Last week Fitch Ratings again rated FS KKR Capital Corp’s (NYSE: FSK) long-term debt at BBB- with an Outlook being Negative. This is more bad news for original investors that lost substantial amounts of money before the BDC became a publicly-traded stock.
Fitch justified the rating because of the risk to investors. Specifically, they stated, “While Fitch believes FSK’s exposure to borrowers in the hardest hit corporate sectors is manageable, rising coronavirus case numbers resulting in the resumption of lockdown measures could have broader credit implications for the portfolio.”
Haselkorn & Thibaut, a national investor law firm, is currently representing investors in lawsuits (FINRA) against broker-dealers and financial advisors that sold FSK products to investors.
FS KKR is a business development company (BDC) that specializes in debt securities. Although this is a very lucrative sector, it can be also very risky, especially if the economy takes a downturn. Rising inflation is another huge risk right now that could crush existing debt investments because of higher interest rates.
FSK KKR And FSK Merger
Towards the end of 2019, FS Investment Corporation II (FSIC II), FS Investment Corporation III (FSIC III), FS Investment Corporation IV (FSIC IV) and Corporate Capital Trust II (CCT II), four non-traded Business Development Companies (BDCs) entities of FS Investments (formerly known as Franklin Square), merged together to form FS KKR Capital Corp. II (NYSE: FSKR) which started trading on the New York Stock Exchange in June 2020, apparently in an effort to benefit from dislocations caused by the pandemic, as advised by the company.
As the merger entailed a reverse stock split in the ration of 4:1, the outstanding shares were reduced to a quarter in number; from 691.2 million pre-merger to about 172.9 million after the merger. As a direct consequence, the net asset value of the new entity quadrupled to $24.68 per share from $6.17 per share earlier.
On 24th November 2020, FSKR and FS KKR Capital Corp. (NYSE: FSK) announced a planned merger of the two entities and, as a result, provided preliminary financials for the Oct-Dec quarter.
|NAV on 30 Sep 20||$24.66||$24.46|
|Current NAV||$25.00 – $25.10||$24.95 – $25.05|
Final full year and fourth quarter results for both BDCs are expected after close of play on NYSE on 1st March, 2021.
What does this have to do with shareholders? After all, a merger is a legitimate strategic decision of a corporate entity designed to boost shareholder value, among other things. That being said, the timing and process of a merger could have a possible detrimental impact on shareholder value.
For example, while aggregated volume often results in a spike in trading volume which has an inflationary impact on price, if the economic cycle is at a point where valuations are depressed, it could lead to major losses for shareholders. A loss of voting power for common stockholders may also result from a merger.
FSK KKR and FSK Lawsuits
As mentioned above, Haselkorn & Thibaut is representing several investors who have decided to proceed against brokerage firms that recommended investing in FSKR’s offerings. The claims allege the failure to do adequate due diligence on the investment or failure of risk assessment for the investment goals of their clients.
If you have investments in any of the offerings of FSK Investments, it might be worth placing a call to the securities attorneys at for a free consultation.
Haselkorn & Thibaut is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Florida, New York, Arizona, Texas and North Carolina. They can be reached on (888) 637-5510