FS Specialty Lending Fund announces liquidity plan
Summary
On April 22, 2025, the Board of Trustees of FS Specialty Lending Fund (the Fund) approved a plan to prepare for the listing of its common shares on the New York Stock Exchange (NYSE). In advance of the listing, FSSL will be converted from a business development company (BDC) to a closed-end fund registered under the Investment Company Act of 1940 through a reorganization into a newly formed closed-end fund. The closed-end fund (FSSL) will be named “FS Specialty Lending Fund”, and we currently expect its common shares to begin trading on the NYSE under the ticker “FSSL” before the end of Q4 2025.
The investment management team and board will remain the same and there will be no change in the Fund’s investment objectives or strategy as a result of the conversion or listing.*
Although we are working toward a listing within the targeted time frame, the timing may be subject to change based on a variety of factors.
| Liquidity event phase |
Expected timing | Noteworthy event | Shareholder action required? |
| Phase I | April 24, 2025 | Announcement of intended listing | No |
| Phase II | Mid-May | Execution of reverse share split and CUSIP consolidation | No |
| Phase III | Late June | Commencement of shareholder proxy | Yes—your vote is needed! |
| Phase IV | Late Q3/ Early Q4 |
Listing preparation—operational considerations | Maybe—it depends on your custodian. |
*The investment strategy will remain the same except for certain requirements specific to BDCs under the 1940 Act, which won’t apply once the Fund is converted to a closed-end fund. As part of the conversion to a closed-end fund, FS Investments will acquire EIG Asset Management’s interest in the Adviser, make the Adviser an indirect, wholly-owned subsidiary of FS Investments.
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Liquidity plan overview
Ticker
FSSL
Conversion to a registered closed-end fund
- The Fund will be converted from a business development company into a closed-end fund registered under the 1940 Act through a reorganization into a newly formed closed-end fund. The reorganization is subject to shareholder approval.
- FSSL, the closed-end fund, will maintain the same board, investment objectives and strategy as the Fund.*
- The closed-end fund will be named “FS Specialty Lending Fund” and intends to pursue a listing of its shares on the NYSE.
Reverse share split
- Prior to the conversion, the Fund intends to conduct a 6-for-1 reverse split of its common shares. Following the split, shareholders will own one share for every six shares held before the split.
- The reverse share split is designed to achieve the following objectives:
- Comply with NYSE listing requirements which mandate a minimum stock price of $4.00 per share at the time of listing. As of December 31, 2024, FSSL’s net asset value (NAV) was $3.30 per share.
- Align FSSL’s share price with the typical trading range of comparable closed-end funds, which have historically traded in the range of approximately $10 to $20 per share.
- Meet the minimum share price requirements for certain intermediaries, broker dealers and custodians.
Quarterly repurchase offer
Fee changes
Upon a listing, the base management fee will be reduced from 1.75% to 1.50% of gross assets. The Adviser has agreed to waive 0.15% of the fee, resulting in an effective base management fee of 1.35% on gross assets for as long as FSSL remains a registered closed-end fund.1
The advisor currently may earn incentive fees consisting of two components: (i) a capital gains incentive fee and (ii) a subordinated income incentive fee.
- Following the conversion and reorganization into a closed-end fund, the Adviser will no longer be entitled to a capital gains incentive fee.
- Upon listing and continuing for as long as FSSL remains a registered closed-end fund, the Adviser has agreed to waive a portion of the income incentive fee, reducing it from 20% to 10% subject to an annualized hurdle rate of 6.0%.2
Distributions
We expect the Fund to pay enhanced quarterly distributions for Q1 and Q2 2025, paid in April and July, respectively, based on an annualized distribution rate of 12.5% based on the Fund’s then-current NAV.
The Fund’s quarterly enhanced distributions were designed to offer attractive returns to shareholders during the transition period to a diversified credit strategy, with the understanding that they were intended to conclude once the Fund achieves a long-term liquidity event, and a portion of the distributions may represent a return of capital.
- If a listing occurs prior to the end of the third quarter of 2025, we expect FSSL to pay a full quarterly enhanced distribution for the third quarter, payable in October. In the fourth quarter, we expect FSSL to target a monthly or quarterly distribution, representing an annualized distribution rate of 9.0% to 9.5% of FSSL’s NAV.3
- If a listing occurs in the fourth quarter of 2025, FSSL will pay a full quarterly enhanced distribution for the third quarter of 2025. In the fourth quarter, we expect FSSL to target a monthly or quarterly distribution, representing an annualized distribution rate of 9.0-9.5% of the Fund’s NAV.3 We believe this rate is competitive with those of closed-end fund peers and offers a meaningful income premium over risk-free rates.
- Beginning in January 2026, we expect FSSL to declare and pay distributions on a monthly basis, subject to a listing occurring in 2025 and board approval.
Following the listing, all cash dividends or distributions declared by the Board will be reinvested on behalf of shareholders who do not elect to receive their distributions in cash. Shareholders who do not elect to “opt out” of FSSL’s distribution reinvestment plan (DRP) will have their shares automatically reinvested in additional shares.
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Advisors and shareholders
877-628-8575
Melanie Hemmert
media@fsinvestments.com
215-309-6843
FOOTNOTES
- For each quarter after the listing date, the base management fee will be reduced from 1.75% to 1.50% of gross assets. In addition, the Adviser has agreed to waive 0.15% of the fee, resulting in an effective base management fee of 1.35% on gross assets commencing upon the listing and continuing for as long as FSSL remains a registered closed-end fund. Amounts waived by the Adviser will not be subject to recoupment from FSSL.
- Pursuant to the terms of FSSL’s Investment Advisory Agreement, for any quarter ending after the listing, the incentive fee on income is calculated and payable quarterly in arrears and equals 20.0% of FSSL’s “pre-incentive fee net investment income” for the immediately preceding quarter subject to a hurdle rate, expressed as a rate of return on net assets, equal to 1.5% per quarter, or an annualized hurdle rate of 6.0% compared to the current hurdle rate of 6.5%. As a result, the Adviser will not earn this incentive fee for any quarter until FSSL’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.5%. Once FSSL’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Adviser will be entitled to a “catch-up” fee equal to the amount of FSSL’s pre-incentive fee net investment income in excess of the hurdle rate, until FSSL’s pre-incentive fee net investment income for such quarter equals 1.875%, or 7.5% annually, of net assets. This “catch-up” feature will allow the Adviser to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, the Adviser will be entitled to receive 20.0% of FSSL’s pre-incentive fee net investment income.
While the incentive fee on income of the Fund and FSSL prior to the listing will be subject to a hurdle rate equal to a percentage of “adjusted capital” (as defined the Fund’s and FSSL’s Investment Advisory Agreement), the incentive fee on income of FSSL after the listing will be subject to a hurdle rate expressed as a rate of return on net assets, which will have the effect of making it more likely that the fund’s pre-incentive fee net investment income will exceed the hurdle rate and therefore more likely that FSSL will pay an incentive fee on income.
Effective on the listing and for so long as FSSL is a registered closed-end fund, the Adviser has contractually agreed to waive a portion of FSSL’s incentive fee. After giving effect to such fee waiver, the incentive fee on income will be calculated and payable quarterly in arrears and equals 10.00% of the closed-end fund’s “pre-incentive fee net investment income” for the immediately preceding quarter subject to a hurdle rate, expressed as a rate of return on net assets, equal to 1.5% per quarter, or an annualized hurdle rate of 6.0%. As a result, the Adviser will not earn this incentive fee for any quarter until FSSL’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.5%. Once FSSL’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Adviser will be entitled to a “catch-up” fee equal to the amount of FSSL’s pre-incentive fee net investment income in excess of the hurdle rate, until the closed-end fund’s pre-incentive fee net investment income for such quarter equals 1.667%, or 6.667% annually, of net assets. This “catch-up” feature will allow the Adviser to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, the Adviser will be entitled to receive 10.00% of the closed-end fund’s pre-incentive fee net investment income. Amounts waived by the Adviser will not be subject to recoupment from the closed-end fund. - The actual annualized distribution rate at listing may be higher or lower based on the then current NAV. The payment of future distributions on the fund’s common shares is subject to the discretion of the fund’s board of trustees and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future distributions