We have written a fair bit about business development companies and the important role that they serve as alternative capital providers. During the financial crisis and in the immediate aftermath of the financial crisis, BDCs have proven that they can meet the more customized financial needs of small and middle-market companies. It was, therefore, important that the SEC Staff agreed that BDCs qualify as emerging growth companies under the JOBS Act and can avail themselves of the accommodations made available under the Title I IPO on-ramp provisions. As we've noted in prior posts regarding additional legislation that addresses capital formation issues, there are a couple of proposed bills that would modernize the regulatory framework applicable to these entities. Although certain of the provisions of these proposed bills relating to permissible asset coverage and leverage have provoked some debate (see, for example, SEC Chair White's letter addressing some of these matters: http://www.mofo.com/files/Uploads/Images/131021-Mary-Jo-White-Letter-to-Reps-Garrett-and-Maloney.pdf), it is important not to throw the baby out with the bath water and recognize that the bills would address various sections of the securities regulations that pose no significant investor protection challenges. For example, BDCs are currently prevented from relying on many of the offering related provisions (use of a "shelf" registration, incorporation by reference, etc.) that are available to other operating companies. The proposed bills also would address the extent to which BDCs would be able to invest in financial entities. Financial entities may well include consumer finance companies, specialty finance companies, financial services technology companies, etc., all of which provide jobs and require capital and many of which are indeed "smaller, growing businesses."
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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