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Fifth Street Finance Corp. Releases Its January 2014 Newsletter: BDC Legislation Gaining Momentum

Stocks in this article: FSC

WHITE PLAINS, NY, Jan. 29, 2014 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (NASDAQ:FSC) ("FSC") released its January 2014 newsletter today.

Business Development Companies ("BDCs") have been the subject of considerable policy discussions in Congress in recent years with the goal of modernizing the BDC regulatory framework. The discussions have resulted in the legislative branch acknowledging the important role BDCs play in providing capital to small and mid-sized businesses, yet nothing concrete has resulted thus far. However, based on our conversations with key leaders in the debate, we believe momentum is starting to build behind H.R. 31 and H.R. 1800. While bipartisan support has not previously existed, a consensus now appears to be forming around several items, representing a potential compromise in future legislative amendments. As this process continues, the likelihood is increasing that amended versions of the bills will be re-introduced in 2014 that address the treatment of off-balance sheet leverage and non-conforming assets with greater protections for investors.    

The Fifth Street team takes pride in its level of transparency and thought leadership in the BDC sector. We openly shared our views on H.R. 31 in a White Paper written in July 2013 and our Chief Financial Officer, Alexander C. Frank, testified in October 2013 before the House Committee on Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises on both H.R. 31 and H.R. 1800. We continue to educate policy makers and regulators on the intricacies of the BDC industry, including the effects of explicit and implicit leverage. 

FSC Expects Earnings to Meet or Exceed Its Dividend

We estimate net investment income per share should meet or exceed our current dividend level in the December quarter. This should be achievable based on strong funded originations of approximately $645 million in the December quarter which, after taking into account approximately $156 million of exits during the quarter, brought leverage to the low-end of our target range of 0.6x to 0.7x debt-to-equity (excluding SBA debentures) at quarter-end. We anticipate maintaining leverage in the March quarter within our target range.  The stronger originations, combined with maintaining target leverage, and a stable weighted average yield on debt investments provides confidence in future net investment income per share that we expect should meet or exceed the current dividend level. 

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