8-K: FS Specialty Lending Fund Prepares for NYSE Listing Through Reorganization

FS Specialty Lending Fund announces plans to list its common shares on the NYSE by converting to a closed-end fund, pending shareholder approval.

Summary

• FS Specialty Lending Fund (the 'Fund') is planning to list its common shares on the New York Stock Exchange (NYSE).
• The Fund will convert from a business development company (BDC) to a closed-end fund registered under the Investment Company Act of 1940 through a reorganization into a newly formed closed-end fund.
• The closed-end fund will be named FS Specialty Lending Fund (FSSL) and is expected to trade on the NYSE under the ticker symbol FSSL before the end of the fourth quarter of 2025.
• The listing is subject to market conditions, shareholder approval, and final Board approval.
• A 6-for-1 reverse share split was executed on May 15, 2025, to comply with NYSE listing requirements and align the share price with comparable closed-end funds.
• Shareholders will vote on three proposals related to the conversion in a proxy solicitation expected to commence in late June 2025.
• The base management fee will be reduced from 1.75% to 1.50% of gross assets upon listing, with an additional waiver of 0.15%, resulting in an effective fee of 1.35%.
• The Adviser will no longer be entitled to a capital gains incentive fee following the conversion.
• 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 6.0% upon listing.
• The Fund expects to pay an enhanced quarterly distribution for Q2 2025, paid in July, based on an annualized distribution rate of 12.5% based on FSSL's then-current NAV.
• Following the listing, the fund expects to target a monthly or quarterly distribution, representing an annualized distribution rate of 9.0% to 9.5% of FSSL's NAV.
• Beginning in January 2026, FSSL expects to declare and pay distributions on a monthly basis, subject to a listing occurring in 2025 and board approval.
• FS Investments will acquire EIG Asset Management's interest in the Adviser, making the Adviser an indirect, wholly-owned subsidiary of FS Investments.

Sentiment

Score: 7

Explanation: The document conveys a positive outlook regarding the planned listing and the benefits it will provide to shareholders, including increased liquidity and reduced fees. However, it also acknowledges potential risks and uncertainties, such as market conditions and shareholder approval, preventing a higher score.

Positives

• Listing on the NYSE provides shareholders with increased liquidity.
• Reduction in management and incentive fees upon listing benefits shareholders.
• Targeted distribution rate of 9.0% to 9.5% post-listing offers a competitive yield.
• The Fund's portfolio is diversified across sectors and industries, reducing risk.
• The FS Global Credit team has a proven track record and manages a similar fund (FSCO) that has delivered strong returns.
• The Fund's large asset size ($2.0 billion) provides significant visibility in the public market.

Negatives

• Shareholders must approve the reorganization for the listing to proceed.
• The listing is subject to market conditions, which could delay or prevent the listing.
• Shares of closed-end funds frequently trade at a discount to their net asset value (NAV).
• The enhanced quarterly distributions are expected to conclude upon listing.
• The Fund will no longer be subject to certain requirements specific to business development companies.

Risks

• Market conditions could delay or prevent the listing.
• Shareholder approval of the reorganization is not guaranteed.
• The share price may decline and trade at a discount to NAV after listing.
• The Fund's future performance is subject to market risks and investment decisions.
• The transition to a diversified credit strategy may not achieve the desired results.

Future Outlook

The Fund expects to complete the listing on the NYSE before the end of the fourth quarter of 2025, subject to market conditions, shareholder approval, and final Board approval, and anticipates a targeted annualized distribution rate of 9.0% to 9.5% post-listing.

Management Comments

• The decision to convert the Fund to a closed-end fund was guided by several key factors that we believe are in the best interests of shareholders.
• We believe a public listing offers a balanced liquidity solution by providing existing shareholders with near-term access to liquidity while preserving the opportunity for long-term value appreciation for those who choose to remain invested.

Industry Context

The Fund aims to position itself competitively among credit-focused closed-end funds by offering a compelling distribution rate, a diversified portfolio, and a seasoned management team.

Comparison to Industry Standards

• The targeted annualized distribution rate of 9.0-9.5% is competitive with large, credit-focused closed-end fund peers.
• The expected level of borrowings (debt-to-equity of 0.25x-0.4x) is consistent with closed-end fund peers and below the regulatory limit applicable to closed-end funds (0.5x debt-to-equity).
• With approximately $2.0 billion in assets, FSSL would rank as one of the largest listed registered credit-focused closed-end funds.
• FS Credit Opportunities Corp. (NYSE: FSCO), managed by the same FS Global Credit team, has delivered strong returns since its listing on the NYSE in November 2022.

Corporate Governance

Stakeholder Impact

• Shareholders will have increased liquidity through the NYSE listing.
• Shareholders will benefit from reduced management and incentive fees.
• Shareholders will receive distributions at a targeted annualized rate of 9.0% to 9.5% post-listing.

Next Steps

• Commence shareholder proxy solicitation in late June 2025.
• Hold a special shareholder meeting in the third quarter of 2025 to vote on the proposals.
• Complete the conversion of the Fund to a registered closed-end fund.
• List the common shares on the NYSE in late Q3 or early Q4 2025, subject to approvals and market conditions.

Key Dates

Keywords

listing, NYSE, closed-end fund, reorganization, shareholder approval, distribution, management fees, FS Specialty Lending Fund, FSSL, reverse share split, liquidity