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) January
20, 2016 (January 19, 2016)
Fifth Street Finance Corp.
(Exact name of registrant as specified in
its charter)
Delaware |
001-33901 |
26-1219283 |
(State or other jurisdiction
of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
777 West Putnam Avenue, 3rd Floor, Greenwich, CT |
06830 |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including
area code: (203) 681-3600
Not Applicable
(Former name or former address, if changed
since last report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01. Entry into a Material Definitive Agreement.
At an in-person meeting held on January 19, 2016, the board
of directors of Fifth Street Finance Corp. (“FSC”), including all of the directors who are not interested persons,
unanimously approved the entry by FSC on such date into a third amended and restated investment advisory agreement (the “Third
Amended and Restated Investment Advisory Agreement”) with Fifth Street Management LLC, a subsidiary of Fifth Street Asset
Management Inc. (“FSM”), as investment adviser. The Third Amended and Restated Investment Advisory Agreement reduces
the base management fee payable to FSM on gross assets, excluding cash and cash equivalents, from 2.00% to 1.75%, effective as of
January 1, 2016. The other commercial terms of FSC’s existing investment advisory relationship with FSM remain unchanged.
The foregoing description of the Third Amended and Restated
Investment Advisory Agreement does not purport to be complete and is qualified in its entirety by reference to the Third Amendment
and Restated Investment Advisory Agreement, attached hereto as Exhibit 10.1 and incorporated by reference herein. In addition,
FSC today issued a press release announcing, among other things, the reduction in base management fees payable to FSM. A copy of
the press release is attached hereto as Exhibit 99.1.
Item 2.02. Results of Operations and Financial Condition.
On January 20, 2016, FSC issued a press release announcing,
among other things, its preliminary financial results for the quarter ended December 31, 2015. A copy of the press release is attached
hereto as Exhibit 99.1 and is incorporated by reference herein.
The information disclosed under this Item 2.02, including Exhibit
99.1 hereto, is being “furnished” and is not deemed “filed” by FSC for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor
is it deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except
as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
| 10.1 | Third Amended and Restated Investment Advisory Agreement by and between the Fifth Street Finance Corp. and Fifth Street Management
LLC, dated as of January 19, 2016 |
| 99.1 | Press release dated January 20, 2016 |
SIGNATURE
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.
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FIFTH STREET FINANCE CORP.
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Date: January 20, 2016 |
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By: |
/s/ Kerry Acocella |
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Name: Kerry Acocella
Title: Chief Compliance Officer |
THIRD AMENDED AND RESTATED INVESTMENT
ADVISORY AGREEMENT
BETWEEN
FIFTH STREET FINANCE CORP.
AND
FIFTH STREET MANAGEMENT LLC
This Third Amended and Restated Investment
Advisory Agreement (this “Agreement”) made this 19th day of January 2016, by and between FIFTH STREET
FINANCE CORP., a Delaware corporation (the “Company”), and FIFTH STREET MANAGEMENT LLC, a Delaware limited
liability company (the “Adviser”).
WHEREAS, the Company is a closed-end management
investment fund that has elected to be regulated as a business development company (“BDC”) under the
Investment Company Act of 1940, as amended (the “Investment Company Act”); and
WHEREAS, the Adviser is organized as an
investment adviser that is registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”);
and
WHEREAS, the Company and the Adviser entered
into an investment advisory agreement, dated December 14, 2007 (the “Original Advisory Agreement”);
WHEREAS, the Company and the Adviser entered
into an amended and restated investment advisory agreement, dated April 30, 2008 (the “First Amended and Restated Advisory
Agreement”), which amended and restated in its entirety the Original Advisory Agreement; and
WHEREAS, the Company and the Adviser entered
into an amended and restated investment advisory agreement, dated May 2, 2011 (the “Second Amended and Restated Advisory
Agreement”), which amended and restated in its entirety the First Amended and Restated Advisory Agreement; and
WHEREAS, the Company and the Adviser further
desire to amend and restate in its entirety the Second Amended and Restated Advisory Agreement to reflect, among other things,
a revision to the Base Management Fee (as defined below).
NOW, THEREFORE, in consideration of the
premises and for other good and valuable consideration, the parties hereby agree as follows:
(a)
The Company hereby employs the Adviser to act as the investment adviser to the Company and to manage the investment and
reinvestment of the assets of the Company, subject to the supervision of the Board of Directors of the Company, (the “Board”)
for the period and upon the terms herein set forth, (i) in accordance with the investment objective, policies and restrictions
that are set forth in the reports and/or registration statements that the Company files with the Securities and Exchange Commission
(the “SEC”) from time to time; (ii) during the term of this Agreement in accordance with all other applicable
federal and state laws, rules and regulations, and the Company’s charter and by-laws; and (iii) in accordance with the Investment
Company Act. Without limiting the generality of the foregoing, the Adviser shall, during the term and subject to the provisions
of this Agreement (A) determine the composition of the portfolio of the Company, the nature and timing of the changes therein and
the manner of implementing such changes; (B) identify, evaluate and negotiate the structure of the investments made by the Company;
(C) close, monitor and service the Company’s investments; (D) determine the securities and other assets that the Company
shall purchase, retain, or sell; (E) perform due diligence on prospective portfolio companies; and (F) provide the Company with
such other investment advisory, research and related services as the Company may, from time to time, reasonably require for the
investment of its funds. The Adviser shall have the power and authority on behalf of the Company to effectuate its investment decisions
for the Company, including the execution and delivery of all documents relating to the Company’s investments and the placing
of orders for other purchase or sale transactions on behalf of the Company. In the event that the Company determines to obtain
debt financing, the Adviser shall arrange for such financing on the Company’s behalf, subject to the oversight and approval
of the Board.
(b)
The Adviser hereby accepts such employment and agrees during the term hereof to render the services described herein for
the compensation provided herein.
(c)
The Adviser is hereby authorized to enter into one or more sub-advisory agreements with other investment advisers (each,
a “Sub-Adviser”) pursuant to which the Adviser may obtain the services of the Sub-Adviser(s) to assist
the Adviser in fulfilling its responsibilities hereunder. Specifically, the Adviser may retain a Sub-Adviser to recommend specific
securities or other investments based upon the Company’s investment objective and policies, and work, along with the Adviser,
in structuring, negotiating, arranging or effecting the acquisition or disposition of such investments and monitoring investments
on behalf of the Company, subject to the oversight of the Adviser and the Company. The Adviser and not the Company shall be responsible
for any compensation payable to any Sub-Adviser. Any sub-advisory agreement entered into by the Adviser shall be in accordance
with the requirements of the Investment Company Act and other applicable federal and state law.
(d)
The Adviser shall, for all purposes herein provided, be deemed to be an independent contractor and, except as expressly
provided or authorized herein, shall have no authority to act for or represent the Company in any way or otherwise be deemed an
agent of the Company.
(e)
Subject to review by and the overall control of the Board, the Adviser shall keep and preserve for the period required by
the Investment Company Act any books and records relevant to the provision of its investment advisory services to the Company and
shall specifically maintain all books and records with respect to the Company’s portfolio transactions and shall render to
the Board such periodic and special reports as the Board may reasonably request. The Adviser agrees that all records that it maintains
for the Company are the property of the Company and shall surrender promptly to the Company any such records upon the Company’s
request, provided that the Adviser may retain a copy of such records.
| 2. | Company’s Responsibilities and Expenses Payable by the Company. |
All personnel of the Adviser, when and to
the extent engaged in providing investment advisory services hereunder, and the compensation and routine overhead expenses of such
personnel allocable to such services, shall be provided and paid for by the Adviser and not by the Company. The Company shall bear
all other costs and expenses of its operations and transactions, including (without limitation) fees and expenses relating to:
organizational and offering expenses; the investigation and monitoring of the Company’s investments; the cost of calculating
the Company’s net asset value; the cost of effecting sales and repurchases of shares of the Company’s common stock
and other securities; management and incentive fees payable pursuant to this Agreement; fees payable to third parties relating
to, or associated with, making investments and valuing investments (including third-party valuation firms); transfer agent and
custodial fees; fees and expenses associated with marketing efforts (including attendance at investment conferences and similar
events); federal and state registration fees; any exchange listing fees; federal, state and local taxes; independent directors’
fees and expenses; brokerage commissions; costs of proxy statements, stockholders’ reports and notices; costs of preparing
government filings, including periodic and current reports with the SEC; fidelity bond, liability insurance and other insurance
premiums; and printing, mailing, independent accountants and outside legal costs and all other direct expenses incurred by either
the Company’s administrator, currently FSC CT, LLC, or the Company in connection with administering the Company’s business,
including payments under the Company’s administration agreement with its administrator (as in effect from time to time, the
“Adminstration Agreement”) that are based upon the Company’s allocable portion of overhead and other
expenses incurred by the Company’s administrator in performing its obligations under the Administration Agreement and the
compensation of the Company’s chief financial officer and chief compliance officer, and their respective staffs.
| 3. | Compensation of the Adviser. |
The Company agrees to pay, and the Adviser
agrees to accept, as compensation for the services provided by the Adviser hereunder, a base management fee (“Base
Management Fee”) and an incentive fee (“Incentive Fee”) as hereinafter set forth. The Adviser
may agree to temporarily or permanently waive, in whole or in part, the Base Management Fee and/or the Incentive Fee. See Appendix
A for examples of how these fees are calculated.
(a) Effective as of January 1, 2016, the Base Management Fee shall be calculated at an annual rate of 1.75% of the Company’s
gross assets, excluding any cash and cash equivalents. For purposes of this Agreement, the term “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
SEC. The Base Management Fee shall be payable quarterly in arrears, and shall be calculated based on the value of the Company’s
gross assets at the end of each fiscal quarter, and appropriately adjusted for any equity capital raises or repurchases during
such quarter. The Base Management Fee for any partial month or quarter shall be appropriately prorated.
(b) The
Incentive Fee shall consist of two parts, as follows:
| (i) | The first part shall be calculated and payable quarterly in arrears based on the Company’s ‘‘Pre-Incentive
Fee Net Investment Income’’ for the immediately preceding fiscal quarter. For this purpose, ‘‘Pre-Incentive
Fee Net Investment Income’’ means interest income, dividend income and any other income (including any other fees (other
than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or
other fees that the Company receives from portfolio companies) accrued during the fiscal quarter, minus the Company’s operating
expenses for the quarter (including the Base Management Fee, expenses payable under the Administration Agreement, and any interest
expense and dividends paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee Net
Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt
instruments with payment-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in
cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized
capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the
Company’s net assets at the end of the immediately preceding fiscal quarter, shall be compared to a ‘‘hurdle
rate’’ of 2% per quarter (8% annualized), subject to a ‘‘catch-up’’ provision measured as of
the end of each fiscal quarter. The Company’s net investment income used to calculate this part of the incentive fee is also
included in the amount of the Company’s gross assets used to calculate the 1.75% base management fee. The operation of the incentive
fee with respect to the Company’s Pre-Incentive Fee Net Investment Income for each quarter is as follows: |
| · | No incentive fee is payable to the Adviser in any fiscal quarter in which the Company’s Pre-Incentive Fee Net Investment
Income does not exceed the hurdle rate of 2% (the ‘‘preferred return’’ or ‘‘hurdle’’). |
| · | 100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee
Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any fiscal quarter (10% annualized)
is payable to the Adviser. The Company refers to this portion of the Company’s Pre-Incentive Fee Net Investment Income (which
exceeds the hurdle rate but is less than or equal to 2.5%) as the ‘‘catch-up.’’ The ‘‘catch-up’’
provision is intended to provide the Adviser with an incentive fee of 20% on all of the Company’s Pre-Incentive Fee Net Investment
Income as if a hurdle rate did not apply when the Company’s Pre-Incentive Fee Net Investment Income exceeds 2.5% in any fiscal
quarter; and |
| · | 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any fiscal quarter
(10% annualized) is payable to the Adviser once the hurdle is reached and the catch-up is achieved, (20% of all Pre-Incentive Fee
Net Investment Income thereafter is allocated to the Adviser). |
| (ii) | The second part of the incentive fee shall be determined and payable in arrears as of the end of each fiscal year (or upon
termination of the investment advisory agreement, as of the termination date), and shall equal 20% of the Company’s realized
capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital
losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain
incentive fees. |
| 4. | Covenants of the Adviser. |
The Adviser covenants that it will maintain
its registration as an investment adviser under the Advisers Act. The Adviser agrees that its activities will at all times be in
compliance in all material respects with all applicable federal and state laws governing its operations and investments.
The Adviser is hereby authorized, to the
fullest extent now or hereafter permitted by law, to cause the Company to pay a member of a national securities exchange, broker
or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of
such exchange, broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith, taking
into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty
of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities, that
such amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member,
broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to the Company’s
portfolio, and constitutes the best net results for the Company.
| 6. | Other Activities of the Adviser. |
The services of the Adviser to the Company
are not exclusive, and the Adviser may engage in any other business or render similar or different services to others including,
without limitation, the direct or indirect sponsorship or management of other investment based accounts or commingled pools of
capital, however structured, having investment objectives similar to those of the Company, so long as its services to the Company
hereunder are not impaired thereby, and nothing in this Agreement shall limit or restrict the right of any manager, partner, member
(including its members and the owners of its members), officer or employee of the Adviser to engage in any other business or to
devote his or her time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any
fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to,
one or more of the Company’s portfolio companies, subject to applicable law). So long as this Agreement or any extension,
renewal or amendment remains in effect, the Adviser shall be the only investment adviser for the Company, subject to the Adviser’s
right to enter into sub-advisory agreements. The Adviser assumes no responsibility under this Agreement other than to render the
services called for hereunder. It is understood that directors, officers, employees and stockholders of the Company are or may
become interested in the Adviser and its affiliates, as directors, officers, employees, partners, stockholders, members, managers
or otherwise, and that the Adviser and directors, officers, employees, partners, stockholders, members and managers of the Adviser
and its affiliates are or may become similarly interested in the Company as stockholders or otherwise.
| 7. | Responsibility of Dual Directors, Officers and/or Employees. |
If any person who is a manager, partner,
member, officer or employee of the Adviser is or becomes a director, officer and/or employee of the Company and acts as such in
any business of the Company, then such manager, partner, member, officer and/or employee of the Adviser shall be deemed to be acting
in such capacity solely for the Company, and not as a manager, partner, member, officer or employee of the Adviser or under the
control or direction of the Adviser, even if paid by the Adviser.
| 8. | Limitation of Liability of the Adviser; Indemnification. |
The Adviser (and its officers, managers,
partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other
person or entity affiliated with the Adviser) shall not be liable to the Company for any action taken or omitted to be taken by
the Adviser in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment
adviser of the Company (except to the extent specified in Section 36(b) of the Investment Company Act concerning loss resulting
from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation
for services, and the Company shall indemnify, defend and protect the Adviser (and its officers, managers, partners, members (and
their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated
with the Adviser, each of whom shall be deemed a third party beneficiary hereof) (collectively, the “Indemnified Parties”)
and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees
and amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including an action or suit by or in the right of the Company or its security
holders) arising out of or otherwise based upon the performance of any of the Adviser’s duties or obligations under this
Agreement or otherwise as an investment adviser of the Company. Notwithstanding the preceding sentence of this Section 8 to the
contrary, nothing contained herein shall protect or be deemed to protect the Indemnified Parties against or entitle or be deemed
to entitle the Indemnified Parties to indemnification in respect of, any liability to the Company or its security holders to which
the Indemnified Parties would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance
of the Adviser’s duties or by reason of the reckless disregard of the Adviser’s duties and obligations under this Agreement.
| 9. | Effectiveness, Duration and Termination of Agreement. |
This Agreement shall become effective as
of the date above written. This Agreement shall continue automatically for successive annual periods, provided that such continuance
is specifically approved at least annually by (a) the vote of the Board or a majority of the outstanding voting securities of the
Company and (b) the vote of a majority of the Company’s directors who are not parties to this Agreement or “interested
persons” (as such term is defined in Section 2(a)(19) of the Investment Company Act) of any such party, in accordance with
the requirements of the Investment Company Act and each of whom is an “independent director” under applicable New York
Stock Exchange listing standards. This Agreement may be terminated at any time, without the payment of any penalty, upon 60 days’
written notice, by the vote of a majority of the outstanding voting securities of the Company, or by the vote of the Company’s
directors or by the Adviser. This Agreement shall automatically terminate in the event of its “assignment” (as such
term is defined for purposes of Section 15(a)(4) of the Investment Company Act). The provisions of Paragraph 8 of this Agreement
shall remain in full force and effect, and the Adviser shall remain entitled to the benefits thereof, notwithstanding any termination
of this Agreement.
Any notice under this Agreement shall be
given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.
This Agreement may be amended by mutual
consent.
| 12. | Entire Agreement; Governing Law. |
This Agreement contains the entire agreement
of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof.
Notwithstanding the place where this Agreement may be executed by any of the parties hereto, this Agreement shall be construed
in accordance with the laws of the State of New York. For so long as the Company is regulated as a BDC under the Investment Company
Act, this Agreement shall also be construed in accordance with the applicable provisions of the Investment Company Act. In such
case, to the extent the applicable laws of the State of New York, or any of the provisions herein, conflict with the provisions
of the Investment Company Act, the latter shall control. To the fullest extent permitted by law, in the event of any dispute arising
out of the terms and conditions of this Agreement, the parties hereto consent and submit to the jurisdiction of the courts of the
State of New York in the county of New York and of the U.S. District Court for the Southern District of New York.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed on the date above written.
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FIFTH STREET FINANCE CORP. |
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By: |
/s/ Todd G. Owens |
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Name: Todd G. Owens |
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Title: Chief Executive Officer |
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FIFTH STREET MANAGEMENT LLC |
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By: |
/s/ Leonard M. Tannenbaum |
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Name: Leonard M. Tannenbaum |
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Title: Chief Executive Officer |
Appendix A
Example 1: Income Related Portion of Incentive
Fee for Each Fiscal Quarter
Alternative 1
Assumptions
Investment income (including interest, dividends,
fees, etc.) = 1.25%
Hurdle rate(1) = 2%
Management fee(2) = 0.4375%
Other expenses (legal, accounting, custodian,
transfer agent, etc.)(3) = 0.2%
Pre-Incentive Fee Net Investment Income
(investment income – (management fee
+ other expenses) = 0.6125%
Pre-Incentive Fee Net Investment Income does not exceed
hurdle rate, therefore there is no income-related incentive fee.
Alternative 2
Assumptions
Investment income (including interest, dividends,
fees, etc.) = 2.9%
Hurdle rate(1) = 2%
Management fee(2) = 0.4375%
Other expenses (legal, accounting, custodian, transfer
agent, etc.)(3) = 0.2%
Pre-Incentive Fee Net Investment Income
(investment income – (management fee + other
expenses) = 2.2625%
Incentive fee = 100% X Pre-Incentive Fee Net Investment
Income (subject to ‘‘catch-up’’)(4)
= 100% X (2.2625% – 2%)
= 0.2625%
Pre-Incentive Fee Net Investment Income exceeds the
hurdle rate, but does not fully satisfy the ‘‘catch-up’’ provision, therefore the income related portion
of the incentive fee is 0.2625%.
Alternative 3
Assumptions
Investment income (including interest, dividends,
fees, etc.) = 3.5%
Hurdle rate(1) = 2%
Management fee(2) = 0.4375%
Other expenses (legal, accounting, custodian, transfer
agent, etc.)(3) = 0.2%
Pre-Incentive Fee Net Investment Income
(investment income – (management fee + other
expenses) = 2.8625%
Incentive fee = 100% _ Pre-Incentive Fee Net Investment
Income (subject to ‘‘catch-up’’)(4)
Incentive fee = 100% X ‘‘catch-up’’
+ (20% X (Pre-Incentive Fee Net Investment Income – 2.5%))
Catch up = 2.5% – 2%
= 0.5%
Incentive fee = (100% X 0.5%) + (20% X (2.8625% –
2.5%))
= 0.5% + (20% X 0.3625%)
= 0.5% + 0.0725%
= 0.5725%
Pre-Incentive Fee Net Investment Income exceeds the
hurdle rate, and fully satisfies the ‘‘catch-up’’ provision, therefore the income related portion of the
incentive fee is 0.5725%.
__________
(1) Represents 8% annualized hurdle rate.
(2) Represents 1.75% annualized base management
fee.
(3) Excludes organizational and offering
expenses.
(4) The ‘‘catch-up’’ provision
is intended to provide the Adviser with an incentive fee of 20% on all Pre-Incentive Fee Net Investment Income as if a hurdle rate
did not apply when the Company’s net investment income exceeds 2.5% in any fiscal quarter.
Example 2: Capital Gains Portion of
Incentive Fee(*):
Alternative 1:
Assumptions
Year 1: $20 million investment made in Company A (‘‘Investment
A’’), and $30 million investment made in Company B (‘‘Investment B’’)
Year 2: Investment A sold for $50 million and fair
market value (‘‘FMV’’) of Investment B determined to be $32 million
Year 3: FMV of Investment B determined to be $25 million
Year 4: Investment B sold for $31 million
The capital gains portion of the incentive fee would
be:
Year 1: None
Year 2: Capital gains incentive fee of $6 million
($30 million realized capital gains on sale of Investment A multiplied by 20%)
Year 3: None à
$5 million (20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million
(previous capital gains fee paid in Year 2) (1)
Year 4: Capital gains incentive fee of $200,000 à
$6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (capital gains incentive fee taken
in Year 2)
Alternative 2
Assumptions
Year 1: $20 million investment made in Company A (‘‘Investment
A’’), $30 million investment made in Company B (‘‘Investment B’’) and $25 million investment
made in Company C (‘‘Investment C’’)
Year 2: Investment A sold for $50 million, FMV of
Investment B determined to be $25 million and FMV of Investment C determined to be $25 million
Year 3: FMV of Investment B determined to be $27 million
and Investment C sold for $30 million
Year 4: FMV of Investment B determined to be $35 million
Year 5: Investment B sold for $20 million
The capital gains incentive fee, if any, would be:
Year 1: None
Year 2: $5 million capital gains incentive fee à
20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment
B)
Year 3: $1.4 million capital gains incentive fee à
$6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation))
less $5 million capital gains incentive fee received in Year 2
Year 4: None
Year 5: None à
$5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10
million)) less $6.4 million cumulative capital gains incentive fee paid in Year 2 and Year 3(2)
__________
| * | The hypothetical amounts of returns shown are based on a percentage of the Company’s total net assets and assume no leverage.
There is no guarantee that positive returns will be realized and actual returns may vary from those shown in this example. |
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(1) | As illustrated in Year 3 of Alternative 1 above, if the Company were to be wound up on a date other than its fiscal year end
of any year, the Company may have paid aggregate capital gains incentive fees that are more than the amount of such fees that would
be payable if the Company had been wound up on its fiscal year end of such year. |
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(2) | As noted above, it is possible that the cumulative aggregate capital gains fee received by the Adviser ($6.4 million) is effectively
greater than $5 million (20% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized
depreciation ($25 million)). |
Exhibit 99.1
Fifth Street Finance Corp. Announces
Estimate of NII and NAV per Share, Reduction in Base Management Fee and Intended Share Repurchases
GREENWICH, CT, January 20, 2016 -- Fifth Street Finance Corp.
(NASDAQ:FSC) (“FSC”) announced today an estimate of net investment income (“NII”) per share of $0.18 for
the quarter ended December 31, 2015. This is the fourth consecutive quarter that NII has covered FSC’s run rate quarterly
dividend and is consistent with NII of $0.18 per share for the quarter ended September 30, 2015. FSC expects its net asset value
(“NAV”) per share as of December 31, 2015 to be within an estimated range of $8.35 to $8.45, compared to its last reported
NAV per share of $9.00 as of September 30, 2015. FSC estimates that over 40% of the quarterly change in NAV is due to broader market
changes, including spread widening, with the remainder due to credit deterioration in a small number of investments. The final
NAV per share is subject to the determination of FSC’s Board of Directors. FSC expects to announce its full results for the
quarter ended December 31, 2015 before the open of the financial markets on Tuesday, February 9, 2016.
Base Management Fee Reduction
FSC’s investment adviser, a subsidiary of Fifth Street
Asset Management Inc. (NASDAQ:FSAM) (“FSAM”), today announced that, with the approval of the FSC Board of Directors,
it has agreed to an amendment to the investment management agreement to permanently reduce the base management fees. Beginning
January 1, 2016, the base management fee on total gross assets (excluding cash and cash equivalents) has been reduced from 2.00%
to 1.75%. The other commercial terms of FSC’s existing investment advisory arrangement with FSAM remain unchanged.
In addition, as previously announced in July 2015, the waiver
reducing the base management fee on new equity issuances to 1.00% remains in place. The Board of Directors intends to continue
monitoring broader market events and remains committed to looking for additional ways to enhance stockholder value.
Update on Intended Share Repurchases
In connection with FSC’s $100 million share repurchase
authorization that was publicly announced on December 1, 2015, FSC intends to repurchase shares of its common stock through open
market, privately negotiated transactions or otherwise, during the quarter ending March 31, 2016.
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 $5 billion in assets under management 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, and certain oral statements
made by our representatives from time to time may contain, forward-looking statements, including statements with regard to the
future performance of FSC. Words such as “believes,” “expects,” “estimates,” “projects,”
“anticipates,” “intends,” “plans,” 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 FSC’s filings with the Securities and Exchange Commission.
FSC’s outside independent accountant has not audited, reviewed, compiled or performed any procedures with respect to the
estimated financial data in this press release. FSC cannot provide any assurance as to the timing, aggregate amount or per share
amount of any common stock repurchases under its stock repurchase program, the method by which it may repurchase any such shares
of its common stock or that any such repurchases will occur. FSC undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by law.
Participants in the Solicitation
FSC, its directors and certain of its executive officers and
employees, and the executive officers and employees of each of Fifth Street Management LLC and FSAM that provide services to FSC
and its subsidiaries pursuant to the Amended and Restated Investment Advisory Agreement, may be deemed to be participants in the
solicitation of proxies from stockholders in connection with FSC’s 2016 Annual Meeting of Stockholders (the “2016 Annual
Meeting”).
Additional Information and Where to Find It
FSC plans to file a definitive proxy statement with the Securities
and Exchange Commission (the “SEC”) in connection with the solicitation of proxies for the 2016 Annual Meeting (the
“2016 Proxy Statement”). Additional information regarding the identity of these potential participants, none of whom
owns in excess of 2% of the shares of FSC common stock (other than Leonard M. Tannenbaum, the Chairman and Chief Executive Officer
of FSAM, who beneficially owns approximately 6.5% of the shares of FSC common stock based upon 150,262,924 shares of FSC common
stock outstanding, as of November 30, 2015, the total number of shares of FSC common stock outstanding as reported in FSC’s
Annual Report on Form 10-K filed with the SEC on December 1, 2015), and their direct or indirect interests, by security holdings
or otherwise, will be set forth in the 2016 Proxy Statement and other materials to be filed with the SEC in connection with the
2016 Annual Meeting. This information can also be found in (i) FSC’s definitive proxy statement for its 2015 Annual Meeting
of Stockholders (the “2015 Proxy Statement”), filed with the SEC on February 5, 2015, (ii) FSC’s Annual Report
on Form 10-K for the year ended September 30, 2015, filed with the SEC on December 1, 2015 (the “Form 10-K”), (iii)
FSAM’s definitive proxy statement for its 2015 Annual Meeting of Stockholders (the “FSAM 2015 Proxy Statement”),
filed with the SEC on April 21, 2015, (iv) FSAM’s Annual Report on Form 10-K for the year ended December 31, 2014, filed
with the SEC on March 30, 2015 (the “FSAM Form 10-K”) and (v) Amendment No. 2 to FSC’s preliminary proxy statement,
filed with the SEC on January 14, 2016, as amended or supplemented (the “Preliminary Proxy Statement”). To the extent
holdings by these potential participants of the shares of FSC common stock have changed since the amounts printed in the 2015 Proxy
Statement or the Preliminary Proxy Statement, such changes have been or will be reflected on Statements of Change in Ownership
on Form 4 filed with the SEC.
STOCKHOLDERS ARE URGED TO READ THE 2016 PROXY STATEMENT (INCLUDING
ANY AMENDMENTS OR SUPPLEMENTS THERETO), THE 2015 PROXY STATEMENT, THE FORM 10-K, THE FSAM 2015 PROXY STATEMENT, THE FSAM FORM 10-K,
THE PRELIMINARY PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS THAT FSC OR FSAM HAS FILED OR WILL FILE WITH THE SEC BECAUSE THEY
CONTAIN IMPORTANT INFORMATION.
Stockholders will be able to obtain, free of charge, copies
of the 2016 Proxy Statement (when available), the 2015 Proxy Statement, the Form 10-K, the Preliminary Proxy Statement and any
other documents (including the WHITE proxy card) filed or to be filed by FSC with the SEC in connection with the 2016 Annual Meeting
at the SEC’s website (http://www.sec.gov) or at FSC’s website (http://www.fsc.fifthstreetfinance.com) or by writing
to FSC’s Secretary at 777 West Putnam Avenue, 3rd Floor, Greenwich, Connecticut 06830. In addition, copies of the 2016 Proxy
Statement, when available, may be requested from FSC’s proxy solicitor, Innisfree M&A Incorporated, 501 Madison Avenue,
20th Floor, New York, New York 10022 or toll-free at 888-750-5834. No information contained on any website referenced in this press
release is incorporated by reference herein.
CONTACT: |
Investor Contact: |
|
Robyn Friedman, Senior Vice President, Head of Investor Relations |
|
(203) 681-3720 |
|
ir@fifthstreetfinance.com |
|
|
|
Media Contact: |
|
Michael Freitag / James Golden / Alyssa Cass |
|
Joele Frank Wilkinson Brimmer Katcher |
|
(212) 355-4449 |
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