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FSIC continues cutting back on equity holdings

The FS Investments-managed BDC holds equity positions in nearly 50 companies.

FS Investment Corporation will rotate out of some equity positions, which comprise 14 percent of the portfolio as of 30 September, as it focuses on first lien senior secured positions, executives said on Friday’s third-quarter earnings call.

The Philadelphia-based business development made no new equity investments in the quarter, while its $199.16 million of new commitments for the quarter were heavily tilted toward first lien senior secured loans, making up 85 percent of those new investments.

“We continue to progress towards realisations of several of our other non-income producing equity positions, and expect to report positive developments in the coming year,” said Brad Marshall, a senior portfolio manager and a senior managing director at GSO Capital Partners, which sub-advises FSIC.

FSIC received a partial paydown in Aquillex, an energy services company, which yielded a 14 percent internal rate of return. The BDC also currently has seven companies on the block currently or that will be within the next three months.

In addition, there is room for “significant growth” room in dividend coverage as it decreases its equity holdings, Chris Condelles, FS Investments’ executive vice president, told analysts on the call.

“We also believe that there is significant growth in distribution coverage, as we rotated our equity portfolio,” he said, adding that a “good portion” of the portfolio will be monetised over the next year.

The firm reported a net asset value of $9.43 a share at the end of the third quarter, up 1 cent from the $9.42 a share reported at the same time last year, and marking an increase from the $9.30 a share reported as of 30 June.

Net investment income stood at $50.65 million, or 21 cents a share. That is a year-on-year increase from 20 cents a share, as of 30 September 2016 and an also an increase from 19 cents a share as of 30 June.