The House bill H.R. 529 and the Senate bill S. 2136 would allow smaller BDCs to increase their leverage if passed, allowing these small companies to increase their investments and make changes in preferred stock, says Jasper Burch, Research Analyst at Macquarie Group Limited.
“Right now, BDCs are limited to levering their portfolio one-to-one to equity, and that would increase it to two-to-one and also have some other changes in preferred stock and allow them to invest in more investment advisors subsidiaries. But that bill could materially change the game if that were to go through. It’s still in the very early stages, but that’s a potential game changer for them, which would be a positive,” Burch said, of H.R. 529.
Burch also said the Senate bill S. 2136 could increase the maximum amount of borrowing or debentures that SBICs can take on. This bill would allow some BDCs to increase their borrowing from a maximum of $225 million to $350 million.
“There are probably eight BDCs that have SBIC subsidiaries. There’s Fifth Street (FSC), Golub (GBDC), Hercules (HTGC), Main Street (MAIN), PennantPark (PNNT), Triangle Capital (TCAP), a couple more. That would positively benefit those BCDs, but not have an impact on the rest of the space,” Burch said.