FS Investment enters $150 financing agreement via JPMorgan

By Jennifer Chiou

New York, Oct. 31 - FS Investment Corp. entered into on Oct. 26 a debt financing arrangement with JPMorgan Chase Bank, NA, London Branch for $150 million, according to an 8-K filing with the Securities and Exchange Commission.

The company entered into the agreement through its two newly formed, wholly owned subsidiaries, Lehigh River LLC and Cobbs Creek LLC.

Proceeds are to be used to fund investments in new securities and for other general corporate purposes.

Under the financing transaction, FS may sell from time to time loans in its portfolio having an aggregate market value of about $317 million to Lehigh River under an asset transfer agreement.

On Oct. 26, FS sold loans to Lehigh River for a purchase price of roughly $162 million, all of which consisted of the issue of equity interests in Lehigh River to FS.

The filing stated that the loans held by Lehigh will secure the $180 million of class A floating-rate notes to be issued from time to time by Lehigh River to Cobbs Creek under an indenture with Citibank, NA as trustee.

Class A notes details

The notes will be due on Nov. 20, 2023.

Interest will accrue at Libor plus 275 basis points.

The 8-K noted that Cobbs Creek will purchase the class A securities to be issued by Lehigh from time to time at par.

Also, Cobbs Creek has entered into a repurchase transaction with JPMorgan under which JPMorgan agreed to purchase from time to time class A notes held by Cobbs Creek for an aggregate purchase price equal to 83.33% of the principal amount of the class A notes purchased.

Subject to certain conditions, the maximum amount of class A notes that may be purchased under the JPMorgan facility is $180 million.

Accordingly, the filing said that the maximum amount payable at any time to Cobbs Creek under the facility will not exceed $150 million.

The final repurchase transaction must occur no later than Nov. 20, 2016.

If at any time during the term of the JPMorgan facility the market value of the loans held by Lehigh River securing the class A notes declines by an amount greater than 27% of their initial aggregate purchase price, Cobbs Creek will be required to post cash collateral with JPMorgan in an amount at least equal to the amount by which the market value of those loans is less than the margin threshold.

In that case, in order to satisfy any such margin-posting requirements, Cobbs Creek intends to borrow funds from FS under a revolving credit agreement. Borrowings under that revolver will accrue interest at one-month Libor plus a spread of 75 bps.

FS may sell from time to time loans in its portfolio having an aggregate market value of $90 million to Cobbs Creek under an asset transfer agreement. On Oct. 26, it sold loans to Cobbs Creek for a purchase price of about $36 million.

In connection with the transactions, Lehigh River issued a class A note to Cobbs Creek in the principal amount of $22 million.

FS Investment is a business development company based in Philadelphia.

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