Solar Capital’s board of directors approved the reduction in the asset coverage requirement under of the Investment Company Act of 1940 as allowed under the Small Business Credit Availability Act.
As a result, the company’s asset coverage requirements well be reduced from 200% to 150%. The company will target a range of 0.90x to 1.25x debt-to-equity, operating at a substantial cushion to the regulatory limit.
The board also approved an amendment to the Investment Advisory Agreement reducing the investment advisor’s annual base management fee to 1.00% on assets financed using leverage over 1.0x debt-to-equity.
In order to accelerate the adoption, the board will submit a proposal to company shareholders to approve the modified asset coverage requirements. If Solar’s shareholders approve the proposal at its 2018 Annual Meeting of Shareholders, the new coverage ratio will become effective on the day after the approval.
The reduction approval followed Solar’s analysis of how the increased leverage flexibility could affect the company’s strategic priorities and positive long-term value creation for shareholders, as well as an assessment of the associated risks and how they can be managed or mitigated.
“The asset coverage modification will not result in changes to our investment strategy and enhances the company’s ability to expand its specialty finance platform,” said Michael Gross, chairman and CEO. “Together with the management fee reduction, the company has the potential to generate increased returns for shareholders. Notably, the company already has sufficient capital to operate within the new target debt-to-equity range without having to raise additional debt or equity.”
Solar Capital is a closed-end investment and specialty finance company which invests directly and indirectly in leveraged, U.S. middle market companies in the form of cash flow senior secured loans.
