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SEC Proposes Offering Reforms for BDCs and Registered Closed-End Funds

The Securities and Exchange Commission (the “Commission") on March 20 proposed rule amendments (collectively, the “Proposal") to improve access to capital and facilitate investor communications by business development companies (“BDCs") and registered closed-end funds (collectively, the “affected funds").[1]

Under the Proposal, th​e affected funds could avail themselves of certain registration, communications, and offering processes currently available to operating companies.  Certain of these processes have been in effect since Securities Offering Reform took effect in 2005.  At the time, the Commission excluded all investment companies, including the affected funds, from the reforms.  

Among other changes, the Proposal includes:

  • Shelf Offering Process and New Short-Form Registration Statement
    • Certain affected funds would be able to use a shelf registration process.  A short-form registration statement would generally be available to an affected fund if it meets certain filing and reporting history requirements and has a public float of $75 million or more, similar to the current standard for operating companies.  Funds using short-form registration statements would be required to include certain prospectus disclosure in their annual reports, as well as disclosure regarding material unresolved staff comments.[2]  Affected funds would also be required to make incorporated materials readily available on a website.​
  • Ability to Qualify for WKSI Status
    • Affected funds would be able to qualify as Well-Known Seasoned Issuers (“WKSIs”) and benefit from the same registration and communication flexibility available to WKSI operating companies 
  • Communications and Prospectus Delivery
    • Affected funds would be able to avail themselves of many of the communication rules currently available to operating companies, including with respect to using free writing prospectuses, as well as the dissemination of certain factual business information. 
  • Current Reporting Requirements
    • Registered closed-end funds would be required to file current reports on Form 8-K, similar to the requirements that current apply to operating companies and BDCs. All affected funds would be subject to new Form 8-K reporting events regarding material changes to investment objectives or policies and material write-downs of significant investments.​

The proposal will have a 60-day public comment period following its publication in the Federal Register.  


​Thank you to Nicolas Dumont in the New York office for his assistance with this post.​

   [1]   A BDC is a type of closed-end investment fund created by Congress in 1980 that invests in small and developing companies.  While BDCs are closed-end investment companies, they are exempt from many of the prescriptions of the Investment Company Act of 1940, as amended (the “1940 Act").  Section 2(a)(48) of the 1940 Act generally defines a BDC as a closed-end company organized and based in the U.S. that is operated for the purpose of making investments in certain types of securities defined under the 1940 Act.  A BDC is required to “make significant managerial assistance with respect to the issuers of such securities".

   [2]   Registered closed-end funds would also have to provide management's discussion of fund performance in their annual reports.

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