Alerts

SEC Expands Flexibility of Business Development Companies

May 23, 2008

On May 15, 2008, the Securities and Exchange Commission (the “Commission”) adopted an amendment to Rule 2a-46 under the Investment Company Act of 1940 (the “1940 Act”) that enables business development companies (“BDCs”) to make significant investments in small (or micro-cap) listed public companies, i.e., companies traded on a national securities exchange having market capitalizations of less than $250 million (“small public companies”). Under the 1940 Act, a BDC generally must invest at least 70% of its assets in securities issued by “eligible portfolio companies.” Previously, the definition of “eligible portfolio company” did not include public companies (of any size) that trade on an exchange. As a result, BDCs were unable to invest in listed companies to the extent that those securities (together with the securities of other “ineligible” companies) constituted more than 30% of the BDC’s assets. The effect of the amendment, which takes effect on July 21, 2008, will be to eliminate this cap for investments in small public companies. As before the amendment, “eligible portfolio companies” continue to include most other U.S. operating companies (private or public) that are not exchange-listed.