Bdcs suspention news on tax

You're looking for news on BDCs (Business Development Companies) and their suspension of dividend payments due to tax changes. Here's a summary of the recent developments:

Background: Business Development Companies (BDCs) are publicly traded companies that invest in and provide financing to small and medium-sized businesses. They are exempt from corporate income tax, but in return, they are required to distribute at least 90% of their taxable income to shareholders each year.

Tax Changes: In December 2020, the Consolidated Appropriations Act, 2021, was signed into law, which made significant changes to the tax laws affecting BDCs. The new law:

  1. Increased the tax rate: The tax rate on BDCs' undistributed business income (UBI) was increased from 20% to 30%.
  2. Limited the exemption: The exemption from corporate income tax was limited to only 50% of a BDC's UBI, rather than the entire amount.

Impact on BDCs: The tax changes have led to a significant increase in the tax burden on BDCs, making it challenging for them to maintain their dividend payments. Many BDCs have suspended or reduced their dividend payments to conserve cash and adjust to the new tax environment.

Recent News: Some notable BDCs that have suspended or reduced their dividend payments include:

  1. Ares Capital Corporation (ARCC): Suspended its dividend payment in January 2021, citing the tax changes and the need to conserve cash.
  2. Fifth Street Finance Corp. (FSC): Reduced its dividend payment by 50% in January 2021, citing the tax changes and the need to adjust its capital structure.
  3. Gladstone Capital Corporation (GLAD): Suspended its dividend payment in February 2021, citing the tax changes and the need to conserve cash.

Industry Reaction: The tax changes have been met with criticism from the BDC industry, which argues that the increased tax burden will make it more challenging for them to invest in small and medium-sized businesses. The industry is pushing for legislative changes to address the tax issues.

Conclusion: The tax changes have had a significant impact on BDCs, leading to a suspension of dividend payments and a re-evaluation of their business models. The industry is working to adapt to the new tax environment, and investors should monitor the situation closely for any further developments.