8-K
FS Credit Opportunities Corp. (FSCO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):November 10, 2022
FS CREDIT OPPORTUNITIES CORP.
(Exact name of Registrant as specified in its charter)
| Maryland | 811-22802 | 46-1882356 |
|---|---|---|
| (State or other jurisdiction<br><br> <br>of incorporation) | (Commission<br><br> <br>File Number) | (I.R.S. Employer<br><br> <br>Identification No.) |
| 201 Rouse Boulevard<br><br> <br>Philadelphia, Pennsylvania | 19112 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including areacode: (215) 495-1150
None
(Former name or former address, if changed sincelast report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | TradingSymbol(s) | Name of each exchangeon which registered |
|---|---|---|
| N/A | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Conditions |
|---|
On November 10, 2022, FS Credit Opportunities Corp. (the “Company”) posted on its website (https://fsinvestments.com/investments/all-investments/fsco/) a presentation providing a business update and estimated financial results as of, and for the nine months ended, September 30, 2022, a copy of which is furnished hereto as Exhibit 99.1 and is incorporated herein by reference. The presentation contains forward-looking statements regarding the Company and includes a cautionary note identifying important factors that could cause actual results to differ from those anticipated. Except as may be required by federal securities laws, the Company undertakes no duty or obligation to update or revise the information contained in the presentation.
The information contained in Item 2.02 and Exhibit 99.1 furnished hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such a filing.
| Item 7.01 | Regulation FD Disclosures. |
|---|
Investor Presentation and FAQs
In connection with the expected listing of the common stock of the Company on the New York Stock Exchange (the “Listing”) proposed to occur on November 14, 2022, the Company has published an updated investor presentation, a copy of which is furnished hereto as Exhibit 99.2, and an updated overview and frequently-asked-questions regarding the Listing, a copy of which is furnished hereto as Exhibit 99.3. Exhibit 99.2 and Exhibit 99.3 furnished hereto shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such a filing. There can be no assurance that the Company will be able to complete the Listing in the expected timeframe or at all. Except as may be required by federal securities laws, the Company undertakes no duty or obligation to update or revise the information contained in these exhibits.
Cautionary Statement Concerning Forward-Looking Statements
Statements included herein may constitute “forward-looking” statements as that term is defined in Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, including statements with regard to future events or the future performance or operations of the Company. Words such as “intends,” “will,” “expects,” and “may” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. Factors that could cause actual results to differ materially include changes in the economy, geo-political risks, risks associated with possible disruption to the Company’s operations or the economy generally due to hostilities, terrorism, natural disasters or pandemics such as COVID-19, future changes in laws or regulations and conditions in the Company’s operating area, unexpected costs, the ability of the Company to complete the listing, the price at which the Company’s shares of common stock may trade on the New York Stock Exchange and such other factors that are disclosed in the Company’s filings with the Securities and Exchange Commission (the “SEC”). The inclusion of forward-looking statements should not be regarded as a representation that any plans, estimates or expectations will be achieved. Any forward-looking statements speak only as of the date of this communication. Except as required by federal securities laws, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on any of these forward-looking statements.
| Item 9.01 | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits. |
| --- | --- |
| EXHIBIT<br> NUMBER | DESCRIPTION |
| --- | --- |
| Exhibit<br> 99.1 | Presentation of Business Update and Estimated<br> Financial Results of FS Credit Opportunities Corp. for the quarter ended September 30, 2022. |
| Exhibit 99.2 | FS Credit Opportunities Corp. Investor Presentation |
| Exhibit<br> 99.3 | FS Credit Opportunities Corp. Listing Overview & FAQs |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FS Credit Opportunities Corp. | ||
|---|---|---|
| Date: November 10, 2022 | By: | /s/ Stephen S. Sypherd |
| Stephen S. Sypherd | ||
| Vice President, Treasurer and Secretary |
FS Credit Opportunities Corp. 8-K
Exhibit 99.1
FS Credit Opportunities Corp. 1 Q3 portfolio and performance update November 2022
Financial and Operational Results 2 Select Balance Sheet Data ($MM) Cash $142 Portfolio Fair Value $1,953 Total Assets $2,132 Debt Outstanding 2 $733 Total Liabilities $820 Shareholder’s Equity $1,312 NAV per Share $6.62 Select Operational Data ($MM) Investment Income $176 Net Investment Income $103 Distributions Paid $75 Select Coverage Data Asset coverage per unit of credit facility borrowings 5.97x Asset coverage per unit of term preferred shares 2.72x Select Financial and Operating Results 1 1. Set forth in the tables below are preliminary estimates of certain components of our financial condition and results of opera tio ns as of and for the nine months ended September 30, 2022. These estimates are subject to the completion of financial closing procedures and are not a comprehensive statement of our financial results as the nine months ended September 30, 2022. Actual re sults may differ from these estimates as a result of the completion of our financial closing procedures, final adjustments and other developments arising between now and the time that financial quarterly results for the nine months ended September 30, 2022 are finalized. All information is estimated as of September 30, 2022 unless otherwise noted. Weighted average shares outstanding for the nine months ended September 30, 2022 were 196.9M. 2. Includes $398M of preferred equity. The following presentation is intended to provide information related to the financial and operating condition of the Fund as of September 30, 2022.
Portfolio Overview 1 55% Senior S ecured Loans – 1st Lien 10% Senior Secured Loans – 2nd Lien 16% Senior Secured Bonds 5% Subordinated Debt 7% Asset Based Finance 7% Equity/Other Sector allocations 4 95% United States 1% Europe 4% Other 13% Health Care Equipment & Services 9% Energy 13% Consumer Services 6% Retailing 10% Commercial & Professional Services 5% Pharmaceuticals, Biotechnology & Life Sciences 10% Capital Goods 25% Other 9% Diversified Financials All figures based on estimated fair value as of September 30, 2022. 1. Set forth below are preliminary estimates of certain components of our financial condition and results of operations for the thr ee months ended September 30, 2022. These estimates are subject to the completion of financial closing procedures and are not a comprehensive statement of our financial results for the three months ended September 30, 2022. Actual results may differ from these estima tes as a result of the completion of our financial closing procedures, final adjustments and other developments arising between n ow and the time that financial quarterly results for the three months ended September 30, 2022 are finalized. All information is estimated as of S ept ember 30, 2022 unless otherwise noted. 2. Includes floating rate assets on a look - through basis within the FSCO’s Asset Based Finance investments. 3. Senior secured debt includes first lien loans, second lien loans and senior secured bonds. 4. “Other” includes Automobiles & Components, Transportation and Software & Services (4% each); Materials, Insurance, Consumer D ura bles & Apparel and Telecommunication Services (2% each); Technology Hardware & Equipment, Food & Staples Retailing, Food, Bev era ge & Tobacco, Banks and Media & Entertainment (1% each). 3 $2.1B Total assets 85 Portfolio companies 64% Floating rate 2 82% Secured debt 3 9% Target dividend at listing Asset type Geographic location
4 An investment in FS Credit Opportunities Corp. (FSCO) involves a high degree of risk and may be considered speculative. Inves tor s are advised to read and carefully consider the risk factors and other important information found in FSCO’s reports filed with the U.S. Securities and Exchange Commissi on (SEC). This presentation is for informational purposes only and does not constitute an offer to sell nor a solicitation of an offer to buy the securities described herein. CAUTIONARY NOTE REGARDING FORWARD - LOOKING STATEMENTS Statements included herein may constitute “forward - looking” statements as that term is defined in Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, including statements with regard to future events or the fut ure performance or operations of the Company. Words such as “intends,” “will,” “expects,” and “may” or similar expressions are intended to identify forward - looking statements. These for ward - looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially fr om those projected in these forward - looking statements. Factors that could cause actual results to differ materially include changes in the economy, geo - political risks, risks associated with possi ble disruption to the Company’s operations or the economy generally due to hostilities, terrorism, natural disasters or pandemics such as COVID - 19, future changes in laws or regulations and conditions in the Company’s operating area, unexpected costs, the ability of the Company to complete the listing, the price at which the Company’s shares of common stock may trade on the New York Stock Exchange and such other factors that are disclosed in the Company’s filings with the Securities and Exchange Commission (the “SEC”). The inclusion of forward - looking statements should not be regarded as a representation that any plans, estimates or expectations will be achieved. Any forward - looking statements speak only as of the date of this com munication. Except as required by federal securities laws, the Company undertakes no obligation to update or revise any forward - looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on any of these forward - looking statements. Disclosures
5 An investment in FSCO involves a high degree of risk and may be considered speculative. The following are some of the risks a n i nvestment in the shares of common stock of FSCO (the Shares) involves; however, investors should carefully consider the risk factors and other important information fou nd in FSCO's reports filed with the SEC: • Shareholders of FSCO (the Shareholders) should consider that an investment in the shares of common stock of the Company may r esu lt in loss in principal. • When a Shareholder sells their Shares, the Shareholder may receive less than their purchase price and the then - current net asset value, or NAV, per Share. • Shares of closed - end funds frequently trade at a discount to NAV and this creates a risk of loss for investors who purchased Sha res at the time of listing on the New York Stock Exchange (the Listing). This risk is separate and distinct from the risk that FSCO’s NAV will decrease. • Following the Listing, certain directors and officers of the Company and its affiliates expect to make commitments to an inve stm ent fund that is currently intended to be established to invest from time to time in the Shares. The investment fund would be managed by a third party and the Company - rel ated investors would not exercise investment or voting control over the investment fund. There can be no assurances that the investment fund will be establishe d, and if it is, the amount or timing of any purchases of the Shares. • FSCO’s distributions may be funded from unlimited amounts of offering proceeds or borrowings, which may constitute a return o f c apital and reduce the amount of capital available to FSCO for investment. Any capital returned to Shareholders through distributions will be distributed after paymen t o f fees and expenses, as well as the sales load. • FSCO’s previous distributions to Shareholders were funded in significant part from the reimbursement of certain expenses, inc lud ing through the waiver of certain investment advisory fees, and additional support payments that may be subject to repayment to FSCO’s affiliate, Franklin Square Holdings , L .P. (FS Investments), and FSCO’s future distributions may be funded from such waivers, reimbursements or payments. Significant portions of these distributions were n ot based on FSCO’s investment performance and such waivers, reimbursements and payments by FS Investments may not continue in the future. If FS Investments had not agr eed to reimburse certain of FSCO’s expenses, including through the waiver of certain advisory fees payable by FSCO, and provide additional support payments, sig nif icant portions of FSCO’s distributions would have come from offering proceeds or borrowings. The repayment of any amounts owed to FS Investments will reduce the future di str ibutions to which the Shareholders would otherwise be entitled. • FSCO’s investments in securities and other obligations of companies that are experiencing distress involve a substantial degr ee of risk, require a high level of analytical sophistication for successful investment and require active monitoring. Risk factors
6 Risk factors (continued) • FSCO’s investments in various types of debt securities and instruments may be secured, unsecured, rated or unrated, are subje ct to non - payment risk, and may be speculative in nature. • Below investment grade instruments (commonly referred to as “high yield” securities or “junk bonds”) may be particularly susc ept ible to economic downturns, which could cause losses. • FSCO may invest in illiquid and restricted securities that may be difficult to dispose of at a fair price. • FSCO’s use of leverage could result in special risks for the Shareholders and can magnify the effect of any losses. • Investments in certain securities or other instruments of non - U.S. issuers or borrowers may involve factors not typically associ ated with investing in the United States or other developed countries. • Securities or other instruments of non - U.S. securities may be traded in underdeveloped, inefficient and less liquid markets and may experience greater price volatility, illiquidity and changes in value. • FS Global Advisor, LLC and certain of its affiliates may experience conflicts of interest in connection with the management o f F SCO. • FSCO seeks to achieve its investment objectives by focusing on a limited number of opportunities across the investment univer se. • The global outbreak of COVID - 19 (commonly known as the coronavirus) has caused volatility, severe market dislocations and liquid ity constraints in many markets, including securities FSCO holds, and may adversely affect FSCO’s investments and operations. Such impacts may adversely affect the perf orm ance of FSCO’s investments and FSCO. • The national and global political environment, including foreign relations and trading policies, as well as the impact of Rus sia 's invasion of Ukraine and related sanctions, and potential retaliatory actions may adversely affect the performance of FSCO’s investments and FSCO. • We expect that the current market conditions may have a lasting and, in some instances, permanent impact on some of our portf oli o companies as they struggle to meet covenant obligations and face insolvency in future periods. Poor performance or insolvency of our portfolio companies could h ave a material adverse impact on our financial condition and results of operations.
FS Credit Opportunities Corp. 8-K
Exhibit 99.2
FS Credit Opportunities Corp. A flexible credit solution for today’s complex and changing markets November 2022 All information is as of June 30, 2022, unless otherwise noted.
2 Forward - looking statements Statements included herein may constitute “forward - looking” statements as that term is defined in Section 27A of the Securities Act of 193 3, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, including statements with regard to fu ture events or the future performance or operations of the Fund. Words such as “intends”, “will”, “may”, “believes,” “expects,” “projects,” and “future” or similar expressions are intended to identify for war d - looking statements. These forward - looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially fr om those projected in these forward - looking statements. Factors that could cause actual results to differ materially include changes in the economy, geo - political risks, risks associated with possible disruption to t he Fund’s operations or the economy generally due to hostilities, terrorism, natural disasters or pandemics such as COVID - 19, future changes in laws or regulations and conditions in the Fund’s operating area, unex pected costs, the ability of the Fund to complete the listing of the common stock of the Fund on a national securities exchange, the price at which the Fund’s shares of common stock may trade on a nati ona l securities exchange, and failure to list the common stock of the Fund on a national securities exchange. Some of these factors are enumerated in the filings the Fund made with the Securities and Excha nge Commission (the SEC) and are also contained in the presentation. The inclusion of forward - looking statements should not be regarded as a representation that any plans, estimates or expectations wil l be achieved. Any forward - looking statements speak only as of the date of this communication. Except as required by federal securities laws, the Fund undertakes no obligation to update or revise any forwa rd - looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on any of these forward - looking statements. Disclosures
3 FS Credit Opportunities Corp. (the “Fund” or “FSCO”) intends to list its shares on the NYSE on or around November 14, 2022, through a direct listing, subject to market conditions. The Fund will rank as one of the largest credit - focused closed - end funds based on total assets with an attractive dividend yield , strong track record and differentiated strategy investing in public and private credit markets. • Since 2018, the FS Liquid Credit and Special Situations Group has been led by former Goldman Sachs industry veterans, Andrew Beckman and Nick Heilbut • The team benefits from the expertise, infrastructure and relationships of FS Investments, a $35 billion alternative asset manager • FSCO invests across non - traditional credit opportunities in public and private credit markets , including opportunistic and event - driven credit, dislocated and special situations and private capital structured solutions • The flexibility to dynamically adjust allocations between public and private markets has been a significant driver of our ability to deliver strong risk - adjusted returns across changing economic and credit cycles Past performance is no guarantee of future results. 1. Represents the targeted annualized dividend shortly following the listing. Based on FSCO’s net asset value as of October 31, 202 2. The actual dividend yield at listing may be higher or lower based on the then current NAV. The payment of future dividends on FSCO’s common shares is subject to the discretion of FSCO's board of directors and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future dividends. 2. As of June 30, 2022. Senior secured debt includes first lien loans, second lien loans and senior secured bonds. 3. As of June 30, 2022. Includes floating rate assets on a look - through basis within the FSCO’s Asset Based Finance investments. 4. As of June 30, 2022. Includes all debt investments. Duration measures the sensitivity of a fixed income investment’s price to ch anges in interest rates and is measured in years. A duration of 1.25 years suggests that a 1% rise in interest rates would equate to a 1.25% decline in FSCO’s NAV and vice versa as rates fa ll. 5. Excludes preferred equity. Executive summary $2.1B 9.0% Assets under management Targeted dividend yield at listing 1 81% 64% Senior secured debt 2 Floating rate assets 3 1.25yrs 0.25x Average duration 4 Debt - to - equity 5
4 1 Strategy overview 2 Management team & investment process 3 Portfolio highlights & competitive positioning 4 Appendix Agenda
Strategy overview
6 1. As of June 30, 2022. 2. Based on the Fund’s net asset value as of October 31, 2022. The actual dividend yield at listing may be higher or lower based on the then current NAV. The payment of future dividends on FSCO’s common shares is subject to the discretion of FSCO's board of directors and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future dividends. 3. As of October 31, 2022. FS Investments’ Liquid Credit & Special Situations Team took over all portfolio management responsibi lit ies for FSCO in January 2018. 4. As of October 31, 2022. High yield bonds are represented by the ICE Bank of America Merrill Lynch U.S. High Yield Bond Index. Lo ans are represented by the Credit Suisse Leveraged Loan Index. The three - month U.S. treasury bill was the risk - free rate used to calculate the Sharpe Ratio. 5. As of June 30, 2022. Senior secured debt includes first lien loans, second lien loans and senior secured bonds. 6. As of June 30, 2022. Includes all debt investments. Duration measures the sensitivity of a fixed income investment’s price to ch anges in interest rates and is measured in years. A duration of 1.25 years suggests that a 1% rise in interest rates would eq uat e to a 1.25% decline in FSCO’s NAV and vice versa as rates fall. 7. As of June 30, 2022. Based on fair value. Includes floating rate assets on a look - through basis within the FSCO’s Asset Based Finance investments. 8. Excludes preferred equity. FS Credit Opportunities Corp. overview Scaled portfolio & platform Fully - earned dividend Strong manager track record Differentiated strategy Long - term fund & capital structure $2.1 billion assets under management, ranking as one of the largest credit - focused closed - end funds 1 Benefits from the expertise, infrastructure and relationships of FS Investments , a $35 billion alternative asset manager The FS Liquid Credit & Special Situations Group is a dedicated portfolio team responsible for the day - to - day operations of the Fund Attractive dividend ‒ 9.0% targeted dividend yield at listing 2 ‒ Expect to enhance the dividend yield at listing Fully - funded dividend since January 2018 2 ‒ Net investment income has averaged 119 % of monthly dividends Strong relative performance 3 ‒ Outperformed high yield bonds by over 230bps per year since Jan 2018 4 ‒ Outperformed loans by approximately 130bps per year since Jan 2018 4 Superior risk - adjusted returns 3,4 ‒ Sharpe ratio since Jan 2018 • FSCO: 0.30 • High yield bonds: 0.08 • Loans: 0.25 Private & public markets Ability to adjust allocations between public and private markets across changing economic and credit cycles Defensively oriented ‒ 81% senior secured debt 5 ‒ 53% first lien debt Low duration ‒ Average duration: 1.25 years 6 ‒ 64% floating rate assets 7 Benefits of closed - end fund ‒ Not forced to sell assets to meet redemptions ‒ Ability to hold higher allocation of private assets vs. daily liquid funds ‒ Permanent capital provides opportunity to capitalize on market dislocations Diversified funding sources ‒ 0.25x debt - to - equity 8 ‒ Revolving and term facilities ‒ Preferred equity financings • Multi - year • Predominantly fixed rate • Favorable regulatory treatment
7 Flexible strategy investing in public and private markets Public markets Private markets • Event - driven investing in credits with catalysts for price appreciation, including M&A, refinancing, debt maturities, earnings growth • Opportunistic performing credit ‒ High quality credits in out - of - favor industries ‒ Opportunities created during dislocations ‒ Complex situations in primary markets ‒ Misunderstood or off - the - run credit • Special Situations : Idiosyncratic stressed & distressed borrowers • Financings to unconventional credit profiles outside the focus of banks, traditional BDCs, and conventional lenders • Transitional capital • Rescue financing / distressed / stressed • Lending to dislocated sectors • Sponsored and non - sponsored transactions The flexibility to adjust allocations between public and private markets has been a significant driver of our ability to deliver strong risk - adjusted returns across changing economic and credit cycles for investors
8 Differentiated strategy vs. competitor set FSCO vs. Public closed - end funds FSCO vs. Direct lending strategies • Ability to increase private credit allocation when risk - reward is more compelling vs. public markets • Strategy more heavily focused on event - driven investing vs. peers • Greater flexibility to allocate between fixed & floating rate assets • Dedicated investment team & full beneficiary of deal flow • Greater flexibility to adjust allocations across business cycles & changing market conditions by investing in public markets • Potential for yield/return premium by focusing on opportunities often overlooked by larger credit platforms ‒ Avg. size of our private investments (~$30M) ‒ Potential for structuring/exit fees • Size of asset base allows us to be nimble and allocate to high - conviction ideas to drive alpha • Lower duration • Daily liquidity with a ticker post - NYSE listing • No drawdown
9 FSCO has outperformed the liquid indexes since the change in management in January 2018 Past performance is not a guarantee of future results. The benchmarks are shown for illustrative purposes only. An investment cannot be made directly in an index. The Fund’s actual in vestments and performance may differ substantially from those of the indexes presented. High yield bonds are represented by the ICE BofAML U.S. High Yield Index. Loans are represented by the Credit Suisse Leverage d L oan Index. Track record of generating strong risk - adjusted returns Since January 1, 2018 As of October 31, 2022 YTD 1YR 3YR Annualized return Sharpe ratio FSCO (net NAV return) - 9.92% - 9.63% 3.03% 4.33% 0.30 Credit Suisse Leveraged Loan Index (gross return) - 2.49% - 2.03% 2.57% 3.04% 0.25 ICE BofAML U.S. High Yield Index (gross return) - 12.19% - 11.45% 0.18% 1.96% 0.08 HFRX Event - Driven Index (gross return) - 6.94% - 8.97% 1.98% - 0.23% - 0.25 8.29% 6.58% 5.49% 11.90% - 9.92% - 2.27% 14.41% 6.17% 5.36% - 11.45% 1.14% 8.17% 2.78% 5.40% - 2.49% - 11.68% 9.96% 8.89% 0.48% - 6.94% -15% -10% -5% 0% 5% 10% 15% 20% 2018 2019 2020 2021 YTD 2022 FSCO High yield Loans HFRX Event-Driven Index
10 Management team & investment process
The team assumed full management of FSCO in January 2018 FS Investments Liquid Credit & Special Situations Team Andrew Beckman, Head Portfolio Manager Nicholas Heilbut, Portfolio Manager, Director of Research Team member Title Years of experience Focus area Scott Giardina Managing Director 21 Trading, sourcing, tail protection Rushabh Vora Managing Director 14 Special situations, sourcing, diligence/underwriting Kenichiro Jin Managing Director 19 Technology, media, telecom, software James Holley Executive Director 19 Building/construction, industrials Brian Hightower Director 14 Retail, consumer products & services, financials Anna Filipovich Director 8 Business services, leisure/hospitality, tech/software Vadim Levit Director 7 Healthcare, other Michael Finocchiaro Associate 3 Packaging, gaming, consumer, telecom 1998 Goldman Sachs (SSG) Magnetar FS Investments Investcorp Magnetar DLJ Serengeti Goldman Sachs (SSG) 2018 2016 2012 2001 DW Partners DW Partners FS Investments 16 Average years of experience 5 credit cycles the team has invested through 2004 2012 2018 2016 1999 2009 11
CONFIDENTIAL. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR USE WITH INVESTORS. Leading alternative asset manager FS Investments strives to solve investor needs by creating access to alternative ideas and institutional - quality managers to achieve a higher probability of investment success. We never settle on behalf of investors by providing best - in - class management, customized structures and investment education. Key personnel highlights Partnering with industry leaders Michael Forman Chairman + Chief Executive Officer Enrico Gaglioti Co - President In - house portfolio management & investment research expertise Private credit U.S. middle market companies Real estate Private commercial real estate debt Liquid Credit & Special Situations Event - driven & opportunistic investments, dislocated & special situations and private capital structure solutions Liquid alternatives Multi - strategy solution combining hedge funds & alternative beta strategies Global, multi - asset investing Family of mutual funds investing across global markets regardless of style, asset class, sector and market cap. Investment research Timely macroeconomic and cross - asset research, including education on alternative assets and strategies Cryptocurrency Bitcoin 2007 Year founded 15 Years of experience managing alternative assets $35 billion A ssets under management 300+ Professionals Key facts 1 1. As of June 30 , 2022 Troy Gayeski, CFA Chief Market Strategist Mike Kelly Co - President + Chief Investment Officer 12
13 All figures as of August 31, 2022. Leveraging the full scale of FS Investments’ platform Investment + markets expertise Shared insights among various research teams, including internal managers and external investment partners Operations + technology A team of 89 professionals oversee the firm’s day - to - day operations, portfolio management and technology integration. Finance + accounting Provide oversight of third - party books and records, enterprise risk management, accounting and tax, internal audit and controls, and financial statement preparation Legal + compliance Oversees approximately $26 billion in assets across 1940 Act funds, including closed - end funds, business development companies and interval funds by a team of 25 professionals. Established credit franchise Leveraging relationships across all FS verticals provides access to deal flow, idea generation and diligence sources Capital markets The Capital Markets team helps source, negotiate and structure financing facilities across the entire FS Investments platform, representing over $24 billion in financing facilities
Seek excess return with downside protection by investing across public and private credit Investment philosophy Dynamically allocate to most attractive areas of the credit market • Ability to adjust exposure between public and private credit and floating vs. fixed rate based on the opportunity set and outlook Private equity - like due diligence • Large lending platform provides industry and company specific expertise and rigorous underwriting • Market presence enables differentiated access to external research and corporate management teams Emphasize quality • Focus on high quality businesses, industries and management teams • Identify stable business facing temporary issues or capital structure problems Invest with downside in mind • Focus primarily on secured credit • Highly structured nature of investments intended to provide downside protection 14
Investment process: Disciplined and repeatable 15 Key considerations Sourcing • Unique deal flow through dedicated investment team complemented by the relationships of FS Investments’ platform • Combination of newly originated assets and secondary market purchases Investment diligence • Robust, private equity - quality due diligence • Deep - dive analysis of companies and industries • Intense focus on micro and macro factors Screening • High throughput screening process for quick turnarounds • Investments are thoroughly vetted and must fit within parameters set by Investment Committee Selection + structuring • Emphasis on documentation and structure • Negotiate contractual rights and protections to enhance investment profile Portfolio construction • High conviction investing with downside protection • Target a diversified portfolio with limited correlations 1 2 3 4 5 Downside protection Anticipated duration Asymmetric payoff profile Minimum return threshold Appropriate structural protections Predictability of cash flows Asset price volatility Enterprise value volatility
Relationships across FS Investments’ platform provide significant sourcing competitive edge 1. Last 12 months as of June 30, 2022. Represents transaction volume for FSCO and other vehicles managed by the FS Liquid Cre dit and Special Situations Team, including $834 million of CLO transactions in Bridge Street CLO I & II and Bridge Street CLO War eh ouse III. Robust sourcing across public & private markets Longstanding relationships with banks and capital markets teams Favorable allocations due to platform scale and breadth of relationships Private credit presence gives us access to early looks on deals Well - positioned for knowledge and access on middle - market credits External sourcing relationships Internal sourcing relationships FSK franchise Key executives Incumbent portfolio companies Capital Markets Group Investment banks Law firms Financial intermediaries Dealer desks Consultants Auctions Portfolio companies Other investors Industry contacts Management teams 16 $1.09B Originated & primary volume $730M Secondary volume $1.82B Trailing twelve - month transaction volumes 1
17 Portfolio highlights & competitive positioning
FSCO investment portfolio overview Asset type 53% Senior S ecured Loans – 1st Lien 9% Senior Secured Loans – 2nd Lien 19% Senior Secured Bonds 5% Subordinated Debt 7% Asset Based Finance 7% Equity/Other Geographic location Sector allocations 4 95% United States 1% Europe 4% Other 13% Consumer Services 9% Diversified Financials 11% Health Care Equipment & Services 7% Retailing 11% Capital Goods 5% Pharmaceuticals, Biotechnology & Life Sciences 10% Commercial & Professional Services 25% Other 9% Energy All figures based on fair value as of June 30, 2022. 1. Includes floating rate assets on a look - through basis within the FSCO’s Asset Based Finance investments. 2. Senior secured debt includes first lien loans, second lien loans and senior secured bonds. 3. As of June 30, 2022. Includes all debt investments. Duration measures the sensitivity of a fixed income investment’s price to changes in interest rates and is measured in years. A duration of 1.25 years suggests that a 1% rise in interest rates would equate to a 1.25% decline in FSCO’s NAV and vice versa as rates fall. 4. Other includes Automobiles & Components, Transportation, Software & Services (4%); Materials, Insurance, Consumer Durables & Apparel and Telecommunication Services (2%); Technology Hardware & Equipment, Food & Staples Retailing, Food, Beverage & Tobacco, Banks, Banks and Media & Entertainment (1%). 18 $2.1B Total assets 85 Portfolio companies 64% Floating rate 1 81% Secured debt 2 1.25 years Average duration 3
19 Assets under management ($ millions) Source: Company filings. As of latest publicly available information. FSCO, BGB and KIO are as of June 30, 2022. ARDC and AIF ar e as of July 31, 2022. FSCO is FS Credit Opportunities Corp. BGB is Blackstone Strategic Credit Fund. ARDC is Ares Dynamic Credit Allocation Fund. K IO is KKR Income Opportunities Fund. AIF is Apollo Tactical Income Fund. FSCO has significant scale vs. closed - end fund peers $2,149 $894 $501 $438 $361 FSCO BGB ARDC KIO AIF
20 Dividend yield based on net asset value Annualized dividend as % of last reported NAV 1 Dividend coverage Net investment income as % of dividend 3 FSCO offers an attractive, fully - funded dividend 142% 124% 115% 106% 98% FSCO BGB ARDC KIO AIF 10.1% 10.0% 9.3% 9.0% 2 7.7% KIO AIF ARDC FSCO BGB Dividend post - listing Sources: funds’ annual reports, semi - annual reports and other investor materials, FactSet. 1. As of 10/27/2022 for AIF, ARDC, BGB, and KIO. AIF is Apollo Tactical Income Fund. ARDC is Ares Dynamic Credit Allocation Fund . B GB is Blackstone Strategic Credit Fund. FSCO is FS Credit Opportunities Corp. KIO is KKR Income Opportunities Fund. 2. Represents the targeted annualized dividend shortly following the listing. Based on FSCO’s net asset value as of October 31, 202 2. The actual dividend yield at listing may be higher or lower based on the then current NAV. The payment of future dividends on FSCO’s common shares is subject to the discretion of FSCO's board of directors and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future div id ends. 3. Dividend coverage calculated as net investment income per share, divided by the dividend per share, in each case for the late st 6 - month reported period (6 - month period ended April 30, 2022 for KIO and 6 - month period ended June 30, 2022 for AIF, ARDC, BGB and FSCO)
21 1. Calculation excludes preferred equity. When including the preferred shares, the debt - to - equity ratio was 0.54x as of June 30, 20 22. Preferred financing offers competitive advantages Funding source Rate Amount Outstanding ($M) Undrawn ($M) Maturity Revolving Credit Facility L + 1.10% $50 $150 270 - days Revolving Credit Facility L + 2.65% – $65 12/15/24 Term Loan L + 2.65% $285 – 12/15/24 2023 Preferred L + 1.85% $45 – 8/1/23 2023 Preferred 4.82% $55 – 8/1/23 2025 Preferred 4.49% $50 – 11/1/25 2025 - 2 Preferred 4.00% $50 – 11/1/25 2026 Preferred 5.43% $100 – 2/1/26 2027 Preferred 2.95% $100 – 1/31/27 Total $735 $215 Benefits of preferred equity financings Enhanced borrowing flexibility of underlying assets Attractive multi - year fixed - rate borrowings Favorable regulatory treatment 0.25x Debt to - equity 1 ~5.0% Effective cost of borrowing $400M Preferred debt financings
22 Appendix
23 Financial highlights 1. Represents the value of the Fund’s total assets available to cover senior securities, less all liabilities and indebtednes s n ot represented by credit facility borrowings and term preferred shares, to the aggregate amount of credit facility borrowings ou tstanding representing indebtedness. 2. Total Net Debt represents (Total Debt - Cash) / Net Assets. FY 2019 HY 2020 FY 2020 HY 2021 FY 2021 HY 2022 $ in millions 12/31/2019 6/30/2020 12/31/2020 6/30/2021 12/31/2021 6/30/2022 Investment Portfolio $1,690 $1,758 $1,900 $2,131 $2,244 $1,987 Debt $125 $340 $385 $455 $435 $335 Preferred $198 $199 $298 $298 $397 $397 Net Assets $1,494 $1,309 $1,450 $1,510 $1,506 $1,359 Debt to Equity 0.22x 0.41x 0.47x 0.50x 0.55x 0.54x Debt - to - Equity (ex - Pref) 0.08x 0.26x 0.27x 0.30x 0.29x 0.25x Asset Coverage 1 14.42x 5.40x 5.51x 4.98x 5.37x 6.18x Cash $67 $108 $248 $122 $87 $114 Net Debt to Capital 2 0.17x 0.33x 0.30x 0.42x 0.49x 0.46x NII Yield 9.23% 8.22% 8.27% 6.48% 7.32% 10.18% Per Share Data NAV per share $7.50 $6.56 $7.30 $7.66 $7.64 $6.90 NII per share $0.70 $0.28 $0.57 $0.24 $0.56 $0.37 dividend per share $0.57 $0.27 $0.55 $0.26 $0.51 $0.26 Earnings per share $0.49 ($0.67) $0.35 $0.62 $0.85 ($0.48) Shares Outstanding (MM) 199.245 199.474 198.572 197.248 197.138 197.092
FOR ADVISOR USE ONLY. NOT FOR INVESTOR USE. A phased approach to the listing 24 1. The timing of the listing is subject to market conditions and the satisfaction of other customary conditions. The net asse t v alue per share used to determine which accounts meet this threshold was based on the Fund's NAV per share of $6.48 as of October 31, 2022. Designed to help ease downward pressure on FSCO’s market share price shortly after listing An additional 1/3 of all shares available for trading Day of Listing 90 days post - listing 1/3 of all shares available for trading Final 1/3 of all shares available for trading 180 days post - listing Accounts with balances of $15,000 or less will not be subject to the phased liquidity schedule and will have all shares available for trading on the day of the listing 1
Valuations and stock prices have generally increased after initial downward pressure 25 Price - to - book value (indexed) Daily trading volume as % of shares outstanding For illustrative purposes only. Historical performance is not a guarantee or reliable indicator of future results. Public listings are subject to current market and economic conditions which can impact performance. Source: Factset, Bloomberg, company filings. Analysis represents average performance of RiverNorth Specialty Finance Corporat ion (RSF), Vertical Capital Income Fund (VCIF), Corporate Capital Trust (CCT), FS KKR Capital Corp. II (FSKR) and FS KKR Capital Co rp. (FSK). Prior listings in perspective 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 0.76x 0.78x 0.80x 0.82x 0.84x 0.86x 0.88x 0.90x Day 1 Day 10 Day 20 Day 30 Day 40 Day 50 Day 60 Day 70 Day 80 Day 90 Day 100 Day 110 Day 120 Day 130 Day 140 Day 150 Day 160 Day 170 Day 180 T+6 days 0.78x T+ 90 days 0.85x T+ 180 days 0.88x
26 As of October 31, 2022 Past performance is not a guarantee of future results. Returns for periods greater than one year are annualized. Returns assume dividends are invested pursuant to the Fund’s divide nd reinvestment plan. FS Investments’ Liquid Credit & Special Situations Group took over all portfolio management responsibiliti es for FSCO in January 2018. Visit www.fsinvestments.com/investments for further performance information. An investment in the Fund involves risk, including loss of principal. Investment return and the value of shares will fluctuat e. Shares may be worth more or less than original purchase price. Current performance may be lower or higher than the performanc e s hown. Returns are calculated by determining the percentage change in NAV or market price (as applicable) in the specific period. The calculatio n a ssumes that all dividends and dividends, if any, have been reinvested. NAV and market price returns do not reflect broker sal es charges, commissions or dealer manager fees, as applicable, in connection with the purchase or sales of Fund shares and includes the e ffe ct of any expense reductions. Returns for a period of less than one year are not annualized. Returns for a period of more tha n o ne year represents the average annual return. Performance at market price will differ from results at NAV. Although market price retu rns typically reflect investment results over time, during shorter periods returns at market price can also be influenced by fact or s such as changing views about the fund, market conditions, supply and demand for the fund’s shares or changes in fund dividends and dividends. On December 14, 2020, FS Global Credit Opportunities Fund – A (FSGCO – A), FS Global Credit Opportunities Fund – ADV (FSGCO – ADV), FS G lobal Credit Opportunities Fund – D (FSGCO – D), FS Global Credit Opportunities Fund – T (FSGCO – T), and FS Global Credit Opportunities Fund – T2 (FSGCO – T2) (the Funds) merged into FS Global Credit Opportunities Fund (FSGCO). On March 23, 2022, the Fu nd was renamed FS Credit Opportunities Corp. (FSCO). Performance for shareholders who initially invested in the Funds would d iff er based on fees. Shareholder Returns do not include selling commissions and dealer manager fees, which could have totaled up to 8% of FSGCO – A’s public offering price, up to 2% of FSGCO – D’s public offering price, up to 4% of FSGCO – T’s public offering price, a nd up to 4% of FSGCO – T2’s public offering price. Had such selling commissions and dealer manager fees been included, performance would be lower. Market conditions may cause the actual values to be more or less than the values shown. Performance YTD 1YR 3YR 5YR Since Jan 1, 2018 Since inception (December 13, 2013) FSCO (NAV total return) - 9.92% - 9.63% 3.03% 3.65% 4.33% 3.71% Credit Suisse Leverage Loan Index - 2.49% - 2.03% 2.57% 3.04% 3.04% 3.44% ICE BofAML U.S. High Yield Index - 12.19% - 11.45% 0.18% 1.90% 1.96% 3.53% HFRX Event - Driven Index - 6.94% - 8.97% 1.98% - 0.21% - 0.23% 0.62%
27 FS Credit Opportunities Corp. (FSCO or the Company) is a non - diversified, closed - end management investment company that carries out the investment strategies generally described herein. An investment in FSCO involves a high degree of risk and may be considered speculative. The following are some of the risks an investment in t he Shares (as defined below) involves; however, investors should carefully consider all of the risks discussed in FSCO’s reports filed with the SEC before deciding to invest in the Shares. • Shareholders of the Company (the Shareholders) should consider that an investment in the shares of common stock of the Compan y ( the Shares) may result in loss in principal. • When a Shareholder sells their Shares, the Shareholder may receive less than their purchase price and the then - current net asset value, or NAV, per Share. • Shares of closed - end funds frequently trade at a discount to NAV and this creates a risk of loss for investors who purchased Sha res at the time of listing on the New York Stock Exchange (the Listing). This risk is separate and distinct from the risk that FSCO’s NAV will decrease. • Following the Listing, certain directors and officers of the Company and its affiliates expect to make commitments to an inve stm ent fund that is currently intended to be established to invest from time to time in the Shares. The investment fund would be managed by a third party and the Company - related investors would not exercise invest ment or voting control over the investment fund. There can be no assurances that the investment fund will be established, and if it is, the amount or timing of any purchases of the Shares. • FSCO’s dividends may be funded from unlimited amounts of offering proceeds or borrowings, which may constitute a return of ca pit al and reduce the amount of capital available to FSCO for investment. any capital returned to Shareholders through dividends will be distributed after payment of fees and expenses, as well as the sal es load. • FSCO’s previous dividends to Shareholders were funded in significant part from the reimbursement of certain expenses, includi ng through the waiver of certain investment advisory fees, and additional support payments that may be subject to repayment to FSCO’s affiliate, Franklin Square Holdings, L.P. (FS Investments), and F SCO ’s future dividends may be funded from such waivers, reimbursements or payments. Significant portions of these dividends were not based on FSCO’s investment performance and such waivers, reimburse men ts and payments by FS Investments may not continue in the future. If FS Investments had not agreed to reimburse certain of FSCO’s expenses, including through the waiver of certain advisory fees pay able by FSCO, and provide additional support payments, significant portions of FSCO’s dividends would have come from offering proceeds or borrowings. The repayment of any amounts owed to FS In ves tments will reduce the future dividends to which the Shareholders would otherwise be entitled. Risk factors
28 • FSCO’s investments in securities and other obligations of companies that are experiencing distress involve a substantial degr ee of risk, require a high level of analytical sophistication for successful investment and require active monitoring. • FSCO’s investments in various types of debt securities and instruments may be secured, unsecured, rated or unrated, are subje ct to non - payment risk, and may be speculative in nature. • Below investment grade instruments (commonly referred to as “high yield” securities or “junk bonds”) may be particularly susc ept ible to economic downturns, which could cause losses. • FSCO may invest in illiquid and restricted securities that may be difficult to dispose of at a fair price. • FSCO’s use of leverage could result in special risks for the Shareholders and can magnify the effect of any losses. • Investments in certain securities or other instruments of non - U.S. issuers or borrowers may involve factors not typically associ ated with investing in the United States or other developed countries. • Securities or other instruments of non - U.S. securities may be traded in underdeveloped, inefficient and less liquid markets and may experience greater price volatility, illiquidity and changes in value. • FS Global Advisor, LLC and certain of its affiliates may experience conflicts of interest in connection with the management o f F SCO. • FSCO seeks to achieve its investment objectives by focusing on a limited number of opportunities across the investment univer se. • The global outbreak of COVID - 19 (commonly known as the coronavirus) has caused volatility, severe market dislocations and liquid ity constraints in many markets, including securities FSCO holds, and may adversely affect FSCO’s investments and operations. Such impacts may adversely affect the performance of FSCO’s investments a nd FSCO. • The national and global political environment, including foreign relations and trading policies, as well as the impact of Rus sia 's invasion of Ukraine and related sanctions, and potential retaliatory actions may adversely affect the performance of FSCO’s investments and FSCO. • We expect that the current market conditions may have a lasting and, in some instances, permanent impact on some of our portf oli o companies as they struggle to meet covenant obligations and face insolvency in future periods. Poor performance or insolvency of our portfolio companies could have a material adverse impact on our financial condition and results of operations. Risk factors
FS Credit Opportunities Corp. 8-K
Exhibit 99.3
FS Credit Opportunities Corp. listing overview
Summary
FS Credit Opportunities Corp. (the “Fund” or “FSCO”) intends to list its shares on the New York Stock Exchange (NYSE) on November 14 through a direct listing, subject to market conditions. The Fund will rank as one of the largest credit-focused closed-end funds by asset size in the market with an attractivedividend yield, strong track record and differentiated strategy investing in public and private credit. There can be no assurance that the Fund will be able to complete the listing within the expected timeframe, or at all.
Overview
| Ticker | · NYSE: FSCO | ||
|---|---|---|---|
| Expected listing | · November 14, subject to market conditions. | ||
| <br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br>Post-listing liquidity | · <br> Shareholders and the Fund’s board of directors (the “Board”) approved a proposal<br> for the Fund to implement a phased approach to the listing. Shares will be available for trading based on the following schedule:<br><br> <br>‒ At listing: up<br> to 1/3 of shares held by all shareholders will be available for trading<br><br> <br>‒<br> 90 days post-listing: an additional 1/3 of shares held by all shareholders will be available for trading<br><br> <br>‒<br> 180 days post-listing: the remaining 1/3 of shares held by all shareholders will be available for trading<br><br> <br>· <br> Accounts with balances of $15,000 or less prior to the listing will have all shares available for trading at listing. Please see further details below (Question 2). | ||
| <br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br><br><br> <br>Dividends | · <br> Pre-listing: To help ensure the Fund is operationally prepared for the listing, the Board approved<br> accelerating the payment of the monthly dividend for October and the suspension of the dividend reinvestment plan (DRP) effective on or<br> about October 3. As a result, the full October monthly dividend was paid in cash on October 20 to shareholders of record as of<br> October 18.<br><br> <br>· <br> We expect the Fund to increase the dividend shortly after the listing to target an annualized<br> dividend rate of 9.0% based on the Fund’s net asset value (NAV) as of October 31, 2022, subject to market conditions and board<br> approval.^1^<br><br> <br>· <br> Post-listing: The Board adopted an amended and restated dividend reinvestment plan (A&R<br> DRP), which will become effective upon the listing<br><br> <br>· <br> The A&R DRP will be suspended at listing for 180 days, however, we expect the Fund to reinstate<br> the A&R DRP 181 days following the listing<br><br> <br>· <br> Therefore, monthly dividends will be paid in cash during the three phases of the listing | ||
| <br><br> <br><br><br> <br><br><br> <br>Client accounts | · <br> Client accounts will reflect FSCO’s public market price at listing<br><br> <br>· <br> To account for the three phases of the listing, a shareholder’s shares will be split evenly<br> across three separate accounts at the transfer agent with each account holding 1/3 of a shareholder’s total shares at listing<br><br> <br>‒<br> Once each phase of the listing is complete, all shares will be automatically moved to a single account<br><br> <br>‒ There is no action financial advisors or shareholders need to take to complete these transactions | ||
| <br><br> <br><br><br> <br>Account freeze | · <br> An account maintenance freeze went into effect on October 17<br><br> <br>· <br> Subject to broker dealer and clearing firm policies and procedures, shareholders may be able to re-register accounts or change custodians for shares held with SS&C Technologies, Inc (transfer agent) during the phased liquidity. |
^1^ The actual dividend yield at listing may be higher or lower based on the then current NAV. The payment of future distributions on FSCO’s common shares is subject to the discretion of the Board and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future distributions.
| 1 |
| --- |
FS Credit Opportunities Corp. listing overview
Listing considerations
| 1. | Why list FSCO’s shares on the NYSE? |
|---|---|
| · | In addition to providing shareholders with enhanced liquidity of their<br>shares, we believe the Fund and portfolio will be competitively positioned in the public markets. |
| --- | --- |
| ‒ | Fully scaled credit platform: As of June 30, 2022, the<br>Fund managed $2.1 billion in assets, ranking as one of the largest public credit-focused closed-end funds by asset size. The portfolio<br>management team, led by Andrew Beckman and Nick Heilbut, leverages the full resources, infrastructure, and expertise of FS Investments,<br>a $35 billion alternative asset manager. |
| --- | --- |
| ‒ | Strong track record: The Fund has returned 4.33% per year since Andrew Beckman and the FS Investments<br> Liquid Credit & Special Situations team assumed all portfolio management responsibilities<br> in January 2018 through October 31, 2022. Over that time, the Fund outperformed high yield<br> bonds by over 230 basis points per year and loans by approximately 130 basis points per year.^2^ |
| --- | --- |
| ‒ | Competitive dividend: Subject to market conditions and board approval, we expect the Fund to increase<br> the dividend shortly after the listing to support an annualized dividend rate of 9.0% based<br> on the Fund’s net asset value as of October 31, 2022.^3^ |
| --- | --- |
| ‒ | Diversified credit strategy: FSCO invests in non-traditional<br>areas of the public and private credit markets where a yield or return premium may exist due to complexity, illiquidity or a result of<br>corporate events. Especially in today’s challenging environment for traditional fixed income, we believe having a flexible strategy<br>to invest across private and public credit markets is critical to generating differentiated returns and managing risk. |
| --- | --- |
| § | Diversified<br> portfolio:^4^ |
| --- | --- |
| $2.1 billion in total assets | 85 portfolio companies |
| --- | --- |
| 81%<br> senior secured debt^5^ | $21 million average size by issuer |
| 64%<br> floating rate assets^6^ | Low<br> average duration: 1.25 years^7^ |
| 2. | When will FSCO’s shares be available for trading? |
| --- | --- |
| · | Shareholders and the Fund’s Board approved a proposal for the Fund<br>to implement a phased approach to the listing. Shares will be available for trading based on the following schedule: |
| --- | --- |
| ‒ | At listing: up to 1/3 of shares held by all shareholders will<br>be available for trading |
| --- | --- |
| ‒ | 90 days post-listing: an additional 1/3 of shares held by all<br>shareholders will be available for trading |
| --- | --- |
| ‒ | 180 days post-listing: the remaining 1/3 of shares held by all<br>shareholders will be available for trading |
| --- | --- |
| · | Accounts with a balance of $15,000 or less will have all shares available<br>for trading at listing. The net asset value per share used to determine which accounts meet this threshold was based on the Fund’s<br>NAV per share of $6.48 as of October 31, 2022. |
| --- | --- |
| · | The $15,000 threshold was determined based on the Fund’s small balance<br>tender offers through which the Fund repurchased shares from accounts that participated in the regular quarterly tender and held less<br>than $5,000 in shares following the completion of the tender offer. Since there are three phases to the listing, setting the threshold<br>at $15,000 ensures that no account will hold less than $5,000<br>in shares at any point during the phased listing process. |
| --- | --- |
| 3. | What is the purpose of the phased approach for the listing? |
| --- | --- |
| · | The phased approach is intended to help ease the anticipated downward pressure on the market price of<br>the Fund’s shares in the period shortly<br>following the listing. |
| --- | --- |
^2^ Bonds are represented by the ICE BofAML U.S. High Yield Bond Index. Loans are represented by the Credit Suisse Leveraged Loan Index.
^3^ The actual dividend yield at listing may be higher or lower based on the then current NAV. The payment of future distributions on FSCO’s common shares is subject to the discretion of the Board and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future distributions.
^4^ Based on fair value as of June 30, 2022.
^5^ Senior secured debt includes first lien loans, second lien loans and senior secured bonds.
^6^ Includes floating rate assets on a look-through basis within the FSCO’s Asset Based Finance investments.
^7^ As of June 30, 2022. Includes all debt investments. Duration measures the sensitivity of a fixed income investment’s price to changes in interest rates and is measured in years. A duration of 1.25 years suggests that a 1% rise in interest rates would equate to a 1.25% decline in FSCO’s NAV and vice versa as rates fall.
| 2 |
| --- | | · | While we believe there are compelling reasons for<br>shareholders to continue holding their shares after a listing, we understand that some investors may prefer to have full liquidity of<br>their shares in the period immediately following the listing. | | --- | --- | | · | When studying prior direct listings, we recognize that there has been<br>a tendency for shareholders to sell their shares in the period immediately after the listing, often regardless of underlying fund performance<br>or the level of income paid by the fund. In some cases, the volume of shares sold significantly outweighed demand for the shares, resulting<br>in downward pressure on stock prices. | | --- | --- | | · | Therefore, the phased approach is intended to ease the anticipated downward<br>pressure on FSCO’s share price in the period immediately following the listing since FSCO’s public share price may be more<br>influenced by an imbalance in supply (existing shareholders seeking to sell their shares) and demand (existing and new investors seeking<br>to buy shares) than the Fund’s fundamental performance. | | --- | --- | | 4. | What considerations should shareholders take into account at listing? | | --- | --- | | · | The difference between a direct listing and initial public offering:<br>The Fund’s shares will commence trading through a direct listing of its shares on the NYSE – not an initial public offering,<br>or IPO. | | --- | --- | | ‒ | This is an important distinction because in an IPO, a company<br>issues new shares and raises new capital in the public markets at a pre-determined offering price. | | --- | --- | | ‒ | This compares to a direct listing like FSCO’s, where no<br>new shares will be sold in the market and the stock price will not be determined prior to the listing. | | --- | --- | | ‒ | Rather, FSCO’s public share price will be determined based<br>on supply from current shareholders seeking to sell their shares and demand from existing and new investors looking to purchase shares<br>of the Fund’s common stock. | | --- | --- | | ‒ | If supply significantly outweighs demand at listing, meaning<br>there are more sellers than buyers, FSCO’s share price may fall and trade at a discount to the Fund’s net asset value. If<br>supply and demand is more balanced, however, FSCO share’s price may trade closer to its net asset value. | | --- | --- | | | FSCO’s direct listing | Initial public offering (IPO) | | --- | --- | --- | | Initial trading price | Market-driven (supply & demand) | Set price prior to listing | | New shares issued | No | Yes | | New capital raised by company | No | Yes | | Road shows with new potential investors | Yes | Yes | | · | FSCO’s NAV vs. public share price: If there is a high volume<br>of selling in the period immediately following a listing, the Fund’s share price may not reflect its strong fundamentals, including<br>the highlighted datapoints below. | | --- | --- | | ‒ | The Fund’s net asset value per share was $6.48 as of October<br>31, 2022. | | --- | --- | | ‒ | FSCO has fully covered its dividends through net investment income<br>since Andrew Beckman and the FS Investments Liquid Credit & Special Situations Team took over full management of the Fund in January<br>2018. | | --- | --- | | ‒ | Senior secured debt represented 81% of the portfolio as of June<br>30, 2022, which we believe helps reduce the risk of loss compared to subordinated debt and equity investments. | | --- | --- | | · | FSCO highly competitive vs. public closed-end fund peers | | --- | --- | | ‒ | Significant scale: As of June 30, 2022, the Fund managed<br>$2.1 billion in assets, ranking as one of the largest public credit-focused closed-end funds by asset size. | | --- | --- | | ‒ | Attractive dividend: Subject to market conditions and<br>board approval, we expect the Fund to increase the dividend shortly after the listing to support an annualized target dividend rate of<br>9.0% based on the Fund’s net asset value as of October 31, 2022, subject to market conditions and board approval.^7^ | | --- | --- |
^7^ The actual dividend yield at listing may be higher or lower based on the then current NAV. The payment of future distributions on FSCO’s common shares is subject to the discretion of the Board and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future distributions.
| 3 |
| --- | | 5. | How will FSCO’s initial trading price be determined on the day of listing? | | --- | --- | | · | A third-party market specialist at the NYSE will be responsible for creating<br>an orderly market for the Fund’s common shares by aggregating buy and sell orders. | | --- | --- | | · | Since this will be the first time that the Fund’s shares will trade<br>in the public markets, it may take a few hours for the specialist to build the book and create an orderly market. | | --- | --- | | · | Therefore, the Fund will likely not commence trading immediately at the<br>market open at 9:30AM ET on the day of listing. In addition, there is typically a lag before prices are reported on third-party websites. | | --- | --- | | · | Once the market specialist believes it has received sufficient indications<br>of interest to create an orderly market for FSCO’s shares, the Fund will commence trading on the NYSE. | | --- | --- | | 6. | Will the Fund or its affiliates provide support for the Fund’s stock in the secondary market? | | --- | --- | | · | Following the listing, certain directors and officers of FSCO and its affiliates<br>expect to make commitments to an investment fund that is currently intended to be established to invest from time to time in shares of<br>FSCO. | | --- | --- | | · | The investment fund would be managed by a third party and the FSCO-related<br>investors would not exercise investment or voting control over the investment fund. As a result, FSCO does not expect to implement the<br>previously disclosed open-market share repurchase program under Rule 10b5-1 under the Securities Exchange Act of 1934. | | --- | --- |
Account maintenance & reporting
| 7. | Will there be an account freeze prior to the listing? |
|---|---|
| · | An account maintenance freeze went into effect on October 17 |
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| · | Subject to broker dealer and clearing firm policies and procedures, shareholders<br>may be able to re-register accounts or change custodians for shares held with SS&C Technologies, Inc (transfer agent) during the phased<br>liquidity. |
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| 8. | How can I sell my shares? |
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| · | For shares held with a custodian such as Ameriprise, Cetera, Charles Schwab,<br>LPL, Pershing, NFS, TD Ameritrade or Wells Fargo Clearing, there is no action you need to take prior to the listing. Your FSCO shares<br>will be available for trading after each phase of the listing. You may also continue to hold your shares in your brokerage account or<br>transfer the shares to a fee-based account, where applicable, upon the completion of each phase of the listing. |
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| · | For accounts where FSCO shares are not currently held by a custodian, your shares are likely held by<br>SS&C Technologies, the Fund’s transfer agent (formerly<br>known as DST Systems). There is no action required unless you would like to buy or sell shares after the completion of each phase of the<br>listing. You can buy or sell shares through two ways: |
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| ‒ | First, you can work with a financial advisor to open a new brokerage<br>account or transfer your shares to an existing brokerage account once the Fund’s shares are listed. Contact your financial institution<br>to discuss their preferred process for transferring shares. In most cases, the brokerage firm may require the submission of their proprietary<br>transfer form along with a Direct Registration Transaction Advice, or DRTA. The Fund will mail your DRTA approximately one week prior<br>to the listing. |
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| § | Moving shares typically takes 2-3<br>business days, depending on the brokerage firm’s policies and procedures. Please note that you will receive a DRTA for each phase<br>of the listing in order to transfer your shares to your brokerage account. Again, there is no action you need to take unless you wish<br>to buy additional shares or sell your shares at listing. |
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| ‒ | If you do<br> not wish to transfer your shares to a brokerage account, the second option is to sell your<br> shares through the Direct Liquidation Program through the Fund’s transfer agent. You<br> will need to complete the Fund’s liquidation form which will be available on our website<br> at www.fsinvestments.com or www.fsproxy.com. |
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| --- | | 9. | What will happen to my shares during the phased listing process? | | --- | --- | | · | To account for the three phases of the listing, your shares will be split<br>evenly across three separate accounts at the transfer agent, which we will refer to as Account 1, Account 2 and Account 3 below. Once<br>listed, client accounts will reflect the public market price of FSCO’s common stock across all three accounts. | | --- | --- | | ‒ | Shares in Account 1 will be free to trade at listing and eligible<br>to be moved to a brokerage account while shares in Accounts 2 & 3 will not be available for trading. | | --- | --- | | ‒ | 90 days following the listing, an additional 1/3 of shares will<br>be available for trading through Account 1 and eligible to be moved to a brokerage account. The remaining 1/3 of shares in Account 3<br>will not be available for trading. | | --- | --- | | ‒ | Then, 180 days following the listing, the final 1/3 of shares<br>held in Account 3 will be available for trading through Account 1 and will be eligible to be moved to a brokerage account. | | --- | --- | | ‒ | For registered stockholders, the transfer agent will continue<br>to issue quarterly statements until shares are moved to a brokerage account. | | --- | --- |
Please note there is no action financial advisors orshareholders need to take for these transactions to occur. FS Investments will work closely with the Fund’s transfer agent,broker dealers and custodians to complete these transactions.
Dividends
| 10. | Will FSCO continue to pay monthly dividends? |
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| · | Upon listing, we expect the Fund will continue to pay monthly dividends. |
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| · | Subject<br> to market conditions and board approval, we expect the Fund to increase the dividend shortly<br> after the listing to support an annualized target dividend rate of 9.0% based on the Fund’s<br> net asset value as of October 31, 2022.^8^ |
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| · | To help ensure the Fund is operationally prepared for the listing, the<br>Board approved accelerating the payment of the monthly dividend for October and the suspension of the dividend reinvestment plan (DRP).<br>As a result, the full October monthly dividend was paid in cash on October 20 to shareholders as of record on October 18. |
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| · | The Board also adopted an amended and restated dividend reinvestment plan<br>(A&R DRP), which will become effective upon the listing. The A&R DRP will be suspended at listing until the completion of the<br>third phase. We expect the Fund to reinstate the A&R DRP 181 days following the listing. |
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| · | Since the A&R DRP will be suspended, dividends will be paid in cash<br>for the duration of the phased listing process. |
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^8^ The actual dividend yield at listing may be higher or lower based on the then current NAV. The payment of future distributions on FSCO’s common shares is subject to the discretion of the Board and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future distributions.
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| --- | | 11. | What should registered shareholders do to prepare their accounts? | | --- | --- | | · | Registered shareholders who do not hold their shares with a custodian<br>(shares are likely held by the Fund’s transfer agent) are encouraged to add banking instructions to their account in order to receive<br>monthly dividends electronically rather than a physical check delivered to the address on file. | | --- | --- | | · | Any registered shareholders that would like to update the banking instructions<br>on file can submit an account maintenance form to our transfer agent, SS&C Technologies, Inc. | | --- | --- |
Tax and other considerations
| 13. | Will the listing create a taxable event? |
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| · | The listing itself will not create a taxable event. However, if shareholders<br>decide to sell their shares, they could be subject to taxes. |
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| · | Shareholders should consult with their financial and tax advisors before<br>selling their shares in order to best understand their individual tax considerations. |
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| 14. | Will the listing change the management team or investment strategy? |
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| · | No. The Fund will continue to be advised by FS Global<br>Advisor, LLC, an affiliate of FS Investments, and managed by Andrew Beckman and the FS Investments Liquid Credit & Special Situations<br>Team. There will be no change to the Fund’s investment strategy. |
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| 15. | Where can I find additional resources? |
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| · | Visit<br> www.fsproxy.com or www.fsinvestments.com |
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Contacts
ADVISORS AND SHAREHOLDERS
877-628-8575
MEDIA (FS INVESTMENTS)
Melanie Hemmert, media@fsinvestments.com, 215-309-6843
FORWARD-LOOKING STATEMENTS
Statements included herein may constitute “forward-looking” statements as that term is defined in Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, including statements with regard to future events or the future performance or operations of the Company. Words such as “intends,” “will,” “expects,” and “may” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. Factors that could cause actual results to differ materially include changes in the economy, geo-political risks, risks associated with possible disruption to the Company’s operations or the economy generally due to hostilities, terrorism, natural disasters or pandemics such as COVID-19, future changes in laws or regulations and conditions in the Company’s operating area, unexpected costs, the ability of the Company to complete the listing, the price at which the Company’s shares of common stock may trade on the New York Stock Exchange and such other factors that are disclosed in the Company’s filings with the Securities and Exchange Commission (the “SEC”). There can be no assurances that the investment fund will be established, and if it is, the amount or timing of any purchases of Company shares. The inclusion of forward-looking statements should not be regarded as a representation that any plans, estimates or expectations will be achieved. Any forward-looking statements speak only as of the date of this communication. Except as required by federal securities laws, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on any of these forward-looking statements.
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