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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 |
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FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014 |
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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.) |
|
Cira Centre 2929 Arch Street, Suite 675 Philadelphia, Pennsylvania 19104 (Address of principal executive office) |
19104 (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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company 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 244,072,801 common shares of beneficial interest outstanding as of July 29, 2014.
FS Energy and Power Fund
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
|
June 30, 2014 (Unaudited) |
December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Assets |
|||||||
Investments, at fair value (amortized cost$2,866,003 and $2,249,954, respectively) |
$ | 2,954,968 | $ | 2,300,201 | |||
Cash |
142,571 | 91,084 | |||||
Receivable for investments sold and repaid |
22,680 | 8,306 | |||||
Interest receivable |
29,285 | 25,467 | |||||
Receivable for common shares purchased |
182 | 135 | |||||
Deferred financing costs |
3,471 | 3,445 | |||||
Prepaid expenses and other assets |
150 | 21 | |||||
| | | | | | | |
Total assets |
$ | 3,153,307 | $ | 2,428,659 | |||
| | | | | | | |
Liabilities |
|||||||
Payable for investments purchased |
$ | 87,819 | $ | 81,509 | |||
Credit facilities payable |
710,000 | 624,174 | |||||
Shareholder distributions payable |
| 10,700 | |||||
Management fees payable |
14,678 | 10,751 | |||||
Accrued capital gains incentive fees(1) |
19,573 | 13,850 | |||||
Subordinated income incentive fees payable(1) |
10,013 | 6,786 | |||||
Administrative services expense payable |
1,461 | 418 | |||||
Interest payable |
2,063 | 2,005 | |||||
Trustees' fees payable |
227 | 251 | |||||
Other accrued expenses and liabilities |
3,287 | 1,978 | |||||
| | | | | | | |
Total liabilities |
849,121 | 752,422 | |||||
| | | | | | | |
Commitments and contingencies(2) |
|||||||
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, 233,800,135 and 173,532,259 shares issued and outstanding, respectively |
234 | 174 | |||||
Capital in excess of par value |
2,209,277 | 1,622,893 | |||||
Accumulated undistributed net realized gains on investments and gain/loss on foreign currency(3) |
15,082 | 10,898 | |||||
Accumulated distributions in excess of net investment income(3) |
(9,374 | ) | (7,946 | ) | |||
Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency |
88,967 | 50,218 | |||||
| | | | | | | |
Total shareholders' equity |
2,304,186 | 1,676,237 | |||||
| | | | | | | |
Total liabilities and shareholders' equity |
$ | 3,153,307 | $ | 2,428,659 | |||
| | | | | | | |
Net asset value per common share at period end |
$ | 9.86 | $ | 9.66 |
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, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Investment income |
|||||||||||||
Interest income |
$ | 61,752 | $ | 23,245 | $ | 112,719 | $ | 41,188 | |||||
Fee income |
10,255 | 927 | 15,844 | 3,895 | |||||||||
| | | | | | | | | | | | | |
Total investment income |
72,007 | 24,172 | 128,563 | 45,083 | |||||||||
| | | | | | | | | | | | | |
Operating expenses |
|||||||||||||
Management fees |
14,678 | 6,654 | 27,545 | 11,365 | |||||||||
Capital gains incentive fees(1) |
3,015 | (1,621 | ) | 8,580 | 1,989 | ||||||||
Subordinated income incentive fees(1) |
10,013 | | 14,623 | 753 | |||||||||
Administrative services expenses |
1,008 | 544 | 1,943 | 997 | |||||||||
Share transfer agent fees |
660 | 475 | 1,307 | 875 | |||||||||
Accounting and administrative fees |
288 | 168 | 554 | 308 | |||||||||
Interest expense |
4,096 | 1,415 | 8,433 | 2,657 | |||||||||
Trustees' fees |
135 | 199 | 416 | 399 | |||||||||
Other general and administrative expenses |
1,033 | 767 | 1,737 | 1,210 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
34,926 | 8,601 | 65,138 | 20,553 | |||||||||
Income taxes |
51 | | 107 | | |||||||||
| | | | | | | | | | | | | |
Total expenses |
34,977 | 8,601 | 65,245 | 20,553 | |||||||||
| | | | | | | | | | | | | |
Net investment income |
37,030 | 15,571 | 63,318 | 24,530 | |||||||||
| | | | | | | | | | | | | |
Realized and unrealized gain/loss |
|||||||||||||
Net realized gain (loss) on investments |
2,411 | 3,760 | 4,691 | 3,421 | |||||||||
Net realized gain (loss) on total return swap(2) |
| 9,817 | | 12,736 | |||||||||
Net realized gain (loss) on foreign currency |
31 | | (507 | ) | 10 | ||||||||
Net change in unrealized appreciation (depreciation) on investments |
12,697 | (15,946 | ) | 38,718 | (3,079 | ) | |||||||
Net change in unrealized appreciation (depreciation) on total return swap(2) |
| (5,731 | ) | | (3,141 | ) | |||||||
Net change in unrealized gain (loss) on foreign currency |
(50 | ) | (25 | ) | 31 | (30 | ) | ||||||
| | | | | | | | | | | | | |
Total net realized and unrealized gain/loss on investments |
15,089 | (8,125 | ) | 42,933 | 9,917 | ||||||||
| | | | | | | | | | | | | |
Net increase (decrease) in net assets resulting from operations |
$ | 52,119 | $ | 7,446 | $ | 106,251 | $ | 34,447 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Per share informationbasic and diluted |
|||||||||||||
Net increase (decrease) in net assets resulting from operations (Earnings per Share) |
$ | 0.24 | $ | 0.07 | $ | 0.52 | $ | 0.39 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average shares outstanding |
219,030,100 | 100,028,169 | 203,738,493 | 87,762,307 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Operations |
|||||||
Net investment income |
$ | 63,318 | $ | 24,530 | |||
Net realized gain (loss) on investments, total return swap and foreign currency(1) |
4,184 | 16,167 | |||||
Net change in unrealized appreciation (depreciation) on investments |
38,718 | (3,079 | ) | ||||
Net change in unrealized appreciation (depreciation) on total return swap(1) |
| (3,141 | ) | ||||
Net change in unrealized gain (loss) on foreign currency |
31 | (30 | ) | ||||
| | | | | | | |
Net increase (decrease) in net assets resulting from operations |
106,251 | 34,447 | |||||
| | | | | | | |
Shareholder distributions(2) |
|||||||
Distributions from net investment income |
(64,746 | ) | (29,182 | ) | |||
| | | | | | | |
Net decrease in net assets resulting from shareholder distributions |
(64,746 | ) | (29,182 | ) | |||
| | | | | | | |
Capital share transactions |
|||||||
Issuance of common shares(3) |
544,468 | 443,853 | |||||
Reinvestment of shareholder distributions(3) |
48,357 | 16,554 | |||||
Repurchases of common shares(3) |
(3,250 | ) | (1,017 | ) | |||
Offering costs |
(3,131 | ) | (2,400 | ) | |||
| | | | | | | |
Net increase in net assets resulting from capital share transactions |
586,444 | 456,990 | |||||
| | | | | | | |
Total increase in net assets |
627,949 | 462,255 | |||||
Net assets at beginning of period |
1,676,237 | 602,889 | |||||
| | | | | | | |
Net assets at end of period |
$ | 2,304,186 | $ | 1,065,144 | |||
| | | | | | | |
| | | | | | | |
Accumulated distributions in excess of net investment income(2) |
$ | (9,374 | ) | $ | (8,006 | ) | |
| | | | | | | |
| | | | | | | |
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, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Cash flows from operating activities |
|||||||
Net increase (decrease) in net assets resulting from operations |
$ | 106,251 | $ | 34,447 | |||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: |
|||||||
Purchases of investments |
(1,059,647 | ) | (1,056,798 | ) | |||
Paid-in-kind interest |
(6,206 | ) | | ||||
Proceeds from sales and repayments of investments |
460,436 | 348,473 | |||||
Net realized (gain) loss on investments |
(4,691 | ) | (3,421 | ) | |||
Net change in unrealized (appreciation) depreciation on investments |
(38,718 | ) | 3,079 | ||||
Net change in unrealized (appreciation) depreciation on total return swap(1) |
| 3,141 | |||||
Accretion of discount |
(5,941 | ) | (1,332 | ) | |||
Amortization of deferred financing costs |
824 | 369 | |||||
(Increase) decrease in due from counterparty |
| 56,876 | |||||
(Increase) decrease in receivable for investments sold and repaid |
(14,374 | ) | (78,052 | ) | |||
(Increase) decrease in interest receivable |
(3,818 | ) | (12,306 | ) | |||
(Increase) decrease in receivable due on total return swap(1) |
| 329 | |||||
(Increase) decrease in prepaid expenses and other assets |
(129 | ) | 87 | ||||
Increase (decrease) in payable for investments purchased |
6,310 | 144,530 | |||||
Increase (decrease) in management fees payable |
3,927 | 3,132 | |||||
Increase (decrease) in expense recoupment payable to sponsor(2) |
| (1,083 | ) | ||||
Increase (decrease) in accrued capital gains incentive fees |
5,723 | 1,036 | |||||
Increase (decrease) in subordinated income incentive fees payable |
3,227 | | |||||
Increase (decrease) in administrative services expense payable |
1,043 | 240 | |||||
Increase (decrease) in interest payable |
58 | 186 | |||||
Increase (decrease) in trustees' fees payable |
(24 | ) | 240 | ||||
Increase (decrease) in other accrued expenses and liabilities |
1,309 | 306 | |||||
| | | | | | | |
Net cash used in operating activities |
(544,440 | ) | (556,521 | ) | |||
| | | | | | | |
Cash flows from financing activities |
|||||||
Issuance of common shares |
544,421 | 443,894 | |||||
Reinvestment of shareholder distributions |
48,357 | 16,554 | |||||
Repurchases of common shares |
(3,250 | ) | (1,017 | ) | |||
Offering costs |
(3,131 | ) | (2,400 | ) | |||
Shareholder distributions |
(75,446 | ) | (26,482 | ) | |||
Borrowings under credit facilities(3) |
85,826 | 167,768 | |||||
Deferred financing costs paid |
(850 | ) | (1,257 | ) | |||
| | | | | | | |
Net cash provided by financing activities |
595,927 | 597,060 | |||||
| | | | | | | |
Total increase (decrease) in cash |
51,487 | 40,539 | |||||
Cash at beginning of period |
91,084 | 48,986 | |||||
| | | | | | | |
Cash at end of period |
$ | 142,571 | $ | 89,525 | |||
| | | | | | | |
| | | | | | | |
Supplemental disclosure |
|||||||
Excise taxes paid |
$ | 225 | $ | | |||
| | | | | | | |
| | | | | | | |
See notes to unaudited consolidated financial statements.
4
Unaudited Consolidated Schedule of Investments
As of June 30, 2014
(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 Lien37.1% |
||||||||||||||||||||
Allied Wireline Services, LLC |
(j) | Service & Equipment | L+800 | 1.5% | 2/28/19 | $ | 108,625 | $ | 106,930 | $ | 108,625 | |||||||||
Alon USA Partners, L.P. |
(g)(l) | Downstream | L+800 | 1.3% | 11/26/18 | 4,104 | 4,251 | 4,279 | ||||||||||||
AP Exhaust Acquisition, LLC |
(h) | Service & Equipment | L+775 | 1.5% | 1/16/21 | 15,000 | 15,000 | 15,000 | ||||||||||||
Astoria Generating Co. |
(g)(h)(k) | Power | L+700 | 1.5% | 10/26/17 | 26,538 | 27,401 | 27,334 | ||||||||||||
Atlas Energy, L.P. |
(g)(l) | Midstream | L+550 | 1.0% | 7/31/19 | 5,514 | 5,466 | 5,600 | ||||||||||||
Azure Midstream Energy LLC |
(g) | Midstream | L+550 | 1.0% | 11/15/18 | 13,163 | 12,985 | 13,302 | ||||||||||||
BBH Operating LLC |
Upstream | Prime+500 | 3.3% | 2/26/15 | 18,500 | 18,500 | 18,546 | |||||||||||||
BBH Operating LLC |
(e) | Upstream | Prime+500 | 3.3% | 2/26/15 | 11,500 | 11,500 | 11,529 | ||||||||||||
BL Sand Hills Unit, L.P. |
Upstream | Prime+650 | 3.5% | 12/17/17 | 7,787 | 6,763 | 7,281 | |||||||||||||
BL Sand Hills Unit, L.P. |
(e) | Upstream | Prime+650 | 3.5% | 12/17/17 | 51,652 | 44,857 | 48,295 | ||||||||||||
BlackBrush TexStar L.P. |
(f)(g)(h) | Midstream | L+650 | 1.3% | 6/4/19 | 69,999 | 69,679 | 70,760 | ||||||||||||
Boomerang Tube, LLC |
(f)(g) | Service & Equipment | L+950 | 1.5% | 10/11/17 | 19,108 | 18,941 | 17,388 | ||||||||||||
Buffalo Gulf Coast Terminals LLC |
(g) | Midstream | L+400 | 1.3% | 10/31/17 | 6,520 | 6,624 | 6,561 | ||||||||||||
Crestwood Holdings LLC |
(g)(h)(j) | Midstream | L+600 | 1.0% | 6/19/19 | 33,086 | 33,258 | 33,675 | ||||||||||||
EnergySolutions, LLC |
(f)(g) | Service & Equipment | L+575 | 1.0% | 5/29/20 | 21,818 | 21,385 | 22,100 | ||||||||||||
EP Acquisition LLC |
Upstream | Prime+500 | 3.3% | 3/31/15 | 750 | 750 | 752 | |||||||||||||
FR Dixie Acquisition Corp. |
(g)(k) | Service & Equipment | L+475 | 1.0% | 12/18/20 | 10,224 | 10,237 | 10,288 | ||||||||||||
FR Utility Services LLC |
(g)(k) | Service & Equipment | L+575 | 1.0% | 10/18/19 | 15,078 | 14,977 | 15,248 | ||||||||||||
Harvey Gulf International Marine, LLC |
(g) | Service & Equipment | L+450 | 1.0% | 6/18/20 | 7,935 | 7,844 | 7,902 | ||||||||||||
Hudson Products Holdings Inc. |
(g) | Service & Equipment | L+400 | 1.0% | 3/15/19 | 5,792 | 5,778 | 5,819 | ||||||||||||
Industrial Group Intermediate Holdings, LLC |
Service & Equipment | L+800 | 1.3% | 5/31/20 | 14,962 | 14,962 | 14,962 | |||||||||||||
Larchmont Resources, LLC |
(g)(h)(k) | Upstream | L+725 | 1.0% | 8/7/19 | 21,488 | 21,491 | 21,971 | ||||||||||||
MB Precision Holdings LLC |
(h) | Service & Equipment | L+725 | 1.3% | 1/23/20 | 13,433 | 13,433 | 13,433 | ||||||||||||
McJunkin Red Man Corp. |
(g)(l) | Service & Equipment | L+400 | 1.0% | 11/8/19 | 1,777 | 1,777 | 1,791 | ||||||||||||
Moxie Liberty LLC |
(g)(h)(j)(k) | Power | L+650 | 1.0% | 8/21/20 | 32,432 | 32,571 | 33,405 | ||||||||||||
Moxie Patriot LLC |
(j) | Power | L+575 | 1.0% | 12/19/20 | 2,000 | 2,044 | 2,060 | ||||||||||||
NES Global Talent Finance US LLC |
(g)(h)(l) | Service & Equipment | L+550 | 1.0% | 10/3/19 | 17,775 | 17,550 | 17,819 | ||||||||||||
Panda Sherman Power, LLC |
(f)(g)(h)(k) | Power | L+750 | 1.5% | 9/14/18 | 16,909 | 17,242 | 17,363 | ||||||||||||
Panda Temple Power, LLC (TLA) |
(j) | Power | L+700 | 1.5% | 7/17/18 | 16,200 | 15,999 | 16,605 | ||||||||||||
Panda Temple Power, LLC (TLB) |
(g)(h)(j) | Power | L+1000 | 1.5% | 7/17/18 | 40,000 | 39,390 | 41,083 | ||||||||||||
Panda Temple Power II, LLC |
(g)(h) | Power | L+600 | 1.3% | 4/3/19 | 23,809 | 24,324 | 24,404 | ||||||||||||
PeroxyChem LLC |
(h)(j) | Service & Equipment | L+650 | 1.0% | 2/28/20 | 13,965 | 13,809 | 14,105 | ||||||||||||
ProPetro Services, Inc. |
(h) | Service & Equipment | L+625 | 1.0% | 9/30/19 | 8,663 | 8,617 | 8,771 | ||||||||||||
San Pedro Development, LLC |
Upstream | Prime+400 | 6/30/15 | 21,200 | 17,685 | 20,458 |
See notes to unaudited consolidated financial statements.
5
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2014
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate(b) | Floor | Maturity | Principal Amount(c) |
Amortized Cost |
Fair Value(d) |
||||||||||||
Sprint Industrial Holdings LLC |
(h) | Service & Equipment | L+575 | 1.3% | 11/14/19 | $ | 14,850 | $ | 14,833 | $ | 14,961 | |||||||||
Stallion Oilfield Holdings, Inc. |
(f)(g)(h) | Service & Equipment | L+675 | 1.3% | 6/19/18 | 63,868 | 63,744 | 64,906 | ||||||||||||
Swift Worldwide Resources US Holdings Corp. |
(h)(j) | Service & Equipment | L+800 | 1.3% | 4/30/19 | 59,961 | 59,961 | 59,961 | ||||||||||||
Tervita Corp. |
(g)(h)(k)(l) | Service & Equipment | L+500 | 1.3% | 5/15/18 | 18,994 | 18,819 | 19,093 | ||||||||||||
Total Safety U.S., Inc. |
(g) | Service & Equipment | L+450 | 1.3% | 3/13/20 | 4,416 | 4,479 | 4,355 | ||||||||||||
TPF II LC, LLC |
(g)(h) | Power | L+550 | 1.0% | 8/21/19 | 17,588 | 17,616 | 17,940 | ||||||||||||
Wastequip, LLC |
(g) | Service & Equipment | L+450 | 1.0% | 8/9/19 | 8,727 | 8,755 | 8,793 | ||||||||||||
Willbros Group, Inc. |
(g)(h)(l) | Service & Equipment | L+975 | 1.3% | 8/7/19 | 22,085 | 21,440 | 22,499 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansFirst Lien |
893,667 | 911,022 | ||||||||||||||||||
Unfunded Loan Commitments |
(56,357 | ) | (56,357 | ) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Net Senior Secured LoansFirst Lien |
837,310 | 854,665 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Senior Secured LoansSecond Lien39.5% |
||||||||||||||||||||
Alison US LLC |
(j)(k)(l) | Service & Equipment | L+850 | 1.0% | 6/17/22 | 22,222 | 21,333 | 21,750 | ||||||||||||
American EnergyUtica, LLC |
(h)(j) | Upstream | L+400, 5.5% PIK (5.5% Max PIK) | 1.5% | 9/30/18 | 119,306 | 119,306 | 121,096 | ||||||||||||
American EnergyUtica, LLC |
Upstream | L+400, 5.5% PIK (5.5% Max PIK) | 1.5% | 9/30/18 | 81,010 | 81,010 | 82,225 | |||||||||||||
Ameriforge Group Inc. |
(f)(h)(j)(k) | Service & Equipment | L+750 | 1.3% | 12/21/20 | 33,950 | 34,499 | 34,798 | ||||||||||||
Brock Holdings III, Inc. |
(f)(h)(j) | Service & Equipment | L+825 | 1.8% | 3/16/18 | 33,605 | 33,848 | 33,983 | ||||||||||||
Chief Exploration & Development LLC |
(k) | Upstream | L+650 | 1.0% | 5/16/21 | 19,576 | 19,489 | 20,066 | ||||||||||||
Citrus Energy Appalachia, LLC |
(g)(j) | Upstream | L+850 | 1.3% | 7/26/18 | 56,574 | 55,131 | 56,716 |
See notes to unaudited consolidated financial statements.
6
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2014
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate(b) | Floor | Maturity | Principal Amount(c) |
Amortized Cost |
Fair Value(d) |
||||||||||||
Consolidated Precision Products Corp. |
(f)(g)(h)(j) | Service & Equipment | L+775 | 1.0% | 4/30/21 | $ | 33,500 | $ | 33,345 | $ | 33,898 | |||||||||
Drew Marine Group Inc. |
(h)(j)(l) | Service & Equipment | L+700 | 1.0% | 5/19/21 | 10,000 | 9,977 | 10,150 | ||||||||||||
Extraction Oil & Gas Holdings, LLC |
Upstream | 11.0% | 5/29/19 | 55,000 | 55,000 | 55,000 | ||||||||||||||
Fieldwood Energy LLC |
(k) | Upstream | L+713 | 1.3% | 9/30/20 | 8,547 | 8,846 | 8,830 | ||||||||||||
Filtration Group Corp. |
(g) | Service & Equipment | L+725 | 1.0% | 11/21/21 | 2,632 | 2,607 | 2,698 | ||||||||||||
Horn Intermediate Holdings, Inc. |
(h) | Service & Equipment | L+775 | 1.3% | 10/2/18 | 67,500 | 67,500 | 68,175 | ||||||||||||
Husky Injection Molding Systems Ltd. |
(f)(k)(l) | Service & Equipment | L+625 | 1.0% | 6/30/22 | 3,000 | 2,985 | 3,026 | ||||||||||||
Jonah Energy LLC |
(f) | Upstream | L+650 | 1.0% | 5/8/21 | 25,685 | 25,305 | 25,952 | ||||||||||||
Neff Rental LLC |
(f) | Service & Equipment | L+625 | 1.0% | 6/9/21 | 5,435 | 5,408 | 5,431 | ||||||||||||
Oxbow Carbon LLC |
(h) | Midstream | L+700 | 1.0% | 1/19/20 | 15,000 | 14,866 | 15,394 | ||||||||||||
P2 Upstream Acquisition Co. |
(f)(h)(j)(k) | Service & Equipment | L+800 | 1.0% | 4/30/21 | 32,599 | 32,920 | 33,237 | ||||||||||||
Power Buyer, LLC |
(g) | Service & Equipment | L+725 | 1.0% | 11/6/20 | 3,500 | 3,530 | 3,430 | ||||||||||||
Sabine Oil & Gas LLC |
(f)(g) | Upstream | L+750 | 1.3% | 12/31/18 | 12,660 | 12,883 | 12,913 | ||||||||||||
Teine Energy Ltd. |
(j)(k)(l) | Upstream | L+625 | 1.3% | 5/17/19 | 24,794 | 25,041 | 25,135 | ||||||||||||
Templar Energy LLC |
(f)(j) | Upstream | L+700 | 1.0% | 11/25/20 | 76,923 | 75,479 | 76,538 | ||||||||||||
Total Safety U.S., Inc. |
(g)(h) | Service & Equipment | L+800 | 1.3% | 9/13/20 | 12,805 | 13,079 | 12,837 | ||||||||||||
UTEX Industries, Inc. |
(g)(h)(j) | Service & Equipment | L+725 | 1.0% | 5/20/22 | 30,636 | 30,520 | 31,058 | ||||||||||||
Vantage Energy II, LLC |
Upstream | L+750 | 1.0% | 5/8/17 | 85,000 | 85,000 | 85,000 | |||||||||||||
Vantage Energy, LLC |
(j) | Upstream | L+750 | 1.0% | 12/20/18 | 30,539 | 30,329 | 30,768 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansSecond Lien |
899,236 | 910,104 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Senior Secured Bonds7.4% |
||||||||||||||||||||
Erickson Air-Crane Inc. |
(f)(i)(l) | Service & Equipment | 8.3% | 5/1/20 | 24,725 | 25,501 | 25,590 | |||||||||||||
FourPoint Energy, LLC |
Upstream | 8.5% | 12/31/20 | 74,250 | 64,934 | 64,226 | ||||||||||||||
Gastar Exploration USA, Inc. |
(i)(l) | Upstream | 8.6% | 5/15/18 | 22,000 | 21,492 | 23,028 | |||||||||||||
Globe Luxembourg SCA |
(f)(l) | Service & Equipment | 9.6% | 5/1/18 | 10,000 | 9,672 | 11,186 | |||||||||||||
Mirant Mid-Atlantic Trust |
(f)(i) | Power | 10.1% | 12/30/28 | 11,643 | 13,011 | 13,244 | |||||||||||||
Permian Tank & Manufacturing, Inc. |
(g) | Service & Equipment | 10.5% | 1/15/18 | 4,000 | 4,082 | 4,120 |
See notes to unaudited consolidated financial statements.
7
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2014
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate(b) | Floor | Maturity | Principal Amount(c) |
Amortized Cost |
Fair Value(d) |
||||||||||||
Prince Mineral Holding Corp. |
(i) | Service & Equipment | 11.5% | 12/15/19 | $ | 16,500 | $ | 18,004 | $ | 18,810 | ||||||||||
Ryerson Inc. |
(f)(g) | Service & Equipment | 9.0% | 10/15/17 | 2,300 | 2,373 | 2,470 | |||||||||||||
Tervita Corp. |
(h)(i)(l) | Service & Equipment | 8.0% | 11/15/18 | 8,500 | 8,620 | 8,883 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Senior Secured Bonds |
167,689 | 171,557 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Subordinated Debt37.5% |
||||||||||||||||||||
Alta Mesa Holdings, L.P. |
(f) | Upstream | 9.6% | 10/15/18 | 36,616 | 36,540 | 38,742 | |||||||||||||
Atlas Energy Holdings Operating Co., LLC |
(f)(i)(l) | Upstream | 7.8% | 1/15/21 | 21,450 | 20,586 | 22,241 | |||||||||||||
Atlas Energy Holdings Operating Co., LLC |
(i)(l) | Upstream | 9.3% | 8/15/21 | 2,563 | 2,767 | 2,781 | |||||||||||||
Brand Energy & Infrastructure Services, Inc. |
(f)(i) | Service & Equipment | 8.5% | 12/1/21 | 25,000 | 25,000 | 26,563 | |||||||||||||
Chaparral Energy Inc. |
(f) | Upstream | 8.3% | 9/1/21 | 2,000 | 2,056 | 2,209 | |||||||||||||
Chaparral Energy Inc. |
(f)(g) | Upstream | 7.6% | 11/15/22 | 15,225 | 16,304 | 16,518 | |||||||||||||
CHC Helicopter S.A. |
(f)(i)(l) | Service & Equipment | 9.4% | 6/1/21 | 12,500 | 12,716 | 13,379 | |||||||||||||
Clayton Williams Energy, Inc. |
(i)(l) | Upstream | 7.8% | 4/1/19 | 9,300 | 9,287 | 9,925 | |||||||||||||
Comstock Resources, Inc. |
(f)(l) | Upstream | 9.5% | 6/15/20 | 5,000 | 4,809 | 5,716 | |||||||||||||
Crestwood Midstream Partners L.P. |
(i)(l) | Midstream | 6.1% | 3/1/22 | 5,500 | 5,500 | 5,811 | |||||||||||||
Crew Energy Inc. |
(i)(l)(s) | Upstream | 8.4% | 10/21/20 | C$ | 11,240 | 11,506 | 12,167 | ||||||||||||
CrownRock, L.P. |
(f) | Upstream | 7.1% | 4/15/21 | $ | 37,500 | 37,500 | 39,747 | ||||||||||||
Diamondback Energy, Inc. |
(i)(l) | Upstream | 7.6% | 10/1/21 | 5,500 | 5,500 | 6,097 | |||||||||||||
Energy XXI Gulf Coast, Inc. |
(i) | Upstream | 7.5% | 12/15/21 | 4,000 | 3,982 | 4,317 | |||||||||||||
EP Energy LLC |
(f)(l) | Upstream | 7.8% | 9/1/22 | 6,600 | 6,621 | 7,471 | |||||||||||||
Era Group Inc. |
(f)(l) | Service & Equipment | 7.8% | 12/15/22 | 7,750 | 7,633 | 8,254 | |||||||||||||
Everest Acquisition LLC |
(f) | Upstream | 9.4% | 5/1/20 | 19,250 | 19,823 | 22,152 | |||||||||||||
Gardner Denver, Inc. |
(f)(k) | Service & Equipment | 6.9% | 8/15/21 | 735 | 777 | 775 | |||||||||||||
GenOn Energy, Inc. |
(f)(i) | Power | 9.9% | 10/15/20 | 23,000 | 24,311 | 25,090 | |||||||||||||
Global Partners L.P. |
(f)(i)(l) | Midstream | 6.3% | 7/15/22 | 85,000 | 85,000 | 85,425 | |||||||||||||
Hercules Offshore, Inc. |
(f)(l) | Service & Equipment | 8.8% | 7/15/21 | 3,900 | 3,900 | 4,153 | |||||||||||||
Hercules Offshore, Inc. |
(f)(l) | Service & Equipment | 7.5% | 10/1/21 | 5,000 | 5,000 | 4,800 |
See notes to unaudited consolidated financial statements.
8
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2014
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate(b) | Floor | Maturity | Principal Amount(c) |
Amortized Cost |
Fair Value(d) |
||||||||||||
Hercules Offshore, Inc. |
(i)(l) | Service & Equipment | 6.8% | 4/1/22 | $ | 5,000 | $ | 5,000 | $ | 4,775 | ||||||||||
The Hillman Group, Inc. |
(f) | Service & Equipment | 6.4% | 7/15/22 | 5,000 | 5,025 | 5,013 | |||||||||||||
Ithaca Energy Inc. |
(k)(l) | Upstream | 8.1% | 7/1/19 | 2,000 | 2,000 | 2,000 | |||||||||||||
Jones Energy, Inc. |
(i)(l) | Upstream | 6.8% | 4/1/22 | 17,000 | 17,000 | 18,035 | |||||||||||||
The Kenan Advantage Group, Inc. |
(f)(i) | Service & Equipment | 8.4% | 12/15/18 | 18,000 | 18,496 | 19,328 | |||||||||||||
Legacy Reserves L.P. |
(f)(i)(l) | Upstream | 6.6% | 12/1/21 | 14,000 | 13,818 | 14,271 | |||||||||||||
Legacy Reserves L.P. |
(f)(l) | Upstream | 8.0% | 12/1/20 | 16,750 | 16,441 | 17,973 | |||||||||||||
Lightstream Resources Ltd. |
(i)(l) | Upstream | 8.6% | 2/1/20 | 35,695 | 35,951 | 37,606 | |||||||||||||
Lonestar Resources America Inc. |
(i) | Upstream | 8.8% | 4/15/19 | 21,500 | 21,626 | 21,728 | |||||||||||||
Martin Midstream Partners L.P. |
(f)(l) | Midstream | 7.3% | 2/15/21 | 3,000 | 3,000 | 3,180 | |||||||||||||
Memorial Production Partners L.P. |
(i)(l) | Upstream | 7.6% | 5/1/21 | 7,000 | 6,804 | 7,355 | |||||||||||||
Memorial Resource Development LLC |
(i) | Upstream | 10.8% PIK (10.8% Max PIK) | 12/15/18 | 13,300 | 13,055 | 13,659 | |||||||||||||
The Pantry Inc. |
(f)(l) | Service & Equipment | 8.4% | 8/1/20 | 250 | 271 | 270 | |||||||||||||
Peabody Energy Corp. |
(f)(l) | Upstream | 7.9% | 11/1/26 | 2,000 | 2,100 | 2,107 | |||||||||||||
Peabody Energy Corp. |
(f)(k)(l) | Upstream | 6.3% | 11/15/21 | 1,985 | 1,992 | 1,994 | |||||||||||||
Pinnacle Operating Corp. |
(i) | Service & Equipment | 9.0% | 11/15/20 | 2,500 | 2,500 | 2,725 | |||||||||||||
QR Energy, L.P. |
(f)(i)(l) | Upstream | 9.3% | 8/1/20 | 25,030 | 25,568 | 27,533 | |||||||||||||
Resolute Energy Corp. |
(i)(l) | Upstream | 8.5% | 5/1/20 | 6,230 | 6,574 | 6,573 | |||||||||||||
Rex Energy Corp. |
(i)(l) | Upstream | 8.9% | 12/1/20 | 14,000 | 14,010 | 15,625 | |||||||||||||
Rice Energy Inc. |
(i) | Upstream | 6.3% | 5/1/22 | 7,350 | 7,350 | 7,571 | |||||||||||||
RKI Exploration & Production, LLC |
(f) | Upstream | 8.5% | 8/1/21 | 34,100 | 34,122 | 37,211 | |||||||||||||
Samson Investment Co. |
(f)(i) | Upstream | 9.8% | 2/15/20 | 25,500 | 25,751 | 27,086 | |||||||||||||
Sanchez Energy Corp. |
(i)(l) | Upstream | 7.8% | 6/15/21 | 14,500 | 14,251 | 16,030 | |||||||||||||
SemGroup Corp. |
(f)(l) | Midstream | 7.5% | 6/15/21 | 9,400 | 9,400 | 10,337 | |||||||||||||
Sidewinder Drilling Inc. |
(i) | Service & Equipment | 9.8% | 11/15/19 | 21,500 | 21,589 | 21,984 | |||||||||||||
Silver II US Holdings, LLC |
(f) | Service & Equipment | 7.8% | 12/15/20 | 1,835 | 1,977 | 1,973 | |||||||||||||
Summit Midstream Holdings, LLC |
(f)(l) | Midstream | 7.5% | 7/1/21 | 1,000 | 1,000 | 1,094 | |||||||||||||
Swift Energy Co. |
(f)(i)(l) | Upstream | 7.9% | 3/1/22 | 20,000 | 20,048 | 21,067 | |||||||||||||
Talos Production LLC |
(f)(i) | Upstream | 9.8% | 2/15/18 | 43,250 | 43,273 | 46,007 | |||||||||||||
Tenrgys, LLC |
(j) | Upstream | L+900 | 2.5% | 12/23/18 | 75,000 | 75,000 | 75,750 | ||||||||||||
Zachry Holdings, Inc. |
(f) | Service & Equipment | 7.5% | 2/1/20 | 11,800 | 12,040 | 12,715 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Subordinated Debt |
824,150 | 864,908 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
9
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2014
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | |
|
|
Number of Shares |
Amortized Cost |
Fair Value(d) |
||||||||||||
Equity/Other6.7%(m) |
||||||||||||||||||||
Allied Downhole Technologies, LLC, Common Equity |
(n)(o) | Service & Equipment | 6,600,000 | $ | 6,600 | $ | 10,230 | |||||||||||||
Allied Downhole Technologies, LLC, Warrants |
(n)(o) | Service & Equipment | 5,344,680 | 1,865 | 4,490 | |||||||||||||||
American Energy Ohio Holdings, LLC, Common Equity |
(o)(p) | Upstream | 14,900,000 | 14,900 | 14,900 | |||||||||||||||
AP Exhaust Holdings, LLC, Common Equity |
(n)(o) | Service & Equipment | 811 | 811 | 924 | |||||||||||||||
BBH Operating LLC, Common Equity |
(o)(q) | Upstream | 1,000 | 1,000 | 993 | |||||||||||||||
BL Sand Hills Unit, L.P., Net Profits Interest |
(o)(r) | Upstream | N/A | 961 | 1,041 | |||||||||||||||
BL Sand Hills Unit, L.P. Overriding Royalty Interest |
(r) | Upstream | N/A | 137 | 137 | |||||||||||||||
Extraction Oil & Gas Holdings, LLC, Common Equity |
(n)(o) | Upstream | 2,794,500 | 7,500 | 7,545 | |||||||||||||||
Fortune Creek Co-Invest I L.P., LP Interest |
(l)(s) | Midstream | N/A | 17,246 | 17,440 | |||||||||||||||
FourPoint Energy, LLC, Common Equity |
(n)(o) | Upstream | 12,374 | 8,176 | 12,374 | |||||||||||||||
Industrial Group Intermediate Holdings, LLC, Common Equity |
(n)(o) | Service & Equipment | 371,901 | 372 | 372 | |||||||||||||||
MB Precision Holdings LLC, Common Equity |
(o) | Service & Equipment | 450,000 | 450 | 495 | |||||||||||||||
Plains Offshore Operations Inc., Preferred Equity |
(f) | Upstream | 21,067 | 23,933 | 26,183 | |||||||||||||||
Plains Offshore Operations Inc., Warrants |
(f)(o) | Upstream | 427,005 | 689 | 1,110 | |||||||||||||||
San Pedro Development, LLC, Net Profits Interest |
(o)(t) | Upstream | N/A | 3,515 | 4,724 | |||||||||||||||
Swift Worldwide Resources Holdco Limited, Common Equity |
(l)(o)(u) | Service & Equipment | 3,750,000 | 6,029 | 7,376 | |||||||||||||||
Synergy Offshore LLC, Preferred Equity |
(v) | Upstream | 40,000 | 43,434 | 43,400 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Equity/Other |
137,618 | 153,734 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
TOTAL INVESTMENTS128.2% |
$ | 2,866,003 | 2,954,968 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
LIABILITIES IN EXCESS OF OTHER ASSETS(28.2%) |
(650,782 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
NET ASSETS100.0% |
$ | 2,304,186 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
10
FS Energy and Power Fund
Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2014
(in thousands, except share amounts)
|
||
---|---|---|
(g) | Security or portion thereof held within EP Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Citibank, N.A. (see Note 8). | |
(h) | Security or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Natixis, New York Branch (see Note 8). | |
(i) | Security or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage facility with BNP Paribas Prime Brokerage, Inc. Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the Securities Exchange Act of 1934, as amended, subject to the terms and conditions of the agreements governing the prime brokerage facility with BNP Paribas Prime Brokerage, Inc. (See Note 8). | |
(j) | Security or portion thereof held within Gladwyne Funding LLC, a wholly-owned subsidiary of the Company. | |
(k) | Position or portion thereof unsettled as of June 30, 2014. | |
(l) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of June 30, 2014, 81.1% of the Company's total assets represented qualifying assets. | |
(m) | Listed investments may be treated as debt for GAAP or tax purposes. | |
(n) | Security held within FSEP Investments, Inc., a wholly-owned subsidiary of the Company. | |
(o) | Security is non-income producing. | |
(p) | Security held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company. | |
(q) | Security held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company. | |
(r) | Security held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company. | |
(s) | Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of June 30, 2014. | |
(t) | Security held within EP San Pedro Investments, LLC, a wholly-owned subsidiary of the Company. | |
(u) | Investment denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of June 30, 2014. | |
(v) | Security held within EP Synergy Investments, Inc., a wholly-owned subsidiary of the Company. |
See notes to unaudited consolidated financial statements.
11
FS Energy and Power Fund
Consolidated Schedule of Investments
As of December 31, 2013
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate | Floor | Maturity | Principal Amount(b) |
Amortized Cost |
Fair Value(c) |
||||||||||||
Senior Secured LoansFirst Lien37.9% |
||||||||||||||||||||
Alon USA Partners, L.P. |
(e)(i) | Downstream | L+800 | 1.3% | 11/26/18 | $ | 4,125 | $ | 4,289 | $ | 4,256 | |||||||||
Atlas Energy, L.P. |
(e)(f)(i) | Midstream | L+550 | 1.0% | 7/31/19 | 8,534 | 8,529 | 8,769 | ||||||||||||
Azure Midstream Energy LLC |
(e) | Midstream | L+550 | 1.0% | 11/15/18 | 13,500 | 13,301 | 13,601 | ||||||||||||
BBH Operating LLC |
Upstream | Prime+500 | 3.3% | 2/26/15 | 17,000 | 17,000 | 17,000 | |||||||||||||
BBH Operating LLC |
Upstream | Prime+500 | 3.3% | 2/26/15 | 13,000 | 13,000 | 13,000 | |||||||||||||
BL Sand Hills Unit, L.P. |
(h) | Upstream | Prime+650 | 3.5% | 12/17/17 | 3,431 | 2,980 | 2,980 | ||||||||||||
BL Sand Hills Unit, L.P. |
(h) | Upstream | Prime+650 | 3.5% | 12/17/17 | 56,569 | 49,127 | 49,127 | ||||||||||||
BlackBrush TexStar L.P. |
(d)(e)(f) | Midstream | L+650 | 1.3% | 6/4/19 | 60,764 | 60,416 | 61,334 | ||||||||||||
Boomerang Tube, LLC |
(d)(e) | Service & Equipment | L+950 | 1.5% | 10/11/17 | 19,631 | 19,443 | 18,944 | ||||||||||||
Brock Holdings III, Inc. |
(e) | Service & Equipment | L+450 | 1.5% | 3/16/17 | 2,763 | 2,799 | 2,777 | ||||||||||||
Buffalo Gulf Coast Terminals LLC |
(e) | Midstream | L+400 | 1.3% | 10/31/17 | 6,554 | 6,672 | 6,619 | ||||||||||||
Cedar Bay Generating Co., L.P. |
(f) | Power | L+500 | 1.3% | 4/23/20 | 8,848 | 8,766 | 8,920 | ||||||||||||
Crestwood Holdings LLC |
(e)(f) | Midstream | L+600 | 1.0% | 6/19/19 | 28,868 | 28,952 | 29,734 | ||||||||||||
EP Acquisition LLC |
Upstream | Prime+500 | 3.3% | 3/31/15 | 750 | 750 | 750 | |||||||||||||
FR Utility Services LLC |
(e)(f) | Service & Equipment | L+575 | 1.0% | 10/18/19 | 19,389 | 19,219 | 19,389 | ||||||||||||
Harvey Gulf International Marine, LLC |
(e) | Service & Equipment | L+450 | 1.0% | 6/18/20 | 9,975 | 9,848 | 10,081 | ||||||||||||
Hudson Products Holdings Inc. |
(e)(f) | Service & Equipment | L+400 | 1.3% | 6/7/17 | 10,329 | 10,368 | 10,415 | ||||||||||||
Larchmont Resources, LLC |
(e)(f) | Upstream | L+725 | 1.0% | 8/7/19 | 18,834 | 18,775 | 19,187 | ||||||||||||
McJunkin Red Man Corp. |
(e)(i) | Service & Equipment | L+400 | 1.0% | 11/9/19 | 5,796 | 5,796 | 5,889 | ||||||||||||
Moxie Liberty LLC |
(e)(f) | Power | L+650 | 1.0% | 8/21/20 | 27,432 | 27,419 | 28,187 | ||||||||||||
NES Global Talent Finance US LLC |
(e)(f)(i) | Service & Equipment | L+550 | 1.0% | 10/3/19 | 18,000 | 17,755 | 17,978 | ||||||||||||
Panda Sherman Power, LLC |
(d)(e) | Power | L+750 | 1.5% | 9/14/18 | 10,909 | 11,104 | 11,236 | ||||||||||||
Panda Temple Power, LLC (TLA) |
Power | L+700 | 1.5% | 7/17/18 | 16,200 | 15,981 | 16,635 | |||||||||||||
Panda Temple Power, LLC (TLB) |
(e)(f) | Power | L+1000 | 1.5% | 7/17/18 | 40,000 | 39,337 | 41,200 | ||||||||||||
Panda Temple Power II, LLC |
(e)(f) | Power | L+600 | 1.3% | 4/3/19 | 18,809 | 19,212 | 19,373 | ||||||||||||
ProPetro Services, Inc. |
(e)(f)(h) | Service & Equipment | L+625 | 1.0% | 9/30/19 | 8,913 | 8,861 | 8,968 | ||||||||||||
Prowler Acquisition Corp. |
(e) | Service & Equipment | L+475 | 1.0% | 3/19/19 | 4,813 | 4,769 | 4,813 | ||||||||||||
San Pedro Development, LLC |
(f) | Upstream | Prime+400 | 6/30/15 | 19,974 | 16,662 | 17,278 |
See notes to unaudited consolidated financial statements.
12
FS Energy and Power Fund
Consolidated Schedule of Investments (continued)
As of December 31, 2013
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate | Floor | Maturity | Principal Amount(b) |
Amortized Cost |
Fair Value(c) |
||||||||||||
San Pedro Development, LLC |
(f) | Upstream | Prime+400 | 6/30/15 | $ | 26 | $ | 22 | $ | 22 | ||||||||||
Sandy Creek Energy Associates, L.P. |
(e)(f)(h) | Power | L+400 | 1.0% | 11/8/20 | 15,584 | 15,507 | 15,614 | ||||||||||||
Sprint Industrial Holdings LLC |
(f) | Service & Equipment | L+575 | 1.3% | 11/14/19 | 13,074 | 13,059 | 13,237 | ||||||||||||
Stallion Oilfield Holdings, Inc. |
(d)(e)(f)(h) | Service & Equipment | L+675 | 1.3% | 6/19/18 | 63,711 | 63,521 | 65,145 | ||||||||||||
Swift Worldwide Resources US Holdings Corp. |
Service & Equipment | L+800 | 1.3% | 4/30/19 | 60,263 | 60,263 | 60,263 | |||||||||||||
Total Safety U.S., Inc. |
(e)(f) | Service & Equipment | L+450 | 1.3% | 3/13/20 | 12,858 | 13,050 | 12,914 | ||||||||||||
TPF II LC, LLC |
(e)(f) | Power | L+550 | 1.0% | 8/21/19 | 17,910 | 17,938 | 18,268 | ||||||||||||
Wastequip, LLC |
(e) | Service & Equipment | L+450 | 1.0% | 8/9/19 | 8,771 | 8,801 | 8,859 | ||||||||||||
Westway Group, LLC |
(e) | Service & Equipment | L+400 | 1.0% | 2/27/20 | 8,933 | 9,030 | 8,994 | ||||||||||||
Willbros Group, Inc. |
(e)(f)(i) | Service & Equipment | L+975 | 1.3% | 8/7/19 | 24,938 | 24,155 | 25,312 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansFirst Lien |
686,476 | 697,068 | ||||||||||||||||||
Unfunded Loan Commitments |
(62,149 | ) | (62,149 | ) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Net Senior Secured LoansFirst Lien |
624,327 | 634,919 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Senior Secured LoansSecond Lien40.8% |
||||||||||||||||||||
American EnergyUtica, LLC |
(f) | Upstream | L+475, 4.8% PIK | 1.5% | 9/30/18 | 116,057 | 116,057 | 116,057 | ||||||||||||
Ameriforge Group Inc. |
(d)(f)(h) | Service & Equipment | L+750 | 1.3% | 12/21/20 | 27,950 | 28,403 | 28,579 | ||||||||||||
Brock Holdings III, Inc. |
(d)(f)(h) | Service & Equipment | L+825 | 1.8% | 3/16/18 | 33,605 | 33,874 | 34,235 | ||||||||||||
Citrus Energy Appalachia, LLC |
(e)(h) | Upstream | L+850 | 1.3% | 7/26/18 | 56,829 | 55,249 | 56,687 | ||||||||||||
Consolidated Precision Products Corp. |
(d)(e)(f) | Service & Equipment | L+775 | 1.0% | 4/30/21 | 33,500 | 33,337 | 34,170 | ||||||||||||
Drew Marine Group Inc. |
(f)(i) | Service & Equipment | L+700 | 1.0% | 5/19/21 | 10,000 | 9,975 | 10,075 | ||||||||||||
Filtration Group Corp. |
(e) | Service & Equipment | L+725 | 1.0% | 11/21/21 | 2,632 | 2,606 | 2,697 | ||||||||||||
Horn Intermediate Holdings, Inc. |
Service & Equipment | L+775 | 1.3% | 10/2/18 | 67,500 | 67,500 | 68,175 | |||||||||||||
Oxbow Carbon LLC |
(f) | Midstream | L+700 | 1.0% | 1/19/20 | 15,000 | 14,858 | 15,309 | ||||||||||||
P2 Upstream Acquisition Co. |
(f) | Service & Equipment | L+800 | 1.0% | 4/30/21 | 21,409 | 21,511 | 21,837 | ||||||||||||
Power Buyer, LLC |
(e)(f) | Service & Equipment | L+725 | 1.0% | 11/6/20 | 7,500 | 7,495 | 7,388 | ||||||||||||
Rice Drilling B LLC |
(f) | Upstream | L+725 | 1.3% | 10/25/18 | 59,960 | 59,270 | 61,309 | ||||||||||||
Sabine Oil & Gas LLC |
(d)(e) | Upstream | L+750 | 1.3% | 12/31/18 | 12,660 | 12,903 | 12,818 | ||||||||||||
Teine Energy Ltd. |
(h)(i) | Upstream | L+625 | 1.3% | 5/17/19 | 19,007 | 19,076 | 19,292 | ||||||||||||
Templar Energy LLC |
(d) | Upstream | L+700 | 1.0% | 11/25/20 | 76,923 | 75,396 | 77,356 |
See notes to unaudited consolidated financial statements.
13
FS Energy and Power Fund
Consolidated Schedule of Investments (continued)
As of December 31, 2013
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate | Floor | Maturity | Principal Amount(b) |
Amortized Cost |
Fair Value(c) |
||||||||||||
TNT Crane & Rigging, Inc. |
Service & Equipment | L+900 | 1.0% | 11/27/21 | $ | 1,500 | $ | 1,381 | $ | 1,448 | ||||||||||
Total Safety U.S., Inc. |
(e)(f) | Service & Equipment | L+800 | 1.3% | 9/13/20 | 12,805 | 13,095 | 12,966 | ||||||||||||
UTEX Industries, Inc. |
(e)(f)(h) | Service & Equipment | L+750 | 1.3% | 4/10/21 | 31,046 | 31,313 | 31,822 | ||||||||||||
Vantage Energy, LLC |
(h) | Upstream | L+750 | 1.0% | 12/20/18 | 27,692 | 27,415 | 27,692 | ||||||||||||
WildHorse Resources, LLC |
(e) | Upstream | L+625 | 1.3% | 12/13/18 | 43,593 | 42,798 | 43,811 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Senior Secured LoansSecond Lien |
673,512 | 683,723 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Senior Secured Bonds4.9% |
||||||||||||||||||||
Erickson Air-Crane Inc. |
(d)(i) | Service & Equipment | 8.3% | 5/1/20 | 10,875 | 10,919 | 11,283 | |||||||||||||
Gastar Exploration USA, Inc. |
(g)(i) | Upstream | 8.6% | 5/15/18 | 22,000 | 21,439 | 21,850 | |||||||||||||
Globe Luxembourg SCA |
(d)(i) | Service & Equipment | 9.6% | 5/1/18 | 10,000 | 9,637 | 10,469 | |||||||||||||
Iracore International Holdings, Inc. |
(g) | Service & Equipment | 9.5% | 6/1/18 | 9,500 | 9,702 | 10,077 | |||||||||||||
Murray Energy Corp. |
(d) | Upstream | 8.6% | 6/15/21 | 4,000 | 4,000 | 4,147 | |||||||||||||
Permian Tank & Manufacturing, Inc. |
(e) | Service & Equipment | 10.5% | 1/15/18 | 4,000 | 4,091 | 3,981 | |||||||||||||
Prince Mineral Holding Corp. |
Service & Equipment | 11.5% | 12/15/19 | 6,500 | 6,757 | 7,215 | ||||||||||||||
Ryerson Inc. |
(d)(e) | Service & Equipment | 9.0% | 10/15/17 | 3,300 | 3,465 | 3,506 | |||||||||||||
Shale-Inland Holdings, LLC |
(e)(f) | Service & Equipment | 8.8% | 11/15/19 | 9,550 | 9,543 | 9,956 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Senior Secured Bonds |
79,553 | 82,484 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Subordinated Debt47.1% |
||||||||||||||||||||
Abengoa Finance, S.A.U. |
(g)(i) | Service & Equipment | 7.8% | 2/1/20 | 2,500 | 2,500 | 2,606 | |||||||||||||
Alta Mesa Holdings, L.P. |
(d) | Upstream | 9.6% | 10/15/18 | 42,616 | 42,580 | 45,792 | |||||||||||||
Atlas Energy Holdings Operating Co., LLC |
(g)(i) | Upstream | 7.8% | 1/15/21 | 16,800 | 15,878 | 16,037 | |||||||||||||
Aurora USA Oil & Gas, Inc. |
(g)(i) | Upstream | 9.9% | 2/15/17 | 15,250 | 15,702 | 16,433 | |||||||||||||
BOE Intermediate Holding Corp. |
(g) | Service & Equipment | 9.8% PIK | 11/1/17 | 3,398 | 3,369 | 3,559 | |||||||||||||
Brand Energy & Infrastructure Services, Inc. |
(d)(g) | Service & Equipment | 8.5% | 12/1/21 | 25,000 | 25,000 | 25,500 | |||||||||||||
BreitBurn Energy Partners L.P. |
(g)(i) | Upstream | 7.9% | 4/15/22 | 3,500 | 3,508 | 3,654 | |||||||||||||
Chaparral Energy Inc. |
(d) | Upstream | 8.3% | 9/1/21 | 2,000 | 2,059 | 2,178 | |||||||||||||
Chaparral Energy Inc. |
(d)(e) | Upstream | 7.6% | 11/15/22 | 15,225 | 16,352 | 16,331 | |||||||||||||
CHC Helicopter S.A. |
(d)(g)(i) | Service & Equipment | 9.4% | 6/1/21 | 12,500 | 12,727 | 12,754 |
See notes to unaudited consolidated financial statements.
14
FS Energy and Power Fund
Consolidated Schedule of Investments (continued)
As of December 31, 2013
(in thousands, except share amounts)
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | Rate | Floor | Maturity | Principal Amount(b) |
Amortized Cost |
Fair Value(c) |
||||||||||||
Clayton Williams Energy, Inc. |
(g)(i) | Upstream | 7.8% | 4/1/19 | $ | 9,300 | $ | 9,286 | $ | 9,617 | ||||||||||
Comstock Resources, Inc. |
(d)(i) | Upstream | 9.5% | 6/15/20 | 5,000 | 4,797 | 5,610 | |||||||||||||
Crestwood Midstream Partners L.P. |
(g)(i) | Midstream | 6.1% | 3/1/22 | 5,500 | 5,500 | 5,640 | |||||||||||||
Crew Energy Inc. |
(g)(i) | Upstream | 8.4% | 10/21/20 | C$ | 10,000 | 9,615 | 9,566 | ||||||||||||
CrownRock, L.P. |
(d) | Upstream | 7.1% | 4/15/21 | $ | 50,000 | 50,000 | 49,712 | ||||||||||||
Diamondback Energy, Inc. |
(g)(i) | Upstream | 7.6% | 10/1/21 | 5,500 | 5,500 | 5,801 | |||||||||||||
Energy XXI Gulf Coast, Inc. |
(g) | Upstream | 7.5% | 12/15/21 | 4,000 | 3,981 | 4,188 | |||||||||||||
EP Energy LLC |
(d) | Upstream | 7.8% | 9/1/22 | 6,600 | 6,622 | 7,417 | |||||||||||||
EPE Holdings LLC |
(d) | Upstream | 8.9% PIK | 12/15/17 | 6,535 | 6,510 | 6,805 | |||||||||||||
Era Group Inc. |
(d)(i) | Service & Equipment | 7.8% | 12/15/22 | 7,750 | 7,628 | 8,060 | |||||||||||||
Everest Acquisition LLC |
(d) | Upstream | 9.4% | 5/1/20 | 19,250 | 19,863 | 22,402 | |||||||||||||
Global Partners L.P. |
(i) | Midstream | 8.0% | 2/14/18 | 70,000 | 68,197 | 70,613 | |||||||||||||
Global Partners L.P. |
(i) | Midstream | 7.8% | 12/23/18 | 40,000 | 40,000 | 40,000 | |||||||||||||
Hercules Offshore, Inc. |
(d)(i) | Service & Equipment | 8.8% | 7/15/21 | 3,900 | 3,900 | 4,293 | |||||||||||||
Hercules Offshore, Inc. |
(d)(i) | Service & Equipment | 7.5% | 10/1/21 | 5,000 | 5,000 | 5,299 | |||||||||||||
The Kenan Advantage Group, Inc. |
(d)(g) | Service & Equipment | 8.4% | 12/15/18 | 18,000 | 18,542 | 19,035 | |||||||||||||
Legacy Reserves L.P. |
(d)(i) | Upstream | 6.6% | 12/1/21 | 9,600 | 9,454 | 9,287 | |||||||||||||
Legacy Reserves L.P. |
(d)(i) | Upstream | 8.0% | 12/1/20 | 16,750 | 16,424 | 17,306 | |||||||||||||
Martin Midstream Partners L.P. |
(d)(i) | Midstream | 7.3% | 2/15/21 | 3,000 | 3,000 | 3,075 | |||||||||||||
Memorial Production Partners L.P. |
(g)(i) | Upstream | 7.6% | 5/1/21 | 7,000 | 6,794 | 7,211 | |||||||||||||
Memorial Resource Development LLC |
(g) | Upstream | 10.8% PIK | 12/15/18 | 13,300 | 13,034 | 13,300 | |||||||||||||
PetroBakken Energy Ltd. |
(g)(i) | Upstream | 8.6% | 2/1/20 | 31,295 | 31,424 | 31,737 | |||||||||||||
Pinnacle Operating Corp. |
(g) | Service & Equipment | 9.0% | 11/15/20 | 2,500 | 2,500 | 2,656 | |||||||||||||
QR Energy, L.P. |
(d)(g)(i) | Upstream | 9.3% | 8/1/20 | 25,030 | 25,602 | 26,066 | |||||||||||||
Rex Energy Corp. |
(g)(i) | Upstream | 8.9% | 12/1/20 | 14,000 | 14,011 | 15,330 | |||||||||||||
RKI Exploration & Production, LLC |
(d) | Upstream | 8.5% | 8/1/21 | 34,100 | 34,124 | 36,096 | |||||||||||||
Samson Investment Co. |
(d)(h) | Upstream | 9.8% | 2/15/20 | 23,000 | 23,029 | 25,137 | |||||||||||||
Sanchez Energy Corp. |
(g)(i) | Upstream | 7.8% | 6/15/21 | 14,500 | 14,238 | 14,892 | |||||||||||||
SemGroup Corp. |
(d)(i) | Midstream | 7.5% | 6/15/21 | 9,400 | 9,400 | 9,955 | |||||||||||||
Sidewinder Drilling Inc. |
Service & Equipment | 9.8% | 11/15/19 | 21,500 | 21,596 | 19,028 | ||||||||||||||
Summit Midstream Holdings, LLC |
(d)(i) | Midstream | 7.5% | 7/1/21 | 1,000 | 1,000 | 1,050 | |||||||||||||
Talos Production LLC |
(d)(g) | Upstream | 9.8% | 2/15/18 | 40,250 | 40,091 | 41,256 | |||||||||||||
Tenrgys, LLC |
Upstream | L+900 | 2.5% | 12/23/18 | 75,000 | 75,000 | 75,000 | |||||||||||||
Tervita Corp. |
(g)(i) | Service & Equipment | 10.9% | 2/15/18 | 10,000 | 9,689 | 10,175 | |||||||||||||
Zachry Holdings, Inc. |
(d) | Service & Equipment | 7.5% | 2/1/20 | 11,800 | 12,057 | 12,375 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total Subordinated Debt |
767,083 | 789,834 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
15
FS Energy and Power Fund
Consolidated Schedule of Investments (continued)
As of December 31, 2013
(in thousands, except share amounts)
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Company(a) | Footnotes | Industry | |
|
|
Number of Shares |
Amortized Cost |
Fair Value(c) |
|||||||||||||
Equity/Other6.5%(j) |
|||||||||||||||||||||
American Energy Ohio Holdings, LLC, Common Equity |
(k)(l) | Upstream | 7,788,845 | $ | 7,789 | $ | 7,789 | ||||||||||||||
BBH Operating LLC, Common Equity |
(l)(m) | Upstream | 1,000 | 1,000 | 924 | ||||||||||||||||
BL Sand Hills Unit, L.P., Net Profits Interest |
(h)(l)(n) | Upstream | N/A | 395 | 395 | ||||||||||||||||
BL Sand Hills Unit, L.P., Overriding Royalty Interest |
(h)(l)(n) | Upstream | N/A | 56 | 56 | ||||||||||||||||
Fortune Creek Co-Invest I L.P., LP Interest |
(i)(o) | Midstream | N/A | 22,597 | 22,715 | ||||||||||||||||
Plains Offshore Operations Inc., Preferred Equity |
(d) | Upstream | 20,000 | 22,161 | 25,052 | ||||||||||||||||
Plains Offshore Operations Inc., Warrants |
(d)(l) | Upstream | 405,378 | 689 | 1,054 | ||||||||||||||||
San Pedro Development, LLC, Net Profits Interest |
(l)(p) | Upstream | N/A | 3,312 | 3,641 | ||||||||||||||||
Swift Worldwide Resources Holdco Limited, Common Equity |
(i)(l)(q) | Service & Equipment | 3,750,000 | 6,029 | 6,215 | ||||||||||||||||
Synergy Offshore LLC, Preferred Equity |
(r) | Upstream | 40,000 | 41,451 | 41,400 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Total Equity/Other |
105,479 | 109,241 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
TOTAL INVESTMENTS137.2% |
$ | 2,249,954 | 2,300,201 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
LIABILITIES IN EXCESS OF OTHER ASSETS(37.2%) |
(623,964 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
NET ASSETS100.0% |
$ | 1,676,237 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
See notes to unaudited consolidated financial statements.
16
FS Energy and Power Fund
Consolidated Schedule of Investments (continued)
As of December 31, 2013
(in thousands, except share amounts)
|
||
---|---|---|
(k) | Security held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company. | |
(l) | Security is non-income producing. | |
(m) | Security held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company. | |
(n) | Security held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company. | |
(o) | Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2013. | |
(p) | Security held within EP San Pedro Investments, LLC, a wholly-owned subsidiary of the Company. | |
(q) | Investment denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2013. | |
(r) | Security held within EP Synergy Investments, Inc., a wholly-owned subsidiary of the Company. |
See notes to unaudited consolidated financial statements.
17
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. Prior to satisfying the minimum offering requirement, the Company had no operations except for matters relating to its organization.
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 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, 2014, the Company had four wholly-owned financing subsidiaries and seven wholly-owned subsidiaries through which it holds interests in certain non-controlled and non-affiliated 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, 2014. 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, 2013 included in the Company's annual report on Form 10-K. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The December 31, 2013 consolidated balance sheet and consolidated schedule of investments are derived from the Company's audited consolidated financial statements as of and for the
18
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)
year ended December 31, 2013. The Company has 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 will equal 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, 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 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, or AICPA, Technical Practice Aid 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 if the Company's entire portfolio were 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.
In addition, the Company historically treated all net settlement payments received by the Company pursuant to its total return swap, or TRS (which was terminated on May 24, 2013), as realized capital gains and included only the aggregate amount of unrealized depreciation on the TRS as a whole in calculating the capital gains incentive fee payable to FS Advisor with respect to realized gains, in each case, in accordance with GAAP. However, the staff of the Division of Investment Management of the SEC, or the Staff, informed the Company that it is their interpretation of the applicable language in the Advisers Act that the Company should "look through" the TRS in calculating its capital gains incentive fee. Under this "look through" methodology, the portion of the net settlement payments received by the Company pursuant to the TRS which would have represented net investment income to the Company had the Company held the loans or securities underlying the TRS directly would be treated as net investment income subject to the subordinated incentive fee on income payable to FS Advisor pursuant to the investment advisory and administrative services agreement, rather than as realized capital gains in accordance with GAAP, and any unrealized depreciation on individual loans or securities underlying the TRS would further reduce the capital gains incentive fee payable to FS
19
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)
Advisor with respect to realized gains. FS Advisor voluntarily agreed to waive any capital gains incentive fee calculated in accordance with GAAP to which it would otherwise be entitled in respect of the TRS if and to the extent that the amount of such fee exceeds the sum of (i) the amount of capital gains incentive fee determined in respect of the TRS on a "look through" basis under which the Company treats the reference assets underlying the TRS as investments of the Company and (ii) the aggregate amount of subordinated incentive fees on income which would have been payable to FS Advisor with respect to the portion of the net settlement payments received by the Company pursuant to the TRS which represent net investment income on the loans or securities underlying the TRS on a "look through" basis. As of June 30, 2013, the aggregate capital gains incentive fees paid to FS Advisor in prior periods and accrued as of such date with respect to realized gains in accordance with GAAP were less than the fees which would have been payable in accordance with the "look through" methodology.
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, as defined in the investment advisory and administrative services agreement, equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor will 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%. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor will be 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 will be entitled to receive 20.0% of pre-incentive fee net investment income.
Reclassifications: Certain amounts in the unaudited consolidated financial statements for the three and six months ended June 30, 2013 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, 2014. These reclassifications had no material impact on the Company's consolidated financial position, results of operations or cash flows as previously reported.
20
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
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, 2014 and 2013:
|
Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||||||||
|
Shares | Amount | Shares | Amount | |||||||||
Gross Proceeds from Offering |
55,660,059 | $ | 599,756 | 46,470,564 | $ | 486,802 | |||||||
Reinvestment of Distributions |
4,940,721 | 48,357 | 1,735,054 | 16,554 | |||||||||
| | | | | | | | | | | | | |
Total Gross Proceeds |
60,600,780 | 648,113 | 48,205,618 | 503,356 | |||||||||
Commissions and Dealer Manager Fees |
| (55,288 | ) | | (42,949 | ) | |||||||
| | | | | | | | | | | | | |
Net Proceeds to Company |
60,600,780 | 592,825 | 48,205,618 | 460,407 | |||||||||
Share Repurchase Program |
(332,904 | ) | (3,250 | ) | (106,938 | ) | (1,017 | ) | |||||
| | | | | | | | | | | | | |
Net Proceeds from Share Transactions |
60,267,876 | $ | 589,575 | 48,098,680 | $ | 459,390 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Status of Continuous Public Offering
Since commencing its continuous public offering and through July 29, 2014, the Company has sold 242,924,123 common shares (as adjusted for share distributions) for gross proceeds of $2,536,600. As of July 29, 2014, the Company had raised total gross proceeds of $2,556,804, 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 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, 2014 and 2013, the Company sold 60,600,780 and 48,205,618 common shares for gross proceeds of $648,113 and $503,356, respectively, at an average price per share of $10.69 and $10.44, respectively. The gross proceeds received during the six months ended June 30, 2014 and 2013 include reinvested shareholder distributions of $48,357 and $16,554, respectively, for which the Company issued 4,940,721 and 1,735,054 common shares, respectively. During the period from July 1, 2014 to July 29, 2014, the Company sold 10,673,968 common shares for gross proceeds of $116,447 at an average price per share of $10.91.
The proceeds from the issuance of common shares as presented on the Company's unaudited consolidated statements of changes in net assets and unaudited consolidated statements of cash flows are presented net of selling commissions and dealer manager fees of $55,288 and $42,949 for the six months ended June 30, 2014 and 2013, respectively.
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:
21
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)
The Company currently intends to limit the number of common shares to be repurchased during any calendar year to the number of common shares it can repurchase with the proceeds it receives from the issuance of common shares under its distribution reinvestment plan. At the discretion of the Company's board of trustees, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase common shares. In addition, the Company will limit the number of common shares to be repurchased in any calendar year to 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of common shares that the Company offers to repurchase may be less in light of the limitations noted above. The Company intends to offer to repurchase such common shares on each date of repurchase at a price equal to 90% of the offering price in effect on the date of repurchase. In months in which the Company repurchases common shares pursuant to its share repurchase program, it expects to conduct repurchases on the same date that it holds its first weekly closing in such month for the sale of common shares in its public offering. The Company's board of trustees may amend, suspend or terminate the share repurchase program at any time, upon 30 days' notice. The first such tender offer commenced in August 2012, and the repurchase occurred in connection with the Company's October 1, 2012 semi-monthly closing.
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, 2014 and 2013:
For the Three Months Ended | Repurchase Date |
Shares Repurchased |
Percentage of Shares Tendered That Were Repurchased |
Repurchase Price Per Share |
Aggregate Consideration for Repurchased Shares |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal 2013 |
|||||||||||||||
December 31, 2012 |
January 2, 2013 | 24,249 | 100 | % | $ | 9.405 | $ | 228 | |||||||
March 31, 2013 |
April 1, 2013 | 82,689 | 100 | % | $ | 9.540 | $ | 789 | |||||||
Fiscal 2014 |
|||||||||||||||
December 31, 2013 |
January 2, 2014 | 174,181 | 100 | % | $ | 9.720 | $ | 1,693 | |||||||
March 31, 2014 |
April 2, 2014 | 158,723 | 100 | % | $ | 9.810 | $ | 1,557 |
On July 2, 2014, the Company repurchased 401,302 common shares (representing 100% of common shares tendered for repurchase) at $9.90 per share for aggregate consideration totaling $3,973.
22
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
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 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, 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, as defined in the investment advisory and administrative services agreement, equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor will 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%. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor will be 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 will be 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. See Note 2 for a discussion of the treatment of the TRS with respect to the calculation of the capital gains incentive fee.
The Company reimburses FS Advisor for expenses necessary to perform services related to the Company's administration and operations. The amount of this reimbursement is set at 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 then assesses the reasonableness of such reimbursements 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 compares the total amount
23
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)
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.
Franklin Square Holdings, L.P., or Franklin Square Holdings, the Company's sponsor and an affiliate of FS Advisor, has funded certain of the Company's offering costs and organization costs. These costs have been 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. Under the terms of the investment advisory and administrative services agreement, upon satisfaction of the minimum offering requirement, FS Advisor became entitled to receive 1.5% of gross proceeds raised in the Company's continuous public offering until all offering and organization costs funded by FS Advisor or its affiliates (including Franklin Square Holdings) had been recovered. On July 18, 2011, the Company satisfied the minimum offering requirement. During the six months ended June 30, 2014 and 2013, Franklin Square Holdings did not fund any of the Company's offering and organization costs, and the Company did not pay any reimbursements to FS Advisor and its affiliates for offering and organization costs previously funded.
The dealer manager for the Company's continuous public offering is FS2 Capital Partners, LLC, or FS2, which is one of the Company's affiliates. Under the dealer manager agreement among the Company, FS Advisor and FS2, FS2 is 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 may be re-allowed to selected broker-dealers.
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, 2014 and 2013:
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Related Party | Source Agreement | Description | 2014 | 2013 | 2014 | 2013 | |||||||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Base Management Fee(1) | $ | 14,678 | $ | 6,654 | $ | 27,545 | $ | 11,365 | |||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Capital Gains Incentive Fee(2) | $ | 3,015 | $ | (1,621 | ) | $ | 8,580 | $ | 1,989 | ||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Subordinated Incentive Fee on Income(3) | $ | 10,013 | $ | | $ | 14,623 | $ | 753 | |||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Administrative Services Expenses(4) | $ | 1,008 | $ | 544 | $ | 1,943 | $ | 997 | |||||||
FS2 |
Dealer Manager Agreement | Dealer Manager Fee(5) | $ | 5,608 | $ | 4,747 | $ | 10,646 | $ | 8,922 |
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)
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 July 29, 2014, the Company has issued an aggregate of 3,557,918 common shares (as adjusted for share distributions) for aggregate gross proceeds of $32,143 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 FB Income Advisor, LLC, FSIC II Advisor, LLC, FSIC III Advisor, LLC and FS Global Advisor, LLC, the investment advisers to Franklin Square Holdings' other affiliated BDCs and affiliated closed-end management investment company. As a result, such personnel provide investment advisory services to the Company and each of FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III and FS Global Credit Opportunities Fund. While none of FS Advisor, FB Income Advisor, LLC, FSIC II Advisor, LLC, FSIC III Advisor, LLC or FS Global Advisor, LLC is currently making private corporate debt investments for clients other than the Company, FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III or FS Global Credit Opportunities Fund, respectively, any, or all, may do so in the future. In the event that FS Advisor undertakes to provide investment advisory services to other clients in the future, it
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)
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. In addition, even in the absence of FS Advisor retaining additional clients, it is possible that some investment opportunities may be provided to FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III and/or FS Global Credit Opportunities Fund rather than to the Company.
Exemptive Relief
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 investment transactions with certain affiliates of FS Advisor, including FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III 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 may not only enhance its ability to further its investment objectives and strategies, but 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 it had not obtained such relief. Because the Company did not seek exemptive relief to engage in co-investment transactions with 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.
Expense Reimbursement
Pursuant to an expense support and conditional reimbursement agreement, dated as of February 14, 2012 and amended and restated as of May 16, 2013, or, as amended and restated, the expense reimbursement agreement, Franklin Square Holdings 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, Franklin Square Holdings 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, Franklin Square Holdings will reimburse the Company 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 its net investment income for tax purposes, 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 income or net capital gains for tax purposes) in each quarter.
Pursuant to the expense reimbursement agreement, the Company has a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the
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)
date on which Franklin Square Holdings funded such amount, the sum of the Company's net investment income for tax purposes, 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 income or net capital gains for tax purposes) exceeds the distributions paid by the Company to shareholders; provided, however, that (i) the Company will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings 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 common shares represented by "other operating expenses" during the fiscal year in which such expense support payment from Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal year) and (ii) the Company will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings 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 Franklin Square Holdings made the expense support payment to which such reimbursement relates. "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 Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, the Company's conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.
Franklin Square Holdings 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 Franklin Square Holdings will reimburse any portion of the Company's expenses in future quarters.
During the six months ended June 30, 2014 and 2013, the Company did not accrue any reimbursements from Franklin Square Holdings. As of June 30, 2014 and December 31, 2013, the Company had no reimbursements due from Franklin Square Holdings. Under the expense reimbursement agreement, amounts reimbursed to the Company by Franklin Square Holdings may become subject to repayment by the Company in the future. During the six months ended June 30, 2014 and 2013, the Company did not accrue any amounts for expense recoupments payable to Franklin Square Holdings. During the six months ended June 30, 2013, the Company paid $1,083 in expense
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)
recoupments to Franklin Square Holdings. As of June 30, 2014, no further amounts remained subject to repayment by the Company to Franklin Square Holdings in the future.
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 Franklin Square Holdings and its affiliates. During the six months ended June 30, 2014 and 2013, FS Benefit Trust purchased $49 and $43, respectively, of the Company's common shares at a purchase price equal to 90% of the offering price in effect on the applicable purchase date.
Note 5. Distributions
The following table reflects the cash distributions per share that the Company has declared and paid on its common shares during the six months ended June 30, 2014 and 2013:
|
Distribution | ||||||
---|---|---|---|---|---|---|---|
For the Three Months Ended | Per Share | Amount | |||||
Fiscal 2013 |
|||||||
March 31, 2013 |
$ | 0.1617 | $ | 12,496 | |||
June 30, 2013 |
$ | 0.1634 | $ | 16,686 | |||
Fiscal 2014 |
|||||||
March 31, 2014 |
$ | 0.1524 | $ | 28,423 | |||
June 30, 2014 |
$ | 0.1680 | $ | 36,323 |
The Company authorizes and declares ordinary cash distributions on a weekly basis and pays such distributions on a monthly basis. On June 11, 2014, the Company's board of trustees determined to increase the amount of the regular weekly cash distributions payable to shareholders of record from $0.012793 per share to $0.013625 per share and declared regular weekly cash distributions for July 2014 through September 2014. On August 6, 2014, the Company's board of trustees declared regular weekly cash distributions for October 2014 through December 2014. These distributions have been or will be paid monthly to shareholders of record as of weekly record dates previously determined by the Company's board of trustees in the amount of $0.013625 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.
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 Franklin Square Holdings. The Company has not established limits on the amount of funds it may use from available sources to make distributions.
28
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (continued)
For a period of time following commencement of the Company's continuous public offering, substantial portions of the Company's distributions were funded through the reimbursement of certain expenses by Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FS Advisor, that were subject to repayment by the Company within three years. The purpose of this arrangement was to ensure that no portion of the Company's distributions to shareholders was paid from offering proceeds or borrowings. Any such distributions funded through expense reimbursements or waivers of advisory fees were not based on the Company's investment performance. No portion of the distributions paid during the six months ended June 30, 2014 or 2013 was funded through the reimbursement of operating expenses by Franklin Square Holdings. However, the Company's repayment of amounts previously reimbursed or waived by Franklin Square Holdings and its affiliates reduced the distributions that shareholders may otherwise have received during the six months ended June 30, 2013. During the six months ended June 30, 2014, the Company did not repay any amounts to Franklin Square Holdings for expenses previously reimbursed or waived. 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. Franklin Square Holdings and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.
The following table reflects the sources of the cash distributions on a tax basis that the Company has paid on its common shares during the six months ended June 30, 2014 and 2013:
|
Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||||||||
Source of Distribution | Distribution Amount |
Percentage | Distribution Amount |
Percentage | |||||||||
Offering proceeds |
$ | | | $ | | | |||||||
Borrowings |
| | | | |||||||||
Net investment income(1) |
64,746 | 100 | % | 29,182 | 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 limited partnership interest |
| | | | |||||||||
Expense reimbursement from sponsor |
| | | | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 64,746 | 100 | % | $ | 29,182 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The Company's net investment income on a tax basis for the six months ended June 30, 2014 and 2013 was $66,634 and $29,543, respectively. As of June 30, 2014 and December 31, 2013, the Company had $21,184 and $10,898, respectively, of undistributed ordinary income and net realized gains on a tax basis.
29
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 difference between the Company's GAAP-basis net investment income and its tax-basis net investment income is primarily due to the amount by which tax-basis income on a limited partnership interest differs from its GAAP-basis income, the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by the Company, the reclassification of unamortized original issue discount recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes and, with respect to the six months ended June 30, 2013, the inclusion of a portion of the periodic net settlement payments due on the Company's total return swap in tax-basis net investment income.
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, 2014 and 2013:
|
Six Months Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
GAAP-basis net investment income |
$ | 63,318 | $ | 24,530 | |||
Income on limited partnership interest |
(938 | ) | (1,274 | ) | |||
Reversal of incentive fee accrual on unrealized gains |
7,559 | (33 | ) | ||||
Reclassification of unamortized original issue discount |
(3,733 | ) | (284 | ) | |||
Tax-basis net investment income portion of total return swap payments |
| 6,602 | |||||
Other miscellaneous differences |
428 | 2 | |||||
| | | | | | | |
Tax-basis net investment income |
$ | 66,634 | $ | 29,543 | |||
| | | | | | | |
| | | | | | | |
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.
The following table reflects the share distribution that the Company has declared on its common shares through June 30, 2014:
Date Declared | Record Date | Distribution Date | Distribution Percentage |
Shares Issued | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
February 14, 2012 |
February 15, 2012 | February 16, 2012 | 1.0 | % | 106,133 |
The purpose of this special share distribution was to maintain a net asset value per share that was below the then-current offering price, after deducting selling commissions and dealer manager fees, as required by the 1940 Act, subject to certain limited exceptions. The Company's board of trustees determined that the Company's portfolio performance sufficiently warranted taking this action.
The share distribution increased the number of common shares outstanding, thereby reducing the Company's net asset value per share. However, because the share distribution was issued to all shareholders as of the record date in proportion to their holdings, the reduction in net asset value per share as a result of the share distribution was offset exactly by the increase in the number of common
30
FS Energy and Power Fund
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (continued)
shares owned by each investor. As the overall value to an investor's position was not reduced as a result of the special share distribution, the Company's board of trustees determined that this issuance would not be dilutive to shareholders as of the record date. As the share distribution did not change any shareholder's proportionate interest in the Company, it did not represent a taxable distribution.
As of June 30, 2014 and December 31, 2013, the components of accumulated earnings on a tax basis were as follows:
|
June 30, 2014 (Unaudited) |
December 31, 2013 | |||||
---|---|---|---|---|---|---|---|
Distributable ordinary income (income and short-term capital gains) |
$ | 12,839 | $ | 8,073 | |||
Distributable realized gains (long-term capital gains) |
8,345 | 2,825 | |||||
Distribution receivable on limited partnership interest |
28 | 805 | |||||
Incentive fee accrual on unrealized gains |
(18,552 | ) | (10,993 | ) | |||
Unamortized organization costs |
(280 | ) | (292 | ) | |||
Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency(1) |
93,215 | 52,752 | |||||
| | | | | | | |
Total |
$ | 95,595 | $ | 53,170 | |||
| | | | | | | |
| | | | | | | |
The aggregate cost of the Company's investments for federal income tax purposes totaled $2,861,755 and $2,247,420 as of June 30, 2014 and December 31, 2013, respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis was $93,215 and $52,752 as of June 30, 2014 and December 31, 2013, respectively.
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, 2014 and December 31, 2013:
|
June 30, 2014 (Unaudited) |
December 31, 2013 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amortized Cost(1) |
Fair Value | Percentage of Portfolio |
Amortized Cost(1) |
Fair Value | Percentage of Portfolio |
|||||||||||||
Senior Secured LoansFirst Lien |
$ | 837,310 | $ | 854,665 | 29 | % | $ | 624,327 | $ | 634,919 | 27 | % | |||||||
Senior Secured LoansSecond Lien |
899,236 | 910,104 | 31 | % | 673,512 | 683,723 | 30 | % | |||||||||||
Senior Secured Bonds |
167,689 | 171,557 | 6 | % | 79,553 | 82,484 | 4 | % | |||||||||||
Subordinated Debt |
824,150 | 864,908 | 29 | % | 767,083 | 789,834 | 34 | % | |||||||||||
Equity/Other |
137,618 | 153,734 | 5 | % | 105,479 | 109,241 | 5 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 2,866,003 | $ | 2,954,968 | 100 | % | $ | 2,249,954 | $ | 2,300,201 | 100 | % | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
31
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)
As of June 30, 2014, the Company did not "control" and was not an "affiliated person" of any of its portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, the Company would be presumed to "control" a portfolio company if it owned 25% or more of its voting securities or it had the power to exercise control over the management or policies of such portfolio company, and would be an "affiliated person" of a portfolio company if it owned 5% or more of its voting securities.
The Company's investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2014, the Company had two senior secured loan investments with aggregate unfunded commitments of $56,357 and three equity/other investments with aggregate unfunded commitments of $16,722. As of June 30, 2014, these unfunded equity/other investments were BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy Offshore LLC. As of December 31, 2013, the Company had three senior secured loan investments with aggregate unfunded commitments of $62,149 and five equity/other investments with aggregate unfunded commitments of $24,558. As of December 31, 2013, these unfunded equity/other investments were American Energy Ohio Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, San Pedro Development, LLC and Synergy Offshore LLC. The Company maintains sufficient cash on hand and available borrowings 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, 2014 and December 31, 2013:
|
June 30, 2014 (Unaudited) |
December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Industry Classification | Fair Value | Percentage of Portfolio |
Fair Value | Percentage of Portfolio |
|||||||||
Upstream |
$ | 1,479,639 | 50 | % | $ | 1,112,686 | 48 | % | |||||
Midstream |
268,579 | 9 | % | 288,414 | 13 | % | |||||||
Downstream |
4,279 | 0 | % | 4,256 | 0 | % | |||||||
Power |
218,528 | 8 | % | 159,433 | 7 | % | |||||||
Service & Equipment |
983,943 | 33 | % | 735,412 | 32 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 2,954,968 | 100 | % | $ | 2,300,201 | 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
32
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 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.
As of June 30, 2014 and December 31, 2013, the Company's investments were categorized as follows in the fair value hierarchy:
Valuation Inputs | June 30, 2014 (Unaudited) |
December 31, 2013 | |||||
---|---|---|---|---|---|---|---|
Level 1Price quotations in active markets |
$ | | $ | | |||
Level 2Significant other observable inputs |
| | |||||
Level 3Significant unobservable inputs |
2,954,968 | 2,300,201 | |||||
| | | | | | | |
Total |
$ | 2,954,968 | $ | 2,300,201 | |||
| | | | | | | |
| | | | | | | |
The Company's investments as of June 30, 2014 consisted primarily of debt securities that were traded on a private over-the-counter market for institutional investors. Except as described below, the Company valued its 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. Fourteen senior secured loan investments, one senior secured bond investment and one subordinated debt investment were valued by an independent valuation firm, 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. All of the Company's equity/other investments were valued by the same 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 earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. One subordinated debt investment, which was newly-issued and purchased near June 30, 2014, 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.
33
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 Company's investments as of December 31, 2013 consisted primarily of debt securities that were traded on a private over-the-counter market for institutional investors. Except as described below, the Company valued its 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. Six senior secured loan investments and two subordinated debt investments, for which broker quotes were not available, were valued by an independent valuation firm, 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. Except as described below, all of the Company's equity/other investments were valued by the same 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. One senior secured loan investment, one subordinated debt investment and two equity/other investments, all of which were newly-issued and purchased near December 31, 2013, were valued at cost, as the Company's board of trustees determined that the cost of each such investment was the best indication of its fair value.
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 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 an independent valuation firm, to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through its third-party pricing service or independent dealers or where the Company's board of trustees otherwise determines that the use of such methods is appropriate. The Company periodically benchmarks the valuations provided by the independent valuation firm against the actual prices at which it purchases and sells its investments. The Company's valuation committee and board of trustees reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company's valuation process.
34
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 following is a reconciliation for the six months ended June 30, 2014 and 2013 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:
|
For the Six Months Ended June 30, 2014 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Senior Secured Loans First Lien |
Senior Secured Loans Second Lien |
Senior Secured Bonds |
Subordinated Debt |
Equity/ Other |
Total | |||||||||||||
Fair value at beginning of period |
$ | 634,919 | $ | 683,723 | $ | 82,484 | $ | 789,834 | $ | 109,241 | $ | 2,300,201 | |||||||
Accretion of discount (amortization of premium) |
418 | 2,182 | 290 | 1,643 | 1,408 | 5,941 | |||||||||||||
Net realized gain (loss) |
368 | 91 | 827 | 3,405 | | 4,691 | |||||||||||||
Net change in unrealized appreciation (depreciation) |
6,763 | 657 | 937 | 18,007 | 12,354 | 38,718 | |||||||||||||
Purchases |
300,140 | 365,115 | 116,066 | 244,591 | 33,735 | 1,059,647 | |||||||||||||
Paid-in-kind interest |
| 4,223 | | | 1,983 | 6,206 | |||||||||||||
Sales and redemptions |
(87,943 | ) | (145,887 | ) | (29,047 | ) | (192,572 | ) | (4,987 | ) | (460,436 | ) | |||||||
Net transfers in or out of Level 3 |
| | | | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Fair value at end of period |
$ | 854,665 | $ | 910,104 | $ | 171,557 | $ | 864,908 | $ | 153,734 | $ | 2,954,968 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
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 |
$ | 7,798 | $ | 4,748 | $ | 1,884 | $ | 24,854 | $ | 17,341 | $ | 56,625 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
For the Six Months Ended June 30, 2013 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Senior Secured Loans First Lien |
Senior Secured Loans Second Lien |
Senior Secured Bonds |
Subordinated Debt |
Equity/ Other |
Total | |||||||||||||
Fair value at beginning of period |
$ | 200,752 | $ | 73,451 | $ | 35,158 | $ | 345,849 | $ | 45,962 | $ | 701,172 | |||||||
Accretion of discount (amortization of premium) |
1,338 | 244 | (46 | ) | (136 | ) | (68 | ) | 1,332 | ||||||||||
Net realized gain (loss) |
879 | (52 | ) | 236 | 2,358 | | 3,421 | ||||||||||||
Net change in unrealized appreciation (depreciation) |
(1,198 | ) | 2,125 | (1,336 | ) | (3,764 | ) | 1,094 | (3,079 | ) | |||||||||
Purchases |
440,555 | 299,169 | 56,866 | 259,208 | 1,000 | 1,056,798 | |||||||||||||
Sales and redemptions |
(198,707 | ) | (24,387 | ) | (13,611 | ) | (111,768 | ) | | (348,473 | ) | ||||||||
Net transfers in or out of Level 3 |
| | | | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Fair value at end of period |
$ | 443,619 | $ | 350,550 | $ | 77,267 | $ | 491,747 | $ | 47,988 | $ | 1,411,171 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
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 |
$ | 883 | $ | 2,732 | $ | (907 | ) | $ | (1,333 | ) | $ | 1,094 | $ | 2,469 | |||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
35
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, 2014 and December 31, 2013 were as follows:
Type of Investment | Fair Value at June 30, 2014 (Unaudited) |
Valuation Technique(1) |
Unobservable Input |
Range | Weighted Average |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Senior Secured LoansFirst Lien |
$ | 262,485 | Market Comparables | Market Yield (%) | 7.5% - 11.3% | 9.3% | |||||
|
592,180 | Market Quotes | Indicative Dealer Quotes | 90.0% - 104.8% | 101.4% | ||||||
Senior Secured LoansSecond Lien |
411,496 | Market Comparables | Market Yield (%) | 8.3% - 11.3% | 9.9% | ||||||
|
498,608 | Market Quotes | Indicative Dealer Quotes | 97.1% - 103.6% | 100.9% | ||||||
Senior Secured Bonds |
64,226 | Market Comparables | Market Yield (%) | 11.3% - 11.8% | 11.5% | ||||||
|
107,331 | Market Quotes | Indicative Dealer Quotes | 102.5% - 114.5% | 107.9% | ||||||
Subordinated Debt |
75,750 | Market Comparables | Market Yield (%) | 11.0% - 11.5% | 11.3% | ||||||
|
787,158 | Market Quotes | Indicative Dealer Quotes | 95.0% - 115.4% | 106.1% | ||||||
|
2,000 | Cost | Cost | N/A | N/A | ||||||
Equity/Other |
153,734 | Market Comparables | Market Yield (%) | 15.3% - 15.8% | 15.5% | ||||||
|
EBITDA Multiples (x) | 5.8x - 8.5x | 6.8x | ||||||||
|
Production Multiples (Mmb/d) | $57,500.0 - $460,000.0 | $208,570.9 | ||||||||
|
Proved Reserves Multiples (Mmboe) | $9.1 - $88.5 | $23.7 | ||||||||
|
PV-10 Multiples (x) | 0.4x - 3.1x | 1.3x | ||||||||
|
Discounted Cash Flow | Discount Rate (%) | 10.8% - 33.0% | 21.1% | |||||||
|
Option Valuation Model | Volatility (%) | 45.0% - 47.5% | 46.5% | |||||||
| | | | | | | | | | | |
Total |
$ | 2,954,968 | |||||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
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)
Type of Investment(1) | Fair Value at December 31, 2013(2) |
Valuation Technique(3) |
Unobservable Input |
Range | Weighted Average |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Senior Secured LoansFirst Lien |
$ | 108,313 | Market Comparables | Market Yield (%) | 8.0% - 11.0% | 9.2% | |||||
Senior Secured LoansSecond Lien |
$ | 184,232 | Market Comparables | Market Yield (%) | 8.5% - 11.3% | 10.2% | |||||
Subordinated Debt |
$ | 110,613 | Market Comparables | Market Yield (%) | 7.5% - 8.0% | 7.8% | |||||
Equity/Other |
$ | 108,790 | Market Comparables | Market Yield (%) | 15.3% - 15.8% | 15.5% | |||||
|
EBITDA Multiples (x) | 7.5x - 7.8x | 7.6x | ||||||||
|
Production Multiples (Mmb/d) | $191,000.0 - $194,000.0 | $192,500.0 | ||||||||
|
Proved Reserves Multiples (Mmboe) | $6.1 - $16.8 | $16.3 | ||||||||
|
PV-10 Multiples (x) | 0.2x - 1.8x | 1.0x | ||||||||
|
Discounted Cash Flow | Discount Rate (%) | 9.8% - 28.0% | 15.1% | |||||||
|
Option Valuation Model | Volatility (%) | 52.5% | 52.5% |
Note 8. Financing Arrangements
The following table presents summary information with respect to the Company's outstanding financing arrangements as of June 30, 2014. For additional information regarding these financing facilities, please see the notes to the Company's audited consolidated financial statements contained in its annual report on Form 10-K for the fiscal year ended December 31, 2013 and the additional disclosure set forth in this Note 8.
Facility | Type of Facility | Rate | Amount Outstanding | Amount Available | Maturity Date | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
BNP Facility |
Prime Brokerage | L + 1.10 | % | $ | 145,000 | $ | 55,000 | March 27, 2015 | (1) | ||||||
Citibank Credit Facility |
Revolving | L + 2.50 | % | $ | 175,000 | | May 24, 2015 | ||||||||
Deutsche Bank Credit Facility |
Revolving | L + 1.80 | % | $ | 240,000 | $ | 100,000 | June 11, 2015 | |||||||
Natixis Credit Facility |
Revolving | CP + 2.25% | (2) | $ | 150,000 | | July 11, 2023 |
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,
37
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)
with BNP Paribas Prime Brokerage, Inc., or BNP, pursuant to which Berwyn Funding may borrow, from time to time, up to $200,000 from BNP. 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 and among Berwyn Funding, BNP and State Street Bank and Trust Company, or State Street, as custodian, each dated as of December 11, 2013, 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 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 facility are non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in Berwyn Funding.
Borrowings under the BNP facility accrue interest at a rate equal to three-month LIBOR plus 1.10% per annum. Berwyn Funding is required to pay a non-usage fee of 0.55% per annum to the extent the aggregate principal amount available under the facility is not borrowed. Berwyn Funding may terminate the committed facility agreement upon 270 days' notice. 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, 2014 and December 31, 2013, $145,000 and $60,000, respectively, was outstanding under the BNP facility. The carrying amount outstanding under the facility approximates its fair value. The Company incurred costs of $299 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the 270 day period following the closing date of the BNP facility. As of June 30, 2014, $76 of such deferred financing costs had yet to be amortized to interest expense.
For the three and six months ended June 30, 2014, the components of total interest expense for the BNP facility were as follows:
|
Three Months Ended June 30, 2014 |
Six Months Ended June 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
Direct interest expense |
$ | 398 | $ | 645 | |||
Non-usage fees |
115 | 287 | |||||
Amortization of deferred financing costs |
99 | 199 | |||||
| | | | | | | |
Total interest expense |
$ | 612 | $ | 1,131 | |||
| | | | | | | |
| | | | | | | |
38
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, 2014, 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, 2014 |
|||
---|---|---|---|---|
Cash paid for interest expense(1) |
$ | 806 | ||
Average borrowings under the facility |
$ | 96,326 | ||
Effective interest rate on borrowings |
1.33 | % | ||
Weighted average interest rate (including the effect of non-usage fees) |
1.93 | % |
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.
Citibank Credit Facility
On May 24, 2013, EP Funding LLC, or EP Funding, the Company's wholly-owned, special-purpose financing subsidiary, entered into a revolving credit facility, or the Citibank credit facility, with Citibank, N.A., or Citibank, as administrative agent, and the financial institutions and other lenders from time to time party thereto. The Citibank credit facility provides for borrowings in an aggregate principal amount up to $175,000 on a committed basis.
The Company may contribute cash or debt securities to EP Funding from time to time, subject to certain restrictions set forth in the Citibank credit facility, and will retain a residual interest in any assets contributed through its ownership of EP Funding or will receive fair market value for any debt securities sold to EP Funding. EP Funding may purchase additional debt securities from various sources. EP Funding has appointed the Company to manage its portfolio of debt securities pursuant to the terms of an investment management agreement. EP Funding's obligations to Citibank under the facility are secured by a first priority security interest in substantially all of the assets of EP Funding, including its portfolio of debt securities. The obligations of EP Funding under the facility are non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in EP Funding.
Borrowings under the Citibank credit facility accrue interest at a rate equal to three-month LIBOR plus 2.50% per annum during the first eighteen months of the facility and three-month LIBOR plus 2.75% per annum thereafter. Borrowings under the facility are subject to compliance with an equity coverage ratio with respect to the current value of EP Funding's portfolio and a loan compliance test with respect to the initial acquisition of each debt security in EP Funding's portfolio.
Beginning on August 21, 2013, EP Funding became subject to a non-usage fee of 0.50% per annum to the extent that the aggregate principal amount available under the Citibank credit facility is not borrowed. Outstanding borrowings under the facility will be amortized beginning on November 24, 2014. Any amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 24, 2015.
39
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, 2014 and December 31, 2013, $175,000 and $174,174, respectively, was outstanding under the Citibank credit facility. The carrying amount outstanding under the facility approximates its fair value. The Company incurred costs of $657 in connection with obtaining the 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, 2014, $295 of such deferred financing costs had yet to be amortized to interest expense.
For the three and six months ended June 30, 2014 and 2013, the components of total interest expense for the Citibank credit facility were as follows:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Direct interest expense |
$ | 1,208 | $ | 100 | $ | 2,386 | $ | 100 | |||||
Non-usage fees |
| | 1 | | |||||||||
Amortization of deferred financing costs |
82 | 34 | 163 | 34 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 1,290 | $ | 134 | $ | 2,550 | $ | 134 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the six months ended June 30, 2014 and 2013, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Citibank credit facility were as follows:
|
Six Months Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Cash paid for interest expense(1) |
$ | 2,401 | | ||||
Average borrowings under the facility(2) |
$ | 174,462 | $ | 69,667 | |||
Effective interest rate on borrowings |
2.74 | % | 2.85 | % | |||
Weighted average interest rate (including the effect of non-usage fees) |
2.74 | % | 2.86 | % |
Borrowings of EP Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
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, which provided for borrowings in an aggregate amount of up to $50,000. On May 30, 2012, August 28, 2012 and October 18, 2012, FSEP Funding and Deutsche Bank entered into separate amendments to the Deutsche Bank credit facility which increased the aggregate
40
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)
borrowings available under the facility to $100,000, $175,000 and $240,000, respectively. On June 24, 2013, FSEP Funding and Deutsche Bank entered into an additional amendment to the Deutsche Bank credit facility which extended the maturity date of the facility to June 24, 2014 and consolidated the existing four tranches of commitments under the facility into a single tranche of commitments with an aggregate principal amount of $240,000. On June 11, 2014, FSEP Funding and Deutsche Bank entered into an additional amendment to the Deutsche Bank credit facility which, among other things, (a) increased the maximum commitments under the facility from $240,000 to $340,000 through the addition of a $100,000 tranche of revolving loan commitments from State Street Bank and Trust Company, or State Street, and (b) extended the scheduled maturity date from June 24, 2014 to June 11, 2015.
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 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 facility are non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in FSEP Funding.
Pricing under the Deutsche Bank credit facility is based on LIBOR for an interest period equal to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding, with the commitments under the facility bearing interest at the rate of LIBOR plus 1.80% 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 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, 2015.
As of June 30, 2014 and December 31, 2013, $240,000 was outstanding under the Deutsche Bank credit facility. The carrying amount outstanding under the facility approximates its fair value. The Company incurred costs of $2,150 in connection with obtaining and amending the 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, 2014, $804 of such deferred financing costs had yet to be amortized to interest expense.
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)
For the three and six months ended June 30, 2014 and 2013, 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, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Direct interest expense |
$ | 1,225 | $ | 1,029 | $ | 2,444 | $ | 1,997 | |||||
Non-usage fees |
42 | 84 | 42 | 191 | |||||||||
Amortization of deferred financing costs |
186 | 168 | 334 | 335 | |||||||||
| | | | | | | | | | | | | |
Total interest expense |
$ | 1,453 | 1,281 | $ | 2,820 | $ | 2,523 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the six months ended June 30, 2014 and 2013, 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, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Cash paid for interest expense(1) |
$ | 2,463 | $ | 2,102 | |||
Average borrowings under the facility |
$ | 240,000 | $ | 192,429 | |||
Effective interest rate on borrowings |
2.02 | % | 2.07 | % | |||
Weighted average interest rate (including the effect of non-usage fees) |
2.07 | % | 2.27 | % |
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.
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 provides for borrowings in an aggregate principal amount up to $150,000 on a committed basis.
The Company may contribute cash or debt securities to Energy Funding from time to time, subject to certain restrictions set forth in the Natixis credit facility, and will retain a residual interest in any assets contributed through its ownership of Energy Funding or will receive fair market value for any debt securities sold to Energy Funding. Energy Funding may purchase additional debt securities from various sources. 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 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
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)
the facility are non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in Energy Funding.
Prior to March 2014, borrowings under the Natixis credit facility accrued interest at a rate equal to three-month LIBOR plus 2.40% per annum. In March 2014, borrowings under the Natixis credit facility began to accrue interest at a rate equal to the applicable commercial paper rate plus 2.25% per annum. Borrowings under the facility are subject to compliance with, among other things, an overcollateralization ratio test with respect to the current value of Energy Funding's portfolio, an interest coverage ratio test with respect to the payments due under the facility and eligibility criteria with respect to the initial acquisition of each debt security in Energy Funding's portfolio.
Energy Funding is subject to a non-usage fee of 1.00% per annum to the extent that the aggregate principal amount available under the Natixis credit facility is not borrowed. Any amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on July 11, 2023.
As of June 30, 2014 and December 31, 2013, $150,000 was outstanding under the Natixis credit facility. The carrying amount outstanding under the facility approximates its fair value. The Company incurred costs of $2,544 in connection with obtaining the 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, 2014, $2,296 of such deferred financing costs had yet to be amortized to interest expense.
For the three and six months ended June 30, 2014, the components of total interest expense for the Natixis credit facility were as follows:
|
Three Months Ended June 30, 2014 |
Six Months Ended June 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
Direct interest expense |
$ | 676 | $ | 1,804 | |||
Amortization of deferred financing costs |
65 | 128 | |||||
| | | | | | | |
Total interest expense |
$ | 741 | $ | 1,932 | |||
| | | | | | | |
| | | | | | | |
For the six months ended June 30, 2014, 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, 2014 |
|||
---|---|---|---|---|
Cash paid for interest expense(1) |
$ | 1,881 | ||
Average borrowings under the facility |
$ | 150,000 | ||
Effective interest rate on borrowings |
2.51 | % | ||
Weighted average interest rate |
2.57 | % |
Borrowings of Energy Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.
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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 a 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 adverse effect upon its financial condition or results of operations.
See Note 6 for a discussion of the Company's unfunded commitments.
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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, 2014 and the year ended December 31, 2013:
|
Six Months Ended June 30, 2014 (Unaudited) |
Year Ended December 31, 2013 |
|||||
---|---|---|---|---|---|---|---|
Per Share Data:(1) |
|||||||
Net asset value, beginning of period |
$ | 9.66 | $ | 9.34 | |||
Results of operations(2) |
|||||||
Net investment income (loss) |
0.31 | 0.58 | |||||
Net realized and unrealized appreciation (depreciation) on investments and total return swap and gain/loss on foreign currency |
0.21 | 0.36 | |||||
| | | | | | | |
Net increase (decrease) in net assets resulting from operations |
0.52 | 0.94 | |||||
| | | | | | | |
Shareholder distributions(3) |
|||||||
Distributions from net investment income |
(0.32 | ) | (0.65 | ) | |||
Distributions from net realized gain on investments |
| (0.01 | ) | ||||
| | | | | | | |
Net decrease in net assets resulting from shareholder distributions |
(0.32 | ) | (0.66 | ) | |||
| | | | | | | |
Capital share transactions |
|||||||
Issuance of common shares(4) |
0.02 | 0.09 | |||||
Repurchases of common shares(5) |
| | |||||
Offering costs(2) |
(0.02 | ) | (0.05 | ) | |||
| | | | | | | |
Net increase (decrease) in net assets resulting from capital share transactions |
0.00 | 0.04 | |||||
| | | | | | | |
Net asset value, end of period |
$ | 9.86 | $ | 9.66 | |||
| | | | | | | |
| | | | | | | |
Shares outstanding, end of period |
233,800,135 | 173,532,259 | |||||
| | | | | | | |
| | | | | | | |
Total return(6) |
5.38 | % | 10.49 | % | |||
| | | | | | | |
| | | | | | | |
Ratio/Supplemental Data: |
|||||||
Net assets, end of period |
$ | 2,304,186 | $ | 1,676,237 | |||
| | | | | | | |
| | | | | | | |
Ratio of net investment income to average net assets(7) |
3.20 | % | 6.04 | % | |||
Ratio of total expenses to average net assets(7) |
3.29 | % | 5.89 | % | |||
Portfolio turnover(8) |
17.60 | % | 53.26 | % |
45
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)
|
|
Six Months Ended June 30, 2014 (Unaudited) |
Year Ended December 31, 2013 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
Ratio of accrued capital gains incentive fees to average net assets |
0.43 | % | 0.75 | % | ||||
|
Ratio of subordinated income incentive fees to average net assets |
0.74 | % | 0.69 | % | ||||
|
Ratio of interest expense to average net assets |
0.43 | % | 0.84 | % | ||||
|
Ratio of income and excise taxes to average net assets |
0.01 | % | 0.07 | % |
46
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
47
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:
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 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.
Our investment activities are managed by FS Advisor and supervised by our board of trustees, a majority of whom are independent. Under the 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. We consider 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. 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 objectives are 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 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
48
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 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, we may on occasion receive equity interests such as warrants or options as additional consideration.
49
Revenues
The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on total return swap, net realized gain or loss on foreign currency, net unrealized appreciation or depreciation on investments, net unrealized appreciation or depreciation on total return swap and net 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 total return swap is the net monthly settlement payments received on the TRS. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized appreciation or depreciation on total return swap is the net change in the fair value of the TRS. Net 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. In future periods, we do not expect our revenues to include net realized gain or loss on total return swap or net unrealized appreciation or depreciation on total return swap as a result of the termination of our TRS on May 24, 2013. We may, however, elect to utilize a total return swap in the future.
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 commitment, closing, origination, structuring or diligence fees, monitoring 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 facilities 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. 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, please see our annual report on Form 10-K for the year ended December 31, 2013.
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
50
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 the expense reimbursement agreement, Franklin Square Holdings 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 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, Franklin Square Holdings 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, Franklin Square Holdings will reimburse us 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 income for tax purposes, net capital gains and dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment income or net capital gains for tax purposes) in each quarter.
Pursuant to the expense reimbursement agreement, we have a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of our net investment income for tax purposes, 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 income or net capital gains for tax purposes) exceeds the distributions paid by us to our shareholders; provided, however, that (i) we will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings 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 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 common shares represented by "other operating expenses" during the fiscal year in which such expense support payment from Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal year) and (ii) we will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings 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 Franklin Square Holdings made the expense support payment to which such reimbursement relates. "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.
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We or Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, our conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.
Franklin Square Holdings 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 Franklin Square Holdings will reimburse any portion of our expenses in future quarters.
During the six months ended June 30, 2014 and 2013, we did not accrue any reimbursements from Franklin Square Holdings. As of June 30, 2014 and December 31, 2013, we had no reimbursements due from Franklin Square Holdings. Under the expense reimbursement agreement, amounts reimbursed by Franklin Square Holdings may become subject to repayment by us in the future. During the six months ended June 30, 2014 and 2013, we did not accrue any amounts for expense recoupments payable to Franklin Square Holdings. During the six months ended June 30, 2013, we paid $1,083 in expense recoupments to Franklin Square Holdings. As of June 30, 2014, no further amounts remained subject to repayment by us to Franklin Square Holdings in the future.
Portfolio Investment Activity for the Three and Six Months Ended June 30, 2014 and for the Year Ended December 31, 2013
During the six months ended June 30, 2014, we made investments in portfolio companies totaling $1,059,647. During the same period, we sold investments for proceeds of $192,754 and received principal repayments of $267,682. As of June 30, 2014, our investment portfolio, with a total fair value of $2,954,968, consisted of interests in 120 portfolio companies (29% in first lien senior secured loans, 31% in second lien senior secured loans, 6% in senior secured bonds, 29% in subordinated debt and 5% in equity/other). The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $221.8 million. As of June 30, 2014, the investments in our portfolio were purchased at a weighted average price of 99.5% of par or stated value, as applicable, the weighted average credit rating of the investments in our portfolio that were rated (constituting approximately 62.4% of our portfolio based on the fair value of our investments) was B3 based upon the ratings scale employed by Moody's Investors Service, Inc., or Moody's, and our estimated gross annual portfolio yield, prior to leverage (which represents the expected yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), was 8.8% based upon the amortized cost of our investments. The portfolio yield does not represent an actual investment return to shareholders.
Based on our regular weekly cash distribution rate of $0.013625 per share as of June 30, 2014 and our public offering price of $10.95 per share as of such date, the annualized distribution rate to shareholders as of June 30, 2014 was 6.47%. 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. 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 section entitled "Risk Factors" in our annual report on Form 10-K for the fiscal year ended December 31, 2013 and our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with these statements.
During the year ended December 31, 2013, we made investments in portfolio companies totaling $2,295,602. During the same period, we sold investments for proceeds of $521,048 and received
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principal repayments of $214,625. As of December 31, 2013, our investment portfolio, with a total fair value of $2,300,201, consisted of interests in 104 portfolio companies (27% in first lien senior secured loans, 30% in second lien senior secured loans, 4% in senior secured bonds, 34% in subordinated debt and 5% in equity/other). The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $185.8 million. As of December 31, 2013, the investments in our portfolio were purchased at a weighted average price of 99.5% of par or stated value, as applicable, the weighted average credit rating of the investments in our portfolio that were rated (constituting approximately 63.2% of our portfolio based on the fair value of our investments) was B3 based upon the Moody's scale, and our estimated gross annual portfolio yield, prior to leverage, was 8.8% based upon the amortized cost of our investments. Our gross annual portfolio yield, prior to leverage, represents the expected yield to be generated by us on our investment portfolio based on the composition of our portfolio as of December 31, 2013. The portfolio yield does not represent an actual investment return to shareholders.
Based on our regular weekly cash distribution rate of $0.012675 per share as of December 31, 2013 and our public offering price of $10.80 per share as of such date, the annualized distribution rate to shareholders as of December 31, 2013 was 6.10%. 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. 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 section entitled "Risk Factors" in our annual report on Form 10-K for the fiscal year ended December 31, 2013 and 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, 2014:
Net Investment Activity | For the Three Months Ended June 30, 2014 |
For the Six Months Ended June 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
Purchases |
$ | 714,676 | $ | 1,059,647 | |||
Sales and Redemptions |
(356,453 | ) | (460,436 | ) | |||
| | | | | | | |
Net Portfolio Activity |
$ | 358,223 | $ | 599,211 | |||
| | | | | | | |
| | | | | | | |
|
For the Three Months Ended June 30, 2014 |
For the Six Months Ended June 30, 2014 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
New Investment Activity by Asset Class | Purchases | Percentage | Purchases | Percentage | |||||||||
Senior Secured LoansFirst Lien |
$ | 123,482 | 17 | % | $ | 300,140 | 28 | % | |||||
Senior Secured LoansSecond Lien |
351,726 | 49 | % | 365,115 | 35 | % | |||||||
Senior Secured Bonds |
53,996 | 8 | % | 116,066 | 11 | % | |||||||
Subordinated Debt |
173,400 | 24 | % | 244,591 | 23 | % | |||||||
Equity/Other |
12,072 | 2 | % | 33,735 | 3 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 714,676 | 100 | % | $ | 1,059,647 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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The following table summarizes the composition of our investment portfolio at cost and fair value as of June 30, 2014 and December 31, 2013:
|
June 30, 2014 (Unaudited) |
December 31, 2013 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amortized Cost(1) |
Fair Value | Percentage of Portfolio |
Amortized Cost(1) |
Fair Value | Percentage of Portfolio |
|||||||||||||
Senior Secured LoansFirst Lien |
$ | 837,310 | $ | 854,665 | 29 | % | $ | 624,327 | $ | 634,919 | 27 | % | |||||||
Senior Secured LoansSecond Lien |
899,236 | 910,104 | 31 | % | 673,512 | 683,723 | 30 | % | |||||||||||
Senior Secured Bonds |
167,689 | 171,557 | 6 | % | 79,553 | 82,484 | 4 | % | |||||||||||
Subordinated Debt |
824,150 | 864,908 | 29 | % | 767,083 | 789,834 | 34 | % | |||||||||||
Equity/Other |
137,618 | 153,734 | 5 | % | 105,479 | 109,241 | 5 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 2,866,003 | $ | 2,954,968 | 100 | % | $ | 2,249,954 | $ | 2,300,201 | 100 | % | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The following table presents certain selected information regarding the composition of our investment portfolio as of June 30, 2014 and December 31, 2013:
|
June 30, 2014 | December 31, 2013 | |||||
---|---|---|---|---|---|---|---|
Number of Portfolio Companies |
120 | 104 | |||||
% Variable Rate (based on fair value) |
60.4 | % | 60.5 | % | |||
% Fixed Rate (based on fair value) |
34.4 | % | 34.7 | % | |||
% Income Producing Equity or Other Investments (based on fair value) |
2.9 | % | 3.9 | % | |||
% Non-Income Producing Equity or Other Investments (based on fair value) |
2.3 | % | 0.9 | % | |||
Average Annual EBITDA of Portfolio Companies |
$ | 221,846 | $ | 185,816 | |||
Weighted Average Purchase Price of Investments (as a % of par or stated value) |
99.5 | % | 99.5 | % | |||
Weighted Average Credit Rating of Investments that were Rated |
B3 | B3 | |||||
% of Investments on Non-Accrual |
| | |||||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) |
8.8 | % | 8.8 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding Non-Income Producing Assets |
8.9 | % | 8.9 | % |
Direct Originations
The following tables present certain selected information regarding our direct originations for the three and six months ended June 30, 2014:
Net Direct Originations | For the Three Months Ended June 30, 2014 |
For the Six Months Ended June 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
Total Commitments (including Unfunded Commitments) |
$ | 187,622 | $ | 466,760 | |||
Exited Investments (including partial paydowns) |
(112,158 | ) | (116,971 | ) | |||
| | | | | | | |
Net Direct Originations |
$ | 75,464 | $ | 349,789 | |||
| | | | | | | |
| | | | | | | |
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|
For the Three Months Ended June 30, 2014 |
For the Six Months Ended June 30, 2014 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
New Direct Originations by Asset Class (including Unfunded Commitments) | Commitment Amount |
Percentage | Commitment Amount |
Percentage | |||||||||
Senior Secured LoansFirst Lien |
$ | 15,000 | 8 | % | $ | 152,636 | 33 | % | |||||
Senior Secured LoansSecond Lien |
140,000 | 75 | % | 221,010 | 47 | % | |||||||
Senior Secured Bonds |
24,750 | 13 | % | 66,073 | 14 | % | |||||||
Equity/Other |
7,872 | 4 | % | 27,041 | 6 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 187,622 | 100 | % | $ | 466,760 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
For the Three Months Ended June 30, 2014 |
For the Six Months Ended June 30, 2014 |
|||||
---|---|---|---|---|---|---|---|
Average New Direct Origination Commitment Amount |
$ | 46,905 | $ | 42,433 | |||
Weighted Average Maturity for New Direct Originations |
9/26/18 | 3/2/19 | |||||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations during Period |
9.0 | % | 9.6 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period |
8.5 | % | 8.6 | % |
The following table presents certain selected information regarding our direct originations as of June 30, 2014 and December 31, 2013:
Characteristics of All Direct Originations held in Portfolio | June 30, 2014 | December 31, 2013 | |||||
---|---|---|---|---|---|---|---|
Number of Portfolio Companies |
17 | 11 | |||||
Average Annual EBITDA of Portfolio Companies |
$ | 28,502 | $ | 42,800 | |||
Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other Securities |
5.1x | 3.9x | |||||
% of Investments on Non-Accrual |
| | |||||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations |
9.9 | % | 10.0 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations during PeriodExcluding Non-Income Producing Assets |
9.4 | % | 10.1 | % | |||
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct OriginationsExcluding Non-Income Producing Assets |
10.5 | % | 10.3 | % |
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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, 2014 and December 31, 2013:
|
June 30, 2014 | December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portfolio Composition by Strategy | Fair Value | Percentage of Portfolio |
Fair Value | Percentage of Portfolio |
|||||||||
Direct Originations |
$ | 967,690 | 33 | % | $ | 577,357 | 25 | % | |||||
Opportunistic |
692,754 | 23 | % | 648,496 | 28 | % | |||||||
Broadly Syndicated/Other |
1,294,524 | 44 | % | 1,074,348 | 47 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 2,954,968 | 100 | % | $ | 2,300,201 | 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, 2014 and December 31, 2013:
|
June 30, 2014 (Unaudited) |
December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Industry Classification | Fair Value | Percentage of Portfolio |
Fair Value | Percentage of Portfolio |
|||||||||
Upstream |
$ | 1,479,639 | 50 | % | $ | 1,112,686 | 48 | % | |||||
Midstream |
268,579 | 9 | % | 288,414 | 13 | % | |||||||
Downstream |
4,279 | 0 | % | 4,256 | 0 | % | |||||||
Power |
218,528 | 8 | % | 159,433 | 7 | % | |||||||
Service & Equipment |
983,943 | 33 | % | 735,412 | 32 | % | |||||||
| | | | | | | | | | | | | |
Total |
$ | 2,954,968 | 100 | % | $ | 2,300,201 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As of June 30, 2014, we did not "control" and were not an "affiliated person" of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would be presumed to "control" a portfolio company if we owned 25% or more of its voting securities or we had the power to exercise control over the management or policies of such portfolio company, and would be an "affiliated person" of a portfolio company if we owned 5% or more of its voting securities.
Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2014, we had two senior secured loan investments with aggregate unfunded commitments of $56,357 and three equity/other investments with aggregate unfunded commitments of $16,722. As of June 30, 2014, these unfunded equity/other investments were BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy Offshore LLC. As of December 31, 2013, we had three senior secured loan investments with aggregate unfunded commitments of $62,149 and five equity/other investments with aggregate unfunded commitments of $24,558. As of December 31, 2013, these unfunded equity/other investments were American Energy Ohio Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, San Pedro Development, LLC and Synergy Offshore LLC. We maintain sufficient cash on hand and available borrowings 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
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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, 2014 and December 31, 2013:
|
June 30, 2014 | December 31, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Investment Rating | Fair Value | Percentage of Portfolio |
Fair Value | Percentage of Portfolio |
|||||||||
1 |
$ | 78,257 | 3 | % | $ | 76,865 | 3 | % | |||||
2 |
2,769,164 | 94 | % | 2,160,052 | 94 | % | |||||||
3 |
107,547 | 3 | % | 63,284 | 3 | % | |||||||
4 |
| | | | |||||||||
5 |
| | | | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 2,954,968 | 100 | % | $ | 2,300,201 | 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, 2014 and 2013
Revenues
We generated investment income of $72,007 and $24,172 for the three months ended June 30, 2014 and 2013, respectively, in the form of interest and fees earned on senior secured loans, senior secured bonds and subordinated debt investments in our portfolio and dividends and other distributions earned on equity/other investments in our portfolio. Such revenues represent $64,206 and $23,239 of cash income earned as well as $7,801 and $933 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the three months ended June 30, 2014 and 2013, 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. We expect the dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio increases.
Expenses
Our total expenses were $34,977 and $8,601 for the three months ended June 30, 2014 and 2013, respectively. Our expenses include base management fees attributed to FS Advisor of $14,678 and
57
$6,654 for the three months ended June 30, 2014 and 2013, respectively. Our expenses also include administrative services expenses attributed to FS Advisor of $1,008 and $544 for the three months ended June 30, 2014 and 2013, respectively.
FS Advisor is eligible to receive incentive fees based on our performance. During the three months ended June 30, 2014, we accrued subordinated incentive fees on income of $10,013 based on the performance of our portfolio. We did not accrue any subordinated incentive fees on income during the three months ended June 30, 2013. During the three months ended June 30, 2014, we accrued capital gains incentive fees of $3,015 based on the performance of our portfolio. During the three months ended June 30, 2013, we reversed $1,621 of capital gains incentive fees previously accrued by us based on the performance of our portfolio.
We recorded interest expense of $4,096 and $1,415 for the three months ended June 30, 2014 and 2013, respectively, in connection with our credit facilities. For the three months ended June 30, 2014 and 2013, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $288 and $168, respectively, and fees and expenses incurred with our share transfer agent totaled $660 and $475, respectively. Fees for our board of trustees were $135 and $199 for the three months ended June 30, 2014 and 2013, respectively.
Our other general and administrative expenses totaled $1,033 and $767 for the three months ended June 30, 2014 and 2013, respectively, and consisted of the following:
|
Three Months Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Expenses associated with our independent audit and related fees |
$ | 111 | $ | 89 | |||
Compensation of our chief compliance officer |
40 | 45 | |||||
Legal fees |
225 | 203 | |||||
Printing fees |
52 | 263 | |||||
Insurance expense |
57 | 41 | |||||
Other |
548 | 126 | |||||
| | | | | | | |
Total |
$ | 1,033 | $ | 767 | |||
| | | | | | | |
| | | | | | | |
We generally expect our total expenses related to our ongoing operations to decrease as a percentage of our average net assets because of the anticipated growth in the size of our asset base. During the three months ended June 30, 2014 and 2013, the ratio of our total expenses to our average net assets was 1.64% and 0.90% respectively. During the three months ended June 30, 2014 and 2013, our ratio of total expenses to average net assets included $4,096 and $1,415, respectively, related to interest expense, $13,028 and $(1,621), respectively, related to accruals for (or reversals of previously accrued) incentive fees and $51 and $0, respectively, related to accruals for income taxes. Without such expenses, our ratio of total expenses to average net assets would have been 0.83% and 0.92% for the three months ended June 30, 2014 and 2013, 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, 2014 and 2013, we did not accrue any reimbursements from Franklin Square Holdings, and we did not accrue any amounts for expense recoupments payable to Franklin Square Holdings. During the three months ended June 30, 2013, we paid $99 in expense recoupments to Franklin Square Holdings. For a discussion of the expense reimbursement agreement, see "OverviewExpense Reimbursement."
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Net Investment Income
Our net investment income totaled $37,030 ($0.17 per share) and $15,571 ($0.16 per share) for the three months ended June 30, 2014 and 2013, respectively. The increase in net investment income for the three months ended June 30, 2014 was primarily driven by the growth of our portfolio over the past year and an increase in the amount of income received from directly originated and opportunistic investments. However, our net investment income on a per share basis remained relatively unchanged, as these benefits were offset by increases in accruals for incentive fees during the period.
Net Realized Gains or Losses
We sold investments and received principal repayments of $109,225 and $247,228, respectively, during the three months ended June 30, 2014, from which we realized a net gain of $2,411. We realized a net gain of $31 from settlements on foreign currency during the three months ended June 30, 2014. We sold investments and received principal repayments of $211,018 and $101,563, respectively, during the three months ended June 30, 2013, from which we realized a net gain of $3,760. During the three months ended June 30, 2013, we earned $9,817 from periodic net settlement payments on our TRS and the termination of our TRS, which are reflected as realized gains.
Net Change in Unrealized Appreciation (Depreciation) on Investments and Total Return Swap and Unrealized Gain (Loss) on Foreign Currency
For the three months ended June 30, 2014 and 2013, the net change in unrealized appreciation (depreciation) on investments totaled $12,697 and $(15,946), respectively, and the net change in unrealized gain (loss) on foreign currency was $(50) and $(25), respectively. The net change in unrealized appreciation (depreciation) on our TRS for the three months ended June 30, 2013 was $(5,731). The change in unrealized appreciation (depreciation) on our investments during the three months ended June 30, 2014 was primarily driven by the performance of our directly originated and opportunistic investments. The change in unrealized appreciation (depreciation) on our investments and TRS during the three months ended June 30, 2013 was primarily driven by a general widening of credit spreads during the second quarter of 2013 and the termination of our TRS, which converted unrealized gains as of March 31, 2013 into realized gains.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the three months ended June 30, 2014 and 2013, the net increase (decrease) in net assets resulting from operations was $52,119 ($0.24 per share) and $7,446 ($0.07 per share), respectively.
Comparison of the Six Months Ended June 30, 2014 and 2013
Revenues
We generated investment income of $128,563 and $45,083 for the six months ended June 30, 2014 and 2013, respectively, in the form of interest and fees earned on senior secured loans, senior secured bonds and subordinated debt investments in our portfolio and dividends and other distributions earned on equity/other investments in our portfolio. Such revenues represent $116,416 and $43,751 of cash income earned as well as $12,147 and $1,332 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the six months ended June 30, 2014 and 2013, 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. We expect the dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio increases.
59
Expenses
Our total expenses were $65,245 and $20,553 for the six months ended June 30, 2014 and 2013, respectively. Our expenses include base management fees attributed to FS Advisor of $27,545 and $11,365 for the six months ended June 30, 2014 and 2013, respectively. Our expenses also include administrative services expenses attributed to FS Advisor of $1,943 and $997 for the six months ended June 30, 2014 and 2013, respectively.
FS Advisor is eligible to receive incentive fees based on our performance. During the six months ended June 30, 2014 and 2013, we accrued subordinated incentive fees on income of $14,623 and $753, respectively, based on the performance of our portfolio. During the six months ended June 30, 2014 and 2013, we accrued capital gains incentive fees of $8,580 and $1,989, respectively, based on the performance of our portfolio, of which $7,559 and $(33), respectively, was based on unrealized gains (or a decline in unrealized gains) and $1,021 and $2,022, respectively, was based on realized gains. No capital gains incentive fees are actually payable by us with respect to unrealized gains unless and until those gains are actually realized. See "Critical Accounting PoliciesCapital Gains Incentive Fee."
We recorded interest expense of $8,433 and $2,657 for the six months ended June 30, 2014 and 2013, respectively, in connection with our credit facilities. For the six months ended June 30, 2014 and 2013, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $554 and $308, respectively, and fees and expenses incurred with our share transfer agent totaled $1,307 and $875, respectively. Fees for our board of trustees were $416 and $399 for the six months ended June 30, 2014 and 2013, respectively.
Our other general and administrative expenses totaled $1,737 and $1,210 for the six months ended June 30, 2014 and 2013, respectively, and consisted of the following:
|
Six Months Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Expenses associated with our independent audit and related fees |
$ | 205 | $ | 164 | |||
Compensation of our chief compliance officer |
60 | 55 | |||||
Legal fees |
468 | 403 | |||||
Printing fees |
141 | 277 | |||||
Insurance expense |
113 | 70 | |||||
Other |
750 | 241 | |||||
| | | | | | | |
Total |
$ | 1,737 | $ | 1,210 | |||
| | | | | | | |
| | | | | | | |
We generally expect our total expenses related to our ongoing operations to decrease as a percentage of our average net assets because of the anticipated growth in the size of our asset base. During the six months ended June 30, 2014 and 2013, the ratio of our total expenses to our average net assets was 3.29% and 2.46% respectively. During the six months ended June 30, 2014 and 2013, our ratio of total expenses to average net assets included $8,433 and $2,657, respectively, related to interest expense, $23,203 and $2,742, respectively, related to accruals for incentive fees and $107 and $0, respectively, related to accruals for income taxes. Without such expenses, our ratio of total expenses to average net assets would have been 1.69% and 1.81% for the six months ended June 30, 2014 and 2013, 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.
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Expense Reimbursement
During the six months ended June 30, 2014 and 2013, we did not accrue any reimbursements from Franklin Square Holdings. Under the expense reimbursement agreement, amounts reimbursed by Franklin Square Holdings may become subject to repayment by us in the future. During the six months ended June 30, 2014 and 2013, we did not accrue any amounts for expense recoupments payable to Franklin Square Holdings. During the six months ended June 30, 2013, we paid $1,083 in expense recoupments to Franklin Square Holdings. As of June 30, 2014, no further amounts remained subject to repayment by us to Franklin Square Holdings in the future. For a discussion of the expense reimbursement agreement, see "OverviewExpense Reimbursement."
Net Investment Income
Our net investment income totaled $63,318 ($0.31 per share) and $24,530 ($0.28 per share) for the six months ended June 30, 2014 and 2013, respectively. The change in net investment income on a per share basis for the six months ended June 30, 2014 was primarily driven by an increase in the amount of income received from directly originated and opportunistic investments, which was offset to some extent by increases in accruals for incentive fees during the period.
Net Realized Gains or Losses
We sold investments and received principal repayments of $192,754 and $267,682, respectively, during the six months ended June 30, 2014, from which we realized a net gain of $4,691. We realized a net loss of $507 from settlements on foreign currency during the six months ended June 30, 2014. We sold investments and received principal repayments of $212,828 and $135,645, respectively, during the six months ended June 30, 2013, from which we realized a net gain of $3,421. During the six months ended June 30, 2013, we earned $12,736 from periodic net settlement payments on our TRS and the termination of our TRS, which are reflected as realized gains, and realized a net gain of $10 from settlements on foreign currency.
Net Change in Unrealized Appreciation (Depreciation) on Investments and Total Return Swap and Unrealized Gain (Loss) on Foreign Currency
For the six months ended June 30, 2014 and 2013, the net change in unrealized appreciation (depreciation) on investments totaled $38,718 and $(3,079), respectively, and the net change in unrealized gain (loss) on foreign currency was $31 and $(30), respectively. The net change in unrealized appreciation (depreciation) on our TRS for the six months ended June 30, 2013 was $(3,141). The change in unrealized appreciation (depreciation) on our investments during the six months ended June 30, 2014 was primarily driven by a general tightening of credit spreads and by the performance of our directly originated and opportunistic investments. The change in unrealized appreciation (depreciation) on our investments and TRS during the six months ended June 30, 2013 was primarily driven by a general widening of credit spreads during the second quarter of 2013 and the termination of our TRS, which converted unrealized gains as of December 31, 2012 into realized gains.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the six months ended June 30, 2014 and 2013, the net increase (decrease) in net assets resulting from operations was $106,251 ($0.52 per share) and $34,447 ($0.39 per share), respectively.
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Financial Condition, Liquidity and Capital Resources
As of June 30, 2014, we had $142,571 in cash, which is held in a custodial account, and $155,000 in borrowings available under our financing facilities. Below is a summary of our outstanding financing facilities as of June 30, 2014:
Facility | Type of Facility | Rate | Amount Outstanding | Amount Available | Maturity Date | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
BNP Facility |
Prime Brokerage | L + 1.10 | % | $ | 145,000 | $ | 55,000 | March 27, 2015 | (1) | ||||||
Citibank Credit Facility |
Revolving | L + 2.50 | % | $ | 175,000 | | May 24, 2015 | ||||||||
Deutsche Bank Credit Facility |
Revolving | L + 1.80 | % | $ | 240,000 | $ | 100,000 | June 11, 2015 | |||||||
Natixis Credit Facility |
Revolving | CP + 2.25% | (2) | $ | 150,000 | | July 11, 2023 |
For additional information regarding our outstanding financing facilities as of June 30, 2014, see Note 8 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q.
During the six months ended June 30, 2014, we sold 60,600,780 common shares for gross proceeds of $648,113 at an average price per share of $10.69. The gross proceeds received during the six months ended June 30, 2014 include reinvested shareholder distributions of $48,357, for which we issued 4,940,721 common shares. During the six months ended June 30, 2014, we also incurred offering costs of $3,131 in connection with the sale of our common shares, which consisted primarily of legal, due diligence and printing fees. The offering costs were offset against capital in excess of par value on our consolidated financial statements. The sales commissions and dealer manager fees related to the sale of our common shares were $55,288 for the six months ended June 30, 2014. These sales commissions and fees include $10,646 retained by the dealer manager, FS2, which is one of our affiliates.
Since commencing our continuous public offering and through July 29, 2014, we have sold 242,924,123 common shares (as adjusted for share distributions) for gross proceeds of $2,536,600. As of July 29, 2014, we have raised total gross proceeds of $2,556,804, 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. As of July 29, 2014, we have sold an aggregate of 3,557,918 common shares (as adjusted for share distributions) for aggregate gross proceeds of $32,143 to members of our 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.
We generate cash primarily from the net proceeds of our continuous public offering 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. We are engaged in a continuous public offering of our common shares. We accept subscriptions on a continuous basis and issue common shares at weekly closings. Shares are issued at prices that, after deducting selling commissions and dealer manager fees, must be above our net asset value per share.
Prior to investing in securities of portfolio companies, we invest the net proceeds from our continuous public offering and from sales and paydowns of existing investments primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments
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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.
The following table provides information concerning our repurchases of common shares pursuant to our share repurchase program during the six months ended June 30, 2014 and 2013:
For the Three Months Ended | Repurchase Date |
Shares Repurchased |
Percentage of Shares Tendered That Were Repurchased |
Repurchase Price Per Share |
Aggregate Consideration for Repurchased Shares |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal 2013 |
|||||||||||||||
December 31, 2012 |
January 2, 2013 | 24,249 | 100 | % | $ | 9.405 | $ | 228 | |||||||
March 31, 2013 |
April 1, 2013 | 82,689 | 100 | % | $ | 9.540 | $ | 789 | |||||||
Fiscal 2014 |
|||||||||||||||
December 31, 2013 |
January 2, 2014 | 174,181 | 100 | % | $ | 9.720 | $ | 1,693 | |||||||
March 31, 2014 |
April 2, 2014 | 158,723 | 100 | % | $ | 9.810 | $ | 1,557 |
On July 2, 2014, we repurchased 401,302 common shares (representing 100% of common shares tendered for repurchase) at $9.90 per share for aggregate consideration totaling $3,973.
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 our 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 our investment adviser. In connection with the same private placement, certain members of our 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, we 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 July 29, 2014, we have sold an aggregate of 3,557,918 common shares (as adjusted for share distributions) for aggregate gross proceeds of $32,143 to members of our 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.
RIC Status and Distributions
We have elected to be treated for federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify as a RIC, we must, among other things, distribute at least 90% of our "investment company taxable income," as defined by the Code, each
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year. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of the taxable year or the due date of the tax return, including extensions, distributions paid up to one year 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 to our shareholders to qualify for and maintain our RIC status each year. We are also subject to nondeductible federal excise taxes if we do not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years on which we paid no federal income taxes.
We declared our first distribution on July 21, 2011. We authorize and declare ordinary cash distributions on a weekly basis, and pay such distributions on a monthly or quarterly basis, in each case subject to our board of trustees' discretion and applicable legal restrictions. 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 we accept such shareholder's subscription for our common shares. 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.
During certain periods, our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our continuous public offering of common shares. 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. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our shareholders. No portion of the distributions paid during the six months ended June 30, 2014 and 2013 represented a return of capital.
We intend to continue to make our ordinary distributions in the form of cash out of assets legally available for distribution, unless shareholders elect to receive their distributions in additional common shares under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. shareholder.
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, 2014 and 2013:
|
Distribution | ||||||
---|---|---|---|---|---|---|---|
For the Three Months Ended | Per Share | Amount | |||||
Fiscal 2013 |
|||||||
March 31, 2013 |
$ | 0.1617 | $ | 12,496 | |||
June 30, 2013 |
$ | 0.1634 | $ | 16,686 | |||
Fiscal 2014 |
|||||||
March 31, 2014 |
$ | 0.1524 | $ | 28,423 | |||
June 30, 2014 |
$ | 0.1680 | $ | 36,323 |
On June 11, 2014, our board of trustees determined to increase the amount of the regular weekly cash distributions payable to shareholders of record from $0.012793 per share to $0.013625 per share and declared regular weekly cash distributions for July 2014 through September 2014. On August 6, 2014, our board of trustees declared regular weekly cash distributions for October 2014 through December 2014. These distributions have been or will be paid monthly to shareholders of record as of weekly record dates previously determined by our board of trustees in the amount of $0.013625 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.
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We have adopted an "opt in" distribution reinvestment plan for our shareholders. As a result, if we make a 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.
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 Franklin Square Holdings. We have not established limits on the amount of funds we may use from available sources to make distributions.
For a period of time following commencement of our continuous public offering, substantial portions of our distributions were funded through the reimbursement of certain expenses by Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FS Advisor, that were subject to repayment by us within three years. The purpose of this arrangement was to ensure that no portion of our distributions to shareholders was paid from offering proceeds or borrowings. Any such distributions funded through expense reimbursements or waivers of advisory fees were not based on our investment performance. No portion of the distributions paid during the six months ended June 30, 2014 or 2013 was funded through the reimbursement of operating expenses by Franklin Square Holdings. However, our repayment of amounts previously reimbursed or waived by Franklin Square Holdings and its affiliates reduced the distributions that shareholders may otherwise have received during the six months ended June 30, 2013. During the six months ended June 30, 2014, we did not repay any amounts to Franklin Square Holdings for expenses previously reimbursed or waived. There can be no assurance that we will continue to achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at a specific rate or at all. Franklin Square Holdings and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.
The following table reflects the sources of the cash distributions on a tax basis that we have paid on our common shares during the six months ended June 30, 2014 and 2013:
|
Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||||||||
Source of Distribution | Distribution Amount |
Percentage | Distribution Amount |
Percentage | |||||||||
Offering proceeds |
$ | | | $ | | | |||||||
Borrowings |
| | | | |||||||||
Net investment income(1) |
64,746 | 100 | % | 29,182 | 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 limited partnership interest |
| | | | |||||||||
Expense reimbursement from sponsor |
| | | | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 64,746 | 100 | % | $ | 29,182 | 100 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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Our net investment income on a tax basis for the six months ended June 30, 2014 and 2013 was $66,634 and $29,543, respectively. As of June 30, 2014 and December 31, 2013, we had $21,184 and $10,898, respectively, of undistributed ordinary income and net realized gains on a tax basis.
See Note 5 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for additional information regarding our distributions, including information regarding share distributions declared on our common shares and a reconciliation of our GAAP-basis net investment income and tax-basis net investment income for the six months ended June 30, 2014 and 2013.
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 that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded 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 third-party valuation services.
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Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or 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 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.
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 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 retains the discretion to use any relevant data, including information obtained from FS Advisor or any independent third-party valuation or pricing service, that it deems to be reliable in determining fair value under the circumstances. Below is a description of factors that our board of trustees may consider when valuing our debt and equity 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 our board of trustees may consider 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 (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.
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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 analysis 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.
Our board of trustees may also look to 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. Our board of trustees may also consider the 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 size of portfolio companies relative to comparable firms, as well as such other factors as our board of trustees, in consultation with any third-party valuation firm, 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 will subsequently value these warrants or other equity securities received at 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 investments as of June 30, 2014 consisted primarily of debt securities that were traded on a private over-the-counter market for institutional investors. Except as described below, we valued our 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. Fourteen senior secured loan investments, one senior secured bond investment and one subordinated debt investment were valued by an independent valuation firm, 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. All of our equity/other investments were valued by the same 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. One subordinated debt investment, which was newly-issued and purchased near June 30, 2014, was valued at cost, as our board of trustees determined that the cost of such investment was the best indication of its fair value.
Our investments as of December 31, 2013 consisted primarily of debt securities that were traded on a private over-the-counter market for institutional investors. Except as described below, we valued our 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. Six senior secured loan investments and two subordinated debt investments, for which broker quotes were not available, were valued by an independent valuation firm, 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
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features, anticipated prepayments and other relevant terms of the debt. Except as described below, all of our equity/other investments were valued by the same 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. One senior secured loan investment, one subordinated debt investment and two equity/other investments, all of which were newly-issued and purchased near December 31, 2013, were valued at cost, as our board of trustees determined that the cost of each such investment was the best indication of its fair value.
We periodically benchmark the bid and ask prices we receive from the third-party pricing service 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 an independent valuation firm, to determine fair value for securities for which we cannot obtain prevailing bid and ask prices through our third-party pricing service 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 firm 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 process.
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. 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. Upfront structuring fees are recorded as fee income when earned. We record prepayment premiums on loans and securities as fee income when we receive 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 upfront 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 those foreign denominated investments. Net change in unrealized gains or losses on foreign currency reflects the change in the value of 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
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(or upon termination of such agreement). Such fee will equal 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 applicable period, 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 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 if our entire portfolio were 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.
In addition, we historically treated all net settlement payments received by us pursuant to our TRS (which was terminated on May 24, 2013) as realized capital gains and included only the aggregate amount of unrealized depreciation on the TRS as a whole in calculating the capital gains incentive fee payable to FS Advisor with respect to realized gains, in each case, in accordance with GAAP. However, the Staff informed us that it is their interpretation of the applicable language in the Advisers Act that we should "look through" the TRS in calculating our capital gains incentive fee. Under this "look through" methodology, the portion of the net settlement payments received by us pursuant to the TRS which would have represented net investment income to us had we held the loans or securities underlying the TRS directly would be treated as net investment income subject to the subordinated incentive fee on income payable to FS Advisor pursuant to the investment advisory and administrative services agreement, rather than as realized capital gains in accordance with GAAP, and any unrealized depreciation on individual loans or securities underlying the TRS would further reduce the capital gains incentive fee payable to FS Advisor with respect to realized gains. FS Advisor voluntarily agreed to waive any capital gains incentive fee calculated in accordance with GAAP to which it would otherwise be entitled in respect of the TRS if and to the extent that the amount of such fee exceeds the sum of (i) the amount of capital gains incentive fee determined in respect of the TRS on a "look through" basis under which we treat the reference assets underlying the TRS as our investments and (ii) the aggregate amount of subordinated incentive fees on income which would have been payable to FS Advisor with respect to the portion of the net settlement payments received by us pursuant to the TRS which represent net investment income on the loans or securities underlying the TRS on a "look through" basis. As of June 30, 2013, the aggregate capital gains incentive fees paid to FS Advisor in prior periods and accrued as of such date with respect to realized gains in accordance with GAAP were less than the fees which would have been payable in accordance with the "look through" methodology.
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, as defined in the investment advisory and administrative services agreement, equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor will 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%. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor will be 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
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pre-incentive fee net investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted capital. Thereafter, FS Advisor will be 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, 2014 and 2013, 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 is required to provide such services, our sub-adviser, are reimbursed for administrative expenses incurred on our behalf. For the three months ended June 30, 2014 and 2013, we incurred $14,678 and $6,654, respectively, in base management fees and $1,008 and $544, respectively, in administrative services expenses under the investment advisory and administrative services agreement. For the six months ended June 30, 2014 and 2013, we incurred $27,545 and $11,365, respectively, in base management fees and $1,943 and $997, respectively, in administrative services expenses under the investment advisory and administrative services agreement. In addition, FS Advisor is eligible to receive incentive fees based on the performance of our portfolio. During the three months ended June 30, 2014 and 2013, we accrued subordinated incentive fees on income of $10,013 and $0, respectively, based on the performance of our portfolio. During the six months ended June 30, 2014 and 2013, we accrued subordinated incentive fees on income of $14,623 and $753, respectively, based on the performance of our portfolio and paid FS Advisor $11,396 and $753, respectively, in respect of such fees. As of June 30, 2014, a subordinated incentive fee on income of $10,013 was payable to FS Advisor. During the three months ended June 30, 2014, we accrued capital gains incentive fees of $3,015 based on the performance of our portfolio. During the three months ended June 30, 2013, we reversed $1,621 of capital gains incentive fees previously accrued. During the six months ended June 30, 2014 and 2013, we accrued capital gains incentive fees of $8,580 and $1,989, respectively, based on the performance of our portfolio, of which $7,559 and $(33), respectively, was based on unrealized gains (or a decline in unrealized gains) and $1,021 and $2,022, respectively, was based on realized gains. We paid FS Advisor $2,857 and $953, respectively, in capital gains incentive fees during the six months ended June 30, 2014 and 2013. As of June 30, 2014, we had accrued $19,573 in capital gains incentive fees, of which $18,552 was based on unrealized gains and $1,021 was based on realized gains.
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A summary of our significant contractual payment obligations for the repayment of outstanding borrowings under the BNP facility, the Citibank credit facility, the Deutsche Bank credit facility and the Natixis credit facility at June 30, 2014 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) |
$ | 145,000 | $ | 145,000 | | | | |||||||||
Citibank Credit Facility(2) |
$ | 175,000 | $ | 43,750 | $ | 131,250 | | | ||||||||
Deutsche Bank Credit Facility(3) |
$ | 240,000 | $ | 240,000 | | | | |||||||||
Natixis Credit Facility(4) |
$ | 150,000 | | | | $ | 150,000 |
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.
Recently Issued Accounting Standards
None.
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 and an incentive fee based on our performance. 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 incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, 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, as defined in the investment advisory and administrative services agreement, equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is accrued for on a quarterly basis and, if earned, is paid annually. We accrue this incentive fee based on
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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. See "Critical Accounting PoliciesCapital Gains Incentive Fee" for a discussion of the treatment of the TRS with respect to the calculation of the capital gains incentive fee.
We reimburse FS Advisor for expenses necessary to perform services related to our administration and operations. The amount of this reimbursement is set at the lesser of (1) FS Advisor's actual costs incurred in providing such services and (2) the amount that we estimate we 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 us based on factors such as assets, revenues, time allocations and/or other reasonable metrics. Our board of trustees then assesses the reasonableness of such reimbursements 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 providers known to be available. In addition, our 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, our board of trustees compares the total amount paid to FS Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.
Franklin Square Holdings has funded certain of our offering costs and organization costs. These costs have been recorded by us 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 us. Under the terms of the investment advisory and administrative services agreement, upon satisfaction of the minimum offering requirement, FS Advisor became entitled to receive 1.5% of gross proceeds raised in our continuous public offering until all offering costs and organization costs funded by FS Advisor or its affiliates (including Franklin Square Holdings) had been recovered. On July 18, 2011, we satisfied the minimum offering requirement. During the six months ended June 30, 2014 and 2013, Franklin Square Holdings did not fund any of our offering and organization costs, and we did not pay any reimbursements to FS Advisor and its affiliates for offering and organization costs previously funded.
The dealer manager for our continuous public offering is FS2, which is one of our affiliates. Under the dealer manager agreement among us, FS Advisor and FS2, FS2 is entitled to receive 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 may be re-allowed to selected broker-dealers.
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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, 2014 and 2013:
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Related Party | Source Agreement | Description | 2014 | 2013 | 2014 | 2013 | |||||||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Base Management Fee(1) | $ | 14,678 | $ | 6,654 | $ | 27,545 | $ | 11,365 | |||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Capital Gains Incentive Fee(2) | $ | 3,015 | $ | (1,621 | ) | $ | 8,580 | $ | 1,989 | ||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Subordinated Incentive Fee on Income(3) | $ | 10,013 | $ | | $ | 14,623 | $ | 753 | |||||||
FS Advisor |
Investment Advisory and Administrative Services Agreement | Administrative Services Expenses(4) | $ | 1,008 | $ | 544 | $ | 1,943 | $ | 997 | |||||||
FS2 |
Dealer Manager Agreement | Dealer Manager Fee(5) | $ | 5,608 | $ | 4,747 | $ | 10,646 | $ | 8,922 |
See Note 4 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for additional information regarding our related party transactions and relationships, including potential conflicts of interest, our exemptive relief order and our expense reimbursement arrangement with Franklin Square Holdings.
Recent Developments
During the period from July 1, 2014 to July 29, 2014, we sold 10,673,968 common shares for gross proceeds of $116,447 at an average price per share of $10.91.
On July 1, 2014, we increased our public offering price from $10.95 to $11.00 per share, effective as of our July 2, 2014 weekly closing.
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, 2014, 60.4% of our portfolio investments (based on fair value) paid variable interest rates, 34.4% paid fixed interest rates, 2.9% were income producing equity or other investments and the remainder (2.3%) 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
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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 BNP facility, the Citibank credit facility, the Deutsche Bank credit facility and the Natixis credit facility, Berwyn Funding, EP Funding, FSEP Funding and Energy 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, 2014 (dollar amounts are presented in thousands):
Basis Point Change in Interest Rate | Increase (Decrease) in Interest Income |
Increase (Decrease) in Interest Expense |
Increase (Decrease) in Net Interest Income |
Percentage Change in Net Interest Income |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Down 25 basis points |
$ | (53 | ) | $ | (1,721 | ) | $ | 1,668 | 0.7 | % | |||
No change |
| | | | |||||||||
Up 100 basis points |
1,795 | 6,883 | (5,088 | ) | (2.2 | )% | |||||||
Up 300 basis points |
34,375 | 20,650 | 13,725 | 5.9 | % | ||||||||
Up 500 basis points |
69,167 | 34,416 | 34,751 | 14.9 | % |
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, 2014 and 2013, we did not engage in interest rate hedging activities.
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, 2014. 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, 2014 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 adverse effect upon our financial condition or results of operations.
Investing in our common shares involves a number of significant risks. In addition to the other information contained in this quarterly report on Form 10-Q, investors should consider carefully the risk factors set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2013 and our additional filings with the SEC before making an investment in our common shares.
Risks Related to Our Business and Structure
Pending legislation may allow us to incur additional leverage.
As a BDC, we are generally not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Recent legislation introduced in the U.S. House of Representatives, if passed, would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the percentage from 200% to 150%. Even if this legislation does not pass, similar legislation may pass that permits us to incur additional leverage under the 1940 Act. As a result, we may be able to incur additional indebtedness in the future, and, therefore, the risk of an investment in our common shares may increase.
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, 2014 pursuant to our share repurchase program.
Period | Total Number of Shares Purchased |
Average Price Paid per Share |
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, 2014 |
158,723 | $ | 9.81 | 158,723 | (1 | ) | |||||||
May 1 to May 31, 2014 |
| | | | |||||||||
June 1 to June 30, 2014 |
| | | | |||||||||
| | | | | | | | | | | | | |
Total |
158,723 | $ | 9.81 | 158,723 | (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.
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Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Not applicable.
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3.1 | Third Amended and Restated Declaration of Trust 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 March 13, 2012.) | ||
3.2 |
Amended and Restated Bylaws of FS Energy and Power Fund. (Incorporated by reference to Exhibit 3.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on March 13, 2012.) |
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4.1 |
Form of Subscription Agreement. (Incorporated by reference to Appendix A filed with FS Energy and Power Fund's final prospectus filed on April 30, 2014 with the Securities and Exchange Commission pursuant to Rule 497 of the Securities Act of 1933, as amended.) |
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4.2 |
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 November 14, 2011.) |
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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.) |
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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.) |
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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.) |
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10.4 |
Dealer Manager Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS2 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.) |
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10.5 |
Form of Follow-On Dealer Manager Agreement by and among FS Energy and Power Fund, FS Investment Advisor, LLC and FS2 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.) |
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10.6 |
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.) |
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10.7 |
Form of Follow-On Selected Dealer Agreement. (Included as Exhibit A to the Form of Follow-On Dealer Manager Agreement.) (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.) |
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10.8 |
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.) |
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10.9 | 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.) | ||
10.10 |
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.) |
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10.11 |
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.) |
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10.12 |
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.) |
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10.13 |
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.) |
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10.14 |
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.) |
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10.15 |
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.) |
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10.16 |
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.) |
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10.17 |
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.) |
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10.18 |
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.) |
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10.19 |
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.) |
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10.20 |
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.) |
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10.21 |
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.) |
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10.22 | 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.) | ||
10.23 |
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.) |
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10.24 |
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.) |
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10.25 |
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.) |
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10.26 |
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.) |
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10.27 |
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.) |
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10.28 |
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.) |
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10.29 |
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.) |
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10.30 |
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.) |
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10.31 |
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.) |
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10.32 |
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.) |
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10.33 |
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.) |
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10.34 |
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.) |
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10.35 |
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.) |
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10.36 | 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.) | ||
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. |
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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. |
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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 13, 2014.
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) |
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I, Michael C. Forman, certify that:
Date:
August 13, 2014
/s/ MICHAEL C. FORMAN Michael C. Forman Chief Executive Officer |
I, Edward T. Gallivan, Jr. certify that:
Date:
August 13, 2014
/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-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, 2014, 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 13, 2014
/s/ MICHAEL C. FORMAN Michael C. Forman Chief Executive Officer |
||||
/s/ EDWARD T. GALLIVAN, JR. Edward T. Gallivan, Jr. Chief Financial Officer |