FS Investment Corporation (FSIC) reported an increase in its energy exposure during the second quarter as some of its largest energy positons rose in value.
The business development company’s management attributed the 2 percent exposure increase (from 10 percent last quarter) to a rally in oil and FSIC’s energy positions benefitting from new transactions in its portfolio companies.
FourPoint, a Denver-based exploration and production company, was boosted by an acquisition of Chesapeake Energy in Q2, according to Brad Marshall, senior managing director at GSO, which sub-advises the BDCs.
“The transaction, which FourPoint funded entirely with equity, provides further cashflow and asset protection to our debt position and positions the company as one of the largest in the Western Anadarko basin,” he said.
FSIC now has about $144 million invested in FourPoint across common equity and senior secured bonds.
Ascent Resources – Utica, the BDC’s largest energy position, was propped up by new equity infusions from existing and new sponsors.
“The company, which we believe has attractive acreage in the Utica Basin, considerably improved its capital structure in the first quarter by raising approximately $700 million in equity. Our senior secured debt sits at the top of this improved capital structure and we remain confident in this position,” Marshall said.
FSIC has 5.1 percent of its portfolio invested in Ascent.
The BDC’s net asset value per share rose to $9.18 from $8.82 the previous quarter, resulting in a year-to-date NAV return of 5.8 percent. Net investment income was up quarter-on-quarter (from 21 cents per share to 23 cents per share) but down year-on-year (from 39 cents at 30 June 2015).
Gross portfolio yield stood at 10.2 percent, not counting non-income producing assets, down from 10.4 percent in the first quarter. The slight decline was attributed to repayments of some of the BDC’s higher-yielding assets in Q2.
At quarter end, the BDC had 0.3 percent in non-accruals. After 30 June, Canadian oil producer Lighstream Resources was added to the non-accrual list, representing 0.1 percent of the fair value of FSIC’s portfolio. Several publications recently reported that the company was looking for a debt-for-equity swap or a bridge loan to bolster its financials.
Net realised losses in the quarter amounted to $7.6 million, or 3 cents per share, and were largely driven by the sale of FSIC’s investments in Avaya, a struggling software as a service company that reportedly approached several investors about a debt restructuring two weeks ago.
Michael Forman, chief executive of the BDC – and of FS Investments overall – provided updates on his plans to merge the non-traded BDCs into the public one. Responding to KBW analyst Ryan Lynch on an earnings call last week, he said FSIC II might be ready to roll into the public vehicle sometime next year. FSIC II has about $4.8 billion in assets.
The public BDC’s total assets stood at $4.01 billion at the end of Q2. Philadelphia-based Franklin Square, which advises the BDCs and has about $17 billion in these vehicles and other strategies, also announced it was rebranding to FS Investments on 16 August.