KBRA Releases Research – Coronavirus (COVID-19): SEC’s Temporary Relief for BDCs Has Limited Impact

NEW YORK--()--Kroll Bond Rating Agency (KBRA) releases a report on the Securities and Exchange Commission’s (SEC) temporary relief for business development companies (BDCs) due to the impact of the coronavirus (COVID-19) pandemic.

The relief is intended to ensure the flow of capital to portfolio companies of BDCs despite a breach in regulatory asset coverage ratios due to the temporary markdown of loan valuations.

Key takeaways from the report include:

  • BDCs can elect to use an adjusted asset coverage calculation based on loan valuations as of December 31, 2019.
  • BDCs that elect to use the adjusted asset coverage calculation can issue senior securities to invest in portfolio companies if they meet the adjusted asset coverage ratio.
  • Certain affiliates can co-invest with BDCs to support portfolio companies.
  • The majority of KBRA-rated BDCs have not elected to use the adjusted asset coverage ratio as they maintain sufficient asset coverage cushion, even with a 10% stress level applied by KBRA to loan valuations.
  • The majority of KBRA-rated BDCs have strengthened their liquidity and financial flexibility by issuing unsecured debt, refinancing near-term bond maturities as well as extending and upsizing bank facilities.
  • To further increase financial flexibility, KBRA-rated publicly traded BDCs that do not have authorization to issue equity below NAV and/or have not asked shareholders to approve a lower asset coverage ratio have issued proxies to approve such in upcoming shareholder meetings.
  • KBRA continues to monitor COVID-19’s impact on our rated BDCs, which could experience higher levels of nonaccruals and additional portfolio markdowns in the following quarters.

Click here to view the report.

Related Publications

About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.

Contacts

Analytical Contacts
Teri Seelig, Director
+1 (646) 731-2386
tseelig@kbra.com

Boris Alishayev, Senior Director
+1 (646) 731-2484
balishayev@kbra.com

Mike Dodge, Director
+1 (646) 731-3349
mdodge@kbra.com

Marjan Riggi, Senior Managing Director
+1 (646) 731-2354
mriggi@kbra.com

Business Development Contact
Nish Kumar, Senior Director
+1 (646) 731-3372
nkumar@kbra.com

Contacts

Analytical Contacts
Teri Seelig, Director
+1 (646) 731-2386
tseelig@kbra.com

Boris Alishayev, Senior Director
+1 (646) 731-2484
balishayev@kbra.com

Mike Dodge, Director
+1 (646) 731-3349
mdodge@kbra.com

Marjan Riggi, Senior Managing Director
+1 (646) 731-2354
mriggi@kbra.com

Business Development Contact
Nish Kumar, Senior Director
+1 (646) 731-3372
nkumar@kbra.com