PRIA, Government Policy, Made Personal

Summary

A business development company must keep at least 70% of its total assets in certain qualifying investments before it can buy other kinds of assets. Those qualifying investments include private securities bought from eligible issuers or related persons (with a narrow exception that lets purchases from some otherwise ineligible issuers count if, at the time of purchase, the company owns at least 50% of the issuer’s equity and the largest amount of its debt and is one of the 20 largest record holders), securities of eligible portfolio companies that meet an SEC condition, securities bought privately from issuers in or emerging from bankruptcy or unable to pay debts without major help, securities bought privately when there is no ready market and the company already owns at least 60% of the issuer’s voting equity, securities received in exchange for or through options/warrants tied to the above, and cash, cash items, government securities, or high-quality debt that matures in one year or less. Items excluded from the 70% test include office furniture, real estate and leasehold improvements used to run the company, deferred organization and operating expenses, and other necessary noninvestment assets (including certain employee or officer notes). Asset values are based on the company’s most recent financial statements filed with the SEC and must be updated at least once a year.

Title 15, §80a–54

Commerce and Trade, Source: USLM XML via OLRC

(a)It shall be unlawful for a business development company to acquire any assets (other than those described in paragraphs (1) through (7) of this subsection) unless, at the time the acquisition is made, assets described in paragraphs (1) through (6) below represent at least 70 per centum of the value of its total assets (other than assets described in paragraph (7) below):

(1)securities purchased, in transactions not involving any public offering or in such other transactions as the Commission may, by rule, prescribe if it finds that enforcement of this subchapter and of the Securities Act of 1933 [15 U.S.C. 77a et seq.] with respect to such transactions is not necessary in the public interest or for the protection of investors by reason of the small amount, or the limited nature of the public offering, involved in such transactions—

(A)from the issuer of such securities, which issuer is an eligible portfolio company, from any person who is, or who within the preceding thirteen months has been, an affiliated person of such eligible portfolio company, or from any other person, subject to such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors; or

(B)from the issuer of such securities, which issuer is described in section 80a–2(a)(46)(A) and (B) of this title but is not an eligible portfolio company because it has issued a class of securities with respect to which a member of a national securities exchange, broker, or dealer may extend or maintain credit to or for a customer pursuant to rules or regulations adopted by the Board of Governors of the Federal Reserve System under section 78g of this title, or from any person who is an officer or employee of such issuer, if—

(i)at the time of the purchase, the business development company owns at least 50 per centum of—

(I)the greatest number of equity securities of such issuer and securities convertible into or exchangeable for such securities; and

(II)the greatest amount of debt securities of such issuer,

(ii)the business development company is one of the 20 largest holders of record of such issuer’s outstanding voting securities;

(2)securities of any eligible portfolio company with respect to which the business development company satisfies the requirements of section 80a–2(a)(46)(C)(ii) of this title;

(3)securities purchased in transactions not involving any public offering from an issuer described in section 80a–2(a)(46)(A) and (B) of this title or from a person who is, or who within the preceding thirteen months has been, an affiliated person of such issuer, or from any person in transactions incident thereto, if such securities were—

(A)issued by an issuer that is, or was immediately prior to the purchase of its securities by the business development company, in bankruptcy proceedings, subject to reorganization under the supervision of a court of competent jurisdiction, or subject to a plan or arrangement resulting from such bankruptcy proceedings or reorganization;

(B)issued by an issuer pursuant to or in consummation of such a plan or arrangement; or

(C)issued by an issuer that, immediately prior to the purchase of such issuer’s securities by the business development company, was not in bankruptcy proceedings but was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements;

(4)securities of eligible portfolio companies purchased from any person in transactions not involving any public offering, if there is no ready market for such securities and if immediately prior to such purchase the business development company owns at least 60 per centum of the outstanding equity securities of such issuer (giving effect to all securities presently convertible into or exchangeable for equity securities of such issuer as if such securities were so converted or exchanged);

(5)securities received in exchange for or distributed on or with respect to securities described in paragraphs (1) through (4) of this subsection, or pursuant to the exercise of options, warrants, or rights relating to securities described in such paragraphs;

(6)cash, cash items, Government securities, or high quality debt securities maturing in one year or less from the time of investment in such high quality debt securities; and

(7)office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operations of the business development company, deferred organization and operating expenses, and other noninvestment assets necessary and appropriate to its operations as a business development company, including notes of indebtedness of directors, officers, employees, and general partners held by a business development company as payment for securities of such company issued in connection with an executive compensation plan described in section 80a–56(j) of this title.

(b)For purposes of this section, the value of a business development company’s assets shall be determined as of the date of the most recent financial statements filed by such company with the Commission pursuant to section 78m of this title, and shall be determined no less frequently than annually.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Securities Act of 1933, referred to in subsec. (a)(1), is act May 27, 1933, ch. 38, title I, 48 Stat. 74, which is classified generally to subchapter I (§ 77a et seq.) of chapter 2A of this title. For complete classification of this Act to the Code, see section 77a of this title and Tables.

Amendments

1996—Subsec. (a)(1)(A). Pub. L. 104–290 substituted “from any person” for “or from any person” and inserted before semicolon “, or from any other person, subject to such

Rules and Regulations

as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors”. 1987—Subsec. (a)(1)(B). Pub. L. 100–181 substituted “described in section” for “described in sections”.

§80a–54 Acquisition of Assets by Business Development Companies