FS Investment Corp History
- January 2008 – Blackstone acquires GSO Group, FSIC’s future manager. Blackstone expands into credit by acquiring one of the most impressive credit investors in the United States.
- January 2009 – FS Investment Corporation “goes public.” FSIC started as a non-traded BDC that was sold primarily by financial advisors. The BDC prices its stock at $10 per share, of which $0.70 and $0.30 will go to selling commissions and dealer manager fees, respectively. The management company will pay fees equal to 1.5% of the offering price, or another $0.15 per share. FSIC will get $9 from each share sold. The offering documents outline a standard 2-and-20 fee agreement for non-traded BDCs, which entitles the manager to fees equal to 2% of assets plus 20% of returns in excess of an 8% hurdle rate of return, subject to a catch-up provision. After raising more than the necessary $2.5 million in the fall of 2008, the company commences operations on January 2, 2009.
- December 2009 – FSIC is raising capital at a fairly brisk pace. By December 2009, it reaches $110 million in assets, roughly 11 times its size in January. At this point, a majority of its investments are in ultra-safe, low-return first-lien senior secured loans, many of which yield just 200 to 300 basis points over LIBOR. First-lien, second-lien, and mezzanine loans make up about 46%, 45%, and 9% of its portfolio, respectively.
- 2010 – Financial advisors make great salesmen. There’s nothing quite like a big commission check to incentivize financial advisors to sell a non-traded BDC. By the end of 2010, FS Investment Corp has $782 million in assets, thanks in part to high leverage – debt-to-equity sits near the 1:1 legal limit. First-lien loans and other low-return assets still make up a majority of assets. In its early years, FS Investment was primarily focused on attracting assets rather than going out on a limb to find mispriced credits.
- 2011-2013 – More of the same. We’ll spare the boring details. FS Investment is adding capital quickly, and by the end of 2013, it has more than $4.4 billion of assets. First-lien loans make up half of the portfolio. Equity, collateralized securities, and subordinated debt make up just 19% on a combined basis. But the portfolio is starting to shift. At the end of 2013, about half of its investment portfolio consists of direct originations, the result of GSO starting to take a more-active role in managing the portfolio ahead of an IPO.
- April 2014 – FS Investment lists on the New York Stock Exchange. FSIC knows that public markets demand more of BDCs than private markets. It cuts its base management fee to 1.75% of assets, and implements an 8% hurdle rate of return, complete with a 3-year high water mark, features it didn’t have as a non-traded BDC. Nerds will enjoy that this was just a simple listing. FSIC didn’t sell stock to the public, it was simply turning FSIC into a publicly-traded BDC from its non-traded format. To support the stock, the company considers a $250 million tender offer in case its investors decide to dump the stock upon its listing. In addition, Franklin Square, FSIC management, and GSO Capital Partners propose a tender offer to purchase as much as $175 million.
- 2015-2016 – Energy investments strike FSIC. FS Investment’s positions in energy companies come back to haunt the company in 2015 and 2016. The BDC held 9% of its portfolio in direct energy exposures at the end of 2015, and by 2016, it was realizing capital losses on its investments. For the first time in the company’s history, it reports net realized losses in 2015 and 2016, reversing a six-year stretch in which it reported net realized gains.