United States: SEC Proposes Expedited Exemptive Relief Process And SEC Staff Issues Guidance On Repurchase Offers By Non-Traded BDCs

The Securities and Exchange Commission (the "Commission") and the staff of its Division of Investment Management (the "Staff") have recently taken two actions that may prove beneficial to registered funds and business development companies ("BDCs"). First, the Commission proposed rule amendments (the "Proposed Amendments") to the exemptive relief application process under the Investment Company Act of 1940, as amended (the "1940 Act"), which, in part, would establish expedited review procedures for applications that are substantially identical to recent precedent.1 Second, in response to inquiries from the BDC industry, the Staff released guidance (the "Repurchase Guidance") applicable to the required repurchase offers by non-traded BDCs seeking to reduce their asset coverage requirement from 200% to 150% in accordance with Section 61 of the 1940 Act.2

Proposed Amendments to Exemptive Relief Application Process

Rule 0-5 under the 1940 Act prescribes the process for registered funds and BDCs to apply for an order from the Commission for exemptive or other relief under the 1940 Act. Such exemptive orders historically have been required for certain funds to operate (e.g., exchange-traded funds or interval funds that seek to offer multiple share classes similar to an open-end fund operating in accordance with Rule 18f-3 under the 1940 Act) and to permit certain activities and transactions that would otherwise be prohibited by the 1940 Act (e.g., interfund lending arrangements or the ability of registered funds and BDCs to participate in certain negotiated co-investment transactions). The Proposed Amendments principally would amend Rule 0-5 to establish an expedited review procedure for qualifying applications and create a timeframe for standard review applications that do not qualify for the new expedited review process.

Expedited review would be available for an exemptive relief application that is "substantially identical" to two other applications for which an order granting the requested relief has been issued by the Commission within two years of the date of the application's initial filing. Proposed Rule 0-5(d)(2) defines "substantially identical" applications as applications that request relief from the same sections of the 1940 Act and rules thereunder, contain identical terms and conditions and differ only with respect to factual differences that are not material to the relief requested.3

Applicants would not be permitted to "mix and match" precedent relief for submission under the expedited review process, and applications that combine portions or sections of prior different applications would need to be submitted through the standard review process. Furthermore, applications that are highly fact-specific or include different terms and conditions than those of precedent applications, including applications to participate in certain negotiated co-investments, generally would not meet the proposed substantially identical standard and therefore would not qualify for expedited review.4

Under the expedited review process, the Commission would have 45 days from the date of filing of an application to either (i) notice the application or (ii) notify the applicant that (a) the application is ineligible for expedited review or (b) additional review time is necessary.5 If the Staff notifies the applicant that its application is not eligible for expedited review, the applicant would be asked to either withdraw the application or amend it to make changes to facilitate the application being considered under the standard review process.

Proposed Rule 0-5 also includes certain disclosure, procedural and information requirements for applications seeking expedited review, as well as rules regarding the calculation of the 45-day review period, including "pauses" in the event of amendment by the applicant or comments on the application from the Staff. Under the Proposed Amendments, failure to appropriately respond to a request for modification within 30 days of such request would result in the application being deemed withdrawn without prejudice.

For those applications that do not qualify for expedited review, the Proposed Amendments would formalize the Staff's current 90-day internal performance timeline and require the Staff to take action on all standard review applications within 90 days of the initial filing or any amendment thereto, subject to 90-day extensions at the Staff's discretion. Action may consist of noticing the application, providing requests for clarification or modification of the application or forwarding the application to the Commission for consideration.6 Furthermore, under the Proposed Amendments, a standard review application would be deemed to have been withdrawn without prejudice if an applicant does not respond in writing to comments within 120 days of receipt.7

Notably, in the Proposing Release, the Commission stated that it intended to have its Staff publicly disseminate comments and responses on all exemptive relief applications no later than 120 days after the final disposition of such application (regardless of whether the application was submitted under the expedited or standard review process). Applicants would, however, still be able to submit requests for confidential treatment.

The Proposed Amendments aim to improve the efficiency of the exemptive relief application process, saving applicants both time and costs, while allowing the Staff to devote more time to review non-routine applications as needed. However, the benefits of the Proposed Amendments are unclear at this time. For example, due to the high bar of the proposed substantially identical standard, we expect that applicants will need to weigh the appeal of seeking faster (and more certain) exemptive relief through the expedited process against what may otherwise be a preference to seek modified (and less certain) relief through the standard review process. Moreover, the proposed timeline for standard review formalizes an already existing internal Staff review timeline and expressly constitutes informal non-binding guidelines and procedures that the Commission anticipates the Staff to follow. Thus, under both expedited and standard review processes, the Staff would continue to have broad discretion to extend the applicable review period, and there are no apparent consequences for failure to meet the associated deadlines.

Repurchase Guidance for BDCs

Section 61(a) of 1940 Act permits a BDC to reduce its asset coverage requirements for senior securities from 200% to 150%, subject to certain conditions and procedural requirements. In particular, a BDC that does not have its common equity listed on a national securities exchange (i.e., a non-traded BDC) is required to offer each investor of record as of the date on which 150% asset coverage is approved the opportunity for the BDC to repurchase such investor's securities held on such date, with 25% of each accepting investor's securities to be repurchased in each of the four calendar quarters following the date of approval.

In issuing the Repurchase Guidance, the Staff stated its belief that a non-traded BDC may satisfy these repurchase obligations by providing either (i) one offer to repurchase all of the common equity held by all investors of the BDC or (ii) four separate quarterly repurchase offers. In each case, repurchases should be effected quarterly at the BDC's net asset value at the time of each repurchase (as opposed to the net asset value at the time of the offer).

The Staff also advised that it would not recommend enforcement action under Section 61(a) if a non-traded BDC elects to effect the required repurchases more quickly than over four successive quarters. However, the Staff noted that any BDC considering accelerated repurchases should (i) evaluate the consequences of the action on any remaining investors (e.g., the potential for dilution and any effects on portfolio management) and (ii) disclose, in conjunction with the repurchase offer, its anticipated schedule for effecting the repurchases as the timing of liquidity may be material to an investor's decision whether to accept the offer.

The Staff also stated its belief that the required repurchases need not be conducted as an offer under Section 23(c) of the 1940 Act or Sections 13(e) and 14(e) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules thereunder (the "Repurchase and Tender Rules"), to the extent that the Repurchase and Tender Rules are inconsistent with Section 61. However, the Staff noted that the Repurchase and Tender Rules provide useful guidance and processes for the repurchase process under Section 61(a) and that a BDC may choose to use the forms, communications and filing processes under those rules.8 Moreover, the Staff encouraged non-traded BDCs to follow Commission filing requirements under, for example, Section 13(e) under the 1934 Act, and the rules thereunder, and provide related documents to investors.

Finally, the Staff noted its view that the repurchase obligations are triggered at the time the requisite approval for 150% asset coverage is received and constitute an obligation to make an offer to specific investors. Therefore, a non-traded BDC that receives the requisite approval and subsequently lists its common equity on a national securities exchange is not relieved from its repurchase obligations, and the right of an investor to receive a repurchase offer or to sell securities for which such an offer is made would not transfer with transfers of the BDC's securities.

The Repurchase Guidance provides non-traded BDCs with greater certainty in complying with the requirements of Section 61(a), as well as incremental flexibility in satisfying the repurchase offer obligations. However, the benefits of the Repurchase Guidance are anticipated to be somewhat limited as non-traded BDCs commencing operations since the March 2018 passage of the Small Business Credit Availability Act typically have received approval of 150% asset coverage from a single seed investor making a de minimis investment prior to the admission of outside investors.


1. The Proposed Amendments are available at https://www.sec.gov/rules/proposed/2019/ic-33658.pdf (the "Proposing Release"). The Proposed Amendments will have a 30-day comment period following the publication of the Proposing Release in the Federal Register, which has not yet occurred as of the date of this Client Alert. The Proposed Amendments would not affect applications submitted to the Commission under the Investment Advisers Act of 1940, as amended.

2. The Repurchase Guidance is available at https://www.sec.gov/investment/staff-responses-regarding-business-development-companies.

3. Factual differences not material to the relief requested may include the applicants' identities, the jurisdiction of organization of a fund or the constitution of the fund's board of directors/trustees. See Proposing Release at 13.

4. Although it solicited comment on this point, the Commission cited other kinds of applications that it believed were unlikely to be suitable for expedited review, including applications filed under Section 2(a)(9) (determinations of control), Section 3(b)(2) (inadvertent investment companies), Section 6(b) (employee securities companies), Section 9(c) (disqualification/ineligibility) and Section 26(c) (substitution of securities by unit investment trusts). Proposing Release at 14-15 and n. 32.

5. The Commission has granted the Director of the Division of Investment Management delegated authority to issue notices of applications and orders generally where the matter does not appear to the Director to present significant issues that have not been previously settled by the Commission or to raise questions of fact or policy indicating that the public interest or the interest of investors warrants the Commission consider the matter. Consistent with this delegated authority, the Staff would issue notices for applications reviewed under the proposed expedited review process.

6. If forwarded to the Commission, the Commission would not be subject to the 90-day timeline provided by the new rule. Proposing Release at 21.

7. Applicants also could request to withdraw applications with a letter filed as Form APP-WD through the Commission's EDGAR system.

8. The Repurchase Guidance further advised that a non-traded BDC considering whether to use forms, communications and filing processes other than those prescribed by the Repurchase and Tender Rules should consider discussing the matter with the staff of the Chief Counsel's Office.

SEC Proposes Expedited Exemptive Relief Process And SEC Staff Issues Guidance On Repurchase Offers By Non-Traded BDCs

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions