SEC Form N-2ASR filed by FS Credit Opportunities Corp.

 

 

 

 

 

 

 

 

 

From time to time after the effective date of this Registration Statement.

 

 

 

 

 

 

 

 

 

We are a Maryland corporation that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a management investment company. Our primary investment objective is to generate an attractive total return consisting of a high level of current income and capital appreciation, with a secondary objective of capital preservation. There can be no assurance that we will achieve our investment objectives.

We invest primarily in a portfolio of secured and unsecured floating and fixed rate loans, bonds and other types of credit instruments, which, under normal circumstances, will represent at least 80% of our net assets (plus the amount of any borrowings for investment purposes). For purposes of this policy, “credit instruments” may include senior secured loans, unsecured loans, corporate bonds, notes, bills, debentures, distressed securities, mezzanine securities, collateralized debt obligations, collateralized bond obligations, collateralized loan obligations, bank loans, corporate loans, government and municipal obligations, mortgage-backed securities, asset-backed securities, repurchase agreements and other fixed-income instruments of a similar nature that may be represented by derivatives such as options, forwards, futures contracts or swap agreements. We invest our assets in investments in a number of different countries throughout the world, and currently invests primarily in those countries where creditors’ rights are protected by law, such as countries in North America and Western Europe, although in select situations we may invest in securities of issuers domiciled elsewhere.

We seek to achieve our investment objectives by focusing on high conviction investment opportunities across the investment universe that we believe offer potentially attractive risk-adjusted income and returns. To accomplish this, we focus on strategies such as opportunistic credit, special situations and capital structure solutions.

We may offer, from time to time, in one or more offerings or series, together or separately, our common stock, preferred stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, subscription rights or debt securities, which we refer to, collectively, as the “securities”. We may sell our common stock through underwriters or dealers, to or through a market maker into an existing trading market or otherwise directly to one or more purchasers or through agents or through a combination of methods of sale. The identities of such underwriters, dealers, market makers or agents, as the case may be, will be described in one or more supplements to this Prospectus. The securities may be offered at prices and on terms to be described in one or more supplements to this Prospectus. In the event we offer common stock, the offering price per share of our common stock exclusive of any underwriting commissions or discounts will not be less than the net asset value per share of our common stock at the time we make the offering except (1) in connection with a rights offering to our existing stockholders, (2) with the consent of the majority of our common stockholders and approval of our Board of Directors (the “Board”) or (3) under such circumstances as the Securities and Exchange Commission (the “SEC”) may permit.

Our common stock is traded on the New York Stock Exchange, LLC (the “NYSE”), under the ticker symbol “FSCO”. The last reported closing price for our common stock on January 10, 2025 was $6.82 per share. The net asset value of our common stock on September 30, 2024 (the last date prior to the date of this Prospectus for which we publicly disclosed our net asset value) was $7.21 per share.

 

This Prospectus describes some of the general terms that may apply to an offering of our securities. We will provide the specific terms of these offerings and securities in one or more supplements to this Prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with these offerings. The prospectus supplement and any related free writing prospectus may also add, update, or change information contained in this Prospectus. You should carefully read this Prospectus, the applicable prospectus supplement, and any related free writing prospectus, and the documents incorporated by reference, before buying any of the securities being offered and keep them for future reference.

We file annual and semi-annual reports, proxy statements and other information about us with the SEC. This information, including documents that have been or may be incorporated by reference in this Prospectus or an accompanying prospectus supplement, is available free of charge by contacting us at 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112, by calling us collect at (215) or by visiting our website at . Information contained on our website is not incorporated by reference into this Prospectus or any supplements to this Prospectus, and you should not consider that information to be part of this Prospectus or any supplements to this Prospectus. The contact information provided above may be used by you to make investor inquiries. The SEC also maintains a website at that contains such information.

 

This Prospectus is part of a registration statement that we have filed with the U.S. Securities and Exchange Commission (the “SEC”) using the automatic “shelf” registration process as a “well-known seasoned issuer,” as defined in Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”). Under the shelf registration process, we may offer from time to time, in one or more offerings or series, our common stock, preferred stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, subscription rights or debt securities on the terms to be determined at the time of the offering. We may sell our common stock through underwriters or dealers, to or through a market maker, into an existing trading market or otherwise directly to one or more purchasers or through agents or through a combination of methods of sale. The identities of such underwriters, dealers, market makers or agents, as the case may be, will be described in one or more supplements to this Prospectus. The securities may be offered at prices and on terms described in one or more supplements to this Prospectus. This Prospectus provides you with a general description of the securities that we may offer. Each time we use this Prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this Prospectus, and the Prospectus and prospectus supplement will together serve as the prospectus.

Any statement that we make in this Prospectus will be modified or superseded by any inconsistent statement made by us in a subsequent prospectus supplement. The registration statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this Prospectus. You should read this Prospectus and the related exhibits filed with the SEC and any prospectus supplement, together with additional information described below under “Incorporation by Reference” and “Available Information.” In this Prospectus, we use the term “day” to refer to a calendar day, and we use the term “business day” to refer to any day other than Saturday, Sunday, a legal holiday or a day on which banks in New York City are authorized or required to close, or any day that the NYSE is closed for trading.

You should rely only on the information contained in this Prospectus, any accompanying prospectus supplement, any free writing prospectus, the documents incorporated by reference in this Prospectus and any applicable prospectus supplement, or any other information which we have referred you when considering whether to purchase any securities offered by this Prospectus. We have not authorized any other person to provide you with different information from that contained in this Prospectus and accompanying prospectus supplements or free writing prospectuses. The information contained in this Prospectus, accompanying prospectus supplements and free writing prospectuses is complete and accurate only as of its date. If there is a material change in our affairs, we will amend or supplement these documents only as required by law.

 

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The following table is intended to assist you in understanding the costs and expenses (annualized) that an investor in shares of our common stock will bear directly or indirectly. The table is based on the capital structure of the Fund as of December 31, 2023. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you,” “us” or “FS Credit Opportunities Corp.,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.

 

 

 

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The following Financial Highlights table is intended to help a prospective investor understand our financial performance for the periods shown. Certain information reflects financial results for a single common stock. The financial data for the fiscal years ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015 and 2014 has been audited by our independent registered public accounting firm, Ernst & Young LLP. The financial data for the six months ended June 30, 2024 is derived from our unaudited consolidated financial statements. Historical data is not necessarily indicative of the results to be expected for any future period. These financial data should be read in conjunction with our audited consolidated financial statements and related notes thereto. Dollar amounts below are in thousands, except for share and per share amounts. Ernst & Young’s report on the financial statements and financial highlights, together with the financial statements and financial highlights of the Fund, is included in the Fund’s Annual Report on Form for the fiscal year ended December 31, 2023 and is incorporated by reference.

 

 

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Please refer to Item 8 of the Fund’s most recent annual report on Form N-CSR entitled “Portfolio Managers of Closed-End Management Investment Companies – Potential Conflicts of Interest” which is incorporated by reference herein, for a discussion of potential conflicts of interest.

 

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Some of the statements in this Prospectus, including the documents we incorporate by reference herein and any applicable prospectus supplement or free writing prospectus, including the documents we incorporate by reference therein, constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this Prospectus and any applicable prospectus supplement or free writing prospectus may include statements as to:

 

 

 

 

 

receiving and maintaining corporate credit ratings and changes in the general interest rate environment;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Discussions containing these forward-looking statements may be found in the sections titled “Business” and “Risk Factors” incorporated by reference from our most recent Annual Report on Form as well as any amendments filed with the SEC. We discuss in greater detail, and incorporate by reference into this Prospectus in their entirety, many of these risks and uncertainties in our most recent Annual Report on Form as well as any updates reflected in subsequent filings with the SEC (which may include filings on Form In addition, statements that we “believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us on the date of this Prospectus, free writing prospectus and documents incorporated by reference into this Prospectus and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. 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.

 

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Unless otherwise specified in a prospectus supplement or any free writing prospectus relating to an offering, we intend to use substantially all of the proceeds from a sale of our securities, net of expenses, for general corporate purposes, which may include, among other things, acquiring investments in accordance with our investment objectives and using the strategies described in this Prospectus or repaying indebtedness. We anticipate that we will use substantially all of the net proceeds of an offering for the above purposes within approximately six months after the completion of such offering. However, depending on market conditions and other factors, including the availability of investments that meet our investment objectives, we may be unable to invest such proceeds within the time period we anticipate.

Pending such use, we may invest the net proceeds of any offering 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 election for taxation as a RIC. These temporary investments may have lower yields than our other investments and, accordingly, may result in lower distributions, if any, during such period. Our ability to achieve our investment objectives may be limited to the extent that the net proceeds from an offering, pending full investment, are held in lower yielding interest-bearing deposits or other short-term instruments.

 

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Subject to applicable legal restrictions and the sole discretion of the Board, we intend to declare and pay regular cash distributions on a monthly basis. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of the Board. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Board.

During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the tax years ended December 31, 2023, 2022 or 2021 represented a return of capital.

We intend to continue to make our regular distributions in the form of cash, out of assets legally available for distribution, except for those stockholders who receive their distributions in the form of shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. stockholder.

We have elected to be subject to tax as a RIC under Subchapter M of the Code. In order to maintain RIC tax treatment, we must, among other things, make distributions treated as dividends for U.S. federal income tax purposes of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, each tax year. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of a tax year or the extended due date of the tax return for such tax year, including extensions, distributions paid up to twelve months after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions treated as dividends for U.S. federal income tax purposes to our stockholders to qualify for and maintain our RIC tax status each tax year. We are also subject to a 4% nondeductible federal excise taxes on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary 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 in excess of capital losses, or “capital gain net income” (adjusted for certain ordinary losses), for the period ending October 31 of that calendar year and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we incurred no U.S. federal income tax. Any distribution treated as dividends for U.S. federal income tax purposes that is declared by us during October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S. stockholders, on December 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any cash distributions. If we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. See “Principal Business and Organization” in our most recent Annual Report on Form and “Material U.S. Federal Income Tax Considerations” in this Prospectus.

Pursuant to our distribution reinvestment plan, we will reinvest all cash dividends or distributions declared by the Board on behalf of stockholders who do not elect to receive their distributions in cash. As a result, if the Board declares a distribution, then stockholders who have not elected to “opt out” of our distribution reinvestment plan will have their distributions automatically reinvested in additional shares of our common stock.

Registered stockholders must notify our transfer agent in writing if they wish to “opt out” of our distribution reinvestment plan. No action is required on the part of registered stockholders to have their cash distributions reinvested in shares of our common stock.

 

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If a stockholder holds shares of our common stock in the name of a broker or financial intermediary, they should contact such broker or financial intermediary regarding their option to elect to receive distributions in cash in lieu of shares of our common stock.

With respect to each distribution pursuant to our distribution reinvestment plan, we reserve the right to either issue new shares of common stock or purchase shares of common stock in the open market in connection with implementation of our distribution reinvestment plan. Unless in our sole discretion, we otherwise direct the plan administrator, (A) if the per share market price (as defined in our distribution reinvestment plan) is equal to or greater than the estimated net asset value per share (rounded up to the nearest whole cent) of our common stock on the payment date for the distribution, then we will issue shares of common stock at the greater of (i) net asset value per share of common stock or (ii) 95% of the market price; or (B) if the market price is less than the net asset value per share, then, in our sole discretion, (i) shares of common stock will be purchased in open market transactions for the accounts of participants to the extent practicable, or (ii) we will issue shares of common stock at net asset value per share. Pursuant to the terms of our distribution reinvestment plan, the number of shares of common stock to be issued to a participant will be determined by dividing the total dollar amount of the distribution payable to a participant by the price per share at which we issue such shares; provided, however, that shares purchased in open market transactions by the plan administrator will be allocated to a participant based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market.

If a stockholder’s cash distributions are reinvested in our common stock pursuant to our distribution reinvestment plan, such stockholder generally will be subject to the same federal, state and local tax consequences as if it elected to receive distributions in cash. If our common stock is trading at or below net asset value, a stockholder reinvesting in our common stock will be treated as receiving a distribution in the amount of cash that they would have received if they had elected to receive the distribution in cash. If our common stock is trading above net asset value, a stockholder reinvesting in our common stock will be treated as receiving a distribution in the amount of the fair market value of our common stock. The stockholder’s basis for determining gain or loss upon the sale of common stock received on reinvestment of a cash distribution will be equal to the total dollar amount of the distribution payable to the stockholder. Any stock received on reinvestment of a cash distribution will have a holding period for tax purposes commencing on the day following the day on which the shares of common stock are credited to the stockholder’s account.

We may fund our cash distributions to stockholders from any sources of funds legally available to us, including proceeds from the sale of shares of our common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, gains proceeds from the sale of assets and dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies. We have not established limits on the amount of funds we may use from available sources to make distributions. There can be no assurance that we will be able to pay distributions at a specific rate or at all.

 

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The information contained under the caption “Summary of Updated Information Regarding the Fund (Unaudited)” in our most recent Annual Report on is incorporated by reference herein.

FS Global Advisor is not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against FS Global Advisor. From time to time, we and individuals employed by FS Global Advisor 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 these proceedings will have a material adverse effect upon our financial condition or results of operations.

On June 29, 2023, Saba Capital Master Fund, Ltd., and Saba Capital Management, L.P. (together, “Saba”) filed a complaint in the U.S. District Court S.D.N.Y. (Case against sixteen funds and certain trustees of some of the funds. One of the funds named as a defendant in Saba’s complaint was the Fund. In the complaint, Saba sought (1) declaratory relief that provisions in the defendant funds’ governing documents that opted into the Maryland Control Share Acquisition Act (the “Control Share Provisions” and “MCSAA,” respectively) violate the 1940 Act, and (2) rescission of the Control Share Provisions. On December 5, 2023, the U.S. District Court S.D.N.Y. issued a ruling granting summary judgment in favor of Saba and ordering the rescission of the Control Share Provisions. The Fund is evaluating further options in light of the U.S. District Court S.D.N.Y.’s ruling. The Fund and the other funds remaining in the case appealed to the Second Circuit Court of Appeals, and on June 26, 2024, the Second Circuit Court of Appeals issued a decision in favor of Saba and affirmed the lower court’s judgment, holding that the Control Share Provisions violated the 1940 Act. On September 24, 2024, the Fund and certain other defendant funds filed a Petition for a Writ of Certiorari, requesting that the U.S. Supreme Court take the appeal in order to resolve the question of whether Section 47(b) of the 1940 allows for a private right of action. Saba filed its opposition to the Petition on December 17, 2024. The U.S. Supreme Court has not yet ruled on whether it will hear the appeal.

 

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On January 10, 2025, the last reported closing sales price of our common stock on the NYSE was $6.82 per share.

As of January 8, 2025, we had 3,447 record holders of our common stock, which does not include beneficial owners of shares of common stock held in “street” name by brokers and other institutions on behalf of beneficial owners.

 

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Our stockholders may approve our ability to sell shares of our common stock, not exceeding 25% of our then outstanding common stock, below our then-current net asset value per share in one or more public offerings of our common stock. In making a determination that an offering below net asset value per share is in our and our stockholders’ best interests, the Board, a majority of our directors who have no financial interest in the sale and a majority of our independent directors, may also consider a variety of factors, including:

 

 

 

 

 

 

 

 

 

The Board may also consider the fact that a sale of shares of common stock at a discount will benefit FS Global Advisor, as FS Global Advisor will earn additional investment base management fees on the proceeds of such offerings, as it would from the offering of any of our other securities or from the offering of common stock at premium to net asset value per share.

Sales by us of our common stock at a discount to net asset value pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering.

We will not sell shares of our common stock pursuant to stockholder approval (or any rights or warrants to purchase shares of our common stock) under this Prospectus or an accompanying prospectus supplement without first filing a new post-effective amendment to the registration statement where such offering will result in (i) greater than 15% dilution in the aggregate to existing stockholder net asset value, (ii) us receiving an auditor’s going-concern opinion or (iii) a material adverse change making the financial statements materially misleading. The limitation in clause (i) above would be measured separately for each offering pursuant to the registration statement, as amended by this post-effective amendment, by calculating the percentage dilution or accretion to aggregate net asset value from that offering and then summing the percentage from each offering. For example, if our most recently determined net asset value per share at the time of the first offering is $10.00, and we have 100 million shares outstanding, the sale of an additional 25 million shares at net proceeds to us of $5.00 per share (a 50% discount) would produce dilution of 10.0%. If we subsequently determined that our net asset value per share increased to $11.00 on the then outstanding 125 million shares and contemplated an additional offering, we could, for example, propose to sell approximately 31.25 million additional shares at a price that would be expected to yield net proceeds to us of $8.25 per share, resulting in incremental dilution of 5.0%, before we would reach the aggregate 15% limit. If we file a new post-effective amendment, the threshold would reset.

 

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The following three headings and accompanying tables explain and provide hypothetical examples assuming proceeds are temporarily invested in cash equivalents on the impact of an offering at a price less than net asset value per share on three different sets of investors:

 

 

 

Our existing stockholders who do not participate, or who are not given the opportunity to participate, in an offering below net asset value per share by us or who do not buy additional shares in the secondary market at the same or lower price obtained by us in an offering (after expenses and any underwriting discounts and commissions) face the greatest potential risks. All stockholders will experience an immediate decrease (often called dilution) in the net asset value per share of the shares they hold. Stockholders who do not participate in the offering will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than stockholders who do participate in the offering. All stockholders may also experience a decline in the market price of their shares, which often reflects, to some degree, announced or potential increases and decreases in net asset value per share. A decrease could be more pronounced as the size of the offering and level of discounts increase.

The following examples illustrate the level of net asset value dilution that would be experienced by a nonparticipating stockholder in four different hypothetical common stock offerings of different sizes and levels of discount to net asset value per share, although it is not possible to predict the level of market price decline that may also occur. Actual sales prices and discounts may differ from presentation below.

The examples assume that Entity XYZ has 1,000,000 shares of common stock outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The current net asset value and net asset value per share are thus $10,000,000 and $10.00, respectively. The table below illustrates the dilutive effect on nonparticipating stockholder A of (1) an offering of 50,000 shares (5% of the outstanding shares) at $9.50 per share after offering expenses and any underwriting discounts and commissions (a 5% discount to net asset value per share); (2) an offering of 100,000 shares (10% of the outstanding shares) at $9.00 per share after offering expenses and any underwriting discounts and commissions (a 10% discount to net asset value per share); and (3) an offering of

 

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200,000 shares (20% of the outstanding shares) at $8.00 per share after offering expenses and any underwriting discounts and commissions (a 20% discount to net asset value per share).

 

Our existing stockholders who participate in an offering by us of shares at a price below net asset value per share or who buy additional shares in the secondary market at the same or lower price as obtained by us in an offering (after expenses and any underwriting discounts and commissions) will experience the same types of net asset value per share dilution as the nonparticipating stockholders, albeit at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in the shares immediately prior to the offering. The level of net asset value per share dilution on an aggregate basis will decrease as the number of shares such stockholders purchase increases. Our existing stockholders who buy more than such percentage will experience net asset value per share dilution, but will, in contrast to our existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called accretion) in net asset value per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the offering. The level of accretion will increase as the excess number of shares such stockholder purchases increases. Even a stockholder who over-participates will, however, be subject to the

 

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risk that we may make additional discounted offerings in the future in which such stockholder does not participate, in which case such stockholder will experience net asset value per share dilution as described above in such subsequent offerings. These stockholders may also experience a decline in the market price of their shares, which often reflects, to some degree, announced or potential increases and decreases in net asset value per share. Their decrease could be more pronounced as the size of our offering and level of discount to net asset value per share increases.

The following examples assume that Entity XYZ has 1,000,000 shares of common stock outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The current net asset value and net asset value per share are thus $10,000,000 and $10.00, respectively. The table below illustrates the dilutive and accretive effect in the hypothetical 20% discount offering from the prior chart for stockholder A that acquires shares equal to (1) 50% of their proportionate share of the offering (i.e., 1,000 shares, which is 0.50% of the offering of 200,000 shares rather than their 1.00% proportionate share) and (2) 150% of their proportionate share of the offering (i.e., 3,000 shares, which is 1.50% of the offering of 200,000 shares rather than their 1.00% proportionate share).

The prospectus pursuant to which any offering at a price less than the then-current net asset value per share is made will include a chart for its example based on the actual number of shares in such offering and the actual discount to the most recently determined net asset value per share.

 

 

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The following examples illustrate the level of net asset value dilution or accretion that would be experienced by a new stockholder in three different hypothetical common stock offerings of different sizes and levels of discount to net asset value per share, although it is not possible to predict the level of market price decline that may also occur. Actual sales prices and discounts may differ from the presentation below.

Investors who are not currently stockholders, but who participate in an offering by us below net asset value per share and whose investment per share is greater than the resulting net asset value per share due to expenses and any underwriting discounts and commissions paid by us will experience an immediate decrease, albeit small, in the net asset value of their shares and their net asset value per share compared to the price they pay for their shares. Investors who are not currently stockholders and who participate in an offering by us of shares at a price below net asset value per share and whose investment per share is also less than the resulting net asset value per share due to expenses and any underwriting discounts and commissions paid by us being significantly less than the discount per share, will experience an immediate increase in the net asset value of their shares and their net asset value per share compared to the price they pay for their shares. All these investors will experience a disproportionately greater participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however, be subject to the risk that we may make additional discounted offerings in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings by us. These investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in net asset value per share. Their decrease could be more pronounced as the size of the offering and level of discounts increases.

The following examples illustrate the level of net asset value per share dilution or accretion that would be experienced by a new stockholder of Entity XYZ who purchases the same percentage (1.00%) of shares in the three different hypothetical offerings of common stock of different sizes and levels of discount to net asset value per share. The examples assume that Entity XYZ has 1,000,000 shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The current net asset value and net asset value per share are thus $10,000,000 and $10.00, respectively. The table below illustrates the dilutive and accretive effects on stockholder A at (1) an offering of 50,000 shares (5% of the outstanding shares) at $9.50 per share after offering expenses and any underwriting discounts and commissions (a 5% discount to net asset value per share); (2) an offering of 100,000 shares (10% of the outstanding shares) at $9.00 per share after offering expenses and any underwriting discounts and commissions (a 10% discount to net asset value per share); and (3) an offering of 200,000 shares (20% of the

 

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outstanding shares) at $8.00 per share after offering expenses and any underwriting discounts and commissions (a 20% discount to net asset value per share).

 

 

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We determine our net asset value (“NAV”) per common stock on each day that the NYSE is open for business as of the close of the regular trading session on the NYSE. We calculate our NAV per Common Share by subtracting liabilities (including accrued expenses and distributions) from our total assets (the value of securities, plus cash and other assets, including interest and distributions accrued but not yet received) and dividing the result by the total number of outstanding shares of common stock. Our assets and liabilities are valued in accordance with the principles set forth below.

Accounting Standards Codification Topic 820, (“ASC Topic 820”), issued by the Financial Accounting Standards Board, 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 (unadjusted) in active markets for identical assets or liabilities; Level 2, which includes inputs such as quoted prices for similar assets or liabilities in active markets; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Our portfolio primarily consists of securities listed or traded on a recognized securities exchange or automated quotation system (“Exchange-Traded Securities”) or securities traded on a privately negotiated OTC secondary market for institutional investors for which indicative dealer quotes are available (“OTC Securities”).

The Board is responsible for overseeing the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. The Board has designated FS Global Advisor to be the Company’s valuation designee with responsibility for implementing the portfolio valuation process and has authorized FS Global Advisor’s management team to utilize independent third-party valuation and pricing services that have been communicated to the Board. The audit committee of the Board is responsible for overseeing FS Global Advisor’s implementation of our valuation process.

For purposes of calculating NAV, FS Global Advisor, in its capacity as valuation designee on behalf of the Company, uses the following valuation methods:

 

 

 

 

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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, FS Global Advisor may use any independent third-party pricing or valuation service; that FS Global Advisor shall not be required to determine fair value in accordance with the valuation provided by any single source, and FS Global Advisor retains the discretion to use any relevant data, including information obtained from any independent third-party valuation or pricing service, that FS Global Advisor deems to be reliable in determining fair value under the circumstances.

Below is a description of factors that FS Global Advisor and any independent third-party valuation service 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 borrower in relation to the face amount of its outstanding debt and the quality of collateral securing the borrower’s debt.

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 (, 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 companies for which no active secondary market exists and, therefore, no bid and ask prices can be readily obtained, are valued at fair value. FS Global Advisor, in its determination of fair value, may

 

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consider various factors, including, but not limited to, multiples of earnings before interest, taxes, depreciation and amortization (“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 company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or an acquisition, recapitalization, restructuring or other related items.

FS Global Advisor and any independent third-party valuation service 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 companies, the acquisition price of such investment or industry practices in determining fair value. FS Global Advisor and any independent third-party valuation service may also consider the size and scope of a 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 size of the companies relative to comparable firms, as well as such other factors as FS Global Advisor and any independent third-party valuation service, if applicable, may consider relevant in assessing fair value.

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 is allocated between the debt securities and any such warrants or other equity securities received at the time of origination. FS Global Advisor subsequently values warrants or other equity securities received at fair value.

When utilized, derivatives are priced in the same manner as securities and loans, i.e., primarily by independent third-party pricing services, or secondarily through counterparty statements if there are no prices available from such pricing services. With respect to credit derivatives, where liquidity is limited due to the lack of a secondary market for the underlying reference obligation and where a price is not provided by an independent third-party pricing service, such derivatives are valued after considering, among other factors, the valuation provided by the counterparty with which we have established the position. For other derivatives, the value of the underlying securities, among other factors, are reviewed and considered by FS Global Advisor’s management team in determining the appropriate fair value.

Securities that carry certain restrictions on sale typically are valued at a discount from the public market value of the security, where applicable.

If events materially affecting the price of foreign portfolio securities occur between the time when their price was last determined on such foreign securities exchange or market and the time when our NAV was last calculated (, movements in certain U.S. securities indices which demonstrate strong correlation to movements in certain foreign securities markets), such securities may be valued at their fair value as determined in good faith by FS Global Advisor and any independent third-party valuation service, if applicable.

Forward foreign currency exchange contracts typically are valued at their quoted daily prices obtained from an independent third party. The aggregate settlement values and notional amounts of the contracts are not recorded in the consolidated statement of assets and liabilities. Fluctuations in the value of the contracts are recorded in the consolidated statement of assets and liabilities as an asset (liability) and in the consolidated statement of operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on forward foreign currency exchange contracts.

Swaps typically are valued using valuations provided by an independent third-party pricing service. Such valuations generally are based on the present value of fixed and projected floating rate cash flows over the term of the swap contract and, in the case of credit default swaps, generally are based on credit spread quotations obtained from broker-dealers and expected default recovery rates determined by the independent third-party pricing service using proprietary models. Future cash flows are discounted to their present value using swap rates provided by electronic data services or by broker-dealers.

 

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The Board consists of seven members, six of whom are considered Independent Directors. Among other things, the Board sets broad policies for us and appoints our officers. The role of the Board, and of any individual director (“Director”), is one of oversight and not of management of our affairs. Each Director will serve until his or her successor is duly elected and qualified. The Directors are subject to removal or replacement in accordance with Maryland law and our Articles of Incorporation. The Directors serving on the Board were initially elected by our organizational stockholder.

The information contained under the heading “Board Composition and Leadership Structure” in the Fund’s definitive Proxy Statement on Schedule 14A for the Fund’s 2024 annual meeting of stockholders, filed with the SEC on May 17, 2024, is incorporated herein by reference.

The information contained under the heading “Risk Oversight and Board Structure—Board’s Role in Risk Oversight” in the Fund’s Definitive Proxy Statement on Schedule 14A is incorporated herein by reference.

The information contained under the heading “Proposal 1—Director Election Proposal” in the Fund’s Definitive Proxy Statement on Schedule 14A is incorporated herein by reference.

The information contained under the heading “Director Compensation” in the Fund’s Definitive Proxy Statement on Schedule 14A is incorporated herein by reference.

The Fund has adopted a code of business conduct and ethics (as amended and restated, the “Code of Business Conduct and Ethics”) pursuant to Rule promulgated under the 1940 Act, which applies to, among others, its officers, including its chief executive officer and its chief financial officer, as well as the members of the Board. The Fund’s Code of Business Conduct and Ethics can be accessed via the Fund’s website at https://fsinvestments.com/investments/fsco-corporate-governance/. The Code of Business Conduct and Ethics permits personnel subject to the code to invest in securities, including securities that may be purchased or held by the Fund.

The information contained under the heading “Security Ownership of Management and Certain Beneficial Owners” in the Fund’s Definitive Proxy Statement on Schedule 14A is incorporated herein by reference.

Pursuant to the Amended and Restated Investment Advisory Agreement, by and between the Fund and FS Global Advisor dated as of November 14, 2022 (the “Investment Advisory Agreement”) and in consideration of the advisory services provided by FS Global Advisor to us, FS Global Advisor is entitled to a fee consisting of two components—the Management Fee and the Incentive Fee.

 

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Subject to the overall supervision of the Board, FS Global Advisor provides us with investment advisory services. Under the terms of the Investment Advisory Agreement, FS Global Advisor:

 

 

 

 

 

 

The management fee (“Management Fee”) is calculated and payable quarterly in arrears at the annual rate of 1.35% of our average daily gross assets during such period. The Management Fee may or may not be taken in whole or in part at the discretion of FS Global Advisor. All or any part of the Management Fee not taken as to any quarter will be deferred without interest and may be taken in any such other quarter prior as FS Global Advisor may determine. The Management Fee for any partial quarter will be appropriately prorated.

The incentive fee (“Incentive Fee”) is calculated and payable quarterly in arrears based upon our fee net investment income” for the immediately preceding quarter, and is subject to a hurdle rate, expressed as a rate of return on our adjusted capital, equal to 1.50% per quarter (or an annualized hurdle rate of 6.00%), subject to a feature. For this purpose, fee net investment income” means interest income, dividend income and any other income accrued during the calendar quarter, minus our operating expenses for the quarter (including the Management Fee, expenses reimbursed to FS Global Advisor under the Administration Agreement and any interest expense and distributions paid on any issued and outstanding Preferred Stock, but excluding the Incentive Fee). fee net investment income includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

The calculation of the Incentive Fee for each quarter is as follows:

 

 

This portion of our fee net investment income which exceeds the hurdle rate but is less than or equal to 1.667% is referred to as the The provision is intended to provide FS Global Advisor with an incentive fee of 20.0% on all of our fee net investment income when our fee net investment income reaches 1.667% in any calendar quarter; and

 

 

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The following is a graphical representation of the calculation of the Incentive Fee:

 

 

 

 

These calculations will be appropriately prorated for any period of less than three months.

During the fiscal years ended December 31, 2023, 2022 and 2021, we paid management and incentive fees of approximately $45.0 million, $47.6 million and $44.3 million, respectively, to the Adviser pursuant to the Investment Advisory Agreement.

The information contained under “Note 4 to the Notes to Consolidated Financial Statements for the Financial Year Ended December 31, 2023” in our most recent Annual Report on Form is incorporated by reference herein.

The term of the Investment Advisory Agreement was initially for 24 months, commencing on November 13, 2022, and expiring on November 13, 2024. The Board approved an additional term of the Investment Advisory Agreement on November 13, 2024, subject to earlier termination in accordance with its terms. Such approval was made in accordance with, and on the basis of an evaluation satisfactory to the Board, as required by Section 15(c) of the 1940 Act and the applicable rules and regulations thereunder.

Pursuant to the Administration Agreement, FS Global Advisor oversees our operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations and other administrative services. FS Global Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records which we are required to maintain and preparing reports to stockholders and reports filed with the SEC. In addition, FS Global Advisor assists us in calculating our NAV, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

 

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We reimburse FS Global Advisor for its actual costs incurred in providing these administrative services, including FS Global 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 Global Advisor. FS Global Advisor is required to allocate the cost of such services to us based on factors such as assets, revenues and/or time allocations. At least annually, the Board reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of FS Global Advisor. The Board then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available. In addition, the Board considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Board compares the total amount paid to FS Global Advisor for such services as a percentage of our net assets to the same ratios reported by other comparable investment companies. We do not reimburse FS Global Advisor for any services for which it receives a separate fee or for any administrative expenses allocated to a controlling person of FS Global Advisor.

In addition, we have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including preparing preliminary financial information for review by FS Global Advisor, preparing and monitoring expense budgets, maintaining accounting books and records, processing trade information for us and performing certain portfolio compliance testing.

FS Global Advisor bears all of its own costs incurred in providing investment advisory services to us. As described below, however, we bear all other expenses incurred in our business, including amounts that we reimburse to FS Global Advisor for certain administrative services that FS Global Advisor provides or arranges at its expense to be provided to us pursuant to the Administration Agreement.

Expenses borne directly by us include:

 

 

 

 

 

 

 

 

 

 

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Except as otherwise described in this Prospectus, we will reimburse FS Global Advisor for any of the above expenses that they pay on our behalf, including administrative expenses they incur on our behalf.

SS&C GIDS, Inc. serves as our custodian and provides us with accounting services and serves as our distribution paying agent, transfer agent and registrar.

The following table sets forth, as of December 31, 2024, the beneficial ownership of the Company’s current directors, executive officers, each person known to the Company to beneficially own 5% or more of the outstanding Common Shares, and all of the Company’s executive officers and directors as a group. For a list of holders of 5% or more of the Fund’s Preferred Shares, please refer to Annex A.

Beneficial ownership is determined in accordance with Rule promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and includes voting or investment power with respect to the Shares. Ownership information for those persons who beneficially own 5% or more of the Shares is based upon information furnished by the Company’s transfer agent and other information provided by such persons, if available.

 

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The following table sets forth, as of December 31, 2024, the dollar range of the Fund’s equity securities that are beneficially owned by each member of the Board and the aggregate dollar range of equity securities in all registered investment companies overseen by such director within the same family of investment companies as the fund.

 

 

 

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The management of our investment portfolio is the responsibility of FS Global Advisor and its investment committee. The members of FS Global Advisor’s investment committee are Andrew Beckman, Nicholas Heilbut and Robert Hoffman. The members of FS Global Advisor’s investment committee are not employed by us and receive no direct compensation from us in connection with their portfolio management activities.

Below is biographical information relating to the members of FS Global Advisor’s investment committee.

is a Managing Director and Head of the FS Global Credit business. He serves as the Portfolio Manager for FS Credit Opportunities Fund, FS Tactical Opportunities fund, FS Specialty Lending Fund and FS Credit Income Fund. Previously, Andrew Beckman was a Partner and Head of Corporate Credit and Special Situations at DW Partners, a $3 billion alternative credit manager. Prior to joining DW Partners, he built and managed Magnetar Capital’s event-driven credit business and served as Head of Event Credit and Head of its Credit Opportunities Fund. Prior to this, he was a Managing Director and of Goldman Sachs’ Special Situations Multi-Strategy Investing Group. Earlier in his career, he worked at lnvestcorp International in its North American private equity business and at Salomon Smith Barney in the Investment Bank’s Mergers and Acquisitions Group. Mr. Beckman graduated magna cum laude from the University of Pennsylvania’s Wharton School of Business, earning a BS in Economics with a concentration in Finance and Management. Mr. Beckman joined FS Investments in 2017.

is a Managing Director for the FS Global Credit business. He serves as a Portfolio Manager and Director of Research for FS Credit Opportunities Fund, FS Tactical Opportunities Fund, FS Specialty Lending Fund and FS Credit Income Fund. Previously Mr. Heilbut was a Managing Director at DW Partners where he focused on investments in stressed and distressed debt. He served as the Head of Research for Magnetar’s Event Credit business and the Magnetar Credit Opportunities Fund and was also a member of the Event Driven Investment Committee. Prior to joining Magnetar, Mr. Heilbut but worked at Serengeti Asset Management where he was responsible for the firm’s investments in financial institutions, health care, media and sovereign debt. He joined Serengeti from Goldman Sachs where he was a Vice President in the firm’s Special Situations Group Multi-Strategy Investing business. There, he invested in multiple asset classes including public corporate credit and equities, private corporate credit and equities, drug royalties and distressed financial assets. Mr. Heilbut began his career as an Associate in Donaldson, Lufkin & Jenrette’s Mortgage Department. Mr. Heilbut earned a BA in History (Phi Beta Kappa) from the University of Michigan and an MBA from Columbia Business School. Mr. Heilbut joined FS Investments in 2017.

serves as Managing Director, Credit Wealth Solutions and is the firm’s primary subject matter expert on the corporate credit markets and select alternative investment solutions. He develops key communications and resources to help position and educate on FS Investments’ products. He previously served as the firm’s Head of Investment Research, leading the team that analyzes the fundamentals behind market movements, macroeconomic trends and the performance of specific industries. Mr. Hoffman has over 20 years of experience in the investment and financial services industry. Most recently, he was an Executive Director at Nomura Corporate Research and Asset Management, Inc., an asset management firm with approximately $20 billion in assets under management. At Nomura, he was responsible for loan portfolio management and trading, and he and his team managed nearly $3 billion in loan assets for retail and institutional clients. Prior to becoming a portfolio manager, he was a senior credit analyst focusing primarily on first- and second-lien corporate loan issues. He covered a range of sectors including energy and gas, utilities, healthcare, chemicals, technology, autos and industrials. Mr. Hoffman graduated from Columbia University with a BA in Political Science and is a Chartered Financial Analyst. Mr. Hoffman joined FS Investments in 2012.

 

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Andrew Beckman, Nick Heilbut and Robert Hoffman, the portfolio managers primarily responsible for the management of the Fund also manage other registered investment companies, other pooled investment vehicles and other accounts, as indicated below. The following table identifies, as of December 31, 2024: (i) the number of other registered investment companies, other pooled investment vehicles and other accounts managed by each portfolio manager; (ii) the total assets of such companies, vehicles and accounts; and (iii) the number and total assets of such companies, vehicles and accounts that are subject to an advisory fee based on performance.