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US omnibus bill includes fix for business development companies

Congress' $1.3 trillion spending bill includes a provision that would help business development companies by lowering asset coverage requirements and streamlining the registration process.

Lawmakers were able to add the U.S. House Financial Services Committee's Small Business Credit Availability Act to the omnibus bill, which proposes lowering the required ratio of assets to debt for business development companies, or BDCs, to 150% from 200%. The bill also requires the Securities and Exchange Commission to reduce the offering, filing and registration processes for BDCs. The bill had previously passed the House panel in a 58-2 vote in November 2017.

BDCs provide capital to small and medium-sized companies in their early stages, and they are hopeful that the legislative changes will allow for more leverage and, consequently, more credit extended to businesses.

The provision was the most notable House Financial Services Committee bill absorbed by the omnibus bill. Compass Point analyst Isaac Boltansky wrote in a note March 22 that the higher leverage cap is an "undeniable victory" for the BDC industry, but added that shareholders would still need to approve any operational changes because of existing debt covenant restrictions.

A Keefe Bruyette & Woods note March 22 described the inclusion of the BDC change as a "surprise move," adding that the provision should lead to BDCs investing in higher-quality deals with lower yields.

The House and Senate hope to pass the omnibus bill before the government shuts down March 23.