FS Investment Corporation has seen an increase in repayments from portfolio companies recently, putting more pressure on the firm to “deploy in a tough environment”, executives said on Thursday’s earning call.
The Philadelphia-based business development company’s repayments, or redemptions, in the first quarter totalled $364.3 million, compared with $715.6 million in the last quarter of 2016 and $169.1 million the first quarter of last year, earnings results show.
Michael Forman, chairman and chief executive officer, said on the call that the firm will maintain its focus on direct originations as it redeploys the capital from repayments in the coming quarters.
The firms made a total of $429.4 million in new direct loans during the first three months of the year, 81 percent of which were first lien loans and 15 percent subordinated debt, 2 percent senior secured bonds, 1 percent senior second lien and 1 percent equity, according to the earnings results.
While “expanding its origination footprint” with new first lien, joint venture, and syndication operations this year, the firm will maintain discipline in today’s increasingly heated private debt markets, Forman said. He noted at least 82 firms currently raising funds in the direct origination space.
“A low default rate and low-yield credit environment has driven increased demand for leverage loans as a hedge to rising interest rates,” added. He said these trends are leading to tightening spreads and increasing risk in the direct lending space.
FSIC raised its net asset value per share $9.45 as of 31 March, compared to $9.41 at end of 2016. The firm raised total assets in its portfolio to $4.28 million, up from $4.11 million at the end of the year.
Gross yield on that portfolio was 10.2 percent in first quarter, up from 10.1 percent the fourth quarter last year. The leverage rations for the firm’s direct lending investments decreased to 4.5x as of 31 March from 4.8x at 31 December.
FSIC is a publicly traded business development company headquartered in Philadelphia and owned by FS Investments. The BDC is sub-advised by Blackstone GSO.