BDCs ask SEC to modernize regulation

“We delayed sending this letter over because we didn’t want to sent it over to an agency that was closed,” Brett Palmer, president of the Small Business Investors Alliance, told Buyouts. But the lobbying group was undeterred by the legislative gridlock gripping Congress. “Many of these things the SEC can fix on its own,” he said.

The letter asks regulators to address issues of stock issuance, saying they were left out of a 2005 liberalization of the securities offering process. “The current restrictions on BDCs make the capital raising process for BDCs less flexible, less efficient, and more expensive than necessary–which ultimately reduces each BDC’s ability to invest in growing U.S. businesses,” says the letter, addressed to Mary Jo White, the commission’s chairwoman.

Among the signatories are some affiliated with buyout firms, including Robert A. Hamwee, the president and CEO of New Mountain Finance Corp (New Mountain Capital LLC), James K. Hunt, the chairman and CEO of THL Credit Inc (Thomas H. Lee Partners LP), and Steve Gardner, the president and CEO of NGP Capital Resources Co (NGP Energy Capital Management LLC); and some prominent lenders in the buyout space, including Theodore L. Koenig, the chairman and CEO of Monroe Capital LLC, and Lawrence E. Golub, the chief executive officer of Golub Capital Inc. The lineup also includes representation of non-traded BDCs, such as Nicholas Radesca, the chief financial officer of Business Development Corporation of America. It also includes Bernard D. Berman, the president of Fifth Street Finance Corp and Fifth Street Senior Floating Rate Corp. Fifth Street, which has a reputation as one of the more aggressive players in the space, has sparred with counterparts in the industry over issues such as the amount of leverage that a BDC can apply against its equity capital; that ratio today is one-to-one.

Among their requests are to let BDCs acquire other companies, including registered investment advisers, an ability that has been granted as an exemption but that they ask to be formalized under the rules; the ability to file shelf registrations of stock and to make forward looking statements as other corporations do; and a possible increase in the leverage of their capital, although no specific increase is mentioned in the letter.