Correspondence 0001193125-23-087923 from SLR Private Credit BDC II LLC (CIK 0001932591)
SLR Private Credit BDC II LLC (CIK 0001932591)
Date: March 31, 2023 · CIK: 0001932591 · Accession: 0001193125-23-087923
AI Filing Summary & Sentiment
File numbers found in text: 000-56518
Letter
VIA EDGAR Division of Investment Management, Disclosure Review and Accounting Office Washington, D.C. 20549 Re: SLR Private Credit BDC II LLC Registration Statement on Form 10 Filed on February 1, 2023 (File No. 000-56518)
Dear Ms. Magovern and Messrs. Parachkevov, Worthington and Manion:
On behalf of SLR Private Credit BDC II LLC (the “Company”), set forth below are the Company’s responses to the oral accounting comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “Commission”) to the Company on March 2, 2023 and the written legal comments provided by the Staff to the Company on March 3, 2023 with respect to the Company’s registration statement on Form 10 (File No. 000-56518), filed with the Commission on February 1, 2023 (the “Registration Statement”). The Staff’s comments are set forth below and are followed by the Company’s responses. When revisions to the Registration Statement are referenced in the below responses, such revisions have been included in Amendment No. 1 to the Registration Statement, filed concurrently herewith. Capitalized terms used herein are defined in the Registration Statement.
Accounting Comments
1. Comment: The Staff notes the disclosure at the top of page 13 of the Registration Statement regarding the Adviser’s ability to waive or reduce the Management Fee and potentially recoup the Management Fee to which the Adviser is entitled in a subsequent period. Please add to this disclosure that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver.
Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 13 of the Registration Statement in response to the Staff’s comment.
2. Comment: Please consider providing graphical examples to demonstrate the operation of the incentive fee as is typical in registration statements filed by business development companies.
March 31, 2023
Page
Response: The Company respectfully advises the Staff that it does not believe that it is necessary to add graphical examples to demonstrate the operation of the incentive fee in the Form 10 because the incentive fee disclosure matches the description of the incentive fees in the Company’s Investment Management Agreement and Limited Liability Company Agreement, both of which have already been executed after being approved by the Company’s independent directors and unitholder. The incentive fees were also discussed at length with representatives of the Access Fund and their counsel.
The Company further advises the Staff that examples demonstrating the operation of the incentive fee are not required by Form 10. The purpose of the Form 10 is to register the Company’s common Units under the Securities Exchange of 1934. The Form 10 is not an offering document and it does not require the inclusion of the incentive fee examples.
3. Comment: The Staff notes the disclosure on page 15 of the Registration Statement regarding the Adviser’s ability to waive or reduce the Pre-Exchange Listing Incentive Fee or Post-Exchange Listing Incentive Fee and potentially recoup the Pre-Exchange Listing Incentive Fee or Post-Exchange Listing Incentive Fee to which the Adviser is entitled in a subsequent period. Please add to this disclosure that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver.
Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 16 of the Registration Statement in response to the Staff’s comment.
4. Comment: The Staff notes the disclosure on page 16 of the Registration Statement regarding the Administrative Coordinator’s ability to waive or reduce the Pre-Exchange Listing Administration Fee and potentially recoup the Pre-Exchange Listing Administration Fee to which the Administrative Coordinator is entitled in a subsequent period. Please add to this disclosure that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver.
Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 16 of the Registration Statement in response to the Staff’s comment.
5. Comment: The Staff notes that the disclosure on page 20 of the Registration Statement indicates that any amount in excess of the Operating Expense Cap for any fiscal year will be paid by the Adviser. Can any of these amounts be subject to recoupment? Please confirm. If so, please add disclosure that any recoupment must occur within three years of the date of the applicable waiver and that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver.
March 31, 2023
Page
Response: The Company confirms to the Staff that any Company expenses paid by the Adviser in excess of the Operating Expense Cap for any given fiscal year are not subject to recoupment.
6. Comment: Please add disclosure to page 20 of the Registration Statement that provides an estimate of the Company’s organizational and offering expenses and how such expenses are accounted by the Company.
Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 21 of the Registration Statement in response to the Staff’s comment.
7. Comment: The Staff notes that the disclosure on page 24 of the Registration Statement regarding the use of leverage and requests that the Company add an illustrative table on the effects of leverage that conforms with the requirements of Item 8.3.b of Form N-2.
Response: The Company respectfully declines to comply with this comment. Given the fact that the Form 10 registration statement does not require such disclosure, such disclosure has not typically been included in the Form 10 registration statements of other private unlisted business development companies, the Form 10 registration statement is not an offering document, and the sophisticated nature of the Company’s investors (i.e., not retail investors), the Company does not believe it is necessary to include such disclosure.
8. Comment: Please confirm that the disclosure in the table under Item 4. Security Ownership of Certain Beneficial Owners and Management is correct.
Response: The Company confirms to the Staff that the disclosure in the table under Item 4. Security Ownership of Certain Beneficial Owners and Management is correct.
9. Comment: The Staff refers to the audited financial statements included in the Registration Statement and believes that the following disclosure is missing from the notes to the audited financial statements: (i) discussion of the accounting of organizational expenses, including a discussion of the potential repayment of any amounts to the Adviser; and (ii) discussion of the various potential waivers and recoupments by the Adviser of the Management Fee, the Pre-Exchange Listing Incentive Fee, the Post-Exchange Listing Incentive Fee and the Pre-Exchange Listing Administration Fee. Moreover, the Staff believes that “Note 3. Material Agreements and Related Party” should have included a more robust discussion of all the related party and expense arrangements that are disclosed in the Registration Statement. Any changes in response to this comment may be addressed in the Registration Statement without amending the audited financial statements.
Response: The Company respectfully believes that it properly disclosed the accounting treatment of organizational expenses within Notes 2 and 3 to its audited financial statements. However, the Company acknowledges the Staff’s comment and believes that the additional disclosures added to the Registration Statement in response to comments #1, 3, 4 and 6 above address this comment # 9 as well.
March 31, 2023
Page
Legal Comments
Explanatory Note
1. Comment: The first paragraph of the Explanatory Note states that the purpose of the Form 10 filing is to permit the Company to file its BDC election because the Company does not wish to be “constrained” by Section 3(c)(1) and 3(c)(7) under the Investment Company Act of 1940 (the “Act”). Please explain supplementally what constraints would be placed on the Company if it remained a private fund instead of electing BDC status or revise the statement.
Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment.
2. Comment: Within the Explanatory Note on page one, under the bolded language detailing why the investment might be considered speculative, please also provide the following bullet point disclosures:
a. The Units are not currently listed on an exchange;
b. Repurchases of Units by the Company, if any, are expected to be very limited;
c. The amount of distributions that the Company may pay, if any, is uncertain; the Company may pay distributions in significant part from sources that may not be available in the future and that are unrelated to the Company’s performance (e.g., waiver of management and incentive fees); and,
d. The corresponding risks of capital being returned through distributions (e.g., that this may reduce an investor’s adjusted tax basis in the Units, thereby increasing the investor’s potential taxable gain or reducing the potential taxable loss on the sale of Units).
Response: The Company acknowledges the Staff’s comment and has added the requested disclosure in response to the Staff’s comment.
Summary Risk Factors
3. Comment: The second bullet in the section states that the Company may make investments in “nonperforming loans.” Please disclose if such investments may include defaulted or partially defaulted loans. If applicable, please disclose the corresponding risks associated with such investments.
Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. The Company also advises the Staff that more robust disclosure regarding the risks associated with non-performing loans is included under “Item 1A. Risk Factors – General Risks Related to Investment Strategy” of the Registration Statement.
March 31, 2023
Page
4. Comment: In the “General Risks Related to the Company” subsection, the eleventh bullet states that it is expected that a “majority” of the Company’s investments will not have market quotations available. To the extent the Company expects that the statement will apply to substantially all of its investments, please so disclose, along with a brief statement describing associated risks.
Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment.
5. Comment: In the “Risks Related to RICs and BDCs” subsection, the last bullet point states that a BDC must carry investments at fair market value. Please explain supplementally why this is considered a risk associated with the Company’s election to be regulated as a BDC.
Response: The Company respectfully advises the Staff that because the Company has elected to be regulated as a BDC, it must fair value its investments on a quarterly basis, which is a process that has inherent uncertainties. If the Company had not elected to be regulated as BDC, it would not necessarily be required to fair value its investments on a quarterly basis and, thus, potentially would not be subject to the inherent uncertainties of the fair valuation process. In addition, the Company has deleted the referenced bullet point in response to the Staff’s comment.
6. Comment: In the “Other Risks Related to Portfolio Investments” subsection, please summarize the principal risks associated with investments in PIK securities.
Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment.
Item 1 – Business
7. Comment: Please disclose in the appropriate subsection of Item 1 that under normal conditions, 80% of the Company’s assets will be invested in private credit for purposes of Rule 35d-1 of the Act. Please also describe what “private credit” means for purpose of complying with that test.
Response: The Company acknowledges the Staff’s comment and has added the requested disclosure in response to the Staff’s comment.
8. Comment: Within Item 1, subsection (a), pertaining to the “General Development of the Business” on page 6, the Company states that, “[t]o seek to achieve its investment objective, the Company expects to invest in directly originated cash flow loans issued to sponsor owned upper middle market companies [emphasis added]...” Please provide a plain English explanation of the type of issuers that would be considered “upper middle market companies”.
Response: The Company respectfully advises the Staff that it considers “upper middle market companies” to be companies that typically generate $25 million to $250 million or more of EBITDA, which is already disclosed on page 6 of the Registration Statement.
March 31, 2023
Page
9. Comment: Please delete footnote 1 on page 6.
Response: The Company acknowledges the Staff’s comment and has deleted this disclosure in response to the Staff’s comment.
10. Comment: In the second paragraph of Item 1(c), the Company discloses that “[it] expects to primarily invest in non-investment grade debt instruments.” Please disclose these investments are known as “high yield”, “speculative”, and “junk.”
Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment.
11. Comment: In the same paragraph, the Company discloses that, “[t]he Company’s specialty finance investments will encompass asset-based lending [emphasis added] to asset-rich middle market companies in a variety of industries.” Please provide a brief, plain English explanation of “asset-based lending” and the how the origination criteria would be different from other types of lending activities.
Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment.
12. Comment: Within the same paragraph, the Company discloses that “[it] expects to co-invest with other vehicles managed by SLR...” Please clarify that you have received a co-investment order from the Commission that allows the Company to do so. The disclosure also states that there can be no assurance that the Company will be able to co-invest, “including as a result of legal restrictions and contractual restrictions.” In the appropriate sections of the registration statement, please clearly disclose the type of restrictions that may result in the Company potentially not receiving co-investment opportunities.
Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment.
13. Comment: Within Item 1(c), in “The Private Offering” subsection on page 9, the Company discloses that “Certain other investors may also invest directly in the Company.” Please elaborate on the types of investors who may invest directly in the Company. Within the same subsection, the disclosure states that “we expect each Feeder Fund will pass its voting rights ... thr
Show Raw Text
CORRESP 1 filename1.htm CORRESP March 31, 2023 VIA EDGAR Andrea Ottomenelli Magovern, Assistant Director Asent Parachkevov, Branch Chief Timothy Worthington, Senior Counsel David Manion, Senior Staff Accountant Division of Investment Management, Disclosure Review and Accounting Office U.S. Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 Re: SLR Private Credit BDC II LLC Registration Statement on Form 10 Filed on February 1, 2023 (File No. 000-56518) Dear Ms. Magovern and Messrs. Parachkevov, Worthington and Manion: On behalf of SLR Private Credit BDC II LLC (the “Company”), set forth below are the Company’s responses to the oral accounting comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “Commission”) to the Company on March 2, 2023 and the written legal comments provided by the Staff to the Company on March 3, 2023 with respect to the Company’s registration statement on Form 10 (File No. 000-56518), filed with the Commission on February 1, 2023 (the “Registration Statement”). The Staff’s comments are set forth below and are followed by the Company’s responses. When revisions to the Registration Statement are referenced in the below responses, such revisions have been included in Amendment No. 1 to the Registration Statement, filed concurrently herewith. Capitalized terms used herein are defined in the Registration Statement. Accounting Comments 1. Comment: The Staff notes the disclosure at the top of page 13 of the Registration Statement regarding the Adviser’s ability to waive or reduce the Management Fee and potentially recoup the Management Fee to which the Adviser is entitled in a subsequent period. Please add to this disclosure that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver. Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 13 of the Registration Statement in response to the Staff’s comment. 2. Comment: Please consider providing graphical examples to demonstrate the operation of the incentive fee as is typical in registration statements filed by business development companies. March 31, 2023 Page 2 Response: The Company respectfully advises the Staff that it does not believe that it is necessary to add graphical examples to demonstrate the operation of the incentive fee in the Form 10 because the incentive fee disclosure matches the description of the incentive fees in the Company’s Investment Management Agreement and Limited Liability Company Agreement, both of which have already been executed after being approved by the Company’s independent directors and unitholder. The incentive fees were also discussed at length with representatives of the Access Fund and their counsel. The Company further advises the Staff that examples demonstrating the operation of the incentive fee are not required by Form 10. The purpose of the Form 10 is to register the Company’s common Units under the Securities Exchange of 1934. The Form 10 is not an offering document and it does not require the inclusion of the incentive fee examples. 3. Comment: The Staff notes the disclosure on page 15 of the Registration Statement regarding the Adviser’s ability to waive or reduce the Pre-Exchange Listing Incentive Fee or Post-Exchange Listing Incentive Fee and potentially recoup the Pre-Exchange Listing Incentive Fee or Post-Exchange Listing Incentive Fee to which the Adviser is entitled in a subsequent period. Please add to this disclosure that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver. Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 16 of the Registration Statement in response to the Staff’s comment. 4. Comment: The Staff notes the disclosure on page 16 of the Registration Statement regarding the Administrative Coordinator’s ability to waive or reduce the Pre-Exchange Listing Administration Fee and potentially recoup the Pre-Exchange Listing Administration Fee to which the Administrative Coordinator is entitled in a subsequent period. Please add to this disclosure that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver. Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 16 of the Registration Statement in response to the Staff’s comment. 5. Comment: The Staff notes that the disclosure on page 20 of the Registration Statement indicates that any amount in excess of the Operating Expense Cap for any fiscal year will be paid by the Adviser. Can any of these amounts be subject to recoupment? Please confirm. If so, please add disclosure that any recoupment must occur within three years of the date of the applicable waiver and that any recoupments would be conditioned on the Company’s expense ratio at the time of recoupment, but after giving effect to such recoupment, being equal to or less than the expense ratio at the time of the waiver. March 31, 2023 Page 3 Response: The Company confirms to the Staff that any Company expenses paid by the Adviser in excess of the Operating Expense Cap for any given fiscal year are not subject to recoupment. 6. Comment: Please add disclosure to page 20 of the Registration Statement that provides an estimate of the Company’s organizational and offering expenses and how such expenses are accounted by the Company. Response: The Company acknowledges the Staff’s comment and has added the requested disclosure on page 21 of the Registration Statement in response to the Staff’s comment. 7. Comment: The Staff notes that the disclosure on page 24 of the Registration Statement regarding the use of leverage and requests that the Company add an illustrative table on the effects of leverage that conforms with the requirements of Item 8.3.b of Form N-2. Response: The Company respectfully declines to comply with this comment. Given the fact that the Form 10 registration statement does not require such disclosure, such disclosure has not typically been included in the Form 10 registration statements of other private unlisted business development companies, the Form 10 registration statement is not an offering document, and the sophisticated nature of the Company’s investors (i.e., not retail investors), the Company does not believe it is necessary to include such disclosure. 8. Comment: Please confirm that the disclosure in the table under Item 4. Security Ownership of Certain Beneficial Owners and Management is correct. Response: The Company confirms to the Staff that the disclosure in the table under Item 4. Security Ownership of Certain Beneficial Owners and Management is correct. 9. Comment: The Staff refers to the audited financial statements included in the Registration Statement and believes that the following disclosure is missing from the notes to the audited financial statements: (i) discussion of the accounting of organizational expenses, including a discussion of the potential repayment of any amounts to the Adviser; and (ii) discussion of the various potential waivers and recoupments by the Adviser of the Management Fee, the Pre-Exchange Listing Incentive Fee, the Post-Exchange Listing Incentive Fee and the Pre-Exchange Listing Administration Fee. Moreover, the Staff believes that “Note 3. Material Agreements and Related Party” should have included a more robust discussion of all the related party and expense arrangements that are disclosed in the Registration Statement. Any changes in response to this comment may be addressed in the Registration Statement without amending the audited financial statements. Response: The Company respectfully believes that it properly disclosed the accounting treatment of organizational expenses within Notes 2 and 3 to its audited financial statements. However, the Company acknowledges the Staff’s comment and believes that the additional disclosures added to the Registration Statement in response to comments #1, 3, 4 and 6 above address this comment # 9 as well. March 31, 2023 Page 4 Legal Comments Explanatory Note 1. Comment: The first paragraph of the Explanatory Note states that the purpose of the Form 10 filing is to permit the Company to file its BDC election because the Company does not wish to be “constrained” by Section 3(c)(1) and 3(c)(7) under the Investment Company Act of 1940 (the “Act”). Please explain supplementally what constraints would be placed on the Company if it remained a private fund instead of electing BDC status or revise the statement. Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. 2. Comment: Within the Explanatory Note on page one, under the bolded language detailing why the investment might be considered speculative, please also provide the following bullet point disclosures: a. The Units are not currently listed on an exchange; b. Repurchases of Units by the Company, if any, are expected to be very limited; c. The amount of distributions that the Company may pay, if any, is uncertain; the Company may pay distributions in significant part from sources that may not be available in the future and that are unrelated to the Company’s performance (e.g., waiver of management and incentive fees); and, d. The corresponding risks of capital being returned through distributions (e.g., that this may reduce an investor’s adjusted tax basis in the Units, thereby increasing the investor’s potential taxable gain or reducing the potential taxable loss on the sale of Units). Response: The Company acknowledges the Staff’s comment and has added the requested disclosure in response to the Staff’s comment. Summary Risk Factors 3. Comment: The second bullet in the section states that the Company may make investments in “nonperforming loans.” Please disclose if such investments may include defaulted or partially defaulted loans. If applicable, please disclose the corresponding risks associated with such investments. Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. The Company also advises the Staff that more robust disclosure regarding the risks associated with non-performing loans is included under “Item 1A. Risk Factors – General Risks Related to Investment Strategy” of the Registration Statement. March 31, 2023 Page 5 4. Comment: In the “General Risks Related to the Company” subsection, the eleventh bullet states that it is expected that a “majority” of the Company’s investments will not have market quotations available. To the extent the Company expects that the statement will apply to substantially all of its investments, please so disclose, along with a brief statement describing associated risks. Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. 5. Comment: In the “Risks Related to RICs and BDCs” subsection, the last bullet point states that a BDC must carry investments at fair market value. Please explain supplementally why this is considered a risk associated with the Company’s election to be regulated as a BDC. Response: The Company respectfully advises the Staff that because the Company has elected to be regulated as a BDC, it must fair value its investments on a quarterly basis, which is a process that has inherent uncertainties. If the Company had not elected to be regulated as BDC, it would not necessarily be required to fair value its investments on a quarterly basis and, thus, potentially would not be subject to the inherent uncertainties of the fair valuation process. In addition, the Company has deleted the referenced bullet point in response to the Staff’s comment. 6. Comment: In the “Other Risks Related to Portfolio Investments” subsection, please summarize the principal risks associated with investments in PIK securities. Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. Item 1 – Business 7. Comment: Please disclose in the appropriate subsection of Item 1 that under normal conditions, 80% of the Company’s assets will be invested in private credit for purposes of Rule 35d-1 of the Act. Please also describe what “private credit” means for purpose of complying with that test. Response: The Company acknowledges the Staff’s comment and has added the requested disclosure in response to the Staff’s comment. 8. Comment: Within Item 1, subsection (a), pertaining to the “General Development of the Business” on page 6, the Company states that, “[t]o seek to achieve its investment objective, the Company expects to invest in directly originated cash flow loans issued to sponsor owned upper middle market companies [emphasis added]...” Please provide a plain English explanation of the type of issuers that would be considered “upper middle market companies”. Response: The Company respectfully advises the Staff that it considers “upper middle market companies” to be companies that typically generate $25 million to $250 million or more of EBITDA, which is already disclosed on page 6 of the Registration Statement. March 31, 2023 Page 6 9. Comment: Please delete footnote 1 on page 6. Response: The Company acknowledges the Staff’s comment and has deleted this disclosure in response to the Staff’s comment. 10. Comment: In the second paragraph of Item 1(c), the Company discloses that “[it] expects to primarily invest in non-investment grade debt instruments.” Please disclose these investments are known as “high yield”, “speculative”, and “junk.” Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. 11. Comment: In the same paragraph, the Company discloses that, “[t]he Company’s specialty finance investments will encompass asset-based lending [emphasis added] to asset-rich middle market companies in a variety of industries.” Please provide a brief, plain English explanation of “asset-based lending” and the how the origination criteria would be different from other types of lending activities. Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. 12. Comment: Within the same paragraph, the Company discloses that “[it] expects to co-invest with other vehicles managed by SLR...” Please clarify that you have received a co-investment order from the Commission that allows the Company to do so. The disclosure also states that there can be no assurance that the Company will be able to co-invest, “including as a result of legal restrictions and contractual restrictions.” In the appropriate sections of the registration statement, please clearly disclose the type of restrictions that may result in the Company potentially not receiving co-investment opportunities. Response: The Company acknowledges the Staff’s comment and has revised this disclosure in response to the Staff’s comment. 13. Comment: Within Item 1(c), in “The Private Offering” subsection on page 9, the Company discloses that “Certain other investors may also invest directly in the Company.” Please elaborate on the types of investors who may invest directly in the Company. Within the same subsection, the disclosure states that “we expect each Feeder Fund will pass its voting rights ... thr