SEC Company Response from ARES CAPITAL CORP (ARCC) (CIK 0001287750) (ARCC) — Jul 19, 2012
ARES CAPITAL CORP (ARCC) (CIK 0001287750)
Date: July 19, 2012 · CIK: 0001287750 · Accession: 0001104659-12-049734
AI Filing Summary & Sentiment
File numbers found in text: 333-181563, 814-00663
Referenced dates: June 22, 2012
Letter
July 19, 2012 VIA EDGAR United States Securities and Exchange Commission Division of Investment Management 100 F Street, N.W. Washington, D.C. 20549 Attention: Edward P. Bartz, Staff Attorney Re: Ares Capital Corporation (File Nos. 333-181563 and 814-00663)
Dear Mr. Bartz:
Ares Capital Corporation (the “Fund”) has today filed Amendment No. 1 (“Amendment No. 1”) to its registration statement filed on Form N-2 on May 21, 2012 (the “Registration Statement”). The amendment sets forth the responses to the comments of the Staff of the Division of Investment Management (the “Staff”) contained in your letter dated June 22, 2012 relating to the above-referenced filing.
Set forth below are the comments of the Staff contained in the Staff’s letter and immediately below each comment is the response with respect thereto and, where applicable, the location in the relevant filing of the requested disclosure. Responses to comments given in one section are applicable to other sections of the Registration Statement that contain similar disclosure. Capitalized terms used but not defined herein shall have the meanings set forth in the Registration Statement.
Cover Page
1. The fifth paragraph of the cover page states that the securities may be offered at prices and on terms to be described in one or more supplements to the prospectus. Please include in the registration statement a form of prospectus supplement for each type of security registered.
The Fund has included in the Registration Statement a form of prospectus supplement for each type of security registered, which have been filed as Exhibits 99.2 to 99.7 to the Registration Statement.
Prospectus Summary – The Company – Overview (Page 2)
2. The third paragraph on this page states that the instruments in which the Fund invests are typically not rated by a rating agency, but would likely be rated below investment grade.
Boca Raton | Boston | Chicago | Hong Kong | London | Los Angeles | New Orleans | New York | Newark | Paris | São Paulo | Washington, D.C.
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Please include the term “junk bonds” in the description of these investments, and briefly describe the speculative nature of these types of issues.
The Fund has revised the third paragraph on page 2 of Amendment No. 1 to describe the speculative nature of below investment grade instruments. However, because the Fund invests primarily in self-originated first and second lien senior loans and mezzanine debt issued by private companies in privately-negotiated transactions (and not high yield bonds issued in primary offerings or in the secondary market), the Fund does not believe it would be accurate to describe its investments as “junk bonds.” Accordingly, the Fund does not believe that such term should be included in this disclosure.
Prospectus Summary - Offerings (Page 13)
3. The second paragraph of this section indicated that it was expected that the 2012 annual stockholders meeting would take place on June 6, 2012. Please update the registration statement to reflect the results of that meeting.
The Fund has updated the Registration Statement to reflect the results of the 2012 annual stockholders meeting.
Fees and Expenses (Page 16)
4. In the third sentence of the first paragraph of this section, stockholders are advised that, depending on context, “you”, “us”, “we”, “Ares Capital”, and “the Company” all refer to the stockholder. Since this is very confusing, and potentially misleading, please delete this sentence.
The Fund notes that, pursuant to Item 3.1 of Form N-2, the fee table is intended to provide “information about the costs and expenses that the investor will bear directly or indirectly.” As a result, the Fund has revised the third sentence of the first paragraph of this section on page 16 of Amendment No. 1 to clarify the disclosure instead of deleting the sentence.
5. The second line item in the table of Stockholder transaction expenses states “Sales load paid by us.” Since all stockholder transaction expenses are paid either directly or indirectly by stockholders, please delete the words “paid by us” from this line item. See Item 3 of Form N-2.
The Fund has revised the disclosure as requested on page 16 of Amendment No. 1.
6. The heading of the table of annual expenses uses the caption “Estimated annual expenses (as a percentage of consolidated net assets attributable to common stock).” Also, the line item for the Fund’s total annual expenses uses the caption “Total annual expenses (estimated).” Please delete the word “estimated” from both of these captions. See Item 3 of Form N-2. Additionally, the term “consolidated” is used in the heading of this table. Please explain to us what is being consolidated.
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The Fund has deleted the word “estimated” as requested on page 16 of Amendment No. 1.
With respect to the term “consolidated” used in the heading of the table, the Fund consolidates certain controlled subsidiaries that have been established solely to hold certain portfolio investments for one of the following purposes: (i) certain consolidated subsidiaries have been formed to serve as special purpose vehicles in connection with the establishment of secured credit facilities, (ii) certain consolidated subsidiaries hold portfolio investments that have pass through tax characteristics (“blocker corporations”) or (iii) certain consolidated subsidiaries hold the Fund’s investments in portfolio companies in accordance with the terms of the Fund’s investment in such portfolio companies. In addition, the Fund has one consolidated wholly owned operating subsidiary that exists for the purpose of providing services solely to the Fund.1
See Item 28 in the Fund’s Registration Statement for a list of each of the Fund’s direct and indirect subsidiaries that is consolidated for financial reporting purposes.
7. The table of annual expenses shows Acquired Fund Fees and Expenses of 0%. Since footnote (10) to the fee table indicates that the Fund invests in holdings that would normally be expected to result in Acquired Fund Fees and Expenses, please confirm to us that the amount reflected in the table is correct.
The Fund confirms that the Acquired Fund Fees and Expenses amount reflected in the table of annual expenses is correct. Specifically, such amount is 0.004%. Pursuant to Instruction 3 to Item 3.1 of Form N-2, the Fund has rounded all percentages to the nearest hundredth of one percent in the fee table on page 16 of Amendment No. 1.
8. The last paragraph of footnote (7) states that the line item “Incentive fees payable under investment advisory and management agreement” does not include the accrual for a capital gains incentive fee of $5.7 million for the three months ended March 31, 2012. Since the fee table is required to be based on the Fund’s financial statements, please include the $5.7 million capital gains incentive fee in the “Incentive fees payable under investment advisory and management agreement” line item.
The Fund has revised the fee table on page 16 of Amendment No. 1 to include the $5.7 million capital gains incentive fee GAAP accrual in the “Incentive fees” line item and made corresponding clarifying changes in the footnotes.
Business – General (Page 92)
9. The second to the last paragraph on page 93 of this section states that the Fund and GE co-invest through an unconsolidated vehicle, the SSLP. This section further states, on page 94,
1 This wholly owned subsidiary was created by Allied (as defined below) (an internally managed BDC (as defined below) acquired by the Fund in 2010) for the purpose of providing services to Allied. While this consolidated subsidiary no longer has any employees, it continues to hold certain non-investment assets.
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that the SSLP relies on the exception from the definition of “investment company” set forth in Rule 3a-7 under the Investment Company Act. Rule 3a-7 is an exception from the definition of “investment company” for issuers of asset-backed securities. Please provide us with an analysis explaining why the SSLP may rely on Rule 3a-7. In addition, please inform us (i) whether the SSLP has a line of credit or other arrangements to borrow from banks or other financial institutions; (ii) whether the Fund may be liable for any obligations of the SSLP; and (iii) whether the Fund has sold or otherwise transferred any of its assets to the SSLP. We may have additional comments after reviewing your response.
By way of background, the SSLP was formed by Allied Capital Corporation (“Allied”)2 and General Electric Capital Corporation and GE Global Sponsor Finance LLC (collectively, “GE”) in December 2007 to extend “stretch senior” and “unitranche” loans (loans that combine both senior and subordinated debt, generally in a first lien position) to middle-market companies. In connection therewith, the SSLP has issued, in each case pursuant to an indenture (the “Indenture”), senior notes and subordinated certificates to the Fund and GE as well as certain limited liability company interests pursuant to the SSLP limited liability company agreement (the “LLCA”). The Fund owns 87.5% of the limited liability company interests of the SSLP, which are “stapled” to its 87.5% of the subordinated certificates in the SSLP, and GE owns the remaining amounts of “stapled” subordinated certificates and limited liability company interests.3 In addition, GE owns all of the SSLP’s senior notes.
Rule 3a-7 (“Rule 3a-7”) under the 1940 Act provides an exception from the 1940 Act definition of investment company for “any issuer who is engaged in the business of purchasing, or otherwise acquiring, and holding eligible assets (and in activities related or incidental thereto) and who does not issue redeemable securities.” The issuer must issue “fixed-income securities or other securities which entitle their holders to receive payments that depend primarily on the cash flow from eligible assets.” Rule 3a-7 further specifies eligible purchasers for different classes of the issuer’s securities and when and how the issuer may acquire and dispose of eligible assets. In addition, unless the issuer issues only certain short-term commercial paper securities, Rule 3a-7 generally requires an issuer to appoint an independent trustee who has certain rights with respect to the eligible assets and obligations to the holders of the fixed income securities of the issuer. The SSLP’s ability to rely on Rule 3a-7 is discussed below.
In addition, the Fund notes that: (i) the SSLP has no line of credit or other arrangements to borrow from banks or other financial institutions; (ii) the Fund is not liable for any obligations of the SSLP; and (iii) the Fund has not sold or otherwise transferred any of its assets to the SSLP.
2 The Fund acquired Allied’s interests in the SSLP on October 30, 2009.
3 These limited liability company interests have extremely limited economic rights (i.e., they are entitled to distributions thereon only following the liquidation or termination of the SSLP and then only to the extent of the nominal capital contributions made with respect thereto), including not being “subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption thereof for retirement.”
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The following is a description of how the SSLP meets each of Rule 3a-7’s requirements (as described in more detail below) as well as the provisions of the Indenture, which restrict the SSLP from taking actions that would cause it not to comply with Rule 3a-7.
Rule 3a-7(a)(1) and Rule 3a-7(b) – The SSLP invests only in eligible assets, the cash flow of which funds payments in respect of fixed income and other securities of the SSLP.
Under subsection (a)(1) of Rule 3a-7, an issuer must issue non-redeemable fixed income securities or other securities that entitle their holders to receive payments that depend primarily on the cash flow from eligible assets.
Fixed-Income and Other Securities
The term “fixed-income securities” is defined in subsection (b)(2) of Rule 3a-7 to mean any securities that entitle the holder to receive: (i) a stated principal amount; (ii) interest on a principal amount calculated by reference to a fixed rate or to a standard or formula that does not reference any change in the market value or fair value of eligible assets; (iii) interest on a principal amount calculated by reference to auctions among holders and prospective holders or through remarketing of the security; (iv) an amount equal to specified fixed or variable portions of the interest received on the assets held by the issuer; or (v) any combination of these foregoing amounts. Substantially all of the payments to which the holders of fixed-income securities are entitled must consist of these foregoing amounts.
The SSLP has two primary classes of outstanding fixed income securities, the senior notes and subordinated certificates. Both the SSLP’s senior notes and subordinated certificates are fixed-income securities within the meaning of Rule 3a-7 because they entitle the holders to receive interest on a principal amount calculated by reference to a standard or formula that does not reference any change in the market value or fair value of eligible assets. Under the Indenture, the senior notes and subordinated certificates have stated principal amounts, which the holders are entitled to receive. Additional amounts calculated in reference to LIBOR (and, in the case of the subordinated certificates, excess cash flow from interest on the SSLP’s eligible assets) are also distributed in respect of the SSLP’s securities. As a result, the senior notes fall within clauses (i) and (ii) and the subordinated certificates fall within clauses (i), (ii) and (iv) of the definition of “fixed-income securities” set forth above. Importantly, substantially all of the payments to which the holders of senior notes and subordinated certificates are entitled under the Indenture consist of these foregoing amounts.
In this regard, the Indenture provides for the payment of the stated principal amount of the senior notes at their stated maturity and the payment of all remaining amounts to the subordinated certificates in accordance with the terms of the Indenture as a return of capital thereof or a distribution (once no outstanding capital remains). In addition, “Senior Note Interest Rate,” which relates to the interest rate payable on the senior notes, is defined in the Indenture by reference to the weighted average LIBOR in effect for the applicable interest period plus the “Base Senior Note Interest Rate Margin,” which in turn is defined by reference to: (i) the average outstanding principal amounts of all senior secured term loans made by the SSLP (the “Senior Loans”); and (ii) for each
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Senior Loan, a margin that is designated with reference to LIBOR. Furthermore, the holders of the subordinated certificates are entitled to receive (i) interest thereon based on the sum of LIBOR plus a base rate margin (i.e., the “Subordinated Certificate Margin” as defined in the Indenture, which in turn is defined by reference to the average outstanding principal amounts of all Senior Loans) and (ii) excess cash flow on interest proceeds on the eligible assets held by the SSLP. As a result, the senior notes and subord
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CORRESP 1 filename1.htm Proskauer Rose LLP 2049 Century Park East, 32nd Floor Los Angeles, CA 90067-3206 Monica J. Shilling Member of the Firm d 310.284.4544 f 310.557.2193 mshilling@proskauer.com www.proskauer.com July 19, 2012 VIA EDGAR United States Securities and Exchange Commission Division of Investment Management 100 F Street, N.W. Washington, D.C. 20549 Attention: Edward P. Bartz, Staff Attorney Re: Ares Capital Corporation (File Nos. 333-181563 and 814-00663) Dear Mr. Bartz: Ares Capital Corporation (the “Fund”) has today filed Amendment No. 1 (“Amendment No. 1”) to its registration statement filed on Form N-2 on May 21, 2012 (the “Registration Statement”). The amendment sets forth the responses to the comments of the Staff of the Division of Investment Management (the “Staff”) contained in your letter dated June 22, 2012 relating to the above-referenced filing. Set forth below are the comments of the Staff contained in the Staff’s letter and immediately below each comment is the response with respect thereto and, where applicable, the location in the relevant filing of the requested disclosure. Responses to comments given in one section are applicable to other sections of the Registration Statement that contain similar disclosure. Capitalized terms used but not defined herein shall have the meanings set forth in the Registration Statement. Cover Page 1. The fifth paragraph of the cover page states that the securities may be offered at prices and on terms to be described in one or more supplements to the prospectus. Please include in the registration statement a form of prospectus supplement for each type of security registered. The Fund has included in the Registration Statement a form of prospectus supplement for each type of security registered, which have been filed as Exhibits 99.2 to 99.7 to the Registration Statement. Prospectus Summary – The Company – Overview (Page 2) 2. The third paragraph on this page states that the instruments in which the Fund invests are typically not rated by a rating agency, but would likely be rated below investment grade. Boca Raton | Boston | Chicago | Hong Kong | London | Los Angeles | New Orleans | New York | Newark | Paris | São Paulo | Washington, D.C. United States Securities and Exchange Commission July 19, 2012 Page 2 Please include the term “junk bonds” in the description of these investments, and briefly describe the speculative nature of these types of issues. The Fund has revised the third paragraph on page 2 of Amendment No. 1 to describe the speculative nature of below investment grade instruments. However, because the Fund invests primarily in self-originated first and second lien senior loans and mezzanine debt issued by private companies in privately-negotiated transactions (and not high yield bonds issued in primary offerings or in the secondary market), the Fund does not believe it would be accurate to describe its investments as “junk bonds.” Accordingly, the Fund does not believe that such term should be included in this disclosure. Prospectus Summary - Offerings (Page 13) 3. The second paragraph of this section indicated that it was expected that the 2012 annual stockholders meeting would take place on June 6, 2012. Please update the registration statement to reflect the results of that meeting. The Fund has updated the Registration Statement to reflect the results of the 2012 annual stockholders meeting. Fees and Expenses (Page 16) 4. In the third sentence of the first paragraph of this section, stockholders are advised that, depending on context, “you”, “us”, “we”, “Ares Capital”, and “the Company” all refer to the stockholder. Since this is very confusing, and potentially misleading, please delete this sentence. The Fund notes that, pursuant to Item 3.1 of Form N-2, the fee table is intended to provide “information about the costs and expenses that the investor will bear directly or indirectly.” As a result, the Fund has revised the third sentence of the first paragraph of this section on page 16 of Amendment No. 1 to clarify the disclosure instead of deleting the sentence. 5. The second line item in the table of Stockholder transaction expenses states “Sales load paid by us.” Since all stockholder transaction expenses are paid either directly or indirectly by stockholders, please delete the words “paid by us” from this line item. See Item 3 of Form N-2. The Fund has revised the disclosure as requested on page 16 of Amendment No. 1. 6. The heading of the table of annual expenses uses the caption “Estimated annual expenses (as a percentage of consolidated net assets attributable to common stock).” Also, the line item for the Fund’s total annual expenses uses the caption “Total annual expenses (estimated).” Please delete the word “estimated” from both of these captions. See Item 3 of Form N-2. Additionally, the term “consolidated” is used in the heading of this table. Please explain to us what is being consolidated. United States Securities and Exchange Commission July 19, 2012 Page 3 The Fund has deleted the word “estimated” as requested on page 16 of Amendment No. 1. With respect to the term “consolidated” used in the heading of the table, the Fund consolidates certain controlled subsidiaries that have been established solely to hold certain portfolio investments for one of the following purposes: (i) certain consolidated subsidiaries have been formed to serve as special purpose vehicles in connection with the establishment of secured credit facilities, (ii) certain consolidated subsidiaries hold portfolio investments that have pass through tax characteristics (“blocker corporations”) or (iii) certain consolidated subsidiaries hold the Fund’s investments in portfolio companies in accordance with the terms of the Fund’s investment in such portfolio companies. In addition, the Fund has one consolidated wholly owned operating subsidiary that exists for the purpose of providing services solely to the Fund.1 See Item 28 in the Fund’s Registration Statement for a list of each of the Fund’s direct and indirect subsidiaries that is consolidated for financial reporting purposes. 7. The table of annual expenses shows Acquired Fund Fees and Expenses of 0%. Since footnote (10) to the fee table indicates that the Fund invests in holdings that would normally be expected to result in Acquired Fund Fees and Expenses, please confirm to us that the amount reflected in the table is correct. The Fund confirms that the Acquired Fund Fees and Expenses amount reflected in the table of annual expenses is correct. Specifically, such amount is 0.004%. Pursuant to Instruction 3 to Item 3.1 of Form N-2, the Fund has rounded all percentages to the nearest hundredth of one percent in the fee table on page 16 of Amendment No. 1. 8. The last paragraph of footnote (7) states that the line item “Incentive fees payable under investment advisory and management agreement” does not include the accrual for a capital gains incentive fee of $5.7 million for the three months ended March 31, 2012. Since the fee table is required to be based on the Fund’s financial statements, please include the $5.7 million capital gains incentive fee in the “Incentive fees payable under investment advisory and management agreement” line item. The Fund has revised the fee table on page 16 of Amendment No. 1 to include the $5.7 million capital gains incentive fee GAAP accrual in the “Incentive fees” line item and made corresponding clarifying changes in the footnotes. Business – General (Page 92) 9. The second to the last paragraph on page 93 of this section states that the Fund and GE co-invest through an unconsolidated vehicle, the SSLP. This section further states, on page 94, 1 This wholly owned subsidiary was created by Allied (as defined below) (an internally managed BDC (as defined below) acquired by the Fund in 2010) for the purpose of providing services to Allied. While this consolidated subsidiary no longer has any employees, it continues to hold certain non-investment assets. United States Securities and Exchange Commission July 19, 2012 Page 4 that the SSLP relies on the exception from the definition of “investment company” set forth in Rule 3a-7 under the Investment Company Act. Rule 3a-7 is an exception from the definition of “investment company” for issuers of asset-backed securities. Please provide us with an analysis explaining why the SSLP may rely on Rule 3a-7. In addition, please inform us (i) whether the SSLP has a line of credit or other arrangements to borrow from banks or other financial institutions; (ii) whether the Fund may be liable for any obligations of the SSLP; and (iii) whether the Fund has sold or otherwise transferred any of its assets to the SSLP. We may have additional comments after reviewing your response. By way of background, the SSLP was formed by Allied Capital Corporation (“Allied”)2 and General Electric Capital Corporation and GE Global Sponsor Finance LLC (collectively, “GE”) in December 2007 to extend “stretch senior” and “unitranche” loans (loans that combine both senior and subordinated debt, generally in a first lien position) to middle-market companies. In connection therewith, the SSLP has issued, in each case pursuant to an indenture (the “Indenture”), senior notes and subordinated certificates to the Fund and GE as well as certain limited liability company interests pursuant to the SSLP limited liability company agreement (the “LLCA”). The Fund owns 87.5% of the limited liability company interests of the SSLP, which are “stapled” to its 87.5% of the subordinated certificates in the SSLP, and GE owns the remaining amounts of “stapled” subordinated certificates and limited liability company interests.3 In addition, GE owns all of the SSLP’s senior notes. Rule 3a-7 (“Rule 3a-7”) under the 1940 Act provides an exception from the 1940 Act definition of investment company for “any issuer who is engaged in the business of purchasing, or otherwise acquiring, and holding eligible assets (and in activities related or incidental thereto) and who does not issue redeemable securities.” The issuer must issue “fixed-income securities or other securities which entitle their holders to receive payments that depend primarily on the cash flow from eligible assets.” Rule 3a-7 further specifies eligible purchasers for different classes of the issuer’s securities and when and how the issuer may acquire and dispose of eligible assets. In addition, unless the issuer issues only certain short-term commercial paper securities, Rule 3a-7 generally requires an issuer to appoint an independent trustee who has certain rights with respect to the eligible assets and obligations to the holders of the fixed income securities of the issuer. The SSLP’s ability to rely on Rule 3a-7 is discussed below. In addition, the Fund notes that: (i) the SSLP has no line of credit or other arrangements to borrow from banks or other financial institutions; (ii) the Fund is not liable for any obligations of the SSLP; and (iii) the Fund has not sold or otherwise transferred any of its assets to the SSLP. 2 The Fund acquired Allied’s interests in the SSLP on October 30, 2009. 3 These limited liability company interests have extremely limited economic rights (i.e., they are entitled to distributions thereon only following the liquidation or termination of the SSLP and then only to the extent of the nominal capital contributions made with respect thereto), including not being “subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption thereof for retirement.” United States Securities and Exchange Commission July 19, 2012 Page 5 The following is a description of how the SSLP meets each of Rule 3a-7’s requirements (as described in more detail below) as well as the provisions of the Indenture, which restrict the SSLP from taking actions that would cause it not to comply with Rule 3a-7. Rule 3a-7(a)(1) and Rule 3a-7(b) – The SSLP invests only in eligible assets, the cash flow of which funds payments in respect of fixed income and other securities of the SSLP. Under subsection (a)(1) of Rule 3a-7, an issuer must issue non-redeemable fixed income securities or other securities that entitle their holders to receive payments that depend primarily on the cash flow from eligible assets. Fixed-Income and Other Securities The term “fixed-income securities” is defined in subsection (b)(2) of Rule 3a-7 to mean any securities that entitle the holder to receive: (i) a stated principal amount; (ii) interest on a principal amount calculated by reference to a fixed rate or to a standard or formula that does not reference any change in the market value or fair value of eligible assets; (iii) interest on a principal amount calculated by reference to auctions among holders and prospective holders or through remarketing of the security; (iv) an amount equal to specified fixed or variable portions of the interest received on the assets held by the issuer; or (v) any combination of these foregoing amounts. Substantially all of the payments to which the holders of fixed-income securities are entitled must consist of these foregoing amounts. The SSLP has two primary classes of outstanding fixed income securities, the senior notes and subordinated certificates. Both the SSLP’s senior notes and subordinated certificates are fixed-income securities within the meaning of Rule 3a-7 because they entitle the holders to receive interest on a principal amount calculated by reference to a standard or formula that does not reference any change in the market value or fair value of eligible assets. Under the Indenture, the senior notes and subordinated certificates have stated principal amounts, which the holders are entitled to receive. Additional amounts calculated in reference to LIBOR (and, in the case of the subordinated certificates, excess cash flow from interest on the SSLP’s eligible assets) are also distributed in respect of the SSLP’s securities. As a result, the senior notes fall within clauses (i) and (ii) and the subordinated certificates fall within clauses (i), (ii) and (iv) of the definition of “fixed-income securities” set forth above. Importantly, substantially all of the payments to which the holders of senior notes and subordinated certificates are entitled under the Indenture consist of these foregoing amounts. In this regard, the Indenture provides for the payment of the stated principal amount of the senior notes at their stated maturity and the payment of all remaining amounts to the subordinated certificates in accordance with the terms of the Indenture as a return of capital thereof or a distribution (once no outstanding capital remains). In addition, “Senior Note Interest Rate,” which relates to the interest rate payable on the senior notes, is defined in the Indenture by reference to the weighted average LIBOR in effect for the applicable interest period plus the “Base Senior Note Interest Rate Margin,” which in turn is defined by reference to: (i) the average outstanding principal amounts of all senior secured term loans made by the SSLP (the “Senior Loans”); and (ii) for each United States Securities and Exchange Commission July 19, 2012 Page 6 Senior Loan, a margin that is designated with reference to LIBOR. Furthermore, the holders of the subordinated certificates are entitled to receive (i) interest thereon based on the sum of LIBOR plus a base rate margin (i.e., the “Subordinated Certificate Margin” as defined in the Indenture, which in turn is defined by reference to the average outstanding principal amounts of all Senior Loans) and (ii) excess cash flow on interest proceeds on the eligible assets held by the SSLP. As a result, the senior notes and subord