August 16, 2023
VIA E-mail
Stephen H. Bier, Esq.
Paul S. Stevens, Esq.
Dechert LLP
1095 Avenue of Americas
New York, NY 10036
Re: Muzinich Direct Lending Income Fund, Inc.
File No. 000-56572
Messrs. Bier and Stevens:
On July 17, 2023, you filed a registration statement on Form 10 on
behalf of the
Muzinich Direct Lending Income Fund, Inc. (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.
Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
General
1. We note that portions of the Form 10 are incomplete. Please ensure that the
fee table,
hypothetical expense examples, and financials are provided in an amendment.
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
supplied
supplementally, or on exhibits added in any amendment.
2. Please supplementally provide the staff a copy of the Adviser s Investment
Management
Agreement (or form of).
3. The staff notes that the name of the Company includes the term Direct
Lending. Section
35(d) of the Act prohibits the use of any word or words in a fund name
that the
Commission finds are materially deceptive or misleading. Rule 35d-1under
the Act
requires a registered investment company with a name suggesting that the
company focuses
on a particular type of investment to invest at least 80% of its assets in
the type of
investment suggested by its name. In light of the Company s name, please
clarify that the
Company will invest at least 80% of its assets in credit investments that
are directly
originated by the Company.
Explanatory Note
4. The first paragraph of the section states that the Company is filing the
registration statement
on Form 10 to comply with appliable requirements for the quotation or
listing of its
securities on a national securities exchange or other public trading market.
We note that in
other sections of the Form 10, the Company states that it is uncertain its
Shares will be listed
on a public market; for example, see the second bolded bullet point in the
Explanatory Note.
Please clarify if the Company currently has plans to list its securities on
an exchange. If not,
please delete the statement in the first paragraph of the section.
5. Within the bolded bullet points, please disclose, if applicable, that:
a. An investment in the Company is suitable 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
companies for which
very little public information exists. Such companies are also
generally more
vulnerable to economic downturns and may experience substantial
variations in
operating results;
c. The privately-held companies and below-investment-grade securities
(sometimes
referred to as high yield bonds, junk bonds or
leveraged loans ) in which the
Company will invest will be difficult to value and are illiquid;
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
d. The Company will elect to be regulated as a BDC under the 1940
Act, which
imposes numerous restrictions on the activities of the Company,
including
restrictions on leverage and on the nature of its investments;
e. Distributions may be funded from borrowings, which may constitute
a return of
capital and reduce the amount of capital available to the Company
for investment.
Any capital returned to holders of Shares through distributions
will be distributed
after payment of fees and expenses. 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. 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.
6. Please revise the first bullet point in include a discussion of transfers
and assignments.
Summary of Risks
7. The second bullet on page iii states that, We are a non-diversified
investment company
within the meaning of the 1940 Act, and therefore we are not limited with
respect to the
proportion of our assets that may be invested in securities of a single
issuer. Please revise
the disclosure to clarify that the Company is subject to the diversification
test in Subchapter
M of the Internal Revenue Code. Please also make conforming revisions to the
risk
disclosure on page 31.
8. The third bullet point on page (iii) states that if we fail to maintain
our status as a BDC, we
might be regulated as a closed-end investment company, which would subject
us to
additional regulatory restrictions. Please revise the sentence to state
that the Company
might be regulated as a closed-end investment company required to
register under the 1940
Act.
9. The seventh bullet point on page (iii) discloses that the Company might fund
a portion of its
investments with 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) disclosures.
10. The eighth bullet point on page (iii) discloses that Our board may
change investment
objective, operating policies and strategies without prior notice or
stockholder approval.
Please clarify that such changes would be subject to the 1940 Act (e.g.
Section 58 of 1940
Act).
11. The Staff notes that within the ninth bullet point of the summary of risks,
the Company
states that Our Adviser may act in a riskier manner on our behalf than
it would when acting
for its own account because its responsibilities and liability to us are
limited under the
Advisory Agreement. Please disclose how the Adviser s responsibilities
and liabilities are
limited under the Investment Advisory Agreement. We may have additional
questions.
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
12. The fourth bullet point on page iv discloses investments in companies
experiencing
significant financial or business difficulties. Please clarify if this
disclosure contemplates
investments in defaulted or partially defaulted loans. If applicable,
please disclose the
corresponding risks associated with such investments.
13. The eighth bullet point on page iv contemplates the use of derivatives.
Please disclose how
the Company may use derivatives within the overall strategy as a direct
lending fund. For
example, please disclose if derivatives will be used for hedging purposes,
to obtain market
exposure or something else.
14. The thirteenth bullet point on page iv contemplates payment of dividends in
Shares. Please
disclose briefly potential adverse tax consequences for investors and/or
include a cross
reference to the more detailed discussion in the registration statement
that discusses such
potential risks.
Item 1. Business (a) General Development of the Business
15. Throughout the section, the Company refers to its equity as Shares.
In the previous
section, the Company refers it is equity as Common Stock. For
clarity, please consider
using only one defined term to refer to the Company s common stock.
16. The second paragraph on page 1 states that, The Company uses the term
perpetual-life
BDC to describe an investment vehicle of indefinite duration, whose
Shares are intended to
be sold by the BDC on a continuous basis at a price generally [emphasis
added] equal to the
BDC s net asset value ( NAV ) per share. Please:
a. Supplementally explain the use of the qualifier generally;
and
b. Confirm that the Company will only sell Shares below NAV in
compliance with
Section 23(b) of the Act.
17. The second paragraph on page 1 states that, Any repurchase program will
be subject to the
Company s available cash, compliance with the RIC qualification and
diversification rules,
and the 1940 Act. Please clarify that any repurchase program will also
be subject to Rule
13e-4 of the Exchange Act.
18. The second paragraph on page 2 states that, The minimum initial
Subscription Amount is
$[ ], unless waived by the Adviser. Please disclose the circumstances in
which the
Adviser would waive the minimum initial subscription amount.
19. The sixth paragraph on page 2 discloses that should the Board determine to
cause a
liquidity event, each stockholder will be required to cooperate with the
Company. The
paragraph also discloses that the Board would not need shareholder consent
to cause such a
liquidity event.
a. Please disclose the types of changes to the proposed governance
and capital
structure of the Company that would be necessary to conduct a
Liquidity Event.
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
b. Please include a bolded bullet point in the Explanatory Note that
investors may
bear the cost of a potential IPO and listing, neither of which may
require a
shareholder vote.
c. Please add a clarifying statement that shareholder consent will
not be sought to
conduct a Liquidity Event unless required by the 1940 Act.
Item 1. Business (c) Description of the Business
20. The second paragraph on page 3 discloses that, The Company expects to
invest across a
number of different industries. To the extent applicable, please
disclose potential
concentrations in any particular industry.
21. The third paragraph on page discloses 3 that, To a lesser extent, the
Company may invest
in special purpose vehicles and/or joint venture credit-like securities,
other debt and equity
securities.
a. Please clarify what constitutes credit-like securities or
other debt and equity
securities. Consider providing examples of each.
b. In the appropriate sections of the registration statement, please
provide more
detail regarding the special purpose vehicles or joint ventures
(e.g. structure,
underlying investments).
c. To the extent any of the above investments would be principal
investments, please
include corresponding risk disclosure.
22. The fourth paragraph on page 3 states that, The Company s investment
strategy will also
allocate a portion [emphasis added] of the overall portfolio to more liquid
credit
investments Please consider specifying what percentage, or range, of
the Company s
assets will be allocated to more liquid credit investments.
23. The fifth paragraph on page 3 states that, The Company s private
credit investments are
typically expected to have maturities between three and eight years and to
generally range in
size between $10 million and $25 million, though this expected investment
size may grow if
the Company s capital base grows and may shrink if the Company s
capital base shrinks (or
does not reach its target size). Please clarify what is meant by the
statement that the
Company s capital base may shrink. For what reasons?
24. The fifth paragraph on page 3 states that, The Company seeks to avoid
[emphasis added]
start-ups or turn-around situations, as well as specialized industries such
as real estate,
regulated financial services, commodities, oil & gas extraction, firearms,
tobacco, cannabis,
and pornography, and businesses with significant technology risk. Please
clarify what is
meant by seeks to avoid. May the Company invest in such investments?
If so, under
which circumstances would the Company make such investments?
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
25. The first paragraph of page 4 states that, the The Company intends to
use open-market
secondary purchases to maintain liquidity for its share repurchase program
and to manage
cash before investing subscription proceeds into origination investments,
while also
seeking attractive investment returns. Please clarify if the Company
will maintain a
portion of its assets in liquid investments at all times. See comment 21
above.
26. In the first paragraph of page 4 the Company discusses qualifying
assets. Please include a
cross reference to the discussion later in the Form 10 that explains what
constitutes a
qualifying asset.
27. In the third paragraph of page 4, the Company states that, In the
future, the Company may
also securitize a portion of its investments in any or all of the Company
s assets.
Furthermore, the Company lists costs incurred in connection with the
formation or
maintenance of entities or vehicles to hold the Company s assets as an
expense to be borne
by the Company on page 10. To the extent the BDC utilizes a wholly owned
subsidiary for
tax or other purposes, please disclose that:
a. The Company will comply with the provisions of the 1940 Act governing
capital
structure and leverage (Section 61) on an aggregate basis with a
subsidiary so that the
Company treats the subsidiary s debt as its own.
b. Any investment adviser to a subsidiary complies with provisions of
the 1940 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 1940 Act. Any
investment
advisory agreement between a 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 a subsidiary,
then, for purposes
of complying with Section 15(c), the reviews of the Company s and a
subsidiary s
investment advisory agreements may be combined.
c. Any investment in a subsidiary will comply with provisions relating
to affiliated
transactions and custody (Section 57). Also, please identify the
custodian of the
subsidiary.
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. The subsidiary or subsidiaries will include entities that engage in
investment activities
in securities or other assets that are primarily controlled by the
Company. If,
however, the Company will only invest through wholly-owned
Subsidiaries, disclose
that 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
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
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) if a subsidiary is
wholly-owned, 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; (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 1940 Act and the rules thereunder; and (4) the financial
statements of the
Subsidiary will be consolidated with those of the Company. If not,
please explain
why not?
28. Please remove the fifth paragraph of page 4 that states, Because the
Company intends to
elect to be treated as a BDC under the 1940 Act and intends to qualify as a
RIC under the
Code, the Company s portfolio will be subject to diversification and
other requirements.
The paragraph restates similar information disclosed earlier in the
registration statement.
See Comment 6 above.
29. Please consider removing the first sentence of the sixth paragraph on page
4 that states that
[t]o date, the Company has not incurred leverage. The Statement is
unnecessary as the
Company is new and has not commenced operations.
30. The last paragraph on page 4 states, that The Company may seek to
consummate an IPO
and/or an Exchange Listing of its Common Stock at some point in the future
in accordance
with the Securities Act, subject to applicable Delaware law and the 1940
Act and without
obtaining the consent of the stockholders. Please include a similar
statement in the
Summary of Risks or as a bolded bullet point in the Explanatory Note.
31. The second paragraph on page 6 contemplates investments in debt instruments
with PIK
interest. Please clarify if pay-in-kind securities will constitute a
principal investment of the
Company and include appropriate risk disclosures.
32. Within the subsection pertaining to Indemnification on page 8, please
clarify that nothing in
the Advisory Agreement modifying, restricting or eliminating the duties or
liabilities of the
Adviser and its officers, managers, partners, agents, employees,
controlling persons and
members, and any other person or entity affiliated with it, will apply to,
or in any way limit,
the duties (including an adviser s fiduciary duty) or liabilities of such
persons with respect
to matters arising under the federal securities laws.
33. Within the subsection pertaining to indemnification of the administrator on
page 8, please
clarify if there are any carve outs from indemnification, for example, for
gross negligence or
willful misconduct.
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
34. The Staff notes that with the subsection pertaining to payment of company
expenses, bullet
number (xii) on page 10, discloses that the Company will bear all costs
associated with
fees, costs and expenses, if any, incurred by or on behalf of the
Company in
developing, negotiating and structuring prospective or potential
investments that are not
ultimately made Furthermore, bullet number (xv) states the Company
will bear expenses
associated with investment costs, including all fees, costs and expenses
incurred in
sourcing, evaluating, developing, negotiating, structuring, trading
(including trading errors,
to the extent properly borne by the Company), settling, monitoring and
holding prospective
or actual investments Please supplementally explain to Staff how this is
consistent with the
terms of the Advisory Agreement, as disclosed, where the Adviser is
compensated to
identify, evaluate, negotiate the structure of investments and to
execute, close, service
and monitor investments.
35. Within the subsection pertaining to payment of Company expenses on page 12,
please
clarify the types of costs covered by bullet number (xxx). What costs would
be associated
with individual or group of stockholders ?
36. Within the subsection pertaining to Other Considerations, the company
refers to Board
Criteria. The term appears in the section with capitalized letters, but
is undefined. Please
either define the term or remove the capitalized letters.
37. Within the Valuation subsection on page 16, the Company states that,
There is no
guarantee that the NAV per Share will be equal to the offering price of the
Company s
Shares at any Closing. Please clarify that the offering price will not
be below the NAV.
38. Within the How We Use Information subsection on page 18, the Company
writes
Among other things [emphasis added], we may use Confidential Investor
Information
to service your account or send you annual reports, proxy statements or
other
information required by law. Please clarify for what other purposes the
Company may use
Confidential Investor Information.
Item 1A. Risk Factors
39. Within the risk disclosure, We are a new company and have no operating
history, the
Company discloses that it may make temporary investments in securities of
other RICs.
However, the Temporary Investments subsection on page 14 does not
discuss securities of
other RICs. Please harmonize the disclosure in the two sections.
40. The section includes disclosure pertaining to investments in other RICs
(page 30), junior
unsecured loans (page 43), covenant-lite obligations (page 44),
bridge financings (page
44), and companies that are experiencing significant financial or business
difficulties (page
48). To the extent such investments are principal investments of the
Company, please
include corresponding strategy disclosure.
41. Within the risk disclosure, We may borrow money and enter into
transactions, which may
magnify the potential for gain or loss and may increase the risk of
investing in us, on page
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
33, please clarify that the use of leverage will increase the management
fee paid to the
Adviser and the relevant conflicts of interest.
42. With the Our Adviser and its affiliates, officers, investment
professionals and employees
may have certain conflicts of interest risk disclosure on page 33, the
Company disclose
that, Although our Adviser and its affiliates will endeavor to allocate
investment
opportunities in a fair and equitable manner and consistent with applicable
allocation
procedures, it is possible that, in the future, we may not be given the
opportunity to
participate in investments made by other clients or entities managed by our
Adviser or its
affiliates. Please revise this disclosure as it appears inconsistent
with the terms of the
Company s co-invest order.
43. The Staff notes that the Company lists CFTC rulemaking as a principal risk.
Please clarify if
derivatives are part of the principal strategy of the Company, and update
the strategy and
risk sections as appropriate. If derivatives do not constitute a principal
strategy of the
Company, please clarify why CFTC rulemaking with respect to derivatives is
a principal
risk. Furthermore, please note that disclosure for any principal investment
related to
derivatives should be tailored specifically to how a fund expects to be
managed and should
address those strategies that the Company expects to be the most important
means of
achieving its objectives and that it anticipates will have a significant
effect on its
performance. Disclosure should not be generic risks associated with each
derivative type.
44. Please add risk disclosures regarding investments in third-party
collateralized loan
obligations and BLS, both of which are discussed in Item 1.
45. With the risk disclosure, Non-U.S. Securities, on page 41, please
disclose that non-US
markets may have different accounting, auditing, and financial standards.
46. Within the risk disclosure, We May invest in instruments with a deferred
interest feature
on page 52, please disclose:
a. Market prices of OID instruments are more volatile because they
are affected to a
greater extent by interest rate changes than instruments that pay
interest
periodically in cash;
b. The Company 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 Company
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 Company s taxable income that must,
nevertheless, be
distributed in cash to investors to avoid it being subject to
corporate level
taxation.
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
47. The Staff notes the Company includes ESG risk disclosure on page 60. Please
confirm if
ESG constitutes a principal investment strategy of the Company. If it does,
please:
a. Identify examples of ESG criteria that the Company considers in
its investment
selection process.
b. Disclose whether the Company make investments that do not meet the
adviser s
ESG criteria. .
Item 7. Certain Relationships and Related Transactions, and Director
Independence
48. On page 68, the Company contemplates engaging in cross trades. Please
clarify if the cross
trades disclosure applies only to publicly traded securities. If not,
please explain how such
cross trades in private securities will be structured to comply with
Section 57 of the Act.
Item 12. Indemnification of Directors and Officers
49. Notwithstanding Delaware law, provisions eliminating or altering the
fiduciary duties of a
fund s trustees, officers, member of any advisory board, investment
adviser(s), depositor
( fiduciary covered persons ) are inconsistent with federal securities
laws and the
Commission s express views on such persons fiduciary duties. Please
add a provision to all
relevant Organizational Documents, or otherwise modify these documents, to
clarify
explicitly that notwithstanding anything to the contrary in the relevant
document, nothing in
the relevant document modifying, restricting or eliminating the duties or
liabilities of
trustees or officers, shall apply to, or in any way limit, the duties
(including state law
fiduciary duties of loyalty and care) or liabilities of such persons with
respect to matters
arising under the federal securities laws.
Accounting Comments
50. On page 6, Incentive fee section is open and is missing the graphic. Please
update the
section accordingly.
51. Please confirm in correspondence that the Registrant will evaluate the
applicability of Rules
3-09 and 4-08(g) of Regulation S-X and the appropriate inclusion of
financial statements
and/or summary financial information.
* * * * * *
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
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Stephen H. Bier, Esq.
Paul S. Stevens, Esq
August 16, 2023
action by the staff. Should you have any questions regarding this letter,
please contact me at
(617) 573-4521.
Sincerely,
/s/ Timothy Worthington
Timothy Worthington
cc: Asen Parachkevov, Branch Chief
Andrea Ottomanelli Magovern, Assistant Director
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