Business Context and Reporting Period
This Form 8-K Current Report, dated April 7, 2011 (with completion on April 12, 2011), is filed by Fifth Street Finance Corp. (Note: The request metadata referenced "Oaktree Specialty Lending Corp," but the filing text explicitly identifies the registrant as Fifth Street Finance Corp.). The report details the entry into a material definitive agreement and the creation of a direct financial obligation through a private offering of convertible senior notes.
Key Financial Metrics
- Debt Issuance: $150.0 million aggregate principal amount of 5.375% Convertible Senior Notes due 2016.
- Over-Allotment Option: Up to an additional $22.5 million principal amount exercisable by initial purchasers within 30 days.
- Net Proceeds: Approximately $146.0 million (or $167.9 million if the option is fully exercised).
- Offering Expenses: Approximately $4.1 million (or $4.6 million with full option exercise), including an initial purchasers' discount of $3.8 million (or $4.3 million).
- Post-Issuance Indebtedness: As of April 12, 2011, total consolidated indebtedness was $138.3 million principal amount.
- Credit Facilities: No outstanding borrowings under the company's two credit facilities as of April 12, 2011.
- Interest Rate: 5.375% per year, payable semiannually.
- Conversion Price: Initial conversion price of approximately $14.76 per share (67.7415 shares per $1,000 principal amount).
Material Changes Versus Prior Period
The filing does not provide comparative financial data (revenue, profit, or cash flow) against a prior period. The primary material change is the capital structure adjustment resulting from the issuance of the Convertible Notes. Proceeds were applied to pay down existing indebtedness, reducing total consolidated indebtedness to $138.3 million and eliminating outstanding borrowings under credit facilities.
Guidance, Outlook, and Risks
- Use of Proceeds: Net proceeds were used to pay down indebtedness.
- Terms and Covenants: The notes are senior unsecured obligations. They are not redeemable by the company prior to maturity, and no sinking fund is provided. Holders may require repurchase at 100% of principal plus accrued interest upon certain corporate events.
- Conversion Rights: Conversion is restricted prior to January 1, 2016, except under specific circumstances. Full conversion rights apply between January 1, 2016, and the maturity date.
- Related Party Transaction: $2.0 million of the notes were sold directly to CEO Leonard M. Tannenbaum without placement fees.
- Risks: The notes and underlying common stock are unregistered and may not be offered or sold in the U.S. absent registration or an applicable exemption.
Important Facts for Investor Verification
- Verify the exercise status of the $22.5 million over-allotment option by initial purchasers.
- Confirm the exact allocation of net proceeds beyond the general statement of paying down indebtedness.
- Review the specific "certain circumstances" allowing early conversion prior to January 1, 2016, as detailed in the Indenture (Exhibit 4.1).
- Monitor the company's compliance with financial reporting covenants if it ceases to be subject to Exchange Act reporting requirements.
- Check for any subsequent filings regarding the $2.0 million note purchase by the CEO.