PDI 50: BDCs levelling up

While the same big players continue to dominate the list of the largest BDCs, new legislation could shake up future rankings.

What a year for business development companies. Perhaps the sleeper issue that awoke in 2018 was the increase in leverage that BDCs can take on; the Small Business Credit Availability Act became law in the US, allowing BDCs to increase their borrowing capacity from a 1:1 debt-to-equity ratio to 2:1.

Of course, the change creates a host of issues for the industry. How should BDCs get approval to use it? How do they enact it? How does it affect their borrowing costs? It gives BDCs the opportunity to massively grow their balance sheets – Apollo Investment Corporation’s plans could hike its total assets by up to $1 billion. Expect some movement in the coming years in these rankings as BDCs begin to tap their additional borrowing capacity.

On a name-specific basis, FS Investment Corporation and Corporate Capital Trust have a merger pending, which would make them the second-largest publicly traded BDC. The firms had plans to merge their four private BDCs with the combined CCT-FSIC public entity, but those plans were put on hold following lacklustre performance from FSIC. If the FS-CCT public combination closes, that will cause further movement in the top 10.

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