Shareholders of FS KKR Capital Corp. FSK and FS KKR Capital Corp. II FSKR have approved the merger deal between the companies. This was announced by FS/KKR Advisor, LLC, a partnership between FS Investments and KKR & Co. Inc.’s KKR subsidiary, KKR Credit Advisors.
The deal, still subject to customary closing conditions, is expected to close around Jun 16. Following the closure, FS KKR Capital Corp. will be the surviving entity and trade on the NYSE with ticker symbol FSK. The transaction was announced in November 2020.
The combined entity is expected to create one of the largest business development companies (BDC) in the country.
Michael Forman, Chairman and CEO of both the companies, said, “We are pleased shareholders of both FSK and FSKR have voted in favor of the proposed merger. The combination of FSK and FSKR represents an important milestone in our long-term strategic plan as we create a single company with approximately $15 billion in assets.”
Per the terms of the agreement, shareholders of FS KKR Capital Corp. II will receive FS KKR Capital Corp shares in proportion of the net asset value (NAV) of the FS KKR Capital Corp. II shares held. This NAV will be determined just before completion of the deal. Notably, fractional shares will be paid out in the form of cash.
Further, shareholders of both the companies will receive regular distributions, along with any remaining “undistributed net investment income and capital gains” in the case of FS KKR Capital Corp. II, around Jul 2. Post the closure of the deal, FS KKR Capital Corp will continue to pay distributions on a quarterly basis, with the first one expected to be paid out in early October.
Additionally, at the time of announcing the merger, it was stated that the combined company will continue with its investment focus primarily on senior secured debt investments. Also, the merger is likely to accrue benefits for both companies in terms of increased balance-sheet size, scale, cost synergies, liquidity and visibility. A larger balance sheet is likely to lead to improved access to the capital markets. Moreover, reduced duplication of function is expected to result in nearly $5 million of annual synergies in the near term.
At that time, Moody's Investors Service, the rating arm of Moody’s Corporation MCO, had affirmed the long-term issuer and senior unsecured ratings of FS KKR Capital Corp. at Baa3.
The combined BDC behemoth is likely to enjoy synergistic benefits and enhanced access to capital. It is also likely to witness efficiency of operations with streamlining of processes and enhanced earnings capability.
In the past three months, shares of FS KKR Capital Corp. and FS KKR Capital Corp. II have rallied 14% and 12.8%, respectively, outperforming the 10% rally of the industry it belongs to.
Three-months Price Performance
Currently, both FS KKR Capital Corp. and FS KKR Capital Corp. II carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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