On October 18, 2019, the SEC staff (the “Staff”) published responses to interpretive questions received related to Section 61(a) of the Investment Company Act of 1940 (the “1940 Act”), which applies the leverage limitations under Section 18 of the 1940 Act to business development companies (“BDCs”). Section 61(a) of the 1940 Act permits a BDC to have a lower asset coverage ratio (i.e., 150%, rather than 200%) to obtain greater leverage, subject to board or shareholder approval and other conditions. One of these conditions generally requires the BDC, if it is unlisted, to offer to repurchase 100% of its shares outstanding as of the date of the board or shareholder approval over a one-year period. Specifically, the BDC must offer to repurchase at least 25% of its shares in each of the four calendar quarters after the BDC’s board or its shareholders approve the lower asset coverage threshold. The Staff’s answers concern how these repurchase offers can be structured and communicated to shareholders consistent with Section 61(a) of the 1940 Act.
The Staff’s responses are available here: https://www.sec.gov/investment/staff-responses-regarding-business-development-companies