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FS Investments, KKR to Form $18 Billion Middle-Market Alternative Lending Platform

December 11, 2017, 08:00 AM
Filed Under: New Venture

FS Investments, an alternative investment manager, and KKR, a global investment firm, announced that they have entered into an agreement to create the largest business development company (BDC) platform, with $18 billion in combined assets under management.  The platform will offer differentiated origination capabilities and expertise in capital markets that provides sponsors and corporates with broad product solutions and delivers value to investors through enhanced deal flow and expanded proprietary investment opportunities.

"As the market has evolved, we've recognized the need to also evolve our approach to the business and we believe this partnership with KKR provides the scale, infrastructure and credit expertise necessary to succeed as an investor in the private credit markets," said Michael Forman, Chairman and Chief Executive Officer of FS Investments. "We are excited to partner with KKR, a leader in the alternative asset management industry, to create the preeminent BDC platform."

Todd Builione, Chief Executive Officer of CCT and President of KKR Credit and Markets, said, "We are very much looking forward to working closely with our partners at FS Investments.  Through our collective scale, we believe we will be able to offer enhanced opportunities for value to our investors – and more holistic financing solutions to our sponsor and corporate clients.  This partnership also represents a substantial milestone for KKR Credit, growing our assets under management by 33% to $55 billion."

Under the terms of the agreement, FS Investments and KKR will seek stockholder approval for the partnership to provide investment advisory services to the BDCs that FS Investments sponsors, FS Investment Corporation (NYSE: FSIC) (FSIC), FS Investment Corporation II (FSIC II), FS Investment Corporation III (FSIC III), and FS Investment Corporation IV (FSIC IV), and to the BDC currently advised by KKR, Corporate Capital Trust, Inc. (NYSE: CCT) (CCT). Corporate Capital Trust II (CCT II), currently advised by CNL and sub-advised by KKR, will also be offered the opportunity to be included subject to board and shareholder approval. The FSIC funds will be able to co-invest with KKR's other funds and accounts.

The board of directors or trustees have approved the new investment advisory agreements for each FSIC fund and CCT, and each fund will seek stockholder approval. The funds currently intend to begin soliciting stockholder approval of the new investment advisory agreements, as applicable, in January 2018.

KKR will provide non-advisory services to FS Investments through a sourcing and administrative services agreement until stockholder approvals for the new investment advisory agreements are obtained.

As part of this transaction, FS Investments and GSO Capital Partners (GSO) have entered into an agreement to conclude their relationship with respect to all of FS Investments' sponsored funds sub-advised by GSO. FS, GSO and KKR will work together to facilitate a smooth transition.

"Our partnership with GSO has created significant value for our investors and borrowers," added Forman.  "We thank GSO for its sub-advisory services and commitment to ensure a seamless transfer of advisory responsibilities."

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