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SBIC Debentures Remain an Inexpensive Source of Capital Despite Pricing Increase




by:
Kate L. Price
Edwards Wildman Palmer LLP - Washington Office

Alan B. Roth
Edwards Wildman Palmer LLP - Chicago Office

 
September 24, 2013

Previously published on September 2013

The September 2013 pooling of Small Business Investment Company (“SBIC”) debentures was priced at 3.644%. This most recent semi-annual pricing of SBIC debentures reflected an increase to the March 2013 pricing of 2.351%, but it is still well below the historical average rate for SBIC debentures.

The SBIC debenture rate is set based off of a market driven premium to 10 year Treasury Notes. The increase in the September pooling resulted from the fact that yields on 10 year Treasury Notes were higher in September than they were in March and from an increased spread to the 10 year Treasury Notes. The increased market-based spread is perhaps being driven by the large volume of government-backed paper available in the market and investors’ increasing uncertainty about the Federal Reserve’s plans.

SBICs that drew down debentures between the March 2013 and September 2013 poolings locked in this 3.644% interest rate for the ten-year term of the debentures. Debenture interest payments are due semi-annually, and a balloon payment of the entire principal amount of the debentures is due on the tenth anniversary of the pooling. The SBIC program also imposes an annual fee on the debentures that is currently set at .760%. SBIC debentures may be prepaid in whole or in part at any time, without premium or penalty. Under current SBIC regulations, SBICs are not permitted to refinance outstanding debentures to take advantage of the new rate.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Alan B. Roth
 
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