UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 13, 2015
Fifth Street Asset Management Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36701 | 46-5610118 |
| (State or other jurisdiction | (Commission File Number) | (I.R.S. Employer Identification No.) |
| of incorporation) |
777 West Putnam Avenue, 3rd Floor
Greenwich, CT 06830
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (203) 681-3600
______________________________________________
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 8.01. OTHER EVENTS.
On July 14, 2015, Fifth Street Finance Corp. (the “Company”) announced that its investment adviser, Fifth Street Management LLC (the “Adviser”), a subsidiary of Fifth Street Asset Management Inc., has voluntarily agreed to a revised base management fee arrangement (the “Revised Management Fee”) for the period commencing on July 1, 2015 and remaining in effect until January 1, 2017 (the “Waiver Period”). The Revised Management Fee is intended to provide for a reduction in the base management fee payable by the Company to the Adviser during the Waiver Period.
The Revised Management Fee will be calculated quarterly and will be equal to the Company’s gross assets, including assets acquired with borrowed funds, but excluding any cash and cash equivalents, multiplied by 0.25 multiplied by the sum of (x) and (y), expressed as a percentage, where (x) is equal to 2% multiplied by the Baseline NAV Percentage, and (y) is equal to 1% multiplied by the Incremental NAV Percentage.
The “Baseline NAV Percentage” is the percentage derived by dividing the Company’s net asset value as of March 31, 2015 (i.e., $1,407,774,000) (the “Baseline NAV”), by the net asset value of the Company at the beginning of the fiscal quarter for which the fee is being calculated (the “New NAV”). The “Incremental NAV Percentage” is the percentage derived by dividing the New NAV in excess of the Baseline NAV by the New NAV.
The Adviser’s letter agreement modifies the base management fee payable to the Adviser pursuant to the Company’s investment advisory agreement with the Adviser and results in a blended annual base management fee rate that will not be less than 1%, or greater than 2%. The initial computation of the Revised Management Fee will occur at the end of the quarter following the quarter in which the Company issues or sells shares of its common stock, including new shares issued as dividends or pursuant to the Company’s dividend reinvestment plan, but excluding non-ordinary course transactions as outlined below. Prior to that time, the annual base management fee rate will remain at 2%. Moreover, if any recalculation of the base management fee rate would otherwise result in an increase of the blended rate used, the blended rate in effect immediately prior to such recalculation would remain in effect until such time, if any, as a recalculation following an equity issuance would result in a lower fee rate.
The Revised Management Fee will not apply to any assets acquired by the Company through the issuance of shares of its common stock in non-ordinary course transactions, such as mergers or other types of business combination transactions, or the proceeds therefrom (“Excluded Assets”) and Excluded Assets will not be taken into account in calculating the New NAV, the Baseline NAV Percentage and/or the Incremental NAV Percentage.
As a result, as the Company raises additional equity capital and its net asset value increases, including through net unrealized/realized appreciation on its investments, the overall blended rate of the base management fee is expected to decrease during the Waiver Period.
The foregoing description of the Revised Management Fee is a summary and is qualified in its entirety by the terms of the letter agreement from the Adviser to the Company relating to the Revised Management Fee, a copy of which is filed as Exhibit No. 99.1 to this Current Report on Form 8-K and incorporated by reference herein.
The Company issued a press release on July 14, 2015 to announce the Revised Management Fee, a copy of which is attached hereto as Exhibit 99.2.
| ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
| (d) | Exhibits |
| Exhibit No. | Description |
| 99.1 | Letter Agreement from Fifth Street Management LLC to Fifth Street Finance Corp. relating to Revised Base Management Fee Arrangement |
| 99.2 | Press Release dated July 14, 2015 |
SIGNATURES
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 hereunto duly authorized.
| Date: July 17, 2015 | FIFTH STREET ASSET MANAGEMENT INC. | |
| By: /s/ David H. Harrison | ||
| Name: David H. Harrison | ||
| Title: Executive Vice President and Secretary |
Exhibit 99.1
Fifth Street Management LLC
777 West Putnam Avenue, 3rd Floor
Greenwich, CT 06830
July 13, 2015
Todd G. Owens
Chief Executive Officer
Fifth Street Finance Corp.
777 West Putnam Avenue, 3rd Floor
Greenwich, CT 06830
Re: Base Management Fee Waiver
Dear Todd:
Reference is hereby made to the Second Amended and Restated Investment Advisory Agreement (the “Agreement”), dated May 2, 2011, by and between Fifth Street Finance Corp. (the “Company”) and us. Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement.
For the period commencing on July 1, 2015 and ending on December 31, 2016 (the “Waiver Term”), we hereby agree to calculate the Base Management Fee as indicated below (“Amended Base Management Fee”) and waive such portion of the Base Management Fee that is in excess of the Amended Base Management Fee that we would otherwise be entitled to receive under the Agreement during the Waiver Term:
During the Waiver Term, the Amended Base Management Fee shall be calculated quarterly and shall be equal to:
| (i) | the Company’s gross assets, including assets purchased with borrowed funds, but excluding any cash and cash equivalents, multiplied by |
| (ii) | 0.25, multiplied by |
| (iii) | the sum of the following, expressed as a percentage: |
(x) 2% multiplied by the Baseline NAV Percentage (as defined below); and
(y) 1% multiplied by the Incremental NAV Percentage (as defined below).
For these purposes, the following definitions shall apply:
“Baseline NAV Percentage” means the result, expressed as a percentage, of the Baseline NAV divided by the New NAV; provided, however, that the Baseline NAV Percentage shall equal one hundred (100) percent until an Equity Issuance; provided, further, that the Baseline NAV Percentage shall remain the same subsequent to its computation following an Equity Issuance until each additional Equity Issuance, which will then require the re-computation of the Baseline NAV Percentage thereafter.
“Baseline NAV” shall equal $1,407,774,000.
“cash and cash equivalents” will have the meaning ascribed to it from time to time in the notes to the financial statements that the Company files with the Securities and Exchange Commission.
“Equity Issuance” means any public or private offer and sale or issuance of shares of the Company’s common stock by the Company after the date of this Agreement (including shares of common stock issued as dividends or pursuant to the Company’s dividend reinvestment plan, but excluding shares of common stock issued in connection with non-ordinary course transactions as outlined below).
“Incremental NAV Percentage” shall equal zero (0) percent until an Equity Issuance and thereafter shall equal the result, expressed as a percentage, obtained by dividing the Incremental NAV by the New NAV; provided, however, that the Incremental NAV Percentage shall only be adjusted subsequent to each additional Equity Issuance thereafter.
“Incremental NAV” means, with respect to a given fiscal quarter, the New NAV minus the Baseline NAV.
“New NAV” means, with respect to a given fiscal quarter, the net asset value of the Company at the beginning of such fiscal quarter less Excluded Assets, if any.
Notwithstanding anything to the contrary contained herein, but subject to the overall impact of the matters set forth in the proviso to this paragraph, the Baseline NAV Percentage shall not increase and the Incremental NAV Percentage shall not decrease after any change thereto as a result of any computations required to be made in accordance with this Amended Base Management Fee, and shall remain at the most recently determined percentage immediately prior to any adjustment which would cause the Baseline NAV Percentage to increase or the Incremental NAV Percentage to decrease. This provision is intended to ensure that these percentages do not change in a manner which would result in an increase in the sum of the percentages calculated pursuant to paragraph (iii) from a prior calculation thereof; provided, however, that (i) the Amended Base Management Fee and the waiver described herein will not apply to any assets acquired by the Company through the issuance of shares of its common stock
in non-ordinary course transactions, such as mergers or other types of business combination transactions, or the proceeds therefrom (e.g., fee, interest and other income received by the Company on such assets or funds received by the Company from sales and repayments on such assets as well as the reinvestment of such funds in additional assets) (“Excluded Assets”) and (ii) Excluded Assets will not be taken into account in calculating the New NAV, the Baseline NAV Percentage and/or the Incremental NAV Percentage.
[Signature page to follow]
Sincerely yours,
Fifth Street Management LLC
By: /s/ Leonard M. Tannenbaum
Name: Leonard M. Tannenbaum
Title: Chief Executive Officer
Exhibit 99.2
Fifth Street Finance Corp. Finalizes
a Waiver to Reduce Base Management Fee
to 1% on Future Equity Raises
GREENWICH, CT, July 14, 2015 – Fifth Street Finance Corp. (NASDAQ:FSC) (“FSC”) today announced that it has finalized a waiver with its investment adviser, a subsidiary of Fifth Street Asset Management Inc. (NASDAQ:FSAM) (“FSAM”), in which FSC’s investment adviser has agreed to waive a portion of its base management fee for increases in capital relating to issuances of new equity. Under the waiver, the fee related to new equity will be 1%. The initial term of the waiver is effective until January 1, 2017, at which point it is the intention of FSAM to renew the waiver annually.
Assuming new shares are issued, the blended fee, which will be between 1% and 2%, will be applied in the same manner as currently applied under FSC’s investment advisory agreement. All shareholders will be treated equally in the benefit of the fee reduction, regardless of when they invested.
“We are pleased to announce that we have finalized a waiver with our investment adviser that reduces management fees related to future growth,” stated Todd G. Owens, Chief Executive Officer, adding, “We believe that by reducing fees on any new share issuances, this both creates additional operating leverage and allows our shareholders to benefit from economies of scale as FSC continues to grow.”
About Fifth Street Finance Corp.
Fifth Street Finance Corp. is a leading specialty finance company that provides custom-tailored financing solutions to small and mid-sized companies, primarily in connection with investments by private equity sponsors. The company originates and invests in one-stop financings, first lien, second lien, mezzanine debt and equity co-investments. FSC’s investment objective is to maximize its portfolio’s total return by generating current income from its debt investments and capital appreciation from its equity investments. The company has elected to be regulated as a business development company and is externally managed by a subsidiary of Fifth Street Asset Management Inc. (NASDAQ:FSAM), a nationally recognized credit-focused asset manager with over $6 billion in assets under management as of March 31, 2015 across multiple public and private vehicles. With a track record of over 17 years, Fifth Street’s platform has the ability to hold loans up to $250 million and structure and syndicate transactions up to $500 million. Fifth Street received the 2015 ACG New York Champion's Award for “Lender Firm of the Year," and other previously received accolades include the ACG New York Champion's Award for “Senior Lender Firm of the Year,” “Lender Firm of the Year” by The M&A Advisor and “Lender of the Year” by Mergers & Acquisitions. FSC’s website can be found at fsc.fifthstreetfinance.com.
Forward-Looking Statements
This press release may contain certain forward-looking statements, including statements with regard to the future performance of the company. Words such as “believes,” “expects,” “estimates,” “projects,” “anticipates,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent
uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and these factors are identified from time to time in the company’s filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CONTACT:
Investor Contact:
Robyn Friedman, Vice President, Investor Relations
(203) 681-3720
ir@fifthstreetfinance.com
Media Contact:
Nick Rust
Prosek Partners
(212) 279-3115 ext. 252
pro-fifthstreet@prosek.com