January 23, 2023
VIA E-mail
Harry S. Pangas
Dechert LLP
1900 K Street NW
Washington, DC 20006
Re: Investcorp US Institutional Private Credit Fund
File Nos. 000-56501
Dear Mr. Pangas:
On December 8th, 2022, you filed a registration statement on Form 10
on behalf of the
Investcorp US Institutional Private Credit Fund (the Company ). 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.
Please respond to this letter within ten (10) business days by either
amending the filing,
providing the requested information, or advising us when you will provide the
requested
information. We may have additional comments after reviewing your responses to
the following
comments, or any amendment to the filing.
We note that the Company is voluntarily registering shares of its
common stock under
Section 12(g) of the Securities Exchange Act of 1934 ( Exchange Act ).
Please note that a filing
on Form 10 goes effective automatically by lapse of time 60 days after the
original filing date,
pursuant to Exchange Act Section 12(g)(1). If our comments are not
satisfactorily addressed
within this 60-day time period, you should consider withdrawing the Company s
Form 10 prior
to its effectiveness, and re-filing a revised Form 10 that includes changes
responsive to our
comments. If the Company chooses not to withdraw its Form 10 registration
statement, it will be
subject to the reporting requirements of Exchange Act Section 13(a).
Additionally, we will
continue to review the filing until all of our comments have been
satisfactorily addressed.
Explanatory Note
1. Within the Explanatory Note on page one, under the bolded language
detailing why the
investment might be considered speculative, please also provide in bullet
points as
applicable, that:
a. Company Shares will not be registered under the Securities Act of
1933 and will be
subject to substantial restrictions on transfer. Investment in the
Company is suitable
Harry S. Pangas
1/23/2023
only for sophisticated investors and requires the financial ability
and willingness to
accept the high risks and lack of liquidity inherent in an
investment in the Company;
b. The Company intends to invest primarily in privately-held funds for
which very little
public information exists. Such investments are also generally more
vulnerable to
economic downturns and may experience substantial variations in
operating results;
and
c. The privately-held funds and below-investment-grade securities in
which the
Company will invest will be difficult to value and are illiquid;
below investment grade
securities, which are often referred to as junk have
predominantly speculative
characteristics with respect to the issuer s capacity to pay
interest and repay principal;
d. The Company has elected to be regulated as a BDC under the Investment
Company
Act of 1940 (the Act ), which imposes numerous restrictions on
the activities of the
Company, including restrictions on leverage and on the nature of its
investments.
e. 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 the Adviser's Fee as noted in the Risk Factor discussion);
f. The corresponding risks of capital being returned through
distributions (e.g., that this
may reduce an investor's adjusted tax basis in the Shares, thereby
increasing the
investor's potential taxable gain or reducing the potential taxable
loss on the sale of
Shares);
Item 1 Business
2. Within Item 1, pertaining to The Fund , please add disclosure
specifying the exemption(s)
upon which the Company expects to rely for the private offering of shares
and capital
commitments.
3. Within the third paragraph of Item 1, the Company discloses that The Fund
will invest
primarily in middle-market companies that have annual revenues of at least
$50 million and
EBITDA (earnings before interest, taxes, depreciation and amortization) of
at least $15
million through first lien, unitranche [emphasis added], second lien, and
unsecured debt
financing, often with corresponding equity co-investments.
a. Please explain the term unitranche in plain English; and
b. Please briefly describe the form that corresponding equity
co-investments will take,
and disclose any targeted allocation between loans and equity
investments. Please
explain supplementally how the Company and the Adviser will comply
with
Condition 5 of Investcorp s co-investment exemptive order in
situations where the
Company and affiliates make investments in different classes of
securities issued by a
portfolio company.
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Harry S. Pangas
1/23/2023
c. Please clarify whether the Company intends to engage primarily in
loan origination.
Further, please disclose if the Company intends to originate and/or
invest in
covenant-lite loans, and if so, briefly describe related risks.
d. Please disclose the Company s 80% investment policy in this
sub-section.
4. Within the fourth paragraph of Item 1, the Company discusses types of
investments it will
invest in. Please also include a discussion of credit quality and maturity
requirements with
respect to the Company s investments. Furthermore, please also clarify, if
accurate, that the
securities that the Company intends to invest in will generally not be
rated, and those
investments that are rated, would be rated below investment grade.
5. In The Fund sub-section of Item 1, please also disclose that:
a. On May 26, 2022, Investcorp Trading Limited, an affiliate of the
Advisor, purchased
1,250,000 common shares of beneficial interest of the Company at
$20.00 per share.
Please disclose the terms of any arrangements between the Company and
that affiliate
with respect to its investment in the Company. Please disclose
briefly any conflicts of
interest that may arise as a result of such investment.
b. The Company has commenced its loan origination and/or investment
activities, as
applicable, and cross reference the relevant sections of the
Registration Statement that
provide more detailed information about the Company s current
investments.
6. Please disclose that the Company has a wholly-owned subsidiary, US
Investcorp Private
Credit SPV LLC, and briefly describe the purpose of the special purpose
vehicle. Please note
that Subsidiary, when used in the comments below, refers to an entity
(regardless of
whether or not the Company set up the entity) that (1) is primarily
controlled by the
Company (as defined below); and (2) primarily engages in investment
activities in securities
or other assets. With regard to any Subsidiary of the Company, please
disclose that:
a. The Company will comply with the provisions of the Act governing
capital structure
and leverage (Section 61) on an aggregate basis with the subsidiary
so that the
Company treats the Subsidiary s debt as its own.
b. Any investment adviser to the subsidiary complies with provisions of
the Act relating
to investment advisory contracts (Section 15) as if it were an
investment adviser to
the Company under Section 2(a)(20) of the Act. Any investment
advisory agreement
between the subsidiary and its investment adviser is a material
contract that should be
included as an exhibit to the Registration Statement. If the same
person is the adviser
to both the Company and the subsidiary, then, for purposes of
complying with
Section 15(c), the reviews of the Company s and the subsidiary s
investment advisory
agreements may be combined.
c. The subsidiary complies with provisions relating to affiliated
transactions and custody
(Section 57). Also, please identify the custodian of the subsidiary.
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Harry S. Pangas
1/23/2023
d. The subsidiary s principal investment strategies or principal risks
that constitute
principal investment strategies or risks of the Company. The
principal investment
strategies and principal risk disclosures of a Company that invests
in a subsidiary
should reflect aggregate operations of the Company and the
subsidiary.
e. If the Company will only invest through wholly-owned Subsidiaries,
the Company
does not, or does not intend to, create or acquire primary control of
any entity which
engages in investment activities in securities or other assets, other
than entities
wholly-owned by the Company. Primarily controlled means (1) the
Company
controls the unregistered entity within the meaning of Section
2(a)(9) of the 1940 Act
, and (2) the Company s control of the unregistered entity is
greater than that of any
other person.
f. Please also confirm in correspondence that: (1) the subsidiary s
management fee
(including any performance fee) will be included in Management
Fees and the
subsidiary s expenses will be included in Other Expenses in
the Company s fee
table requested below; (2) the subsidiary, if organized and operating
outside the
United States, and its board of directors will agree to designate an
agent for service of
process in the United States; and (3) the subsidiary and its board of
directors will
agree to inspection by the staff of the subsidiary s books and
records, which will be
maintained in accordance with Section 31 of the Act and the rules
thereunder
(4)whether the financial statements of the Subsidiary will be
consolidated with those
of the fund. If not, please explain why not?
7. Although the staff notes that the Company does disclose that it is
non-diversified on page 55,
please disclose this fact earlier within Item 1.
8. Within Item 1, please disclose the consequences of an investor failing to
honor obligations in
connection with the terms of the Subscription Agreement (e.g., failure to
honor a Capital
Commitment or Catch- Up Purchase).
9. Please update the data points regarding assets under management for the
Adviser and
Investcorp Group provided on page 3, which are currently stated as June 30,
2022.
10. The subsection on page 4 titled The Private Offering appears to be
misnamed. The section
describes the company s advisory agreement rather than the private
offering.
11. Within the subsection titled Investment Approach on page 4, the
Company states that The
Company defines credit obligations and related instruments for this
purpose as any fixed-
income instrument, including loans to, and bonds and preferred stock
Please
supplementally explain why it is appropriate to include preferred stock in
the definition of
credit obligations for purposes of the Company s 80% policy.
12. Within the subsection titled Investment Approach on page 4, the
Company states that To
the extent we determine to invest indirectly in private credit obligations
and related
instruments, we may invest through certain synthetic instruments
Please supplementally
discuss whether the Company's only indirect investments in private credit
obligations could
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Harry S. Pangas
1/23/2023
be through synthetic instruments. Please disclose the types of synthetic
instruments
contemplated and relevant risks associates with such investments.
13. Within the subsection titled Deal Origination on page 5, please
clarify whether the
Company will primarily originate loans. If the Company does intend to
originate loans,
please disclose the following:
a. Any limits on loan origination by the Company (e.g., the amount of
loans originated
as a percentage of net assets);
b. A description of the overall loan selection process to the extent it
differs from the
process described in selecting issuers in which to invest; and
c. Whether the Company will be involved in servicing or administering
the loans and, if
so, (i) a description of its servicing obligations and (ii) whether
it will be paid a fee or
reimbursement for expenses for such services. Note that the staff may
have
additional comments depending upon the response.
d. Please clarify whether the deal origination process also applies
to the selection of
issuers in which to invest.
14. Within the second paragraph of the Deal Origination subsection on page 5,
the Company
discusses the Adviser s Investment Committee. Please consider also
including a discussion of
the function and composition of Adviser s Investment Committee in this
subsection.
Although the Staff notes the Adviser s Investment Committee is discussed
in latter sections,
an expanded discussion here will add clarity to the section.
15. Within the subsection titled ESG Assessment on page 7, the company
writes As a result
of this process, the Company will not generally invest in companies that
are significantly
involved in certain industries, product lines or services, including but
not limited to
[emphasis added], tobacco, controversial weapons, the speculative
extraction of oil from tar
sands and thermal coal. Please:
a. disclose any other investment restrictions to the extent such
restrictions exist;
b. identify examples of ESG criteria the company considers in its
investment selection
process; and,
c. please clarify whether such ESG criteria are applied to all of the
Company s
investments or only a specific selection of investments.
16. In the sub-section titled Drawdowns; Investment Period on page 10,
the disclosure states
that additional information regarding subsequent closings is provided in a
separate sub-
section. However, there does not appear to be such an additional discussion
in the
Registration Statement. Please include the additional information regarding
subsequent
closings.
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Harry S. Pangas
1/23/2023
17. Within the last paragraph of the subsection titled competitive strengths
ending on page 13,
the Company states in may invest in Original Issue Discount ( OID ) and
Payment-in-Kind
( PIK ) securities. Please briefly explain OID and PIK securities in
plain English.
18. On Page 62, within the section discussing the risks associated with OID
securities, please
include the following risks:
a. Use of PIK and OID securities may provide certain benefits to the
fund's adviser
including increasing management fees and incentive compensation;
b. The Fund may be required under the tax laws to make distributions of
OID income to
shareholders without receiving any cash. Such required cash
distributions may have
to be paid from offering proceeds or the sale of fund assets; and
c. The required recognition of OID, including PIK, interest for U.S.
federal income tax
purposes may have a negative impact on liquidity, because it
represents a non-cash
component of the Fund s taxable income that must, nevertheless, be
distributed in
cash to investors to avoid it being subject to corporate level
taxation.
19. Please clarify whether the subsection titled Investment Criteria on
page 13 applies to the
Company's origination of loans or to portfolio companies in which it may
invest.
20. Within the seventh paragraph of the subsection titled Investment
Criteria, on page 14, the
Company writes, We target investment opportunities in which we will be a
significant
investor in the tranche Please explain what it means to be a
significant investor in the
tranche.
21. Please supplementally confirm that the descriptions of the income incentive
fee and capital
gains incentive fee arrangements on page 16 are consistent with the
disclosure in the
Investment Advisory Agreement between Investcorp US Institutional Private
Credit Fund
and CM Investment Partners LLC. Please consider:
a. Adding a graphical illustration of the incentive fee and hurdle rate;
b. Including a fee table that conforms to the requirements of Item 3.1
of Form N-2
adjacent to this section; and
c. Disclosing an expense example that conforms to the requirements of
Instruction 11 to
Item 3.1 of Form N-2.
22. Within the fifth paragraph of the discussion of Incentive Fees, ending on
page 17, the
Company writes that, Pre-Incentive Fee Net Investment Income includes,
in the case of
investments with a deferred interest feature (such as OID), debt
instruments with PIK interest
and zero coupon securities, accrued income that the Company may not have
received in
cash. Within this paragraph, please:
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Harry S. Pangas
1/23/2023
a. Add a cross reference to the risk factor(s) discussing the types of
investments with
deffered interest features; and
b. Clarify whether the Adviser is obligated to reimburse the Company for
incentive fees
if the company incurs losses or fails to receive deffered income
which was previously
accrued.
23. In a separate sub-section following the discussion of the Adviser s
compensation on page
16, please provide a detailed lists of categories of costs and expenses that
will be borne by
the Company and the Adviser respectively.
24. In the sub-section describing the Administration Agreement on page 17,
please disclose how
the Administrator will be compensated for its services.
25. In the sub-section describing the Adviser s proxy policies on page 21,
the disclosure states
that the Adviser will vote proxies in what the Adviser perceives to be
the best interest of the
Adviser s clients shareholders. (emphasis added). Please delete the
reference to
shareholders, see Rule 206(4)-6 under the Advisers Act.
26. The Staff notes that the Company does not disclose that it will seek to
invest in foreign
investments until page 27. Given that the company s 80% test for purposes
of Rule 35d-1
focuses on U.S. companies, please briefly describe the company s foreign
investments earlier
in Item 1 to avoid investor confusion.
Item 1A Risk Factors
27. Section 1A appears to be over 20 pages in length. Please consider adding a
series of concise,
bulleted or numbered statements that is no more than two pages summarizing
the principal
risk factors. Please consider adding this summary of bullet points in the
beginning of the
Form 10 (e.g., in or after Forward-Looking Statements). Furthermore, please
review risk
factors and group similar factors together under the related heading (e.g.,
current
environment may include discussions of covid-19 and geopolitical factors
while conflicts
of interest can include those involving the adviser and affiliated funds
and accounts).
28. Within Item 1A, pertaining to investment risks, please consider disclosing
the
discontinuation of LIBOR and transition to a new reference rate as a risk
that could cause
actual results to differ materially from those expressed or forecast in the
forward-looking
statements.
29. The Staff notes that Item 1A begins with a discussion of risks pertaining
to COVID 19. As
applicable, please consider organizing the discussion of principal risks in
order in order of
importance to the company, with the most significant risks appearing first.
30. Within the subsection titled Risks Relating to Our Business and
Structure on page 38,
please review and revise the disclosure starting that the Company may be
considered a blind
pool offering that neither we nor the adviser has presently
identified, made investments in
or contracted to make any investments. As the June 30, 2022 financial
statements include a
schedule of investments, the disclosure appears incorrect.
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Harry S. Pangas
1/23/2023
31. Within the subsection titled We may borrow money, which would magnify
the potential for
gain or loss on amounts invested and may increase the risk of investing in
us on page 40,
please disclose whether the use of leverage may increase the management fee
paid to the
Adviser.
32. Within the subsection titled The interest rates of any of our term loans
to our portfolio
companies might be subject to change based on recent regulatory changes
on page 41, the
disclosure states that LIBOR is used as a reference rate for term loans the
Company intends
to make, as well as the basis for the minimum interest rate floors for the
terms of the
Company s debt investments. Please confirm this disclosure is accurate.
With the same section (on page 42), within the second sentence of the first
paragraph, please
disclose the identity of the partner company and describe the term
loan or add a cross
reference to the discussion appearing later in the registration statement.
Furthermore, please
clarify if the term loan is the same loan as the Capital One Revolving
Financing Agreement.
33. In the sub-section titled Potential conflicts in calculation of certain
company costs and
expenses on page 43, the disclosure states that [a] potential
conflict of interest exists in the
Adviser s determination whether certain costs or expenses that are
incurred in connection
with the operation of the Company meet the definition of Company
operational expenses for
which we are responsible, or whether such expenses should be borne by the
Adviser. The
disclosure appears inconsistent with Section 15(a)(1) of the Act, which
requires that the
Investment Advisory Agreement precisely describe all compensation to be
paid thereunder.
Please revise.
34. Within the subsection titled Our ability to enter into transactions
involving derivatives and
financial commitment transactions may be limited on page 44, please
discuss why the
derivatives risk management program is a risk for the Company. Please
clarify whether the
Company intends to qualify for the limited derivatives user exception under
Rule 18f-4 under
the Act.
35. On Page 47, the staff notes that the Company includes a discussion of
Preferred Stock.
Please supplementally confirm that the Company will not issue preferred
stock within one
year. Otherwise, please add appropriate strategy, risk, and fee table
(e.g., dividend expenses)
disclosure.
36. Within the ESG disclosure on page 63, under the section titled We are
subject to risks
related to corporate social responsibility please disclose as
applicable, that because ESG is
but one of a number of factors the Adviser considers in making an
investment in a portfolio
company, a company that scores poorly on ESG may be selected if it scores
strongly on other
factors that are considered.
Item 2 Financial Information
37. Please use up-to-date financial information. The information in the section
titled Portfolio
and Investment Activity on page 68 is from June 30, 2022.
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Harry S. Pangas
1/23/2023
38. Please review and revise the disclosure in the sections entitled "Expenses"
and "Net
investment loss" on page 70. The numerical amounts do not agree to the June
30, 2022
Statement of Operations.
39. In the subsection titled Quantitative and Qualitative Disclosures About
Market Risk
disclosure on Page 73, please include quantitative disclosure about
market risk in
accordance with Item 2 of Form 10 and Item 305 of Regulation S-K.
40. In the subsection titled Board of Trustees and Executive Officers on
page 76, please
disclose the Trustees' term of office in accordance with Item 5 of Form 10
and Item 401 of
Regulation S-K.
Item 6. Executive Compensation
41. To the extent applicable, please disclose that Company's officers receive
separate
compensation from the Adviser.
Item 9. Market Price of and Dividends on the Registrant s Common Equity and
Related
Stockholder
42. Please include the disclosure required by Item 9 of Form 10 and Item 201(c)
of Regulation S
K.
Item 10 - Recent Sales of Unregistered Securities
43. Please supplementally confirm whether the May 26th, 2022 purchase of
1,250,000 shares by
an affiliate represent the only outstanding Shares of the Company.
* * * * * *
We remind you that the Company 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. Should you have any questions regarding this letter,
please contact me at
(617) 573-4521.
Sincerely,
/s/ Timothy Worthington
cc: Asen Parachkevov, Branch Chief
Andrea Ottomenelli Magovern, Assistant Director
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