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Differences Between FSFR and FSC

Although FSFR and FSC are both structured as Business Development Companies ("BDCs"), there are several key differences between the two. First, while both BDCs have been strategically positioned to benefit from higher interest rates, FSFR’s debt portfolio has 100% floating interest rate exposure. In a floating rate loan, the interest rate that determines the amount of interest a borrower pays to its lender is tied to another rate, such as the prime rate or the London Interbank Offered Rate (LIBOR). So, theoretically, with all else equal, as interest rates continue to rise over 100 basis points, the income that a lender such as FSFR receives would also increase (after an initial negative impact).

Another key difference is where each BDC invests in a company's capital structure—a term that describes the various sources of funding a company draws on to finance its operations and growth. The capital structure, which may consist of a mix of senior secured debt, junior debt and equity, is "stacked" such that each segment plays a distinct role in terms of priority for repayment in the case of bankruptcy.

Senior secured loans sit at the top of the capital structure and are typically the first in line to be repaid. They also usually hold a lien on the borrower's assets and tend to have restrictive financial covenants, making them less risky than junior debt or equity, which are lower in the capital structure. FSFR targets mostly senior secured loans. While FSC also emphasizes senior secured loans, it can also invest lower in the capital structure and in opportunistic situations as well, where we have a core competency and believe our platform provides us with an investing advantage.

FSFR and FSC also differ in terms of the size of the borrower they target. The typical FSFR borrower is larger and more liquid. FSC, on the other hand, targets slightly smaller companies, which are riskier, but offer the potential for higher returns.

FSFR and FSC are both BDCs; however, they pursue different segments of the middle market


A look at each BDC's portfolio composition highlights their investment focus [1]


[1] Numbers shown may not sum exactly due to rounding. SLF JV I and FSFR Glick JV invest in senior secured debt. Equity and Subordinated Debt excludes equity and/or mezzanine debt investments in SLF JV I and FSFR Glick JV. As of 12/31/16, FSC’s investment in SLF JV I consisted of $125.8MM of mezzanine notes and $13.9MM of LLC equity interests, at fair value. FSFR’s investment in FSFR Glick JV consisted of total investments of $61.7MM of subordinated notes and equity interests, at fair value.