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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013.
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER: 814-00757
FS Investment Corporation
(Exact name of registrant as specified in its charter)
| Maryland | 26-1630040 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Cira Centre
2929 Arch Street, Suite 675
Philadelphia, Pennsylvania 19104
(Address of principal executive office)
(215) 495-1150
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨ .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
| Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x .
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The issuer had 257,448,160 shares of common stock outstanding as of October 29, 2013.
| Page | ||||||
| ITEM 1. | 1 | |||||
|
Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012 |
1 | |||||
| 2 | ||||||
| 3 | ||||||
| 4 | ||||||
|
Consolidated Schedules of Investments as of September 30, 2013 (Unaudited) and December 31, 2012 |
5 | |||||
| 26 | ||||||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
52 | ||||
| ITEM 3. | 80 | |||||
| ITEM 4. | 81 | |||||
| ITEM 1. | 82 | |||||
| ITEM 1A. | 82 | |||||
| ITEM 2. | 82 | |||||
| ITEM 3. | 82 | |||||
| ITEM 4. | 82 | |||||
| ITEM 5. | 82 | |||||
| ITEM 6. | 83 | |||||
| 88 | ||||||
| Item 1. | Financial Statements. |
FS Investment Corporation
(in thousands, except share and per share amounts)
|
September 30, 2013
(Unaudited) |
December 31,
2012 |
|||||||
|
Assets |
||||||||
|
Investments, at fair value (amortized cost—$4,132,160 and $3,825,244, respectively) |
$ | 4,200,801 | $ | 3,934,722 | ||||
|
Cash |
290,439 | 338,895 | ||||||
|
Receivable for investments sold and repaid |
85,341 | 20,160 | ||||||
|
Interest receivable |
51,075 | 44,711 | ||||||
|
Deferred financing costs |
5,757 | 7,735 | ||||||
|
Prepaid expenses and other assets |
172 | 530 | ||||||
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|||||
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Total assets |
$ | 4,633,585 | $ | 4,346,753 | ||||
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Liabilities |
||||||||
|
Payable for investments purchased |
$ | 44,648 | $ | 79,420 | ||||
|
Credit facilities payable |
986,421 | 973,046 | ||||||
|
Repurchase agreement payable (1) |
906,083 | 676,667 | ||||||
|
Stockholder distributions payable |
17,939 | 17,003 | ||||||
|
Management fees payable |
22,808 | 21,507 | ||||||
|
Accrued capital gains incentive fees (2) |
27,339 | 39,751 | ||||||
|
Subordinated income incentive fees payable (2) |
16,555 | 13,393 | ||||||
|
Administrative services expense payable |
1,361 | 947 | ||||||
|
Interest payable |
10,545 | 10,242 | ||||||
|
Directors’ fees payable |
229 | — | ||||||
|
Other accrued expenses and liabilities |
1,967 | 3,039 | ||||||
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Total liabilities |
2,035,895 | 1,835,015 | ||||||
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Stockholders’ equity |
||||||||
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Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding |
— | — | ||||||
|
Common stock, $0.001 par value, 450,000,000 shares authorized, 257,190,300 and 251,890,821 shares issued and outstanding, respectively |
257 | 252 | ||||||
|
Capital in excess of par value |
2,451,662 | 2,397,826 | ||||||
|
Accumulated undistributed net realized gains on investments and gain/loss on foreign currency (3) |
5,014 | — | ||||||
|
Accumulated undistributed (distributions in excess of) net investment income (3) |
72,116 | 4,307 | ||||||
|
Net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency |
68,641 | 109,353 | ||||||
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Total stockholders’ equity |
2,597,690 | 2,511,738 | ||||||
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Total liabilities and stockholders’ equity |
$ | 4,633,585 | $ | 4,346,753 | ||||
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Net asset value per share of common stock at period end |
$ | 10.10 | $ | 9.97 | ||||
| (1) | See Note 8 for a discussion of the Company’s repurchase transaction. |
| (2) | See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees and subordinated income incentive fees. |
| (3) | See Note 5 for a discussion of the sources of distributions paid by the Company. |
See notes to unaudited consolidated financial statements.
1
FS Investment Corporation
Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)
|
Three Months
Ended
September 30, |
Nine Months
Ended
September 30, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
|
Investment income |
||||||||||||||||
|
Interest income |
$ | 109,886 | $ | 82,011 | $ | 317,603 | $ | 191,382 | ||||||||
|
Fee income |
11,975 | 2,004 | 30,181 | 6,166 | ||||||||||||
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Dividend income |
1,446 | — | 9,916 | 56 | ||||||||||||
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Total investment income |
123,307 | 84,015 | 357,700 | 197,604 | ||||||||||||
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Operating expenses |
||||||||||||||||
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Management fees |
22,720 | 19,021 | 67,541 | 46,570 | ||||||||||||
|
Capitals gains incentive fees (1) |
(1,548 | ) | 17,421 | (621 | ) | 33,920 | ||||||||||
|
Subordinated income incentive fees (1) |
16,555 | — | 47,950 | — | ||||||||||||
|
Administrative services expenses |
1,243 | 1,782 | 4,034 | 4,116 | ||||||||||||
|
Stock transfer agent fees |
610 | 910 | 2,400 | 2,731 | ||||||||||||
|
Accounting and administrative fees |
343 | 280 | 1,063 | 1,126 | ||||||||||||
|
Interest expense |
13,098 | 7,744 | 37,110 | 18,271 | ||||||||||||
|
Directors’ fees |
241 | 212 | 689 | 633 | ||||||||||||
|
Other general and administrative expenses |
2,273 | 1,889 | 4,978 | 4,066 | ||||||||||||
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Total operating expenses |
55,535 | 49,259 | 165,144 | 111,433 | ||||||||||||
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Net investment income |
67,772 | 34,756 | 192,556 | 86,171 | ||||||||||||
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Realized and unrealized gain/loss |
||||||||||||||||
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Net realized gain (loss) on investments |
6,602 | 10,259 | 37,220 | 14,853 | ||||||||||||
|
Net realized gain (loss) on total return swap (2) |
— | 9,729 | — | 19,596 | ||||||||||||
|
Net realized gain (loss) on foreign currency |
70 | 521 | (32 | ) | 534 | |||||||||||
|
Net change in unrealized appreciation (depreciation) on investments |
(14,857 | ) | 69,216 | (40,837 | ) | 126,095 | ||||||||||
|
Net change in unrealized appreciation (depreciation) on total return swap (2) |
— | (2,453 | ) | — | 1,996 | |||||||||||
|
Net change in unrealized gain (loss) on foreign currency |
30 | (261 | ) | 125 | — | |||||||||||
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Total net realized and unrealized gain (loss) on investments |
(8,155 | ) | 87,011 | (3,524 | ) | 163,074 | ||||||||||
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Net increase (decrease) in net assets resulting from operations |
$ | 59,617 | $ | 121,767 | $ | 189,032 | $ | 249,245 | ||||||||
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Per share information—basic and diluted |
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|
Net increase (decrease) in net assets resulting from operations (Earnings per Share) |
$ | 0.23 | $ | 0.49 | $ | 0.75 | $ | 1.13 | ||||||||
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Weighted average shares outstanding |
256,108,444 | 248,310,640 | 254,322,277 | 219,768,484 | ||||||||||||
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| (1) | See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees and subordinated income incentive fees. |
| (2) | On August 29, 2012, the Company terminated its total return swap agreement with Citibank, N.A. |
See notes to unaudited consolidated financial statements.
2
FS Investment Corporation
Unaudited Consolidated Statements of Changes in Net Assets
(in thousands)
|
Nine Months Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
|
Operations |
||||||||
|
Net investment income |
$ | 192,556 | $ | 86,171 | ||||
|
Net realized gain (loss) on investments, total return swap and foreign currency (1) |
37,188 | 34,983 | ||||||
|
Net change in unrealized appreciation (depreciation) on investments |
(40,837 | ) | 126,095 | |||||
|
Net change in unrealized appreciation (depreciation) on total return swap (1) |
— | 1,996 | ||||||
|
Net change in unrealized gain (loss) on foreign currency |
125 | — | ||||||
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Net increase (decrease) in net assets resulting from operations |
189,032 | 249,245 | ||||||
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Stockholder distributions (2) |
||||||||
|
Distributions from net investment income |
(124,747 | ) | (128,781 | ) | ||||
|
Distributions from net realized gain on investments |
(32,174 | ) | (18,296 | ) | ||||
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Net decrease in net assets resulting from stockholder distributions |
(156,921 | ) | (147,077 | ) | ||||
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Capital share transactions |
||||||||
|
Issuance of common stock |
— | 803,348 | ||||||
|
Reinvestment of stockholder distributions |
80,950 | 72,417 | ||||||
|
Repurchases of common stock |
(27,109 | ) | (11,670 | ) | ||||
|
Offering costs |
— | (3,234 | ) | |||||
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Net increase in net assets resulting from capital share transactions |
53,841 | 860,861 | ||||||
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Total increase in net assets |
85,952 | 963,029 | ||||||
|
Net assets at beginning of period |
2,511,738 | 1,498,892 | ||||||
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Net assets at end of period |
$ | 2,597,690 | $ | 2,461,921 | ||||
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Accumulated undistributed (distributions in excess of) net investment income (2) |
$ | 72,116 | $ | (41,326 | ) | |||
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| (1) | On August 29, 2012, the Company terminated its total return swap agreement with Citibank, N.A. |
| (2) | See Note 5 for a discussion of the sources of distributions paid by the Company. |
See notes to unaudited consolidated financial statements.
3
FS Investment Corporation
Unaudited Consolidated Statements of Cash Flows
(in thousands)
|
Nine Months Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
|
Cash flows from operating activities |
||||||||
|
Net increase (decrease) in net assets resulting from operations |
$ | 189,032 | $ | 249,245 | ||||
|
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: |
||||||||
|
Purchases of investments |
(2,204,560 | ) | (2,837,344 | ) | ||||
|
Paid-in-kind interest |
(5,437 | ) | (2,432 | ) | ||||
|
Proceeds from sales and repayments of investments |
1,974,977 | 937,138 | ||||||
|
Net realized (gain) loss on investments |
(37,220 | ) | (14,853 | ) | ||||
|
Net change in unrealized (appreciation) depreciation on investments |
40,837 | (126,095 | ) | |||||
|
Net change in unrealized (appreciation) depreciation on total return swap (1) |
— | (1,996 | ) | |||||
|
Accretion of discount |
(34,676 | ) | (12,674 | ) | ||||
|
Amortization of deferred financing costs |
1,978 | 1,192 | ||||||
|
(Increase) decrease in due from counterparty |
— | 69,684 | ||||||
|
(Increase) decrease in receivable for investments sold and repaid |
(65,181 | ) | (97,234 | ) | ||||
|
(Increase) decrease in interest receivable |
(6,364 | ) | (31,302 | ) | ||||
|
(Increase) decrease in receivable due on total return swap (1) |
— | 548 | ||||||
|
(Increase) decrease in prepaid expenses and other assets |
358 | 250 | ||||||
|
Increase (decrease) in payable for investments purchased |
(34,772 | ) | 134,273 | |||||
|
Increase (decrease) in management fees payable |
1,301 | 9,542 | ||||||
|
Increase (decrease) in accrued capital gains incentive fees |
(12,412 | ) | 33,920 | |||||
|
Increase (decrease) in subordinated income incentive fees payable |
3,162 | — | ||||||
|
Increase (decrease) in administrative services expense payable |
414 | 1,455 | ||||||
|
Increase (decrease) in interest payable |
303 | 3,186 | ||||||
|
Increase (decrease) in directors’ fees payable |
229 | 16 | ||||||
|
Increase (decrease) in other accrued expenses and liabilities |
(1,072 | ) | 412 | |||||
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Net cash used in operating activities |
(189,103 | ) | (1,683,069 | ) | ||||
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Cash flows from financing activities |
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Issuance of common stock |
— | 803,348 | ||||||
|
Reinvestment of stockholder distributions |
80,950 | 72,417 | ||||||
|
Repurchases of common stock |
(27,109 | ) | (11,670 | ) | ||||
|
Offering costs |
— | (3,234 | ) | |||||
|
Stockholder distributions |
(155,985 | ) | (140,752 | ) | ||||
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Borrowings under credit facilities (2) |
13,375 | 645,130 | ||||||
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Borrowings under repurchase agreement (3) |
229,416 | 307,381 | ||||||
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Deferred financing costs paid |
— | (9,088 | ) | |||||
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Net cash provided by financing activities |
140,647 | 1,663,532 | ||||||
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Total increase (decrease) in cash |
(48,456 | ) | (19,537 | ) | ||||
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Cash at beginning of period |
338,895 | 210,714 | ||||||
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Cash at end of period |
$ | 290,439 | $ | 191,177 | ||||
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Supplemental disclosure |
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Local and excise taxes paid |
$ | 1,298 | $ | 761 | ||||
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| (1) | On August 29, 2012, the Company terminated its total return swap agreement with Citibank, N.A. |
| (2) | See Note 8 for a discussion of the Company’s credit facilities. During the nine months ended September 30, 2013 and 2012, the Company paid $17,844 and $6,104, respectively, in interest expense on the credit facilities. |
| (3) | See Note 8 for a discussion of the Company’s repurchase transaction. During the nine months ended September 30, 2013 and 2012, the Company paid $16,985 and $7,789, respectively, in interest expense pursuant to the repurchase agreement. |
See notes to unaudited consolidated financial statements.
4
Unaudited Consolidated Schedule of Investments
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Rate |
Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Senior Secured Loans—First Lien—82.7% |
||||||||||||||||||||||
|
A.P. Plasman Inc. |
(f)(h)(j) |
Capital Goods |
L+850 |
1.5% | 12/29/16 | $ | 50,629 | $ | 49,913 | $ | 52,401 | |||||||||||
|
AccentCare, Inc. |
(d) |
Health Care Equipment & Services |
L+500 |
1.5% | 12/22/16 | 2,017 | 1,859 | 1,251 | ||||||||||||||
|
Alcatel-Lucent USA Inc. |
(d)(e)(j) |
Technology Hardware & Equipment |
L+475 |
1.0% | 1/30/19 | 8,159 | 8,121 | 8,232 | ||||||||||||||
|
Amaya Holdings Corp. |
(d)(h)(j) |
Consumer Services |
L+775 |
1.3% | 11/5/15 | 24,063 | 23,799 | 24,183 | ||||||||||||||
|
American Racing and Entertainment, LLC |
(f) |
Consumer Services |
L+700 |
6/30/14 | 14,000 | 14,000 | 14,000 | |||||||||||||||
|
American Racing and Entertainment, LLC |
(f) |
Consumer Services |
9.0% |
6/30/14 | 7,750 | 7,750 | 7,808 | |||||||||||||||
|
Ardent Medical Services, Inc. |
(d)(e) |
Health Care Equipment & Services |
L+525 |
1.5% | 5/23/18 | 8,425 | 8,350 | 8,477 | ||||||||||||||
|
Aspect Software, Inc. |
(d) |
Software & Services |
L+525 |
1.8% | 5/6/16 | 6,518 | 6,376 | 6,545 | ||||||||||||||
|
Attachmate Corp. |
(d)(e) |
Software & Services |
L+575 |
1.5% | 11/22/17 | 10,617 | 10,450 | 10,657 | ||||||||||||||
|
Audio Visual Services Group, Inc. |
(d) |
Technology Hardware & Equipment |
L+550 |
1.3% | 11/9/18 | 3,958 | 3,970 | 4,017 | ||||||||||||||
|
Avaya Inc. |
(d)(e) |
Technology Hardware & Equipment |
L+450 |
10/26/17 | 8,934 | 8,239 | 8,020 | |||||||||||||||
|
Avaya Inc. |
(d) |
Technology Hardware & Equipment |
L+675 |
1.3% | 3/31/18 | 14,870 | 14,938 | 14,119 | ||||||||||||||
|
Barrington Broadcasting Group LLC |
(f) |
Media |
L+600 |
1.5% | 6/14/17 | 2,323 | 2,275 | 2,325 | ||||||||||||||
|
BlackBrush TexStar L.P. |
(d)(f) |
Energy |
L+650 |
1.3% | 6/4/19 | 14,214 | 14,079 | 14,427 | ||||||||||||||
|
Boomerang Tube, LLC |
(d)(h) |
Energy |
L+950 |
1.5% | 10/11/17 | 19,122 | 18,631 | 18,644 | ||||||||||||||
|
Burleigh Point, Ltd. |
(f)(g)(j) |
Retailing |
12.0% |
12/31/13 | 112,000 | 109,998 | 114,106 | |||||||||||||||
|
Bushnell Inc. |
(d) |
Consumer Durables & Apparel |
L+425 |
1.5% | 8/24/15 | 7,581 | 7,403 | 7,602 | ||||||||||||||
|
Caesars Entertainment Operating Co. |
(d)(e)(f)(j) |
Consumer Services |
L+425 |
1/26/18 | 19,302 | 17,057 | 17,213 | |||||||||||||||
|
Capital Vision Services, LLC |
(f)(h) |
Health Care Equipment & Services |
L+725 |
1.3% | 12/3/17 | 17,067 | 17,067 | 17,323 | ||||||||||||||
|
Capital Vision Services, LLC |
Health Care Equipment & Services |
1.0% |
12/3/17 | 2,804 | 2,804 | 2,846 | ||||||||||||||||
|
Cenveo Corp. |
(d) |
Commercial & Professional Services |
L+500 |
1.3% | 2/13/17 | 3,949 | 3,931 | 3,980 | ||||||||||||||
|
Citgo Petroleum Corp. |
(e)(j) |
Energy |
L+600 |
2.0% | 6/24/15 | 2,661 | 2,679 | 2,691 | ||||||||||||||
|
Citgo Petroleum Corp. |
(e)(f)(j) |
Energy |
L+700 |
2.0% | 6/23/17 | 7,593 | 7,579 | 7,764 | ||||||||||||||
|
Clear Channel Communications, Inc. |
(d)(e)(f) |
Media |
L+365 |
1/29/16 | 19,927 | 16,786 | 18,824 | |||||||||||||||
|
Clover Technologies Group, LLC |
(d) |
Commercial & Professional Services |
L+550 |
1.3% | 5/7/18 | 6,359 | 6,329 | 6,365 | ||||||||||||||
|
Collective Brands, Inc. |
(d)(f) |
Consumer Durables & Apparel |
L+600 |
1.3% | 10/9/19 | 12,814 | 12,751 | 12,814 | ||||||||||||||
|
Corel Corp. |
(d)(f)(h)(j) |
Software & Services |
L+825 |
6/7/19 | 118,500 | 118,500 | 119,685 | |||||||||||||||
|
Corel Corp. |
(j) |
Software & Services |
Prime+725 |
6/7/18 | 10,000 | 10,000 | 10,000 | |||||||||||||||
|
Corner Investment PropCo, LLC |
(d)(f)(j) |
Consumer Services |
L+975 |
1.3% | 11/2/19 | 24,000 | 23,566 | 24,600 | ||||||||||||||
|
CoSentry.Net, LLC |
(g)(h) |
Software & Services |
L+800 |
1.3% | 7/24/19 | 30,000 | 30,000 | 30,000 | ||||||||||||||
|
Crestwood Holdings LLC |
(d) |
Energy |
L+600 |
1.0% | 6/19/19 | 5,803 | 5,775 | 5,923 | ||||||||||||||
|
DAE Aviation Holdings, Inc. |
(h)(j) |
Capital Goods |
L+500 |
1.3% | 11/2/18 | 1,876 | 1,843 | 1,891 | ||||||||||||||
|
Dent Wizard International Corp. |
(d)(f)(g)(h) |
Commercial & Professional Services |
L+800 |
4/25/19 | 138,542 | 137,250 | 138,542 | |||||||||||||||
|
Dent Wizard International Corp. |
Commercial & Professional Services |
L+425 |
4/25/19 | 15,000 | 15,000 | 15,000 | ||||||||||||||||
|
Drumm Investors LLC |
(d) |
Health Care Equipment & Services |
L+375 |
1.3% | 5/4/18 | 2,920 | 2,822 | 2,805 | ||||||||||||||
See notes to unaudited consolidated financial statements.
5
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Eastman Kodak Co. |
(d)(j) |
Consumer Durables & Apparel |
L+625 | 1.0% | 9/3/19 | $ | 10,882 | $ | 10,666 | $ | 10,825 | |||||||||||
|
Education Management LLC |
(f)(j) |
Consumer Services |
L+400 | 6/1/16 | 3,946 | 3,353 | 3,706 | |||||||||||||||
|
Education Management LLC |
(e)(j) |
Consumer Services |
L+700 | 1.3% | 3/29/18 | 15,740 | 15,678 | 15,478 | ||||||||||||||
|
ERC Ireland Holdings Ltd. |
(j) |
Telecommunication Services |
EURIBOR+300, 1.0% PIK | 9/30/17 | € | 11,269 | 11,186 | 15,224 | ||||||||||||||
|
FairPoint Communications, Inc. |
(d)(e) |
Telecommunication Services |
L+625 | 1.3% | 2/14/19 | $ | 21,766 | 21,564 | 21,967 | |||||||||||||
|
Flanders Corp. |
(f)(h) |
Capital Goods |
L+950 | 1.5% | 5/14/18 | 38,393 | 37,622 | 39,256 | ||||||||||||||
|
Fleetgistics Holdings, Inc. |
(f) |
Transportation |
L+588 | 2.0% | 3/23/15 | 1,760 | 1,751 | 1,654 | ||||||||||||||
|
Florida Gaming Centers, Inc. |
(f) |
Consumer Services |
16.5% | 4/25/16 | 12,848 | 12,710 | 13,105 | |||||||||||||||
|
Fram Group Holdings Inc. |
(d) |
Automobiles & Components |
L+500 | 1.5% | 7/29/17 | 1,944 | 1,912 | 1,913 | ||||||||||||||
|
Gymboree Corp. |
(d) |
Consumer Durables & Apparel |
L+350 | 1.5% | 2/23/18 | 3,702 | 3,505 | 3,587 | ||||||||||||||
|
Halifax Media Holdings LLC |
(f)(h) |
Media |
L+1050 | 0.8% | 6/30/16 | 4,200 | 4,132 | 4,326 | ||||||||||||||
|
HBC Solutions, Inc. |
(d)(f)(g)(h) |
Media |
L+875 | 1.5% | 2/4/18 | 84,871 | 84,871 | 84,871 | ||||||||||||||
|
Ikaria Acquisition Inc. |
(d) |
Pharmaceuticals, Biotechnology & Life Sciences |
L+600 | 1.3% | 7/3/18 | 5,872 | 5,787 | 5,909 | ||||||||||||||
|
ILC Industries, LLC |
(d)(h) |
Capital Goods |
L+650 | 1.5% | 7/11/18 | 9,865 | 9,701 | 9,668 | ||||||||||||||
|
Infiltrator Systems, Inc. |
(f)(g)(h) |
Capital Goods |
L+843 | 1.3% | 6/27/18 | 170,000 | 170,000 | 170,000 | ||||||||||||||
|
Infiltrator Systems, Inc. |
Capital Goods |
Prime+625 | 6/27/18 | 30,000 | 30,000 | 30,000 | ||||||||||||||||
|
Infogroup Inc. |
(d) |
Software & Services |
L+600 | 1.5% | 5/25/18 | 3,004 | 2,686 | 2,709 | ||||||||||||||
|
Insight Equity A.P. X, L.P. |
(f)(g)(h) |
Household & Personal Products |
L+850 | 1.0% | 10/26/18 | 65,000 | 63,884 | 66,300 | ||||||||||||||
|
Intralinks, Inc. |
(f)(j) |
Software & Services |
L+425 | 1.5% | 6/15/14 | 1,025 | 976 | 1,025 | ||||||||||||||
|
inVentiv Health, Inc. |
(d) |
Health Care Equipment & Services |
L+600 | 1.5% | 8/4/16 | 1,066 | 1,008 | 1,034 | ||||||||||||||
|
inVentiv Health, Inc. |
(e) |
Health Care Equipment & Services |
L+625 | 1.5% | 5/15/18 | 2,725 | 2,707 | 2,669 | ||||||||||||||
|
Lantiq Deutschland GmbH |
(f)(j) |
Software & Services |
L+900 | 2.0% | 11/16/15 | 12,105 | 11,447 | 11,076 | ||||||||||||||
|
Larchmont Resources, LLC |
(d) |
Energy |
L+725 | 1.0% | 8/7/19 | 11,115 | 11,006 | 11,129 | ||||||||||||||
|
Leading Edge Aviation Services, Inc. |
(d)(g)(h) |
Capital Goods |
L+850 | 1.5% | 4/5/18 | 26,103 | 25,683 | 26,103 | ||||||||||||||
|
Leading Edge Aviation Services, Inc. |
(g) |
Capital Goods |
L+850 | 1.5% | 4/5/18 | 10,000 | 10,000 | 10,000 | ||||||||||||||
|
Leedsworld Inc. |
(d) |
Retailing |
L+450 | 1.3% | 6/27/19 | 9,791 | 9,697 | 9,754 | ||||||||||||||
|
Maritime Telecommunications Network, Inc. |
(f) |
Telecommunication Services |
L+600 | 1.5% | 3/3/16 | 4,109 | 4,077 | 3,636 | ||||||||||||||
|
McGraw-Hill Global Education Holdings, LLC |
(d)(e) |
Media |
L+775 | 1.3% | 3/22/19 | 20,729 | 20,146 | 21,014 | ||||||||||||||
|
MetoKote Corp. |
(h) |
Materials |
L+800 | 1.3% | 9/30/19 | 20,000 | 20,000 | 20,000 | ||||||||||||||
|
MetoKote Corp. |
Materials |
L+800 | 1.3% | 9/30/19 | 3,810 | 3,810 | 3,810 | |||||||||||||||
|
Micronics, Inc. |
(d)(h) |
Capital Goods |
L+800 | 1.3% | 3/28/19 | 22,885 | 22,458 | 22,885 | ||||||||||||||
|
MMI International Ltd. |
(d)(j) |
Technology Hardware & Equipment |
L+600 | 1.3% | 11/2/18 | 10,891 | 10,580 | 10,564 | ||||||||||||||
See notes to unaudited consolidated financial statements.
6
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
MMM Holdings, Inc. |
(h) |
Health Care Equipment & Services |
L+825 | 1.5% | 12/12/17 | $ | 12,430 | $ | 12,217 | $ | 12,508 | |||||||||||
|
MModal Inc. |
(d) |
Health Care Equipment & Services |
L+625 | 1.3% | 8/15/19 | 7,182 | 7,065 | 7,015 | ||||||||||||||
|
Mood Media Corp. |
(d)(j) |
Media |
L+550 | 1.5% | 5/7/18 | 3,022 | 2,996 | 3,032 | ||||||||||||||
|
MSO of Puerto Rico, Inc. |
(h) |
Health Care Equipment & Services |
L+825 | 1.5% | 12/12/17 | 9,040 | 8,886 | 9,097 | ||||||||||||||
|
National Mentor Holdings, Inc. |
(d) |
Health Care Equipment & Services |
L+525 | 1.3% | 2/9/17 | 4,942 | 4,942 | 5,000 | ||||||||||||||
|
National Vision, Inc. |
(d) |
Health Care Equipment & Services |
L+575 | 1.3% | 8/2/18 | 4,740 | 4,749 | 4,764 | ||||||||||||||
|
NCO Group, Inc. |
(e)(h) |
Software & Services |
L+675 | 1.3% | 4/3/18 | 11,565 | 11,379 | 11,796 | ||||||||||||||
|
New HB Acquisition, LLC |
(d) |
Food, Beverage & Tobacco |
L+550 | 1.3% | 4/9/20 | 3,896 | 3,859 | 4,007 | ||||||||||||||
|
Nova Wildcat Amerock, LLC |
(h) |
Consumer Durables & Apparel |
L+825 | 1.3% | 9/10/19 | 20,000 | 20,000 | 20,000 | ||||||||||||||
|
Panda Sherman Power, LLC |
(d)(f) |
Energy |
L+750 | 1.5% | 9/14/18 | 9,273 | 9,200 | 9,412 | ||||||||||||||
|
Panda Temple Power, LLC (TLA) |
(f) |
Energy |
L+700 | 1.5% | 7/17/18 | 3,000 | 3,000 | 3,066 | ||||||||||||||
|
Patheon Inc. |
(d)(j) |
Pharmaceuticals, Biotechnology & Life Sciences |
L+600 | 1.3% | 12/6/18 | 10,182 | 9,905 | 10,283 | ||||||||||||||
|
Pelican Products, Inc. |
(d) |
Capital Goods |
L+550 | 1.5% | 7/11/18 | 2,950 | 2,925 | 2,948 | ||||||||||||||
|
Princeton Review, Inc. |
(g) |
Consumer Services |
L+550 | 1.5% | 12/7/14 | 1,097 | 1,038 | 905 | ||||||||||||||
|
Protection One, Inc. |
(d) |
Consumer Services |
L+325 | 1.0% | 3/21/19 | 1,527 | 1,531 | 1,537 | ||||||||||||||
|
PRV Aerospace, LLC |
(d) |
Capital Goods |
L+525 | 1.3% | 5/9/18 | 4,939 | 4,929 | 4,961 | ||||||||||||||
|
RBS Holding Co. LLC |
(d) |
Commercial & Professional Services |
L+800 | 1.5% | 3/23/17 | 9,782 | 6,183 | 3,619 | ||||||||||||||
|
Reddy Ice Holdings, Inc. |
(d) |
Food & Staples Retailing |
L+550 | 1.3% | 5/1/19 | 1,185 | 1,173 | 1,183 | ||||||||||||||
|
Roundy’s Supermarkets, Inc. |
(d)(j) |
Food & Staples Retailing |
L+450 | 1.3% | 2/13/19 | 2,754 | 2,640 | 2,704 | ||||||||||||||
|
Safariland, LLC |
(d)(f)(h) |
Capital Goods |
L+800 | 1.3% | 9/20/19 | 158,400 | 158,400 | 158,400 | ||||||||||||||
|
SESAC Holdings Inc. |
(d) |
Media |
L+475 | 1.3% | 2/7/19 | 3,503 | 3,471 | 3,527 | ||||||||||||||
|
Shell Topco L.P. |
(d)(h) |
Energy |
L+750 | 1.5% | 9/28/18 | 33,000 | 32,576 | 33,495 | ||||||||||||||
|
Sirius Computer Solutions, Inc. |
(d) |
Software & Services |
L+575 | 1.3% | 11/30/18 | 8,558 | 8,482 | 8,697 | ||||||||||||||
|
Six3 Systems, Inc. |
(d) |
Software & Services |
L+575 | 1.3% | 10/4/19 | 4,639 | 4,599 | 4,732 | ||||||||||||||
|
Smarte Carte, Inc. |
(d)(f)(h) |
Commercial & Professional Services |
L+650 | 1.3% | 11/30/17 | 58,713 | 58,125 | 59,593 | ||||||||||||||
|
Smile Brands Group Inc. |
(d)(e)(h) |
Health Care Equipment & Services |
L+625 | 1.3% | 8/15/19 | 30,550 | 29,873 | 30,178 | ||||||||||||||
|
Sorenson Communication, Inc. |
(d)(e)(f)(h) |
Telecommunication Services |
L+825 | 1.3% | 10/31/14 | 65,877 | 65,876 | 66,600 | ||||||||||||||
|
Sports Authority, Inc. |
(d)(e)(f) |
Consumer Durables & Apparel |
L+600 | 1.5% | 11/16/17 | 22,247 | 22,090 | 22,386 | ||||||||||||||
|
Stallion Oilfield Holdings, Inc. |
(d) |
Energy |
L+675 | 1.3% | 6/19/18 | 4,988 | 4,940 | 5,040 | ||||||||||||||
|
Swiss Watch International, Inc. |
(d)(f)(h) |
Consumer Durables & Apparel |
L+725 | 1.3% | 11/8/18 | 48,875 | 48,025 | 49,364 | ||||||||||||||
|
Technicolor SA |
(d)(e)(j) |
Media |
L+600 | 1.3% | 7/10/20 | 34,314 | 33,302 | 33,674 | ||||||||||||||
|
Tervita Corp. |
(d)(j) |
Commercial & Professional Services |
L+500 | 1.3% | 5/15/18 | 8,055 | 7,982 | 7,898 | ||||||||||||||
|
Therakos, Inc. |
(d)(f) |
Pharmaceuticals, Biotechnology & Life Sciences |
L+625 | 1.3% | 12/27/17 | 27,128 | 26,528 | 27,179 | ||||||||||||||
|
ThermaSys Corp. |
(d) |
Capital Goods |
L+400 | 1.3% | 5/3/19 | 9,938 | 9,843 | 9,925 | ||||||||||||||
See notes to unaudited consolidated financial statements.
7
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Rate |
Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Totes Isotoner Corp. |
(d) |
Consumer Durables & Apparel |
L+575 |
1.5% | 7/7/17 | $ | 6,656 | $ | 6,574 | $ | 6,687 | |||||||||||
|
Toys “R” Us-Delaware, Inc. |
(e) |
Consumer Durables & Apparel |
L+450 |
1.5% | 9/1/16 | 1,524 | 1,529 | 1,486 | ||||||||||||||
|
TravelCLICK, Inc. |
(d) |
Consumer Services |
L+450 |
1.3% | 3/16/16 | 7,796 | 7,726 | 7,835 | ||||||||||||||
|
Tri-Northern Acquisition, Inc. |
(f)(h) |
Retailing |
L+800 |
1.3% | 7/1/19 | 54,863 | 54,863 | 54,863 | ||||||||||||||
|
Tri-Northern Acquisition, Inc. |
(f) |
Retailing |
L+800 |
1.3% | 7/1/19 | 11,379 | 11,379 | 11,379 | ||||||||||||||
|
Virtual Radiologic Corp. |
(g) |
Health Care Equipment & Services |
Prime+450 |
12/22/16 | 3,501 | 3,451 | 2,258 | |||||||||||||||
|
Vision Solutions, Inc. |
(d) |
Software & Services |
L+450 |
1.5% | 7/22/16 | 6,463 | 6,426 | 6,479 | ||||||||||||||
|
VPG Group Holdings LLC |
(d)(f)(h) |
Materials |
L+900 |
1.0% | 10/4/16 | 64,945 | 64,228 | 65,919 | ||||||||||||||
|
Willbros Group, Inc. |
(h)(j) |
Energy |
L+975 |
1.3% | 8/7/19 | 16,000 | 15,445 | 16,104 | ||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Senior Secured Loans—First Lien |
2,190,843 | 2,221,812 | ||||||||||||||||||||
|
Unfunded Loan Commitments |
(72,743 | ) | (72,743 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Net Senior Secured Loans—First Lien |
2,118,100 | 2,149,069 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Senior Secured Loans—Second Lien—35.2% |
||||||||||||||||||||||
|
Advance Pierre Foods, Inc. |
(e)(f)(g) |
Food & Staples Retailing |
L+825 |
1.3% | 10/10/17 | 22,556 | 22,235 | 23,007 | ||||||||||||||
|
Advantage Sales & Marketing Inc. |
(e) |
Commercial & Professional Services |
L+725 |
1.0% | 6/12/18 | 14,844 | 14,844 | 15,071 | ||||||||||||||
|
Affordable Care, Inc. |
(d)(e)(f)(g)(h) |
Health Care Equipment & Services |
L+925 |
1.3% | 12/26/19 | 40,000 | 39,471 | 40,000 | ||||||||||||||
|
Alliance Laundry Systems LLC |
(e) |
Capital Goods |
L+825 |
1.3% | 12/10/19 | 2,012 | 1,994 | 2,034 | ||||||||||||||
|
American Energy—Utica, LLC |
(f) |
Energy |
L+950 |
1.5% | 9/30/18 | 75,000 | 75,000 | 75,000 | ||||||||||||||
|
American Racing and Entertainment, LLC |
(g) |
Consumer Services |
12.0% |
7/1/18 | 16,800 | 16,281 | 16,968 | |||||||||||||||
|
Attachmate Corp. |
(e)(f) |
Software & Services |
L+950 |
1.5% | 11/22/18 | 28,218 | 27,466 | 27,913 | ||||||||||||||
|
Audio Visual Services Group, Inc. |
(d)(f)(g) |
Technology Hardware & Equipment |
L+950 |
1.3% | 5/9/18 | 52,885 | 51,931 | 52,884 | ||||||||||||||
|
BJ’s Wholesale Club, Inc. |
(e)(f) |
Food & Staples Retailing |
L+850 |
1.3% | 3/26/20 | 8,298 | 8,223 | 8,492 | ||||||||||||||
|
Blackboard Inc. |
(f)(g) |
Software & Services |
L+1000 |
1.5% | 4/4/19 | 22,000 | 20,262 | 22,660 | ||||||||||||||
|
Brand Energy & Infrastructure Services, Inc. |
(e)(g) |
Energy |
L+975 |
1.3% | 10/23/19 | 36,000 | 34,613 | 36,930 | ||||||||||||||
|
Brasa (Holdings) Inc. |
(f) |
Consumer Services |
L+950 |
1.5% | 1/20/20 | 11,180 | 10,799 | 11,348 | ||||||||||||||
|
Brock Holdings III, Inc. |
(e)(g) |
Energy |
L+825 |
1.8% | 3/16/18 | 7,756 | 7,673 | 7,882 | ||||||||||||||
|
Camp International Holding Co. |
(d) |
Capital Goods |
L+875 |
1.3% | 11/29/19 | 6,207 | 6,099 | 6,351 | ||||||||||||||
|
CHG Buyer Corp. |
(d) |
Health Care Equipment & Services |
L+775 |
1.3% | 11/19/20 | 5,787 | 5,680 | 5,917 | ||||||||||||||
|
Consolidated Precision Products Corp. |
(d)(e)(h) |
Capital Goods |
L+925 |
1.3% | 6/28/20 | 15,000 | 14,857 | 15,516 | ||||||||||||||
|
Crossmark Holdings, Inc. |
(e) |
Commercial & Professional Services |
L+750 |
1.3% | 12/21/20 | 7,778 | 7,705 | 7,778 | ||||||||||||||
|
DEI Sales, Inc. |
(f)(g) |
Commercial & Professional Services |
L+900 |
1.5% | 1/15/18 | 57,500 | 56,820 | 57,716 | ||||||||||||||
|
Eastman Kodak Co. |
(f)(j) |
Consumer Durables & Apparel |
L+950 |
1.3% | 7/31/20 | 50,000 | 48,761 | 50,719 | ||||||||||||||
|
EZE Software Group LLC |
(e) |
Software & Services |
L+750 |
1.3% | 2/22/21 | 2,381 | 2,359 | 2,420 | ||||||||||||||
See notes to unaudited consolidated financial statements.
8
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Fram Group Holdings Inc. |
(e) |
Automobiles & Components |
L+900 | 1.5% | 1/29/18 | $ | 2,000 | $ | 1,993 | $ | 1,943 | |||||||||||
|
ILC Industries, LLC |
(f)(g) |
Capital Goods |
L+1000 | 1.5% | 6/14/19 | 27,976 | 27,057 | 26,297 | ||||||||||||||
|
Keystone Automotive Operations, Inc. |
(f) |
Automobiles & Components |
L+950 | 1.3% | 8/15/20 | 44,500 | 43,623 | 44,278 | ||||||||||||||
|
Kronos Inc. |
(e)(f) |
Software & Services |
L+850 | 1.3% | 4/30/20 | 21,769 | 21,570 | 22,599 | ||||||||||||||
|
LM U.S. Member LLC |
(g) |
Transportation |
L+825 | 1.3% | 10/19/20 | 9,375 | 9,245 | 9,516 | ||||||||||||||
|
OSP Group, Inc. |
(d)(f)(g)(h) |
Consumer Durables & Apparel |
L+900 | 1.3% | 7/31/20 | 105,000 | 105,000 | 106,575 | ||||||||||||||
|
Paw Luxco II Sarl |
(j) |
Consumer Durables & Apparel |
EURIBOR+950 | 1/29/19 | € | 20,000 | 24,107 | 24,293 | ||||||||||||||
|
Pelican Products, Inc. |
(d) |
Capital Goods |
L+1000 | 1.5% | 6/14/19 | $ | 6,667 | 6,551 | 6,700 | |||||||||||||
|
Pregis Corp. |
(f)(g) |
Capital Goods |
L+1000 | 1.5% | 3/23/18 | 50,000 | 49,244 | 50,000 | ||||||||||||||
|
Quikrete Holdings, Inc. |
(f)(i) |
Capital Goods |
L+600 | 1.0% | 3/26/21 | 3,922 | 3,882 | 4,002 | ||||||||||||||
|
Ranpak Corp. |
(g) |
Commercial & Professional Services |
L+725 | 1.3% | 4/8/20 | 11,324 | 11,215 | 11,607 | ||||||||||||||
|
Sensus USA Inc. |
(d)(e) |
Capital Goods |
L+725 | 1.3% | 5/9/18 | 8,571 | 8,577 | 8,427 | ||||||||||||||
|
SESAC Holdings Inc. |
(f) |
Media |
L+875 | 1.3% | 7/12/19 | 3,000 | 2,959 | 3,075 | ||||||||||||||
|
Smart & Final Inc. |
(g) |
Food & Staples Retailing |
L+925 | 1.3% | 11/16/20 | 4,595 | 4,466 | 4,679 | ||||||||||||||
|
Stadium Management Corp. |
(f) |
Consumer Services |
L+950 | 1.3% | 12/7/18 | 23,529 | 23,146 | 23,618 | ||||||||||||||
|
TravelCLICK, Inc. |
(f)(g) |
Consumer Services |
L+850 | 1.3% | 3/26/18 | 34,925 | 34,606 | 35,798 | ||||||||||||||
|
TriZetto Group, Inc. |
(g) |
Software & Services |
L+725 | 1.3% | 3/28/19 | 8,372 | 8,261 | 7,263 | ||||||||||||||
|
Vertafore, Inc. |
(e) |
Software & Services |
L+825 | 1.5% | 10/27/17 | 14,750 | 14,709 | 15,054 | ||||||||||||||
|
Wall Street Systems Holdings, Inc. |
(d) |
Software & Services |
L+800 | 1.3% | 10/25/20 | 7,000 | 6,874 | 7,059 | ||||||||||||||
|
WildHorse Resources, LLC |
Energy |
L+625 | 1.3% | 12/13/18 | 15,407 | 15,112 | 15,214 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Senior Secured Loans—Second Lien |
895,270 | 914,603 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Senior Secured Bonds—14.6% |
||||||||||||||||||||||
|
Advanced Lighting Technologies, Inc. |
(f)(g) |
Materials |
10.5% | 6/1/19 | 78,500 | 76,850 | 64,763 | |||||||||||||||
|
Allen Systems Group, Inc. |
(f)(g) |
Software & Services |
10.5% | 11/15/16 | 38,448 | 29,934 | 23,357 | |||||||||||||||
|
Aspect Software, Inc. |
(e) |
Software & Services |
10.6% | 5/15/17 | 4,000 | 4,000 | 4,000 | |||||||||||||||
|
Avaya Inc. |
(e)(f)(g) |
Technology Hardware & Equipment |
7.0% | 4/1/19 | 23,500 | 21,955 | 22,031 | |||||||||||||||
|
Avaya Inc. |
(e) |
Technology Hardware & Equipment |
9.0% | 4/1/19 | 5,000 | 5,000 | 4,850 | |||||||||||||||
|
Caesars Entertainment Resort Properties, LLC |
(e)(f)(i)(j) |
Consumer Services |
11.0% | 10/1/21 | 35,000 | 35,000 | 35,000 | |||||||||||||||
|
Chassix, Inc. |
(e) |
Automobiles & Components |
9.3% | 8/1/18 | 5,000 | 5,070 | 5,313 | |||||||||||||||
|
Chester Downs & Marina, LLC |
(e) |
Consumer Services |
9.3% | 2/1/20 | 3,750 | 3,781 | 3,761 | |||||||||||||||
|
Clear Channel Communications, Inc. |
(d)(e) |
Media |
9.0% | 12/15/19 | 2,073 | 1,843 | 2,049 | |||||||||||||||
|
Edgen Murray Corp. |
(e)(j) |
Capital Goods |
8.8% | 11/1/20 | 1,400 | 1,391 | 1,428 | |||||||||||||||
|
Energy Future Intermediate Holding Co. LLC |
(f) |
Utilities |
11.8% | 3/1/22 | 14,250 | 14,657 | 16,102 | |||||||||||||||
See notes to unaudited consolidated financial statements.
9
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
FairPoint Communications, Inc. |
(e)(f) |
Telecommunication Services |
8.8% | 8/15/19 | $ | 22,750 | $ | 22,750 | $ | 23,033 | ||||||||||||
|
Global A&T Electronics Ltd. |
(e)(j) |
Technology Hardware & Equipment |
10.0% | 2/1/19 | 9,000 | 9,000 | 7,772 | |||||||||||||||
|
HOA Restaurant Group, LLC |
(f) |
Consumer Services |
11.3% | 4/1/17 | 14,100 | 14,116 | 14,370 | |||||||||||||||
|
JW Aluminum Co. |
(f) |
Materials |
11.5% | 11/15/17 | 20,000 | 19,676 | 20,125 | |||||||||||||||
|
KeHE Distributors, LLC |
(e) |
Food, Beverage & Tobacco |
7.6% | 8/15/21 | 6,200 | 6,200 | 6,355 | |||||||||||||||
|
Kinetic Concepts, Inc. |
(f) |
Health Care Equipment & Services |
10.5% | 11/1/18 | 11,660 | 11,129 | 12,954 | |||||||||||||||
|
Logan’s Roadhouse Inc. |
(e) |
Consumer Services |
10.8% | 10/15/17 | 3,994 | 3,775 | 3,696 | |||||||||||||||
|
Neff Rental LLC |
(f) |
Capital Goods |
9.6% | 5/15/16 | 7,352 | 7,619 | 7,848 | |||||||||||||||
|
Ryerson Inc. |
(e) |
Capital Goods |
9.0% | 10/15/17 | 3,100 | 3,100 | 3,223 | |||||||||||||||
|
Sorenson Communication, Inc. |
(g) |
Telecommunication Services |
10.5% | 2/1/15 | 39,000 | 35,366 | 28,280 | |||||||||||||||
|
Speedy Cash Intermediate Holdings Corp. |
(e)(f) |
Diversified Financials |
10.8% | 5/15/18 | 19,000 | 19,310 | 19,924 | |||||||||||||||
|
Tervita Corp. |
(e)(j) |
Commercial & Professional Services |
8.0% | 11/15/18 | 3,250 | 3,250 | 3,274 | |||||||||||||||
|
Texas Competitive Electric Holdings Co. LLC |
(f) |
Utilities |
11.5% | 10/1/20 | 10,000 | 9,921 | 6,969 | |||||||||||||||
|
Titlemax, Inc. |
(d)(e) |
Diversified Financials |
8.5% | 9/5/18 | 15,000 | 15,000 | 15,713 | |||||||||||||||
|
Travelport LLC |
(g) |
Consumer Services |
4.0%, 4.4% PIK | 12/1/16 | 23,552 | 19,433 | 23,743 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Senior Secured Bonds |
399,126 | 379,933 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Subordinated Debt—18.5% |
||||||||||||||||||||||
|
Alta Mesa Holdings, L.P. |
(e) |
Energy |
9.6% | 10/15/18 | 16,700 | 16,573 | 17,744 | |||||||||||||||
|
Asurion, LLC |
(f) |
Insurance |
L+950 | 1.5% | 8/16/19 | 15,000 | 14,618 | 15,713 | ||||||||||||||
|
Aurora Diagnostics, LLC |
(f)(g) |
Pharmaceuticals, Biotechnology & Life Sciences |
10.8% | 1/15/18 | 18,065 | 18,108 | 11,381 | |||||||||||||||
|
BMC Software Finance, Inc. |
(e) |
Software & Services |
8.1% | 7/15/21 | 6,500 | 6,500 | 6,784 | |||||||||||||||
|
Comstock Resources, Inc. |
(e)(f)(j) |
Energy |
9.5% | 6/15/20 | 21,000 | 20,121 | 22,926 | |||||||||||||||
|
CrownRock, L.P. |
(e)(f) |
Energy |
7.1% | 4/15/21 | 25,000 | 25,000 | 24,847 | |||||||||||||||
|
Cumulus Media Inc. |
(f)(j) |
Media |
7.8% | 5/1/19 | 5,000 | 4,502 | 5,200 | |||||||||||||||
|
Entercom Radio, LLC |
(e)(j) |
Media |
10.5% | 12/1/19 | 13,500 | 13,369 | 15,323 | |||||||||||||||
|
Flanders Corp. |
(f)(g) |
Capital Goods |
10.0%, 3.8% PIK | 5/14/18 | 15,832 | 15,667 | 16,248 | |||||||||||||||
|
Harland Clarke Holdings Corp. |
(g) |
Commercial & Professional Services |
9.5% | 5/15/15 | 2,193 | 2,039 | 2,197 | |||||||||||||||
|
Hub International Ltd. |
(e)(i) |
Insurance |
7.9% | 10/1/21 | 2,250 | 2,250 | 2,256 | |||||||||||||||
|
Ipreo Holdings LLC |
(f) |
Software & Services |
11.8% | 8/15/18 | 10,000 | 9,964 | 10,550 | |||||||||||||||
|
Kinetic Concepts, Inc. |
(e)(f)(g) |
Health Care Equipment & Services |
12.5% | 11/1/19 | 24,700 | 23,559 | 25,935 | |||||||||||||||
|
KODA Distribution Group, Inc. |
(f) |
Materials |
11.3% | 9/30/19 | 32,500 | 31,850 | 31,850 | |||||||||||||||
|
MModal Inc. |
(e)(g) |
Health Care Equipment & Services |
10.8% | 8/15/20 | 2,418 | 2,373 | 1,934 | |||||||||||||||
|
Monitronics International, Inc. |
(e)(j) |
Consumer Services |
9.1% | 4/1/20 | 2,250 | 2,250 | 2,357 | |||||||||||||||
See notes to unaudited consolidated financial statements.
10
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Mood Media Corp. |
(e)(f)(g)(i)(j) | Media | 9.3% | 10/15/20 | $ | 25,400 | $ | 25,293 | $ | 21,717 | ||||||||||||
|
QR Energy, L.P. |
(e)(j) | Energy | 9.3% | 8/1/20 | 3,250 | 3,209 | 3,327 | |||||||||||||||
|
Resolute Energy Corp. |
(e)(j) | Energy | 8.5% | 5/1/20 | 8,500 | 8,594 | 8,764 | |||||||||||||||
|
RKI Exploration & Production, LLC |
(e) | Energy | 8.5% | 8/1/21 | 10,900 | 10,900 | 11,012 | |||||||||||||||
|
Samson Investment Co. |
(e)(f) | Energy | 9.8% | 2/15/20 | 19,420 | 19,614 | 20,701 | |||||||||||||||
|
SandRidge Energy, Inc. |
(e)(j) | Energy | 8.1% | 10/15/22 | 7,000 | 7,000 | 7,132 | |||||||||||||||
|
Sequel Industrial Products Holdings, LLC |
(g) | Energy | 12.0%, 2.5% PIK | 5/10/18 | 15,792 | 15,539 | 16,108 | |||||||||||||||
|
Sidewinder Drilling Inc. |
(f)(g) | Capital Goods | 9.8% | 11/15/19 | 8,000 | 8,000 | 7,811 | |||||||||||||||
|
Symmetry Medical Inc. |
(g)(j) | Health Care Equipment & Services | 12.0%, 2.0% PIK | 12/29/17 | 33,675 | 32,903 | 35,191 | |||||||||||||||
|
ThermaSys Corp. |
(f)(g) | Capital Goods | 9.0%, 1.8% PIK | 5/3/20 | 130,373 | 130,373 | 129,721 | |||||||||||||||
|
VPG Group Holdings LLC |
(f) | Materials | 11.0%, 2.0% PIK | 7/15/19 | 5,000 | 5,000 | 5,000 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Subordinated Debt |
475,168 | 479,729 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Collateralized Securities—4.7% |
||||||||||||||||||||||
|
ACASC 2013-2A B |
(g) | Diversified Financials | 12.6% | 10/15/23 | 30,500 | 30,475 | 30,500 | |||||||||||||||
|
Apidos CDO IV Class E |
(g)(j) | Diversified Financials | L+360 | 10/27/18 | 2,000 | 1,276 | 1,870 | |||||||||||||||
|
Ares 2007 CLO 11A Class E |
(g)(j) | Diversified Financials | L+600 | 10/11/21 | 4,775 | 3,296 | 4,725 | |||||||||||||||
|
Ares 2007 CLO 12X Class E |
(g)(j) | Diversified Financials | L+575 | 11/25/20 | 2,252 | 1,851 | 2,246 | |||||||||||||||
|
Carlyle Azure CLO Class Income |
(j) | Diversified Financials | 19.3% | 5/27/20 | 28,000 | 11,646 | 14,818 | |||||||||||||||
|
Dryden CDO 23A Class Subord. |
(j) | Diversified Financials | 21.4% | 7/17/23 | 10,000 | 6,403 | 7,651 | |||||||||||||||
|
Lightpoint CLO 2006 V Class D |
(g)(j) | Diversified Financials | L+365 | 8/5/19 | 6,500 | 3,683 | 6,002 | |||||||||||||||
|
Rampart CLO 2007 1A Class Subord. |
(j) | Diversified Financials | 31.9% | 10/25/21 | 10,000 | 4,159 | 7,693 | |||||||||||||||
|
Stone Tower CLO VI Class Subord. |
(g)(j) | Diversified Financials | 33.7% | 4/17/21 | 5,000 | 3,184 | 5,278 | |||||||||||||||
|
Wind River CLO Ltd. 2012-1A Class Subord. B |
(j) | Diversified Financials | 11.0% | 1/15/24 | 42,504 | 39,883 | 41,434 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Collateralized Securities |
105,856 | 122,217 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Number of
Shares |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||||||||
|
Equity/Other—6.0% (k) |
||||||||||||||||||||||
|
American Energy Ohio Holdings, LLC, Common Equity |
(l)(m) | Energy | 5,070,590 | 5,071 | 5,071 | |||||||||||||||||
|
Aquilex Corp., Common Equity, Class A Shares |
(f) | Energy | 15,128 | 1,087 | 2,702 | |||||||||||||||||
|
Aquilex Corp., Common Equity, Class B Shares |
(f)(g) | Energy | 32,637 | 2,346 | 5,829 | |||||||||||||||||
|
Burleigh Point, Ltd., Warrants |
(j)(l) | Retailing | 17,256,081 | 1,898 | 3,279 | |||||||||||||||||
|
Eastman Kodak Co., Common Equity |
(f)(j)(l) | Consumer Durables & Apparel | 61,859 | 1,202 | 1,546 | |||||||||||||||||
See notes to unaudited consolidated financial statements.
11
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes |
Industry |
Number of
Shares |
Amortized
Cost |
Fair
Value (c) |
|||||||||||||||||
|
ERC Ireland Holdings Ltd., Common Equity |
(j)(l) | Telecommunication Services | 21,099 | $ | — | $ | — | |||||||||||||||
|
ERC Ireland Holdings Ltd., Warrants |
(j)(l) | Telecommunication Services | 4,943 | — | — | |||||||||||||||||
|
Flanders Corp., Common Equity |
(g)(l) | Capital Goods | 5,000,000 | 5,000 | 9,500 | |||||||||||||||||
|
Florida Gaming Centers, Inc., Warrants |
(g)(l) | Consumer Services | 71 | — | 3,071 | |||||||||||||||||
|
Florida Gaming Corp., Warrants |
(g)(l) | Consumer Services | 226,635 | — | — | |||||||||||||||||
|
HBC Solutions, Inc., Common Equity, Class A Units |
(l) | Media | 26,984 | 3,051 | 3,206 | |||||||||||||||||
|
Ipreo Holdings LLC, Common Equity |
(g)(l) | Software & Services | 1,000,000 | 1,000 | 1,950 | |||||||||||||||||
|
JW Aluminum Co., Common Equity |
(g)(l) | Materials | 37,500 | 3,225 | — | |||||||||||||||||
|
Leading Edge Aviation Services, Inc., Common Equity |
(g)(l) | Capital Goods | 4,181 | 418 | 388 | |||||||||||||||||
|
Leading Edge Aviation Services, Inc., Preferred Equity |
(g)(l) | Capital Goods | 1,177 | 1,177 | 1,177 | |||||||||||||||||
|
Micronics, Inc., Common Equity |
(l) | Capital Goods | 50,000 | 500 | 470 | |||||||||||||||||
|
Micronics, Inc., Preferred Equity |
(l) | Capital Goods | 50 | 500 | 500 | |||||||||||||||||
|
Milagro Holdings, LLC, Common Equity |
(g)(l) | Energy | 12,057 | 50 | — | |||||||||||||||||
|
Milagro Holdings, LLC, Preferred Equity |
(l) | Energy | 283,947 | 11,180 | 3,155 | |||||||||||||||||
|
Plains Offshore Operations Inc., Preferred Equity |
(f)(g) | Energy | 50,000 | 54,495 | 61,505 | |||||||||||||||||
|
Plains Offshore Operations Inc., Warrants |
(f)(g)(l) | Energy | 1,013,444 | 1,722 | 2,939 | |||||||||||||||||
|
Safariland, LLC, Common Equity |
(g)(l) | Capital Goods | 25,000 | 2,500 | 4,665 | |||||||||||||||||
|
Safariland, LLC, Preferred Equity |
(g) | Capital Goods | 1,021 | 20,547 | 20,327 | |||||||||||||||||
|
Safariland, LLC, Warrants |
(g)(l) | Capital Goods | 2,263 | 473 | 846 | |||||||||||||||||
|
Sequel Industrial Products Holdings, LLC, Common Equity |
(g)(l) | Energy | 3,330,600 | 3,400 | 6,661 | |||||||||||||||||
|
Sequel Industrial Products Holdings, LLC, Preferred Equity |
(g)(l) | Energy | 8,000,000 | 8,965 | 8,976 | |||||||||||||||||
|
Sequel Industrial Products Holdings, LLC, Warrants |
(g)(l) | Energy | 20,681 | 13 | 41 | |||||||||||||||||
|
ThermaSys Corp., Common Equity |
(g)(l) | Capital Goods | 51,813 | 1 | — | |||||||||||||||||
|
ThermaSys Corp., Preferred Equity |
(g) | Capital Goods | 51,813 | 5,181 | 3,808 | |||||||||||||||||
|
VPG Group Holdings LLC, Class A-2 Units |
(g)(l) | Materials | 2,500,000 | 3,638 | 3,638 | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Equity/Other |
138,640 | 155,250 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
TOTAL INVESTMENTS—161.7% |
$ | 4,132,160 | 4,200,801 | |||||||||||||||||||
|
|
|
|||||||||||||||||||||
|
LIABILITIES IN EXCESS OF OTHER ASSETS—(61.7%) |
(1,603,111 | ) | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||
|
NET ASSETS—100% |
$ | 2,597,690 | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||
See notes to unaudited consolidated financial statements.
12
FS Investment Corporation
Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2013
(in thousands, except share amounts)
| (a) | Security may be an obligation of one or more entities affiliated with the named company. |
| (b) | Denominated in U.S. dollars unless otherwise noted. |
| (c) | Fair value determined by the Company’s board of directors (see Note 7). |
| (d) | Security or portion thereof held within Arch Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Citibank, N.A. (see Note 8). |
| (e) | Security or portion thereof held within Broad Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8). |
| (f) | Security or portion thereof held within Locust Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the Class A Notes issued to Race Street Funding LLC pursuant to an indenture with Citibank, N.A., as trustee (see Note 8). |
| (g) | Security or portion thereof held within Race Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the repurchase agreement with JPMorgan Chase Bank, N.A., London Branch (see Note 8). |
| (h) | Security or portion thereof held within Walnut Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Wells Fargo Bank, National Association (see Note 8). |
| (i) | Position or portion thereof unsettled as of September 30, 2013. |
| (j) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of September 30, 2013, 81.3% of the Company’s total assets represented qualifying assets. |
| (k) | Listed investments may be treated as debt for GAAP or tax purposes. |
| (l) | Security is non-income producing. |
| (m) | Security held within IC American Energy Investments, Inc., a wholly-owned subsidiary of the Company. |
See notes to unaudited consolidated financial statements.
13
FS Investment Corporation
Consolidated Schedule of Investments
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Senior Secured Loans—First Lien—77.5% |
||||||||||||||||||||||
|
A.P. Plasman Inc. |
(f)(h)(j) | Capital Goods | L+850 | 1.5% | 12/29/16 | $ | 53,350 | $ | 52,456 | $ | 54,150 | |||||||||||
|
AccentCare, Inc. |
(d) | Health Care Equipment & Services | L+500 | 1.5% | 12/22/16 | 2,017 | 1,828 | 1,573 | ||||||||||||||
|
Advantage Sales & Marketing Inc. |
(d) | Commercial & Professional Services | L+375 | 1.5% | 12/18/17 | 4,550 | 4,544 | 4,592 | ||||||||||||||
|
Airvana Network Solutions Inc. |
(f) | Telecommunication Services | L+800 | 2.0% | 3/25/15 | 3,685 | 3,677 | 3,702 | ||||||||||||||
|
AlixPartners, LLP |
(d)(f) | Diversified Financials | L+525 | 1.3% | 6/28/19 | 9,950 | 9,878 | 10,092 | ||||||||||||||
|
Alkermes, Inc. |
(d)(j) | Pharmaceuticals, Biotechnology & Life Sciences | L+350 | 1.0% | 9/18/19 | 4,200 | 4,159 | 4,247 | ||||||||||||||
|
Allied Security Holdings, LLC |
(d) | Commercial & Professional Services | L+400 | 1.3% | 2/3/17 | 3,851 | 3,833 | 3,880 | ||||||||||||||
|
Altegrity, Inc. |
(d)(e) | Commercial & Professional Services | L+600 | 1.8% | 2/20/15 | 5,121 | 5,115 | 5,125 | ||||||||||||||
|
Amaya Holdings Corp. |
(d)(h) | Consumer Services | L+775 | 1.3% | 11/5/15 | 25,000 | 24,642 | 25,000 | ||||||||||||||
|
American & Efird Global, LLC |
(f)(h) | Consumer Durables & Apparel | L+900 | 1.5% | 12/21/16 | 43,400 | 42,486 | 44,051 | ||||||||||||||
|
American Racing and Entertainment, LLC Term Loan A |
(f) | Consumer Services | L+700 | 6/30/14 | 14,500 | 14,500 | 14,500 | |||||||||||||||
|
American Racing and Entertainment, LLC Term Loan B |
(f) | Consumer Services | 9.0% | 6/30/14 | 7,750 | 7,750 | 7,789 | |||||||||||||||
|
American Racing and Entertainment, LLC Term Loan C |
(f) | Consumer Services | 9.0% | 6/30/14 | 750 | 750 | 754 | |||||||||||||||
|
Applied Systems, Inc. |
(d) | Software & Services | L+400 | 1.5% | 12/8/16 | 3,506 | 3,490 | 3,536 | ||||||||||||||
|
Ardent Medical Services, Inc. |
(d)(e) | Health Care Equipment & Services | L+500 | 1.5% | 9/15/15 | 13,248 | 13,164 | 13,314 | ||||||||||||||
|
Ardent Medical Services, Inc. |
(d)(e)(i) | Health Care Equipment & Services | L+525 | 1.5% | 5/23/18 | 8,488 | 8,403 | 8,589 | ||||||||||||||
|
Aspect Software, Inc. |
(d) | Software & Services | L+525 | 1.8% | 5/7/16 | 6,765 | 6,581 | 6,824 | ||||||||||||||
|
Attachmate Corp. |
(d)(e) | Software & Services | L+575 | 1.5% | 11/22/17 | 11,421 | 11,213 | 11,547 | ||||||||||||||
|
Avaya Inc. |
(d) | Technology Hardware & Equipment | L+275 | 10/24/14 | 1,973 | 1,944 | 1,939 | |||||||||||||||
|
Avaya Inc. |
(d)(e) | Technology Hardware & Equipment | L+450 | 10/26/17 | 9,012 | 8,208 | 7,976 | |||||||||||||||
|
AZ Chem U.S. Inc. |
(h)(i) | Materials | L+575 | 1.5% | 12/22/17 | 4,545 | 4,451 | 4,611 | ||||||||||||||
|
Barbri, Inc. |
(d) | Consumer Services | L+450 | 1.5% | 6/16/17 | 3,227 | 3,219 | 3,233 | ||||||||||||||
|
Barrington Broadcasting Group LLC |
(f) | Media | L+600 | 1.5% | 6/14/17 | 2,889 | 2,816 | 2,917 | ||||||||||||||
|
BBB Industries, LLC |
(f) | Automobiles & Components | L+450 | 2.0% | 6/27/14 | 8,025 | 7,993 | 7,945 | ||||||||||||||
|
BJ’s Wholesale Club, Inc. |
(d)(e) | Food & Staples Retailing | L+450 | 1.3% | 9/26/19 | 14,000 | 13,864 | 14,204 | ||||||||||||||
|
Blackboard Inc. |
(d)(f)(h) | Software & Services | L+600 | 1.5% | 10/4/18 | 18,307 | 17,142 | 18,536 | ||||||||||||||
|
Boomerang Tube, LLC |
(d)(h) | Energy | L+950 | 1.5% | 10/11/17 | 24,688 | 23,971 | 24,379 | ||||||||||||||
|
Brasa (Holdings) Inc. |
(d) | Consumer Services | L+625 | 1.3% | 7/19/19 | 5,819 | 5,749 | 5,877 | ||||||||||||||
|
Bushnell Inc. |
(d) | Consumer Durables & Apparel | L+425 | 1.5% | 8/24/15 | 7,581 | 7,342 | 7,584 | ||||||||||||||
|
Caesars Entertainment Operating Co. |
(d)(e)(f)(j) | Consumer Services | L+425 | 1/26/18 | 19,166 | 16,718 | 16,624 | |||||||||||||||
|
Cannery Casino Resorts, LLC |
(d) | Consumer Services | L+475 | 1.3% | 10/2/18 | 3,990 | 3,951 | 4,008 | ||||||||||||||
|
Capital Vision Services, LLC |
(f)(h) | Health Care Equipment & Services | Prime+625 | 1.3% | 12/3/17 | 17,196 | 17,196 | 17,196 | ||||||||||||||
|
Capital Vision Services, LLC |
Health Care Equipment & Services | L+100 | 12/3/17 | 2,804 | 2,804 | 2,804 | ||||||||||||||||
|
CCM Merger, Inc. |
(d) | Consumer Services | L+475 | 1.3% | 3/1/17 | 4,746 | 4,694 | 4,766 | ||||||||||||||
|
Cengage Learning Acquisitions, Inc. |
(d)(i) | Consumer Durables & Apparel | L+225 | 7/3/14 | 3,117 | 2,618 | 2,471 | |||||||||||||||
See notes to unaudited consolidated financial statements.
14
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Chrysler Group LLC |
(d)(e)(f)(h) | Automobiles & Components | L+475 | 1.3% | 5/24/17 | $ | 22,444 | $ | 21,726 | $ | 22,952 | |||||||||||
|
Citgo Petroleum Corp. |
(e)(j) | Energy | L+600 | 2.0% | 6/24/15 | 3,036 | 3,066 | 3,062 | ||||||||||||||
|
Citgo Petroleum Corp. |
(e)(f)(j) | Energy | L+700 | 2.0% | 6/23/17 | 7,661 | 7,643 | 7,779 | ||||||||||||||
|
Clear Channel Communications, Inc. |
(d)(e)(f)(i) | Media | L+365 | 1/29/16 | 27,557 | 22,354 | 22,842 | |||||||||||||||
|
Collective Brands, Inc. |
(f) | Consumer Durables & Apparel | L+600 | 1.3% | 10/9/19 | 10,820 | 10,662 | 10,968 | ||||||||||||||
|
CompuCom Systems, Inc. |
(d) | Software & Services | L+525 | 1.3% | 10/4/18 | 3,448 | 3,415 | 3,472 | ||||||||||||||
|
The Container Store, Inc. |
(d)(e) | Consumer Durables & Apparel | L+500 | 1.3% | 4/5/19 | 13,065 | 13,001 | 13,187 | ||||||||||||||
|
Corel Corp. |
(d)(j) | Software & Services | L+700 | 5/2/14 | 9,400 | 9,352 | 9,447 | |||||||||||||||
|
Corner Investment PropCo, LLC |
(d)(f)(j) | Consumer Services | L+975 | 1.3% | 11/1/19 | 24,000 | 23,532 | 23,730 | ||||||||||||||
|
Crestwood Holdings LLC |
(f) | Energy | L+825 | 1.5% | 3/26/18 | 16,689 | 16,603 | 17,050 | ||||||||||||||
|
DAE Aviation Holdings, Inc. |
(h) | Capital Goods | L+500 | 1.3% | 10/29/18 | 6,825 | 6,690 | 6,927 | ||||||||||||||
|
DAE Aviation Holdings, Inc. |
(h) | Capital Goods | L+500 | 1.3% | 11/2/18 | 3,094 | 3,033 | 3,140 | ||||||||||||||
|
Del Monte Foods Co. |
(d) | Food, Beverage & Tobacco | L+300 | 1.5% | 3/8/18 | 2,876 | 2,832 | 2,886 | ||||||||||||||
|
Drumm Investors LLC |
(d)(f) | Health Care Equipment & Services | L+375 | 1.3% | 5/4/18 | 8,542 | 8,021 | 8,037 | ||||||||||||||
|
Dynegy Inc. |
(f) | Energy | L+775 | 1.5% | 8/5/16 | 6,096 | 6,225 | 6,393 | ||||||||||||||
|
Eastman Kodak Co. |
(g) | Consumer Durables & Apparel | L+750 | 1.0% | 7/19/13 | 7,232 | 7,181 | 7,252 | ||||||||||||||
|
Education Management LLC |
(f)(j) | Consumer Services | L+400 | 6/1/16 | 3,978 | 3,233 | 3,257 | |||||||||||||||
|
Education Management LLC |
(e)(j) | Consumer Services | L+700 | 1.3% | 3/29/18 | 15,870 | 15,796 | 13,271 | ||||||||||||||
|
Electrical Components International, Inc. |
(f) | Capital Goods | L+525 | 1.5% | 2/4/16 | 235 | 218 | 236 | ||||||||||||||
|
Electrical Components International, Inc. |
(g) | Capital Goods | L+525 | 1.5% | 2/4/17 | 3,573 | 3,295 | 3,582 | ||||||||||||||
|
EquiPower Resources Holdings, LLC |
(d) | Utilities | L+425 | 1.3% | 12/21/18 | 4,975 | 4,996 | 5,054 | ||||||||||||||
|
ERC Ireland Holdings Ltd. |
(i)(j) | Telecommunication Services | EURIBOR+300, 1.0% PIK | 9/30/17 | € | 11,173 | 10,733 | 11,896 | ||||||||||||||
|
Fairway Group Acquisition Co. |
(d)(f)(h) | Food & Staples Retailing | L+675 | 1.5% | 8/17/18 | $ | 25,325 | 25,037 | 25,578 | |||||||||||||
|
Flanders Corp. |
(f)(h) | Capital Goods | L+950 | 1.5% | 5/16/18 | 38,993 | 38,104 | 39,188 | ||||||||||||||
|
Fleetgistics Holdings, Inc. |
(f) | Transportation | L+588 | 2.0% | 3/23/15 | 2,026 | 2,011 | 1,783 | ||||||||||||||
|
Flexera Software, Inc. |
(d) | Software & Services | L+625 | 1.3% | 9/29/17 | 2,925 | 2,923 | 2,948 | ||||||||||||||
|
Florida Gaming Centers, Inc. |
(f) | Consumer Services | 15.8% | 4/25/16 | 12,517 | 12,343 | 12,455 | |||||||||||||||
|
Fram Group Holdings Inc. |
(d) | Automobiles & Components | L+500 | 1.5% | 7/29/17 | 1,990 | 1,952 | 1,992 | ||||||||||||||
|
FREIF North American Power I LLC |
(d) | Energy | L+450 | 1.5% | 3/29/19 | 3,073 | 3,080 | 3,111 | ||||||||||||||
|
FREIF North American Power I LLC |
(d) | Energy | L+450 | 1.5% | 3/29/19 | 880 | 882 | 891 | ||||||||||||||
|
Generac Power Systems, Inc. |
(d)(j) | Capital Goods | L+500 | 1.3% | 5/30/18 | 3,563 | 3,630 | 3,653 | ||||||||||||||
|
Generic Drug Holdings, Inc. |
(d) | Retailing | L+475 | 1.3% | 9/28/19 | 2,728 | 2,701 | 2,753 | ||||||||||||||
|
Genesys Telecom Holdings, U.S., Inc. |
(d) | Telecommunication Services | L+525 | 1.5% | 1/31/19 | 1,711 | 1,724 | 1,730 | ||||||||||||||
|
Gymboree Corp. |
(d) | Consumer Durables & Apparel | L+350 | 1.5% | 2/23/18 | 3,702 | 3,477 | 3,420 | ||||||||||||||
See notes to unaudited consolidated financial statements.
15
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||||
|
Halifax Media Holdings LLC |
(f)(h) | Media | L+1050 | 0.8% | 6/30/16 | $ | 16,068 | $ | 15,748 | $ | 15,907 | |||||||||||||
|
Hamilton Lane Advisors, LLC |
(d) | Diversified Financials | L+500 | 1.5% | 2/23/18 | 2,730 | 2,717 | 2,750 | ||||||||||||||||
|
Harbor Freight Tools USA, Inc. |
(d) | Consumer Durables & Apparel | L+425 | 1.3% | 11/14/17 | 4,365 | 4,364 | 4,424 | ||||||||||||||||
|
HarbourVest Partners L.P. |
(d) | Diversified Financials | L+375 | 1.0% | 11/21/17 | 5,752 | 5,724 | 5,781 | ||||||||||||||||
|
Harland Clarke Holdings Corp. |
(f) | Commercial & Professional Services | L+250 | 6/30/14 | 6,334 | 5,741 | 6,135 | |||||||||||||||||
|
Hawaiian Telcom Communications, Inc. |
(d)(f)(h) | Telecommunication Services | L+575 | 1.3% | 2/28/17 | 16,979 | 16,864 | 17,335 | ||||||||||||||||
|
Hupah Finance Inc. |
(d)(e) | Capital Goods | L+500 | 1.3% | 1/21/19 | 11,333 | 11,275 | 11,475 | ||||||||||||||||
|
Hyland Software, Inc. |
(d) | Software & Services | L+425 | 1.3% | 10/25/19 | 4,918 | 4,918 | 4,939 | ||||||||||||||||
|
IASIS Healthcare LLC |
(d) | Health Care Equipment & Services | L+375 | 1.3% | 5/3/18 | 1,453 | 1,427 | 1,459 | ||||||||||||||||
|
Ikaria Acquisition Inc. |
(d) | Pharmaceuticals, Biotechnology & Life Sciences | L+650 | 1.3% | 9/18/17 | 3,967 | 3,948 | 3,992 | ||||||||||||||||
|
ILC Industries, LLC |
(d)(h) | Capital Goods | L+600 | 1.5% | 7/11/18 | 10,131 | 9,941 | 10,038 | ||||||||||||||||
|
Immucor, Inc. |
(d) | Health Care Equipment & Services | L+450 | 1.3% | 8/17/18 | 3,873 | 3,882 | 3,929 | ||||||||||||||||
|
INC Research, LLC |
(d)(f) | Health Care Equipment & Services | L+575 | 1.3% | 7/12/18 | 16,788 | 16,522 | 16,913 | ||||||||||||||||
|
INEOS Finance Plc |
(d)(e)(f)(j) | Materials | L+525 | 1.3% | 5/4/18 | 18,914 | 18,713 | 19,145 | ||||||||||||||||
|
Infogroup Inc. |
(d) | Software & Services | L+425 | 1.5% | 5/25/18 | 3,338 | 2,940 | 3,004 | ||||||||||||||||
|
Insight Equity A.P. X, L.P. |
(f)(g)(h) | Household & Personal Products | L+850 | 1.0% | 10/26/18 | 65,000 | 63,736 | 65,000 | ||||||||||||||||
|
Intelsat Jackson Holdings SA |
(d)(j) | Telecommunication Services | L+325 | 1.3% | 4/2/18 | 2,963 | 2,962 | 2,993 | ||||||||||||||||
|
Intralinks, Inc. |
(f)(j) | Software & Services | L+425 | 1.5% | 6/15/14 | 1,033 | 938 | 1,034 | ||||||||||||||||
|
inVentiv Health, Inc. |
(d) | Health Care Equipment & Services | L+500 | 1.5% | 8/4/16 | 1,066 | 997 | 1,040 | ||||||||||||||||
|
inVentiv Health, Inc. |
(e) | Health Care Equipment & Services | L+525 | 1.5% | 5/15/18 | 2,725 | 2,704 | 2,671 | ||||||||||||||||
|
Ipreo Holdings LLC |
(d)(f) | Software & Services | L+525 | 1.3% | 8/7/17 | 8,968 | 8,861 | 9,024 | ||||||||||||||||
|
Jason Inc. (TLA) |
(g) | Capital Goods | L+625 | 2.0% | 9/21/14 | 2,403 | 2,395 | 2,399 | ||||||||||||||||
|
Jason Inc. (TLB) |
(g) | Capital Goods | L+625 | 2.0% | 9/21/14 | 971 | 968 | 973 | ||||||||||||||||
|
JHCI Acquisition, Inc. |
(d) | Transportation | L+250 | 6/19/14 | 2,304 | 2,192 | 2,070 | |||||||||||||||||
|
KIK Custom Products Inc. |
(e)(j) | Household & Personal Products | L+225 | 6/2/14 | 10,274 | 9,693 | 9,657 | |||||||||||||||||
|
Kronos Inc. |
(d) | Commercial & Professional Services | L+425 | 1.3% | 10/25/19 | 4,500 | 4,478 | 4,560 | ||||||||||||||||
|
La Paloma Generating Co., LLC |
(e)(f) | Energy | L+550 | 1.5% | 8/25/17 | 8,697 | 8,445 | 8,686 | ||||||||||||||||
|
Lantiq Deutschland GmbH |
(f)(j) | Software & Services | L+900 | 2.0% | 11/16/15 | 12,105 | 11,241 | 11,076 | ||||||||||||||||
|
Leading Edge Aviation Services, Inc. |
(d)(g)(h) | Capital Goods | L+850 | 1.5% | 4/5/18 | 36,301 | 35,651 | 35,212 | ||||||||||||||||
|
Maritime Telecommunications Network, Inc. |
(f) | Telecommunication Services | L+600 | 1.5% | 3/3/16 | 5,169 | 5,117 | 5,159 | ||||||||||||||||
|
MMM Holdings, Inc. |
Health Care Equipment & Services | L+825 | 1.5% | 12/12/17 | 13,509 | 13,240 | 13,527 | |||||||||||||||||
|
Mood Media Corp. |
(d)(j) | Media | L+550 | 1.5% | 5/7/18 | 3,045 | 3,016 | 3,054 | ||||||||||||||||
|
MSO of Puerto Rico, Inc. |
Health Care Equipment & Services | L+825 | 1.5% | 12/12/17 | 9,825 | 9,629 | 9,838 | |||||||||||||||||
|
National Mentor Holdings, Inc. |
(d) | Health Care Equipment & Services | L+525 | 1.3% | 2/9/17 | 7,980 | 7,980 | 7,985 | ||||||||||||||||
See notes to unaudited consolidated financial statements.
16
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||||
|
National Vision, Inc. |
(d) | Health Care Equipment & Services | L+575 | 1.3% | 8/2/18 | $ | 4,764 | $ | 4,774 | $ | 4,835 | |||||||||||||
|
Natural Products Group, LLC |
(g) | Household & Personal Products | Prime+600 | 4.0% | 3/5/15 | 1,325 | 1,266 | 1,272 | ||||||||||||||||
|
Navistar, Inc. |
(d)(f)(h)(j) | Capital Goods | L+550 | 1.5% | 8/17/17 | 20,944 | 20,891 | 21,082 | ||||||||||||||||
|
NCI Building Systems, Inc. |
(d)(e)(g)(h)(j) | Capital Goods | L+675 | 1.3% | 5/2/18 | 31,573 | 30,815 | 31,635 | ||||||||||||||||
|
NCO Group, Inc. |
(e)(h) | Software & Services | L+675 | 1.3% | 4/3/18 | 19,807 | 19,448 | 19,900 | ||||||||||||||||
|
Nexeo Solutions, LLC |
Capital Goods | L+350 | 1.5% | 9/7/17 | 3,990 | 3,912 | 3,926 | |||||||||||||||||
|
NSH Merger Sub, Inc. |
(d)(f) | Health Care Equipment & Services | L+650 | 1.8% | 2/2/17 | 19,042 | 18,869 | 18,613 | ||||||||||||||||
|
Nuveen Investments, Inc. |
(d) | Diversified Financials | L+550 | 5/13/17 | 9,000 | 9,004 | 9,055 | |||||||||||||||||
|
NXP BV |
(d)(j) | Semiconductors & Semiconductor Equipment | L+425 | 1.3% | 3/3/17 | 2,351 | 2,375 | 2,402 | ||||||||||||||||
|
On Assignment, Inc. |
(d)(j) | Commercial & Professional Services | L+375 | 1.3% | 5/15/19 | 2,992 | 2,976 | 3,033 | ||||||||||||||||
|
Onex Carestream Finance L.P. |
(d)(j) | Health Care Equipment & Services | L+350 | 1.5% | 2/25/17 | 1,419 | 1,383 | 1,416 | ||||||||||||||||
|
Orbitz Worldwide, Inc. |
(d)(j) | Retailing | L+300 | 7/25/14 | 4,216 | 4,058 | 4,056 | |||||||||||||||||
|
Ozburn-Hessey Holding Co., LLC |
(d)(f) | Transportation | L+625 | 2.0% | 4/8/16 | 5,650 | 5,446 | 5,650 | ||||||||||||||||
|
Panda Sherman Power, LLC |
(d) | Energy | L+750 | 1.5% | 9/14/18 | 9,273 | 9,192 | 9,435 | ||||||||||||||||
|
Panda Temple Power, LLC (TLA) |
(f) | Energy | L+700 | 1.5% | 7/17/18 | 3,000 | 3,000 | 3,045 | ||||||||||||||||
|
Party City Holdings Inc. |
(d)(e)(f) | Retailing | L+450 | 1.3% | 7/26/19 | 16,593 | 16,513 | 16,809 | ||||||||||||||||
|
Patheon Inc. |
(d)(i)(j) | Pharmaceuticals, Biotechnology & Life Sciences | L+600 | 1.3% | 12/6/18 | 10,259 | 9,951 | 10,259 | ||||||||||||||||
|
Pelican Products, Inc. |
(d) | Capital Goods | L+550 | 1.5% | 7/11/18 | 2,972 | 2,944 | 2,954 | ||||||||||||||||
|
Peninsula Gaming LLC |
(f)(j) | Consumer Services | L+450 | 1.3% | 8/3/17 | 4,605 | 4,562 | 4,671 | ||||||||||||||||
|
Pharmaceutical Product Development, Inc. |
(d) | Health Care Equipment & Services | L+500 | 1.3% | 12/5/18 | 8,967 | 8,890 | 9,126 | ||||||||||||||||
|
Pharmaceutical Research Associates, Inc. |
(d)(i) | Health Care Equipment & Services | L+525 | 1.3% | 11/27/18 | 5,833 | 5,775 | 5,841 | ||||||||||||||||
|
PL Propylene LLC |
(d)(j) | Materials | L+575 | 1.3% | 3/23/17 | 6,833 | 6,714 | 6,944 | ||||||||||||||||
|
Presidio, Inc. |
(d)(f)(g)(h) | Software & Services | L+450 | 1.3% | 3/31/17 | 15,302 | 15,231 | 15,455 | ||||||||||||||||
|
Princeton Review, Inc. |
(g) | Consumer Services | L+550 | 1.5% | 12/7/14 | 1,113 | 1,022 | 990 | ||||||||||||||||
|
Property Data (U.S.) I, Inc. |
(f) | Software & Services | L+550 | 1.5% | 1/4/17 | 4,295 | 4,251 | 4,303 | ||||||||||||||||
|
Protection One, Inc. |
(d) | Consumer Services | L+450 | 1.3% | 3/21/19 | 2,544 | 2,551 | 2,580 | ||||||||||||||||
|
PRV Aerospace, LLC |
(d) | Capital Goods | L+525 | 1.3% | 5/9/18 | 4,976 | 4,965 | 4,989 | ||||||||||||||||
|
RBS Holding Co. LLC |
(d) | Commercial & Professional Services | Prime+600 | 3/23/17 | 9,825 | 6,065 | 3,635 | |||||||||||||||||
|
RBS Worldpay, Inc. |
(d) | Software & Services | L+400 | 1.3% | 11/30/17 | 1,522 | 1,524 | 1,534 | ||||||||||||||||
|
Remy International, Inc. |
(d)(j) | Automobiles & Components | L+450 | 1.8% | 12/16/16 | 1,923 | 1,861 | 1,940 | ||||||||||||||||
|
Reynolds Group Holdings, Inc. |
(d)(j) | Consumer Durables & Apparel | L+375 | 1.0% | 9/28/18 | 4,293 | 4,293 | 4,349 | ||||||||||||||||
|
Rocket Software, Inc. |
(d) | Software & Services | L+450 | 1.3% | 2/8/18 | 6,630 | 6,636 | 6,673 | ||||||||||||||||
|
Roundy’s Supermarkets, Inc. |
(d)(j) | Food & Staples Retailing | L+450 | 1.3% | 2/13/19 | 2,776 | 2,648 | 2,619 | ||||||||||||||||
|
Sabre Inc. |
(d) | Consumer Services | L+575 | 12/29/17 | 1,487 | 1,471 | 1,500 | |||||||||||||||||
See notes to unaudited consolidated financial statements.
17
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate |
Floor |
Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Sabre Inc. |
(e) | Consumer Services | L+600 | 1.3% | 12/29/17 | $ | 4,978 | $ | 4,931 | $ | 5,052 | |||||||||||
|
Safariland, LLC |
(d)(f)(h) | Capital Goods | L+925 | 1.5% | 7/27/18 | 45,243 | 44,392 | 46,601 | ||||||||||||||
|
Sagittarius Restaurants LLC |
(d)(f) | Consumer Services | L+550 | 2.0% | 5/18/15 | 6,530 | 6,497 | 6,505 | ||||||||||||||
|
Shell Topco L.P. |
(d)(h) | Energy | L+750 | 1.5% | 9/28/18 | 33,000 | 32,524 | 33,000 | ||||||||||||||
|
Sheridan Production Co., LLC |
(e) | Energy | L+375 | 1.3% | 9/14/19 | 5,224 | 5,173 | 5,279 | ||||||||||||||
|
Shield Finance Co. Sarl |
(f)(j) | Software & Services | L+525 | 1.3% | 5/10/19 | 10,974 | 10,822 | 11,002 | ||||||||||||||
|
Sirius Computer Solutions, Inc. |
(d)(i) | Software & Services | L+575 | 1.3% | 11/30/18 | 9,808 | 9,710 | 9,900 | ||||||||||||||
|
Sitel, LLC |
(e) | Telecommunication Services | L+675 | 1/30/17 | 5,966 | 5,743 | 5,951 | |||||||||||||||
|
Six3 Systems, Inc. |
(d) | Software & Services | L+575 | 1.3% | 10/4/19 | 4,674 | 4,629 | 4,674 | ||||||||||||||
|
Smarte Carte, Inc. |
(d)(f)(h) | Commercial & Professional Services | L+650 | 1.3% | 11/30/17 | 61,000 | 60,288 | 61,000 | ||||||||||||||
|
Smile Brands Group Inc. |
(d)(e) | Health Care Equipment & Services | L+525 | 1.8% | 12/21/17 | 13,717 | 13,308 | 12,962 | ||||||||||||||
|
Sophia, L.P. |
(d)(e)(f) | Software & Services | L+500 | 1.3% | 7/19/18 | 13,966 | 13,880 | 14,165 | ||||||||||||||
|
Sorenson Communication, Inc. |
(d)(e)(f)(h) | Telecommunication Services | L+400 | 2.0% | 8/16/13 | 50,402 | 49,586 | 49,609 | ||||||||||||||
|
Spansion LLC |
(e)(j) | Semiconductors & Semiconductor Equipment | L+350 | 1.3% | 2/9/15 | 6,369 | 6,285 | 6,418 | ||||||||||||||
|
Sports Authority, Inc. |
(d)(e)(f) | Consumer Durables & Apparel | L+600 | 1.5% | 11/16/17 | 22,418 | 22,234 | 22,615 | ||||||||||||||
|
Sprouts Farmers Markets Holdings, LLC |
Food & Staples Retailing | L+475 | 4/18/16 | 5,250 | 5,250 | 5,001 | ||||||||||||||||
|
Sprouts Farmers Markets Holdings, LLC |
(d) | Food & Staples Retailing | L+475 | 1.3% | 4/18/18 | 4,803 | 4,746 | 4,861 | ||||||||||||||
|
SRA International, Inc. |
(d)(e)(f) | Software & Services | L+525 | 1.3% | 7/20/18 | 21,624 | 20,910 | 20,489 | ||||||||||||||
|
Star West Generation LLC |
(d) | Energy | L+450 | 1.5% | 5/17/18 | 5,923 | 5,860 | 5,949 | ||||||||||||||
|
Surgery Center Holdings, Inc. |
(d)(f)(h) | Health Care Equipment & Services | L+500 | 1.5% | 2/6/17 | 14,693 | 14,473 | 14,620 | ||||||||||||||
|
Swiss Watch International, Inc. |
(d)(f)(h) | Consumer Durables & Apparel | L+725 | 1.3% | 11/8/18 | 50,000 | 49,022 | 50,000 | ||||||||||||||
|
Technicolor SA |
(j) | Media | EURIBOR+500 | 2.0% | 5/26/16 | € | 2,345 | 2,770 | 3,080 | |||||||||||||
|
Technicolor SA |
(j) | Media | EURIBOR+600 | 2.0% | 5/26/17 | € | 6,279 | 7,402 | 8,249 | |||||||||||||
|
Technicolor SA |
(g)(j) | Media | L+500 | 2.0% | 5/26/16 | $ | 1,659 | 1,507 | 1,651 | |||||||||||||
|
Technicolor SA |
(g)(j) | Media | L+600 | 2.0% | 5/26/17 | 4,376 | 3,967 | 4,357 | ||||||||||||||
|
Texas Competitive Electric Holdings Co. LLC |
(d)(e)(f)(g)(i) | Utilities | L+350 | 10/10/14 | 76,891 | 56,163 | 58,221 | |||||||||||||||
|
Texas Competitive Electric Holdings Co. LLC |
(g) | Utilities | L+450 | 10/10/17 | 38,867 | 26,875 | 25,992 | |||||||||||||||
|
TI Group Automotive Systems, LLC |
(d)(e)(j) | Capital Goods | L+550 | 1.3% | 3/14/18 | 8,956 | 8,709 | 9,045 | ||||||||||||||
|
Titlemax, Inc. |
(f)(h) | Diversified Financials | L+850 | 1.5% | 6/15/15 | 25,000 | 24,790 | 25,500 | ||||||||||||||
|
Total Safety U.S., Inc. |
(d)(f) | Energy | L+625 | 1.3% | 10/31/17 | 9,900 | 9,667 | 10,032 | ||||||||||||||
|
Totes Isotoner Corp. |
(d) | Consumer Durables & Apparel | L+575 | 1.5% | 7/7/17 | 6,928 | 6,830 | 6,945 | ||||||||||||||
|
Toys “R” Us-Delaware, Inc. |
(d)(e) | Consumer Durables & Apparel | L+450 | 1.5% | 9/1/16 | 3,842 | 3,843 | 3,729 | ||||||||||||||
|
TravelCLICK, Inc. |
(d) | Consumer Services | L+500 | 1.5% | 3/16/16 | 7,836 | 7,746 | 7,836 | ||||||||||||||
|
Travelport LLC |
(e)(f)(g) | Consumer Services | L+475 | 8/21/15 | 15,682 | 14,327 | 15,143 | |||||||||||||||
See notes to unaudited consolidated financial statements.
18
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate |
Floor |
Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
U.S. Security Associates Holdings, Inc. |
(d) | Commercial & Professional Services | L+475 | 1.3% | 7/28/17 | $ | 3,959 | $ | 3,958 | $ | 3,985 | |||||||||||
|
Unifrax I LLC |
(e)(f) | Capital Goods | L+500 | 1.5% | 11/28/18 | 13,958 | 13,707 | 14,145 | ||||||||||||||
|
United Surgical Partners International Inc. |
(d) | Health Care Equipment & Services | L+475 | 1.3% | 4/3/19 | 4,374 | 4,372 | 4,418 | ||||||||||||||
|
Univar Inc. |
(e) | Materials | L+350 | 1.5% | 6/30/17 | 6,509 | 6,509 | 6,500 | ||||||||||||||
|
Univision Communications Inc. |
(e)(f) | Media | L+425 | 3/31/17 | 9,593 | 8,591 | 9,454 | |||||||||||||||
|
Virtual Radiologic Corp. |
(g) | Health Care Equipment & Services | Prime+450 | 12/22/16 | 3,528 | 3,468 | 3,105 | |||||||||||||||
|
Vision Solutions, Inc. |
(d) | Software & Services | L+450 | 1.5% | 7/22/16 | 6,800 | 6,753 | 6,787 | ||||||||||||||
|
VPG Group Holdings LLC |
(f)(h) | Materials | L+900 | 1.0% | 10/4/16 | 55,055 | 54,173 | 55,056 | ||||||||||||||
|
Wall Street Systems Holdings, Inc. |
(d) | Software & Services | L+450 | 1.3% | 10/24/19 | 5,000 | 4,926 | 5,013 | ||||||||||||||
|
WASH Multifamily Laundry Systems, LLC |
(g) | Commercial & Professional Services | Prime+375 | 8/28/14 | 3,830 | 3,803 | 3,825 | |||||||||||||||
|
West Corp. |
(d) | Software & Services | L+450 | 1.3% | 6/29/18 | 7,297 | 7,245 | 7,422 | ||||||||||||||
|
Wide OpenWest Finance, LLC |
(d) | Media | L+500 | 1.3% | 7/17/18 | 6,219 | 6,211 | 6,299 | ||||||||||||||
|
Willbros United States Holdings, Inc. |
(h)(j) | Energy | L+750 | 2.0% | 6/30/14 | 6,705 | 6,635 | 6,721 | ||||||||||||||
|
WireCo WorldGroup Inc. |
(d) | Capital Goods | L+475 | 1.3% | 2/15/17 | 3,558 | 3,554 | 3,638 | ||||||||||||||
|
Woodstream Corp. |
(f) | Household & Personal Products | L+350 | 8/31/14 | 705 | 665 | 673 | |||||||||||||||
|
Woodstream Corp. |
(g) | Household & Personal Products | Prime+375 | 8/31/14 | 1,530 | 1,508 | 1,522 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Senior Secured Loans—First Lien |
1,929,800 | 1,959,963 | ||||||||||||||||||||
|
Unfunded Loan Commitments |
(14,804 | ) | (14,804 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Net Senior Secured Loans—First Lien |
1,914,996 | 1,945,159 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Senior Secured Loans—Second Lien—30.4% |
||||||||||||||||||||||
|
Advance Pierre Foods, Inc. |
(e)(f)(g) | Food & Staples Retailing | L+825 | 1.3% | 10/10/17 | 25,556 | 25,133 | 26,075 | ||||||||||||||
|
Advantage Sales & Marketing Inc. |
(e)(f) | Commercial & Professional Services | L+775 | 1.5% | 6/18/18 | 20,314 | 20,363 | 20,466 | ||||||||||||||
|
Affordable Care, Inc. |
(d)(e)(f)(g)(h) | Health Care Equipment & Services | Prime+825 | 12/26/19 | 40,000 | 39,401 | 39,400 | |||||||||||||||
|
AlixPartners, LLP |
(e) | Diversified Financials | L+925 | 1.5% | 12/27/19 | 15,000 | 14,570 | 15,197 | ||||||||||||||
|
Alliance Laundry Systems LLC |
(d)(e) | Capital Goods | L+825 | 1.3% | 12/10/19 | 4,919 | 4,870 | 4,987 | ||||||||||||||
|
American Racing and Entertainment, LLC |
(g) | Consumer Services | 12.0% | 7/2/18 | 16,800 | 16,227 | 16,632 | |||||||||||||||
|
AssuraMed Holding, Inc. |
(f) | Health Care Equipment & Services | L+800 | 1.3% | 4/24/20 | 10,000 | 9,803 | 10,137 | ||||||||||||||
|
Asurion, LLC |
(d)(e) | Insurance | L+750 | 1.5% | 5/24/19 | 12,229 | 12,179 | 12,623 | ||||||||||||||
|
Attachmate Corp. |
(e)(f) | Software & Services | L+950 | 1.5% | 11/22/18 | 29,000 | 28,145 | 28,608 | ||||||||||||||
|
Audio Visual Services Group, Inc. |
(d)(f)(g) | Technology Hardware & Equipment | L+900 | 1.3% | 4/30/19 | 52,885 | 51,845 | 52,224 | ||||||||||||||
|
BJ’s Wholesale Club, Inc. |
(e)(f) | Food & Staples Retailing | L+850 | 1.3% | 3/26/20 | 8,298 | 8,217 | 8,547 | ||||||||||||||
|
Blackboard Inc. |
(f)(g) | Software & Services | L+1000 | 1.5% | 4/4/19 | 22,000 | 20,107 | 21,197 | ||||||||||||||
See notes to unaudited consolidated financial statements.
19
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate |
Floor |
Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
BNY ConvergEx Group, LLC |
(g) | Software & Services | L+700 | 1.8% | 12/18/17 | $ | 9,000 | $ | 9,021 | $ | 8,533 | |||||||||||
|
Brasa (Holdings) Inc. |
(f) | Consumer Services | L+950 | 1.5% | 1/20/20 | 17,391 | 16,731 | 17,652 | ||||||||||||||
|
Brock Holdings III, Inc. |
(e) | Energy | L+825 | 1.8% | 3/16/18 | 7,756 | 7,660 | 7,815 | ||||||||||||||
|
Camp International Holding Co. |
(d) | Capital Goods | L+875 | 1.3% | 11/29/19 | 6,207 | 6,090 | 6,340 | ||||||||||||||
|
Cannery Casino Resorts, LLC |
(g) | Consumer Services | L+875 | 1.3% | 10/2/19 | 12,000 | 11,767 | 11,470 | ||||||||||||||
|
CHG Buyer Corp. |
(d) | Health Care Equipment & Services | L+775 | 1.3% | 11/20/20 | 5,787 | 5,673 | 5,827 | ||||||||||||||
|
DEI Sales, Inc. |
(f)(g) | Commercial & Professional Services | L+850 | 1.5% | 1/15/18 | 57,500 | 56,734 | 57,500 | ||||||||||||||
|
EquiPower Resources Holdings, LLC |
(d) | Utilities | L+850 | 1.5% | 6/21/19 | 7,000 | 6,868 | 7,204 | ||||||||||||||
|
FR Brand Acquisition Corp. |
(e)(g)(i) | Energy | L+975 | 1.3% | 10/23/19 | 36,000 | 34,475 | 35,580 | ||||||||||||||
|
Fram Group Holdings Inc. |
(e) | Automobiles & Components | L+900 | 1.5% | 1/29/18 | 7,000 | 6,972 | 6,650 | ||||||||||||||
|
Hubbard Radio, LLC |
(f) | Telecommunication Services | L+725 | 1.5% | 4/30/18 | 1,429 | 1,417 | 1,457 | ||||||||||||||
|
ILC Industries, LLC |
(f)(g) | Capital Goods | L+1000 | 1.5% | 6/14/19 | 37,000 | 35,681 | 36,630 | ||||||||||||||
|
JHCI Acquisition, Inc. |
(g) | Transportation | L+550 | 12/19/14 | 11,250 | 10,549 | 10,144 | |||||||||||||||
|
Kronos Inc. |
(d)(e)(f) | Software & Services | L+850 | 1.3% | 4/30/20 | 30,769 | 30,466 | 30,846 | ||||||||||||||
|
LM U.S. Member LLC |
Transportation | L+825 | 1.3% | 10/15/20 | 9,375 | 9,236 | 9,457 | |||||||||||||||
|
Multi Packaging Solutions, Inc. |
(f) | Commercial & Professional Services | L+900 | 1.3% | 5/4/19 | 23,250 | 22,903 | 22,785 | ||||||||||||||
|
NES Rentals Holdings, Inc. |
(g) | Capital Goods | L+1150 | 1.8% | 10/14/14 | 8,500 | 8,461 | 8,500 | ||||||||||||||
|
Paw Luxco II Sarl |
(j) | Consumer Durables & Apparel | EURIBOR+950 | 1/29/19 | € | 20,000 | 23,768 | 23,190 | ||||||||||||||
|
Pelican Products, Inc. |
(d) | Capital Goods | L+1000 | 1.5% | 6/14/19 | $ | 6,667 | 6,541 | 6,633 | |||||||||||||
|
Pharmaceutical Research Associates, Inc. |
(f) | Health Care Equipment & Services | L+925 | 1.3% | 11/27/19 | 25,000 | 24,751 | 25,266 | ||||||||||||||
|
Pregis Corp. |
(f)(g) | Capital Goods | L+1000 | 1.5% | 3/23/18 | 45,000 | 44,211 | 44,550 | ||||||||||||||
|
Samson Investment Co. |
(d) | Energy | L+475 | 1.3% | 9/25/18 | 5,515 | 5,475 | 5,581 | ||||||||||||||
|
Sedgwick CMS Holdings Inc. |
Commercial & Professional Services | L+750 | 1.5% | 5/30/17 | 500 | 500 | 508 | |||||||||||||||
|
Sensus U.S.A. Inc. |
(d)(e) | Capital Goods | L+725 | 1.3% | 5/9/18 | 8,571 | 8,577 | 8,614 | ||||||||||||||
|
Sheridan Holdings, Inc. |
(f) | Health Care Equipment & Services | L+775 | 1.3% | 7/1/19 | 2,727 | 2,702 | 2,769 | ||||||||||||||
|
Smart & Final Inc. |
(g) | Food & Staples Retailing | L+925 | 1.3% | 11/16/20 | 6,400 | 6,209 | 6,464 | ||||||||||||||
|
Southern Pacific Resource Corp. |
(e)(f)(j) | Energy | Prime+750 | 1/7/16 | 13,693 | 13,571 | 13,878 | |||||||||||||||
|
SRAM, LLC |
(d) | Consumer Durables & Apparel | L+700 | 1.5% | 12/7/18 | 5,000 | 4,960 | 5,088 | ||||||||||||||
|
Stadium Management Corp. |
(f) | Consumer Services | L+950 | 1.3% | 12/7/18 | 23,529 | 23,095 | 23,647 | ||||||||||||||
|
TriZetto Group, Inc. |
Software & Services | L+725 | 1.3% | 3/27/19 | 8,372 | 8,250 | 8,337 | |||||||||||||||
|
Venoco, Inc. |
(d)(g) | Energy | L+700 | 1.5% | 6/30/17 | 7,857 | 7,705 | 8,024 | ||||||||||||||
|
Vertafore, Inc. |
(e) | Software & Services | L+825 | 1.5% | 10/27/17 | 14,750 | 14,703 | 14,833 | ||||||||||||||
|
Wall Street Systems Holdings, Inc. |
(d) | Software & Services | L+800 | 1.3% | 4/24/20 | 7,000 | 6,862 | 7,018 | ||||||||||||||
|
Web.com Group, Inc. |
(d)(f)(j) | Software & Services | L+950 | 1.5% | 10/26/18 | 4,187 | 4,098 | 4,323 | ||||||||||||||
See notes to unaudited consolidated financial statements.
20
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate |
Floor |
Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
WP CPP Holdings, LLC |
(d)(e)(h)(i) | Capital Goods | L+925 | 1.3% | 6/28/20 | $ | 15,000 | $ | 14,850 | $ | 15,150 | |||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Senior Secured Loans—Second Lien |
752,392 | 764,356 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Senior Secured Bonds—18.6% |
||||||||||||||||||||||
|
Advanced Lighting Technologies, Inc. |
(f)(g) | Materials | 10.5% | 6/1/19 | 78,500 | 76,710 | 78,010 | |||||||||||||||
|
Allen Systems Group, Inc. |
(f) | Software & Services | 10.5% | 11/15/16 | 15,323 | 14,205 | 11,186 | |||||||||||||||
|
Aspect Software, Inc. |
(e) | Software & Services | 10.6% | 5/15/17 | 4,000 | 4,000 | 3,631 | |||||||||||||||
|
Avaya Inc. |
(e)(f)(g) | Technology Hardware & Equipment | 7.0% | 4/1/19 | 23,500 | 21,792 | 22,002 | |||||||||||||||
|
Avaya Inc. |
(e) | Technology Hardware & Equipment | 9.0% | 4/1/19 | 5,000 | 5,000 | 5,075 | |||||||||||||||
|
Cenveo Corp. |
(e)(f) | Commercial & Professional Services | 8.9% | 2/1/18 | 23,788 | 21,717 | 22,711 | |||||||||||||||
|
Chester Downs & Marina, LLC |
(e) | Consumer Services | 9.3% | 2/1/20 | 3,750 | 3,784 | 3,700 | |||||||||||||||
|
Clear Channel Communications, Inc. |
(d)(e)(f)(i) | Media | 9.0% | 12/15/19 | 8,254 | 7,498 | 7,606 | |||||||||||||||
|
Eastman Kodak Co. |
(f)(l) | Consumer Durables & Apparel | 10.6% | 3/15/19 | 14,500 | 12,136 | 11,932 | |||||||||||||||
|
Eastman Kodak Co. |
(l) | Consumer Durables & Apparel | 9.8% | 3/1/18 | 18,992 | 13,990 | 15,599 | |||||||||||||||
|
Edgen Murray Corp. |
(e)(j) | Capital Goods | 8.8% | 11/1/20 | 1,400 | 1,390 | 1,414 | |||||||||||||||
|
Energy Future Intermediate Holding Co. LLC |
(f) | Utilities | 11.8% | 3/1/22 | 14,250 | 14,689 | 15,924 | |||||||||||||||
|
Energy Future Intermediate Holding Co. LLC |
(g) | Utilities | 6.9% | 8/15/17 | 1,100 | 1,100 | 1,173 | |||||||||||||||
|
First Data Corp. |
(g) | Software & Services | 6.8% | 11/1/20 | 2,000 | 1,985 | 2,037 | |||||||||||||||
|
HOA Restaurant Group, LLC |
(f) | Consumer Services | 11.3% | 4/1/17 | 14,100 | 14,121 | 12,985 | |||||||||||||||
|
INEOS Finance Plc |
(e)(j) | Materials | 7.5% | 5/1/20 | 850 | 850 | 890 | |||||||||||||||
|
INEOS Finance Plc |
(e)(j) | Materials | 8.4% | 2/15/19 | 3,000 | 3,000 | 3,238 | |||||||||||||||
|
JW Aluminum Co. |
(f) | Materials | 11.5% | 11/15/17 | 20,000 | 19,633 | 19,400 | |||||||||||||||
|
Kinetic Concepts, Inc. |
(e)(f) | Health Care Equipment & Services | 10.5% | 11/1/18 | 18,660 | 18,093 | 19,640 | |||||||||||||||
|
Neff Rental LLC |
Capital Goods | 9.6% | 5/15/16 | 1,352 | 1,363 | 1,402 | ||||||||||||||||
|
NES Rentals Holdings, Inc. |
(f)(g) | Capital Goods | 12.3% | 4/15/15 | 38,375 | 38,683 | 39,573 | |||||||||||||||
|
Paetec Holdings Corp. |
(e)(j) | Telecommunication Services | 8.9% | 6/30/17 | 4,680 | 4,767 | 5,031 | |||||||||||||||
|
Palace Entertainment Holdings, LLC |
(e) | Consumer Services | 8.9% | 4/15/17 | 2,400 | 2,400 | 2,541 | |||||||||||||||
|
PH Holding LLC |
(f) | Consumer Durables & Apparel | 9.8% | 12/31/17 | 10,000 | 9,810 | 10,100 | |||||||||||||||
|
Reynolds Group Holdings, Inc. |
(e)(j) | Consumer Durables & Apparel | 5.8% | 10/15/20 | 6,750 | 6,750 | 6,986 | |||||||||||||||
|
Reynolds Group Holdings, Inc. |
(e)(j) | Consumer Durables & Apparel | 7.1% | 4/15/19 | 3,000 | 3,121 | 3,253 | |||||||||||||||
|
Ryerson Inc. |
(e) | Capital Goods | 9.0% | 10/15/17 | 3,100 | 3,100 | 3,149 | |||||||||||||||
|
Sorenson Communication, Inc. |
(g) | Telecommunication Services | 10.5% | 2/1/15 | 39,000 | 33,702 | 32,525 | |||||||||||||||
|
Speedy Cash Intermediate Holdings Corp. |
(f) | Diversified Financials | 10.8% | 5/15/18 | 16,000 | 16,164 | 17,104 | |||||||||||||||
|
Symbion, Inc. |
(e)(f) | Health Care Equipment & Services | 8.0% | 6/15/16 | 12,460 | 12,327 | 12,881 | |||||||||||||||
See notes to unaudited consolidated financial statements.
21
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate |
Floor |
Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Technicolor SA |
(g)(j) | Media | 9.4% | 4/23/16 | $ | 2,241 | $ | 2,078 | $ | 2,314 | ||||||||||||
|
Technicolor SA |
(g)(j) | Media | 9.4% | 5/26/17 | 13,495 | 12,478 | 13,934 | |||||||||||||||
|
Texas Competitive Electric Holdings Co. LLC |
(f) | Utilities | 11.5% | 10/1/20 | 10,000 | 9,916 | 7,909 | |||||||||||||||
|
Titlemax, Inc. |
(f) | Diversified Financials | 13.3% | 7/15/15 | 14,500 | 15,073 | 16,149 | |||||||||||||||
|
Tops Markets LLC |
(e) | Food & Staples Retailing | 8.9% | 12/15/17 | 2,750 | 2,750 | 2,851 | |||||||||||||||
|
Travelport LLC |
(g) | Consumer Services | L+600 PIK | 12/1/16 | 22,933 | 18,111 | 18,404 | |||||||||||||||
|
Univision Communications Inc. |
(f) | Media | 6.9% | 5/15/19 | 6,800 | 6,754 | 7,128 | |||||||||||||||
|
Viasystems Group Inc. |
(e)(j) | Technology Hardware & Equipment | 7.9% | 5/1/19 | 5,000 | 5,000 | 4,912 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Senior Secured Bonds |
460,040 | 466,299 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Subordinated Debt—20.4% |
||||||||||||||||||||||
|
Advantage Sales & Marketing Inc. |
(g) | Commercial & Professional Services | 13.0% | 12/23/18 | 10,000 | 9,818 | 9,850 | |||||||||||||||
|
Alta Mesa Holdings, L.P. |
(e) | Energy | 9.6% | 10/15/18 | 16,700 | 16,557 | 17,264 | |||||||||||||||
|
Asurion, LLC |
(f) | Insurance | L+950 | 1.5% | 8/16/19 | 15,000 | 14,586 | 16,000 | ||||||||||||||
|
Aurora Diagnostics, LLC |
(f) | Pharmaceuticals, Biotechnology & Life Sciences | 10.8% | 1/15/18 | 20,065 | 20,120 | 18,761 | |||||||||||||||
|
Aurora USA Oil & Gas, Inc. |
(j) | Energy | 9.9% | 2/15/17 | 3,000 | 3,041 | 3,236 | |||||||||||||||
|
BakerCorp. International Inc. |
(f) | Commercial & Professional Services | 8.3% | 6/1/19 | 5,000 | 5,000 | 5,069 | |||||||||||||||
|
Bresnan Broadband Holdings LLC |
(e)(j) | Telecommunication Services | 8.0% | 12/15/18 | 5,000 | 5,000 | 5,419 | |||||||||||||||
|
Calumet Lubricants Co., L.P. |
(f)(j) | Energy | 9.4% | 5/1/19 | 5,800 | 5,800 | 6,330 | |||||||||||||||
|
Calumet Lubricants Co., L.P. |
(f)(j) | Energy | 9.6% | 8/1/20 | 1,500 | 1,475 | 1,646 | |||||||||||||||
|
Cincinnati Bell Inc. |
(e)(j) | Telecommunication Services | 8.4% | 10/15/20 | 8,895 | 8,750 | 9,651 | |||||||||||||||
|
Comstock Resources, Inc. |
(e)(f)(j) | Energy | 9.5% | 6/15/20 | 21,000 | 20,061 | 22,301 | |||||||||||||||
|
Cumulus Media Inc. |
(f)(j) | Media | 7.8% | 5/1/19 | 5,000 | 4,453 | 4,895 | |||||||||||||||
|
Del Monte Foods Co. |
(e) | Food, Beverage & Tobacco | 7.6% | 2/15/19 | 3,500 | 3,498 | 3,654 | |||||||||||||||
|
Entercom Radio, LLC |
(e)(j) | Media | 10.5% | 12/1/19 | 13,500 | 13,360 | 14,873 | |||||||||||||||
|
EPL Oil & Gas, Inc. |
(e)(j) | Energy | 8.3% | 2/15/18 | 3,200 | 3,169 | 3,300 | |||||||||||||||
|
First Data Corp. |
(g) | Software & Services | 12.6% | 1/15/21 | 5,000 | 5,309 | 5,284 | |||||||||||||||
|
Flanders Corp. |
(g) | Capital Goods | 10.0%, 3.8% PIK | 5/14/18 | 8,153 | 7,969 | 8,194 | |||||||||||||||
|
Gymboree Corp. |
(g) | Consumer Durables & Apparel | 9.1% | 12/1/18 | 7,000 | 6,418 | 6,306 | |||||||||||||||
|
Harland Clarke Holdings Corp. |
(g) | Commercial & Professional Services | 9.5% | 5/15/15 | 2,689 | 2,432 | 2,473 | |||||||||||||||
|
Infiltrator Systems, Inc. |
Capital Goods | 12%, 2.0% PIK | 3/11/18 | 63,558 | 62,508 | 65,942 | ||||||||||||||||
See notes to unaudited consolidated financial statements.
22
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate | Floor | Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Ipreo Holdings LLC |
(f) | Software & Services | 11.8% | 8/15/18 | $ | 10,000 | $ | 9,960 | $ | 10,600 | ||||||||||||
|
J.Crew Group, Inc. |
Consumer Durables & Apparel | 8.1% | 3/1/19 | 1,200 | 1,200 | 1,273 | ||||||||||||||||
|
JBS U.S.A. LLC |
(e)(j) | Food, Beverage & Tobacco | 8.3% | 2/1/20 | 3,000 | 2,960 | 3,173 | |||||||||||||||
|
Kinetic Concepts, Inc. |
(e)(f)(g) | Health Care Equipment & Services | 12.5% | 11/1/19 | 26,700 | 25,405 | 25,565 | |||||||||||||||
|
Lin Television Corp. |
(e)(j) | Media | 6.4% | 1/15/21 | 750 | 750 | 787 | |||||||||||||||
|
Lone Pine Resources Canada Ltd. |
(g)(j) | Energy | 10.4% | 2/15/17 | 5,000 | 4,938 | 4,676 | |||||||||||||||
|
MModal Inc. |
(e)(g) | Health Care Equipment & Services | 10.8% | 8/15/20 | 2,418 | 2,370 | 2,249 | |||||||||||||||
|
Monitronics International, Inc. |
(e)(j) | Consumer Services | 9.1% | 4/1/20 | 2,250 | 2,250 | 2,331 | |||||||||||||||
|
Mood Media Corp. |
(e)(f)(j) | Media | 9.3% | 10/15/20 | 24,250 | 24,277 | 25,252 | |||||||||||||||
|
The Pantry, Inc. |
(g)(j) | Food & Staples Retailing | 8.4% | 8/1/20 | 5,500 | 5,500 | 5,789 | |||||||||||||||
|
Petco Holdings, Inc. |
(e) | Retailing | 8.5% | 10/15/17 | 1,000 | 995 | 1,034 | |||||||||||||||
|
Pharmaceutical Product Development, Inc. |
(g) | Health Care Equipment & Services | 9.5% | 12/1/19 | 2,900 | 2,900 | 3,302 | |||||||||||||||
|
QR Energy, L.P. |
(e)(j) | Energy | 9.3% | 8/1/20 | 3,250 | 3,206 | 3,441 | |||||||||||||||
|
Quicksilver Resources Inc. |
(e)(j) | Energy | 7.1% | 4/1/16 | 1,000 | 891 | 802 | |||||||||||||||
|
Resolute Energy Corp. |
(e)(j) | Energy | 8.5% | 5/1/20 | 10,500 | 10,629 | 10,671 | |||||||||||||||
|
Samson Investment Co. |
(e)(f) | Energy | 9.8% | 2/15/20 | 19,420 | 19,630 | 20,585 | |||||||||||||||
|
SandRidge Energy, Inc. |
(e)(j) | Energy | 8.1% | 10/15/22 | 7,500 | 7,500 | 8,234 | |||||||||||||||
|
Sequel Industrial Products Holdings, LLC |
(g) | Energy | 12.0%, 2.5% PIK | 5/10/18 | 15,500 | 15,214 | 15,655 | |||||||||||||||
|
Sidewinder Drilling Inc. |
(f)(g) | Capital Goods | 9.8% | 11/15/19 | 8,000 | 8,000 | 8,030 | |||||||||||||||
|
Symmetry Medical Inc. |
(g)(j) | Health Care Equipment & Services | 12.0%, 2.0% PIK | 12/29/17 | 33,170 | 32,305 | 34,413 | |||||||||||||||
|
ThermaSys Corp. |
Capital Goods | 10.0%, 2.5% PIK | 12/31/16 | 86,210 | 84,674 | 86,210 | ||||||||||||||||
|
Univar Inc. |
(f) | Materials | 12.0% | 6/30/18 | 3,000 | 2,953 | 3,045 | |||||||||||||||
|
Viking Cruises, Ltd. |
(e)(j) | Consumer Services | 8.5% | 10/15/22 | 4,075 | 4,075 | 4,406 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Subordinated Debt |
491,906 | 511,971 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Collateralized Securities—4.7% |
||||||||||||||||||||||
|
Apidos CDO IV Class E |
(g)(j) | Diversified Financials | L+360 | 10/27/18 | 2,000 | 1,214 | 1,660 | |||||||||||||||
|
Ares 2007 CLO 11A Class E |
(g)(j) | Diversified Financials | L+600 | 10/11/21 | 4,775 | 3,221 | 4,320 | |||||||||||||||
|
Ares 2007 CLO 12X Class E |
(g)(j) | Diversified Financials | L+575 | 11/25/20 | 2,252 | 1,820 | 2,128 | |||||||||||||||
|
Carlyle Azure CLO Class Income |
(j) | Diversified Financials | 23.3% | 5/27/20 | 28,000 | 13,099 | 18,141 | |||||||||||||||
|
Dryden CDO 23A Class E |
(j) | Diversified Financials | L+700 | 7/20/23 | 4,500 | 3,634 | 3,984 | |||||||||||||||
|
Dryden CDO 23A Class Subord. |
(j) | Diversified Financials | 15.2% | 7/17/23 | 10,000 | 7,650 | 8,710 | |||||||||||||||
|
Galaxy VII CLO Class Subord. |
(j) | Diversified Financials | 28.9% | 10/13/18 | 2,000 | 886 | 1,422 | |||||||||||||||
|
Lightpoint CLO 2006 V Class D |
(g)(j) | Diversified Financials | L+365 | 8/5/19 | 6,500 | 3,490 | 5,168 | |||||||||||||||
See notes to unaudited consolidated financial statements.
23
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry | Rate |
Floor |
Maturity |
Principal
Amount (b) |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||
|
Mountain View CLO II Class Pref. |
(j) | Diversified Financials | 34.5% | 1/12/21 | $ | 9,225 | $ | 4,658 | $ | 8,819 | ||||||||||||
|
Octagon CLO 2006 10A Class Income |
(j) | Diversified Financials | 54.0% | 10/18/20 | 4,375 | 2,346 | 4,472 | |||||||||||||||
|
Rampart CLO 2007 1A Class Subord. |
(j) | Diversified Financials | 55.8% | 10/25/21 | 10,000 | 5,290 | 11,973 | |||||||||||||||
|
Stone Tower CLO VI Class Subord. |
(g)(j) | Diversified Financials | 48.9% | 4/17/21 | 5,000 | 3,067 | 6,226 | |||||||||||||||
|
Wind River CLO Ltd. 2012 1A Class Sub B |
(j) | Diversified Financials | 16.8% | 1/15/24 | 42,504 | 41,036 | 41,971 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Collateralized Securities |
91,411 | 118,994 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Number
of Shares |
Amortized
Cost |
Fair
Value (c) |
||||||||||||||||||||
|
Equity/Other—5.1% (k) |
||||||||||||||||||||||
|
Aquilex Corp., Common Equity, Class A Shares |
(f)(l) | Energy | 15,128 | 2,266 | 5,977 | |||||||||||||||||
|
Aquilex Corp., Common Equity, Class B Shares |
(f)(g)(l) | Energy | 32,637 | 4,889 | 12,895 | |||||||||||||||||
|
ERC Ireland Holdings Ltd., Common Equity |
(i)(j)(l) | Telecommunication Services | 13,510 | — | — | |||||||||||||||||
|
ERC Ireland Holdings Ltd., Warrants |
(i)(j)(l) | Telecommunication Services | 2,617 | — | — | |||||||||||||||||
|
Flanders Corp., Common Equity |
(g)(l) | Capital Goods | 5,000,000 | 5,000 | 6,500 | |||||||||||||||||
|
Florida Gaming Centers, Inc., Warrants |
(g)(l) | Consumer Services | 71 | — | 99 | |||||||||||||||||
|
Florida Gaming Corp., Warrants |
(g)(l) | Consumer Services | 226,635 | — | — | |||||||||||||||||
|
Ipreo Holdings LLC, Common Equity |
(g)(l) | Software & Services | 1,000,000 | 1,000 | 1,350 | |||||||||||||||||
|
JW Aluminum Co., Common Equity |
(g)(l) | Materials | 37,500 | 3,225 | — | |||||||||||||||||
|
Leading Edge Aviation Services, Inc., Common Equity |
(g)(l) | Capital Goods | 2,623 | 262 | — | |||||||||||||||||
|
Leading Edge Aviation Services, Inc., Preferred Equity |
(g)(l) | Capital Goods | 738 | 738 | 608 | |||||||||||||||||
|
Micronics, Inc., Common Equity |
(g)(l) | Energy | 12,057 | 50 | — | |||||||||||||||||
|
Micronics, Inc., Preferred Equity |
(l) | Energy | 283,947 | 11,181 | 6,673 | |||||||||||||||||
|
Plains Offshore Operations Inc., Preferred Equity |
(f)(g) | Energy | 523,068 | 51,941 | 55,924 | |||||||||||||||||
|
Plains Offshore Operations Inc., Warrants |
(f)(g)(l) | Energy | 1,013,444 | 1,722 | 2,432 | |||||||||||||||||
|
Safariland, LLC, Common Equity |
(g)(l) | Capital Goods | 25,000 | 2,500 | 3,738 | |||||||||||||||||
|
Safariland, LLC, Preferred Equity |
(g) | Capital Goods | 1,095 | 10,031 | 10,572 | |||||||||||||||||
|
Safariland, LLC, Warrants |
(g)(l) | Capital Goods | 2,263 | 246 | 338 | |||||||||||||||||
|
Sequel Industrial Products Holdings, LLC, Common Equity |
(g)(l) | Energy | 3,330,600 | 3,400 | 4,330 | |||||||||||||||||
|
Sequel Industrial Products Holdings, LLC, Preferred Equity |
(g)(l) | Energy | 87,607 | 8,354 | 8,366 | |||||||||||||||||
|
Sequel Industrial Products Holdings, LLC, Warrants |
(g)(l) | Energy | 20,681 | 12 | 16 | |||||||||||||||||
See notes to unaudited consolidated financial statements.
24
FS Investment Corporation
Consolidated Schedule of Investments (continued)
As of December 31, 2012
(in thousands, except share amounts)
|
Portfolio Company (a) |
Footnotes | Industry |
Number
of Shares |
Amortized
Cost |
Fair
Value (c) |
|||||||||||||||||
|
ThermaSys Corp., Common Equity |
(g)(l) | Capital Goods | 51,813 | $ | 1 | $ | 694 | |||||||||||||||
|
ThermaSys Corp., Preferred Equity |
(g)(l) | Capital Goods | 51,813 | 5,181 | 5,181 | |||||||||||||||||
|
VPG Group Holdings LLC, Class A-2 Units |
(g)(l) | Materials | 2,500,000 | 2,500 | 2,250 | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Total Equity/Other |
114,499 | 127,943 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
TOTAL INVESTMENTS—156.7% |
$ | 3,825,244 | 3,934,722 | |||||||||||||||||||
|
|
|
|||||||||||||||||||||
|
LIABILITIES IN EXCESS OF OTHER ASSETS—(56.7%) |
(1,422,984 | ) | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||
|
NET ASSETS—100.0% |
$ | 2,511,738 | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||
| (a) | Security may be an obligation of one or more entities affiliated with the named company. |
| (b) | Denominated in U.S. dollars unless otherwise noted. |
| (c) | Fair value determined by the Company’s board of directors (see Note 7). |
| (d) | Security or portion thereof held within Arch Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Citibank, N.A. (see Note 8). |
| (e) | Security or portion thereof held within Broad Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8). |
| (f) | Security or portion thereof held within Locust Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the Class A Notes issued to Race Street Funding LLC pursuant to an indenture with Citibank, N.A., as trustee (see Note 8). |
| (g) | Security or portion thereof held within Race Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the repurchase agreement with JPMorgan Chase Bank, N.A., London Branch (see Note 8). |
| (h) | Security or portion thereof held within Walnut Street Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Wells Fargo Bank, National Association (see Note 8). |
| (i) | Position or portion thereof unsettled as of December 31, 2012. |
| (j) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of December 31, 2012, 83.4% of the Company’s total assets represented qualifying assets. |
| (k) | Listed investments may be treated as debt for GAAP or tax purposes. |
| (l) | Security is non-income producing. |
See notes to unaudited consolidated financial statements.
25
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements
(in thousands, except share and per share amounts)
Note 1. Principal Business and Organization
FS Investment Corporation, or the Company, was incorporated under the general corporation laws of the State of Maryland on December 21, 2007 and formally commenced operations on January 2, 2009. The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be treated for federal income tax purposes, and intends to qualify annually, as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of September 30, 2013, the Company had five wholly-owned financing subsidiaries, Broad Street Funding LLC, or Broad Street, Arch Street Funding LLC, or Arch Street, Locust Street Funding LLC, or Locust Street, Race Street Funding LLC, or Race Street, and Walnut Street Funding LLC, or Walnut Street, and a sixth wholly-owned subsidiary, IC American Energy Investments, Inc., through which it holds an equity interest in American Energy Ohio Holdings, LLC, a non-controlled and non-affiliated portfolio company. The unaudited consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries as of September 30, 2013. All significant intercompany transactions have been eliminated in consolidation.
The Company’s investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation by investing primarily in senior secured loans and second lien secured loans of private U.S. companies. The Company seeks to generate superior risk-adjusted returns by focusing on debt investments in a broad array of private U.S. companies, including middle market companies, which the Company defines as companies with annual revenues of $50 million to $2.5 billion at the time of investment. The Company may purchase interests in loans through secondary market transactions in the “over-the-counter” market for institutional loans or directly from its target companies as primary market investments.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2012 included in the Company’s annual report on Form 10-K. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The December 31, 2012 consolidated balance sheet and consolidated schedule of investments are derived from the Company’s audited consolidated financial statements as of and for the year ended December 31, 2012. The Company has evaluated the impact of subsequent events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.
Use of Estimates: The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Many of the amounts have been rounded, and all amounts are in thousands, except share and per share amounts.
26
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
Capital Gains Incentive Fee: The Company has entered into an investment advisory and administrative services agreement with FB Income Advisor, LLC, or FB Advisor, dated as of February 12, 2008, which was amended on August 5, 2008, and which, as amended, is referred to herein as the investment advisory and administrative services agreement. Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). Such fee will equal 20.0% of the Company’s incentive fee capital gains (i.e., the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.
While the investment advisory and administrative services agreement neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute of Certified Public Accountants, or AICPA, Technical Practice Aid for investment companies, commencing during the quarter ended December 31, 2010, the Company changed its methodology for accruing for this incentive fee to include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FB Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though FB Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
Subordinated Income Incentive Fee: Pursuant to the investment advisory and administrative services agreement, FB Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 2.0% per quarter, or an annualized hurdle rate of 8.0%. As a result, FB Advisor will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 2.0%. Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FB Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.5%, or 10.0% annually, of adjusted capital. Thereafter, FB Advisor will receive 20.0% of pre-incentive fee net investment income.
In connection with the Company’s 2013 annual meeting of stockholders, the Company received stockholder approval to amend the investment advisory and administrative services agreement effective upon the listing of the Company’s common stock on a national securities exchange. Upon such event, if any, the hurdle rate used to compute the subordinated incentive fee on income will be based on the net asset value of the Company’s assets rather than adjusted capital. In addition to the amendments approved by stockholders, the subordinated incentive fee on income will become subject to a total return requirement, which provides that no incentive fee in respect of the Company’s pre-incentive fee net investment income will be payable except to the extent that 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and eleven preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the eleven preceding calendar
27
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
quarters. In other words, any subordinated incentive fee on income that is payable in a calendar quarter will be limited to the lesser of (i) 20.0% of the amount by which the Company’s pre-incentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20.0% of the cumulative net increase in net assets resulting from operations for the then-current and eleven preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the eleven preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the sum of pre-incentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation of the Company for the then-current and eleven preceding calendar quarters. There will be no accumulation of amounts on the hurdle rate from quarter to quarter and, accordingly, there will be no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there will be no delay of payment if prior quarters are below the quarterly hurdle rate.
Reclassifications: Certain amounts in the unaudited consolidated financial statements for the three and nine months ended September 30, 2012 have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements for the three and nine months ended September 30, 2013. These reclassifications had no material impact on the Company’s consolidated financial position, results of operations or cash flows as previously reported.
Note 3. Share Transactions
Below is a summary of transactions with respect to shares of the Company’s common stock during the nine months ended September 30, 2013 and 2012:
| Nine Months Ended September 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
|
Gross Proceeds from Offering (1) |
— | $ | — | 83,239,728 | $ | 886,432 | ||||||||||
|
Reinvestment of Distributions |
7,984,869 | 80,950 | 7,479,245 | 72,417 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Gross Proceeds |
7,984,869 | 80,950 | 90,718,973 | 958,849 | ||||||||||||
|
Commissions and Dealer Manager Fees |
— | — | — | (83,084 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net Proceeds to Company |
7,984,869 | 80,950 | 90,718,973 | 875,765 | ||||||||||||
|
Share Repurchase Program |
(2,685,390 | ) | (27,109 | ) | (1,207,919 | ) | (11,670 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net Proceeds from Share Transactions |
5,299,479 | $ | 53,841 | 89,511,054 | $ | 864,095 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Following the closing of its continuous public offering in May 2012, the Company has continued to issue shares only pursuant to its distribution reinvestment plan. |
Public Offering of Shares
In May 2012, the Company closed its continuous public offering of shares of common stock to new investors. The Company sold 247,454,171 shares (as adjusted for stock distributions) of common stock for gross proceeds of $2,605,158 in its continuous public offering. Following the closing of its continuous public offering, the Company has continued to issue shares pursuant to its distribution reinvestment plan. As of October 29, 2013, the Company had sold a total of 263,357,017 shares (as adjusted for stock distributions) of common stock and
28
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 3. Share Transactions (continued)
raised total gross proceeds of $2,763,697, including approximately $1,000 contributed by the principals of the Company’s investment adviser in February 2008.
During the nine months ended September 30, 2013 and 2012, the Company sold 7,984,869 and 90,718,973 shares for gross proceeds of $80,950 and $958,849 at an average price per share of $10.14 and $10.57, respectively. The gross proceeds received during the nine months ended September 30, 2012 include reinvested stockholder distributions of $72,417, for which the Company issued 7,479,245 shares of common stock. During the period from October 1, 2013 to October 29, 2013, the Company issued 914,401 shares of common stock for gross proceeds of $9,327 at a price per share of $10.20 pursuant to its distribution reinvestment plan.
The proceeds from the issuance of common stock as presented on the Company’s unaudited consolidated statements of changes in net assets and unaudited consolidated statements of cash flows are presented net of selling commissions and dealer manager fees of $0 and $83,084 for the nine months ended September 30, 2013 and 2012, respectively.
Share Repurchase Program
The Company intends to conduct quarterly tender offers pursuant to its share repurchase program prior to the time it completes a liquidity event. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:
| • |
the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales); |
| • |
the liquidity of the Company’s assets (including fees and costs associated with disposing of assets); |
| • |
the Company’s investment plans and working capital requirements; |
| • |
the relative economies of scale with respect to the Company’s size; |
| • |
the Company’s history in repurchasing shares of common stock or portions thereof; and |
| • |
the condition of the securities markets. |
The Company intends to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock it can repurchase with the proceeds it receives from the sale of shares of common stock under its distribution reinvestment plan. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. In addition, the Company will limit the number of shares of common stock to be repurchased in any calendar year to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above.
Under the share repurchase program, the Company intends to offer to repurchase shares of common stock on each date of repurchase at a price equal to the price at which shares of common stock are issued pursuant to the Company’s distribution reinvestment plan on the distribution date coinciding with the applicable share
29
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 3. Share Transactions (continued)
repurchase date. The repurchase price is determined by the Company’s board of directors or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per share of the Company’s common stock (as determined in good faith by the Company’s board of directors or a committee thereof) immediately prior to the repurchase date and (ii) not more than 2.5% greater than the net asset value per share as of such date.
The Company’s board of directors may amend, suspend or terminate the share repurchase program at any time, upon 30 days’ notice. The first such tender offer commenced in March 2010, and the repurchase occurred in connection with the Company’s April 1, 2010 semi-monthly closing.
The following table sets forth the number of shares of common stock repurchased by the Company under its share repurchase program during the nine months ended September 30, 2013 and 2012:
|
For the Three Months Ended |
Repurchase Date |
Shares
Repurchased |
Percentage
of Shares Tendered That Were Repurchased |
Repurchase
Price Per Share |
Aggregate
Consideration for Repurchased Shares |
|||||||||||||
|
Fiscal 2012 |
||||||||||||||||||
|
December 31, 2011 |
January 3, 2012 | 385,526 | 100 | % | $ | 9.585 | $ | 3,695 | ||||||||||
|
March 31, 2012 |
April 2, 2012 | 411,815 | 100 | % | $ | 9.675 | $ | 3,984 | ||||||||||
|
June 30, 2012 |
July 2, 2012 | 410,578 | 100 | % | $ | 9.720 | $ | 3,991 | ||||||||||
|
Fiscal 2013 |
||||||||||||||||||
|
December 31, 2012 |
January 2, 2013 | 883,047 | 100 | % | $ | 10.000 | $ | 8,830 | ||||||||||
|
March 31, 2013 |
April 1, 2013 | 1,053,119 | 100 | % | $ | 10.100 | $ | 10,637 | ||||||||||
|
June 30, 2013 |
July 1, 2013 | 749,224 | 100 | % | $ | 10.200 | $ | 7,642 | ||||||||||
On October 1, 2013, the Company repurchased 656,541 shares (representing 100% of shares of common stock tendered for repurchase) at $10.20 per share for aggregate consideration totaling $6,697.
Note 4. Related Party Transactions
Compensation of the Dealer Manager and Investment Adviser
Pursuant to the investment advisory and administrative services agreement, FB Advisor is entitled to an annual base management fee of 2.0% of the average value of the Company’s gross assets and an incentive fee based on the Company’s performance. The Company commenced accruing fees under the investment advisory and administrative services agreement on January 2, 2009, upon commencement of the Company’s operations. Management fees are paid on a quarterly basis in arrears.
The incentive fee consists of three parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears, equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 2.0% per quarter, or an annualized hurdle rate of 8.0%. As a result, FB Advisor will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 2.0%. Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate,
30
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (continued)
FB Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.5%, or 10.0% annually, of adjusted capital. This “catch-up” feature allows FB Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FB Advisor will receive 20.0% of pre-incentive fee net investment income.
In connection with the Company’s 2013 annual meeting of stockholders, the Company received stockholder approval to amend the investment advisory and administrative services agreement effective upon the listing of the Company’s common stock on a national securities exchange. Upon such event, if any, the hurdle rate used to compute the subordinated incentive fee on income will be based on the net asset value of the Company’s assets rather than adjusted capital. In addition to the amendments approved by stockholders, the subordinated incentive fee on income will become subject to a total return requirement, which provides that no incentive fee in respect of the Company’s pre-incentive fee net investment income will be payable except to the extent that 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and eleven preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the eleven preceding calendar quarters. In other words, any subordinated incentive fee on income that is payable in a calendar quarter will be limited to the lesser of (i) 20.0% of the amount by which the Company’s pre-incentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20.0% of the cumulative net increase in net assets resulting from operations for the then-current and eleven preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the eleven preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the sum of pre-incentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation of the Company for the then-current and eleven preceding calendar quarters. There will be no accumulation of amounts on the hurdle rate from quarter to quarter and, accordingly, there will be no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there will be no delay of payment if prior quarters are below the quarterly hurdle rate.
The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equal the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The Company accrues for the capital gains incentive fee, which, if earned, is paid annually. The Company accrues the incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FB Advisor is based on realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized.
The third part of the incentive fee, which is referred to as the subordinated liquidation incentive fee, equals 20.0% of the net proceeds from a liquidation of the Company in excess of adjusted capital, as calculated immediately prior to liquidation. The investment advisory and administrative services agreement will be amended effective upon the listing of the Company’s common stock on a national securities exchange, if any, to eliminate the subordinated liquidation incentive fee.
The Company reimburses FB Advisor for expenses necessary to perform services related to the Company’s administration and operations. The amount of this reimbursement is set at the lesser of (1) FB Advisor’s actual
31
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (continued)
costs incurred in providing such services and (2) the amount that the Company estimates it would be required to pay alternative service providers for comparable services in the same geographic location. FB Advisor is required to allocate the cost of such services to the Company based on objective factors such as total assets, revenues, time allocations and/or other reasonable metrics. The Company’s board of directors then assesses the reasonableness of such reimbursements based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party providers known to be available. In addition, the Company’s board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Company’s board of directors compares the total amount paid to FB Advisor for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs.
Franklin Square Holdings, L.P., or Franklin Square Holdings, the Company’s sponsor and an affiliate of FB Advisor, has funded certain of the Company’s offering costs and organization costs. Under the terms of the investment advisory and administrative services agreement, when the Company’s registration statement was declared effective by the SEC and the Company was successful in raising gross proceeds in excess of $2,500, or the minimum offering requirement, from persons who were not affiliated with the Company or FB Advisor, FB Advisor became entitled to receive 1.5% of gross proceeds raised in the Company’s continuous public offering until all offering costs and organization costs funded by FB Advisor or its affiliates (including Franklin Square Holdings) had been recovered. On January 2, 2009, the Company satisfied the minimum offering requirement. The Company did not pay any reimbursements under this arrangement during the nine months ended September 30, 2013 or 2012.
The dealer manager for the Company’s continuous public offering was FS 2 Capital Partners, LLC, or FS 2 , which is one of the Company’s affiliates. Under the dealer manager agreement among the Company, FB Advisor and FS 2 , FS 2 was entitled to receive sales commissions and dealer manager fees in connection with the sale of shares of common stock in the Company’s continuous public offering, all or a portion of which were re-allowed to selected broker-dealers.
The following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and nine months ended September 30, 2013 and 2012:
|
Three Months
Ended
September 30, |
Nine Months
Ended
September 30, |
|||||||||||||||||||
|
Related Party |
Source Agreement |
Description |
2013 | 2012 | 2013 | 2012 | ||||||||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement |
Base Management
Fee (1) |
$ | 22,720 | $ | 19,021 | $ | 67,541 | $ | 46,570 | ||||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement | Capital Gains Incentive Fee (2) | $ | (1,548 | ) | $ | 17,421 | $ | (621 | ) | $ | 33,920 | ||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement | Subordinated Incentive Fee on Income (3) | $ | 16,555 | $ | — | $ | 47,950 | $ | — | ||||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement | Administrative Services Expenses (4) | $ | 1,243 | $ | 1,782 | $ | 4,034 | $ | 4,116 | ||||||||||
|
FS 2 |
Dealer Manager Agreement | Dealer Manager Fee (5) | $ | — | $ | — | $ | — | $ | 15,842 | ||||||||||
| (1) | During the nine months ended September 30, 2013 and 2012, $66,240 and $37,028, respectively, in base management fees were paid to FB Advisor. |
32
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (continued)
| (2) | During the nine months ended September 30, 2013, the Company reversed $621 of capital gains incentive fees previously accrued based on the performance of its portfolio. As of September 30, 2013, the Company had accrued capital gains incentive fees of $27,339 based on the performance of its portfolio, of which $26,605 was based on unrealized gains and $734 was based on realized gains. During the nine months ended September 30, 2012, the Company accrued capital gains incentive fees of $33,920 based on the performance of its portfolio, of which $27,421 was based on unrealized gains and $6,499 was based on realized gains. No such fees are actually payable by the Company with respect to such unrealized gains unless and until those gains are actually realized. As of December 31, 2012, the Company had accrued capital gains incentive fees of $39,751 based on the performance of its portfolio, of which $27,960 was based on unrealized gains and $11,791 was based on realized gains. The Company paid FB Advisor $11,791 in capital gains incentive fees during the nine months ended September 30, 2013. |
| (3) | During the nine months ended September 30, 2013, $44,788 of subordinated incentive fees on income were paid to FB Advisor. As of September 30, 2013, a subordinated incentive fee on income of $16,555 was payable to FB Advisor. |
| (4) | During the nine months ended September 30, 2013 and 2012, $3,520 and $3,789, respectively, of administrative services expenses related to the allocation of costs of administrative personnel for services rendered to the Company by FB Advisor and the remainder related to other reimbursable expenses. The Company paid $3,620 and $2,661, respectively, in administrative services expenses to FB Advisor during the nine months ended September 30, 2013 and 2012. |
| (5) |
Represents aggregate sales commissions and dealer manager fees retained by FS 2 and not re-allowed to selected broker- dealers. |
Potential Conflicts of Interest
FB Advisor’s senior management team is comprised of the same personnel as the senior management teams of FS Investment Advisor, LLC and FSIC II Advisor, LLC, the investment advisers to Franklin Square Holdings’ other affiliated BDCs, FS Energy and Power Fund and FS Investment Corporation II, respectively. As a result, such personnel provide investment advisory services to each of the Company, FS Energy and Power Fund and FS Investment Corporation II. While none of FB Advisor, FS Investment Advisor, LLC or FSIC II Advisor, LLC is currently making private corporate debt investments for clients other than the Company, FS Energy and Power Fund and FS Investment Corporation II, respectively, any, or all, may do so in the future. In the event that FB Advisor undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in a fair and equitable manner consistent with the Company’s investment objectives and strategies, if necessary, so that the Company will not be disadvantaged in relation to any other client of FB Advisor or its management team.
Exemptive Relief
In an order dated June 4, 2013, the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with affiliates of FB Advisor, including FS Investment Corporation II and FS Energy and Power Fund and any future BDCs that are advised by FB Advisor or its affiliated investment advisers. Because the Company did not seek exemptive relief to engage in co-investment transactions with GSO / Blackstone Debt Funds Management LLC, or GDFM and its affiliates, the Company will be permitted to co-invest with GDFM and its affiliates only in accordance with existing regulatory guidance.
Expense Reimbursement
Beginning on February 26, 2009, Franklin Square Holdings agreed to reimburse the Company for expenses in an amount that was sufficient to ensure that, for tax purposes, the Company’s net investment income and net capital gains were equal to or greater than the cumulative distributions paid to its stockholders in each quarter.
33
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (continued)
This arrangement was designed to ensure that no portion of the Company’s distributions would represent a return of capital for its stockholders. Under this arrangement, Franklin Square Holdings had no obligation to reimburse any portion of the Company’s expenses.
Pursuant to an expense support and conditional reimbursement agreement, dated as of March 13, 2012, and amended as of May 16, 2013, or, as amended, the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that no portion of the Company’s distributions to stockholders will be paid from its offering proceeds or borrowings. However, because certain investments the Company may make, including preferred and common equity investments, may generate dividends and other distributions to the Company that are treated for tax purposes as a return of capital, a portion of the Company’s distributions to stockholders may also be deemed to constitute a return of capital for tax purposes to the extent that the Company may use such dividends or other distribution proceeds to fund its distributions to stockholders. Under those circumstances, Franklin Square Holdings will not reimburse the Company for the portion of such distributions to stockholders that represent a return of capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to stockholders.
Under the expense reimbursement agreement, Franklin Square Holdings will reimburse the Company for expenses in an amount equal to the difference between the Company’s cumulative distributions paid to its stockholders in each quarter, less the sum of the Company’s net investment income for tax purposes, net capital gains and dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment income or net capital gains for tax purposes) in each quarter.
Pursuant to the expense reimbursement agreement, the Company has a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of the Company’s net investment income for tax purposes, net capital gains and the amount of any dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment income or net capital gains for tax purposes) exceeds the distributions paid by the Company to stockholders; provided, however, that (i) the Company will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause “other operating expenses” (as defined below) (on an annualized basis and net of any expense reimbursement payments received by the Company during such fiscal year) to exceed the lesser of (A) 1.75% of the Company’s average net assets attributable to its shares of common stock for the fiscal year-to-date period after taking such payments into account and (B) the percentage of the Company’s average net assets attributable to its shares of common stock represented by “other operating expenses” during the fiscal year in which such expense support payment from Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal year) and (ii) the Company will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings if the aggregate amount of distributions per share declared by the Company in such calendar quarter is less than the aggregate amount of distributions per share declared by the Company in the calendar quarter in which Franklin Square Holdings made
34
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (continued)
the expense support payment to which such reimbursement relates. “Other operating expenses” means the Company’s total “operating expenses” (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. “Operating expenses” means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.
The Company or Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, the Company’s conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.
Franklin Square Holdings is controlled by the Company’s chairman and chief executive officer, Michael C. Forman, and its vice-chairman, David J. Adelman. There can be no assurance that the expense reimbursement agreement will remain in effect or that Franklin Square Holdings will reimburse any portion of the Company’s expenses in future quarters. During the nine months ended September 30, 2013 and 2012, no such reimbursements were required from Franklin Square Holdings.
Note 5. Distributions
The following table reflects the cash distributions per share that the Company has declared and paid on its common stock during the nine months ended September 30, 2013 and 2012:
| Distribution | ||||||||
|
For the Three Months Ended |
Per Share | Amount | ||||||
|
Fiscal 2012 |
||||||||
|
March 31, 2012 |
$ | 0.2016 | $ | 37,014 | ||||
|
June 30, 2012 |
$ | 0.2020 | $ | 47,305 | ||||
|
September 30, 2012 |
$ | 0.2525 | $ | 62,758 | ||||
|
Fiscal 2013 |
||||||||
|
March 31, 2013 |
$ | 0.2025 | $ | 51,184 | ||||
|
June 30, 2013 |
$ | 0.2048 | $ | 52,111 | ||||
|
September 30, 2013 |
$ | 0.2093 | $ | 53,626 | ||||
On October 16, 2013, the Company’s board of directors declared a regular monthly cash distribution of $0.06975 per share, which was paid on October 31, 2013 to stockholders of record on October 30, 2013. Also on October 16, 2013, the Company’s board of directors increased the amount of the regular monthly cash distribution payable to stockholders of record from $0.06975 per share to $0.0720 per share in order to increase its annual distribution rate from 7.75% to 8.00% (based on the Company’s last public offering price of $10.80 per share), commencing with the regular monthly cash distribution which will be paid on November 29, 2013 to stockholders of record on November 28, 2013. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.
The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive distributions in cash unless they specifically
35
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (continued)
“opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company’s common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in the distribution reinvestment plan.
The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from Franklin Square Holdings. The Company has not established limits on the amount of funds it may use from available sources to make distributions. During certain periods, the Company’s distributions may exceed its earnings. As a result, it is possible that a portion of the distributions the Company makes will represent a return of capital for tax purposes. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in capital surplus, which is a nontaxable distribution) will be mailed to the Company’s stockholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all.
The following table reflects the sources of the cash distributions on a tax basis that the Company has paid on its common stock during the nine months ended September 30, 2013 and 2012:
| Nine Months Ended September 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
|
Source of Distribution |
Distribution
Amount |
Percentage |
Distribution
Amount |
Percentage | ||||||||||||
|
Offering proceeds |
$ | — | — | $ | — | — | ||||||||||
|
Borrowings |
— | — | — | — | ||||||||||||
|
Net investment income (1) |
124,747 | 79 | % | 128,781 | 88 | % | ||||||||||
|
Capital gains proceeds from the sale of assets |
32,174 | 21 | % | 18,296 | 12 | % | ||||||||||
|
Non-capital gains proceeds from the sale of assets |
— | — | — | — | ||||||||||||
|
Distributions on account of preferred and common equity |
— | — | — | — | ||||||||||||
|
Expense reimbursement from sponsor |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 156,921 | 100 | % | $ | 147,077 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | During the nine months ended September 30, 2013 and 2012, 89% and 92%, respectively, of the Company’s gross investment income was attributable to cash interest earned and 11% and 8%, respectively, was attributable to non-cash accretion of discount and paid-in-kind, or PIK, interest. |
The Company’s net investment income on a tax basis for the nine months ended September 30, 2013 and 2012 was $191,169 and $129,901, respectively. As of September 30, 2013 and December 31, 2012, the Company had $124,162 and $57,740, respectively, of undistributed net investment income on a tax basis. The Company’s undistributed net investment income on a tax basis as of December 31, 2012 has been adjusted following the filing of the Company’s 2012 tax return in September 2013. The adjustment was primarily due to tax-basis income received by the Company during the year ended December 31, 2012 exceeding GAAP-basis income with respect to collateralized securities and interests in partnerships held in its investment portfolio during such period. The tax notices for such
36
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (continued)
collateralized securities and interests in partnerships were received by the Company subsequent to the filing of the Company’s annual report on Form 10-K for the year ended December 31, 2012.
The difference between the Company’s GAAP-basis net investment income and its tax-basis net investment income is due to the tax-basis amortization of organization costs incurred prior to the commencement of the Company’s operations, the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by the Company and, with respect to the nine months ended September 30, 2012, the inclusion of a portion of the periodic net settlement payments due on the Company’s total return swap in tax-basis net investment income and the accretion of discount on the total return swap.
The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the nine months ended September 30, 2013 and 2012:
|
Nine Months
Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
|
GAAP-basis net investment income |
$ | 192,556 | $ | 86,171 | ||||
|
Tax-basis amortization of organization costs |
(32 | ) | (32 | ) | ||||
|
Reversal of incentive fee accrual on unrealized gains |
(1,355 | ) | 27,421 | |||||
|
Periodic payments due on total return swap |
— | 15,563 | ||||||
|
Accretion of discount on total return swap |
— | 778 | ||||||
|
|
|
|
|
|||||
|
Tax-basis net investment income |
$ | 191,169 | $ | 129,901 | ||||
|
|
|
|
|
|||||
The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.
The following table reflects the stock distributions per share that the Company declared on its common stock through September 30, 2013:
|
Date Declared |
Record Date | Distribution Date |
Distribution
Percentage |
Shares
Issued |
||||||||
|
Fiscal 2009 |
||||||||||||
|
March 31, 2009 |
March 31, 2009 | March 31, 2009 | 1.4 | % | 13,818 | |||||||
|
April 30, 2009 |
April 30, 2009 | April 30, 2009 | 3.0 | % | 42,661 | |||||||
|
May 29, 2009 |
May 29, 2009 | May 29, 2009 | 3.7 | % | 79,125 | |||||||
|
June 30, 2009 |
June 30, 2009 | June 30, 2009 | 3.5 | % | 96,976 | |||||||
|
July 30, 2009 |
July 31, 2009 | July 31, 2009 | 3.1 | % | 117,219 | |||||||
|
August 31, 2009 |
August 31, 2009 | August 31, 2009 | 3.0 | % | 148,072 | |||||||
|
December 31, 2009 |
December 31, 2009 | December 31, 2009 | 0.5 | % | 49,710 | |||||||
|
Fiscal 2010 |
||||||||||||
|
January 28, 2010 |
January 31, 2010 | January 31, 2010 | 2.5 | % | 283,068 | |||||||
37
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (continued)
The purpose of these special stock distributions was to maintain a net asset value per share that was below the then-current offering price, after deducting selling commissions and dealer manager fees, as required by the 1940 Act, subject to certain limited exceptions. The Company’s board of directors determined that its portfolio performance sufficiently warranted taking these actions.
The stock distributions increased the number of shares outstanding, thereby reducing the Company’s net asset value per share. However, because the stock distributions were issued to all stockholders as of the applicable record date in proportion to their holdings as of such date, the reduction in net asset value per share as a result of the stock distributions was offset exactly by the increase in the number of shares owned by each investor. As overall value to an investor was not reduced as a result of the special stock distributions, the Company’s board of directors determined that these issuances would not be dilutive to stockholders as of the applicable record date. As the stock distributions did not change any stockholder’s proportionate interest in the Company, they did not represent taxable distributions.
As of September 30, 2013 and December 31, 2012, the components of accumulated earnings on a tax basis were as follows:
|
September 30,
2013
(Unaudited) |
December 31,
2012 |
|||||||
|
Distributable ordinary income |
$ | 124,162 | $ | 57,740 | ||||
|
Undistributed GAAP realized gains on collateralized securities |
5,014 | — | ||||||
|
Incentive fee accrual on unrealized gains |
(26,605 | ) | (27,960 | ) | ||||
|
Unamortized organization costs |
(440 | ) | (472 | ) | ||||
|
Net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency (1) |
43,640 | 84,352 | ||||||
|
|
|
|
|
|||||
| $ | 145,771 | $ | 113,660 | |||||
|
|
|
|
|
|||||
| (1) | As of September 30, 2013 and December 31, 2012, the gross unrealized appreciation on the Company’s investments and gain on foreign currency was $107,393 and $114,920, respectively. As of September 30, 2013 and December 31, 2012, the gross unrealized depreciation on the Company’s investments and loss on foreign currency was $63,753 and $30,568, respectively. |
The aggregate cost of the Company’s investments for federal income tax purposes totaled $4,157,161 and $3,850,245 as of September 30, 2013 and December 31, 2012, respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis was $43,640 and $84,352 as of September 30, 2013 and December 31, 2012, respectively.
38
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Investment Portfolio
The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of September 30, 2013 and December 31, 2012:
|
September 30,
2013
(Unaudited) |
December 31, 2012 | |||||||||||||||||||||||
|
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
|||||||||||||||||||
|
Senior Secured Loans—First Lien |
$ | 2,118,100 | $ | 2,149,069 | 51 | % | $ | 1,914,996 | $ | 1,945,159 | 50 | % | ||||||||||||
|
Senior Secured Loans—Second Lien |
895,270 | 914,603 | 22 | % | 752,392 | 764,356 | 19 | % | ||||||||||||||||
|
Senior Secured Bonds |
399,126 | 379,933 | 9 | % | 460,040 | 466,299 | 12 | % | ||||||||||||||||
|
Subordinated Debt |
475,168 | 479,729 | 11 | % | 491,906 | 511,971 | 13 | % | ||||||||||||||||
|
Collateralized Securities |
105,856 | 122,217 | 3 | % | 91,411 | 118,994 | 3 | % | ||||||||||||||||
|
Equity/Other |
138,640 | 155,250 | 4 | % | 114,499 | 127,943 | 3 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 4,132,160 | $ | 4,200,801 | 100 | % | $ | 3,825,244 | $ | 3,934,722 | 100 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments. |
The Company does not “control” and is not an “affiliate” of any of its portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if it owned 5% or more of its voting securities.
The Company’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of September 30, 2013, the Company had seven such investments with aggregate unfunded commitments of $72,743 and one equity investment with an unfunded commitment of $4,629. As of December 31, 2012, the Company had three such investments with aggregate unfunded commitments of $14,804. The Company maintains sufficient cash on hand to fund such unfunded commitments should the need arise.
39
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Investment Portfolio (continued)
The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of September 30, 2013 and December 31, 2012:
|
September 30, 2013
(Unaudited) |
December 31, 2012 | |||||||||||||||
|
Industry Classification |
Fair
Value |
Percentage
of Portfolio |
Fair
Value |
Percentage
of Portfolio |
||||||||||||
|
Automobiles & Components |
$ | 53,447 | 1 | % | $ | 41,479 | 1 | % | ||||||||
|
Capital Goods |
830,975 | 20 | % | 675,187 | 17 | % | ||||||||||
|
Commercial & Professional Services |
317,640 | 8 | % | 271,978 | 7 | % | ||||||||||
|
Consumer Durables & Apparel |
317,884 | 8 | % | 264,722 | 7 | % | ||||||||||
|
Consumer Services |
304,100 | 7 | % | 293,408 | 7 | % | ||||||||||
|
Diversified Financials |
157,854 | 4 | % | 220,622 | 6 | % | ||||||||||
|
Energy |
492,161 | 12 | % | 430,444 | 11 | % | ||||||||||
|
Food & Staples Retailing |
40,065 | 1 | % | 96,739 | 2 | % | ||||||||||
|
Food, Beverage & Tobacco |
10,362 | 0 | % | 9,713 | 0 | % | ||||||||||
|
Health Care Equipment & Services |
226,352 | 5 | % | 362,456 | 9 | % | ||||||||||
|
Household & Personal Products |
66,300 | 2 | % | 78,124 | 2 | % | ||||||||||
|
Insurance |
17,969 | 0 | % | 28,623 | 1 | % | ||||||||||
|
Materials |
211,295 | 5 | % | 199,089 | 5 | % | ||||||||||
|
Media |
222,163 | 5 | % | 154,599 | 4 | % | ||||||||||
|
Pharmaceuticals, Biotechnology & Life Sciences |
54,752 | 1 | % | 37,259 | 1 | % | ||||||||||
|
Retailing |
182,002 | 4 | % | 24,652 | 1 | % | ||||||||||
|
Semiconductors & Semiconductor Equipment |
— | — | 8,820 | 0 | % | |||||||||||
|
Software & Services |
370,010 | 9 | % | 339,641 | 9 | % | ||||||||||
|
Technology Hardware & Equipment |
132,489 | 3 | % | 94,128 | 2 | % | ||||||||||
|
Telecommunication Services |
158,740 | 4 | % | 152,458 | 4 | % | ||||||||||
|
Transportation |
11,170 | 0 | % | 29,104 | 1 | % | ||||||||||
|
Utilities |
23,071 | 1 | % | 121,477 | 3 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 4,200,801 | 100 | % | $ | 3,934,722 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Note 7. Fair Value of Financial Instruments
Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.
40
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (continued)
The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:
Level 1 : Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 : Inputs that are quoted prices for similar assets or liabilities in active markets.
Level 3 : Inputs that are unobservable for an asset or liability.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
As of September 30, 2013 and December 31, 2012, the Company’s investments were categorized as follows in the fair value hierarchy:
|
Valuation Inputs |
September 30, 2013
(Unaudited) |
December 31, 2012 | ||||||
|
Level 1—Price quotations in active markets |
$ | 1,546 | $ | — | ||||
|
Level 2—Significant other observable inputs |
— | — | ||||||
|
Level 3—Significant unobservable inputs |
4,199,255 | 3,934,722 | ||||||
|
|
|
|
|
|||||
| $ | 4,200,801 | $ | 3,934,722 | |||||
|
|
|
|
|
|||||
The Company’s investments as of September 30, 2013 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. Except as described below, the Company valued its investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. Twenty-eight senior secured loan investments and six subordinated debt investments, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, call features and other relevant terms of the debt. Except as described below, all of the Company’s equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Two senior secured loan investments, one senior secured bond investment, one subordinated debt investment and one equity investment, all of which were newly-issued and purchased near September 30, 2013, were valued at cost, as the Company’s board of directors determined that the cost of each such investment was the best indication of its fair value. Also, one equity investment which is traded on an active public market was valued at its closing price as of September 30, 2013.
The Company’s investments as of December 31, 2012 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. Except as described below, the Company valued its investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. Twenty-one senior secured loan investments, one senior secured bond investment and seven subordinated debt investments, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to
41
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (continued)
adequately service its debt, prevailing interest rates for like investments, call features and other relevant terms of the debt. All of the Company’s equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. One senior secured loan investment, which was newly-issued and purchased near December 31, 2012, was valued at cost, as the Company’s board of directors determined that the cost of such investment was the best indication of its fair value.
The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing services against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers, including the use of an independent valuation firm. The Company periodically benchmarks the valuations provided by the independent valuation firm against the actual prices at which the Company purchases and sells its investments. The Company’s valuation committee and board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation process.
The following is a reconciliation for the nine months ended September 30, 2013 and 2012 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:
| For the Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||||||
|
Senior Secured
Loans - First Lien |
Senior Secured
Loans - Second Lien |
Senior
Secured Bonds |
Subordinated
Debt |
Collateralized
Securities |
Equity/Other | Total | ||||||||||||||||||||||
|
Fair value at beginning of period |
$ | 1,945,159 | $ | 764,356 | $ | 466,299 | $ | 511,971 | $ | 118,994 | $ | 127,943 | $ | 3,934,722 | ||||||||||||||
|
Accretion of discount (amortization of premium) |
21,997 | 3,733 | 4,128 | 4,373 | 407 | 38 | 34,676 | |||||||||||||||||||||
|
Net realized gain (loss) |
4,389 | 1,579 | 20,080 | 5,485 | 5,687 | — | 37,220 | |||||||||||||||||||||
|
Net change in unrealized appreciation (depreciation) |
806 | 7,369 | (25,452 | ) | (15,504 | ) | (11,222 | ) | 2,822 | (41,181 | ) | |||||||||||||||||
|
Purchases |
1,366,182 | 352,967 | 159,158 | 268,915 | 30,620 | 25,516 | 2,203,358 | |||||||||||||||||||||
|
Paid-in-kind interest |
449 | — | 619 | 3,262 | — | 1,107 | 5,437 | |||||||||||||||||||||
|
Sales and redemptions |
(1,189,913 | ) | (215,401 | ) | (244,899 | ) | (298,773 | ) | (22,269 | ) | (3,722 | ) | (1,974,977 | ) | ||||||||||||||
|
Net transfers in or out of Level 3 |
— | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Fair value at end of period |
$ | 2,149,069 | $ | 914,603 | $ | 379,933 | $ | 479,729 | $ | 122,217 | $ | 153,704 | $ | 4,199,255 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date |
$ | 25,453 | $ | 11,193 | $ | (16,034 | ) | $ | (8,236 | ) | $ | (4,050 | ) | $ | 3,980 | $ | 12,306 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
42
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (continued)
| For the Nine Months Ended September 30, 2012 | ||||||||||||||||||||||||||||
|
Senior Secured
Loans - First Lien |
Senior Secured
Loans - Second Lien |
Senior
Secured Bonds |
Subordinated
Debt |
Collateralized
Securities |
Equity/Other | Total | ||||||||||||||||||||||
|
Fair value at beginning of period |
$ | 1,023,183 | $ | 388,508 | $ | 115,360 | $ | 233,877 | $ | 68,366 | $ | 15,064 | $ | 1,844,358 | ||||||||||||||
|
Accretion of discount (amortization of premium) |
7,025 | 3,163 | 1,078 | 791 | 586 | 31 | 12,674 | |||||||||||||||||||||
|
Net realized gain (loss) |
9,954 | 2,061 | 2,700 | (2,532 | ) | 433 | 2,237 | 14,853 | ||||||||||||||||||||
|
Net change in unrealized appreciation (depreciation) |
42,797 | 16,347 | 4,856 | 21,009 | 27,318 | 13,768 | 126,095 | |||||||||||||||||||||
|
Purchases |
1,446,766 | 384,307 | 354,938 | 523,360 | 11,671 | 116,302 | 2,837,344 | |||||||||||||||||||||
|
Paid-in-kind interest |
— | 197 | — | 1,953 | — | 282 | 2,432 | |||||||||||||||||||||
|
Sales and redemptions |
(401,612 | ) | (223,250 | ) | (81,981 | ) | (194,015 | ) | (10,641 | ) | (25,639 | ) | (937,138 | ) | ||||||||||||||
|
Net transfers in or out of Level 3 |
— | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Fair value at end of period |
$ | 2,128,113 | $ | 571,333 | $ | 396,951 | $ | 584,443 | $ | 97,733 | $ | 122,045 | $ | 3,900,618 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date |
$ | 49,060 | $ | 15,269 | $ | 4,056 | $ | 16,531 | $ | 27,535 | $ | 13,418 | $ | 125,869 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets valued by an independent valuation firm as of September 30, 2013 and December 31, 2012 were as follows:
|
Type of Investment |
Fair Value at
September 30, 2013 (1) (Unaudited) |
Valuation Technique (2) |
Unobservable Input |
Range |
Weighted Average |
|||||||
|
Senior Secured Loans—First Lien |
$ | 1,292,422 | Market Comparables | Market Yield (%) | 5.0% - 16.0% | 9.0% | ||||||
|
Senior Secured Loans—Second Lien |
124,684 | Market Comparables | Market Yield (%) | 10.0% - 11.8% | 11.0% | |||||||
|
Subordinated Debt |
212,818 | Market Comparables | Market Yield (%) | 9.0% - 14.3% | 11.3% | |||||||
|
Equity/Other |
148,633 | Market Comparables | Market Yield (%) | 13.8% - 15.8% | 15.1% | |||||||
| EBITDA Multiples (x) | 5.0x - 13.3x | 7.2x | ||||||||||
| Production Multiples (Mmb/d) | $37,500.0 - $42,500.0 | $40,000.0 | ||||||||||
| Proved Reserves Multiples (Mmboe) | $8.0 - $9.0 | $8.5 | ||||||||||
| PV-10 Multiples (x) | 0.6x - 0.7x | 0.6x | ||||||||||
| Discounted Cash Flow | Discount Rate (%) | 17.3% - 17.3% | 17.3% | |||||||||
| Option Valuation Model | Volatility (%) | 52.5% - 61.5% | 52.9% | |||||||||
| (1) | Except as otherwise described in this footnote, the remaining Level 3 assets were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. Two senior secured loan investments ($95,000), one senior secured bond investment ($35,000), one subordinated debt investment ($31,850) and one equity investment ($5,071), all of which were newly-issued and purchased near September 30, 2013, were valued at cost, as the Company’s board of directors determined that the cost of each such investment was the best indication of its fair value. As of September 30, 2013, $68,933 of the senior secured loans-first lien investments valued by the independent valuation firm consisted of unfunded loan commitments. |
43
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (continued)
| (2) | For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement. |
|
Type of Investment |
Fair Value
at
December 31, 2012 (1) |
Valuation Technique (2) |
Unobservable Input |
Range |
Weighted
Average |
|||||||
|
Senior Secured Loans—First Lien |
$ | 605,163 | Market Comparables | Market Yield (%) | 6.8% - 17.3% | 9.7% | ||||||
|
Senior Secured Loans—Second Lien |
118,682 | Market Comparables | Market Yield (%) | 10.3% - 12.8% | 11.2% | |||||||
|
Senior Secured Bonds |
10,100 | Market Comparables | Market Yield (%) | 9.3% - 9.8% | 9.5% | |||||||
|
Subordinated Debt |
224,059 | Market Comparables | Market Yield (%) | 9.3% - 14.5% | 12.9% | |||||||
|
Equity/Other |
127,943 | Market Comparables | Market Yield (%) | 15.3% - 15.8% | 15.5% | |||||||
| EBITDA Multiples (x) | 3.3x - 12.5x | 6.9x | ||||||||||
| Production Multiples (Mmb/d) | $57,500.0 - $62,500.0 | $60,000.0 | ||||||||||
| Proved Reserves Multiples (Mmboe) | $12.5 - $13.5 | $13.0 | ||||||||||
| PV-10 Multiples (x) | 0.8x - 0.9x | 0.9x | ||||||||||
| Revenue Multiples | 1.6x - 1.6x | 1.6x | ||||||||||
| Discounted Cash Flow | Discount Rate (%) | 17.3% - 17.3% | 17.3% | |||||||||
| Option Valuation Model | Volatility (%) | 44.0% - 59.7% | 44.0% | |||||||||
| (1) | Except as otherwise described in this footnote, the remaining Level 3 assets were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. One senior secured loan investment ($39,400), which was newly-issued and purchased near December 31, 2012, was valued at cost, as the Company’s board of directors determined that the cost of such investment was the best indication of its fair value. As of December 31, 2012, $14,804 of the senior secured loans-first lien investments consisted of unfunded loan commitments. |
| (2) | For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement. |
44
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements
The following table presents summary information with respect to the Company’s outstanding financing arrangements as of September 30, 2013. For additional information regarding these financing facilities, please see the notes to the Company’s audited consolidated financial statements contained in its annual report on Form 10-K for the year ended December 31, 2012 and the additional disclosure set forth in this Note 8.
|
Facility |
Type of Facility |
Rate |
Amount
Outstanding |
Amount
Available |
Maturity Date | |||||||||
|
Arch Street Credit Facility |
Revolving | L + 1.75% | $ | 497,682 | $ | 52,318 | August 29, 2015 | |||||||
|
Broad Street Credit Facility |
Revolving | L + 1.50% | $ | 240,000 | $ | — | December 22, 2013 | |||||||
|
JPM Facility |
Repurchase | 3.25% | $ | 906,083 | $ | 43,917 | April 15, 2017 | |||||||
|
Walnut Street Credit Facility |
Revolving | L + 1.50% to 2.75% | $ | 248,739 | $ | 1,261 | May 17, 2017 | |||||||
Arch Street Credit Facility
On August 29, 2012, Arch Street, the Company’s wholly-owned, special-purpose financing subsidiary, terminated its total return swap financing arrangement, or TRS, with Citibank, N.A., or Citibank, and entered into a revolving credit facility, or the Arch Street credit facility, with Citibank, as administrative agent, and the financial institutions and other lenders from time to time party thereto. The Arch Street credit facility provides for borrowings in an aggregate principal amount up to $550,000 on a committed basis. The Company may contribute cash or debt securities to Arch Street from time to time, subject to certain restrictions set forth in the Arch Street credit facility, and will retain a residual interest in any assets contributed through its ownership of Arch Street or will receive fair market value for any debt securities sold to Arch Street. Arch Street may purchase additional debt securities from various sources. Arch Street’s obligations to the lenders under the facility are secured by a first priority security interest in substantially all of the assets of Arch Street, including its portfolio of debt securities. The obligations of Arch Street under the facility are non-recourse to the Company and the Company’s exposure under the facility is limited to the value of the Company’s investment in Arch Street.
Borrowings under the Arch Street credit facility accrue interest at a rate equal to the three-month London Interbank Offered Rate, or LIBOR, plus 1.75% per annum during the first two years of the facility and three-month LIBOR plus 2.00% per annum thereafter. Borrowings under the facility are subject to compliance with an equity coverage ratio with respect to the current value of Arch Street’s portfolio and a loan compliance test with respect to the initial acquisition of each debt security in Arch Street’s portfolio. Beginning November 27, 2012, Arch Street became required to pay a non-usage fee to the extent the aggregate principal amount available under the Arch Street credit facility is not borrowed. Outstanding borrowings under the facility will be amortized beginning nine months prior to the scheduled maturity date. Any amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on August 29, 2015.
As of September 30, 2013 and December 31, 2012, $497,682 was outstanding under the Arch Street credit facility. The carrying amount of the amount outstanding under the facility approximates its fair value. The Company incurred costs of $4,446 in connection with obtaining the Arch Street credit facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of September 30, 2013, $2,832 of such deferred financing costs had yet to be amortized to interest expense.
45
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (continued)
The effective interest rate on the borrowings under the Arch Street credit facility was 2.03% per annum as of September 30, 2013. Interest is payable quarterly in arrears and commenced August 29, 2012. The Company recorded interest expense of $2,989 and $1,057 for the three months ended September 30, 2013 and 2012, respectively, of which $373 and $130, respectively, related to the amortization of deferred financing costs $66 and $0, respectively, related to commitment fees on the unused portion of the facility. The Company recorded interest expense of $9,049 and $1,057 for the nine months ended September 30, 2013 and 2012, respectively, of which $1,107 and $130, respectively, related to the amortization of deferred financing costs and $198 and $0, respectively, related to commitment fees on the unused portion of the facility. The Company paid $9,487 and $0 in interest expense during the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the Arch Street credit facility for the nine months ended September 30, 2013 was $497,682 with a weighted average interest rate (including the effect of non-usage fees) of 2.10%. The average borrowings under the Arch Street credit facility for the period August 29, 2012 to September 30, 2012, was $447,682 with a weighted average interest rate (including the effect of non-usage fees) of 2.33%.
Broad Street Credit Facility
On January 28, 2011, Broad Street, the Company’s wholly-owned, special-purpose financing subsidiary, Deutsche Bank AG, New York Branch, or Deutsche Bank, and the other lenders party thereto entered into an amended and restated multi-lender, syndicated revolving credit facility, or the Broad Street credit facility, which amended and restated the revolving credit facility that Broad Street originally entered into with Deutsche Bank on March 10, 2010 and the amendments thereto. On March 23, 2012, Broad Street entered into an amendment to the Broad Street credit facility which extended the maturity date of the facility to March 23, 2013, increased the aggregate amount which could be borrowed under the facility to $380,000 and reduced the interest rate for all borrowings under the facility to a rate of LIBOR + 1.50% per annum. On December 13, 2012, Broad Street repaid $140,000 of borrowings under the facility, thereby reducing the amount which could be borrowed under the facility to $240,000. On March 22, 2013, Broad Street and Deutsche Bank entered into an amendment to the facility to extend the maturity date of the facility to December 22, 2013. The Broad Street credit facility provides for borrowings of up to $240,000 at a rate of LIBOR plus 1.50% per annum. Deutsche Bank is a lender and serves as administrative agent under the facility.
Under the Broad Street credit facility, the Company transfers debt securities to Broad Street from time to time as a contribution to capital and retains a residual interest in the contributed debt securities through its ownership of Broad Street. The obligations of Broad Street under the facility are non-recourse to the Company and its exposure under the facility is limited to the value of its investment in Broad Street.
As of September 30, 2013 and December 31, 2012, $240,000 was outstanding under the Broad Street credit facility. The carrying amount of the amount outstanding under the facility approximates its fair value. The Company incurred costs of $2,566 in connection with obtaining and amending the facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of September 30, 2013, all of the deferred financing costs have been amortized to interest expense.
The effective interest rate under the Broad Street credit facility was 1.76% per annum as of September 30, 2013. Interest is paid quarterly in arrears and commenced August 20, 2010. The Company recorded interest expense of $1,078 and $2,115 for the three months ended September 30, 2013 and 2012, respectively, of which
46
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (continued)
$0 and $272, respectively, related to the amortization of deferred financing costs. The Company recorded interest expense of $3,445 and $6,545 for the nine months ended September 30, 2013 and 2012, respectively, of which $225 and $703, respectively, related to the amortization of deferred financing costs and $0 and $18, respectively, related to commitment fees on the unused portion of the credit facility. The Company paid $3,246 and $6,104 in interest expense for the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the credit facility for the nine months ended September 30, 2013 and 2012 were $240,000 and $364,833, respectively, with a weighted average interest rate of 1.77% and 2.15%, respectively.
JPM Financing
On April 23, 2013, through its two wholly-owned, special-purpose financing subsidiaries, Locust Street and Race Street, the Company entered into an amendment, or the April 2013 amendment, to its conventional debt financing arrangement with JPMorgan Chase Bank, N.A., London Branch, or JPM, which was originally entered into on July 21, 2011. The April 2013 amendment, among other things: (i) increased the amount of debt financing available under the arrangement from $700,000 to $950,000; and (ii) extended the final repurchase date under the financing arrangement from October 15, 2016 to April 15, 2017. The Company elected to structure the financing in the manner described more fully below in order to, among other things, obtain such financing at a lower cost than would be available through alternate arrangements.
Pursuant to the financing arrangement, the aggregate market value of assets expected to be held by Locust Street when the financing arrangement is fully-ramped is approximately $1,791,500. The assets held by Locust Street secure the obligations of Locust Street under certain Class A Floating Rate Notes, or the Class A Notes, to be issued from time to time by Locust Street to Race Street pursuant to the Amended and Restated Indenture, dated as of September 26, 2012 and as supplemented by Supplemental Indenture No. 1, dated April 23, 2013, with Citibank, as trustee, or the Amended and Restated Indenture. Pursuant to the Amended and Restated Indenture, the aggregate principal amount of Class A Notes that may be issued by Locust Street from time to time is $1,140,000. All principal and interest on the Class A Notes will be due and payable on the stated maturity date of April 15, 2024. Race Street will purchase the Class A Notes to be issued by Locust Street from time to time at a purchase price equal to their par value.
Race Street, in turn, has entered into an amended repurchase transaction with JPM pursuant to the terms of an amended and restated global master repurchase agreement and the related annex and amended and restated confirmation thereto, each dated as of April 23, 2013, and subsequently amended as of October 24, 2013, or, collectively, the JPM Facility. Pursuant to the JPM Facility, JPM has agreed to purchase from time to time Class A Notes held by Race Street for an aggregate purchase price equal to approximately 83.33% of the principal amount of Class A Notes purchased. Subject to certain conditions, the maximum principal amount of Class A Notes that may be purchased under the JPM Facility is $1,140,000. Accordingly, the maximum amount payable at any time to Race Street under the JPM Facility is $950,000. Under the JPM Facility, Race Street will, on a quarterly basis, repurchase the Class A Notes sold to JPM under the JPM Facility and subsequently resell such Class A Notes to JPM. The final repurchase transaction must occur no later than April 15, 2017. The repurchase price paid by Race Street to JPM for each repurchase of Class A Notes will be equal to the purchase price paid by JPM for such Class A Notes, plus interest thereon accrued at a fixed rate of 3.25% per annum. Commencing April 15, 2015, Race Street is permitted to reduce (based on certain thresholds) the aggregate principal amount of Class A Notes subject to the JPM Facility. Such reductions, and any other reductions of the
47
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (continued)
principal amount of Class A Notes, including upon an event of default, will be subject to breakage fees in an amount equal to the present value of 1.25% per annum over the remaining term of the JPM Facility applied to the amount of such reduction.
Pursuant to the financing arrangement, the aggregate market value of assets expected to be held by Race Street when the financing arrangement is fully-ramped is $720,000. The assets held by Race Street secure the obligations of Race Street under the JPM Facility.
As of September 30, 2013 and December 31, 2012, Class A Notes in the aggregate principal amount of $1,087,300 and $812,000, respectively, had been purchased by Race Street from Locust Street and subsequently sold to JPM under the JPM Facility for aggregate proceeds of $906,083 and $676,667, respectively. The carrying amount outstanding under the JPM Facility approximates its fair value. The Company funded each purchase of Class A Notes by Race Street through a capital contribution to Race Street. As of September 30, 2013 and December 31, 2012, Race Street’s liability under the JPM Facility was $906,083 and $676,667, respectively, plus $5,930 and $4,298, respectively, of accrued interest expense. The Class A Notes issued by Locust Street and purchased by Race Street eliminate in consolidation on the Company’s financial statements.
As of September 30, 2013 and December 31, 2012, the fair value of assets held by Locust Street was $1,693,241 and $1,307,933, respectively, which included assets purchased by Locust Street with proceeds from the issuance of Class A Notes. As of September 30, 2013 and December 31, 2012, the fair value of assets held by Race Street was $808,230 and $598,528, respectively.
The Company incurred costs of $425 in connection with obtaining the JPM Facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the JPM Facility. As of September 30, 2013, $200 of such deferred financing costs had yet to be amortized to interest expense.
The effective interest rate on the borrowings under the JPM Facility was 3.25% as of September 30, 2013. The Company recorded interest expense of $6,983 and $3,795 for the three months ended September 30, 2013 and 2012, respectively, of which $27 and $27, respectively, related to the amortization of deferred financing costs. The Company recorded interest expense of $18,696 and $9,802 for the nine months ended September 30, 2013 and 2012, respectively, of which $79 and $80, respectively, related to the amortization of deferred financing costs. The Company paid $16,985 and $7,789 in interest expense during the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the JPM Facility for the nine months ended September 30, 2013 and 2012 were $755,374 and $341,114, respectively, with a weighted average interest rate of 3.25% and 3.74%, respectively.
Walnut Street Credit Facility
On May 17, 2012, Walnut Street, the Company’s wholly-owned, special-purpose financing subsidiary, Wells Fargo Securities, LLC, and Wells Fargo Bank, National Association, or collectively with Wells Fargo Securities, LLC, Wells Fargo, entered into a revolving credit facility, or the Walnut Street credit facility. Wells Fargo Securities, LLC serves as the administrative agent and Wells Fargo Bank, National Association is the sole lender, collateral agent, account bank and collateral custodian under the facility. The Walnut Street credit facility provides for borrowings in an aggregate principal amount up to $250,000 on a committed basis.
48
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (continued)
Under the Walnut Street credit facility, the Company contributes cash or debt securities to Walnut Street from time to time and retains a residual interest in any assets contributed through its ownership of Walnut Street or receives fair market value for any debt securities sold to Walnut Street. The obligations of Walnut Street under the Walnut Street credit facility are non-recourse to the Company and the Company’s exposure under the facility is limited to the value of the Company’s investment in Walnut Street.
Pricing under the Walnut Street credit facility is based on LIBOR for an interest period equal to the weighted average LIBOR interest period of eligible debt securities owned by Walnut Street, plus a spread ranging between 1.50% and 2.75% per annum, depending on the composition of the portfolio of debt securities for the relevant period. Beginning on September 17, 2012, Walnut Street became subject to a non-usage fee to the extent the aggregate principal amount available under the Walnut Street credit facility is not borrowed. Any amounts borrowed under the Walnut Street credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 17, 2017.
As of September 30, 2013 and December 31, 2012, $248,739 and $235,364, respectively, was outstanding under the Walnut Street credit facility. The carrying amount of the amount outstanding under the facility approximates its fair value. The Company incurred costs of $3,761 in connection with obtaining the Walnut Street credit facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of September 30, 2013, $2,725 of such deferred financing costs had yet to be amortized to interest expense.
The effective interest rate on the borrowings under the Walnut Street credit facility was 2.87% per annum as of September 30, 2013. Interest is payable quarterly in arrears and commenced October 15, 2012. The Company recorded interest expense of $2,048 and $777 for the three months ended September 30, 2013 and 2012, respectively, of which $190 and $191, respectively, related to the amortization of deferred financing costs and $2 and $72, respectively, related to commitment fees on the unused portion of the credit facility. The Company recorded interest expense of $5,920 and $867 for the nine months ended September 30, 2013 and 2012, respectively, of which $567 and $279, respectively, related to the amortization of deferred financing costs and $20 and $72, respectively, related to commitment fees on the unused portion of the credit facility. The Company paid $5,111 and $0 in interest expense during the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the Walnut Street credit facility for the nine months ended September 30, 2013 and 2012 were $244,741 and $73,210, respectively, with a weighted average interest rate (including the effect of non-usage fees) of 2.89% and 3.05%, respectively.
49
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 9. Financial Highlights
The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2013 and the year ended December 31, 2012:
|
Nine Months Ended
September 30, 2013 (Unaudited) |
Year Ended
December 31, 2012 |
|||||||
|
Per Share Data: |
||||||||
|
Net asset value, beginning of period |
$ | 9.97 | $ | 9.35 | ||||
|
Results of operations (1) |
||||||||
|
Net investment income (loss) |
0.76 | 0.59 | ||||||
|
Net realized and unrealized appreciation (depreciation) on investments and total return swap and gain/loss on foreign currency |
(0.01 | ) | 0.86 | |||||
|
|
|
|
|
|||||
|
Net increase (decrease) in net assets resulting from operations |
0.75 | 1.45 | ||||||
|
|
|
|
|
|||||
|
Stockholder distributions (2) |
||||||||
|
Distributions from net investment income |
(0.49 | ) | (0.63 | ) | ||||
|
Distributions from net realized gain on investments |
(0.13 | ) | (0.23 | ) | ||||
|
|
|
|
|
|||||
|
Net decrease in net assets resulting from stockholder distributions |
(0.62 | ) | (0.86 | ) | ||||
|
|
|
|
|
|||||
|
Capital share transactions |
||||||||
|
Issuance of common stock (3) |
— | 0.04 | ||||||
|
Repurchases of common stock (4) |
— | — | ||||||
|
Offering costs (1) |
— | (0.01 | ) | |||||
|
|
|
|
|
|||||
|
Net increase (decrease) in net assets resulting from capital share transactions |
— | 0.03 | ||||||
|
|
|
|
|
|||||
|
Net asset value, end of period |
$ | 10.10 | $ | 9.97 | ||||
|
|
|
|
|
|||||
|
Shares outstanding, end of period |
257,190,300 | 251,890,821 | ||||||
|
|
|
|
|
|||||
|
Total return (5) |
7.52 | % | 15.83 | % | ||||
|
|
|
|
|
|||||
|
Ratio/Supplemental Data: |
||||||||
|
Net assets, end of period |
$ | 2,597,690 | $ | 2,511,738 | ||||
|
|
|
|
|
|||||
|
Ratio of net investment income to average net assets (6) |
7.50 | % | 6.07 | % | ||||
|
Ratio of operating expenses to average net assets (6) |
6.43 | % | 7.67 | % | ||||
|
Portfolio turnover (7) |
48.48 | % | 65.70 | % | ||||
| (1) | The per share data was derived by using the weighted average shares outstanding during the applicable period. |
| (2) | The per share data for distributions reflects the actual amount of distributions paid per share during the applicable period. |
| (3) | The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous public offering and pursuant to the Company’s distribution reinvestment plan. The issuance of common stock at an offering price, net of sales commissions and dealer manager fees, that is greater than the net asset value per share results in an increase in net asset value per share. |
50
FS Investment Corporation
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 9. Financial Highlights (continued)
| (4) | The per share impact of the Company’s repurchases of common stock is a reduction to net asset value of less than $0.01 per share during the applicable period. |
| (5) | The total return for the nine months ended September 30, 2013 was calculated by taking the net asset value per share as of September 30, 2013, adding the cash distributions per share which were declared during the period and dividing the total by the net asset value per share on December 31, 2012. The 2012 total return was calculated by taking the net asset value per share as of December 31, 2012, adding the cash distributions per share which were declared during the calendar year and dividing the total by the net asset value per share on December 31, 2011. The total return does not consider the effect of the sales load from the sale of the Company’s common stock. The total return includes the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculation of total return in the table should not be considered a representation of the Company’s future total return, which may be greater or less than the return shown in the table due to a number of factors, including the Company’s ability or inability to make investments in companies that meet its investment criteria, the interest rate payable on the debt securities the Company acquires, the level of the Company’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. The total return as calculated above represents the total return on the Company’s investment portfolio during such period and is calculated in accordance with GAAP. These return figures do not represent an actual return to stockholders. |
| (6) | Weighted average net assets during the period are used for this calculation. Ratios are not annualized. The following is a schedule of supplemental ratios for the nine months ended September 30, 2013 and the year ended December 31, 2012: |
|
Nine Months Ended
September 30, 2013 (Unaudited) |
Year Ended
December 31, 2012 |
|||||||
|
Ratio of accrued capital gains incentive fees to average net assets |
(0.02 | )% | 1.80 | % | ||||
|
Ratio of subordinated income incentive fees to average net assets |
1.87 | % | 0.61 | % | ||||
|
Ratio of interest expense to average net assets |
1.45 | % | 1.37 | % | ||||
| (7) | Portfolio turnover is not annualized. |
51
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. (in thousands, except share and per share amounts) |
The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us,” “our” and the “Company” refer to FS Investment Corporation.
Forward-Looking Statements
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:
| • |
our future operating results; |
| • |
our business prospects and the prospects of our portfolio companies; |
| • |
the impact of the investments that we expect to make; |
| • |
the ability of our portfolio companies to achieve their objectives; |
| • |
our current and expected financings and investments; |
| • |
the adequacy of our cash resources, financing sources and working capital; |
| • |
the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies; |
| • |
our contractual arrangements and relationships with third parties; |
| • |
actual and potential conflicts of interest with FB Advisor, FS Investment Advisor, LLC, FS Energy and Power Fund, FSIC II Advisor, LLC, FS Investment Corporation II, GDFM or any of their affiliates; |
| • |
the dependence of our future success on the general economy and its effect on the industries in which we may invest; |
| • |
our use of financial leverage; |
| • |
the ability of FB Advisor to locate suitable investments for us and to monitor and administer our investments; |
| • |
the ability of FB Advisor or its affiliates to attract and retain highly talented professionals; |
| • |
our ability to maintain our qualification as a RIC and as a BDC; |
| • |
the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations issued thereunder; |
| • |
the effect of changes to tax legislation and our tax position; and |
| • |
the tax status of the enterprises in which we invest. |
In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason. Factors that could cause actual results to differ materially include:
| • |
changes in the economy; |
| • |
risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and |
| • |
future changes in laws or regulations and conditions in our operating areas. |
52
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Overview
We were incorporated under the general corporation laws of the State of Maryland on December 21, 2007, and commenced operations on January 2, 2009 upon raising gross proceeds in excess of $2,500 from the sale of shares of our common stock in our continuous public offering to persons who were not affiliated with us or FB Advisor. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. In May 2012, we closed our continuous public offering of shares of common stock to new investors.
Our investment activities are managed by FB Advisor and supervised by our board of directors, a majority of whom are independent. Under our investment advisory and administrative services agreement, we have agreed to pay FB Advisor an annual base management fee based on our gross assets as well as incentive fees based on our performance. FB Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FB Advisor in identifying investment opportunities and makes investment recommendations for approval by FB Advisor according to guidelines set by FB Advisor.
Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We have identified and intend to focus on the following six investment categories, which we believe will allow us to generate an attractive total return with an acceptable level of risk.
Originated/Proprietary Transactions : We intend to leverage our relationship with GDFM and their global sourcing and origination platform to identify proprietary investment opportunities. We define proprietary investments as any investment originated or structured specifically for us or made by us that was not generally available to the broader market. Proprietary investments may include both debt and equity components, although we do not expect to make equity investments independent of having an existing credit relationship. We believe proprietary transactions may offer attractive investment opportunities as they typically offer higher returns than broadly syndicated transactions.
Anchor Orders : In addition to proprietary transactions, we will invest in certain opportunities that are originated and then syndicated by a commercial or investment bank but where we provide a capital commitment significantly above the average syndicate participant. Our decision to provide an anchor order to a syndicated transaction is predicated on a rigorous credit analysis, our familiarity with a particular company, industry or financial sponsor, and the broader investment experiences of FB Advisor and GDFM. In these types of investments, we may receive fees, preferential pricing or other benefits not available to other lenders in return for our significant capital commitment.
Event Driven : We intend to take advantage of dislocations that arise in the markets due to an impending event and where the market’s apparent expectation of value differs substantially from our fundamental analysis. Such events may include a looming debt maturity or default, a merger, spin-off or other corporate reorganization, an adverse regulatory or legal ruling, or a material contract expiration, any of which may significantly improve or impair a company’s financial position. Compared to other investment strategies, event driven investing depends
53
more heavily on our ability to successfully predict the outcome of an individual event rather than on underlying macroeconomic fundamentals. As a result, successful event driven strategies may offer both substantial diversification benefits and the ability to generate performance in uncertain market environments.
Opportunistic : We intend to seek to capitalize on market price inefficiencies by investing in loans, bonds and other securities where the market price of such investment reflects a lower value than deemed warranted by our fundamental analysis. We believe that market price inefficiencies may occur due to, among other things, general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community. We seek to allocate capital to these securities that have been misunderstood or mispriced by the market and where we believe there is an opportunity to earn an attractive return on our investment.
Collateralized Securities : Collateralized loan obligations, or CLOs, are a form of securitization where the cash flow from a pooled basket of syndicated loans is used to support distribution payments made to different tranches of securities. While collectively CLOs represent nearly fifty percent of the broadly syndicated loan universe, investing in individual CLO tranches requires a high degree of investor sophistication due to their structural complexity and the illiquid nature of their securities. Our relationship with GSO Capital Partners LP, one of the largest CLO managers in the world, allows us to invest in these securities with confidence and to capitalize on opportunities in the secondary CLO market.
Broadly Syndicated/Other : Although our primary focus is to invest in proprietary transactions, in certain circumstances we will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than our proprietary investments and provide a complement to our more illiquid proprietary strategies. In addition, and because we typically receive more attractive financing terms on these positions than we do on our less liquid assets, we are able to leverage the broadly syndicated portion of our portfolio in such a way that maximizes the levered return potential of our portfolio.
Our portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private U.S. companies and, to a lesser extent, subordinated loans of private U.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans through secondary market transactions in the “over-the-counter” market for institutional loans or directly from our target companies. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds and other debt securities.
The senior secured and second lien secured loans in which we invest generally have stated terms of three to seven years and any subordinated debt investments that we make generally will have stated terms of up to ten years, but the expected average life of such securities is generally between three and seven years. However, there is no limit on the maturity or duration of any security in our portfolio. The loans in which we invest are often rated by a nationally-recognized statistical ratings organization and generally will carry a rating below investment grade (rated lower than “Baa3” by Moody’s Investors Service, Inc., or Moody’s, or lower than “BBB-” by Standard & Poor’s Corporation). However, we also invest in non-rated debt securities.
Revenues
The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain on investments, net realized gain on total return swap, net unrealized appreciation and depreciation on investments, net unrealized appreciation and depreciation on total return swap and net unrealized gain and loss on foreign currency. Net investment income is the difference
54
between our income from interest, dividends, fees and other investment income and our operating expenses. Net realized gain on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net realized gain on total return swap is the net monthly settlement payments received on the TRS. Net unrealized appreciation and depreciation on investments is the net change in the fair value of our investment portfolio. Net unrealized appreciation and depreciation on total return swap is the net change in the fair value of the TRS. Net unrealized gain and loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations. In future quarters, we do not expect our revenues to include net realized gain on total return swap or net unrealized appreciation and depreciation on total return swap as a result of the termination of the TRS on August 29, 2012. We may, however, elect to utilize a total return swap in the future.
We principally generate revenues in the form of interest income on the debt investments we hold. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we may hold. In addition, we may generate revenues in the form of commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned.
Expenses
Our primary operating expenses include the payment of advisory fees and other expenses under the investment advisory and administrative services agreement, interest expense from financing facilities and other expenses necessary for our operations. Our investment advisory fees compensate FB Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. FB Advisor is responsible for compensating our investment sub-adviser.
We reimburse FB Advisor for expenses necessary to perform services related to our administration and operations. Such services include the provision of general ledger accounting, fund accounting, legal services, investor relations and other administrative services. FB Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records which we are required to maintain and preparing reports for our stockholders and reports filed with the SEC. In addition, FB Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. See “—Related Party Transactions” for additional information regarding the reimbursements payable to FB Advisor for administrative services and the methodology for determining the amount of any such reimbursements. We bear all other expenses of our operations and transactions. For additional information regarding these expenses, please see our annual report on Form 10-K for the year ended December 31, 2012.
In addition, we have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by FB Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance.
Expense Reimbursement
Beginning on February 26, 2009, Franklin Square Holdings agreed to reimburse us for expenses in an amount that was sufficient to ensure that, for tax purposes, our net investment income and net capital gains were equal to or greater than the cumulative distributions paid to our stockholders in each quarter. This arrangement was designed to ensure that no portion of our distributions would represent a return of capital for our stockholders. Under this arrangement, Franklin Square Holdings had no obligation to reimburse any portion of our expenses.
55
Pursuant to the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to stockholders will be paid from our offering proceeds or borrowings. However, because certain investments we may make, including preferred and common equity investments, may generate dividends and other distributions to us that are treated for tax purposes as a return of capital, a portion of our distributions to stockholders may also be deemed to constitute a return of capital for tax purposes to the extent that we may use such dividends or other distribution proceeds to fund our distributions to stockholders. Under those circumstances, Franklin Square Holdings will not reimburse us for the portion of such distributions to stockholders that represent a return of capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to stockholders.
Under the expense reimbursement agreement, Franklin Square Holdings will reimburse us for expenses in an amount equal to the difference between our cumulative distributions paid to our stockholders in each quarter, less the sum of our net investment income for tax purposes, net capital gains and dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment income or net capital gains for tax purposes) in each quarter.
Pursuant to the expense reimbursement agreement, we have a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of our net investment income for tax purposes, net capital gains and the amount of any dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment income or net capital gains for tax purposes) exceeds the distributions paid by us to stockholders; provided, however, that (i) we will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause “other operating expenses” (as defined below) (on an annualized basis and net of any expense reimbursement payments received by us during such fiscal year) to exceed the lesser of (A) 1.75% of our average net assets attributable to shares of our common stock for the fiscal year-to-date period after taking such payments into account and (B) the percentage of our average net assets attributable to shares of our common stock represented by “other operating expenses” during the fiscal year in which such expense support payment from Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal year) and (ii) we will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings if the aggregate amount of distributions per share declared by us in such calendar quarter is less than the aggregate amount of distributions per share declared by us in the calendar quarter in which Franklin Square Holdings made the expense support payment to which such reimbursement relates. “Other operating expenses” means our total “operating expenses” (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. “Operating expenses” means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.
We or Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, our conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.
56
Franklin Square Holdings is controlled by our chairman and chief executive officer, Michael C. Forman, and our vice-chairman, David J. Adelman. There can be no assurance that the expense reimbursement agreement will remain in effect or that Franklin Square Holdings will reimburse any portion of our expenses in future quarters. As of September 30, 2013, there were no unreimbursed expense support payments subject to future reimbursement by us.
Portfolio Investment Activity for the Three and Nine Months Ended September 30, 2013 and for the Year Ended December 31, 2012
The following table presents certain selected information regarding our portfolio investment activity for the three and nine months ended September 30, 2013.
| Total Portfolio Activity | ||||||||
| Three Months Ended | Nine Months Ended | |||||||
|
Net Investment Activity |
September 30, 2013 |
September 30, 2013 |
||||||
|
Purchases |
$ | 875,476 | $ | 2,204,560 | ||||
|
Sales and Redemptions |
(668,647 | ) | (1,974,977 | ) | ||||
|
|
|
|
|
|||||
|
Net Portfolio Activity |
$ | 206,829 | $ | 229,583 | ||||
|
|
|
|
|
|||||
|
For the Three Months Ended
September 30, 2013 |
For the Nine Months Ended
September 30, 2013 |
|||||||||||||||
|
New Investment Activity by Asset Class |
Purchases | Percentage | Purchases | Percentage | ||||||||||||
|
Senior Secured Loans—First Lien |
$ | 483,807 | 55 | % | $ | 1,366,182 | 62 | % | ||||||||
|
Senior Secured Loans—Second Lien |
203,295 | 23 | % | 352,967 | 16 | % | ||||||||||
|
Senior Secured Bonds |
77,201 | 9 | % | 159,158 | 7 | % | ||||||||||
|
Subordinated Debt |
59,982 | 7 | % | 268,915 | 12 | % | ||||||||||
|
Collateralized Securities |
30,620 | 4 | % | 30,620 | 2 | % | ||||||||||
|
Equity/Other |
20,571 | 2 | % | 26,718 | 1 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 875,476 | 100 | % | $ | 2,204,560 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| September 30, 2013 | ||||||||
|
Total Portfolio Characteristics |
Fair Value |
Percentage of
Portfolio |
||||||
|
Senior Secured Loans—First Lien |
$ | 2,149,069 | 51 | % | ||||
|
Senior Secured Loans—Second Lien |
914,603 | 22 | % | |||||
|
Senior Secured Bonds |
379,933 | 9 | % | |||||
|
Subordinated Debt |
479,729 | 11 | % | |||||
|
Collateralized Securities |
122,217 | 3 | % | |||||
|
Equity/Other |
155,250 | 4 | % | |||||
|
|
|
|
|
|||||
|
Total |
$ | 4,200,801 | 100 | % | ||||
|
|
|
|
|
|||||
|
Number of Portfolio Companies |
182 | |||
|
% Variable Rate (based on fair value) |
70.0% | |||
|
% Fixed Rate (based on fair value) |
26.3% | |||
|
% Income Producing Preferred Equity (based on fair value) |
2.2% | |||
|
% Non-Income Producing Equity or Other Investments (based on fair value) |
1.5% | |||
|
Average Annual EBITDA of Portfolio Companies |
$252,900 | |||
|
Weighted Average Credit Rating of Investments that were Rated |
B3 | |||
|
% of Investments on Non-Accrual |
— | |||
|
Gross Portfolio Yield Prior to Leverage (based on amortized cost) |
10.4% | |||
|
Gross Portfolio Yield Prior to Leverage (based on amortized cost)—Excluding Non-Income Producing Assets |
10.6% | |||
57
| New Proprietary Activity | ||||||||
|
Three Months Ended
September 30, 2013 |
||||||||
|
Total Commitments (including Unfunded Commitments) |
$ | 614,862 | ||||||
|
Exited Investments (including partial paydowns) |
(97,561 | ) | ||||||
|
|
|
|||||||
|
Net Proprietary Activity |
$ | 517,301 | ||||||
|
|
|
|||||||
|
For the Three Months Ended
September 30, 2013 |
||||||||
|
New Proprietary Commitments by Asset Class |
Commitment
Amount |
Percentage | ||||||
|
Senior Secured Loans—First Lien |
$ | 412,189 | 67 | % | ||||
|
Senior Secured Loans—Second Lien |
142,000 | 23 | % | |||||
|
Senior Secured Bonds |
— | — | ||||||
|
Subordinated Debt |
37,500 | 6 | % | |||||
|
Collateralized Securities |
— | — | ||||||
|
Equity/Other |
23,173 | 4 | % | |||||
|
|
|
|
|
|||||
|
Total |
$ | 614,862 | 100 | % | ||||
|
|
|
|
|
|||||
|
Average New Proprietary Commitment Amount |
$55,897 | |||||||
|
Weighted Average Maturity for Newly Funded Proprietary Commitments |
7/31/18 | |||||||
|
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Newly Funded Investments during Period |
11.7% | |||||||
|
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Investments Exited during Period |
11.0% | |||||||
|
Total Proprietary Portfolio Characteristics |
||||||||
|
Number of Funded Proprietary Portfolio Companies |
36 | |||||||
|
% of Funded Proprietary Investments on Non-Accrual |
— | |||||||
|
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Proprietary Investments |
10.5% | |||||||
|
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Proprietary Investments—Excluding Non-Income Producing Assets |
10.7% | |||||||
During the nine months ended September 30, 2013, we made investments in portfolio companies totaling $2,204,560. During the same period, we sold investments for proceeds of $900,636 and received principal repayments of $1,074,341. As of September 30, 2013, our investment portfolio, with a total fair value of $4,200,801, consisted of interests in 182 portfolio companies (51% in first lien senior secured loans, 22% in second lien senior secured loans, 9% in senior secured bonds, 11% in subordinated debt, 3% in collateralized securities and 4% in equity/other). The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $252.9 million. As of September 30, 2013, the investments in our portfolio were purchased at a weighted average price of 97.3% of par or stated value, as applicable, the weighted average credit rating of the investments in our portfolio that were rated (constituting approximately 43.8% of our portfolio based on the fair value of our investments) was B3 based upon the Moody’s scale and our estimated gross annual portfolio yield, prior to leverage, was 10.4% based upon the amortized cost of our investments.
During the year ended December 31, 2012, we made investments in portfolio companies totaling $3,863,334. During the same period, we sold investments for proceeds of $926,136 and received principal repayments of $1,045,311. As of December 31, 2012, our investment portfolio, with a total fair value of $3,934,722, consisted of interests in 263 portfolio companies (50% in first lien senior secured loans, 19% in second lien senior secured loans, 12% in senior secured bonds, 13% in subordinated debt, 3% in collateralized
58
securities and 3% in equity/other). The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $302.0 million. As of December 31, 2012, the investments in our portfolio were purchased at a weighted average price of 95.4% of par or stated value, as applicable, the weighted average credit rating of the investments in our portfolio that were rated (constituting approximately 59.4% of our portfolio based on the fair value of our investments) was B3 based upon the Moody’s scale and our estimated gross annual portfolio yield, prior to leverage, was 10.4% based upon the amortized cost of our investments.
The following table summarizes the composition of our investment portfolio at cost and fair value as of September 30, 2013 and December 31, 2012:
|
September 30,
2013
(Unaudited) |
December 31, 2012 | |||||||||||||||||||||||
|
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
|||||||||||||||||||
|
Senior Secured Loans—First Lien |
$ | 2,118,100 | $ | 2,149,069 | 51 | % | $ | 1,914,996 | $ | 1,945,159 | 50 | % | ||||||||||||
|
Senior Secured Loans—Second Lien |
895,270 | 914,603 | 22 | % | 752,392 | 764,356 | 19 | % | ||||||||||||||||
|
Senior Secured Bonds |
399,126 | 379,933 | 9 | % | 460,040 | 466,299 | 12 | % | ||||||||||||||||
|
Subordinated Debt |
475,168 | 479,729 | 11 | % | 491,906 | 511,971 | 13 | % | ||||||||||||||||
|
Collateralized Securities |
105,856 | 122,217 | 3 | % | 91,411 | 118,994 | 3 | % | ||||||||||||||||
|
Equity/Other |
138,640 | 155,250 | 4 | % | 114,499 | 127,943 | 3 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 4,132,160 | $ | 4,200,801 | 100 | % | $ | 3,825,244 | $ | 3,934,722 | 100 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments. |
We do not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned 5% or more of its voting securities.
Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of September 30, 2013, we had seven such investments with aggregate unfunded commitments of $72,743 and one equity investment with an unfunded commitment of $4,629. As of December 31, 2012, we had three such investments with aggregate unfunded commitments of $14,804. We maintain sufficient cash on hand to fund such unfunded commitments should the need arise.
59
The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of September 30, 2013 and December 31, 2012:
|
September 30, 2013
(Unaudited) |
December 31, 2012 | |||||||||||||||
|
Industry Classification |
Fair
Value |
Percentage
of
Portfolio |
Fair
Value |
Percentage
of
Portfolio |
||||||||||||
|
Automobiles & Components |
$ | 53,447 | 1 | % | $ | 41,479 | 1 | % | ||||||||
|
Capital Goods |
830,975 | 20 | % | 675,187 | 17 | % | ||||||||||
|
Commercial & Professional Services |
317,640 | 8 | % | 271,978 | 7 | % | ||||||||||
|
Consumer Durables & Apparel |
317,884 | 8 | % | 264,722 | 7 | % | ||||||||||
|
Consumer Services |
304,100 | 7 | % | 293,408 | 7 | % | ||||||||||
|
Diversified Financials |
157,854 | 4 | % | 220,622 | 6 | % | ||||||||||
|
Energy |
492,161 | 12 | % | 430,444 | 11 | % | ||||||||||
|
Food & Staples Retailing |
40,065 | 1 | % | 96,739 | 2 | % | ||||||||||
|
Food, Beverage & Tobacco |
10,362 | 0 | % | 9,713 | 0 | % | ||||||||||
|
Health Care Equipment & Services |
226,352 | 5 | % | 362,456 | 9 | % | ||||||||||
|
Household & Personal Products |
66,300 | 2 | % | 78,124 | 2 | % | ||||||||||
|
Insurance |
17,969 | 0 | % | 28,623 | 1 | % | ||||||||||
|
Materials |
211,295 | 5 | % | 199,089 | 5 | % | ||||||||||
|
Media |
222,163 | 5 | % | 154,599 | 4 | % | ||||||||||
|
Pharmaceuticals, Biotechnology & Life Sciences |
54,752 | 1 | % | 37,259 | 1 | % | ||||||||||
|
Retailing |
182,002 | 4 | % | 24,652 | 1 | % | ||||||||||
|
Semiconductors & Semiconductor Equipment |
— | — | 8,820 | 0 | % | |||||||||||
|
Software & Services |
370,010 | 9 | % | 339,641 | 9 | % | ||||||||||
|
Technology Hardware & Equipment |
132,489 | 3 | % | 94,128 | 2 | % | ||||||||||
|
Telecommunication Services |
158,740 | 4 | % | 152,458 | 4 | % | ||||||||||
|
Transportation |
11,170 | 0 | % | 29,104 | 1 | % | ||||||||||
|
Utilities |
23,071 | 1 | % | 121,477 | 3 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 4,200,801 | 100 | % | $ | 3,934,722 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
As of September 30, 2013 and December 31, 2012, approximately 77% and 58%, respectively, of our portfolio based on fair value constituted non-broadly syndicated investments. We define non-broadly syndicated investments as any investment that is considered proprietary, an anchor order, an opportunistic or event driven investment, or a collateralized security. The table below enumerates the percentage, by fair value, of the types of investments in our portfolio as of September 30, 2013 and December 31, 2012:
| September 30, 2013 | December 31, 2012 | |||||||||||||||
|
Deal Composition |
Fair Value |
Percentage
of
Portfolio |
Fair Value |
Percentage
of
Portfolio |
||||||||||||
|
Originated/Proprietary |
$ | 2,163,752 | 52 | % | $ | 1,063,807 | 27 | % | ||||||||
|
Anchor Order |
648,011 | 15 | % | 421,936 | 11 | % | ||||||||||
|
Event Driven |
43,505 | 1 | % | 167,819 | 4 | % | ||||||||||
|
Opportunistic |
270,789 | 6 | % | 491,593 | 13 | % | ||||||||||
|
Collateralized Securities |
122,217 | 3 | % | 118,994 | 3 | % | ||||||||||
|
Broadly Syndicated/Other |
952,527 | 23 | % | 1,670,573 | 42 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 4,200,801 | 100 | % | $ | 3,934,722 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
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Portfolio Asset Quality
In addition to various risk management and monitoring tools, FB Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. FB Advisor uses an investment rating scale of 1 to 5. The following is a description of the conditions associated with each investment rating:
|
Investment
Rating |
Summary Description |
|
| 1 | Investment exceeding expectations and/or capital gain expected. | |
| 2 | Performing investment generally executing in accordance with the portfolio company’s business plan—full return of principal and interest expected. | |
| 3 | Performing investment requiring closer monitoring. | |
| 4 | Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment. | |
| 5 | Underperforming investment with expected loss of interest and some principal. |
The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of September 30, 2013 and December 31, 2012:
| September 30, 2013 | December 31, 2012 | |||||||||||||||
|
Investment Rating |
Fair Value |
Percentage
of
Portfolio |
Fair Value |
Percentage
of
Portfolio |
||||||||||||
|
1 |
$ | 300,405 | 7 | % | $ | 183,638 | 5 | % | ||||||||
|
2 |
3,551,113 | 85 | % | 3,424,857 | 87 | % | ||||||||||
|
3 |
300,802 | 7 | % | 174,228 | 4 | % | ||||||||||
|
4 |
45,326 | 1 | % | 148,364 | 4 | % | ||||||||||
|
5 |
3,155 | 0 | % | 3,635 | 0 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 4,200,801 | 100 | % | $ | 3,934,722 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.
Results of Operations
Comparison of the Three Months Ended September 30, 2013 and September 30, 2012
Revenues
We generated investment income of $123,307 and $84,015 for the three months ended September 30, 2013 and 2012, respectively, in the form of interest and fees earned on senior secured loans, senior secured bonds, subordinated debt and collateralized securities in our portfolio and dividends and other distributions earned on equity/other investments. Such revenues represent $110,072 and $76,794 of cash income earned as well as $13,235 and $7,221 in non-cash portions relating to accretion of discount and PIK interest for the three months ended September 30, 2013 and 2012, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized. The increase in investment income is due primarily to the growth of our portfolio over the last year and the transition of the portfolio to higher yielding non-broadly syndicated assets. The level of income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments.
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Expenses
Our total operating expenses were $55,535 and $49,259 for the three months ended September 30, 2013 and 2012, respectively. Our operating expenses include base management fees attributed to FB Advisor of $22,720 and $19,021 for the three months ended September 30, 2013 and 2012, respectively. Our operating expenses also include administrative services expenses attributed to FB Advisor of $1,243 and $1,782 for the three months ended September 30, 2013 and 2012, respectively.
FB Advisor is eligible to receive incentive fees based on performance. As of June 30, 2013, $17,167 in subordinated income incentive fees were payable by us to FB Advisor, all of which we paid to FB Advisor during the three months ended September 30, 2013. During the three months ended September 30, 2013, we accrued additional subordinated income incentive fees of $16,555 based upon the performance of our portfolio. We did not accrue any subordinated income incentive fees during the three months ended September 30, 2012. During the three months ended September 30, 2013, we reversed $1,548 of capital gains incentive fees previously accrued based on the performance of our portfolio. During the three months ended September 30, 2012, we accrued capital gains incentive fees of $17,421 based on the performance of our portfolio.
We recorded interest expense of $13,098 and $7,744 for the three months ended September 30, 2013 and 2012, respectively, in connection with our credit facilities and the JPM Facility. Fees incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $343 and $280 for the three months ended September 30, 2013 and 2012, respectively. We incurred fees and expenses with our stock transfer agent of $610 and $910 for the three months ended September 30, 2013 and 2012, respectively. Fees for our board of directors were $241 and $212 for the three months ended September 30, 2013 and 2012, respectively.
Our other general and administrative expenses totaled $2,273 and $1,889 for the three months ended September 30, 2013 and 2012, respectively, and consisted of the following:
|
Three Months
Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
|
Expenses associated with our independent audit and related fees |
$ | 151 | $ | 167 | ||||
|
Compensation of our chief compliance officer |
21 | 21 | ||||||
|
Legal fees |
251 | 465 | ||||||
|
Printing fees |
601 | 178 | ||||||
|
Other |
1,249 | 1,058 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 2,273 | $ | 1,889 | ||||
|
|
|
|
|
|||||
During the three months ended September 30, 2013 and 2012, the ratio of our operating expenses to our average net assets was 2.15% and 2.04%, respectively. Our ratio of operating expenses to our average net assets during the three months ended September 30, 2013 and 2012 includes $13,098 and $7,744, respectively, related to interest expense and $15,007 and $17,421, respectively, related to accruals for incentive fees. Without such expenses, our ratio of operating expenses to average net assets would have been 1.06% and 1.00% for the three months ended September 30, 2013 and 2012, respectively. Incentive fees and interest expense, among other things, may increase or decrease our operating expenses in relation to our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors. The higher ratio of operating expenses to average net assets during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 can primarily be attributed to higher management fees as a percentage of average net assets as a result of the termination of the TRS and the replacement of such financing arrangement with a revolving credit facility.
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Net Investment Income
Our net investment income totaled $67,772 ($0.26 per share) and $34,756 ($0.14 per share) for the three months ended September 30, 2013 and 2012, respectively. The increase in net investment income on a per share basis can be attributed to, among other things, our ability to efficiently deploy capital following the closing of our public offering and the transition of our portfolio to higher yielding non-broadly syndicated assets.
Net Realized Gains or Losses
We sold investments and received principal repayments of $378,878 and $289,769, respectively, during the three months ended September 30, 2013, from which we realized a net gain of $6,602. We also realized a net gain of $70 from settlements on foreign currency during the three months ended September 30, 2013. We sold investments and received principal repayments of $178,042 and $232,008, respectively, during the three months ended September 30, 2012, from which we realized a net gain of $10,259. We also earned $9,729 from periodic net settlement payments on our TRS and realized a net gain of $521 from settlements on foreign currency during the three months ended September 30, 2012.
Net Change in Unrealized Appreciation (Depreciation) on Investments and Total Return Swap and Unrealized Gain (Loss) on Foreign Currency
For the three months ended September 30, 2013, the net change in unrealized appreciation (depreciation) on investments totaled $(14,857) and the net change in unrealized gain (loss) on foreign currency totaled $30. For the three months ended September 30, 2012, the net change in unrealized appreciation (depreciation) on investments totaled $69,216, the net change in unrealized appreciation (depreciation) on our TRS was $(2,453) and the net change in unrealized gain (loss) on foreign currency totaled $(261). The net change in unrealized appreciation (depreciation) on our investments during the three months ended September 30, 2013 was primarily driven by mark-to-market declines in the value of certain of our senior secured bond positions. The net change in unrealized appreciation (depreciation) on our investments during the three months ended September 30, 2012 was primarily a result of a general strengthening in the credit markets during the quarter.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the three months ended September 30, 2013, the net increase in net assets resulting from operations was $59,617 ($0.23 per share) compared to a net increase in net assets resulting from operations of $121,767 ($0.49 per share) during the three months ended September 30, 2012.
Comparison of the Nine Months Ended September 30, 2013 and September 30, 2012
Revenues
We generated investment income of $357,700 and $197,604 for the nine months ended September 30, 2013 and 2012, respectively, in the form of interest and fees earned on senior secured loans, senior secured bonds, subordinated debt and collateralized securities in our portfolio and dividends and other distributions earned on equity/other investments. Such revenues represent $317,587 and $182,498 of cash income earned as well as $40,113 and $15,106 in non-cash portions relating to accretion of discount and PIK interest for the nine months ended September 30, 2013 and 2012, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized. The increase in investment income is due primarily to the growth of our portfolio over the last year and the transition of the portfolio to higher yielding non-broadly syndicated assets. The level of income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments.
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Expenses
Our total operating expenses were $165,144 and $111,433 for the nine months ended September 30, 2013 and 2012, respectively. Our operating expenses include base management fees attributed to FB Advisor of $67,541 and $46,570 for the nine months ended September 30, 2013 and 2012, respectively. Our operating expenses also include administrative services expenses attributed to FB Advisor of $4,034 and $4,116 for the nine months ended September 30, 2013 and 2012, respectively.
FB Advisor is eligible to receive incentive fees based on performance. During the nine months ended September 30, 2013, we accrued subordinated income incentive fees of $47,950 based upon the performance of our portfolio and paid to FB Advisor $44,788 of subordinated income incentive fees during the period. We did not accrue any subordinated income incentive fees during the nine months ended September 30, 2012. During the nine months ended September 30, 2013, we reversed $621 of capital gains incentive fees previously accrued based on the performance of our portfolio. During the nine months ended September 30, 2012, we accrued capital gains incentive fees of $33,920 based on the performance of our portfolio, of which $27,421 was based on unrealized gains and $6,499 was based on realized gains. No such fees are actually payable by us with respect to unrealized gains unless and until those gains are actually realized. See “—Critical Accounting Policies—Capital Gains Incentive Fee.”
We recorded interest expense of $37,110 and $18,271 for the nine months ended September 30, 2013 and 2012, respectively, in connection with our credit facilities and the JPM Facility. Fees incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $1,063 and $1,126 for the nine months ended September 30, 2013 and 2012, respectively. We incurred fees and expenses with our stock transfer agent of $2,400 and $2,731 for the nine months ended September 30, 2013 and 2012, respectively. Fees for our board of directors were $689 and $633 for the nine months ended September 30, 2013 and 2012, respectively.
Our other general and administrative expenses totaled $4,978 and $4,066 for the nine months ended September 30, 2013 and 2012, respectively, and consisted of the following:
|
Nine Months
Ended
September 30, |
||||||||
| 2013 | 2012 | |||||||
|
Expenses associated with our independent audit and related fees |
$ | 523 | $ | 503 | ||||
|
Compensation of our chief compliance officer |
62 | 74 | ||||||
|
Legal fees |
676 | 825 | ||||||
|
Printing fees |
1,199 | 530 | ||||||
|
Other |
2,518 | 2,134 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 4,978 | $ | 4,066 | ||||
|
|
|
|
|
|||||
During the nine months ended September 30, 2013 and 2012, the ratio of our operating expenses to our average net assets was 6.43% and 5.27%, respectively. Our ratio of operating expenses to our average net assets during the nine months ended September 30, 2013 and 2012 includes $37,110 and $18,271, respectively, related to interest expense and $47,329 and $33,920, respectively, related to accruals for incentive fees. Without such expenses, our ratio of operating expenses to average net assets would have been 3.13% and 2.81% for the nine months ended September 30, 2013 and 2012, respectively. Incentive fees and interest expense, among other things, may increase or decrease our operating expenses in relation to our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors. The higher ratio of operating expenses to average net assets during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 can primarily be attributed to higher management fees as a percentage of average net assets as a result of the termination of the TRS and the replacement of such financing arrangement with a revolving credit facility.
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Net Investment Income
Our net investment income totaled $192,556 ($0.76 per share) and $86,171 ($0.39 per share) for the nine months ended September 30, 2013 and 2012, respectively. The increase in net investment income on a per share basis can be attributed to, among other things, our ability to efficiently deploy capital following the closing of our public offering and the transition of our portfolio to higher yielding non-broadly syndicated assets.
Net Realized Gains or Losses
We sold investments and received principal repayments of $900,636 and $1,074,341, respectively, during the nine months ended September 30, 2013, from which we realized a net gain of $37,220. We also realized a net loss of $32 from settlements on foreign currency during the nine months ended September 30, 2013. We sold investments and received principal repayments of $435,998 and $501,140, respectively, during the nine months ended September 30, 2012, from which we realized a net gain of $14,853. We also earned $19,596 from periodic net settlement payments on our TRS and realized a net gain of $534 from settlements on foreign currency during the nine months ended September 30, 2012.
Net Change in Unrealized Appreciation (Depreciation) on Investments and Total Return Swap and Unrealized Gain (Loss) on Foreign Currency
For the nine months ended September 30, 2013, the net change in unrealized appreciation (depreciation) on investments totaled $(40,837) and the net change in unrealized gain (loss) on foreign currency totaled $125. For the nine months ended September 30, 2012, the net change in unrealized appreciation (depreciation) on investments totaled $126,095, the net change in unrealized appreciation (depreciation) on our TRS was $1,996 and the net change in unrealized gain (loss) on foreign currency was $0. The net change in unrealized appreciation (depreciation) on our investments during the nine months ended September 30, 2013 was primarily driven by a general widening of credit spreads during the second quarter of 2013 and mark-to-market declines in the value of certain of our senior secured bond positions during the three months ended September 30, 2013. The net change in unrealized appreciation (depreciation) on our investments during the nine months ended September 30, 2012 was primarily driven by a general strengthening of the credit markets during 2012.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the nine months ended September 30, 2013, the net increase in net assets resulting from operations was $189,032 ($0.75 per share) compared to a net increase in net assets resulting from operations of $249,245 ($1.13 per share) during the nine months ended September 30, 2012.
Financial Condition, Liquidity and Capital Resources
Overview
As of September 30, 2013, we had $290,439 in cash, which we held in a custodial account, and $97,496 in borrowings available under our financing facilities. Below is a summary of our outstanding financing facilities as of September 30, 2013:
|
Facility |
Type of Facility |
Rate |
Amount
Outstanding |
Amount
Available |
Maturity Date | |||||||||
|
Arch Street Credit Facility |
Revolving | L + 1.75% | $ | 497,682 | $ | 52,318 | August 29, 2015 | |||||||
|
Broad Street Credit Facility |
Revolving | L + 1.50% | $ | 240,000 | $ | — | December 22, 2013 | |||||||
|
JPM Facility |
Repurchase | 3.25% | $ | 906,083 | $ | 43,917 | April 15, 2017 | |||||||
|
Walnut Street Credit Facility |
Revolving | L + 1.50% to 2.75% | $ | 248,739 | $ | 1,261 | May 17, 2017 | |||||||
During the nine months ended September 30, 2013, we issued 7,984,869 shares of our common stock for gross proceeds of $80,950 at an average price per share of $10.14 pursuant to our distribution reinvestment plan.
65
During the nine months ended September 30, 2012, we sold 90,718,973 shares of our common stock for gross proceeds of $958,849 at an average price per share of $10.57. The gross proceeds received during the nine months ended September 30, 2012 include reinvested stockholder distributions of $72,417, for which we issued 7,479,245 shares of common stock. During the nine months ended September 30, 2012, we also incurred offering costs of $3,234 in connection with the sale of our common stock, which consisted primarily of legal, due diligence and printing fees. The offering costs were offset against capital in excess of par value in our consolidated financial statements. The sales commissions and dealer manager fees related to the sale of our common stock were $83,084 for the nine months ended September 30, 2012. These sales commissions and fees include $15,842 retained by the dealer manager, FS 2 , which is one of our affiliates.
As of October 29, 2013, we have sold 263,357,017 shares (as adjusted for stock distributions) of our common stock for gross proceeds of $2,763,697, including approximately $1,000 contributed by the principals of FB Advisors in February 2008.
We generate cash primarily from fees, interest and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments. In May 2012, we closed our continuous public offering of shares of our common stock and, following the closing, sell shares only pursuant to our distribution reinvestment plan.
Prior to investing in securities of portfolio companies, we invest the net proceeds from the sale of shares of our common stock under our distribution reinvestment plan and from sales and paydowns of existing investments primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.
To provide our stockholders with limited liquidity, we conduct quarterly tender offers pursuant to our share repurchase program. The following table provides information concerning our repurchases pursuant to our share repurchase program during the nine months ended September 30, 2013 and 2012:
|
For the Three Months Ended |
Repurchase Date |
Shares
Repurchased |
Percentage
of Shares Tendered That Were Repurchased |
Repurchase
Price Per Share |
Aggregate
Consideration for Repurchased Shares |
|||||||||||||
|
Fiscal 2012 |
||||||||||||||||||
|
December 31, 2011 |
January 3, 2012 | 385,526 | 100 | % | $ | 9.585 | $ | 3,695 | ||||||||||
|
March 31, 2012 |
April 2, 2012 | 411,815 | 100 | % | $ | 9.675 | $ | 3,984 | ||||||||||
|
June 30, 2012 |
July 2, 2012 | 410,578 | 100 | % | $ | 9.720 | $ | 3,991 | ||||||||||
|
Fiscal 2013 |
||||||||||||||||||
|
December 31, 2012 |
January 2, 2013 | 883,047 | 100 | % | $ | 10.000 | $ | 8,830 | ||||||||||
|
March 31, 2013 |
April 1, 2013 | 1,053,119 | 100 | % | $ | 10.100 | $ | 10,637 | ||||||||||
|
June 30, 2013 |
July 1, 2013 | 749,224 | 100 | % | $ | 10.200 | $ | 7,642 | ||||||||||
On October 1, 2013, we repurchased 656,541 shares (representing 100% of shares of common stock tendered for repurchase) at $10.20 per share for aggregate consideration totaling $6,697.
Arch Street Credit Facility
On August 29, 2012, Arch Street terminated its TRS with Citibank and entered into the Arch Street credit facility with Citibank, as administrative agent, and the financial institutions and other lenders from time to time party thereto. The Arch Street credit facility provides for borrowings in an aggregate principal amount up to $550,000 on a committed basis. We may contribute cash or debt securities to Arch Street from time to time,
66
subject to certain restrictions set forth in the Arch Street credit facility, and will retain a residual interest in any assets contributed through our ownership of Arch Street or will receive fair market value for any debt securities sold to Arch Street. Arch Street may purchase additional debt securities from various sources. Arch Street’s obligations to the lenders under the facility are secured by a first priority security interest in substantially all of the assets of Arch Street, including its portfolio of debt securities. The obligations of Arch Street under the facility are non-recourse to us and our exposure under the facility is limited to the value of our investment in Arch Street.
Borrowings under the Arch Street credit facility accrue interest at a rate equal to three-month LIBOR plus 1.75% per annum during the first two years of the facility and three-month LIBOR plus 2.00% per annum thereafter. Borrowings under the facility are subject to compliance with an equity coverage ratio with respect to the current value of Arch Street’s portfolio and a loan compliance test with respect to the initial acquisition of each debt security in Arch Street’s portfolio. Beginning November 27, 2012, Arch Street became required to pay a non-usage fee to the extent the aggregate principal amount available under the Arch Street credit facility is not borrowed. Outstanding borrowings under the facility will be amortized beginning nine months prior to the scheduled maturity date. Any amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on August 29, 2015.
As of September 30, 2013 and December 31, 2012, $497,682 was outstanding under the Arch Street credit facility. The carrying amount of the amount outstanding under the facility approximates its fair value. We incurred costs of $4,446 in connection with obtaining the Arch Street credit facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortize to interest expense over the life of the facility. As of September 30, 2013, $2,832 of such deferred financing costs had yet to be amortized to interest expense.
The effective interest rate on the borrowings under the Arch Street credit facility was 2.03% per annum as of September 30, 2013. Interest is payable quarterly in arrears and commenced August 29, 2012. We recorded interest expense of $2,989 and $1,057, for the three months ended September 30, 2013 and 2012, respectively, of which $373 and $130, respectively, related to the amortization of deferred financing costs and $66 and $0, respectively, related to commitment fees on the unused portion of the facility. We recorded interest expense of $9,049 and $1,057 for the nine months ended September 30, 2013 and 2012, respectively, of which $1,107 and $130, respectively, related to the amortization of deferred financing costs and $198 and $0, respectively, related to commitment fees on the unused portion of the facility. We paid $9,487 and $0 in interest expense during the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the Arch Street credit facility for the nine months ended September 30, 2013 was $497,682 with a weighted average interest rate (including the effect of non-usage fees) of 2.10% . The average borrowings under the Arch Street credit facility for the period August 29, 2012 to September 30, 2012 was $447,682, with a weighted average interest rate (including the effect of non-usage fees) of 2.33%.
Broad Street Credit Facility
On January 28, 2011, Broad Street, Deutsche Bank and the other lenders party thereto entered into the Broad Street credit facility, which amended and restated the revolving credit facility that Broad Street originally entered into with Deutsche Bank on March 10, 2010 and the amendments thereto. On March 23, 2012, Broad Street entered into an amendment to the Broad Street credit facility which extended the maturity date of the facility to March 23, 2013, increased the aggregate amount which could be borrowed under the facility to $380,000 and reduced the interest rate for all borrowings under the facility to a rate of LIBOR + 1.50% per annum. On December 13, 2012, Broad Street repaid $140,000 of borrowings under the facility, thereby reducing the amount which could be borrowed under the facility to $240,000. On March 22, 2013, Broad Street and Deutsche Bank entered into an amendment to the facility to extend the maturity date of the facility to December 22, 2013. The Broad Street credit facility provides for borrowings of up to $240,000 at a rate of LIBOR plus 1.50% per annum. Deutsche Bank is a lender and serves as administrative agent under the facility.
67
Under the Broad Street credit facility, we transfer debt securities to Broad Street from time to time as a contribution to capital and retain a residual interest in the contributed debt securities through our ownership of Broad Street. The obligations of Broad Street under the facility are non-recourse to us and our exposure under the facility is limited to the value of our investment in Broad Street.
As of September 30, 2013 and December 31, 2012, $240,000 was outstanding under the Broad Street credit facility. The carrying amount of the amount outstanding under the facility approximates its fair value. We incurred costs of $2,566 in connection with obtaining and amending the facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortize to interest expense over the life of the facility. As of September 30, 2013, all of such deferred financing costs have been amortized to interest expense.
The effective interest rate under the Broad Street credit facility was 1.76% per annum as of September 30, 2013. Interest is paid quarterly in arrears and commenced August 20, 2010. We recorded interest expense of $1,078 and $2,115 for the three months ended September 30, 2013 and 2012, respectively, of which $0 and $272, respectively, related to the amortization of deferred financing costs. We recorded interest expense of $3,445 and $6,545 for the nine months ended September 30, 2013 and 2012, respectively, of which $225 and $703, respectively, related to the amortization of deferred financing costs and $0 and $18, respectively, related to commitment fees on the unused portion of the credit facility. We paid $3,246 and $6,104 in interest expense for the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the credit facility for the nine months ended September 30, 2013 and 2012 were $240,000 and $364,833, respectively, with a weighted average interest rate of 1.77% and 2.15%, respectively.
JPM Financing
On April 23, 2013, through our two wholly-owned, special purpose financing subsidiaries, Locust Street and Race Street, we entered into the April 2013 amendment to our conventional debt financing arrangement with JPM, which was originally entered into on July 21, 2011. The April 2013 amendment, among other things: (i) increased the amount of debt financing available under the arrangement from $700,000 to $950,000; and (ii) extended the final repurchase date under the financing arrangement from October 15, 2016 to April 15, 2017. We elected to structure the financing in the manner described more fully below in order to, among other things, obtain such financing at a lower cost than would be available through alternate arrangements.
Pursuant to the financing arrangement, the aggregate market value of assets expected to be held by Locust Street when the financing arrangement is fully-ramped is approximately $1,791,500. The assets held by Locust Street secure the obligations of Locust Street under the Class A Notes to be issued from time to time by Locust Street to Race Street pursuant to the Amended and Restated Indenture. Pursuant to the Amended and Restated Indenture, the aggregate principal amount of Class A Notes that may be issued by Locust Street from time to time is $1,140,000. All principal and interest on the Class A Notes will be due and payable on the stated maturity date of April 15, 2024. Race Street will purchase the Class A Notes to be issued by Locust Street from time to time at a purchase price equal to their par value.
Race Street, in turn, has entered into the JPM Facility. Pursuant to the JPM Facility, JPM has agreed to purchase from time to time Class A Notes held by Race Street for an aggregate purchase price equal to approximately 83.33% of the principal amount of Class A Notes purchased. Subject to certain conditions, the maximum principal amount of Class A Notes that may be purchased under the JPM Facility is $1,140,000. Accordingly, the maximum amount payable at any time to Race Street under the JPM Facility is $950,000. Under the JPM Facility, Race Street will, on a quarterly basis, repurchase the Class A Notes sold to JPM under the JPM Facility and subsequently resell such Class A Notes to JPM. The final repurchase transaction must occur no later than April 15, 2017. The repurchase price paid by Race Street to JPM for each repurchase of Class A Notes will be equal to the purchase price paid by JPM for such Class A Notes, plus interest thereon accrued at a fixed rate of 3.25% per annum. Commencing April 15, 2015, Race Street is permitted to reduce (based on certain thresholds) the aggregate principal amount of Class A Notes subject to the JPM Facility. Such reductions, and any other
68
reductions of the principal amount of Class A Notes, including upon an event of default, will be subject to breakage fees in an amount equal to the present value of 1.25% per annum over the remaining term of the JPM Facility applied to the amount of such reduction.
Pursuant to the financing arrangement, the aggregate market value of assets expected to be held by Race Street when the financing arrangement is fully-ramped is $720,000. The assets held by Race Street secure the obligations of Race Street under the JPM Facility.
As of September 30, 2013 and December 31, 2012, Class A Notes in the aggregate principal amount of $1,087,300 and $812,000, respectively, had been purchased by Race Street from Locust Street and subsequently sold to JPM under the JPM Facility for aggregate proceeds of $906,083 and $676,667, respectively. The carrying amount outstanding under the JPM Facility approximates its fair value. We funded each purchase of Class A Notes by Race Street through a capital contribution to Race Street. As of September 30, 2013 and December 31, 2012, Race Street’s liability under the JPM Facility was $906,083 and $676,667, respectively, plus $5,930 and $4,298, respectively, of accrued interest expense. The Class A Notes issued by Locust Street and purchased by Race Street eliminate in consolidation on our financial statements.
As of September 30, 2013 and December 31, 2012, the fair value of assets held by Locust Street was $1,693,241 and $1,307,933, respectively, which included assets purchased by Locust Street with proceeds from the issuance of Class A Notes. As of September 30, 2013 and December 31, 2012, the fair value of assets held by Race Street was $808,230 and $598,528, respectively.
We had incurred costs of $425 in connection with obtaining the JPM Facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortize to interest expense over the life of the JPM Facility. As of September 30, 2013, $200 of such deferred financing costs had yet to be amortized to interest expense.
The effective interest rate on the borrowings under the JPM Facility was 3.25% as of September 30, 2013. We recorded interest expense of $6,983 and $3,795 for the three months ended September 30, 2013 and 2012, respectively, of which $27 and $27, respectively, related to the amortization of deferred financing costs. We recorded interest expense of $18,696 and $9,802 for the nine months ended September 30, 2013 and 2012, respectively, of which $79 and $80, respectively, related to the amortization of deferred financing costs. We paid $16,985 and $7,789 in interest expense during the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the JPM Facility for the nine months ended September 30, 2013 and 2012 were $755,374 and $341,114, respectively, with a weighted average interest rate of 3.25% and 3.74%, respectively.
Walnut Street Credit Facility
On May 17, 2012, Walnut Street and Wells Fargo entered into the Walnut Street credit facility. Wells Fargo Securities, LLC serves as the administrative agent and Wells Fargo Bank, National Association is the sole lender, collateral agent, account bank and collateral custodian under the facility. The Walnut Street credit facility provides for borrowings in an aggregate principal amount up to $250,000 on a committed basis.
Under the Walnut Street credit facility, we contribute cash or debt securities to Walnut Street from time to time and retain a residual interest in any assets contributed through our ownership of Walnut Street or receive fair market value for any debt securities sold to Walnut Street. The obligations of Walnut Street under the Walnut Street credit facility are non-recourse to us and our exposure under the facility is limited to the value of our investment in Walnut Street.
Pricing under the Walnut Street credit facility is based on LIBOR for an interest period equal to the weighted average LIBOR interest period of eligible debt securities owned by Walnut Street, plus a spread ranging between 1.50% and 2.75% per annum, depending on the composition of the portfolio of debt securities for the relevant period. Beginning on September 17, 2012, Walnut Street became subject to a non-usage fee to
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the extent the aggregate principal amount available under the Walnut Street credit facility is not borrowed. Any amounts borrowed under the Walnut Street credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 17, 2017.
As of September 30, 2013 and December 31, 2012, $248,739 and $235,364, respectively, was outstanding under the Walnut Street credit facility. The carrying amount of the amount outstanding under the facility approximates its fair value. We incurred costs of $3,761 in connection with obtaining the Walnut Street credit facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortize to interest expense over the life of the facility. As of September 30, 2013, $2,725 of such deferred financing costs had yet to be amortized to interest expense.
The effective interest rate on the borrowings under the Walnut Street credit facility was 2.87% per annum as of September 30, 2013. Interest is payable quarterly in arrears and commenced October 15, 2012. We recorded interest expense of $2,048 and $777 for the three months ended September 30, 2013 and 2012, respectively, of which $190 and $191, respectively, related to the amortization of deferred financing costs and $2 and $72, respectively, related to commitment fees on the unused portion of the credit facility. We recorded interest expense of $5,920 and $867 for the nine months ended September 30, 2013 and 2012, respectively, of which $567 and $279, respectively, related to the amortization of deferred financing costs and $20 and $72, respectively, related to commitment fees on the unused portion of the credit facility. We paid $5,111 and $0 in interest expense during the nine months ended September 30, 2013 and 2012, respectively. The average borrowings under the Walnut Street credit facility for the nine months ended September 30, 2013 and 2012 were $244,741 and $73,210, respectively, with a weighted average interest rate (including the effect of non-usage fees) of 2.89% and 3.05%, respectively.
RIC Status and Distributions
We have elected to be treated for federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify as a RIC, we must, among other things, distribute at least 90% of our “investment company taxable income,” as defined by the Code, each year. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of the taxable year or the due date of the tax return, including extensions, distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to qualify for and maintain our RIC status each year. We are also subject to nondeductible federal excise taxes if we do not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years on which we paid no federal income taxes.
Following commencement of our operations, we declared our first distribution on January 29, 2009. Subject to our board of directors’ discretion and applicable legal restrictions, we intend to authorize and declare ordinary cash distributions on a monthly basis and pay such distributions on either a monthly or quarterly basis. While we historically paid distributions on a quarterly basis, commencing in the fourth quarter of 2010, we began to pay distributions on a monthly rather than quarterly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date that shares of our common stock are issued to such stockholder. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors.
During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital for tax purposes. A return of capital generally is a return of an investor’s investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the nine months ended September 30, 2013 or 2012 represented a return of capital for tax purposes.
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We intend to continue to make our ordinary distributions in the form of cash out of assets legally available for distribution, unless stockholders elect to receive their cash distributions in additional shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. stockholder.
The following table reflects the cash distributions per share that we have declared and paid on our common stock during the nine months ended September 30, 2013 and 2012:
| Distribution | ||||||||
|
For the Three Months Ended |
Per Share | Amount | ||||||
|
Fiscal 2012 |
||||||||
|
March 31, 2012 |
$ | 0.2016 | $ | 37,014 | ||||
|
June 30, 2012 |
$ | 0.2020 | $ | 47,305 | ||||
|
September 30, 2012 |
$ | 0.2525 | $ | 62,758 | ||||
|
Fiscal 2013 |
||||||||
|
March 31, 2013 |
$ | 0.2025 | $ | 51,184 | ||||
|
June 30, 2013 |
$ | 0.2048 | $ | 52,111 | ||||
|
September 30, 2013 |
$ | 0.2093 | $ | 53,626 | ||||
On October 16, 2013, our board of directors declared a regular monthly cash distribution of $0.06975 per share, which was paid on October 31, 2013 to stockholders of record on October 30, 2013. Also, on October 16, 2013, our board of directors increased the amount of the regular monthly cash distribution payable to stockholders of record from $0.06975 per share to $0.0720 per share in order to increase our annual distribution rate from 7.75% to 8.00% (based on our last public offering price of $10.80 per share), commencing with the regular monthly cash distribution, which will be paid on November 29, 2013 to stockholders of record on November 28, 2013. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.
We may fund our cash distributions to stockholders from any sources of funds available to us, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and expense reimbursements from Franklin Square Holdings. We have not established limits on the amount of funds we may use from available sources to make distributions.
The following table reflects the sources of the cash distributions on a tax basis that we have paid on our common stock during the nine months ended September 30, 2013 and 2012:
| Nine Months Ended September 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
|
Source of Distribution |
Distribution
Amount |
Percentage |
Distribution
Amount |
Percentage | ||||||||||||
|
Offering proceeds |
$ | — | — | $ | — | — | ||||||||||
|
Borrowings |
— | — | — | — | ||||||||||||
|
Net investment income (1) |
124,747 | 79 | % | 128,781 | 88 | % | ||||||||||
|
Capital gains proceeds from the sale of assets |
32,174 | 21 | % | 18,296 | 12 | % | ||||||||||
|
Non-capital gains proceeds from the sale of assets |
— | — | — | — | ||||||||||||
|
Distributions on account of preferred and common equity |
— | — | — | — | ||||||||||||
|
Expense reimbursement from sponsor |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 156,921 | 100 | % | $ | 147,077 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | During the nine months ended September 30, 2013 and 2012, 89% and 92%, respectively, of our gross investment income was attributable to cash interest earned and 11% and 8%, respectively, was attributable to non-cash accretion of discount and PIK interest. |
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Our net investment income on a tax basis for the nine months ended September 30, 2013 and 2012 was $191,169 and $129,901, respectively. As of September 30, 2013 and December 31, 2012, we had $124,162 and $57,740, respectively, of undistributed net investment income on a tax basis. Our undistributed net investment income on a tax basis as of December 31, 2012 has been adjusted following the filing of our 2012 tax return in September 2013. The adjustment was primarily due to tax-basis income received by us during the year ended December 31, 2012 exceeding GAAP-basis income with respect to collateralized securities and interests in partnerships held in our investment portfolio during such period. The tax notices for such collateralized securities and interests in partnerships were received by us subsequent to the filing of our annual report on Form 10-K for the year ended December 31, 2012.
See Note 5 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for additional information regarding our distributions, including information regarding stock distributions declared on our common stock and a reconciliation of our GAAP-basis net investment income and tax-basis net investment income for the nine months ended September 30, 2013 and 2012.
Critical Accounting Policies
Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.
Valuation of Portfolio Investments
We determine the net asset value of our investment portfolio each quarter. Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by our board of directors. In connection with that determination, FB Advisor provides our board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third-party valuation services.
Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure , or ASC Topic 820, issued by the Financial Accounting Standards Board, clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
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With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:
| • |
our quarterly valuation process begins with FB Advisor’s management team providing a preliminary valuation of each portfolio company or investment to our valuation committee, which valuation may be obtained from our sub-adviser or an independent valuation firm, if applicable; |
| • |
preliminary valuation conclusions are then documented and discussed with our valuation committee; |
| • |
our valuation committee reviews the preliminary valuation and FB Advisor’s management team, together with our independent valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the valuation committee; and |
| • |
our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of FB Advisor, the valuation committee and any third-party valuation firm, if applicable. |
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on our consolidated financial statements. Below is a description of factors that our board of directors may consider when valuing our debt and equity investments.
Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that our board of directors may consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments.
For convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (the security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.
Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of directors, in its analysis of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.
Our board of directors may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. Our board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors it deems relevant in assessing the value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.
When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, our board of directors allocates the cost basis in the investment between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of directors subsequently values these warrants or other equity securities received at fair value.
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The fair values of our investments are determined in good faith by our board of directors. Our board of directors is solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process.
Our investments as of September 30, 2013 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. Except as described below, we valued our investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. Twenty-eight senior secured loan investments and six subordinated debt investments, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, call features and other relevant terms of the debt. Except as described below, all of our equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Two senior secured loan investments, one senior secured bond investment, one subordinated debt investment and one equity investment, all of which were newly-issued and purchased near September 30, 2013, were valued at cost, as our board of directors determined that the cost of each such investment was the best indication of its fair value. Also, one equity investment which is traded on an active public market was valued at its closing price as of September 30, 2013.
Our investments as of December 31, 2012 consisted primarily of debt securities that are traded on a private over-the-counter market for institutional investors. Except as described below, we valued our investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. Twenty-one senior secured loan investments, one senior secured bond investment and seven subordinated debt investments, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, call features and other relevant terms of the debt. All of our equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. One senior secured loan investment, which was newly-issued and purchased near December 31, 2012, was valued at cost, as our board of directors determined that the cost of such investment was the best indication of its fair value.
We periodically benchmark the bid and ask prices we receive from the third-party pricing services against the actual prices at which we purchase and sell our investments. Based on the results of the benchmark analysis and the experience of our management in purchasing and selling these investments, we believe that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), we believe that these valuation inputs are classified as Level 3 within the fair value hierarchy. We may also use other methods to determine fair value for securities for which we cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers, including the use of an independent valuation firm. We periodically benchmark the valuations provided by the independent valuation firm against the actual prices at which we purchase and sell our investments. Our valuation committee and board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with our valuation process.
Revenue Recognition
Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect such amounts. We record dividend income on the ex-dividend date. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to
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collect such income. Loan origination fees, original issue discount and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as fee income. Upfront structuring fees are recorded as income when earned. We record prepayment premiums on loans and securities as fee income when we receive such amounts.
Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net Change in Unrealized Gains or Losses on Foreign Currency
Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized. Net change in unrealized gains or losses on foreign currency reflects the change in the value of receivables or accruals during the reporting period due to the impact of foreign currency fluctuations.
Capital Gains Incentive Fee
Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). Such fee will equal 20.0% of our incentive fee capital gains (i.e., our realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.
While the investment advisory and administrative services agreement neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an AICPA Technical Practice Aid for investment companies, commencing during the quarter ended December 31, 2010, we changed our methodology for accruing for this incentive fee to include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FB Advisor if our entire portfolio was liquidated at its fair value as of the balance sheet date even though FB Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
Subordinated Income Incentive Fee
Pursuant to the investment advisory and administrative services agreement, FB Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 2.0% per quarter, or an annualized hurdle rate of 8.0%. As a result, FB Advisor will not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 2.0%. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FB Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net investment income for such quarter equals 2.5%, or 10.0% annually, of adjusted capital. Thereafter, FB Advisor will receive 20.0% of pre-incentive fee net investment income.
In connection with our 2013 annual meeting of stockholders, we received stockholder approval to amend the investment advisory and administrative services agreement effective upon the listing of our common stock on a
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national securities exchange. Upon such event, if any, the hurdle rate used to compute the subordinated incentive fee on income will be based on the net asset value of our assets rather than adjusted capital. In addition to the amendments approved by stockholders, the subordinated incentive fee on income will become subject to a total return requirement, which provides that no incentive fee in respect of our pre-incentive fee net investment income will be payable except to the extent that 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and eleven preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the eleven preceding calendar quarters. In other words, any subordinated incentive fee on income that is payable in a calendar quarter will be limited to the lesser of (i) 20.0% of the amount by which our pre-incentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii) (x) 20.0% of the cumulative net increase in net assets resulting from operations for the then-current and eleven preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the eleven preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the sum of our pre-incentive fee net investment income, base management fees, realized gains and losses and unrealized appreciation and depreciation for the then-current and eleven preceding calendar quarters. There will be no accumulation of amounts on the hurdle rate from quarter to quarter and, accordingly, there will be no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there will be no delay of payment if prior quarters are below the quarterly hurdle rate.
Uncertainty in Income Taxes
We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the nine months ended September 30, 2013 and 2012, we did not incur any interest or penalties.
Contractual Obligations
We have entered into an agreement with FB Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory and administrative services agreement are equal to (a) an annual base management fee of 2.0% of the average value of our gross assets and (b) an incentive fee based on our performance. FB Advisor, and to the extent it is required to provide such services, our sub-adviser, are reimbursed for administrative expenses incurred on our behalf. For the three months ended September 30, 2013 and 2012, we incurred $22,720 and $19,021, respectively, in base management fees and $1,243 and $1,782, respectively, in administrative services expenses under the investment advisory and administrative services agreement. For the nine months ended September 30, 2013 and 2012, we incurred $67,541 and $46,570, respectively, in base management fees and $4,034 and $4,116, respectively, in administrative services expenses under the investment advisory and administrative services agreement. In addition, FB Advisor is eligible to receive incentive fees based on the performance of our portfolio. During the three months ended September 30, 2013, we accrued a subordinated incentive fee on income of $16,555 based upon the performance of our portfolio. During the nine months ended September 30, 2013, we accrued a subordinated incentive fee on income of $47,950 based upon the performance of our portfolio. During the nine months ended September 30, 2013, we paid FB Advisor $44,788 in subordinated incentive fees on income. As of September 30, 2013, a subordinated incentive fee on income of $16,555 was payable to FB Advisor. During the three months ended September 30, 2013, we reversed $1,548 of capital gains incentive fees previously accrued, and during the three months ended September 30, 2012, we accrued capital gains incentive fees of $17,421, in each case based on the performance of our portfolio. During the nine months ended September 30, 2013, we reversed $621 of capital gains incentive fees previously accrued based on the performance of our portfolio. During the nine months ended September 30, 2012, we accrued capital gains incentive fees of $33,920 based on
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the performance of its portfolio, of which $27,421 was based on unrealized gains and $6,499 was based on realized gains. As of December 31, 2012, we had accrued capital gains incentive fees of $39,751 based on the performance of our portfolio, of which $27,960 was based on unrealized gains and $11,791 was based on realized gains. We paid FB Advisor $11,791 in capital gains incentive fees during the nine months ended September 30, 2013. As of September 30, 2013, we had accrued $27,339 in capital gains incentive fees, of which only $734 was based on realized gains and was payable to FB Advisor.
A summary of our significant contractual payment obligations for the repayment of outstanding borrowings under the Arch Street credit facility, the Broad Street credit facility, the JPM Facility and the Walnut Street credit facility at September 30, 2013 is as follows:
| Payments Due By Period | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
|
Borrowings of Arch Street (1) |
$ | 497,682 | — | $ | 497,682 | — | — | |||||||||||||
|
Borrowings of Broad Street (2) |
$ | 240,000 | $ | 240,000 | — | — | — | |||||||||||||
|
Borrowings of Race Street (3) |
$ | 906,083 | $ | 906,083 | — | — | — | |||||||||||||
|
Borrowings of Walnut Street (4) |
$ | 248,739 | — | — | $ | 248,739 | — | |||||||||||||
| (1) | At September 30, 2013, $52,318 remained unused under the Arch Street credit facility. All such amounts will mature, and all accrued and unpaid interest thereunder will be due and payable, on August 29, 2015. |
| (2) | At September 30, 2013, no amounts remained unused under the Broad Street credit facility. All such amounts will mature, and all accrued and unpaid interest thereunder will be due and payable, on December 22, 2013. |
| (3) | At September 30, 2013, $43,917 remained unused under the JPM Facility. Race Street will, on a quarterly basis, repurchase the Class A Notes sold to JPM under the JPM Facility and subsequently resell such Class A Notes to JPM. As of September 30, 2013, the final repurchase transaction was scheduled to occur no later than April 15, 2017. |
| (4) | At September 30, 2013, $1,261 remained unused under the Walnut Street credit facility. All such amounts will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 17, 2017. |
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.
Recently Issued Accounting Standards
None.
Related Party Transactions
Compensation of the Dealer Manager and Investment Adviser
Pursuant to the investment advisory and administrative services agreement, FB Advisor is entitled to an annual base management fee of 2.0% of the average value of our gross assets and an incentive fee based on our performance. We commenced accruing fees under the investment advisory and administrative services agreement on January 2, 2009, upon commencement of our operations. Management fees are paid on a quarterly basis in arrears.
The incentive fee consists of three parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears, equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on
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adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 2.0% per quarter, or an annualized hurdle rate of 8.0%. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is accrued for on a quarterly basis and, if earned, is paid annually. We accrue the incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FB Advisor is based on realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized. The third part of the incentive fee, which is referred to as the subordinated liquidation incentive fee, equals 20.0% of the net proceeds in excess of adjusted capital from our liquidation, as calculated immediately prior to liquidation. See Note 4 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for a discussion of certain amendments to the investment advisory and administrative services agreement which will become effective upon the listing of our common stock on a national exchange, if any.
We reimburse FB Advisor for expenses necessary to perform services related to our administration and operations. The amount of this reimbursement is set at the lesser of (1) FB Advisor’s actual costs incurred in providing such services and (2) the amount that we estimate we would be required to pay alternative service providers for comparable services in the same geographic location. FB Advisor is required to allocate the cost of such services to us based on objective factors such as total assets, revenues, time allocations and/or other reasonable metrics. Our board of directors then assesses the reasonableness of such reimbursements based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party providers known to be available. In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of directors compares the total amount paid to FB Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.
Franklin Square Holdings has funded certain of our offering costs and organization costs. Under the terms of the investment advisory and administrative services agreement, when our registration statement was declared effective by the SEC and we were successful in satisfying the minimum offering requirement, FB Advisor became entitled to receive 1.5% of gross proceeds raised in our continuous public offering until all offering costs and organization costs funded by FB Advisor or its affiliates (including Franklin Square Holdings) had been recovered. On January 2, 2009, the Company satisfied the minimum offering requirement. We did not pay any reimbursements under this arrangement during the nine months ended September 30, 2013 or 2012.
The dealer manager for our continuous public offering was FS 2 , which is one of our affiliates. Under our dealer manager agreement with FS 2 , FS 2 was entitled to receive sales commissions and dealer manager fees in connection with the sale of shares of common stock in our continuous public offering, all or a portion of which were re-allowed to selected broker-dealers.
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The following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and nine months ended September 30, 2013 and 2012:
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||||||
|
Related Party |
Source Agreement |
Description | 2013 | 2012 | 2013 | 2012 | ||||||||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement |
Base Management
Fee (1) |
$ | 22,720 | $ | 19,021 | $ | 67,541 | $ | 46,570 | ||||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement |
Capital Gains
Incentive
Fee (2) |
$ | (1,548 | ) | $ | 17,421 | $ | (621 | ) | $ | 33,920 | ||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement |
Subordinated Incentive
Fee on Income (3) |
$ | 16,555 | $ | — | $ | 47,950 | $ | — | ||||||||||
|
FB Advisor |
Investment Advisory and Administrative Services Agreement |
Administrative
Services Expenses (4) |
$ | 1,243 | $ | 1,782 | $ | 4,034 | $ | 4,116 | ||||||||||
|
FS 2 |
Dealer Manager Agreement | Dealer Manager Fee (5) | $ | — | $ | — | $ | — | $ | 15,842 | ||||||||||
| (1) | During the nine months ended September 30, 2013 and 2012, $66,240 and $37,028, respectively, in base management fees were paid to FB Advisor. |
| (2) | During the nine months ended September 30, 2013, we reversed $621 of capital gains incentive fees previously accrued based on performance of our portfolio. As of September 30, 2013, we had accrued capital gains incentive fees of $27,339 based on the performance of our portfolio, of which $26,605 was based on unrealized gains and $734 was based on realized gains. During the nine months ended September 30, 2012, we accrued capital gains incentive fees of $33,920 based on the performance of our portfolio, of which $27,421 was based on unrealized gains and $6,499 was based on realized gains. No such fees are actually payable by us with respect to such unrealized gains unless and until those gains are actually realized. As of December 31, 2012, we had accrued capital gains incentive fees of $39,751 based on the performance of our portfolio, of which $27,960 was based on unrealized gains and $11,791 was based on realized gains. We paid FB Advisor $11,791 in capital gains incentive fees during the nine months ended September 30, 2013. |
| (3) | During the nine months ended September 30, 2013, we paid $44,788 of subordinated incentive fees on income to FB Advisor. As of September 30, 2013, a subordinated incentive fee on income of $16,555 was payable to FB Advisor. |
| (4) | During the nine months ended September 30, 2013 and 2012, $3,520 and $3,789, respectively, of the administrative services expenses related to the allocation of costs of administrative personnel for services rendered to us by FB Advisor and the remainder related to other reimbursable expenses. We paid $3,620 and $2,661, respectively, in administrative services expenses to FB Advisor during the nine months ended September 30, 2013 and 2012. |
| (5) |
Represents aggregate sales commissions and dealer manager fees retained by FS 2 and not re-allowed to selected broker dealers. |
Potential Conflicts of Interest
FB Advisor’s senior management team is comprised of the same personnel as the senior management teams of FS Investment Advisor, LLC and FSIC II Advisor, LLC, the investment advisers to Franklin Square Holdings’ other affiliated BDCs, FS Energy and Power Fund and FS Investment Corporation II, respectively. As a result, such personnel provide investment advisory services to us and each of FS Energy and Power Fund and FS Investment Corporation II. While none of FB Advisor, FS Investment Advisor, LLC or FSIC II Advisor, LLC is currently making private corporate debt investments for clients other than us, FS Energy and Power Fund and FS Investment Corporation II, respectively, any, or all, may do so in the future. In the event that FB Advisor undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in a fair and equitable manner consistent with our investment objectives and strategies, if necessary, so that we will not be disadvantaged in relation to any other client of FB Advisor or its management team.
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Exemptive Relief
In an order dated June 4, 2013, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with affiliates of FB Advisor, including FS Investment Corporation II and FS Energy and Power Fund and any future BDCs that are advised by FB Advisor or its affiliated investment advisers. Because we did not seek exemptive relief to engage in co-investment transactions with GDFM and its affiliates, we will be permitted to co-invest with GDFM and its affiliates only in accordance with existing regulatory guidance.
Expense Reimbursement
Beginning on February 26, 2009, Franklin Square Holdings agreed to reimburse us for expenses in an amount that was sufficient to ensure that, for tax purposes, our net investment income and net capital gains were equal to or greater than the cumulative distributions paid to our stockholders in each quarter. This arrangement was designed to ensure that no portion of our distributions would represent a return of capital for our stockholders. Under this arrangement, Franklin Square Holdings had no obligation to reimburse any portion of our expenses.
Pursuant to the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to stockholders will be paid from our offering proceeds or borrowings. See “—Overview—Expense Reimbursement” for a detailed description of the expense reimbursement agreement.
During the nine months ended September 30, 2013 and 2012, no such reimbursements were required from Franklin Square Holdings.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
We are subject to financial market risks, including changes in interest rates. As of September 30, 2013, 70.0% of our portfolio investments (based on fair value) paid variable interest rates, 26.3% paid fixed interest rates, 2.2% were income producing preferred equity investments, and the remainder (1.5%) consisted of non-income producing equity or other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates would make it easier for us to meet or exceed our incentive fee hurdle rate, as described in the investment advisory and administrative services agreement we have entered into with FB Advisor, and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to FB Advisor with respect to our increased pre-incentive fee net investment income.
Pursuant to the terms of the Arch Street credit facility, the Broad Street credit facility and the Walnut Street credit facility, Arch Street, Broad Street and Walnut Street, respectively, borrow at a floating rate based on LIBOR. Under the terms of the JPM Facility, Race Street pays interest to JPM at a fixed rate. To the extent that any present or future credit facilities or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.
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The following table shows the effect over a twelve month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in our investment portfolio and borrowing arrangements in effect as of September 30, 2013 (dollar amounts are presented in thousands):
|
LIBOR Basis Point Change |
Increase
(Decrease) in Interest Income (1) |
Increase
(Decrease) in Interest Expense |
Increase
(Decrease) in Net Interest Income |
Percentage
Change in Net Interest Income |
||||||||||||
|
Down 25 basis points |
$ | (847 | ) | $ | (2,088 | ) | $ | 1,241 | 0.3% | |||||||
|
Current LIBOR |
— | — | — | — | ||||||||||||
|
Up 100 basis points |
3,873 | 8,354 | (4,481 | ) | (1.2)% | |||||||||||
|
Up 300 basis points |
56,330 | 25,061 | 31,269 | 8.2% | ||||||||||||
|
Up 500 basis points |
110,822 | 41,769 | 69,053 | 18.0% | ||||||||||||
| (1) | Assumes no defaults or prepayments by portfolio companies over the next twelve months. |
We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the nine months ended September 30, 2013 and 2012, we did not engage in interest rate hedging activities.
In addition, we may have risk regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Valuation of Portfolio Investments.”
| Item 4. | Controls and Procedures. |
As required by Rule 13a-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2013. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the three months ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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| Item 1. | Legal Proceedings. |
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material adverse effect upon our financial condition or results of operations.
| Item 1A. | Risk Factors. |
There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2012.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The table below provides information concerning our repurchases of shares of our common stock during the quarter ended September 30, 2013 pursuant to our share repurchase program.
|
Period |
Total Number of
Shares Purchased |
Average
Price Paid per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of
Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
|
July 1 to July 31, 2013 |
749,224 | $ | 10.20 | 749,224 | (1) | |||||||||||
|
August 1 to August 31, 2013 |
— | — | — | — | ||||||||||||
|
September 1 to September 30, 2013 |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
749,224 | $ | 10.20 | 749,224 | (1) | |||||||||||
|
|
|
|
|
|
|
|
|
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| (1) | A description of the maximum number of shares that may be purchased under our share repurchase program is set forth in Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q. |
See Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for a more detailed discussion of the terms of our share repurchase program.
| Item 3. | Defaults upon Senior Securities. |
Not applicable.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
| Item 5. | Other Information. |
Not applicable.
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| Item 6. | Exhibits. |
| 3.1 | Articles of Amendment and Restatement of the Company, as amended. (Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 31, 2009.) | |
| 3.2 | Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit (b)(1) filed with Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-149374) filed on September 17, 2008.) | |
| 4.1 | Amended and Restated Distribution Reinvestment Plan, effective as of October 31, 2012. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 12, 2012.) | |
| 10.1 | Investment Advisory and Administrative Services Agreement, dated as of February 12, 2008, by and between the Company and FB Income Advisor, LLC. (Incorporated by reference to Exhibit (g) filed with the Company’s registration statement on Form N-2 (File No. 333-149374) filed on February 25, 2008.) | |
| 10.2 | First Amendment to the Investment Advisory and Administrative Services Agreement, dated as of August 5, 2008, by and between the Company and FB Income Advisor, LLC. (Incorporated by reference to Exhibit (g)(1) filed with Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-149374) filed on September 17, 2008.) | |
| 10.3 | Investment Sub-advisory Agreement, dated as of April 13, 2008, by and between FB Income Advisor, LLC and GSO / Blackstone Debt Funds Management LLC. (Incorporated by reference to Exhibit (g)(2) filed with Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-149374) filed on June 19, 2008.) | |
| 10.4 | Form of Dealer Manager Agreement by and between the Company and FS 2 Capital Partners, LLC. (Incorporated by reference to Exhibit (h)(1) filed with Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-149374) filed on September 17, 2008.) | |
| 10.5 | Form of Amendment to Form of Dealer Manager Agreement by and between the Company and FS 2 Capital Partners, LLC. (Incorporated by reference to Exhibit (h)(2) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-174784) filed on October 20, 2011.) | |
| 10.6 | Form of Selected Dealer Agreement (Included as Appendix A to the Form of Dealer Manager Agreement). (Incorporated by reference to Exhibit (h)(1) filed with Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-149374) filed on September 17, 2008.) | |
| 10.7 | Form of Amendment to Form of Selected Dealer Agreement. (Incorporated by reference to Exhibit A of Exhibit (h)(2) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-174784) filed on October 20, 2011.) | |
| 10.8 | Custodian Agreement, dated as of November 14, 2011, by and between the Company and State Street Bank and Trust Company. (Incorporated by reference to Exhibit 10.9 filed with the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 filed on November 14, 2011.) | |
| 10.9 | Form of Escrow Agreement by and between the Company and UMB Bank, N.A. (Incorporated by reference to Exhibit (k) filed with Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-149374) filed on September 17, 2008.) | |
| 10.10 | Amended and Restated Credit Agreement, dated as of January 28, 2011, by and between Broad Street Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 1, 2011.) | |
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| 10.11 | Fourth Amendment to Credit Agreement, dated as of March 23, 2012, by and between Broad Street Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 27, 2012.) | |
| 10.12 | Fifth Amendment to Credit Agreement, dated as of March 22, 2013, by and between Broad Street Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 28, 2013.) | |
| 10.13 | Asset Contribution Agreement, dated as of March 10, 2010, by and between the Company and Broad Street Funding LLC. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 16, 2010.) | |
| 10.14 | First Amendment to Asset Contribution Agreement, dated as of June 17, 2010, by and between the Company and Broad Street Funding LLC. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 19, 2010.) | |
| 10.15 | Investment Management Agreement, dated as of March 10, 2010, by and between the Company and Broad Street Funding LLC. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 16, 2010.) | |
| 10.16 | Amended and Restated Security Agreement, dated as of January 28, 2011, by and between Broad Street Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 1, 2011.) | |
| 10.17 | ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of March 18, 2011, by and between Arch Street Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 24, 2011.) | |
| 10.18 | Amended and Restated Confirmation Letter Agreement, dated as of June 9, 2011, by and between Arch Street Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2011.) | |
| 10.19 | Amended and Restated Confirmation Letter Agreement, dated as of February 16, 2012, by and between Arch Street Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 21, 2012.) | |
| 10.20 | Amended and Restated Confirmation Letter Agreement, dated as of June 12, 2012, by and between Arch Street Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 15, 2012.) | |
| 10.21 | Termination Acknowledgement (TRS), dated as of August 29, 2012, by and between Arch Street Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on August 31, 2012.) | |
| 10.22 | Investment Management Agreement, dated as of March 18, 2011, by and between the Company and Arch Street Funding LLC. (Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 24, 2011.) | |
| 10.23 | Amended and Restated Investment Management Agreement, dated as of August 29, 2012, by and between the Company and Arch Street Funding LLC. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on August 31, 2012.) | |
| 10.24 | Asset Transfer Agreement, dated as of July 21, 2011, by and between the Company and Locust Street Funding LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 27, 2011.) | |
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| 10.25 | Amendment No. 1 to Asset Transfer Agreement, dated as of February 15, 2012, by and between the Company and Locust Street Funding LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 21, 2012.) | |
| 10.26 | Amended and Restated Asset Transfer Agreement, dated as of September 26, 2012, by and between the Company and Locust Street Funding LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.27 | Loan Agreement, dated as of August 29, 2012, by and between Arch Street Funding LLC, the financial institutions and other lenders from time to time party thereto and Citibank, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 31, 2012.) | |
| 10.28 | Account Control Agreement, dated as of August 29, 2012, by and between Arch Street Funding LLC, Citibank, N.A. and Virtus Group, LP. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 31, 2012.) | |
| 10.29 | Security Agreement, dated as of August 29, 2012, by and between Arch Street Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 31, 2012.) | |
| 10.30 | Agreement and Plan of Merger, dated as of August 29, 2012, by and among Arch Street Funding LLC, Benjamin Loan Funding LLC, Benjamin 2 Loan Funding LLC, Citibank, N.A. and Citibank Financial Products Inc. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on August 31, 2012.) | |
| 10.31 | Indenture, dated as of July 21, 2011, by and between Locust Street Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 27, 2011.) | |
| 10.32 | Supplemental Indenture No. 1, dated as of February 15, 2012, by and between Locust Street Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 21, 2012.) | |
| 10.33 | Amended and Restated Indenture, dated as of September 26, 2012, by and between Locust Street Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.34 | Supplemental Indenture No. 1, dated as of April 23, 2013, by and between Locust Street Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 26, 2013.) | |
| 10.35 | Locust Street Funding LLC Class A Floating Rate Secured Note, due 2021. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 21, 2012.) | |
| 10.36 | Locust Street Funding LLC Class A Floating Rate Secured Note, due 2023. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.37 | Locust Street Funding LLC Class A Floating Rate Secured Note, due 2024. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 26, 2013.) | |
| 10.38 | TBMA/ISMA 2000 Global Master Repurchase Agreement by and between JPMorgan Chase Bank, N.A., London Branch and Race Street Funding LLC, together with the related Annex and Confirmation thereto, each dated as of July 21, 2011. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on July 27, 2011.) | |
| 10.39 | TBMA/ISMA 2000 Amended and Restated Global Master Repurchase Agreement by and between JPMorgan Chase Bank, N.A., London Branch and Race Street Funding LLC, together with the related Annex and Amended and Restated Confirmation thereto, each dated as of September 26, 2012. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
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| 10.40 | TBMA/ISMA 2000 Amended and Restated Global Master Repurchase Agreement, by and between JPMorgan Chase Bank, N.A., London Branch and Race Street Funding LLC, together with the related Annex and Amended and Restated Confirmation thereto, each dated as of April 23, 2013. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 26, 2013.) | |
| 10.41 | Amended and Restated Confirmation, dated as of February 15, 2012, by and between Race Street Funding LLC and JPMorgan Chase Bank, N.A., London Branch. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 21, 2012.) | |
| 10.42 | Revolving Credit Agreement, dated as of July 21, 2011, by and between the Company and Race Street Funding LLC. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on July 27, 2011.) | |
| 10.43 | Amendment to Credit Agreement, dated as of September 26, 2012, by and between Race Street Funding LLC and the Company. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.44 | Asset Transfer Amendment, dated as of September 26, 2012, by and between the Company and Race Street Funding LLC. (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.45 | Amendment Agreement, dated as of October 24, 2013, by and between JPMorgan Chase Bank, N.A., London Branch and Race Street Funding LLC. (Incorporated by references to Exhibit 10.1 to the Company’s Current Report in Form 8-K filed on October 28, 2013.) | |
| 10.46 | Collateral Management Agreement, dated as of July 21, 2011, by and between the Company and Locust Street Funding LLC. (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on July 27, 2011.) | |
| 10.47 | Amended and Restated Collateral Management Agreement, dated as of September 26, 2012, by and between Locust Street Funding LLC and the Company. (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.48 | Collateral Administration Agreement, dated as of July 21, 2011, by and among Locust Street Funding LLC, the Company and Virtus Group, LP. (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on July 27, 2011.) | |
| 10.49 | Amended and Restated Collateral Administration Agreement, dated as of September 26, 2012, by and among Locust Street Funding LLC, the Company and Virtus Group, LP. (Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.50 | Collateral Management Agreement, dated as of September 26, 2012, by and between Race Street Funding LLC and the Company. (Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on October 1, 2012.) | |
| 10.51 | Loan and Servicing Agreement, dated as of May 17, 2012, by and among Walnut Street Funding LLC, Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, and the other lender parties thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 18, 2012.) | |
| 10.52 | Purchase and Sale Agreement, dated as of May 17, 2012, by and between the Company and Walnut Street Funding LLC. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 18, 2012.) | |
| 10.53 | Collateral Management Agreement, dated as of May 17, 2012, by and between the Company and Walnut Street Funding LLC. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 18, 2012.) | |
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| 10.54 | Securities Account Control Agreement, dated as of May 17, 2012, by and between Walnut Street Funding LLC and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 18, 2012.) | |
| 31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended. | |
| 31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended. | |
| 32.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| * | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 14, 2013.
| FS INVESTMENT CORPORATION | ||
| By: | /s/ Michael C. Forman | |
|
Michael C. Forman Chief Executive Officer (Principal Executive Officer) |
||
| By: | /s/ William Goebel | |
|
William Goebel Chief Financial Officer (Principal Financial and Accounting Officer) |
||
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No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|