Risks and Considerations

Risks and Considerations

Investment in the Company should be regarded as long-term in nature and involving a high degree of risk. Accordingly, prospective investors should consider carefully all of the information set out in the Prospectus and the risks relating to the Company, the Placing Shares, the Investment Vehicle, the Conversion Vehicle and the Investment Vehicle Manager including, in particular, the risks described below which are not presented in any order of priority and may not be an exhaustive list or explanation of all the risks which investors may face when making an investment in the Placing Shares and should be used as guidance only. Capitalised terms used in this Risks and Considerations section not otherwise defined have the same meanings given to them in the Prospectus.

Only those risks which are believed to be material and currently known to the Company in relation to itself and its industry and in relation to the Investment Vehicle and Conversion Vehicle as at the date of this Prospectus have been disclosed. Additional risks and uncertainties not currently known to the Directors, or that the Directors deem immaterial at the date of this Prospectus, may also have an adverse effect on the business, results of operations, financial conditions and prospects of the Company, the Investment Vehicle, the Conversion Vehicle their respective net asset values, and the market price of the Placing Shares. Potential investors should review all information regarding the Company, including those highlighted in this section, carefully and in its entirety and consult with their professional advisers before making an application to invest in the Placing Shares.

 The risks which the Company faces relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider all information regarding the Company and, among other things, the risks and uncertainties described below.

  • Risks relating to the Investment Vehicle Manager

    The ability of the Company to meet its investment objective will depend on the Investment Vehicle Manager’s ability to successfully manage the Investment Vehicle in accordance with its investment objective and investment policy

    The Company is organised as a feeder fund and, accordingly the success of the Company will depend on the ability of the Investment Vehicle Manager to successfully implement the investment objective and the investment policy of the Investment Vehicle and also on broader market conditions as discussed in this “Risks and Considerations” section. There can be no assurance that the Investment Vehicle Manager will be successful or that the Investment Vehicle Manager will be able to invest the Investment Vehicle’s assets on attractive terms, generate any investment returns for its investors or avoid investment losses.

    The Company has no control over the Investments made by the Investment Vehicle

    The Company is organised as a feeder fund and, accordingly, while the Directors will review the Investment Vehicle’s compliance with its investment objective and investment policy (including the Investment Limits and/or the Borrowing Limit), the Company has no control over the specific Investments and has no right to require the disposal of specific Investments by the Investment Vehicle.

    Instead, the Company will rely on the skills and capabilities of the Investment Vehicle Manager in selecting, evaluating, structuring, negotiating, executing, monitoring and exiting trading positions and Investments and in managing any uninvested capital of the Investment Vehicle in accordance with the Investment Vehicle’s investment policy. The Investment Vehicle Manager will have broad discretion when making investment-related decisions for the Investment Vehicle (including the strategies to be employed pursuing the Investment Vehicle’s investment objective). As a result, the Company’s ability to achieve its target return will depend on the ability of the Investment Vehicle Manager to identify suitable trading and investment opportunities and to implement successfully the investment policy of the Investment Vehicle.

    Substantial redemptions by investors in the Investment Vehicle may cause a liquidation of the Investments which may distort the balance of the Investment Vehicle’s liquid and illiquid Investments

    Substantial redemptions by Investment Vehicle Interest Holders (whether the Company or other direct investors) within a short period of time could lead to a number of responses by the Investment Vehicle Manager, ranging from recommending that the CECO Directors suspend redemptions to liquidating positions more rapidly than would otherwise be desirable so as to fill redemption orders. Such liquidations may lead to an imbalance between the liquid and illiquid Investments held within the Portfolio. This may lead to the Investment Vehicle holding a small number of illiquid Investments which account for an excessively high proportion of the Portfolio and, in such circumstances, the aggregate return on the Company Investment Vehicle Interests and, by extension, the Shares may be substantially and adversely affected by the unfavourable performance of such Investments.

    Reductions in the Investment Vehicle Net Asset Value could make it more difficult to generate a positive return or to recoup losses due to, among other things, reductions in the Investment Vehicle’s ability to take advantage of particular investment opportunities or decreases in the ratio of its income to its expenses. This, in turn, may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The performance of the Investment Vehicle depends heavily on the skills of the Investment Vehicle Manager and its key personnel

    In accordance with the Investment Vehicle Investment Management Agreement, the Investment Vehicle Manager is responsible for the management of the Investments in accordance with the Investment Vehicle’s published investment policy. The Investment Vehicle have no employees and their respective directors are appointed on a non-executive basis. While the CECO Directors will have responsibility for managing the business affairs of the Investment Vehicle, in accordance with the applicable laws and their constitutional documents and have overall responsibility for the activities of the Investment Vehicle, the Investments and asset management decisions will be made by the Investment Vehicle Manager and, accordingly, the Investment Vehicle will be completely reliant on, and its success will depend primarily on, the Investment Vehicle Manager and its personnel, services and resources. The Investment Vehicle Manager is not required to and generally will not submit individual investment decisions for approval to the Board or to the CECO Directors. As a result, the performance of the Investment Vehicle will depend heavily on the skills of the Investment Vehicle Manager. Consequently, the Investment Vehicle will be dependent on the financial and managerial experience of the individuals employed by the Investment Vehicle Manager (as more fully described in Part III of the Prospectus).

    Further, the future ability of each of the Investment Vehicle to pursue its investment policy successfully may depend on the ability of the Investment Vehicle Manager to retain its existing staff and/or to recruit individuals of similar experience and calibre. Whilst the Investment Vehicle Manager has endeavoured to ensure that the principal members of its management team are suitably incentivised, the retention of key members of the teams cannot be guaranteed. In the event of a departure of a key employee of the Investment Vehicle Manager, there is no guarantee that the Investment Vehicle Manager would be able to recruit a suitable replacement or that any delay in doing so would not adversely affect the performance of the Investment Vehicle and, by extension, the Placing Shares. Events impacting but not entirely within the Investment Vehicle Manager’s control, such as its financial performance, its being acquired or making acquisitions or changes to its internal policies and structures could in turn affect its ability to retain key personnel.

    Further, although the Investment Vehicle Investment Management Agreement requires the Investment Vehicle Manager to commit an appropriate amount of its business efforts to the management of the Investment Vehicle, the Investment Vehicle Manager is not required to devote all of its time to such affairs and may continue to advise and manage other investment portfolios of other clients and/or investment vehicles in the future. If the Investment Vehicle Manager is unable to allocate the appropriate time or resources to the Investments, the Investment Vehicle may be unable to achieve its investment objective. In addition, the Investment Vehicle Investment Management Agreement does not require the Investment Vehicle Manager to dedicate specific personnel to the Investment Vehicle or to require personnel servicing the Investment Vehicle’s business to allocate a specific amount of time to the Investment Vehicle.

    The Investment Vehicle Investment Management Agreement is terminable by the Investment Vehicle at any time upon 90 days’ prior notice and is terminable by the Investment Vehicle Manager if certain events occur, as more fully described under the sub-heading “Investment Vehicle Investment Management Agreement” in the section entitled “Material Contracts” in Part X of the Prospectus. Accordingly, there is a risk that the Investment Vehicle Investment Management Agreement may be terminated and that no suitable replacement for the Investment Vehicle Manager will be found. If the Investment Vehicle Investment Management Agreement is terminated and a suitable replacement for the Investment Vehicle Manager is not secured in a timely manner or if key personnel of the Investment Vehicle Manager are not available to the Investment Vehicle with an appropriate time commitment, the ability of each of the Investment Vehicle to execute its investment strategy or achieve its investment objective and, by extension, the investment objective of the Company, may be adversely affected. This in turn may have an adverse effect on the performance of the Investment Vehicle, and, by extension, on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The obligations of the Investment Vehicle Manager are not guaranteed by any other person.

    The Investment Vehicle Manager may provide services to other clients which conflict directly or indirectly with the activities of the Investment Vehicle and could prejudice investment opportunities available to, and investment returns achieved by the Investment Vehicle. The Investment Vehicle Manager may also encounter potential conflicts of interest in connection with the other activities of the CVC Group

    The Investment Vehicle Manager manages other funds and investment vehicles and it and its affiliates may serve as managers, investment managers or advisers to other funds and investment vehicles in the future. As a result, the Investment Vehicle Manager and its respective affiliates may have conflicts of interest in allocating investments among the Investment Vehicle and other clients and in effecting transactions between the Investment Vehicle and other clients, including transactions in which the Investment Vehicle Manager and its respective affiliates may have a greater financial interest. Depending on the circumstances, the Investment Vehicle Manager and its affiliates may give advice or take action with respect to such other clients that differs from the advice given or action taken with respect to the Investment Vehicle. The Investment Vehicle Manager will be responsible for the portfolio management functions of the Investment Vehicle, including taking portfolio management decisions on behalf of the Investment Vehicle and exercising remedies in respect of the Investments which may conflict with its interest or the interest of its affiliates.

    The Investment Vehicle Manager and its affiliates carry on investment activities for their own accounts, for the accounts of their employees (and their families) and for other accounts in which neither the Company nor the Investment Vehicle has an interest. The Investment Vehicle Manager may vary the investment strategies employed on behalf of the Investment Vehicle from those used for the other accounts that it manages. No assurance can be given that the results of the trading by the Investment Vehicle Manager on behalf of the Investment Vehicle will be similar to that of other accounts concurrently managed by the Investment Vehicle Manager or its affiliates. It is possible that such accounts and any additional accounts managed by the Investment Vehicle Manager in the future may compete with the Investment Vehicle for the same or similar positions in the markets. The Investment Vehicle Manager has discretion to allocate capital of the Investment Vehicle or the other investment vehicles or accounts that it manages. While there is an allocation policy in place, it enables the Investment Vehicle Manager to exercise a certain amount of discretion and therefore the Investment Vehicle Manager is not obligated to allocate capital on a pro rata basis. The Investment Vehicle Manager and its affiliates also provide management services to other clients, including other collective investment vehicles. The Investment Vehicle Manager and its affiliates may give advice and recommend securities to other accounts it manages or investment vehicles which may differ from advice given to, or securities recommended or bought for, the Investment Vehicle, even though their investment policies may be essentially the same. However, the Investment Vehicle Manager’s general policy is to seek to allocate investment opportunities that it identifies as being appropriate and desirable for the Investment Vehicle and the other investment vehicles or accounts that it manages on a fair and equitable basis over time taking into account such factors as the Investment Vehicle Manager in its discretion may deem appropriate. Nonetheless, because it is not always possible to allocate to the Investment Vehicle every investment opportunity that the Investment Vehicle Manager believes would be appropriate and desirable for the Investment Vehicle, the Investment Vehicle may not participate in all investment opportunities, which in turn may adversely impact its performance, and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    There may be occasions when the Investment Vehicle Manager and its affiliates will encounter potential conflicts of interest in connection with their activities including, without limitation, the allocation of investment opportunities and relationships with the other activities of the CVC Group. In addition, the Investment Vehicle Manager is expected to invest in companies controlled by CVC Funds and its interest may conflict with the Investment Vehicle Manager’s interests. As a result, the Investment Vehicle Manager is subject to a number of actual and potential conflicts of interest, greater regulatory oversight and more legal and contractual restrictions than that to which they would otherwise be subject if it had just one line of business. In addressing these conflicts and regulatory, legal and contractual requirements across its various businesses, the Investment Vehicle Manager has implemented certain policies and procedures (e.g., information walls) that are likely to reduce the interaction that the Investment Vehicle Manager is able to have with the CVC Group for purposes of finding attractive investments. As a consequence, that information, which could be of benefit to the Investment Vehicle Manager, might become restricted to those other businesses and otherwise be unavailable to the Investment Vehicle Manager, and could also restrict the Investment Vehicle Manager’s activities.

    Performance fee arrangements with the Investment Vehicle Manager could encourage riskier investment choices that could cause significant losses for the Investment Vehicle

    Part of the compensation of the Investment Vehicle Manager is calculated by reference to the performance of the Investments. Such compensation arrangements may create an incentive for the Investment Vehicle Manager to make Investments that are riskier or more speculative than would be the case if these fees were not paid. Since the Investment Vehicle Manager’s fees are calculated on a basis which includes unrealised appreciation of the Investments, such fees may be greater than if they were based solely on realised gains. For more information, please refer to the section entitled “Management and Performance Fees Payable by the Investment Vehicle and the Conversion Vehicle” in Part II of the Prospectus.

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  • Risks relating to global and market changes

    The Company’s target return and target dividend yield are based on estimates and assumptions that are inherently subject to significant business and economic uncertainties and contingencies, and the actual return and dividend yield may be materially lower than the targeted return and target dividend yield

    The Company’s target return and target dividend yield set forth in the Prospectus are targets only and are based on estimates and assumptions concerning the performance of the Investment Vehicle which will be subject to a variety of factors including, without limitation, the availability of investment opportunities, asset mix, value, volatility, holding periods, performance of underlying portfolio debt issuers, investment liquidity, borrower default, changes in current market conditions, interest rates, government regulations or other policies, the worldwide economic environment, changes in law and taxation, natural disasters, terrorism, social unrest and civil disturbances or the occurrence of other risks, which are inherently subject to significant business, economic and market uncertainties and contingencies, all of which are beyond the control of the Company, the Investment Vehicle, and which may adversely affect the Company’s ability to achieve its target return and target dividend yield. Such targets are based on market conditions and the economic environment at the time of assessing the proposed targets and the assumption that the Company, the Investment Vehicle will be able to implement their investment policy and strategy successfully, and are therefore subject to change. There is no guarantee or assurance that the target return and/or target dividend yield can be achieved at or near the levels set forth in the Prospectus. Accordingly, the actual rate of return and actual dividend yield achieved may be materially lower than the targets, or may result in a loss. A failure to achieve the target return and/or target dividend yield set forth in the Prospectus may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Global capital markets have been experiencing volatility, disruption and instability. Material changes affecting global debt and equity capital markets may have a negative effect on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares

    Global capital markets have been experiencing volatility and disruption for more than three years, as evidenced by a lack of liquidity in the equity and debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the credit market and the failure of major financial institutions. Despite the actions of government authorities, these events have contributed to worsening general economic conditions that have materially and adversely affected the broader financial and credit markets and reduced the availability of debt and equity capital.

    Certain countries in Europe currently have large sovereign debts and/or fiscal deficits, and speculation regarding the creditworthiness of the sovereign debt of various Eurozone countries has given rise to concerns that sovereign debtors might default and that one or more countries might leave the European Union and/or the Eurozone. Sovereign debt defaults and European Union and/or Eurozone exits could have material adverse effects on the Investment Vehicle’s ability to make Investments, as well as on the issuers whose debt obligations form part of the Portfolio by, for example, impacting the availability of credit to such issuers and causing uncertainty and disruption in relation to financing, and to the wider markets in which such issuers operate. Any additional austerity or other measures introduced to limit or contain these issues may themselves lead to economic contraction and result in further adverse effects impacting the Investments and, by extension, the NAV and/or the market price of the Placing Shares.

    The Investment Vehicle is required to hold at least 70 per cent. of its Gross Assets in companies domiciled or with material operations in Western Europe. As such, the Investment Vehicle could be particularly exposed to any deterioration in the current European economic crisis. In addition, the Investment Vehicle has no restrictions on the amount of Investments it can make in a single industry. As such, any significant event which affects a specific industry in which the Portfolio has a significant holding could materially and adversely affect the performance of the Investment Vehicle and, by extension, the Placing Shares.

    Further, within the banking sector, the default of any institution could lead to defaults by other institutions. Concerns about, or default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions, because the commercial soundness of many financial institutions may be closely related as a result of their credit, trading, clearing or other relationships. This risk is sometimes referred to as “systemic risk” and may adversely affect other third parties with whom the Investment Vehicle deals. The Investment Vehicle and, by extension, the Company may, therefore, be exposed to systemic risk when the Investment Vehicle deals with various third parties whose creditworthiness may be exposed to such systemic risk.

    The Company, the Investment Vehicle operate in Euro as their base currency, and a proportion of the Investments is and will be denominated in Euro. Accordingly, legal uncertainty about the satisfaction of commitments in Euro following any breakup of, or exits from the Eurozone (particularly in the case of investors domiciled or Investments located in affected countries), could also have material adverse effects on the Investments and, by extension, on the NAV and/or the market price of the Placing Shares.

    Continued or recurring market deterioration may materially adversely affect the ability of an issuer whose debt obligations form part of the Portfolio to service its debts or refinance its outstanding debt. Further, such financial market disruptions may have a negative effect on the valuations of the Investments (and, by extension, on the NAV and/or the market price of the Placing Shares), and on the potential for liquidity events involving such Investments. In the future, non-performing assets in the Investment Vehicle’s Portfolio may cause the value of that Portfolio to decrease (and, by extension, the NAV and/or the market price of the Placing Shares to decrease). Adverse economic conditions may also decrease the value of any security obtained in relation to any of the Investments.

    Conversely, in the event of sustained market improvement, the Investment Vehicle, and indirectly the Company, may have access to a reduced number of attractive potential investment opportunities, which also may result in limited returns to Shareholders.

    Market factors may result in the failure of the investment strategy followed by the Investment Vehicle

    Strategy risk is associated with the failure or deterioration of an investment strategy such that most or all investment managers employing that strategy suffer losses. Strategy specific losses may result from excessive concentration by multiple market participants in the same investment or general economic or other events that adversely affect particular strategies (for example the disruption of historical pricing relationships). Furthermore, an imbalance of supply and demand favouring borrowers could result in yield compression, higher leverage and less favourable terms to the detriment of all investors in the relevant asset class. The strategy employed by the Investment Vehicle is speculative and involves substantial risk of loss in the event of such a failure or deterioration in the financial markets. The Investment Vehicle has certain Investment Limits which define to a degree how it invests and the CECO Directors require the approval of a majority of the aggregate amount of Investment Vehicle Interests, as applicable, to make any material changes to the Investment Limits. As a result, the Investment Vehicle’s investment strategy may fail, and it may be difficult for the CECO Directors to amend the Investment Vehicle’s investment strategy quickly or at all should certain market factors appear, which may adversely affect the performance of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The illiquidity of Investments may have an adverse impact on their price and the Investment Vehicle’s ability to trade in them or require significant time for capital gains to materialise

    Credit markets may from time to time become less liquid, leading to valuation losses on the Investments making it difficult to acquire or dispose of them at prices the Investment Vehicle Manager considers their fair value. Accordingly, this may impair the Investment Vehicle’s ability to respond to market movements and the Investment Vehicle may experience adverse price movements upon liquidation of such Investments. Liquidation of portions of the Portfolio under these circumstances could produce realised losses. The size of the Investment Vehicle’s positions may magnify the effect of a decrease in market liquidity for such instruments. Settlement of transactions may be subject to delay and uncertainty. Such illiquidity may result from various factors, such as the nature of the instrument being traded, or the nature and/or maturity of the market in which it is being traded, the size of the position being traded, or lack of an established market for the relevant securities. Even where there is an established market, the price and/or liquidity of instruments in that market may be materially affected by certain factors.

    The investment objective of the Investment Vehicle is to provide investors with regular income returns and capital appreciation from a diversified portfolio of sub-investment grade debt instruments. Investments which are below investment grade are likely to be significantly less liquid than those which are investment grade and in some circumstances the Investments may be difficult to value and to sell in the relevant market. In addition, Investments which are in the form of loans are not as easily purchased or sold as publicly traded securities due to the unique and more customised nature of the debt agreement and the private syndication process. As a result, there may be a significant period between the date that the Investment Vehicle makes an Investment and the date that any capital gain or loss on such Investment is realised. Moreover, the sale of restricted and illiquid securities may result in higher brokerage charges or dealer discounts and other selling expenses than the sale of securities eligible for trading on national securities exchanges or in the over-the- counter markets. Further, the Investment Vehicle may not be able readily to dispose of such illiquid Investments and, in some cases, may be contractually prohibited from disposing of such Investments for a specified period of time, which could materially and adversely affect the performance of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Interest rate fluctuations could expose the Investment Vehicle and the Conversion Vehicle to additional costs and losses

    The prices of the Investments that may be held by the Investment Vehicle tend to be sensitive to interest rate fluctuations and unexpected fluctuations in interest rates could cause the corresponding prices of a position to move in directions which were not initially anticipated. In addition, interest rate increases generally will increase the interest carrying costs of borrowed securities and leveraged Investments. Further, the Investment Vehicle may invest in both floating and fixed rate securities and interest rate movements will affect those respective securities differently. In particular, when interest rates rise significantly the value of fixed interest rate securities often fall. Furthermore, to the extent that interest rate assumptions underlie the hedging of a particular position, fluctuations in interest rates could invalidate those underlying assumptions and expose the Investment Vehicle to additional costs and losses. Any of the above factors could materially and adversely affect the performance of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The existence of a liquid market in the Shares cannot be guaranteed

    The Company’s existing Euro Shares and Sterling Shares are admitted to the Official List and trade on the main market of the London Stock Exchange, however there can be no guarantee that a liquid market in the Shares will develop or be sustained or that the Shares will trade at prices close to their underlying net asset value. The number of Placing Shares to be issued pursuant to the Placing is not yet known, and there may be a limited number of holders of Shares. Limited numbers and/or holders of Shares may mean that there is limited liquidity in such Shares which may affect: (i) a Shareholder’s ability to realise some or all of their investment; (ii) the price at which such Shareholder can effect such realisation; and/or (iii) the price at which Shares trade in the secondary market. Accordingly, Shareholders may be unable to realise their investment at net asset value or at all.

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  • Structural risks

    The Company Net Asset Value is calculated based on the Investment Vehicle NAV and, as such, is subject to valuation risk and the Company can provide no assurance that the NAVs it records from time to time will ultimately be realised

    The Company Net Asset Value will be calculated based on the Investment Vehicle NAV, which are calculated by third parties and the Investment Vehicle NAV will be subject to valuation risk (see the risk factor entitled “The Investments may be difficult to value accurately and, as a result, Investment Vehicle Interest Holders, such as the Company, may be subject to valuation risk” in the Prospectus). By extension the same risk applies to the calculation of the NAV of any class of Shares. If a valuation estimate provided to the Company by the Investment Vehicle subsequently proves to be incorrect, no adjustment to any previously calculated NAV will be made. Any acquisitions or disposals of Placing Shares based on previous erroneous NAVs may result in losses for shareholders.

    Additionally, if, for any reason, the CECO Directors suspend the calculation of the Investment Vehicle NAV, the Company will also have to suspend the calculation of its NAV. In such circumstances, the Placing Shares may become subject to speculation regarding the value of the assets within the Portfolio and this may have an adverse effect on the market price of the Placing Shares.

    The Company Investment Vehicle Interests may be redeemed or otherwise retired without the consent of the Company and will mature in 2030

    The Investment Vehicle is entitled to compulsorily redeem all of its issued Investment Vehicle Interests (including all of the Company Investment Vehicle Interests) generally on 180 days’ notice if the Investment Vehicle Net Asset Value is determined to be less than 50 million. In addition, while the Company has been incorporated with an indefinite life, it is the stated intention of the CECO Directors to wind up the Investment Vehicle in 2031. If the CECO Directors do not extend such term (which they may do at their sole discretion) the Company Investment Vehicle Interests will repay on their maturity date in 2030. In the event of the Company Investment Vehicle Interests having been redeemed or otherwise retired in full, the Company would be required either: (i) to employ an alternative investment strategy (which would require Shareholder approval) and there can be no assurance that such strategy will have similar risks or rates of return to the Company’s investment in the Investment Vehicle or that any delay in finding and implementing such an alternative strategy will not have a material adverse effect on the NAV and/or the market price of the Shares; or (ii) to put proposals to Shareholders to wind up the Company and return capital to Shareholders. No assurance can be given that Shareholders would realise a profit or avoid a loss of all or part of their investment if the Company were to be wound up.

    The Company Investment Vehicle Interests in which the Company invests are not traded on a stock exchange and the Company relies on the operation of the redemption facilities offered by the Investment Vehicle in order to realise its investments

    Given that the Company Investment Vehicle Interests are not traded on a stock exchange, the Company has and will have to rely on the redemption mechanisms offered by the Investment Vehicle in order to realise its investments in the Investment Vehicle or to conduct Contractual Quarterly Tenders and on those mechanisms operating in a timely manner. The Company does not have any control over the redemption mechanisms operated by the Investment Vehicle.

    The Company may, if so requested, redeem Company Investment Vehicle Interests only on a quarterly basis, as is the case for redemptions of Non-Company Investment Vehicle Interests, being those Investment Vehicle Interests held by the Investment Vehicle’s other direct investors. However, if the Investment Vehicle receives applications to redeem such interests in respect of any redemption date and it determines (in its sole judgement) that there is insufficient liquidity to make redemptions without prejudicing other existing investors in the Investment Vehicle, then the Investment Vehicle is entitled to suspend or scale down the redemption requests on a pro rata basis so as to carry out only such redemptions which will meet this criterion. As such, in circumstances where the Company wishes to redeem part or all of its holdings in the Investment Vehicle, it may not be able to achieve this on a single redemption date and shareholders should have no expectation that the Company will be able to realise all of its investments through a single redemption request. This may also result in restrictions on the Company’s ability to complete or to conduct Contractual Quarterly Tenders. For further information, please refer to the section entitled “Rights of Investment Vehicle Interest Holders and Conversion Vehicle Interest Holders” in Part X of the Prospectus.

    In certain circumstances, whether prior to or following a NAV Determination Date, where the valuation or realisation of the Investments becomes excessively risky or impossible, the CECO Directors may by resolution and on the advice of the Investment Vehicle Manager suspend all calculations, payments and redemptions under all of the outstanding Investment Vehicle Interests (including the Company Investment Vehicle Interests). For further information, please refer to the section entitled “Suspension of calculations, payments, subscriptions and redemptions in respect of the Investment Vehicle and the Conversion Vehicle” in Part II of the Prospectus.

    In the event of a material adverse event occurring in relation to the Investment Vehicle or the market generally, the ability of the Company to realise its investment and prevent the possibility of further losses could, therefore, be limited by its restricted ability to realise its investment in the Investment Vehicle. This delay could materially affect the value of the Company Investment Vehicle Interests and the timing of when the Company is able to realise its investments in the Investment Vehicle, which may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The interests of the direct investors in the Investment Vehicle (excluding the Company) may not always coincide with the interests of Shareholders

    Whilst the Company’s holding of Company Investment Vehicle Interests represents a majority of the aggregate amount of Investment Vehicle Interests, because the Investment Vehicle is open-ended, over time the Company’s holding of Company Investment Vehicle Interests may no longer represent either a majority or a substantial proportion of the aggregate amount of Investment Vehicle Interests. In such circumstances, those direct investors who in aggregate hold the relevant majority of the aggregate amount of Investment Vehicle Interests may have the ability to block or adopt resolutions put to all Investment Vehicle Interest Holders, including, where such direct investors hold a majority of the aggregate amount of Investment Vehicle Interests, a resolution to change the investment policy of the Investment Vehicle. Any such decisions may be contrary to, and have a detrimental effect on, the interests of the Company and its Shareholders, and so may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The investment objective, investment policy, Investment Limits or Borrowing Limit of the Investment Vehicle may materially change and the Company may not be able to redeem its entire holding of Company Investment Vehicle Interests on a single redemption date

    The rights of the Investment Vehicle to amend the investment objective, investment policy, Investment Limits and Borrowing Limit applicable to each of them are constrained by their obligations to Investment Vehicle Interests Holders (including the Company) to maintain their compliance with those limits and the investment policy generally. However, the investment objective, investment policy, Investment Limits and Borrowing Limit of the Investment Vehicle may be amended with the consent of a majority of the aggregate amount of Investment Vehicle Interests respectively. If such an amendment occurs such that the investment objective, investment policy, Investment Limits or Borrowing Limit of the Investment Vehicle is no longer materially consistent with the Company’s investment policy, and shareholders do not vote to amend the Company’s investment policy accordingly, the Directors will be required to redeem the Company’s entire holding in the Investment Vehicle. However, it may not be possible to redeem the Company’s entire holding on a single redemption date due to gating or a suspension of redemptions at the Investment Vehicle level. The continuing economic exposure to each of the Investment Vehicle (which may pursue its new investment objective or investment policy) in the time between the first redemption date on which the Company attempts to redeem its entire holding and the date on which it actually finally redeems its entire holding may adversely affect the Company’s business, financial condition, results of operations, NAV and/ or the market price of the Placing Shares.

    The Investment Vehicle may mandatorily redeem an entire Series of Investment Vehicle Interests without the consent of the investors (including the Company)

    The Investment Vehicle may mandatorily redeem an entire Series of Investment Vehicle Interests if the Series NAV of that Series is determined to be less than €25 million. Prospective investors in the Company should note that, in the event of an entire Series of Investment Vehicle Interests being mandatorily redeemed, the Placing Shares issued by the Company which are linked to that Series may be subject to a mandatory redemption by the Company unless conversion into an alternative class of Shares is available and this may have a material adverse effect on holders of such Placing Shares. Where there are two or more classes of Shares in issue, conversion into an alternate class may be possible but will depend on the Company’s ability to subscribe for additional Investment Vehicle Interests, therefore Shareholders should not assume that conversion will be available. In the event that there is only one class of Shares in issue, then such mandatory redemption would necessitate the winding up of the Company.

    There is a risk that the assets of the Investment Vehicle may be made available to satisfy the liabilities of other Compartments of CECO

    Each of the Investment Vehicle are Compartments of CVC European Credit Opportunities S.àr.l (“CECO”) and because CECO is established as a Luxembourg compartmentalised securitisation company under the Luxembourg Law of 22 March 2004 on securitisation, as amended, the rights of creditors of CECO whose claims have arisen in relation to a specific Compartment of CECO are strictly limited to the net assets of such Compartment without any recourse to the assets of any other Compartment of CECO or any other assets of CECO. This means that the assets of the Investment Vehicle should be available only for distribution to creditors of the relevant Compartment such as Investment Vehicle Interest Holders (including the Company) whose claims have arisen in connection with the creation, the operation and/or the liquidation of the Investment Vehicle, as the case may be.

    Shareholders should note that, as at the date hereof, in addition to the Investment Vehicle, CECO has established other Compartments into which the Company will not invest which have the ability to employ leverage. In addition, CECO is not restricted from creating from time to time further Compartments that can employ leverage. In spite of the fact that the segregation of assets and liabilities is protected under Luxembourg law, there is a risk that, should the liabilities of any other Compartment that may be created in CECO from time to time exceed its assets, creditors of such other Compartment may seek to access the assets of the Investment Vehicle in another jurisdiction and under another system of law. The Investment Vehicle is not aware of any such challenge having been made in respect of a Luxembourg compartmentalised vehicle and does not believe it could be successfully made in respect of CECO. However, in such circumstances a legal attempt by creditors of another Compartment to access the Investment Vehicle’s assets (whether successful or not) could adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Contractual Quarterly Tenders will be subject to certain restrictions and so Shareholders should not have an expectation that all or any of the Shares they make available for sale to the Company will be purchased through the Contractual Quarterly Tender facility

    Contractual Quarterly Tenders, if made, are contingent upon certain factors including, but not limited to, the Company’s ability to finance Tender Purchases through submitting redemption requests to the Investment Vehicle to redeem a pro rata amount of Company Investment Vehicle Interests. Factors, including restrictions at the Investment Vehicle level on the amount of Company Investment Vehicle Interests which can be redeemed, may mean that sufficient Company Investment Vehicle Interests cannot be redeemed and, consequently, Tender Purchases in any given quarter may be scaled back on a pro rata basis. Contractual Quarterly Tenders are also not available in respect of the C Shares, although are available to holders of Shares arising on their Conversion. Shareholders should therefore have no expectation of being able to tender their Shares to the Company successfully on a quarterly basis. For further discussion on the restrictions applicable to Contractual Quarterly Tenders, prospective investors should refer to the section entitled “Discount Control: Quarterly Tenders” in Part I of this Prospectus.

    The operation of the Contractual Quarterly Tender facility will be subject to Shareholder approval on an annual basis, and there is no guarantee that Shareholders will vote to renew the Contractual Quarterly Tender facility. For this reason and the Restrictions discussed in the section entitled “Discount Control: Quarterly Tenders” in Part I of this Prospectus, Shareholders should note that they will be subject to additional liquidity restrictions when compared to direct investors in the Investment Vehicle. Accordingly, there is a risk that such other direct investors in the Investment Vehicle may be able to realise their investment sooner than the Shareholders, which may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

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  • Risks relating to laws and regulation

    CECO and, by extension, the Investment Vehicle, is subject to limited regulatory supervision in Luxembourg

    In line with other companies of its type, CECO, and by extension, the Investment Vehicle, is not a regulated entity in Luxembourg. Accordingly, CECO and, by extension, the Investment Vehicle, are not subject to the oversight of the Luxembourg regulator (the Commission de Surveillance du Secteur Financier).

    As such, investors in the Investment Vehicle (such as the Company) may be subject to lesser levels of investor protection than if oversight was exercised by a regulator, and there is a risk that this state of affairs may adversely affect the Company’s financial condition, NAV and/or the market price of the Placing Shares.

    In the event of the insolvency of an issuer in respect of an Investment, or of an underlying obligor in respect of an Investment, the return on such Investment to the Investment Vehicle may be adversely impacted by the insolvency regime or insolvency regimes which may apply to that issuer or underlying obligor and any of their respective assets

    In the event of the insolvency of an issuer in respect of an Investment, the Investment Vehicle’s recovery of amounts outstanding in insolvency proceedings may be impacted by the insolvency regimes in force in the jurisdiction of incorporation of such issuer or in the jurisdiction in which such issuer mainly conducts its business (if different from the jurisdiction of incorporation), and/or in the jurisdiction in which the assets of such issuer are located. Such insolvency regimes impose rules for the protection of creditors and may adversely affect the ability to recover such amounts as are outstanding from the insolvent issuer under the Investment, which may adversely affect the performance of the Investment Vehicle, and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Similarly, the ability of issuers to recover amounts owing to them from insolvent underlying obligors may be adversely impacted by any such insolvency regimes applicable to those underlying obligors, which in turn may adversely affect the abilities of those issuers to make payments due under the Investment to the Investment Vehicle on a full or timely basis.

    In particular, it should be noted that a number of European jurisdictions operate unpredictable insolvency regimes which may cause delays to the recovery of amounts owed by insolvent issuers or underlying obligors subject to those regimes. The different insolvency regimes applicable in the different European jurisdictions result in a corresponding variability of recovery rates for senior secured loans, high yield bonds and other debt obligations entered into or issued in such jurisdictions, any of which may have a material adverse effect on the performance of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The Investment Vehicle may be subject to losses on Investments as a result of insolvency or clawback legislation and/or fraudulent conveyance findings by courts

    Various laws enacted for the protection of creditors and stakeholders may apply to certain Investments that are debt obligations, although the existence and applicability of such laws will vary between jurisdictions. For example, if a court were to find that an issuer did not receive fair consideration or reasonably equivalent value for incurring indebtedness evidenced by an Investment and the grant of any security interest securing such Investment, and, after giving effect to such indebtedness, the issuer: (i) was insolvent; (ii) was engaged in a business for which the assets remaining in such issuer constituted unreasonably small capital; or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, such court may: (a) invalidate such indebtedness and such security interest as a fraudulent conveyance; (b) subordinate such indebtedness to existing or future creditors of the issuer; or (c) recover amounts previously paid by the issuer (including to the Investment Vehicle) in satisfaction of such indebtedness or proceeds of such security interest previously applied in satisfaction of such indebtedness. In addition, if an issuer in whose debt the Investment Vehicle has an Investment becomes insolvent, any payment made on such Investment may be subject to avoidance, cancellation and/or clawback as a “preference” if made within a certain period of time (which for example under some current laws may be as long as two years) before insolvency.

    In general, if payments on an Investment are voidable, whether as fraudulent conveyances, extortionate transactions or preferences, such payments may be recaptured either from the initial recipient or from subsequent transferees of such payments. To the extent that any such payments are recaptured from the Investment Vehicle, there will be an adverse effect on the performance of the Investment Vehicle and, by extension, on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The collateral and security arrangements attached to an Investment may not have been properly created or perfected, or may be subject to other legal or regulatory restrictions

    The collateral and security arrangements in relation to secured obligations in which the Investment Vehicle may invest will be subject to such security or collateral having been correctly created and perfected and any applicable legal or regulatory requirements which may restrict the giving of collateral or security by an issuer, such as, for example, thin capitalisation, over-indebtedness, financial assistance and corporate benefit requirements. If the Investments do not benefit from the expected collateral or security arrangements, this may adversely affect the value of, or in the event of a default, the recovery of principal or interest from, such Investments. Accordingly, any such failure to properly create or perfect collateral and security interests attaching to the Investments may adversely affect the performance of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Shareholders in certain jurisdictions may not be eligible to participate in Contractual Quarterly Tenders and to receive the cash proceeds thereof

    The securities laws of certain jurisdictions may restrict the Company’s ability to allow Shareholders to participate in any Contractual Quarterly Tenders or redemption offers. There can be no assurance that the Company will be able to conduct any Contractual Quarterly Tenders or redemption offers in a manner that would enable participation therein, or receipt of the cash proceeds thereof, by Shareholders in such jurisdictions. Shareholders who have a registered address in or who are resident or located in (as applicable) a jurisdiction other than the United Kingdom should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to participate in any Contractual Quarterly Tenders or redemption offers.

    Changes in law or regulations, or a failure to comply with any laws or regulations, may adversely affect the respective businesses, investments and performance of the Company, Investment Vehicle, CVC Investment Services and Investment Vehicle Manager

    The Company, the Investment Vehicle, CVC Investment Services and the Investment Vehicle Manager are subject to laws and regulations enacted by national and local governments.

    The Company is subject to, and is required to comply with, certain regulatory requirements that are applicable to closed-ended investment companies which are domiciled in Jersey. These include compliance with any decision of the JFSC. In addition, the Company is subject to the continuing obligations imposed by the UKLA and the London Stock Exchange on all investment companies whose shares are respectively admitted to the Official List and to trading on the Main Market.

    The Investment Vehicle is subject to, and is required to comply with, certain regulatory requirements that are applicable to compartmentalised securitisation vehicles which are domiciled in Luxembourg. These include compliance with the Securitisation Law and EU regulations requiring such entities to report their assets and liabilities on a periodic basis (Regulation (EC No 24/2009) of the European Central Bank).

    The Investment Vehicle Manager is subject to, and is required to comply with, certain regulatory requirements of the FCA.

    CVC Investment Services is subject to, and is required to comply with, certain regulatory requirements of the JFSC.

    The laws and regulations affecting the Company, the Investment Vehicle, and/or the Investment Vehicle Manager are evolving and any changes in such laws and regulations may have an adverse effect on the ability of the Company, the Investment Vehicle, and/or the Investment Vehicle Manager to carry on their respective businesses. Any such changes may also have an adverse effect on the ability of the Company and/or the Investment Vehicle to pursue their respective investment policies, and may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The European Directive on Alternative Investment Fund Managers may impair the ability of the Company to market its Shares and C Shares to EU investors of the Company and gives rise to the risk that an EU regulatory authority may determine that the Company has a third party alternative investment fund manager. The timing of any resulting licensing requirements could be problematic for the on-going operation of the Company and the regulatory obligations applicable to the relevant third party may create significant additional compliance costs

    The AIFM Directive, which was due to be transposed by EU member states into national law by July 2013 (and was so transposed by, inter alia, Luxembourg and the United Kingdom), seeks to regulate alternative investment fund managers (in this paragraph, “AIFM”) and imposes obligations on managers who manage alternative investment funds (in this paragraph, “AIF”) in the EU or who market shares in such funds to EU investors. In order to obtain authorisation under the AIFM Directive, an AIFM needs to comply with various obligations in relation to the AIF, which may create significant additional compliance costs, some of which may be passed to investors in the AIF.

    The Company is a non-EU AIF for the purposes of the AIFM Directive and related regimes in relevant EU member states. The Company operates as a self-managed AIF and has not appointed a third party as its AIFM. As the Company is a self-managed non-EU AIF, only a limited number of provisions of the AIFM Directive apply, at least until July 2018 (at which point additional obligations may apply under the AIFM Directive, but only if the Company markets Shares to investors in the EU after that date).

    There is a risk that a relevant regulatory authority may determine that the Company is not a self-managed AIF and that a particular third party which assists the Company in various corporate functions is its AIFM. If a relevant regulatory authority determines that the Company is not a self-managed AIF and that a particular third party, which is established in the EU, is its AIFM, that AIFM may be subject to the full range of requirements of the AIFM Directive. Subject to the availability of transitional or grandfathering provisions in the AIFM Directive, the AIFM might be required to apply for a licence in an EU member state, and until it has obtained such authorisation, it may not be able to act as the AIFM of the Company. As a result, the Company may not be able to utilise the relevant third party for the services it had been providing to the Company, such as assisting in the sale of any Treasury Shares.

    Following national transposition of the AIFM Directive in a given EU member state, the marketing of shares in AIFs that are established outside the EU (such as the Company) to investors in that EU member state will be prohibited unless certain conditions are met. Certain of these conditions are outside the Company’s control as they are dependent on the regulators of the relevant third country (in this case Jersey) and the relevant EU member state entering into regulatory co-operation agreements with one another. The Company cannot guarantee that such conditions will be satisfied. In cases where the conditions are not satisfied, the ability of the Company to market Shares or C Shares or raise further equity capital in the EU may be limited or removed. In that event the Company may be required to consider a re-domiciliation to another EU member state or to another third country which has satisfied the relevant conditions.

    Any regulatory changes arising from implementation of the AIFM Directive (or otherwise) that limit the Company’s ability to market future issues of its Shares may materially adversely affect the Company’s ability to carry out its investment policy successfully and to achieve its investment objective, which in turn may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The potential effects of the AIFM Directive as explained herein could also apply in respect of the Investment Vehicle Manager managing the Investments if the Investment Vehicle, being Luxembourg domiciled, were to fall to be considered an EU AIF. However, due to their status as a securitisation special purpose entity, the Investment Vehicle (and the Investment Vehicle Manager as its manager) are exempt from the requirements of the AIFM Directive. If the AIFM Directive were to be amended or otherwise adjusted so that the Investment Vehicle was considered an AIF and the Investment Vehicle Manager an AIFM, the risks described within this risk factor would apply in respect of the Investment Vehicle and the Investment Vehicle Manager.

    Final regulations implementing the “Volcker Rule” in the United States of America were issued in December 2013 and become effective by operation of law on 1 April 2014, subject to a conformance period. The final Volcker Rule regulations revised the November 2011 proposed regulations and include certain changes to the treatment of foreign funds and non-U.S. bank investors. If the Volcker Rule applies to an investor’s ownership of Placing Shares, the investor may be forced to sell its shares, or the continued ownership of such shares may be subject to certain restrictions.

    On 21 July 2010, U.S. President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act and certain provisions therein known as the “Volcker Rule.” On 10 December, 2013, the final Volcker Rule regulations (the “Final Regulations”) were issued by U.S. regulators. The Final Regulations are effective from 1 April 2014, subject to a conformance period ending on 21 July 2015 (which may be extended). The Volcker Rule generally restricts certain non-U.S. banks and affiliated financial firms, collectively identified as “banking entities,” from investing in and sponsoring “covered funds.” In the event that a non-U.S. bank is deemed to be a “banking entity” and the Company is deemed to be a “covered fund” for purposes of the Volcker Rule, the non-U.S. bank’s ownership of the Placing Shares may be subject to investment restrictions. If so, the non-U.S. bank may be required to divest the Placing Shares by the end of the conformance period. Depending on market conditions and other factors, if an investor is required to liquidate its investment in the Placing Shares during the conformance period, it may suffer a loss from the price at which it purchased the Placing Shares.

    Different regulatory, tax or other treatment of the Company or the Placing Shares in different jurisdictions, or changes to such treatment in different jurisdictions, may adversely impact shareholders in certain jurisdictions

    For regulatory, tax and other purposes, the Company and the Placing Shares may be treated in different ways in different jurisdictions. For instance, in certain jurisdictions and for certain purposes, the Placing Shares may be treated as more akin to holding units in a collective investment scheme. Furthermore, in certain jurisdictions, the treatment of the Company and/or the Placing Shares may be uncertain or subject to change, or it may differ depending on the availability of certain information or disclosure by the Company of that information. The Company may be subject, therefore, to financially and logistically onerous requirements to disclose any or all of such information or to prepare or disclose such information in a form or manner which satisfies the regulatory, tax or other authorities in certain jurisdictions. The Company may elect not to disclose such information or prepare such information in a form which satisfies such authorities. Therefore, shareholders in such jurisdictions may be unable to satisfy the regulatory requirements to which they are subject.

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  • Investment risks

    The investment strategy of the Investment Vehicle includes investing in sub-investment grade and unrated debt obligations which are subject to a greater risk of loss of principal than higher-rated securities

    The investment strategy of the Investment Vehicle principally consists of investing in sub-investment grade debt obligations, which include senior secured, second lien and mezzanine loans, high-yield bonds, PIK notes and CLO equity. Securities in the sub-investment grade categories are subject to greater risk of loss of principal and interest than higher-rated securities and may be considered to be predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. They may also be considered to be subject to greater risk than securities with higher ratings in the case of deterioration of general economic conditions. Because investors generally perceive that there are greater risks associated with non-investment grade securities, the yields and prices of such securities may fluctuate more than those for higher-rated securities. The market for non-investment grade securities may be smaller and less active than that for higher-rated securities, which may adversely affect the prices at which these securities can be sold and result in losses to the Investment Vehicle, which, in turn, could have a material adverse effect on the performance of the Investment Vehicle and, by extension, on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    In addition, the Investment Vehicle may invest in debt obligations which may be unrated by a recognised credit rating agency, which may be subject to greater risk of loss of principal and interest than higher-rated debt obligations or debt obligations which rank behind other outstanding securities and obligations of the issuer, all or a significant portion of which, may be secured on substantially all of that issuer’s assets. The Investment Vehicle may also invest in debt obligations which are not protected by financial covenants or limitations on additional indebtedness. In addition, evaluating credit risk for debt securities involves uncertainty because credit rating agencies throughout the world have different standards, making comparison across countries difficult. Any of these factors may adversely affect the value of the Portfolio and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    In the event of a default in relation to an Investment, the Investment Vehicle will bear a risk of loss of principal and accrued interest

    Performance and investor yield on the Company Investment Vehicle Interests may be affected by the default or perceived credit impairment of Investments made by the Investment Vehicle Manager and by general or sector specific credit spread widening. Credit risks associated with the Investments include (among others): (i) the possibility that earnings of the issuer may be insufficient to meet its debt service obligations; (ii) the issuer’s assets declining in value; and (iii) the declining creditworthiness, default and potential for insolvency of the issuer during periods of rising interest rates and economic downturn. An economic downturn and/or rising interest rates could severely disrupt the market for the Investments and adversely affect the value of the Investments and the ability of the issuers thereof to repay principal and interest. In turn, this may adversely affect the performance of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    In the event of a default in relation to an Investment held by it, the Investment Vehicle will bear a risk of loss of principal and accrued interest on that Investment. Any such Investment may become defaulted for a variety of reasons, including non-payment of principal or interest, as well as breaches of contractual covenants. A defaulted Investment may become subject to workout negotiations or may be restructured by, for example, reducing the interest rate, a write-down of the principal, and/or changes to its terms and conditions. Any such process may be extensive and protracted over time, and therefore may result in substantial uncertainty with respect to the ultimate recovery on the defaulted Investment. In addition, significant costs might be imposed on the lender, further affecting the value of the Investment. The liquidity in such defaulted Investments may also be limited and, where a defaulted Investment is sold, it is unlikely that the proceeds from such sale will be equal to the amount of unpaid principal and interest owed on that Investment. This would adversely affect the value of the Portfolio of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    In the case of secured loans, restructuring can be an expensive and lengthy process which could have a material negative effect on the Investment Vehicle’s anticipated return on the restructured loan. By way of example, it would not be unusual for any costs of enforcement to be paid out in full before the repayment of interest and principal. This would substantially reduce the Investment Vehicle’s anticipated return on the restructured loan.

    The Investment Vehicle may hold a relatively concentrated Portfolio

    The Investment Vehicle may hold a relatively concentrated Portfolio. The Investment Vehicle is permitted to hold a maximum of 7.5 per cent. of its Gross Assets in a single issuer, with a single exception permitting investment of up to 15 per cent. of its Gross Assets in order to participate in a loan to a single issuer, conditional on the requirement that the Investment Vehicle sells down this holding to a maximum of 7.5 per cent. of Gross Assets within 12 months of acquisition. There is a risk that the Investment Vehicle could be subject to significant losses if any issuer, especially one with whom the Investment Vehicle had a concentration of investments, were to default or suffer some other material adverse change. The level of defaults in the Portfolio and the losses suffered on such defaults may increase in the event of adverse financial or credit market conditions. Any of these factors could adversely affect the value of the Portfolio and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The investment objective, investment policy, investment strategy, Investment Limits, Borrowing Limit and/or emphasis of the Investment Vehicle may change over time

    The CECO Directors may make changes to the investment objective, investment policy, investment strategy, Investment Limits and Borrowing Limit which they consider are not material without the consent of the Investment Vehicle Interest Holders or of the Company. Material changes to the Investment Vehicle’s investment objective, investment policy, Investment Limits and Borrowing Limit may be made with the approval of a majority of the aggregate amount of Investment Vehicle Interests. In order to address the risk of the nature of the Company’s investment exposure changing significantly, the Company will receive periodic updates from the Investment Vehicle regarding any changes (material or otherwise) to their investment objective, investment policy, Investment Limits and/or Borrowing Limit and will seek Shareholder approval of any changes which are either material in their own right or, when viewed as a whole together with previous nonmaterial changes, constitute a material change from the published investment objective or policy of the Company. However, if the investment objective, investment policy, Investment Limits, Borrowing Limit and/or strategy of the Investment Vehicle were to change, the Company (and therefore, indirectly, Shareholders) may find that the nature of its investment exposure changes, possibly significantly and, although the Company may seek to redeem its investment in the Investment Vehicle, its ability to exit the Investment Vehicle and the Conversion Vehicle may be limited, which could have a material adverse effect on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The Investments will be based in part on valuations of collateral which are subject to assumptions and factors that may be incomplete, inherently uncertain or subject to change

    A component of the Investment Vehicle Manager’s analysis of the desirability of making a given Investment relates to the estimated residual or recovery value of such Investments in the event of the insolvency of the issuer. This residual or recovery value will be driven primarily by the value of the anticipated future cashflows of the issuer’s business and by the value of any underlying assets constituting the collateral for such Investment. The anticipated future cashflows of the issuer’s business and the value of collateral can, however, be extremely difficult to predict as in certain circumstances market quotations and third party pricing information may not be available. If the recovery value of the collateral associated with the Investments in which the Investment Vehicle invests decreases or is materially worse than expected by the Investment Vehicle, such a decrease or deficiency may affect the value of the Investments made by the Investment Vehicle. Accordingly, there will be an adverse effect on the performance of the Investment Vehicle and, by extension, on the Company’s business, financial condition, results of operations, NAV and/ or the market price of the Placing Shares.

    The due diligence process that the Investment Vehicle Manager plans to undertake in evaluating specific investment opportunities for the Investment Vehicle may not reveal all facts that may be relevant in connection with such investment opportunities and any corporate mismanagement, fraud or accounting irregularities may materially affect the integrity of the Investment Vehicle Manager’s due diligence on investment opportunities

    When conducting due diligence and making an assessment regarding an Investment, the Investment Vehicle Manager will be required to rely on resources available to it, including internal sources of information as well as information provided by existing and potential issuers, any equity sponsor(s), lenders and other independent sources. The due diligence process may at times be required to rely on limited or incomplete information.

    The Investment Vehicle Manager will select Investments for the Investment Vehicle in part on the basis of information and data relating to potential Investments filed with various government regulators and publicly available or made directly available to the Investment Vehicle Manager by the entities filing such information or third parties. Although the Investment Vehicle Manager will evaluate all such information and data and seek independent corroboration when it considers it appropriate and reasonably available, the Investment Vehicle Manager will not be in a position to confirm the completeness, genuineness or accuracy of such information and data. The Investment Vehicle Manager is dependent upon the integrity of the management of the entities filing such information and of such third parties as well as the financial reporting process in general.

    The value of an Investment made by the Investment Vehicle may be affected by fraud, misrepresentation or omission on the part of an issuer, underlying obligor, any related parties to such issuer or underlying obligor, or by other parties to the Investment (or any related collateral and security arrangements). Such fraud, misrepresentation or omission may adversely affect the value of the Investment and/or the value of the collateral underlying the Investment in question and may adversely affect the Investment Vehicle’s ability to enforce its contractual rights relating to that Investment or the relevant issuer’s ability to repay the principal or interest on the Investment.

    Investment analyses and decisions by the Investment Vehicle Manager may be undertaken on an expedited basis in order to make it possible for the Investment Vehicle to take advantage of short-lived investment opportunities. In such cases, the available information at the time of an investment decision may be limited, inaccurate and/or incomplete. Furthermore, the Investment Vehicle Manager may not have sufficient time to evaluate fully such information even if it is available.

    Accordingly, the Investment Vehicle Manager cannot guarantee that the due diligence investigation it carries out with respect to any investment opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. Any failure by the Investment Vehicle Manager to identify relevant facts through the due diligence process may cause it to make inappropriate investment decisions, which may have a material adverse effect on the performance of the Investment Vehicle, and, by extension, on the Company’s business, financial condition, results of operations, NAV and/ or the market price of the Placing Shares.

    Sterling Shares will be exposed to exchange rate fluctuations

    The Investments made by the Investment Vehicle are primarily denominated in Euro, although certain Investments may be denominated in currencies other than Euro. The financial statements of the Company and the Investment Vehicle are prepared in Euro and the operational and accounting currency of the Company and the Investment Vehicle is Euro (as will also be the case for the Conversion Vehicle). Subscription monies for Sterling Shares and Sterling C Shares are used to fund subscriptions for Sterling denominated Company Investment Vehicle Interests and Conversion Vehicle Interests respectively and such monies may then be converted to Euro for operating purposes.

    The holders of Sterling Shares will therefore be subject to foreign currency fluctuations between Sterling and Euro. Although the Investment Vehicle Manager seeks to hedge against exchange rate fluctuations, there is no guarantee that any hedging arrangements will be successful. In addition, the costs and any benefit of hedging such foreign currency exposure will be allocated solely to the Sterling-denominated Company Investment Vehicle Interests (and, as a consequence, to the Sterling Shares). This may result in variations between the Net Asset Value per share of the Euro Shares and the Sterling Shares, and so in variations between the market prices of Euro Shares and the Sterling Shares.

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  • Risks relating to derivatives

    The Investment Vehicle are exposed to foreign exchange risk, which may have an adverse impact on the value of their assets and on their results of operations

    The base currency of the Investment Vehicle is the Euro. Certain of their assets may be invested in securities and other Investments which are denominated in other currencies. Accordingly, the Investment Vehicle will necessarily be subject to foreign exchange risks and the value of their assets may be affected unfavourably by fluctuations in currency rates. Although the Investment Vehicle Manager may utilise financial instruments to hedge against declines in the value of such assets as a result of changes in currency exchange rates, they are not obliged to do so and may terminate any hedge contract at any time. Moreover, it may not be possible for the Investment Vehicle Manager to hedge against a particular change or event at an acceptable price or at all. In addition, there can be no assurance that any attempt to hedge against a particular change or event would be successful, and any such hedging failure could materially and adversely affect the performance of the Investment Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The hedging arrangements of the Investment Vehicle may not be successful

    The Investment Vehicle’s economic risks cannot be effectively hedged. However, in connection with the financing of certain Investments, the Investment Vehicle Manager may employ hedging techniques on behalf of the Investment Vehicle designed to reduce the risks of adverse movements in interest rates, securities’ prices and/or currency exchange rates. However, some residual risk may remain as a result of imperfections and inconsistencies in the market and/ or in the hedging contract. While such hedging transactions may reduce certain risks, they create others.

    The Investment Vehicle Manager may utilise certain derivative instruments (such as using single-name credit default swaps, credit default swap and loan credit default swap indexes, equity futures and equity indexes) for hedging purposes. However, even if used primarily for hedging purposes, the price of derivative instruments is highly volatile, and acquiring or selling such instruments involves certain leveraged risks. There may be an imperfect correlation between the instrument acquired for hedging purposes and the Investments or market sectors being hedged, in which case, a speculative element is added to the highly leveraged position acquired through a derivative instrument primarily for hedging purposes. In particular, the Investments which are in the form of loans may typically be repaid at any time on short notice at no cost, and accordingly the hedging of interest rate or currency risk in such circumstances may be less precise than is the case with Investments in the public securities market.

    Furthermore, default by any hedging counterparty in the performance of its obligations could subject the Investments to unwanted credit risks and market risk. Accordingly, although the Investment Vehicle, and so the Company, may benefit from the use of hedging strategies, failure to properly hedge the market risk in the Investments and/or default of a counterparty in the performance of its obligations under a hedging contract may have a material adverse effect on the performance of the Investment Vehicle and, by extension, on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares, and such adverse effects may exceed those which may have resulted had no hedging strategy been employed.

    Under certain hedging contracts that the Investment Vehicle may enter into, the Investment Vehicle may be required to grant security interests over some of its assets to the relevant counterparty as collateral

    In connection with certain hedging contracts, the Investment Vehicle or the Conversion Vehicle may be required to grant security interests over some of its assets to the relevant counterparty to such hedging contract as collateral. Such hedging contracts typically will give the counterparty the right to terminate the agreement upon the occurrence of certain events. Such termination events may include, among others, a failure by the Investment Vehicle to pay amounts owed when due, a failure to provide required reports or financial statements, a decline in the value of the Investments secured as collateral, a failure to maintain sufficient collateral coverage, a failure by the Investment Vehicle Manager to comply with the investment policy and any investment restrictions, key changes in the Investment Vehicle’s management or the Investment Vehicle Manager’s personnel, a significant reduction in the Investment Vehicle Net Asset Value, and material violations of the terms, representations, warranties or covenants contained in the hedging contract, as well as other events determined by the counterparty. If a termination event were to occur, there may be a material adverse effect on the performance of the Investment Vehicle, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

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  • Leverage risks

    The use of leverage by the Investment Vehicle may increase the volatility of returns and providers of leverage would rank ahead of investors in the Investment Vehicle in the event of insolvency

    The Investment Vehicle may employ leverage in order to increase investment exposure with a view to achieving its target return. The Investment Vehicle is subject to a maximum permitted leverage of 100 per cent. of the Investment Vehicle Net Asset Value.

    While leverage presents opportunities for increasing total returns, it can also have the effect of increasing the volatility of the performance of the Investment Vehicle and, by extension, the Shares, including the risk of total loss of the amount invested. If income and capital appreciation on Investments made with borrowed funds are less than the costs of the leverage, the Investment Vehicle Net Asset Value will decrease. The effect of the use of leverage is to increase the investment exposure, the result of which is that, in a market that moves adversely, the possible resulting loss to investors’ capital would be greater than if leverage were not used. As a result of leverage, small changes in the value of the underlying assets may cause a relatively large change in the value of the Investment Vehicle. Many financial instruments used to employ leverage are subject to variation or other interim margin requirements, which may force premature liquidation of Investments. Investors should be aware that the use of leverage by the Investment Vehicle can be considered to multiply the leverage effect on their investment returns in the Company. As described above, while this effect may be beneficial when markets’ movements are favourable, it may result in a substantial loss of capital when markets’ movements are unfavourable.

    In addition, such leverage may involve granting of security or the outright transfer of specific Investments in the Portfolio. Since there is no security created in respect of the Investment Vehicle’s obligations and the Investment Vehicle Interests (including the Company Investment Vehicle Interests) are preferred equity instruments, under the terms of the Investment Vehicle Interests, on any insolvency of the Investment Vehicle, Investment Vehicle Interest Holders (including the Company) could rank behind the Investment Vehicle’s financing and hedging counterparties, whose claims will be considered as indebtedness of the Investment Vehicle and may be secured. Leverage does create opportunities for greater total returns on the Investments but simultaneously creates special risk considerations: it may exaggerate changes in the total value of the Investment Vehicle Net Asset Value and in the yield on the Investments and, subsequently, the yield on the Company Investment Vehicle Interests.

    In addition, to the extent leverage is employed the Investment Vehicle may be required to refinance transactions from time to time. On each refinancing, it is open to the counterparty to renegotiate the terms of each transaction or indeed not to refinance the transaction at all. To the extent refinancing facilities are not available in the market at economic rates or at all, the Investment Vehicle, as the case may be, may be required to sell assets at disadvantageous prices. Any such deleveraging may result in losses on Investments which could be severe and accordingly could have a material adverse effect on the performance of the Investment Vehicle and, by extension, on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

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  • Takeover provisions risks

    Shareholders’ percentage voting rights in the Company may increase as a result of Tender Purchases and as a result there is a risk that a Shareholder may acquire 30 per cent. of the voting rights in the Company and then be obliged under the Takeover Code to make a general offer to all the remaining Shareholders to acquire their Shares

    Under Rule 9 of the Takeover Code, any person who acquires shares which, taken together with shares already held by him or shares held or acquired by persons acting in concert with him, carry 30 per cent. or more of the voting rights in a company which is subject to the Takeover Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares. Similarly, when any person or persons acting in concert already hold more than 30 per cent. but not more than 50 per cent. of the voting rights of such company, a general offer will normally be required if any further shares increasing that person’s percentage of voting rights are acquired.

    Under Rule 37 of the Takeover Code, when a company purchases its own voting shares, a resulting increase in the percentage of voting rights carried by the shareholdings of any person or group of persons acting in concert will be treated as an acquisition for the purposes of Rule 9 of the Takeover Code.

    Accordingly, when the Company makes Tender Purchases pursuant to a Contractual Quarterly Tender, any resulting increase in the percentage of the voting rights in the Company held by a Shareholder (or Shareholders acting in concert) will be treated as an acquisition in accordance with Rule 37 of the Takeover Code and, if such percentage reaches 30 per cent. of the voting rights in the Company, or if a Shareholder (or Shareholders acting in concert) already hold(s) 30 per cent. of the voting rights in the Company and such percentage Shareholding increases further, the relevant Shareholder or Shareholders would be required under Rule 9 to make a general offer to all remaining Shareholders to acquire their Shares.

    If such a situation arises or is likely to arise, it is the intention of the Directors to seek a waiver from the Takeover Panel of the requirement that the relevant Shareholder or Shareholders make an offer under Rule 9 as a result of Share purchases. However, the Directors cannot guarantee that such a waiver will be obtained or that the relevant Shareholder or Shareholders would not be required to make a general offer to the remaining Shareholders to acquire their Shares.

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  • Tax risks

    If the Company, the Investment Vehicle become subject to tax on a net income basis in any tax jurisdiction, including Jersey, the United Kingdom and Luxembourg, the Company’s financial condition and prospects could be materially and adversely affected.

    The Company and the Investment Vehicle intend to conduct their respective affairs so that they will not be treated under English law and practice as UK resident for taxation purposes, or as having a permanent establishment or otherwise being engaged in a trade or business, in the UK. The Company and the Investment Vehicle each intends that it will not be subject to tax on a net income basis in any country. There can be no assurance, however, that the net income of the Company or the Investment Vehicle will not become subject to income tax in one or more countries, including Jersey, the United Kingdom and Luxembourg, as a result of unanticipated activities performed by the Company or the Investment Vehicle, respectively, adverse developments or changes in law, contrary conclusions by the relevant tax authorities, changes in the Directors’ personal circumstances or management errors, or other causes. The imposition of any such unanticipated net income taxes could materially reduce the post-tax returns available for distributions on the Placing Shares, and consequently may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The Company may be unable to maintain its non-UK tax resident status, which would adversely affect its financial and operating results, the value of the Placing Shares and the after-tax return to shareholders

    In order to maintain its non-UK tax resident status, the Company is required to be controlled and managed outside the United Kingdom. The composition of the Board of Directors of the Company, the place of residence of the individual Directors and the location(s) in which the Board of Directors of the Company makes decisions will be important in determining and maintaining the non-UK tax resident status of the Company. Although the Company is established outside the United Kingdom and a majority of the Directors live outside the United Kingdom, continued attention must be given to ensure that major decisions are not made in the United Kingdom or the Company may lose its non-UK tax resident status. As such, changes in Directors’ personal circumstances or management errors could potentially lead to the Company being considered UK tax resident which would adversely affect the Company’s business, financial condition, results of operations, NAV, the market price of the Placing Shares and/or the after-tax return to its shareholders.

    Changes in taxation legislation, or the rate of taxation, may adversely affect the Company, the Investment Vehicle

    Any change in the tax status of the Company, the Investment Vehicle, or in taxation legislation or practice in Jersey, the United Kingdom, Luxembourg or elsewhere could affect the value of the investments held by the Company, the Investment Vehicle or the Company’s ability to achieve its investment objectives or alter the post-tax returns to shareholders. Statements in the Prospectus concerning the taxation of shareholders and/or the Company are based upon current Jersey, United Kingdom and Luxembourg law and published practice as at the date of the Prospectus, which law and practice is, in principle, subject to change (potentially with retrospective effect) that could adversely affect the ability of the Company to meet its investment objective and which could adversely affect the taxation of shareholders and/or the Company.

    Statements in the Prospectus in particular take into account the UK offshore fund rules contained in Part 8 of the Taxation (International and Other Provisions) Act 2010. If UK offshore fund reporting fund status is not obtained and/or maintained in respect of a class of Shares in the Company, any gain on a disposal of such Shares would be taxed as an “offshore income gain” subject to UK tax for any relevant Shareholders as income (and not as a capital gain).

    Potential investors are urged to consult their tax advisers with respect to their particular tax situations and the tax effect of an investment in the Company.

    Further, on 14 February 2013, the European Commission published a proposal for a Directive for a common financial transaction tax (the “FTT”) in certain EU Member States. Discussions between these Member States are on-going, although the UK has challenged the legality of the proposal.

    Under current proposals the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to financial transactions where at least one party is a financial institution and: (a) one party is established in a participating Member State; or (b) the financial instrument which is subject to the transaction is issued in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including by transacting with a person established in a participating Member State. The rates of the FTT are to be fixed by each participating Member State, but in relation to many secondary market transactions in bonds and shares, the FTT would be charged at a minimum rate of 0.1 per cent. on each financial institution which is party to the transaction. The taxable amount for such transactions will in general be determined by reference to the consideration paid or owed in return for the transfer. The FTT will be payable by each financial institution established or deemed established in a participating Member State which is either a party to the financial transaction, or acting in the name of a party to the transaction or where the transaction has been carried out on its account. Where the FTT due has not been paid within the applicable time limits, each party to a financial transaction, including persons other than financial institutions, will become jointly and severally liable for the payment of the FTT due.

    The issuance and subscription of the Placing Shares should, in principle, not be subject to the FTT. There are no broad exemptions for financial intermediaries or market makers. Therefore, the effective cumulative rate applicable to some dealings in bonds or shares (for instance, cleared transactions) could be greatly in excess of 0.1 per cent. While the FTT proposal remains subject to negotiation between the Member States, and may therefore be altered, if adopted in its current proposed form any investments the Investment Vehicle may make may be affected by the FTT and it may have an adverse effect on the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    The FTT proposal remains subject to negotiation between the participating Member States and is the subject of legal challenge. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Placing Shares are strongly advised to seek their own professional advice in relation to the FTT.

    UK taxpaying shareholders may be subject to income tax under the UK offshore funds regime in any tax year on amounts of income attributable to them to the extent such amounts are greater than the dividends actually paid out by the Company in the period

    The Directors have been advised that, under current law, each class of Shares in the Company will fall to qualify as an “offshore fund” pursuant to the UK offshore fund rules contained in Part 8 of the Taxation (International and Other Provisions) Act 2010. The Company intends to make an application for UK “reporting fund” status for each class of Shares (where this has not already been done). Under the reporting fund regime, individual and other relevant shareholders will be subject to UK tax on their share of the reportable income attributable to their holding in the Company, whether or not distributed. For these purposes income is calculated in accordance with the reporting fund regulations and may not be the same as the income of the Company.

    Potential investors are urged to consult their tax advisers with respect to their particular tax situations and the tax effect of an investment in the Company.

    Certain payments to the Company may be subject to 30% withholding tax and certain holders of Shares may themselves be subject to such withholding tax if they do not provide the Company with required information

    Sections 1471 through 1474 of the Code and the US Treasury regulations promulgated thereunder (the provisions commonly known as “FATCA”) generally impose a 30% withholding tax on (i) certain payments of US source income, (ii) certain payments of proceeds from the sale of property that could give rise to US source interest or dividends made after 31 December 2018 and (iii) certain non-US source payments made by certain foreign financial institutions (“FFIs”) after 31 December 2018 unless there is compliance with requirements for the Company to report on an annual basis the identity of, and certain other information about, direct and indirect US investors in the Company to the relevant Jersey authority for onward transmission to the US Internal Revenue Service (“IRS”).  An investor that fails to provide the information required under FATCA or otherwise fails to be FATCA compliant may be subject to the 30% withholding tax under certain circumstances, and the Company might be required to terminate such investor’s investment in the Company.

    On 13 December 2013 an intergovernmental agreement was entered into between Jersey and the United States in respect of FATCA, which agreement was enacted into Jersey law as of 18 June 2014 by the Taxation (Implementation) (International Tax Compliance) (United States of America) (Jersey) Regulations 2014. Jersey FFIs, such as the Company, that are subject to and compliant with FATCA, the Jersey intergovernmental agreement and the Jersey implementing legislation generally will not be subject to the 30% withholding tax regime on payments they receive and should not be required to withhold under FATCA on payments of non-US source income they make.

    Although the Company will attempt to satisfy any obligations imposed on it to avoid the imposition of such withholding tax, no assurance can be given that the Company will be able to satisfy these obligations.  If the Company becomes subject to a withholding tax as a result of FATCA, the return of all shareholders may be materially affected. 

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  • General risks and considerations

    The Company is a recently formed company with a limited operating history, and investors have a limited basis on which to evaluate the Company’s ability to achieve its investment objective

    The Company is a recently formed company with a limited operating history. As such, investors have a limited basis on which to evaluate the Company’s ability to achieve its investment objective and provide a satisfactory investment return. There can be no assurance that the Company will be able to maintain its historic performance or achieve its investment objective and any failure by the Company to do so may adversely affect its business, financial condition, results of operations, NAV and the market price of the Placing Shares. Past performance of the Company should not be taken as a guide to its future performance.

    The Company will be a speculative investment, of a long term nature, and will involve a high degree of risk. A shareholder could lose all or a substantial portion of their investment in the Company. Shareholders must have the financial ability, sophistication, experience and willingness to bear the risks of an investment in the Company.

    The Company and the Investment Vehicle are reliant on third party service providers to carry on their businesses and a failure by one or more service providers could materially disrupt the businesses of the Company and the Investment Vehicle

    Each of the Company and the Investment Vehicle has no employees and their respective directors have all been appointed on a non-executive basis. The Company and the Investment Vehicle are, therefore, reliant upon the performance of third party service providers for the performance of certain functions. The Company is also reliant indirectly on the third parties providing services to the Investment Vehicle. In particular, CVC Investment Services and the Administrator perform services which are important to the operation of the Company and the Investment Vehicle Manager. CVC Investment Services, the Investment Vehicle Administrator and the Investment Vehicle Corporate Service Provider perform services which are important to the operation of the Investment Vehicle. Failure by any service provider to carry out its obligations to the Company or the Investment Vehicle in accordance with the terms of its appointment with due care and skill, or at all, or termination of any such appointment may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    In addition, whereas the Investment use Citibank N.A. London as custodian to hold securities and cash, custody of contractual documentation (such as the loans in which the Investment Vehicle will invest) cannot be arranged on a similar basis. The Investment Vehicle typically holds these investments directly (being the “lender of record”), but may also hold indirectly (for example by way of sub-participation through a third party bank) and consequently bear additional risk.

    In the event that it is necessary for the Company to replace any third party service provider, it may be that the transition process takes time, increases costs and may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    No reliance on past performance

    No reliance should be placed by investors on the past performance of the Investment Vehicle This Prospectus contains certain historical financial performance information in relation to the Investment Vehicle and its predecessor, CRP II. There can be no assurance that the Investment Vehicle will be able to maintain its historic investment performance or achieve its investment objective and any failure by the Investment Vehicle to do so may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Past performance of the Investment Vehicle should not be taken as a guide to its future performance, or, by extension, to the future performance of the Company.

    The Investments may be difficult to value accurately and, as a result, Investment Vehicle Interest Holders, such as the Company, may be subject to valuation risk

    The Portfolio may at any given time include securities or other financial instruments or obligations which are very thinly traded, for which no market exists or which are restricted as to their transferability under applicable securities laws. These Investments may be extremely difficult to value accurately. Further, because of overall size or concentration in particular markets of positions held by the Investment Vehicle, the value of its Investments which can be liquidated may differ, sometimes significantly, from their valuations. Third party pricing information may not be available for certain positions held by the Investment Vehicle. Investments to be held by the Investment Vehicle may trade with significant bid-ask spreads. The Investment Vehicle is entitled to rely, without independent investigation, upon pricing information and valuations furnished by third parties, including pricing services and valuation sources. Absent bad faith or manifest error, valuation determinations in accordance with the Investment Vehicle’s valuation policy will be conclusive and binding. In light of the foregoing, there is a risk that an Investment Vehicle Interest Holder, such as the Company, which redeems all or part of its investment while the Investment Vehicle holds such Investments, could be paid an amount less than it would otherwise be paid if the actual value of the Investment Vehicle’s Investment was higher than the value designated for that Investment by the Investment Vehicle. Similarly, there is a risk that a redeeming Investment Vehicle Interest Holder might, in effect, be overpaid at the time of the applicable redemption if the actual value of the Investment Vehicle’s Investment was lower than the value designated for that Investment by the Investment Vehicle, in which case the value of the Investment Vehicle Interests to the remaining Investment Vehicle Interest Holders would be reduced.

    Investment Vehicle Interest Holders other than the Company may receive information regarding the Investment Vehicle that is not received by the Company and therefore not disclosed to Shareholders

    The Investment Vehicle may provide information to Investment Vehicle Interest Holders with respect to the Investment Vehicle. While there are arrangements in place designed to ensure the supply of material information to the Company, including any information which the Company may be required to disclose pursuant to applicable rules and regulations, there may be circumstances where other Investment Vehicle Interest Holders are supplied with information that is not supplied to the Company or is given to the Company after it has been supplied to other Investment Vehicle Interest Holders. In extreme cases, this may result in other Investment Vehicle Interest Holders taking action in relation to their investments in the Investment Vehicle in advance of the Company which may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Both CVC Investment Services and the Company have the right to terminate the Corporate Service Agreement in certain circumstances which may result in the payment of a significant termination fee by the Company to CVC Investment Services

    The Corporate Service Agreement may be terminated by CVC Investment Services in certain circumstances, such as: (i) where at least 95 per cent. (by net asset value) of the Company’s investments cease to remain invested in the Investment Vehicle, Conversion Vehicle or other entity to which CVC Investment Services provides investment services; or (ii) other material breaches which are set out in the agreement. In the event of such a termination, there is a risk that no suitable replacement for CVC Investment Services will be found in a timely manner. In addition, termination by CVC Investment Services of the Corporate Service Agreement would entitle CVC Investment Services to certain significant termination fees depending on the timing and reason of the termination.

    Other than where the Corporate Service Agreement is terminated by the Company for cause, if the Corporate Service Agreement is terminated by the Company in whole or in part through Tender Purchases or through a redemption of all of the Company Investment Vehicle Interests following a change to the investment objective and investment policy (including the Investment Limits and/or the Borrowing Limit) of the Investment Vehicle or the Conversion Vehicle which is not subsequently approved by the Shareholders, CVC Investment Services may be entitled to a significant termination fee within the period ending on the fifth anniversary of the IPO being 21 June 2013.

    In the event that the Company is required to redeem its entire investment in the Investment Vehicle or the Conversion Vehicle because the respective investment policies of the Company and of the Investment Vehicle or the Conversion Vehicle differ to a material extent (howsoever caused), such redemption will constitute a without cause termination of the Corporate Service Agreement by the Company. If such redemption occurs within the period ending on the fifth anniversary of the IPO, CVC Investment Services will accordingly be entitled to a significant termination payment from the Company, which may be up to 2.5 per cent. of NAV, which may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Placing Shares.

    Issuance of additional Shares could have a detrimental effect on the Net Asset Value and the market price of the Placing Shares

    Under the Companies Law, to which the Company is subject, there are no rules restricting the ability of the Directors to issue additional Shares on a non-pre-emptive basis at any time and under the Placing Programme, or otherwise. However, the Company has elected to include pre-emption rights in its Articles. Such pre-emption rights were disapplied on 10 June 2013 for a period of five years by the Management Shareholder and it is expected that the Company will seek a further disapplication of such pre-emption rights upon expiry of this five-year period and, thereafter, at each annual general meeting of the Company. As such, there are currently no restrictions on the Directors’ ability to issue new Shares on a non-pre-emptive basis under the Placing Programme, or otherwise. Subject to the terms of issue of any such Shares, if the Directors were to issue further Shares in the future this could have a detrimental dilutive effect on the Net Asset Value and on the market price of the Shares. The Placing Shares will be subject to purchase and transfer restrictions in the Placing and in secondary transactions in the future

    The Company restricts the ownership and holding of its Shares so that none of its assets will constitute “plan assets” under the U.S. Plan Assets Regulations. The Company intends to impose such restrictions based on deemed representations in the case of a subscription of Shares. If the Company’s assets were deemed to be “plan assets” of any plan subject to Title I of ERISA or Section 4975 of the U.S. Tax Code (“U.S. Plan”), pursuant to Section 3(42) of ERISA and U.S. Department of Labour regulations promulgated under ERISA by the U.S. Department of Labour and codified at 29 C.F.R. Section 2510.3-101 as they may be amended or modified from time to time (collectively, the “U.S. Plan Asset Regulations”) then: (i) the prudence and other fiduciary responsibility standards of ERISA would apply to investments made by the Company; and (ii) certain transactions that the Company or a subsidiary of the Company may enter into, or may have entered into, in the ordinary course of business might constitute or result in non-exempt prohibited transactions under Section 406 of ERISA or Section 4975 of the U.S. Tax Code and might have to be rescinded. Governmental plans and certain church plans, while not subject to Title I of ERISA or Section 4975 of the U.S. Tax Code, may nevertheless be subject to other State, local or other laws or regulations that would have the same effect as the U.S. Plan Asset Regulations so as to cause the underlying assets of the Company to be treated as assets of an investing entity by virtue of its investment (or any beneficial interest) in the Company and thereby subject the Company or the Investment Vehicle Manager (or other persons responsible for the investment and operation of the Company assets) to laws or regulations that are similar to the fiduciary responsibility or prohibited transaction provisions contained in Title I of ERISA or Section 4975 of the U.S. Tax Code.

    Each purchaser and subsequent transferee of the Placing Shares will be deemed to represent and warrant that no portion of the assets used to acquire or hold its interest in the Placing Shares constitutes or will constitute the assets of any U.S. Plan. The Articles of the Company provide that the Board of Directors may refuse to register a transfer of Shares to any person they believe to be a Non-Qualified Holder or a U.S. Plan investor. If any Placing Shares are owned directly or beneficially by a person believed by the Board of Directors to be a Non-Qualified Holder or a U.S. Plan investor, the Board of Directors may give notice to such person requiring him either (i) to provide the Board of Directors within 30 days of receipt of such notice with sufficient satisfactory documentary evidence to satisfy the Board of Directors that such person is not a Non-Qualified Holder or a U.S. Plan investor, or (ii) to sell or transfer their Placing Shares to a person qualified to own the same within 30 days and within such 30 days to provide the Board of Directors with satisfactory evidence of such sale or transfer. Where condition (i) or (ii) is not satisfied within 30 days after the serving of the notice, the person will be deemed, upon the expiration of such 30 days, to have forfeited their Placing Shares.

    In addition, to avoid being required to register as an investment company under the U.S. Investment Company Act and to avoid violating the U.S. Investment Company Act, the Company has implemented restrictions on the purchase of the Placing Shares by persons who are located in the United States or are U.S. Persons (or are acting for the account or benefit of any U.S. Person). For more information, refer to “Risks relating to regulation and taxation with respect to the Company, the Investment Vehicle and the Investment Vehicle Manager — The Company is not, and does not intend to become, registered in the United States as an investment company under the U.S. Investment Company Act and related rules” in this section of this Prospectus.

    For more information on purchase and transfer restrictions, prospective investors should refer to the section entitled “Purchase and Transfer Restrictions” in Part VI of this Prospectus.

    The Company is not, and does not intend to become, registered in the United States as an investment company under the U.S. Investment Company Act and related rules

    The Company has not, does not intend to, and may be unable to, become registered in the United States as an investment company under the U.S. Investment Company Act. The U.S. Investment Company Act provides certain protections to U.S. investors and imposes certain restrictions on companies that are registered as investment companies. As the Company is not so registered, and does not intend to so register, none of these protections or restrictions is or will be applicable to the Company. In addition, to avoid being required to register as an investment company under the U.S. Investment Company Act and to avoid violating the U.S. Investment Company Act, the Company has implemented restrictions on the purchase of the Placing Shares by persons who are located in the United States or are U.S. Persons (or are acting for the account or benefit of any U.S. Person). For more information, prospective investors should refer to the section entitled “Purchase and Transfer Restrictions” in Part VI of the Prospectus.

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These written materials are not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Canada, South Africa or Japan or to US Persons as defined in Regulation S under the US Securities Act (“US Persons”). The information contained herein does not constitute or form part of any offer or solicitation to purchase or subscribe for securities in the United States, Australia, Canada, South Africa or Japan or any other jurisdiction where to do so might constitute a violation of the relevant laws or regulations of such jurisdiction. The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended (the “Investment Company Act”) and, as such, holders of the Company’s securities will not be entitled to the benefits of the Investment Company Act. The securities discussed herein have not been and will not be registered under the US Securities Act of 1933, as amended (the “US Securities Act”), or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold in the United States or to, or for the account or benefit of, US persons absent registration or an exemption from registration under the US Securities Act in a manner that would not require the Company to register under the US Investment Company Act 1940. No public offering of securities will be made in the United States. No securities may be offered or sold, directly or indirectly, into the United States to US persons absent registration or an exemption from registration under the US Securities Act and in a manner that would not require the Company to register under the US Investment Company Act of 1940.

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