FSKR Merges to Become FSK – Securities Investigation
The White Law Group continues to investigate potential securities claims involving broker dealers who may have improperly recommended FS Investments (fka Franklin Square Investments) business development companies to its clients.
FS KKR Capital Corp. II (FSKR) was launched at the end of 2019 as the product of a merger of four non-traded BDCs –FS Investment Corporation II (FSIC II), FS Investment Corporation III (FSIC III), FS Investment Corporation IV (FSIC IV) and Corporate Capital Trust II (CCT II). The new entity began trading on the New York Stock Exchange in June 2020, after a 2019 merger between four FS Investments entities. The company said it was looking to take advantage of dislocations in the market caused by the coronavirus global pandemic.
Unfortunately for investors, due to a 4 to 1 reverse stock split, each of the four common shares issued and outstanding were combined into one share, reducing the number of shares outstanding from approximately 691.2 million to approximately 172.9 million. FSKR’s net asset value per share as of March 31, 2020 was $24.68, instead of $6.17 per share.
Another Merger – FSKR Merges into FSK
On June 16, 2021, FS Investments and KKR Credit Advisors reportedly closed the merger between their two publicly traded business development companies — creating the second-largest BDC in the U.S. with $15 billion in assets.
FS KKR Capital Corp. (NYSE: FSK) and FS KKR Capital Corp. II (NYSE: FSKR) have merged to become a new company that will operate as FS KKR Capital Corp. and continue to trade on the New York Stock Exchange under the ticker “FSK.”
For this merger, FSKR shareholders received 0.9498 FSK shares for each share of FSKR held. The exchange ratio was determined based on the closing net asset value (NAV) per share of $26.77 and $25.42 for FSK and FSKR, respectively, as of June 14 and ensures that the NAV of shares investors will own in FSK will be equal to that of the shares they held in FSKR. As part of the closing, no cash was being paid in lieu of fractional shares.
According to MarketWatch, shares of FSK closed yesterday at $21.14 per share.
How Does a Merger Affect Shareholders?
Companies often merge as part of a strategic effort to boost shareholder value, often by creating new business lines and/or gaining greater market share. However, the economic environment at the time of the merger, size of the companies and management of the merger process all play a part in future returns for shareholders.
Shareholders may experience a significant loss of voting power, and while the spike in trading volume tends to inflate share prices, if economic conditions are not favorable at the time of the merger, shareholders may see significant losses.
Risks of investing in Business Development Companies (BDCs)
BDCs were created by the U.S. Congress to stimulate investments in privately owned American companies that may have limited access to debt and equity capital. Non-traded BDCs offer retail investors access to private debt, an asset class that typically has only been available to high-net-worth and institutional investors. By investing in a non-traded BDC, individuals are able to pool their capital to invest in private American companies. For more information on BDCs, please see: BDCs – the good, the bad, and the UGLY
Business Development Companies operate much in the same was as REITs (Real Estate Investment Trusts) with non-traded BDCs having many of the same problems for investors as non-traded REITs – like high-risk, high commissions, and lack of liquidity.
Filing a Complaint against your Brokerage Firm
The White Law Group has represented numerous investors in claims against their brokerage firms for improper recommendations of FS Investments offerings.
These claims result when broker-dealers fail to perform adequate due diligence on the investments before offering them for sale to their clients. Additionally, the brokerage firms often fail to determine whether the investments were appropriate in light of their clients’ age, investment, experience, net worth, and tolerance for risk.
To learn more about the investigation, please see:
If you are concerned about your investment in an FS Investments Corp. (Franklin Square) offering, please call the securities attorneys of The White Law Group at (888) 637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.