FS/KKR Complete Mergers of BDCs
December 19, 2019 | Luke Schmidt | Blue Vault
On December 18, 2019, FS/KKR Advisor, LLC (“FS/KKR”) announced the closing of the mergers of four non-traded business development companies. FS Investment Corporation II (“FSIC II”), FS Investment Corporation III (“FSIC III”), FS Investment Corporation IV (“FSIC IV”) and Corporate Capital Trust II (“CCT II”) merged, with the combined company renamed FS KKR Capital Corp. II (“FSK II”). The combined entity becomes the second-largest BDC, including both traded and non-traded BDCS, with over $9.5 billion in assets and, as of September 30, 2019, 210 portfolio companies across 21 industries.
The mergers were initially announced by FS/KKR on June 3, 2019, with shareholders of all four BDCs voting to approve the mergers on November 22, 2019.
“As we explained in June when we announced our intention to merge these BDCs, we believe the scale, diversification, operating efficiencies and capital structure flexibility of the combined entity will drive shareholder value,” said Michael Forman, Chairman and CEO of FSK II. “The mergers also represent a major milestone in our plan to list FSK II in 2020.”
The mergers are also expected to reduce annual operating expenses through the elimination of duplicative legal, administrative, printing and other expenses.
Based on the merger exchange ratios, FSIC III, FSIC IV, and CCT II shareholders will receive 0.9804, 1.3634 and 1.1319 FSK II shares, respectively, for each share of FSIC III, FSIC IV and CCT II held. These exchange ratios were determined based on the closing net asset value (NAV) per share of $7.36, $7.22, $10.03 and $8.33 for FSIC II, FSIC III, FSIC IV, and CCT II, respectively, as of December 16, 2019. These ratios ensure that the NAV of shares investors will own in FSK II will be equal to the NAV of the shares they held in each fund.
The company intends to list its common stock on the NYSE in the first half of 2020, subject to market conditions and board approval. Prior to its public listing, FSK II plans to issue 5.50% perpetual preferred shares equivalent to about 20% of its NAV, pro rata to all holders of its common stock. FSK III anticipates paying distributions on the Company’s common stock on a quarterly basis, with the first distribution expected to be declared in March 2020 and paid in early April 2020.
These mergers do not impact FS KKR Capital Corp. (NYSE: FSK), a traded BDC also advised by FS/KK which trades on the NYSE.
Source: SEC, FS Investments, Blue Vault
