BDC cuts ties with B-D

Cites instability in decision to seek new wholesaler

Sep 1, 2013 @ 12:01 am

By Bruce Kelly

A nascent nontraded business development company has cut ties with its outside broker-dealer manager, citing a lack of financial stability at the broker-dealer.

The VII Peaks-KBR Co-Optivist Income BDC II Inc. said in a filing with the Securities and Exchange Commission on Aug. 23 that its board had decided to split from its investment adviser, VII Peaks-KBR BDC Advisor II LLC. The BDC's board retained VII Peaks but terminated KBR as the investment adviser.

The new name of the BDC, which has $18 million in assets under management, is VII Peaks Co-Optivist Income BDC II Inc. Its net asset value per share is $8.83, according to its most recent quarterly report. The current offering price is $10.15 per share.

KBR, through the broker-dealer KBR Capital Markets LLC, distributed the BDC.

BDCs are typically closed-end investment companies that invest in debt and equity of private companies.

Nontraded BDCs currently are one of the most popular alternative investments sold through independent broker-dealers.

Yields can be attractive due to BDCs' exposure to high credit risks that are amplified by leverage, according to the Financial Industry Regulatory Authority Inc.

BDC SALES BOOMING

According to investment bank Robert A. Stanger & Co. Inc., nontraded BDC sales have been booming this year. Sales of nonlisted BDCs during the first half reached $2.1 billion, a 47.2% increase over the same period of 2012. The biggest seller over the first six months was FS Investment Corp. II, which raised $827.5 million over that time.

VII Peaks Capital has $46.2 million in total assets, according to its Form ADV. SEC filings show that VII Peaks and KBR had four other offerings, but those were private and not publicly registered.

The BDC is actively seeking a new broker-dealer as a distributor, said Gurpreet Chandhoke, chairman and chief executive.

“We are moving on from KBR,” Mr. Chandhoke said. “We terminated the advisory agreement. We do the investment management, and KBR was purely a distributor.”

He cited financial issues at KBR as a concern. “We need to have a stable distribution partner,” he said.

According to a filing with the SEC, KBR posted a net loss of $1.2 million last year.

Vinay Kumar, the owner of KBR Capital Markets, could not be reached for comment last week.

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