$1.3 Trillion Spending Bill May Be a Boon for BDCs

Shares of Apollo’s business development company climbed after the release of the spending bill.

The U.S. Capitol, Washington, DC (Andrew Harrer/Bloomberg)

The U.S. Capitol, Washington, DC

(Andrew Harrer/Bloomberg)

Congress may finally grant business development companies their wish to borrow more.

The $1.3 trillion spending bill that lawmakers will vote on before Friday’s government shutdown deadline would allow BDCs to increase their borrowing cap to two times their assets. Leverage for BDCs, which provide loans to small and mid-sized businesses, has been restricted to a debt-to-equity ratio of 1 to 1.

This group of nonbank lenders, which has ties to large buyout firms like Apollo Global Management and KKR & Co., often provides financing for private equity deals in the middle market. Assets managed by BDCs have been increasing, along with the popularity of direct lending funds, since regulators stepped up their scrutiny of banks following the 2008 financial crisis.

In December, KKR and FS Investments announced an agreement to create what they said would be the largest BDC business, with a combined $18 billion in assets under management. The partnership increased assets at KKR’s credit unit to $55 billion at the time.

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The BDC industry has for years been lobbying Congress to raise their limits on leverage, which would give them a larger pool of capital to put to work while boosting returns. But there are risks to borrowing.


A sudden market downturn could result in steep write downs of the loans they hold, causing leverage to rise at the same time that they find it difficult to raise cash from investors or banks.

BDCs were created by Congress in 1980 under the Investment Company Act of 1940 to help stimulate the U.S. economy by increasing capital for smaller companies. The spending bill provision concerning the borrowing limits of BDCs is found in Section 802 of Title VIII, beginning on page 1999.

Shares of Apollo’s BDC, Apollo Investment Corp., climbed following the release of the legislation, rising 3.6 percent, to about $5.64, in mid-afternoon trading on Thursday. The House passed the bill Thursday afternoon, leaving the Senate with about one day to vote on it before the government shutdown deadline.