- Blackstone GSO is sub-adviser to fund
- FSIC will be among largest BDCs in market
- Sector is growing as banks pull back
FSIC said it expects to list its common stock on the NYSE on April 16, under the symbol FSIC, according to a statement.
Business development companies are closed-end investment funds that lend to and invest in small and mid-sized private U.S. companies. The funds raise equity capital from retail and institutional investors and in turn deploy that capital to borrowers that typically have more limited access to the capital markets.
The BDC universe includes both non-traded vehicles, as well as publicly traded funds.
With the listing, FSIC, which is managed by Franklin Square and sub-advised by GSO Capital Partners, the credit platform of investment firm The Blackstone Group, will shift from a non-traded, or unlisted, fund to a publicly traded one.
FSIC offers mainstream, or retail, investors, exposure to private companies, an investment typically available to large institutional investors.
With a portfolio of $4.5 billion in assets, as of Feb. 28, FSIC’s forthcoming listing marks the largest initial listing of a BDC, and puts FSIC among some of the largest BDCs in the market.
By comparison, Ares Capital Corp, the BDC unit of Ares Management LLC, has an approximately $7.5 billion portfolio, American Capital Ltd is $5.5 billion in size and Prospect Capital Corp’s portfolio is about $4.97 billion, according to Wells Fargo.
FSIC’s size, the quality and uniqueness of the portfolio, and the strength of the Franklin Square-Blackstone GSO partnership distinguish the fund from its peers, said Forman.
FSIC invests primarily in the floating rate, senior secured debt of private U.S. companies. As of Feb. 28, FSIC is invested across 159 portfolio companies, with 83 percent of the portfolio comprising senior secured investments, including first- and second-lien loans, as well as senior secured bonds.
The portfolio is a mix of direct origination senior debt investments alongside private equity investors in leveraged buyouts and private companies, as well as event driven transactions and syndicated loan investments. In 2013, FSIC’s average direct origination commitment amount was $55.7 million.
Fifty-four percent of the portfolio was directly originated as of Feb. 28. Opportunistic investments were 27 percent of the total and investments in broadly syndicated loans made up 19 percent.
Unlike an initial public offering, in which shares are sold to the public to raise new capital, FSIC will not raise new equity in conjunction with the listing.
However, as previously announced, FSIC will conduct a post-listing tender offer to purchase up to $250 million in shares of common stock from existing investors.
GSO Capital is considering the purchase of up to $50 million in FSIC shares following the listing and completion of the tender offer, FSIC said in a statement. Likewise, Franklin Square and members of FSIC and Franklin Square management are considering the purchase of up to $100 million and $25 million, respectively, of FSIC shares after the listing and tender offer are complete.
The listing comes as BDCs are competing with other alternative capital providers for a larger share of the mid-market lending pie as banks are increasingly constrained by new regulatory requirements that could meaningfully curb leveraged lending. BDCs have seen significant growth and are widely expected to benefit from the evolving lender landscape.
BDC loan balances peaked in the fourth quarter of 2013 at almost $40 billion, up from $15.4 billion in the fourth quarter of 2007, before the financial crisis. And since 2009, more than $27 billion in cumulative BDC equity has been raised.
“I think over time the BDC industry will grow to meet the lending needs of middle market companies that many banks no longer serve. If that is the case, I believe BDCs will be a corporate analog to the role REITs have played in the real estate space,” said Forman.
Leela Parker Deo is a senior correspondent for Thomson Reuters LPC.