On March 23, 2018, President Trump signed the Consolidated
Appropriations Act of 2018, which included the Small Business
Credit Availability Act (the "SBCAA"). The SBCAA was, at
the time, a material "win" for BDCs. Pursuant to the
SBCAA, business development companies or "BDCs" have the
ability to elect for more lenient asset coverage requirements,
thereby increasing their ability to take on more leverage for
purposes of making investments.
Background
BDCs are regulated by the Investment Company Act of 1940 (the
"1940 Act"). Prior to the SBCAA, Section 61(a) of the
1940 Act made it unlawful for a BDC to issue or sell any class of
its senior securities, where such senior securities represented
indebtedness, unless immediately after such issuance or sale such
BDC's asset coverage was at least 200% (effectively
representing a 1:1 debt to equity ratio). With the passage of the
SBCAA however, BDCs can now elect to reduce their asset coverage
from 200% to 150%
