Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
See the risk factors set forth in Part I, “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Except as set forth below, there have been no material changes to the risk factors disclosed in such Annual Report on Form 10-K or Part II, “Item 1A. Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
From July 1, 2023, the Company’s interest in Sound Point is subject to the risks normally associated with a minority interest.
Since the Company holds a minority interest in Sound Point after the closing of the Sound Point Transaction, it is unable to control the business, management or policies of Sound Point. For example, the Company is not be able to control the timing or amount of distributions from Sound Point and is not involved on a day-to-day basis with Sound Point’s operations or its decision-making with respect to its investment, reporting, internal control, legal, compliance or risk functions. In most cases, the Company will be bound by the decisions made by the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point. In the event that the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point have interests, objectives and incentives that differ from those of the Company, there can be no assurance that the decisions they make will be aligned with the interests of the Company. Decisions made by the Managing Partner and Chief Investment Officer, other members of management and the Board of Managers of Sound Point not in the Company’s interest could have a material adverse effect on the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.
An inability to obtain accurate and timely financial information from Sound Point or AHP may impair the Company’s ability to comply with reporting obligations under federal securities law.
The Company will be reliant on Sound Point and AHP to provide accurate and timely financial reporting that will allow the Company to timely prepare and file its own financial statements in accordance with GAAP and in compliance with SEC regulations and New York Stock Exchange listing rules.
As private companies, Sound Point and AHP are not subject to the reporting requirements of the Exchange Act and historically have not been required to prepare their financial statements in accordance with generally accepted accounting principles in the United States or in compliance with the SEC’s accounting regulations. The Company expects to report its investments in Sound Point, the Sound Point funds and AHP funds on a one-quarter lag. While each of Sound Point, AHP and their respective related parties have agreed to provide to the Company all financial information necessary to complete and file its periodic SEC reports on a timely basis, any failure by Sound Point, AHP or their respective related parties to provide the Company with accurate and timely financial information could result in a delay in the Company’s timely reporting of its results of operations for any period or it not filing one or more periodic reports with the SEC on time or inaccuracies in its financial statements.
The Company’s investments in Sound Point are subject to the risks of Sound Point’s business.
Sound Point’s business operates in highly competitive markets. Sound Point competes with many other firms in every aspect of the asset management industry, including raising funds, seeking investments, and hiring and retaining professionals. Sound Point’s ability to increase and retain AUM is directly related to the performance of the assets it manages as measured against market averages and the performance of its competitors. Some of Sound Point’s competitors may have a lower cost of
130
Table of Contents
funds and access to funding and other resources that are not available to Sound Point. In addition, some of Sound Point’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than Sound Point does. Furthermore, Sound Point may lose investment opportunities if it does not match its competitors’ pricing, terms and structure. The loss of such investment opportunities may limit Sound Point’s ability to grow or cause it to have to shrink the size of its portfolio, which could decrease its earnings. If Sound Point matches its competitors’ pricing, terms and structure, it may experience decreased earnings and increased risk of investment losses.
Sound Point is dependent on certain key personnel, including Sound Point’s Managing Partner and Chief Investment Officer, and its future success depends on their continued service. The departure of any of Sound Point’s key personnel for any reason could have a material adverse effect on Sound Point’s business, financial condition or results of operations and, consequently, the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.
Sound Point operates in a highly regulated industry and, as a registered investment adviser, is subject to the provisions of the Investment Advisers Act of 1940, as amended. Sound Point is, from time to time, subject to formal and informal examinations, investigations, inquiries, audits and reviews from numerous regulatory authorities both in response to issues and questions raised in such examinations or investigations and in connection with the changing priorities of the applicable regulatory authorities across the market in general. As a result, there can be no assurance that Sound Point will not become subject to possible enforcement actions. Sound Point and its principals and employees could also be named as defendants in, or otherwise become involved in, a regulatory action or litigation. Any such regulatory action or litigation could be disruptive, time-consuming, expensive and lead to negative financial and reputational consequences that have a material adverse effect on Sound Point’s business, financial condition or results of operations and, consequently, the Company’s interest in Sound Point and/or its investments in Sound Point funds, other vehicles and separately managed accounts.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.