Private-equity titans including Apollo Global Management LLC and Ares Management LP are poised to score a big win after lawmakers attached a measure to the must-pass $1.3 trillion spending bill that could expand the companies’ businesses.

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In a last-minute addition to legislation that funds federal agencies, lawmakers included language Wednesday that would allow investment companies controlled by private-equity firms to borrow more money and increase their lending. Apollo, Ares and other firms have been aggressively lobbying over the issue, which eases rules for what are known as business development companies.

Congressional leaders from both political parties struck a deal on the spending proposal after weeks of debate, likely heading off another government shutdown. By providing more money for border security, infrastructure and the military, it’s designed to appeal to Republicans and Democrats. President Donald Trump would likely sign the plan into law soon after it wins final passage, which may come on Friday.

The negotiations came at a good time for private-equity firms, which have been scrambling to get their provision attached to any legislation that’s headed for the president’s desk. The industry has failed, thus far, to persuade lawmakers to add the measure to a bipartisan bill working its way through Congress that rolls back banking regulations.

Leverage Rising

BDCs are similar to private-equity funds in that they buy stakes in businesses and make loans. But instead of soliciting capital from pension funds and other sophisticated investors, many raise money by selling shares that trade on stock exchanges.

The structure allows mom-and-pop investors to participate in opportunities that are typically limited to institutions and the financial elite. Private-equity firms profit from BDCs because they manage the underlying investments, and charge fees for doing so.

The measure tacked on to the spending bill Wednesday would allow BDCs to borrow $2 for every $1 of assets they own, eliminating an existing cap that restricts leverage to a 1-to-1 ratio of debt to equity.

That could increase the companies’ earnings by as much as 20 percent, said Ryan Lynch, an analyst at Keefe, Bruyette & Woods. BDCs controlled by Ares, Apollo and Carlyle Group LP are among those that would benefit, he added.

“This would be the biggest change this industry has seen,” Lynch said. “Game changer may be too strong, but this is definitely very significant.”

Controversial Issue

Lawmakers rejected including the BDC measure in a bill overhauling the 2010 Dodd-Frank Act that cleared the Senate last week. A key concern was that adding measures that aided Wall Street firms would cause Democrats -- whose support was needed to pass the legislation -- to walk away. Sixteen Democrats ultimately voted for the Dodd-Frank revamp March 14.

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Champions of the BDC measure say it will trigger economic growth by bolstering investments in small businesses. They argue it’s a modest increase in leverage that doesn’t pose any systemic risk and that firms aren’t likely to borrow as much money as the new rules would allow.

But critics say it would increase risks for retail investors. BDCs often provide financing that traditional banks won’t, making loans to companies that are struggling to grow. And they typically charge interest rates that are much higher than banks. If the underlying businesses fail, it’s BDC shareholders who might be left holding the bag.

Permitting BDCs to double their leverage will “significantly” raise the likelihood that one or more of the companies will fail in a market downturn, according to Mercer Bullard, a professor at the University of Mississippi School of Law, who testified before Congress on the issue last year.

--With assistance from Erik Wasson

To contact the reporter on this story: Elizabeth Dexheimer in Washington at

To contact the editors responsible for this story: Jesse Westbrook at, Dan Reichl

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