FS Specialty Lending Fund Reports $2.1 Billion in Assets and Investment Strategy Shift

FS Specialty Lending Fund (FS Specialty Lending) reported total assets of approximately $2.1 billion as of December 31, 2024. The company, a business development company (BDC) and regulated investment company (RIC), experienced a significant shift in its investment strategy during fiscal year 2023. In May 2023, its board approved a transition from a focus on energy companies to a diversified credit investment policy across private and public credit markets in various industries. This change became effective September 29, 2023. The company's allocation to energy investments has decreased and is expected to decline further.

For the year ended December 31, 2024, FS Specialty Lending generated $223.1 million in total investment income, comprised of $189.5 million in interest income, $13.2 million in paid-in-kind interest income, $5.9 million in fee income, and $14.5 million in dividend income. Operating expenses totaled $86.3 million, resulting in net investment income of $134.6 million ($0.30 per share). Net realized gains on investments, foreign currency, swap contracts, and debt extinguishment amounted to $856,000, while the net change in unrealized appreciation (depreciation) was a negative $40.4 million. The net increase in net assets resulting from operations was $95 million ($0.21 per share). In comparison, the year ended December 31, 2023, resulted in a net decrease in net assets from operations of $121.2 million ($0.27 per share).

The company's investment portfolio composition shifted significantly. As of December 31, 2024, 78% of the portfolio (at fair value) consisted of senior secured loans—first lien, with senior secured loans—second lien, senior secured bonds, unsecured debt, asset-based finance, and equity/other investments making up the remaining balance. In contrast, as of December 31, 2023, 54% of the portfolio was in senior secured loans—first lien, with a larger proportion (33%) allocated to equity/other investments. The number of portfolio companies increased from 65 to 86 during the year. The percentage of investments on non-accrual status decreased from 11.9% to 1.1% during the same period.

FS Specialty Lending declared cash distributions per share of $0.34, $0.19, and $0.12 for the years ended December 31, 2024, 2023, and 2022, respectively. For the quarter ended December 31, 2024, the distribution per share was $0.0821, representing an annualized distribution rate of approximately 10% based on the net asset value per share. The company anticipates enhanced quarterly distributions to shareholders until a long-term liquidity event is achieved, with a projected annualized distribution rate increasing to approximately 12.5% in 2025 and 15% in 2026 and beyond. A portion of these distributions is expected to represent a return of investor capital. The company does not have any employees, relying instead on FS/EIG Advisor for management and operational oversight. The company's common shares are not listed on any exchange and a public market is not expected in the foreseeable future.