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BDCs Making Investments in Small and Medium-sized Businesses

April 9th | 2020



Last night, the SEC announced 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, including those with operations affected by COVID-19.


BDCs were created to provide capital to smaller domestic operating companies that otherwise may not be able to readily access the capital markets. The SEC’s relief will provide 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.


The relief is intended to alleviate situations where a BDC (1) is unable to satisfy the asset coverage requirements under the Investment Company Act due to temporary mark-downs in the value of the loans to such portfolio companies, or (2) certain of its 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.

As with all of the SEC’s targeted relief, the Order has very detailed conditions that should be read closely. The relief specified in the order will end on the earlier of December 31, 2020 or when the BDC ceases to rely on it.




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