SEC Action Provides Temporary Relief and Flexibility to Lending Capabilities for BDCs in Response to COVID-19, SEC Finalizes Offering Reform Amendments and Upcoming IPA Webinar
This week the Division of Investment Management of the Securities and Exchange Commission (SEC) issued an exemptive order that provides business development companies (BDCs) with immediate, temporary relief from certain asset coverage and co-investment requirements that otherwise would apply under the Investment Company Act of 1940. This order broadly allows BDCs to expand their lending capabilities and offers protections during the COVID-19 pandemic.
More specifically, the relief provides additional flexibility for BDCs to issue and sell senior securities in order to provide capital to their portfolio companies, and to participate in investments in these companies alongside certain private funds that are affiliated with the BDC. The relief is subject to investor protection conditions, including specific requirements for obtaining an independent evaluation of the issuances’ terms and approval by a majority of a BDC’s independent board members. The regulatory relief would last through the end of the year.
The SEC also held an open meeting this week – the first since the pandemic – in which it adopted final amendments implementing offering, communication and registration reforms required under the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rules allow investment companies to use the securities offering rules that are already available to operating companies. The SEC approved the final rule amendments in a 3-1 vote, opposed only by SEC Commissioner Allison Herren Lee.
Lastly, please join us for an upcoming webinar – BDCs and Closed-End Funds: Regulatory and Operational Challenges in a Tumultuous Market – on April 23, 2020, at 2pm ET where we will explore this topic in further detail.
Additional IRS Tax Filing Extensions Apply to 1031 Exchange Deadlines and Qualified Opportunity Zones
Yesterday, the Internal Revenue Service (IRS) announced additional tax filing deadline extensionscovering individuals, trusts, estates and corporations in IRS Notice 2020-23. Such Notice also extends the deadline to perform certain “specified time-sensitive actions,” including Section 1031 like-kind exchanges and investments in qualified opportunity zone funds during the 180-day period beginning on the date of a sale or exchange of property by eligible investors. The new guidance grants an extension until July 15, 2020 to perform “specified time-sensitive actions,” that are due to be performed on or after April 1, 2020, and before July 15, 2020. It is important to note that there is no retroactive effect if the 180-day exchange period was before April 1, 2020. Further, qualified opportunity zone funds with any quarterly estimated tax payments due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make such payments penalty and interest-free.
The IPA recently submitted a comment letter urging the Treasury Department and IRS to take broad administrative action to delay deadlines applicable to 1031 like-kind exchanges in order to ensure liquidity in the market. We also reached out to the Treasury Department to provide relief for upcoming QOZ deadlines. We continue to engage regulators on critical actions needed to support the industry as the full extent of COVID-19’s impact on the economy is realized. If you have any questions or concerns, please don’t hesitate to reach out to myself or Tony.