Business Development Companies (BDCs) are regulated investment companies that must follow strict investment and operational guidelines. BDCs are prohibited from participating in transactions with affiliates. Because non-traded BDCs are either advised or sub-advised by external companies that originate or can originate investments, the inability to participate in affiliated transactions is viewed by BDC sponsors as a tough restriction. In response, BDCs have filed for what's known as "exemptive relief" from the SEC to allow them to participate in affiliated transactions while maintaining their status as BDCs.
The SEC has been selective in granting exemptive relief. But late last month the SEC granted the CNL / KKR BDC, Corporate Capital Trust, relief, and today all three Franklin Square BDCs - FS Investment Corp, FS Investment Corp II and FS Energy and Power Fund - announced that they have been granted relief. These BDCs can now participate - and earn origination income - in investments originated by affiliates of their sub-advisers. I don't know the full impact of this change, but I expect to see a big jump in affiliated investment participations.