As previously reported, we, along with other members of the BDC industry, have been working on several regulatory and legislative initiatives with the Commission and with members of Congress. The initiatives that we have discussed include that:  

  • The Commission should use its authority under the 1940 Act, as it has done in other circumstances, to authorize the use of amortized cost accounting for assets held by BDCs that are intended to be held to maturity;  
  • The Commission should temporarily modify the asset coverage requirements for BDCs, which it has done in other circumstances; and
  • The Commission should temporarily treat preferred stock as equity for purposes of the asset coverage test, consistent with the treatment of preferred stock issued by our lenders to the Treasury under the Troubled Asset Relief Program, known as TARP.

With respect to the temporary modification of the asset coverage test, we are in the process of submitting a draft rule to the Commission for consideration providing for temporary relief. The proposed rulemaking requests that the Commission adopt, for a two-year period, a rule modifying the existing asset coverage requirements for BDCs set forth in § 61 of the 1940 Act. Specifically, it would permit a BDC to issue senior securities for a two-year period, if, immediately after such issuance, the BDC has an asset coverage, as defined in § 18 of the 1940 Act, of at least 150%. The temporary rule is intended to provide relief to BDCs during the current economic crisis to permit them to continue their Congressionally mandated purpose of financing small- and middle-market U.S. private companies.