On May 30, 2018, the Division of Investment Management of the Securities and Exchange Commission issued an exemptive order that permits private business development companies ("BDCs") to conduct an exchange offer pursuant to which BDC investors, including directors and officers of the BDC, may elect to exchange their BDC shares for shares in a new split-off extension fund. The new split-off extension fund would receive a pro rata portion of the BDC's assets and liabilities, including each of the BDC's portfolio investments, in proportion to the percentage of the BDC shares exchanged. Relief from the Division was required to allow the BDC's investment adviser to also act as the investment adviser of the new split-off extension fund and avoid potentially triggering common control prohibitions under the Investment Company Act of 1940. As private BDCs do not have publicly traded shares, this new exchange option would provide private BDC investors with a liquidity opportunity following the extension fund's initial public offering. This new liquidity option should be considered when drafting a private BDC's organizational documents in order to maximize its liquidity options at a later stage. A copy of the exemptive order can be found here.
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