Appropriations Bill Allows Increased Leverage For Business Development Companies

The Congressional appropriations bill signed into law on March 23, 2018 includes provisions that amend rules applicable to business development companies ("BDCs"). Created by Congress in 1980, a BDC is a type of unregistered closed-end investment company that invests in small and mid-sized businesses.

The new law amended the Investment Company Act to reduce the minimum asset coverage ratio (i.e., total assets to debt) applicable to BDCs from 200% to 150% under certain circumstances. The new law directs the SEC to amend its rules to allow BDCs to use certain securities offerings and proxy rules available to other issuers. This includes, among other things, allowing BDCs to take advantage of the streamlined securities offering process for "well-known seasoned issuers." If the SEC fails to revise relevant rules within one year, these provisions will automatically come into effect.