GSO’s BDC reduces syndicated loan exposure

Direct originations have been increasing at FSIC for the past several quarters and continue apace so far this summer

FS Investment Corporation, the business development company managed by Blackstone’s GSO, has been decreasing its exposure to broadly syndicated loans and targeting more direct originations in the second quarter. The company expects to continue to do so this quarter as well, the BDC’s executives said on its earnings call on 15 August.


“Throughout the quarter, we continued to rotate out of broadly syndicated loans and into investments that we believe provide better risk adjusted returns,” said Brad Marshall (pictured), senior portfolio manager at GSO. Syndicated loans represented 12 percent of FSIC’s portfolio on 30 June 2014 compared to 17 percent the prior quarter and 21 percent in 2013. On the direct lending side, “We sought out companies with significant cash flow and scale that we believe can better withstand periods of economic weakness or those companies with which we had preexisting relationships,” Marshall said.


One such recent example was an addition to a relationship with Corel Corporation, a provider of digital media graphics and software products. “With recurring contracted sources of revenue, a history of predictable cash flow, and well executed cost controls, Corel has consistently outperformed financial expectations. Because of its high cash flow and low leverage, we were comfortable increasing our initial $110 million investment by over $50 million,” Marshall said. 


As of the end of the second quarter, the average annual EBITDA of FSIC’s portfolio companies was $45.8 million (compared to $38.7 million the prior quarter). “While we continue to monitor the broadly syndicated markets for opportunities to deploy capital, should prices deteriorate, we remain focused on new direct originations,” Marshall said. Since the end of the second quarter, through 15 August, the firm has closed on over $120 million of new direct originations. Marshall said he expects to close on over $200 million such transactions by the end of the third quarter.


The company’s earnings per share for the second quarter were $0.27, up from $0.18 per share in the second quarter of 2013. The net investment income dropped slightly to $0.23 per share in the second quarter this year from $0.29 per share at that time last year. Philadelphia-based Franklin Square Capital Partners oversees the FSIC on an administration, compliance, capital raising and back office basis, while New York-based GSO manages the investments.