FS Investment Corporation Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by FS Investment Corporation (FSIC) on May 17, 2012. The filing details the entry into a material definitive agreement by FSIC's newly formed, wholly-owned special purpose financing subsidiary, Walnut Street Funding LLC ("Walnut Street").
Key Financial Metrics and Facility Details
- Facility Type: Revolving credit facility.
- Principal Amount: Up to $250,000,000 on a committed basis.
- Lender: Wells Fargo Bank, National Association (sole lender), with Wells Fargo Securities, LLC as administrative agent.
- Interest Rate: LIBOR plus a spread ranging from 1.50% to 2.75% per annum, based on portfolio composition.
- Maturity Date: May 17, 2017.
- Collateral: First priority security interest in substantially all assets of Walnut Street, including its loan portfolio.
- Recourse: Obligations are non-recourse to FSIC.
- Asset Coverage Requirement: FSIC must maintain an asset coverage ratio of at least 2:1.
- Net Asset Value Requirement: FSIC must maintain a net asset value of at least $200,000,000.
Material Changes and Operational Structure
FSIC has established Walnut Street to manage a portfolio of loans. FSIC acts as the collateral manager and may contribute cash or loans to the subsidiary. Borrowings are subject to a borrowing base that varies by loan type. A non-usage fee applies beginning four months after the facility inception if the full amount is not borrowed. The filing notes that borrowings by Walnut Street count toward FSIC's leverage limits under the Investment Company Act of 1940.
Risks, Contingencies, and Covenants
The agreement includes specific "Collateral Control Events" that grant Wells Fargo the right to direct transactions regarding portfolio assets. These events include non-performance by FSIC, its investment adviser (FB Income Advisor, LLC), or its sub-adviser (GSO / Blackstone Debt Funds Management LLC).
Events of default include:
- Failure to make principal or interest payments (interest due within three business days of default).
- Uncured borrowing base deficiency.
- Insolvency or bankruptcy of Walnut Street or FSIC.
- Resignation or removal of FSIC as collateral manager.
- Failure to maintain the required 2:1 asset coverage ratio or $200 million net asset value.
- Failure of Walnut Street to qualify as a bankruptcy-remote entity.
Upon default, Wells Fargo may declare all obligations immediately due and payable, and Walnut Street must pay interest at a default rate.
Investor Verification Checklist
- Verify the current asset coverage ratio of FSIC to ensure compliance with the 2:1 covenant.
- Confirm FSIC's current net asset value meets the $200,000,000 threshold.
- Review the specific composition of the loan portfolio to determine the applicable LIBOR spread (1.50% vs. 2.75%).
- Monitor for any "Collateral Control Events" that could shift transaction control to Wells Fargo.
- Assess the impact of the non-usage fee if the facility remains underutilized after the initial four-month period.