Business Context and Reporting Period
This Form 8-K is a current report filed by FS Investment Corporation (referred to in metadata as FS KKR Capital Corp) on April 1, 2014, regarding events occurring on March 31, 2014. The Company is a closed-end management investment company focused on income generation. The filing primarily addresses the Company's application to list its common stock on the New York Stock Exchange (NYSE) under the symbol "FSIC," anticipated to commence trading on or about April 16, 2014.
Key Financial Metrics and Distribution Policy
The filing does not provide specific revenue, profit, cash flow, or debt figures for the reporting period. However, it details significant changes to the Company's distribution policy and fee structure:
- Regular Cash Distributions: Increased from $0.0720 to $0.07425 per share, effective with the April 30, 2014 payment. This raises the annual distribution rate from 8.41% to 8.68% based on the February 28, 2014 net asset value of $10.27.
- Special Cash Distributions: The Board intends to declare two special distributions of $0.10 per share each, payable on August 15, 2014, and November 14, 2014. These are contingent upon the completion of the NYSE Listing.
- Management Fee Reduction: Effective April 1, 2014, the investment adviser (FB Advisor) agreed to waive a portion of the base management fee, reducing the effective rate from 2.0% to 1.75% of average gross assets pending stockholder approval of a permanent amendment.
- Incentive Fee Hurdle: The Company proposes reducing the annualized hurdle rate for the subordinated incentive fee on income from 8.0% to 7.5% and changing the calculation basis from "adjusted capital" to "net asset value."
Material Changes and Corporate Actions
Several material changes and strategic actions were announced in connection with the NYSE Listing:
- NYSE Listing: The Company applied to list on the NYSE. Completion is a condition precedent for the special cash distributions.
- Tender Offer: The Company anticipates conducting a modified "Dutch auction" tender offer to purchase up to $250 million of its common stock, commencing in conjunction with the Listing.
- Advisory Engagement: J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, and BofA Merrill Lynch were engaged as advisors for the Listing. Wells Fargo will serve as the sole dealer manager for the Tender Offer.
- Management Changes: Brad Marshall (Managing Director of GSO) was appointed as an officer and Senior Portfolio Manager effective April 1, 2014. The Board is considering adding Daniel H. Smith as a new director.
Outlook, Risks, and Contingencies
Management commentary and forward-looking statements highlight the following:
- Shareholder Purchases: The sponsor (Franklin Square Holdings), management, and GSO Capital Partners LP are considering purchasing up to $100 million, $25 million, and $50 million, respectively, in open-market transactions following the Listing and Tender Offer. These parties do not intend to participate in the Tender Offer.
- Contingencies: The special distributions and the timing of the Listing are subject to NYSE approval. There is no assurance the Listing will occur by the anticipated date or at all.
- Risks: Risks include the ability to complete the Listing and Tender Offer, market price volatility on the NYSE, and general economic conditions. The filing includes standard forward-looking statement disclaimers.
- Tax Attributes: The tax characteristics of distributions are determined annually; quarterly estimates may not reflect actual full-year tax attributes.
Investor Verification Checklist
- Verify the final approval and trading commencement date of the NYSE Listing under symbol "FSIC."
- Confirm the terms and final size of the proposed $250 million Dutch auction tender offer.
- Monitor the outcome of the stockholder vote required to permanently amend the Advisory Agreement (reducing the base fee to 1.75% and the hurdle rate to 7.5%).
- Track the execution of the two $0.10 special cash distributions, noting they are contingent on the Listing.
- Review the actual open-market purchase activity by the sponsor, management, and GSO Capital Partners LP.