, like the Apollo platform, may have difficulty meeting the fundamental Standard Condition that a Regulated Fund must be advised of, and be given the opportunity to participate in, any co investment transaction that falls within its investment objectives and strategies. The breadth of these platforms necessarily means that numerous investment opportunities arise through multiple channels daily. As a result, it is a challenge to ensure that portfolio managers for any Regulated Fund on the platform will see every opportunity that falls within the Regulated Fund s investment objectives and strategies. The solution in the Apollo application was the establishment of Board Established Criteria. This means that the board of a Regulated Fund may establish criteria from time to time to describe the characteristics of potential co investment transactions of which the adviser to the Regulated Fund should be notified in order to comply with the condition, effectively narrowing the universe of potential co investment

15 Apollo Investment Corporation Exemptive Application vs. Standard Middle of the Fairway Application transactions required to be presented to a Regulated Fund s adviser to those transactions more closely aligned with the Regulated Fund s focus at that time. The Board Established Criteria would be consistent with the Regulated Fund s objectives and strategies. If no Board Established Criteria were in effect, then the Regulated Fund s Adviser would have to be notified of all potential co investment transactions that fall within the Regulated Fund s then current objectives and strategies. Board Established Criteria must be objective and testable, meaning that they will be based on observable information, such as the industry/sector of the issuer, the minimum EBITDA of the issuer, the 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 would only become effective if approved by a majority of the independent directors of the board. 2. If a Regulated Fund and a private fund are invested in the same issuer but did not make their investment pursuant to a coinvestment order, can anything be done to bring those holdings under the order if negotiation is required later on? No. Pursuant to the Standard Conditions, follow on investments in, and dispositions of, negotiated investments are only permitted if the securities at issue were acquired in a co investment transaction that was completed in reliance on the order. For example, if a BDC and an affiliate obtained securities in the same issuer through transactions that were separate in time and not joint (and thus, the securities were obtained without reliance on a co investment order), but negotiation is later required to complete a follow on investment in, or disposition of, such Yes. The Apollo application adds additional requirements that, when complied with, would allow a Regulated Fund to rely on the order to complete a negotiated transaction following certain non negotiated transactions. The Apollo application introduces a concept referred to as an onboarding process, through which investments that were not made in reliance on the co investment order can nonetheless become subject to certain beneficial terms of the order. Under the Apollo application, negotiation of the transaction discussed would be permitted under the order if the requirements were met to onboard the investment, which must first qualify as a Pre Boarding Investment. See Appendix A for the additional conditions required to complete a follow on following or a disposition from a security not acquired in Co Investment Transaction (Conditions 9 and 7). Pre Boarding Investments are investments in an issuer held by a Regulated Fund as well as one or more Affiliated Funds and/or one or more other Regulated Funds that were acquired:

16 Apollo Investment Corporation Exemptive Application vs. Standard Middle of the Fairway Application 3. Are there any transactions that can be completed pursuant to the order without board approval? 4. Is there any exception to the same time requirement? 5. Can subsidiaries of a Regulated Fund that are controlled but not wholly owned rely on the coinvestment order? securities, that transaction would not be permitted under the order, and the Regulated Fund and its affiliate would not be able to negotiate the new transaction. Yes. Pursuant to the Standard Conditions, all co investment transactions must be approved by the board, except that pro rata follow on investments and pro rata dispositions may be completed without board approval if the board has previously approved such practice. No. The Standard Conditions require that co investments under an order be made at the same time. No. Only a Wholly Owned Investment Sub may rely on the order. (i) prior to participating in any Co Investment Transaction; (ii) in transactions in which the only term negotiated by or on behalf of such funds was price; and (iii) either: (x) in reliance on one of the JT No Action Letters; or (y) in transactions occurring at least 90 days apart and without coordination between the Regulated Fund and any Affiliated Fund or other Regulated Fund. Yes, and there are more options than in the Standard Conditions. The Apollo application adds that no board approval would be required for a disposition if the securities became tradable (as defined in Appendix A) and certain other requirements were met, or for a follow on investment if it were a Non Negotiated Follow On Investment (defined in Appendix A below). In the case of a Tradable Security, approval of the required majority is not required for the Disposition if: (x) the Disposition is not to the issuer or any affiliated person of the issuer; and (y) 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. Pro Rata Dispositions and Dispositions of a Tradable Security remain subject to the Board s periodic review in accordance with Condition 10. Yes. The Apollo application added a Delayed Settlement concept that permits a Regulated Fund or its affiliate to close on the co investment transaction up to 10 business days later as long as the commitment date was the same. Yes. The Apollo application added the concept of a BDC Downstream Fund an entity (i) that the BDC directly or indirectly controls; (ii) that is not controlled by any person other than the BDC (except a person that indirectly controls the entity solely because it controls the BDC); (iii) that would be an investment company but for Section 3(c)(1) or 3(c)(7) of the Act; (iv) whose investment adviser is an Adviser; and (v) that is not a Wholly Owned Investment Sub. BDC Downstream Funds are Regulated Funds for purposes of the order

17 Apollo Investment Corporation Exemptive Application vs. Standard Middle of the Fairway Application 6. What types of private funds qualify as Affiliated Funds under the order? 7. How are oversubscribed opportunities allocated? 8. Compliance requirements in addition to those in the Standard Application Any entity that would be an investment company but for Section 3(c)(1) or 3(c)(7) of the Act. If the aggregate amount recommended by the applicable Adviser to be invested by the applicable Regulated Fund in the Potential Co Investment Transaction, together with the amount proposed to be invested by the other participating Regulated Funds and Co Investment Affiliates, collectively, in the same transaction, exceeds the amount of the investment opportunity, then the investment opportunity will be allocated among them pro rata based on each participant s Available Capital, up to the maximum amount proposed to be invested by each. N/A Any entity that would be an investment company but for Section 3(c)(1), 3(c)(5)(C), or 3(c)(7) of the Act. The Apollo application also includes a few specifically named companies that each would be an investment company but for exceptions other than Sections 3(c)(1), 3(c)(5)(C), or 3(c)(7) of the Act. 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.A.1.b. [Requires the investment allocation process of the platform to be described so that the Staff can confirm that the Adviser to the Regulated Fund will be made aware of all investment opportunities that fall within the Regulated Funds Investment Objectives and Strategies.] 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

18 Apollo Investment Corporation Exemptive Application vs. Standard Middle of the Fairway Application Appendix A Condition 9. Enhanced Review Follow Ons. [relevant part of condition] (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)

19 Apollo Investment Corporation Exemptive Application vs. Standard Middle of the Fairway Application Condition 7. Enhanced Review Dispositions [relevant part of condition] (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 Condition 2(c)(i), (ii), (iii)(a), and (iv). (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 the Affiliated Funds and any other Regulated Fund; (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 immaterial25 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 (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)

20 Apollo Investment Corporation Exemptive Application vs. Standard Middle of the Fairway Application Tradable Security means a security that meets the following criteria at the time of Disposition: (i) (ii) (iii) it trades on a national securities exchange or designated offshore securities market as defined in rule 902(b) under the Securities Act; it is not subject to restrictive s with the issuer or other security holders; and it 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. A Non Negotiated Follow On Investment is a Follow On Investment in which a Regulated Fund participates together with one or more Affiliated Funds and/or one or more other Regulated 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

21 Legal Alert: Is the SEC Poised to Broaden Standard Co-Investment Relief? March 16, 2016 The U.S. Securities and Exchange Commission (SEC) Division of Investment Management recently issued a notice with regard to the application for coinvestment relief filed by Apollo Investment Corporation and certain of its affiliates. Apollo s application has been pending for more than six years, and if the order is granted, it would be the first to fundamentally expand on the standard co-investment relief typically granted by the SEC to business development companies (BDCs), registered investment companies and their affiliates. However, there is some question on whether similar relief will be available to other investment companies that have already received coinvestment relief or those that might seek co-investment relief in the future. Over the past 25 years, the SEC has issued more than three dozen orders permitting BDCs and registered investment companies (together, Regulated Funds) to co-invest in negotiated transactions with their affiliates. Under those orders, the covered co-investing entities must adhere to certain conditions, which have changed little over the past two and a half decades and remain the cornerstone of co-investment relief for Regulated Funds. Thus, the same 13 (and more recently, 14) conditions appear in each of the standard applications (the Standard Conditions) for which an order was granted by the SEC and detail the co-investment process under the order. Apollo first filed its application for co-investment relief in From the outset, it attempted to expand on the Standard Conditions in two basic ways: (1) to address problems that large platforms, like its own, face in complying with the Standard Conditions, and (2) to have the relief cover a broader array of transactions. As discussed in more detail below, the order would extend the previously granted relief so that, among other things: (1) the board of directors (board) of a Regulated Fund may establish criteria to limit the universe of coinvestment opportunities that must be shared with the Regulated Fund; (2) certain transactions that previously could not be completed in reliance on the order may be completed in reliance on the order through an onboarding process ; (3) additional types of co-investment transactions may be completed without board approval; and (4) there is an exception to the same time requirement for delayed settlement dates. Contacts If you have any questions about this Legal Alert, please feel free to contact any of the attorneys listed or the Sutherland attorney with whom you regularly work. Steven B. Boehm Partner steven.boehm@sutherland.com Anne G. Oberndorf Counsel anne.oberndorf@sutherland.com Related People/Contributors Steven B. Boehm Cynthia M. Krus Lisa A. Morgan Harry S. Pangas Anne G. Oberndorf Kristin Rininger Jeanne M. Waters 1. Board-Established Criteria. Large platforms, like the Apollo platform, may have difficulty meeting the fundamental Standard Condition that a Regulated Fund must be advised of, and be given the opportunity to, participate in any coinvestment transaction that falls within its investment objectives and strategies. The breadth of these platforms necessarily means that numerous investment opportunities arise through multiple channels daily. As a result, it is a challenge to ensure that portfolio managers for any Regulated Fund on the platform will see every opportunity that falls within the Regulated Fund s investment objectives and strategies. The solution wrought in the Apollo application was the ATLANTA AUSTIN GENEVA HOUSTON LONDON NEW YORK SACRAMENTO WASHINGTON DC

22 Legal Alert: Is the SEC Poised to Broaden Standard Co-Investment Relief? continued establishment of Board-Established Criteria. This means that the board of a Regulated Fund may establish criteria from time to time to describe the characteristics of potential co-investment transactions of which the adviser to the Regulated Fund should be notified in order to comply with the condition, effectively narrowing the universe of potential co-investment transactions required to be presented to a Regulated Fund s adviser to those transactions more closely aligned with the Regulated Fund s focus at that time. The Board- Established Criteria would be consistent with the Regulated Fund s objectives and strategies. If no Board-Established Criteria were in effect, then the Regulated Fund s adviser would be notified of all potential co-investment transactions that fall within the Regulated Fund s then-current objectives and strategies. Board-Established Criteria must be objective and testable, meaning that they will be based on observable information, such as the industry/sector of the issuer, the minimum EBITDA of the issuer, the 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 would only become effective if approved by a majority of the independent directors of the board. 2. Certain transactions that previously could not be completed in reliance on the order may be completed in reliance on the order through an onboarding process. The Apollo application adds additional requirements that, when complied with, would allow a Regulated Fund to rely on the order to complete a negotiated transaction following certain non-negotiated transactions. The Apollo application introduces a concept referred to as an onboarding process, through which investments that were not made in reliance on the coinvestment order can nonetheless become subject to certain beneficial terms of the order. Pursuant to the Standard Conditions, follow-on investments in, and dispositions of, negotiated investments were only permitted if the securities at issue were acquired in a co-investment transaction that was completed in reliance on the order. For example, if a BDC and an affiliate obtained securities in the same issuer through transactions that were separate in time and not joint (and thus, the securities were obtained without reliance on a co-investment order), but negotiation is later required to complete a follow-on investment in, or disposition of, such securities, that transaction previously would not be permitted under the order, and the Regulated Fund and its affiliate would not be able to negotiate the new transaction. However, under the Apollo application, negotiation of the new transaction would be permitted under the order if the requirements were met to onboard the investment. 3. Additional types of co-investment transactions may be completed without board approval. Currently, pursuant to the Standard Conditions, all co-investment transactions must be approved by the board, except that pro rata follow-on investments and pro rata dispositions may be completed without board approval if the board has previously approved such practice. The Apollo application adds that no board approval would be required for a disposition if the ATLANTA AUSTIN GENEVA HOUSTON LONDON NEW YORK SACRAMENTO WASHINGTON DC

23 Legal Alert: Is the SEC Poised to Broaden Standard Co-Investment Relief? continued securities became tradable (as defined in the application) and certain other requirements were met, or for a follow-on investment if there were no negotiation involved. 4. Exception to same time requirement. The Standard Conditions require that co-investments under an order be made at the same time. The Apollo application added a Delayed Settlement concept that permits a Regulated Fund or its affiliate to close on the co-investment transaction up to 10 business days later as long as the commitment date was the same. While the Apollo application would expand the universe of permitted coinvestment transactions, we are holding our applause until others who are not yet in the pipeline for similar relief are given positive feedback that such relief will be made available to them. We believe that the SEC staff may take a wait-andsee approach to granting similar relief to others until they have time to assess the long-term implications of the relief. If you have any questions about this Legal Alert, please feel free to contact any of the attorneys listed under 'Related People/Contributors' or the Sutherland attorney with whom you regularly work. ATLANTA AUSTIN GENEVA HOUSTON LONDON NEW YORK SACRAMENTO WASHINGTON DC