FS and KKR Merging Two Public BDCs, Creating $15 Billion Lending Firm
November 25, 2020 | Bloomberg
Two business development companies managed by a joint venture of FS Investments and KKR & Co.’s credit arm are planning to merge, creating a $15 billion lending vehicle that will be one of the largest providers of financing to midsized firms in the U.S.
The merger combines FS KKR Capital Corp. and FS KKR Capital Corp. II into an entity with more than $3 billion of committed capital available for new investments, according to a Tuesday statement. The newly combined BDC, which will keep operating under FS KKR Capital Corp. banner, will continue to focus mainly on senior secured debt investments.
“We’re focused on the upper end of the middle market,” KKR’s Daniel Pietrzak said in an interview. “We believe — and Covid has shown to be true — that larger companies probably have a deeper management team, less customer and supplier concentration and just more levers to pull if there’s a challenge.”
BDCs, the most visible corner of the $850 billion private debt market, have ballooned since the 2008 financial crisis as traditional lenders retrenched from providing financing to small- and medium-sized businesses. Since then — often operating under the purview of some of the biggest names in credit and private equity — they’ve grown larger and begun doing bigger deals, too.
FS KKR Capital Corp. will have enhanced access to the investment-grade debt markets, a stronger dividend profile and lower overall expenses, Michael Forman, chief executive officer of both BDCs, said in the statement.
The boards of both BDCs have approved the merger, which is expected to close during the second or third quarter of 2021. FS/KKR Advisor LLC — a partnership between FS Investments and KKR Credit — is investment adviser to the BDCs.
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