New Law Will Benefit BDCs by Easing Leverage Limits and Improving the Securities Offering Process

By: Stuart H. Gelfond, Joshua Wechsler, Jessica Forbes, Dave N. Rao

On March 23, 2018, President Trump signed into law the Small Business Credit Availability Act (SBCAA) as part of an omnibus spending bill. The SBCAA will significantly impact the current practices of business development companies (BDCs) by: (1) easing the current asset coverage ratio requirements for BDCs to issue senior securities or pay cash dividends under the Investment Company Act of 1940 (1940 Act), and (2) improving the securities offering process for BDCs under the Securities Act of 1933 (1933 Act) by providing certain benefits that were previously only available to non-BDC issuers. BDCs are significant financing sources for small and middle market companies, and their significance has been increasing in recent periods.

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