Created in 1958, the
“In the past, the debenture program has been viewed in some circles as too small, more of a fringe option,” says Stephen M. Fields, managing partner with the New York office of law firm McCarter & English.
Of late, however, he’s seen more firms consider going this route. He’s already held exploratory meetings with a number of curious shops since the start of the year. “Right now, at least for the middle market, it’s one of the few games in town,” he says.
Brett Palmer, the president of the National Association of Small Business Investment Cos. (NASBIC), says that he’s also seen interest pick up. Some of it comes from firms whose prior funds have graduated out of the program, but it’s also newcomers, such as firms looking to raise debt funds that can help make up for a shortfall in fund-raising for a core buyout fund.
“Whatever the reason, we’re getting a lot of calls these days,” Palmer says. “That wasn’t happening in October and November.”
As of Sept. 30, the end of its fiscal year, total financing by SBIC licensees was $2.43 billion. Recent licensees include
Dennis Byrne, a spokeman for the Small Business Administration, which acts as a creditor and a regulator of the SBIC, says there have been a total of six new SBIC licensees so far in the first two quarters of the program’s fiscal 2009. He characterized this pace as “slightly stronger than usual.” Details about the pipeline for licenses was not disclosed.
“There’s no other source of leverage in the middle market right now that’s as reasonably priced,” says David Buttolph, managing director at The Brookside Group, whose Brookside Mezzanine Partners II fund received its SBIC license in mid-December.
For firms that may be deterred by the length of the licensing process, the SBA allows firms to make SBIC investments on a pre-license basis once their application reaches “accepted for filing” status, a process that can be completed within 90 days. NASBIC’s Palmer said the SBA is working to streamline the overall process.
What’s more, the program could end up playing a bigger role in the future.
Pending legislation would lift the maximum match for the SBIC program to $150 million for a single fund and to $225 million when linked to a family of funds.