Fitch Expects to Rate Fifth Street Finance Corp's Senior Unsecured Notes 'BBB-'
(The following statement was released by the rating agency) CHICAGO, March 27 (Fitch) Fitch Ratings expects to rate Fifth Street Finance Corp's (FSC) senior unsecured notes 'BBB-'. Proceeds are expected to be used to pay down draws on the company's credit facilities and for general corporate purposes, including working capital requirements. Fitch does not expect the issuance to have a material impact on leverage. A full list of rating actions is at the end of this rating action commentary. RATING ACTION RATIONALE The expected rating is equalized with the ratings assigned to FSC's existing senior unsecured debt as the new notes will rank equally in the capital structure. The equalization of the unsecured ratings with the secured debt rating reflects FSC's relatively low leverage, its focus on senior debt investments, and Fitch's expectation that proceeds from the issuance will be used to repay a portion of secured debt outstanding, thus increasing the amount of unsecured funding in the capital structure. KEY RATING DRIVERS FSC's ratings and Stable Outlook reflect Fitch's expectations for relatively consistent operating performance in 2013, as revolver capacity and portfolio proceeds are redeployed into cash-yielding investments with attractive risk-adjusted returns, and the maintenance of solid asset quality, stable liquidity, and strong dividend coverage from net investment income. RATING SENSITIVITIES Positive rating momentum could be influenced by consistent operating performance, further portfolio diversification, stronger cash earnings coverage of the dividend, and continued economical access to the unsecured markets through market cycles. Negative rating action could be driven by an increase in leverage above the targeted range, resulting from material unrealized depreciation, and/or an increase in the proportion of equity holdings without a commensurate decline in leverage. Declines in operating performance, a prolonged increase in non-accrual levels and weaker dividend coverage would also be viewed unfavorably from a ratings perspective. Headquartered in White Plains, NY, FSC is an externally managed business development company, formed in 2007 with an objective to generate both current income and capital appreciation through debt and equity investments. As of Dec. 31, 2012, the company had investments in 92 portfolio companies amounting to approximately $1.6 billion at fair value. Fitch assigns the following rating: Fifth Street Finance Corporation: -- Senior unsecured notes 'BBB- (Exp)'. Fitch currently rates FSC as follows: -- Long-term Issuer Default Rating (IDR) 'BBB-'; -- Secured debt 'BBB-; -- Unsecured debt 'BBB-'. Contact: Primary Analyst Katherine Hughes Associate Director +1-312-368-3123 Fitch, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Meghan Neenan, CFA Senior Director +1-212-908-9121 Committee Chairperson Nathan Flanders Managing Director +1-212-908-0827 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: email@example.com. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Global Financial Institutions Criteria' (Aug. 15, 2012);
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