October 11, 2019
William J. Bielefeld, Esq.
Dechert LLP
1900 K Street, NW
Washington, DC 20006
Re: KKR Credit Opportunities Portfolio
File Nos. 333-233709 and 811-23474
Dear Mr. Bielefeld:
On September 11, 2019, you filed a registration statement on Form N-2
for KKR Credit
Opportunities Portfolio (the "Fund"). Our comments are set forth below. For
convenience, we
generally organized our comments using the headings, defined terms and page
numbers from the
registration statement. Where a comment is made with respect to the disclosure
in one location
of the filing, it applies to all similar disclosure found elsewhere.
PROSPECTUS
Cover page
1. Securities Offered. This paragraph states that the Fund intends to offer
four classes and that
the Fund has applied for exemptive relief to issue multiple classes of
shares. The exemptive
application states that the Fund will offer the Initial Class Shares and
then may offer New
Class Shares. Please inform us whether the Fund expects to begin offering a
single class of
shares prior to receiving exemptive relief. We may have additional comments
after
reviewing your response.
2. Investment Objective. Part of the Fund's investment objective is to provide
"attractive risk-
adjusted returns." The prospectus states elsewhere that an investment in the
Fund involves a
high degree of risk. Please revise the investment strategy to make clear how
the Adviser will
consider risk in selecting investments to achieve attractive risk-adjusted
returns.
3. Investment Strategies. This paragraph states that the Fund may invest in
publicly traded high
yield bonds. Please disclose that high yield bonds are commonly referred to
as "junk" bonds.
In addition, please disclose what percentage of the Fund's assets may be
invested in "junk"
debt. We may have more comments after reviewing your response.
4. The second paragraph under "Investment Strategies" states that the Fund will
invest at least
80% of its Managed Assets in senior and subordinated corporate debt and
"debt related
instruments." Please explain the term "debt related instruments" and provide
examples.
William J. Bielefeld, Esq.
Page 2
October 11, 2019
5. The second paragraph under "Investment Strategies" also states that the Fund
will invest
substantially all of its assets in the Opportunistic Credit Strategy during
the initial ramp
period. Please provide an estimate of the expected duration of the initial
ramp period.
6. The Proprietary Sourcing bullet under the Opportunistic Credit Strategy
heading refers to
"reverse inquiry, secondary opportunities and/or larger block trades and
potential anchor
positions." Please explain, either here or elsewhere in the prospectus, each
of these terms in
plain English.
7. The Private Opportunistic Credit bullet under the Private Credit Strategy
heading states that
the Fund may "invest in origination and/or servicing platforms" of certain
hard or financial
assets. Please explain in plain English what it means to invest in
origination and/or servicing
platforms. Please also inform us whether the Fund will buy or sell loans
through online
platforms. We may have additional comments after reviewing your response.
8. Interval Fund/Repurchase Offers. Please disclose under this heading how
frequently the
Fund will repurchase shares and the size of the repurchase offers.
9. Leverage. Please disclose under this heading the amount of leverage the Fund
expects to use
both as a percentage of Managed Assets and as a percentage of net assets.
Please disclose the
same information in the Prospectus Summary under the caption "Leverage."
10. Investment Adviser. This section states that the Adviser has access to
KKR's global network
of resources. Please make clear in the investment strategy whether the Fund
will engage in
foreign investing, including investing in emerging markets.
Prospectus Summary Investment Strategies Private Credit Strategy (page 2)
11. This section indicates that the Fund may originate loans. Please also
disclose the following
with respect to loans originated by the Fund. We may have more comments
after reviewing
your response.
a. The extent to which the Fund intends to originate loan investments and
any limits on loan
origination by the Fund (e.g., the amount of loans originated as a
percentage of net
assets);
b. A description of the overall loan selection process, including maturity
and duration of
individual loans, borrower and loan types, and geographic location of the
borrower;
c. A description of the Fund's underwriting standards for these loans; and
d. Whether the Fund will be involved in servicing the loans and, if so, a
description of its
servicing obligations.
12. Please confirm to us that expenses incurred by the Fund in originating and
servicing loans
will be reflected in the fee table.
13. Please respond to the following comments regarding the Fund's procedures
for valuing
originated loans and liquidity. We may have more comments after reviewing
your response.
a. Confirm that the Fund will update underlying valuation data with respect
to each
individual loan that it originates at least as often as it calculates its
net asset value;
William J. Bielefeld, Esq.
Page 3
October 11, 2019
b. Disclose that (i) originated loans will be valued on an individual loan
level, (ii) fair
valuation will be performed using inputs that incorporate borrower level
data, which is
updated as often as net asset value is calculated and (iii) the type of
information that will
be used to value the loans.
14. In light of the illiquid nature of the Fund's investment strategies,
explain to us how the Fund
will comply with Rule 23c-3(b)(10)(i) under the 1940 Act, which requires
the Fund to
maintain liquid assets to meet its repurchase obligations. In your
response, confirm that the
originated loans will be considered illiquid for this purpose.
Prospectus Summary Risks Senior Loans Risk (page 13)
15. The first sentence of the second paragraph of this section states that
Senior Loans usually
include restrictive covenants, which must be maintained by the borrower.
Will the Fund
either acquire or originate loans regarded as "covenant-lite"? If so,
please disclose the extent
to which the Fund may have exposure to such loans and the risks associated
with them.
16. The second paragraph of this section states that the Fund may have an
obligation with respect
to certain senior secured term loan investments to make additional loans
upon demand by the
borrower. Please explain to us why the Fund reasonably believes it will
have adequate assets
available at the appropriate time to satisfy all of its investment
commitments.
Prospectus Summary Risks Leverage Risk (page 15)
17. The second paragraph refers to "uncovered" transactions that give rise to a
form of leverage.
The term "uncovered" appears to refer to obligations for which the Fund has
not segregated
assets in accordance with Investment Company Act Release No. 10666.
Inasmuch as the
asset coverage requirements of Section 18 of the 1940 Act apply to such
transactions, use of
the term "uncovered" transactions may be confusing to some investors.
Please revise this
section to avoid confusion.
18. Please define the term "NRSRO," which appears in the third paragraph of
this section.
Prospectus Summary Risks Short Selling Risk (page 24)
19. This section indicates the Fund may engage in short selling. Please
consider adding short
selling to the Fund's discussion of its investment strategies. In addition,
please confirm that
an estimate of the expenses related to short selling will be included in
the fee table.
Prospectus Summary Risks Structured Products Risk (page 29)
20. Please define the terms "CDO" and "CBO."
Summary of Fund Expenses (page 56)
21. Footnote 3 to the fee table explains that the Adviser has voluntarily
agreed to temporarily
reduce its Management Fee. Please make clear whether the Adviser may recoup
any portion
of the Management Fee that it waives. We may have additional comments after
reviewing
your response.
Use of Proceeds (page 58)
22. This section states that the Adviser anticipates that the investment of the
proceeds in
accordance with the Fund's investment policies and strategies will be
substantially completed
William J. Bielefeld, Esq.
Page 4
October 11, 2019
within three months. The front cover page discloses, however, that during
the initial ramp
period the Fund will invest substantially all the offering proceeds in the
Opportunistic Credit
Strategy only, not the Private Credit Strategy. If the initial ramp period
will last more than
three months, please make clear in this section the time period expected for
the Fund to
invest in both the Opportunistic Credit Strategy and Private Credit
Strategy.
The Fund's Investments Direct Lending (pages 68-69)
23. This section states that the Fund will invest in unitranche loans, "which
are loans that
combine both senior and mezzanine debt, generally in a first lien
position)[.]" Please make
clear that although unitranche loans may be in a first lien position with
respect to the
borrower, the Fund may, pursuant to an agreement among lenders, be in a
"last out" position.
Please also disclose the risks of the "last out" position.
Other Investment Techniques Derivatives (page 75)
24. This section indicates that the Fund may engage in various derivative
transactions. If
derivatives are counted towards the Fund's 80% investment policy, please
disclose that
derivatives are valued based on market value for this purpose. See Rule
35d-1(a)(2)(i) and
Rule 35d-1(d)(2) under the 1940 Act.
Appendix A: Supplemental Performance Information of Related Funds and Accounts
(page A-1)
25. The first sentence of this section states that the performance information
presented reflects
the performance of the Adviser's composite containing "all investment funds
or separately
managed accounts . . . that have an investment program substantially
similar to that of the
Fund [and the Predecessor Fund], are managed by the KKR Leveraged Credit
Team . . . ."
Please respond to each of the following:
Please describe the Predecessor Fund. Are there funds included in the
composite that
have an investment program that is substantially similar to the Fund's,
but not the
Predecessor Fund's? If yes, explain to us why including those funds in
the composite
should be permissible. We may have additional comments after reviewing
your response.
Confirm that the term "investment funds" includes registered investment
companies, if
any.
Replace the term "investment program" with "investment objectives,
policies and
investment strategies." See Nicholas-Applegate Mutual Funds (SEC
No-action letter
Aug. 6, 1996).
Please confirm to us that the composite contains the performance of all
funds or accounts
managed by KKR, not only funds and accounts managed by the KKR Leveraged
Credit
Team, that have investment objectives, policies and investment
strategies substantially
similar to those of the Fund.
Please add an appropriate performance benchmark for the composite
performance.
William J. Bielefeld, Esq.
Page 5
October 11, 2019
GENERAL COMMENTS
26. We note that many portions of your filing are incomplete or to be updated
by amendment
(e.g., financial statements). We may have additional comments on such
portions when you
complete them in pre-effective amendments, on disclosures made in response
to this letter,
on information supplied supplementally, or on exhibits added in any
pre-effective
amendment.
27. If you intend to omit certain information from the form of prospectus
included with the
registration statement that is declared effective in reliance on Rule 430A
under the Securities
Act of 1933 ("Securities Act"), please identify the omitted information to
us supplementally,
preferably before filing the pre-effective amendment.
28. Apart from the application for multi-class relief, which is identified in
the registration
statement, please advise us if you have submitted or expect to submit any
exemptive
applications or no-action requests in connection with your registration
statement.
29. Response to this letter should be in the form of a pre-effective amendment
filed pursuant to
Rule 472 under the Securities Act. Where no change will be made in the
filing in response to
a comment, please indicate this fact in a supplemental letter and briefly
state the basis for
your position.
* * * * *
In closing, we remind you that the Fund and its management are
responsible for the
accuracy and adequacy of their disclosures, notwithstanding any review,
comments, action or
absence of action by the staff.
If you have any questions prior to filing a pre-effective amendment,
please call me at
(202) 551-6945.
Sincerely,
/s/ John M.
Ganley
John M. Ganley
Senior Counsel
cc: Michael Spratt
Michael Shaffer