SBIC Debenture Coupon Rates Keep Falling – Cost of Funds at Another Historic Low of 2.766%

March 28, 2012

On March 22, 2012, the SBIC Funding Corporation completed pooling of SBA debentures with a coupon rate of 2.766%. This lowers the previously low price in September 2011 of $559 million at a 2.877% coupon rate, and is the lowest pricing on SBA-pooled debentures in more than 50 years of the SBA Program.

The pricing of the pool is a critical component to the cost of funds used by SBIC Funds. Once pooled, the interest rate on the SBA debentures becomes fixed for a 10-year period. The SBIC Fund is responsible only for a semi-annual interest-only payment on the SBA debentures until the SBA debentures are repaid. The SBA debentures must be repaid within 10 years. In addition, there are no prepayment penalties.

The historical pooling information is reflected in our chart (click to view).

The Private Equity Practice Group at McGuireWoods LLP is dedicated to keeping clients advised of new legislative and business developments as they occur. If you have any questions regarding these issues, please feel free to contact Mark A. Kromkowski (312.849.8170), Bryan P. Bylica (312.750.3617), your primary attorney at McGuireWoods LLP, or any of the authors.