Investor Lawyers Blog
Business Development Corporation of America (“BDCA”) is a non-traded business development company headquartered in New York, New York. As a business development company (“BDC”), BDCA focuses on providing flexible financing solutions to various middle market companies (e.g., BDCA extended a second lien term loan in August 2016 to the well-known “fast casual” restaurant chain, Boston Market).
BDCs are not a new investment product, having been around since the early 1980’s (in 1980, the U.S. Congress enacted legislation making certain amendments to federal securities laws allowing for BDC’s — types of closed end funds — to make investments in developing companies and firms). Many brokers and financial advisors have recommended BDCs as investment vehicles to their clientele, touting the opportunity for retail investors to participate in private-equity-type investing through BDCs, as well as their typically outsized dividend yield.
Non-traded BDCs, as their name implies, do not trade on a national securities exchange, and are therefore illiquid products that are hard to sell (investors can typically only sell their shares through redemption with the issuer, or through a fragmented and illiquid secondary market). In addition, non-traded BDCs such as BDCA have high up-front fees (typically as high as 10%), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.
In the first-half of 2017, MacKenzie Capital Management, L.P. extended a tender offer to BDCA shareholders to purchase their shares for $6.00 per share up until May 5, 2017. In connection with this recent tender offer, Mackenzie Capital has further indicated that BDCA is not required to complete a liquidity event by a specified date. As of September 30, 2016, BDCA estimated its net asset value (“NAV”) at $8.58 per share, or $0.39 per share lower than the valuation of December 31, 2015. For investors who participated in the MacKenzie tender offer, it appears they would have sustained significant losses in order to exit their investment position.
With respect to BDCA’s own redemption program (for shareholders seeking to sell their shares back to the issuer), this share repurchase program is oversubscribed. Specifically, as of December 2016, 17 million shares were submitted for tender. However, BDCA purchased only 6.7 million of these shares. Such repurchases or redemptions by BDCA are made on a semi-annual basis (only twice a year), so investors seeking to sell out of their BDCA position are likely stuck holding their illiquid investment for the foreseeable future.
Before recommending a nontraditional investment product to a customer, such as BDCA or another non-traded BDC, broker dealers are first required to perform adequate due diligence on that investment. In addition, brokers and broker dealers are required to perform a suitability analysis, in order to determine if the investment product is suitable for that investor based on his or her age, risk tolerance, net worth and income, investment experience, etc.
If you have invested in BDCA, or another non-traded BDC or similar alternative investment product such as a non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.