FS/KKR Advisor LLC, a partnership between FS Investments and KKR Credit Advisors, plan to merge FS Investment Corporation (NYSE: FSIC) and Corporate Capital Trust Inc. (NYSE: CCT), two publicly-traded business development companies that both began as non-traded BDCs. If approved by shareholders, the merger will create the second largest publicly-traded BDC in the country.
FS Investments is a leading asset manager and sponsor of non-traded business development companies. KKR Credit is a subsidiary of KKR & Co. LP, a global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic manager partnerships that manage hedge funds.
The combined company will have on a pro-forma basis more than $8 billion in assets invested in 221 portfolio companies across 23 industries as of March 31, 2018. The boards of both FSIC and CCT have approved the transaction.
Under the terms of the agreement, CCT shareholders will receive a number of FSIC shares with a net asset value equal to the NAV of the CCT shares they hold, as determined shortly before closing. Fractional shares will be paid in cash.
The combined company will trade under the ticker symbol “FSIC” on the New York Stock Exchange and will remain externally managed by FS/KKR. The transaction is subject to approval by FSIC and CCT shareholders and other customary closing conditions. FSIC and CCT expect to close the transaction in the fourth quarter of 2018.
The companies noted that the “proposed merger is expected to provide a range of near-term and long-term benefits focused on driving shareholder returns through reduced operating expenses, enhanced portfolio diversification, lower financing costs and improved secondary market liquidity.”
In April 2018, FS Investments and KKR partnered to create the market’s largest BDC platform. FS/KKR Advisor serves as the investment adviser to six BDCs with approximately $18 billion in assets under management as of March 31, 2018. The BDCs managed by FS/KKR include FSIC, FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, CCT and Corporate Capital Trust II.
“Since we announced our partnership with KKR last December, we have made consistent progress across a number of initiatives designed to fully leverage the benefits of our combined platform,” said Michael Forman, chief executive officer of FSIC and CCT. “Today’s announcement, which comes ahead of our initial timeline expectation, is an important first step in optimizing the platform and positions us to deliver strong, consistent performance for investors.”
FS Investment Corporation, which is advised by FS/KKR Advisor, invests primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market companies. Corporate Capital Trust is externally managed by FS/KKR Advisor and invests primarily in the debt of privately owned companies, with a focus on originated transactions.