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.