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Franklin Square Expands Reach Into Lower Middle Market with $300 Million Investment

Franklin Square Capital Partners, manager to several non-traded business development companies (BDCs) and one publicly traded BDC, announced today a new strategic relationship that will broaden the Company’s reach into the lower middle market.

Publicly traded FS Investment Corporation (NYSE:FSIC), non-traded FS Investment Corporation II, and non-traded FS Investment Corporation III, collectively considered the FSIC platform, have committed $300 million to purchase 10-year subordinated notes plus warrants issued by NewStar Financial (NASDAQ: NEWS) (NewStar), a specialized commercial finance company.

The warrants will come in two tranches and be exercisable into 12 million shares of common stock at an exercise price of $12.62. NewStar closed today at $13.18.

Like Franklin Square and GSO Capital Partners – sub-advisor to FSCP’s funds, NewStar, formed in 2004 by a team of senior banking executives, also provides capital solutions to mid-sized companies. The Company offers an array of financing options for working capital and growth strategies, to fund acquisitions, to recapitalize, and to purchase equipment.

The investment by the FSIC platform funds is expected to drive NewStar’s expansion. The finance company plans to use the proceeds to strengthen its capacity to write more loans across all business lines and accordingly, boost asset growth.

Michael C. Forman, Chairman and CEO of Franklin Square commented, “In addition to our investment in NewStar, we expect our strategic relationship to result in further lending and co-lending opportunities, expand our access to attractive lower middle market investments, and allow us to offer additional financing solutions to current and future portfolio companies.”

“NewStar is widely recognized as a leader in middle market commercial lending. I have known Tim Conway and Peter Schmidt-Fellner, NewStar’s CEO and Chief Investment Officer, respectively, for many years. They have managed the firm extremely well and their investment style and credit philosophy are completely consistent with ours,” said Bennett Goodman, Senior Managing Director and Co-Founder of GSO in a separate statement.