FSIC cuts dividend, institutes partial fee waiver

Restructurings have affected the firm’s net investment income, the BDC’s head said.

FS Investment Corporation will reduce its dividend by 3 cents per share and waive 0.25 percent of its management fee for the next four quarters amid unrealised depreciation caused by its energy investments, executives from the business development company said on Thursday’s second-quarter earnings call.

The Philadelphia-based firm, which is sub-advised by Blackstone credit arm GSO Capital Partners, said it would trim its dividend from 22 cents to 19 cents. The fee waiver will knock the management fee down from 1.75 percent to 1.5 percent on the BDC’s gross assets. A special dividend will be made in the fourth quarter for net investment income, if any, exceeding 76 cents a share for the 12-month period ending 1 October.

The firm “share[s]” its investors’ “disappointment” over the results, chief executive officer Michael Forman said, and it continues to study a merger of FSIC and FSIC II, one of the firm’s private BDCs.

The firm’s NII stood at $46.46 million, or 19 cents a share. Those results are a decrease from $52.59 million, or 22 cents a share, reported at the end of the first quarter and year-on-year decline from $56.84 million, or 23 cents a share, in the second quarter of 2016.

Restructurings have squeezed the firm’s NII as the firm has converted some of its debt to equity, Forman said. He added it was unclear when FSIC would realise the equity holdings and deploy that capital into higher-yielding investments.

In May, Mood Media, in which FSIC senior unsecured bonds, announced an agreement with its creditors to swap the bonds for equity and $500 million in second lien notes. In the past year, there have also been debt-for-equity swaps with several of the firm’s energy portfolio companies, including Warren Resources. Caesars, the casino operators in which FSIC held senior secured bonds, are set to exit Chapter 11 this year later.

Executives said for accounting purposes they needed to record the restructurings as unrealised losses, but they anticipate gains to come as FSIC sells its equity stakes.

FSIC reported a net asset value per share of $9.30 at the end of the second quarter, a year-on-year increase from the $9.18 reported at the end of the second quarter but a drop from the first quarter’s $9.45. New commitments stood at $197.08 million in the second quarter, while exited investments were $218.28 million, resulting in a net direct origination decrease of $21.2 million.

FSIC is a publicly traded BDC backed by FS Investments and sub-advised by GSO. The firms also operate four private BDCs: FSIC II, FSIC III, FSIC IV and FS Energy and Power Fund.