NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a rating of 'BBB-(EXP)' to FS Investment Corporation's (FSIC) senior unsecured institutional debt issuance. Fitch does not expect there to be a material impact on the company's leverage levels as a result of the issuance, as proceeds will be used largely to repay borrowings on secured credit facilities.
Fitch views the firm's ability to access the institutional bond market favorably, as it provides FSIC with enhanced funding flexibility.
KEY RATING DRIVERS
The expected rating is equalized with the ratings assigned to FSIC's existing senior unsecured debt as the new notes are expected to rank equally in the capital structure. The equalization of the unsecured ratings with the secured debt rating reflects FSIC's relatively low leverage, as compared to other financial firms, its focus on senior debt investments, and Fitch's expectation that proceeds from the issuance will be used to repay a portion of secured debt outstanding, thus increasing the amount of unsecured funding in the capital structure.
FSIC's existing ratings reflect the strength of FSIC's relationships with Franklin Square Capital Partners and GSO Capital Partners (a subsidiary of The Blackstone Group; long-term Issuer Default Rating [IDR] 'A+'), low leverage, modest portfolio concentrations, strong asset quality, limited exposure to equity investments, consistent operating performance, investment portfolio liquidity, improved funding flexibility as a result of the recent public unsecured debt issuances and strong dividend coverage.
At Dec. 31, 2014, approximately 38.9% of the company's debt was considered by Fitch to be unsecured and debt to equity was 0.79x. While leverage is modestly above the firm's articulated target, given the equity tender offer following the firm's public listing, Fitch believes the metric will decline over the near term with portfolio repayments.
RATING SENSITIVITIES
The ratings expected to be assigned to the unsecured notes are equalized with FSIC's IDR, and therefore would be expected to be sensitive to any changes in FSIC's IDR.
Negative rating action for FSIC could be driven by an extended increase in leverage above the targeted range of approximately 0.70x-0.75x, resulting from increased borrowings or material realized or unrealized depreciation, and/or a meaningful increase in the proportion of equity holdings without a commensurate decline in leverage. A spike in non-accrual levels, an inability to refinance debt maturities, or weaker cash income dividend coverage would also be viewed unfavorably from a ratings perspective.
Positive rating momentum for FSIC is viewed as limited over the outlook horizon of 12-24 months, particularly given the challenging market backdrop, but could develop over time with increased funding flexibility, including continued extension of the debt maturity profile and the ability to opportunistically issue public equity for growth capital. Other positive rating factors could include a continuation of solid asset quality performance, particularly given the competitive market environment.
FSIC is an externally managed business development company, organized in December 2007 and commencing investment operations in January 2009. As of Dec. 31, 2014, the company had investments in 118 portfolio companies amounting to approximately $4.2 billion.
Fitch assigns the following expected rating:
FS Investment Corp
--Unsecured debt at 'BBB-(EXP)'.
Fitch currently rates FSIC as follows:
FS Investment Corp
--Long-term IDR 'BBB-';
--Secured debt 'BBB-'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Non-Bank Financial Institutions Rating Criteria' (March 2015).
Applicable Criteria and Related Research:
Global Non-Bank Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863584
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983667
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