FS Specialty Lending Fund Reports Q1 2025 Financial Results with $34.4M Net Increase in Assets

FS Specialty Lending Fund reported its financial results for the first quarter of 2025, revealing a net increase in net assets resulting from operations of $34.4 million, or $0.08 per share, compared to $18.1 million, or $0.04 per share, in the same period last year. The fund's total investment income for the quarter was $48.5 million, a decrease from $69.3 million in the prior year, primarily due to a significant drop in interest income from non-controlled/unaffiliated investments, which fell to $40.2 million from $61.8 million. The fund's net asset value per share increased to $3.37 from $3.30 at the end of the previous fiscal year.

The fund's total assets decreased to $1.95 billion as of March 31, 2025, down from $2.13 billion at the end of 2024. This decline was attributed to a reduction in cash and cash equivalents, which fell to $95.0 million from $202.1 million, and a decrease in non-controlled/unaffiliated investments, which dropped to $1.69 billion from $1.79 billion. Total liabilities also decreased significantly to $418.7 million from $627.8 million, largely due to a reduction in the repurchase facility payable, which fell to $397.0 million from $496.5 million.

In terms of operational developments, the fund has shifted its investment strategy from primarily focusing on energy companies to a diversified credit investment policy, effective September 29, 2023. This strategic pivot aims to invest across a broader range of industries, sectors, and sub-sectors, with a focus on generating current income and long-term capital appreciation. The fund's portfolio now includes a higher allocation to senior secured loans, which represented 79% of the total portfolio as of March 31, 2025.

The fund's management has indicated an expectation of enhanced quarterly distributions to shareholders, with an annualized distribution rate projected at approximately 12.5% for 2025. This is part of a broader strategy to provide liquidity to shareholders until a long-term liquidity event is achieved. The board of trustees has also approved a plan to list the fund's common shares on a national securities exchange, with a special meeting of shareholders anticipated later this year to discuss the proposed reorganization into a closed-end fund.

Overall, FS Specialty Lending Fund's financial performance reflects a transition in investment strategy and a focus on enhancing shareholder value through increased distributions and potential market listings, despite a decrease in total investment income and assets compared to the previous fiscal period.