The SEC announced on April 8th that it is providing temporary, conditional exemptive relief for business development companies (BDCs) to enable them to make additional investments in small and medium-sized businesses, particularly those with operations affected by COVID-19. BDCs were created to provide capital to smaller domestic operating companies that may not be able to readily access the capital markets through other means.
The SEC recognizes that, in the current environment, many BDCs may face challenges in providing capital to their affected portfolio companies, and therefore, in fulfilling their statutory mandate. A BDC may face such difficulties if it is unable to satisfy the asset coverage requirements under the Investment Company Act due to temporary markdowns in the value of the loans to such portfolio companies or if certain affiliates are prohibited from participating in additional investments in the BDC’s portfolio companies due to restrictions in its current exemptive order permitting co-investments. Therefore, the temporary exemptions have been deemed necessary and appropriate in order for BDCs to continue providing credit support to portfolio companies impacted by COVID-19.
The relief order provides additional flexibility for BDCs to issue and sell senior securities in order to provide capital to such companies and to participate in investments in these companies alongside certain private funds that are affiliated with the BDC. This relief is limited to the period from (and including) the date of the order to the earlier of December 31, 2020 or the date by which the BDC ceases to rely on the order. The relief is also subject to certain investor protections, such as specific requirements for obtaining an independent evaluation of the issuances’ terms and approval by a majority of a BDC’s independent board members.
This action by the SEC is the latest in a series of steps it has taken to assist financial market participants in addressing the impacts of the ongoing coronavirus pandemic. The SEC’s website provides additional information about this and other relief measures. The SEC and its staff will continue to evaluate impacts relating to the coronavirus on investors and market participants Additional relief from other regulatory requirements may be granted where necessary or appropriate.
Firms and financial professionals affected by the coronavirus are encouraged to contact the staff with questions and concerns. To reach the Division of Investment Management with general questions or concerns related to impacts of the coronavirus on the operations or compliance of funds and advisers, please email IM-EmergencyRelief@sec.gov.
Sources:
SEC Provides Temporary, Conditional Relief for Business Development Companies Making Investments in Small and Medium-sized Businesses (www.sec.gov)
Order Under Sections 6(c), 17(d), 38(a), and 57(i) of the Investment Company Act of 1940 and Rule 17d-1 Thereunder Granting Exemptions From Specified Provisions of the Investment Company Act and Certain Rules Thereunder (www.sec.gov)
