Divisinne Fonds - A Glossary of Working Concepts

Transcription

1 Respnse f the Office f Structured Finance Divisin f Crpratin Finance Re: Crescent Capital Grup LP Incming letter dated Based n the facts and representatins presented, the Divisin s views are as fllws. Capitalized terms have the same meanings as defined in yur letter. The Divisin will nt recmmend enfrcement actin t the Cmmissin if Crescent Capital Grup LP des nt retain an eligible risk retentin interest under Sectin 15G f the Securities and Exchange Act f 1934 in cnnectin with a Refinancing f CLOs that were issued in a CLO Transactin priced prir t the December 24, 2014 publicatin f the Credit Risk Retentin Final Rules in the Federal Register, n the terms and subject t the cnditins set frth in yur letter. This psitin 1 is based n the representatins made t the Divisin in yur letter. Any different facts r cnditins might require the Divisin t reach a different cnclusin. Further, this respnse expresses the Divisin s psitin n enfrcement actin nly and des nt express any legal cnclusin n the questin presented. Sincerely, David Beaning Special Cunsel, Office f Structured Finance Divisin f Crpratin Finance 1 In reaching this psitin, the staff has cnsulted with the staffs f the Bard f Gvernrs f the Federal Reserve System, the Office f the Cmptrller f the Currency and the Federal Depsit Insurance Crpratin.

2 Writer s Direct Dial: mmazzuchi@cgsh.cm Ms. Katherine Hsu Chief, Office f Structured Finance Divisin f Crpratin Finance Securities and Exchange Cmmissin 100 F Street, N.E. Washingtn, D.C Dear Ms. Hsu: We are writing n behalf f Crescent Capital Grup LP ( Crescent Capital ) t request cnfirmatin that the staff f the Divisin f Crpratin Finance (the Staff ) f the Securities and Exchange Cmmissin (the Cmmissin ) will nt recmmend enfrcement actin if Crescent Capital des nt retain an eligible risk retentin interest under the final rules implementing Sectin 15G f the Securities and Exchange Act f 1934, as amended (the Exchange Act ) in cnnectin with a prpsed refinancing f ne r mre classes f preexisting cllateralized lan bligatin ( CLO ) securities as described belw. N-actin relief frm the Staff is warranted t prtect investr expectatins that wuld be frustrated by applicatin f risk retentin requirements t the refinancing f a CLO transactin that was priced prir t the publicatin f the jint rules implementing Sectin 15G f the Exchange Act as further described belw. 1 1 See Credit Risk Retentin, 79 Fed. Reg (Dec. 24, 2014) (the Final Rules ).

3 Divisin f Crpratin Finance Securities and Exchange Cmmissin Page 2 I. Backgrund Crescent Capital is registered as an investment adviser under the Investment Advisers Act f 1940, as amended, and serves as cllateral manager (the Cllateral Manager ) fr a CLO entity (the CLO Entity ) that issued securities in a private placement transactin that priced prir t December 24, 2014 (the CLO Transactin ). The securities issued in the CLO Transactin cnsist f multiple classes f debt securities (the Secured Ntes ) and equity classes f securities (the Subrdinated Interests ). The Secured Ntes are primarily secured by senir secured syndicated crprate lans wned by the CLO Entity, which are subject t limited sale and substitutin frm time t time in accrdance with the terms f the CLO Transactin (the Cllateral Obligatins ). Neither the CLO Entity nr the pl f assets is registered as an investment cmpany pursuant t the Investment Cmpany Act f 1940, as amended (the Investment Cmpany Act ), in reliance n an exemptin frm registratin under the Investment Cmpany Act. The CLO Transactin has a feature that permits the interest rate n the Secured Ntes t be reduced t market clearing levels. The reductin in interest rate may be effected thrugh a refinancing f the relevant classes f Secured Ntes (a Refinancing ). In a Refinancing, an existing class f Secured Ntes is redeemed with the prceeds f replacement ntes ( Refinanced Ntes ) bearing the new interest rate which are issued by the CLO Entity and sld by a registered brker dealer n the CLO Entity s behalf. The sales f Refinanced Ntes may be t existing investrs r substitute investrs. The indenture fr the CLO Transactin requires the CLO Entity t cnduct a Refinancing if directed t d s by specified parties. Upn receiving the directin t cnduct a Refinancing f ne mre classes f Secured Ntes (each such class subject t a Refinancing, the Original Ntes ), the CLO Entity will prvide a required ntice t the hlders f the Original Ntes, as well as t rating agencies and ther transactin parties. The Cllateral Manager (n behalf f the CLO Entity) wuld retain a registered brker dealer t identify eligible purchasers fr any Replacement Ntes, which will be sld in a private placement transactin. A supplemental indenture will be prepared t mdify the interest rate, and ntice f such supplemental indenture will be sent t the hlders f all securities issued in the CLO Transactin (including the Original Ntes). II. The Prpsed Refinancing The prpsed Refinancing will be subject t the fllwing cnditins: Refinancing will be cmpleted (i.e., by the issuance f the relevant Refinanced Ntes) within fur years after the riginal clsing date f the CLO Transactin; The interest rate applicable t the Refinanced Ntes will be lwer than the interest rate f the Original Ntes;

4 Divisin f Crpratin Finance Securities and Exchange Cmmissin Page 3 Other than the reductin f the interest rate f the Original Ntes, after giving effect t a Refinancing: the CLO Entity s capital structure will be unchanged; the principal amunt f the Refinanced Ntes after a Refinancing and the Original Ntes after a Refinancing will be the same; the pririty f right f payment f the Refinanced Ntes and the Original Ntes will be the same; the vting and ther cnsent rights f the Refinanced Ntes and the Original Ntes will be the same; and the stated maturity f the Refinanced Ntes and the Original Ntes will be the same; The CLO Entity s investment criteria will nt change as a result f the Refinancing; N securitizatin f additinal assets will be effected by a Refinancing (i.e., prceeds frm the issuance f the Refinanced Ntes will be used nly fr the redemptin f the Original Ntes), it being understd that the Cllateral Manager will cntinue t actively manage the Cllateral Obligatins n the CLO Entity s behalf; N additinal Subrdinated Interests will be issued in cnnectin with a Refinancing; Refinancing will nt cause the identity f the hlders f Subrdinated Interests t change; Refinancing f different classes f Secured Ntes may ccur n different dates; hwever, each class f Secured Ntes will be subject t nly ne Refinancing and the supplemental indenture executed in cnnectin with Refinancing each class will prhibit any further Refinancing f the Refinanced Ntes; The ffering dcument fr the Replacement Ntes will, amng ther things: (i) include a prminent statement (e.g., n the cver f the ffering dcument) that the spnsr is nt retaining a risk retentin interest cntemplated by the Final Rules in cnnectin with a Refinancing r the Refinanced Ntes;

5 Divisin f Crpratin Finance Securities and Exchange Cmmissin Page 4 (ii) describe the interest rates f the Refinanced Ntes and cnfirm that all ther legal and ecnmic terms f the Refinanced Ntes will be the same as the Original Ntes; and (iii) include a statement in a sectin entitled Credit Risk Retentin t the effect that reliance n the n-actin letter cntemplated hereby des nt preclude the availability f any applicable private rights f actins fr any vilatin f the federal securities laws. III. Basis fr Relief Because the CLO Transactin was priced prir t publicatin f the Final Rules, the refinancing feature was nt structured t accmmdate risk retentin, and neither the Cllateral Manager nr the investrs in the CLO Transactin expected that the risk retentin bligatin wuld apply with respect t a Refinancing. Absent the ability t reduce interest rates f ne r mre classes f Secured Ntes, when interest rates fr securities similar t the Secured Ntes in the market may have drpped significantly since the issuance f the Secured Ntes, the CLO Entity wuld likely redeem the Secured Ntes, impsing additinal csts related t the liquidatin f its assets, amng ther effects. A Refinancing permits the CLO Transactin t remain in place at a cst t the CLO Entity mre cnsistent with current market levels. The ability t effect a Refinancing helps preserve investr expectatins that they will have the pprtunity t exit their investment at par, r remain invested in the CLO Transactin, withut the cst f redemptin and related reinvestment risk. If a Refinancing were t require the Cllateral Manager t retain a risk retentin interest, the ecnmic impact t the Cllateral Manager f satisfying this bligatin wuld make the Refinancing prhibitively expensive and wuld frustrate the investr expectatins described abve. Asset-backed securities transactins such as the CLO Transactin intrinsically invlve fixed investment arrangements in the cntext f a static capital structure with a limited asset pl. These characteristics adversely affect the ability f such transactins t preserve investr expectatins in the face f regulatry changes. IV. Request fr N-Actin Relief Based n the freging, Crescent Capital respectfully requests that the Staff cnfirm that it will nt recmmend enfrcement actin if the risk retentin interest described in the Final Rules is nt retained in cnnectin with a Refinancing in accrdance with the terms set frth abve. * * * * *

6 Divisin f Crpratin Finance Securities and Exchange Cmmissin Page 5 We appreciate yur assistance in this matter. Please d nt hesitate t call Michael Mazzuchi ( ), Paul St. Lawrence ( ), Jyce McCarty ( ) r Sarah Crandall ( ) f the Washingtn ffice f Cleary Gttlieb Steen & Hamiltn LLP, if yu have any questins regarding the relief requested herein. If the Staff des nt cncur with Crescent Capital s psitin, Crescent Capital requests an pprtunity t cnfer with the Staff cncerning the applicable terms f the Refinancing prir t the issuance f a respnse. Very truly yurs, /s/ Michael Mazzuchi Michael A. Mazzuchi