President Trump has signed the Consolidated Appropriations Act of 2018 (also known as the “omnibus spending package”), which was passed by the House yesterday and the Senate earlier today and includes H.R. 4267, the Small Business Credit Availability Act. H.R. 4267 would potentially increase the amount of permissible leverage that can be employed by a business development company (BDC).

US House Financial Services Committee (HFSC) Chairman Jeb Hensarling (R-TX), noting that the HFSC has marked up this bill in the last three congressional sessions, has said of H.R. 4267 and H.R. 4792, the Small Business Access to Capital After a Natural Disaster Act, which the HFSC also passed on a bipartisan basis:

“Both of these bills are important, pro-growth, bipartisan pieces of legislation that will help our small businesses access the capital they need to expand and create jobs,” and “[t]hey are just two of the nearly three dozen strong bipartisan bills our committee has advanced this congress and that we hope our Senate colleagues will give the same consideration.”

Under section 2(a)(2) of the Small Business Credit Availability Act, the required minimum asset coverage requirement that must be met by a BDC can decrease from 200 percent to 150 percent if:

“(A) within five business days of the approval of the adoption of the asset coverage requirements described in clause (ii), the business development company discloses such approval and the date of its effectiveness in a Form 8–K filed with the Commission and in a notice on its website and discloses in its periodic filings made under section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a))—

“(i) the aggregate value of the senior securities issued by such company and the asset coverage percentage as of the date of such company’s most recent financial statements; and

“(ii) that such company has adopted the asset coverage requirements of this paragraph and the effective date of such requirements;

“(B) with respect to a business development company that issues equity securities that are registered on a national securities exchange, the periodic filings of the company under section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) include disclosures reasonably designed to ensure that shareholders are informed of—

“(i) the amount of indebtedness and asset coverage ratio of the company, determined as of the date of the financial statements of the company dated on or most recently before the date of such filing; and

“(ii) the principal risk factors associated with such indebtedness, to the extent such risk is incurred by the company; and

“(C) (i) the application of this paragraph to the company is approved by the required majority (as defined in section 57(o)) of the directors of or general partners of such company who are not interested persons of the business development company, which application shall become effective on the date that is 1 year after the date of the approval, and, with respect to a business development company that issues equity securities that are not registered on a national securities exchange, the company extends, to each person who is a shareholder as of the date of the approval, an offer to repurchase the equity securities held by such person as of such approval date, with 25 percent of such securities to be repurchased in each of the four quarters following such approval date; or

“(ii) the company obtains, at a special or annual meeting of shareholders or partners at which a quorum is present, the approval of more than 50 percent of the votes cast of the application of this paragraph to the company, which application shall become effective on the date immediately after the date of the approval.”