By William Louch

The Securities and Exchange Commission is stepping in to help out business development companies that have been battered by the recent economic turmoil.

Business development companies, or BDCs, typically raise money from public stock investors that they then lend to small, often private, U.S. companies. Shoring up the finances of small and medium-size businesses has become a central part of the U.S. government’s strategy to reduce the impact of the coronavirus pandemic on the economy.

The Federal Reserve announced a raft of programs Thursday that collectively will provide $2.3 trillion in assistance to small and midsize businesses.

The SEC said late Wednesday that it is providing “temporary relief” that will make it easier for the BDCs to issue and sell securities and continue lending to small and midsize companies.

The SEC measures will allow BDCs to invest in these companies alongside private funds that are affiliated with them. Many of the largest BDCs are managed by private-equity firms such as Apollo Global Management Inc., Blackstone Group Inc. and KKR & Co.–which hold most of their assets in private-equity and credit funds that aren’t publicly traded.

Over the past decade, BDCs have come to play an important role in the U.S. economy, stepping in to provide financing to companies after large banks pulled back in the wake of the financial crisis that began more than a decade ago.

They also provide mom and pop investors with the opportunity to tap into high-yielding private markets that are usually only open to large, sophisticated institutions.

But the ongoing shutdown has prompted these funds to stop lending to businesses at a time they need it most.

“Many small and medium-sized businesses across the country are struggling due to the effect of COVID-19, and today’s temporary, targeted action will enable BDCs to provide their businesses with additional financial support during these times,” SEC Chairman Jay Clayton said in a statement.

“The method for calculating the level of permitted financing and the other important conditions included in the order are designed to ensure that this temporary relief will both protect and benefit investors in the BDCs.”

BDCs have pulled back from making new loans as they focus on supporting existing investments they have made that are now at risk of default, according to a report released Tuesday by credit rating agency Fitch Ratings Inc.

“Middle-market activity was virtually zero in March,” the Fitch report said. “While deal volume is expected to increase once social distancing guidance is eased, many BDCs will not have the ability to participate in new originations as they continue to triage and support existing portfolio companies.”

The uncertainty has caused shares in BDCs to fall sharply. They have been among the worst-affected in the recent stock market selloff as concerns rise about a wave of defaults among indebted U.S. businesses.

Some of the largest BDCs, including FS KKR Capital Corp.–managed by KKR & Co.–and BlackRock Capital Investment Corp., have seen their share prices fall nearly 50% since the beginning of the year. The S&P 500 has fallen around 15% over the same time.

Before the Fed and SEC announcements, Fitch warned that BDCs might have to stop paying investors dividends as some of their portfolio companies went bankrupt.

“The severe economic contraction resulting from the coronavirus pandemic will lead to increased credit losses for the sector and pressure some BDCs’ ability to maintain dividends,” the ratings agency said.

The decision to help BDCs is the latest in a series of measures the SEC has taken to mitigate the impact of the coronavirus pandemic on the U.S. economy. Previous measures the regulator has implemented include giving public companies extra time to file annual reports and other major disclosures.

The SEC extended similar relief to some filings required of investment advisers and mutual funds if their operations have been affected by the pandemic.

Write to William Louch at


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