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Portfolio-Related Transactions
In addition to advising clients regarding transactions and regulatory matters at the BDC, Sutherland has extensive experience representing BDCs in connection with portfolio company-related transactions, including transactions involving senior and subordinated debt, common and preferred equity, convertible securities and "control" transactions.
Transactions at the portfolio company level share many of the same characteristics as venture capital and private equity transactions. Because of the unique nature of BDCs and the regulations that apply to their operations and investments, portfolio company investments must be structured in a way to allow the BDC to comply with various BDC rules (including rules regarding "good" BDC assets and "good" RIC income). In many cases, the investment should be structured to ensure that it will be treated as a "portfolio company" rather than a "subsidiary" for financial reporting and credit facility purposes.
Where necessary, investments can be structured to achieve the desired outcome regarding the type of asset the investment constitutes, the income the investment will produce and the status of the investment as a portfolio company/subsidiary, as appropriate.
Additional prohibitions and limitations are imposed on BDCs under the Investment Company Act of 1940 with respect to ownership of registered investment advisers and broker-dealers. Moreover, the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act are likely to have a significant impact on BDCs that own or acquire investment advisers such as collateralized loan obligation (CLO) collateral managers.
Representative portfolio-related transactions include:
- Represented a BDC in connection with the sale of its majority equity interest in a national food broker to a private equity investor for approximately $1 billion.
- Represented a BDC in connection with the sale of a portfolio of non-investment grade commercial mortgaged-backed securities (CMBS) and CDOs, along with its CMBS and CDO acquisition, analysis and special servicing operations, to one of the leading CMBS investors and servicers in the U.S. for approximately $1 billion.
- Represented a BDC and its portfolio company in connection with the sale of a $3.2 billion collateralized loan obligation (CLO) and collateralized debt obligation (CDO) asset management business to a major debt fund manager. The transaction involved management rights with respect to eight CLO funds and one CDO fund.
- Represented a BDC in connection with the formation and structuring of a $3.5 billion private fund to be co-managed by a Fortune 50 financial services firm.
- Represented a BDC in connection with the acquisition of a $1.2 billion CLO asset management business. The transaction involved management rights with respect to three CLO funds.
- Represented a BDC in connection with the acquisition of a controlling equity interest in a leading food manufacturer structured with both cash and debt.
- Represented a BDC in connection with a $20 million senior secured loan to the holding company of a broker-dealer, together with the purchase of a warrant and convertible preferred stock of the holding company.
- Represented a BDC in connection with the sale of all the assets of a middle-market investment banking/broker-dealer firm to a major broker-dealer.
- Represented a BDC in connection with the acquisition of a 50% interest in an operator of hotel, resort and similar properties, and the structuring of a related $135 million hotel acquisition commitment.
- Represented a BDC in connection with the acquisition of an 80% interest in a sponsor of private equity fund-of-funds, and the structuring of a related $50 million fund-of-funds commitment.
- Represented a BDC and its portfolio company in connection with the sale of substantially all the assets of its SBA 7(a) loan portfolio and origination and servicing platform to an affiliate of a major broker-dealer.
- Represented a BDC in connection with the roll-up of 15 separately owned regional food brokerage firms into a holding company with debt financing and a majority equity investment through a combination of asset acquisitions for cash, cash mergers, and mergers for a combination of cash and stock. Involved complex structuring issues, private offering issues in several states, and litigation expertise related to owner buyouts. Subsequently represented the portfolio company to complete several additional acquisitions.
- Represented a BDC in connection with the acquisition of a controlling equity interest in a brand manager of over-the-counter pharmaceuticals in an all-cash merger valued at $150 million. Subsequently represented the BDC in the sale of its majority equity interest to a private equity investor.
- Represented a BDC in connection with its assumption of an existing note issued by, and the subsequent acquisition of, a national airport fixed-base operator for nearly $85 million.
- Represented a BDC in connection with the acquisition of an 80% interest in a $700 million CLO and CDO asset management business, together with the structuring of a $100 million commitment to fund working capital, support warehouse facilities, and invest in the equity of future CLOs. The transaction involved one CLO fund and one CDO fund.
- Represented a BDC in connection with its acquisition of a controlling interest in a financial restructuring broker-dealer firm for $7.2 million in cash plus earnouts; also structured senior debt financing provided by the BDC.
- Represented a BDC in the acquisition of a publicly traded provider of hardware products and engineering services, in an all-cash merger valued at approximately $72 million.
- Represented a BDC in its acquisition of a controlling equity stake in a private logistics consulting firm in a stock-for-stock exchange, using the BDC's public equity as currency for the transaction.
- Represented a BDC in its acquisition of a publicly traded small business lender in a stock-for-stock exchange valued at approximately $84 million, as well as the structuring of senior financing from a third-party lender and subordinated financing provided by the BDC.
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