What Is a Non-Traded BDC?

Though the idea of investing in a non-traded business development company (BDC) may be relatively new to many investors, the concept certainly is not. BDCs were created by Congress more than 30 years ago to stimulate investments in privately owned American companies. The goal was to make more capital available to private companies which, in turn, help drive the U.S. economy.

A non-traded BDC is a regulated investment company (RIC) that pools investor funds and invests them in a portfolio consisting of the debt (loans) or equity of private U.S. companies, typically with an investment objective of generating current income, capital growth or both. A non-traded BDC is typically a closed-end fund and has no secondary market for investors to buy or sell shares.

In general, a non-traded BDC is an entity that:

  • Invests at least 70 percent of total assets into eligible portfolio companies.
  • Distributes at least 90 percent of taxable income.1
  • Provides quarterly valuation of the portfolio.
  • Has leverage limited to 50 percent loan to value.2
  • Offers managerial assistance to qualifying companies.

Non-traded BDCs, when operating as a RIC, must distribute at least 90 percent of their taxable income to remain qualified as a RIC to reduce federal income taxes. Corporate Capital Trust II intends to elect and qualify for RIC status annually.

There is no assurance that these objectives will be met.

1 Distributions are not guaranteed in frequency or amount. Since inception, distributions have been supported by the advisors in the form of fee waivers and operating expense support waivers, and are not estimated to be a return of capital or supported by borrowed funds. Distributions exceed earnings and are not based on the investment performance; there can be no assurance that distributions will be sustained at current levels or at all. Corporate Capital Trust II is obligated to repay the advisors over several years, reducing future distributions and potentially diluting value for future shareholders.

2 Leverage can increase expenses, add interest rate risk and magnify performance volatility.