June 24, 2019
Via Email
Christopher D. Carlson
Thompson Hine LLP
1919 M Street, N.W.
Suite 700
Washington, D.C. 20035-3537
Chris.Carlson@ThompsonHine.com
Re: A3 Alternative Credit Fund
Registration Statement on Form N-2
File Nos. 333-231938, 811-23447
Dear Mr. Carlson:
On June 4, 2019, A3 Alternative Credit Fund (the "Fund") filed a
registration statement
on Form N-2 under the Securities Act of 1933 ("Securities Act") and the
Investment Company
Act of 1940 ("1940 Act"). We have reviewed the registration statement and have
provided our
comments below. Where a comment is made in one location, it is applicable to
all similar
disclosure appearing elsewhere in the registration statement. All capitalized
terms not otherwise
defined herein have the meaning given to them in the registration statement.
Prospectus
Cover Page
1. Please specify the anticipated timing of the Fund's initial repurchase
offer.
2. Under "Securities Offered," you state, "Minimum investment amounts may
be waived in
the discretion of the Fund or the Adviser." On page 1 of the registration
statement, you state that
the Fund "may gain exposure to Credit Investments indirectly through
investments in other
investment companies that may be registered under the 1940 Act or rely on an
exemption from
registration." Please tell us how much the Fund will invest in hedge funds
and/or private equity
funds that rely on section 3(c)(1) or 3(c)(7) of the 1940 Act. If the Fund will
invest more than
15% of its net assets in hedge funds and private equity funds that rely on
sections 3(c)(1) or
3(c)(7), please note that registered closed-end funds that invest more than 15%
of their net assets
in such hedge funds or private equity funds should impose a minimum initial
investment
requirement of at least $25,000 and restrict sales to investors that, at a
minimum, satisfy the
accredited investor standard. Please explain to us why it would be appropriate
for the Fund to
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offer shares without imposing these limitations. We may have additional
comments after
reviewing your response.
Page 1 Investment Policies
3. You state,
The Fund will invest, under normal circumstances, at least 80% of its
net assets
(plus any borrowings for investment purposes), in Credit Investments.
"Credit
Investments" are defined as securities and other fixed-income
investments that
include: (1) corporate debt securities and derivatives, including high
yield
("junk") bonds, syndicated loans and credit-linked notes ("CLNs"); (2)
the debt
and equity tranches of collateralized loan obligations ("CLOs"); (3)
loans and
privately placed securities that are directly originated by the Fund or
purchased
from originators, which may be unsecured or secured; (4) asset-backed
securities
("ABS") backed by pools of consumer loans, auto loans, single family
rental cash
flows, commercial receivables, and other collateral, including loans
originated
through a peer-to-peer lending platform; (5) residential mortgage-backed
securities ("RMBS"); and (6) commercial mortgage-backed securities
("CMBS").
The Fund may also invest in other asset classes and employ hedging
strategies as
described further below.
The term "Credit" is a type of investment and is subject to an 80% policy to
invest in debt
securities. Please supplementally explain how the Fund's definition of Credit
Investments is the
equivalent of investing 80% in debt securities. For example, privately placed
securities can be
debt or equity securities. Also, it is unclear what you mean by "other asset
classes." Please
revise the disclosure accordingly.
4. Please tell us supplementally how much of the Fund's assets will be
invested in peer-to-
peer loans.
5. May the Fund enter into any unfunded commitments? If yes, please explain
supplementally how the Fund will cover unfunded commitments.
6. Please add disclosure explaining whether and how much the Fund will
invest in below-
investment-grade investments and describing such investments' risks.
Page 2 Alternative Investments Risk
7. You have not yet explained what alternative investments are. Please do
so in the strategy
section.
Page 3 Foreign Investment Risk
8. You have included foreign investments as a principal risk, yet have not
described such
investments in the principal strategies section. Please revise.
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Page 4 Investment Liquidity Risk
9. You have included "life settlements" as a principal risk, yet have not
described such
investment in the principal strategies section. Please revise. We may have
additional comments
after reviewing your response.
Page 5 Leveraging Risk
10. Please confirm that the Fund will not issue preferred shares within one
year. Otherwise,
please add appropriate disclosure throughout the registration statement.
Page 6 Distribution Policy Risk
11. Please add a plain English definition of "return of capital."
Page 7 Derivatives Risk
12. You have included swaps as a principal risk, yet have not described
such investments in
the principal strategies section. Please revise.
Page 8 Digital Records-Related Risks
13. Please explain supplementally what you mean by "loans that are secured
by assets whose
ownership is recorded digitally on a distributed ledger." Please provide
specific details about the
kinds and quality of the loans and assets, who originates and services the
loans, and who services
the distributed ledger.
Pages 2-10 Summary of Risks
14. The descriptions in the risk section state, variously, that the Fund
intends to invest in
senior secured or unsecured loans, subordinated loans and mezzanine loans. We
are aware that
rating agencies as well as the financial media have recently reported that
traditional lender
protections are being eroded and that so-called "covenant-lite loans" are
increasingly common.
See, e.g., "Leveraged Loans Not as Safe as They Once Were," Wall Street Journal
(August 16,
2018). If the Fund intends to invest in covenant-lite loans, please describe
such loans and the
extent to which the Fund may invest in such loans; also, consider enhancing the
disclosure of the
risks of such loans.
Page 36 Quarterly Repurchases of Shares
15. Please add disclosure that allows for the canceling or modifying of
tenders and that
discusses when the Fund calculates its net asset value. See Rule 23c-3(b)(6)
and (b)(7) of the
1940 Act.
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16. The Fund's board must adopt written procedures "reasonably designed" to
ensure that the
Fund's assets are sufficiently liquid so as to allow it to comply with: (i) its
fundamental policy on
repurchases, and (ii) with Rule 23c-3's liquidity requirements. A fund
must--from the time it
provides notification until the repurchase pricing date--have assets that are
equal to at least
100% of the repurchase offer amount; and can either (i) be sold/disposed of in
the order course
of business, at approximately NAV, within the time it takes for the fund to pay
repurchase
proceeds, or (ii) mature by the next repurchase payment deadline. See Rule
22c-3(b)(10). Please
confirm that the Fund has adopted such written procedures.
Statement of Additional Information
Page 3 Other Fundamental Policies
17. Please explain why it is necessary to have a section for "Other
Fundamental Policies"
with paragraphs that are numbered (1) and (2), as opposed to continuing such
policies at the end
of the section for "Fundamental Policies" and numbering the paragraphs (8) and
(9).
18. As to the policy for real estate, should "investing" be changed to
"invest"?
Page 4 Covered Obligations
19. You state,
If the Fund is the protection seller in a single-name credit default
swap ("CDS"),
to consider this position covered, the Fund will need to segregate
liquid assets in
an amount equal to the full, un-netted amount of the Fund's contractual
obligation
(i.e., the notional amount). When the Fund is a protection seller on a
CDS index
(such as the CDX), the Fund considers that the amount of the Fund's
obligation
that requires coverage is the Fund's mark-to-market liability.
With respect to the second sentence, please confirm to the staff that
the Fund will
segregate the full notional amount of the credit default swap to cover such
obligation.
Page 29
20. Distressed Investments and Emerging Markets are described as principal
strategies in the
prospectus but as non-principal strategies on this page. Please reconcile.
Part C -- Signatures
21. Pursuant to Section 6(a) of the Securities Act, the registration
statement must be signed
by the issuer, the principal executive officer(s), the principal financial
officer, the comptroller or
principal accounting officer, and a majority of the trustees or persons
performing similar
functions. We do not see signatures for a majority of the trustees or persons
performing similar
functions. Please address.
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* * * * * *
Please respond to this letter in the form of a pre-effective amendment
for the Fund.
Please respond to all comment letters in a letter filed in the form of EDGAR
correspondence.
Where no changes will be made in response to a comment, please so state in your
letter and
explain the basis for your position. We may have further comments after
reviewing your
responses.
We note that portions of the filing are incomplete. We may have
additional comments on
such portions when you complete them in a pre-effective amendment, on
disclosures made in
response to this letter, on information provided supplementally, or on exhibits
added in any pre-
effective amendment.
We urge all persons who are responsible for the accuracy and adequacy
of the disclosure
in these filings reviewed by the staff to be certain that they have provided
all information
investors require for an informed decision. Since the registrant and its
management are in
possession of all facts relating to the registrant's disclosure, they are
responsible for the accuracy
and adequacy of the disclosures they have made.
Please be advised that the Division of Enforcement has access to all
information you
provide to the staff of the Division of Investment Management in connection
with our review of
your filing or in response to our comments on your filing.
Should you have any questions regarding this letter, please contact me
at (202) 551-5166.
Sincerely,
/s/ Lisa N. Larkin
Senior Counsel
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