An affiliate of private equity firm BC Partners Advisors LP has agreed to become the external manager of KCAP Financial Inc., which is a publicly traded, internally managed business development company.

Under the terms of a stock purchase and transaction agreement, KCAP shareholders will receive a direct cash payment of $25 million, or about 67 cents per share, from a BC Partners' affiliate. The agreement is subject to KCAP shareholders' approval and other conditions and is expected to close in the first quarter of 2019.

BC Partners will contribute up to 100% of incentive fees earned to reach net investment income of 40 cents per share for a one-year period after the closing of the transaction. It also agreed to use up to $10 million of the incentive fees to purchase newly issued KCAP common shares over the next two years. KCAP will also acquire investments sourced by BC Partners to deploy current liquidity and immediately enhance net investment income.

LibreMax Capital, an asset management firm specializing in structured credit investments, will take a minority stake in the BC Partners affiliate that will act as KCAP's external manager. KCAP in November agreed to sell its asset manager affiliates to LibreMax.

Houlihan Lokey and UBS Investment Bank served as financial advisers to BC Partners, while Simpson Thacher & Bartlett served as the company's legal adviser. Keefe Bruyette & Woods Inc. served as KCAP's financial adviser, while Eversheds Sutherland served as the company's legal adviser.