PROPOSAL
PROPOSAL I:
APPROVAL OF THE COMPANY BECOMING SUBJECT TO A MINIMUM ASSET
COVERAGE RATIO
OF
AT LEAST 150%, PERMITTING THE COMPANY TO DOUBLE ITS
AMOUNT OF DEBT INCURRENCE, PURSUANT TO THE
SMALL BUSINESS CREDIT
AVAILABILITY ACT
The Company is a closed-end investment company that has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). As a BDC, we are required to meet a minimum asset coverage ratio, reflecting the value of our total assets to our total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, under the 1940 Act. Prior to March 23, 2018, Section 61(a) of the 1940 Act (which incorporates the requirements of Sections 18(a)(1) and 18(a)(2) of the 1940 Act) did not permit a BDC to issue senior securities unless, at the time of issuance, such BDC had an asset coverage ratio of at least 200% taking into account such issuance of senior securities (the Asset Coverage Ratio). However, on March 23, 2018, the Small Business Credit Availability Act (the SBCA) was signed into law and permits BDCs to be subject to an Asset Coverage Ratio of at least 150% (the 150% Asset Coverage Ratio), if certain conditions are satisfied as set forth in the SBCA.
Prior to the enactment of the SBCA, generally, for every $1.00 of debt incurred or in senior securities issued, a BDC was required to have at least $2.00 of assets immediately following such incurrence or issuance. For those BDCs that satisfy the SBCAs disclosure and approval requirements, the minimum asset coverage ratio is reduced such that for every $1.00 of debt incurred or in senior securities issued, a BDC must now have at least $1.50 of assets. This reduction in the Asset Coverage Ratio doubles the amount of debt that BDCs may incur.
The SBCA provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to the 150% Asset Coverage Ratio, the BDC must obtain either: (i) approval of the required majority of its non-interested directors who have no financial interest in the proposal of the 150% Asset Coverage Ratio, which would become effective one (1) year after the date of such approval, or (ii) stockholder approval (of more than 50% of the votes cast for the proposal) of the 150% Asset Coverage Ratio, which would become effective on the first day after the date of such stockholder approval. BDCs must provide stockholders with timely notice of such approvals and must make periodic reports of the aggregate outstanding principal amounts of senior securities issued by BDC and the asset coverage percentage as of the most recent financial statements included in that filing, the effective date of the approval of the modified asset coverage requirements, and the principal risk factors associated with the senior securities, to the extent incurred by the BDC.
On April 12, 2018, our board of directors, including a majority of the non-interested directors who have no financial interest in this proposal, approved the 150% Asset Coverage Ratio, which will automatically become effective on April 12, 2019.
In addition, on April 12, 2018, our board of directors determined that this proposal is in the best interests of the Company and its stockholders, and is recommending that the Companys stockholders vote in favor of the proposal to reduce the Companys Asset Coverage Ratio requirement to at least 150% for purposes of Sections 18(a)(1) and 18(a)(2) of the 1940 Act. If this proposal is approved by stockholders at the Meeting, the Company would become subject to an Asset Coverage Ratio of at least 150% the day after the Meeting instead of on April 12, 2019. The Board of Directors values the opinions of our stockholders and will reconvene to reconsider its approval of the modified asset coverage requirements if this proposal is not approved by stockholders. There can be no assurance that the Board of Directors would rescind its approval if this proposal is not approved by stockholders. If this proposal is not approved by stockholders and the Board of Directors does not rescind its approval, we will be subject to the 150% Asset Coverage Ratio beginning April 12, 2019.
If this proposal is approved, this reduction in the required minimum Asset Coverage Ratio will increase the amount of debt that we are permitted to incur; as a result, we may incur additional indebtedness in the future, and therefore, the risk of an investment in us may increase. See —Risks Related to the Approval of the Proposal.