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FS/KKR Closes $9.5B Merger Creating Second Largest Business Development Company

December 19, 2019, 09:00 AM
Filed Under: Mergers & Acquisitions
Related: FS/KKR Advisor

FS/KKR Advisor, LLC (FS/KKR), a partnership between FS Investments and KKR Credit Advisors (US) LLC, announced the closing of the mergers of four non-traded business development companies (BDCs): 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 over $9.5 billion in assets and, as of September 30, 2019, 210 portfolio companies across 21 industries.

"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 mergers also represent a major milestone in our plan to list FSK II in 2020."

The mergers are also 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 (NAV) 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, and ensure that the NAV of shares investors will own in FSK II will be equal to the NAV of the shares they held in each fund.

The company intends to list its common stock on the New York Stock Exchange during 2020, subject to market conditions and board approval. Prior to the listing, FSK II intends to issue 5.50% perpetual preferred shares equivalent to approximately 20% of FSK II's NAV, pro rata to all holders of FSK II common stock, subject to final board approval. FSK II's board of directors anticipates paying distributions on the company's common stock on a quarterly basis, with the first distribution expected to be declared in March 2020 and paid in early April 2020.

The mergers announced pursuant to this press release do not impact FS KKR Capital Corp. (NYSE: FSK), which also is advised by FS/KKR and trades on the New York Stock Exchange.

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