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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
|
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017 |
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER: 814-00841
FS Energy and Power Fund
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
27-6822130
(I.R.S. Employer Identification No.) |
|
201 Rouse Boulevard Philadelphia, Pennsylvania (Address of principal executive office) |
|
19112 (Zip Code) |
Registrant's telephone number, including area code: (215) 495-1150
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer
ý
(Do not check if a smaller reporting company) |
Smaller reporting company
o
Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected to not 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý .
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
The issuer had 442,828,780 common shares of beneficial interest outstanding as of August 10, 2017.
FS Energy and Power Fund
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
|
June 30, 2017
(Unaudited) |
December 31,
2016 |
|||||
---|---|---|---|---|---|---|---|
Assets |
|||||||
Investments, at fair value |
|||||||
Non-controlled/unaffiliated investments (amortized cost$3,490,835 and $2,959,314, respectively) |
$ | 3,309,543 | $ | 2,838,377 | |||
Non-controlled/affiliated investments (amortized cost$878,955 and $977,010, respectively) |
873,512 | 1,071,032 | |||||
Controlled/affiliated investments (amortized cost$27,164 and $26,664, respectively) |
| 1,031 | |||||
| | | | | | | |
Total investments, at fair value (amortized cost$4,396,954 and $3,962,988, respectively) |
4,183,055 | 3,910,440 | |||||
Cash |
159,405 | 317,520 | |||||
Receivable for investments sold and repaid |
2,331 | 22 | |||||
Income receivable |
42,222 | 37,857 | |||||
Deferred financing costs |
2,306 | 2,443 | |||||
Prepaid expenses and other assets |
165 | 15 | |||||
| | | | | | | |
Total assets |
$ | 4,389,484 | $ | 4,268,297 | |||
| | | | | | | |
Liabilities |
|||||||
Payable for investments purchased |
$ | 122,169 | $ | 6,046 | |||
Credit facilities payable (net of deferred financing costs of $2,206 and $1,045, respectively) |
1,073,755 | 547,620 | |||||
Repurchase agreement payable (net of deferred financing costs of $0 and $91, respectively) (2) |
| 324,909 | |||||
Shareholder distributions payable |
10,927 | 9,474 | |||||
Management fees payable |
22,688 | 20,855 | |||||
Expense recoupment payable to sponsor (1) |
2,858 | | |||||
Administrative services expense payable |
1,491 | 1,477 | |||||
Interest payable |
4,493 | 4,328 | |||||
Trustees' fees payable |
250 | 250 | |||||
Other accrued expenses and liabilities |
4,484 | 4,444 | |||||
| | | | | | | |
Total liabilities |
1,243,115 | 919,403 | |||||
| | | | | | | |
Commitments and contingencies ($15,362 and $0, respectively) (3) |
|||||||
Shareholders' equity |
|||||||
Preferred shares, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding |
| | |||||
Common shares, $0.001 par value, 450,000,000 shares authorized, 445,653,258 and 440,162,095 shares issued and outstanding, respectively |
446 | 440 | |||||
Capital in excess of par value (4) |
3,843,429 | 3,802,263 | |||||
Accumulated undistributed net realized gains (losses) on investments and gain/loss on foreign currency (4) |
(463,906 | ) | (387,452 | ) | |||
Accumulated undistributed (distributions in excess of) net investment income (4) |
(19,682 | ) | (13,738 | ) | |||
Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency |
(213,918 | ) | (52,619 | ) | |||
| | | | | | | |
Total shareholders' equity |
3,146,369 | 3,348,894 | |||||
| | | | | | | |
Total liabilities and shareholders' equity |
$ | 4,389,484 | $ | 4,268,297 | |||
| | | | | | | |
Net asset value per common share at period end |
$ | 7.06 | $ | 7.61 |
See notes to unaudited consolidated financial statements.
1
FS Energy and Power Fund
Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)
|
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
Investment income |
|||||||||||||
From non-controlled/unaffiliated investments: |
|||||||||||||
Interest income |
$ | 82,139 | $ | 72,909 | $ | 156,680 | $ | 150,651 | |||||
Fee income |
6,541 | 1,807 | 30,363 | 2,627 | |||||||||
From non-controlled/affiliated investments: |
|||||||||||||
Interest income |
13,304 | 13,610 | 31,187 | 25,602 | |||||||||
Fee income |
656 | | 656 | 7,356 | |||||||||
| | | | | | | | | | | | | |
Total investment income |
102,640 | 88,326 | 218,886 | 186,236 | |||||||||
| | | | | | | | | | | | | |
Operating expenses |
|||||||||||||
Management fees |
22,688 | 18,398 | 45,073 | 35,639 | |||||||||
Subordinated income incentive fees (1) |
| | 10,499 | 5,774 | |||||||||
Administrative services expenses |
799 | 883 | 1,607 | 1,767 | |||||||||
Share transfer agent fees |
674 | 642 | 1,408 | 1,384 | |||||||||
Accounting and administrative fees |
410 | 324 | 832 | 610 | |||||||||
Interest expense |
11,571 | 8,927 | 21,806 | 18,279 | |||||||||
Trustees' fees |
250 | 262 | 500 | 512 | |||||||||
Offering costs |
| 498 | | 623 | |||||||||
Other general and administrative expenses |
930 | 1,320 | 1,999 | 2,153 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
37,322 | 31,254 | 83,724 | 66,741 | |||||||||
Less: Expense reimbursement from sponsor (2) |
| | (18,220 | ) | | ||||||||
Add: Expense recoupment to sponsor (2) |
2,858 | | 2,858 | | |||||||||
| | | | | | | | | | | | | |
Net expenses |
40,180 | 31,254 | 68,362 | 66,741 | |||||||||
| | | | | | | | | | | | | |
Net investment income before taxes |
62,460 | 57,072 | 150,524 | 119,495 | |||||||||
Income taxes |
54 | 46 | 110 | 79 | |||||||||
| | | | | | | | | | | | | |
Net investment income |
62,406 | 57,026 | 150,414 | 119,416 | |||||||||
| | | | | | | | | | | | | |
Realized and unrealized gain/loss |
|||||||||||||
Net realized gain (loss) on investments: |
|||||||||||||
Non-controlled/unaffiliated |
(46,654 | ) | (19,073 | ) | (77,515 | ) | (78,349 | ) | |||||
Non-controlled/affiliated |
852 | 6 | 1,060 | 2,271 | |||||||||
Net realized gain (loss) on foreign currency |
(2 | ) | | 1 | | ||||||||
Net change in unrealized appreciation (depreciation) on investments: |
|||||||||||||
Non-controlled/unaffiliated |
(87,590 | ) | 290,929 | (60,355 | ) | 259,592 | |||||||
Non-controlled/affiliated |
(77,870 | ) | 140,859 | (99,465 | ) | 128,341 | |||||||
Controlled/affiliated |
| (13,200 | ) | (1,531 | ) | (13,200 | ) | ||||||
Net change in unrealized gain (loss) on foreign currency |
| (2 | ) | 52 | 14 | ||||||||
| | | | | | | | | | | | | |
Total net realized and unrealized gain (loss) |
(211,264 | ) | 399,519 | (237,753 | ) | 298,669 | |||||||
| | | | | | | | | | | | | |
Net increase (decrease) in net assets resulting from operations |
$ | (148,858 | ) | $ | 456,545 | $ | (87,339 | ) | $ | 418,085 | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Per share informationbasic and diluted |
|||||||||||||
Net increase (decrease) in net assets resulting from operations (Earnings per Share) |
$ | (0.34 | ) | $ | 1.14 | $ | (0.20 | ) | $ | 1.07 | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average shares outstanding |
443,232,133 | 401,013,506 | 442,101,188 | 389,350,942 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
2
FS Energy and Power Fund
Unaudited Consolidated Statements of Changes in Net Assets
(in thousands)
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Operations |
|||||||
Net investment income |
$ | 150,414 | $ | 119,416 | |||
Net realized gain (loss) on investments and foreign currency |
(76,454 | ) | (76,078 | ) | |||
Net change in unrealized appreciation (depreciation) on investments |
(161,351 | ) | 374,733 | ||||
Net change in unrealized gain (loss) on foreign currency |
52 | 14 | |||||
| | | | | | | |
Net increase (decrease) in net assets resulting from operations |
(87,339 | ) | 418,085 | ||||
| | | | | | | |
Shareholder distributions (1) |
|||||||
Distributions from net investment income |
(156,358 | ) | (137,508 | ) | |||
| | | | | | | |
Net decrease in net assets resulting from shareholder distributions |
(156,358 | ) | (137,508 | ) | |||
| | | | | | | |
Capital share transactions (2) |
|||||||
Issuance of common shares |
| 224,029 | |||||
Reinvestment of shareholder distributions |
93,968 | 86,691 | |||||
Repurchases of common shares |
(52,796 | ) | (32,277 | ) | |||
| | | | | | | |
Net increase (decrease) in net assets resulting from capital share transactions |
41,172 | 278,443 | |||||
| | | | | | | |
Total increase (decrease) in net assets |
(202,525 | ) | 559,020 | ||||
Net assets at beginning of period |
3,348,894 | 2,417,861 | |||||
| | | | | | | |
Net assets at end of period |
$ | 3,146,369 | $ | 2,976,881 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Accumulated undistributed (distributions in excess of) net investment income (1) |
$ | (19,682 | ) | $ | (4,068 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See notes to unaudited consolidated financial statements.
3
FS Energy and Power Fund
Unaudited Consolidated Statements of Cash Flows
(in thousands)
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Cash flows from operating activities |
|||||||
Net increase (decrease) in net assets resulting from operations |
$ | (87,339 | ) | $ | 418,085 | ||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: |
|||||||
Purchases of investments |
(1,235,075 | ) | (435,184 | ) | |||
Paid-in-kind interest |
(17,079 | ) | (13,911 | ) | |||
Proceeds from sales and repayments of investments |
754,124 | 285,075 | |||||
Net realized (gain) loss on investments |
76,455 | 76,078 | |||||
Net change in unrealized (appreciation) depreciation on investments |
161,351 | (374,733 | ) | ||||
Accretion of discount |
(12,391 | ) | (7,430 | ) | |||
Amortization of deferred financing costs |
1,670 | 1,575 | |||||
Amortization of deferred offering costs |
| 623 | |||||
(Increase) decrease in receivable for investments sold and repaid |
(2,309 | ) | (14,847 | ) | |||
(Increase) decrease in income receivable |
(4,365 | ) | (11,246 | ) | |||
(Increase) decrease in prepaid expenses and other assets |
(150 | ) | 122 | ||||
Increase (decrease) in payable for investments purchased |
116,123 | 53,766 | |||||
Increase (decrease) in management fees payable |
1,833 | 60 | |||||
Increase (decrease) in subordinated income incentive fees payable |
| (12,048 | ) | ||||
Increase (decrease) in expense recoupment payable to sponsor (1) |
2,858 | | |||||
Increase (decrease) in administrative services expense payable |
14 | (339 | ) | ||||
Increase (decrease) in interest payable (2) |
165 | 685 | |||||
Increase (decrease) in trustees' fees payable |
| 8 | |||||
Increase (decrease) in other accrued expenses and liabilities |
40 | (383 | ) | ||||
| | | | | | | |
Net cash provided by (used in) operating activities |
(244,075 | ) | (34,044 | ) | |||
| | | | | | | |
Cash flows from financing activities |
|||||||
Issuance of common shares |
| 221,243 | |||||
Reinvestment of shareholder distributions |
93,968 | 86,691 | |||||
Repurchases of common shares |
(52,796 | ) | (32,277 | ) | |||
Offering costs incurred |
| (2,700 | ) | ||||
Shareholder distributions |
(154,905 | ) | (137,527 | ) | |||
Borrowings under credit facilities |
672,000 | | |||||
Repayments under credit facilities |
(144,704 | ) | (138,104 | ) | |||
Repayments under repurchase facility |
(325,000 | ) | | ||||
Deferred financing costs paid |
(2,603 | ) | (1,484 | ) | |||
| | | | | | | |
Net cash provided by (used in) financing activities |
85,960 | (4,158 | ) | ||||
| | | | | | | |
Total increase (decrease) in cash |
(158,115 | ) | (38,202 | ) | |||
Cash at beginning of period |
317,520 | 368,867 | |||||
| | | | | | | |
Cash at end of period |
$ | 159,405 | $ | 330,665 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Supplemental disclosure |
|||||||
State taxes paid |
$ | 5 | $ | 109 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-cash purchase of investments |
$ | (16,957 | ) | $ | (190,104 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-cash sales of investments |
$ | 16,957 | $ | 190,104 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See notes to unaudited consolidated financial statements.
4
Unaudited Consolidated Schedule of Investments
As of June 30, 2017
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Senior Secured LoansFirst Lien26.0% |
|||||||||||||||||||||
Abaco Energy Technologies LLC |
(g)(j)(bb) | Service & Equipment | L+700, 2.5% PIK (2.5% Max PIK) | 1.0 | % | 11/20/20 | $ | 86,372 | $ | 82,435 | $ | 81,837 | |||||||||
Allied Wireline Services, LLC |
(g)(k)(l) | Service & Equipment | L+400, 5.5% PIK (5.5% Max PIK) | 1.5 | % | 2/28/19 | 111,969 | 111,314 | 109,870 | ||||||||||||
Alon USA Partners, L.P. |
(g)(i)(j)(m) | Downstream | L+800 | 1.3 | % | 11/26/18 | 11,006 | 11,109 | 11,033 | ||||||||||||
Altus Power America, Inc. |
(j)(p) | Power | L+750 | 1.5 | % | 9/30/21 | 77,378 | 77,378 | 78,539 | ||||||||||||
Altus Power America, Inc. |
(e)(p) | Power | L+750 | 1.5 | % | 9/30/21 | 23,872 | 23,872 | 24,230 | ||||||||||||
BL Sand Hills Unit, L.P. |
(l) | Upstream | Prime+650 | 3.5 | % | 12/17/17 | 40,807 | 35,439 | 29,075 | ||||||||||||
BL Sand Hills Unit, L.P. |
(e) | Upstream | Prime+650 | 3.5 | % | 12/17/17 | 15,000 | 13,027 | 10,688 | ||||||||||||
Cactus Wellhead, LLC |
(g)(i)(j) | Service & Equipment | L+600 | 1.0 | % | 7/31/20 | 65,034 | 63,184 | 63,734 | ||||||||||||
Cimarron Energy Inc. |
(g) | Service & Equipment | L+1150 (11.5% Max PIK) | 1.0 | % | 12/15/19 | 23,289 | 23,289 | 22,940 | ||||||||||||
CITGO Holding, Inc. |
(f) | Downstream | L+850 | 1.0 | % | 5/12/18 | 28,586 | 28,859 | 29,055 | ||||||||||||
Crestwood Holdings LLC |
(f)(g) | Midstream | L+800 | 1.0 | % | 6/19/19 | 29,473 | 29,549 | 28,884 | ||||||||||||
Gulf Finance, LLC |
(f)(i) | Midstream | L+525 | 1.0 | % | 8/25/23 | 18,576 | 18,081 | 17,415 | ||||||||||||
Industrial Group Intermediate Holdings, LLC |
(i) | Service & Equipment | L+800 | 1.3 | % | 5/31/20 | 23,052 | 23,052 | 23,167 | ||||||||||||
JSS Holdings, Inc. |
(l) | Service & Equipment | L+800 0.0% PIK, (2.5% Max PIK) | 1.0 | % | 3/31/23 | 15,000 | 14,854 | 15,032 | ||||||||||||
JSS Holdings, Inc. |
(e) | Service & Equipment | L+800 0.0% PIK, (2.5% Max PIK) | 1.0 | % | 3/31/23 | 2,727 | 2,727 | 2,733 | ||||||||||||
Lusk Operating LLC |
(r)(z)(aa) | Upstream | Prime+500 PIK (8.8% Max PIK) | 3.3 | % | 7/31/17 | 28,997 | 27,164 | | ||||||||||||
MB Precision Holdings LLC |
(g) | Service & Equipment | L+725, 1.5% PIK (1.5% Max PIK) | 1.3 | % | 1/23/20 | 12,917 | 12,917 | 10,689 | ||||||||||||
Moxie Liberty LLC |
(g)(j) | Power | L+650 | 1.0 | % | 8/21/20 | 31,994 | 32,069 | 29,654 | ||||||||||||
Panda Temple Power, LLC |
(j)(r)(z) | Power | L+625 | 1.0 | % | 3/6/22 | 9,923 | 9,782 | 7,132 | ||||||||||||
Panda Temple Power, LLC |
Power | L+900 | 1.0 | % | 4/28/18 | 377 | 377 | 377 | |||||||||||||
Power Distribution, Inc. |
(i) | Power | L+725 | 1.3 | % | 1/25/23 | 30,080 | 30,080 | 30,305 | ||||||||||||
Strike, LLC |
Midstream | L+800 | 1.0 | % | 5/30/19 | 7,000 | 7,000 | 7,158 | |||||||||||||
Strike, LLC |
(e) | Midstream | L+800 | 1.0 | % | 5/30/19 | 28,000 | 27,525 | 28,630 | ||||||||||||
Strike, LLC |
(i)(j) | Midstream | L+800 | 1.0 | % | 11/30/22 | 51,188 | 49,788 | 52,467 | ||||||||||||
Summit Midstream Partners Holdings LLC |
(f) | Midstream | L+600 | 1.0 | % | 5/15/22 | 16,667 | 16,507 | 16,896 | ||||||||||||
Swift Worldwide Resources US Holdings Corp. |
(g)(j) | Service & Equipment | L+1000, 1.0% PIK (1.0% Max PIK) | 1.0 | % | 7/20/21 | 58,465 | 58,465 | 58,612 | ||||||||||||
UTEX Industries, Inc. |
(f)(bb) | Service & Equipment | L+400 | 1.0 | % | 5/21/21 | 20,327 | 18,294 | 18,245 | ||||||||||||
Warren Resources, Inc. |
(j)(l)(p) | Upstream | L+900, 1.0% PIK (1.0% Max PIK) | 1.0 | % | 5/22/20 | 78,834 | 78,834 | 76,962 | ||||||||||||
Warren Resources, Inc. |
(e)(p) | Upstream | L+900, 1.0% PIK (1.0% Max PIK) | 1.0 | % | 5/22/20 | 5,590 | 5,590 | 5,457 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansFirst Lien |
932,561 | 890,816 | |||||||||||||||||||
Unfunded Loan Commitments |
(72,741 | ) | (72,741 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Net Senior Secured LoansFirst Lien |
859,820 | 818,075 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
5
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2017
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Senior Secured LoansSecond Lien25.8% |
|||||||||||||||||||||
Arena Energy, LP |
(i)(j)(k) | Upstream | L+900, 4.0% PIK (4.0% Max PIK) | 1.0 | % | 1/24/21 | $ | 105,512 | $ | 105,512 | $ | 105,248 | |||||||||
Ascent ResourcesMarcellus, LLC |
(r)(z) | Upstream | L+750 | 1.0 | % | 8/4/21 | 10,000 | 9,874 | 1,050 | ||||||||||||
Brock Holdings III, Inc. |
(g)(j) | Service & Equipment | Prime+725 | 3/16/18 | 29,605 | 29,663 | 29,198 | ||||||||||||||
Chief Exploration & Development LLC |
(f)(i)(j) | Upstream | L+650 | 1.0 | % | 5/16/21 | 55,576 | 54,005 | 53,770 | ||||||||||||
Chisholm Oil and Gas Operating, LLC |
(j)(k)(l) | Upstream | L+800 | 1.0 | % | 3/21/24 | 166,600 | 166,600 | 169,316 | ||||||||||||
Chisholm Oil and Gas Operating, LLC |
(e) | Upstream | L+800 | 1.0 | % | 3/21/24 | 29,400 | 29,400 | 29,879 | ||||||||||||
Emerald Performance Materials, LLC |
(f) | Downstream | L+775 | 1.0 | % | 8/1/22 | 11,819 | 11,759 | 11,834 | ||||||||||||
Fieldwood Energy LLC |
(f)(j) | Upstream | L+713 | 1.3 | % | 9/30/20 | 35,248 | 35,818 | 19,827 | ||||||||||||
Granite Acquisition, Inc. |
(f) | Power | L+725 | 1.0 | % | 12/19/22 | 18,694 | 18,301 | 18,619 | ||||||||||||
Gruden Acquisition, Inc. |
(j) | Service & Equipment | L+850 | 1.0 | % | 8/18/23 | 15,000 | 14,418 | 13,763 | ||||||||||||
Horn Intermediate Holdings, Inc. |
(g)(j) | Service & Equipment | L+775 | 1.3 | % | 10/2/18 | 50,250 | 50,250 | 49,873 | ||||||||||||
Jonah Energy LLC |
(f)(i)(j) | Upstream | L+650 | 1.0 | % | 5/12/21 | 39,523 | 38,476 | 37,930 | ||||||||||||
Neff Rental LLC |
(f)(j) | Service & Equipment | L+625 | 1.0 | % | 6/9/21 | 32,948 | 32,313 | 33,051 | ||||||||||||
Oxbow Carbon LLC |
(g) | Midstream | L+700 | 1.0 | % | 1/17/20 | 15,000 | 14,938 | 15,094 | ||||||||||||
P2 Upstream Acquisition Co. |
(g)(j) | Service & Equipment | L+800 | 1.0 | % | 4/30/21 | 47,399 | 46,975 | 45,602 | ||||||||||||
Talos Production LLC |
(k)(l) | Upstream | 11.0% | 4/3/22 | 43,250 | 40,236 | 37,736 | ||||||||||||||
Titan Energy Operating, LLC |
(k)(p) | Upstream | 2.0%, L+1100 PIK (L+1100 Max PIK) | 1.0 | % | 2/23/20 | 109,973 | 95,004 | 81,864 | ||||||||||||
UTEX Industries, Inc. |
(f)(j) | Service & Equipment | L+725 | 1.0 | % | 5/20/22 | 85,192 | 78,787 | 75,794 | ||||||||||||
WP CPP Holdings, LLC |
(g)(j) | Service & Equipment | L+775 | 1.0 | % | 4/30/21 | 13,260 | 12,980 | 12,564 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansSecond Lien |
885,309 | 842,012 | |||||||||||||||||||
Unfunded Loan Commitment |
(29,400 | ) | (29,400 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Net Senior Secured LoansSecond Lien |
855,909 | 812,612 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
6
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2017
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Senior Secured Bonds18.4% |
|||||||||||||||||||||
Black Swan Energy Ltd. |
(j)(m) | Upstream | 9.0% | 1/20/24 | $ | 90,000 | $ | 90,000 | $ | 87,975 | |||||||||||
Calpine Corp. |
(h)(m) | Power | 5.3% | 6/1/26 | 11,156 | 11,155 | 10,975 | ||||||||||||||
CITGO Holding, Inc. |
(f) | Downstream | 10.8% | 2/15/20 | 9,000 | 9,054 | 9,804 | ||||||||||||||
CSVC Acquisition Corp. |
(f) | Service & Equipment | 7.8% | 6/15/25 | 30,608 | 30,608 | 31,372 | ||||||||||||||
EP Energy LLC |
(h)(m) | Upstream | 8.0% | 11/29/24 | 4,805 | 4,805 | 4,801 | ||||||||||||||
EP Energy LLC |
(f)(h)(m)(o) | Upstream | 8.0% | 2/15/25 | 54,880 | 52,745 | 40,627 | ||||||||||||||
FourPoint Energy, LLC |
(j)(k)(l)(p) | Upstream | 9.0% | 12/31/21 | 235,125 | 228,547 | 230,716 | ||||||||||||||
KCA Deutag UK Finance plc |
(h)(m) | Service & Equipment | 9.9% | 4/1/22 | 17,000 | 16,760 | 16,533 | ||||||||||||||
Mirant Mid-Atlantic Trust |
(f)(h) | Power | 10.1% | 12/30/28 | 31,752 | 33,784 | 29,966 | ||||||||||||||
Ridgeback Resources Inc. |
(k)(m)(p) | Upstream | 12.0% | 12/29/20 | 3,887 | 3,817 | 3,887 | ||||||||||||||
Sunnova Energy Corp. |
(j)(p) | Power | 6.0%, 6.0% PIK (6.0% Max PIK) | 10/24/18 | 33,173 | 33,173 | 33,173 | ||||||||||||||
Velvet Energy Ltd. |
(j)(l)(m) | Upstream | 9.0% | 10/5/23 | 80,000 | 80,000 | 77,936 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Senior Secured Bonds |
594,448 | 577,765 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Subordinated Debt45.3% |
|||||||||||||||||||||
Alta Mesa Holdings, LP |
(h) | Upstream | 7.9% | 12/15/24 | 20,425 | 20,425 | 20,604 | ||||||||||||||
Archrock Partners, L.P. |
(h)(m) | Midstream | 6.0% | 4/1/21 | 8,555 | 7,606 | 8,414 | ||||||||||||||
Archrock Partners, L.P. |
(h)(m) | Midstream | 6.0% | 10/1/22 | 14,283 | 12,526 | 13,926 | ||||||||||||||
Ascent Resources Utica Holdings, LLC |
(f)(h)(j) | Upstream | 10.0% | 4/1/22 | 225,000 | 225,000 | 225,422 | ||||||||||||||
Bellatrix Exploration Ltd. |
(f)(h)(m)(o) | Upstream | 8.5% | 5/15/20 | 60,120 | 59,081 | 54,197 | ||||||||||||||
Brand Energy & Infrastructure Services, Inc. |
(f)(h) | Service & Equipment | 8.5% | 7/15/25 | 44,759 | 44,759 | 46,669 | ||||||||||||||
Canadian International Oil Corp. |
(m)(bb) | Upstream | 9.0% | 7/10/22 | 100,000 | 97,000 | 97,000 | ||||||||||||||
Canbriam Energy Inc. |
(f)(h)(j)(m) | Upstream | 9.8% | 11/15/19 | 115,200 | 112,767 | 120,023 | ||||||||||||||
Compressco Partners, LP |
(f)(h) | Service & Equipment | 7.3% | 8/15/22 | 20,050 | 19,918 | 18,471 | ||||||||||||||
Covey Park Energy LLC |
(h)(o) | Upstream | 7.5% | 5/15/25 | 8,333 | 8,333 | 8,343 | ||||||||||||||
Dynegy Finance I/II Inc. |
(h)(m)(o) | Power | 7.6% | 11/1/24 | 24,542 | 23,805 | 23,866 | ||||||||||||||
Dynegy Finance I/II Inc. |
(f)(m) | Power | 8.0% | 1/15/25 | 12,000 | 11,996 | 11,686 | ||||||||||||||
Eclipse Resources Corp. |
(f)(h)(m)(o) | Upstream | 8.9% | 7/15/23 | 62,745 | 57,205 | 62,510 | ||||||||||||||
EP Energy LLC |
(h)(m)(o) | Upstream | 9.4% | 5/1/20 | 48,970 | 44,581 | 38,829 | ||||||||||||||
EP Energy LLC |
(h)(m) | Upstream | 6.4% | 6/15/23 | 27,095 | 20,066 | 15,952 | ||||||||||||||
EV Energy Partners, L.P. |
(f)(h)(o) | Upstream | 8.0% | 4/15/19 | 48,814 | 38,103 | 26,319 | ||||||||||||||
Exterran Energy Solutions, L.P. |
(h)(m)(o) | Service & Equipment | 8.1% | 5/1/25 | 17,143 | 17,143 | 17,507 | ||||||||||||||
Extraction Oil & Gas Holdings, LLC |
(h)(o) | Upstream | 7.9% | 7/15/21 | 37,500 | 37,500 | 38,672 | ||||||||||||||
Genesis Energy, L.P. |
(f)(m) | Midstream | 6.8% | 8/1/22 | 23,540 | 22,991 | 23,628 |
See notes to unaudited consolidated financial statements.
7
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2017
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Genesis Energy, L.P. |
(f)(m) | Midstream | 6.0% | 5/15/23 | $ | 15,280 | $ | 14,188 | $ | 15,017 | |||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 1/30/25 | 788 | 788 | 789 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 4/30/25 | 5,007 | 5,007 | 5,007 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 9/3/25 | 1,035 | 1,035 | 1,035 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 9/29/25 | 974 | 974 | 974 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 12/2/26 | 857 | 857 | 857 | |||||||||||||||
Global Partners L.P. |
(f)(h)(m)(o) | Midstream | 6.3% | 7/15/22 | 69,435 | 69,276 | 70,169 | ||||||||||||||
Global Partners L.P. |
(h)(m)(o) | Midstream | 7.0% | 6/15/23 | 2,824 | 2,442 | 2,828 | ||||||||||||||
Great Lakes Dredge & Dock Corp. |
(h)(m) | Service & Equipment | 8.0% | 5/15/22 | 15,789 | 15,789 | 16,125 | ||||||||||||||
Great Western Petroleum, LLC |
(f)(h) | Upstream | 9.0% | 9/30/21 | 26,830 | 26,714 | 26,562 | ||||||||||||||
Gulfport Energy Corporation |
(h)(m) | Upstream | 6.0% | 10/15/24 | 10,000 | 10,000 | 9,742 | ||||||||||||||
Jupiter Resources Inc. |
(h)(m) | Upstream | 8.5% | 10/1/22 | 76,125 | 72,088 | 57,141 | ||||||||||||||
Laredo Petroleum, Inc. |
(h)(m) | Upstream | 7.4% | 5/1/22 | 25,384 | 25,115 | 25,796 | ||||||||||||||
Lonestar Resources America Inc. |
(f)(h) | Upstream | 8.8% | 4/15/19 | 24,200 | 24,009 | 23,198 | ||||||||||||||
Martin Midstream Partners L.P. |
(f)(h)(m)(o) | Midstream | 7.3% | 2/15/21 | 29,660 | 29,156 | 30,204 | ||||||||||||||
Moss Creek Resources, LLC |
(l) | Upstream | L+800 | 1.5 | % | 4/7/22 | 65,000 | 65,000 | 65,215 | ||||||||||||
NRG Energy, Inc. |
(f)(m) | Power | 7.3% | 5/15/26 | 28,000 | 27,829 | 29,057 | ||||||||||||||
ONEOK, Inc. |
(f)(h)(m) | Midstream | 7.5% | 9/1/23 | 28,000 | 26,948 | 33,467 | ||||||||||||||
SRC Energy Inc. |
(j)(m) | Upstream | 9.0% | 6/14/21 | 40,000 | 40,000 | 40,900 | ||||||||||||||
Tenrgys, LLC |
(j)(k) | Upstream | L+900 | 2.5 | % | 12/23/18 | 75,000 | 75,000 | 46,125 | ||||||||||||
Whiting Petroleum Corp. |
(h)(m)(o) | Upstream | 5.0% | 3/15/19 | 11,685 | 10,785 | 11,627 | ||||||||||||||
Whiting Petroleum Corp. |
(f)(m)(bb) | Upstream | 5.8% | 3/15/21 | 7,000 | 6,409 | 6,606 | ||||||||||||||
WildHorse Resource Development Corporation |
(h)(m) | Upstream | 6.9% | 2/1/25 | 10,000 | 9,927 | 9,419 | ||||||||||||||
Zachry Holdings, Inc. |
(f) | Service & Equipment | 7.5% | 2/1/20 | 23,925 | 23,932 | 24,822 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Subordinated Debt |
1,464,073 | 1,424,720 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
8
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2017
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry |
|
|
|
Number of
Shares |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Equity/Other17.5% (n) |
|||||||||||||||||||||
Abaco Energy Technologies LLC, Common Equity |
(r) | Service & Equipment | 6,944,444 | $ | 6,944 | $ | 347 | ||||||||||||||
Abaco Energy Technologies LLC, Preferred Equity |
(r) | Service & Equipment | 28,942,003 | 1,447 | 1,447 | ||||||||||||||||
Allied Downhole Technologies, LLC, Common Equity |
(k)(q)(r) | Service & Equipment | 7,431,113 | 7,223 | 3,344 | ||||||||||||||||
Allied Downhole Technologies, LLC, Warrants, 2/28/2019 |
(k)(q)(r) | Service & Equipment | 5,344,680 | 1,865 | 2,405 | ||||||||||||||||
Altus Power America Holdings, LLC, Common Equity |
(k)(p)(r) | Power | 12,474,205 | 12,474 | 12,474 | ||||||||||||||||
Altus Power America Holdings, LLC, Preferred Equity |
(k)(p)(s) | Power | 25,792,683 | 25,793 | 25,793 | ||||||||||||||||
AP Exhaust Holdings, LLC, Class A1 Common Units |
(k)(q)(r) | Service & Equipment | 8 | | | ||||||||||||||||
AP Exhaust Holdings, LLC, Class A1 Preferred Units |
(k)(q)(r) | Service & Equipment | 803 | 895 | 895 | ||||||||||||||||
Ascent Resources Utica Holdings, LLC, Common Equity |
(r)(t) | Upstream | 148,692,909 | 44,700 | 37,173 | ||||||||||||||||
BL Sand Hills Unit, L.P., Net Profits Interest |
(r)(v) | Upstream | N/A | 5,180 | | ||||||||||||||||
BL Sand Hills Unit, L.P., Overriding Royalty Interest |
(v) | Upstream | N/A | 740 | 57 | ||||||||||||||||
Chisholm Oil and Gas, LLC, Series A Units |
(r)(cc) | Upstream | 11,472,461 | 11,472 | 11,548 | ||||||||||||||||
Cimarron Energy Holdco Inc., Common Equity |
(r) | Service & Equipment | 3,675,487 | 3,323 | 1,470 | ||||||||||||||||
Extraction Oil & Gas, Inc. Common Equity |
(k)(r) | Upstream | 1,140,637 | 11,250 | 15,342 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class C-II-A Units |
(k)(p)(q)(r) | Upstream | 66,000 | 66,000 | 25,740 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class D Units |
(k)(p)(q)(r) | Upstream | 12,374 | 8,176 | 4,857 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-II Units |
(p)(r)(cc) | Upstream | 274,688 | 68,672 | 103,008 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-III Units |
(k)(p)(q)(r)(cc) | Upstream | 222,750 | 55,688 | 86,873 | ||||||||||||||||
Global Jet Capital Holdings, LP, Preferred Equity |
(r) | Service & Equipment | 2,785,562 | 2,786 | 3,203 | ||||||||||||||||
Industrial Group Intermediate Holdings, LLC, Common Equity |
(k)(q)(r) | Service & Equipment | 472,755 | 473 | 827 | ||||||||||||||||
JSS Holdco, LLC, Net Profits Interest |
(r) | Service & Equipment | N/A | | 69 | ||||||||||||||||
Lusk Operating LLC, Common Equity |
(r)(u)(aa) | Upstream | 2,000 | | | ||||||||||||||||
MB Precision Investment Holdings LLC, Class A-2 Units |
(k)(q)(r) | Service & Equipment | 490,213 | 490 | | ||||||||||||||||
PDI Parent LLC, Common Equity |
(r) | Power | 1,384,615 | 1,385 | 1,454 | ||||||||||||||||
Ridgeback Resources Inc., Common Equity |
(k)(l)(m)(p)(r)(w) | Upstream | 9,599,928 | 58,985 | 50,652 | ||||||||||||||||
SandRidge Energy, Inc., Common Equity |
(h)(l)(m)(o)(r) | Upstream | 1,009,878 | 22,542 | 17,380 | ||||||||||||||||
Sunnova Energy Corp., Common Equity |
(p)(r) | Power | 6,667,368 | 25,026 | 35,470 | ||||||||||||||||
Sunnova Energy Corp., Preferred Equity |
(p)(r) | Power | 578,468 | 3,080 | 3,077 | ||||||||||||||||
Swift Worldwide Resources Holdco Limited, Common Equity |
(m)(r)(x) | Service & Equipment | 3,750,000 | 6,029 | 1,875 | ||||||||||||||||
Synergy Offshore LLC, Preferred Equity |
(k)(y) | Upstream | 67,381 | 89,259 | 49,929 | ||||||||||||||||
TE Holdings, LLC, Common Equity |
(r)(cc) | Upstream | 2,225,950 | 18,921 | 10,629 | ||||||||||||||||
TE Holdings, LLC, Preferred Equity |
(l)(r) | Upstream | 1,475,531 | 14,734 | 14,386 | ||||||||||||||||
Titan Energy, LLC, Common Equity |
(k)(p)(r) | Upstream | 555,496 | 17,554 | 4,305 | ||||||||||||||||
Total Safety Holdings, LLC, Common Equity |
(g)(j)(r) | Service & Equipment | 12,897 | 4,707 | 4,428 | ||||||||||||||||
Warren Resources, Inc., Common Equity |
(l)(p)(r) | Upstream | 4,415,749 | 20,754 | 15,897 | ||||||||||||||||
White Star Petroleum Holdings, LLC, Common Equity |
(r)(cc) | Upstream | 4,867,084 | 4,137 | 3,529 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Equity/Other |
622,704 | 549,883 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
TOTAL INVESTMENTS133.0% |
$ | 4,396,954 | 4,183,055 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
LIABILITIES IN EXCESS OF OTHER ASSETS(33.0%) |
(1,036,686 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
NET ASSETS100.0% |
$ | 3,146,369 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
9
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2017
(in thousands, except share amounts)
|
Portfolio Company |
Fair Value at
December 31, 2016 |
Purchases,
Paid-in-Kind Interest and Other |
Sales,
Repayments and Other |
Accretion of
Discount |
Net
Realized Gain (Loss) |
Net Change
in Unrealized Appreciation (Depreciation) |
Fair Value at
June 30, 2017 |
Interest
Income (3) |
Fee
Income (3) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Senior Secured Loans First Lien |
||||||||||||||||||||||||||||
Altus Power America, Inc. (1) |
$ | 73,294 | $ | 5,433 | | | | $ | 170 | $ | 78,897 | $ | 3,500 | | ||||||||||||||
Sunnova Asset Portfolio 5 Holdings, LLC |
$ | 151,148 | | $ | (149,652 | ) | $ | 1,157 | $ | 1,060 | $ | (3,713 | ) | | $ | 1,157 | | |||||||||||
Warren Resources, Inc. (2) |
$ | 78,437 | $ | 397 | | | | $ | (2,005 | ) | $ | 76,829 | $ | 4,380 | | |||||||||||||
Senior Secured Loans Second Lien |
||||||||||||||||||||||||||||
Titan Energy Operating, LLC |
$ | 85,427 | $ | 5,564 | | $ | 2,306 | | $ | (11,433 | ) | $ | 81,864 | $ | 8,922 | | ||||||||||||
Senior Secured Bonds |
||||||||||||||||||||||||||||
FourPoint Energy, LLC |
$ | 240,709 | | | $ | 688 | | $ | (10,681 | ) | $ | 230,716 | $ | 10,523 | | |||||||||||||
Ridgeback Resources Inc. |
$ | 3,887 | | | $ | 8 | | $ | (8 | ) | $ | 3,887 | $ | 232 | | |||||||||||||
Sunnova Energy Corp. |
| $ | 33,173 | | | | | $ | 33,173 | $ | 733 | $ | 656 |
See notes to unaudited consolidated financial statements.
10
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2017
(in thousands, except share amounts)
|
Portfolio Company |
Fair Value at
December 31, 2016 |
Purchases,
Paid-in-Kind Interest and Other |
Sales,
Repayments and Other |
Accretion of
Discount |
Net
Realized Gain (Loss) |
Net Change
in Unrealized Appreciation (Depreciation) |
Fair Value at
June 30, 2017 |
Interest
Income (3) |
Fee
Income (3) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity/Other |
||||||||||||||||||||||||||||
Altus Power America Holdings, LLC, Common Equity |
$ | 12,474 | | | | | | $ | 12,474 | | | |||||||||||||||||
Altus Power America Holdings, LLC, Preferred Equity |
$ | 23,982 | $ | 1,811 | | | | | $ | 25,793 | $ | 1,740 | | |||||||||||||||
FourPoint Energy, LLC, Common Equity, Class C-II-A Units |
$ | 31,845 | | | | | $ | (6,105 | ) | $ | 25,740 | | | |||||||||||||||
FourPoint Energy, LLC, Common Equity, Class D Units |
$ | 6,032 | | | | | $ | (1,175 | ) | $ | 4,857 | | | |||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-II Units |
$ | 125,670 | | | | | $ | (22,662 | ) | $ | 103,008 | | | |||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-III Units |
$ | 107,477 | | | | | $ | (20,604 | ) | $ | 86,873 | | | |||||||||||||||
Ridgeback Resources Inc., Common Equity |
$ | 58,985 | | | | | $ | (8,333 | ) | $ | 50,652 | | | |||||||||||||||
Sunnova Energy Corp., Common Equity |
$ | 36,204 | | | | | $ | (734 | ) | $ | 35,470 | | | |||||||||||||||
Sunnova Energy Corp., Preferred Equity |
$ | 3,141 | | | | | $ | (64 | ) | $ | 3,077 | | | |||||||||||||||
Titan Energy, LLC, Common Equity |
$ | 13,332 | | | | | $ | (9,027 | ) | $ | 4,305 | | | |||||||||||||||
Warren Resources, Inc., Common Equity |
$ | 18,988 | | | | | $ | (3,091 | ) | $ | 15,897 | | |
See notes to unaudited consolidated financial statements.
11
FS Energy and Power Fund
Consolidated Schedule of Investments
As of December 31, 2016
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Senior Secured LoansFirst Lien27.2% |
|||||||||||||||||||||
Abaco Energy Technologies LLC |
(g)(i)(j) | Service & Equipment | L+700, 2.5% PIK (2.5% Max PIK) | 1.0 | % | 11/20/20 | $ | 60,455 | $ | 58,038 | $ | 45,795 | |||||||||
Allied Wireline Services, LLC |
(g)(i)(k)(l) | Service & Equipment | L+400, 5.5% PIK (5.5% Max PIK) | 1.5 | % | 2/28/19 | 108,920 | 108,099 | 106,877 | ||||||||||||
Alon USA Partners, L.P. |
(g)(i)(j)(m) | Downstream | L+800 | 1.3 | % | 11/26/18 | 11,063 | 11,199 | 11,035 | ||||||||||||
Altus Power America, Inc. |
(j)(p) | Power | L+750 | 1.5 | % | 9/30/21 | 71,945 | 71,945 | 73,294 | ||||||||||||
Altus Power America, Inc. |
(e)(p) | Power | L+750 | 1.5 | % | 9/30/21 | 29,305 | 29,305 | 29,854 | ||||||||||||
AP Exhaust Acquisition, LLC |
(g)(l) | Service & Equipment | L+775 | 1.5 | % | 1/16/21 | 15,811 | 15,811 | 14,309 | ||||||||||||
BL Sand Hills Unit, L.P. |
(l) | Upstream | Prime+650 | 3.5 | % | 12/17/17 | 40,821 | 35,451 | 38,321 | ||||||||||||
BL Sand Hills Unit, L.P. |
(e) | Upstream | Prime+650 | 3.5 | % | 12/17/17 | 15,000 | 13,027 | 14,081 | ||||||||||||
Cactus Wellhead, LLC |
(g)(i)(j) | Service & Equipment | L+600 | 1.0 | % | 7/31/20 | 56,392 | 54,715 | 51,458 | ||||||||||||
Cimarron Energy Inc. |
(g) | Service & Equipment | L+775, 3.8% PIK (3.8% Max PIK) | 1.0 | % | 12/15/19 | 23,664 | 23,664 | 24,019 | ||||||||||||
CITGO Holding, Inc. |
(f) | Downstream | L+850 | 1.0 | % | 5/12/18 | 16,822 | 16,947 | 17,109 | ||||||||||||
Crestwood Holdings LLC |
(f)(g) | Midstream | L+800 | 1.0 | % | 6/19/19 | 29,703 | 29,794 | 29,146 | ||||||||||||
EnergySolutions, LLC |
(i)(j) | Service & Equipment | L+575 | 1.0 | % | 5/29/20 | 18,193 | 17,965 | 18,375 | ||||||||||||
Gulf Finance, LLC |
(f)(i) | Midstream | L+525 | 1.0 | % | 8/25/23 | 18,953 | 18,407 | 19,095 | ||||||||||||
Industrial Group Intermediate Holdings, LLC |
(i) | Service & Equipment | L+800 | 1.3 | % | 5/31/20 | 22,240 | 22,240 | 22,573 | ||||||||||||
Lusk Operating LLC |
(r)(z)(aa) | Upstream | Prime+500 PIK (8.8% Max PIK) | 3.3 | % | 1/31/17 | 27,497 | 25,664 | 1,031 | ||||||||||||
MB Precision Holdings LLC |
(g) | Service & Equipment | L+725, 1.5% PIK (1.5% Max PIK) | 1.3 | % | 1/23/20 | 12,853 | 12,853 | 12,355 | ||||||||||||
Moxie Liberty LLC |
(g)(j) | Power | L+650 | 1.0 | % | 8/21/20 | 32,155 | 32,241 | 31,794 | ||||||||||||
P2 Upstream Acquisition Co. |
(f) | Service & Equipment | L+400 | 1.0 | % | 10/30/20 | 5,101 | 4,801 | 4,865 | ||||||||||||
Panda Temple Power, LLC |
(j) | Power | L+625 | 1.0 | % | 3/6/22 | 9,825 | 9,677 | 8,744 | ||||||||||||
Panda Temple Power II, LLC |
(g)(j) | Power | L+600 | 1.3 | % | 4/3/19 | 27,531 | 27,761 | 25,604 | ||||||||||||
ProPetro Services, Inc. |
(i) | Service & Equipment | L+625 | 1.0 | % | 9/30/19 | 10,839 | 10,833 | 9,837 | ||||||||||||
Strike, LLC |
(e) | Midstream | L+800 | 1.0 | % | 5/30/19 | 35,000 | 34,482 | 34,475 | ||||||||||||
Strike, LLC |
(i)(j)(bb) | Midstream | L+800 | 1.0 | % | 11/30/22 | 52,500 | 50,937 | 51,975 | ||||||||||||
Sunnova Asset Portfolio 5 Holdings, LLC |
(j)(l)(p) | Power | 12.0%, 0.0% PIK (12.0% Max PIK) | 11/14/21 | 149,652 | 147,435 | 151,148 | ||||||||||||||
Swift Worldwide Resources US Holdings Corp. |
(g)(j) | Service & Equipment | L+1100 | 1.0 | % | 7/20/21 | 58,614 | 58,614 | 58,614 | ||||||||||||
UTEX Industries, Inc. |
(f) | Service & Equipment | L+400 | 1.0 | % | 5/21/21 | 5,432 | 4,275 | 5,085 | ||||||||||||
Warren Resources, Inc. |
(k)(p) | Upstream | L+900, 1.0% PIK (1.0% Max PIK) | 1.0 | % | 5/22/20 | 78,437 | 78,437 | 78,437 | ||||||||||||
Warren Resources, Inc. |
(e)(p) | Upstream | L+900, 1.0% PIK (1.0% Max PIK) | 1.0 | % | 5/22/20 | 5,590 | 5,590 | 5,590 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansFirst Lien |
1,030,207 | 994,895 | |||||||||||||||||||
Unfunded Loan Commitments |
(82,404 | ) | (82,404 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Net Senior Secured LoansFirst Lien |
947,803 | 912,491 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
12
FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Senior Secured LoansSecond Lien26.1% |
|||||||||||||||||||||
Alison US LLC |
(f)(j)(m) | Service & Equipment | L+850 | 1.0 | % | 8/29/22 | $ | 23,722 | $ | 22,591 | $ | 23,011 | |||||||||
Ameriforge Group Inc. |
(g) | Service & Equipment | L+750 | 1.3 | % | 12/21/20 | 35,950 | 36,352 | 5,707 | ||||||||||||
AP Exhaust Acquisition, LLC |
Service & Equipment | 12.0% PIK (12.0% Max PIK) | 9/28/21 | 3,763 | 3,763 | 3,279 | |||||||||||||||
Arena Energy, LP |
(i)(k) | Upstream | L+900, 4.0% PIK (4.0% Max PIK) | 1.0 | % | 1/24/21 | 103,410 | 103,410 | 103,927 | ||||||||||||
Ascent ResourcesMarcellus, LLC |
Upstream | L +750 | 1.0 | % | 8/4/21 | 10,000 | 9,874 | 1,325 | |||||||||||||
Ascent ResourcesUtica, LLC |
(g)(j)(k)(l) | Upstream | L+950 | 1.5 | % | 9/30/18 | 285,257 | 284,490 | 287,753 | ||||||||||||
Brock Holdings III, Inc. |
(g)(j) | Service & Equipment | L+825 | 1.8 | % | 3/16/18 | 29,605 | 29,699 | 28,273 | ||||||||||||
Chief Exploration & Development LLC |
(f)(i) | Upstream | L+650 | 1.3 | % | 5/16/21 | 36,576 | 35,139 | 35,935 | ||||||||||||
Emerald Performance Materials, LLC |
(f) | Downstream | L+775 | 1.0 | % | 8/1/22 | 11,819 | 11,754 | 11,834 | ||||||||||||
EP Energy, LLC |
(f)(m) | Upstream | L+875 | 1.0 | % | 6/30/21 | 17,209 | 17,379 | 18,047 | ||||||||||||
Fieldwood Energy LLC |
Upstream | L+713 | 1.3 | % | 9/30/20 | 41,047 | 41,788 | 29,246 | |||||||||||||
Granite Acquisition, Inc. |
(f) | Power | L+725 | 1.0 | % | 12/19/22 | 20,150 | 19,718 | 19,445 | ||||||||||||
Gruden Acquisition, Inc. |
(j) | Service & Equipment | L+850 | 1.0 | % | 8/18/23 | 15,000 | 14,372 | 11,875 | ||||||||||||
Horn Intermediate Holdings, Inc. |
(g)(j) | Service & Equipment | L+775 | 1.3 | % | 10/2/18 | 50,250 | 50,250 | 50,250 | ||||||||||||
Jonah Energy LLC |
(f)(i) | Upstream | L+650 | 1.0 | % | 5/12/21 | 34,293 | 33,325 | 32,579 | ||||||||||||
Neff Rental LLC |
(f)(j) | Service & Equipment | L+625 | 1.0 | % | 6/9/21 | 33,789 | 33,089 | 33,657 | ||||||||||||
Oxbow Carbon LLC |
(g) | Midstream | L+700 | 1.0 | % | 1/17/20 | 15,000 | 14,927 | 14,738 | ||||||||||||
P2 Upstream Acquisition Co. |
(f)(g)(j) | Service & Equipment | L+800 | 1.0 | % | 4/30/21 | 34,099 | 34,144 | 31,243 | ||||||||||||
Titan Energy Operating, LLC |
(k)(p) | Upstream | 2.0%, L+900 PIK (L+900 Max PIK) | 1.0 | % | 2/23/20 | 104,409 | 87,134 | 85,427 | ||||||||||||
UTEX Industries, Inc. |
(f)(j) | Service & Equipment | L+725 | 1.0 | % | 5/20/22 | 36,192 | 36,227 | 25,696 | ||||||||||||
W3 Co. |
(g)(j) | Service & Equipment | L+800 | 1.3 | % | 9/13/20 | 14,795 | 14,943 | 6,695 | ||||||||||||
WP CPP Holdings, LLC |
(g)(j) | Service & Equipment | L+775 | 1.0 | % | 4/30/21 | 14,680 | 14,394 | 13,927 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansSecond Lien |
948,762 | 873,869 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
13
FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Senior Secured Bonds11.9% |
|||||||||||||||||||||
Calpine Corp. |
(f)(m) | Power | 5.3% | 6/1/26 | $ | 19,800 | $ | 19,809 | $ | 19,508 | |||||||||||
Cheniere Corpus Christi Holdings, LLC |
(f) | Midstream | 7.0% | 6/30/24 | 4,000 | 4,134 | 4,357 | ||||||||||||||
CITGO Holding, Inc. |
(f) | Downstream | 10.8% | 2/15/20 | 9,000 | 9,063 | 9,645 | ||||||||||||||
EP Energy LLC |
(h)(m) | Upstream | 8.0% | 11/29/24 | 10,000 | 10,000 | 10,780 | ||||||||||||||
FourPoint Energy, LLC |
(j)(k)(l)(p) | Upstream | 9.0% | 12/31/21 | 235,125 | 227,859 | 240,709 | ||||||||||||||
Mirant Mid-Atlantic Trust |
(f)(h) | Power | 10.1% | 12/30/28 | 31,752 | 33,838 | 26,936 | ||||||||||||||
Ridgeback Resources Inc. |
(k)(m)(p) | Upstream | 12.0% | 12/29/20 | 3,887 | 3,809 | 3,887 | ||||||||||||||
Velvet Energy Ltd. |
(j)(l)(m) | Upstream | 9.0% | 10/5/23 | 80,000 | 80,000 | 81,792 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Senior Secured Bonds |
388,512 | 397,614 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Subordinated Debt31.2% |
|||||||||||||||||||||
Alta Mesa Holdings, LP |
(h) | Upstream | 7.9% | 12/15/24 | 20,425 | 20,425 | 21,242 | ||||||||||||||
Archrock Partners, L.P. |
(h)(m) | Midstream | 6.0% | 4/1/21 | 8,555 | 7,505 | 8,384 | ||||||||||||||
Archrock Partners, L.P. |
(h)(m) | Midstream | 6.0% | 10/1/22 | 14,283 | 12,400 | 13,881 | ||||||||||||||
Bellatrix Exploration Ltd. |
(f)(h)(m) | Upstream | 8.5% | 5/15/20 | 53,590 | 52,560 | 52,753 | ||||||||||||||
Brand Energy & Infrastructure Services, Inc. |
(f)(h) | Service & Equipment | 8.5% | 12/1/21 | 43,311 | 42,479 | 44,502 | ||||||||||||||
Calpine Corp. |
(f)(m) | Power | 5.8% | 1/15/25 | 5,100 | 5,093 | 4,941 | ||||||||||||||
Canbriam Energy Inc. |
(f)(h)(j)(m) | Upstream | 9.8% | 11/15/19 | 115,200 | 112,341 | 121,536 | ||||||||||||||
Compressco Partners, LP |
(f)(h)(m) | Service & Equipment | 7.3% | 8/15/22 | 20,050 | 19,908 | 18,972 | ||||||||||||||
Crestwood Equity Partners L.P. |
(f)(m) | Midstream | 6.1% | 3/1/22 | 5,500 | 5,500 | 5,641 | ||||||||||||||
Dynegy Finance I/II Inc. |
(f)(m) | Power | 7.6% | 11/1/24 | 22,542 | 21,968 | 20,894 | ||||||||||||||
Dynegy Finance I/II Inc. |
(f)(m) | Power | 8.0% | 1/15/25 | 12,000 | 11,995 | 11,243 | ||||||||||||||
Eclipse Resources Corp. |
(f)(h)(m)(o) | Upstream | 8.9% | 7/15/23 | 59,745 | 53,883 | 62,334 | ||||||||||||||
EP Energy LLC |
(h)(m) | Upstream | 9.4% | 5/1/20 | 19,970 | 16,006 | 18,440 | ||||||||||||||
EV Energy Partners, L.P. |
(h)(m) | Upstream | 8.0% | 4/15/19 | 48,814 | 36,060 | 34,609 | ||||||||||||||
Extraction Oil & Gas Holdings, LLC |
(h)(o) | Upstream | 7.9% | 7/15/21 | 37,500 | 37,500 | 40,313 |
See notes to unaudited consolidated financial statements.
14
FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry | Rate (b) | Floor | Maturity |
Principal
Amount (c) |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Genesis Energy, L.P. |
(f)(m) | Midstream | 6.8% | 8/1/22 | $ | 23,540 | $ | 22,949 | $ | 24,473 | |||||||||||
Genesis Energy, L.P. |
(f)(m) | Midstream | 6.0% | 5/15/23 | 15,280 | 14,116 | 15,599 | ||||||||||||||
GenOn Energy, Inc. |
(h) | Power | 7.9% | 6/15/17 | 4,000 | 3,945 | 2,868 | ||||||||||||||
GenOn Energy, Inc. |
(h) | Power | 9.9% | 10/15/20 | 32,698 | 34,010 | 22,419 | ||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 1/30/25 | 732 | 732 | 727 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 4/30/25 | 4,649 | 4,649 | 4,620 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 9/3/25 | 961 | 961 | 955 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 9/29/25 | 904 | 904 | 899 | |||||||||||||||
Global Jet Capital Inc. |
Service & Equipment | 15.0% PIK (15.0% Max PIK) | 12/2/26 | 795 | 795 | 795 | |||||||||||||||
Global Partners L.P. |
(f)(h)(m)(o) | Midstream | 6.3% | 7/15/22 | 69,435 | 69,264 | 66,831 | ||||||||||||||
Global Partners L.P. |
(h)(m)(o) | Midstream | 7.0% | 6/15/23 | 2,824 | 2,419 | 2,744 | ||||||||||||||
Great Western Petroleum, LLC |
(f)(h) | Upstream | 9.0% | 9/30/21 | 23,830 | 23,692 | 24,932 | ||||||||||||||
Gulfport Energy Corp. |
(f)(m) | Upstream | 6.0% | 10/15/24 | 10,000 | 10,000 | 10,205 | ||||||||||||||
Jupiter Resources Inc. |
(h)(m) | Upstream | 8.5% | 10/1/22 | 71,125 | 67,772 | 61,760 | ||||||||||||||
Laredo Petroleum, Inc. |
(f)(m) | Upstream | 7.4% | 5/1/22 | 25,384 | 25,093 | 26,375 | ||||||||||||||
Lonestar Resources America Inc. |
(h) | Upstream | 8.8% | 4/15/19 | 21,500 | 21,566 | 19,780 | ||||||||||||||
Martin Midstream Partners L.P. |
(f)(h)(m) | Midstream | 7.3% | 2/15/21 | 29,660 | 29,102 | 29,438 | ||||||||||||||
NRG Energy, Inc. |
(f)(m) | Power | 7.3% | 5/15/26 | 28,000 | 27,823 | 27,965 | ||||||||||||||
ONEOK, Inc. |
(f)(h)(m) | Midstream | 7.5% | 9/1/23 | 28,000 | 26,887 | 31,910 | ||||||||||||||
SandRidge Energy, Inc. |
(l)(m)(r) | Upstream | 0.0% | 10/4/20 | 10,550 | 14,060 | 13,245 | ||||||||||||||
Synergy Resources Corp. |
(j)(m) | Upstream | 9.0% | 6/14/21 | 40,000 | 40,000 | 41,700 | ||||||||||||||
Talos Production LLC |
(h) | Upstream | 9.8% | 2/15/18 | 43,250 | 43,249 | 24,004 | ||||||||||||||
Tenrgys, LLC |
(j) | Upstream | L+900 | 2.5 | % | 12/23/18 | 75,000 | 75,000 | 73,125 | ||||||||||||
Whiting Petroleum Corp. |
(h)(m) | Upstream | 5.0% | 3/15/19 | 11,685 | 10,552 | 11,739 | ||||||||||||||
Zachry Holdings, Inc. |
(f) | Service & Equipment | 7.5% | 2/1/20 | 23,925 | 23,934 | 24,374 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Subordinated Debt |
1,049,097 | 1,043,167 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
15
FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company (a) | Footnotes | Industry |
|
|
|
Number of
Shares |
Amortized
Cost |
Fair
Value (d) |
|||||||||||||
Equity/Other20.4% (n) |
|||||||||||||||||||||
Abaco Energy Technologies LLC, Common Equity |
(r) | Service & Equipment | 6,944,444 | $ | 6,944 | $ | 347 | ||||||||||||||
Abaco Energy Technologies LLC, Preferred Equity |
(r) | Service & Equipment | 28,942,003 | 1,447 | 1,447 | ||||||||||||||||
Allied Downhole Technologies, LLC, Common Equity |
(k)(q)(r) | Service & Equipment | 7,431,113 | 7,223 | 5,945 | ||||||||||||||||
Allied Downhole Technologies, LLC, Warrants, 2/28/2019 |
(k)(q)(r) | Service & Equipment | 5,344,680 | 1,865 | 4,276 | ||||||||||||||||
Altus Power America Holdings, LLC, Common Equity |
(p)(r) | Power | 12,474,205 | 12,474 | 12,474 | ||||||||||||||||
Altus Power America Holdings, LLC, Preferred Equity |
(p)(s) | Power | 23,981,707 | 23,982 | 23,982 | ||||||||||||||||
AP Exhaust Holdings, LLC, Common Equity |
(k)(q)(r) | Service & Equipment | 811 | 811 | 41 | ||||||||||||||||
Ascent Resources Utica Holdings, LLC, Common Equity |
(r)(t) | Upstream | 148,692,909 | 44,700 | 33,307 | ||||||||||||||||
BL Sand Hills Unit, L.P., Net Profits Interest |
(r)(v) | Upstream | N/A | 5,180 | 570 | ||||||||||||||||
BL Sand Hills Unit, L.P., Overriding Royalty Interest |
(v) | Upstream | N/A | 740 | 212 | ||||||||||||||||
Cimarron Energy Holdco Inc., Common Equity |
(r) | Service & Equipment | 3,201,631 | 2,991 | 1,921 | ||||||||||||||||
Extraction Oil & Gas, Inc. Common Equity |
(k)(r) | Upstream | 1,140,637 | 11,250 | 22,858 | ||||||||||||||||
Fortune Creek Co-Invest I L.P., LP Interest |
(m)(r)(w)(z) | Midstream | N/A | 16,697 | 553 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class C-II-A Units |
(k)(p)(q)(r) | Upstream | 66,000 | 66,000 | 31,845 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class D Units |
(k)(p)(q)(r) | Upstream | 12,374 | 8,176 | 6,032 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-II Units |
(p)(r)(cc) | Upstream | 274,688 | 68,672 | 125,670 | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-III Units |
(k)(p)(q)(r)(cc) | Upstream | 222,750 | 55,688 | 107,477 | ||||||||||||||||
Global Jet Capital Holdings, LP, Preferred Equity |
(r) | Service & Equipment | 2,785,562 | 2,786 | 2,786 | ||||||||||||||||
Industrial Group Intermediate Holdings, LLC, Common Equity |
(k)(q)(r) | Service & Equipment | 472,755 | 473 | 827 | ||||||||||||||||
Lusk Operating LLC, Common Equity |
(r)(u)(aa) | Upstream | 2,000 | 1,000 | | ||||||||||||||||
MB Precision Investment Holdings LLC, Class A-2 Units |
(k)(q)(r) | Service & Equipment | 490,213 | 490 | 98 | ||||||||||||||||
Ridgeback Resources Inc., Common Equity |
(k)(l)(m)(p)(r)(w) | Upstream | 9,599,928 | 58,985 | 58,985 | ||||||||||||||||
SandRidge Energy, Inc., Common Equity |
(h)(m)(o)(r) | Upstream | 447,491 | 11,187 | 10,538 | ||||||||||||||||
Summit Midstream Partners, LLC, Preferred Equity |
(l) | Midstream | 24,830 | 24,830 | 24,955 | ||||||||||||||||
Sunnova Energy Corp., Common Equity |
(p)(r) | Power | 6,667,368 | 25,026 | 36,204 | ||||||||||||||||
Sunnova Energy Corp., Preferred Equity |
(p)(r) | Power | 578,468 | 3,080 | 3,141 | ||||||||||||||||
Swift Worldwide Resources Holdco Limited, Common Equity |
(m)(r)(x) | Service & Equipment | 3,750,000 | 6,029 | 1,875 | ||||||||||||||||
Synergy Offshore LLC, Preferred Equity |
(k)(y) | Upstream | 66,250 | 83,988 | 89,040 | ||||||||||||||||
TE Holdings, LLC, Common Equity |
(r)(cc) | Upstream | 2,225,950 | 18,921 | 16,695 | ||||||||||||||||
TE Holdings, LLC, Preferred Equity |
(r) | Upstream | 1,475,531 | 14,734 | 22,133 | ||||||||||||||||
Titan Energy, LLC, Common Equity |
(k)(p)(r) | Upstream | 555,496 | 17,554 | 13,332 | ||||||||||||||||
Warren Resources, Inc., Common Equity |
(l)(p)(r) | Upstream | 4,415,749 | 20,754 | 18,988 | ||||||||||||||||
White Star Petroleum Holdings, LLC, Common Equity |
(r)(cc) | Upstream | 4,867,084 | 4,137 | 4,745 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Equity/Other |
628,814 | 683,299 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
TOTAL INVESTMENTS116.8% |
$ | 3,962,988 | 3,910,440 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
LIABILITIES IN EXCESS OF OTHER ASSETS(16.8%) |
(561,546 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
NET ASSETS100.0% |
$ | 3,348,894 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
16
FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)
|
See notes to unaudited consolidated financial statements.
17
FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)
|
Portfolio Company |
Fair Value at
December 31, 2015 |
Purchases,
Paid-in-Kind Interest and Other |
Sales,
Repayments and Other |
Accretion of
Discount |
Net
Realized Gain (Loss) |
Net Change
in Unrealized Appreciation (Depreciation) |
Fair Value at
December 31, 2016 |
Interest
Income |
Fee
Income |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Senior Secured LoansFirst Lien |
||||||||||||||||||||||||||||
Altus Power America, Inc. |
| $ | 88,820 | $ | (16,875 | ) | | | $ | 1,349 | $ | 73,294 | $ | 5,835 | | |||||||||||||
Sunnova Asset Portfolio 5 Holdings, LLC |
| $ | 258,383 | $ | (114,519 | ) | $ | 1,991 | $ | 566 | $ | 4,727 | $ | 151,148 | $ | 21,050 | $ | 7,356 | ||||||||||
Warren Resources, Inc. |
| $ | 78,437 | | | | | $ | 78,437 | $ | 11,477 | $ | 335 | |||||||||||||||
Senior Secured LoansSecond Lien |
||||||||||||||||||||||||||||
Titan Energy Operating, LLC |
| $ | 85,609 | | $ | 1,525 | | $ | (1,707 | ) | $ | 85,427 | $ | 5,685 | | |||||||||||||
Senior Secured Bonds |
||||||||||||||||||||||||||||
FourPoint Energy, LLC |
$ | 222,069 | | $ | (55,688 | ) | $ | 1,535 | | $ | 72,793 | $ | 240,709 | $ | 24,737 | | ||||||||||||
Ridgeback Resources Inc. |
| $ | 3,809 | | | | $ | 78 | $ | 3,887 | $ | 12 | | |||||||||||||||
Equity/Other |
||||||||||||||||||||||||||||
Altus Power America Holdings, LLC, Common Equity |
| $ | 12,474 | | | | | $ | 12,474 | | | |||||||||||||||||
Altus Power America Holdings, LLC, Preferred Equity |
| $ | 23,982 | | | | | $ | 23,982 | $ | 1,554 | | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class C-II-A Units |
$ | 46,200 | | | | | $ | (14,355 | ) | $ | 31,845 | | | |||||||||||||||
FourPoint Energy, LLC, Common Equity, Class D Units |
$ | 8,724 | | | | | $ | (2,692 | ) | $ | 6,032 | | | |||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-II Units |
| $ | 68,672 | | | | $ | 56,998 | $ | 125,670 | | | ||||||||||||||||
FourPoint Energy, LLC, Common Equity, Class E-III Units |
| $ | 55,688 | | | | $ | 51,789 | $ | 107,477 | | | ||||||||||||||||
Ridgeback Resources Inc., Common Equity |
| $ | 58,985 | | | | | $ | 58,985 | | | |||||||||||||||||
Sunnova Energy Corp., Common Equity |
| $ | 25,026 | | | | $ | 11,178 | $ | 36,204 | | | ||||||||||||||||
Sunnova Energy Corp., Preferred Equity |
| $ | 46,196 | $ | (43,122 | ) | | $ | 6 | $ | 61 | $ | 3,141 | | | |||||||||||||
Titan Energy, LLC, Common Equity |
| $ | 17,554 | | | | $ | (4,222 | ) | $ | 13,332 | | | |||||||||||||||
Warren Resources, Inc., Common Equity |
| $ | 20,754 | | | | $ | (1,766 | ) | $ | 18,988 | | |
See notes to unaudited consolidated financial statements.
18
FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)
|
Portfolio Company |
Fair Value at
December 31, 2015 |
Purchases,
Paid-in-Kind Interest and Other |
Sales,
Repayments and Other |
Accretion of
Discount |
Net
Realized Gain (Loss) |
Net Change
in Unrealized Appreciation (Depreciation) |
Fair Value at
December 31, 2016 |
Interest
Income |
Fee
Income |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Senior Secured LoansFirst Lien |
||||||||||||||||||||||||||||
Lusk Operating LLC |
| $ | 17,414 | | | | $ | (16,383 | ) | $ | 1,031 | | | |||||||||||||||
Senior Secured Bonds |
||||||||||||||||||||||||||||
Sunnova Asset Portfolio 5 Holdings, LLC |
$ | 244,349 | | $ | (244,349 | ) | | | | | | | ||||||||||||||||
Equity/Other |
||||||||||||||||||||||||||||
Lusk Operating LLC, Common Equity |
| | | | | | | | | |||||||||||||||||||
Sunnova Holdings, LLC, Common Equity |
$ | 29,561 | | $ | (29,561 | ) | | | | | | |
See notes to unaudited consolidated financial statements.
19
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements
(in thousands, except share and per share amounts)
Note 1. Principal Business and Organization
FS Energy and Power Fund, or the Company, was formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced investment operations on July 18, 2011 upon raising gross proceeds in excess of $2,500, or the minimum offering requirement, from sales of its common shares of beneficial interest, or common shares, in its continuous public offering to persons who were not affiliated with the Company or the Company's investment adviser, FS Investment Advisor, LLC, or FS Advisor, a private investment firm that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, and an affiliate of the Company.
The Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of June 30, 2017, the Company had seven wholly-owned financing subsidiaries, seven wholly-owned subsidiaries through which it holds interests in certain portfolio companies and two wholly-owned subsidiaries through which it expects to hold interests in certain portfolio companies. The unaudited consolidated financial statements include both the Company's accounts and the accounts of its wholly-owned subsidiaries as of June 30, 2017. All significant intercompany transactions have been eliminated in consolidation. Certain of the Company's consolidated subsidiaries are subject to U.S. federal and state income taxes.
The Company's investment objective is to generate current income and long-term capital appreciation by investing primarily in privately-held U.S. companies in the energy and power industry. The Company's investment policy is to invest, under normal circumstances, at least 80% of its total assets in securities of energy and power related, or Energy, companies. The Company considers Energy companies to be those companies that engage in the exploration, development, production, gathering, transportation, processing, storage, refining, distribution, mining, generation or marketing of natural gas, natural gas liquids, crude oil, refined products, coal or power, including those companies that provide equipment or services to companies engaged in any of the foregoing.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company's interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2016 included in the Company's annual report on Form 10-K. Operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The December 31, 2016 consolidated balance sheet and consolidated schedule of investments are derived from the Company's audited consolidated financial statements as of and for the year ended December 31, 2016. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification Topic 946, Financial ServicesInvestment Companies, or ASC Topic 946. The Company has
20
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (Continued)
evaluated the impact of subsequent events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.
Use of Estimates: The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Many of the amounts have been rounded, and all amounts are in thousands, except share and per share amounts.
Capital Gains Incentive Fee: The Company entered into an investment advisory and administrative services agreement with FS Advisor, dated as of April 28, 2011, which was amended on August 10, 2012, and which, as amended, is referred to herein as the investment advisory and administrative services agreement. Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of such agreement). Such fee equals 20.0% of the Company's incentive fee capital gains (i.e., the Company's realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.
While the investment advisory and administrative services agreement with FS Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute of Certified Public Accountants Technical Practice Aid, or AICPA, for investment companies, the Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FS Advisor as if the Company's entire portfolio was liquidated at its fair value as of the balance sheet date even though FS Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
Subordinated Income Incentive Fee: Pursuant to the investment advisory and administrative services agreement, FS Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of the Company's "pre-incentive fee net investment income" for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor does not earn this incentive fee for any quarter until the Company's pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.625%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of the Company's common shares (including proceeds from its distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share repurchases pursuant to the Company's share repurchase program. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is entitled to a "catch-up" fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company's pre-incentive fee net investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted capital. Thereafter, FS Advisor is entitled to receive 20.0% of pre-incentive fee net investment income.
21
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (Continued)
Reclassifications: Certain amounts in the unaudited consolidated financial statements for the three and six months ended June 30, 2016 may have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements for the three and six months ended June 30, 2017. These reclassifications had no material impact on the Company's consolidated financial position, results of operations or cash flows as previously reported.
Revenue Recognition: In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which provides for revenue recognition based on the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. When it becomes effective, the new revenue recognition guidance in ASU No. 2014-09 will replace most revenue recognition guidance under existing GAAP. In 2016, the FASB issued additional guidance that clarified, amended and technically corrected prior revenue recognition guidance. The new revenue recognition guidance applies to all entities and all contracts with customers to provide goods or services in the ordinary course of business, excluding, among other things, financial instruments as well as certain other contractual rights and obligations. For public entities, the new standards are effective during the interim and annual periods beginning after December 15, 2017, with early adoption permitted. The standards permit the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the applicability of the new revenue recognition guidance to the Company's revenue recognition policies and assessing the impact of this guidance on the Company's consolidated financial statements.
Note 3. Share Transactions
Below is a summary of transactions with respect to the Company's common shares during the six months ended June 30, 2017 and 2016:
|
Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||||||||
|
Shares | Amount | Shares | Amount | |||||||||
Gross Proceeds from Offering |
| $ | | 34,158,813 | $ | 245,308 | |||||||
Reinvestment of Distributions |
12,317,949 | 93,968 | 13,197,052 | 86,691 | |||||||||
| | | | | | | | | | | | | |
Total Gross Proceeds |
12,317,949 | 93,968 | 47,355,865 | 331,999 | |||||||||
Commissions and Dealer Manager Fees |
| | | (21,279 | ) | ||||||||
| | | | | | | | | | | | | |
Net Proceeds to Company |
12,317,949 | 93,968 | 47,355,865 | 310,720 | |||||||||
Share Repurchase Program |
(6,826,786 | ) | (52,796 | ) | (4,913,666 | ) | (32,277 | ) | |||||
| | | | | | | | | | | | | |
Net Proceeds from Share Transactions |
5,491,163 | $ | 41,172 | 42,442,199 | $ | 278,443 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Public Offering of Shares
In November 2016, the Company closed its continuous public offering of common shares to new investors. The Company sold 449,543,498 common shares (as adjusted for share distributions) for gross proceeds of $4,362,119 in its continuous public offering, including shares issued pursuant to its distribution reinvestment plan during that period. Following the closing of its continuous public offering, the Company has continued to issue shares pursuant to its distribution reinvestment plan. As of August 10, 2017, the Company had raised total gross proceeds of $4,524,475, including $200 of seed capital contributed by the principals of FS Advisor in December 2010 and $20,004 in proceeds raised from the principals of FS Advisor, other individuals and entities affiliated with FS Advisor, certain members of the Company's board of trustees and certain individuals and entities affiliated with GSO
22
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 3. Share Transactions (Continued)
Capital Partners LP, or GSO, the Company's investment sub-adviser, in a private placement conducted in April 2011 (see Note 4).
During the six months ended June 30, 2017 and 2016, the Company issued 12,317,949 and 47,355,865 common shares for gross proceeds of $93,968 and $331,999, respectively, at an average price per share of $7.63 and $7.01, respectively. All of the common shares the Company issued during the six months ended June 30, 2017 were issued on account of reinvested shareholder distributions pursuant to the Company's distribution reinvestment plan. The gross proceeds received during the six months ended June 30, 2016 included reinvested shareholder distributions of $86,691 for which the Company issued 13,197,052 common shares. During the period from July 1, 2017 to August 10, 2017, the Company issued 2,166,327 common shares pursuant to its distribution reinvestment plan for gross proceeds of $15,548 at an average price per share of $7.18.
Share Repurchase Program
The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company's board of trustees will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase common shares and under what terms:
Historically, the Company limited the number of common shares to be repurchased during any calendar year to the lesser of (i) the number of common shares the Company can repurchase with the proceeds it receives from the issuance of common shares under the Company's distribution reinvestment plan and (ii) 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter. On May 5, 2017, the board of trustees of the Company further amended the share repurchase program. As amended, the Company will limit the maximum number of common shares to be repurchased for any repurchase offer to the greater of (A) the number of common shares that the Company can repurchase with the proceeds it has received from the sale of common shares under its distribution reinvestment plan during the twelve-month period ending on the date the applicable repurchase offer expires (less the amount of proceeds used to repurchase common shares on each previous repurchase date for repurchase offers conducted during such twelve-month period) (this limitation is referred to as the twelve-month repurchase limitation) and (B) the number of common shares that the Company can repurchase with the proceeds the Company receives from the sale of common shares under its distribution reinvestment plan during the three-month period ending on the date the applicable repurchase offer expires (this limitation is referred to as the three-month repurchase limitation). In addition to this limitation, the maximum number of common shares to be repurchased for any repurchase offer will also be limited to 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter. As a result, the maximum number of common shares to be repurchased for any repurchase
23
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 3. Share Transactions (Continued)
offer will not exceed the lesser of (i) 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter, and (ii) whichever is greater of the twelve-month repurchase limitation described in clause (A) above and the three-month repurchase limitation described in clause (B) above.
The Company intends to offer to repurchase common shares at a price equal to the price at which common shares are issued pursuant to the Company's distribution reinvestment plan on the distribution date coinciding with the applicable share repurchase date. The price at which common shares are issued under the Company's distribution reinvestment plan is determined by the Company's board of trustees or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per common share as determined in good faith by the Company's board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per common share as of such date. The Company's board of trustees may amend, suspend or terminate the share repurchase program at any time, upon 30 days' notice.
The following table provides information concerning the Company's repurchases of common shares pursuant to its share repurchase program during the six months ended June 30, 2017 and 2016:
For the Three Months Ended |
Repurchase
Date |
Shares
Repurchased |
Percentage
of Shares Tendered That Were Repurchased |
Percentage of
Outstanding Shares Repurchased as of the Repurchase Date |
Repurchase
Price Per Share (1) |
Aggregate
Consideration for Repurchased Shares |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal 2016 |
||||||||||||||||||
December 31, 2015 |
January 6, 2016 | 2,716,924 | 100 | % | 0.73 | % | $ | 6.750 | $ | 18,339 | ||||||||
March 31, 2016 |
April 6, 2016 | 2,196,742 | 100 | % | 0.56 | % | $ | 6.345 | $ | 13,938 | ||||||||
Fiscal 2017 |
||||||||||||||||||
December 31, 2016 |
January 3, 2017 | 2,239,480 | 100 | % | 0.51 | % | $ | 7.700 | $ | 17,244 | ||||||||
March 31, 2017 |
April 17, 2017 | 4,587,306 | 100 | % | 1.03 | % | $ | 7.750 | $ | 35,552 |
On July 3, 2017, the Company repurchased 4,990,805 common shares (representing 100% of common shares tendered for repurchase and 1.12% of the shares outstanding as of such date) at $7.20 per share for aggregate consideration totaling $35,934.
Note 4. Related Party Transactions
Compensation of the Investment Adviser and Dealer Manager
Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of 2.0% of the average value of the Company's gross assets (gross assets equals total assets as set forth on the Company's consolidated balance sheets) and an incentive fee based on the Company's performance. The Company commenced accruing fees under the investment advisory and administrative services agreement on July 18, 2011, upon commencement of the Company's investment operations. Base management fees are paid on a quarterly basis in arrears.
The incentive fee consists of two parts. The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears, equals 20.0% of the Company's "pre-incentive fee net investment income" for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, equal to 1.625% per
24
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (Continued)
quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor does not earn this incentive fee for any quarter until the Company's pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.625%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of the Company's common shares (including proceeds from its distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share repurchases pursuant to the Company's share repurchase program. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is entitled to a "catch-up" fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company's pre-incentive fee net investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted capital. This "catch-up" feature allows FS Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FS Advisor is entitled to receive 20.0% of pre-incentive fee net investment income.
The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company's incentive fee capital gains, which equal the Company's realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. The Company accrues for the capital gains incentive fee, which, if earned, is paid annually. The Company accrues the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FS Advisor is based on realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized.
Pursuant to an investment sub-advisory agreement between FS Advisor and GSO, or the sub-advisory agreement, GSO will receive 50% of all management and incentive fees payable to FS Advisor under the investment advisory and administrative services agreement with respect to each year.
The Company reimburses FS Advisor for expenses necessary to perform services related to the Company's administration and operations, including FS Advisor's allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings, L.P., or FS Investments, the Company's sponsor and an affiliate of FS Advisor, providing administrative services to the Company on behalf of FS Advisor. The amount of the reimbursement payable to FS Advisor is the lesser of (1) FS Advisor's actual costs incurred in providing such services and (2) the amount that the Company estimates it would be required to pay alternative service providers for comparable services in the same geographic location. FS Advisor is required to allocate the cost of such services to the Company based on factors such as assets, revenues, time allocations and/or other reasonable metrics. The Company's board of trustees reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of the administrative expenses among the Company and certain affiliates of FS Advisor. The Company's board of trustees then assesses the reasonableness of such reimbursements for expenses allocated to the Company based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party providers known to be available. In addition, the Company's board of trustees considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Company's board of trustees, among other things, compares the total amount paid to FS Advisor for such services as a percentage of the Company's net assets to the same ratio as reported by other comparable BDCs. The Company will not reimburse FS Advisor
25
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (Continued)
for any services for which it receives a separate fee, or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FS Advisor.
Under the investment advisory and administrative services agreement, the Company, either directly or through reimbursement to FS Advisor or its affiliates, was responsible for its organization and offering costs in an amount up to 1.5% of gross proceeds raised in the Company's continuous public offering. Organization and offering costs primarily included legal, accounting, printing and other expenses relating to the Company's continuous public offering, including costs associated with technology integration between the Company's systems and those of its selected broker-dealers, marketing expenses, salaries and direct expenses of FS Advisor's personnel, employees of its affiliates and others while engaged in registering and marketing the Company's common shares, which included the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.
Prior to satisfaction of the minimum offering requirement and for a period of time thereafter, FS Investments funded certain of the Company's organization and offering costs. Following this period, the Company paid certain of its organization and offering costs directly and reimbursed FS Advisor for offering costs incurred by FS Advisor on the Company's behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares. Organization and offering costs funded directly by FS Investments were recorded by the Company as a contribution to capital. The offering costs were offset against capital in excess of par value on the consolidated financial statements and the organization costs were charged to expense as incurred by the Company. All other offering costs, including costs incurred directly by the Company, amounts reimbursed to FS Advisor for ongoing offering costs and any reimbursements paid to FS Investments for organization and offering costs previously funded, were recorded as a reduction of capital. Commencing January 1, 2016, offering costs incurred by the Company were deferred and amortized as an expense over twelve months. Following the closing of the Company's continuous public offering to new investors in November 2016, all deferred offering costs were expensed.
The dealer manager for the Company's continuous public offering was FS Investment Solutions, LLC (formerly FS 2 Capital Partners, LLC), or FS Investment Solutions, which is one of the Company's affiliates. Under the dealer manager agreement among the Company, FS Advisor and FS Investment Solutions, or the dealer manager agreement, FS Investment Solutions was entitled to receive sales commissions and dealer manager fees in connection with the sale of common shares in the Company's continuous public offering, all or a portion of which were re-allowed to selected broker-dealers and financial representatives. The dealer manager agreement terminated in connection with the closing of the Company's continuous public offering in November 2016.
26
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (Continued)
The following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and six months ended June 30, 2017 and 2016:
|
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Related Party | Source Agreement | Description | 2017 | 2016 | 2017 | 2016 | |||||||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Base Management Fee (1) | $ | 22,688 | $ | 18,398 | $ | 45,073 | $ | 35,639 | |||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement |
Subordinated Incentive Fee on Income (2) |
|
|
$ |
10,499 |
$ |
5,774 |
|||||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement |
Administrative Services Expenses (3) |
$ |
799 |
$ |
883 |
$ |
1,607 |
$ |
1,767 |
|||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement |
Offering Costs (4) |
|
$ |
1,657 |
|
$ |
2,370 |
|||||||||
FS Advisor |
Expense Support and Conditional Reimbursement Agreement |
Expense Recoupment (5) |
$ |
2,858 |
|
$ |
2,858 |
|
|||||||||
FS Investment Solutions |
Dealer Manager Agreement |
Dealer Manager Fee (6) |
|
$ |
2,639 |
|
$ |
4,118 |
27
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (Continued)
Capital Contribution by FS Advisor and GSO
In December 2010, Michael C. Forman and David J. Adelman, the principals of FS Advisor, contributed an aggregate of $200 to purchase 22,444 common shares (as adjusted for share distributions) at $8.91 per share, which represents the initial public offering price (as adjusted for share distributions), net of selling commissions and dealer manager fees. The principals have agreed not to tender these common shares for repurchase as long as FS Advisor remains the Company's investment adviser.
In April 2011, pursuant to a private placement, Messrs. Forman and Adelman agreed to purchase, through affiliated entities controlled by each of them, 224,444 additional common shares (as adjusted for share distributions) at $8.91 per share (as adjusted for share distributions). The principals have agreed not to tender these common shares for repurchase as long as FS Advisor remains the Company's investment adviser. In connection with the same private placement, certain members of the Company's board of trustees and other individuals and entities affiliated with FS Advisor agreed to purchase 1,459,320 common shares (as adjusted for share distributions), and certain individuals and entities affiliated with GSO agreed to purchase 561,111 common shares (as adjusted for share distributions), in each case at a price of $8.91 per share (as adjusted for share distributions). In connection with the private placement, the Company issued an aggregate of 2,244,875 common shares (as adjusted for share distributions) for aggregate proceeds of $20,004, upon satisfaction of the minimum offering requirement on July 18, 2011. As of August 10, 2017, the Company has issued an aggregate of 6,075,108 common shares (as adjusted for share distributions) for aggregate gross proceeds of $50,738 to members of its board of trustees and individuals and entities affiliated with FS Advisor and GSO, including common shares sold to Messrs. Forman and Adelman in December 2010 and common shares sold in the private placement conducted in April 2011.
Potential Conflicts of Interest
FS Advisor's senior management team is comprised of substantially the same personnel as the senior management teams of the investment advisers to certain other BDCs, open-and closed-end management investment companies and real estate investment trusts sponsored by FS Investments, or the Fund Complex. As a result, such personnel provide investment advisory services to certain other funds or products in the Fund Complex and such personnel may serve in similar or other capacities for the investment advisers to future investment vehicles in the Fund Complex. While none of the investment advisers are currently providing investment advisory services to clients other than the funds in the Fund Complex, any, or all, may do so in the future. In the event that FS Advisor or its management team undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in a fair and equitable manner consistent with the Company's investment objectives and strategies, if necessary, so that the Company will not be disadvantaged in relation to any other client of FS Advisor or its management team. For additional information regarding potential conflicts of interest, see the Company's annual report on Form 10-K for the year ended December 31, 2016.
Exemptive Relief
As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term. In an order dated June 4, 2013, the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated
28
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (Continued)
investment transactions with certain affiliates of FS Advisor, including FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, and any future BDCs that are advised by FS Advisor or its affiliated investment advisers, or collectively the Company's co-investment affiliates. The Company believes this relief has and may continue to enhance its ability to further its investment objectives and strategy. The Company believes this relief may also increase favorable investment opportunities for the Company, in part, by allowing it to participate in larger investments, together with the Company's co-investment affiliates, than would be available to it if such relief had not been obtained. Because the Company did not seek exemptive relief to engage in co-investment transactions with its investment sub-adviser, GSO, and its affiliates, it will continue to be permitted to co-invest with GSO and its affiliates only in accordance with existing regulatory guidance (e.g., where price is the only negotiated term).
Expense Reimbursement
Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or, the expense reimbursement agreement, FS Investments has agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that no portion of the Company's distributions to shareholders will be paid from its offering proceeds or borrowings. However, because certain investments the Company may make, including preferred and common equity investments, may generate dividends and other distributions to the Company that are treated for tax purposes as a return of capital, a portion of the Company's distributions to shareholders may also be deemed to constitute a return of capital for tax purposes to the extent that the Company may use such dividends or other distribution proceeds to fund its distributions to shareholders. Under those circumstances, FS Investments will not reimburse the Company for the portion of such distributions to shareholders that represent a return of capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to shareholders.
Under the expense reimbursement agreement, FS Investments will reimburse the Company quarterly for expenses in an amount equal to the difference between the Company's cumulative distributions paid to its shareholders in each quarter, less the sum of the Company's net investment company taxable income, net capital gains and dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment company taxable income or net capital gains) in each quarter.
Pursuant to the expense reimbursement agreement, the Company has a conditional obligation to reimburse FS Investments for any amounts funded by FS Investments under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments funded such amount, the sum of the Company's net investment company taxable income, net capital gains and the amount of any dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the distributions paid by the Company to its shareholders; provided, however, that (i) the Company will only reimburse FS Investments for expense support payments made by FS Investments with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause "other operating expenses" (as defined below) (on an annualized basis and net of any expense support payments received by the Company during such fiscal year) to exceed the lesser of (A) 1.75% of the Company's average net assets attributable to its common shares for the fiscal year-to-date period after taking such payments into account and (B) the percentage of the Company's average net assets attributable to its
29
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (Continued)
common shares represented by "other operating expenses" during the fiscal year in which such expense support payment from FS Investments was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from FS Investments made during the same fiscal year) and (ii) the Company will not reimburse FS Investments for expense support payments made by FS Investments if the aggregate amount of distributions per share declared by the Company in such calendar quarter is less than the aggregate amount of distributions per share declared by the Company in the calendar quarter in which FS Investments made the expense support payment to which such reimbursement relates. The Company is not obligated to pay interest on the payments it receives from FS Investments. "Other operating expenses" means the Company's total "operating expenses" (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. "Operating expenses" means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.
The Company or FS Investments may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by FS Investments, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by FS Investments, FS Investments will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, the Company's conditional obligation to reimburse FS Investments pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.
During the six months ended June 30, 2017, the Company accrued $18,220 for expense reimbursements that FS Investments has agreed to pay. These reimbursements were funded through the offset of management fees and subordinated income incentive fees payable by the Company to FS Advisor. As discussed in the footnotes to the table above, the Company offset $7,721 in management fees payable and $10,499 in subordinated income incentive fees payable by the Company to FS Advisor during the six months ended June 30, 2017. As of June 30, 2017, the Company did not have any reimbursements due from FS Investments.
As discussed above, under the expense reimbursement agreement, amounts reimbursed to the Company by FS Investments may become subject to repayment by the Company in the future. During the six months ended June 30, 2017, the Company accrued $2,858 for expense recoupments payable to FS Investments. As of June 30, 2017, $15,362 of reimbursements may become subject to repayment by the Company to FS Investments in the future.
The following table reflects the expense reimbursement payments due from FS Investments to the Company as of June 30, 2017 that may become subject to repayment by the Company to FS Investments:
For the Three Months Ended |
Amount of
Expense Reimbursement Payment |
Annualized "Other
Operating Expenses" Ratio as of the Date of Expense Reimbursement |
Annualized Rate
of Distributions Per Share (1) |
Reimbursement
Eligibility Expiration |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2017 |
$ | 15,362 | (2) | 0.40 | % | 9.14 | % | March 31, 2020 | |||
June 30, 2017 |
| N/A | N/A | N/A |
30
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (Continued)
FS Investments is controlled by the Company's chairman, president and chief executive officer, Michael C. Forman, and the Company's vice-chairman, David J. Adelman. There can be no assurance that the expense reimbursement agreement will remain in effect or that FS Investments will reimburse any portion of the Company's expenses in future quarters.
FS Benefit Trust
On May 30, 2013, FS Benefit Trust was formed as a Delaware statutory trust for the purpose of awarding equity incentive compensation to employees of FS Investments and its affiliates. During the six months ended June 30, 2016, FS Benefit Trust purchased $142 of the Company's common shares at a price equal to 90% of the public offering price in effect on the applicable purchase date.
Note 5. Distributions
The following table reflects the cash distributions per share that the Company declared and paid on its common shares during the six months ended June 30, 2017 and 2016:
|
Distribution | ||||||
---|---|---|---|---|---|---|---|
For the Three Months Ended | Per Share | Amount | |||||
Fiscal 2016 |
|||||||
March 31, 2016 |
$ | 0.1771 | $ | 66,720 | |||
June 30, 2016 |
$ | 0.1771 | $ | 70,788 | |||
Fiscal 2017 |
|||||||
March 31, 2017 |
$ | 0.1771 | $ | 77,984 | |||
June 30, 2017 |
$ | 0.1771 | $ | 78,374 |
Effective November 30, 2016, and subject to applicable legal restrictions and the sole discretion of the Company's board of trustees, the Company authorizes, declares and pays regular cash distributions on a monthly basis. On June 29, 2017 and July 31, 2017, the Company's board of trustees declared regular monthly cash distributions for July 2017 and August 2017, respectively. These distributions have been or will be paid monthly to shareholders of record as of monthly record dates previously determined by the Company's board of trustees in the amount of $0.059042 per share. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company's board of trustees.
The Company has adopted an "opt in" distribution reinvestment plan for its shareholders. As a result, if the Company makes a cash distribution, its shareholders will receive distributions in cash unless they specifically "opt in" to the distribution reinvestment plan so as to have their cash distributions reinvested in additional common shares. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a shareholder's ability to participate in the distribution reinvestment plan.
On October 13, 2016, the Company further amended and restated its distribution reinvestment plan, or the amended distribution reinvestment plan, which first applied to the reinvestment of cash distributions paid on or after November 30, 2016. Under the original plan, cash distributions to participating shareholders were reinvested in additional common shares at a purchase price equal to 90% of the public offering price per share in effect as of the date of issuance. Under the amended distribution reinvestment plan, cash distributions to participating shareholders will be reinvested in additional common shares at a purchase price determined by the Company's board of trustees, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per common share as determined in good faith by the Company's board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater
31
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (Continued)
than the net asset value per common share as of such date. Any distributions reinvested under the plan will remain taxable to a U.S. shareholder.
The Company may fund its cash distributions to shareholders from any sources of funds legally available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from FS Investments. The Company has not established limits on the amount of funds it may use from available sources to make distributions.
For the six months ended June 30, 2017, certain portions of the Company's distributions were funded through the reimbursement of certain expenses by FS Investments and its affiliates, including through the offset of certain investment advisory fees by FS Advisor, that are, if certain conditions are met, subject to repayment by the Company within three years. Any such distributions funded through expense reimbursements or the offset of advisory fees are not based on the Company's investment performance, and can only be sustained if the Company achieves positive investment performance in future periods and/or FS Investments and its affiliates continues to make such reimbursements or offset such fees. The Company's future repayments of amounts reimbursed or offset by FS Investments or its affiliates will reduce the distributions that shareholders would otherwise receive in the future. There can be no assurance that the Company will continue to achieve the performance necessary to sustain its distributions or that the Company will be able to pay distributions at a specific rate or at all. FS Investments and its affiliates have no obligation to offset or waive advisory fees or otherwise reimburse expenses in future periods. If FS Investments had not reimbursed certain of the Company's expenses, 10% of the aggregate amount of distributions paid during the six months ended June 30, 2017 would have been funded from offering proceeds or borrowings.
No portion of the distributions paid during the six months ended June 30, 2016 was funded through the reimbursement of operating expenses by FS Investments. During the six months ended June 30, 2017 and 2016, the Company did not repay any amounts to FS Advisor or its affiliates for expenses previously reimbursed or waived.
32
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (Continued)
The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common shares during the six months ended June 30, 2017 and 2016:
|
Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||||||||
Source of Distribution |
Distribution
Amount |
Percentage |
Distribution
Amount |
Percentage | |||||||||
Offering proceeds |
$ | | | $ | | | |||||||
Borrowings |
| | | | |||||||||
Net investment income (prior to expense reimbursement) (1) |
139,628 | 89 | % | 137,508 | 100 | % | |||||||
Short-term capital gains proceeds from the sale of assets |
| | | | |||||||||
Long-term capital gains proceeds from the sale of assets |
| | | | |||||||||
Non-capital gains proceeds from the sale of assets |
| | | | |||||||||
Distributions on account of investments in portfolio companies |
1,368 | 1 | % | | | ||||||||
Expense reimbursement from sponsor |
15,362 | 10 | % | | | ||||||||
| | | | | | | | | | | | | |
Total |
$ | 156,358 | 100 | % | $ | 137,508 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The Company's net investment income on a tax basis for the six months ended June 30, 2017 and 2016 was $154,990 and $131,526, respectively. As of June 30, 2017 and December 31, 2016, the Company had $0 and $19, respectively, of undistributed ordinary income on a tax basis and distributions received from investments in portfolio companies.
During the six months ended June 30, 2017, certain investments in the portfolio were restructured or experienced defaults due to the continued depressed prices of oil and natural gas, and the Company may experience additional restructurings or defaults in the future. These restructurings and defaults may have an impact on the level of income received by the Company. As a result, the Company is continuing to evaluate the current distribution rate payable on its common shares and there can be no assurance that the Company will be able to maintain a monthly cash distribution amount of $0.059042 per common share.
For the six months ended June 30, 2017, the difference between the Company's GAAP-basis net investment income and its tax-basis net investment income was primarily due to the reclassification of unamortized original issue discount and prepayment fees recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the impact of consolidating certain subsidiaries for purposes of computing GAAP-basis net investment income but not for purposes of computing tax-basis net investment income and income subject to tax but not recorded for GAAP purposes.
33
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (Continued)
The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the six months ended June 30, 2017 and 2016:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
GAAP-basis net investment income |
$ | 150,414 | $ | 119,416 | |||
Reclassification of unamortized original issue discount and prepayment fees |
(20,147 | ) | (2,071 | ) | |||
GAAP versus tax-basis impact of consolidation of certain subsidiaries |
13,184 | 5,643 | |||||
Income subject to tax not recorded for GAAP |
11,550 | 7,925 | |||||
Other miscellaneous differences |
(11 | ) | 613 | ||||
| | | | | | | |
Tax-basis net investment income |
$ | 154,990 | $ | 131,526 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The determination of the tax attributes of the Company's distributions is made annually as of the end of the Company's fiscal year based upon the Company's taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company's distributions for a full year. The actual tax characteristics of distributions to shareholders are reported to shareholders annually on Form 1099-DIV.
As of June 30, 2017 and December 31, 2016, the components of accumulated earnings (deficit) on a tax basis were as follows:
|
June 30, 2017
(Unaudited) |
December 31, 2016 | |||||
---|---|---|---|---|---|---|---|
Distributable ordinary income, net of distributions received from investments in portfolio companies |
$ | | $ | 19 | |||
Accumulated capital losses (1) |
(425,090 | ) | (367,653 | ) | |||
Other temporary differences |
(210 | ) | 79 | ||||
Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency (2) |
(360,993 | ) | (115,266 | ) | |||
| | | | | | | |
Total |
$ | (786,293 | ) | $ | (482,821 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The aggregate cost of the Company's investments for federal income tax purposes totaled $4,550,938 and $4,014,678 as of June 30, 2017 and December 31, 2016, respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis was $(360,993) and $(115,266) as of June 30, 2017 and December 31, 2016, respectively.
34
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (Continued)
As of June 30, 2017 and December 31, 2016, the Company had deferred tax liabilities of $2,423 and $46,278, respectively, resulting from unrealized appreciation on investments held by the Company's wholly-owned taxable subsidiaries and deferred tax assets of $78,267 and $81,116, respectively, resulting from net operating and capital losses of the Company's wholly-owned taxable subsidiaries. As of June 30, 2017 and December 31, 2016, certain wholly-owned taxable subsidiaries anticipated that they would be unable to fully utilize their generated net operating and capital losses, therefore the deferred tax assets were offset by valuation allowances of $75,844 and $34,838, respectively. For the three and six months ended June 30, 2017, the Company did not record a provision for taxes related to wholly-owned taxable subsidiaries.
Note 6. Investment Portfolio
The following table summarizes the composition of the Company's investment portfolio at cost and fair value as of June 30, 2017 and December 31, 2016:
|
June 30, 2017
(Unaudited) |
December 31, 2016 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
|||||||||||||
Senior Secured LoansFirst Lien |
$ | 859,820 | $ | 818,075 | 20 | % | $ | 947,803 | $ | 912,491 | 23 | % | |||||||
Senior Secured LoansSecond Lien |
855,909 | 812,612 | 19 | % | 948,762 | 873,869 | 22 | % | |||||||||||
Senior Secured Bonds |
594,448 | 577,765 | 14 | % | 388,512 | 397,614 | 10 | % | |||||||||||
Subordinated Debt |
1,464,073 | 1,424,720 | 34 | % | 1,049,097 | 1,043,167 | 27 | % | |||||||||||
Equity/Other |
622,704 | 549,883 | 13 | % | 628,814 | 683,299 | 18 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 4,396,954 | $ | 4,183,055 | 100 | % | $ | 3,962,988 | $ | 3,910,440 | 100 | % | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
In general, under the 1940 Act, the Company would be presumed to "control" a portfolio company if it owned more than 25% of its voting securities or it had the power to exercise control over the management or policies of a portfolio company, and would be an "affiliated person" of a portfolio company if it owned 5% or more of its voting securities.
As of June 30, 2017, the Company held investments in one portfolio company of which it is deemed to "control." As of June 30, 2017, the Company held investments in six portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control." For additional information with respect to such portfolio companies, see footnotes (p) and (aa) to the unaudited consolidated schedule of investments as of June 30, 2017 in this quarterly report on Form 10-Q.
As of December 31, 2016, the Company held investments in one portfolio company of which it is deemed to "control." As of December 31, 2016, the Company held investments in six portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control." For additional information with respect to such portfolio companies, see footnotes (p) and (aa) to the consolidated schedule of investments as of December 31, 2016 in this quarterly report on Form 10-Q.
The Company's investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, pursuant to which the Company may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2017, the Company had six senior secured loan investments with
35
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 6. Investment Portfolio (Continued)
aggregate unfunded commitments of $102,141 and five equity/other investments with aggregate unfunded commitments of $16,357. As of June 30, 2017, these unfunded equity/other investments were Altus Power America Holdings, LLC, preferred equity, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, Chisholm Oil and Gas, LLC and Synergy Offshore LLC. As of December 31, 2016, the Company had four senior secured loan investments with aggregate unfunded commitments of $82,404 and four equity/other investments with aggregate unfunded commitments of $14,942. As of December 31, 2016, these unfunded equity/other investments were Altus Power America Holdings, LLC, preferred equity, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy Offshore LLC. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.
The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of June 30, 2017 and December 31, 2016:
|
June 30, 2017
(Unaudited) |
December 31, 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Industry Classification | Fair Value |
Percentage
of Portfolio |
Fair Value |
Percentage
of Portfolio |
|||||||||
Upstream |
$ | 2,538,234 | 61 | % | $ | 2,270,769 | 58 | % | |||||
Midstream |
336,672 | 8 | % | 343,713 | 9 | % | |||||||
Downstream |
61,726 | 1 | % | 49,623 | 1 | % | |||||||
Power |
381,975 | 9 | % | 523,153 | 13 | % | |||||||
Service & Equipment |
864,448 | 21 | % | 723,182 | 19 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 4,183,055 | 100 | % | $ | 3,910,440 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Note 7. Fair Value of Financial Instruments
Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:
Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets.
Level 3: Inputs that are unobservable for an asset or liability.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
36
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (Continued)
As of June 30, 2017 and December 31, 2016, the Company's investments were categorized as follows in the fair value hierarchy:
Valuation Inputs |
June 30, 2017
(Unaudited) |
December 31, 2016 | |||||
---|---|---|---|---|---|---|---|
Level 1Price quotations in active markets |
$ | 37,027 | $ | 46,728 | |||
Level 2Significant other observable inputs |
| | |||||
Level 3Significant unobservable inputs |
4,146,028 | 3,863,712 | |||||
| | | | | | | |
Total |
$ | 4,183,055 | $ | 3,910,440 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company's investments as of June 30, 2017 consisted primarily of debt investments that were either acquired directly from the issuer or traded on an over-the-counter market for institutional investors. Seventeen senior secured loan investments, five senior secured bond investments and eight subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. Thirty of the Company's equity/other investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Three equity/other investments, which were traded on an active public market, were valued at their closing price as of June 30, 2017. One subordinated debt investment, which was newly issued and purchased near June 30, 2017, was valued at cost as the Company's board of trustees determined that the cost of such investment was the best indication of its fair value. Except as described above, the Company valued its other investments, including three of its equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service.
The Company's investments as of December 31, 2016 consisted primarily of debt investments that were acquired directly from the issuer. Sixteen senior secured loan investments, three senior secured bond investments and seven subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. Twenty-eight of the Company's equity/other investments were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Three equity/other investments, which were traded on an active public market, were valued at their closing price as of December 30, 2016. One senior secured loan investment, which was newly issued and purchased near December 31, 2016, was valued at cost as the Company's board of trustees determined that the cost of such investment was the best indication of its fair value. Except as described above, the Company valued its other investments, including two of its equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service.
The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing service and/or dealers, as applicable, against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the
37
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (Continued)
Company's management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods, including the use of independent valuation firms, to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers or where the Company's board of trustees otherwise determines that the use of such other method is appropriate. The Company periodically benchmarks the valuations provided by the independent valuation firms against the actual prices at which it purchases and sells its investments. The valuation committee of the board of trustees, or the valuation committee, and the board of trustees reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company's valuation policy.
The following is a reconciliation for the six months ended June 30, 2017 and 2016 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:
38
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (Continued)
|
For the Six Months Ended June 30, 2016 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Senior
Secured Loans First Lien |
Senior
Secured Loans Second Lien |
Senior
Secured Bonds |
Subordinated
Debt |
Equity/
Other |
Total | |||||||||||||
Fair value at beginning of period |
$ | 929,790 | $ | 923,402 | $ | 323,948 | $ | 579,740 | $ | 312,618 | $ | 3,069,498 | |||||||
Accretion of discount (amortization of premium) |
2,722 | 710 | 843 | 2,267 | 888 | 7,430 | |||||||||||||
Net realized gain (loss) |
(18,783 | ) | (1,279 | ) | (1,310 | ) | (54,712 | ) | 6 | (76,078 | ) | ||||||||
Net change in unrealized appreciation (depreciation) |
19,430 | 79,262 | 77,867 | 138,074 | 60,100 | 374,733 | |||||||||||||
Purchases |
124,972 | 26,753 | 44,470 | 174,433 | 254,660 | 625,288 | |||||||||||||
Paid-in-kind interest |
6,690 | 3,159 | 468 | 527 | 3,067 | 13,911 | |||||||||||||
Sales and redemptions |
(235,867 | ) | (40,025 | ) | (84,372 | ) | (29,517 | ) | (85,398 | ) | (475,179 | ) | |||||||
Net transfers in or out of Level 3 |
| | | | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Fair value at end of period |
$ | 828,954 | $ | 991,982 | $ | 361,914 | $ | 810,812 | $ | 545,941 | $ | 3,539,603 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date |
$ | (13,901 | ) | $ | 91,001 | $ | 56,746 | $ | 113,517 | $ | 60,100 | $ | 307,463 | ||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
39
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (Continued)
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of June 30, 2017 and December 31, 2016 were as follows:
Type of Investment |
Fair Value at
June 30, 2017 (Unaudited) |
Valuation Technique (1) | Unobservable Input | Range |
Weighted
Average |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Senior Secured LoansFirst Lien |
$ | 453,454 | Market Comparables | Market Yield (%) | 8.0% - 14.0% | 11.0 | % | |||||
|
EBITDA Multiples (x) | 4.5x - 8.0x | 5.6x | |||||||||
|
Proved Reserves Multiples (Mmboe) | $6.0 - $6.5 | $6.3 | |||||||||
|
PV-10 Multiples (x) | 0.4x - 0.4x | 0.4x | |||||||||
|
364,621 | Market Quotes | Indicative Dealer Quotes | 70.4% - 103.0% | 97.0 | % | ||||||
Senior Secured LoansSecond Lien |
444,516 |
Market Comparables |
Market Yield (%) |
8.9% - 32.5% |
14.5 |
% |
||||||
|
368,096 | Market Quotes | Indicative Dealer Quotes | 9.2% - 101.0% | 93.2 | % | ||||||
Senior Secured Bonds |
433,687 |
Market Comparables |
Market Yield (%) |
9.3% - 12.3% |
9.8 |
% |
||||||
|
Production Multiples (Mboe/d) | $36,000.0 - $38,500.0 | $37,250.0 | |||||||||
|
Proved Reserves Multiples (Mmboe) | $10.0 - $11.0 | $10.5 | |||||||||
|
PV-10 Multiples (x) | 0.7x - 0.8x | 0.7x | |||||||||
|
EBITDA Multiples (x) | 4.8x - 5.3x | 5.0x | |||||||||
|
144,078 | Market Quotes | Indicative Dealer Quotes | 73.8% - 109.1% | 92.2 | % | ||||||
Subordinated Debt |
160,902 |
Market Comparables |
Market Yield (%) |
8.0% - 15.3% |
9.8 |
% |
||||||
|
Production Multiples (Mboe/d) | $26,250.0 - $28,750.0 | $27,500.0 | |||||||||
|
PV-10 Multiples (x) | 1.0x - 1.1x | 1.0x | |||||||||
|
EBITDA Multiples (x) | 6.5x - 7.0x | 6.8x | |||||||||
|
Discount Rate (%) | 17.0% - 18.0% | 17.5 | % | ||||||||
|
97,000 | Cost | Cost | 97.0% - 97.0% | 97.0 | % | ||||||
|
1,166,818 | Market Quotes | Indicative Dealer Quotes | 52.9% - 119.7% | 97.2 | % | ||||||
Equity/Other |
464,187 |
Market Comparables |
EBITDA Multiples (x) |
4.5x - 15.3x |
8.3x |
|||||||
|
Production Multiples (Mboe/d) | $36,000.0 - $47,500.0 | $38,569.7 | |||||||||
|
Proved Reserves Multiples (Mmboe) | $4.3 - $11.0 | $9.4 | |||||||||
|
Production Multiples (MMcfe/d) | $6,500.0 - $7,500.0 | $7,000.0 | |||||||||
|
Proved Reserves Multiples (Bcfe) | $1.6 - $1.8 | $1.7 | |||||||||
|
PV-10 Multiples (x) | 0.4x - 3.1x | 2.3x | |||||||||
|
Capacity Multiple ($/kW) | $2,750.0 - $3,250.0 | $3,000.0 | |||||||||
|
Market Yield (%) | 13.8% - 14.3% | 14.0 | % | ||||||||
|
57 | Discounted Cash Flow | Discount Rate (%) | 9.3% - 24.8% | 23.7 | % | ||||||
|
69 | Option Valuation Model | Volatility (%) | 30.0% - 30.0% | 30.0 | % | ||||||
|
19,100 | Other (2) | Other (2) | N/A | N/A | |||||||
|
29,443 | Market Quotes | Indicative Dealer Quotes | $4.5 - $356.7 | $58.1 | |||||||
| | | | | | | | | | | | |
Total |
$ | 4,146,028 | ||||||||||
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
40
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 7. Fair Value of Financial Instruments (Continued)
Type of Investment |
Fair Value at
December 31, 2016 |
Valuation Technique (1) | Unobservable Input | Range |
Weighted
Average |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Senior Secured Loans
|
$ | 581,550 | Market Comparables | Market Yield (%) | 8.0% - 17.8% | 11.5 | % | |||||
|
1,024 | Other (2) | Other (2) | N/A | N/A | |||||||
|
329,917 | Market Quotes | Indicative Dealer Quotes | 72.0% - 102.0% | 93.7 | % | ||||||
Senior Secured Loans
|
530,636 |
Market Comparables |
Market Yield (%) |
8.8% - 22.9% |
12.7 |
% |
||||||
|
343,233 | Market Quotes | Indicative Dealer Quotes | 12.0%-105.4% | 89.6 | % | ||||||
Senior Secured Bonds |
326,388 |
Market Comparables |
Market Yield (%) |
7.5% - 9.0% |
8.0 |
% |
||||||
|
Production Multiples (Mboe/d) | $45,000.0 - $50,000.0 | $47,500.0 | |||||||||
|
Proved Reserves Multiples (Mmboe) | $14.5 - $15.0 | $14.8 | |||||||||
|
EBITDA Multiples (x) | 6.8x - 7.3x | 7.0x | |||||||||
|
PV-10 Multiples (x) | 0.8x - 0.9x | 0.9x | |||||||||
|
71,226 | Market Quotes | Indicative Dealer Quotes | 84.2% - 109.3% | 96.6 | % | ||||||
Subordinated Debt |
122,821 |
Market Comparables |
Market Yield (%) |
7.5% - 15.3% |
11.2 |
% |
||||||
|
920,346 | Market Quotes | Indicative Dealer Quotes | 54.5% - 125.5% | 97.7 | % | ||||||
Equity/Other |
594,404 |
Market Comparables |
EBITDA Multiples (x) |
4.5x - 16.3x |
9.4x |
|||||||
|
Production Multiples (Mmb/d) | $2,225.0 - $55,000.0 | $41,329.5 | |||||||||
|
Proved Reserves Multiples (Mmboe) | $0.7 - $15.0 | $8.9 | |||||||||
|
PV-10 Multiples (x) | 0.3x - 2.1x | 0.7x | |||||||||
|
Capacity Multiple ($/kW) | $2,375.0 - $2,875.0 | $2,625.0 | |||||||||
|
Undeveloped Acreage Multiple ($/acre) | $8,000.0 - $10,000.0 | $9,000.0 | |||||||||
|
Market Yield (%) | 10.0% - 14.3% | 12.2 | % | ||||||||
|
Discounted Cash Flow | Discount Rate (%) | 9.3% - 24.8% | 23.7 | % | |||||||
|
3,339 | Other (2) | Other (2) | N/A | N/A | |||||||
|
38,828 | Market Quotes | Indicative Dealer Quotes | $7.0 - $16.0 | $10.7 | |||||||
| | | | | | | | | | | | |
Total |
$ | 3,863,712 | ||||||||||
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Note 8. Financing Arrangements
The following tables present a summary of information with respect to the Company's outstanding financing arrangements as of June 30, 2017 and December 31, 2016. For additional information regarding these financing arrangements, see the notes to the Company's audited consolidated financial statements contained in its annual report on Form 10-K for the year ended December 31, 2016 and the additional disclosure set forth in this Note 8.
|
As of June 30, 2017 (Unaudited) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Facility |
Type of
Arrangement |
Rate |
Amount
Outstanding |
Amount
Available |
Maturity Date | |||||||
Barclays Credit Facility |
Revolving | L+3.25% | | $ | 100,000 | May 18, 2021 | ||||||
BNP Facility |
Prime Brokerage | L+1.35% (1) | $ | 213,737 | $ | 86,263 | March 27, 2018 (2) | |||||
Deutsche Bank Credit Facility |
Revolving | L+2.05% | $ | 240,000 | $ | 100,000 | June 11, 2018 | |||||
Fortress Facility |
Term | L+5.00% (3) | $ | 155,000 | | November 6, 2020 | ||||||
Goldman Facility |
Term | L+3.72% | $ | 425,000 | | September 15, 2019 | ||||||
Natixis Credit Facility |
Revolving | CP+2.25% | $ | 19,922 (4) | | July 11, 2023 | ||||||
Wells Fargo Credit Facility |
Revolving | L+2.50% to 2.75% | $ | 22,302 (5) | | September 9, 2018 |
41
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
The Company's average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2017 were $948,334 and 4.22%, respectively. As of June 30, 2017, the Company's weighted average effective interest rate on borrowings was 4.16%.
|
As of December 31, 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Facility |
Type of
Arrangement |
Rate |
Amount
Outstanding |
Amount
Available |
Maturity Date | |||||||
Barclays Credit Facility |
Revolving | L+3.25% | | $ | 100,000 | May 18, 2021 | ||||||
BNP Facility |
Prime Brokerage | L+1.10% (1) | $ | 113,737 | $ | 186,263 | September 27, 2017 (2) | |||||
Deutsche Bank Credit Facility |
Revolving | L+2.05% (3) | $ | 200,000 | $ | 115,000 | June 11, 2017 | |||||
Fortress Facility |
Term | L+5.00% (4) | $ | 155,000 | | November 6, 2020 | ||||||
Goldman Repurchase Financing |
Repurchase | L+3.38% (5) | $ | 325,000 | | September 15, 2018 | ||||||
Natixis Credit Facility |
Revolving | CP+2.25% | $ | 50,328 | | July 11, 2023 | ||||||
Wells Fargo Credit Facility |
Revolving | L+2.50% to 2.75% | $ | 29,600 | $ | 30,400 | September 9, 2018 |
The Company's average borrowings and weighted average interest rate, including the effect of non-usage fees, for the year ended December 31, 2016 were $918,992 and 3.69%, respectively. As of December 31, 2016, the Company's weighted average effective interest rate on borrowings was 3.85%.
Barclays Credit Facility
On May 18, 2016, Bryn Mawr Funding LLC, or Bryn Mawr Funding, a wholly-owned subsidiary, entered into a revolving credit facility, or the Barclays credit facility, with Barclays Bank PLC, or Barclays, as administrative agent, and the lenders from time to time party thereto. The Barclays credit facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies in an aggregate amount of up to $100,000, including a subfacility for the issuance of letters of credit for Bryn Mawr Funding's account in an aggregate face amount of up to $10,000. Bryn Mawr Funding's obligations to Barclays under the Barclays credit facility are secured by a first priority security interest in substantially all of the assets of Bryn Mawr Funding, including its portfolio of assets and the assets
42
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
of its subsidiaries, subject to customary exceptions. In addition, the Company has agreed to guaranty the obligations of Barclays and grant a first priority lien in favor of Barclays, for the benefit of the lenders, on the membership interests in Bryn Mawr Funding.
The Barclays credit facility provides for a four year revolving period followed by a one year term-out period, after which time all outstanding advances and other amounts will become due and payable. Interest under the Barclays credit facility for (i) loans for which the Company elects the eurocurrency option is payable at a rate equal to LIBOR plus 3.25% per annum; and (ii) loans for which the Company elects the base rate option is payable at a rate equal to 2.25% per annum plus the greatest of (a) the U.S. Prime Rate, (b) the federal funds effective rate for such day plus 0.50%, (c) three-month LIBOR plus 1.00% per annum and (d) zero. Bryn Mawr Funding will pay a commitment fee of 0.375% per annum on the unused portion of the commitments under the Barclays credit facility during the revolving period and letter of credit participation fees and a fronting fee on the average daily amount of any letters of credit issued under the Barclays credit facility. Interest and fees are payable in arrears at the end of each interest period or three-month measurement period, as applicable, and, in each case, began on October 31, 2016.
As of June 30, 2017 and December 31, 2016, no amounts were outstanding under the Barclays credit facility. The Company incurred costs of $283 in connection with obtaining the Barclays credit facility, which the Company recorded as deferred financing costs on its consolidated balance sheet and amortizes to interest expense over the life of the Barclays credit facility. As of June 30, 2017, $226 of such deferred financing costs had yet to be amortized to interest expense.
For the three and six months ended June 30, 2017, the components of total interest expense for the Barclays credit facility were as follows:
|
Three Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2017 |
|||||
---|---|---|---|---|---|---|---|
Direct interest expense |
$ | 18 | $ | 18 | |||
Non-usage fees |
93 | 187 | |||||
Amortization of deferred financing costs |
14 | 28 | |||||
| | | | | | | |
Total interest expense |
$ | 125 | $ | 233 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Interest under the Barclays credit facility is paid quarterly in arrears and payments commenced on February 6, 2017. During the six months ended June 30, 2017, the Bryn Mawr Funding borrowed and repaid $75,000 over the course of a two day period and paid cash interest expense for such borrowings and for non-usage fees in a total amount equal to $205. For the duration of the borrowing, the average borrowings under the facility were $75,000 the effective interest rate was 4.25% and the weighted average interest rate (including the effect of non-usage fees) was 4.56%.
Borrowings of Bryn Mawr Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
BNP Facility
On December 11, 2013, Berwyn Funding LLC, or Berwyn Funding, the Company's wholly-owned, special-purpose financing subsidiary, entered into a committed facility arrangement, or the BNP facility, with BNP Paribas Prime Brokerage, Inc., or BNP. As amended to date, BNP's maximum commitment under the BNP facility is $300,000. The BNP facility was effected through a committed facility agreement by and between Berwyn Funding and BNP, or the committed facility agreement, a U.S. PB Agreement by and between Berwyn Funding and BNP and a special custody and pledge agreement by
43
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
and among Berwyn Funding, BNP and State Street Bank and Trust Company, or State Street, as custodian, each dated as of December 11, 2013, as amended to date, and which are collectively referred to herein as the BNP financing agreements.
The Company may contribute securities to Berwyn Funding from time to time, subject to certain restrictions set forth in the committed facility agreement, and will retain a residual interest in any securities contributed through its ownership of Berwyn Funding or will receive fair market value for any securities sold to Berwyn Funding. Berwyn Funding may purchase additional securities from various sources. Berwyn Funding has appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. Berwyn Funding will pledge certain of its securities as collateral to secure borrowings under the BNP facility. Such pledged securities will be held in a segregated custody account with State Street. The value of securities required to be pledged by Berwyn Funding is determined in accordance with the margin requirements described in the BNP financing agreements. Berwyn Funding's obligations to BNP under the BNP facility are secured by a first priority security interest in substantially all of the assets of Berwyn Funding, including its portfolio of securities. The obligations of Berwyn Funding under the BNP facility are non-recourse to the Company and the Company's exposure under the BNP facility is limited to the value of the Company's investment in Berwyn Funding. On May 4, 2016, Berwyn Funding entered into an amendment to the BNP financing arrangements that permits Berwyn Funding to enter into trades, including but not limited to purchasing options, through the prime brokerage arrangement provided under the BNP financing arrangements.
Prior to January 2, 2017, borrowings under the BNP facility accrued interest at a rate equal to three-month LIBOR plus 1.10% per annum and Berwyn Funding paid a non-usage fee of 0.55% per annum to the extent the aggregate principal amount available under the BNP facility was not borrowed. On May 4, 2016, Berwyn Funding entered into an amendment to the BNP facility which increased the (i) interest rate payable on borrowings to LIBOR plus 1.35% per annum effective on and after January 2, 2017 and (ii) the commitment fee payable on all unused amounts to, effective on and after January 2, 2017, (a) 0.65% per annum on unused amounts so long as 75% or more of the facility amount is utilized or (b) 0.85% per annum on unused amounts if less than 75% of the facility amount is utilized. Berwyn Funding may terminate the committed facility agreement upon 270 days' notice. Subject to certain cancellation rights, and absent a default or facility termination event, BNP is required to provide Berwyn Funding with 270 days' notice prior to terminating or amending the committed facility agreement.
As of June 30, 2017 and December 31, 2016, $213,737 and $113,737, respectively, was outstanding under the BNP facility. The carrying amount outstanding under the facility approximates its fair value. The Company incurred costs of $449 in connection with obtaining and amending the facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortized to interest expense over the 270 day period following the closing date of the BNP facility or the amendment thereto, as applicable. As of June 30, 2017, all of the deferred financing costs had been amortized to interest expense.
44
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
For the three and six months ended June 30, 2017 and 2016, the components of total interest expense for the BNP facility were as follows:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
Direct interest expense |
$ | 1,393 | $ | 502 | $ | 2,165 | $ | 999 | |||||
Non-usage fees |
179 | 258 | 547 | 517 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 1,572 | $ | 760 | $ | 2,712 | $ | 1,516 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the six months ended June 30, 2017 and 2016, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the BNP facility were as follows:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Cash paid for interest expense (1) |
$ | 2,455 | $ | 1,525 | |||
Average borrowings under the facility |
$ | 171,705 | $ | 113,737 | |||
Effective interest rate on borrowings |
2.65 | % | 1.75 | % | |||
Weighted average interest rate (including the effect of non-usage fees) |
3.14 | % | 2.64 | % |
Under the terms of the BNP financing agreements, BNP has the ability to borrow a portion of the pledged collateral, or, collectively, the rehypothecated securities, subject to certain limits. Berwyn Funding may designate any security within the pledged collateral as ineligible to be a rehypothecated security, provided there remain securities eligible to be rehypothecated within the segregated custody account in an amount equal to the outstanding borrowings owed by Berwyn Funding to BNP. Berwyn Funding may recall any rehypothecated security at any time and BNP must return such security or an equivalent security within a commercially reasonable period. In the event BNP does not return the security, Berwyn Funding will have the right to, among other things, apply and set off an amount equal to 100% of the then-current fair market value of such rehypothecated securities against any outstanding borrowings owed to BNP under the facility. Rehypothecated securities are marked-to-market daily and if the value of all rehypothecated securities exceeds 100% of the outstanding borrowings owed by Berwyn Funding under the facility, BNP may either reduce the amount of rehypothecated securities to eliminate such excess or deposit into the segregated custody account an amount of cash equal to such excess. Berwyn Funding will continue to receive interest and the scheduled repayment of principal balances on rehypothecated securities. For the six months ended June 30, 2017 and 2016, Berwyn Funding received a fee of $1 and $0, respectively, from BNP for securities that had been rehypothecated pursuant to the BNP financing agreements. As of June 30, 2017 and December 31, 2016, the fair value of those securities rehypothecated by BNP was $183,175 and $106,488, respectively.
Borrowings of Berwyn Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
45
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
Deutsche Bank Credit Facility
On June 24, 2011, FSEP Term Funding, LLC, or FSEP Funding, the Company's wholly-owned, special-purpose financing subsidiary, entered into a revolving credit facility, or the Deutsche Bank credit facility, with Deutsche Bank AG, New York Branch, or Deutsche Bank, as administrative agent and the lender party thereto. The Deutsche Bank credit facility subsequently was amended multiple times, most recently, to set the maximum commitments under the facility at $340,000 and extend the maturity date to June 11, 2018.
Under the Deutsche Bank credit facility, the Company has transferred from time to time cash or securities to FSEP Funding as a contribution to capital and retains a residual interest in the contributed cash or securities through the Company's ownership of FSEP Funding. The Company may contribute additional cash or securities to FSEP Funding from time to time and FSEP Funding may purchase additional securities from various sources. FSEP Funding has appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. FSEP Funding's obligations to the lenders under the Deutsche Bank credit facility are secured by a first priority security interest in substantially all of the assets of FSEP Funding, including its portfolio of securities. The obligations of FSEP Funding under the Deutsche Bank credit facility are non-recourse to the Company and the Company's exposure under the Deutsche Bank credit facility is limited to the value of the Company's investment in FSEP Funding.
During the period from June 24, 2011 to June 10, 2016, interest on borrowings under the Deutsche Bank credit facility accrued at a rate equal to LIBOR for an interest period closest to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding plus 1.80% per annum. During the period from June 11, 2016 to June 10, 2017, interest on borrowings under the Deutsche Bank credit facility accrued at a rate equal to LIBOR for an interest period closest to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding plus 2.05% per annum. Beginning June 11, 2017, interest on borrowings under the Deutsche Bank credit facility is based on three-month LIBOR plus 2.05% per annum. FSEP Funding is subject to a non-usage fee of 0.75% per annum to the extent that the aggregate principal amount available under the Deutsche Bank credit facility is not borrowed. Any amounts borrowed under the Deutsche Bank credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on June 11, 2018.
As of June 30, 2017 and December 31, 2016, $240,000 and $200,000, respectively, was outstanding under the Deutsche Bank credit facility. The carrying amount outstanding under the Deutsche Bank credit facility approximates its fair value. The Company incurred costs of $5,633 in connection with obtaining and amending the Deutsche Bank credit facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Deutsche Bank credit facility. As of June 30, 2017, $1,119 of such deferred financing costs had yet to be amortized to interest expense.
For the three and six months ended June 30, 2017 and 2016, the components of total interest expense for the Deutsche Bank credit facility were as follows:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
Direct interest expense |
$ | 1,950 | $ | 1,247 | $ | 3,519 | $ | 2,868 | |||||
Non-usage fees |
153 | 255 | 359 | 394 | |||||||||
Amortization of deferred financing costs |
287 | 297 | 558 | 593 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 2,390 | $ | 1,799 | $ | 4,436 | $ | 3,855 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
46
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
For the six months ended June 30, 2017 and 2016, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Deutsche Bank credit facility were as follows:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Cash paid for interest expense (1) |
$ | 4,340 | $ | 3,373 | |||
Average borrowings under the facility |
$ | 222,762 | $ | 233,407 | |||
Effective interest rate on borrowings |
3.20 | % | 2.66 | % | |||
Weighted average interest rate (including the effect of non-usage fees) |
3.46 | % | 2.76 | % |
Borrowings of FSEP Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
Fortress Facility
On November 6, 2015, Foxfields Funding LLC, or Foxfields Funding, a wholly owned financing subsidiary of the Company, entered into a senior secured multiple draw term loan facility, or the Fortress facility, with Fortress as administrative agent, the lenders from time to time party thereto and the other loan parties from time to time party thereto. The Fortress facility, as amended, provides for $155,000 of term loans available to be borrowed during the first two years after the initial closing date of November 6, 2015 with an option for the Company to request, at one or more times during the first two years after the closing date, that existing or new lenders, at their election provide up to $45,000 of additional commitments.
Interest under the Fortress facility for (i) loans bearing interest by reference to LIBOR accrues at a rate equal to LIBOR (subject to a floor of 0.75%) plus 5.00% per annum, and (ii) loans bearing interest by reference to the base rate accrues at 4.00% per annum plus the greater of: (x) the per annum rate of interest announced, from time to time, within Wells Fargo Bank, National Association at its principal office in San Francisco as its "prime rate," and (y) 1.75% per annum. Interest is payable quarterly in arrears and began accruing during the quarter ended March 31, 2016. During the first year after the closing date, Foxfields Funding is subject to a commitment fee at a rate equal to 1.00% per annum of the average daily undrawn amount under the Fortress facility. Under certain conditions, Foxfields Funding will be subject to a prepayment premium if all or any part of the principal balance of the borrowings is prepaid prior to November 6, 2017. Foxfields Funding incurred certain customary fees, costs and expenses in connection with obtaining the Fortress facility.
As of June 30, 2017 and December 31, 2016, $155,000 was outstanding under the Fortress facility. The carrying amount outstanding under the Fortress facility approximates its fair value. The Company incurred costs of $1,342 in connection with obtaining and amending the Fortress facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Fortress facility. As of June 30, 2017, $910 of such deferred financing costs had yet to be amortized to interest expense.
47
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
For the three and six months ended June 30, 2017 and 2016, the components of total interest expense for the Fortress facility were as follows:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
Direct interest expense |
$ | 2,369 | $ | 1,305 | $ | 4,545 | $ | 2,608 | |||||
Non-usage fees |
| 178 | | 377 | |||||||||
Amortization of deferred financing costs |
68 | 68 | 135 | 134 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 2,437 | $ | 1,551 | $ | 4,680 | $ | 3,119 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the six months ended June 30, 2017, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Fortress facility were as follows:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Cash paid for interest expense (1) |
$ | 4,283 | $ | 2,113 | |||
Average borrowings under the facility |
$ | 155,000 | $ | 89,600 | |||
Effective interest rate on borrowings |
6.06 | % | 5.75 | % | |||
Weighted average interest rate (including the effect of non-usage fees) |
5.83 | % | 6.59 | % |
Borrowings of Foxfields Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
Goldman Repurchase Financing
On September 11, 2014, through its two wholly-owned, special-purpose financing subsidiaries, Gladwyne Funding LLC, or Gladwyne Funding, and Strafford Funding LLC, or Strafford Funding, the Company entered into a debt financing arrangement with Goldman, which was subsequently twice amended, or the Goldman repurchase financing. Prior to its termination on April 19, 2017, the amount borrowed under the Goldman repurchase financing was $325,000. On April 19, 2017, in connection with the closing of the Goldman repurchase financing (as defined below), (i) all of the Floating Rate Notes, or Notes, issued by Gladwyne Funding to Strafford Funding were canceled and the indenture under which the Notes were issued was discharged, (ii) the master repurchase agreement between Strafford Funding and Goldman and each transaction thereunder was terminated and (iii) accordingly, the Goldman repurchase financing was prepaid in full and terminated.
As of June 30, 2017 and December 31, 2016, Notes in an aggregate principal amount of $0 and $577,750, respectively had been purchased by Strafford Funding from Gladwyne Funding and subsequently sold to Goldman under the Goldman repurchase financing for aggregate proceeds of $0 and $325,000, respectively. The carrying amount outstanding under the Goldman repurchase financing approximated its fair value. The Company funded each purchase of Notes by Strafford Funding through a capital contribution to Strafford Funding. As of June 30, 2017 and December 31, 2016, Strafford Funding's liability under the Goldman repurchase financing was $0 and $325,000, respectively, plus $0 and $649, respectively, of accrued interest expense. The Notes issued by Gladwyne Funding and purchased by Strafford Funding eliminate in consolidation on the Company's financial statements.
48
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
The Company incurred costs of $380 in connection with obtaining the Goldman repurchase financing, which the Company had recorded as deferred financing costs on its consolidated balance sheets and amortized to interest expense over the life of the Goldman repurchase financing. As of June 30, 2017, all of the deferred financing costs had been amortized to interest expense.
For the three and six months ended June 30, 2017 and 2016, the components of total interest expense for the Goldman repurchase financing were as follows:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
Direct interest expense |
$ | 759 | $ | 2,798 | $ | 4,305 | $ | 5,505 | |||||
Amortization of deferred financing costs |
59 | 32 | 91 | 64 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 818 | $ | 2,830 | $ | 4,396 | $ | 5,569 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the six months ended June 30, 2017 and 2016, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Goldman repurchase financing were as follows:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Cash paid for interest expense (1) |
$ | 4,954 | $ | 5,490 | |||
Average borrowings under the facility |
$ | 325,000 | $ | 324,984 | |||
Effective interest rate on borrowings |
| 3.38 | % | ||||
Weighted average interest rate |
4.42 | % | 3.35 | % |
Amounts outstanding under the Goldman repurchase financing were considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
Goldman Facility
On April 19, 2017, Gladwyne Funding entered into a Credit Agreement with Goldman, as lender, sole lead arranger and administrative agent, Citibank, N.A., as collateral agent, and Virtus Group, LP, as collateral administrator, or the Goldman term facility, pursuant to which Goldman advanced $325,000 to Gladwyne Funding with a 60-day availability period for Gladwyne Funding to borrow an additional $100,000. Pursuant to the Goldman term facility, the Company may contribute cash, loans or bonds to Gladwyne Funding from time to time, subject to certain restrictions, and will retain a residual interest in any assets contributed through its ownership of Gladwyne Funding or will receive fair market value for any assets sold to Gladwyne Funding. Gladwyne Funding may purchase additional assets from various sources. Gladwyne Funding has appointed the Company to manage its portfolio of assets pursuant to the terms of an investment management agreement. Gladwyne Funding's obligations to Goldman under the Goldman term facility are secured by a first priority security interest in substantially all of the assets of Gladwyne Funding, including its portfolio of assets. The obligations of Gladwyne Funding under the Goldman term facility are non-recourse to the Company, and the Company's exposure under the Goldman term facility is limited to the value of the Company's investment in Gladwyne Funding. On June 16, 2017, Gladwyne Funding borrowed the additional $100,000 commitment under the Goldman term facility to increase the amount outstanding to $425,000.
49
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
As of June 30, 2017, borrowings under the Goldman term facility accrue interest at a rate equal to three-month LIBOR plus 3.72% per annum. Interest is payable in arrears beginning on June 15, 2017 and each quarter thereafter. The Goldman term facility will mature, and all outstanding principal and accrued and unpaid interest thereunder, will be due and payable, on September 15, 2019.
If the Goldman term facility is accelerated prior to its stated maturity date due to an event of default or all or a portion of the borrowings are prepaid, then Gladwyne Funding must pay to Goldman a fee equal to the present value of the aggregate amount of the spread over LIBOR (3.72% per annum) that would have been payable to Goldman on the subject borrowings through the facility's maturity date had the acceleration or prepayment not occurred.
Pursuant to the Goldman term facility, Gladwyne Funding has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. The Goldman term facility contains customary events of default for similar financing transactions, including: (a) failure to pay certain fees and make-whole amounts when due; (b) failure to post cash collateral as required; (c) the occurrence of insolvency events with respect to Gladwyne Funding; and (d) the admission by Gladwyne Funding of its inability to, or its intention not to, perform any of its obligations under the Goldman term facility.
As of June 30, 2017, $425,000 was outstanding under the Goldman term facility. The carrying amount of the amount outstanding under the Goldman term facility approximates its fair value. The Company incurred costs of $1,413 in connection with obtaining the Goldman term facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2017, $1,296 of such deferred financing costs had yet to be amortized to interest expense.
For the three and six months ended June 30, 2017 and 2016, the components of total interest expense for the Goldman term facility were as follows:
|
Three Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2017 |
|||||
---|---|---|---|---|---|---|---|
Direct interest expense |
$ | 3,337 | $ | 3,337 | |||
Amortization of deferred financing costs |
117 | 117 | |||||
| | | | | | | |
Total interest expense |
$ | 3,454 | $ | 3,454 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the six months ended June 30, 2017, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Goldman term facility were as follows:
|
Six Months Ended
June 30, 2017 |
|||
---|---|---|---|---|
Cash paid for interest expense (1) |
$ | 2,444 | ||
Average borrowings under the facility |
$ | 345,548 | ||
Effective interest rate on borrowings |
4.80 | % | ||
Weighted average interest rate (2) |
4.76 | % |
Borrowings of Gladwyne Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
50
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
Natixis Credit Facility
On July 11, 2013, Energy Funding LLC, or Energy Funding, the Company's wholly-owned, special-purpose financing subsidiary, entered into a revolving credit facility, or the Natixis credit facility, with Natixis, New York Branch, or Natixis, as administrative agent and lender, Wells Fargo Bank, National Association, as collateral agent and custodian, and the other lenders from time to time party thereto. The Natixis credit facility provided for revolving borrowings through January 11, 2015 in an aggregate principal amount up to $150,000 on a committed basis. After that date, Energy Funding was no longer permitted to borrow under the facility and outstanding amounts began to amortize. During the six months ended June 30, 2017, Energy Funding repaid $30,406 of outstanding borrowings under the facility.
The Company contributed cash and debt securities to Energy Funding from time to time, prior to the commencement of the amortization period under the Natixis credit facility, subject to certain restrictions set forth in the Natixis credit facility. The Company continues to retain a residual interest in any assets contributed through its ownership of Energy Funding or it received fair market value for any debt securities sold to Energy Funding. Energy Funding was also permitted to purchase additional debt securities from various sources prior to the commencement of the amortization period under the Natixis credit facility. Energy Funding has appointed the Company to manage its portfolio of debt securities pursuant to the terms of a collateral management agreement. Energy Funding's obligations to the lenders under the Natixis credit facility are secured by a first priority security interest in substantially all of the assets of Energy Funding, including its portfolio of debt securities. The obligations of Energy Funding under the Natixis credit facility are non-recourse to the Company and the Company's exposure under the Natixis credit facility is limited to the value of the Company's investment in Energy Funding.
Remaining outstanding borrowings under the Natixis credit facility accrue interest at a rate equal to the applicable commercial paper rate plus 2.25% per annum. Any amounts outstanding under the Natixis credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on July 11, 2023.
As of June 30, 2017 and December 31, 2016, $19,922 and $50,328, respectively, was outstanding under the Natixis credit facility. The carrying amount outstanding under the Natixis credit facility approximates its fair value. The Company incurred costs of $2,544 in connection with obtaining the Natixis credit facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2017, all of the deferred financing costs had been amortized to interest expense.
For the three and six months ended June 30, 2017 and 2016, the components of total interest expense for the Natixis credit facility were as follows:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
Direct interest expense |
$ | 263 | $ | 668 | $ | 686 | $ | 1,323 | |||||
Amortization of deferred financing costs |
86 | 259 | 342 | 519 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 349 | $ | 927 | $ | 1,028 | $ | 1,842 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
51
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
For the six months ended June 30, 2017 and 2016, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Natixis credit facility were as follows:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Cash paid for interest expense (1) |
$ | 804 | $ | 1,299 | |||
Average borrowings under the facility |
$ | 39,473 | $ | 89,706 | |||
Effective interest rate on borrowings |
3.64 | % | 3.01 | % | |||
Weighted average interest rate |
3.46 | % | 2.92 | % |
Borrowings of Energy Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
Wells Fargo Credit Facility
On September 9, 2014, Wayne Funding LLC, or Wayne Funding, the Company's wholly-owned, special purpose financing subsidiary, entered into a revolving credit facility, or the Wells Fargo credit facility, with Wells Fargo Securities, LLC, as administrative agent, each of the conduit lenders and institutional lenders from time to time party thereto and Wells Fargo Bank, National Association, collectively referred to herein as Wells Fargo, as the collateral agent, account bank and collateral custodian under the Wells Fargo credit facility. The Wells Fargo credit facility originally provided for borrowings in an aggregate principal amount up to $200,000 on a committed basis, subject to Wayne Funding's option to reduce the commitment amount as provided in the Wells Fargo credit facility. Wayne Funding subsequently was amended multiple times, most recently, to (1) reduce the maximum commitment from $125,000 to $60,000; (2) shorten the maturity date from September 9, 2019 to September 9, 2018; (3) eliminate the non-usage fee; and (4) shorten the end of the reinvestment period (the period during which Wayne Funding was permitted to paydown, reborrow, and utilize the commitment) to March 31, 2017. After March 31, 2017, Wayne Funding was no longer permitted to borrow under the facility and outstanding borrowings began to amortize. During the six months ended June 30, 2017, Wayne Funding repaid $7,298 of outstanding borrowings under the facility.
The Company contributed cash and debt securities to Wayne Funding from time to time, prior to the commencement of the amortization period under the Wells Fargo credit facility, subject to certain restrictions set forth in the Wells Fargo credit facility. The Company continues to retain a residual interest in any assets contributed through its ownership of Wayne Funding or it received fair market value for any debt securities sold to Wayne Funding. Wayne Funding was also permitted to purchase additional debt securities from various sources prior to the end of the reinvestment period under the Wells Fargo credit facility. Wayne Funding has appointed the Company to manage its portfolio of debt securities pursuant to the terms of a collateral management agreement. Wayne Funding's obligations to the lenders under the Wells Fargo credit facility are secured by a first priority security interest in substantially all of the assets of Wayne Funding, including its portfolio of debt securities. The obligations of Wayne Funding under the Wells Fargo credit facility are non-recourse to the Company and the Company's exposure under the Wells Fargo credit facility is limited to the value of the Company's investment in Wayne Funding.
Borrowings under the Wells Fargo credit facility accrue interest at a rate equal to three-month LIBOR plus a spread ranging between 2.50% and 2.75% per annum, depending on the composition of
52
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 8. Financing Arrangements (Continued)
the portfolio of assets for the relevant period. During the period beginning June 6, 2015 and through October 12, 2016, the non-usage fee was equal to the sum of (a) 0.50% per annum on the first $40,000 of unborrowed principal amount available under the Wells Fargo credit facility and (b) 2.00% on any unborrowed principal amount available under the Wells Fargo credit facility in excess of $40,000. Any amounts outstanding under the Wells Fargo credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 9, 2018. Borrowings under the Wells Fargo credit facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Wayne Funding varies depending upon the types of assets in Wayne Funding's portfolio.
As of June 30, 2017 and December 31, 2016, $22,302 and $29,600, respectively, was outstanding under the Wells Fargo credit facility. The carrying amount outstanding under the Wells Fargo credit facility approximates its fair value. The Company incurred costs of $2,641 in connection with obtaining the Wells Fargo credit facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Wells Fargo credit facility. As of June 30, 2017, $961 of such deferred financing costs had yet to be amortized to interest expense.
For the three and six months ended June 30, 2017 and 2016, the components of total interest expense for the Wells Fargo credit facility were as follows:
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
Direct interest expense |
$ | 225 | $ | 853 | $ | 468 | $ | 1,950 | |||||
Non-usage fees |
| 28 | | 118 | |||||||||
Amortization of deferred financing costs |
201 | 132 | 399 | 263 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 426 | $ | 1,013 | $ | 867 | $ | 2,331 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the six months ended June 30, 2017 and 2016, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Wells Fargo credit facility were as follows:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Cash paid for interest expense (1) |
$ | 486 | $ | 2,219 | |||
Average borrowings under the facility |
$ | 25,278 | $ | 118,496 | |||
Effective interest rate on borrowings |
3.86 | % | 3.28 | % | |||
Weighted average interest rate (including the effect of non-usage fees) |
3.68 | % | 3.45 | % |
Borrowings of Wayne Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
53
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 9. Commitments and Contingencies
The Company enters into contracts that contain a variety of indemnification provisions. The Company's maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. Management of FS Advisor has reviewed the Company's existing contracts and expects the risk of loss to the Company to be remote.
The Company is not currently subject to any material legal proceedings and, to the Company's knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company's rights under contracts with its portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material effect upon its financial condition or results of operations.
See Note 4 for a discussion of the Company's commitments to FS Advisor and its affiliates (including FS Investments) and Note 6 for a discussion of the Company's unfunded commitments.
54
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 10. Financial Highlights
The following is a schedule of financial highlights of the Company for the six months ended June 30, 2017 and the year ended December 31, 2016:
55
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 10. Financial Highlights (Continued)
value per share results in an increase in net asset value per share. The per share impact of the Company's issuance of common shares was an increase in net asset value of less than $0.01 per share during the six months ended June 30, 2017.
56
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)
Note 10. Financial Highlights (Continued)
the year ending December 31, 2017. The following is a schedule of supplemental ratios for the six months ended June 30, 2017 and year ended December 31, 2016:
|
Six Months Ended
June 30, 2017 (Unaudited) |
Year Ended
December 31, 2016 |
||||||
---|---|---|---|---|---|---|---|---|
Ratio of subordinated income incentive fees to average net assets |
0.31 | % | 0.20 | % | ||||
Ratio of interest expense to average net assets |
1.30 | % | 1.31 | % | ||||
Ratio of offering costs to average net assets |
| 0.17 | % | |||||
Ratio of income and excise taxes to average net assets |
0.00 | % | 0.01 | % |
Note 11. Subsequent Events
On August 8, 2017, the Company's board of trustees adopted an amendment, or the Trust Amendment, to its Third Amended and Restated Declaration of Trust in order to increase the number of common shares authorized for issuance under the declaration of trust from 450,000,000 to 700,000,000 common shares and accordingly increase the total number of shares (including preferred shares) authorized for issuance under the declaration of trust from 500,000,000 to 750,000,000 shares. The Trust Amendment was effective as of August 9, 2017.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
(in thousands, except share and per share amounts)
The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q. In this report, "we," "us" and "our" refer to FS Energy and Power Fund.
Forward-Looking Statements
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:
In addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason. Factors that could cause actual results to differ materially include:
58
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Shareholders are advised to consult any additional disclosures that we may make directly to shareholders or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Overview
We were formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced investment operations on July 18, 2011 upon raising gross proceeds in excess of $2,500 from sales of our common shares in our continuous public offering to persons who were not affiliated with us or FS Advisor. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. Prior to satisfying the minimum offering requirement, we had no operations except for matters relating to our organization. In November 2016, we closed our continuous public offering of common shares to new investors.
Our investment activities are managed by FS Advisor and supervised by our board of trustees, a majority of whom are independent. Under our investment advisory and administrative services agreement, we have agreed to pay FS Advisor an annual base management fee based on our gross assets as well as incentive fees based on our performance. FS Advisor has engaged GSO to act as our investment sub-adviser. GSO assists FS Advisor in identifying investment opportunities and makes investment recommendations for approval by FS Advisor according to guidelines set by FS Advisor.
Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies. This investment policy may not be changed without at least 60 days' prior notice to holders of our common shares of any such change.
Our investment objective is to generate current income and long-term capital appreciation. We have identified and intend to focus on the following investment categories, which we believe will allow us to generate an attractive total return with an acceptable level of risk.
Direct Originations: We intend to leverage our relationship with GSO and its global sourcing and origination platform, including its industry relationships, to directly source investment opportunities. Such investments are originated or structured for us or made by us and are not generally available to the broader market. These investments may include both debt and equity components, although we do not expect to make equity investments (other than income-oriented equity investments) independent of having an existing credit relationship. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions.
Opportunistic: We seek to capitalize on market price inefficiencies by investing in loans, bonds and other securities where the market price of such investment reflects a lower value than deemed warranted by our fundamental analysis. We believe that market price inefficiencies may occur due to, among other things, general dislocations in the markets, a misunderstanding by the market of a particular company or an Energy industry sub-sector being out of favor with the broader investment community. We seek to allocate capital to these securities that have been misunderstood or mispriced by the market and where we believe there is an opportunity to earn an attractive return on our investment. Such opportunities may include both event driven investments and anchor orders.
In the case of event driven investments, we intend to take advantage of dislocations that arise in the markets due to an impending event and where the market's apparent expectation of value differs substantially from our fundamental analysis. Such events may include a looming debt maturity or default, a merger, spin-off or other corporate reorganization, an adverse regulatory or legal ruling, or a material contract expiration, any of which may significantly improve or impair a company's financial
59
position. Compared to other investment strategies, event driven investing depends more heavily on our ability to successfully predict the outcome of an individual event rather than on underlying macroeconomic fundamentals. As a result, successful event driven strategies may offer both substantial diversification benefits and the ability to generate performance in uncertain market environments.
We may also invest in certain opportunities that are originated and then syndicated by a commercial or investment bank but where we provide a capital commitment significantly above the average syndicate participant, i.e., an anchor order. In these types of investments, we may receive fees, preferential pricing or other benefits not available to other lenders in return for our significant capital commitment. Our decision to provide an anchor order to a syndicated transaction is predicated on a rigorous credit analysis, our familiarity with a particular company, Energy industry sub-sector or financial sponsor, and the broader investment experiences of FS Advisor and GSO.
Broadly Syndicated/Other: Although our primary focus is to invest in directly originated transactions and opportunistic investments, in certain circumstances we will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than our directly originated investments and provide a complement to our less liquid strategies. In addition, and because we typically receive more attractive financing terms on these positions than we do on our less liquid assets, we are able to leverage the broadly syndicated portion of our portfolio in such a way that maximizes the levered return potential of our portfolio.
Our portfolio is comprised primarily of income-oriented securities, which refers to debt securities and income-oriented preferred and common equity interests, of privately-held Energy companies within the United States. We intend to weight our portfolio towards senior and subordinated debt. In addition to investments purchased from dealers or other investors in the secondary market, we expect to invest in primary market transactions and directly originated investments as this will provide us with the ability to tailor investments to best match a project's or company's needs with our investment objectives. Our portfolio may also be comprised of select income-oriented preferred or common equity interests, which refers to equity interests that pay consistent, high-yielding dividends, that we believe will produce both current income and long-term capital appreciation. These income-oriented preferred or common equity interests may include interests in master limited partnerships. In connection with certain of our debt investments or any restructuring of these debt investments, we may on occasion receive equity interests, including warrants or options, as additional consideration or otherwise in connection with a restructuring.
In addition, a portion of our portfolio may be comprised of minority interests in the form of common or preferred equity or other equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, in our target companies, as well as derivatives, including total return swaps and credit default swaps. FS Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure or other more opportunistic investments. We expect that the size of our individual investments will generally range between $5 million and $75 million each, although investments may vary proportionately as the size of our capital base changes and will ultimately be at the discretion of FS Advisor, subject to oversight by our board of trustees.
Revenues
The principal measure of our financial performance is net increase or decrease in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net change in unrealized appreciation or depreciation on investments and net change in unrealized gain or loss on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net change in unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including
60
the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net change in unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations.
We principally generate revenues in the form of interest income on the debt investments we hold. We also generate revenues in the form of dividends and other distributions on the equity or other securities we may hold. In addition, we may generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned.
Expenses
Our primary operating expenses include the payment of advisory fees and other expenses under the investment advisory and administrative services agreement, interest expense from financing arrangements and other expenses necessary for our operations. Our investment advisory fee compensates FS Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. FS Advisor is responsible for compensating our investment sub-adviser.
We reimburse FS Advisor for expenses necessary to perform services related to our administration and operations, including FS Advisor's allocable portion of the compensation and related expenses of certain personnel of FS Investments providing administrative services to us on behalf of FS Advisor. Such services include the provision of general ledger accounting, fund accounting, legal services, investor relations and other administrative services. FS Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our shareholders and reports filed with the SEC. In addition, FS Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our shareholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. See "Related Party Transactions" for additional information regarding the reimbursements payable to FS Advisor for administrative services and the methodology for determining the amount of any such reimbursements. We bear all other expenses of our operations and transactions. For additional information regarding these expenses, see our annual report on Form 10-K for the year ended December 31, 2016.
In addition, we have contracted with State Street to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by FS Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance.
Expense Reimbursement
Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or the expense reimbursement agreement, FS Investments has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to shareholders will be paid from our offering proceeds or borrowings. However, because certain investments we may make, including preferred and common equity investments, may generate dividends and other distributions to us that are treated for tax purposes as a return of capital, a portion of our distributions to shareholders may also be deemed to constitute a return of capital for tax purposes to the extent that we may use such dividends or other distribution proceeds to fund our distributions to shareholders. Under those circumstances, FS Investments will not reimburse us for the portion of such distributions to shareholders that represent a return of capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to shareholders.
Under the expense reimbursement agreement, FS Investments will reimburse us quarterly for expenses in an amount equal to the difference between our cumulative distributions paid to our shareholders in each quarter, less the sum of our net investment company taxable income, net capital gains and dividends and other distributions paid to us on account of preferred and common equity
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investments in portfolio companies (to the extent such amounts are not included in net investment company taxable income or net capital gains) in each quarter.
Pursuant to the expense reimbursement agreement, we have a conditional obligation to reimburse FS Investments for any amounts funded by FS Investments under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments funded such amount, the sum of our net investment company taxable income, net capital gains and the amount of any dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the distributions paid by us to our shareholders; provided, however, that (i) we will only reimburse FS Investments for expense support payments made by FS Investments with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause "other operating expenses" (as defined below) (on an annualized basis and net of any expense support payments received by us during such fiscal year) to exceed the lesser of (A) 1.75% of our average net assets attributable to our common shares for the fiscal year-to-date period after taking such payments into account and (B) the percentage of our average net assets attributable to our common shares represented by "other operating expenses" during the fiscal year in which such expense support payment from FS Investments was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from FS Investments made during the same fiscal year) and (ii) we will not reimburse FS Investments for expense support payments made by FS Investments if the aggregate amount of distributions per share declared by us in such calendar quarter is less than the aggregate amount of distributions per share declared by us in the calendar quarter in which FS Investments made the expense support payment to which such reimbursement relates. We are not obligated to pay interest on the payments we receive from FS Investments. "Other operating expenses" means our total "operating expenses" (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. "Operating expenses" means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.
We or FS Investments may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by FS Investments, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by FS Investments, FS Investments will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, our conditional obligation to reimburse FS Investments pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.
During the six months ended June 30, 2017, we accrued $18,220 for expense reimbursements that FS Investments has agreed to pay. These reimbursements were funded through the offset of management fees and subordinated income incentive fees payable by us to FS Advisor. As discussed in Note 4 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q, we offset $7,721 in management fees payable and $10,499 in subordinated income incentive fees payable by us to FS Advisor during the six months ended June 30, 2017. As of June 30, 2017, we did not have any reimbursements due from FS Investments.
As discussed above, under the expense reimbursement agreement, amounts reimbursed to us by FS Investments may become subject to repayment by us in the future. During the six months ended June 30, 2017, we accrued $2,858 for expense recoupments payable to FS Investments. As of June 30, 2017, $15,362 of reimbursements may become subject to repayment by us to FS Investments in the future.
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The following table reflects the expense reimbursement payments due from FS Investments to us as of June 30, 2017 that may become subject to repayment by us to FS Investments:
For the Three Months Ended |
Amount of
Expense Reimbursement Payment |
Annualized "Other
Operating Expenses" Ratio as of the Date of Expense Reimbursement |
Annualized Rate
of Distributions Per Share (1) |
Reimbursement
Eligibility Expiration |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2017 |
$ | 15,362 | (2) | 0.40 | % | 9.14 | % | March 31, 2020 | |||
June 30, 2017 |
| N/A | N/A | N/A |
FS Investments is controlled by our chairman, president and chief executive officer, Michael C. Forman, and our vice-chairman, David J. Adelman. There can be no assurance that the expense reimbursement agreement will remain in effect or that FS Investments will reimburse any portion of our expenses in future quarters.
Portfolio Investment Activity for the Three and Six Months Ended June 30, 2017 and for the Year Ended December 31, 2016
During the six months ended June 30, 2017, we made investments in portfolio companies totaling $1,252,032. During the same period, we sold investments for proceeds of $225,386 and received principal repayments of $545,695. As of June 30, 2017, our investment portfolio, with a total fair value of $4,183,055 (20% in first lien senior secured loans, 19% in second lien senior secured loans, 14% in senior secured bonds, 34% in subordinated debt and 13% in equity/other), consisted of interests in 87 portfolio companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $243.2 million. As of June 30, 2017, the debt investments in our portfolio were purchased at a weighted average price of 96.8% of par value, and our estimated gross annual portfolio yield, prior to leverage (which represents the expected annualized yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), was 8.9% based upon the amortized cost of our investments.
Based on our regular monthly cash distribution rate of $0.059042 per share as of June 30, 2017 and the price at which we issue shares pursuant to our distribution reinvestment plan of $7.20 per share, the annualized distribution rate to shareholders as of June 30, 2017 was 9.84%. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital.
During the year ended December 31, 2016, we made investments in portfolio companies totaling $1,488,179. During the same period, we sold investments for proceeds of $680,239 and received principal repayments of $544,813. As of December 31, 2016, our investment portfolio, with a total fair value of $3,910,440 (23% in first lien senior secured loans, 22% in second lien senior secured loans, 10% in senior secured bonds, 27% in subordinated debt and 18% in equity/other), consisted of interests in 84 portfolio companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $304.3 million. As of December 31, 2016, the investments in our portfolio were purchased at a weighted average price of 97.2% of par value and our estimated gross annual portfolio yield, prior to leverage, was 8.8% based upon the amortized cost of our investments.
Based on our annual cash distribution amount of $0.7085 per share and our final public offering price of $8.35 per share, the annualized distribution rate to shareholders as of December 31, 2016 was 8.49%. Based on our annual cash distribution amount of $0.7085 per share and the price at which we issued shares pursuant to our distribution reinvestment plan of $7.70 per share, the annualized distribution rate to shareholders as of December 31, 2016 was 9.20%. The distribution rate to shareholders does not represent an actual investment return to shareholders and may include income, realized capital gains and a return of investors' capital.
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Our estimated gross portfolio yield and annualized distribution rate to shareholders do not represent actual investment returns to shareholders. Our gross annual portfolio yield and distribution rate to shareholders are subject to change and in the future may be greater or less than the rates set forth above. See the sections entitled "Risk Factors" in our annual report on Form 10-K for the fiscal year ended December 31, 2016 and in our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with these statements.
Total Portfolio Activity
The following tables present certain selected information regarding our portfolio investment activity for the three and six months ended June 30, 2017:
Net Investment Activity |
For the
Three Months Ended June 30, 2017 |
For the
Six Months Ended June 30, 2017 |
|||||
---|---|---|---|---|---|---|---|
Purchases |
$ | 469,426 | $ | 1,252,032 | |||
Sales and Redemptions |
(312,986 | ) | (771,081 | ) | |||
| | | | | | | |
Net Portfolio Activity |
$ | 156,440 | $ | 480,951 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
For the
Three Months Ended June 30, 2017 |
For the
Six Months Ended June 30, 2017 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
New Investment Activity by Asset Class | Purchases | Percentage | Purchases | Percentage | |||||||||
Senior Secured LoansFirst Lien |
$ | 38,801 | 8 | % | $ | 137,423 | 11 | % | |||||
Senior Secured LoansSecond Lien |
55,227 | 12 | % | 253,554 | 20 | % | |||||||
Senior Secured Bonds |
91,277 | 19 | % | 240,254 | 19 | % | |||||||
Subordinated Debt |
281,428 | 60 | % | 587,389 | 47 | % | |||||||
Equity/Other |
2,693 | 1 | % | 33,412 | 3 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 469,426 | 100 | % | $ | 1,252,032 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table summarizes the composition of our investment portfolio at cost and fair value as of June 30, 2017 and December 31, 2016:
|
June 30, 2017
(Unaudited) |
December 31, 2016 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
Amortized
Cost (1) |
Fair Value |
Percentage
of Portfolio |
|||||||||||||
Senior Secured LoansFirst Lien |
$ | 859,820 | $ | 818,075 | 20 | % | $ | 947,803 | $ | 912,491 | 23 | % | |||||||
Senior Secured LoansSecond Lien |
855,909 | 812,612 | 19 | % | 948,762 | 873,869 | 22 | % | |||||||||||
Senior Secured Bonds |
594,448 | 577,765 | 14 | % | 388,512 | 397,614 | 10 | % | |||||||||||
Subordinated Debt |
1,464,073 | 1,424,720 | 34 | % | 1,049,097 | 1,043,167 | 27 | % | |||||||||||
Equity/Other |
622,704 | 549,883 | 13 | % | 628,814 | 683,299 | 18 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 4,396,954 | $ | 4,183,055 | 100 | % | $ | 3,962,988 | $ | 3,910,440 | 100 | % | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
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The following table presents certain selected information regarding the composition of our investment portfolio as of June 30, 2017 and December 31, 2016:
|
June 30, 2017 | December 31, 2016 | |||||
---|---|---|---|---|---|---|---|
Number of Portfolio Companies |
87 | 84 | |||||
% Variable Rate (based on fair value) |
40.8 | % | 43.6 | % | |||
% Fixed Rate (based on fair value) |
46.1 | % | 38.9 | % | |||
% Income Producing Equity/Other Investments (based on fair value) |
1.8 | % | 3.5 | % | |||
% Non-Income Producing Equity/Other Investments (based on fair value) |
11.3 | % | 14.0 | % | |||
Average Annual EBITDA of Portfolio Companies |
$ | 243,213 | $ | 304,299 | |||
Weighted Average Purchase Price of Debt Investments (as a % of par value) |
96.8 | % | 97.2 | % | |||
% of Investments on Non-Accrual (based on fair value) |
0.2 | % | 0.0 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) |
8.9 | % | 8.8 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding Non-Income Producing Assets |
10.2 | % | 10.2 | % |
Direct Originations
The following tables present certain selected information regarding our direct originations for the three and six months ended June 30, 2017:
New Direct Originations |
For the
Three Months Ended June 30, 2017 |
For the
Six Months Ended June 30, 2017 |
|||||
---|---|---|---|---|---|---|---|
Total Commitments (including unfunded commitments) |
$ | 199,884 | $ | 552,558 | |||
Exited Investments (including partial paydowns) |
(158,641 | ) | (485,789 | ) | |||
| | | | | | | |
Net Direct Originations |
$ | 41,243 | $ | 66,769 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
For the
Three Months Ended June 30, 2017 |
For the
Six Months Ended June 30, 2017 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
New Direct Originations by Asset Class
(including Unfunded Commitments) |
Commitment
Amount |
Percentage |
Commitment
Amount |
Percentage | |||||||||
Senior Secured LoansFirst Lien |
$ | 930 | 0 | % | $ | 50,388 | 10 | % | |||||
Senior Secured LoansSecond Lien |
| | 196,000 | 35 | % | ||||||||
Senior Secured Bonds |
32,812 | 16 | % | 122,812 | 22 | % | |||||||
Subordinated Debt |
165,000 | 83 | % | 165,000 | 30 | % | |||||||
Equity/Other |
1,142 | 1 | % | 18,358 | 3 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 199,884 | 100 | % | $ | 552,558 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
For the
Three Months Ended June 30, 2017 |
For the
Six Months Ended June 30, 2017 |
|||||
---|---|---|---|---|---|---|---|
Average New Direct Origination Commitment Amount |
$ | 33,314 | $ | 46,046 | |||
Weighted Average Maturity for New Direct Originations |
10/24/21 | 3/13/23 | |||||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during Period |
9.9 | % | 9.2 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during PeriodExcluding Non-Income Producing Assets |
10.0 | % | 9.5 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period |
12.1 | % | 11.1 | % |
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The following table presents certain selected information regarding our direct originations as of June 30, 2017 and December 31, 2016:
Characteristics of All Direct Originations held in Portfolio | June 30, 2017 | December 31, 2016 | |||||
---|---|---|---|---|---|---|---|
Number of Portfolio Companies |
32 | 28 | |||||
Average Annual EBITDA of Portfolio Companies |
$ | 71,587 | $ | 71,509 | |||
Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other Securities |
5.3x | 4.8x | |||||
% of Investments on Non-Accrual (based on fair value) |
0.0 | % | 0.1 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations |
8.6 | % | 8.9 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct OriginationsExcluding Non-Income Producing Assets |
11.0 | % | 11.4 | % |
Portfolio Composition by Strategy and Industry
The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the total portfolio assets in such strategies as of June 30, 2017 and December 31, 2016:
|
June 30, 2017 | December 31, 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Composition by Strategy | Fair Value |
Percentage
of Portfolio |
Fair Value |
Percentage
of Portfolio |
|||||||||
Direct Originations |
$ | 2,068,273 | 49 | % | $ | 2,208,234 | 57 | % | |||||
Opportunistic |
1,166,076 | 28 | % | 867,477 | 22 | % | |||||||
Broadly Syndicated/Other |
948,706 | 23 | % | 834,729 | 21 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 4,183,055 | 100 | % | $ | 3,910,440 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of June 30, 2017 and December 31, 2016:
|
June 30, 2017
(Unaudited) |
December 31, 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Industry Classification | Fair Value |
Percentage
of Portfolio |
Fair Value |
Percentage
of Portfolio |
|||||||||
Upstream |
$ | 2,538,234 | 61 | % | $ | 2,270,769 | 58 | % | |||||
Midstream |
336,672 | 8 | % | 343,713 | 9 | % | |||||||
Downstream |
61,726 | 1 | % | 49,623 | 1 | % | |||||||
Power |
381,975 | 9 | % | 523,153 | 13 | % | |||||||
Service & Equipment |
864,448 | 21 | % | 723,182 | 19 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 4,183,055 | 100 | % | $ | 3,910,440 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
In general, under the 1940 Act, we would be presumed to "control" a portfolio company if we owned more than 25% of its voting securities or we had the power to exercise control over the management or policies of a portfolio company, and would be an "affiliated person" of a portfolio company if we owned 5% or more of its voting securities.
As of June 30, 2017, we held investments in one portfolio company of which we are deemed to "control." As of June 30, 2017, we held investments in six portfolio companies of which we are deemed to be an "affiliated person" but are not deemed to "control." For additional information with respect to such portfolio companies, see footnotes (p) and (aa) to the unaudited consolidated schedule of investments as of June 30, 2017 in this quarterly report on Form 10-Q.
As of December 31, 2016, we held investments in one portfolio company of which we are deemed to "control." As of December 31, 2016, we held investments in six portfolio companies of which we are deemed to be an "affiliated person" but are not deemed to "control." For additional information with respect to such portfolio companies, see footnotes (p) and (aa) to the consolidated schedule of investments as of December 31, 2016 in this quarterly report on Form 10-Q.
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Our investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, which may require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2017, we had six senior secured loan investments with aggregate unfunded commitments of $102,141 and five equity/other investments with aggregate unfunded commitments of $16,357. As of June 30, 2017, these unfunded equity/other investments were Altus Power America Holdings, LLC, preferred equity, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, Chisholm Oil and Gas, LLC and Synergy Offshore LLC. As of December 31, 2016, we had four senior secured loan investments with aggregate unfunded commitments of $82,404 and four equity/other investments with aggregate unfunded commitments of $14,942. As of December 31, 2016, these unfunded equity/other investments were Altus Power America Holdings, LLC, preferred equity, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy Offshore LLC. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.
Portfolio Asset Quality
In addition to various risk management and monitoring tools, FS Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. FS Advisor uses an investment rating scale of 1 to 5. The following is a description of the conditions associated with each investment rating:
Investment Rating | Summary Description | |
---|---|---|
1 |
Investment exceeding expectations and/or capital gain expected. | |
2 |
Performing investment generally executing in accordance with the portfolio company's business planfull return of principal and interest expected. |
|
3 |
Performing investment requiring closer monitoring. |
|
4 |
Underperforming investmentsome loss of interest or dividend possible, but still expecting a positive return on investment. |
|
5 |
Underperforming investment with expected loss of interest and some principal. |
The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of June 30, 2017 and December 31, 2016:
|
June 30, 2017 | December 31, 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Investment Rating | Fair Value |
Percentage
of Portfolio |
Fair Value |
Percentage
of Portfolio |
|||||||||
1 |
$ | 88,251 | 2 | % | $ | 115,927 | 3 | % | |||||
2 |
3,098,691 | 74 | % | 2,719,833 | 70 | % | |||||||
3 |
824,198 | 20 | % | 899,835 | 23 | % | |||||||
4 |
115,789 | 3 | % | 85,427 | 2 | % | |||||||
5 |
56,126 | 1 | % | 89,418 | 2 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 4,183,055 | 100 | % | $ | 3,910,440 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.
Results of Operations
Comparison of the Three Months Ended June 30, 2017 and 2016
Revenues
We generated investment income of $102,640 and $88,326 for the three months ended June 30, 2017 and 2016, respectively, in the form of interest and fees earned on senior secured loans (first and
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second lien), senior secured bonds and subordinated debt investments in our portfolio. Such revenues represent $89,095 and $79,732 of cash income earned as well as $13,545 and $8,594 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the three months ended June 30, 2017 and 2016, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.
The level of investment income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest and any dividend income that we earn to increase if the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio increases.
During the three months ended June 30, 2017 and 2016, we generated $7,197 and $1,807 of fee income, which represented 7.0% and 2.0%, respectively, of total investment income. Such fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees. The increase in fee income during the three months ended June 30, 2017 compared to three months ended June 30, 2016 was primarily due to the prepayment and upfront fees of several large investments during the three months ended June 30, 2017.
Expenses
Our total expenses were $37,376 and $31,300 for the three months ended June 30, 2017 and 2016, respectively. Our expenses include base management fees attributed to FS Advisor of $22,688 and $18,398 for the three months ended June 30, 2017 and 2016, respectively. Our expenses also include administrative services expenses attributed to FS Advisor of $799 and $883 for the three months ended June 30, 2017 and 2016, respectively.
FS Advisor is eligible to receive incentive fees based on our performance. During the three months ended June 30, 2017 and 2016, we did not accrue any subordinated incentive fee on income or capital gains incentive fees. See "Critical Accounting PoliciesCapital Gains Incentive Fee" and "Critical Accounting PoliciesSubordinated Income Incentive Fee" for additional information about how the incentive fees are calculated.
We recorded interest expense of $11,571 and $8,927 for the three months ended June 30, 2017 and 2016, respectively, in connection with our financing arrangements. For the three months ended June 30, 2017 and 2016, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $410 and $324, respectively, and fees and expenses incurred with our share transfer agent totaled $674 and $642, respectively. Fees for our board of trustees were $250 and $262 for the three months ended June 30, 2017 and 2016, respectively. Amortization of our deferred offering costs was $0 and $498 for the three months ended June 30, 2017 and 2016, respectively.
Our other general and administrative expenses totaled $930 and $1,320 for the three months ended June 30, 2017 and 2016, respectively, and consisted of the following:
|
Three Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Expenses associated with our independent audit and related fees |
$ | 139 | $ | 123 | |||
Legal fees |
61 | 218 | |||||
Printing fees |
400 | 602 | |||||
Insurance expense |
47 | 57 | |||||
Other |
283 | 320 | |||||
| | | | | | | |
Total |
$ | 930 | $ | 1,320 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
During the three months ended June 30, 2017 and 2016, the ratio of our total operating expenses to our average net assets was 1.12% and 1.17%, respectively. During the three months ended June 30, 2017 and 2016, the ratio of our net expenses to our average net assets, which includes $2,858 and $0, respectively, of expense recoupments payable to FS Investments was 1.20% and 1.17%, respectively.
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During the three months ended June 30, 2017 and 2016, our ratio of total operating expenses to average net assets included $11,571 and $8,927, respectively, related to interest expense, $0 and $498, respectively, related to amortization of deferred offering costs and $54 and $46, respectively, related to accruals for income taxes. Without such expenses, our ratio of total operating expenses to average net assets would have been 0.77% and 0.82% for the three months ended June 30, 2017 and 2016, respectively. Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.
Expense Reimbursement
During the three months ended June 30, 2017 and 2016, we did not accrue for any expense reimbursements that FS Investments has agreed to pay. Under the expense reimbursement agreement, amounts reimbursed to us by FS Investments may become subject to repayment by us in the future. During the three months ended June 30, 2017 and 2016, we accrued for $2,858 and $0, respectively, of expense recoupments payable to FS Advisor or its affiliates. See "OverviewExpense Reimbursement" for a discussion of the expense reimbursement agreement.
Net Investment Income
Our net investment income totaled $62,406 ($0.14 per share) and $57,026 ($0.14 per share) for the three months ended June 30, 2017 and 2016, respectively.
Net Realized Gains or Losses
We sold investments and received principal repayments of $128,331 and $184,655, respectively, during the three months ended June 30, 2017, from which we realized a net loss of $45,802. We realized a net loss of $2 from settlements on foreign currency during the three months ended June 30, 2017. We sold investments and received principal repayments of $265,258 and $33,565, respectively, during the three months ended June 30, 2016, from which we realized a net loss of $19,067.
Net Change in Unrealized Appreciation (Depreciation) on Investments and Unrealized Gain (Loss) on Foreign Currency
For the three months ended June 30, 2017 and 2016, the net change in unrealized appreciation (depreciation) on investments totaled $(165,460) and $418,588, respectively, and the net change in unrealized gain (loss) on foreign currency was $0 and $(2), respectively. The change in unrealized appreciation (depreciation) on our investments during the three months ended June 30, 2017 was primarily driven by increased volatility and a general decline in the energy markets. The change in unrealized appreciation (depreciation) on our investments during the three months ended June 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our directly originated and opportunistic investments.
Increase (Decrease) in Net Assets Resulting from Operations
For the three months ended June 30, 2017 and 2016, the net increase (decrease) in net assets resulting from operations was $(148,858) ($(0.34) per share) and $456,545 ($1.14 per share), respectively.
Comparison of the Six Months Ended June 30, 2017 and 2016
Revenues
We generated investment income of $218,886 and $186,236 for the six months ended June 30, 2017 and 2016, respectively, in the form of interest and fees earned on senior secured loans (first and second lien), senior secured bonds and subordinated debt investments in our portfolio. Such revenues represent $192,863 and $167,214 of cash income earned as well as $26,023 and $19,022 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the six months ended June 30, 2017 and 2016, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.
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The level of investment income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest and any dividend income that we earn will increase or decrease to the extent the size of our investment portfolio increases or decreases and as the proportion of directly originated investments in our portfolio increases or decreases.
During the six months ended June 30, 2017 and 2016, we generated $31,019 and $9,983 of fee income, which represented 14.2% and 5.4%, respectively, of total investment income. Such fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees. The increase in fee income during the six months ended June 30, 2017 compared to six months ended June 30, 2016 was primarily due to prepayment fees received on account of several large investments during the six months ended June 30, 2017.
Expenses
Our total expenses were $83,834 and $66,820 for the six months ended June 30, 2017 and 2016, respectively. Our expenses include base management fees attributed to FS Advisor of $45,073 and $35,639 for the six months ended June 30, 2017 and 2016, respectively. Our expenses also include administrative services expenses attributed to FS Advisor of $1,607 and $1,767 for the six months ended June 30, 2017 and 2016, respectively.
FS Advisor is eligible to receive incentive fees based on our performance. During the six months ended June 30, 2017 and 2016, we accrued a subordinated incentive fee on income of $10,499 and $5,774, respectively. During the six months ended June 30, 2017 and 2016, we did not accrue any capital gains incentive fees. See "Critical Accounting PoliciesCapital Gains Incentive Fee" and "Critical Accounting PoliciesSubordinated Income Incentive Fee" for additional information about how the incentive fees are calculated.
We recorded interest expense of $21,806 and $18,279 for the six months ended June 30, 2017 and 2016, respectively, in connection with our financing arrangements. For the six months ended June 30, 2017 and 2016, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $832 and $610, respectively, and fees and expenses incurred with our share transfer agent totaled $1,408 and $1,384, respectively. Fees for our board of trustees were $500 and $512 for the six months ended June 30, 2017 and 2016, respectively. Amortization of our deferred offering costs was $623 for the six months ended June 30, 2016.
Our other general and administrative expenses totaled $1,999 and $2,153 for the six months ended June 30, 2017 and 2016, respectively, and consisted of the following:
|
Six Months Ended
June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||
Expenses associated with our independent audit and related fees |
$ | 261 | $ | 246 | |||
Legal fees |
128 | 384 | |||||
Printing fees |
907 | 800 | |||||
Insurance expense |
91 | 118 | |||||
Other |
612 | 605 | |||||
| | | | | | | |
Total |
$ | 1,999 | $ | 2,153 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
During the six months ended June 30, 2017 and 2016, the ratio of our total operating expenses to our average net assets was 2.49% and 2.67%, respectively. During the six months ended June 30, 2017 and 2016, the ratio of our net expenses to our average net assets, which includes $2,858 and $0, respectively, of expense recoupments payable to FS Investments and $18,220 and $0, respectively, of expense reimbursements from FS Investments, was 2.04% and 2.67%, respectively. During the six months ended June 30, 2017 and 2016, our ratio of total operating expenses to average net assets included $21,806 and $18,279, respectively, related to interest expense, $10,499 and $5,774, respectively, related to accruals for incentive fees, $0 and $623, respectively, related to amortization of deferred
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offering costs and $110 and $79, respectively, related to accruals for income taxes. Without such expenses, our ratio of total operating expenses to average net assets would have been 1.53% and 1.68% for the six months ended June 30, 2017 and 2016, respectively. Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.
Expense Reimbursement
During the six months ended June 30, 2017 and 2016, we accrued $18,220 and $0, respectively, for expense reimbursements that FS Investments has agreed to pay. During the six months ended June 30, 2017 and 2016, we offset $7,721 and $0, respectively, in management fees payable and $10,499 and $0, respectively, in subordinated income incentive fees payable by us to FS Advisor. Under the expense reimbursement agreement, amounts reimbursed to us by FS Investments may become subject to repayment by us in the future. During the six months ended June 30, 2017 and 2016, we accrued for $2,858 and $0, respectively, of expense recoupments payable to FS Investments or its affiliates. See "OverviewExpense Reimbursement" for a discussion of the expense reimbursement agreement.
Net Investment Income
Our net investment income totaled $150,414 ($0.34 per share) and $119,416 ($0.31 per share) for the six months ended June 30, 2017 and 2016, respectively. The increase in net investment income on a per share basis can be attributed primarily to an increase in fee income and the reimbursement of expenses provided to us by FS Investments through the offset of management fees and subordinated income incentive fees.
Net Realized Gains or Losses
We sold investments and received principal repayments of $225,386 and $545,695, respectively, during the six months ended June 30, 2017, from which we realized a net loss of $76,455. We sold investments and received principal repayments of $351,070 and $124,109, respectively, during the six months ended June 30, 2016, from which we realized a net loss of $76,078. We realized a net gain of $1 from settlements on foreign currency during the six months ended June 30, 2017.
Net Change in Unrealized Appreciation (Depreciation) on Investments and Unrealized Gain (Loss) on Foreign Currency
For the six months ended June 30, 2017 and 2016, the net change in unrealized appreciation (depreciation) on investments totaled $(161,351) and $374,733, respectively, and the net change in unrealized gain (loss) on foreign currency was $52 and $14, respectively. The change in unrealized appreciation (depreciation) on our investments during the six months ended June 30, 2017 was primarily driven by a general decline in the energy markets. The change in unrealized appreciation (depreciation) on our investments during the six months ended June 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our directly originated and opportunistic investments.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the six months ended June 30, 2017 and 2016, the net increase (decrease) in net assets resulting from operations was $(87,339) ($(0.20) per share) and $418,085 ($1.07 per share), respectively.
Financial Condition, Liquidity and Capital Resources
Overview
As of June 30, 2017, we had $159,405 in cash, which we or our wholly-owned subsidiaries held in custodial accounts, and $286,263 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of FS Advisor, but in no event may leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See "Financing Arrangements." As of
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June 30, 2017, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of June 30, 2017, we had six senior secured loan investments with aggregate unfunded commitments of $102,141 and five equity/other investments with aggregate unfunded commitments of $16,357. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.
In November 2016, we closed our continuous public offering of common shares to new investors. We sold 449,543,498 common shares (as adjusted for share distributions) for gross proceeds of $4,362,119 in our continuous public offering, including shares issued pursuant to our distribution reinvestment plan. Following the closing of our continuous public offering, we will continue to issue shares pursuant to our distribution reinvestment plan. As of August 10, 2017, we have raised total gross proceeds of $4,524,475, including $200 of seed capital contributed by the principals of FS Advisor in December 2010 and $20,004 in proceeds raised from the principals of FS Advisor, other individuals and entities affiliated with FS Advisor, certain members of our board of trustees and certain individuals and entities affiliated with GSO in a private placement conducted in April 2011.
During the six months ended June 30, 2017, we received gross proceeds pursuant to our distribution reinvestment plan for gross proceeds of $93,968, for which we issued 12,317,949 common shares.
We generate cash primarily from the issuance of shares under our distribution reinvestment plan and from cash flows from fees, interest and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments.
Prior to investing in securities of portfolio companies, we invest the net proceeds from the issuance of shares under our distribution reinvestment plan as well as from sales and paydowns of existing investments primarily in cash, cash equivalents, including money market funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.
To provide our shareholders with limited liquidity, we conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in August 2012, and the repurchase occurred in connection with our October 1, 2012 semi-monthly closing.
We intend to offer to repurchase common shares at a price equal to the price at which common shares are issued pursuant to our distribution reinvestment plan on the distribution date coinciding with the applicable share repurchase date. The price at which common shares are issued under our distribution reinvestment plan is determined by our board of trustees or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per common share as determined in good faith by our board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per common share as of such date.
The following table provides information concerning our repurchases of common shares pursuant to our share repurchase program during the six months ended June 30, 2017 and 2016:
For the Three Months Ended |
Repurchase
Date |
Shares
Repurchased |
Percentage
of Shares Tendered That Were Repurchased |
Percentage of
Outstanding Shares Repurchased as of the Repurchase Date |
Repurchase
Price Per Share (1) |
Aggregate
Consideration for Repurchased Shares |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal 2016 |
||||||||||||||||||
December 31, 2015 |
January 6, 2016 | 2,716,924 | 100 | % | 0.73 | % | $ | 6.750 | $ | 18,339 | ||||||||
March 31, 2016 |
April 6, 2016 | 2,196,742 | 100 | % | 0.56 | % | $ | 6.345 | $ | 13,938 | ||||||||
Fiscal 2017 |
||||||||||||||||||
December 31, 2016 |
January 3, 2017 | 2,239,480 | 100 | % | 0.51 | % | $ | 7.700 | $ | 17,244 | ||||||||
March 31, 2017 |
April 17, 2017 | 4,587,306 | 100 | % | 1.03 | % | $ | 7.750 | $ | 35,552 |
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On July 3, 2017, we repurchased 4,990,805 common shares (representing 100% of common shares tendered for repurchase and 1.12% of the shares outstanding as of such date) at $7.20 per share for aggregate consideration totaling $35,934.
Financing Arrangements
The following table presents a summary of information with respect to our outstanding financing arrangements as of June 30, 2017:
Facility |
Type of
Arrangement |
Rate |
Amount
Outstanding |
Amount
Available |
Maturity Date | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Barclays Credit Facility |
Revolving | L+3.25% | | $ | 100,000 | May 18, 2021 | ||||||
BNP Facility |
Prime Brokerage | L+1.35% (1) | $ | 213,737 | $ | 86,263 | March 27, 2018 (2) | |||||
Deutsche Bank Credit Facility |
Revolving | L+2.05% | $ | 240,000 | $ | 100,000 | June 11, 2018 | |||||
Fortress Facility |
Term | L+5.00% (3) | $ | 155,000 | | November 6, 2020 | ||||||
Goldman Facility |
Term | L+3.72% | $ | 425,000 | | September 15, 2019 | ||||||
Natixis Credit Facility |
Revolving | CP+2.25% | $ | 19,922 | (4) | | July 11, 2023 | |||||
Wells Fargo Credit Facility |
Revolving | L+2.50% to 2.75% | $ | 22,302 | (5) | | September 9, 2018 |
Our average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2017 were $948,334 and 4.22%, respectively. As of June 30, 2017, our weighted average effective interest rate on borrowings was 4.16%.
For additional information regarding our outstanding financing arrangements, see Note 8 to our unaudited consolidated financial statements included herein.
RIC Tax Treatment and Distributions
We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our shareholders. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our shareholders, for each tax year, dividends generally of an amount at least equal to 90% of our "investment company taxable income," which is generally the sum of our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for dividends paid. In addition, we may, in certain cases, satisfy the Annual Distribution Requirement by distributing dividends relating to a tax year after the close of such tax year under the "spillover dividend" provisions of Subchapter M of the Code. If we distribute a spillover dividend, such dividend will be included in a shareholder's gross income for the tax year in which the spillover distribution is paid. We intend to make sufficient distributions to our shareholders to maintain our RIC tax treatment each tax year. We will also be subject to nondeductible U.S. federal excise taxes on certain undistributed income unless we distribute in a timely manner to our shareholders of an amount at least equal to the sum of (1) 98% of our net ordinary taxable income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains over capital losses (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year and (3) any ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to our shareholders of record on a specified date in such a month and actually paid during January of the
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following calendar year, will be treated as if it had been paid by us, as well as received by our U.S. shareholders, on December 31 of the calendar year in which the distribution was declared.
Prior to the closing of our continuous public offering in November 2016, we declared regular cash distributions on a weekly basis, and paid such distributions on a monthly basis. Effective November 30, 2016, and subject to applicable legal restrictions and the sole discretion of our board of trustees, we intend to declare and pay regular cash distributions on a monthly basis. We will calculate each shareholder's specific distribution amount for the period using record and declaration dates and each shareholder's distributions will begin to accrue on the date that common shares are issued to such shareholder. From time to time, we may also pay special interim distributions in the form of cash or common shares at the discretion of our board of trustees. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of our board of trustees.
During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make will represent a return of capital. A return of capital generally is a return of an investor's investment rather than a return of earnings or gains derived from our investment activities and will be made after deducting the fees and expenses payable in connection with our continuous public offering, including any fees payable to FS Advisor. Moreover, a return of capital will generally not be taxable, but will reduce each shareholder's cost basis in our common shares, and will result in a higher reported capital gain or lower reported capital loss when the common shares on which such return of capital was received are sold. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our shareholders.
The following table reflects the cash distributions per share that we have declared and paid on our common shares during the six months ended June 30, 2017 and 2016:
|
Distribution | ||||||
---|---|---|---|---|---|---|---|
For the Three Months Ended | Per Share | Amount | |||||
Fiscal 2016 |
|||||||
March 31, 2016 |
$ | 0.1771 | $ | 66,720 | |||
June 30, 2016 |
$ | 0.1771 | $ | 70,788 | |||
Fiscal 2017 |
|||||||
March 31, 2017 |
$ | 0.1771 | $ | 77,984 | |||
June 30, 2017 |
$ | 0.1771 | $ | 78,374 |
On June 29, 2017 and July 31, 2017, our board of trustees declared regular monthly cash distributions for July 2017 and August 2017, respectively. These distributions have been or will be paid monthly to shareholders of record as of monthly record dates previously determined by our board of trustees in the amount of $0.059042 per share. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of our board of trustees.
We have adopted an "opt in" distribution reinvestment plan for our shareholders. As a result, if we make a cash distribution, our shareholders will receive distributions in cash unless they specifically "opt in" to the distribution reinvestment plan so as to have their cash distributions reinvested in additional common shares. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a shareholder's ability to participate in the distribution reinvestment plan. Although distributions paid in the form of additional common shares will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, shareholders who elect to participate in our distribution reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes. Shareholders receiving distributions in the form of additional common shares will generally be treated as receiving a distribution in the amount of the fair market value of our common shares.
On October 13, 2016, we further amended and restated our distribution reinvestment plan, or the amended distribution reinvestment plan, which first applied to the reinvestment of cash distributions paid on or after November 30, 2016. Under the original plan, cash distributions to participating shareholders were reinvested in additional common shares at a purchase price equal to 90% of the public offering price per share in effect as of the date of issuance. Under the amended distribution reinvestment plan, cash distributions to participating shareholders will be reinvested in additional
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common shares at a purchase price determined by our board of trustees, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per common share as determined in good faith by our board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per common share as of such date. Any distributions reinvested under the plan will remain taxable to a U.S. shareholder.
We may fund our cash distributions to shareholders from any sources of funds legally available to us, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and expense reimbursements from FS Investments. We have not established limits on the amount of funds we may use from available sources to make distributions.
Pursuant to the expense reimbursement agreement, FS Investments has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to shareholders will be paid from our offering proceeds or borrowings. For the six months ended June 30, 2017, certain portions of our distributions were funded through the reimbursement of certain expenses by FS Investments and its affiliates, including through the offset of certain investment advisory fees by FS Advisor, that are, if certain conditions are met, subject to repayment by us within three years. Any such distributions funded through expense reimbursements or the offset of advisory fees are not based on our investment performance, and can only be sustained if we achieve positive investment performance in future periods and/or FS Investments and its affiliates continues to make such reimbursements or offset such fees. Our future repayments of amounts reimbursed or offset by FS Investments or its affiliates will reduce the distributions that shareholders would otherwise receive in the future. There can be no assurance that we will continue to achieve the performance necessary to sustain our distribution or that we will be able to pay distributions at a specific rate or at all. FS Investments and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods. If FS Investments had not reimbursed certain of our expenses, 10% of the aggregate amount of distributions paid during the six months ended June 30, 2017 would have been funded from offering proceeds or borrowings.
The following table reflects the sources of the cash distributions on a tax basis that we paid on our common shares during the six months ended June 30, 2017 and 2016:
|
Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | |||||||||||
Source of Distribution |
Distribution
Amount |
Percentage |
Distribution
Amount |
Percentage | |||||||||
Offering proceeds |
$ | | | $ | | | |||||||
Borrowings |
| | | | |||||||||
Net investment income (prior to expense reimbursement) (1) |
139,628 | 89 | % | 137,508 | 100 | % | |||||||
Short-term capital gains proceeds from the sale of assets |
| | | | |||||||||
Long-term capital gains proceeds from the sale of assets |
| | | | |||||||||
Non-capital gains proceeds from the sale of assets |
| | | | |||||||||
Distributions on account of investments in portfolio companies |
1,368 | 1 | % | | | ||||||||
Expense reimbursement from sponsor |
15,362 | 10 | % | | | ||||||||
| | | | | | | | | | | | | |
Total |
$ | 156,358 | 100 | % | $ | 137,508 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Our net investment income on a tax basis for the six months ended June 30, 2017 and 2016 was $154,990 and $131,526, respectively. As of June 30, 2017 and December 31, 2016, we had $0 and $19,
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respectively, of undistributed ordinary income on a tax basis and distributions received from investments in portfolio companies.
During the six months ended June 30, 2017, certain investments in the portfolio were restructured or experienced defaults due to the continued depressed prices of oil and natural gas, and we may experience additional restructurings or defaults in the future. These restructurings and defaults may have an impact on the level of income received by us. As a result, we are evaluating the current distribution rate payable on our common shares and there can be no assurance that we will be able to maintain a monthly cash distribution amount of $0.059042 per common share.
See Note 5 to our unaudited consolidated financial statements included herein for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income to our tax-basis net investment income for the six months ended June 30, 2017 and 2016, the components of accumulated earnings on a tax basis and deferred taxes as of June 30, 2017 and December 31, 2016.
Critical Accounting Policies
Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.
Valuation of Portfolio Investments
We determine the net asset value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith by our board of trustees. In connection with that determination, FS Advisor provides our board of trustees with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.
Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure , or ASC Topic 820, issued by the FASB clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
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With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, our board of trustees may use any approved independent third-party pricing or valuation services. However, our board of trustees is not required to determine fair value in accordance with the valuation provided by any single source, and may use any relevant data, including information obtained from FS Advisor or any approved independent third-party valuation or pricing service that our board of trustees deems to be reliable in determining fair value under the circumstances. Below is a description of factors that FS Advisor's management team, any approved independent third-party valuation services and our board of trustees may consider when determining the fair value of our investments.
Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that may be considered include the borrower's ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments.
For convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.
Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of trustees, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.
FS Advisor's management team, any approved independent third-party valuation services and our board of trustees may also consider private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. FS Advisor's management team, any approved independent third-party valuation services and our board of trustees may also consider the
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size and scope of a portfolio company and its specific strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of trustees, in consultation with FS Advisor's management team and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.
When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of trustees subsequently values these warrants or other equity securities received at their fair value.
The fair values of our investments are determined in good faith by our board of trustees. Our board of trustees is solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of trustees has delegated day-to-day responsibility for implementing our valuation policy to FS Advisor's management team, and has authorized FS Advisor's management team to utilize independent third-party valuation and pricing services that have been approved by our board of trustees. The valuation committee is responsible for overseeing FS Advisor's implementation of the valuation process.
Our investments as of June 30, 2017 consisted primarily of debt investments that were either acquired directly from the issuer or traded on an over-the-counter market for institutional investors. Seventeen senior secured loan investments, five senior secured bond investments and eight subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. Thirty of our equity/other investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Three equity/other investments, which were traded on an active public market, were valued at their closing price as of June 30, 2017. One subordinated debt investment, which was newly issued and purchased near June 30, 2017, was valued at cost as our board of trustees determined that the cost of such investment was the best indication of its fair value. Except as described above, we valued our other investments, including three of our equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service.
Our investments as of December 31, 2016 consisted primarily of debt investments that were acquired directly from the issuer. Sixteen senior secured loan investments, three senior secured bond investments and seven subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. Twenty-eight of the our equity/other investments were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Three equity/other investments, which were traded on an active public market, were valued at their closing price as of December 30, 2016. One senior secured loan investment, which was newly issued and purchased near December 31, 2016, was valued at cost as our board of trustees determined that the cost of such investment was the best indication of its fair value. Except as described above, we valued our other investments, including two of our equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service.
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We periodically benchmark the bid and ask prices we receive from third-party pricing services and/or dealers, as applicable, against the actual prices at which we purchase and sell our investments. Based on the results of the benchmark analysis and the experience of our management in purchasing and selling these investments, we believe that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), we believe that these valuation inputs are classified as Level 3 within the fair value hierarchy. We may also use other methods, including the use of independent valuation firms, to determine fair value for securities for which we cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers or where our board of trustees otherwise determines that the use of such other method is appropriate. We periodically benchmark the valuations provided by the independent valuation firms against the actual prices at which we purchase and sell our investments. Our valuation committee and board of trustees reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with our valuation policy.
Revenue Recognition
Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect such amounts. We record dividend income on the ex-dividend date. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such income. Our policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. We consider many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that we will receive any previously accrued interest, then the previously recognized interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest payments become current and are likely to remain current based on our judgment.
Loan origination fees, original issue discount and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. We record prepayment premiums on loans and securities as fee income when we earn such amounts.
Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net Change in Unrealized Gains or Losses on Foreign Currency
Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized and the respective unrealized gain or loss on foreign currency for any foreign denominated investments we may hold. Net change in unrealized gains or losses on foreign currency reflects the change in the value of foreign currency held, receivables or accruals during the reporting period due to the impact of foreign currency fluctuations.
Capital Gains Incentive Fee
Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of such agreement). Such fee equals 20.0% of our incentive fee capital gains (i.e., our realized capital gains on a cumulative basis from inception, calculated as of the end of the
79
applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.
While the investment advisory and administrative services agreement with FS Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an AICPA Technical Practice Aid for investment companies, we include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FS Advisor as if our entire portfolio was liquidated at its fair value as of the balance sheet date even though FS Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
Subordinated Income Incentive Fee
Pursuant to the investment advisory and administrative services agreement, FS Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of our "pre-incentive fee net investment income" for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor does not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.625%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of our common shares (including proceeds from our distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of our investments paid to shareholders and amounts paid for share repurchases pursuant to our share repurchase program. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is entitled to a "catch-up" fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted capital. Thereafter, FS Advisor is entitled to receive 20.0% of pre-incentive fee net investment income.
Uncertainty in Income Taxes
We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is "more likely than not" to be sustained assuming examination by taxing authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the six months ended June 30, 2017 and 2016, we did not incur any interest or penalties.
Contractual Obligations
We have entered into an agreement with FS Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory and administrative services agreement are equal to (a) an annual base management fee of 2.0% of the average value of our gross assets and (b) an incentive fee based on our performance. FS Advisor, and to the extent it provides such services, GSO, are reimbursed for administrative expenses incurred on our behalf. See Note 4 to our unaudited consolidated financial statements included herein and "Related Party TransactionsCompensation of the Investment Adviser and Dealer Manager" for a discussion of these agreements and for the amount of fees and expenses accrued under these agreements during the six months ended June 30, 2017 and 2016.
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A summary of our significant contractual payment obligations for the repayment of outstanding borrowings under the BNP facility, the Deutsche Bank credit facility, the Fortress facility, the Goldman facility, the Natixis credit facility and the Wells Fargo credit facility at June 30, 2017 is as follows:
|
Payments Due By Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total |
Less than
1 year |
1-3 years | 3-5 years |
More than
5 years |
|||||||||||
BNP Facility (1) |
$ | 213,737 | $ | 213,737 | | | | |||||||||
Deutsche Bank Credit Facility (2) |
$ | 240,000 | $ | 240,000 | | | | |||||||||
Fortress Facility (3) |
$ | 155,000 | | | $ | 155,000 | | |||||||||
Goldman Facility (4) |
$ | 425,000 | | $ | 425,000 | | | |||||||||
Natixis Credit Facility (5) |
$ | 19,922 | | | | $ | 19,922 | |||||||||
Wells Fargo Credit Facility (6) |
$ | 22,302 | | $ | 22,302 | | |
As of June 30, 2017, no amounts were outstanding under the Barclays credit facility. All borrowed amounts under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 18, 2021.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.
Related Party Transactions
Compensation of the Investment Adviser and Dealer Manager
Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of 2.0% of the average value of our gross assets (gross assets equals total assets set forth on our consolidated balance sheet) and an incentive fee based on our performance. Pursuant to the investment sub-advisory agreement, GSO will receive 50% of all management and incentive fees payable to FS Advisor under the investment advisory and administrative services agreement with respect to each year. We commenced accruing fees under the investment advisory and administrative services agreement on July 18, 2011, upon commencement of our investment operations. Base management fees are paid on a quarterly basis in arrears.
The dealer manager for our continuous public offering was FS Investment Solutions, which is one of our affiliates. Under the dealer manager agreement, FS Investment Solutions was entitled to receive
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sales commissions and dealer manager fees in connection with the sale of common shares in our continuous public offering, all or a portion of which were re-allowed to selected broker-dealers and financial representatives. The dealer manager agreement terminated in connection with the closing of our continuous public offering in November 2016.
The following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the six months ended June 30, 2017 and 2016:
|
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Related Party | Source Agreement | Description | 2017 | 2016 | 2017 | 2016 | |||||||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Base Management Fee (1) | $ | 22,688 | $ | 18,398 | $ | 45,073 | $ | 35,639 | |||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement |
Subordinated Incentive Fee on Income (2) |
|
|
$ |
10,499 |
$ |
5,774 |
|||||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement |
Administrative Services Expenses (3) |
$ |
799 |
$ |
883 |
$ |
1,607 |
$ |
1,767 |
|||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement |
Offering Costs (4) |
|
$ |
1,657 |
|
$ |
2,370 |
|||||||||
FS Advisor |
Expense Support and Conditional Reimbursement Agreement |
Expense Recoupment (5) |
$ |
2,858 |
|
$ |
2,858 |
|
|||||||||
FS Investment Solutions |
Dealer Manager Agreement |
Dealer Manager Fee (6) |
|
$ |
2,639 |
|
$ |
4,118 |
See Note 4 to our unaudited consolidated financial statements included herein for additional information regarding our related party transactions and relationships, including a description of the fees and amounts due to FS Advisor, capital contributions by FS Advisor and GSO, potential conflicts of interest, our exemptive relief order, our expense reimbursement arrangement with FS Investments and FS Benefit Trust's purchases of our common shares.
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Recent Developments
During the period from July 1, 2017 to August 10, 2017, we issued 2,166,327 common shares under our distribution reinvestment plan for gross proceeds of $15,548 at an average price per share of $7.18.
On August 8, 2017, our board of trustees adopted an amendment, or the Trust Amendment, to our Third Amended and Restated Declaration of Trust in order to increase the number of common shares authorized for issuance under the declaration of trust from 450,000,000 to 700,000,000 common shares and accordingly increase the total number of shares (including preferred shares) authorized for issuance under the declaration of trust from 500,000,000 to 750,000,000 shares. The Trust Amendment was effective as of August 9, 2017.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to financial market risks, including changes in interest rates. As of June 30, 2017, 40.8% of our portfolio investments (based on fair value) paid variable interest rates, 46.1% paid fixed interest rates, 1.8% were income producing equity/other investments and the remainder (11.3%) consisted of non-income producing equity or other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the variable rate investments we hold and to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to FS Advisor with respect to our increased pre-incentive fee net investment income.
Pursuant to the terms of the Barclays credit facility, BNP facility, Deutsche Bank credit facility, Fortress facility, Goldman facility, Natixis credit facility and Wells Fargo credit facility, Bryn Mawr Funding, Berwyn Funding, FSEP Funding, Foxfields Funding, Gladwyne Funding, Strafford Funding, Energy Funding and Wayne Funding, respectively, borrow at a floating rate based on a benchmark interest rate. To the extent that any present or future credit facilities or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding or financing arrangements in effect, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.
The following table shows the effect over a twelve-month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the composition of our investment portfolio, including the accrual status of our investments, and our borrowing arrangements in effect as of June 30, 2017 (dollar amounts are presented in thousands):
Basis Point Change in Interest Rates |
Increase
(Decrease) in Interest Income |
Increase
(Decrease) in Interest Expense |
Increase
(Decrease) in Net Interest Income |
Percentage
Change in Net Interest Income |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Down 100 basis points |
$ | (4,120 | ) | $ | (10,541 | ) | $ | 6,421 | 1.9 | % | |||
No change |
| | | | |||||||||
Up 100 basis points |
16,433 | 10,541 | 5,892 | 1.7 | % | ||||||||
Up 300 basis points |
51,667 | 31,624 | 20,043 | 5.9 | % | ||||||||
Up 500 basis points |
87,051 | 52,707 | 34,344 | 10.1 | % |
We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the six months ended June 30, 2017 and 2016, we did not engage in interest rate hedging activities.
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In addition, we may have risk regarding portfolio valuation. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting PoliciesValuation of Portfolio Investments."
Item 4. Controls and Procedures.
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2017. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the three month period ended June 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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We are not currently subject to any material legal proceedings and, to our knowledge, no material legal proceedings are threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that any such proceedings will have a material effect upon our financial condition or results of operations.
There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The table below provides information concerning our repurchases of common shares during the three months ended June 30, 2017 pursuant to our share repurchase program.
Period |
Total
Number of Shares Purchased |
Average
Price Paid per Share (2) |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of
Shares that May Yet Be Purchased Under the Plans or Programs |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
April 1 to April 30, 2017 |
4,587,306 | $ | 7.75 | 4,587,306 | (1 | ) | |||||||
May 1 to May 31, 2017 |
| | | | |||||||||
June 1 to June 30, 2017 |
| | | | |||||||||
| | | | | | | | | | | | | |
Total |
4,587,306 | $ | 7.75 | 4,587,306 | (1 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for a more detailed discussion of the terms of our share repurchase program.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
On August 8, 2017, our board of trustees adopted an amendment, or the Trust Amendment, to our Third Amended and Restated Declaration of Trust in order to increase the number of common shares authorized for issuance under the declaration of trust from 450,000,000 to 700,000,000 common shares and accordingly increase the total number of shares (including preferred shares) authorized for issuance under the declaration of trust from 500,000,000 to 750,000,000 shares. The Trust Amendment was effective as of August 9, 2017.
85
3.1* |
|
Third Amended and Restated Declaration of Trust of FS Energy and Power Fund. |
3.2* |
|
Amendment No. 1 to the Third Amended and Restated Declaration of Trust of FS Energy and Power Fund. |
3.3 |
|
Second Amended and Restated Bylaws of FS Energy and Power Fund. (Incorporated by reference to Exhibit 3.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 31, 2017.) |
4.1 |
|
Form of Subscription Agreement. (Incorporated by reference to FS Energy and Power Fund's final prospectus filed on July 6, 2016 with the Securities and Exchange Commission pursuant to Rule 497 of the Securities Act of 1933, as amended.) |
4.2 |
|
Second Amended and Restated Distribution Reinvestment Plan of FS Energy and Power Fund. (Incorporated by reference to Exhibit 4.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 17, 2016.) |
10.1 |
|
Investment Advisory and Administrative Services Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Advisor, LLC. (Incorporated by reference to Exhibit (g)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.) |
10.2 |
|
Amendment No. 1 dated as of August 10, 2012, to Investment Advisory and Administrative Services Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Advisor, LLC. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 14, 2012.) |
10.3 |
|
Investment Sub-advisory Agreement, dated as of April 28, 2011, by and between FS Investment Advisor, LLC and GSO Capital Partners LP. (Incorporated by reference to Exhibit (g) (2) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.) |
10.4 |
|
Dealer Manager Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Solutions, LLC (formerly FS 2 Capital Partners, LLC) (Incorporated by reference to Exhibit (h)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.) |
10.5 |
|
Form of Follow-On Dealer Manager Agreement by and among FS Energy and Power Fund, FS Investment Advisor, LLC and FS Investment Solutions, LLC (formerly FS 2 Capital Partners, LLC) (Incorporated by reference to Exhibit (h)(2) filed with Pre-Effective Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-184407) filed on May 10, 2013.) |
10.6 |
|
2014 Follow-On Dealer Manager Agreement, dated as of January 7, 2015, by and among FS Energy and Power Fund, FS Investment Advisor, LLC and FS Investment Solutions, LLC (formerly FS 2 Capital Partners, LLC) (Incorporated by reference to Exhibit (h)(3) filed with Post-Effective Amendment No. 1 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-199777) filed on April 1, 2015.) |
10.7 |
|
Form of Selected Dealer Agreement (Included as Appendix A to the Dealer Manager Agreement). (Incorporated by reference to Exhibit (h)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.) |
10.8 |
|
Form of 2014 Follow-On Selected Dealer Agreement. (Included as Exhibit A to the Form of Follow-On Dealer Manager Agreement.) (Incorporated by reference to Exhibit (h)(5) filed with FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-199777) filed on October 31, 2014.) |
86
10.9 | Custodian Agreement, dated as of November 14, 2011, by and between State Street Bank and Trust Company and FS Energy and Power Fund. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on November 14, 2011.) | |
10.10 |
|
Escrow Agreement, dated as of March 29, 2011, by and between FS Energy and Power Fund and UMB Bank, N.A. (Incorporated by reference to Exhibit (k) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.) |
10.11 |
|
Credit Agreement, dated as of June 24, 2011, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.) |
10.12 |
|
First Amendment to Credit Agreement, dated as of May 30, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 30, 2012.) |
10.13 |
|
Second Amendment to Credit Agreement, dated as of August 28, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 30, 2012.) |
10.14 |
|
Third Amendment to Credit Agreement, dated as of October 18, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 18, 2012.) |
10.15 |
|
Fourth Amendment to Credit Agreement, dated as of June 24, 2013, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 25, 2013.) |
10.16 |
|
Amended and Restated Credit Agreement, dated as of June 11, 2014, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 17, 2014.) |
10.17 |
|
First Amendment to Amended and Restated Credit Agreement, dated as of June 11, 2015, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 15, 2015.) |
10.18 |
|
Second Amendment to Amended and Restated Credit Agreement, dated as of June 10, 2016, by and among FSEP Term Funding, LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and a lender, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 16, 2016.) |
10.19 |
|
Third Amendment to Amended and Restated Credit Agreement, dated as of June 9, 2017, by and among FSEP Term Funding, LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and a lender, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 14, 2017.) |
10.20 |
|
Asset Contribution Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC. (Incorporated by reference to Exhibit 10.8 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.) |
10.21 |
|
Investment Management Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC. (Incorporated by reference to Exhibit 10.9 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.) |
87
10.22 | Security Agreement, dated as of June 24, 2011, by and between FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.10 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.) | |
10.23 |
|
ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of August 11, 2011, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.11 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 15, 2011.) |
10.24 |
|
Termination and Release Acknowledgment, dated as of May 11, 2012, by Citibank N.A. in favor of FS Energy and Power Fund. (Incorporated by reference to Exhibit 10.15 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.) |
10.25 |
|
Amendment Agreement, dated as of May 11, 2012, to the ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.16 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.) |
10.26 |
|
Amended and Restated Confirmation Letter Agreement, dated as of May 11, 2012, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.17 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.) |
10.27 |
|
Amended and Restated Confirmation Letter Agreement, dated as of October 11, 2012, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 12, 2012.) |
10.28 |
|
Termination Acknowledgment (TRS), dated as of May 24, 2013, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 31, 2013.) |
10.29 |
|
Loan Agreement, dated as of May 24, 2013, by and among EP Funding LLC, the financial institutions and other lenders from time to time party thereto and Citibank, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.) |
10.3 |
|
Account Control Agreement, dated as of May 24, 2013, by and among EP Funding LLC, Citibank, N.A. and Virtus Group, LP. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.) |
0.01 |
|
Security Agreement, dated as of May 24, 2013, by and between EP Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.) |
10.32 |
|
Investment Management Agreement, dated as of May 24, 2013, by and between FS Energy and Power Fund and EP Funding LLC. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.) |
10.33 |
|
Credit Agreement, dated as of July 11, 2013, by and among Energy Funding LLC, Natixis, New York Branch, Wells Fargo Bank, National Association and the other lenders from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.) |
10.34 |
|
Securities Account Control Agreement, dated as of July 11, 2013, by and among Energy Funding LLC and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.) |
10.35 |
|
Collateral Management Agreement, dated as of July 11, 2013, by and between FS Energy and Power Fund and Energy Funding LLC. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.) |
10.36 |
|
Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated May 16, 2013, by and between FS Energy and Power Fund and Franklin Square Holdings, L.P. (Incorporated by reference to Exhibit 99.1 to FS Energy and Power Fund's Current report on Form 8-K filed on May 17, 2013.) |
88
10.37 | Committed Facility Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.) | |
10.38 |
|
First Amendment Agreement, dated as of August 18, 2014, between BNP Paribas Prime Brokerage, Inc., on behalf of itself and as agent for the BNPP Entities, and Berwyn Funding LLC. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 21, 2014.) |
10.39 |
|
Fifth Amendment to the Committed Facility Agreement, dated as of May 4, 2016 by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.) |
10.40 |
|
U.S. PB Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.) |
10.41 |
|
First Amendment to the U.S. PB Agreement, dated as of May 4, 2016, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.) |
10.42 |
|
Special Custody and Pledge Agreement, dated as of December 11, 2013, by and among State Street Bank and Trust Company, Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.) |
10.43 |
|
Investment Management Agreement, dated as of December 11, 2013, by and between FS Energy and Power Fund and Berwyn Funding LLC. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.) |
10.44 |
|
Loan and Servicing Agreement, dated as of September 9, 2014, among Wayne Funding LLC, as borrower, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.45 |
|
First Amendment to the Loan and Servicing Agreement, dated as of October 13, 2016, among Wayne Funding LLC, as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, Wells Fargo Bank, National Association, as institutional lender, and Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 14, 2016.) |
10.46 |
|
Purchase and Sale Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC, as purchaser, and FS Energy and Power Fund, as seller. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.47 |
|
Collateral Management Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC and FS Energy and Power Fund, as collateral manager. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.48 |
|
Securities Account Control Agreement, dated as of September 9, 2014, by and among Wayne Funding LLC, as pledgor, Wells Fargo Bank, National Association, as collateral agent, and Wells Fargo Bank, National Association, as securities intermediary. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
89
10.49 | Amended and Restated Sale and Contribution Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Gladwyne Funding LLC. (Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) | |
10.50 |
|
Indenture, dated as of September 11, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.51 |
|
First Supplemental Indenture, dated as of December 15, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.) |
10.52 |
|
Second Supplemental Indenture, dated as of September 21, 2016, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 22, 2016.) |
10.53 |
|
Gladwyne Funding LLC Floating Rate Notes due 2024. (Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.54 |
|
September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford Funding LLC, together with the related Annex and Master Confirmation thereto, each dated as of September 11, 2014. (Incorporated by reference to Exhibit 10.8 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.55 |
|
Amended and Restated September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford Funding LLC, dated as of September 21, 2016. (Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 22, 2016.) |
10.56 |
|
Amended and Restated Master Confirmation, dated as of December 15, 2014, by and between Goldman Sachs Bank USA and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.2 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.) |
10.57 |
|
Second Amended and Restated Master Confirmation, dated as of September 21, 2016, by and between Goldman Sachs Bank USA and Strafford Funding LLC. ( Incorporated by reference to Exhibit 10.56 of FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on November 9, 2016.) |
10.58 |
|
Revolving Credit Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.9 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.59 |
|
Amended and Restated Revolving Credit Agreement, dated as of December 15, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.3 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.) |
10.60 |
|
Amended and Restated Investment Management Agreement, dated as of September 11, 2014, by and between Gladwyne Funding LLC and FS Energy and Power Fund. (Incorporated by reference to Exhibit 10.10 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
10.61 |
|
Collateral Administration Agreement, dated as of September 11, 2014, by and among Gladwyne Funding LLC, FS Energy and Power Fund and Virtus Group, LP. (Incorporated by reference to Exhibit 10.11 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.) |
90
10.62 | Term Loan and Security Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent, the lenders from time to time party thereto and the other loan parties from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.) | |
10.63 |
|
Contribution Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields Funding LLC. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.) |
10.64 |
|
Investment Management Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields Funding LLC. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.) |
10.65 |
|
Securities Account Control Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent and State Street Bank and Trust Company. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.) |
10.66 |
|
Guaranty, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC. (Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.) |
10.67 |
|
Pledge Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.) |
10.68 |
|
First Amendment to Term Loan and Security Agreement, dated as of November 25, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent, the lenders signatory thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 1, 2015.) |
10.69 |
|
Senior Secured Revolving Credit Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as administrative agent, and the lenders from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.) |
10.70 |
|
Contribution Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.) |
10.71 |
|
Investment Management Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.) |
10.72 |
|
Control Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as collateral agent, and State Street Bank and Trust Company, as custodian. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.) |
10.73 |
|
Guaranty, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent. (Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.) |
10.74 |
|
Pledge Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.) |
10.75 |
|
Guarantee, Pledge and Security Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, any subsidiary guarantors from time to time party thereto, Barclays Bank PLC, as revolving administrative agent, and Barclays Bank PLC, as collateral agent. (Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.) |
91
10.76 | Credit Agreement, dated as of April 19, 2017, among Gladwyne Funding LLC, Goldman Sachs Bank USA, as lender, sole lead arranger and administrative agent, Citibank, N.A., as collateral agent, and Virtus Group, LP, as collateral administrator. ( Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on April 25, 2017. ) | |
31.1* |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended. |
31.2* |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended. |
32.1* |
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
92
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 10, 2017.
FS Energy and Power Fund | ||||
|
|
By: |
|
/s/ MICHAEL C. FORMAN Michael C. Forman Chief Executive Officer (Principal Executive Officer) |
|
|
By: |
|
/s/ EDWARD T. GALLIVAN, JR. Edward T. Gallivan, Jr. Chief Financial Officer (Principal Financial and Accounting Officer) |
93
THIRD AMENDED AND RESTATED
DECLARATION OF TRUST
OF
FS ENERGY AND POWER FUND
ARTICLE I
NAME
The name of the statutory trust is FS Energy and Power Fund (the "Fund").
The purpose for which the Fund is formed is to engage in any lawful act or activity for which trusts may be organized under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. § 3801, et seq. (the "Statutory Trust Act") of the State of Delaware as now or hereafter in force, including conducting and carrying on the business of a business development company, subject to making an election under the Investment Company Act of 1940, as amended (the "1940 Act").
The trustee, pursuant to Section 3807 of the Statutory Trust Act, of the Fund in the State of Delaware shall be Wilmington Trust Company, a Delaware banking corporation (including any successor trustee appointed in accordance with Section 3.3 of this Declaration of Trust, the "Delaware Trustee"). The street address of the principal office of Wilmington Trust Company is, c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890. Any reference to "trustee" or "board of trustees" in this Third Amended and Restated Declaration of Trust (the "Declaration of Trust") and the bylaws of the Fund (the "Bylaws") shall not be deemed to include or refer to the Delaware Trustee.
Section 3.1 Purpose of Appointment . The Delaware Trustee is appointed to serve as the trustee of the Fund in the State of Delaware for the sole purpose of satisfying the requirements of Section 3807(a) of the Statutory Trust Act that the Fund have at least one trustee with a principal place of business in the State of Delaware. It is understood and agreed by the parties hereto that the Delaware Trustee shall have none of the duties, obligations or liabilities of any other Person, including, without limitation, the board of trustees and FS Investment Advisor, LLC (the "Adviser"). The Delaware Trustee shall satisfy the requirements of Section 3807(a) of the Statutory Trust Act.
Section 3.2 Duties. The duties of the Delaware Trustee shall be limited to (i) accepting legal process served on the Fund in the State of Delaware and (ii) the execution of any certificates required to be filed with the Delaware Secretary of State which the Delaware Trustee is required to execute under Section 3811 of the Statutory Trust Act. Except for the purpose of the foregoing sentence, the Delaware Trustee shall not be deemed a trustee, shall not be a member of the board of trustees and shall have no management responsibilities or owe any fiduciary duties to the Fund or the shareholders. To the extent that, at law or in equity, the Delaware Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Fund or the shareholders, it is hereby understood and agreed by the other parties hereto that such duties and liabilities are replaced by the duties and liabilities of the Delaware Trustee expressly set forth in this Declaration of Trust. The Delaware Trustee shall have no liability for the acts or omissions of any other Person, including, without limitation, the board of trustees and the Adviser.
Section 3.3 Removal . The Delaware Trustee may be removed by the board of trustees upon 30 days' prior written notice to the Delaware Trustee. The Delaware Trustee may resign upon 30 days' prior written notice to the board of trustees. No resignation or removal of the Delaware Trustee shall be effective except upon the appointment of a successor Delaware Trustee appointed by the board of trustees or a court of competent jurisdiction. If no successor Delaware Trustee has been appointed within such 30 day period, the Delaware Trustee may, at the expense of the Fund, petition a court of competent jurisdiction to appoint a successor Delaware Trustee.
Section 3.4 Merger . Any Person into which the Delaware Trustee may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Delaware Trustee shall be a party, or any Person which succeeds to all or substantially all of the corporate trust business of the Delaware Trustee, shall be the successor Delaware Trustee under this Declaration of Trust without the execution, delivery or filing of any paper or instrument or further act to be done on the part of the parties hereto, except as may be required by applicable law.
Section 3.5 Liability .
(a) The Delaware Trustee shall be entitled to all of the same rights, protections, indemnities and immunities under this Declaration of Trust and with respect to the Fund and the shareholders as the board of trustees. No amendment or waiver of any provision of this Declaration of Trust which adversely affects the Delaware Trustee shall be effective against it without its prior written consent.
(b) The Delaware Trustee shall not be liable for supervising or monitoring the performance and the duties and obligations of any other Person, including, without limitation, the board of trustees or the Adviser or the Fund under this Declaration of Trust or any related document. The Delaware Trustee shall not be personally liable under any circumstances, except for its own willful misconduct, bad faith or gross negligence. In particular, but not by way of limitation:
(i) the Delaware Trustee shall not be personally liable for any error of judgment made in good faith;
(ii) no provision of this Declaration of Trust shall require the Delaware Trustee to expend or risk its personal funds or otherwise incur any financial liability in the performance of its rights or powers hereunder, if the Delaware Trustee shall have reasonable grounds for believing that the payment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it;
(iii) under no circumstances shall the Delaware Trustee be personally liable for any representation, warranty, covenant, agreement or indebtedness of the Fund;
(iv) the Delaware Trustee shall not be personally responsible for or in respect of the validity or sufficiency of this Declaration of Trust or for the due execution hereof by any other party hereto;
(v) the Delaware Trustee shall incur no liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and reasonably believed by it to be signed by the proper party or parties. The Delaware Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the manner of ascertainment of which is not specifically prescribed herein, the Delaware Trustee may for all purposes hereof rely on a certificate or resolution, signed by the board of trustees or an officer of the Fund as to such fact or matter, and such certificate shall constitute full protection to the Delaware Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon;
(vi) in the exercise or administration of the Fund hereunder, the Delaware Trustee (A) may act directly or through agents or attorneys pursuant to agreements entered into with any of them, and the Delaware Trustee shall not be liable for the default or misconduct of such agents or attorneys if such agents or attorneys shall have been selected by the Delaware Trustee in good faith and (B) may consult with counsel, accountants and other skilled persons to be selected by it in good faith and employed by it, and it shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled persons;
(vii) in accepting and performing its express duties hereunder the Delaware Trustee acts solely as Delaware Trustee hereunder and not in its individual capacity, and all persons having any claim against the Delaware Trustee by reason of the transactions contemplated by this Declaration of Trust shall look only to the Fund for payment or satisfaction thereof; and
(viii) the Delaware Trustee shall incur no liability if, by reason of any provision of any present or future law or regulation thereunder, or by any force majeure event, including but not limited to natural disaster, act of war or terrorism, or other circumstances beyond its reasonable control, the
Delaware Trustee shall be prevented or forbidden from doing or performing any act or thing which the terms of this Declaration of Trust provide shall or may be done or performed, or by reason of any exercise of, or failure to exercise, any discretion provided for in this Declaration of Trust.
Section 3.6 Successors . In the event of the appointment of a successor Delaware Trustee, such successor shall cause an amendment to the certificate of trust of the Fund to be filed with the Secretary of State of Delaware in accordance with Section 3810 of the Statutory Trust Act, indicating the change of the Delaware Trustee's identity.
Section 3.7 Compensation and Reimbursement of Expenses . The Fund hereby agrees to (i) compensate the Delaware Trustee in accordance with a separate fee agreement with the Delaware Trustee, (ii) reimburse the Delaware Trustee for all reasonable expenses (including reasonable fees and expenses of counsel and other experts) and (iii) indemnify, defend and hold harmless the Delaware Trustee and any of the officers, directors, employees and agents of the Delaware Trustee (the "Indemnified Persons") from and against any and all losses, damages, liabilities, claims, actions, suits, costs, expenses, disbursements (including the reasonable fees and expenses of counsel), taxes and penalties of any kind and nature whatsoever (collectively, "Expenses"), to the extent that such Expenses arise out of or are imposed upon or asserted at any time against such Indemnified Persons with respect to the performance of any duties contemplated by this Declaration of Trust, the creation, operation or termination of the Fund or the transactions contemplated hereby; provided, however, that the Fund shall not be required to indemnify any Indemnified Person for any Expenses which are a result of the willful misconduct, bad faith or gross negligence of such Indemnified Person. To the fullest extent permitted by law, Expenses to be incurred by an Indemnified Person shall, from time to time, be advanced by, or on behalf of, the Fund prior to the final disposition of any matter upon receipt by the Fund of an undertaking by, or on behalf of, such Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified under this Declaration of Trust.
ARTICLE IV
PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF THE FUND AND OF THE SHAREHOLDERS AND TRUSTEES
To the fullest extent permitted by law, it is the intent of the parties hereto that the provisions of the Delaware General Corporation Law (the "DGCL"), including Section 203 of the DGCL (without regard as to whether the Fund satisfies the requirements of Section 203(b)(4) of the DGCL), govern the affairs of the Fund in all respects, including as to the rights, duties and obligations of the shareholders and trustees of the Fund, to the same extent as if the Fund were a private corporation for profit organized under the DGCL; provided, however, the provisions of the DGCL shall not govern the affairs of the Fund to the extent that (i) the express terms of this Declaration of Trust or the Bylaws conflict with or are inconsistent with the DGCL, in which case the express terms of this Declaration of Trust or the Bylaws shall control and (ii) any provisions of the Statutory Trust Act or general trust law that are mandatory. In furtherance of the foregoing, to the fullest extent permitted by law, the shareholders and the trustees of the Fund shall be deemed to have waived any non-mandatory rights of beneficial owners (within the meaning of the Statutory Trust Act) or trustees under the Statutory Trust Act or general trust law. This Declaration of Trust and the Bylaws shall together constitute the governing instrument of the Trust. To the extent any provision of the Bylaws conflicts with this Declaration of Trust, this Declaration of Trust shall control.
Section 4.1 Number, Term and Election of Trustees . The business and affairs of the Fund shall be managed by or under the direction of the Fund's board of trustees (which shall not include the Delaware Trustee). The board of trustees shall have full, exclusive and absolute power, control and authority over the Fund's assets and over the business of the Fund to the same extent as a board of directors of a Delaware corporation. The board of trustees may take any actions as in its sole judgment and discretion are necessary or desirable to conduct the business of the Fund. This Declaration of Trust and the Bylaws shall be construed with a presumption in favor of the grant of power and authority to the board of trustees. Except as otherwise specifically provided in this Declaration of Trust and the Bylaws, each trustee and officer of the Fund shall have duties, including fiduciary duties (and liability therefore), identical to those of directors and officers of a private corporation for profit organized under the DGCL and shall not have any other duties, including any fiduciary duties, except for fiduciary duties identical to those of directors and officers of a private corporation for profit organized under the DGCL. The number of trustees that shall comprise the Fund's board of trustees is seven,
which number may be increased or decreased from time to time by the board of trustees pursuant to the Bylaws. Notwithstanding the foregoing sentence, the number of trustees that shall comprise the Fund's board of trustees shall not be less than three, except for a period of up to 60 days after the death, removal or resignation of a trustee pending the election of such trustee's successor. Each trustee shall hold office for one year, until the next annual meeting of shareholders and until his or her successor is duly elected and qualifies. Trustees may be elected to an unlimited number of successive terms. Any trustee elected by the trustees without a shareholder vote to fill a vacancy as a result of the expansion of the size of the board of trustees who remains a trustee of the Fund at the time of the next annual meeting of shareholders shall be submitted to the shareholders for election to the board of trustees at such annual meeting of shareholders.
A majority of the board of trustees shall be independent trustees, except for a period of up to 60 days after the death, removal or resignation of an independent trustee pending the election of such independent trustee's successor. A trustee is considered independent if he or she is not an "interested person" as that term is defined under Section 2(a)(19) of the 1940 Act.
Subject to applicable requirements of the 1940 Act and except as may be provided by the board of trustees in setting the terms of any class or series of Preferred Shares (as hereinafter defined), any and all vacancies on the board of trustees may be filled only by the affirmative vote of a majority of the remaining trustees in office, even if the remaining trustees do not constitute a quorum, and any trustee elected to fill a vacancy shall serve for the remainder of the full term of the trusteeship in which such vacancy occurred and until a successor is duly elected and qualifies. Notwithstanding the foregoing sentence, if there are independent trustees on the board of trustees, vacancies among the independent trustees' positions on the board of trustees may be filled only by the affirmative vote of a majority of the remaining independent trustees in office, even if the remaining independent trustees do not constitute a quorum, and any independent trustee elected to fill such a vacancy shall serve for the remainder of the full term of the trusteeship in which such vacancy occurred and until a successor is duly elected and qualifies.
Section 4.2 Extraordinary Actions . Except as provided in Section 6.2 and Section 11.1, notwithstanding any provision of law requiring an action to be approved by the affirmative vote of the holders of shares entitled to cast a greater number of votes, any such action shall be effective and valid if declared advisable and approved by the board of trustees, and approved by the affirmative vote of holders of shares entitled to cast a majority of the votes entitled to be cast on the matter.
Section 4.3 Authorization by Board of Trustees of Share Issuance . The board of trustees may authorize the issuance from time to time of shares of beneficial interest of the Fund (referred to herein as "shares") of any class or series, whether now or hereafter authorized, or securities or rights convertible into shares of any class or series, whether now or hereafter authorized, for such consideration as the board of trustees may deem advisable (or without consideration in the case of a share split or share dividend), subject to such restrictions or limitations, if any, as may be set forth in this Declaration of Trust or the Bylaws.
Section 4.4 Preemptive Rights . Except as may be provided by the board of trustees in setting the terms of classified or reclassified shares pursuant to Section 5.3 or 5.4 or as may otherwise be provided by contract approved by the board of trustees, no holder of shares of the Fund shall, as such holder, have any preemptive right to purchase or subscribe for any additional shares of the Fund or any other security of the Fund which it may issue or sell.
Section 4.5 Appraisal Rights . Except as may be provided by the board of trustees in setting the terms of any class or series of Preferred Shares and except as contemplated by the DGCL, no shareholder of the Fund shall be entitled to exercise appraisal rights in connection with any transaction.
Section 4.6 Determinations by Board of Trustees . To the fullest extent permitted by law, the determination as to any of the following matters, made in good faith by or pursuant to the direction of the board of trustees consistent with this Declaration of Trust shall be final and conclusive and shall be binding upon the Fund and every shareholder: the amount of the net income of the Fund for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its shares or the payment of other distributions on its shares; the amount of stated capital, capital surplus, net assets, other surplus, annual or other net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created
shall have been paid or discharged); any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of any class or series of shares of the Fund; the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Fund or any shares of the Fund; the shares of any class of the Fund; any matter relating to the acquisition, holding and disposition of any assets by the Fund; any conflict between the Statutory Trust Act, the DGCL and the provisions set forth in the North American Securities Administrators Association ("NASAA") Omnibus Guidelines; or any other matter relating to the business and affairs of the Fund or required or permitted by applicable law, this Declaration of Trust or the Bylaws or otherwise to be determined by the board of trustees; and provided that to the extent the board of trustees determines that the Statutory Trust Act or the DGCL conflicts with the provisions set forth in the NASAA Omnibus Guidelines, NASAA Omnibus Guidelines control to the extent any provisions of the Statutory Trust Act are not mandatory.
Section 5.1 Authorized Shares . The Fund has authority to issue 500,000,000 shares, of which 450,000,000 shares are classified as common shares, $0.001 par value per share ("Common Shares"), and 50,000,000 shares are classified as preferred shares, $0.001 par value per share ("Preferred Shares"). The aggregate par value of all authorized shares having par value is $500,000. All shares shall be fully paid and no assessable when issued, and the Fund shall not make any mandatory Assessment against any shareholder beyond such shareholder's subscription commitment. A majority of the entire board of trustees, including a majority of the independent trustees, without any action by the shareholders of the Fund, may amend this Declaration of Trust from time to time to (i) increase or decrease the aggregate number of shares, or the number of shares of any class or series that the Fund has authority to issue or (ii) subdivide or combine the outstanding shares of any class or series into a greater or lesser number of outstanding shares (which may include a change in the par value thereof). For the avoidance of doubt, any such amendment shall not be deemed to alter or change the powers, preferences or special rights of any shares.
Section 5.2 Common Shares . Each Common Share shall entitle the holder thereof to one vote. Except as otherwise provided in this Declaration of Trust, and subject to the express terms of any class or series of Preferred Shares, holders of Common Shares shall have the exclusive right to vote on all matters as to which a shareholder is entitled to vote pursuant to applicable law at all meetings of shareholders. In the event of any voluntary or involuntary liquidation, dissolution or winding up, the aggregate assets available for distribution to holders of Common Shares shall be determined in accordance with applicable law and this Declaration of Trust. Each holder of Common Shares shall be entitled to receive, ratably with each other holder of Common Shares, that portion of the assets available for distribution as the number of outstanding shares of such class held by such holder bears to the total number of outstanding shares of such class then outstanding. The board of trustees, including a majority of the independent trustees, may classify or reclassify any unissued shares of Common Shares from time to time, in one or more classes or series of Common Shares or Preferred Shares by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations, or to dividends, qualifications, or terms or conditions of redemption of the shares.
Section 5.3 Preferred Shares . The board of trustees, including a majority of the independent trustees, may classify or reclassify any unissued Preferred Shares from time to time, in one or more classes or series of Preferred Shares by setting or changing the preferences, covenants or other rights, voting powers, privileges, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series thereof. The classification or reclassification of any class or series of Preferred Shares shall be effective upon the adoption of a resolution by the board of trustees, including a majority of the independent trustees, setting forth such relative preferences, covenants or other rights, voting powers, privileges, restrictions, limitations as to dividends or other distributions qualifications and terms and conditions of redemption of the Shares of such class or series, whether directly in such resolution or by reference to, or approval of, another document that sets forth such relative preferences, covenants or other rights, voting powers, privileges, restrictions, limitations as to dividends or other distributions qualifications and terms and conditions of redemption of such class or series including, without limitation, any registration statement of the Fund, or as otherwise provided in such resolution. Upon the classification or reclassification of any such class or series, an appendix shall be attached to this Declaration of Trust (identified as a certificate of
designation) to reflect the classification or reclassification of such class or series and the preferences, covenants or other rights, voting powers, privileges, restrictions, limitations as to dividends or other distributions qualifications and terms and conditions of redemption thereof, which terms shall be deemed part of the governing instrument of the Fund; provided that attachment of an appendix hereto shall not be a condition precedent to the establishment of any class or series in accordance with this Declaration of Trust.
Section 5.4 Classified or Reclassified Shares . The board of trustees by resolution may classify prior to issuance or reclassify after issuance any shares of the Fund. In connection therewith, the board of trustees may: (a) designate any shares of the Fund as a class or series to distinguish such shares from all other classes and series of shares of the Fund; (b) specify the number of shares to be included in the class or series; and (c) set or change, subject to the express terms of any class or series of shares of the Fund outstanding at the time, the preferences, covenants or other rights, voting powers, privileges, restrictions, limitations as to dividends or other distributions qualifications and terms and conditions of redemption for each class or series thereof. Any of the terms of any class or series of shares set or changed pursuant to clause (c) of this Section 5.4 may be made dependent upon facts or events ascertainable outside this Declaration of Trust (including determinations by the board of trustees or other facts or events within the control of the Fund) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of shares is clearly and expressly set forth in the resolution or other instrument establishing any such class or series.
Section 5.5 Deferred Payments . The Fund shall not have authority to make arrangements for deferred payments on account of the purchase price of the Fund's shares unless all of the following conditions are met: (a) such arrangements are warranted by the Fund's investment objectives; (b) the period of deferred payments coincides with the anticipated cash needs of the Fund; (c) the deferred payments shall be evidenced by a promissory note of the shareholder, which note shall be with recourse, shall not be negotiable, shall be assignable only subject to defenses of the maker and shall not contain a provision authorizing a confession of judgment and (d) selling commissions and Front End Fees paid upon deferred payments are payable when payment is made on the note. The Fund shall not sell or assign the deferred obligation notes at a discount. In the event of default in the payment of deferred payments by a shareholder, the shareholder may be subjected to a reasonable penalty.
Section 5.6 Distributions .
(a) Any investment advisory agreement with the Adviser shall provide that the Adviser shall cause the Fund to provide for adequate reserves for normal replacements and contingencies (but the Fund shall not be required to maintain reserves for payment of fees payable to the Adviser) by causing the Fund to retain a reasonable percentage of proceeds from offerings and revenues.
(b) From time to time and not less than quarterly, the Fund shall cause the Adviser to review the Fund's accounts to determine whether cash distributions are appropriate. The Fund may, subject to authorization by the board of trustees, distribute pro rata to the shareholders funds received by the Fund which the Adviser deems unnecessary to retain in the Fund. The board of trustees may authorize the Fund to declare and pay to shareholders such dividends or distributions, in cash or, subject to the provisions of this Section 5.6(b), other assets of the Fund or in securities of the Fund or from any other source as the board of trustees in its discretion shall determine. The board of trustees shall endeavor to authorize the Fund to declare and pay such dividends and distributions (i) as shall be necessary for the Fund to qualify as a "Regulated Investment Company" under the Code and under the 1940 Act, and (ii) to the extent that the board of trustees deems it unnecessary for the Fund to retain funds received by it; provided, however, that in each case, shareholders shall have no right to any dividend or distribution unless and until authorized and declared by the board of trustees. The exercise of the powers and rights of the board of trustees pursuant to this Section 5.6 shall be subject to the provisions of any class or series of shares at the time outstanding. The receipt by any person in whose name any shares are registered on the records of the Fund or by his or her duly authorized agent shall be a sufficient discharge for all dividends or distributions payable or deliverable in respect of such shares and from all liability to see to the application thereof. Distributions in kind shall not be permitted, except for distributions of readily marketable securities, distributions of beneficial interests in a liquidating trust established for the dissolution of the Fund and the liquidation of its assets in accordance with the terms of this Declaration of Trust or distributions in which (i) the board of trustees advises each shareholder of the risks associated with direct ownership of the property, (ii) the board of
trustees offers each shareholder the election of receiving such in-kind distributions, and (iii) in-kind distributions are made only to those shareholders that accept such offer.
Section 5.7 Declaration of Trust and Bylaws . All persons who shall acquire shares in the Fund shall acquire the same subject to the provisions of this Declaration of Trust and the Bylaws. The board of trustees of the Fund shall have the exclusive power to make, alter, amend or repeal the Bylaws.
Section 5.8 Suitability of Shareholders . Prior to the occurrence of a Listing, if the Fund is offering Common Shares or Preferred Shares in a public offering registered with the U.S. Securities and Exchange Commission (a "Public Offering"), subject to any required heightened suitability standards set forth in the prospectus related to such Public Offering (as the same may be amended or supplemented from time to time, the "Prospectus"), in order to purchase Common Shares or Preferred Shares from the Fund in the Public Offering, a prospective shareholder must represent to the Fund, among other requirements as the Fund may require from time to time, that such prospective shareholder satisfies any suitability standards required by the guidelines published by NASAA applicable to the Fund, as such standards may be amended from time to time, that are set forth in the Prospectus, such as, for example, that the prospective shareholder have a net worth (not including home, furnishings and personal automobiles) of at least $70,000 and an annual gross income of at least $70,000, or (ii) a net worth (not including home, furnishings and personal automobiles) of at least $250,000.
ARTICLE VI
AMENDMENTS; CERTAIN EXTRAORDINARY ACTIONS
Section 6.1 Amendments Generally . Subject to Section 6.2 hereof, the board of trustees reserves the right, without any vote of shareholders, from time to time to make any amendment to this Declaration of Trust, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in this Declaration of Trust, of any outstanding shares.
Section 6.2 Approval of Certain Declaration of Trust Amendments . Notwithstanding the provisions of Section 6.1 hereof, the affirmative vote of the holders of shares entitled to cast at least two-thirds of all the votes entitled to be cast on the matter shall be necessary to effect:
(a) Any amendment to this Declaration of Trust to make the Common Shares a "redeemable security" or to convert the Fund, whether by merger or otherwise, from a "closed-end company" to an "open-end company" (as such terms are defined in the 1940 Act); and
(b) Any amendment to Section 4.2, Section 4.6, Section 6.1 or this Section 6.2.
Section 6.3 Execution of Amendments . Upon obtaining such approvals required by this Declaration of Trust and the Bylaws and without further action or execution by any other Person, including the Delaware Trustee or any shareholder, (i) any amendment to this Declaration of Trust may be implemented and reflected in a writing executed solely by the requisite members of the board of trustees, and (ii) the Delaware Trustee and the shareholders shall be deemed a party to and bound by such amendment of this Declaration of Trust; provided, however, the Delaware Trustee's signature shall be required on any amendment that would affect the Delaware Trustee.
Section 6.4 Approval of Certain Other Declaration of Trust Amendments . Until a Listing has occurred, the following provisions shall apply:
(a) Subject to those matters specified in Section 6.2 and the provisions of any class or series of shares then outstanding and the mandatory provisions of any applicable laws or regulations, upon the affirmative vote of shares entitled to cast a majority of the votes entitled to be cast on the matter, shareholders may amend the Declaration of Trust, without the necessity for concurrence by the board of trustees.
(b) Notwithstanding the provisions of Section 6.1, the holders of outstanding shares of a class of shares shall be entitled to vote as a class upon a proposed amendment to this Declaration of Trust if the amendment would alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. Approval of any such amendment by such class shall require at least a majority of the votes cast by such class at a meeting of shareholders duly called and at which a quorum is present.
ARTICLE VII
LIMITATION OF LIABILITY; INDEMNIFICATION AND ADVANCE OF EXPENSES
Section 7.1 Limitation of Shareholder Liability . Shareholders shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the DGCL.
Section 7.2 Limitation of Trustee and Officer Liability . To the fullest extent permitted by Delaware law, subject to any limitation set forth under the federal securities laws, or in this Article VII, no trustee or officer of the Fund shall be liable to the Fund or its shareholders for money damages.
Section 7.3
(a) Indemnification. Subject to any limitations set forth in paragraph (b) or (c) below or, with respect to the advancement of expenses, Section 7.4, the Fund shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (i) any individual who is a present or former trustee or officer of the Fund and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity, (ii) any individual who, while a trustee or officer of the Fund and at the request of the Fund, serves or has served as a trustee, officer, partner or trustee of any corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (iii) the Adviser or any of its Affiliates acting as an agent of the Fund (each such person an "Indemnitee"), in each case to the fullest extent permitted by Delaware law. The Fund may, with the approval of the board of trustees or any duly authorized committee thereof, provide such indemnification and advance for expenses to a Person who served a predecessor of the Fund in any of the capacities described in (i) or (ii) above and to any employee or agent of the Fund or a predecessor of the Fund. The board of trustees may take such action as is necessary to carry out this Section 7.3(a).
(b) Notwithstanding anything to the contrary contained in paragraph (a) above, the Fund shall not provide for indemnification of an Indemnitee pursuant to paragraph (a) for any liability or loss suffered by such Indemnitee, unless all of the following conditions are met:
(i) The Fund has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Fund.
(ii) The Indemnitee was acting on behalf of or performing services for the Fund.
(iii) Such liability or loss was not the result of (A) negligence or misconduct, in the case that the Indemnitee is the Adviser or an affiliate of the Adviser, or an officer of the Fund, the Adviser or an affiliate of the Adviser or (B) gross negligence or willful misconduct, in the case that the Indemnitee is a trustee of the Fund (and not also an officer of the Fund, the Adviser or an affiliate of the Adviser).
(iv) Such indemnification or agreement to hold harmless is recoverable only out of assets of the Fund and not from the shareholders.
Notwithstanding the foregoing, this paragraph (b) and paragraph (c) below shall apply to the Adviser and its affiliates only so long as the shares of the Fund are not listed on a national securities exchange.
(c) Notwithstanding anything to the contrary contained in paragraph (a) above, the Fund shall not provide indemnification for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by an Indemnitee pursuant to paragraph (a) unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the Indemnitee, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the Indemnitee or (iii) a court of competent jurisdiction approves a settlement of the claims against the Indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission ("SEC") and of the published position of any state securities regulatory authority in which securities were offered or sold as to indemnification for violations of securities laws.
Section 7.4 Payment of Expenses . The Fund shall pay or reimburse reasonable legal expenses and other costs incurred by a trustee, an officer, the Adviser or any Affiliate of the Adviser in advance of final disposition of a proceeding if all of the following are satisfied: (a) the proceeding relates to acts or omissions with respect to the performance of duties or services on behalf of the Fund, (b) such Person provides the Fund with written affirmation of such Person's good faith belief that the standard of conduct necessary for indemnification by the Fund as authorized by Section 7.3 hereof has been met, (c) the legal proceeding was initiated by a third party who is not a shareholder or, if by a shareholder of the Fund acting in his or her capacity as such, a court of competent jurisdiction approves such advancement and (d) such Person provides the Fund with a written agreement to repay the amount paid or reimbursed by the Fund, together with the applicable legal rate of interest thereon, in cases in which such Person is found not to be entitled to indemnification.
Section 7.5 Express Exculpatory Clauses in Instruments . Neither the shareholders nor the trustees, officers, employees or agents of the Fund shall be liable under any written instrument creating an obligation of the Fund by reason of their being shareholders, trustees, officers, employees or agents of the Fund, and all Persons shall look solely to the Fund's assets for the payment of any claim under or for the performance of that instrument. The omission of the foregoing exculpatory language from any instrument shall not affect the validity or enforceability of such instrument and shall not render any shareholder, trustee, officer, employee or agent liable thereunder to any third party, nor shall the trustees or any officer, employee or agent of the Fund be liable to anyone as a result of such omission.
Section 7.6 Limitation on Indemnification . As required under the 1940 Act, no provision of this Article VII shall be effective to protect or purport to protect any trustee or officer of the Fund against liability to the Fund or its shareholders to which he or she would otherwise be subject by reason of willful misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Section 7.7 Amendment or Repeal . Neither the amendment nor repeal of this Article VII, nor the adoption or amendment of any other provision of this Declaration of Trust or Bylaws inconsistent with this Article VII, shall apply to or affect in any respect the applicability of the preceding sections of this Article VII with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
Section 7.8 Non-exclusivity . The indemnification and advancement of expenses provided or authorized by this Article VII shall not be deemed exclusive of any other rights, by indemnification or otherwise, to which a trustee or officer may be entitled under the bylaws, a resolution of shareholders or trustees, an agreement or otherwise.
Section 8.1 Supervision of Adviser .
(a) The board of trustees may exercise broad discretion in allowing the Adviser to administer and regulate the operations of the Fund, to act as agent for the Fund, to execute documents on behalf of the Fund and to make executive decisions that conform to general policies and principles established by the board of trustees. The board of trustees shall monitor the Adviser to assure that the administrative
procedures, operations and programs of the Fund are in the best interests of the shareholders and are fulfilled and that (i) the expenses incurred are reasonable in light of the investment performance of the Fund, its net assets and its net income, (ii) all Front End Fees shall be reasonable and shall not exceed 18% of the gross proceeds of any offering, regardless of the source of payment, and (iii) the percentage of gross proceeds of any offering committed to Investment in Program Assets shall be at least 82%. All items of compensation to underwriters or dealers, including, but not limited to, selling commissions, expenses, rights of first refusal, consulting fees, finders' fees and all other items of compensation of any kind or description paid by the Fund, directly or indirectly, shall be taken into consideration in computing the amount of allowable Front End Fees.
(b) The board of trustees is responsible for determining that compensation paid to the Adviser is reasonable in relation to the nature and quality of services performed and the investment performance of the Fund and that the provisions of the Investment Advisory and Administrative Services Agreement entered into with the Adviser (the "Advisory Agreement") are being carried out. The board of trustees may consider all factors that they deem relevant in making these determinations. So long as the Fund is a business development company under the 1940 Act, compensation to the Adviser shall be considered presumptively reasonable if the incentive fee is limited to the participation in net gains allowed by the 1940 Act.
Section 8.2 Fiduciary Obligations . Any investment advisory agreement with the Adviser shall provide that the Adviser have a fiduciary responsibility and duty to the Fund and to the shareholders for the safekeeping and use of all the funds and assets of the Fund, whether or not in the Adviser's immediate possession or control, and that the Adviser shall not employ, or permit another to employ, such funds or assets except for the exclusive benefit of the Fund (unless provided otherwise in such agreement, neither the power of direction of the Adviser nor the exercise thereof by any person shall cause such person to have duties, including fiduciary duties, or liabilities relating thereto to the Fund or any shareholder). In addition, the Fund shall not permit the shareholders to contract away the fiduciary obligation owed to the shareholders by the Adviser under common law. The chief executive officer and chief investment officer of the Adviser shall have at least three years' relevant experience demonstrating the knowledge and experience to acquire and manage the type of assets being acquired and shall have not less than four years relevant experience in the kind of service being rendered or otherwise must demonstrate sufficient knowledge and experience to perform the services proposed. The board of trustees shall determine whether any successor Adviser possesses sufficient qualifications to perform the advisory function for the Fund and whether the compensation provided for in its contract with the Fund is justified.
Section 8.3 Termination . The Advisory Agreement shall provide that it is terminable by (a) a majority of the independent trustees on 60 days' written notice or (b) the Adviser on 120 days' written notice, in each case without cause or penalty, and in each case the Adviser will cooperate with the Fund and the board of trustees in making an orderly transition of the advisory function.
Section 8.4 Organization and Offering Expenses Limitation . Unless otherwise provided in any resolution adopted by the board of trustees, the Fund shall reimburse the Adviser and its Affiliates for Organization and Offering Expenses incurred by the Adviser or its Affiliates; provided, however, that the total amount of all Organization and Offering Expenses shall be reasonable and shall be included in Front End Fees for purposes of the limit on such Front End Fees set forth in Section 8.1.
Section 8.5 Acquisition Fees . Unless otherwise provided in any resolution adopted by the board of trustees, the Fund may pay the Adviser and its Affiliates fees for the review and evaluation of potential investments; provided, however, that the board of trustees shall conclude that the total of all Acquisition Fees and Acquisition Expenses shall be reasonable.
Section 8.6 Reimbursement for Expenses . Unless otherwise provided in any resolution adopted by the board of trustees, the Fund may reimburse the Adviser, at the end of each fiscal quarter, for actual cost of goods and services used for or by the Fund and obtained from Persons other than the Adviser's Affiliates. The Adviser may be reimbursed for the administrative services necessary to the prudent operation of the Fund; provided, the reimbursement shall be the lower of the Adviser's actual cost or the amount the Fund would be required to pay Persons other than the Adviser's Affiliates for comparable administrative services in the same geographic location; and provided, further, that such costs are reasonably allocated to the Fund on the basis of assets, revenues, time records or other method conforming with generally accepted accounting principles.
Section 8.7 Reimbursement Limitations . The Fund shall not reimburse the Adviser or its Affiliates for services for which the Adviser or its Affiliates are entitled to compensation in the form of a separate fee. Excluded from the allowable reimbursement shall be: (a) rent or depreciation, utilities, capital equipment, other administrative items of the Adviser; and (b) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any controlling person of the Adviser. For purposes of this Section 8.7, "controlling person" means persons with responsibilities similar to those of an executive, or a member of the board of trustees, or any person who holds more than 10% of the Adviser's equity securities or who has the power to control the Adviser.
ARTICLE IX
INVESTMENT OBJECTIVES AND LIMITATIONS
Section 9.1 Investment Objectives . The Fund's investment objectives are to generate current income and long-term capital appreciation. The independent trustees shall review the investment policies of the Fund with sufficient frequency (not less often than annually) to determine that the policies being followed by the Fund are in the best interests of its shareholders. Each such determination and the basis therefor shall be set forth in the minutes of the meetings of the board of trustees.
Section 9.2 Investments in Other Programs
(a) The Fund shall not invest in general partnerships or joint ventures with non-Affiliates that own and operate specific assets, unless the Fund, alone or together with any publicly registered Affiliate of the Fund meeting the requirements of subsection (b) below, acquires a controlling interest in such a general partnership or joint venture, but in no event shall the Adviser be entitled to duplicate fees; provided, however that the foregoing is not intended to prevent the Fund from carrying out its business of investing and reinvesting its assets in securities of other issuers. For purposes of this Section, "controlling interest" means an equity interest possessing the power to direct or cause the direction of the management and policies of the general partnership or joint venture, including the authority to: (i) review all contracts entered into by the general partnership or joint venture that will have a material effect on its business or assets; (ii) cause a sale or refinancing of the assets or its interest therein subject, in certain cases where required by the partnership or joint venture agreement, to limits as to time, minimum amounts and/or a right of first refusal by the joint venture partner or consent of the joint venture partner; (iii) approve budgets and major capital expenditures, subject to a stated minimum amount; (iv) veto any sale or refinancing of the assets, or alternatively, to receive a specified preference on sale or refinancing proceeds and (v) exercise a right of first refusal on any desired sale or refinancing by the joint venture partner of its interest in the assets, except for transfer to an Affiliate of the joint venture partner.
(b) The Fund shall have the authority to invest in general partnerships or joint ventures with other publicly registered Affiliates of the Fund if all of the following conditions are met: (i) the Affiliate and the Fund have substantially identical investment objectives; (ii) there are no duplicate fees to the Adviser; (iii) the compensation payable by the general partnership or joint venture to the Advisers in each Fund that invests in such partnership or joint venture is substantially identical; (iv) each of the Fund and the Affiliate has a right of first refusal to buy if the other party wishes to sell assets held in the joint venture; (v) the investment of each of the Fund and its Affiliate is on substantially the same terms and conditions and (vi) any prospectus of the Fund in use or proposed to be used when such an investment has been made or is contemplated discloses the potential risk of impasse on joint venture decisions since neither the Fund nor its Affiliate controls the partnership or joint venture, and the potential risk that while a the Fund or its Affiliate may have the right to buy the assets from the partnership or joint venture, it may not have the resources to do so.
(c) The Fund shall have the authority to invest in general partnerships or joint ventures with Affiliates other than publicly registered Affiliates of the Fund only if all of the following conditions are met: (i) the investment is necessary to relieve the Adviser from any commitment to purchase the assets entered into in compliance with Section 10.1 prior to the closing of the offering period of the Fund; (ii) there are no duplicate fees to the Adviser; (iii) the investment of each entity is on substantially the same terms and conditions; (iv) the Fund has a right of first refusal to buy if the Adviser wishes to sell assets held in the joint venture and (v) any prospectus of the Fund in use or proposed to be used when such an investment has been made or is contemplated discloses the potential risk of impasse on joint venture decisions.
(d) The Fund may be structured to conduct operations through separate single-purpose entities managed by the Adviser (multi-tier arrangements); provided that the terms of any such arrangements do not result in the circumvention of any of the requirements or prohibitions contained herein or under applicable federal or state securities laws. Any agreements regarding such arrangements shall accompany any prospectus of the Fund, if such agreement is then available, and the terms of such agreement shall contain provisions assuring that all of the following restrictions apply: (i) there will be no duplication or increase in Organization and Offering expenses, fees payable to the Adviser, program expenses or other fees and costs; (ii) there will be no substantive alteration in the fiduciary and contractual relationship between the Adviser, the Fund and the shareholders and (iii) there will be no diminishment in the voting rights of the shareholders.
(e) Other than as specifically permitted in subsections (b), (c) and (d) above, the Fund shall not invest in general partnerships or joint ventures with Affiliates.
(f) The Fund shall be permitted to invest in general partnership interests of limited partnerships only if the Fund, alone or together with any publicly registered Affiliate of the Fund meeting the requirements of subsection (b) above, acquires a "controlling interest" as defined in subsection (a) above, the Adviser is not entitled to any duplicate fees, no additional compensation beyond that permitted under applicable law is paid to the Adviser, and the agreement of limited partnership or other applicable agreement complies with this Section 9.2.
Section 9.3 Other Goods or Services
(a) In addition to the services to be provided under the Advisory Agreement, the Fund may accept goods or other services provided by the Adviser in connection with the operation of assets, provided that (i) the Adviser, as a fiduciary, determines such self-dealing arrangement is in the best interest of the Fund; (ii) the terms pursuant to which all such goods or services are provided to the Fund by the Adviser shall be embodied in a written contract, the material terms of which must be fully disclosed to the shareholders; (iii) the contract may only be modified with approval of holders of a majority of the outstanding voting securities of the Fund and (iv) the contract shall contain a clause allowing termination without penalty on 60 days' notice. Without limitation to the foregoing, arrangements to provide such goods or other services must meet all of the following criteria: (i) the Adviser must be independently engaged in the business of providing such goods or services to persons other than its Affiliates and at least 33% of the Adviser's associated gross revenues must come from persons other than its Affiliates; (ii) the compensation, price or fee charged for providing such goods or services must be comparable and competitive with the compensation, price or fee charged by persons other than the Adviser and its Affiliates in the same geographic location who provide comparable goods or services which could reasonably be made available to the Fund; and (iii) except in extraordinary circumstances, the compensation and other material terms of the arrangement must be fully disclosed to the shareholders. Extraordinary circumstances are limited to instances when immediate action is required and the goods or services are not immediately available from persons other than the Adviser and its Affiliates.
(b) Notwithstanding the foregoing clause (a), if the Adviser is not engaged in the business to the extent required by such clause, the Adviser may provide to the Fund other goods and services if all of the following additional conditions are met: (i) the Adviser can demonstrate the capacity and capability to provide such goods or services on a competitive basis; (ii) the goods or services are provided at the lesser of cost or the competitive rate charged by persons other than the Adviser and its Affiliates in the same geographic location who are in the business of providing comparable goods or services; (iii) the cost is limited to the reasonable necessary and actual expenses incurred by the Adviser on behalf of the Fund in providing such goods or services, exclusive of expenses of the type which may not be reimbursed under applicable federal or state securities laws and (iv) expenses are allocated in accordance with generally accepted accounting principles and are made subject to any special audit required by applicable federal and state securities laws.
ARTICLE X
CONFLICTS OF INTEREST
Section 10.1 Sales and Leases to the Fund. The Fund shall not purchase or lease assets in which the Adviser or any Affiliate thereof has an interest unless all of the following conditions are met: (a) the transaction is fully disclosed to the shareholders either in a periodic report filed with the SEC or otherwise; and (b) the assets are sold or leased upon terms that are reasonable to the Fund and at a price not to exceed the lesser of cost or fair market value as determined by an Independent Expert. Notwithstanding anything to the contrary in this Section 10.1, the Adviser may purchase assets in its own name (and assume loans in connection therewith) and temporarily hold title thereto, for the purposes of facilitating the acquisition of the assets, the borrowing of money, obtaining financing for the Fund, or the completion of construction of the assets, provided that all of the following conditions are met: (a) the assets are purchased by the Fund at a price no greater than the cost of the assets to the Adviser; (b) all income generated by, and the expenses associated with, the assets so acquired shall be treated as belonging to the Fund and (c) there are no other benefits arising out of such transaction to the Adviser.
Section 10.2 Sales and Leases to the Adviser, Trustees or Affiliates. The Fund shall not sell assets to the Adviser or any Affiliate thereof unless such sale is duly approved by the holders of a majority of the outstanding voting securities of the Fund. The Fund shall not lease assets to the Adviser or any trustee or Affiliate thereof unless all of the following conditions are met: (a) the transaction is fully disclosed to the shareholders either in a periodic report filed with the SEC or otherwise and (b) the terms of the transaction are fair and reasonable to the Fund.
Section 10.3 Loans. Except for the advancement of funds pursuant to Sections 7.3 and 7.4, no loans, credit facilities, credit agreements or otherwise shall be made by the Fund to the Adviser or any Affiliate thereof.
Section 10.4 Commissions on Financing, Refinancing or Reinvestment. The Fund shall not pay, directly or indirectly, a commission or fee to the Adviser or any Affiliate thereof (except as otherwise specified in this Article X) in connection with the reinvestment of cash flow from operations and available reserves or of the proceeds of the resale, exchange or refinancing of assets.
Section 10.5 Other Transactions. The Fund shall not engage in any other transaction with the Adviser or a trustee or Affiliate thereof unless (a) such transaction complies with the NASAA Omnibus Guidelines and all applicable law and (b) a majority of the trustees (including a majority of the independent trustees) not otherwise interested in such transaction approve such transaction as fair and reasonable to the Fund and on terms and conditions not less favorable to the Fund than those available from non-Affiliated third parties.
Section 10.6. Lending Practices. On financing made available to the Fund by the Adviser, the Adviser may not receive interest in excess of the lesser of the Adviser's cost of funds or the amounts that would be charged by unrelated lending institutions on comparable loans for the same purpose. The Adviser shall not impose a prepayment charge or penalty in connection with such financing and the Adviser shall not receive points or other financing charges. The Adviser shall be prohibited from providing permanent financing for the Fund. For purposes of this Section 10.6, "permanent financing" shall mean any financing with a term in excess of 12 months.
Section 11.1 Voting Rights of Shareholders. Subject to the provisions of any class or series of shares then outstanding and the mandatory provisions of any applicable laws or regulations, upon a vote by the holders of a majority of the shares entitled to vote on a matter, shareholders may, without the necessity for concurrence by the Adviser, direct that the board of trustees cause the Fund to: (a) remove the Adviser and elect a new Adviser; (b) dissolve the Fund; (c) approve or disapprove the sale of all or substantially all of the assets of the Fund when such sale is to be made other than in the ordinary course of the Fund's business; or (d) cause the merger or other reorganization of the Fund. Without approval of holders of a majority of shares entitled to vote on the matter, the Fund shall not permit the Adviser to: (i) amend the Advisory Agreement except for amendments that do not adversely affect the interests of the shareholders; (ii) voluntarily withdraw as the Adviser unless such withdrawal would not affect the tax status of the Fund and would not materially adversely affect the shareholders;
(iii) appoint a new adviser; (iv) sell all or substantially all of the Fund's assets when such sale is to be made other than in the ordinary course of the Fund's business; or (v) cause the merger or other reorganization of the Fund. With respect to any shares owned by the Adviser, the Adviser may not vote or consent on matters submitted to the shareholders regarding the removal of the Adviser or regarding any transaction between the Fund and the Adviser. In determining the existence of the requisite percentage of the Fund's shares entitled to vote on the matter and necessary to approve a matter on which the Adviser may not vote or consent pursuant to this Section 11.1, any of the Fund's shares entitled to vote on the matter and owned by the Adviser shall not be included.
Section 11.2 Voting Limitations on Shares Held by the Adviser, Trustees and Affiliates. With respect to shares owned by the Adviser, any trustee, or any of their Affiliates, neither the Adviser, nor such trustee(s), nor any of their Affiliates may vote or consent on matters submitted to the shareholders regarding the removal of the Adviser, such trustee(s) or any of their Affiliates or any transaction between the Fund and any of them. In determining the requisite percentage in interest of shares necessary to approve a matter on which the Adviser, such trustee(s) and any of their Affiliates may not vote or consent, any shares owned by any of them shall not be included.
Section 11.3 Right of Inspection. Any shareholder and any designated representative thereof shall be permitted access to the records of the Fund to which it is entitled under applicable law at all reasonable times, and may inspect and copy any of them for a reasonable charge. Inspection of the Fund's books and records by the office or agency administering the securities laws of a jurisdiction shall be provided upon reasonable notice and during normal business hours. Information regarding shareholders' right to access to the Fund's records pertaining to its shareholders is set forth in the Bylaws.
Section 11.4 Reports.
(a) The trustees, including the independent trustees, shall take reasonable steps to ensure that the Fund shall cause to be prepared and mailed or delivered by any reasonable means, including an electronic medium, to each shareholder as of a record date after the end of the fiscal year and each holder of other publicly held securities within 120 days after the end of the fiscal year to which it relates an annual report for each fiscal year ending after the commencement of the Fund's initial public offering that shall include: (i) financial statements prepared in accordance with generally accepted accounting principles which are audited and reported on by independent certified public accountants; (ii) a report of the activities of the Fund during the period covered by the report; and (iii) where forecasts have been provided to the shareholders, a table comparing the forecasts previously provided with the actual results during the period covered by the report; and (iv) a report setting forth distributions to shareholders for the period covered thereby and separately identifying distributions from: (A) cash flow from operations during the period, (B) cash flow from operations during a prior period which have been held as reserves, (C) proceeds from disposition of assets; and (D) reserves from the gross proceeds. Such annual report must also contain a breakdown of the costs reimbursed to the Adviser. The trustees shall take reasonable steps to ensure that, (i) within the scope of the annual audit of the Adviser's financial statements, the independent certified public accountants preparing such annual report will issue a special report on the allocation of such costs to the Fund in accordance with the Advisory Agreement, (ii) the special report shall be in accordance with the American Institute of Certified Public Accountants United States Auditing Standards relating to special reports, (iii) the additional costs of such special report will be itemized and may be reimbursed to the Adviser by the Fund in accordance with this Section only to the extent that such reimbursement, when added to the cost for administrative services rendered, does not exceed the competitive rate for such services as determined above, (iv) the special report shall at minimum provide: a review of the time records of individual employees, the costs of whose services were reimbursed; and a review of the specific nature of the work performed by each such employee, and (v) the prospectus, prospectus supplement or periodic report as filed with the SEC shall disclose in tabular form an itemized estimate of such proposed expenses for the next fiscal year together with a breakdown by year of such expenses reimbursed in each of the last five public programs formed by the Adviser.
(b) The trustees, including the independent trustees, shall take reasonable steps to ensure that the Fund shall cause to be prepared and mailed or delivered to each shareholder within 60 days after the end of each fiscal quarter of the Fund, a report containing the same financial information contained in the Fund's Quarterly Report on Form 10-Q filed by the Fund under the Securities Exchange Act of 1934, as amended.
(c) The trustees, including the independent trustees, shall take reasonable steps to ensure that the Fund shall cause to be prepared and mailed or delivered within 75 days after the end of each fiscal year of the Fund to each Person who was at any time during such fiscal year a shareholder all information necessary for the preparation of the shareholders' federal income tax returns.
(d) If shares have been purchased on a deferred payment basis, on which there remains an unpaid balance during any period covered by any report required by subsections (a) and (b) above; then such report shall contain a detailed statement of the status of all deferred payments, actions taken by the Fund in response to any defaults, and a discussion and analysis of the impact on capital requirements of the Fund.
ARTICLE XII
ROLL-UP TRANSACTIONS
Section 12.1 Roll-up Transactions. In connection with any proposed Roll-Up Transaction, an appraisal of all of the Fund's assets shall be obtained from a competent Independent Expert. The Fund's assets shall be appraised on a consistent basis, and the appraisal shall be based on the evaluation of all relevant information and shall indicate the value of the assets as of a date immediately prior to the announcement of the proposed Roll-Up Transaction. The appraisal shall assume an orderly liquidation of the assets over a twelve-month period. The terms of the engagement of the Independent Expert shall clearly state that the engagement is for the benefit of the Fund and the shareholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to shareholders in connection with a proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction, the Person sponsoring the Roll-Up Transaction shall offer to shareholders who vote against the proposed Roll-Up Transaction the choice of:
(a) accepting the securities of a Roll-Up Entity offered in the proposed Roll-Up Transaction; or
(b) one of the following:
(i) remaining as shareholders and preserving their interests therein on the same terms and conditions as existed previously; or
(ii) receiving cash in an amount equal to the shareholder's pro rata share of the appraised value of the net assets of the Fund.
The Fund is prohibited from participating in any proposed Roll-Up Transaction:
(A) that would result in the shareholders having voting rights in a Roll-Up Entity that are less than the rights provided for in the second sentence of Section 11.1 hereof;
(B) that includes provisions that would operate as a material impediment to, or frustration of, the accumulation of shares by any purchaser of the securities of the Roll-Up Entity (except to the minimum extent necessary to preserve the tax status of the Roll-Up Entity), or which would limit the ability of an investor to exercise the voting rights of its securities of the Roll-Up Entity on the basis of the shares held by that investor;
(C) in which investor's rights to access of records of the Roll-Up Entity will be less than those described in Section 11.3 hereof; or
(D) in which any of the costs of the Roll-Up Transaction would be borne by the Fund if the Roll-Up Transaction is rejected by the shareholders.
As used in this Declaration of Trust, the following terms shall have the following meanings unless the context otherwise requires:
Acquisition Expenses. The term "Acquisition Expenses" shall mean any and all expenses incurred by the Fund, the Adviser, or any Affiliate of either in connection with the initial purchase or acquisition of assets, whether or not acquired, by the Fund, including, without limitation, legal fees and expenses, travel and communications expenses, accounting fees and expenses, any commission, selection fee, supervision fee, financing fee, non-recurring management fee or any fee of a similar nature, however designated.
Acquisition Fee. The term "Acquisition Fee" shall mean any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including any fees or commissions paid by or to any Affiliate of the Fund or the Adviser) in connection with the initial purchase or acquisition of assets by the Fund. Included in the computation of such fees or commissions shall be any commission, selection fee, supervision fee, financing fee, non-recurring management fee or any fee of a similar nature, however designated.
Adviser. The term "Adviser" shall mean FS Investment Advisor, LLC, the Fund's investment adviser, or any successor to FS Investment Advisor, LLC.
Affiliate or Affiliated. The term "Affiliate" or "Affiliated" shall mean, with respect to any Person, (i) any Person directly or indirectly owning, controlling or holding, with the power to vote, ten percent or more of the outstanding voting securities of such other Person; (ii) any Person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with the power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by or under common control with such other Person; (iv) any executive officer, trustee, trustee or general partner of such other Person; and (v) any legal entity for which such Person acts as an executive officer, trustee, trustee or general partner.
Assessment. The term "Assessment" shall mean any additional amounts of capital which may be mandatorily required of, or paid voluntarily by, a shareholder beyond his or her subscription commitment excluding deferred payments.
Beneficial Ownership. The term "Beneficial Ownership" (unless indicated otherwise) shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall have the correlative meanings.
Capital Contributions. The term "Capital Contributions" shall mean the total investment, including the original investment and amounts reinvested pursuant to a distribution reinvestment plan, in the Fund by a shareholder or by all shareholders, as the case may be. Unless otherwise specified, Capital Contributions shall be deemed to include principal amounts to be received on account of deferred payments.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as amended.
Front End Fees. The term "Front End Fees" shall mean fees and expenses paid by any party for any services rendered to organize the Fund and to acquire assets for the Fund, including Organization and Offering Expenses, Acquisition Fees, Acquisition Expenses, and any other similar fees, however designated by the Sponsor.
Independent Expert. The term "Independent Expert" shall mean a Person with no material current or prior business or personal relationship with the Sponsor who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Fund, and who is qualified to perform such work.
Investment in Program Assets. The term "Investment in Program Assets" shall mean the amount of Capital Contributions actually paid or allocated to the purchase or development of assets acquired by the Fund (including working capital reserves allocable thereto, except that working capital reserves in excess of three percent shall not be included) and other cash payments such as interest and taxes, but excluding Front End Fees.
Listing. The term "Listing" shall mean the listing of the Common Shares on a national securities exchange.
Organization and Offering Expenses. The term "Organization and Offering Expenses" shall mean any and all costs and expenses incurred by and to be paid from the assets of the Fund in connection with the formation, qualification and registration of the Fund, and the marketing and distribution of Shares, including, without limitation, total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys), expenses for printing, engraving, amending, supplementing, mailing and distributing costs, salaries of employees while engaged in sales activity, telephone and other telecommunications costs, all advertising and marketing expenses (including the costs related to investor and broker-dealer sales meetings), charges of transfer agents, registrars,
trustees, escrow holders, depositories, experts, fees, expenses and taxes related to the filing, registration and qualification of the sale of the Shares under federal and state laws, including taxes and fees and accountants' and attorneys' fees.
Person. The term "Person" shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and a group to which an Excepted Holder Limit applies.
Roll-Up Entity. The term "Roll-Up Entity" shall mean a partnership, trust, corporation, or similar entity that would be created or would survive after the successful completion of a proposed Roll-Up Transaction.
Roll-Up Transaction. The term "Roll-Up Transasction" shall mean a transaction involving the acquisition, merger, conversion or consolidation either directly or indirectly of the Fund and the issuance of securities of a Roll-Up Entity to the shareholders. Such term does not include:
(a) a transaction involving securities of the Fund that have been for at least twelve months listed on a national securities exchange; or
(b) a transaction involving the conversion to corporate, trust or association form of only the Fund, if, as a consequence of the transaction, there will be no significant adverse change in any of the following:
(i) shareholders' voting rights;
(ii) the term of existence of the Fund;
(iii) Sponsor or Adviser compensation; or
(iv) the Fund's investment objectives.
Sponsor. The term "Sponsor" shall mean any Person which (i) is directly or indirectly instrumental in organizing, wholly or in part, the Fund, (ii) will control, manage or participate in the management of the Fund, and any Affiliate of any such Person, (iii) takes the initiative, directly or indirectly, in founding or organizing the Fund, either alone or in conjunction with one or more other Persons, (iv) receives a material participation in the Fund in connection with the founding or organizing of the business of the Fund, in consideration of services or property, or both services and property, (v) has a substantial number of relationships and contacts with the Fund, (vi) possesses significant rights to control assets, (vii) receives fees for providing services to the Fund which are paid on a basis that is not customary in the industry or (viii) provides goods or services to the Fund on a basis which was not negotiated at arm's-length with the Fund. "Sponsor" does not include any Person whose only relationship with the Fund is that of an independent manager of the assets and whose only compensation is as such, or wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services.
Section 14.1 Duration. The Fund shall continue perpetually unless dissolved (i) by the board of trustees with the approval of a majority of the shareholders entitled to vote or (ii) pursuant to the terms of this Declaration of Trust or any applicable provision of the Statutory Trust Act.
Section 14.2 Liquidation. Upon dissolution of the Fund, the board of trustees shall cause the Fund to liquidate and wind-up in a manner consistent with Section 3808 of the Statutory Trust Act.
Section 14.3 Termination of the Trust. Upon dissolution and the completion of the winding up of the affairs of the Fund, the Fund shall be terminated by the executing and filing with the Secretary of State of the State of Delaware by one or more trustees of a certificate of cancellation of the certificate of trust of the Fund.
Section 14.4 Governing Law. This Declaration of Trust and the Bylaws shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to agreements
to be made and performed entirely in said State; provided, however, that there shall not be applicable to the Fund, the board of trustees, the Delaware Trustee or this Declaration of Trust or the Bylaws any provisions of the laws (statutory or common) of the State of Delaware pertaining to trusts (other than the Statutory Trust Act) that relate to or regulate, in a manner inconsistent with the terms hereof (i) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (ii) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (iii) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (iv) fees or other sums payable to trustees, officers, agents or employees of a trust, (v) the allocation of receipts and expenditures to income or principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding or investing trust assets, or (vii) the establishment of fiduciary or other standards or responsibilities or limitations on the acts or powers of trustees, which are inconsistent with the limitations or liabilities or authorities and powers of trustees as set forth or referenced in this Declaration of Trust. Section 3540 of Title 12 of the Statutory Trust Act shall not apply to the Fund.
Section 14.5 Exclusive Forum. To the fullest extent permitted by law, including Section 3804(e) of the Statutory Trust Act, and unless the Fund consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Fund, (ii) any action asserting a claim of breach of a fiduciary duty owed by any trustee or officer of the Fund or the Fund's shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Statutory Trust Act, the DGCL or the Fund's Declaration of Trust or Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine.
Section 14.6 Agreement to be Bound. EVERY PERSON, BY VIRTUE OF HAVING BECOME A SHAREHOLDER IN ACCORDANCE WITH THE TERMS OF THIS DECLARATION OF TRUST AND THE BYLAWS, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, SHALL BE DEEMED TO HAVE EXPRESSLY ASSENTED AND AGREED TO THE TERMS OF, AND SHALL BE BOUND BY, THIS DECLARATION OF TRUST AND THE BYLAWS.
Section 14.7 Provisions in Conflict with Law or Regulations.
(a) If and to the extent that any provision of the Statutory Trust Act, the DGCL or any provision of this Declaration of Trust or Bylaws conflicts with any provision of the Investment Company Act, the applicable provision of the Investment Company Act shall control; provided, however, that such conflict shall not affect any of the remaining provisions of this Declaration of Trust or the Bylaws or render invalid or improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration of Trust or the Bylaws shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall, not in any manner affect such provision in any other jurisdiction or any other provision of this Declaration of Trust or the Bylaws in any jurisdiction.
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IN WITNESS WHEREOF, the trustees have caused this Declaration of Trust to be signed as of March 7, 2012.
TRUSTEES: | ||
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/s/ MICHAEL C. FORMAN Name: Michael C. Forman |
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/s/ DAVID J. ADELMAN Name: David J. Adelman |
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/s/ SIDNEY R. BROWN Name: Sidney R. Brown |
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/s/ GREGORY P. CHANDLER Name: Gregory P. Chandler |
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/s/ RICHARD I. GOLDSTEIN Name: Richard I. Goldstein |
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/s/ THOMAS J. GRAVINA Name: Thomas J. Gravina |
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/s/ MICHAEL HELLER Name: Michael Heller |
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/s/ PAUL MENDELSON Name: Paul Mendelson |
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/s/ CHARLES P. PIZZI Name: Charles P. Pizzi |
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/s/ RICHARD W. VAGUE Name: Richard W. Vague |
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/s/ R. RICHARD WILLIAMS Name: R. Richard Williams |
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DELAWARE TRUSTEE: | |||||
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WILMINGTON TRUST COMPANY |
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By: |
/s/ JOSEPH B. FEIL
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Name: | Joseph B. Feil | ||||
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Title: | Vice President |
AMENDMENT NO. 1 TO THE
THIRD AMENDED AND RESTATED
DECLARATION OF TRUST
OF
FS ENERGY AND POWER FUND
This Amendment No. 1, dated as of August 9, 2017 (this " Amendment "), amends that certain Third Amended and Restated Declaration of Trust, dated March 7, 2012 (the " Declaration of Trust "), of FS Energy and Power Fund (the " Fund ").
WHEREAS, pursuant to Section 5.1 of the Declaration of Trust, a majority of the board of trustees of the Fund (the " Board ") may amend the Declaration of Trust to increase the aggregate number of shares that the Fund has authority to issue without any action by the shareholders of the Fund; and
WHEREAS, the Board approved the increase of the number of authorized shares the Fund has authority to issue and approved and adopted this Amendment at a meeting of the Board held on August 8, 2017.
NOW, THEREFORE, pursuant to Section 6.3 of the Declaration of Trust, the Declaration of Trust is amended as follows:
1. Amendment to Section 5.1. The first two sentences of Section 5.1 of the Declaration of Trust are deleted in their entirety and replaced with the following:
"The Fund has authority to issue 750,000,000 shares, of which 700,000,000 shares are classified as common shares, $0.001 par value per share ("Common Shares"), and 50,000,000 shares are classified as preferred shares, $0.001 par value per share ("Preferred Shares"). The aggregate par value of all authorized shares having par value is $750,000."
2. Entire Agreement. Except as amended herein, the Declaration of Trust shall remain in full force and effect.
3. Effective Date. This Amendment shall be effective as of the date of its execution.
4. Counterparts. This Amendment may be executed simultaneously in two or more counterparts each of which shall be deemed an original, and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first written above.
TRUSTEES: | ||
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/s/ DAVID ADELMAN David Adelman |
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/s/ SIDNEY BROWN Sidney Brown |
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/s/ GREGORY P. CHANDLER Gregory P. Chandler |
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/s/ MICHAEL C. FORMAN Michael C. Forman |
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/s/ RICHARD GOLDSTEIN Richard Goldstein |
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/s/ THOMAS J. GRAVINA Thomas J. Gravina |
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/s/ MICHAEL HELLER Michael Heller |
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/s/ CHARLES P. PIZZI Charles P. Pizzi |
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/s/ RICHARD W. VAGUE Richard W. Vague |
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/s/ R. RICHARD WILLIAMS R. Richard Williams |
[Signature
Page to Amendment No. 1 to
Third Amended and Restated Declaration of Trust of FS Energy and Power Fund]
I, Michael C. Forman, certify that:
Date:
August 10, 2017
/s/ MICHAEL C. FORMAN
Michael C. Forman Chief Executive Officer |
I, Edward T. Gallivan, Jr. certify that:
Date:
August 10, 2017
/s/ EDWARD T. GALLIVAN, JR.
Edward T. Gallivan, Jr. Chief Financial Officer |
CERTIFICATION of CEO and CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES
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OXLEY
ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of FS Energy and Power Fund (the "Company") for the three months ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-Q"), Michael C. Forman, as Chief Executive Officer of the Company, and Edward T. Gallivan, Jr., as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
Dated: August 10, 2017
/s/ MICHAEL C. FORMAN
Michael C. Forman Chief Executive Officer |
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/s/ EDWARD T. GALLIVAN, JR. Edward T. Gallivan, Jr. Chief Financial Officer |