8-K: FS Specialty Lending Fund to List on NYSE, Converts to Closed-End Fund

FS Specialty Lending Fund announced its conversion to a closed-end fund and plans to list its common shares on the NYSE on November 13, 2025, under the ticker FSSL.

Summary

• FS Specialty Lending Fund converted from a business development company (BDC) to a closed-end fund registered under the Investment Company Act of 1940 on October 28, 2025.
• The Fund anticipates its common shares will begin trading on the New York Stock Exchange (NYSE) on Thursday, November 13, 2025, under the ticker symbol FSSL.
• The Fund's investment adviser, FS Specialty Lending Advisor, LLC, will waive a portion of its base management and/or incentive fees from October 28, 2025, to the Listing Date if the Pre-Listing Fee Rates result in a lower aggregate fee than the Post-Listing Fee Rates.
• Franklin Square Holdings, L.P. (FS), the parent company of the Adviser, intends to commit capital up to $20 million to a newly formed investment vehicle to purchase Fund shares, with potential for future increases.
• Certain members of management and the board of trustees have expressed interest in purchasing Fund shares in the open market following the NYSE listing.
• Participating Funds sponsored by FS are expected to enter into equity total return swaps (Equity TRSs) for an aggregate initial maximum amount of $75 million in Shares, with a three-year term.
• Net Asset Value (NAV) per share decreased from $19.27 as of September 30, 2025, to $18.60 as of November 4, 2025.
• The NAV decline since December 31, 2024, is largely attributed to enhanced distributions ($1.89 per share) outpacing current earnings ($1.20 per share net income).
• The Fund paid a 12.5% enhanced distribution for Q1, Q2, and Q3 2025, which will cease once a long-term liquidity event, such as the NYSE listing, is achieved.
• Disclosed ongoing litigation where affiliates of the former part owner of the Adviser are seeking contribution from the Fund and Adviser for legal costs related to certain investments.

Sentiment

Score: 6

Explanation: The filing presents a significant strategic move (NYSE listing, BDC conversion) which is generally positive for liquidity and market access. The commitment of capital by the parent company and potential purchases by management are positive signals. However, the recent NAV decline due to distributions exceeding earnings and the increase in non-accrual assets introduce some caution. The ongoing litigation also presents an unquantified risk.

Positives

• Conversion to a closed-end fund and planned NYSE listing (FSSL) provides a long-term liquidity event for shareholders.
• FS, the parent company of the Adviser, intends to commit up to $20 million to purchase Fund shares, signaling confidence in the Fund.
• Members of management and the board of trustees have expressed interest in purchasing shares post-listing, aligning their interests with shareholders.
• The Adviser has agreed to waive a portion of its fees under certain conditions, ensuring a favorable fee structure during the transition period.
• A high percentage of the portfolio is allocated to senior secured debt (90% as of September 30, 2025, and November 4, 2025) and floating rate assets (84% and 83% respectively), indicating a focus on capital preservation and interest rate sensitivity.
• Asset coverage per unit of credit facility borrowings is strong at 4.66x as of September 30, 2025.

Negatives

• NAV per share declined from $19.27 as of September 30, 2025, to $18.60 as of November 4, 2025.
• The NAV decline since December 31, 2024, is largely attributed to enhanced distributions ($1.89 per share) outpacing net investment income ($1.20 per share).
• The payment of future distributions is subject to board discretion and legal restrictions, with no assurance as to the amount or timing of any such future distributions.
• Shares of closed-end funds frequently trade at a discount to NAV, a risk that may be more pronounced shortly after listing due to unseasoned trading and limited information.
• Assets on non-accrual increased from 0.8% as of September 30, 2025, to 1.4% as of November 4, 2025.
• Ongoing litigation where affiliates of the former part owner are seeking contribution from the Fund and Adviser for legal costs, which could be material if not covered by insurance.

Risks

• There is no assurance that the Fund will be able to complete the NYSE Listing in the expected timeframe, or at all.
• There is no assurance that the investment vehicle established by FS will purchase any Shares.
• There is no assurance that members of management and the board of trustees will purchase any Shares.
• The payment of future distributions on common shares is subject to the discretion of the board of trustees and applicable legal restrictions, with no assurance as to amount or timing.
• Shares of closed-end funds frequently trade at a price lower than their net asset value (trading at a discount), a risk that may be more pronounced shortly after listing.
• Risk of greater volatility and significant discounts to NAV post-listing due to the absence of a prior public market, unseasoned trading, limited shares available for trading, and limited information about the Fund.
• Ongoing litigation where affiliates of the former part owner of the Adviser are seeking contribution from the Fund and the Adviser for attorneys' fees and other costs, including any potential settlement or judgment.
• There can be no assurance that insurance coverage will be available in whole or in part for potential litigation contributions, and any portion not covered could be material.
• Forward-looking statements are subject to inherent uncertainties, and certain factors could cause actual results to differ materially from those projected.
• Factors that could cause actual results to differ materially include changes in the economy due to geo-political risks, risks associated with possible disruption to operations or the economy generally due to hostilities, terrorism, natural disasters, or pandemics.
• Future changes in laws or regulations and conditions in the Fund's operating area could impact results.
• Unexpected costs, litigation, and other costs related to the Investments could materially affect financial performance.
• The price at which the common shares may trade on a national securities exchange could be lower than anticipated.
• Failure to list the common shares on a national securities exchange would impact liquidity plans.

Future Outlook

The Fund anticipates its common shares will begin trading on the NYSE on November 13, 2025, under the ticker FSSL. The Adviser's parent company, FS, intends to commit up to $20 million to purchase Fund shares, and certain management and board members have expressed interest in purchasing shares post-listing. Participating Funds are expected to enter into equity total return swaps for up to $75 million in shares. The enhanced quarterly distributions will cease once the NYSE listing is achieved.

Management Comments

• "The Fund anticipates that its common shares of beneficial interest will begin trading on the New York Stock Exchange on Thursday, November 13, 2025, with the ticker symbol FSSL effective as of market open that day."
• "FS, the parent company of the Adviser, intends to commit capital to a newly formed investment vehicle established to invest from time to time in common shares of the Fund (Shares), initially in an amount up to $20 million of purchases, which amount may be increased in the future."
• "Certain members of the Funds management and board of trustees have expressed an interest in purchasing Shares in the open market following the Listing."

Industry Context

The conversion from a business development company (BDC) to a closed-end fund and subsequent NYSE listing is a strategic move to provide liquidity to shareholders, a common objective for private credit funds seeking broader investor access and potentially a more stable valuation mechanism. The commitment of capital by the parent company and potential purchases by management and board members, along with the use of total return swaps by affiliated funds, suggests efforts to support the share price and liquidity post-listing, which is often a concern for newly listed closed-end funds that can trade at discounts to NAV. This transition also aligns with a broader industry trend towards diversified credit strategies.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• Affiliates of the former part owner of the Adviser (the Ex Owner) have been named in litigation related to certain investments in which the Fund and others were investors.
• Affiliates of the Ex Owner are alleged to have been operators of these investments.
• Neither the Fund nor the Adviser participated in the management, operation, or control of the Investments or is a party to the litigation.
• The Ex Owner and certain of its affiliates are seeking contribution from the Fund and the Adviser for their attorneys' fees and other costs in connection with the litigation, including any potential settlement or judgment, based on the Fund's pro rata interest in the Investments.
• The Fund and the Adviser are evaluating this request, including whether there is any obligation to contribute.

Related Party Transactions

• Franklin Square Holdings, L.P. (FS), the parent company of the Adviser, intends to commit capital to a newly formed investment vehicle to invest in common shares of the Fund, initially up to $20 million.
• Participating Funds sponsored by FS (whose investment adviser is wholly-owned by FS) are expected to enter into equity total return swaps (Equity TRSs) for an aggregate initial maximum amount of $75 million in Shares.
• The Adviser has agreed to waive a portion of its base management fee and/or incentive fee under certain conditions from October 28, 2025, to the Listing Date.

Stakeholder Impact

• Shareholders: Potential for increased liquidity and market valuation through NYSE listing; cessation of enhanced distributions; risk of shares trading at a discount to NAV; potential benefit from capital commitments by FS and management/board.
• Management/Adviser: Name change for the Adviser; new Investment Advisory Agreement with fee structure changes; potential for litigation contribution costs.
• Creditors: Strong asset coverage (4.66x) provides comfort regarding the Fund's ability to meet its debt obligations.

Next Steps

• Common shares are anticipated to begin trading on the New York Stock Exchange on Thursday, November 13, 2025, under ticker symbol FSSL.
• FS's newly formed investment vehicle may purchase Fund shares, initially up to $20 million.
• Members of management and the board of trustees may purchase shares in the open market following the listing.
• Participating Funds sponsored by FS are expected to enter into equity total return swaps for Shares.
• The Fund and the Adviser are evaluating the request for contribution in connection with prior litigation.

Key Dates

Recommendation

The planned NYSE listing and conversion to a closed-end fund are significant positive developments, offering liquidity and broader market access. The commitment of capital from the parent company and potential purchases by management signal confidence. However, the recent decline in NAV due to distributions exceeding earnings, the increase in non-accrual assets, and the inherent risk of closed-end funds trading at a discount post-listing warrant a cautious approach. The ongoing litigation seeking contribution from the Fund also presents an unquantified risk. Investors should monitor the trading performance post-listing and the resolution of the litigation before making a more definitive investment decision.

Keywords

FS Specialty Lending Fund, FSSL, NYSE listing, closed-end fund, BDC conversion, investment advisory, fee waiver, capital commitment, total return swap, financial results, NAV, distributions, litigation, credit strategy, senior secured debt