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Mergers, Acquisitions and Other Strategic Transactions Involving BDCs
Given the recent unprecedented market conditions and the changed competitive landscape, there has been a significant increase in the number of contemplated mergers, acquisitions and other strategic transactions involving BDCs. These proposed transactions include debt or equity financing, acquisition or disposition of assets, mergers and other strategic transactions. This increased activity began with the first announced BDC acquisition of another BDC since the Allied Capital Corporation five-way merger transaction in 1997.
Prospect Capital Corporation Acquires Patriot Capital Funding, Inc.
On August 3, 2009, Patriot Capital Funding, Inc. (Patriot) and Prospect Capital Corporation (Prospect) entered into a merger agreement pursuant to which Prospect would acquire Patriot, and Patriot would cease to exist. The merger closed on December 2, 2009, and Sutherland advised Patriot on virtually every aspect of the transaction, including corporate, securities, investment company, tax, corporate finance and employee benefit matters.
Ares Capital Corporation Acquires Allied Capital Corporation
On October 26, 2009, Allied Capital Corporation (Allied) and Ares Capital Corporation (Ares) entered into an agreement and plan of merger, whereby Ares would acquire Allied, and Allied would cease to exist. The merger closed on April 1, 2010, and Sutherland advised Allied on virtually every aspect of the transaction, including corporate, securities, investment company, tax, corporate finance and employee benefit matters.
Saratoga Investment Advisors Enters into Stock Purchase Agreement with GSC Investment Corporation
On April 9, 2010, GSC Investment Corporation (GSC) announced that Saratoga Investment Advisors, LLC (Saratoga) and CLO Partners LLC entered into a stock purchase agreement whereby Saratoga and CLO Partners LLC agreed to purchase a minority stake in GSC as part of a $55 millon recapitalization plan to enable GSC to grow its business of lending to middle-market companies. The transaction closed on July 30, 2010, and Sutherland advised Saratoga on virtually every aspect of the transaction, including corporate, securities, investment company, tax and corporate finance. Under the terms of the stock purchase agreement, Saratoga replaced GSC Group as GSC's external investment manager and administrator and GSC's current Chief Executive Officer, Chief Financial Officer and Vice President, Secretary and Chief Compliance Officer were replaced by corporate officers of Saratoga. Similarly, GSC's GSC Group-affiliated Board members were replaced by corporate officers of Saratoga and GSC changed its name to Saratoga Investment Corporation.
Given the unique regulatory and tax attributes of BDCs, mergers, acquisitions and strategic transactions involving them entail complex tax, accounting and legal issues. Notwithstanding such complexity, the current economic and market conditions make strategic transactions involving BDCs compelling and, as a result, we anticipate an uptick in such activity going forward.
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