FSIC managers outline energy exposure

Franklin Square and GSO executives discussed energy, opportunities and risk at length during the BDC’s second quarter earnings call after the firm reported strong results.  

Franklin Square investment Corporation (FSIC) BDC’s management talked about the vehicle’s energy exposure, where they are seeing opportunities and how they are managing risk on the vehicle’s second quarter earnings call yesterday (11 August). Energy investments made up 12 percent of the vehicle’s portfolio as of 30 June, up slightly from the prior quarter.

“We continue to view certain areas of the energy market as interesting, and given GSO’s experience and expertise in this sector, we remain confident that FSIC is well-positioned to capitalise on these opportunities,” said Brad Marshall (pictured), senior portfolio manager on the public and private FSIC BDCs.

Analysts on the call enquired about how the BDC is managing risk and minimizing losses in energy as oil prices have continued to decline and the market is often unpredictable. Marshall said the strategy was to focus on liquidity, good capital structure, strong management teams and sponsors when evaluating borrowers. “We’re very negative on service companies for the upstream space. So we exited that positions at a loss,” Marshall added.

The bulk of the energy exposure (85 percent) are in loans to Ascent American Energy, Uitca, FourPoint, Plains, Fabtech and some specialty lenders, all of which are performing well, he continued, highlighting the low loan-to-value ratios of Ascent and FourPoint, at 25 percent and 50 percent, respectively. While Plains is working on very large oilfields for development and production and are already profitable at $20 a barrel per oil, Marshall said.

Overall, the BDC posted good performance for the second quarter. Net investment income was $0.39 per share compared to $0.21 per share in the first quarter this year and $0.23 in the second quarter of 2014. Adjusted net investment income hit $0.35 per share, compared to $0.23 per share for the first quarter of 2015 and $0.26 center per share in the second quarter last year. The vehicle’s quarterly distribution was $0.22 cents per share.

“Our distribution strategy is to establish a regular recurring distribution at a level we believe to be sustainable through different market environments and that provides us with the flexibility to manage risk in the portfolio,” said Michel Forman, chairman and chief executive of the BDC, adding that the vehicle has continued to focus on senior secured debt, which represented about 76 percent of the $4.4 billion portfolio as of 30 June.

Overall, the three FSIC BDCs, two of which are unlisted, handle $15 billion in assets, $10.5 billion of which is in directly originated investments. The FSIC managers said on prior earnings calls that they plan to eventually roll the private BDC into the public one. On yesterday’s call, they also mentioned they plan to close FSIC III to new money soon and start raising capital for FSIC IV, which will launch as a privately-traded BDC.

The vehicle also reported $609 million in new investment activity in the quarter, with total new originations at $495 million. The vehicle has continued to invest more in specialty finance companies, including NewStar Financial, Global Jet Capital, Sunnova and Altus Power America. NewStar recently executed its most active quarter, with over $1 billion in investment activity, Marshall said.