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Legislation Relaxes Leverage, Registration and Reporting Burdens for BDCs

President Trump recently signed into law a measure that will make capital more readily available to business development companies as well as relax certain leverage constraints and registration requirements.  Under the measure, which was part of an omnibus spending bill approved by the President last month, Section 61 of the 1940 Act will be amended and the SEC must amend certain of its rules related to securities offerings, market communications, and reporting obligations of BDCs. Lawyers from Proskauer Rose describe the legislation in detail, including its implications for boards of directors of BDCs. The amendment to the 1940 Act permits a BDC to reduce its asset coverage from 200% to 150%, which means that a BDC with $100 in equity, for example, will be able to borrow up to $200 (equaling $300 in total assets), effectively doubling its leverage. This change is subject to certain conditions, including initial approval by a required majority of the BDC’s board of directors or the BDC’s shareholders, as well as ongoing reporting obligations. The Proskauer Rose lawyers propose important action items for BDC boards related to the leverage approval process. “In light of the different approval approaches, BDCs, their sponsors and boards will need to assess which approach is preferable, and not all BDCs may arrive at the same decision.”