Company: PDCC
Filing Date: 2025-07-18
Form Type: N-2
Source: 0001214659-25-010613
Chunk: 88

Company: Pearl Diver Credit Co Inc.
Filing Date: 2025-07-18
Form: N-2
Chunk 88
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 banking entities from engaging in proprietary trading or sponsoring, or acquiring or retaining an ownership interest in, a hedge
fund or private equity fund, or “covered funds,” which have been broadly defined in a way which could include many CLOs.
Given the limitations on banking entities investing in CLOs that are covered funds, the Volcker Rule may adversely affect the market
value or liquidity of any or all of the investments held by us. Although the Volcker Rule and the implementing rules exempt “loan
securitizations” from the definition of covered fund, not all CLOs will qualify for this exemption. For example, CLOs that invest
in bonds as well as loans will be treated as covered funds. Accordingly, in an effort to qualify for the “loan securitization”
exemption, many current CLOs have amended their transaction documents to restrict the ability of the issuer to acquire bonds and certain
other securities, which may reduce the return available to holders of CLO equity securities. Furthermore, the costs associated with such
amendments are typically paid out of the cash flow of the CLO, which adversely impacts the return on our investment in any CLO equity.
In addition, in order to avoid covered fund status under the Volcker Rule, it is likely that many future CLOs will contain similar restrictions
on the acquisition of bonds and certain other securities, which may result in lower returns on CLO equity securities than currently anticipated.

In June 2020, the five federal agencies
responsible for implementing the Volcker Rule adopted amendments to the Volcker Rule's implementing regulations, including changes relevant
to the treatment of securitizations (the “Volcker Changes”). Among other things, the Volcker Changes ease certain aspects
of the "loan securitization" exclusion, and create additional exclusions from the "covered fund" definition, and narrow
the definition of "ownership interest" to exclude certain "senior debt interests". Also, under the Volcker Changes,
a debt interest would no longer be considered an "ownership interest" solely because the holder has the right to remove or replace
the manager following a cause-related default. The Volcker Changes were effective October 1, 2020. Following the effectiveness of the
Volker Changes, most CLOs elected to be structured as covered funds and rely on the loan securitization exclusion from the definition
of ownership interest allowing CLOS to invest in bonds and other senior debt interests thus having more flexibility