Exhibit 10.3

 

EXECUTION COPY

 

Retention of Net Economic Interest Letter

 

August 13, 2014

 

Natixis, New York Branch, as Facility Agent

1251 Avenue of the Americas
New York, New York 10020
Attention: Yazmin Vasconez

Versailles Assets LLC, as Lender

c/o Global Securitization Services LLC

68 South Service Road, Suite 120

Melville, NY 11747

Attention: Andrew Stidd

 

Re:Retention of Net Economic Interest

 

This Retention of Net Economic Interest Letter is being delivered in connection
with the Amended and Restated Credit and Security Agreement dated as of August
13, 2014 (as the same has been and may further be amended, amended and restated,
supplemented, waived or otherwise modified from time to time, the "Credit
Agreement"), among WhiteHorse Finance Warehouse, LLC, as borrower (the
"Borrower"), Versailles Assets LLC, as lender (the "Lender" and together with
the Lenders from time to time parties thereto, collectively, the "Lenders"),
Natixis, New York Branch, as facility agent (the "Facility Agent") and The Bank
of New York Mellon Trust Company, N.A., as collateral agent (the "Collateral
Agent"). All capitalized terms used but not defined herein have the respective
meanings give to such terms in the Credit Agreement as in effect on the date
hereof.

 

For purposes of this Retention of Net Economic Interest Letter:

 

"AIFMD" means EU Directive 2011/61/EU on Alternative Investment Fund Managers
(as amended from time to time and as implemented by Member States of the
European Union) together with any implemented or delegated regulation, technical
standards and guidance related thereto as may be amended, supplemented  or
replaced from time to time.

 

"AIFMD Retention Requirements" means Article 17 of the AIFMD, as implemented by
Section 5 of the European Union Commission Delegated Regulation (EU) No 231/2013
of December 19, 2012 supplementing the AIFMD, including any guidance published
in relation thereto and any implementing laws or regulations in force in any
Member State of the European Union, provide that references to AIFMD Retention
Requirements shall be deemed to include any successor or replacement provisions
of Section 5 included in any European Union directive or regulation subsequent
to AIFMD or the European Union Delegated Regulation (EU) No 231/2013.

 

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"CRR Retention Requirements" means Articles 404-410 of Regulation (EU) No.
575/2013 of the European Parliament and of the Council of June 21, 2013 on
prudential requirements for credit institutions and investment firms and
amending Regulation (EU) No. 648/2102 (as amended from time to time and as
implemented by the Member States of the European Union, "Article 404"), together
with any guidelines and technical standards published in relation thereto by the
European Commission or the European Banking Authority (or any successor or
replacement agency or authority) as may be effective from time to time, provided
that any reference to the CRR Retention Requirements shall be deemed to include
any successor or replacement provisions of Article 404 included in any European
Union directive or regulation.

 

"Retention Requirements" means together, the CRR Retention Requirements and the
AIFMD Retention Requirements.

 

1.REPRESENTATIONS

 

WhiteHorse Finance, Inc. (the "Retention Provider"), acting in its capacity as
originator, hereby makes the following representations for the benefit of the
Facility Agent, the Lender and each other Lender that may become a party to the
Credit Agreement after the date hereof, for so long as the Payment in Full Date
has not occurred:

 

(a)it is duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized;

 

(b)it has full power and authority and has taken all action necessary to execute
and deliver this Retention of Net Economic Interest Letter and to fulfill its
obligations hereunder and to consummate the transactions hereby;

 

(c)no consent of any other person and no licence, permit, approval or
authorization of, exemption by, notice or report to, or registration, filing
(other than any filings required to be made by the Retention Provider after the
Restatement Effective Date under the Investment Company Act, the Investment
Advisers Act of 1940, as amended, the Securities Act or the Exchange Act, which
shall be made in accordance with Applicable Law) or declaration with, any
governmental authority, other than those that have been or shall be obtained in
connection with this Retention of Net Economic Interest Letter, is required by
the Retention Provider in connection with this Retention of Net Economic
Interest Letter or the execution, delivery, performance, validity or
enforceability of this Retention of Net Economic Interest Letter or the
obligations imposed upon it hereunder or thereunder; and

 

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(d)this Retention of Net Economic Interest Letter constitutes the legally valid
and binding obligations of the Retention Provider enforceable against the
Retention Provider in accordance with its terms (except to the extent that the
enforceability thereof may be limited by bankruptcy, insolvency or other similar
laws of general applicability affecting the enforcement of creditors' rights
generally and by a court's discretion in relation to equitable remedies).

 

2.Covenants

 

The Retention Provider hereby agrees, undertakes and covenants for the benefit
of the Facility Agent, the Lender and each other Lender that may become a party
to the Credit Agreement after the date hereof, for so long as the Payment in
Full Date has not occurred:

 

(a)to retain on an ongoing basis a net economic interest in the securitised
exposures (as such term is used in Article 404), which will be comprised of an
interest in the first loss tranche and, if necessary, other tranches having the
same or a more severe risk profile than those transferred or sold to investors
(being the Lenders) and not maturing any earlier than those transferred or sold
to investors within the meaning of paragraph (d) of Article 405(1) of the CRR
and Article 51(d) of the AIFMD Level 2 Regulation;

 

(b)to retain the net economic interest referred to in clause (a) above in the
minimum principal amount currently required by the Retention Requirements, such
amount being at least equal to 5% of the nominal value of the Collateral
calculated based on the Aggregate Principal Balance of all of the Collateral
Obligations, the outstanding principal amount of all Eligible Investments and
any other non-cash assets, in each case at the time of determination without
taking into account any deduction pursuant to the proviso to the definition of
"Principal Balance" of any Collateral Obligation or any deduction or discount in
respect of the purchase price paid for such Collateral Obligation or Eligible
Investment by the Borrower (such interest, the "Retention Interest");

 

(c)that its retention of the Retention Interest will be measured at origination
(being the occasion of each origination or acquisition of a Collateral
Obligation, Eligible Investment or any other non-cash asset) on the basis of the
nominal value (without taking into account acquisition prices) and shall be
maintained on an ongoing basis;

 

(d)not to sell, hedge or otherwise mitigate its credit risk under or associated
with the Retention Interest or the Collateral, except to the extent permitted in
accordance with the Retention Requirements;

 

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(e)that it will remain, directly or indirectly, the 100% owner of all of the
equity interests in WhiteHorse Finance Warehouse, LLC;

 

(f)that the Board of Directors (i) has reviewed the terms and conditions of the
credit facility documented by the Credit Agreement, (ii) in connection with the
preparation of the Transferor's quarterly financial statements, reviewed the
Collateral Obligations held by the Borrower and (iii) must receive not less than
2 Business Days prior notice of any proposed material amendment or waiver to the
Eligibility Criteria and Concentration Limitations specified in the Credit
Agreement and an opportunity to veto such proposed amendment or waiver (provided
that such right to veto may be deemed to be waived if no response to such
proposed amendment or waiver has been given within 2 Business Days);

 

(g)to confirm its continued compliance with the covenants set out at paragraphs
(a) and (b) above (i) on a monthly basis to the Collateral Agent so that the
Collateral Agent may state that it has received such confirmation in the Monthly
Report (which may be by way of email) and (ii) upon written request therefor by
and to the Borrower in writing (which may be by way of email), which request is
delivered as a result of (1) a material change in (x) the performance of the
Facility, (y) the risk characteristics of the transaction or (z) the Collateral
or (2) the breach of this Retention of Net Economic Interest Letter or any
Facility Document to which it is a party;

 

(h)that, promptly upon a Responsible Officer becoming aware thereof, it shall
notify each of its subsidiaries and its investment adviser of the Retention of
Net Economic Interest Letter and its contents and in particular the requirements
set out in (d) above and shall procure that each of its subsidiaries and its
investment adviser complies with such paragraph (d);

 

(i)that, promptly upon a Responsible Officer becoming aware thereof, it shall
immediately notify the Facility Agent (who shall give notice to the Lenders) if
for any reason it: (i) ceases to hold the Retention Interest in accordance with
clauses (a) and (b) above; (ii) fails to comply with the covenants set out in
(d) or (h) above; or (iii) any of the representations contained in this
Retention of Net Economic Interest Letter fail to be true in any material
respect on any date;

 

(j)with respect to each Collateral Obligation it sells or transfers to the
Borrower that (i) it was involved or will be involved in, directly or
indirectly, by itself or through related entities (including the Borrower), the
original agreement which created or will create the Collateral Obligation or
(ii) that it purchased or will purchase such Collateral Obligation for its own
account prior to selling such Collateral Obligation to the Borrower;

 

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(k)except as set out in clause (l) below, with respect to each Collateral
Obligation sold or transferred to the Borrower, that it shall use a degree of
skill and attention in the acquisition of such obligations no less than that
which the Retention Provider exercises with respect to comparable assets that it
acquires for itself and for others, in accordance with its customary standards,
policies, practices and procedures relating to assets of the nature and
character of the Collateral Obligations;

 

(l)with respect to each Collateral Obligation that it sells or transfers to the
Borrower in respect of which it has not undertaken the original credit-granting
or is not active in credit-granting the specific type of obligation, that it has
sufficient information to undertake its own credit analysis of the Collateral
Obligation using the criteria it would apply to non-securitized obligations;

 

(m)that it will invest in and hold loans, securities and other investments
(excluding obligations that will be sold, or are intended to be sold, to the
Borrower or any other collateralized loan obligation issuer managed by an
Investment Adviser Affiliate of the Retention Provider) expected to be in an
aggregate principal amount of 20% (but in no event less than 10%) of the
principal amount of the Retention Interest (it being understood that, for this
purpose, such percentage will be based upon the purchase price of each such
investment and that the valuation of obligations will fluctuate over time);

 

(n)with respect to each Collateral Obligation that it sells to the Borrower
(including any acquisition by the Borrower in which such Collateral Obligation
is settled directly with the Borrower), that (i) where such Collateral
Obligation was acquired in the secondary market it has held (including via a
commitment to purchase), directly or indirectly by way of holding a beneficial
interest, such Collateral Obligation for a period of at least two Business Days
before such settlement or acquisition by the Borrower and (ii) on and after the
Restatement Effective Date, it shall sell 100% of the Collateral Obligations to
the Borrower pursuant to the terms of the Master Transfer Agreement;

 

(o)that it will take such further actions and provide such information as may be
requested by any Lender or the Facility Agent so as to ensure compliance with
the provisions of the Retention Requirements (and any such Lender or the
Facility Agent may share such information with any Authority (including any bank
regulatory agency) as may be necessary to ensure compliance with the provisions
of the Retention Requirements) and enter into such agreements as it may
reasonably determine to be required to satisfy the Retention Requirements as of
(i) the Original Closing Date and (ii) following the Original Closing Date,
solely as regards the provision of information in the possession of the
Retention Provider and to the extent the same is not subject to a duty of
confidentiality, any time prior to the Final Maturity Date; and

 

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(p)that it will, promptly following a request by the Borrower, provide a
refreshed letter on the same terms as the existing letter in substantially the
form hereof in connection with a material amendment of any Facility Document.

 

3.Miscellaneous

 

3.1[Reserved].

 

3.2Governing Law

 

This Retention of Net Economic Interest Letter (i) shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions thereof relating to conflicts of law and (ii)
incorporates the entire understanding of the parties with respect to the subject
matter hereof and supersedes all previous agreements should they exist with
respect thereto. The parties hereto hereby consent to jurisdiction, service and
venue in any court proceeding in New York, New York, for which any claim,
action, proceeding or counterclaim subject to this agreement is brought. THE
PARTIES HERETO FURTHER AGREE TO WAIVE TRIAL BY JURY IN ANY SUCH CLAIM, ACTION,
PROCEEDING OR COUNTERCLAIM. Nothing in this Retention of Net Economic Interest
Letter is intended to confer any rights or remedies hereunder or by reason
hereof upon any Person not a signatory hereto (or their successors and assigns).

 

3.3Execution in Counterparts

 

This Retention of Net Economic Interest Letter may be executed in any number of
counterparts by facsimile or other written form of communication, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Retention of Net Economic Interest Letter shall become binding when one or
more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.

 

3.4Benefit

 

The Lender and the Facility Agent, on behalf of any other Lender that may become
a party to the Credit Agreement after the date hereof, are parties to (and any
such other Lender is a beneficiary of) this Retention of Net Economic Interest
Letter solely for the purposes of obtaining the benefit of the representations,
warranties and covenants contained herein and under no circumstances shall any
of them be deemed to have undertaken any obligations by virtue of their becoming
a party to or beneficiary of this Retention of Net Economic Interest Letter
except as provided herein.

 

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3.5Notices

 

Any notice or demand to any party to this Retention of Net Economic Interest
Letter to be given, made or served for any purposes under this Retention of Net
Economic Interest Letter shall be given, made or served in accordance with the
provisions of Section 12.02 of the Credit Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Retention of Net
Economic Interest Letter as of the date first written above.

 

      WhiteHorse Finance, INC.                 By:           Name:        
Title:           ACKNOWLEDGED AND AGREED:                 NATIXIS, NEW YORK
BRANCH,       as Facility Agent                 By:           Name:        
Title:                 By:           Name:         Title:                
VERSAILLES ASSETS LLC,       as Lender                 By:           Name:      
  Title: