Andalusian Credit Company, LLC

Company type and focus

• Delaware limited liability company organized as an externally managed, closed-end management investment company.
• Regulated as a business development company (BDC) under the Investment Company Act of 1940.
• Intends to elect treatment as a regulated investment company (RIC) for U.S. federal income tax purposes for the tax year ending December 31, 2025, and to maintain RIC status thereafter.
• Investment objective: generate current income with some capital appreciation by investing primarily in senior secured loans with first liens (including unitranche loans), and to a lesser extent in second lien, subordinated loans, and equity securities of U.S. middle-market companies.

Private offering and market status

• Privately offering limited liability company interests (Shares) to accredited investors under Regulation D; continuous offerings with an initial closing date of November 14, 2023.
• Operates as a privately offered, unlisted BDC until the Board determines to pursue a Liquidity Event (which could include an exchange listing, tender offers, or a sale transaction).
• After a Liquidity Event, Shares may be subject to securities-law restrictions and negotiated lockups.

Portfolio and investment strategy

• Target market: U.S. middle-market companies (generally those with $10 million to $100 million of EBITDA, though investments may occur outside this range).
• Primary investments: senior secured loans with first-priority collateral, including unitranche loans.
• Other investments (to a lesser extent): second lien and subordinated loans, distressed debt, debtor-in-possession loans, structured products, cash-equivalents or other fixed-income instruments, and minority equity securities or warrants.
• Typical investment size: target hold sizes of approximately $10 million to $50 million per portfolio investment.
• 80% policy: under normal conditions, at least 80% of net assets (plus borrowings for investment purposes) will be invested directly or indirectly in “credit obligations and related instruments” (including derivatives with similar risk/return profiles). Synthetic instruments may be used to meet this policy if appropriate.

Leverage and asset coverage

• May employ leverage, subject to asset coverage requirements.
• Following regulatory changes, asset-coverage requirement for senior securities is 150% (reduced from 200%).
• After each leverage issuance, the Company must maintain asset coverage of at least 150% for indebtedness and 200% for preferred equity.
• Temporary borrowings up to 5% of total assets are permitted without regard to asset coverage.
• The Company may issue multiple classes of indebtedness and one class of senior equity if asset coverage thresholds are met.

Management, governance, and key personnel

• Adviser: ACP (Andalusian Credit Partners, LLC) manages the Company under an Advisory Agreement and provides the investment team, including an Investment Committee.
• Administrator: ACP serves as Administrator; sub-administration arrangements include SS&C Technologies, Inc.
• Board: three-member Board, with two Independent Board Members. The Board oversees the Adviser and other service providers.
• The Company has no employees; all personnel are employees of ACP or its affiliates.

Fees and compensation

• Management Fee: 1.50% per year of (i) unfunded Capital Commitments and (ii) the Company’s total assets (excluding cash, but including assets purchased with borrowed funds) as of the end of the most recently completed calendar quarter. If an Exchange Listing occurs, the Management Fee increases to 1.75% per year of total assets.
• Waiver: ACP contractually waived 0.25% of the Management Fee for one year from the Initial Closing Date to November 14, 2024.
• Incentive Compensation:
  • Income Incentive Fee: payable quarterly, based on pre-incentive fee net investment income (NIC) with a hurdle and catch-up structure. The quarterly hurdle is 1.25% (5% annualized) before an Exchange Listing and 1.5625% (6.25% annualized) after an Exchange Listing. Catch-up mechanics bring the Adviser’s share to 15% of NIC before an Exchange Listing and 20% after an Exchange Listing. Quarterly caps apply pre- and post-Exchange Listing.
  • Capital Gains Incentive Fee: 15% of realized capital gains prior to a Liquidity Event and 20% after a Liquidity Event, calculated on cumulative realized gains minus cumulative realized losses plus unrealized depreciation, with adjustments for prior years’ capital gains fees.
• Administration Fee: 0.25% of total Capital Commitments per year, payable to the Administrator.

Organizational and offering costs

• Initial organizational and offering expenses cap: up to 1.50% of aggregate Capital Commitments over the initial four-year period following the Initial Closing Date. ACP will pay any expenses in excess of the cap.

Valuation and NAV

• NAV calculated at least quarterly as assets minus liabilities divided by outstanding Shares; investment transactions recorded on the trade date.
• The Adviser acts as the valuation designee under Rule 2a-5 of the 1940 Act, with input from external valuation firms as needed.
• Non-public investments are valued at fair value in good faith using ASC 820, with a Level 1–3 hierarchy guiding inputs. The process includes independent valuation input and internal models.

Tax status and distributions

• Intends to be treated as a RIC under Subchapter M for tax purposes and generally aims to distribute at least 90% of its investment company taxable income to avoid corporate-level tax.
• RIC qualification requires meeting income, diversification, and annual distribution tests.
• The Company may earn income that is not cash, including original issue discount or PIK income, which can affect distribution requirements and liquidity.

Liquidity and marketability

• Shares are not currently listed on an exchange. Liquidity depends on a Liquidity Event (Exchange Listing, tender offers, or a sale transaction) determined by the Board.
• After a Liquidity Event, sales restrictions, lockups, and transfer limitations may apply to Members.

Risk factors (high-level)

• Limited operating history and dependence on key personnel.
• Intense competition for middle-market lending opportunities.
• Market and interest-rate risk, leverage risk, and potential for non-diversification.
• Risks of investing in sub-investment-grade and unrated debt, illiquid investments, and covenant-lite loans.
• Counterparty, regulatory, tax, and fiduciary risk, including potential impacts from changes to 1940 Act rules and tax provisions.
• Potential conflicts of interest due to Adviser-affiliate relationships, co-investment structures, and investments in other ACP funds.
• Cybersecurity, AI-related, ESG, geopolitical, and other broad risks affecting markets and portfolio companies.
• Operational risk from regulatory compliance, reporting obligations, and dependence on service providers.

Miscellaneous

• The Company may hold investments through non-transparent subsidiaries for tax or legal reasons, which may create entity-level tax leakage.
• The Co-Investment Order with the SEC governs how affiliated funds participate in co-investments, potentially affecting allocations and timing.
• The License Agreement grants a non-exclusive right to use the “Andalusian” name so long as the Adviser or its affiliates remain the investment adviser.

Notable facts and identifiers

• Inception date: October 17, 2022.
• Initial Closing Date for private offering: November 14, 2023.
• Board: 3 members total; 2 Independent Board Members.
• Address: 40 West 57th Street, Suite 1700, New York, NY 10019.
• Tax and regulatory status: BDC under the 1940 Act; intends to be treated as a RIC for 2025; designated as an emerging growth company under the JOBS Act.