SEC Proposes Securities Offering and Disclosure Reforms for Business Development Companies and Registered Closed-End Funds: SEC Proposes an Overhaul of 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 1, 2019
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On March 20, 2019, the Securities and Exchange Commission (the “SEC”) issued a release (the “Release”) proposing rule and form amendments 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 direct 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 SEC’s proposed changes would 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 proposed to revise other aspects of the disclosure and regulatory framework for Affected Funds.  These sweeping securities offering and disclosure reforms, if adopted as proposed, would have broad application in the closed-end industry, albeit to varying degrees depending on fund size and type.  The reforms do not, however, affect restrictions under the Investment Company Act of 1940 (“Investment Company Act”) on the issuance of securities by Affected Funds, including the general prohibition on the issuance of shares of a fund’s common stock at a price below current net asset value.  The SEC is seeking comment from the public on all aspects of the proposed reforms.  Comments on the Release will be due 60 days following its publication in the Federal Register.