COVID-19 Coronavirus: Permanent Capital

Given the volatile economic environment caused by the COVID-19 pandemic, business development companies need to proactively manage their loan portfolio companies to mitigate risk and avoid surprises that may arise in the foreseeable future. This OnPoint discusses the strategies and work-out plans that BDCs, whether holding first lien, second lien, mezzanine or unsecured debt, need to employ in advance to address any defaults or liquidity issues that may arise.

Read our guidance: Strategies for BDCs to Manage Their Loan Portfolios During the COVID-19 Pandemic (U.S.) - May 28, 2020

Economic uncertainty as a result of the COVID-19 pandemic has caused a decline in trading prices for debt and equity securities and liquidity and covenant compliance issues. BDCs and CEFs, and their affiliates, can repurchase shares of their securities at a discount to real value in various ways to take advantage of lower trading prices or to restructure their liabilities. Issuers and their affiliates should consider the potential pitfalls of repurchase transactions.

Read our guidance: Repurchasing Equity and Debt: Potential Techniques and Pitfalls for BDCs and CEFs (U.S.) - May 18, 2020

COVID-19 has presented novel issues for public companies, including business development companies, with respect to their disclosure obligations under federal securities laws. This OnPoint discusses recent SEC relief in connection with COVID-19, and provides guidance regarding public companies’ ongoing disclosure obligations.

Read our guidance: SEC Disclosure Obligations for Public Companies (U.S.) - April 15, 2020

One challenge for business development companies (BDCs) during the COVID-19 coronavirus crisis is their potential inability to raise debt capital when the value of portfolio company investments has declined significantly. To address this, the SEC has crafted and approved two temporary, conditional and narrowly tailored sets of fixes to assist BDCs. BDCs and industry groups will continue to engage with the SEC with respect to other possible relief that may assist BDCs as they seek to fulfil their statutory mandate.

Read our guidance: SEC Takes Targeted Action to Assist BDCs in Light of COVID-19 Coronavirus Pandemic (U.S.) - April 13, 2020

Amidst the economic turbulence triggered by the COVID-19 pandemic, registered closed-end funds and business development companies are considering all options for preserving liquidity. This OnPoint discusses the use of a Fund’s distribution policy to achieve this objective.

Read our guidance: Preserving Fund Liquidity – Practical Guidance for Managing Distributions (U.S.) - April 6, 2020

In the current and rapidly changing economic environment, many companies are experiencing significantly depressed stock prices and a dire need for liquidity. Rights offerings serve as an attractive capital-raising option for issuers in need of liquidity, particularly for closed-end funds and business development companies, which generally cannot issue additional common stock at a price below their net asset value per share. In a rights offering, shareholders are granted the opportunity to purchase additional shares of the issuer's common stock at a discounted price.

Read our guidance: Fund Needs Cash? How about a Rights Offering? (U.S.) - March 30, 2020