FS Investment Corporation Reports Third Quarter 2014 Financial Results
PHILADELPHIA, Nov. 10, 2014 /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 on November 10, 2014 for the quarter ended September 30, 2014. As previously disclosed, FSIC will hold a conference call to discuss these results at 9:00 a.m., Eastern Time, on Tuesday, November 11, 2014. Information for those interested in participating in the call can be found below.
Financial Highlights for the Quarter Ended September 30, 20141
- Net investment income of $0.25 per share for the quarter ended September 30, 2014, compared to $0.26 per share for the quarter ended September 30, 2013
- Excluding the accrual for capital gains incentive fees and one-time expenses associated with the repayment and termination of the Arch Street revolving credit facility, adjusted net investment income of $0.25 per share for the quarter ended September 30, 2014, compared to $0.25 per share for the quarter ended September 30, 20132
- Net earnings of $0.23 per share for the quarter ended September 30, 2014, compared to $0.23 per share for the quarter ended September 30, 2013
- Paid cash distributions to stockholders totaling $0.3228 per share during the quarter ended September 30, 20143
- Committed $451.9 million to direct originations during the quarter ended September 30, 2014, 91% of which were in senior secured debt
- Since the close of the quarter ended September 30, 2014, FSIC entered into a strategic relationship with NewStar Financial (NASDAQ: NEWS), a specialized commercial finance company. Under the terms of the investment, FSIC, along with other funds managed by FSIC's sponsor Franklin Square Holdings, committed to purchase $300 million of 10-year subordinated notes plus warrants exercisable into 12 million shares of NewStar common stock4
"Against the backdrop of increased volatility toward quarter end, FSIC's disciplined approach to asset allocation and focus on capital preservation helped deliver another strong quarter for our stockholders," said Michael C. Forman, Chairman and Chief Executive Officer of FSIC. "New direct originations totaled $452 million in the third quarter, 91% of which were in senior secured debt."
Operating Results
| Three Months Ended |
|||
| (all per share amounts are basic and diluted)1 |
September 30, 2014 |
June 30, 2014 |
September 30, 2013 |
| Net investment income per share |
$0.25 |
$0.23 |
$0.26 |
| Adjusted net investment income per share2 |
$0.25 |
$0.26 |
$0.25 |
| Total net realized and unrealized gain (loss) on investments |
$(0.02) |
$0.04 |
$(0.03) |
| Net increase (decrease) in net assets resulting from |
$0.23 |
$0.27 |
$0.23 |
| Stockholder distributions per share3 |
$0.3228 |
$0.2228 |
$0.2093 |
| Net asset value per share at period end |
$10.19 |
$10.28 |
$10.10 |
Portfolio Highlights
- As of September 30, 2014, the fair value of investments was approximately $4.3 billion.
- Core investment strategies, which include direct originations and opportunistic investments, represented 90% of the portfolio by fair value as of September 30, 2014. Direct originations represented 70%, opportunistic investments represented 20% and broadly syndicated/other investments represented 10% of the portfolio by fair value.
- Gross portfolio yield prior to leverage (excluding non-income producing assets) during the third quarter was 10.3%, unchanged from the second quarter.
- During the third quarter, no new investments were placed on non-accrual. As of September 30, 2014, investments on non-accrual represented 0.5% of FSIC's total portfolio based on fair value.
Total Portfolio Activity
| Three Months Ended |
||
| (dollar amounts in thousands) |
September 30, 2014 |
|
| Purchases |
$432,026 |
|
| Sales and redemptions |
(348,358) |
|
| Net portfolio activity |
$83,668 |
|
| As of September 30, 2014 |
||
| Total fair value of investments |
$4,316,524 |
|
| Total assets |
$4,570,655 |
|
| Portfolio Data |
As of September 30, 2014 |
|
| Number of Portfolio Companies |
128 |
|
| Average Annual EBITDA of Portfolio Companies |
$148,000 |
|
| Weighted Average Purchase Price of Investments (as a % of par or stated value) |
97.7% |
|
| Weighted Average Credit Rating of Investments that were Rated5 |
B3 |
|
| % of Investments on Non-Accrual6 |
0.5% |
|
| Asset Class (based on fair value) |
||
| Senior Secured Loans — First Lien |
54% |
|
| Senior Secured Loans — Second Lien |
18% |
|
| Senior Secured Bonds |
8% |
|
| Subordinated Debt |
11% |
|
| Collateralized Securities |
3% |
|
| Equity/Other |
6% |
|
| Portfolio Composition by Strategy (based on fair value)7 |
||
| Direct Originations |
70% |
|
| Opportunistic |
20% |
|
| Broadly Syndicated/Other |
10% |
|
| Interest Rate Type (based on fair value) |
||
| % Variable Rate |
71.4% |
|
| % Fixed Rate |
22.1% |
|
| % Income Producing Equity or Other Investments |
2.5% |
|
| % Non-Income Producing Equity or Other Investments |
4.0% |
|
| Yields |
||
| Gross Portfolio Yield Prior to Leverage (based on amortized cost) |
9.9% |
|
| Gross Portfolio Yield Prior to Leverage (based on amortized cost) — Excluding Non-Income Producing |
10.3% |
|
Direct Origination Activity
| (dollar amounts in thousands) |
Three Months Ended |
|
|
New Direct Originations |
||
| Total Commitments (including unfunded commitments) |
$451,931 |
|
| Exited Investments (including partial paydowns) |
(213,837) |
|
| Net Direct Originations |
$238,094 |
|
|
New Direct Originations by Asset Class (including unfunded commitments) |
||
| Senior Secured Loans — First Lien |
80% |
|
| Senior Secured Loans — Second Lien |
11% |
|
| Senior Secured Bonds |
- |
|
| Subordinated Debt |
9% |
|
| Collateralized Securities |
- |
|
| Equity/Other |
0% |
|
| Average New Direct Origination Commitment Amount |
$37,661 |
|
| Weighted Average Maturity for New Direct Originations |
3/18/20 |
|
| Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct |
9.7% |
|
| Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct |
9.7% |
|
| Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct |
10.0% |
|
|
Characteristics of All Direct Originations held in Portfolio |
As of September 30, 2014 |
|
| Direct Originations, at fair value |
$3,001,347 |
|
| Number of Portfolio Companies |
48 |
|
| Average Annual EBITDA of Portfolio Companies |
$48,800 |
|
| Average Leverage Through Tranche of Portfolio Companies — Excluding |
4.4x |
|
| % of Investments on Non-Accrual |
- |
|
| Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct |
9.8% |
|
| Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct |
10.1% |
Balance Sheet Summary
| (in thousands, except per share amounts) |
Quarter Ended September 30, 2014 |
Year Ended December 31, 2013 |
|
Assets |
||
| Investments, at fair value |
$4,316,524 |
$4,137,581 |
| Cash |
179,984 |
227,328 |
| Receivable for investments sold and repaid |
9,502 |
26,722 |
| Interest receivable |
52,650 |
47,622 |
| Deferred financing costs |
10,962 |
5,168 |
| Prepaid expenses and other assets |
1,033 |
156 |
| Total assets |
$4,570,655 |
$4,444,577 |
| Liabilities |
||
| Payable for investments purchased |
$105,425 |
$23,423 |
| Credit facilities payable |
564,294 |
723,682 |
| Unsecured notes payable |
400,000 |
- |
| Repurchase agreement payable |
950,000 |
950,000 |
| Stockholder distributions payable |
17,819 |
18,671 |
| Management fees payable |
20,009 |
22,700 |
| Accrued capital gains incentive fees |
36,737 |
32,133 |
| Subordinated income incentive fees payable |
14,794 |
14,303 |
| Administrative services expense payable |
988 |
1,153 |
| Interest payable |
12,801 |
10,563 |
| Directors' fees payable |
292 |
254 |
| Other accrued expenses and liabilities |
1,712 |
6,703 |
| Total liabilities |
$2,124,871 |
$1,803,585 |
| Stockholders' Equity |
||
| Preferred stock, $0.001 par value |
- |
- |
| Common stock, $0.001 par value |
$240 |
$259 |
| Capital in excess of par value |
2,256,843 |
2,466,753 |
| Accumulated undistributed net realized gains on investments and gain/loss on |
9,431 |
55,344 |
| Accumulated undistributed (distributions in excess of) net investment income |
90,655 |
35,322 |
| Net unrealized appreciation (depreciation) on investments and gain/loss on foreign |
88,615 |
83,314 |
| Total stockholders' equity |
$2,445,784 |
$2,640,992 |
| Total liabilities and stockholders' equity |
$4,570,655 |
$4,444,577 |
| Net asset value per share of common stock at period end |
$10.19 |
$10.18 |
Reconciliation of Non-GAAP Financial Measures8
| Three Months Ended1 |
||||
| September 30, 2014 |
June 30, 2014 |
September 30, 2013 |
||
| GAAP net investment income per share |
$0.25 |
$0.23 |
$0.26 |
|
| Plus capital gains incentive fees per share |
- |
$0.01 |
$(0.01) |
|
| Plus excise taxes per share |
- |
- |
- |
|
| Plus one-time expenses per share8 |
$0.01 |
$0.02 |
- |
|
| Adjusted net investment income per share2 |
$0.25 |
$0.26 |
$0.25 |
|
| 1) |
The per share data was derived by using the weighted average shares of FSIC's common stock outstanding during the applicable period. Per share |
| 2) |
Adjusted net investment income is a non-GAAP financial measure. Adjusted net investment income is presented for all periods as GAAP net investment |
| 3) |
The per share data for distributions reflects the actual amount of distributions paid per share of FSIC's common stock during the applicable period. |
| 4) |
The warrants will be issued in two tranches and the second tranche of warrants exercisable into approximately 2.5 million of the 12 million shares of |
| 5) |
The weighted average credit rating of investments is based upon the investments in FSIC's portfolio that were rated, based upon the scale of Moody's |
| 6) |
Interest income is recorded on an accrual basis. Generally, investments are placed on non-accrual when the collection of future interest and principal payments is uncertain. |
| 7) |
FSIC has identified and intends to focus on the following investment categories, which it believes will allow it to generate an attractive total return with an acceptable level of risk. |
| Direct Originations: FSIC intends to leverage its relationship with GSO / Blackstone Debt Funds Management LLC and its global sourcing and origination platform to directly source investment opportunities. Such investments are originated or structured specifically for FSIC or made by FSIC and are not generally available to the broader market. These investments may include both debt and equity components, although FSIC does not expect to make equity investments independent of having an existing credit relationship. FSIC believes directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions. |
|
| Opportunistic: FSIC intends to seek to capitalize on market price inefficiencies by investing in loans, bonds and other securities where the market price of such investment reflects a lower value than deemed warranted by FSIC's fundamental analysis. FSIC believes that market price inefficiencies may occur due to, among other things, general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community. FSIC seeks to allocate capital to these securities that have been misunderstood or mispriced by the market and where FSIC believes there is an opportunity to earn an attractive return on FSIC's investment. Such opportunities may include event driven investments, anchor orders and collateralized securities. |
|
| Broadly Syndicated/Other: Although FSIC's primary focus is to invest in directly originated transactions and opportunistic investments, in certain circumstances it will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than FSIC's directly originated investments and provide a complement to its less liquid strategies. In addition, and because FSIC typically receives more attractive financing terms on these positions than it does on its less liquid assets, FSIC is able to leverage the broadly syndicated portion of its portfolio in such a way that maximizes the levered return potential of its portfolio. |
|
| 8) |
For the three months ended September 30, 2014, FSIC incurred $2,226 of remaining unamortized 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. |
Recent Developments
- FSIC declared a special cash distribution of $0.10 per share to be paid on or about November 14, 2014 to stockholders of record as of October 31, 2014
Conference Call Information
FSIC will hold its third quarter stockholder conference call on Tuesday, November 11, 2014, at 9:00 a.m. Eastern Time. Interested parties are invited to participate via telephone or webcast, which will be hosted on a webcast link located on the "Investor Relations" section of its website at www.fsinvestmentcorp.com. For participants joining via telephone, please dial 1 (800) 446-1671 at least 10 minutes prior to the beginning of the conference call and provide the confirmation code 38303906 when prompted. An audio archive of the call will be available for replay. The link to the audio archive can be found under the "Investor Relations" section of FSIC's website and will be available for a period of 30 days following the call.
Supplemental Information
FSIC will provide a financial information presentation with additional details on its third quarter financial results in advance of the November 11, 2014 conference call. This presentation will be made available under the "Reports and Presentations" page within the "Investor Relations" section of FSIC's website (www.fsinvestmentcorp.com). For inquiries, please contact Ben Holman at (215) 220-6266.
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 $70.2 billion in assets under management as of September 30, 2014, 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 $12.4 billion in assets as of June 30, 2014. For more information, please visit www.franklinsquare.com.
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, 2014, which FSIC filed with the U.S. Securities and Exchange Commission (the "SEC") on November 10, 2014, 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, 2014 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.
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.
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.
SOURCE FS Investment Corporation
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