FS KKR Capital Corp II BDC Prices Unsecured Notes Offering

FS KKR Capital Corp. II (FSK II), a non-traded business development company, has priced a private placement offering of $475 million of its 4.25 percent unsecured notes due 2025. The offering is expected to close on February 14, 2020.

FSK II expects to use the net proceeds of the offering to repay outstanding debt under its senior secured revolving credit facility.

The notes will mature on February 14, 2025 and may be redeemed in whole or in part at FSK II’s option at any time at par plus a “make-whole” premium, provided that the notes may be redeemed at par one month prior to their maturity.

The new notes will be offered only to qualified institutional buyers under Rule 144A of the Securities Act or to non-U.S. persons in compliance with Regulation S under the Securities Act.

FSK II was formed from the December 2019 merger of four non-traded BDCs including FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, and Corporate Capital Trust II. The combined company became the second largest BDC with more than $9.5 billion in assets and, as of September 30, 2019, 210 portfolio companies across 21 industries.

FSK II invests primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market companies. The company is advised by FS/KKR Advisor LLC, a partnership between FS Investments and KKR Credit Advisors.

The company plans to list its common stock on the New York Stock Exchange during 2020, depending on market conditions and board approval. As of December 16, 2019, FSK II had a net asset value per share of $7.36.

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FS/KKR Closes $9.5 Billion Merger Creating Second Largest BDC

FS/KKR Advisor LLC, a partnership between FS Investments and KKR Credit Advisors LLC, has closed 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).

The combined entity, which is named FS KKR Capital Corp. II (FSK II), becomes the second largest BDC with more than $9.5 billion in assets and 210 portfolio companies across 21 industries, as of September 30, 2019.

FS/KKR Advisor plans to list FSK II common stock on the New York Stock Exchange next year.

“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 company also noted that the mergers are 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 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.

Prior to listing on the NYSE, FSK II plans to issue 5.50 percent perpetual preferred shares equivalent to approximately 20 percent of FSK II’s NAV, pro rata to all holders of FSK II common stock.

FSK II’s board anticipates paying quarterly distributions on the company’s common stock, with the first distribution expected to be declared in March 2020 and paid in early April 2020.

FSK II invests primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market companies.

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FS/KKR Receives Shareholder Approval for Non-Traded BDC Merger

FS/KKR Advisor LLC, a partnership between FS Investments and KKR Credit Advisors LLC, announced that the shareholders of four business development companies under its advisement – 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) – have voted to approve all proposals related to the mergers of FSIC III, FSIC IV and CCT II with and into FSIC II.

The mergers will create the second largest business development company, with approximately $9 billion in assets on a pro forma basis as of September 30, 2019. FS/KKR currently expects the mergers to close on December 18, 2019.

“We appreciate the support we have received from our shareholders, as this is an important step in maximizing value for them,” said Michael Forman, Chairman and CEO of FS Investments. “We continue to believe this combination will enhance portfolio diversification, reduce operating expenses and add further flexibility to the capital structure, all of which we expect will drive value.”

Upon closing of the mergers, shareholders of FSIC III, FSIC IV and CCT II will receive a number of FSIC II shares with a net asset value equal to the NAV of the shares they hold in each respective BDC being merged with FSIC II, with NAV determined shortly before closing.

At that time, FSIC II will be renamed FS KKR Capital Corp. II (FSK II). The common equity of the company will likely be listed on the New York Stock Exchange in the first half of 2020.

Post-merger, FSK II intends to pay distributions on a quarterly basis, with the first distribution payment expected to be declared in March 2020 and paid in early April 2020.

Following the closing of the mergers and prior to public listing, FSK II intends to issue 5.50 percent perpetual preferred equity, representing approximately 20 percent of its NAV to all holders of FSK II common equity.

FS/KKR serves as the investment adviser to BDCs with approximately $17 billion in assets under management as of September 30, 2019. The companies include FS KKR Capital Corp., FSIC II, FSIC III, FSIC IV and CCT II.

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FS/KKR Announces Senior Leadership Changes

FS/KKR Advisor LLC, a partnership between FS Investments and KKR Credit that serves as the investment adviser to business development companies with approximately $17 billion in assets under management, has announced several senior leadership changes in light of the potential merger of four non-traded BDCs advised by the firm.

FS/KKR announced plans in June to merge four non-traded BDCs including FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, and Corporate Capital Trust II. The combined company, will remain advised by FS/KKR, is expected to have more than $9 billion in assets and could be listed on the New York Stock Exchange in the fourth quarter of 2019.

Steven Lilly, who joined FS Investments as a managing director, will assume the role of chief financial officer of certain BDCs advised by FS/KKR in mid-November. In his role, Lilly will help lead and oversee the finance, investor relations and capital markets functions at FS KKR Capital Corp. (NYSE: FSK), FS Investment Corporation II, FS Investment Corporation III, and FS Investment Corporation IV (the BDCs).

“Steven’s strong financial services background and BDC industry knowledge will be invaluable to the BDCs as we continue to pursue our strategic initiatives,” said Michael Forman, chairman and chief executive officer of FS Investments. “We look forward to Steven’s contributions to the franchise as we work to complete the mergers and listing of our non-traded BDCs and deliver long-term shareholder value.”

Previously, Lilly spent 13 years as CFO of Triangle Capital Corporation, a publicly traded BDC which was sold to Benefit Street Partners and Barings LLC in 2018. At Triangle, he built the company’s financial and operating infrastructure, oversaw listings on the Nasdaq and the New York Stock Exchange in 2007 and 2010, respectively, and led all corporate M&A and strategic processes, the company said.

Effective with Lilly’s appointment, William Goebel, who currently serves as the BDCs’ chief financial officer, will become chief accounting officer of the BDCs’.

In addition, Daniel Pietrzak and Brian Gerson have been appointed co-presidents of the BDCs. Pietrzak is co-head of private credit at KKR and will continue to serve as chief investment officer of the BDCs, a position he has held since April 2018.

Gerson is head of private credit at FS Investments and has served on FS/KKR’s Investment Committee since April 2018.

In connection with Gerson and Pietrzak’s appointment, Todd Builione has stepped down as president of the BDCs, but will continue to serve as president of FS/KKR and as a director for each of the BDCs.

Finally, Drew O’Toole and Ryan Wilson have been appointed co-chief operating officers of the BDCs. O’Toole is an executive director of FS Investments, and Wilson is a director of KKR Credit and the chief operating officer of KKR Private Credit.

The BDCs managed by FS/KKR include FS KKR Capital Corp., FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and Corporate Capital Trust II.

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FS/KKR Plans to Merge Four Non-Traded BDCs in $9 Billion Combination

FS/KKR Advisor LLC, a partnership between FS Investments and KKR Credit Advisors LLC, have agreed to merge four non-traded business development companies under its advisement. The programs include 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).

FS/KKR Advisor said that the combined company will become the second largest BDC by assets under management, with more than $9 billion in assets as of March 31, 2019, with 208 portfolio companies across 20 industries.

The common equity of the combined company is currently expected to be listed on the New York Stock Exchange in the fourth quarter of 2019, subject to final board approval and market conditions. The combined company will remain advised by FS/KKR.

“We believe the transaction and staged liquidity plan, as it is structured, is in the best interest of shareholders of each fund and positions the combined company for long-term success,” said Michael Forman, chairman and CEO of FS Investments.

Under the terms of the agreement, shareholders of FSIC III, FSIC IV and CCT II will receive a number of FSIC II shares with a net asset value equal to the NAV of the shares they hold in each respective fund, as determined shortly before closing.

The combined company currently intends to issue approximately $1 billion of 5.50 percent perpetual preferred equity pro rata to holders of the combined company’s common equity prior to any public listing of the common equity.

Todd Builione, president of KKR Credit and Markets, added, “We expect this combination to enhance portfolio diversification and reduce operating expenses, as well as provide the combined company with a more flexible capital structure that will position it well to deliver strong investment performance.”

The company claims the NAV-for-NAV merger could provide the following benefits:

Provides certainty around transaction pricing and ensures shareholders receive equal value in FSIC II common equity, subject to merger-related expenses and other adjustments.

Reduces portfolio concentration in the top 10 investments and lowers single name exposure, while maintaining a focus on senior secured debt and floating rate debt.

Eliminates duplicative operating expenses such as legal, audit, regulatory and administrative costs. The combined company will benefit from leveraging its enhanced scale to reduce borrowing costs and potentially access debt capital markets as a publicly traded company.

The preferred equity provides current income (5.50 percent), ranks senior to the combined company’s common equity and enhances the expected dividend coverage, dividend yield and return on equity of the combined company’s common shares.

The transaction structure allows the combined company to select the optimal path to liquidity following the merger, based on market conditions and other considerations, and the single transaction eliminates the uncertainty of timing and the impact of future mergers on shareholder value.

Timing and Approvals

The boards of FSIC II, FSIC III, FSIC IV and CCT II have approved the transaction, and the mergers are expected to close in the fourth quarter of 2019, subject to shareholder approval and other customary closing conditions.

The issuance of the 5.50 percent perpetual preferred equity to the holders of the combined company’s common equity and the listing of the combined company’s common equity on the New York Stock Exchange are also expected to occur in the fourth quarter of 2019, subject to board approval and market conditions.

The proposed transaction does not include FS KKR Capital Corp. (NYSE: FSK), which will continue to be advised by FS/KKR and trade independently of the combined company on the New York Stock Exchange.

FS/KKR Advisor serves as the investment adviser to BDCs with approximately $17 billion in assets under management as of March 31, 2019. The BDCs managed by FS/KKR include FS KKR Capital Corp. (NYSE: FSK), FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and Corporate Capital Trust II.

KKR Credit is a subsidiary of KKR & Co. Inc., 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.

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FS Investment Corporation and Corporate Capital Trust Shareholders Approve $8 Billion Merger

FS/KKR Advisor, LLC (FS/KKR), a partnership between FS Investments and KKR Credit that serves as the investment adviser to six traded and non-traded business development companies, announced today that the shareholders of each of FS Investment Corporation (NYSE: FSIC) and Corporate Capital Trust, Inc. (NYSE: CCT) have voted to approve the proposals related to the merger of FSIC and CCT at FSIC’s and CCT’s respective annual meetings of shareholders held on December 3, 2018. The merger creates the second largest traded business development company in the country, with more than $8 billion in assets.

Subject to the satisfaction of certain other closing conditions, FS/KKR currently expects the merger to close on or around December 19, 2018. Upon closing of the merger, FS Investment Corporation will be renamed FS KKR Capital Corp. On the day following the closing of the merger, FS KKR Capital Corp. will begin trading on the New York Stock Exchange under the ticker symbol “FSK.”

In addition, on November 29, 2018, CCT’s board of directors declared a conditional special cash distribution that, subject to the closing of the merger, will be payable on or about December 27, 2018. The amount of the special cash distribution, which will be announced following the closing of the merger, will equal $0.40 per share plus any remaining estimated undistributed net investment income and net realized gains of CCT prior to the closing of the merger after giving effect to the $0.40 per share amount. Notwithstanding the record date, CCT shareholders must remain holders until the closing of the merger to retain rights to the payment of the special cash distribution.

The record date of the special cash distribution will be the close of business on December 18, 2018, but because CCT’s special cash distribution is conditioned on the closing of the merger, shares of CCT’s common stock will trade with a “due bill.” The holder of a share of CCT common stock that receives shares of FSIC in the merger will also receive the special cash distribution for that CCT share. A holder that sells shares of CCT common stock following the record date will not receive the special cash distribution for the CCT shares that are sold.

FS/KKR Advisor LLC oversees the market’s largest business development company platform, with $18 billion in combined assets under management. Headquartered in Philadelphia, FS Investments is the nation’s largest sponsor of business development companies and has offices in New York City, Orlando, and Washington, DC. KKR is 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.

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