UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 31, 2014
FS Investment Corporation
(Exact name of Registrant as specified in its charter)
| Maryland | 814-00757 | 26-1630040 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| Cira Centre 2929 Arch Street, Suite 675 Philadelphia, Pennsylvania |
19104 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (215) 495-1150
None
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| x | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
Special Cash Distributions
FS Investment Corporation (the “Company”) previously announced that it expected to distribute a portion of its excess income to stockholders in the form of special cash distributions. The board of directors of the Company (the “Board”) intends to declare two special cash distributions, each in the amount of $0.10 per share, that will be paid on August 15, 2014 and November 14, 2014 to stockholders of record as of July 31, 2014 and October 31, 2014, respectively. The payment of the two special cash distributions is contingent on the completion of the Listing (as defined below).
Increase in Amount of Regular Cash Distributions
On March 31, 2014 and in connection with the reduction in the base management fee to be paid to the Company’s investment adviser described below, the Board determined to increase the amount of the regular monthly cash distribution payable to stockholders of record from $0.0720 per share to $0.07425 per share in order to increase the Company’s annual distribution rate from 8.41% to 8.68% (based on the Company’s last publicly reported net asset value per share of $10.27 as of February 28, 2014). The increase in the regular monthly cash distribution to $0.07425 per share will commence with the regular monthly cash distribution payable on April 30, 2014 to stockholders of record as of April 29, 2014.
| Item 7.01. | Regulation FD Disclosure. |
On April 1, 2014, the Company issued a press release regarding the matters described in this Current Report on Form 8-K. A copy of a press release regarding the foregoing is attached hereto as Exhibit 99.1 and is incorporated by reference herein.
The Company expects to make presentations on and after April 1, 2014 to certain institutions and other parties in connection with the Listing. The presentation is attached hereto as Exhibit 99.2.
A copy of a presentation that is intended to be used by representatives of the Company with current investors is attached hereto as Exhibit 99.3.
The information in Items 2.02 and 7.01, including Exhibit 99.1, Exhibit 99.2 (except for slide 4 thereof, which is filed) and Exhibit 99.3 (except for slides 13 and 15 thereof, which are filed), and the information set forth therein, is deemed to have been furnished to, and shall not be deemed to be “filed” with, the Securities and Exchange Commission (the “SEC”).
| Item 8.01. | Other Events. |
Listing on NYSE
As previously announced, the Company has applied to list its shares of common stock on the New York Stock Exchange LLC (“NYSE”) under the symbol “FSIC”. The Company anticipates that its shares of common stock will commence trading on the NYSE on or about April 16, 2014, subject to NYSE approval (the “Listing”). There can be no assurance that the Company will be able to complete the Listing within this time frame or at all.
Also as previously announced, the Company anticipates that it will conduct a modified “Dutch auction” tender offer (the “Tender Offer”) to purchase up to $250 million in shares of its common stock in connection with the Listing. The Company currently expects to commence the Tender Offer in conjunction with the Listing on or about April 16, 2014. The terms of the Tender Offer, including the size thereof, will be determined by the Board prior to commencement of the Tender Offer.
Engagement of Advisors
The Company has engaged J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and BofA Merrill Lynch to serve as advisors to the Company in connection with the Listing. Wells Fargo Securities, LLC will serve as sole dealer manager for the proposed Tender Offer.
Potential Purchase of Shares by Franklin Square Holdings, L.P., Management and GSO Capital Partners LP
As previously announced, the Company’s sponsor, Franklin Square Holdings, L.P. (“Franklin Square Holdings”), has informed the Company that it is considering purchasing, following the Listing and completion of the Tender Offer, up to $100 million in shares of the Company’s common stock in open-market transactions (which may include purchases pursuant to 10b5-1 plans), subject to restrictions under applicable law. In addition, the Company has also been informed by certain members of the Company’s management and members of management of Franklin Square Holdings that they are considering purchasing, following the Listing and completion of the Tender Offer, up to $25 million in shares of the Company’s common stock in open-market transactions (which may include purchases pursuant to 10b5-1 plans), subject to restrictions under applicable law. Franklin Square Holdings and members of the Company’s and Franklin Square Holdings’ management do not intend to participate in the Tender Offer.
In addition, GSO Capital Partners LP (“GSO”), the credit platform of The Blackstone Group L.P. and the parent of the Company’s investment sub-adviser, has informed the Company that it and certain of its affiliates are considering purchasing, following the Listing and completion of the Tender Offer, up to $50 million in shares of the Company’s common stock in open-market transactions (which may include purchases pursuant to 10b5-1 plans), subject to restrictions under applicable law. GSO and its affiliates do not intend to participate in the Tender Offer.
Reduction of Base Management Fee and Proposed Amendment of Incentive Fee Hurdle Rate
Pursuant to the Company’s investment advisory and administrative services agreement with FB Income Advisor, LLC, its investment adviser (“FB Advisor”), dated as of February 12, 2008 and amended on August 5, 2008 (the “Advisory Agreement”), the Company has agreed to pay FB Advisor a base management fee of 2.0% of the average value of the Company’s gross assets, payable on a quarterly basis in arrears, as well incentive fees based on the performance of the Company’s portfolio. The first part of the incentive fee is the subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as defined in the Advisory Agreement, equal to 2.0% per quarter, or an annualized hurdle rate of 8.0%. In connection with the Company’s 2013 annual meeting of stockholders, the Company received stockholder approval to amend the Advisory Agreement effective upon the Listing. Upon the Listing, the hurdle rate used to compute the subordinated incentive fee on income payable under the Advisory Agreement will be based on the net asset value of the Company’s assets rather than adjusted capital. In addition to the amendments approved by stockholders, the subordinated incentive fee on income will become subject to a total return requirement, which provides that no incentive fee in respect of the Company’s pre-incentive fee net investment income will be payable except to the extent that 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and eleven preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the eleven preceding calendar quarters.
In anticipation of the Listing, FB Advisor has recommended that the Advisory Agreement be amended to (i) reduce the annualized hurdle rate used in connection with the calculation of the subordinated incentive fee on income from 8% to 7.5% and (ii) assuming the reduction to the hurdle rate is approved, reduce the base management fee from 2.0% to 1.75% of the average value of the Company’s gross assets. The Board will consider these proposals and, if approved, will submit the proposals to the Company’s stockholders at the next regularly-scheduled meeting of stockholders. Pending Board and stockholder approvals of both of these proposals, FB Advisor has agreed, effective April 1, 2014, to waive a portion of the base management fee to which it is entitled under the Advisory Agreement so that the fee received equals 1.75% of the average value of the Company’s gross assets.
Management of the Company
The Company reported that Brad Marshall, a Managing Director of GSO, has also been appointed as an officer of the Company effective April 1, 2014 and will continue to serve in his role as the Company’s Senior Portfolio Manager. He will join the Company’s other officers, which include:
Michael C. Forman, Chairman of the Board and Chief Executive Officer;
Gerald F. Stahlecker, President;
Zachary Klehr, Executive Vice President;
Sean Coleman, Managing Director;
William Goebel, Chief Financial Officer;
Salvatore Faia, Chief Compliance Officer; and
Stephen S. Sypherd, Vice President, Treasurer and Secretary.
In addition, the Board is considering the addition of Daniel H. Smith, a Senior Managing Director of GSO, as a potential new member of the Board.
Other Information
The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s 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. The Company 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 payment of future distributions on shares of the Company’s common stock is subject to the discretion of the Board and applicable legal restrictions, and therefore, there can be no assurance as to the amount or timing of any such future distributions.
This Current Report on Form 8-K is for informational purposes only and is not an offer to buy or the solicitation of an offer to sell any securities of the Company. The Tender Offer will be made only pursuant to an offer to purchase, letter of transmittal and related materials (the “Tender Materials”) that the Company intends to distribute to its stockholders and file with the SEC upon the commencement of the Tender Offer. The full details of the Tender Offer, including complete instructions on how to tender Shares, will be included in the Tender Materials. Stockholders are urged to carefully read the Tender Materials when they become available because they will contain important information, including the terms and conditions of the Tender Offer. Stockholders may obtain free copies of the Tender Materials that the Company files with the SEC at the SEC’s website at: www.sec.gov or by calling the information agent who will be identified in the Tender Materials. In addition, stockholders may obtain free copies of the Company’s filings with the SEC from the Company’s website at: www.fsinvestmentcorp.com or by contacting the Company at Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, PA 19104 or by phone (877) 628-8575. There can be no assurance that Franklin Square Holdings or any members of the Company’s or Franklin Square Holdings’ management will purchase any shares of the Company’s common stock. Similarly, there can be no assurance that GSO or any its affiliates will purchase any shares of the Company’s common stock.
Forward-Looking Statements
This Current Report on Form 8-K may contain certain forward-looking statements, including statements with regard to future events or the future performance or operation of the Company. 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 our operations or the economy generally due to terrorism or natural disasters, future changes in laws or regulations and conditions in our operating area, the ability of the Company to complete the listing of its shares of common stock on the NYSE, the ability to complete the Tender Offer, the price at which shares of common stock may
trade on the NYSE, which may be higher or lower than the purchase price in the Tender Offer. Some of these factors are enumerated in the filings the Company makes with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits. |
| EXHIBIT NUMBER |
DESCRIPTION | |
| 99.1 | Press Release, dated April 1, 2014. | |
| 99.2 | Presentation, dated April 1, 2014. | |
| 99.3 | Presentation, dated April 1, 2014. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FS Investment Corporation | ||||||||
| Date: | April 1, 2014 | By: | /s/ Michael C. Forman | |||||
| Michael C. Forman | ||||||||
| Chief Executive Officer | ||||||||
EXHIBIT INDEX
| EXHIBIT NUMBER |
DESCRIPTION | |
| 99.1 | Press Release, dated April 1, 2014. | |
| 99.2 | Presentation, dated April 1, 2014. | |
| 99.3 | Presentation, dated April 1, 2014. | |
Exhibit 99.1
FOR IMMEDIATE RELEASE
FSIC Announces April 16 NYSE Listing
Also Announces Regular Distribution Increase and Intent to Make Special Cash Distributions
PHILADELPHIA, April 1, 2014 — FS Investment Corporation (“FSIC”) today announced that it currently expects to list its common stock on the New York Stock Exchange under the trading symbol “FSIC” on Wednesday, April 16, 2014.
FSIC is a business development company (“BDC”) that invests primarily in the floating rate, senior secured debt of private U.S. companies. The $4.5 billion fund is managed by Franklin Square Capital Partners and sub-advised by an affiliate of GSO Capital Partners, the credit platform of Blackstone. Together, Franklin Square and GSO / Blackstone are the world’s largest manager of BDC assets, with over $10 billion across their four BDC funds.
Effective April 1, 2014, FSIC will increase its monthly cash distribution amount from $0.0720 per share to $0.07425 per share, which serves to raise its annualized distribution rate from 8.41% to 8.68% based on its last publicly reported net asset value per share of $10.27 as of February 28, 2014.
The company’s board of directors also intends to declare two special cash distributions of $0.10 per share, one to be paid on August 15, 2014 to stockholders of record as of July 31, 2014, and a second on November 14, 2014 to stockholders of record as of October 31, 2014.
“We are proud FSIC has generated a 16% annualized return since inception,” said FSIC Chairman and CEO, Michael C. Forman. “These distributions should build on this record and enhance shareholder value.”
FSIC also reported that GSO Capital Partners is considering the purchase of up to $50 million in shares of FSIC following the listing and completion of the tender offer proposed by FSIC. FSIC previously announced that Franklin Square and members of FSIC and Franklin Square management are considering the purchase of up to $100 million and $25 million, respectively, of FSIC’s shares following the listing and completion of the tender offer.
FSIC has named J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, and BofA Merrill Lynch as co-advisors of the listing. Wells Fargo will serve as sole dealer manager for the tender offer.
About FS Investment Corporation
FSIC, an investment fund sponsored by Franklin Square Capital Partners (“Franklin Square”), is a publicly registered BDC. A BDC such as FSIC is a type of investment fund that enables investors to access investments in private U.S. companies. FSIC focuses primarily on investing in the floating rate debt securities of private companies throughout the United States, with the investment objectives of generating current income and, to a lesser extent, long-term capital appreciation for its investors. FSIC is managed by FB Income Advisor, LLC, an affiliate of Franklin Square, and is sub-advised by GSO / Blackstone Debt Funds Management LLC, an
affiliate of GSO Capital Partners LP (“GSO”). GSO, with approximately $65 billion in assets under management as of December 31, 2013, is the credit platform of Blackstone. For more information, please visit www.fsinvestmentcorp.com.
About Franklin Square Capital Partners
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 currently manages five funds with over $10.3 billion in assets as of December 31, 2013.
For more information, please visit www.franklinsquare.com.
About Blackstone and GSO Capital Partners
Blackstone is one of the world’s leading investment and advisory firms. Blackstone seeks to create positive economic impact and long-term value for its investors, the companies it invests in, the companies it advises and the broader global economy. The firm does this through the commitment of its extraordinary people and flexible capital. GSO is the global credit platform of Blackstone. GSO, together with its affiliates, has approximately $65 billion of assets currently under management and is one of the largest credit-focused alternative managers in the world and a major participant in the leveraged finance marketplace. GSO seeks to generate superior risk-adjusted returns in its credit business by investing in a broad array of strategies including mezzanine, distressed investing leveraged loans and other special situation strategies. Blackstone’s alternative asset management businesses include investment vehicles focused on private equity, hedge fund solutions, secondary funds, and multi asset class exposures falling outside of other funds’ mandates. Blackstone also provides various financial advisory services, including mergers and acquisitions advisory, restructuring and reorganization advisory and fund placement services. Further information is available at www.blackstone.com.
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 payment of future distributions on FSIC’s shares of common stock is subject to the discretion of its board of directors and applicable legal restrictions, and therefore, 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 available to it, including expense reimbursements from Franklin Square, as well as offering proceeds, 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.
The payment of any special cash distribution is subject to applicable legal restrictions and the sole discretion of FSIC’s board of directors, and therefore, there can be no assurance as to the amount or timing of any such future distribution. The special cash distributions described herein are contingent upon the completion of FSIC’s listing.
Forward-Looking Statements
This press release may contain certain forward-looking statements, including statements with regard to future events or the future performance or operation 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, the ability of FSIC to complete the listing of its shares of common stock on the New York Stock Exchange LLC (“NYSE”), the ability to complete the tender offer, the price at which shares of common stock may trade on the NYSE, which may be higher or lower than the purchase price in the tender offer, and some of these factors are enumerated in the filings FSIC makes with the Securities and Exchange Commission (“SEC”). FSIC undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Other Information
There can be no assurance that Franklin Square, any members of FSIC’s or Franklin Square’s management or GSO or any their respective affiliates will purchase any shares of FSIC’s common stock, and any such purchases will be subject to restrictions under applicable law. Franklin Square Holdings, members of Franklin Square Holdings’ and FSIC’s management, and GSO and its affiliates do not intend to participate in the proposed tender offer.
This press release is for informational purposes only and is not an offer to buy or the solicitation of an offer to sell any securities of the Company. The tender offer will be made only pursuant to an offer to purchase, letter of transmittal and related materials (the “Tender Materials”) that the Company intends to distribute to its stockholders and file with the SEC upon the commencement of the tender offer. The full details of the tender offer, including complete instructions on how to tender Shares, will be included in the Tender Materials. Stockholders are urged to carefully read the Tender Materials when they become available because they will contain important information, including the terms and conditions of the tender offer. Stockholders may obtain free copies of the Tender Materials that the Company files with the SEC at the SEC’s website at: www.sec.gov or by calling the information agent who will be identified in the Tender Materials. In addition, stockholders may obtain free copies of the Company’s filings with the SEC from the Company’s website at: www.fsinvestmentcorp.com or by contacting the Company at Cira Centre, 2929 Arch Street, Suite 675, Philadelphia, PA 19104 or by phone (877) 628-8575.
 APRIL
2014 FS Investment Corporation
AN INTRODUCTION TO FSIC
PRESENTED BY:
Exhibit 99.2
Franklin Square Capital Partners is not affiliated with Franklin Resources/Franklin
Templeton Investments or the Franklin Funds.
|
 Important Considerations
2
An investment in the common stock of FS Investment Corporation (FSIC, we or us)
involves a high degree of risk and may be considered speculative. The
following are some of the risks an investment in our common stock involves; however, you should carefully consider all of
the
information
found
in
the
section
of
our
Forms
10-Q
and
10-K
filings
entitled
“Risk
Factors”
and
in
our
other
public
filings
before
deciding
to invest in shares of our common stock.
•
An investment strategy focused primarily on privately held companies presents
certain challenges, including the lack of available information about these
companies. •
Investing
in
middle-market
companies
involves
a
number
of
significant
risks,
any
one
of
which
could
have
a
material
adverse
effect
on
our
operating results.
•
A lack of liquidity in certain of our investments may adversely affect our
business. •
We
are
subject
to
financial
market
risks,
including
changes
in
interest
rates,
which
may
have
a
substantial
negative
impact
on
our
investments.
•
We have borrowed funds to make investments, which increases the volatility of our
investments and may increase the risks of investing in our securities.
•
We have limited operating history and are subject to the business risks and
uncertainties associated with any new business. •
Our distributions may be funded from unlimited amounts of offering proceeds or
borrowings, which may constitute a return of capital and reduce the amount
of capital available to us for investment. This presentation is for
informational purposes only and is not an offer to buy or the solicitation of an offer to sell any securities of
FSIC. The tender offer will be made only pursuant to an offer to purchase,
letter of transmittal and related materials (the Tender Materials) that FSIC
intends to distribute to its stockholders and file with the Securities and Exchange Commission (SEC). The full
details
of
the
tender
offer,
including
complete
instructions
on
how
to
tender
shares
of
common
stock,
will
be
included
in
the
Tender
Materials,
which
FSIC
will
distribute
to
stockholders
and
file
with
the
SEC
upon
the
commencement
of
the
tender
offer.
Stockholders are urged to carefully read the Tender Materials when they become
available because they will contain important information, including the terms
and conditions of the tender offer. Stockholders may obtain free copies of the Tender Materials
that
FSIC
files
with
the
SEC
at
the
SEC’s
website
at:
www.sec.gov
or
by
calling
the
information
agent
who
will
be
identified
in
the
Tender Materials. In addition, stockholders may obtain free copies of
FSIC’s filings with the SEC from FSIC’s website at:
www.fsinvestmentcorp.com
or
by
contacting
FSIC
at
Cira
Centre,
2929
Arch
Street,
Suite
675,
Philadelphia,
PA
19104
or
by
phone
at (877) 628-8575. |
 Forward-Looking
Statements 3
Some of the statements in this presentation constitute forward-looking statements because they
relate to future events or the future performance or financial condition of FSIC. The
forward-looking statements contained in this presentation may include statements as to: our future operating results;
our business prospects and the prospects of our portfolio companies; the impact of the investments
that we expect to make; the ability of our portfolio companies to achieve their objectives; our
current and expected financings and investments; the adequacy of our cash resources, financing sources
and working capital; the timing and amount of cash flows, distributions and dividends, if any, from
our portfolio companies; our contractual arrangements and relationships with third parties;
actual and potential conflicts of interest with FB Income Advisor, LLC (FB Advisor), FS Investment
Advisor, LLC, FS Energy and Power Fund, FSIC II Advisor, LLC, FS Investment Corporation II, GSO /
Blackstone Debt Funds Management LLC or any of their respective affiliates; the dependence of
our future success on the general economy and its effect on the industries in which we may invest;
our use of financial leverage; the ability of FB Advisor to locate suitable investments for us and to
monitor and administer our investments; the ability of FB Advisor or its affiliates to attract
and retain highly talented professionals; our ability to maintain our qualification as a regulated investment
company (RIC) and as a business development company (BDC); the impact on our business of the
Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations
issued thereunder; the effect of changes to tax legislation and our tax position; the tax status of the
enterprises in which we invest; our ability to complete the listing of our shares of common stock on
the New York Stock Exchange LLC (NYSE); our ability to complete the related tender offer; and
the price at which shares of our common stock may trade on the NYSE, which may be higher or lower
than the purchase price in the tender offer.
In addition, words such as “anticipate,” “believe,” “expect” and
“intend” indicate a forward-looking statement, although not all forward-looking
statements include these words. The forward-looking statements contained in this presentation
involve risks and uncertainties. Our actual results could differ materially from those implied
or expressed in the forward-looking statements for any reason. Factors that could cause actual results to
differ materially include: changes in the economy; risks associated with possible disruption in our
operations or the economy generally due to terrorism or natural disasters; and future changes
in laws or regulations and conditions in our operating areas. We have based the forward-looking statements included in this presentation on information
available to us on the date of this presentation. Except as required by the federal securities
laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised to consult any additional disclosures that we
may make directly to stockholders or through reports that we have filed and may file in the
future with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K. 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.
Credit ratings may not reflect the potential impact of risks relating to the structure or trading of
FSIC’s common stock and are provided solely for informational purposes. Credit ratings are
not recommendations to buy, sell or hold any security, and may be revised or withdrawn at any time by the
issuing organization in its sole discretion. FSIC does not undertake any obligation to maintain the
ratings or to advise of any change in ratings. Each agency’s rating should be evaluated
independently of any other agency’s rating. An explanation of the significance of the ratings may be obtained
from each of the rating agencies.
|
 FSIC
Listing Details COMPANY NAME
FS Investment Corporation
TICKER / EXCHANGE
FSIC / NYSE
ANTICIPATED
TIMING
1
April 16, 2014
USE OF PROCEEDS
No new proceeds are being raised
LAST REPORTED NET ASSET
VALUE
PER
SHARE
(NAV)
2
$10.27
SHARES
OUTSTANDING
2
260,351,067 –
all shares will be listed
CURRENT MONTHLY
DISTRIBUTION
AMOUNT
3
$0.07425 per share declared in April 2014; 8.68% annualized distribution rate
based on last reported NAV ADVISER / SUB-ADVISER
Adviser:
FB
Income
Advisor,
an
affiliate
of
Franklin
Square
Capital
Partners
(Franklin
Square)
4
Sub-adviser:
GSO
/
Blackstone
Debt
Funds
Management
(GSO
/
Blackstone),
a
subsidiary
of
GSO
Capital
Partners,
the
credit platform of The Blackstone Group
POST-LISTING
TENDER
5
Up to $250 million tender at expected listing
FEE
STRUCTURE
ON
LISTING
6
1.75% management fee on assets
20% incentive fee on capital gains, net of all unrealized and realized
losses 20% incentive fee on income, subject to an 8% hurdle and a 3-year
high water mark POTENTIAL POST-TENDER SHARE
PURCHASES
7
Up to $175 million being considered:
4
–
$100 million by Franklin Square Holdings
–
$25 million by management of FSIC and Franklin Square Holdings
–
$50 million by GSO Capital Partners
There can be no assurance FSIC will list in this time frame or at all. As of February
28, 2014. On
March 31, 2014, FSIC’s board of directors determined to increase the amount of the regular monthly cash distribution payable to stockholders of record from $0.0720 per share to $0.07425 per share
effective as of the regular cash distribution payable for April 2014. Distributions are
not guaranteed and are subject to the discretion of the board of directors of FSIC.
Franklin Square Holdings, L.P. (Franklin Square Holdings) does business as Franklin
Square Capital Partners.
Terms of the FSIC tender offer, including size thereof, are subject to the discretion
of FSIC’s board of directors.
FB Income Advisor has recommended that the investment advisory agreement be amended to
(i) reduce the annualized hurdle rate used in connection with the calculation of the subordinated incentive fee
on income from 8% to 7.5% and (ii) assuming the reduction to the hurdle rate is
approved, reduce the base management fee from 2.0% to 1.75% of the average value of FSIC’s gross assets. Pending
board and stockholder approvals of both of these proposals, FB Income Advisor has
agreed, effective April 1, 2014, to waive a portion of the base management fee to which it is entitled so that the fee
received equals 1.75% of the average value of FSIC’s gross assets.
Franklin Square Holdings, members of management of FSIC and Franklin Square Holdings
and GSO Capital Partners do not intend to participate in the tender offer. There can be no assurance that
Franklin Square Holdings, any member of management of FSIC and Franklin Square Holdings
or GSO Capital Partners will purchase any shares. Any such purchases may be conducted in open market
transactions (which may include purchases pursuant to 10b5-1 plans), subject to
restrictions under applicable law.
1
2
3
4
5
6
7 |
 FS
Investment Corporation: A Proven BDC PROVEN
MANAGEMENT
•
Franklin
Square:
Leading
BDC
manager
with
$10
billion
in
AUM
1
•
GSO:
Leading
alternative
credit
manager
with
$65
billion
in
AUM
2
•
Partnership delivers competitive advantage and strong performance
PROVEN
STRATEGY
•
Global sourcing and execution capabilities across GSO / Blackstone’s entire
platform •
Focus
on
direct
lending
($3.1
billion
originated
since
FSIC’s
inception)
3
•
Invest
opportunistically
in
situations
with
potential
for
capital
appreciation
($1.1
billion)
4
PROVEN
PERFORMANCE
•
Average
annual
GAAP
return
of
16.0%
since
inception
7
•
8.68%
annualized
distribution
yield
based
on
the
last
reported
NAV
8
•
Seven distribution increases since inception
1
Assets under management include FSIC, FS Investment Corporation II (FSIC II) and FS
Energy & Power Fund (FSEP) as of December 31, 2013. 2
GSO assets under management as of December 31, 2013.
3
Capital
deployed
in
directly
originated
portfolio
companies
from
inception
to
February
28,
2014.
4
Based on fair value as of February 28, 2014.
5
Senior
debt
includes
senior
secured
loans
–
first
lien,
senior
secured
loans
–
second
lien
and
senior
secured
bonds.
Based
on
fair
value
as
of
February
28,
2014.
6
Weighted average effective interest rate as of December 31, 2013.
7
Average annual GAAP returns since inception through the quarter ended December 31,
2013. These returns are calculated in accordance with GAAP and equal the NAV per share as of the end of the applicable period,
plus cash distributions declared during the relevant period, divided by the NAV per
share as of the beginning of the applicable period. These returns represent the return on the fund’s investment portfolio rather than an actual return
to stockholders. Past performance is not indicative of future results.
8
On March 31, 2014, FSIC’s board of directors determined to increase the amount of
the regular monthly cash distribution payable to stockholders of record from $0.0720 per share to $0.07425 per share effective as of the regular
cash distribution payable for April 2014. Distributions are not guaranteed and are
subject to the discretion of the board of directors of FSIC. 5
•
Fully
invested,
floating-rate
focused
(72%)
4
,
senior
debt
portfolio
(83%)
5
•
Mature
leverage
profile
with
low-cost
funding
(2.8%)
6
and
a
BBB-
rating
with
a
positive
outlook
from
S&P
•
Strong credit history
PROVEN
PORTFOLIO |
 Proven Management
PROVEN
MANAGEMENT
•
Franklin
Square:
Leading
BDC
manager
with
$10
billion
in
AUM
1
•
GSO:
Leading
alternative
credit
manager
with
$65
billion
in
AUM
2
•
Partnership
delivers
competitive
advantage
and
strong
performance
PROVEN
STRATEGY
PROVEN
PERFORMANCE
1
Assets under management include FSIC, FSIC II and FSEP as of December 31, 2013.
2
GSO assets under management as of December 31, 2013.
6
PROVEN
PORTFOLIO |
 •
LEADING MANAGER OF
ALTERNATIVE INVESTMENTS
•
LEADING FRANCHISES
in credit,
private equity, real estate, hedge fund
solutions and financial advisory
•
BRAND AND SCALE
provides
exceptional access
•
BLACKSTONE’S GROUP
PURCHASING ORGANIZATION
available to FSIC portfolio companies
•
LEADING MANAGER OF
ALTERNATIVE CREDIT
focused on
non-investment grade corporate debt
•
GLOBAL PRESENCE
with over 250
employees
2
•
INVESTMENTS IN MORE THAN
1,100
corporate credits
2
•
$17.9
BILLION
in
directly
originated
transactions
2
•
LARGEST
MANAGER
OF
BDCs
1
•
60
BDC
PROFESSIONALS
2
•
SCALE
allows for one-stop financing
solutions and low cost structure
•
310 PORTFOLIO COMPANIES
across
entire
BDC
platform
3
Platform Provides a Competitive Advantage
SCALE
BRAND
INVESTMENT
EXPERTISE
COMPETITIVE
ADVANTAGE
1
Based on total balance sheet assets as of December 31, 2013. Includes the assets of
FSIC, FSIC II and FSEP. 2
As of December 31, 2013.
3
Includes portfolio companies of FSIC, FSIC II and FSEP as of December 31, 2013.
7 |
 Franklin Square and
GSO: Five Years of Successful Collaboration
The sub-adviser
Identifies and originates investments
Diligences and recommends
investments to the adviser
Monitors and manages
credit aspects of investments
Provides trade execution, settlement
and back-office support
DUAL LEVEL
RISK MANAGEMENT
SPECIALIZATION
IN AREAS
OF EXPERTISE
The adviser
Directs all fund activities
Establishes investment guidelines
Reviews, approves and monitors
all investments
Monitors the performance
of the sub-adviser
Reports directly to the FSIC board
8 |
 Adviser/Sub-Adviser Structure Creates Accountability
SYSTEM OF CHECKS AND BALANCES FOR OPTIMAL EXECUTION OF
INVESTMENT STRATEGY AND GOVERNANCE
FRANKLIN SQUARE’S ROLE
AS ADVISER:
•
Responsible for making all investment
decisions based on recommendations
from the sub-adviser
•
Directly accountable to the board of
directors
•
Provides oversight and direction to the
sub-adviser
–
Pipeline Reports
–
Watch Lists
–
Portfolio concentrations and diversification
–
Management reporting
–
Portfolio compliance testing (BDC
and RIC)
•
Oversees and manages all aspects
and activities of FSIC
–
SEC reporting
–
Valuation and NAV calculation
–
Budgeting and cash management
–
Compliance
–
Transfer agent
–
Financial reporting and controls
9
Board of Directors
•
Approves the investment advisory and sub-
advisory agreements annually
Franklin Square
•
Registered investment adviser
•
Manages all aspects of the fund
•
Monitors sub-adviser to meet
investment objectives
GSO / Blackstone
•
Registered investment adviser
•
Identifies and originates
investments
•
Monitors and manages credit
aspects of investments |
 Adviser/Sub-Adviser
Structure Creates Dual Levels of Risk Management
INVESTMENT APPROVAL PROCESS
•
Franklin Square and GSO / Blackstone separately review and approve investments at each stage of the
underwriting process •
Typically, an investment is rejected in Stage 1 or Stage 2 as most issues are generally surfaced early
in the process •
The process for broadly syndicated investments is usually abbreviated, depending on the situation and
risk profile 10
•
GSO / Blackstone sources
opportunities and conducts
preliminary due diligence
•
GSO / Blackstone provides
Franklin Square
an investment overview and
recommendation to dedicate
additional resources
for due diligence
•
GSO / Blackstone continues due
diligence and prepares a “Head’s Up”
memo
•
Members of Franklin Square investment,
finance and legal teams work with GSO /
Blackstone to determine the optimal
structure
•
GSO / Blackstone’s Investment Committee
reviews the investment. If unanimously
approved, GSO / Blackstone sends its
recommendation and a credit approval
memo to Franklin Square
•
Franklin Square’s Investment Committee
reviews all materials and makes a final
investment decision
Stage 1: Sourcing
Stage 2: Diligence
Stage 3: Final Approval |
 Franklin Square: An Overview
MANAGER OF THREE OF THE LARGEST BDCs
$10 billion
IN ASSETS UNDER MANAGEMENT
Largest BDC manager
IN THE WORLD
Over 170 employees
60 BDC PROFESSIONALS
Over 125,000
INVESTORS
•
Leading manager of business development companies
•
Commitment to transparency and best practices
•
Investor-friendly incentive fee structure for FSIC
•
Meaningful and ongoing sponsor commitment to all managed
funds
1
Based on total balance sheet assets as of December 31, 2013. Total balance sheet assets
include the assets of FSIC, FSIC II and FSEP. 11
1
1
1 |
 GSO
Capital Partners: An Overview $65 BILLION IN ASSETS, MANAGED PRIMARILY ON
BEHALF OF INSTITUTIONAL INVESTORS, WITH A FOCUS ON BELOW INVESTMENT
GRADE CREDIT
1
12
Alternative Investment Funds
$33.9 billion AUM
Customized Credit
Strategies –
Long Only
$31.0 billion AUM
$65.0 billion AUM
Rescue
Lending
$9.4bn
Mezzanine
Fund
$7.9bn
Event Driven
Credit
$6.4bn
CLOs
$20.5bn
Listed and
Commingled
Funds, SMAs
$10.5bn
FRANKLIN
SQUARE
BDCs
$10.2bn AUM
1
GSO assets under management, employee and investment figures as of December 31,
2013. Credit platform of The
Blackstone Group
ONE OF THE LARGEST ALTERNATIVE
ASSET MANAGERS IN THE WORLD
Over 250 employees
LOCATED IN NEW YORK, HOUSTON,
LONDON AND DUBLIN
Over 100 investment
professionals
60+ FOCUSED ON ORIGINATIONS
25+ DEDICATED FULL TIME TO BDCs
(LARGEST FUND TEAM AT GSO /
BLACKSTONE)
Over 1,100 investments
IN CORPORATE CREDITS |
 Proven Strategy
•
Global sourcing and execution capabilities across GSO / Blackstone’s entire
platform •
Focus
on
direct
lending
($3.1
billion
originated
since
FSIC’s
inception)
1
•
Invest
opportunistically
in
situations
with
potential
for
capital
appreciation
($1.1
billion)
2
13
PROVEN
MANAGEMENT
PROVEN
STRATEGY
PROVEN
PORTFOLIO
PROVEN
PERFORMANCE
Capital deployed in directly originated portfolio companies from inception to February
28, 2014.
Opportunistic investments based on fair value as of February 28, 2014. 1
2 |
 GSO / Blackstone
Resources Available to Help Maximize Returns for FSIC Investors
14
PLATFORM
INVESTMENT EXPERTISE
Direct Originations
Global Leveraged Finance
Event Driven Credit
Rescue Lending
Mezzanine
Structured Credit (CLO)
Investments in over 1,100
corporate credits
Access to Blackstone’s
intellectual libraries
Access to Blackstone’s Group
Purchasing Organization
PEOPLE
250+ GSO employees
100+ investment professionals
60+ professionals focused on
originations
47 industry specialists
6 traders
PERFORMANCE
16.0% average annual
GAAP return since
FSIC’s inception
1
Average annual GAAP return since FSIC’s inception through the quarter ended
December 31, 2013. These returns are calculated in accordance with GAAP and equal the NAV per share as of the end of the applicable period,
plus cash distributions declared during the relevant period, divided by the NAV per
share as of the beginning of the applicable period. These returns represent the return on the fund’s investment portfolio rather than an actual
return to stockholders. Past performance is not indicative of future results.
1 |
 DIRECT
ORIGINATIONS Investment Portfolio by Strategy
81% CORE INVESTMENT STRATEGIES
19% BROADLY SYNDICATED
15
OPPORTUNISTIC
•
Average originated loan commitment for the
year ended 12/31/2013: $55.7 million
•
Average
EBITDA
of
portfolio
companies
1
:
$39.0 million
•
Average
leverage
through
tranche
1
:
4.1x
•
Annualized yield
2
: 10.0%
•
Examples:
–
Safariland
–
Audio Visual Services
–
American Energy
–
CoSentry
–
Klune
•
Market price inefficiencies where the
market price is lower than the value
determined by our fundamental analysis
•
Opportunities may include event driven
investments, anchor orders and CLOs
•
Annualized yield
2
: 11.3%
•
Source of liquidity to be used to fund
future core investments
•
Potential source for direct origination
deal flow
•
Annualized yield
2
: 9.4%
•
Examples:
–
McGraw-Hill Global
Education
–
Smile Brands
–
Totes Isotoner
•
Examples:
–
Eastman Kodak
–
Sorenson
Communications
–
ERC Ireland
–
Caesars
Entertainment Resort
Properties
$3.1 BILLION OF CAPITAL DEPLOYED IN DIRECT
ORIGINATIONS SINCE INCEPTION ACROSS 51
PORTFOLIO COMPANIES
3
1
As of February 28, 2014.
2
Gross portfolio yield prior to leverage (based on amortized cost) – excluding
non-income producing assets as of February 28, 2014.
3
Capital deployed in directly originated portfolio companies from inception to February
28, 2014. |
 Portfolio Transition Has Delivered Higher Investment
Yields and Higher Distributions to Investors
CORE INVESTMENT
STRATEGIES AS %
OF
PORTFOLIO
1
2010
2011
2012
2013
1
Core investment strategies include investments classified as Directly Originated and
Opportunistic as of December 31, 2010, 2011, 2012 and 2013, respectively, and February 28, 2014.
2
Yield spread is the difference between FSIC's gross annualized portfolio yield prior to
leverage as disclosed in the company’s quarterly SEC filings and the Credit Suisse Leveraged Loan Index yield to a 3-year life. FSIC
yield spread based on fair value as of December 31, 2010, 2011, 2012 and 2013,
respectively, and February 28, 2014. The data regarding the Credit Suisse Leveraged Loan Index is for illustrative purposes only and is
not indicative of any investment. An investment cannot be made directly in an index.
3
On March 31, 2014, FSIC’s board of directors determined to increase the amount of
the regular monthly cash distribution payable to stockholders of record from $0.0720 per share to $0.07425 per share effective as of
the regular cash distribution payable for April 2014. Distributions are not guaranteed
and are subject to the discretion of the board of directors of FSIC. 4
Percentage increase in per share regular cash distributions during respective calendar
year. 5
Based on fair value as of the relevant period end.
12%
42%
58%
79%
FSIC unlevered portfolio
yield
2
8.5%
10.4%
10.4%
10.1%
10.1%
Credit Suisse Leveraged
Loan Index Yield, 3-year life
6.6%
7.3%
5.9%
5.3%
5.1%
FSIC Spread Over
Syndicated
Index
2
190 bps
310 bps
450 bps
480 bps
500 bps
Monthly Distribution
Amount
per
share
3
$0.064312
$0.067188
$0.0675
$0.072
$0.07425
Annualized Increase
in
Distributions
4
+4.47%
+0.46%
+6.67%
+3.13%
% Senior Secured
of
Total
Portfolio
5
89%
83%
81%
82%
83%
16
81%
FEBRUARY 28, 2014 |
 GSO
/ Blackstone Has Long-Standing Relationships with Private Equity Sponsors
and Corporate Clients GSO / BLACKSTONE’S SELECT NETWORK OF CLIENTS
PROVIDES SIGNIFICANT SOURCING OPPORTUNITIES AEA Investors
Access Capital Advisors
AIG Highstar
Altamont
Amaya Gaming Group
American Capital
Apex
Ares
Areva
Audax Group
Avista
Axa Private Equity
Bain Capital
Beecken Petty O’Keefe
Behrman Capital
Blackstone
Bruckman, Rosser, Sherrill
Carlyle
CD&R
Cerberus
Charlesbank Capital Partners
Chesapeake
CHS Capital
CIVC and Management
Clarion
Clayton Dubilier & Rice
Clearlake Capital
Crestview Partners
CVC Capital Partners
Cypress Group
Diamond Castle
DLJ Merchant Banking
Dunes Point
EIG
First Atlantic
Genstar
Golden Gate Capital
Goldman Sachs
Goldner Hawn Johnson Morrison
Gordon Brothers
Gores Capital
Graham Partners
Harvest Partners
Hellman & Friedman
Insight Equity
Investcorp
Jeff Gural
JLL Partners
Jupiter Partners
Kanders
Kolhberg Kravis Roberts
Leonard Green & Partners
Lincolnshire
Lion Capital
LS Power
Mid Europa Partners
Monitor Clipper Partners
Morgan Stanley
NANA Regional Corp.
Natural Gas Partners
Nautic Partners
NBC
Nova Capital Management
Oak Hill
Odyssey Investment Partners
Parthenon Capital
Permira
Plain Exploration
Platinum Equity
Quicksilver Resources
Ripplewood
Riverstone
Rockland Capital
Sequel Holdings
Siris Capital
Snow, Phipps Group
Sony / ATV
Southfield Capital
SPC Partners
Starwood Capital
Stephens Capital Partners
Summit Partners
TA Associates
Tailwind Capital
Tenaska Power Fund
Thomas Lee
TPG
Triangle Management
Vance Street
Vector
Vestar Capital
Victor Homes
Warburg Pincus
Wellspring
17 |
 Proven Portfolio
PROVEN
MANAGEMENT
PROVEN
STRATEGY
PROVEN
PERFORMANCE
18
•
Fully
invested,
floating-rate
focused
(72%)
1
,
senior
debt
portfolio
(83%)
2
PROVEN
PORTFOLIO
•
Mature
leverage
profile
with
low-cost
funding
(2.8%)
3
and
a
BBB-
rating
with
a
positive
outlook
from
S&P
•
Strong credit history
1
Based on fair value as of February 28, 2014.
2
Senior debt includes senior secured loans – first lien, senior secured loans
– second lien and senior secured bonds. Based on fair value as of February 28, 2014.
3
Weighted average effective interest rate as of December 31, 2013. |
 FSIC’s Size Makes
It an Immediately Relevant BDC TOTAL
ASSETS
AND
BOOK
EQUITY
OF
SELECT
BDCs
1
19
3rd largest
EXTERNALLY MANAGED BDC
Total assets and book equity of the ten largest externally managed BDCs by total
assets. ARCC: Ares Capital Corporation; PSEC: Prospect Capital Corporation; FSIC: FS Investment Corporation;
AINV: Apollo Investment Corporation; FSC: Fifth Street Finance Corp.; SLRC: Solar
Capital Ltd.; BKCC: BlackRock Kelso Capital Corp.; GBDC: Golub Capital BDC, Inc.; PNNT: PennantPark
Investment Corporation; NMFC: New Mountain Finance Corporation; TICC: TICC Capital
Corp.
Total assets and book equity shown for FSIC in millions as of February 28, 2014. Total
assets and book equity shown for ARCC, PSEC, AINV, FSC, SLRC, BKCC, GBDC, PNNT, NMFC and TICC in
millions as of December 31, 2013.
1
2
Total
Assets
(in
millions)
2
Total
Book
Equity
(in
millions)
2 |
 DIVERSIFIED ACROSS 20 INDUSTRIES
3
Floating-Rate, Senior Debt Focused Portfolio
FULLY-RAMPED PORTFOLIO
HISTORY OF DOWNSIDE PROTECTION
ASSET CLASS
2/28/2014
12/31/2013
Senior Secured Loans —
First Lien
51%
51%
Senior Secured Loans —
Second Lien
22%
22%
Senior Secured Bonds
10%
9%
Subordinated Debt
10%
10%
Collateralized Securities
3%
4%
Equity/Other
4%
4%
TOP 5 INDUSTRIES, BASED ON FAIR VALUE
Capital Goods
21%
Energy
11%
Consumer Services
11%
Software & Services
9%
Commercial & Professional Services
8%
INVESTMENT PORTFOLIO
20
159
PORTFOLIO COMPANIES
1
10.1%
UNLEVERED PORTFOLIO
YIELD
2
72%
OF INVESTMENTS PAY
FLOATING INTEREST RATES
1
0%
OF INVESTMENTS ON
NON-ACCRUAL
1
$203 million
OF CUMULATIVE GAINS IN EXCESS
OF CUMULATIVE LOSSES
4
91%
OF INVESTMENTS PERFORMING
BETTER OR ACCORDING TO PLAN
5
1
As of February 28, 2014.
2
Gross portfolio yield prior to leverage based on amortized cost as of February 28,
2014. 3
As of December 31, 2013.
4
Cumulative realized and unrealized gains less cumulative realized and unrealized
losses, excluding gains and losses associated with a total return swap and foreign exchange transactions, since inception through
December 31, 2013.
5
Based on FB Income Advisor’s investment rating system. As of December 31, 2013,
12% of investments at fair value were exceeding expectations, 79% of investments were performing according to plan, 8% of investments required
closer monitoring, 1% of investments were underperforming with some loss of interest or
dividend possible and 0% of investments were underperforming with expected loss of interest and some principal. For more information on FB
Income Advisor’s investment rating system, please refer to FSIC’s SEC
filings. |
 Low Cost of Leverage
Allows for Focus on Senior Debt FACILITIES AS OF FEBRUARY 28, 2014
TYPE OF
FACILITY
RATE
FACILITY
AMOUNT
MATURITY
DATE
(in thousands)
Citibank Credit Facility
Revolving
L + 1.75%
$550,000
August 29, 2015
Deutsche Bank Credit Facility
Revolving
L + 1.50%
$125,000
December 20, 2014
J.P. Morgan Facility
Repurchase
3.25%
$950,000
April 15, 2017
Wells
Fargo
Credit
Facility
1
Revolving
L + 1.50% to 2.50%
$300,000
May 17, 2017
Total debt outstanding under debt facilities
$1,688,482
Debt/equity ratio
63.1%
% of debt outstanding at fixed interest rates
56.3%
% of debt outstanding at variable interest rates
43.7%
Gross
annualized
portfolio
yield
prior
to
leverage
2
10.1%
Weighted
average
effective
interest
rate
3
2.8%
Net interest margin
730 bps
21
CREDIT PROFILE
•
On
March
28,
2014,
FSIC
received
a
BBB-
rating
with
a
positive
outlook
from
S&P
•
56.3%
of
debt
outstanding
as
of
February
28,
2014
was
at
a
fixed
interest
rate
of
3.25%
1
On March 11, 2014, FSIC entered into an amendment to the Wells Fargo Credit Facility.
The amendment increased the maximum commitments under the credit facility from $250 million to $300 million and decreased from
2.75% to 2.50% the applicable spread above LIBOR that is payable on the portion of
outstanding advances under the credit facility attributable to “Traditional Middle Market Loans,” “Fixed Rate Loans” and “Second Lien
Loans,” in each case as defined in the credit facility. No other material terms of
the credit facility changed in connection with the amendment.
2
Gross portfolio yield prior to leverage based on amortized cost as of February 28,
2014.
3
Weighted average effective interest rate as of December 31, 2013. |
 Proven
Performance PROVEN
MANAGEMENT
PROVEN
STRATEGY
PROVEN
PERFORMANCE
•
Average annual GAAP return of 16.0% since inception
1
•
8.68% annualized distribution yield based on the last reported NAV
2
•
Seven distribution increases since inception
22
PROVEN
PORTFOLIO
1
2
Average annual GAAP returns since inception through the quarter ended December 31,
2013. These returns are calculated in accordance with GAAP and equal the NAV per share as of the end of the applicable period, plus
cash distributions declared during the relevant period, divided by the NAV per share as
of the beginning of the applicable period. These returns represent the return on the fund’s investment portfolio rather than an actual
return to stockholders. Past performance is not indicative of future results. On March 31,
2014, FSIC’s board of directors determined to increase the amount of the regular monthly cash distribution payable to stockholders of record from $0.0720 per share to $0.07425 per share effective as of the
regular cash distribution payable for April 2014. Distributions are not guaranteed and
are subject to the discretion of the board of directors of FSIC. |
 FSIC’s
Performance Compares Favorably to Its Peers TOTAL RETURN COMPARISON OF FSIC TO PUBLIC BDC
PEERS •
FSIC
has
generated
a
16.0%
average
annual
GAAP
return
since
inception
1
•
FSIC has been able to achieve market leading returns while maintaining a focus on senior debt (83% of
investments) by consistently generating realized gains in the portfolio (cumulative gains
exceed cumulative losses since inception by $203 million
2
)
TOTAL RETURN
SINCE 2009
% OF SECURED
DEBT
3
ARES CAPITAL CORPORATION
19.6%
85%
4
FS INVESTMENT CORPORATION
16.0%
83%
BLACKROCK KELSO CAPITAL CORPORATION
12.2%
62%
PENNANTPARK INVESTMENT CORPORATION
11.6%
60%
APOLLO INVESTMENT CORPORATION
8.2%
51%
FIFTH STREET FINANCE CORP.
7.4%
81%
PROSPECT CAPITAL CORPORATION
7.0%
75%
AVERAGE OF COMPETITORS (EXCLUDES FSIC)
11.0%
69%
23
1
2
3
4
Returns shown are GAAP returns, which are calculated by adding NAV per share as of the
end of the applicable period, plus cash distributions declared during the relevant period, and dividing the total by NAV per share
as of the beginning of the applicable period. The total return represents the total
return on an investment portfolio during the applicable period and does not represent an actual return to stockholders. GAAP returns shown
are from FSIC inception on January 2, 2009 through December 31, 2013. Based on public
filings. Past performance is not indicative of future results.
Cumulative realized and unrealized gains less cumulative realized and unrealized
losses, excluding gains and losses associated with a total return swap and foreign exchange transactions, since inception through
December 31, 2013.
Percentage of secured debt for FSIC based on fair value as of February 28, 2014.
Percentage of secured debt for Ares Capital Corporation, BlackRock Kelso Capital Corporation, PennantPark Investment Corporation,
Apollo Investment Corporation, Fifth Street Finance Corp. and Prospect Capital
Corporation based on fair value as of December 31, 2013. Secured debt consists of first lien senior secured loans, second lien senior
secured loans and senior secured bonds. Based on public filings.
Ares Capital Corporation secured debt percentage includes subordinated certificates of
the Senior Secured Loan Fund LLC (“SSLP”). Excluding SSLP subordinated certificates, Ares’s secured debt percentage based on
fair value is 62%. |
 $0.05
$0.07
$0.07
$0.01
$0.02
$0.015
$0.05
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$0.14
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Regular cash distributions per share
Special cash distributions per share
Consistent Distributions with a History of Growth
FSIC
DISTRIBUTION
HISTORY
1
•
Since inception, FSIC investors have received:
-
9
special
cash
distributions
2
(with
intent
to
declare
2
additional
special
cash distributions)
3
-
8 special stock distributions
-
7
regular
cash
distribution
increases
4
•
All distributions have been paid from net investment income and/or capital gains
•
Last
declared
a
monthly
distribution
of
$0.07425
per
share
4
;
8.68%
annualized
distribution
yield
based
on
last
reported
NAV
•
As of December 31, 2013, FSIC had approximately $0.53 per share of undistributed net investment income
and realized capital gains -
On
March
31,
2014,
FSIC’s
board
of
directors
expressed
its
intent
to
declare
two
$0.10
per
share
special
cash
distributions
3
24
$4.28
CUMULATIVE
CASH
DISTRIBUTIONS
PER
SHARE
SINCE
INCEPTION
5
1
Distributions are not guaranteed and are subject to the discretion of FSIC’s board
of directors.
2
The months of April 2010 and October 2011 each included two declared special cash
distributions.
3
On March 31, 2014, FSIC’s board of directors expressed its intent to declare two
special cash distributions, each in the amount of $0.10 per share, that will be paid on August 15, 2014 and November 14, 2014 to stockholders
of record as of July 31, 2014 and October 31, 2014, respectively. 4 On March 31, 2014, FSIC’s board of directors
determined to increase the amount of the regular monthly cash distribution payable to stockholders of record from $0.0720 per share to $0.07425 per share effective as of the
regular cash distribution payable for April 2014. Distributions are not guaranteed and
are subject to the discretion of the board of directors of FSIC.
5
Cumulative distributions per share since FSIC inception through March 3, 2014. Assumes
an investor participated in the distribution reinvestment plan and includes all regular cash distributions and special cash distributions
and is adjusted for special stock distributions. |
 Opportunities for
Future Growth 25
STRONG DISTRIBUTION COVERAGE
•
Currently distribute $0.22 per share per quarter ($0.07425 per
month)
versus
Q4
2013
adjusted
NII
per
share
of
$0.24
•
Distributions covered 100% from adjusted net investment income in
2013
•
FSIC has accumulated $0.53 per share of undistributed NII and
realized
capital
gains
on
a
tax
basis
OPTIMIZE USE OF NON-QUALIFIED ASSETS
•
16% of FSIC’s investments are classified as non-qualified assets,
well
below
the
regulatory
limit
(30%)
•
Excess capacity gives flexibility to pursue quality growth investment
opportunities across the entire investment universe, not simply
those that are qualified BDC assets
•
Non-U.S. based opportunities are one area of potential interest
given GSO’s position as a leading non-bank lender in Europe
CONTINUED MIGRATION INTO CORE STRATEGIES
•
Future core investments are expected to be funded from the
monetization
of
syndicated
investments
(19%
at
fair
value)
•
Transition to core strategies expected to allow portfolio yield to
grow without need for additional debt or new equity
ACCESS TO GSO’S GLOBAL PLATFORM
•
GSO / Blackstone’s investment expertise, people and platform bring
unique investment opportunities to FSIC
•
Access to Blackstone’s Group Purchasing Organization program is
a competitive advantage in winning new business
•
Opportunistic investments ($1.1 billion at fair value) have
meaningfully higher yields (11.3%) and potential for capital
appreciation
•
Equity co-investment opportunities ($180 million at fair value) can
lead
to
further
NAV
appreciation
2
1
3
3
3
4
1
Adjusted net investment income is the net per share increase (decrease) in net
investment income excluding the capital gains incentive fee attributable to unrealized gains and excise taxes.
2
As of December 31, 2013. On March 31, 2014, FSIC’s board of directors expressed
its intent to declare two special cash distributions, each in the amount of $0.10 per share, that will be paid on August 15, 2014 and
November 14, 2014 to stockholders of record as of July 31, 2014 and October 31, 2014,
respectively.
3
As of February 28, 2014. 4 As of December 31, 2013. |
 FSIC's Value Proposition
PROVEN
STRATEGY
PROVEN
PORTFOLIO
PROVEN
PERFORMANCE
110%
cumulative
total return
2
8.68%
annualized
distribution rate
1
16.0%
average annual
GAAP return
2
•
Fully invested, floating-rate focused, senior debt portfolio
•
Mature leverage profile with low cost funding
•
Strong credit history
•
Global sourcing and execution capabilities across GSO / Blackstone
platform •
Focus on direct lending
•
Invest opportunistically in situations with potential for capital
appreciation PROVEN
MANAGEMENT
1
Based on FSIC’s last reported NAV per share of $10.27 and FSIC’s monthly
distribution amount of $0.07425 per share. Distributions are not guaranteed and are subject to the discretion of FSIC’s board of directors.
2
Cumulative and average annual GAAP returns since inception through the quarter ended
December 31, 2013. These returns are calculated in accordance with GAAP using NAV performance and cash distributions declared
during the relevant period and represent the return on the fund’s investment
portfolio rather than an actual return to stockholders. Past performance is not indicative of future results.
26 |
 Appendix
–
MANAGEMENT TEAM BIOGRAPHIES |
 Franklin Square
Capital Partners Executives MICHAEL C. FORMAN
CHAIRMAN & CEO
FS INVESTMENT CORPORATION
GERALD F. STAHLECKER
PRESIDENT,
FS INVESTMENT CORPORATION
ZACHARY KLEHR
EXECUTIVE VICE PRESIDENT,
FS INVESTMENT CORPORATION
SEAN COLEMAN
MANAGING DIRECTOR,
FS INVESTMENT CORPORATION
WILLIAM GOEBEL
CHIEF FINANCIAL OFFICER,
FS INVESTMENT CORPORATION
Michael Forman is the Chairman,
CEO and co-founding partner of
Franklin Square Capital Partners
and FS Investment Corporation and
Chairs the Investment Committee of
the Adviser for FS Investment
Corporation.
Prior to founding Franklin Square,
Mr. Forman built a number of other
successful businesses in the
private equity and debt, financial
services and investment
management industries. He was
previously a senior partner in the
Corporate and Securities
Department at the Philadelphia-
based law firm of Klehr, Harrison,
Harvey, Branzburg & Ellers LLP,
where he practiced for over 15
years.
Mr. Forman is also a member of a
number of civic and charitable
boards in the Philadelphia
community.
Mr. Forman received a B.A. from
the University of Rhode Island,
where he graduated summa cum
laude and was elected Phi Beta
Kappa, and received a J.D. from
Rutgers University.
Gerald F. Stahlecker is the
President and serves on the
Investment Committee of the
Adviser for FS Investment
Corporation.
Prior to joining Franklin Square,
Mr. Stahlecker was a founding
partner, Managing Director, Chief
Operating Officer and Co-Chair of
the Investment Committee of
Radcliffe Capital Management, an
investment advisory firm that
manages hedge funds and
separately managed accounts for
institutional investors. Prior to
Radcliffe, Mr. Stahlecker practiced
corporate and securities law as an
attorney at Klehr, Harrison,
Harvey, Branzburg & Ellers LLP
representing institutional investors
pursuing structured equity and
debt investments in public and
private companies.
Mr. Stahlecker received a B.S.
from the Tepper School of
Business at Carnegie Mellon
University and a J.D. from
Villanova University Law School.
Zachary Klehr is an Executive
Vice President and serves on the
Investment Committee of the
Adviser for FS Investment
Corporation.
Prior to joining Franklin Square,
Mr. Klehr was a Vice President
at Versa Capital Management,
a private equity firm with
approximately $1 billion in assets
under management. At Versa, he
sourced, underwrote, negotiated,
structured and managed
investments in middle-market
distressed companies, special
situations and distressed debt.
Prior to Versa, Mr. Klehr spent
five years at Goldman, Sachs &
Co. where he worked on
leveraged buyouts, acquisitions
and equity and debt financings for
Goldman Sachs' private equity
clients.
Mr. Klehr received an M.B.A. with
honors from the Wharton School
of the University of Pennsylvania
and a B.A. (cum laude), also from
the University of Pennsylvania.
Sean Coleman is a Managing
Director and serves on the
Investment Committee of the
Adviser for FS Investment
Corporation.
Before joining Franklin Square,
Mr. Coleman worked at Golub
Capital for eight years, where
he served in various capacities,
including as a managing
director in the direct lending
group and as chief financial
officer and treasurer of Golub
Capital BDC. Before he joined
Golub Capital in 2005, Mr.
Coleman worked in merchant
banking and investment
banking, including at Goldman,
Sachs & Co. and Wasserstein
Perella & Co.
Mr. Coleman earned a B.A. in
History from Princeton
University and an M.B.A. with
Distinction from Harvard
Business School.
William Goebel joined Franklin
Square in February 2011 where
he serves as Chief Financial
Officer of FS Investment
Corporation. Mr. Goebel brings
over 13 years of accounting and
auditing experience with areas
of focus in fair valuation, SEC
reporting and new fund
offerings.
Prior to joining the company,
Mr. Goebel held a senior
manager audit position with
Ernst & Young LLP in the firm's
asset management practice and
was responsible for the audits
of RICs, private investment
partnerships, investment
advisers and broker dealers. Mr.
Goebel began his career as an
auditor at Tait, Weller and
Baker.
Mr. Goebel received a B.S. in
Economics from the Wharton
School of the University of
Pennsylvania. He is a CFA
Charterholder and a certified
public accountant.
28 |
 GSO Capital Partners
Executives Focused on FSIC DOUGLAS I. OSTROVER
SENIOR MANAGING DIRECTOR AND
CO-FOUNDER,
GSO / BLACKSTONE
Before co-founding GSO Capital
Partners in 2005, Mr. Ostrover was a
Managing Director and Chairman of the
Leveraged Finance Group of CSFB
where he was responsible for all of
CSFB's origination, distribution and
trading activities relating to high yield
securities, leveraged loans, high yield
credit derivatives and distressed
securities. Mr. Ostrover joined CSFB in
November 2000 when CSFB acquired
DLJ, where he was a Managing Director
in charge of High Yield and Distressed
Sales, Trading and Research.
Mr. Ostrover received a B.A. in
Economics from the University of
Pennsylvania and an M.B.A. from the
Stern School of Business of New York
University.
BENNETT J. GOODMAN
SENIOR MANAGING DIRECTOR AND
CO-FOUNDER,
GSO / BLACKSTONE
Bennett Goodman is a Senior Managing
Director of The Blackstone Group, and
current member of the Blackstone
Management Committee.
Before co-founding GSO Capital Partners
in 2005, Mr. Goodman was a Founder
and Managing Partner of the Alternative
Capital Division of Credit Suisse (CSFB)
where he was responsible for overseeing
$33 billion of assets under management
in private equity and credit oriented
strategies. He joined CSFB in November
2000 when CSFB acquired DLJ, where
he joined in 1988 as the founder of the
High Yield Capital Markets Group and
Served as Global Head of Leveraged
Finance.
Mr. Goodman graduated from Lafayette
College and the Harvard Business
School.
TRIPP SMITH
SENIOR MANAGING DIRECTOR AND
CO-FOUNDER,
GSO / BLACKSTONE
Before co-founding GSO Capital Partners
in 2005, Mr. Smith was Global Head of
the Capital Markets Group within
the Alternative Capital Division of CSFB.
Mr.
Smith joined CSFB in November 2000
when it acquired DLJ, where he was
Global Head of High Yield Capital
Markets. Mr. Smith had been a member of
DLJ's high yield team since he joined the
firm in 1993. Prior to that, Mr. Smith
worked for Smith Barney and Drexel
Burnham Lambert.
Mr. Smith received a B.B.A. in
Accounting from the University of Notre
Dame.
BRAD MARSHALL
MANAGING DIRECTOR,
GSO / BLACKSTONE
SENIOR PORTFOLIO MANAGER, FS
INVESTMENT CORPORATION
Mr. Marshall serves as a Senior
Portfolio Manager for FS Investment
Corporation and is a member of GSO /
Blackstone Debt Funds Management’s
Investment Committee.
Before joining GSO Capital Partners in
2005, Mr. Marshall worked in various
roles at RBC Capital Market’s
Alternative Investments Unit at Royal
Bank of Canada, including fixed income
high yield research and business
development within RBC's private equity
funds effort. Prior to RBC, Mr. Marshall
helped develop a private equity funds
business for TAL Global, a Canadian
asset management division of CIBC,
and prior to that, he co-founded a
microchip verification software company
where he served as chief financial
officer.
Mr. Marshall received an M.B.A. from
McGill University in Montreal and a B.A.
with honors in Economics from Queen's
University in Kingston, Canada.
DANIEL H. SMITH
SENIOR MANAGING DIRECTOR, GSO /
BLACKSTONE
Mr. Smith is the Group Head of GSO /
Blackstone Debt Funds Management and
is a member of its Investment Committee.
Before joining GSO Capital in 2005,
Mr. Smith was Managing Partner and Co-
head of RBC Capital Market’s Alternative
Investments Unit at Royal Bank of
Canada in New York. Mr. Smith joined
RBC in 2001 from Indosuez Capital, a
division of Crédit Agricole Indosuez, where
he was a Co-Head and Managing Director
overseeing the firm’s debt investments
business and merchant banking activities.
He began his career in investment
management in 1987 at Van Kampen
American Capital where he focused on
below investment grade corporate debt.
Mr. Smith received a B.S. in Petroleum
Engineering from the University of
Southern California and a Masters in
Management from the J.L. Kellogg
Graduate School of Management at
Northwestern University.
29 |
 April
1, 2014 INVESTOR PRESENTATION
LISTING UPDATE
FS Investment Corporation
Exhibit 99.3
Franklin Square Capital Partners is not affiliated with Franklin Resources/Franklin
Templeton Investments or the Franklin Funds.
|
 Important
considerations 2
An investment in the common stock of FS Investment Corporation (FSIC, we or us) involves a high degree
of risk and may be considered speculative. The following are some of the risks an investment in
our common stock involves; however, you should carefully consider all of the
information
found
in
the
section
of
our
Forms
10-Q
and
10-K
filings
entitled
“Risk
Factors”
and
in
our
other
public
filings
before
deciding
to invest in shares of our common stock.
of offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of
capital available to us for investment. This presentation is for informational purposes only and
is not an offer to buy or the solicitation of an offer to sell any securities of FSIC. The
tender offer will be made only pursuant to an offer to purchase, letter of transmittal and related materials (the Tender
Materials) that FSIC intends to distribute to its stockholders and file with the Securities and Exchange
Commission (SEC). The full details of the tender offer, including complete instructions on
how to tender shares of common stock, will be included in the Tender
Materials,
which
FSIC
will
distribute
to
stockholders
and
file
with
the
SEC
upon
the
commencement
of
the
tender
offer.
Stockholders are urged to carefully read the Tender Materials when they become available because they
will contain important information, including the terms and conditions of the tender offer.
Stockholders may obtain free copies of the Tender Materials that
FSIC
files
with
the
SEC
at
the
SEC’s
website
at:
www.sec.gov
or
by
calling
the
information
agent
who
will
be
identified
in
the
Tender Materials. In addition, stockholders may obtain free copies of FSIC’s filings with the
SEC from FSIC’s website at: www.fsinvestmentcorp.com
or
by
contacting
FSIC
at
Cira
Centre,
2929
Arch
Street,
Suite
675,
Philadelphia,
PA
19104
or
by
phone
at (877) 628-8575.
An
investment
strategy
focused
primarily
on
privately
held
companies
presents
certain
challenges,
including
the
lack
of
available
information
about
these
companies.
Investing
in
middle-market
companies
involves
a
number
of
significant
risks,
any
one
of
which
could
have
a
material
adverse
effect
on
our
operating
results.
A
lack
of
liquidity
in
certain
of
our
investments
may
adversely
affect
our
business.
We
are
subject
to
financial
market
risks,
including
changes
in
interest
rates,
which
may
have
a
substantial
negative
impact
on
our
investments.
We
have
borrowed
funds
to
make
investments,
which
increases
the
volatility
of
our
investments
and
may
increase
the
risks
of
investing
in
our
securities.
We
have
limited
operating
history
and
are
subject
to
the
business
risks
and
uncertainties
associated
with
any
new
business.
Our
distributions
may
be
funded
from
unlimited
amounts
of
offering
proceeds
or
borrowings,
which
may
constitute
a
return
of
capital
and
reduce
the
amount
of
capital
available
to
us
for
investment. |
 Forward-Looking
Statements Some of the statements in this presentation constitute forward-looking statements
because they relate to future events or the future performance or financial condition of FSIC.
The forward-looking statements contained in this presentation may include statements as to: our future operating results; our business
prospects
and
the
prospects
of
our
portfolio
companies;
the
impact
of
the
investments
that
we
expect
to
make;
the
ability
of
our
portfolio
companies
to
achieve their objectives; our current and expected financings and investments; the adequacy of our
cash resources, financing sources and working capital; the timing and amount of cash flows,
distributions and dividends, if any, from our portfolio companies; our contractual arrangements and relationships with
third parties; actual and potential conflicts of interest with FB Income Advisor, LLC (FB Advisor), FS
Investment Advisor, LLC, FS Energy and Power Fund, FSIC II Advisor, LLC, FS Investment
Corporation II, GSO / Blackstone Debt Funds Management LLC or any of their respective affiliates; the dependence of
our future success on the general economy and its effect on the industries in which we may invest; our
use of financial leverage; the ability of FB Advisor to locate
suitable
investments
for
us
and
to
monitor
and
administer
our
investments;
the
ability
of
FB
Advisor
or
its
affiliates
to
attract
and
retain
highly
talented
professionals; our ability to maintain our qualification as a regulated investment company (RIC) and
as a business development company (BDC); the impact on our business of the Dodd-Frank Wall
Street Reform and Consumer Protection Act and the rules and regulations issued thereunder; the effect of changes
to tax legislation and our tax position; the tax status of the enterprises in which we invest; our
ability to complete the listing of our shares of common stock on the New York Stock Exchange
LLC (NYSE); our ability to complete the related tender offer; and the price at which shares of our common stock may
trade on the NYSE, which may be higher or lower than the purchase price in the tender offer.
In addition, words such as “anticipate,”
“believe,”
“expect”
and “intend”
indicate a forward-looking statement, although not all forward-looking statements
include these words. The forward-looking statements contained in this presentation involve risks
and uncertainties. Our actual results could differ materially from those implied or expressed
in the forward-looking statements for any reason. Factors that could cause actual results to differ materially include:
changes
in
the
economy;
risks
associated
with
possible
disruption
in
our
operations
or
the
economy
generally
due
to
terrorism
or
natural
disasters;
and
future changes in laws or regulations and conditions in our operating areas.
We have based the forward-looking statements included in this presentation on information
available to us on the date of this presentation. Except as required by the federal securities
laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised to consult any additional disclosures that we
may make directly to stockholders or through reports that
we
have
filed
and
may
file
in
the
future
with
the
Securities
and
Exchange
Commission
(SEC),
including
annual
reports
on
Form
10-K,
quarterly
reports
on Form
10-Q and current reports on Form
8-K. 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.
Credit ratings may not reflect the potential impact of risks relating to the structure or trading of
FSIC’s common stock and are provided solely for informational purposes. Credit ratings are
not recommendations to buy, sell or hold any security, and may be revised or withdrawn at any time by the
issuing organization in its sole discretion. FSIC does not undertake any obligation to maintain the
ratings or to advise of any change in ratings. Each agency’s rating should be evaluated
independently of any other agency’s rating. An explanation of the significance of the ratings may be obtained from each
of the rating agencies.
3 |
 Phase 1
Phase 2
Phase 3
The Franklin Square BDC model
4
FSIC
LAUNCHES
2009
2010
2011
2012
2013
April 2014
COMPLETES
OFFERING
POTENTIAL
LISTING
Build portfolio
•
Raised $2.6 billion in equity capital
•
Advantageously used continuous offering model
to deploy capital over multi-year period
•
Continued transition to
direct originations
•
Optimized portfolio and
leverage facilities
•
Increased distribution
rate
•
List when market
conditions are
favorable
•
Provide new
investors access to
FSIC’s scale and
origination platform
Maximize value
Prepare for listing |
 Why
Franklin Square’s model is unique 5
INITIAL
PORTFOLIO
SIZES
OF
RECENT
BDC
IPOs
AND
THE
PROPOSED
FSIC
LISTING
1
1
Source: Public filings. Dollar amounts shown are in millions. The initial portfolio for
FSIC is based on the fair value of investments as of February 28, 2014. The initial portfolio for the other BDCs shown based on the
respective fair values of investments pro forma for the respective BDC’s initial
public offering. •
Scale provides competitive advantage for originations
•
Experienced management team
•
Fully-invested portfolio
$378.9
$67.5
$194.4
$187.8
$198.1
$210.5
$41.5
$0.0
$326.3
$197.4
$132.9
$123.6
$4,141.8
TCP Capital
Monroe
Capital
Corp.
Stellus
Capital
Investment
Corp.
OFS Capital
Corp.
WhiteHorse
Finance, Inc.
Garrison
Capital
Harvest
Capital
Credit Corp.
Fifth Street
Senior
Floating
Rate Corp.
Capitala
Finance
Corp.
American
Capital
Senior
Floating, Ltd.
CM Finance
Inc.
TriplePoint
Venture
Growth
FS
Investment
Corp.
4/4/2012
10/24/2012
11/7/2012
11/7/2012
12/4/2012
3/26/2013
5/2/2013
7/11/2013
9/25/2013
1/15/2014
2/5/2014
3/6/2014
Apr-14 |
 •
LEADING MANAGER OF
ALTERNATIVE INVESTMENTS
•
LEADING FRANCHISES
in credit,
private equity, real estate, hedge fund
solutions and financial advisory
•
BRAND AND SCALE
provides
exceptional access
•
BLACKSTONE’S GROUP
PURCHASING ORGANIZATION
available to FSIC portfolio companies
•
LEADING MANAGER OF
ALTERNATIVE CREDIT
focused on
non-investment grade corporate debt
•
GLOBAL PRESENCE
with over 250
employees
•
INVESTMENTS IN MORE THAN
1,100
corporate credits
•
$17.9 BILLION
in directly originated
transactions
•
LARGEST MANAGER OF BDCs
•
60 BDC PROFESSIONALS
•
SCALE
allows for one-stop financing
solutions and low cost structure
•
310 PORTFOLIO COMPANIES
across entire BDC platform
Platform provides a competitive advantage
SCALE
BRAND
INVESTMENT
EXPERTISE
COMPETITIVE
ADVANTAGE
6
1
2
3
2
2
2
Based on total balance sheet assets as of December 31, 2013. Includes the assets of
FSIC, FS Investment Corporation II (FSIC II) and FS Energy & Power Fund (FSEP).
As of December 31, 2013.
Includes portfolio companies of FSIC, FSIC II and FSEP as of December 31, 2013.
1
2
3 |
 FSIC’s Size Makes
It an Immediately Relevant BDC TOTAL ASSETS AND BOOK EQUITY OF SELECT BDCs
3rd largest
EXTERNALLY MANAGED BDC
2
7
2
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
ARCC
PSEC
FSIC
AINV
FSC
SLRC
BKCC
GBDC
PNNT
NMFC
TICC
1
Total assets and book equity of the ten largest externally managed BDCs by total
assets. ARCC: Ares Capital Corporation; PSEC: Prospect Capital Corporation; FSIC: FS Investment Corporation; AINV: Apollo
Investment Corporation; FSC: Fifth Street Finance Corp.; SLRC: Solar Capital Ltd.;
BKCC: BlackRock Kelso Capital Corp.; GBDC: Golub Capital BDC, Inc.; PNNT: PennantPark Investment Corporation; NMFC: New Mountain
Finance Corporation; TICC: TICC Capital Corp. 2 Total assets and book equity shown in millions as of
February 28, 2014 for FSIC. Total assets and book equity shown in millions as of December 31, 2013 for ARCC, PSEC, AINV, FSC, SLRC, BKCC, GBDC, PNNT, NMFC and
TICC.
1
Total Assets (in millions)
Total Book Equity (in millions) |
 GREATER THAN 80% SENIOR DEBT:
Average distribution rate : 8.93%
Average premium to NAV
:
5%
LESS THAN 80% SENIOR DEBT: Average
distribution rate : 10.43%
Average discount to NAV : 1%
Senior debt = premium pricing
%
SENIOR
DEBT
8
80%
96%
92%
85%
83%
81%
75%
69%
62%
60%
51%
41%
0%
25%
50%
75%
100%
GBDC
NMFC
ARCC
FSIC
FSC
PSEC
TICC
BKCC
PNNT
AINV
SLRC
1
2
3
2
3
1
Senior debt includes first lien senior secured loans, second lien senior secured loans
and senior secured bonds. ARCC senior debt includes Subordinated Certificates of the Senior Secured Loan Program. GBDC senior
debt includes GBDC’s Senior Loan Facility. Senior debt based on fair value as of
February 28, 2014 for FSIC. Senior debt based on fair value as of December 31, 2013 for GBDC, NMFC, ARCC, FSC, PSEC, TICC,
BKCC, PNNT, AINV and SLRC. Sourced from public filings. 2 Distributions rates based on each BDC’s last declared
regular cash distribution and share price data as of March 31, 2014.
3
Average premium and discount to NAV based on each BDC’s last declared NAV and
share price data as of March 31, 2014. There can be no assurance that FSIC will trade at a premium to NAV if FSIC lists its shares.
FSIC’s actual share price upon any listing could be significantly higher or lower
than values shown.
|
 BDC
valuations and implied FSIC share price PREMIUM TO NAV
3
1
Premiums of the ten largest externally managed BDCs based on total assets. Share price
data as of March 31, 2014 and each BDC’s last reported NAV as reported in public filings. There can be no assurance that FSIC
will trade at a premium to NAV if FSIC lists its shares. FSIC’s actual share
price upon any listing could be significantly higher or lower than values shown.
2
Based on FSIC’s last reported NAV per share of $10.27 as of February 28,
2014. 3
Peer group includes GBDC, ARCC, NMFC and FSC.
9
Implied FSIC
share price
PEER AVERAGE
AVERAGE
FSC
BKCC
SLRC
AINV
TICC
PSEC
NMFC
PNNT
ARCC
GBDC
1.05x
1.01x
0.96x
0.96x
0.97x
0.97x
0.99x
1.01x
1.01x
1.02x
1.07x
1.17x
0.90x
0.95x
1.00x
1.05x
1.10x
1.15x
1.20x
1.25x
1.30x
$12.02
$10.99
$10.48
$10.37
$10.37
$10.17
$9.96
$9.96
$9.86
$9.86
$10.78
$10.37
(as
of
March
31,
2014)
1
2 |
 How FSIC continues to
add value 10
8.25%
target annualized
distribution rate
At listing
After listing
+
$0.20
special cash
distributions
1
Target annualized distribution rate based on FSIC’s monthly distribution per share
of $0.07425 declared in April 2014 and an assumed FSIC listing price of $10.80 per share. This assumed listing price of $10.80 per share
is hypothetical and is not intended to be indicative of the current or future value of
the shares of FSIC’s common stock at or following the time of listing. There can be no assurance a listing will occur. If a listing occurs, the
actual listing share price may be significantly higher or lower. Distributions
are not guaranteed and are subject to the discretion of the board of directors of FSIC.
2
On March 31, 2014, FSIC’s board of directors expressed its intent to declare two
special cash distributions, each in the amount of $0.10 per share, that will be paid on August 15, 2014 and November 14, 2014 to
stockholders of record as of July 31, 2014 and October 31, 2014, respectively. 1
2 |
 FSIC is an income
solution 11
DISTRIBUTION YIELDS ACROSS ASSET CLASSES
1
Target annualized distribution rate based on FSIC’s monthly distribution per share
of $0.07425 declared in April 2014 and an assumed FSIC listing price of $10.80 per share. This assumed listing price of $10.80 per share
is hypothetical and is not intended to be indicative of the current or future value of
the shares of FSIC’s common stock at or following the time of listing. There can be no assurance a listing will occur. If a listing occurs, the
actual listing share price may be significantly higher or lower. Distributions
are not guaranteed and are subject to the discretion of the board of directors of FSIC.
2
Dow Jones Dividend Index represented by the iShares Dow Jones Select Dividend ETF
(DVY), Treasury Inflation Protected Securities represented by the iShares Barclays TIPS Bond ETF (TIP), High Yield Bonds
represented by the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), Syndicated Bank
Loans represented by the PowerShares Senior Loan Portfolio ETF (BKLN), Investment Grade Bonds represented by the
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), MLPs represented by the ALPS
Alerian MLP ETF (AMLP) and REITs represented by the Vanguard REIT Index ETF (VNQ). Distribution yields as of
March 31, 2014. This data is for illustrative purposes only. FSIC
Traditional
investment
options
Fixed income
options
Other income
alternatives
8.25%
3.29%
1.13%
5.89%
3.99%
3.55%
6.30%
2.57%
FSIC
Dow Jones
Dividend Index
Treasury
Inflation
Protected
Securities
High-yield
bonds
Syndicated
bank loans
Investment
grade bonds
MLPs
REITs
1
2
2
2 |
 FSIC's value proposition
12
PROVEN
STRATEGY
PROVEN
PORTFOLIO
PROVEN
PERFORMANCE
110%
cumulative
total
return
8.25%
target annualized
distribution
rate
16.0%
average annual
GAAP
return
•
Direct originations
•
Distributions
paid
from
net
investment
income
and
capital
gains
•
Fully
ramped
portfolio
•
Invest primarily in senior secured, floating rate loans of U.S. private companies
•
Generate income and capital appreciation
PROVEN
MANAGEMENT
1
2
2
3
3
1
Target annualized distribution rate based on FSIC’s monthly distribution of
$0.07425 per share declared in April 2014 and an assumed FSIC listing price of $10.80 per share. This assumed listing price of $10.80 per share is
hypothetical and is not intended to be indicative of the current or future value of the
shares of FSIC’s common stock at or following the time of listing. There can be no assurance a listing will occur. If a listing occurs, the
actual listing share price may be significantly higher or lower. Distributions
are not guaranteed and are subject to the discretion of the board of directors of FSIC.
2
Cumulative and average annual GAAP returns since inception through the quarter ended
December 31, 2013. These returns are calculated in accordance with GAAP using NAV performance and cash distributions declared
during the relevant period and represent the return on the fund’s investment
portfolio rather than an actual return to stockholders. Past performance is not indicative of future results.
3
As of December 31, 2013. |
 FSIC listing
details 13
TICKER
FSIC
EVENT
Listing shares on the NYSE
ANTICIPATED
TIMING
April 16, 2014
STOCKHOLDER LOCK-
UP
None; fully tradable at listing
MANAGEMENT LOCK-
UP
Expected for 180 days post listing
POST-LISTING
TENDER
Up to $250 million tender at expected listing
POTENTIAL POST-
TENDER SHARE
PURCHASES
CURRENT ANNUALIZED
DISTRIBUTION
$0.891 per share
SPECIAL CASH
DISTRIBUTIONS
$0.10 per share that may be paid on 8/15/14
$0.10 per share that may be paid on 11/14/14
•
An innovative offering model
•
Publicly-traded BDC premiums suggest potential for
share price appreciation
•
Potential special cash distributions
•
No longer an illiquid alternative
•
Compares well to other income-producing investments
•
Sets precedent for the BDC industry
•
Continued sponsor commitment
LISTING CONSIDERATIONS
2
3
5
4
1
1
There can be no assurance FSIC will list in this time frame or at all.
2
Terms of the FSIC tender offer, including size thereof, are subject to the discretion
of FSIC’s board of directors. 3
Franklin Square Holdings, members of management of FSIC and Franklin Square Holdings
and GSO Capital Partners do not intend to participate in the tender offer. There can be no assurance that Franklin Square, any
member
of
management
of
FSIC
and
Franklin
Square
Holdings
or
GSO
Capital
Partners
will
purchase
any shares.
Any
such
purchases
may
be
conducted
in
open
market
transactions
(which
may
include
purchases
pursuant to 10b5-1
plans),
subject
to
restrictions
under
applicable
law.
4
On March 31, 2014, FSIC’s board of directors determined to increase the amount of
the regular monthly cash distribution payable to stockholders of record from $0.0720 per share to $0.07425 per share effective as of the
regular cash distribution payable for April 2014. Distributions are not guaranteed and
are subject to the discretion of the board of directors of FSIC. 5
On
March
31,
2014,
FSIC’s
board
of
directors
expressed
its
intent
to
declare
two
special
cash
distributions,
each
in
the
amount
of
$0.10
per
share,
that
will
be
paid
on
August
15,
2014
and
November
14,
2014
to
stockholders
of
record
as
of
July
31,
2014
and
October
31,
2014,
respectively.
Up to $175 million being considered:
–
$100 million by Franklin Square Holdings
–
$25 million by members of management of
FSIC and Franklin Square Holdings
–
$50 million by GSO Capital Partners |
 FSIC listing operational review
14
ACCOUNT FREEZE
Expected to begin approximately two weeks prior to listing.
DISTRIBUTION
REINVESTMENT
PLAN (DRP)
Will be terminated shortly prior to listing subject to the occurrence of a
listing. After listing, a new DRP may be put into place so stockholders can
again reinvest monthly distributions in additional shares of FSIC. If the
current DRP is terminated, pending the adoption of a new DRP, stockholders that had elected to
participate in the current DRP will receive cash rather than shares in respect of
any cash distribution declared by FSIC.
FRACTIONAL
SHARES
The
mechanics
required
for
transferring
shares
in
order
for
FSIC
to
list
will
not
accept
fractional
shares.
If
an
investor
owns
any
fractional
shares
in
FSIC,
FSIC
expects
to
“round
up”
the
number
of
fractional
shares
held by stockholders immediately prior to a listing to the nearest whole number of
shares. |
 What should you do to
prepare your clients for a listing? 2. Hold
3. Sell
15
1
FSIC and its advisors and representatives are not making any recommendation to you as to whether to
tender or refrain from tendering your shares or regarding price or prices at which you may
choose to tender your shares. You are urged to discuss your decision with your tax and financial advisor.
1. Buy
BUY MORE SHARES
HOLD SHARES
SELL
OR
TENDER
SHARES
Increases investment in FSIC without
an initial sales load
Same considerations as holding
•
•
Continued opportunity to receive
current income
Participate in potential special cash
distributions
•
•
Participate in potential market upside and
future growth of FSIC
Investment re-classified from alternative
to domestic equity
Ability to liquidate at time of your choosing
Not a taxable event
•
•
•
•
Loss of current income
Loss of opportunity to receive special cash
distributions
Loss of potential market upside and future
growth of FSIC
Open market sales subject to market volatility
Taxable event
•
•
•
•
•
•
If necessary, move shares to brokerage
account, at advisor and investor’s
convenience
Buy additional shares at market price at
time of your choosing
•
If necessary, move shares to brokerage
account, at advisor and investor’s
convenience
•
•
Consult tax advisor
The post-listing tender offer, if any, will be
made only pursuant to an offer to purchase,
letter of transmittal and related materials (the
Tender Materials) that FSIC intends to
distribute to its stockholders and file with the
SEC. The full details of the tender offer,
including complete instructions on how to
tender shares of common stock, will be
included in the Tender Materials, which FSIC
will distribute to stockholders and file with the
SEC upon the commencement of the tender
offer.
•
1 |
 For additional
information 16
FOR GENERAL FSIC QUESTIONS, CONTACT FRANKLIN SQUARE AT
877-628-8575, option 2
FRANKLIN SQUARE CLIENT SERVICES AT
877-628-8575, option 3
EMAIL
ASKFSIC@franklinsquare.com
WEB
Consult www.FSIClist.com |