Business Development Corp. of American – BDCA – Securities Investigation
The White Law Group continues to investigate the liability that brokerage firms may have for improperly selling high-risk private placements like BDCA.
Business Development Corp. of America (“BDCA”) is a non-traded business development company that invests in first and second lien senior secured loans and mezzanine debt issued by middle market companies.
On April 10, 2018, BDCA filed a definitive proxy statement containing two shareholder proposals.
BDCA is seeking shareholder approval for the company to issue up to 25% of BDCA’s outstanding common stock at a price below the then-current NAV per share. The Board is seeking approval on the basis “that it will provide increased flexibility to comply with the 200% asset coverage ratio requirement mandated by the 1940 Act.”
The company’s estimated net asset value was $8.58 per share as of September 30, 2016, or $0.39 per share lower than the valuation as of December 31, 2015.
In addition, the Board notes that BDCA has not completed an offering of common stock at a discount to NAV before, but that it has received shareholder approval to conduct such offerings in the past to increase its flexibility to meet leverage limitations.
According to the Small Business Credit Availability Act, a Business Development Company is allowed to increase leverage from a 1:1 debt-to-equity ratio to a 2:1 debt-to-equity ratio.
An increase in leverage beyond the 1:1 debt-to-equity ratio limit must be approved by either the independent directors on the Board or by a majority vote of the outstanding shareholders.
BDCA has neither sought shareholder approval for such measures nor approved such measures at the Board level. Additionally, it is important to note that any shares issued below NAV per share would have a dilutive effect to existing BDCA equity investors.
As of December 31, 2017, BDCA’s debt-to-equity ratio was 68.9%, above the average 55% debt-to-equity ratio for traded and non-traded BDCs as of year-end 2017, but within the leverage limits of the 1940 Act.
The other proposal seeks the reelection of the existing members of the board of directors (the Board).
Free Consultation with a Securities Attorney
Broker dealers that sell alternative investments are required to perform adequate due diligence on all investment recommendations. They must ensure that each investment recommendation that is made is suitable for the investor in light of the investor’s age, risk tolerance, net worth, financial needs, and investment experience.
Fortunately, FINRA does provide for an arbitration forum for investors to resolve such disputes. If a broker or brokerage firm makes an unsuitable investment recommendation or fails to adequately disclose the risks associated with an investment they may be found liable for investment losses in a FINRA arbitration claim.
To determine whether you may be able to recover investment losses incurred as a result of your purchase of Business Development Corporation of America (BDCA), please contact The White Law Group at 1-888-637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee. The firm represents investors throughout the country in claims against their brokerage firm.
For more information on the firm and its representation of investors, visit www.WhiteSecuritiesLaw.com.