The BDC provision doubles their permitted fund leverage from the current 1-1 level (one dollar of borrowed money for each dollar of investor equity) to 2-1. BDCs are required to invest at least 70% of their assets into private operating companies and publicly traded firms that are valued at less than $250 million.
“The legislation reduces BDCs’ asset-ratio requirement enabling more investments in small and middle-market America,” says Rep. Steve Stivers (R.-Ohio), sponsor of the bill that was included in the omnibus. “Unfortunately, in recent years, we have seen banks cut back on lending to small and mid-sized businesses, making BDCs an even more important resource to our job creators.”
The second provision contained in the omnibus directs the Commodity Futures Trading Commission (CFTC) to expand exemptions for derivatives transactions between affiliates within large financial holding companies and global corporations. This has been one of a number of derivatives reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that the “end user” community has sought, arguing that big financial companies that trade derivatives for profit should be subject to Dodd-Frank regulations but their nonfinancial affiliates that use derivatives for such things as hedging foreign currency risks shouldn’t.
June 2018
