SEC Proposes Registered Offering Reforms with Significant Implications for BDCs and REITs

The US Securities and Exchange Commission has proposed broad amendments to the rules governing how companies raise capital through public offerings. The proposal would significantly change the registration, communication, and offering process for business development companies (BDCs), registered closed-end investment companies (registered CEFs, and, collectively with BDCs, affected funds), and real estate investment trusts (REITs). Comments on the proposed amendments are due by July 27.

The proposed amendments are designed to further reduce regulatory barriers to raising capital for these issuers and build on reforms adopted by the SEC in 2020 that more aligned the registration process for such issuers with the process available to traditional operating companies.

EXPANDED SHORT-FORM REGISTRATION FOR BDCS AND REGISTERED CEFS

Under the current rules, affected funds that wish to conduct shelf offerings—a process that allows issuers to register securities in advance then sell them later as market conditions warrant—must file on a short-form registration statement (Form N-2) and satisfy certain requirements, including a one-year “seasoning” requirement and a minimum public float (the market value of shares held by non-insiders) of $75 million or more.

Presently, under the one-year “seasoning” requirement an affected fund must be registered for at least 12 months and be subject to reporting requirements for the same period to be eligible to conduct a shelf offering. The proposed amendments would eliminate the one-year “seasoning” and public float requirements, replacing them with a simplified framework built around two new issuer categories: Eligible Listed Issuers (ELIs) and Seasoned Eligible Listed Issuers (SELIs).

Under the proposal, an affected fund would qualify as an ELI if it has at least one class of common equity securities listed on a national securities exchange and meets the proposed registrant requirements of Form S-3, principally, that it is current and timely in its required SEC filings under the Securities Exchange Act of 1934, as amended (and the Investment Company Act of 1940, as amended, for registered CEFs).

An affected fund would qualify as a SELI if it meets the ELI requirements and has been filing reports with the SEC for at least 12 months. Importantly, all affected funds that qualify as ELIs or SELIs—not just those affected funds that have been registered for at least one year and have at least $75 million in public float—would be eligible to use Short-Form N-2, the streamlined short-form registration process on Form N-2, giving a substantially larger group of exchange-listed funds the ability to access the public markets more quickly and efficiently.

ENHANCED REGISTRATION AND COMMUNICATION BENEFITS FOR AFFECTED FUNDS

The proposed amendments would extend to ELIs several key benefits that are currently available only to “well-known seasoned issuers,” a designation that requires a public float of at least $700 million under the existing rules.

These enhanced benefits include:

• The ability to exercise greater flexibility with respect to prefiling communications
• The ability to omit certain information from a base prospectus
• The ability to pay registration filing fees on a “pay as you go” basis at the time of each takedown
• For SELIs, the ability to file automatic shelf registration statements that become effective immediately upon filing

The proposed amendments would allow ELI affected funds to automatically update their registration statements by incorporating their ongoing SEC filings by reference into Form N-2, a process known as “forward incorporation by reference.” This would allow these funds to avoid having to file separate post-effective amendments to keep their registration statements current, reducing both cost and administrative burden.

UNLISTED CEFs AND BDCs RETAIN RULE 486 FRAMEWORK

The proposed amendments would not extend Short-Form N-2 eligibility to unlisted funds, i.e., most interval funds, tender offer funds, and non-traded BDCs.

The SEC determined that the existing Rule 486 registration process, which allows these unlisted funds to file updates to their registration statements that take effect either immediately or within 60 days, already provides a comparable path to raising capital. Unlisted funds would therefore continue to rely on the Rule 486 process rather than gaining access to Short-Form N-2.

STATE PREEMPTION FOR NON-TRADED BDCS AND OTHER UNLISTED ISSUERS

Non-traded BDCs were not entirely uninvited to the rulemaking party, however. In a development of particular significance for non-traded BDCs, the proposed amendments would redefine a “qualified purchaser” under Section 18(b)(3) of the Securities Act of 1933, as amended, to include any person to whom securities are offered or sold pursuant to a registered offering.

Section 18 was added to the Securities Act by the National Securities Markets Improvement Act of 1996 (NSMIA), which preserved state anti-fraud enforcement authority but preempted state “blue sky” registration and qualification requirements for specified categories of “covered securities,” including securities listed on a national securities exchange, securities issued by registered investment companies, and securities sold to “qualified purchasers” as defined by the SEC.

Because the SEC never broadly defined “qualified purchaser” to encompass all registered offerings, unlisted securities sold in such offerings were not treated as covered securities and remained subject to state-level registration requirements, meaning such issuers are subject to registration in up to 50 states, each of which may impose disclosure requirements or limitations on investor eligibility. Some states are more rigorous with the registration process than others.

The proposed redefinition would close this 30-year-old gap: securities sold in registered offerings by unlisted issuers, including non-traded BDCs, would become “covered securities” under federal law, meaning they would be exempt from the patchwork of state-by-state securities registration and qualification requirements.

This change addresses a longstanding burden for non-traded BDCs. Because these issuers do not list their shares on a national securities exchange and are not registered investment companies, their securities currently do not qualify as “covered securities” and are therefore subject to the registration and qualification requirements of each individual state in which the securities are offered and sold.

Complying with these varying state-level requirements can involve retaining specialized “blue sky” counsel, navigating differing substantive standards across jurisdictions, and absorbing significant costs and delays. The SEC believes these costs are unduly burdensome given that registered offerings are already subject to robust federal investor protections.

While the proposed change to the definition of “qualified purchaser” would exempt unlisted BDCs and REITs from state blue sky registration requirements, those products would still be subject to state-level notice and fee filing obligations and retain a lesser, but nontrivial, state-level regulatory burden.

IMPLICATIONS FOR NON-TRADED REITs

The proposed amendments also carry significant implications for non-traded REITs. These issuers currently register their offerings on a specialized form (Form S-11) rather than on the more flexible Form S-3.

By eliminating the $75 million public float requirement for Form S-3 eligibility, the proposal would allow many non-traded REITs to register their offerings on Form S-3, giving them access to shelf registration and other efficiencies that have historically been available only to larger exchange-listed issuers.

The proposed state preemption provisions described above would also benefit non-traded REITs that conduct registered offerings as their unlisted securities would become “covered securities” exempt from state-level registration and qualification requirements.

PRACTICAL CONSIDERATIONS

Taken together, the proposed reforms represent a significant expansion of the tools available to BDCs and REITs for raising capital in the public markets. For exchange-listed BDCs and registered CEFs, eliminating the one-year “seasoning” requirement and public float threshold and extending the enhanced registration benefits currently reserved for the largest issuers would provide issuers greater flexibility to quickly respond to market opportunities and lower the costs of accessing the public markets.

For non-traded BDCs and non-traded REITs, the proposed state preemption provisions could be transformative by substantially reducing the time, expense, and complexity currently associated with obtaining approvals in each state where securities are offered.

The proposed amendments also represent another significant step in the ongoing trend of retailization: making products and strategies that involve alternative, less liquid strategies (and therefore have typically been limited to institutional or high-net-worth individual investors) more widely available to retail investors.

Greater access, however, could result in greater scrutiny of fiduciary investment decisions or investor-specific recommendations downstream at the point of sale.

If adopted, these proposed amendments would also significantly alter the mix of factors that issuers consider when deciding the product wrapper through which to offer a strategy insofar as a non-listed BDC or REIT might then be able to reach target investors without having to undertake the exchange listing process or the onerous state-by-state registration process. Accordingly, distribution teams and new product committees will want to keep an eye on how these proposals advance through the rulemaking process.

COMMENT PERIOD

Comments on the proposed amendments must be received on or before July 27, 2026.

The SEC has specifically asked for public input on numerous aspects of the proposal that are directly relevant to BDCs, CEFs, and REITs, including whether expanding Short-Form N-2 eligibility to all exchange-listed affected funds is appropriate, whether unlisted affected funds should receive additional benefits beyond the existing Rule 486 framework, and whether Form S-3 should be amended to include the real estate-related disclosure requirements currently found in Form S-11.

Given the breadth of the proposed changes and the many open questions the SEC has raised, affected market participants, including fund sponsors, asset managers, and their legal and compliance teams, should carefully assess the potential operational and strategic impact of these reforms and consider submitting comments.