Thursday, November 05, 2015

Congressman Proposes to Enhance BDC Capabilities

By Amy Leisinger, J.D.

A South Carolina congressman has introduced legislation to amend the Investment Company Act to modernize the regulation of business development companies (BDCs) in order to facilitate the flow of capital to small businesses. Specifically, the Small Business Credit Availability Act removes certain restrictions on BDCs’ ability to own securities of investment advisers and other financial companies and alters requirements relating to the capital structure of these entities. The Financial Services Committee approved the bill by a vote of 53-4.

Introduced by Rep. Mick Mulvaney (R-SC), H.R. 3868 expands BDCs’ access to capital by amending Sections 55 and 61 of the Act to expand the scope of permissible assets and to provide that asset coverage requirements applicable to BDCs must be 200 percent, except that the requirements will be 150 percent in certain circumstances. These circumstances include when a BDC discloses its approval and the aggregate value of the senior securities issued by such company and the asset coverage percentage as of the date of its most recent financial statements or when a BDC that issues equity securities registered on a national securities exchange files disclosures regarding the amount of indebtedness, the asset coverage ratio of the company, and the principal risk factors. The application of certain provisions to senior securities of stock depends on whether the securities are issued to and held by qualified institutional buyers.

The legislation also directs the SEC to revise certain of its rules and forms relating to BDCs to ease restrictions on offerings, registrations, and ongoing filings. According to the bill, if the Commission fails to complete the revisions in a timely manner, BDCs will be entitled to treat the affected rules as officially changed.