SEC Company Response from Oaktree Specialty Lending Corp (OCSL) (CIK 0001414932) (OCSL) — Feb 20, 2015
Oaktree Specialty Lending Corp (OCSL) (CIK 0001414932)
Date: Feb. 20, 2015 · CIK: 0001414932 · Accession: 0001144204-15-011195
AI Filing Summary & Sentiment
File numbers found in text: 333-192770
Letter
Via EDGAR Division of Investment Management Securities and Exchange Commission Re: Fifth Street Finance Corp. Registration Statement on Form N-2 File No.: 333-192770
Subject: RE: Fifth Street Finance Corp.
Dear Mr. Parachkevov:
On behalf of Fifth Street Finance Corp. (the “Company”), set forth below are the Company’s responses to the oral comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “SEC”) to the Company on February 9, 2015 relating to the Company’s Post-Effective Amendment No. 6 to its Registration Statement on Form N-2 (File No. 333-192770) (the “Registration Statement”). The Staff’s comments are set forth below in italics and are followed by the Company’s responses.
General
1. Please confirm to the staff in your response letter that the Company will submit any underwritten offering to FINRA for its approval of the underwriting terms.
Response: The Company confirms it that will submit any underwritten offering to FINRA for its approval of the underwriting terms.
Prospectus Summary
2. Please add disclosure to page 1 to clarify that a portion of the fee payable to the Company’s investment adviser is based upon gross assets and as such, may encourage the investment adviser to use leverage to make additional investments.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 2
Response: The Company has revised the disclosure on pages [1 and 2] accordingly.
3. In your response letter, please confirm that the Company’s Board of Directors review the allocation of expenses reimbursed by the Company to its administrator, FSC CT LLC (“FSC CT”).
Response: The Company advises the Staff that the Company’s Board of Directors reviews the allocation of expenses reimbursed by the Company for the expenses of the Company’s executive officers and their staff. The Board of Directors also review and approve, on an annual basis, the terms of the administration agreement pursuant to which the Company reimburses its administrator.
4. In your response letter, confirm whether the rent paid to FSC CT is at cost or market value and whether FSC CT profits from the payment of rent by the Company.
Response: The Company advises the Staff supplementally that all reimbursement to FSC CT is at cost with no profit to, or markup by, FSC CT. The Company respectfully directs the Staff to Note 11 of the Notes to Consolidated Financial Statements on page [F-82] for additional information regarding the reimbursement of expenses to FSC CT. In addition, the Company has revised the disclosure throughout the Prospectus to clarify that such reimbursement is at cost to FSC CT.
Fees and Expenses Table
5. Please confirm whether the fees and expenses incurred by Senior Loan Fund JV I LLC (“SLF JV I”) are more than 1bps and if so, whether such fees are included in the fees and expenses table.
Response: The Company confirms that the fees and expenses incurred by SLF JV I are less than 1bps and, therefore, are not required to be included in the Fees and Expenses Table.
6. Please confirm whether the Company has any current intention to offer preferred stock or debt securities in the next 12 months. If so, please update the Fees and Expenses section to indicate the current intent of the Company.
Response: The Company respectfully advises the Staff that the Company’s management and its board have no current intention to offer preferred stock in the next 12 months. However, the Company’s management and its board may determine that it is in the best interest of the Company to issue debt securities in the next 12 months. Accordingly, the Company has revised the disclosure in the fees and expenses table to indicate the Company may issue debt securities in the next twelve months.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 3
Risk Factors
7. Please update the risk factor beginning with “Changes in interest rates may effect. . .” on page [17] to include a discussion of the risks associated with variable interest rates.
Response: The Company has revised the disclosure on page [17] accordingly.
8. Please update the risk factor beginning with “A significant portion of our investment portfolio is and will continue to be recorded at fair value. . .” on page [17] to include a discussion of the risks associated with original issue discount and PIK.
Response: The Company has revised the disclosure on page [17] accordingly.
9. With reference to the “Assumed Return on Our Portfolio Investments” table on page [20], please confirm the weighted average interest rate in footnote 1 is consistent with the weighted average interest rate disclosed elsewhere in the table and the financial statements.
Response: The Company has revised the disclosure on page [20] accordingly.
10. Please update the risk factor beginning with “Our ability to enter into transactions. . .” on page [21] or another appropriate place within the disclosure to include additional information regarding the conditions of the co-investment exemptive order.
Response: The Company has revised the disclosure on page [21] accordingly.
11. In your response letter, please confirm whether any of the Company’s convertible debt remains outstanding.
Response: The Company respectfully advises the Staff that as of December 31, 2014, the Company had $115.0 million of Convertible Notes outstanding. Please see “Convertible Notes” on pages [77-78] for disclosure related to the Company’s convertible debt.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12. On pages [52-53] under the heading “Senior Loan Fund JV I, LLC,” the Company references the senior revolving credit facility SLF JV I entered into with Deutsche Bank AG, New York Branch. Please disclose the interest rate of the senior revolving credit facility.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 4
Response: The Company has revised the disclosure on page [53] accordingly in response to the Staff’s comment.
13. On page [54], with reference to SLF JV I’s Schedule of Investment, please add a footnote to disclose which portfolio investments are held by both SLF JV I and the Company.
Response: The Company has added disclosure on pages [55-56] to indicate the portfolio investments held by both SLF JV I and the Company.
14. On page [55] the Company states “we transferred $160.2 million of senior secured debt investments and $20.1 million of receivables from secured financing arrangements to SLF JV I at fair value. . . .” Please confirm whether the investments are valued by an independent third party valuation firm at the time of transfer.
Response: The Company respectfully advises the Staff that for portfolio investments in which there are readily available broker quotes, such portfolio investments are transferred at the quoted price on the trade date. For portfolio investments in which no readily available broker quote is available, the Company engages in arm’s length negotiations regarding the valuation with Trinity Universal Insurance Company, the other investor in SLF JV I, based on available information about the asset being transferred.
15. On page [55], the Company states “[w]e recognized a realized gain of $0.3 million on this transaction.” Please confirm whether the Company’s investment adviser recognizes an incentive fee on such gain on the transfer of investments to SLF JV I.
Response: The Company respectfully advises the Staff that any realized gain on the transfer of investments to SLF JV I, is not included in the determination of the incentive fee paid to the Company’s investment adviser.
Accounting Comments
16. In any future quarterly reports on Form 10-Q or annual reports on Form 10-K filed by the Company, please provide the following line items with respect to the selected financial information provided for SLF JV I: (1) interest income; (2) other income; (3) management and incentive fees incurred; (4) interest expense; (5) other expenses; and (6) net realized gains (losses).
Response: The Company undertakes to include these items in future Form 10-Q and Form 10-K reports.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 5
17. On page [56], the Company notes that net expenses for the years ended September 30, 2013 includes a waiver of expenses, please add additional disclosure to describe to what the referenced waiver relates.
Response: The Company has added disclosure as requested on page [58].
18. The Company refers to its “Part I Incentive Fee” and” Part II Incentive Fee” throughout the Prospectus. Please consider referring revising the disclosure to refer to the income incentive fee and the capital gain incentive fee to be consistent with plain English.
Response: The Company respectfully advises the Staff that only the Notes to the Consolidated Financial Statements use the terms Part I Incentive Fee and Part II Incentive Fee. The Company undertakes to revise the terminology in the Notes to the Consolidated Financial Statements in its future quarterly reports on Form 10-Q or annual reports on Form 10-K.
19. On page [61] under the heading “Gain on Extinguishment of Convertible Notes,” please revise the disclosure to indicate that the incentive fee can be taken on the gain on extinguishment of convertible notes. In addition, please indicate in the Prospectus Summary and Fees and Expenses table that such gain may be included in the determination of the incentive fee.
Response: The Company respectfully refers the Staff to page [62] of the Prospectus where such disclosure explains that because the net gain on the extinguishment of the Convertible Notes was included in the amount that must be distributed to our stockholders in order for us to maintain our RIC status and is classified as a component of net investment income in our Consolidated Statements of Operations, such net gain was included in “Pre-Incentive Fee Net Investment Income” for purposes of the payment of the income incentive fee to the investment adviser under our investment advisory agreement. Paying an incentive fee on this type of net gain is permissible under our investment advisory agreement, but because such a fee was not specifically detailed in the investment advisory agreement, we obtained the approval of our Board of Directors to pay such fees.
20. On page [66] of the Prospectus, the Company states that it has $109.0 million of cash and cash equivalents (including restricted cash) as of September 30, 2014. Please disclose supplementally what constitutes “restricted cash”.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 6
Response: The Company advises the Staff that “restricted cash” includes, as of September 30, 2014, $40.5 million that was held at U.S. Bank, National Association in connection with the Company's Sumitomo credit facility. The Company is restricted in terms of access to this cash until such time as the Company submits its required monthly reporting schedules and Sumitomo Mitsui Banking Corporation verifies the Company's compliance per the terms of the credit agreement with the Company.
Portfolio Companies
21. On pages [98-110] please indicate which portfolio investments are eligible portfolio companies.
Response: The Company has revised the disclosure on pages [103-115] accordingly. The Company also undertakes to provide similar disclosure in its Schedule of Investments in the Company’s financial statements in future Form 10-Q and Form 10-K filings.
Portfolio Management
22. On page [121] under the heading “Investment Personnel,” please confirm supplementally whether all of the named portfolio managers are responsible for managing the investments of the entities listed on pages [121]. In addition, please confirm in your response letter whether any of the other accounts managed by the investment personnel have performance based compensation arrangements.
Response: The Company respectfully advises the Staff that each of the named portfolio managers are responsible for managing the Company’s investments and the investments of such affiliates listed on page [126] of the Prospectus. Fifth Street Management LLC has entered into investment advisory agreements with each entity for which it acts as a registered investment advisor, the terms of which are specific to each investment advisory agreement. The investment advisory agreements may include base management fees and performance based compensation.
Investment Advisory Agreement
23. On page [129] under the heading “Board Approval of the Investment Advisory Agreement,” please disclose whether the Board of Directors has approved the Investment Advisory Agreement since January 14, 2014 and, if so, please update the disclosure accordingly.
Response: The Company has revised the disclosure on page [134] accordingly.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 7
24. Please confirm supplementally whether there was a return of capital distributed to shareholders for the year ended September 30, 2014. In addition, please disclose supplementally how shareholders were notified of the return of capital and whether the Company was in compliance with Section 19 of the 1940 Act.
Response: Pursuant to Section 19 of the 1940 Act, and Rule 19a-1 promulgated thereunder, the Company is required to accompany dividend payments with a notice if any part of that distribution is from a source other than accumulated undistributed net income, not including profits or losses from the sale of securities or other properties. At the time of each quarterly dividend declaration, the Company presents its Board of Directors with a presentation regarding the proposed dividend, the amount of which is generally based upon the distributable taxable income estimated by management for the relevant period and year end. The Company respectfully advises the Staff that at the end of each fiscal quarter and fiscal year, the Company’s actual financial results are reconciled with the distributions made in order to ensure that none of the prior distributions were from a source other than accumulated undistributed net income. To the extent t
Show Raw Text
CORRESP
1
filename1.htm
Booth, Scott
From:
Hildebrandt, Stephani
Sent:
Tuesday, February 17, 2015 8:55 AM
To:
parachkevova@sec.gov
Cc:
Pangas, Harry S.; Booth, Scott
Subject:
RE: Fifth Street Finance Corp.
Attachments:
FSC - SEC Response Letter [February 2015] (3).docx; FSC - Changed Pages.pdf
Asen –
I hope you are enjoying the “snow day”
here in DC. Attached please find a draft response letter that addresses the verbal comments we received from you last week as well
a certain changed pages of the draft amendment to the Form N-2 for your preliminary review. Once you have had a chance to review,
please let us know if you have any additional questions. The Company is anxious to get the shelf registration statement effective
so that it can be ready to complete a transaction pending market conditions.
Thanks,
Stephani
Stephani M Hildebrandt | Counsel
| 202.383.0845
From: Hildebrandt, Stephani
Sent: Friday, January 16, 2015 5:32 PM
To: 'parachkevova@sec.gov'
Cc: Pangas, Harry S.; Booth, Scott
Subject: RE: Fifth Street Finance Corp.
Asen –
Per your request, attached is a redline showing changes
to Fifth Street’s Post-Effective Amendment as compared to the prior N-2 filed with the SEC.
Thanks and have a good weekend.
Stephani
Stephani M Hildebrandt | Counsel
Sutherland Asbill & Brennan LLP
700 Sixth Street, NW, Suite 700 | Washington, DC
20001-3980 202.383.0845 direct | 202.637.3593 facsimile
stephani.hildebrandt@sutherland.com | www.sutherland.com Biography
| Download vCard
February [ ], 2015
Via
EDGAR
Asen Parachkevov, Esq.
Attorney Advisor
Division of Investment Management
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re:
Fifth Street Finance Corp.
Registration Statement on Form N-2
File No.: 333-192770
Dear Mr. Parachkevov:
On behalf of Fifth Street Finance Corp.
(the “Company”), set forth below are the Company’s responses to the oral comments provided
by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission
(the “SEC”) to the Company on February 9, 2015 relating to the Company’s Post-Effective Amendment
No. 6 to its Registration Statement on Form N-2 (File No. 333-192770) (the “Registration Statement”).
The Staff’s comments are set forth below in italics and are followed by the Company’s responses.
General
1. Please confirm to the staff in your response letter
that the Company will submit any underwritten offering to FINRA for its approval of the underwriting terms.
Response: The Company confirms it that
will submit any underwritten offering to FINRA for its approval of the underwriting terms.
Prospectus Summary
2. Please add disclosure to page 1 to clarify that a portion
of the fee payable to the Company’s investment adviser is based upon gross assets and as such, may encourage the investment
adviser to use leverage to make additional investments.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 2
Response: The Company has
revised the disclosure on pages [1 and 2] accordingly.
3. In your response letter, please confirm that the Company’s
Board of Directors review the allocation of expenses reimbursed by the Company to its administrator, FSC CT LLC (“FSC CT”).
Response: The Company advises
the Staff that the Company’s Board of Directors reviews the allocation of expenses reimbursed by the Company for the expenses
of the Company’s executive officers and their staff. The Board of Directors also review and approve, on an annual basis,
the terms of the administration agreement pursuant to which the Company reimburses its administrator.
4. In your response letter, confirm whether the rent paid
to FSC CT is at cost or market value and whether FSC CT profits from the payment of rent by the Company.
Response: The Company advises
the Staff supplementally that all reimbursement to FSC CT is at cost with no profit to, or markup by, FSC CT. The Company respectfully
directs the Staff to Note 11 of the Notes to Consolidated Financial Statements on page [F-82] for additional information regarding
the reimbursement of expenses to FSC CT. In addition, the Company has revised the disclosure throughout the Prospectus to clarify
that such reimbursement is at cost to FSC CT.
Fees and Expenses Table
5. Please confirm whether the fees and expenses incurred
by Senior Loan Fund JV I LLC (“SLF JV I”) are more than 1bps and if so, whether such fees are included in the fees
and expenses table.
Response: The Company confirms that
the fees and expenses incurred by SLF JV I are less than 1bps and, therefore, are not required to be included in the Fees and Expenses
Table.
6. Please confirm whether the Company has any current
intention to offer preferred stock or debt securities in the next 12 months. If so, please update the Fees and Expenses section
to indicate the current intent of the Company.
Response: The Company respectfully advises
the Staff that the Company’s management and its board have no current intention to offer preferred stock in the next 12 months.
However, the Company’s management and its board may determine that it is in the best interest of the Company to issue debt
securities in the next 12 months. Accordingly, the Company has revised the disclosure in the fees and expenses table to indicate
the Company may issue debt securities in the next twelve months.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 3
Risk Factors
7. Please update the risk factor beginning with “Changes
in interest rates may effect. . .” on page [17] to include a discussion of the risks associated with variable interest rates.
Response: The Company has revised the
disclosure on page [17] accordingly.
8. Please update the risk factor beginning with “A
significant portion of our investment portfolio is and will continue to be recorded at fair value. . .” on page [17] to include
a discussion of the risks associated with original issue discount and PIK.
Response: The Company has
revised the disclosure on page [17] accordingly.
9. With reference to the “Assumed Return on Our
Portfolio Investments” table on page [20], please confirm the weighted average interest rate in footnote 1 is consistent
with the weighted average interest rate disclosed elsewhere in the table and the financial statements.
Response: The Company has revised the
disclosure on page [20] accordingly.
10. Please update the risk factor beginning with “Our
ability to enter into transactions. . .” on page [21] or another appropriate place within the disclosure to include additional
information regarding the conditions of the co-investment exemptive order.
Response: The Company has revised the
disclosure on page [21] accordingly.
11. In your response letter, please confirm whether any
of the Company’s convertible debt remains outstanding.
Response: The Company respectfully advises
the Staff that as of December 31, 2014, the Company had $115.0 million of Convertible Notes outstanding. Please see “Convertible
Notes” on pages [77-78] for disclosure related to the Company’s convertible debt.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
12. On pages [52-53] under the heading “Senior Loan
Fund JV I, LLC,” the Company references the senior revolving credit facility SLF JV I entered into with Deutsche Bank AG,
New York Branch. Please disclose the interest rate of the senior revolving credit facility.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 4
Response: The Company has revised the
disclosure on page [53] accordingly in response to the Staff’s comment.
13. On page [54], with reference to SLF JV I’s Schedule
of Investment, please add a footnote to disclose which portfolio investments are held by both SLF JV I and the Company.
Response: The Company has added disclosure
on pages [55-56] to indicate the portfolio investments held by both SLF JV I and the Company.
14. On page [55] the Company states “we transferred
$160.2 million of senior secured debt investments and $20.1 million of receivables from secured financing arrangements to SLF JV
I at fair value. . . .” Please confirm whether the investments are valued by an independent third party valuation firm at
the time of transfer.
Response: The Company respectfully
advises the Staff that for portfolio investments in which there are readily available broker quotes, such portfolio investments
are transferred at the quoted price on the trade date. For portfolio investments in which no readily available broker quote is
available, the Company engages in arm’s length negotiations regarding the valuation with Trinity Universal Insurance Company,
the other investor in SLF JV I, based on available information about the asset being transferred.
15. On page [55], the Company states “[w]e recognized
a realized gain of $0.3 million on this transaction.” Please confirm whether the Company’s investment adviser recognizes
an incentive fee on such gain on the transfer of investments to SLF JV I.
Response: The Company respectfully advises
the Staff that any realized gain on the transfer of investments to SLF JV I, is not included in the determination of the incentive
fee paid to the Company’s investment adviser.
Accounting Comments
16. In any future quarterly reports on Form 10-Q or annual
reports on Form 10-K filed by the Company, please provide the following line items with respect to the selected financial information
provided for SLF JV I: (1) interest income; (2) other income; (3) management and incentive fees incurred; (4) interest expense;
(5) other expenses; and (6) net realized gains (losses).
Response: The Company undertakes to
include these items in future Form 10-Q and Form 10-K reports.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 5
17. On page [56], the Company notes that net expenses
for the years ended September 30, 2013 includes a waiver of expenses, please add additional disclosure to describe to what the
referenced waiver relates.
Response: The Company has
added disclosure as requested on page [58].
18. The Company refers to its “Part I Incentive
Fee” and” Part II Incentive Fee” throughout the Prospectus. Please consider referring revising the disclosure
to refer to the income incentive fee and the capital gain incentive fee to be consistent with plain English.
Response: The Company respectfully advises
the Staff that only the Notes to the Consolidated Financial Statements use the terms Part I Incentive Fee and Part II Incentive
Fee. The Company undertakes to revise the terminology in the Notes to the Consolidated Financial Statements in its future quarterly
reports on Form 10-Q or annual reports on Form 10-K.
19. On page [61] under the heading “Gain on Extinguishment
of Convertible Notes,” please revise the disclosure to indicate that the incentive fee can be taken on the gain on extinguishment
of convertible notes. In addition, please indicate in the Prospectus Summary and Fees and Expenses table that such gain may be
included in the determination of the incentive fee.
Response: The Company respectfully refers
the Staff to page [62] of the Prospectus where such disclosure explains that because the net gain on the extinguishment of the
Convertible Notes was included in the amount that must be distributed to our stockholders in order for us to maintain our RIC status
and is classified as a component of net investment income in our Consolidated Statements of Operations, such net gain was included
in “Pre-Incentive Fee Net Investment Income” for purposes of the payment of the income incentive fee to the investment
adviser under our investment advisory agreement. Paying an incentive fee on this type of net gain is permissible under our investment
advisory agreement, but because such a fee was not specifically detailed in the investment advisory agreement, we obtained the
approval of our Board of Directors to pay such fees.
20. On page [66] of the Prospectus, the Company states
that it has $109.0 million of cash and cash equivalents (including restricted cash) as of September 30, 2014. Please disclose supplementally
what constitutes “restricted cash”.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 6
Response: The Company advises the Staff
that “restricted cash” includes, as of September 30, 2014, $40.5 million that was held at U.S. Bank, National Association
in connection with the Company's Sumitomo credit facility. The Company is restricted in terms of access to this cash until such
time as the Company submits its required monthly reporting schedules and Sumitomo Mitsui Banking Corporation verifies the Company's
compliance per the terms of the credit agreement with the Company.
Portfolio Companies
21. On pages [98-110] please indicate which portfolio
investments are eligible portfolio companies.
Response: The Company has
revised the disclosure on pages [103-115] accordingly. The Company also undertakes to provide similar disclosure in its Schedule
of Investments in the Company’s financial statements in future Form 10-Q and Form 10-K filings.
Portfolio Management
22. On page [121] under the heading “Investment
Personnel,” please confirm supplementally whether all of the named portfolio managers are responsible for managing the investments
of the entities listed on pages [121]. In addition, please confirm in your response letter whether any of the other accounts managed
by the investment personnel have performance based compensation arrangements.
Response: The Company respectfully
advises the Staff that each of the named portfolio managers are responsible for managing the Company’s investments and the
investments of such affiliates listed on page [126] of the Prospectus. Fifth Street Management LLC has entered into investment
advisory agreements with each entity for which it acts as a registered investment advisor, the terms of which are specific to each
investment advisory agreement. The investment advisory agreements may include base management fees and performance based compensation.
Investment Advisory Agreement
23. On page [129] under the heading “Board Approval
of the Investment Advisory Agreement,” please disclose whether the Board of Directors has approved the Investment Advisory
Agreement since January 14, 2014 and, if so, please update the disclosure accordingly.
Response: The Company has revised the
disclosure on page [134] accordingly.
Mr. Asen Parachkevov
Securities and Exchange Commission
February [ ], 2015
Page 7
24. Please confirm supplementally whether there was a
return of capital distributed to shareholders for the year ended September 30, 2014. In addition, please disclose supplementally
how shareholders were notified of the return of capital and whether the Company was in compliance with Section 19 of the 1940 Act.
Response: Pursuant to Section 19 of
the 1940 Act, and Rule 19a-1 promulgated thereunder, the Company is required to accompany dividend payments with a notice if any
part of that distribution is from a source other than accumulated undistributed net income, not including profits or losses from
the sale of securities or other properties. At the time of each quarterly dividend declaration, the Company presents its Board
of Directors with a presentation regarding the proposed dividend, the amount of which is generally based upon the distributable
taxable income estimated by management for the relevant period and year end. The Company respectfully advises the Staff that at
the end of each fiscal quarter and fiscal year, the Company’s actual financial results are reconciled with the distributions
made in order to ensure that none of the prior distributions were from a source other than accumulated undistributed net income.
To the extent t