Pre-IPO FSKR Investors May Have FINRA Arbitration Claims to Recover Losses
Investors in FS KKR Capital Corp. II (FSKR) who acquired their shares prior to the company’s June 2020 initial public offering (IPO) have likely suffered considerable losses. FSKR, a business development company (BDC) that provides credit solutions for private middle market U.S. companies primarily through debt and mezzanine financing, commenced trading on the New York Stock Exchange (NYSE) on June 17, 2020.
On June 10th, in advance of its NYSE listing, FSKR announced a 4 to 1 reverse stock split, whereby every four shares of FSKR common stock was converted into one share. As noted by FSKR in its most recently filed quarterly report (10-Q) with the SEC, this reverse split effectively reduced the number of outstanding shares from approximately 691.2 million to approximately 172.8 million.
As discussed in a previous blog post, FSKR is the product of a December 2019 roll-up of four affiliated non-traded BDCs, merged together to form FS KKR Capital Corp II. These non-traded BDCs include: FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, and Corporate Capital Trust II. Numerous retail investors nationwide were solicited to invest in these non-traded BDCs by a broker or financial advisor. In some instances, investors may not have been adequately informed with regard to the risks and complexities of these esoteric financial products.
Investments in non-traded BDCs, as with other complex and illiquid financial products, carry significant risk factors that should be explained to an investor by his or her financial advisor. To begin, non-traded BDCs lack liquidity, meaning that the shares cannot be easily sold on a national exchange. Because of this, some investors in non-traded BDCs are surprised when they come to learn that their investment capital may well be tied up for an extended time frame, sometimes up to 7-10 years. In some cases, investors must wait for a liquidity event to transpire, such as shares being listed on a national exchange.
And even when liquidity becomes available through a public listing, as is the case with FSKR, investors are by no means guaranteed to recover their initial investment. For example, as of this writing, FSKR shares are trading for approximately $14.50 per share, but when accounting for the recent 4 to 1 reverse stock split, the actual pricing is approximately $3.62 on a split-adjusted basis.
In other instances, some pre-IPO FS KKR Capital Corp II investors may have sustained losses prior to the June 2020 IPO. For example, on March 16, 2020, Mackenzie Capital Partners LP (a third-party investment management firm) made an unsolicited tender offer for $4.10 per share. Subsequently, Mackenzie followed with a revised tender offer on March 18th for $1.50 per share. Therefore, any pre-IPO investors who participated in these tender offers likely suffered considerable realized losses.
If you have invested in FSKR, or another non-traded BDC or REIT, and have suffered losses or are unable to exit your illiquid investment position, you may be able to recover your losses in securities arbitration before FINRA. The attorneys at Giarrusso Law Group LLC have considerable experience working closely with investors in complex and illiquid non-conventional investments, including non-traded BDCs and REITs, to recover their investment losses. Investors who wish to discuss a possible claim are invited to contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.