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FS KKR Capital Corp. II Merger summary & listing preparations FEBRUARY 2020
A staged liquidity plan designed to maximize shareholder value 1 2 3 Merge Recapitalize List common equity on non-traded funds 1 combined entity 2 New York Stock Exchange FSIC II Preferred equity $2.5B $1.0B FSIC III $2.2B Common equity $5.1B FSIC IV Common equity $0.3B $4.1B CCT II $0.1B 1. Total stockholders’ equity as of September 30, 2019. 2. Assumes $1 billion issuance of preferred equity to the holders of the combined entity. Exact amount will be determined by FSK II’s board of directors. 3
Key considerations of the liquidity plan 127,000+ 200+ 18,000+ Ensure the plan is in the best interest of shareholders 1 Investors Selling group members Advisors Each fund had similar yet different: • Dividend yields Manage the complexity • Distribution coverage of a multi-fund merger • Portfolio vintages • Operating expenses FSK’s common stock currently trades at a discount to book value. Merger with public fund (FSK) is not ideal for non-traded Merger of non- traded funds into FSK could create technical pressure on the price of FSK’s common stock upon a merger, shareholder bases which could further reduce the value of FSK shares to non-traded shareholders. Public markets generally assign a higher valuation to business development companies (BDCs) with: • distribution yields of 9% or greater Position portfolio & dividend for public markets • strong distribution coverage; and • senior secured debt representing at least 80% of the investment portfolio 1. As of September 30, 2019. 4
Strategic rationale of staged liquidity plan Create significant scale • FSK II is the 2 nd largest BDC in the market with over $8.9 billion in assets. 1 for public markets Ensure shareholders • Net asset value (NAV)-for-NAV mergers provided certainty of transaction pricing and helped ensure shareholders receive equal val ue in FSK II’s common shares, subject to merger expenses and other adjustments. receive equal value MERGE • Pro forma portfolio comprised of 210 portfolio companies across 21 different industries Enhance portfolio • Reduces concentration of top 10 investments and single name exposure diversification • Maintain focus on senior secured debt (84%) and floating rate debt (77%) based on fair value 2 • Eliminates duplicative administrative expenses (legal, audit, regulatory and administrative costs) Reduce expenses • Reduce cost of borrowings by consolidating existing facilities, leveraging scale to reduce borrowing costs and by potentially accessing debt capital markets as a publicly traded company • Preferred shares would provide current income (5.5%) and rank senior to FSK II’s common equity RECAPITALIZE • Align FSK II’s expected dividend yield, dividend coverage and return on equity to a competitive level with leading publicly t raded BDCs Align dividend & return • Helps mitigate selling pressure upon listing of common equity on equity for the public markets • Ability to select optimal path to liquidity post-merger based on market conditions and other considerations LIST • Single transaction eliminates the uncertainty of timing and impact of future mergers on shareholder value Minimize execution risks 1. As of September 30, 2019 on a pro forma basis. 2. Excludes assets underlying FSK II’s total return swap (TRS) financing arrangements with Citibank, N.A. and assets on non -accrual status. 5
Merger created significant visibility for the public markets FSK II is the second-largest BDC in the market (on a pro forma basis) TOTAL ASSETS AS OF SEPTEMBER 30, 2019 ($B) 16 $14.5 14 12 10 $8.9 $8.6 $7.8 8 $5.6 6 4 $3.1 $2.9 $2.7 $2.2 $2.1 $2.0 $1.8 $1.7 $1.5 $1.5 2 $1.2 0 ARCC FSK II ORCC FSK PSEC NMFC AINV BCSF CGBD TSLX GBDC SLRC TCPC GSBD OCSL BBDC Externally managed BDC assets under management with market capitalization greater than $500 million as of November 12, 2019. Ares Capital Corporation (ARCC), FS KKR Capital Corp. (FSK), Owl Rock Capital Corp. (ORCC), Prospect Capital Corporation (PSEC), New Mountain Finance Corporation (NMFC), Apollo Investment Corporation (AINV), Bain Capital Security Finance Inc. (BCSF), TCG BDC, Inc. (CGBD), Golub Capital BDC, Inc. TPG Specialty Lending, Inc. (TSLX), (GBDC), Solar Capital Ltd. (SLRC), BlackRock TCP Capital Corp. (TCPC), Goldman Sachs BDC, Inc. (GSBD, Oaktree Specialty Lending Corporation (OCSL),) and Barings BDC, Inc. (BBDC) Assumes the merger of each of FSIC III, FSIC IV and CCT II into FSIC II closes. GBDC and OCSL assets reported as of June 30, 2019. 6
Merger enhanced portfolio diversification FSIC II FSIC III FSIC IV CCT II Pro forma Increase number of portfolio companies 174 167 94 110 210 Reduce concentration of top 10 issuers 28.3% 32.3% 31.5% 28.4% 26.0% Reduce avg. single name exposure 0.57% 0.60% 1.06% 0.91% 0.48% Maintain focus on senior secured debt 1 85% 83% 75% 81% 84% Maintain focus on floating rate debt 2 79% 77% 65% 78% 77% PRO FORMA ASSET AND INDUSTRY ALLOCATION AS OF SEPTEMBER 30, 2019 (BASED ON FAIR VALUE) 69% 14% 1st lien loans Capital Goods 11% 11% 2nd lien loans Software & Services 4% 10% Other senior debt Healthcare Equipment & Services 7% 9% Subordinated debt Commercial & Professional Services 5% 6% Asset-based finance Energy 4% 6% Equity/other Retailing 6% Diversified Financials As of September 30, 2019. 38% Other 1. Excludes assets underlying the applicable fund’s total return swap (TRS) financing arrangement with Citibank, N.A. 2. Does not include assets on non-accrual. 7
Combination is expected to reduce expenses ESTIMATED ANNUAL EXPENSE REDUCTIONS 1 CATEGORY POTENTIAL SAVINGS • Administrative fees $11M Administrative • Directors fees $31M in expected savings $20M • Quarterly and annual filings Regulatory • Sarbanes-Oxley expenses • Legal expenses Other • Internal audit fees professional • Tax consulting expenses services • Printing expenses Current combined expenses Expected pro-forma expenses 1. Excludes one-time merger and listing-related expenses. 8
Key considerations for your clients 1 2 3 4 Understanding the Distributions Forward timeline & Resources for client NAV-for-NAV mergers listing preparations conversations 9
NAV-for-NAV mergers FSIC III, FSIC IV and CCT II shareholders received equal value in FSIC II shares NAV-FOR-NAV EXCHANGE RATIO 1 FSIC II FSIC III FSIC IV CCT II Ending NAV per share $7.36 $7.22 $10.03 $8.33 (/) FSIC II NAV per share -- $7.36 $7.36 $7.36 Exchange ratio -- 0.9804 1.3634 1.1319 Number of FSIC II shares that FSIC III, FSIC IV and CCT II shareholders received Numbers may be rounded. 1. As of December 16, 2019. 10
NAV changes since September 30, 2019 FSIC III, FSIC IV and CCT II shareholders received equal value in FSIC II shares NAV-FOR-NAV EXCHANGE RATIO 1 FSIC II FSIC III FSIC IV CCT II Q3 NAV per share $7.59 $7.42 $10.54 $8.60 Total regular distributions paid during the quarter ($0.19) ($0.17) ($0.21) ($0.14) Special distribution -- -- ($0.24) ($0.19) Other adjustments 2 ($0.04) ($0.03) ($0.06) $0.06 NAV per share as of 12/16/2019 $7.36 $7.22 $10.03 $8.33 (/) FSIC II NAV per share -- $7.36 $7.36 $7.36 Exchange ratio -- 0.9804 1.3634 1.1319 Number of FSIC II shares that FSIC III, FSIC IV and CCT II shareholders received Numbers may be rounded. 1. As of December 16, 2019. 2. Includes merger expenses, changes in portfolio value and net investment income generated during the period ended December 16, 2019. 11
Estimated source of distributions for 2019 2019 Form 1099-DIV Ordinary income Capital gains Return of capital FS KKR Capital Corp. II 100.0% -- -- (formerly FS Investment Corporation II) FS Investment Corporation III 97.1% -- 2.9% FS Investment Corporation IV 91.6% 4.5% 3.9% Corporate Capital Trust II 93.7% 3.6% 2.7% 12
Distribution timeline 2019 2020 Dec Jan Feb Mar April Quarterly DRP DRP suspended reinstated All funds: DRP election notice April 2 Early/Mid March: Paid regular distributions in mailed to investors Payment of Q1 Q1 distribution amount cash for all funds 2020 distribution published in 10-K filing Paid special cash distributions of undistributed net investment income and capital gains Per share distributions: FSIC IV $0.2625 CCT II $0.1850 Note: Subject to change and board approval. 13
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