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FSIC Reports Third Quarter 2018 Financial Results and Declares Special and Regular Distribution for Fourth Quarter

PHILADELPHIA, Nov. 7, 2018 /PRNewswire/ -- FS Investment Corporation (FSIC), a publicly traded business development company focused on providing customized credit solutions to private middle market U.S. companies, announced its operating results for the quarter ended September 30, 2018, and that its board of directors has declared a special distribution and its fourth quarter 2018 regular distribution.

FS Investment Corporation (PRNewsfoto/FS Investment Corporation)

Financial Highlights for the Quarter Ended September 30, 20181

  • Net investment income of $0.23 per share, compared to $0.21 per share for the quarter ended September 30, 2017
  • Adjusted net investment income of $0.24 per share, compared to $0.21 per share for the quarter ended September 30, 20172
  • Total net realized gain of $0.12 per share and total net change in unrealized depreciation of $0.41 per share, compared to a total net realized loss of $0.07 per share and a total net change in unrealized appreciation of $0.21 per share for the quarter ended September 30, 2017
  • Paid cash distributions to stockholders totaling $0.19 per share3
  • Total purchases of $184.5 million versus $223.4 million of sales and repayments
  • Net asset value of $8.64 per share, compared to $8.87 per share as of June 30, 2018

"We are pleased with the origination opportunities the FS/KKR partnership has produced and the credit discipline we've exhibited in the current lending environment," said Michael Forman, Chairman and Chief Executive Officer of FSIC. "We remain focused on successfully completing the merger with Corporate Capital Trust before year-end and positioning the company for long-term success."

Declaration of Special and Regular Distributions for Fourth Quarter 2018

FSIC's board of directors has declared a special cash distribution of $0.09 per share and a regular cash distribution for the fourth quarter of $0.19 per share. The special cash distribution will be paid on or about December 3, 2018 to stockholders of record as of the close of business on November 19, 2018. The regular cash distribution will be paid on or about January 2, 2019 to stockholders of record as of the close of business on December 12, 2018.

 

Summary Consolidated Results




Three Months Ended

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

September 30, 2018

June 30, 2018

September 30, 2017

Total investment income

$94,519

$95,575

$103,691

Net investment income

56,082

45,955

50,648

Net increase (decrease) in net assets resulting from operations

(11,340)

(31,338)

85,398





Net investment income per share

$0.23

$0.19

$0.21

Adjusted net investment income per share2

$0.24

$0.19

$0.21

Total net realized and unrealized gain (loss) per share

$(0.28)

$(0.32)

$0.14

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

$(0.05)

$(0.13)

$0.35

Stockholder distributions per share3

$0.19000

$0.19000

$0.22275

Net asset value per share at period end

$8.64

$8.87

$9.43

Weighted average shares outstanding

239,495,341

242,801,446

245,678,745

Shares outstanding, end of period

239,154,069

240,602,753

245,725,416







(dollar amounts in thousands)




As of
September 30, 2018

As of
December 31, 2017

Total fair value of investments




$3,537,252

$3,926,234

Total assets




3,698,713

4,104,275

Total stockholders' equity




2,066,861

2,284,723

 

Portfolio Highlights as of September 30, 2018

  • Total fair value of investments was $3.5 billion.
  • Core investment strategies4 represented approximately 100% of the portfolio by fair value as of September 30, 2018, including 93% from direct originations and 7% from opportunistic investments. Broadly syndicated/other investments represented less than 1% of the portfolio by fair value.
  • Gross portfolio yield prior to leverage (based on amortized cost and excluding non-income producing assets)5 was 11.1%, compared to 11.1% as of June 30, 2018. 
  • Total commitments to direct originations (including unfunded commitments) made during the third quarter of 2018 was $250.6 million in 9 companies, 6 of which were existing portfolio companies.
  • Approximately 2.7% of investments were on non-accrual based on fair value.6

 

Total Portfolio Activity




Three Months Ended


(dollar amounts in thousands)

September 30, 2018

June 30, 2018

September 30, 2017


Purchases

$184,495

$240,443

$183,384


Sales and redemptions

(223,419)

(350,253)

(255,483)


Net portfolio activity

$(38,924)

$(109,810)

$(42,099)




Portfolio Data

 As of September 30, 2018

 As of December 31, 2017


Total fair value of investments

$3,537,252

$3,926,234


Number of Portfolio Companies

92

100


Average Annual EBITDA of Portfolio Companies

$92,500

$85,700


Weighted Average Purchase Price of Debt Investments
(as a % of par)

99.5%

99.5%


% of Investments on Non-Accrual 

(based on fair value)6

2.7%

0.2%





Asset Class (based on fair value)



Senior Secured Loans — First Lien

70%

64%


Senior Secured Loans — Second Lien

4%

5%


Senior Secured Bonds

5%

4%


Subordinated Debt

10%

13%


Collateralized Securities

1%

1%


Equity/Other

10%

13%





Portfolio Composition by Strategy (based on fair value)4



Direct Originations

93%

92%


Opportunistic

7%

7%


Broadly Syndicated/Other

0%

1%





Interest Rate Type (based on fair value)



% Variable Rate

72.2%

69.4%


% Fixed Rate

17.3%

17.8%


% Income Producing Equity/Other Investments

2.5%

2.3%


% Non-Income Producing Equity/Other Investments

8.0%

10.5%





Yields (based on amortized cost)5



Gross Portfolio Yield Prior to Leverage

9.6%

9.6%


Gross Portfolio Yield Prior to Leverage — Excluding Non-Income
Producing Assets

11.1%

10.5%









 

Direct Origination Activity



Three Months Ended

(dollar amounts in thousands)

September 30, 2018

June 30, 2018

September 30, 2017

 

Total Commitments

(including unfunded commitments)

$250,578

$163,261

$199,157

Exited Investments (including partial paydowns)

(125,119)

(288,451)

(169,035)

Net Direct Originations

$125,459

$(125,190)

$30,122

 

 

Direct Originations Portfolio Data

As of September 30, 2018

As of December 31, 2017

Total Fair Value of Direct Originations

$3,277,054

$3,606,608

Number of Portfolio Companies

73

75

Average Annual EBITDA of Portfolio Companies

$89,500

$68,600

Average Leverage Through Tranche of Portfolio Companies —

Excluding Equity/Other and Collateralized Securities

5.7x  

4.9x  

% of Investments on Non-Accrual (based on fair value)6

2.9%







Three Months Ended

New Direct Originations by Asset Class
(including unfunded commitments)

September 30, 2018

June 30, 2018

September 30, 2017

Senior Secured Loans — First Lien

85%

92%

85%

Senior Secured Loans — Second Lien

15%

2%

Senior Secured Bonds

Subordinated Debt

13%

Collateralized Securities

Equity/Other

8%

 

Average New Direct Origination Commitment
Amount

$27,842

$14,842

$49,789

Weighted Average Maturity for New Direct
Originations

3/19/2024

7/16/2024

5/5/2023

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

9.6%

11.5%

9.6%

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

Excluding Non-Income Producing Assets5

9.6%

11.5%

9.6%

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

10.2%

10.5%

12.0%







 

Leverage and Liquidity as of September 30, 2018

  • Debt to equity ratio of 75%, based on $1.56 billion in total debt outstanding and stockholders' equity of $2.07 billion. FSIC's weighted average effective interest rate (including the effect of non-usage fees) was 4.59%
  • Cash and foreign currency of approximately $100.0 million and availability under its financing arrangements of $633.0 million, subject to borrowing base and other limitations
  • Seventeen unfunded debt investments with aggregate unfunded commitments of $178.4 million and one unfunded equity commitment with an unfunded commitment of $71 thousand

Conference Call Information

FSIC will host a conference call at 10:00 a.m. (Eastern Time) on Thursday, November 8, 2018, to discuss its third quarter financial results. All interested parties are welcome to participate. You can access the conference call by dialing (877) 472-8671 and using the conference ID 8464429 approximately 10 minutes prior to the call. The conference call will also be webcast, which can be accessed from the Investor Relations section of FSIC's website at www.fsinvestmentcorp.com under Presentations and Reports.

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

Supplemental Information

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

About FS Investment Corporation

FS Investment Corporation (FSIC) is a publicly traded business development company ("BDC") focused on providing customized credit solutions to private middle market U.S. companies. FSIC seeks to invest primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market companies to achieve the best risk-adjusted returns for its investors. FSIC is advised by FS/KKR Advisor, LLC.  For more information, please visit www.fsinvestmentcorp.com.

About FS/KKR Advisor, LLC

FS/KKR Advisor, LLC ("FS/KKR") is a partnership between FS Investments and KKR Credit that serves as the investment adviser to six BDCs, including FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, Corporate Capital Trust, Inc. and Corporate Capital Trust II.

FS/KKR seeks to leverage the size of its platform, differentiated origination capabilities and expertise in capital markets to maximize returns and preserve capital for investors.

FS Investments is a leading asset manager dedicated to helping individuals, financial professionals and institutions design better portfolios. The firm provides access to alternative sources of income and growth and focuses on setting industry standards for investor protection, education and transparency. FS Investments is headquartered in Philadelphia, PA with offices in New York, NY, Orlando, FL and Washington, DC. Visit www.fsinvestments.com to learn more.

KKR Credit is a subsidiary of KKR & Co. Inc., a leading global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic manager partnerships that manage hedge funds. KKR aims to generate attractive investment returns for its fund investors by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside the capital it manages for fund investors and provides financing solutions and investment opportunities through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about KKR & Co. Inc. (KKR), please visit KKR's website at www.kkr.com and on Twitter @KKR_Co.

Forward-Looking Statements and Important Disclosure Notice

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

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

Other Information

The information in this press release is summary information only and should be read in conjunction with FSIC's quarterly report on Form 10-Q for the quarterly period ended September 30, 2018, which FSIC filed with the U.S. Securities and Exchange Commission (the "SEC") on November 7, 2018, as well as FSIC's other reports filed with the SEC. A copy of FSIC's quarterly report on Form 10-Q for the quarterly period ended September 30, 2018 and FSIC's other reports filed with the SEC can be found on FSIC's website at www.fsinvestmentcorp.com and the SEC's website at www.sec.gov.

Certain Information About Distributions

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

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

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

Contact Information:

Investor Relations Contact

Marc Yaklofsky
marc.yaklofsky@fsinvestments.com

FS Investments Media Team

Marc Yaklofsky
media@fsinvestments.com

 

Income Statement


Three Months Ended


Nine Months Ended



September 30,


September 30,



2018


2017


2018


2017

Investment income









Interest income


$

73,344



$

82,349



$

226,071



$

230,115


Paid-in-kind interest income


9,940



8,430



27,092



22,899


Fee income


4,342



5,005



9,788



34,081


Dividend income


345



21



7,700



21


From non-controlled/affiliated investments:









Interest income


898



3,448



4,549



10,485


Paid-in-kind interest income


1,353



550



5,226



1,855


Fee income


20



1,232



20



1,263


From controlled/affiliated investments:









Interest income


1,273



966



3,797



3,407


Paid-in-kind interest income


3,004



1,690



6,869



4,324


     Total investment income


94,519



103,691



291,112



308,450











Operating expenses









Management fees


14,259



18,038



47,426



54,772


Subordinated income incentive fees




12,662



22,905



37,426


Administrative services expenses


1,125



750



2,601



2,226


Accounting and administrative fees


210



254



713



774


Interest expense


20,671



19,885



61,506



58,941


Directors' fees


227



277



997



822


Other general and administrative expenses


1,945



1,177



5,156



3,791


     Total operating expenses


38,437



53,043



141,304



158,752


     Management fee waiver






(2,776)




     Net expenses


38,437



53,043



138,528



158,752


 Net investment income


56,082



50,648



152,584



149,698











Realized and unrealized gain/loss









Net realized gain (loss) on investments:









Non-controlled/unaffiliated investments


23,888



(24,767)



60,273



(87,361)


Non-controlled/affiliated investments


7



6,551



(10,068)



6,856


Controlled/affiliated investments






12



(52,879)


Net realized gain (loss) on foreign currency


5,993



(19)



6,090



165


Net change in unrealized appreciation (depreciation) on 
     investments:









Non-controlled/unaffiliated investments


(104,254)



29,820



(203,228)



149,622


Non-controlled/affiliated investments


7,610



16,951



(18,993)



(979)


Controlled/affiliated investments


5,753



7,408



(11,940)



7,041


Net change in unrealized appreciation (depreciation) on secured 
     borrowing




3





(7)


Net change in unrealized gain (loss) on foreign currency


(6,419)



(1,197)



(4,483)



(4,923)


     Total net realized and unrealized gain (loss)


(67,422)



34,750



(182,337)



17,535


Net increase (decrease) in net assets resulting from 
     operations


$

(11,340)



$

85,398



$

(29,753)



$

167,233











Per share information—basic and diluted









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


$

(0.05)



$

0.35



$

(0.12)



$

0.68


Weighted average shares outstanding


239,495,341



245,678,745



242,647,216



245,117,823



 

Balance Sheet


September 30, 2018





(Unaudited)


December 31, 2017

Assets





Investments, at fair value





Non-controlled/unaffiliated investments (amortized cost—$3,352,266 and $3,532,517, respectively)


$

3,217,432



$

3,600,911


Non-controlled/affiliated investments (amortized cost—$200,981 and $197,468, respectively)


214,575



230,055


Controlled/affiliated investments (amortized cost—$108,778 and $86,861, respectively)


105,245



95,268


Total investments, at fair value (amortized cost—$3,662,025 and $3,816,846, respectively)


3,537,252



3,926,234


Cash


98,535



134,932


Foreign currency, at fair value (cost—$1,411 and $3,685, respectively)


1,430



3,810


Receivable for investments sold and repaid


27,681



3,477


Income receivable


23,380



30,668


Deferred financing costs


6,213



3,459


Deferred merger costs


3,422




Prepaid expenses and other assets


758



1,695


       Total assets


$

3,698,671



$

4,104,275







Liabilities





Payable for investments purchased


$

1,447



$

1,978


Credit facilities payable (net of deferred financing costs of $2,341 and $3,179, respectively)


474,700



638,571


Unsecured notes payable (net of deferred financing costs of $925 and $1,402, respectively)


1,075,615



1,073,445


Stockholder distributions payable


45,481



46,704


Management fees payable


14,259



15,450


Subordinated income incentive fees payable




12,871


Administrative services expense payable


817



294


Interest payable


17,667



22,851


Directors' fees payable


268



276


Other accrued expenses and liabilities


1,556



7,112


       Total liabilities


1,631,810



1,819,552


Commitments and contingencies










Stockholders' equity





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





Common stock, $0.001 par value, 450,000,000 shares authorized, 239,154,069 and 245,725,416 shares 
     issued and outstanding, respectively


239



246


Capital in excess of par value


2,222,598



2,272,591


Retained earnings


(155,976)



11,886


       Total stockholders' equity


2,066,861



2,284,723


       Total liabilities and stockholders' equity


$

3,698,671



$

4,104,275


Net asset value per share of common stock at period end


$

8.64



$

9.30



 

Non-GAAP Financial Measures

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

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

 

Reconciliation of Non-GAAP Financial Measures1


Three Months Ended


September 30, 2018

June 30, 2018

September 30, 2017

GAAP net investment income per share

$0.23

$0.19

$0.21

Plus capital gains incentive fees per share

Plus excise taxes per share

Plus one-time expenses per share7

0.01

Adjusted net investment income per share2

$0.24

$0.19

$0.21

 

1)

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

 

2)

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

 

3)

The per share data for distributions reflects the amount of distributions paid per share of our common stock to stockholders of
record during each applicable period.

 

4)

See FSIC's quarterly report on Form 10-Q for the three months ended September 30, 2018 for a description of FSIC's
investment strategies.

 

5)

Gross portfolio yield represents the expected annualized yield of FSIC's investment portfolio based on the composition of the
portfolio as of the applicable date. FSIC's estimated gross portfolio yield may be higher than an investor's yield on an
investment in shares of FSIC's common stock because it does not reflect sales commissions or charges that may be incurred
in connection with the purchase or sale of such shares, or operating expenses that may be incurred by FSIC. FSIC's estimated
gross portfolio yield does not represent an actual investment return to stockholders, is subject to change and, in the future,
may be greater or less than the rates set forth herein.

 

6)

 

Interest income is recorded on an accrual basis. See FSIC's quarterly report on Form 10-Q for the three months ended
September 30, 2018 for a description of FSIC's revenue recognition policy.

 

7)

FSIC's one-time expenses for the three months ended September 30, 2018 were $1,297 resulting from the acceleration of the
remaining unamortized deferred financing costs associated with the closing of the Hamilton Street Credit Facility.

 

Cision

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