Business Context and Reporting Period
This Form 8-K filing by FS Investment Corporation (FS KKR Capital Corp) is dated December 10, 2017. The report details significant corporate governance changes and a proposed strategic transition of the Company's investment advisory services. The Company is a business development company (BDC) currently advised by FB Income Advisor, LLC, with GSO / Blackstone Debt Funds Management LLC (GDFM) serving as the investment sub-adviser.
Key Financial Metrics
The filing does not provide specific financial performance data such as revenue, net income, cash flow, or debt levels for the reporting period. However, it outlines proposed changes to the Company's fee structure under new advisory agreements:
- Base Management Fee: Proposed reduction from 1.75% to 1.50% of the average weekly value of gross assets.
- Incentive Fee Hurdle Rate: Proposed reduction from 1.875% per quarter to 1.75% per quarter (7.0% annualized).
- Incentive Fee Catch-up: Proposed reduction of the catch-up threshold from 2.34375% to 2.1875% per quarter (8.75% annualized).
- Incentive Fee Structure: 20.0% of pre-incentive fee net investment income above the hurdle rate and 20.0% of realized capital gains.
Material Changes Versus Prior Period
The filing reports the following material changes effective or proposed as of December 2017:
- Executive Departures: Gerald Stahlecker resigned as President effective December 11, 2017. Brad Marshall intends to resign as senior portfolio manager upon the termination of the GDFM sub-advisory agreement (GDFM End Date).
- Executive Appointment: Brian Gerson was appointed President effective December 11, 2017. Mr. Gerson is employed by the Company's affiliate, FS Investments, and will not receive direct compensation from the Company.
- Advisory Transition: GDFM intends to resign as investment sub-adviser in April 2018. The Company plans to transition to a joint investment advisory relationship involving a new entity formed by FS Investments and KKR Credit Advisors (US) LLC.
- Investment Committee Changes: Gerald Stahlecker, Michael Forman, and Zachary Klehr resigned from the investment committee. The new committee will consist of Sean Coleman, Brian Gerson, and Michael Kelly.
Guidance, Outlook, and Risks
Outlook and Management Commentary: The Company intends to seek stockholder approval for the proposed advisory agreements. If approved, FB Income Advisor and KKR Credit may serve as co-advisers until a Joint Advisor becomes effective. The transition aims to ensure continuity of services and access to investment opportunities. FS Investments and KKR Credit are evaluating the possibility of merging one or more of the related BDC funds, though no assurance of consummation is provided.
Risks and Contingencies:
- Stockholder Approval: The transition and new fee structure are contingent upon stockholder approval of the Proposed Advisory Agreements.
- Regulatory Relief: The effectiveness of the Joint Advisor Investment Advisory Agreement is contingent upon obtaining exemptive relief from the SEC to permit co-investment in privately negotiated transactions.
- Forward-Looking Statements: The filing includes standard cautions that actual results may differ materially due to economic conditions, regulatory changes, or the failure to consummate the proposed transactions.
Important Facts for Investor Verification
- Verify the outcome of the stockholder vote on the Proposed Advisory Agreements and the Joint Advisor Investment Advisory Agreement.
- Confirm whether the SEC grants the requested exemptive relief for KKR Credit to co-invest with the Company.
- Monitor the timeline for the GDFM End Date (April 2018) and the subsequent appointment of the Joint Advisor.
- Review the upcoming Proxy Statement (Schedule 14A) for detailed terms of the new advisory agreements and fee structures.
- Assess the potential impact of the proposed merger of funds on the Company's portfolio and liquidity.