FS Investment Corporation Reports Third Quarter 2015 Financial Results and Declares Regular Distribution for Fourth Quarter

Nov 09, 2015, 07:05 ET from FS Investment Corporation

PHILADELPHIA, Nov. 9, 2015 /PRNewswire/ -- FS Investment Corporation (NYSE: FSIC), a publicly traded business development company focused on providing customized credit solutions to private middle market U.S. companies, announced its operating results for the quarter ended September 30, 2015, and announced that its board of directors has declared its fourth quarter 2015 regular distribution.

Financial Highlights for the Quarter Ended September 30, 20151

  • Net investment income of $0.26 per share, compared to $0.25 per share for the quarter ended September 30, 2014.
  • Adjusted net investment income of $0.21 per share, compared to $0.25 per share for the quarter ended September 30, 2014.2
  • Total net realized loss on investments of $0.09 per share and total net change in unrealized depreciation on investments of $0.20 per share, compared to a total net realized gain on investments of $0.02 per share and a total net change in unrealized depreciation on investments of $0.04 per share for the quarter ended September 30, 2014.
  • Paid cash distributions to stockholders totaling $0.22275 per share.3
  • Invested $284 million during the quarter.  $130 million of sales and redemptions for net portfolio activity of $154 million.
  • Net asset value of $9.64 per share, compared to $9.89 per share as of June 30, 2015.

Michael C. Forman, Chairman and Chief Executive Officer of FSIC, commented, "Market volatility in the third quarter was the key driver of unrealized depreciation in FSIC's investment portfolio.  We believe this volatility should create attractive opportunities for FSIC to put capital to work.  Our direct originations investment pipeline remains robust, and we are seeing more opportunistic investment opportunities than we have seen in several years."

Declaration of Regular Distribution for Fourth Quarter 2015

FSIC's board of directors has declared a regular cash distribution for the fourth quarter of $0.22275 per share, which will be paid on or about January 5, 2016, to stockholders of record as of the close of business on December 22, 2015.

Summary Consolidated Results

Three Months Ended

(dollars in thousands, except per share data) (all per share amounts are basic and diluted)1

September 30, 2015

June 30, 2015

September 30, 2014

Total investment income

$103,668

$147,731

$115,917

Net investment income

63,766

93,524

60,103

Net increase (decrease) in net assets resulting from operations

(5,279)

51,706

55,599

Net investment income per share

$0.26

$0.39

$0.25

Adjusted net investment income per share2

$0.21

$0.35

$0.25

Total net realized and unrealized gain (loss) on investments per share

$(0.29)

$(0.17)

$(0.02)

Net increase (decrease) in net assets resulting from operations (Earnings per Share)

$(0.02)

$0.21

$0.23

Stockholder distributions per share3

$0.22275

$0.22275

$0.32275

Net asset value per share at period end

$9.64

$9.89

$10.19

Weighted average shares outstanding

242,227,762

241,653,069

239,548,922

Shares outstanding, end of period

242,274,372

241,702,625

240,001,859

As of

As of

(dollar amounts in thousands)

September 30, 2015

December 31, 2014

Total fair value of investments

$4,100,079

$4,183,447

Total assets

4,264,904

4,354,886

Total stockholders' equity

$2,335,959

$2,366,986

Portfolio Highlights

  • As of September 30, 2015, total fair value of investments was $4.1 billion.
  • Core investment strategies4 represented 95% of the portfolio by fair value as of September 30, 2015, including 79% from direct originations and 16% from opportunistic investments. Broadly syndicated/other investments represented the remaining 5% of the portfolio by fair value as of September 30, 2015.
  • Gross portfolio yield prior to leverage (based on amortized cost and excluding non-income producing assets)5 as of September 30, 2015, was 10.4%, compared to 10.4% as of June 30, 2015.
  • Total commitments to direct originations (including unfunded commitments) made during the third quarter of 2015 was $193 million in fifteen portfolio companies, including eight in existing portfolio companies.
  • As of September 30, 2015, there were no investments on non-accrual in FSIC's investment portfolio.6

Total Portfolio Activity

Three Months Ended

Three Months Ended

Three Months Ended

(dollar amounts in thousands)

September 30, 2015

June 30, 2015

September 30, 2014

Purchases

$283,968

$608,796

$432,026

Sales and redemptions

(129,667)

(747,209)

(348,358)

Net portfolio activity

$154,301

$(138,413)

$83,668

 Portfolio Data

       As of September 30, 2015

As of December 31, 2014

Total fair value of investments

$4,100,079

$4,183,447

Number of Portfolio Companies

117

118

Average Annual EBITDA of Portfolio Companies

$140,400

$155,200

Weighted Average Purchase Price of Debt Investments

(as a % of par)

98.3%

97.4%

% of Investments on Non-Accrual 

(based on fair value)6

0.3%

Asset Class (based on fair value)

Senior Secured Loans — First Lien

47%

53%

Senior Secured Loans — Second Lien

22%

17%

Senior Secured Bonds

8%

8%

Subordinated Debt

11%

11%

Collateralized Securities

2%

3%

Equity/Other

10%

8%

Portfolio Composition by Strategy (based on fair value)4

Direct Originations

79%

75%

Opportunistic

16%

19%

Broadly Syndicated/Other

5%

6%

Interest Rate Type (based on fair value)

% Variable Rate

68.2%

69.0%

% Fixed Rate

22.0%

23.3%

% Income Producing Equity/Other Investments

3.6%

2.9%

% Non-Income Producing Equity/Other Investments

6.2%

4.8%

Yields5

Gross Portfolio Yield Prior to Leverage

(based on amortized cost)

9.9%

10.0%

Gross Portfolio Yield Prior to Leverage (based on amortized cost) — Excluding Non-Income Producing Assets

10.4%

10.4%

Direct Origination Activity

(dollar amounts in thousands)

Three Months Ended September 30, 2015

Three Months Ended

June 30, 2015

Three Months Ended September 30, 2014

 

Total Commitments

(including unfunded commitments)

$192,637

$494,661

$451,931

Exited Investments (including partial paydowns)

(35,090)

(623,554)

(213,837)

Net Direct Originations

$157,547

$(128,893)

$238,094

 

 

Direct Originations Portfolio Data

As of September 30, 2015

As of December 31, 2014

Total Fair Value of Direct Originations

$3,252,741

$3,147,946

Number of Portfolio Companies

66

52

Average Annual EBITDA of Portfolio Companies

$67,100

$47,200

Average Leverage Through Tranche of Portfolio Companies —

Excluding Equity/Other and Collateralized Securities

 4.7x 

4.6x

% of Investments on Non-Accrual (based on Fair Value)6

New Direct Originations by Asset Class (including unfunded commitments)

Three Months Ended September 30, 2015

Three Months Ended  June 30, 2015

Three Months Ended September 30, 2014

Senior Secured Loans — First Lien

69%

64%

80%

Senior Secured Loans — Second Lien

20%

24%

11%

Senior Secured Bonds

1%

Subordinated Debt

7%

4%

9%

Collateralized Securities

Equity/Other

3%

8%

0%

Average New Direct Origination Commitment Amount

$12,842

$29,098

$37,661

Weighted Average Maturity for New Direct Originations

10/8/21

9/6/20

3/18/20

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations Funded during Period5

9.0%

9.1%

9.7%

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations Funded during Period —

Excluding Non-Income Producing Assets5

9.3%

9.9%

9.7%

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period5

10.8%

10.7%

10.0%

Leverage and Liquidity

As of September 30, 2015, FSIC's debt to equity ratio was 78.4%, based on $1.83 billion in total debt outstanding and stockholders' equity of $2.34 billion.  FSIC's weighted average effective interest rate (including the effect of non-usage fees) was 3.96% as of September 30, 2015.

As of September 30, 2015, FSIC had cash (including foreign currency, at fair value) of $86 million and availability under its financing arrangements of $393 million, subject to borrowing base and other limitations. As of September 30, 2015, FSIC also had broadly syndicated assets and opportunistic assets that could be sold to create additional liquidity.

As of September 30, 2015, FSIC had seventeen debt investments with aggregate unfunded commitments of $98 million and one equity investment with an unfunded commitment of $0.6 million.

Conference Call Information

FSIC will host a conference call at 10:00 a.m. (Eastern Time) on Monday, November 9, 2015, to discuss its third quarter 2015 results. All interested parties are welcome to participate. You can access the conference call by dialing (866) 638-3013 and using the conference ID 40946868 approximately 10 minutes prior to the call.  The conference call will also be webcast, which can be accessed from the Investor Relations section of FSIC's website at www.fsinvestmentcorp.com under Presentations and Reports.

A replay of the call will be available for a period of 30 days following the call by visiting the Investor Relations section of FSIC's website at www.fsinvestmentcorp.com under Presentations and Reports. 

Supplemental Information

An investor presentation of financial information will be made available prior to the call in the Investor Relations section of FSIC's website at www.fsinvestmentcorp.com under Presentations and Reports.

About FS Investment Corporation

FS Investment Corporation (NYSE: FSIC) is a publicly traded business development company ("BDC") focused on providing customized credit solutions to private middle market U.S. companies. FSIC seeks to invest primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market companies to achieve the best risk-adjusted returns for its investors. In connection with its debt investments, FSIC may receive equity interests such as warrants or options.

FSIC is advised by FB Income Advisor, LLC, an affiliate of Franklin Square Capital Partners ("Franklin Square"), and is sub-advised by GSO / Blackstone Debt Funds Management LLC, an affiliate of GSO Capital Partners ("GSO"). GSO, with approximately $80.8 billion in assets under management as of September 30, 2015, is the credit platform of Blackstone, one of the world's leading managers of alternative investments. For more information, please visit www.fsinvestmentcorp.com.

About Franklin Square

Franklin Square is a leading manager of alternative investment funds designed to enhance investors' portfolios by providing access to asset classes, strategies and asset managers that typically have been available to only the largest institutional investors. The firm's funds offer "endowment-style" investment strategies that help construct diversified portfolios and manage risk. Franklin Square strives not only to maximize investment returns but also to set the industry standard for best practices by focusing on transparency, investor protection and education for investment professionals and their clients.

Founded in Philadelphia in 2007, Franklin Square quickly established itself as a leader in the world of alternative investments by introducing innovative credit-based income funds, including the industry's first non-traded BDC. The firm managed approximately $16.8 billion in assets as of June 30, 2015, and is the largest manager of BDC assets with approximately $15.4 billion in BDC assets as of June 30, 2015. For more information, please visit www.franklinsquare.com.

Forward-Looking Statements and Important Disclosure Notice

This announcement may contain certain forward-looking statements, including statements with regard to future events or the future performance or operations of FSIC.  Words such as "believes," "expects," "projects," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. Factors that could cause actual results to differ materially include changes in the economy, risks associated with possible disruption in FSIC's operations or the economy generally due to terrorism or natural disasters, future changes in laws or regulations and conditions in FSIC's operating area, and the price at which shares of FSIC's common stock trade on the New York Stock Exchange. Some of these factors are enumerated in the filings FSIC makes with the SEC. FSIC undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The press release above contains summaries of certain financial and statistical information about FSIC. The information contained in this press release is summary information that is intended to be considered in the context of FSIC's SEC filings and other public announcements that FSIC may make, by press release or otherwise, from time to time. FSIC undertakes no duty or obligation to update or revise the information contained in this press release. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. Investors should not view the past performance of FSIC, or information about the market, as indicative of FSIC's future results.

Individual investors and endowments may have different investment horizons, liquidity needs and risk tolerances.  In addition, fees that may be incurred by an investor in a fund sponsored by Franklin Square may be different than fees incurred by an endowment investing in similar assets as those in which the funds invest.

Other Information

The information in this press release is summary information only and should be read in conjunction with FSIC's quarterly report on Form 10-Q for the quarterly period ended September 30, 2015, which FSIC filed with the U.S. Securities and Exchange Commission (the "SEC") on November 9, 2015, as well as FSIC's other reports filed with the SEC. A copy of FSIC's quarterly report on Form 10-Q for the quarterly period ended September 30, 2015, and FSIC's other reports filed with the SEC can be found on FSIC's website at www.fsinvestmentcorp.com and the SEC's website at www.sec.gov.

Certain Information About Distributions

The determination of the tax attributes of FSIC's distributions is made annually as of the end of its fiscal year based upon its taxable income and distributions paid, in each case, for the full year. Therefore, a determination as to the tax attributes of the distributions made on a quarterly basis may not be representative of the actual tax attributes for a full year. FSIC intends to update stockholders quarterly with an estimated percentage of its distributions that resulted from taxable ordinary income. The actual tax characteristics of distributions to stockholders will be reported to stockholders annually on Form 1099-DIV.

The timing and amount of any future distributions on FSIC's shares of common stock are subject to applicable legal restrictions and the sole discretion of its board of directors. There can be no assurance as to the amount or timing of any such future distributions.

FSIC may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of shares of FSIC's common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets and dividends or other distributions paid to it on account of preferred and common equity investments in portfolio companies. FSIC has not established limits on the amount of funds it may use from available sources to make distributions. There can be no assurance that FSIC will be able to pay distributions at a specific rate or at all.

Contact Information:

Investors: Jim Ballan Senior Vice President, Investor Relations and Capital Markets james.ballan@franklinsquare.com 267-439-4375

Media: Franklin Square Media Team media@franklinsquare.com 215-495-1174  

 

Income Statement

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

Investment income

Interest income—unaffiliated

$

99,468

$

104,823

$

319,180

$

311,630

Interest income—affiliated

910

1,628

Fee income—unaffiliated

3,290

10,606

33,707

39,141

Dividend income—unaffiliated

488

5,519

663

     Total investment income

103,668

115,917

360,034

351,434

Operating expenses

Management fees

18,852

20,000

56,993

65,066

Capital gains incentive fees

(13,811)

(910)

(18,418)

6,194

Subordinated income incentive fees

12,485

14,794

47,661

45,033

Administrative services expenses

900

1,202

2,773

3,591

Stock transfer agent fees

30

4

140

1,001

Accounting and administrative fees

261

172

822

824

Interest expense

19,352

18,940

55,699

45,769

Directors' fees

232

266

688

795

Listing advisory fees

5,043

Other general and administrative expenses

1,601

1,346

4,737

7,002

     Total operating expenses

39,902

55,814

151,095

180,318

     Management fee waiver

(2,837)

     Net expenses

39,902

55,814

151,095

177,481

     Net investment income

63,766

60,103

208,939

173,953

Realized and unrealized gain/loss

Net realized gain (loss) on investments—unaffiliated

(21,246)

5,421

(42,135)

25,959

Net realized gain (loss) on foreign currency

266

(338)

(631)

(243)

Net change in unrealized appreciation (depreciation) on investments—unaffiliated

(74,848)

(8,901)

(88,560)

6,140

Net change in unrealized appreciation (depreciation) on investments—affiliated

27,220

(747)

36,615

(1,046)

Net change in unrealized gain (loss) on foreign currency

(437)

61

2,625

207

     Total net realized and unrealized gain            (loss) on investments

(69,045)

(4,504)

(92,086)

31,017

Net increase (decrease) in net assets resulting from operations

$

(5,279)

$

55,599

$

116,853

$

204,970

Per share information—basic and diluted

Net increase (decrease) in net assets resulting from operations (Earnings per Share)

$

(0.02)

$

0.23

$

0.48

$

0.81

Weighted average shares outstanding

242,227,762

239,548,922

241,659,230

251,603,035

Balance Sheet

September 30, 2015

December 31,

(Unaudited)

2014

Assets

Investments, at fair value—unaffiliated (amortized cost—$4,059,093 and $4,164,166, respectively)

$

3,975,021

$

4,168,654

Investments, at fair value—affiliated (amortized cost—$91,581 and $17,931, respectively)

125,058

14,793

Cash

85,609

95,205

Foreign currency, at fair value (cost—$325 and $1,661, respectively)

326

1,639

Receivable for investments sold and repaid

24,221

8,976

Interest receivable

50,419

51,814

Deferred financing costs

3,281

13,097

Prepaid expenses and other assets

969

708

       Total assets

$

4,264,904

$

4,354,886

Liabilities

Payable for investments purchased

$

$

28,095

Credit facilities payable

31,812

188,827

Unsecured notes payable

989,159

725,000

Repurchase agreement payable

800,000

950,000

Stockholder distributions payable

53,965

17,885

Management fees payable

18,845

19,560

Accrued capital gains incentive fees

2,657

21,075

Subordinated income incentive fees payable

12,490

13,089

Administrative services expense payable

401

1,410

Interest payable

18,417

15,850

Directors' fees payable

219

296

Deferred financing costs payable

473

Other accrued expenses and liabilities

980

6,340

       Total liabilities

1,928,945

1,987,900

Commitments and contingencies

Stockholders' equity

Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding

Common stock, $0.001 par value, 450,000,000 shares authorized, 242,274,372 and 240,896,559 shares issued and outstanding, respectively

242

241

Capital in excess of par value

2,272,178

2,258,548

Accumulated undistributed net realized gain/loss on investments and gain/loss on foreign currency

(43,105)

33,758

Accumulated undistributed (distributions in excess of) net investment income

150,183

68,658

Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency

(43,539)

5,781

       Total stockholders' equity

2,335,959

2,366,986

       Total liabilities and stockholders' equity

$

4,264,904

$

4,354,886

Net asset value per share of common stock at period end

$

9.64

$

9.83

Non-GAAP Financial Measures

This press release contains certain financial measures that have not been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). FSIC uses these non-GAAP financial measures internally in analyzing financial results and believes that the use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing results and trends and in comparing FSIC's financial results with other BDCs.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with FSIC's consolidated financial statements prepared in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures has been provided in this press release, and investors are encouraged to review the reconciliation.

Reconciliation of Non-GAAP Financial Measures1

Three Months Ended

September 30, 2015

June 30, 2015

September 30, 2014

GAAP net investment income per share

$0.26

$0.39

$0.25

Plus capital gains incentive fees per share

(0.06)

(0.03)

-

Plus excise taxes per share

-

-

-

Plus one-time expenses per share7

-

-

0.01

Adjusted net investment income per share2

$0.21

$0.35

$0.25

1)

Per share data was derived by using the weighted average shares of FSIC's common stock outstanding during the applicable period. Per share numbers may not sum due to rounding.

2)

Adjusted net investment income is a non-GAAP financial measure. Adjusted net investment income is presented for all periods as GAAP net investment income excluding (i) the accrual for the capital gains incentive fee for realized and unrealized gains; (ii) excise taxes; and (ii) certain non-recurring operating expenses that are one-time in nature and are not representative of ongoing operating expenses incurred during FSIC's normal course of business (referred to herein as one-time expenses). FSIC uses this non-GAAP financial measure internally in analyzing financial results and believes that the use of this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends and in comparing its financial results with other business development companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.  A reconciliation of GAAP net investment income to adjusted net investment income can be found above.

3)

The per share data for distributions reflects the amount of distributions per share of FSIC's common stock declared by FSIC's board of directors on July 30, 2015, and paid on October 2, 2015, to stockholders of record as of the close of business on September 23, 2015.

4)

See FSIC's quarterly report on Form 10-Q for the three months ended September 30, 2015, for a description of FSIC's investment strategies.

5)

Gross portfolio yield represents the expected annualized yield of FSIC's investment portfolio based on the composition of the portfolio as of the applicable date.

6)

Interest income is recorded on an accrual basis. See FSIC's quarterly report on Form 10-Q for the three months ended September 30, 2015, for a description of FSIC's revenue recognition policy.

7)

For the three months ended September 30, 2014, FSIC amortized $2,226 of remaining deferred financing costs associated with the closing of the Arch Street credit facility. These costs were partially offset by a $446 reduction in FSIC's subordinated incentive fee on income due to the reduction in pre-incentive fee net investment income associated with one-time expenses.

 

SOURCE FS Investment Corporation



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