BENEFITS OF BDC STRUCTURE

 

Business Development Company (BDC): A BDC is often a non-diversified closed-end investment company, which is typically taxed as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code. A BDC typically makes investments in private companies in the form of debt (loans) or equity securities. It seeks to generate current income and/or capital gains in a tax-efficient manner. Much like mutual funds, BDCs are regulated similar entities but typically utilize leverage to generate excess returns.

 

Benefits of the BDC Structure to Shareholders:

ACCESS

Access to private investments without requirement of accredited investor status

 

TAX EFFICIENT

RICs that meet dividend paid deduction, gross income qualification and diversification requirements receive flow-through tax treatment and are typically not taxed at the investment company level. Shareholders are taxed on BDC's distributions

SIMPLICITY

Shareholders in BDCs receive timely Form 1099-DIVs,rather than more complex Schedule K-1s.

REGULATED

Sarbanes-Oxley compliant; Majority of directors on board are independent; Debt-to-equity leverage is limited to a maximum of 2 to 1, far lower than typical bank leverage. Quarterly portfolio valuations approved by independent directors

LIQUIDITY

Daily liquidity through listing on a national exchange that provides shareholders the flexibility to enter or exit the investment when desired

DIVERSIFICATION

RIC requirements for portfolio company diversification typically result in less position concentration than traditional private credit funds

CURRENT INCOME

Quarterly distribution to shareholders

TRANSPARENCY

Quarterly SEC financials include full GAAP financial statements; entire portfolio publicly disclosed in the Schedule of Investments with each portfolio company valued at fair market value quarterly