Business Context and Reporting Period
This Form 8-K was filed by FS Investment Corporation (also referenced as FS KKR Capital Corp in metadata) on December 15, 2016. The filing reports the entry into a material definitive agreement by Hamilton Street Funding LLC, a wholly owned special purpose financing subsidiary of the Company.
Key Financial Metrics and Debt Structure
The filing details the establishment of the "Hamilton Street Credit Facility," a revolving credit facility with the following terms:
- Commitment Amount: $150,000,000.
- Accordion Option: Capacity to increase commitments by an additional $50,000,000, up to a total of $200,000,000.
- Term: Five-year facility with a four-year revolving period.
- Amortization: Post-revolving period, advances must be repaid at 5% per month until maturity.
- Interest Rate: Three-month LIBOR (0% floor) plus a 2.50% spread.
- Undrawn Fees: 0.50% per annum on unborrowed amounts up to 35% of commitments; 1.65% per annum on amounts above that threshold.
- Security: Secured by a first priority security interest in substantially all of Hamilton Street's assets.
- Recourse: Non-recourse to the Company; exposure is limited to the Company's investment in Hamilton Street.
The filing text does not provide specific values for revenue, profit, cash flow, or margins, as this is a transactional report rather than a periodic financial statement.
Material Changes and Use of Proceeds
The primary material change is the creation of new debt capacity. Hamilton Street intends to use proceeds from advances to distribute cash to the Company. The Company plans to use these funds, in whole or in part, to retire other outstanding indebtedness of the Company and its subsidiaries. Borrowings by Hamilton Street are considered borrowings by the Company for asset coverage requirements under the Investment Company Act of 1940.
Guidance, Risks, and Covenants
The filing includes standard forward-looking statement disclaimers regarding future performance. The Credit Facility contains customary events of default and specific covenants, including:
- Maintenance of a required borrowing base.
- Company must maintain 100% ownership of Hamilton Street.
- Company must remain regulated as a "business development company" under the 1940 Act.
- Company must maintain an asset coverage ratio of at least 2 to 1.
- Company must maintain a net asset value of at least $400,000,000.
Upon an event of default, the Administrative Agent may declare all outstanding advances immediately due and payable.
Investor Verification Checklist
- Verify the Company's current asset coverage ratio to ensure compliance with the 2-to-1 covenant.
- Confirm the Company's current net asset value meets the $400,000,000 minimum threshold.
- Review the specific terms of the "required borrowing base" to understand borrowing limitations.
- Assess the impact of the new debt on the Company's overall leverage and liquidity position.
- Examine the attached Loan and Security Agreement (Exhibit 10.1) for detailed covenants and default provisions.