FS Investment Corporation, the fast-growing, $4.5 billion-asset "Business Development Company" investment fund set up by Philadelphia-based Franklin Square Capital Partners to buy junk bonds and high-yield and secured corporate loans (loans are 73% of the total) picked by Blackstone's GSO Partners, plans to begin trading on the New York Stock Exchange (symbol: FSIC) on April 16. S&P last week rated the fund itself BBB- (the lowest investment grade rating, from a credit perspective), with a "positive outlook."
Franklin Square, owned by lawyer-turned-investor Michael Forman and campus-housing mogul David Adelman, manages debt, energy and other funds worth over $10 billion, and employs around 180. The company plans to move its Philadelphia headquarters, from the Cira Center next to the 30th St. Amtrak/Septa station, down to a new building in the former Philadelphia Naval Base. Forman says he'd like to see Franklin Square grow into something like the Vanguard Group for alternative investments, with a growing menu of funds invested in non-traded assets. Unlike low-fee Vanguard, Franklin Square funds are typically actively-managed (not index-based), and sold through brokers charging upfront fees.
In the face of prolonged low interest rates for Treasury bonds and high-rated debt securities, FSIC says it has rewarded investors for betting on high-interest, high-risk debt at major corporations. FSIC says it will boost its monthly cash distribution from 7.2 cents a share to 7.425 cents a share, effective April 1. The company says that works out to an annualized payout of $8.68 per every $100 invested, going foward, based on its Feb. 28 net asset value of $10.27 a share. The board will also pay out special distributions of a dime a share on both Aug. 15 (for shareholders at July 31) and Nov. 14 (for Oct. 31 shareholders). In a statement, Forman said the company has paid out 16%, annualized, since its inception in 2009 (correctede). Fund returns could fall if the economy slows, and corporate defaults increase.
JPMorgan Securities LLC, Wells Fargo Securities, LLC, and BofA Merrill Lynch are co-advisories for the stock listing and Wells Fargo will manage the tender offer.