First Brand fallout hits FS Specialty Lending Fund as it wins approval to trade

The collapse and bankruptcy of an auto part giant First Brands Group, with likely billions in debt outstanding, is beginning to have an impact on financial advisors, with one popular private debt fund, FS Specialty Lending Fund, this week saying it no longer had exposure to First Brands. 

That came after reporting over the summer the fund held loans of the company valued close to $26.6 million.

FS Specialty Lending Fund’s disclosure about First Brands came in a regulatory filing on Tuesday, the same day the company said, after falling short a few weeks ago of getting shareholder support to start trading, the $1.9 billion fund crossed the goal line and won investors’ approval to list its shares later this year. 

Alternative investments like FS Specialty Lending were sold by financial advisors to clients over the past 10 years seeking yield and private assets that were not correlated to the broad stock market.

FS is a leading manager of private credit and other alternative asset classes; FS Investments, based in Philadelphia and the brainchild of Michael Forman, this summer rebranded the firm as Future Standard, with $86 billion in investments. 

A spokesperson for Future Standard did not immediatly comment when asked about the impact of the First Brands bankruptcy on the fund. 

Sales of alternative investments, which are typically more expensive than plain vanilla stock and bond funds, have exploded over that period, with fund raising expected to reach a record $200 billion this year for such funds.

The FS fund did not initially win shareholders’ approval during a first round of voting that was tallied on September 26. After that, the fund sought more time to get the votes needed to list on the NYSE.

The fund’s exposure to First Brands is about 1.4% of its total assets, according to totals released in August that account for where the fund stood at the end of June.

The loans were to mature in March 2027, according to the report.

First Brands, based in Cleveland, filed for bankruptcy late last month after the market lost confidence in its financial disclosures and use of off-balance-sheet debt, according to the Wall Street Journal.

“FS Specialty is moving pretty quick to get the listing done,” said one senior executive, who spoke privately to InvestmentNews about the matter. Other senior industry executives have been nervously watching private credit markets for months with trepidation.

FS Specialty Lending Fund is a business development company, which means it invests in private company debt. Several other BDCs also have exposure to First Brands loans, the executive noted.

The FS Specialty Lending Fund’s net asset value – NAV – is $19.82 per share as of July, according to the fund. It’s immediately not clear what kind of impact the First Brands bankruptcy will have on the fund’s NAV.

FS Specialty Lending Fund in April said its board approved a plan to prepare for the listing of its common shares on the New York Stock Exchange. The board also approved a 6 to 1 reverse share split at the time.

In advance of the listing, the intention is to convert the fund from a BDC to a closed-end fund.  

The closed-end fund expects to begin trading on the NYSE under the ticker symbol FSSL before the end of the fourth quarter of 2025.

The fund launched in 2011 and was initially named the FS Energy & Power Fund.