FS, KKR to Merge Two BDCs Into $15 Billion Lending Giant

“We’re focused on the upper end of the middle market,” KKR’s Daniel Pietrzak said in an interview. “We believe — and Covid has shown to be true — that larger companies probably have a deeper management team, less customer and supplier concentration and just more levers to pull if there’s a challenge.”

BDCs, the most visible corner of the $850 billion private debt market, have ballooned since the 2008 financial crisis as traditional lenders retrenched from providing financing to small- and medium-sized businesses. Since then — often operating under the purview of some of the biggest names in credit and private equity — they’ve grown larger and begun doing bigger deals, too.

FS KKR Capital Corp. will have enhanced access to the investment-grade debt markets, a stronger dividend profile and lower overall expenses, Michael Forman, chief executive officer of both BDCs, said in the statement.

Read more: Why direct lending is a booming part of private debt: QuickTake

The boards of both BDCs have approved the merger, which is expected to close during the second or third quarter of 2021. FS/KKR Advisor LLC — a partnership between FS Investments and KKR Credit — is investment adviser to the BDCs.

Shares of FS KKR Capital Corp. II began trading on the New York Stock Exchange earlier this year, with the entity looking to take advantage of dislocations in the market caused by the coronavirus pandemic. The BDC was the result of a 2019 merger of four vehicles managed by the FS-KKR partnership.

(Updates with quote in paragraph three, additional context in paragraph four.)

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