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

NEW YORK--(BUSINESS WIRE)--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

• Business Development Company (BDC) Ratings Compendium: December 2019 and COVID-19 Update

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.