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BDC and RIC Research and Issuance Proliferating

Sector flourishing amid liberalisation


The FAIR Act (Fair Access to Investment Research Act) of 2017 (the “FAIR Act”) has led the SEC to propose a new rule 139b under the Securities Act of 1933, or the “Securities Act”. It would allow broker-dealers, including investment bank underwriters, and broker-dealer distributors that receive fees for fund distribution, to publish (or distribute) research reports on certain unaffiliated investment funds, without them being deemed an offer for sale and therefore a potential violation under the Securities Act. In particular, the proposed rule 139b would apply to both registered investment companies, including registered closed-end funds and mutual funds as well as business development companies, or “BDCs”.

“This better aligns BDCs and registered funds with public companies in general, including in particular regulated funds that conduct traditional firm commitment underwritten offerings on a frequent basis, such as many publicly-traded BDCs,” says Schulte Roth & Zabel investment management partner John J. Mahon, who is based in the firm’s Washington, D.C. office and regularly assists clients in connection with the establishment and operation of BDCs and both open-ended and closed-ended registered funds.

“Certainly one impetus for the change is that BDCs and certain similar registered funds have become much more active in raising both debt and equity capital through public follow-on offerings over the past decade or so, which has led to investment banks running into the restrictions on the use of the safe harbor under the current rule 139 for offerings involving regulated funds much more frequently,” explains Mahon.

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