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 Investment Vehicle, the Conversion Vehicle, the Investment Vehicle Manager and the Shares 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 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. For the purpose of this Risks and Considerations section, "Shares" means a redeemable ordinary share of no par value in the capital of the Company, whether issued as a "Share" or as a "C Share".

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 the Conversion Vehicle as at the date of the Prospectus have been disclosed. Additional risks and uncertainties not currently known to the Directors, or that the Directors deemed immaterial at the date of the 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 Shares. Potential investors should review all information regarding the Company, including the risks and considerations highlighted in this section, and the Prospectus carefully and in its entirety and consult with their professional advisers before deciding to invest in Shares.

The Shares are suitable for investors:

  1. who understand the potential risk of capital loss and that there may be limited liquidity in the underlying investments of the Company;
  2. for whom an investment in the Shares is part of a diversified investment portfolio; and
  3. who fully understand and are willing to assume the risks involved in such an investment programme.

Prospective investors should note that the risks relating to the Company, the Investment Vehicle, the Conversion Vehicle, the Investment Vehicle Manager and the Shares summarised in this section of this website are the risks that the Directors believe to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Shares. However, as 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.

  • Risk relating to the Company

    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 and the Conversion Vehicle in accordance with its investment objective and investment policy

    The Company invests substantially all of its assets through the Investment Vehicle and the Conversion Vehicle, both of which are managed by the Investment Vehicle Manager. 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/or the Conversion 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 or the Conversion 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 or the Conversion Vehicle

    The Company invests substantially all of its assets through the Investment Vehicle and the Conversion Vehicle, both of which are managed by the Investment Vehicle Manager. Accordingly, while the Directors will review the Investment Vehicle’s and the Conversion Vehicle’s compliance with their investment objectives and investment policies (including the Investment Limits and/or the Borrowing Limit), the Company has no control over the specific Investments made, and has no right to require the disposal of specific Investments, by the Investment Vehicle or the Conversion 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 and the Conversion Vehicle in accordance with the Investment Vehicle’s and Conversion Vehicle’s investment policy. The Investment Vehicle Manager will have broad discretion when making investment-related decisions for the Investment Vehicle and the Conversion Vehicle (including the strategies to be employed pursuing the Investment Vehicle's and Conversion Vehicle’s respective investment objectives). 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 and the Conversion Vehicle.

    The Company's target total 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 total return and dividend yield may be materially lower than the targeted total return and target dividend yield

    The Company’s target total return and target dividend yield set forth in the Prospectus and on this website are targets only and are based on estimates and assumptions concerning the performance of the Investment Vehicle and the Conversion 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 risks described elsewhere in the Prospectus and on this website, 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 the Conversion 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 and the Conversion 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 total return and/or target dividend yield can be achieved at or near the levels set forth in the Prospectus or website. Accordingly, the actual rate of total 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 total return and/or target dividend yield set forth in the Prospectus or website may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

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

    Past performance of the Company should not be taken as a guide to its future performance

    The Net Asset Value is calculated based on the Investment Vehicle NAV and the Conversion 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 Net Asset Value will be calculated based on the Investment Vehicle NAV and the Conversion Vehicle NAV, which are calculated by third parties and the Investment Vehicle NAV and the Conversion 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 or the Conversion Vehicle subsequently proves to be incorrect, no adjustment to any previously calculated NAV will be made. Any acquisitions or disposals of Shares based on previous erroneous NAVs may result in losses for Shareholders or C Shareholders, as applicable.

    Additionally, if, for any reason, the CECO Directors suspend the calculation of the Investment Vehicle NAV or the Conversion Vehicle NAV, the Company will also have to suspend the calculation of its NAV. In such circumstances, the 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 Shares.

    The Company, the Investment Vehicle and the Conversion 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, the Investment Vehicle and the Conversion Vehicle.

    Each of the Company, the Investment Vehicle and the Conversion Vehicle has no employees and their respective directors have all been appointed on a non-executive basis. The Company, the Investment Vehicle and the Conversion 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 and the Conversion Vehicle. In particular, the Administrator and the Investment Vehicle Manager perform services which are important to the operation of the Company. The Investment Vehicle Administrator and the Investment Vehicle Corporate Service Provider perform services which are important to the operation of the Investment Vehicle and the Conversion Vehicle. Failure by any service provider to carry out its obligations to the Company, the Investment Vehicle or the Conversion 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 Shares.

    In addition, whereas the Investment Vehicle and the Conversion Vehicle use Citibank N.A. London and its affiliates as custodian to hold securities and cash, custody of contractual documentation (such as the loans in which the Investment Vehicle and the Conversion Vehicle will invest) cannot be arranged on a similar basis. The Investment Vehicle and the Conversion Vehicle typically hold these investments directly (being the "lender of record" but may also hold indirectly (for example by way of sub-participation either through a third party bank or, in the case of the Conversion Vehicle, through the Investment Vehicle) 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 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 be redeemed 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 the Conversion 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 and Conversion 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 and the Conversion Vehicle in order to realise its investments

    Given that the Company Investment Vehicle Interests are not, and the Conversion Vehicle Interests will not be, traded on a stock exchange, the Company has and will have to rely on the redemption mechanisms offered by the Investment Vehicle and the Conversion Vehicle in order to realise its investments in the Investment Vehicle or the Conversion 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 or the Conversion 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 or the Conversion 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 or the Conversion Vehicle, then the Investment Vehicle or the Conversion 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 or the Conversion 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 and Conversion 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 Conversion 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 or the Conversion Vehicle. This delay could materially affect the value of the Company Investment Vehicle Interests and Conversion Vehicle Interests and the timing of when the Company is able to realise its investments in the Investment Vehicle or the Conversion Vehicle, which may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the 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 Shares.

    ***

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

    The rights of the Investment Vehicle and the Conversion 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 and Conversion Vehicle Interest 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 and the Conversion Vehicle may be amended with the consent of a majority of the aggregate amount of Investment Vehicle Interests or Conversion Vehicle Interests respectively. If such an amendment occurs such that the investment objective, investment policy, Investment Limits or Borrowing Limit of the Investment Vehicle or the Conversion 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 or the Conversion Vehicle (as the case may be). 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 or the Conversion Vehicle level. The continuing economic exposure to each of the Investment Vehicle and the Conversion 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 Shares.

    Risk of compulsory conversion between Share classes

    Shares issued by the Company may be denominated in Euro and/or Sterling and/or U.S. Dollar. The Directors may determine that the continued existence of a class of Shares or C Shares would be impractical due to, for example, a class of Shares or C Shares failing the public hands test (please refer to the section entitled "Compulsory Conversion" in Part I of the Prospectus for further details). In accordance with the Articles, the Directors will have the right, at their discretion, to compulsorily convert the relevant Shares or C Shares of such class into Shares or C Shares of the class then in issue with the greatest aggregate Net Asset Value per share in Euro terms as at the NAV Calculation Date. If such a conversion were to take place, affected Shareholders not wanting to hold Shares or C Shares in the currency to which they have been converted would need (in the case of Shares) to tender such Shares for repurchase by the Company through the Contractual Quarterly Tender facility (which is subject to other limitations and there is no guarantee that this facility will be available) or sell such Shares or C Shares on the secondary market (the existence of which cannot be guaranteed). Shareholders' attention is drawn to the risks entitled "Shareholders have no right to have their Shares, and, in the case of C Shares, Correspondent Shares arising on Conversion, redeemed or repurchased by the Company", "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", "The existence of a liquid market in Shares cannot be guaranteed" and "The existence of a liquid market in the C Shares cannot be guaranteed" in the "Risk Factors" section of the Prospectus.

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  • Risks relating to investing in the Investment Vehicle and the Conversion Vehicle

    No reliance should be placed by investors on the past performance of the Investment Vehicle

    The Prospectus and this website contain certain historical financial performance information in relation to the Investment Vehicle. 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 Shares.

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

    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 Shares.

    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. Furthermore, because of overall size or concentration in particular markets of positions, the value at which the Investments which can be liquidated may differ, sometimes significantly, from the assigned valuations of such Investments. There may be a relative scarcity of market comparables on which to base the value of the Portfolio. The exercise of discretion in valuation by the Investment Vehicle Manager will give rise to potential conflicts of interest, including in connection with the calculation of management and performance fees. 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. 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.

    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 Shares 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 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 or the Conversion Vehicle may be made available to satisfy the liabilities of other Compartments of CECO

    Each of the Investment Vehicle and the Conversion Vehicle are Compartments of 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 and the Conversion Vehicle should be available only for distribution to creditors of the relevant Compartment such as Investment Vehicle Interest Holders or the holders of the Conversion Vehicle Interests (including the Company) whose claims have arisen in connection with the creation, the operation and/or the liquidation of the Investment Vehicle or the Conversion Vehicle, as the case may be.

    Shareholders should note that, as at the date of the Prospectus, in addition to the Investment Vehicle and the Conversion 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 or the Conversion 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 or the Conversion 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 Shares.

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

    In line with other companies of its type, CECO and, by extension, the Investment Vehicle and the Conversion Vehicle, is not a regulated entity in Luxembourg. Accordingly, CECO and, by extension, the Investment Vehicle and the Conversion 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 and the Conversion 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 business, financial condition, results of operations, NAV and/or the market price of the Shares.

    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 information 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 Shares.

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  • Risk relating to the Investment Strategy of the Investment Vehicle and the Conversion Vehicle

    Market factors may result in the failure of the investment strategy followed by the Investment Vehicle and the Conversion 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 and the Conversion Vehicle is speculative and involves substantial risk of loss in the event of such a failure or deterioration in the financial markets. Each of the Investment Vehicle and the Conversion Vehicle has certain Investment Limits which define to a degree how they invest and the CECO Directors require the approval of a majority of the aggregate amount of Investment Vehicle Interests or Conversion 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 Shares.

    The investment strategy of the Investment Vehicle and the Conversion 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 and the Conversion 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 and/or the Conversion Vehicle, which, in turn, could have a material adverse effect on the performance of the Investment Vehicle and/or the Conversion Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

    In addition, the Investment Vehicle and the Conversion 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 and the Conversion 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 Shares.

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

    Performance and investor yield on the Company Investment Vehicle Interests and the Conversion 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/or the Conversion Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

    In the event of a default in relation to an Investment held by it, the Investment Vehicle and/or the Conversion 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/or the Conversion Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the 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 and/or the Conversion 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 and/or the Conversion Vehicle’s anticipated return on the restructured loan.

    The illiquidity of Investments may have an adverse impact on their price and the Investment Vehicle's and/or the Conversion 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 and/or the Conversion Vehicle's ability to respond to market movements and the Investment Vehicle and/or the Conversion 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 and/or the Conversion 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 the 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 and the Conversion 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 loan agreement and the private syndication process. As a result, there may be a significant period between the date that the Investment Vehicle or the Conversion 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 or the Conversion 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/or the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the Shares.

    The Investment Vehicle and/or the Conversion Vehicle may hold a relatively concentrated Portfolio

    The Investment Vehicle and/or the Conversion 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. The Conversion Vehicle is subject to the same single issuer restriction save that its limit in this respect will be measured as against the aggregate of the Gross Assets of both the Investment Vehicle and the Conversion Vehicle which may mean that the concentration risk and associated volatility in the Conversion Vehicle Portfolio may be substantially greater than in respect of the Investment Vehicle Portfolio. There is a risk that the Investment Vehicle or the Conversion Vehicle could be subject to significant losses if any issuer, especially one with whom the Investment Vehicle or the Conversion 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 Shares.

    The Investment Vehicle and the Conversion 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 and the Conversion 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 and the Conversion 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, it is 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/or the Conversion Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

    The hedging arrangements of the Investment Vehicle and the Conversion Vehicle may not be successful

    The Investment Vehicle's and the Conversion 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 and the Conversion 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 indices, equity futures and equity indices) 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 the Conversion 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/or of the Conversion Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares, and such adverse effects may exceed those benefits which may have resulted had no hedging strategy been employed.

    Under certain hedging contracts that the Investment Vehicle or the Conversion Vehicle may enter into, the Investment Vehicle or the Conversion 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 or the Conversion Vehicle's management or the Investment Vehicle Manager's personnel, a significant reduction in the Investment Vehicle Net Asset Value or the Conversion 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 and/or of the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the Shares.

    The investment objective, investment policy, investment strategy, Investment Limits, Borrowing Limit and/or emphasis of the Investment Vehicle or the Conversion 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 and the Conversion Vehicle Interest Holder. 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. Material changes to the investment objective, investment policy, Investment Limits and Borrowing Limit of the Conversion Vehicle may be made with the approval of a majority of the aggregate amount of the Conversion 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 and the Conversion 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 non-material 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 and/or the Conversion 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 or the Conversion 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 Shares.

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

    Each of the Investment Vehicle and the Conversion Vehicle may employ leverage in order to increase investment exposure with a view to achieving its target return. Each vehicle is subject to a maximum permitted leverage of 100 per cent. of the Investment Vehicle Net Asset Value or the Conversion Vehicle Net Asset Value, as the case may be, save that the Borrowing Limit of the Conversion Vehicle will be measured as against the aggregate of the Investment Vehicle and the Conversion Vehicle’s Net Asset Values.

    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/or the Conversion 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 and/or the Conversion 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 or the Conversion Vehicle, as the case may be. 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 or the Conversion 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 market movements are favourable, it may result in a substantial loss of capital when market 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 and/or the Conversion Vehicle's obligations and the Investment Vehicle Interests (including the Company Investment Vehicle Interests) and the Conversion Vehicle Interests are preferred equity instruments, under the terms of the Investment Vehicle Interests and the Conversion Vehicle Interests, on any insolvency of the Investment Vehicle, Investment Vehicle Interest Holders (including the Company) and the Company as sole holder of the Conversion Vehicle Interests could rank behind the Investment Vehicle’s or the Conversion 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/or the Conversion 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 and the Conversion 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 or the Conversion 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 of the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the Shares.

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

    The prices of the Investments that may be held by the Investment Vehicle or the Conversion 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 and the Conversion 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 values 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 or the Conversion Vehicle to additional costs and losses. Any of the above factors could materially and adversely affect the performance of the Investment Vehicle and of the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the 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 and/or the Conversion 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 or the Conversion 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/or the Conversion Vehicle, and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the 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 or the Conversion 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 of the Conversion Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

    The Investment Vehicle and/or the Conversion 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 or the Conversion 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 and/or the Conversion 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 or the Conversion Vehicle, there will be an adverse effect on the performance of the Investment Vehicle or of the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the 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 or the Conversion 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 or of the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the 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 cash flows of the issuer’s business and by the value of any underlying assets constituting the collateral for such Investment. The anticipated future cash flows 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 or the Conversion Vehicle invests decreases or is materially worse than expected by the Investment Vehicle or the Conversion Vehicle, such a decrease or deficiency may affect the value of the Investments made by the Investment Vehicle or the Conversion Vehicle. Accordingly, there will be an adverse effect on the performance of the Investment Vehicle and/or of the Conversion Vehicle and, by extension, 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 the Investment Vehicle Manager

    The performance of the Investment Vehicle and the Conversion 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 and the Conversion 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 and the Conversion Vehicle, in accordance with the applicable laws and their constitutional documents and have overall responsibility for the activities of the Investment Vehicle and the Conversion Vehicle, the Investments and asset management decisions will be made by the Investment Vehicle Manager and, accordingly, the Investment Vehicle and the Conversion Vehicle will be completely reliant on, and their 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 and the Conversion Vehicle will depend heavily on the skills of the Investment Vehicle Manager. Consequently, the Investment Vehicle and the Conversion 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 and the Conversion 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/or the Conversion Vehicle and, by extension, on the Company’s business, financial condition, results of operations, NAV and/or the market price of the 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 and the Conversion 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 CVC 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, each of the Investment Vehicle and the Conversion 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 the Conversion Vehicle or to require personnel servicing the Investment Vehicle’s or the Conversion Vehicle’s business to allocate a specific amount of time to the Investment Vehicle or the Conversion 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 or the Conversion Vehicle with an appropriate time commitment, the ability of each of the Investment Vehicle and the Conversion 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 or the Conversion Vehicle, and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

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

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

    CVC Credit Partners Group, including the Investment Services Manager and the Investment Vehicle Manager, provides investment advisory and/or investment management services to investment vehicles, pooled investment funds and managed account arrangements (each, a “CVC Credit Partners Vehicle”) and engages in other activities. CVC Capital Partners provides investment advisory and/or investment management services primarily to private equity funds that acquire controlling or significant minority interests in European, Asian and North American companies (each, a “CVC Capital Partners Fund”) and engages in other activities. In addition, a member of the CVC Group may provide investment advice to itself. In managing its proprietary account, a member of the CVC Group may purchase or sell securities for its own account that such member of the CVC Group also recommends to Other CVC Clients.

    Various potential and actual conflicts of interest may arise from the overall investment activities of CVC Credit Partners Group. CVC Credit Partners Group is a global alternative asset manager and, as such, may have multiple advisory, management, transactional, financial and other interests that may conflict with those of the Investment Vehicle, the Conversion Vehicle and their respective investors (including the Company). CVC Credit Partners Group may in the future engage in further activities that may result in additional conflicts of interest not addressed below.

    Investors should note that the Investment Vehicle Investment Services Agreement and Investment Vehicle Investment Management Agreement contain provisions that, subject to applicable law, reduce the respective duties to the Investment Vehicle, the Conversion Vehicle and their respective investors to which the Investment Services Manager or Investment Vehicle Manager and their affiliates would otherwise be subject, and provisions that waive or consent to conduct on the part of Investment Services Manager or Investment Vehicle Manager and their affiliates that might not otherwise be permitted pursuant to such duties. If any matter arises that the Investment Services Manager or Investment Vehicle Manager determine in their good faith judgement constitutes an actual conflict of interest, the Investment Services Manager or the Investment Vehicle Manager may take such actions as they determine in good faith may be necessary or appropriate to ameliorate the conflict (and upon taking such actions the Investment Services Manager or Investment Vehicle Manager, as applicable, will be relieved of any liability for such conflict to the fullest extent permitted by law and shall be deemed to have satisfied its fiduciary duties related thereto to the fullest extent permitted by law). In addition, CVC Credit Partners Group has established a conflicts committee (“Conflicts Committee”) that is responsible for the review of new and potential conflicts of interest that may arise as a result of its investment business. Under certain circumstances, the Conflicts Committee may refer certain conflicts, to an external committee (“External Conflicts Committee”) for review and consideration.

    There can be no assurance that the Investment Services Manager or Investment Vehicle Manager will resolve all conflicts of interest in a manner that is favourable to the Investment Vehicle or the Conversion Vehicle and, by extension, to the Company. The following sections describe potential and actual conflicts of interest that may arise from the overall investment activities of CVC Credit Partners Group. In each case, where a conflict of interest is not resolved in a manner that is favourable to the Investment Vehicle or the Conversion Vehicle, this may adversely impact the Investment Vehicle’s or the Conversion Vehicle’s performance, and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

    Broad and wide-ranging activities. As a global alternative asset manager, CVC Credit Partners Group engages in a broad spectrum of activities, including financial advisory and/or management services, investment management, sponsoring and managing private and public investment funds, advising CLOs, separately managed accounts, co-investment vehicles, other private funds, and other activities. In the ordinary course of its business, CVC Credit Partners Group engages in activities where its interests or the interests of its clients may conflict with the interests of the Investment Vehicle, the Conversion Vehicle and their respective investors. Conflicts of interest that arise between the Investment Vehicle and the Conversion Vehicle, on the one hand, and CVC Credit Partners Group, any member of the CVC Group, any existing or future affiliated fund or any Other CVC Client, on the other hand, generally will be discussed and resolved on a case-by-case basis by senior management of CVC Credit Partners Group and representatives of the Investment Vehicle and the Conversion Vehicle, the Investment Services Manager and the Investment Vehicle Manager, who will in many circumstances be the same individuals. Any such discussions will take into consideration the interests of the relevant parties and the circumstances giving rise to the conflict. The Investment Services Manager and Investment Vehicle Manager will have the power to resolve, or consent to the resolution of, conflicts of interest on behalf of, and such resolution will be binding on, the Investment Vehicle. Potential Investors should be aware that conflicts will not necessarily be resolved in favour of the Investment Vehicle’s or the Conversion Vehicle’s interests.

    The Investment Vehicle Manager is a relying adviser of CVC Credit Partners LLC, which is registered as an investment adviser under the U.S. Investment Advisers Act of 1940, as amended.

    Other investment vehicles and advisory and/or management relationships. CVC Credit Partners Group and CVC Capital Partners currently advise and/or manage the CVC Credit Partners Vehicles and CVC Capital Partners Funds respectively, and expect in the future to continue to advise and/or manage, various other investment vehicles, pooled investment funds and managed account arrangements (collectively, “Other CVC Clients”), including Other CVC Clients with similar or identical investment objectives, strategies and policies to those of the Investment Vehicle and the Conversion Vehicle, and it is anticipated that such Other CVC Clients may make investments which are similar or identical to the Investment Vehicle and the Conversion Vehicle’s investments and which may create a potential conflict of interest for CVC Credit Partners Group. In addition, in managing its proprietary accounts, CVC Credit Partners Group may purchase or sell securities, interests and obligations for its own account and references to “Other CVC Clients” may include such activities as the context requires. CVC Credit Partners Group or such Other CVC Clients, whether now existing or created in the future, could compete with the Investment Vehicle and the Conversion Vehicle for the purchase and sale of investment opportunities.

    For example, and without limitation, CVC Capital Partners is primarily engaged in advising and managing private equity funds that currently acquire controlling or significant minority interests in European, Asian and North American companies by investing primarily in equity and equity linked securities. While these investments are generally not suitable for the Investment Vehicle and the Conversion Vehicle, certain conflicts of interest may arise in situations in which investment vehicles advised or managed by the Investment Services Manager or Investment Vehicle Manager, CVC Credit Partners Group and/or CVC Capital Partners have made investments in different parts of the capital structure of the same company. No assurances can be made that any conflicts will be resolved in favour of the Investment Vehicle and the Conversion Vehicle’s interests.

    The Investment Services Manager, the Investment Vehicle Manager and/or CVC Credit Partners Group may engage in transactions or investments or cause or advise Other CVC Clients to engage in transactions or investments which may differ from or be identical to the transactions or investments engaged in by the Investment Services Manager and Investment Vehicle Manager for the Investment Vehicle and the Conversion Vehicle’s account without notifying the investors of the Investment Vehicle and the Conversion Vehicle. Such advice or transactions may be effected at prices or rates that are more or less favourable than the prices or rates applying to transactions effected for the Investment Vehicle and the Conversion Vehicle and may affect the prices and availability of assets in which the Investment Vehicle and the Conversion Vehicle invest or seek to invest. The Investment Services Manager and Investment Vehicle Manager do not have any obligation to engage in any transaction or investment for the Investment Vehicle and the Conversion Vehicle’s account or to recommend any transaction which the Investment Services Manager or Investment Vehicle Manager may engage in for their own accounts or the account of any Other CVC Clients except as otherwise required by applicable law. To the extent permitted by law, the Investment Services Manager and Investment Vehicle Manager are permitted to bunch or aggregate orders for the Investment Vehicle and the Conversion Vehicle’s account with orders for Other CVC Clients.

    CVC Credit Partners Group may purchase, sell or take other actions with respect to an investment for its own accounts or those of Other CVC Clients, or suggest that such Other CVC Clients make such purchase, sale or other actions prior to executing such actions for the Investment Vehicle and the Conversion Vehicle in respect of such investment, and such actions by CVC Credit Partners Group may result in more or less favourable terms in connection with any subsequent action taken by or on behalf of the Investment Vehicle and the Conversion Vehicle. Additionally, CVC will vote and make any other determinations with respect to the investments held for its own accounts or those of its Other CVC Clients in its sole discretion without regard to the manner in which it votes or makes any other determinations on behalf of the Investment Vehicle and the Conversion Vehicle with respect to such investments, and such votes or determinations taken for CVC’s own accounts or those of its Other CVC Clients may conflict with those votes or determinations taken on behalf of the Investment Vehicle and the Conversion Vehicle. The Investment Services Manager and Investment Vehicle Manager are under no obligation to disclose such votes or determinations to the investors.

    Investments in which the Investment Services Manager, the Investment Vehicle Manager and/or CVC have a different interest. The Investment Services Manager, Investment Vehicle Manager and CVC may invest in a broad range of securities, and instruments throughout the corporate capital structure. These investments include (but are not limited to) investments in corporate loans and debt securities, preferred equity securities and common equity securities. Accordingly, the Investment Services Manager, the Investment Vehicle Manager, CVC Group and/or Other CVC Clients may invest in different parts of the capital structure of a company or other entity in which the Investment Vehicle, the Conversion Vehicle, CVC Group or Other CVC Clients invest. For example, with respect to the Investment Vehicle and the Conversion Vehicle’s investments in certain companies, Other CVC Clients may invest in equity and/or different classes of debt issued by the same companies and/or one of CVC Capital Partners’ private equity funds may own some or all of the equity securities of such companies. For example, and without limitation, to the extent an investment vehicle advised or managed by CVC Capital Partners may own all or a majority of the outstanding equity securities of an underlying issuer (an “Underlying Issuer”) in which the Investment Vehicle and the Conversion Vehicle invest, such funds may have the ability to elect all of the members of the board of directors of such company and thereby control its policies and operations, including the appointment of management, future issuances of common stock or other securities, the payments of dividends, if any, on its common stock, the incurrence of debt by it, amendments to its certificate of incorporation and bylaws and entering into extraordinary transactions, and such funds’ interests may not in all cases be aligned with those of the Investment Vehicle and the Conversion Vehicle, which could create actual or potential conflicts of interest or the appearance of such conflicts. Further, if Other CVC Clients were to purchase debt or other instruments from an Underlying Issuer at a different level in the Underlying Issuer’s capital structure than the Investment Vehicle and the Conversion Vehicle’s investments, CVC Group may, in certain instances, face a conflict of interest in respect of the advice it gives to, and the actions it takes on behalf of, such Other CVC Client, the Investment Vehicle and the Conversion Vehicle (e.g., with respect to the terms of such high yield securities or other debt or other instruments, the enforcement of covenants, the terms of recapitalisations, exercise of rights, pursuit of remedies, etc.).

    Other CVC Clients could have an interest in pursuing an acquisition that would increase indebtedness, divestiture of revenue-generating assets or other transaction that could enhance the value of the private equity investment, even though the proposed transaction would subject the Investment Vehicle and the Conversion Vehicle’s debt investments to additional or increased risk. In addition, with respect to companies in which the Investment Vehicle and the Conversion Vehicle have an equity investment, to the extent that one of the Other CVC Clients is actually or effectively the controlling shareholder, it may be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of such company or a change in the composition of its board of directors and could preclude any unsolicited acquisition of that company regardless as to whether the Investment Vehicle and the Conversion Vehicle agree with such determination. So long as the Other CVC Client continues to own a significant amount of the voting power of an Underlying Issuer in which the Investment Vehicle and the Conversion Vehicle invest, even if such amount is less than 50 per cent., it may continue to influence strongly, or effectively control, that company’s decisions. As a result, the Investment Vehicle and the Conversion Vehicle’s interests with respect to the management, investment decisions or operations of those companies may at times be in direct conflict with those of the Other CVC Clients.

    In addition, where the Investment Vehicle, the Conversion Vehicle, CVC Group and/or the Other CVC Clients invest in different parts of the capital structure of an Underlying Issuer, their respective interests may diverge significantly in the case of financial distress of a company. For example, if additional financing is necessary as a result of financial or other difficulties, it may not be in the best interests of the Investment Vehicle and the Conversion Vehicle to provide such additional financing. If CVC Group or Other CVC Clients were to lose their respective investments as a result of such difficulties, the ability of the Investment Vehicle Manager to recommend actions in the best interests of the Investment Vehicle and the Conversion Vehicle might be impaired. In addition, it is possible that in a bankruptcy proceeding the Investment Vehicle and the Conversion Vehicle’s interest may be subordinated or otherwise adversely affected by virtue of the Investment Vehicle Manager’s and/or CVC Group’s or the Other CVC Client’s involvement and actions relating to their investment. Moreover, there can be no assurance that the term of or the return on the Investment Vehicle and the Conversion Vehicle’s investment will be equivalent to or better than the term of or the returns obtained by the other affiliates or the Other CVC Clients participating in the transaction. This may result in a loss or substantial dilution of the Investment Vehicle and the Conversion Vehicle’s investment, while CVC Group and/or Other CVC Clients recover all or part of amounts due to them. A further example of where the Investment Vehicle, the Conversion Vehicle, CVC Group and/or the Other CVC Clients may have divergent interests where they are invested in different parts of the capital structure of an Underlying Issuer is where such an entity is holding senior loans or debt securities of an Underlying Issuer and may therefore want to pursue actions to protect its own rights as a creditor that are detrimental to the rights of an Other CVC Client, CVC Group, the Investment Vehicle or the Conversion Vehicle, that holds more junior securities issued by the same Underlying Issuer.

    The Investment Services Manager’s and Investment Vehicle Manager’s ability to implement the Investment Vehicle’s strategies effectively may be limited to the extent that contractual obligations entered into in respect of the activities of CVC Group impose restrictions on the Investment Vehicle and the Conversion Vehicle engaging in transactions that the Investment Vehicle, the Conversion Vehicle and/or the Investment Services Manager or Investment Vehicle Manager may be interested in otherwise pursuing.

    Due to the various conflicts described herein, actions may be taken by CVC Group and/or on behalf of Other CVC Clients that are adverse to the Investment Vehicle and the Conversion Vehicle.

    While the possibility of conflicts in such circumstances can never be fully mitigated, prior to making any new investment in an Underlying Issuer on behalf of a client, CVC Credit Partners Group will consider whether the interests of Other CVC Clients invested in the capital structure of the Underlying Issuer may impair its ability to act in the best interest of the client in question. When CVC Credit Partners Group is required to take action with respect to a security or loan investment held by a client, it is CVC Credit Partners Group policy to act in the best interest of the holder of the investment with respect to which action is being taken, even though such actions may be to the detriment of others invested in the company’s capital structure.

    CVC platform investment restriction. CVC Credit Partners Group, on behalf of the CVC Credit Partners Vehicles, is generally limited to holdings in the aggregate (i.e. across all CVC Credit Partners Vehicles) of typically no more than 20 per cent. of the outstanding par amount of a single tranche or class of an equity or debt of a CVC Capital Portfolio Company. Pursuant to the Investment Limits, a maximum of 25 per cent. of the Investment Vehicle and the Conversion Vehicle’s Gross Assets may be invested in CVC Capital Portfolio Company Debt Obligations. In addition, pursuant to its policies, prior to making an investment in a CVC Capital Portfolio Company, the proposed investment must be reviewed and approved by the portfolio manager, the investment committee, and in certain instances the Conflicts Committee and an External Conflicts Committee. Where the investment opportunity would result in CVC Credit Partners Group holding 10 per cent. or more of the relevant investment tranche or class across all of its investment vehicles, an External Conflicts Committee must review and approve the investment. However, any investment of any size in a CVC Capital Portfolio Company may be referred by the Conflicts Committee to an External Conflicts Committee for review as deemed necessary. As a result of CVC Credit Partners Group being limited with respect to the size of its investments in a CVC Capital Portfolio Company, the Investment Vehicle and the Conversion Vehicle may not be able to acquire an investment that it would otherwise elect to make.

    Allocation of opportunities; non-exclusivity. CVC Credit Partners Group is not required to accord exclusivity or priority to the Investment Vehicle and the Conversion Vehicle in the event of limited investment opportunities. Where there is a limited supply of an available opportunity, CVC Credit Partners Group will allocate investment opportunities (including any related co-investment opportunities) in any manner deemed appropriate as determined in its sole discretion, taking into account considerations which may include, among other things, investment objectives, investment strategies, restrictions, cash availability, or other considerations deemed relevant by CVC Credit Partners Group. Although CVC Credit Partners Group will endeavour to allocate investment opportunities in a fair and equitable manner over time, CVC Credit Partners Group cannot assure, and assumes no responsibility for, equality among all of their and their affiliates’ accounts and clients and, as a result, investment opportunities that fall within the Investment Vehicle and the Conversion Vehicle’s investment objective and/or strategy may be allocated, in whole or in part, away from the Investment Vehicle and the Conversion Vehicle.

    Cross trades and principal transactions. From time to time, CVC Credit Partners Group may execute or recommend transactions in which one client sells securities or other instruments to another client (a “cross trade”). CVC Credit Partners Group may also recommend transactions in which one client that is deemed to be more than 25 per cent. owned by CVC Credit Partners Group or certain affiliated entities buys securities or other instruments from, or sells securities or other instruments to, another client (a “principal transaction”). Cross trades may present potential conflicts of interest. For example, one client could be advantaged to the detriment of another client in the event that the securities being exchanged are not priced in a manner that reflects their fair value (i.e., if the trade was not executed in the open market). Additionally, there is a potential conflict of interest when a cross trade involves a client account on one side of the transaction and a principal account, or an account in which CVC Credit Partners Group receives a higher management fee, on the other side of the transaction. To address these potential conflicts, CVC Credit Partners Group maintains cross trade and principal transaction policies and procedures that are compliant with the requirements of Section 206(3) of the U.S. Investment Advisers Act of 1940, as amended. Any cross trade or principal transaction will be effected in accordance with CVC Credit Partners Group cross trade and principal transaction policies and procedures, which require the compliance department’s approval before the transaction may proceed and are designed to ensure that the transaction is in the best interest of each involved client. As per CVC Credit Partners Group cross trade and principal transaction policies and procedures, cross trades must be consistent with CVC Credit Partners Group’s duty to seek best execution and be executed at a fair price as determined in accordance with the pricing protocols specified in the abovementioned policies and procedures. CVC Credit Partners Group will maintain documentation of the rationale for each transaction and the determination of pricing. In connection with principal transactions, CVC Credit Partners Group will also disclose to the relevant client(s) that the proposed transaction involves a principal account and obtain the necessary client consent prior to the transaction being effected.

    Other fees; fees of underlying issuers. CVC Credit Partners Group and/or its affiliates may receive fees from portfolio entities, the Investment Vehicle or the Conversion Vehicle and/or third parties as compensation for arranging, underwriting, syndicating or refinancing loans and/or other Investments or other additional fees, including loan structuring fees, loan modification or restructuring fees, servicing (including loan servicing and special servicing fees) and administrative fees, and fees for advisory or asset management services and/or the monitoring, oversight and/or restructuring of loans, consulting, commitment, syndication (including any fees arising from arranging, syndicating or performing similar services in respect of bridge financings), origination, organisational, administrative (including treasury, collateral management and affirmation/confirmation), financing, placement, investment banking and divestment fees and other fees for services. In addition, in certain cases, CVC Credit Partners Group and/or its affiliates may receive fees from or with respect to the Investments and/or portfolio entities and from unconsummated transactions, including net break-up and topping fees, net commitment fees, net transaction fees, net monitoring fees (including termination fees relating to monitoring agreements), directors’ fees and net organisation, financing, syndication (including bridge financings), divestment and similar fees. In addition, in certain instances, the Investment Vehicle Manager and/or persons affiliated with the Investment Vehicle Manager may receive fees (including fees from portfolio entities), including incentive fees or similar compensation, paid and/or borne by third parties in connection with the Investment Vehicle and the Conversion Vehicle’s investment activities. For example, this may include fees associated with capital invested in connection with a joint venture in which the Investment Vehicle and the Conversion Vehicle participate and/or fees associated with capital invested by co-investors and/or other third parties relating to investments in which the Investment Vehicle and the Conversion Vehicle participate. The investors will not receive the benefit of any fees relating to the Portfolio. Certain director fees, administration services fees and ordinary course discounts, as further set out in the Investment Vehicle Investment Services Agreement and Investment Vehicle Investment Management Agreement, will not result in an offset to the Investment Vehicle Investment Management Fee. In addition, when hiring consultants and vendors for deal sourcing purposes, the success fee of such consultants and vendors will not result in an offset to the Management Fees. In addition, CVC Credit Partners Group and its personnel may receive certain intangible and/or other benefits and/or discounts and/or perquisites arising or resulting from their activities on behalf of the Investment Vehicle and the Conversion Vehicle which will not be subject to management fee offset or otherwise shared with the Investment Vehicle and the Conversion Vehicle, or investors.

    In the event broken deal expenses are incurred or break-up or topping fees are paid to CVC Group in connection with a transaction that is not ultimately consummated, the Investment Vehicle Manager or an affiliate of the Investment Vehicle Manager may, in its sole discretion, decide that certain co-investment vehicles (which may include standing co-invest vehicles and other accounts that participate in co-investment opportunities alongside the CVC Credit Partners Vehicle on a regular or periodic basis and/or as part of an overall co-investment programme or arrangement) or certain potential co-investors who might have invested in a transaction had it been consummated will not be allocated any share of such break-up or topping fees or broken deal expenses (such as reverse termination fees, extraordinary expenses such as litigation costs and judgments and other expenses) for unconsummated transactions. In particular, certain co-investment vehicles or certain potential co-investors who might have invested in a transaction had it been consummated (such as potential investors in co-investment structures relating to a specific investment where the legally binding agreements relating to such co-investment are not executed until the time of deal closing) will generally not bear broken deal expenses unless the Investment Vehicle Manager determines otherwise in its sole discretion. Such determinations will be made on a case by case basis by the Investment Vehicle Manager, and may result in differing treatment of co-investment vehicles under certain circumstances. The foregoing will under certain circumstances result in the Investment Vehicle and the Conversion Vehicle bearing more than their pro rata share of such amounts.

    Effect of fees and expenses on returns and related conflicts of interest. The Investment Vehicle and the Conversion Vehicle may invest in CLO Securities and the Investment Vehicle and the Conversion Vehicle will bear any fees and similar charges of the managers of such CLO Securities (including CVC Credit Partners Group and its affiliates) and expenses relating to such CLO Securities, in addition to the Investment Vehicle and the Conversion Vehicle’s other expenses.

    Fees, costs and expenses of the Investment Vehicle and the Conversion Vehicle and the CLOs in which the Investment Vehicle and the Conversion Vehicle invest will generally be paid regardless of whether the Investment Vehicle and the Conversion Vehicle or the CLOs produce positive investment returns. Because certain CLOs are owned and managed by CVC Credit Partners Group, CVC Credit Partners Group will be paid through these CLOs with respect to the Investment Vehicle and the Conversion Vehicle’s capital invested therein in addition to the fees, expenses and costs paid through the Investment Vehicle and the Conversion Vehicle. For the avoidance of doubt, fees, costs and expenses of CLOs payable to the CVC Credit Partners Group will not be considered Underlying Issuer fees and therefore will not offset the Investment Vehicle Investment Management Fee.

    This arrangement may incentivise the Investment Services Manager or Investment Vehicle Manager to invest more of the Investment Vehicle and the Conversion Vehicle’s capital into CLOs that are managed by CVC Credit Partners Group than would otherwise be the case.

    Fees and expenses. From time to time, the Investment Vehicle Manager will be required to decide whether costs and expenses are to be borne by the Investment Vehicle and the Conversion Vehicle, on the one hand, or CVC Credit Partners Group, on the other, and/or how certain costs and expenses should be allocated between the CVC Credit Partners Vehicle or between the Investment Vehicle, and the Conversion Vehicle on the one hand, and an Other CVC Client, on the other. The Investment Services Manager and Investment Vehicle Manager will make such judgements notwithstanding their interest in the outcome, in accordance with CVC’s Credit Partners Group’s expense allocation policy. Conflicts of interest may arise in allocating any such fees and expenses between CVC Group, the CVC Credit Partners Vehicle the Investment Vehicle and the Conversion Vehicle and an Other CVC Client.

    Conflicts of interest relating to service providers. Certain advisers and other service providers of the Investment Vehicle (including, without limitation, the Investment Vehicle Administrator, the Investment Vehicle Agent, the Investment Vehicle Registrar, the Investment Vehicle Custodian, the Investment Vehicle Corporate Service Provider and the Investment Vehicle Prime Broker(s), accountants, developers, property managers, administrators, depositaries, custodians, lenders, bankers, brokers, legal advisers, consultants, investment or commercial banking firms and certain other advisers and agents) to the Investment Vehicle (including the affiliates, directors, shareholders, agents, delegates, contractors, officers and current and former employees of such advisers and other service providers) may also provide goods or services to, or have business, personal, political, financial or other relationships with, CVC Group or other service providers. Such advisers and service providers may be investors in the Investment Vehicle or Other CVC Clients, affiliates of the Investment Services Manager, the Investment Vehicle Manager and/or their affiliates, sources of investment opportunities or co- investors or counterparties therewith. These service providers and their affiliates, directors, shareholders, agents, delegates, contractors, officers and current and former employees may contract, otherwise be interested in or enter into any custodial, financial, banking, advising or brokerage, placement agency or other arrangement or transaction with the Investment Vehicle and the Conversion Vehicle, Investment Services Manager, the Investment Vehicle Manager or any investor in the Investment Vehicle and the Conversion Vehicle or Underlying Issuer in which the Investment Vehicle or and Conversion Vehicle have made an Investment. These relationships may influence the Investment Services Manager or the Investment Vehicle Manager in deciding whether to select or recommend such a service provider to perform services for the Investment Vehicle and the Conversion Vehicle (the cost of which will generally be borne directly or indirectly by the Investment Vehicle and the Conversion Vehicle). Similarly, these service providers and their affiliates, directors, shareholders, agents, delegates, contractors, officers and current and former employees may engage in competitive activities and may earn fees from or receive or provide other consideration from such persons or entities, and may provide different advice or services, take different action, or hold or deal in different loans for any other client or account, including their own accounts, from the advice or services they provide, action they take, or loans they hold or deal for the Investment Vehicle and the Conversion Vehicle. In certain circumstances, advisers and service providers, or their affiliates, directors, shareholders, agents, delegates, contractors, officers and current and former employees, may charge different rates or have different arrangements for services provided to CVC Group as compared to services provided to the Investment Vehicle and the Conversion Vehicle, which may result in more favourable rates or arrangements than those payable by the Investment Vehicle and the Conversion Vehicle.

    Confidential information. In connection with its other business activities and Other CVC Clients, the Investment Services Manager, the Investment Vehicle Manager and their affiliates may come into possession of confidential, material non-public information with respect to a borrower (including, without limitation, due to its prior transactions with the borrower, through its participation in an official or unofficial steering committee or through third-party information sources) or another issuer, which may limit their ability to engage in potential transactions on behalf of the Investment Vehicle and the Conversion Vehicle in certain circumstances. Should this occur, the Investment Services Manager and/or the Investment Vehicle Manager may also be restricted from providing all or a portion of their services to the Investment Vehicle and the Conversion Vehicle until such time as the information becomes public or is no longer deemed confidential and/or material. Additionally, there may be circumstances in which one or more of certain individuals associated with the Investment Services Manager and the Investment Vehicle Manager will be precluded from providing services related to the Investment Vehicle and the Conversion Vehicle’s activities because of certain confidential information available to such individuals, the Investment Services Manager, the Investment Vehicle Manager or their respective affiliates. In addition, the Investment Vehicle and the Conversion Vehicle may not have access to material non-public information in the possession of CVC Credit Partners Group which might be relevant to an investment decision to be made by the Investment Vehicle and the Conversion Vehicle, and the Investment Vehicle and the Conversion Vehicle may initiate a transaction or sell an investment which, if such information had been known to it, may not have been undertaken.

    Policies and procedures of the CVC Group; material non-public information. Policies and procedures implemented by CVC Group from time to time (including as may be implemented in the future) to mitigate potential conflicts of interest and address certain regulatory requirements and contractual restrictions may reduce the synergies across CVC Group’s areas of operation or expertise that the Investment Services Manager and/or Investment Vehicle Manager expect to draw on for purposes of pursuing and evaluating attractive investment opportunities for the Investment Vehicle and the Conversion Vehicle. Because CVC Group has other activities beyond the Investment Vehicle and the Conversion Vehicle, it is subject to a number of actual and potential conflicts of interest, additional regulatory considerations and more legal and contractual restrictions than that to which it would otherwise be subject if it focused only on the Investment Vehicle and the Conversion Vehicle.

    CVC Group has established an information barrier to isolate the material, non-public information of each of CVC Credit Partners Group and CVC Capital Partners, except as expressly provided in the information barrier procedures and subject to appropriate procedural safeguards. The purpose of this information barrier is, among other things, to confine any material, non-public information obtained by personnel on one side of the barrier so that the investment activities of the businesses on the other side of the barrier are not restricted as a result of the material non-public information being imputed to the personnel on the other side of the barrier. As a result of this information barrier, personnel of CVC Credit Partners Group may not be able to use, act on or otherwise be aware of information that is known by or in the possession of the personnel of CVC Capital Partners (and vice-versa).

    Collaboration between CVC Credit Partners Group personnel and CVC Capital Partners personnel may therefore be limited and this in turn may reduce potential synergies. At the same time, there are no information barriers between or among the various investment teams within CVC Credit Partners Group, and CVC Credit Partners Group maintains a restricted list to which the Investment Vehicle, the Conversion Vehicle and the other CVC Credit Partners Vehicles are subject. Consequently, the Investment Vehicle, the Conversion Vehicle and/or Other CVC Clients may not be able to buy or sell a particular security or other instrument because one or more personnel of CVC Credit Partners Group possesses material, non-public information concerning the instrument’s issuer or the market for the issuer’s securities or other instruments. Similarly, in such circumstances, the Investment Vehicle and the Conversion Vehicle may not be able to dispose of a security or other instrument owned by an Other CVC Client, even in a declining market, until the information becomes publicly available or immaterial and the trading in the relevant securities or instruments is no longer restricted.

    Restricted list. CVC Credit Partners Group and certain of its affiliates are subject to a shared restricted list to which all of their respective clients are subject. As a consequence, CVC Credit Partners Group may not be able to buy or sell a particular security or other instrument on behalf of its clients because one or more personnel or teams of personnel of certain affiliates possess material, non-public information concerning the Investment Vehicle and the Conversion Vehicle or the market for the Investment Vehicle and the Conversion Vehicle’s securities or other instruments, and vice versa. Similarly, in such circumstances, CVC Credit Partners Group may not be able to dispose of a security or other instrument owned by a client, even in a declining market, until the information becomes publicly available or immaterial and the trading in the Investment Vehicle and the Conversion Vehicle’s securities or instruments is no longer restricted.

    Possible future activities. CVC Credit Partners Group may expand the range of services that it provides over time. Except as provided herein, CVC Credit Partners Group will not be restricted in the scope of its business or in the performance of any such services (whether now offered or undertaken in the future) even if such activities could give rise to conflicts of interest, and whether or not such conflicts are described herein. CVC Credit Partners Group has, and will continue to develop, relationships with a significant number of companies, financial sponsors and their senior managers, including relationships with clients who may hold or may have held investments similar to those intended to be made by the Investment Vehicle and the Conversion Vehicle. These clients may themselves represent appropriate investment opportunities for the Investment Vehicle and the Conversion Vehicle or may compete with the Investment Vehicle and the Conversion Vehicle for investment opportunities.

    Additional potential conflicts. The officers, directors, members, managers and employees of CVC Credit Partners Group may trade in loans, securities and other obligations for their own accounts, subject to restrictions and reporting requirements as may be required by law and internal policies or otherwise determined from time to time. CVC Credit Partners Group may conduct any other business, including any business within the securities or debt industry, whether or not such business is in competition with the Investment Vehicle and the Conversion Vehicle. Without limiting the generality of the foregoing, CVC Credit Partners Group may act as the investment adviser or Investment Vehicle Manager for others, may manage funds or capital for others, may have, make and maintain investments in their own name or through other entities, and may serve as officers, directors, consultants, partners or stockholders of one or more investment funds, partnerships, securities firms, advisory firms or management firms.

    The due diligence process that the Investment Vehicle Manager plans to undertake in evaluating specific investment opportunities for the Investment Vehicle and the Conversion 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 and the Conversion 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 or the Conversion 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 or the Conversion 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 or the Conversion Vehicle may be undertaken on an expedited basis in order to make it possible for the Investment Vehicle or the Conversion 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, the Conversion Vehicle and, by extension, 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 an investment in the Placing Shares

    The Placing Shares (and, where the Placing Shares are C Shares, the Correspondent Shares arising on Conversion), may trade at a discount to the Net Asset Value per Share of the relevant class and Shareholders may be unable to realise their Placing Shares (or, where the Placing Shares are C Shares, the Correspondent Shares arising on Conversion), on the market at the Net Asset Value per Share or at any other price

    The Placing Shares (and, where the Placing Shares are C Shares, the Correspondent Shares arising on Conversion), may trade at a discount to the Net Asset Value per Share of the relevant class for a variety of reasons, including due to market or economic conditions or to the extent investors undervalue the management activities of the Investment Vehicle Manager. While the Company intends to use the Contractual Quarterly Tender facility, subject to annual Shareholder approval, as a means to mitigate any discount to the Net Asset Value per Share, there can be no guarantee that this facility will be successful and, in any event, it is not available to C Shareholders. The Directors accept no responsibility for any failure of the Contractual Quarterly Tender facility to effect a reduction in any discount.

    Subject to the Companies Law, under its Articles, the Company may issue additional securities, including Shares and C Shares, for any purpose. Any additional issuances by the Company, or the possibility of such issue, may cause the market price of the Placing Shares (and, where the Placing Shares are C Shares, the Correspondent Shares arising on Conversion) to decline.

    Shareholders have no right to have their Shares, and, in the case of C Shares, Correspondent Shares arising on Conversion, redeemed or repurchased by the Company

    The Company has been established as a closed-ended vehicle. Accordingly, there is no right or entitlement attaching to Shares and, in the case of C Shares, to Shares arising on Conversion, that allows them to be redeemed or repurchased by the Company at the option of the Shareholder. By contrast, Investment Vehicle Interest Holders and Conversion Vehicle Interest Holders (including the Company) who have invested directly in the Investment Vehicle or the Conversion Vehicle, have a right to redeem their: (i) Investment Vehicle Interests pursuant to the Investment Vehicle’s quarterly redemption facility; or (ii) Conversion Vehicle Interests pursuant to the Conversion Vehicle's redemption facility. The Company has, however, established the Contractual Quarterly Tender facility in respect of the Shares (which does not apply to the C Shares), which is subject to annual Shareholder approval and the restrictions as discussed further in the section entitled "Discount Control: Quarterly Tenders" in Part I of the Prospectus.

    In addition to the Contractual Quarterly Tender facility, the Directors may seek Shareholder approval to grant them the power to make ad hoc market purchases of Shares, and, in the case of C Shares, Correspondent Shares arising on Conversion. If such authority is sought and subsequently granted, the Directors will have complete discretion as to the timing, price and volume of Shares, or, in the case of C Shares, Correspondent Shares arising on Conversion, to be purchased. Prospective holders of Shares should not place any reliance on the willingness of the Directors so to act. In the absence of the availability of the Contractual Quarterly Tender facility or market purchases of Shares by the Company, Shareholders wishing to realise their investment in the Company will be required to dispose of their Shares, or, in the case of C Shares, Correspondent Shares arising on Conversion, through the secondary market. Accordingly, Shareholders' ability to realise their investment at any particular price and/or time may be dependent on the existence of a liquid market in the Placing Shares, and, in the case of Correspondent Shares arising on the Conversion, a liquid market in those 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, 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 Shares to be issued pursuant to a Placing is not yet known, and there may be a limited number of holders of Shares. Limited numbers of 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 the relevant Net Asset Value per Share or at all.

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

    The Company will apply for the C Shares issued under the Placing Programme to be admitted to the standard segment of the Official List and to trading on the standard segment of the Main Market. There can be no guarantee that a liquid market in the C Shares will develop or be sustained or that the C Shares will trade at prices close to their underlying Net Asset Value. The number of C Shares to be issued pursuant to the Placing Programme is not yet known, and there may be a limited number of C Shareholders once in issue. Limited numbers of C Shares and/or C Shareholders may mean that there is limited liquidity in such C Shares which may affect: (i) a C Shareholder's ability to realise some or all of their investment; (ii) the price at which such C Shareholder can effect such realisation; and/or (iii) the price at which C Shares trade in the secondary market. Accordingly, Shareholders may be unable to realise their investment at the C Share Net Asset Value or at all.

    C Shareholders have limited voting rights

    The C Shares do not carry voting rights in relation to the election of the Company's Board of Directors and generally have no voting rights, except that (i) any alteration to the Memorandum or the Articles or the passing of any resolution to wind up the Company requires the consent of the holders of the C Shares by Ordinary Resolution (such that the C Shareholders may veto, but cannot force the Company to take, any such actions); and (ii) as may be required by Jersey law. Further, C Shareholders cannot direct the Directors to redeem or repurchase any C Shares or return capital or liquidate the Company. The limited voting rights of the holders of the C Shares limit their ability to have an impact on Board decisions or Company policy and may adversely affect the market price of the C 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 Correspondent 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 the 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 the 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.

    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.

    Sterling Shares, Sterling C Shares, U.S. Dollar Shares and U.S. Dollar C 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 Sterling- denominated Conversion Vehicle Interests respectively and such monies may then be converted to Euro for operating purposes. Similarly, subscription monies for U.S. Dollar Shares and U.S. Dollar C Shares are used to fund subscriptions for U.S. Dollar-denominated Company Investment Vehicle Interests and U.S. Dollar-denominated Conversion Vehicle Interests respectively and such monies may then be converted to Euro for operating purposes.

    The holders of Sterling Shares, Sterling C Shares, U.S. Dollar Shares and U.S. Dollar C Shares will therefore be subject to foreign currency fluctuations between Sterling and Euro or between the U.S. Dollar and Euro, respectively. 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, the Sterling-denominated Conversion Vehicle Interests, the U.S. Dollar-denominated Company Investment Vehicle Interests or the U.S. Dollar-denominated Conversion Vehicle Interests respectively and, as a consequence, to the Sterling Shares, Sterling C Shares, U.S. Dollar Shares or U.S. Dollar C Shares, respectively. This may result in variations between the Net Asset Value per Share of the Euro Shares (and Euro C Shares) and the Sterling Shares (and the Sterling C Shares) and the U.S Dollar Shares (and U.S. Dollar C Shares), and also in variations between the market prices of the Euro Shares (and Euro C Shares), the Sterling Shares (and Sterling C Shares) and the U.S. Dollar Shares (and U.S. Dollar C Shares).

    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 them or shares held or acquired by persons acting in concert with them, 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 of the Takeover Code 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 the Company's 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.

    The Placing Shares will be subject to purchase and transfer restrictions in each Placing and in secondary transactions in the future

    The Company intends to restrict the ownership and holding of its Shares and C 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 or C 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 them 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.

    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, does not intend to so register and may be unable 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 on purchase and transfer restrictions, prospective investors should refer to the section entitled "Purchase and Transfer Restrictions" in Part VI of the Prospectus.

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  • Risks relating to market conditions and global events

    Geopolitical and macro-economic events and developments may adversely affect the business, financial condition and results of operations of the Investment Vehicle, the Conversion Vehicle, the Company and the Investment Vehicle Manager, as well as the Company’s NAV and/or the market price of the Shares

    The Company, the Investment Vehicle, the Conversion Vehicle and the Investment Vehicle Manager will be subject to various geopolitical and macro-economic risks incidental to investing. Political, economic, trade, military and other events around the world may impact the economic conditions in which the Company, the Investment Vehicle, the Conversion Vehicle and the Investment Vehicle Manager operate, by, for example, causing exchange rate fluctuations, interest rate changes, heightened or lessened competition, tax advantages or disadvantages, inflation, reduced economic growth or recession, and so on. Such events are not in the control of the Company, the Investment Vehicle, the Conversion Vehicle and the Investment Vehicle Manager and may impact the Company's performance.

    In particular, 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 which may adversely affect the performance of the Investment Vehicle and/or the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the Shares.

    Each of the Investment Vehicle and the Conversion Vehicle is required to hold at least 60 per cent. of its Gross Assets in companies domiciled or with material operations in Western Europe. As such, the Investment Vehicle and the Conversion Vehicle could be particularly exposed to any European economic crisis. In addition, neither the Investment Vehicle nor the Conversion Vehicle has any 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/or the Conversion Vehicle and, by extension, the Company's business financial condition, results of operations, NAV and/or the market price of the 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 or the Conversion Vehicle deals. The Investment Vehicle, the Conversion Vehicle and, by extension, the Company may, therefore, be exposed to systemic risk when the Investment Vehicle or the Conversion Vehicle deals with various third parties whose creditworthiness may be exposed to such systemic risk.

    The Company, the Investment Vehicle and the Conversion 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), may adversely affect the performance of the Investment Vehicle and/or the Conversion Vehicle and, by extension, the Company's business, financial condition, results of operations, NAV and/or the market price of the Shares.

    A 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 Shares), and on the potential for liquidity events involving such Investments. In the future, non-performing assets in the Investment Vehicle's or the Conversion Vehicle’s Portfolio may cause the value of that Portfolio to decrease (and, by extension, the NAV and/or the market price of the 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 or the Conversion 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.

    In addition, the United Kingdom voted to leave the European Union in a referendum on 23 June 2016 and, on 29 March 2017, the UK Government exercised its right under Article 50 of the Treaty on the European Union to leave the European Union after a two year negotiating period initially ending on 29 March 2019 and subsequently extended. As at the date of the Prospectus, neither the UK Parliament nor the European Parliament had approved the terms of the United Kingdom's withdrawal from the European Union.

    During this period of uncertainty, there may be significant volatility and disruption in: (i) the global financial markets generally, which result in a reduction of the availability of capital and debt; and (ii) the currency markets as the value of Sterling fluctuates against other currencies. Such events may, in turn, contribute to worsening economic conditions, not only in the UK and Europe, but also in the rest of the world.

    The nature of the United Kingdom's future relationship with the European Union may also impact and potentially require changes to the Company's regulatory position. However, at present, it is not possible to predict what these changes might be.

    Investors should be aware that it is not possible to predict the ultimate outcome of negotiations between the United Kingdom and the European Union or the political, economic, legal and social consequences of that outcome. Such outcome and consequences may remain uncertain for some time. It is possible that certain potential outcomes could have an adverse effect on the performance of the Investment Vehicle and/or the Conversion Vehicle and, by extension, 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 law, regulation and taxation

    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, the Investment Vehicle, the Conversion Vehicle, CVC Investment Services and the Investment Vehicle Manager

    The Company, the Investment Vehicle, the Conversion 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 UK Listing Authority 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.

    Each of the Investment Vehicle and the Conversion 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 and the European Securities and Markets Authority.

    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, the Conversion 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, the Conversion 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 and/or the Conversion Vehicle to pursue their respective investment policies, and may adversely affect the performance of the Investment Vehicle and/or the Conversion Vehicle and, by extension, the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

    Proposed reforms to various interest rate benchmarks may affect the amounts received by the Company from its holdings of Investment Vehicle Interests and Conversion Vehicle Interests

    Various interest rate benchmarks (including the London Inter-Bank Offered Rate ("LIBOR") and the Euro Interbank Offered Rate ("EURIBOR") are the subject of recent national and international regulatory guidance and proposals for reform. Some of these reforms are already effective whilst others are still to be implemented. These reforms may cause benchmarks to perform differently than in the past, or the benchmark could be eliminated entirely, or there could be other consequences that cannot be predicted. For example, in the EU a regulation on indices used as benchmarks in financial instruments and financial contracts (the "Benchmark Regulation") was published in the Official Journal of the EU on 29 June 2016 and has been in effect since 1 January 2018. Among other things, the Benchmark Regulation:

    (i) applies to the provision of benchmarks, the contribution of input data to a benchmark and the use of a benchmark within the EU;
    (ii) requires benchmark administrators to be authorised or registered (or, if non-EU based, to be subject to an equivalent regime or otherwise recognised or endorsed);
    (iii) prevents certain uses by EU-supervised entities of benchmarks of administrators that are not authorised or registered (or, if non-EU based, not deemed equivalent or recognised or endorsed);
    (iv) the methodology or other terms of the “benchmark” could be changed in order to comply with the terms of the Benchmark Regulation; and
    (v) an index may be discontinued if it does not comply with the requirements of the Benchmark Regulation, or if its administrator does not obtain authorisation.

    More broadly, any of the international or national reforms, or the general increase in regulatory scrutiny of benchmarks, could result in participants no longer submitting rates used for the calculation of such benchmarks or could otherwise increase the costs and risks of administering or participating in the setting of a benchmark and complying with any such regulations or requirements. For example, on 27 July 2017, Andrew Bailey, the Chief Executive of the FCA, announced the FCA’s intention to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021 (the “FCA Announcement”). Further, on 12 July 2018, the FCA announced that LIBOR may cease to be a regulated benchmark under the Benchmark Regulation. The FCA Announcement indicates that the continuation of LIBOR on the current basis (or at all) cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom, the United States or elsewhere.

    The use of LIBOR as a benchmark rate is pervasive throughout financial markets. The FCA envisages that market participants will transition away from LIBOR towards replacement benchmarks. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR.

    Investors should be aware that:

    (i) any of the international, national or other measures or proposals for reform, or general increased regulatory scrutiny of “benchmarks” could have a material adverse effect on the costs and risks of administering or otherwise participating in the setting of a “benchmark” and complying with any such regulations or requirements. Such factors may have the effect of discouraging market participants from continuing to administer or participate in certain “benchmarks”, trigger changes in the rules or methodologies used in certain “benchmarks” or lead to the disappearance of certain “benchmarks”;
    (ii) any of these changes or any other changes to a benchmark could affect the level of the published rate, including to cause it to be lower and/or more volatile than it would otherwise be; and
    (iii) returns on the Investments are not directly dependent on these interest rate benchmarks, but a substantial proportion of the Investments may be held in floating rate investments that are dependent on benchmarks of this type and accordingly these reforms could indirectly adversely affect the returns achievable by the Investment Vehicle and the Conversion Vehicle and, by extension, may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

    The Company is likely to be regarded as a "covered fund" under the Volcker Rule. Any prospective investor that is or may be considered a "banking entity" under the Volcker Rule should consult its legal advisers regarding the potential impact of the Volcker Rule on its investments and other activities prior to making any investment decision with respect to the Shares or entering into other relationships or transactions with the Company.

    Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and Regulation VV (12 C.F.R. Section 248) promulgated thereunder by the Board of Governors of the Federal Reserve System (such statutory provision together with such implementing regulations, the "Volcker Rule"), generally prohibits "banking entities" (which term is broadly defined to include any U.S. bank or savings association whose deposits are insured by the Federal Deposit Insurance Corporation, any company that controls any such bank or savings association, any non-U.S. bank treated as a bank holding company for purposes of Section 8 of the U.S. International Banking Act of 1978, as amended, and any Affiliate or subsidiary of any of the foregoing entities) from: (i) engaging in proprietary trading as defined in the Volcker Rule; (ii) acquiring or retaining an "ownership interest" in, or "sponsoring", a "covered fund"; and (iii) entering into certain other relationships or transactions with a "covered fund".

    As the Company is likely to be regarded as a "covered fund" under the Volcker Rule, any prospective investor that is or may be considered a "banking entity" under the Volcker Rule should consult its legal advisers regarding the potential impact of the Volcker Rule on its investments and other activities, prior to making any investment decision with respect to the Shares or entering into other relationships or transactions with the Company. If the Volcker Rule applies to an investor's ownership of Shares, the investor may be forced to sell its Shares or the continued ownership of Shares may be subject to certain restrictions. Violations of the Volcker Rule may also subject an investor to potential penalties imposed by the applicable bank regulatory authority or other enforcement action.

    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 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, does not intend to so register and may be unable 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 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.

    EMIR compliance may result in the incurrence of direct and indirect costs, which may affect the returns to the Company on the Investment Vehicle Interests or the Conversion Vehicle Interests. Further compliance costs could be incurred by the Investment Vehicle or the Conversion Vehicle if they exceed a prescribed "clearing threshold" and become subject to more onerous obligations under EMIR as a result

    EMIR has been in force since 16 August 2012. Although as an EU Regulation EMIR has direct effect, the detail of most EMIR obligations is set out in secondary legislation comprising regulatory and implementing technical standards ("RTS" and "ITS").

    EMIR's key objective is to increase transparency and reduce systemic risk in the derivatives markets. EMIR seeks to address such objectives through the three key obligations it has introduced which apply to prescribed categories of counterparties and derivatives contracts. These are: (i) a mandatory clearing obligation for certain categories of over-the-counter ("OTC") derivatives; (ii) a reporting obligation for all derivatives; and (iii) an obligation to use risk mitigation techniques for OTC derivatives which are not centrally cleared, including timely confirmation of terms, portfolio reconciliation, dispute resolution and the exchange of prescribed levels of collateral. The extent to which these obligations apply to an entity depends on its EMIR classification, the two categories being: (i) "FCs" (financial counterparties, broadly defined but comprising various types of EU regulated and authorised financial entities such as banks, investment firms, insurance companies and certain types of alternative investment funds); and; (ii) "NFCs" (non-financial counterparties, being any entity other than a FC established in the EU). The category of NFC is further sub-divided between (i) "NFC+s" (NFCs which exceed the "clearing thresholds" under EMIR, which are determined as the gross notional value of OTC derivative positions held by that NFC and other NFCs in its corporate group (broadly defined)) and (ii) "NFC-s" (NFCs which do not exceed the clearing thresholds under EMIR).

    EMIR imposes the most onerous requirements (such as the clearing and collateral obligations described above) on FCs and NFC+s, with NFC-s being subject to a less onerous compliance regime.

    As at the date of the Prospectus, none of the Investment Vehicle, the Conversion Vehicle nor CECO would: (i) be categorised as an FC, and therefore would fall within the category of NFC under EMIR; and (ii) hold positions in OTC derivatives which (together with other NFC entities in their corporate group) in aggregate exceed the EMIR “clearing thresholds” and, accordingly, each should be deemed to be an NFC– for the purposes of EMIR and therefore subject to the lower level of EMIR compliance. An NFC– does have certain EMIR obligations, primarily being to comply with the EMIR reporting obligation and the risk mitigation techniques relating to timely confirmation of terms, portfolio reconciliation, portfolio compression and dispute resolution.

    Whilst the CECO Directors do not believe that compliance with EMIR will impair or materially adversely affect the Investment Vehicle’s or the Conversion Vehicle’s ability to implement its investment policy, EMIR compliance may result in the incurrence of direct and indirect compliance costs, which may affect the return on the Investment Vehicle Interests or the Conversion Vehicle Interests. Further costs could be incurred if an entity exceeds the clearing threshold and consequently becomes subject to more onerous EMIR requirements principally the clearing obligation and, for those derivatives not required to be cleared, the exchange of collateral.

    Pursuant to Article 12(3) of EMIR, any failure to comply with the rules of EMIR should not make the relevant OTC derivative invalid or unenforceable or give rise to any right to compensation from a party to an OTC derivative contract. However, such failure may cause the Investment Vehicle or the Conversion Vehicle to be liable to a fine and if such fine is imposed, the return on the Investment Vehicle Interests or on the Conversion Vehicle Interests may also be affected.

    The EU regulatory framework and legal regime relating to derivatives is set not only by EMIR but also by MiFID II. MiFID II came into force on 3 January 2018 and, in particular, requires transactions between FCs and NFC+s in sufficiently liquid OTC derivatives to be executed on a trading venue which meets the requirements of the MiFID II regime.

    The implementation and evolution of EMIR and MiFID II continues and the Investment Vehicle Manager will continue to monitor any regulatory changes arising from the implementation of EMIR and MiFID II that may affect the Investment Vehicle and the Conversion Vehicle and, by extension, the Company.

    If the Company, the Investment Vehicle or the Conversion 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, the Investment Vehicle and the Conversion Vehicle intend to conduct their respective affairs so that they will not be treated under UK tax law 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, the Investment Vehicle and the Conversion 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, the Investment Vehicle or the Conversion 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, the Investment Vehicle or the Conversion 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 Shares, and consequently may adversely affect the Company’s business, financial condition, results of operations, NAV and/or the market price of the Shares.

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

    Any change in the tax status of the Company, the Investment Vehicle or the Conversion 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 Conversion Vehicle or the Company’s ability to achieve its investment objectives or alter the post-tax returns to shareholders. Statements in the Prospectus and this section of this website 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 and this section of this website in particular take into account the UK offshore fund rules contained in Part 8 of the Taxation (International and Other Provisions) Act 2010 (“TIOPA”). 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).

    Impact of anti-tax avoidance directive on Luxembourg securitisation companies

    The Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (“ATAD 1”) was transposed into Luxembourg domestic law by the law of 21 December 2018 (the “ATAD Law”) and entered into force on 1 January 2019. ATAD 1 has been amended by the Council Directive (EU) 2017/952 of 29 May 2017 (“ATAD 2”), which still has to be implemented under Luxembourg Law ATAD 1 and 2, together “ATAD”).

    The ATAD Law notably introduces a new framework that may limit the tax deduction of interest and other deductible payments and charges for Luxembourg companies subject to corporate income tax (such as CECO). Whilst (i) ATAD may be subject to future amendment by the relevant Luxembourg authorities and (ii) the impact of ATAD on CECO is not yet clear, ATAD may result in corporate income tax being effectively imposed and due on CECO to the extent that CECO derives income other than interest income or income equivalent to interest from its underlying assets and transactions or, as the case may be, if the instruments issued by CECO qualify for tax purposes as hybrid financial instruments.

    The ATAD also provides for a few exemptions, grandfathering and de minimis clauses. Notably, securitisation vehicles under article 2(2) of Regulation (EU) 2017/2402 are specifically excluded by the ATAD Law from the application of the interest deductibility limitation rules. However, Luxembourg securitisation companies subject to the Securitisation Act 2004 may not necessarily fall under the scope of article 2(2) of Regulation (EU) 2017/2402. Therefore, such interest deductibility limitation rules could still result in denying the tax deduction of a portion of interest accrued. This could increase the taxable base of CECO and therefore impact negatively the return available to Shareholders.

    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.

    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 TIOPA. 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.

    Different regulatory, tax or other treatment of the Company or the 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 Shares may be treated in different ways in different jurisdictions. For instance, in certain jurisdictions and for certain purposes, the 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 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.

    Certain payments to the Company will be subject to 30 per cent. withholding tax unless the Company agrees to certain reporting and withholding requirements and certain shareholders will be required to provide the Company with required information so that the Company may comply with its obligations under FATCA

    In order to receive payments free of U.S. withholding tax under Sections 1471 through 1474 of the U.S. Internal Revenue Code (commonly referred to as “FATCA”), the Company and financial institutions through which payments on or with respect to the Shares are made may be required to withhold at a rate of up to 30 per cent. on all, or a portion of, payments in respect of the Shares made after 31 December 2016.

    The United States and Jersey have entered into an Intergovernmental Agreement (“IGA”) to implement FATCA. Under the terms of the IGA, the Company may be obliged to comply with the provisions of FATCA as enacted by the Jersey legislation implementing the IGA (the “Jersey IGA Legislation”), rather than directly complying with the U.S. Treasury Regulations implementing FATCA. Under the terms of the IGA, Jersey resident financial institutions that comply with the requirements of the Jersey IGA Legislation will be treated as compliant with FATCA and, as a result, will not be subject to withholding tax under FATCA (“FATCA Withholding”) on payments they receive and will not be required to withhold under FATCA on payments of non-U.S. source income. The Company is a Jersey resident financial institution and therefore will be required to comply with the requirements of the Jersey IGA Legislation.

    Under the Jersey IGA Legislation, the Company will be required to report to the Jersey Minister for Treasury and Resources certain holdings by and payments made to certain U.S. investors in the Company, as well as to non-U.S. financial institutions that do not comply with the terms of the Jersey IGA Legislation. Under the terms of the IGA, such information will be onward reported by the Jersey Minister for Treasury and Resources to the United States under the general information exchange provisions of the United States-Jersey Agreement for the Exchange of Information Relating to Taxes.

    As a result, shareholders may be required to provide any information that the Company determines necessary in order to allow the Company to satisfy its obligations under FATCA.

    Additional intergovernmental agreements similar to the IGA have been entered into or are under discussion by other jurisdictions with the United States. Different rules than those described above may apply depending on whether a payee is resident in a jurisdiction that has entered into an intergovernmental agreement to implement FATCA.

    The scope and application of FATCA Withholding and information reporting pursuant to the terms of FATCA and the IGAs are subject to review by the United States, Jersey and other IGA governments, and the rules may change. Although the Company intends to comply with applicable law, it cannot be predicted at this time as to the particular form that the Jersey IGA Legislation might take or as to the benefits or risks of complying with such law. Shareholders should consult with their own tax advisors regarding the application of FATCA to their particular circumstances.

     

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