Business Context and Reporting Period
This Form 8-K was filed by FS Investment Corporation (FSIC) on March 10, 2010. The filing reports the entry into a material definitive agreement and the creation of a direct financial obligation by Broad Street Funding LLC, a special-purpose bankruptcy-remote subsidiary of FSIC.
Key Financial Metrics and Obligations
- Facility Size: $140,000,000 revolving credit facility.
- Lender: Deutsche Bank AG, New York Branch.
- Initial Collateral: Loans with a market value of $99,304,382 contributed by FSIC to Broad Street.
- Interest Rate: LIBOR plus a spread of 2.50% per annum.
- Maturity Date: March 10, 2012.
- Interest Payment Frequency: Quarterly in arrears.
- Prepayment Terms: Allowed at any time without premium or penalty, subject to potential funding breakage fees.
Material Changes and Agreements
On March 10, 2010, Broad Street Funding LLC entered into four primary agreements to establish the credit facility:
- Asset Contribution Agreement: FSIC contributed initial loans and retains the right to contribute additional loans.
- Investment Management Agreement: FSIC acts as the manager of Broad Street's assets.
- Security Agreement: Broad Street granted Deutsche Bank a first priority security interest in substantially all of its assets.
- Custodial Agreement: Deutsche Bank Trust Company Americas (DBTCA) serves as custodian for pledged assets.
The facility is subject to a borrowing base, meaning advances vary based on the types of assets in the portfolio. Proceeds are intended for new loan investments, fees, expenses, and distributions to FSIC.
Outlook, Risks, and Covenants
The Credit Agreement includes specific events of default that could trigger a default interest rate or acceleration of debt:
- Failure to make principal or interest payments (interest due within three business days of default).
- Borrowings exceeding applicable advance rates.
- Purchase of ineligible assets.
- Insolvency or bankruptcy of Broad Street or FSIC.
- FSIC ceasing to act as investment manager.
- Net Asset Value Threshold: Decline of FSIC's net asset value below $50,000,000.
- Fraud or illicit acts by FSIC or its investment advisors.
Additionally, "Super-Collateralization Events" or a decline in FSIC's net asset value below a specified threshold will result in a reduction of funds advanced by Deutsche Bank.
Investor Verification Checklist
- Verify the current Net Asset Value (NAV) of FSIC to ensure it remains above the $50,000,000 default threshold.
- Review the specific "borrowing base" calculations to understand the maximum leverage available against the current loan portfolio.
- Confirm the composition of the initial $99,304,382 loan pool contributed as collateral.
- Monitor for any "Super-Collateralization Events" that could reduce the available credit line.
- Assess the impact of the 2.50% LIBOR spread on the cost of capital relative to the yield of the underlying loan assets.