FS Specialty Lending Fund Seeks Shareholder Approval for Closed-End Conversion
FS Specialty Lending Fund – a non-traded business development company sponsored by FS Investments and formerly known as FS Energy and Power Fund – is moving forward with its goal to list on a national securities exchange by late into the third quarter of 2025 or early Q4 2025.
In advance of the listing, the fund has begun seeking shareholder approval to convert the BDC into a registered closed-end fund under the Investment Company Act of 1940. This conversion will be structured as a merger, or reorganization, of the current fund into a newly formed entity: New FS Specialty Lending Fund. Shareholders will vote on this reorganization agreement at a special meeting during early Q3 2025.
Post-reorganization, the successor fund plans to adopt the FS Specialty Lending Fund name and seek listing under the ticker symbol “FSSL.”
Following the conversion and reorganization into a closed-end fund, the company said that the adviser would no longer be entitled to a capital gains incentive fee.
As previously reported by AltsWire, the BDC completed a 6-for-1 reverse share split on May 15, without changing shareholders’ aggregate investment value or ownership percentage. The action increased the fund’s net asset value per share, aiming to meet NYSE rules which mandate a minimum listing price of $4.00 per share – the fund’s NAV was $3.37 per share as of March 31, 2025 – and align the share price with the typical trading range of comparable closed-end funds, which have historically traded in the range of approximately $10 to $20 per share.
Upon listing, the fund’s base management fee will be reduced from 1.75% to 1.5% of gross assets. The adviser has agreed to waive 0.15% of the fee, resulting in an effective base management fee of 1.35% on gross assets. Upon listing, the adviser has agreed to waive a portion of the income incentive fee, reducing it from 20% to 10%, subject to an annualized hurdle rate of 6%.
According to the company, it expects to pay an enhanced quarterly for Q2 2025, paid this month, and based on an annualized distribution rate of 12.5% and FS Specialty Lending Fund’s then-current NAV. If a listing occurs prior to the end of Q3 2025, the company expects to pay a full quarterly enhanced distribution for the third quarter, payable in October. In the fourth quarter it expects to target a monthly or quarterly distribution representing an annualized distribution rate of approximately 9% to 9.5% of the fund’s NAV.
If a listing occurs in Q4 2025, the fund expects to pay a full quarterly enhanced distribution for the third quarter of 2025. In Q4 2025, it would target a monthly or quarterly distribution representing an annualized distribution rate of approximately 9% to 9.5% of the fund’s NAV.
By January 2026, it expects the listing to have occurred and FSSL to declare and pay distributions on a monthly basis.
The fund anticipates that its quarterly repurchase offer will remain suspended until the listing, at which point all shares will become freely tradeable on the NYSE.
The listing is subject to final board and shareholder approvals, as well as market conditions.
As of March 31, 2025, diversified credit investments represented 88% of the portfolio compared to 85.5% as of Dec. 31, 2024. The fund generated a net asset value-based total return of 2.29% during the Q1 2025, compared to 0.94% for the high yield bond index and 0.48% for senior secured loans.
The BDC made continued progress transitioning the portfolio to diversified credit investments during the first quarter – exiting legacy energy holdings and reducing the level of debt investments on non-accrual. Private credit investments represented 57.2% of total purchases during the quarter of which $182 million, or 89% of which were co-investments across other portfolios managed by the global credit team. During the Q1 2025, 76.7% of purchases were in senior secured debt.
When FS Specialty Lending Fund changed its name in May 2023, it also changed its investment focus. Per reporting by AltsWire, the BDC began investing primarily in a portfolio of secured and unsecured floating and fixed rate loans, bonds, and other types of credit instruments. Its aim was to invest 80% of the fund’s total assets this way instead of its prior 80% focus on securities of energy and/or energy and power-related companies.
If the BDC succeeds in listing on the NYSE, it would join other formerly non-traded entities that have gone public in the last few years. SmartStop Self Storage REIT (NYSE:SMA) debuted on the NYSE earlier this month. American Healthcare REIT (NYSE:AHR) and Sila Realty Trust (NYSE:SILA) – two formerly non-traded real estate investment trusts – listed on the NYSE in 2024.
National Healthcare Properties Inc., formerly known as AR Global Healthcare Trust, has also declared its intention to pursue a listing. In October 2024, National Healthcare internalized management and also completed a reverse stock split in preparation.
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