FS Investments bullish about winning shareholder approval of JV with KKR

The FS-KKR BDC combination would manage approximately $18bn of assets.

FS Investments and KKR are optimistic they will win stockholder approval to finalise the proposed joint venture that would advise an amalgamation of mid-market lending vehicles, executives said on Friday’s fourth-quarter earnings call.

Philadelphia-based FS and New York-based KKR have been very active reaching out to their business development companies’ shareholders and proactive about securing votes, according to a source who has spoken with investors.

FS advises its flagship publicly-traded BDC FS Investment Corporation (FSIC) and private BDCs FSIC II, FSIC III, FSIC IV and FS Energy and Power Fund. KKR oversees Corporate Capital Trust (CCT) and CCT II. Under the proposed JV, the FS-KKR combination would advise the above BDCs, except for FS Energy and Power, which EIG Global Energy Partners would help FS manage.

“Based on the positive momentum we are seeing since commencing the solicitation, we currently expect to receive all necessary approvals across the FSIC franchise,” FSIC chairman and chief executive Michael Forman said on the call. The proxy vote date is scheduled for March 26.

The firm posted a net investment income (NII) of $54.06 million, or 22 cents a share, out-earning the firm’s 19-cents-a-share dividend.

NII increased from $51.54 million, or 21 cents a share, from the end of 2016.  The firm reported a net asset value per share of $9.30 as of 31 December, down from $9.41 at the same time in 2016.

The firm listed investments at fair value of $3.93 billion, spread across 100 portfolio companies with an average EBITDA of $85.7 million. FSIC’s portfolio consisted of 64 percent first lien senior secured loans; 5 percent second lien senior secured loans; 4 percent senior secured bonds; 13 percent subordinated debt; 1 percent collateralised securities; and 13 percent equity.

After noting equity investments were not part of its senior secured loan-oriented strategy, the firm expects to sell off some equity securities in its portfolio, given the “long-term return potential” of those holdings, Mike Kelly, FSIC president and chief investment officer, said on the call.

FSIC committed $220.16 million in the fourth quarter, and, with $159.68 million of exited investments, posted net direct originations of $60.48 million.