SEC Adopts Securities Offering and Disclosure Reforms for Business Development Companies and Registered Closed-End Funds: SEC Adopts Amendments to the Registration, Offering and Communications Processes and Other Aspects of the Disclosure and Regulatory Framework for Business Development Companies and Registered Closed-End Funds to Provide Parity with Operating Companies

Sullivan & Cromwell LLP - April 27, 2020
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On April 8, 2020, the Securities and Exchange Commission (“SEC”) issued a release (the “Release”) adopting rule and form amendments largely as previously proposed to implement certain provisions of the Small Business Credit Availability Act (the “SBCAA”) and the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”), which directed the SEC to provide parity in securities offering regulation between certain types of closed-end investment funds and operating companies.   Consistent with the statutory mandates, the changes adopted by the SEC will allow business development companies (“BDCs”) and registered closed-end funds (“CEFs” and, collectively with BDCs, “Affected Funds”) to use the more streamlined and flexible registration, offering and communications processes that have been available to eligible operating companies since 2005.  Although the SBCAA and the EGRRCPA principally direct the SEC to level the playing field for Affected Funds and operating companies regarding securities offering regulation, the SEC has also revised other aspects of the disclosure and regulatory framework for Affected Funds.  These sweeping securities offering and disclosure reforms have broad application in the BDC and CEF industries, albeit to varying degrees depending on issuer size and type.  The reforms do not, however, affect restrictions under the Investment Company Act of 1940 on the issuance of securities by Affected Funds, including the general prohibition on the sale of shares of a fund’s common stock at a price below current net asset value.  The amendments adopted by the Release were initially proposed in a March 2019 release.   The majority of the amendments will become effective on August 1, 2020.