Franklin BSP Lending Corp. (BDCA) Merger and Liquidation

How to Recover Investment Losses involving Franklin BSP Lending Corp. (Formerly BDCA)

The White Law Group investigates potential claims involving Franklin BSP Lending Corp., a/k/a BDCA. The article below discusses the recent merger between BDCA and Franklin BSP Capital Corporation and provides an overview of some risks of investing in non-traded BDCs.

Table of Contents

• How to Recover Investment Losses involving Franklin BSP Lending Corp. (Formerly BDCA)  
• The Risks of Investing in Non-Traded BDCs 
• Liquidity Issues – Franklin BSP Lending Corp (formerly BDCA)
• Potential Lawsuits to Recover Investment Losses

Franklin BSP Lending Corp. is a non-traded business development company formerly known as Business Development Corp. of America (BDCA). FBLC’s investment portfolio primarily consists of loans to middle-market companies.

According to reports last week, Franklin BSP Capital Corporation and Franklin BSP Lending Corporation, both business development companies overseen by Benefit Street Partners LLC affiliates, have officially announced their intent to merge. Franklin BSP Capital Corporation (FBCC) will continue as the surviving entity and liquidate Franklin BSP Lending Corporation (BDCA) in this merger. The merger process is contingent upon the approval of certain stockholders and the fulfillment of standard closing conditions.

As per the proposed merger terms, Franklin BSP Lending Corporation stockholders will receive a number of shares in the newly issued common stock of Franklin BSP Capital Corporation. This number is determined by calculating the ratio of the net asset value per share of Franklin BSP Lending Corporation divided by the NAV per share of Franklin BSP Capital Corporation. These values will be assessed shortly before the merger’s completion. This merger event has brought the risks of investing in non-traded BDCs.

The boards of directors of FBCC and Franklin BSP Lending Corporation (BDCA) have already approved the merger agreement and the associated transactions. Franklin BSP Lending Corporation has specified that the parties involved in the merger aim to classify it as a “reorganization.”

The merger is expected to take place in the first half of 2024. To proceed, the stockholders of Franklin BSP Lending Corporation and Franklin BSP Capital Corporation must consent. The merger and liquidation event is also contingent on the approval by Franklin BSP Capital Corporation’s (BDCA) stockholders for the amendment and restatement of their currently effective investment advisory agreement.

The Risks of Investing in Non-Traded BDCs 

BDCs operate much in the same way as non-traded REITs (Real Estate Investment Trusts). BDCs pool investor money and use those funds as capital to invest in various businesses. A BDC aims to invest in small and medium-sized businesses and help sustain and develop growth in those underlying businesses. When those businesses are profitable, the BDC can be a substantial investment. Additionally, before its merger, certain BDCs, such as FBCC and Franklin BSP Lending Corporation (BDCA), offer a desirable tax structure for investors.

However, “middle-market loans” are basically highly leveraged loans to private equity-backed companies and come with a large credit risk. When rising interest rates and inflation lead to a recessionary event, non-traded BDCs, such as Franklin BSP Lending Corp., may take a big hit.

Liquidity Issues – Franklin BSP Lending Corporation (formerly BDCA)

Non-traded BDCs like Franklin BSP Lending Corporation (BDCA), before its merger with FBCC, also faced several liquidity issues due to their unique characteristics and structure. They don’t trade on a public exchange like traditional stocks. As a result, if they try to sell the shares on a secondary market before the REIT’s liquidation event, it is almost always at a loss.  While this alone does not mean non-traded BDCs are necessarily a bad investment, brokers are expected to provide their clients with an understanding of the risks associated with investing in them.

According to Central Trade and Transfer, before its merger with FBCC, Franklin BSP Lending Corporation (BDCA) stock was recently sold for $4.95 per share. The original offering price was $10 per share. According to the company, the current net asset value is $7.28 per share.

Potential Lawsuits to Recover Investment Losses 

The White Law Group continues to investigate potential claims against broker-dealers that sold high-risk investments, including illiquid business development companies such as Franklin BSP Lending Corp. (BDCA), to investors before its recent merger. The high commission structure of these products leads to the possibility that unscrupulous financial advisors will push these products unsuitably to maximize their commissions.

Broker-dealers must perform adequate due diligence on any investment they recommend and ensure that all recommendations are suitable for the investor. Recommendations should be appropriate considering the investor’s age, risk tolerance, net worth, and investment experience. Broker-dealers who fail to disclose risks or adequately make unsuitable investment recommendations can be liable for investment losses in a FINRA arbitration claim.

If you have suffered losses in Franklin BSP Lending Corp. (BDCA) before or after its merger with FBCC and would like to speak to a securities attorney about the potential to recover your investment losses, please call The White Law Group at 1-888-637-5510 for a free consultation.

For more information on the firm’s investigation, please see Business Development Companies (BDCs)—the good, the bad, and the ugly.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and

Seattle, Washington. To learn more about The White Law Group, visit www.whitesecuritieslaw.com/.

FAQs

What is the liquidity risk of investing in a BDC such as Franklin BSP Lending Corp (BDCA) before and after its merger with FBCC?

Unlike shares in publicly traded companies, which can be sold at any time, non-traded BDCs only allow investors to sell their shares periodically. This makes them a risky investment for investors who need to access cash for emergency expenses or for investment goals they hope to achieve in the next two to three months.

What are liquidity gaps?

A liquidity gap is a difference between a financial institution, like Franklin BSP Lending Corporation (BDCA), and the total assets and liabilities before and after the recent merger. When a gap is positive, the institution can cover all of its liabilities and still have liquid assets remaining afterward. A negative liquidity gap, on the other hand, means the institution’s liabilities exceed its liquid assets. A financial institution with a negative liquidity gap will likely charge higher interest rates on loans if it grants loans.

How do non-traded BDCs provide a favorable tax structure for investors? 

Before and after its recent merger, non-traded BDCs such as Franklin BSP Lending Corp (BDCA) offer investors several tax advantages. For one, non-traded BDCs must distribute at least 90 percent of their income to maintain their status as a Regulated Investment Company (RIC) under federal tax law. Investors also receive an IRS Form 1099 annually rather than a Schedule K-1, simplifying end-of-year reporting.