FS Investments and KKR Credit Advisors are once again working on merging various business development companies, this time combining four nontraded BDCs into one publicly traded one.
Plans call for the merged BDC, with $9 billion worth of assets, to be listed on the
New York Stock Exchange by the end of the year.
The two managers announced the plan to combine the four BDCs on Monday after the market closed. It's not the first merger they have worked on; in December, FS/KKR Advisor, a partnership between FS Investments and KKR Credit Advisors (US),
said it had merged two traded BDCs, renaming the companies FS KKR Capital Corp.
The new merger of the four illiquid BDCs will be closely watched across the independent broker-dealer industry as those firms were the primary seller of FS Investments' line of products. The four BDCs are: FS Investment Corp. II; FS Investment Corp. III; FS Investment Corp. IV; and Corporate Capital Trust II.
FS Investments
is a business development company and alternative investments behemoth. The brainchild of Michael Forman, its CEO and chairman, and a group of partners, the Philadelphia-based firm manages $23.4 billion across its line-up of almost a dozen funds. Nontraded BDCs are investments that are typically sold by brokers and may have high commissions.
Formerly Franklin Square Capital Partners, FS Investments' BDCs are essentially banks, raising capital from investors and making loans to private companies to qualify as a BDC. BDCs typically are closed-end companies that invest primarily in debt and equity of private companies. Yields can be attractive because of the BDCs' exposure to high credit risks amplified by leverage.
The combination of the four non-traded BDCs would cut $11 million in expenses for legal, administrative, printing and other costs.
As a sweetener for current holders of the common stock of the BDCs, the combined company plans to issue $1 billion of 5.5% perpetual preferred equity prior to any listing of a new company.
"We believe the transaction and staged liquidity plan, as it is structured, is in the best interest of shareholders of each fund and positions the combined company for long-term success," Mr. Forman
said in a press release.
