FS KKR Capital Corp. II — Merger or Acquisition (November 2020)
16 slides from FS KKR Capital Corp. II's merger presentation, Nov 24, 2020
Slide 1: Merger of FS KKR Capital Corp. and FS KKR Capital Corp. II
Investor Presentation NOVEMBER 24, 2020 Merger of FS KKR Capital Corp. and FS KKR Capital Corp. II
Slide 2: FSK and FSKR Are Highly Complementary
FSK and FSKR Are Highly Complementary On a combined basis, FSK and FSKR will seek to create long-term value through the benefits of: Established listed BDC Larger equity base than FSK Scale & operating leverage High-quality institutional following Under-leveraged balance sheet Portfolio diversificat
Slide 3: FS/KKR BDC Franchise Milestones
FS/KKR BDC Franchise Milestones Key Corporate Events of FS/KKR BDC Franchise Status 1 FSIC / CCT Merger (to form FSK) First step in evolution of the FS/KKR BDC franchise • Ensured equal treatment of shareholders with NAV-for-NAV merger ✓ (December 2018) • Increased scale and secondary market liquidi
Slide 4: Transaction Highlights
Transaction Highlights Merger Considerations • Stock-for-stock merger with exchange ratio determined by respective net asset values (“NAV”) of FSK and FSKR prior to closing (NAV-for-NAV) Combined to continue to trade under the ticker symbol “FSK” on NYSE • company Distributions Consistent with recen
Slide 5: Merger Transaction Mechanics
Merger Transaction Mechanics Merger Consideration Highlights • FSK to acquire 100% of FSKR in a stock-for-stock transaction, with shares to be exchanged on a NAV-for-NAV basis • Merger will result in an ownership split of the combined company proportional to each of FSK and FSKR’s respective net ass
Slide 6: Focus on Long-Term Shareholder Value
Focus on Long-Term Shareholder Value $90M 20.0% 17.5% 7.0% Permanent Income Incentive Fee Reduction Incentive Fee Waiver Hurdle Rate ✓ Incentive fee waiver to be spread over 6 quarters ($15M per quarter) ✓ Drives long-term NII accretion to shareholders of both FSK and FSKR ✓ Reduced incentive fee wh
Slide 7: Targeted Dividend Yield
Targeted Dividend Yield Commentary BDC Industry Peer Dividend Yield on NAV1 • Consistent with recent guidance, 9.0% target minimum dividend yield (based on net asset value) Ten largest externally managed BDCs have: • 9.1% average annual dividend yield on NAV • 1.09x average net leverage ratio • Comb
Slide 8: Each BDC Benefits Strategically from Merging
Each BDC Benefits Strategically from Merging ($M, Unless Otherwise Stated) FSK FSKR Pro forma1 Investment portfolio $6,649 $7,331 $13,980 % senior secured 67.5% 76.5% 72.2% Portfolio Statistics Number of portfolio companies 172 160 216 Direct originations (based on FVl) 94.3% 88.3% 91.2% % non-accru
Slide 9: In-Depth Review of Joint Transaction Benefits
In-Depth Review of Joint Transaction Benefits 1 Scale and Operating Leverage • Would create the leading BDC platform across key parameters, including $3B+ of available dry powder • Harvest the benefits of scale as FSK grows and expands its market position over time • Potential for improved balance s
Slide 10: Scale and Operating Leverage: Leading Platform by Assets and NAV
1 Scale and Operating Leverage Leading Platform by Assets and NAV $M By Assets¹ $14,950 $14,876 $10,234 $5,438 $4,392 $3,500 $3,032 $2,653 $2,621 $2,185 $2,137 $2,008 $1,955 $1,689 ARCC Pro forma ORCC PSEC GBDC GSBD NMFC AINV BCSF OCSL² TSLX CGBD SLRC TCPC $7,234 $6,963 $5,694 By NAV $3,181 $2,350 $
Slide 11: Potential to Improve Balance Sheet Positioning
1 Scale and Operating Leverage Potential to Improve Balance Sheet Positioning Key Considerations • Consolidated, simplified pro forma capital structure provides incremental flexibility • Combined company expected to benefit from FSK’s investment grade credit ratings and ability to access the unsecur
Slide 12: Enhanced Portfolio Diversification
2 Portfolio Diversification Enhanced Portfolio Diversification FSK FSKR Pro forma Number of portfolio companies 172 160 216 Top 10 portfolio companies (% of portfolio FV)¹ 23% 26% 22% Senior secured debt investments (% of portfolio FV) 67.5% 76.5% 72.2% Debt investments that are floating rate (% of
Slide 13: Investment Overlap Analysis of FSK & FSKR
2 Portfolio Diversification Investment Overlap Analysis of FSK & FSKR Key Considerations • Merger quickens convergence of investment portfolios while maintaining existing strategic focus • While significant overlap exists across both portfolios today, the merger is expected to result incremental div
Slide 14: Potential Synergies
3 Potential Synergies Near-Term Synergies Projected Cost Synergies Category Potential Savings Estimated Annual Expense Reductions1 FSK FSKR Pro forma • Administrative fees Expense ratio2 0.28% 0.24% 0.23% Administrative • D&O insurance ~$5M FSK FSKR in near term savings $41M $36M Regulatory • Sarban
Slide 15: Enhanced Stock Liquidity and Analyst Coverage
4 Enhanced Stock Liquidity and Analyst Coverage Improved Trading Liquidity and Analyst Coverage Trading Liquidity Research Analyst Coverage Reflects 30-day average daily trading volume ($M) $17.0 9 9+ 6 $8.7 $7.7 FSK FSKR Pro forma FSK FSKR Pro forma Potential for greater trading liquidity, providin
Slide 16: Indicative Merger Timeline
Indicative Merger Timeline The timeline below is subject to regulatory & shareholder approval Transaction announcement N-14 registration statement / joint proxy effective Nov 2020 Feb / Mar 2021 Q2 / Q3 2021 Combined Company Proxy solicitation begins Shareholder meetings & target closing 16 Importan
FS KKR Capital Corp. II — Merger or Acquisition (November 2020) on 6ix