N-Q 1 tv489063_nq.htm N-Q
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

  

FORM N-Q

 

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS

OF REGISTERED MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number: 811-23221

 

 

 

FS Credit Income Fund

(Exact name of registrant as specified in charter)

 

 

  

201 Rouse Boulevard

Philadelphia, Pennsylvania

   19112
(Address of principal executive offices)   (Zip code)

 

 

 

Michael C. Forman

FS Credit Income Fund

201 Rouse Boulevard

Philadelphia, Pennsylvania 19112

(Name and address of agent for service)

 

 

 

Registrant’s telephone number, including area code: (215) 495-1150

 

Date of fiscal year end: October 31

 

Date of reporting period: January 31, 2018

 

 
   

 

 

Item 1. Schedule of Investments.

 

FS Credit Income Fund (the “Fund”) is a Delaware statutory trust that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company that operates as an interval fund pursuant to Rule 23c-3 under the 1940 Act. The Fund’s unaudited schedule of investments as of January 31, 2018 is set forth below:

   

 1 

 

  

FS Credit Income Fund

Unaudited Schedule of Investments

As of January 31, 2018

(in thousands, except share and per share amounts)

     

Portfolio Company(a)  Footnotes  Industry  Principal
Amount(b)		   Amortized
Cost		   Fair
Value(c)		 
Senior Secured Loans—First Lien—6.4%                     
California Resources Corp., L+475, 1.00% Floor, 12/31/2022  (d)  Independent Oil & Gas  $219   $215   $224 
Jo-Ann Stores, Inc., L+500, 1.00% Floor, 10/20/2023  (d)  Retailers   698    672    697 
PetSmart, Inc., L+300, 1.00% Floor, 3/11/2022  (d)  Retailers   105    81    85 
Red Ventures, LLC, L+400, 1.00%
Floor, 11/08/2024		  (d)  Media Entertainment   319    318    323 
Total Senior Secured Loans—First Lien              1,286    1,329 
Senior Secured Bonds—23.4%                     
ABG Orphan Holdco Sarl, 14.0%, 2/28/2021  (e)  Industrial Other  566   594   599 
Avon International Operations, Inc., 7.9%, 8/15/2022  (e)(f)  Consumer Products   600    600    614 
Chembulk Holding LLC, 8.0%, 2/2/2023  (e)(g)  Transportation Services   200    200    201 
Denbury Resources, Inc., 9.0%, 5/15/2021  (e)(f)  Independent Oil & Gas   11    11    11 
Denbury Resources, Inc., 9.3%, 3/31/2022  (e)(f)  Independent Oil & Gas   269    245    277 
Eagle Bulk Shipco LLC, 8.3%, 11/28/2022  (e)  Transportation Services   346    343    353 
HCA, Inc., 6.5%, 2/15/2020  (e)  Healthcare   575    615    615 
Hexion, Inc., 6.6%, 4/15/2020  (e)  Chemicals   400    361    364 
Hexion, Inc., 10.4%, 2/1/2022  (e)(f)  Chemicals   320    302    310 
Hot Topic, Inc., 9.3%, 6/15/2021  (f)  Retailers   220    189    218 
Solocal Group, 8.0%, 3/15/2022  (e)  Media Entertainment  €368    430    461 
Urban One, Inc., 7.4%, 4/15/2022  (e)(f)  Media Entertainment  $600    601    616 
Welltec A/S, 9.5%, 12/1/2022  (e)(f)  Oil Field Services   200    198    209 
Total Senior Secured Bonds              4,689    4,848 
Unsecured Bonds—39.3%                     
American Tire Distributors, Inc., 10.3%, 3/1/2022  (e)(f)  Automotive   226    233    234 
Aruba Investments, Inc., 8.8%, 2/15/2023  (e)(f)  Chemicals   775    796    816 
Consolidated Energy Finance SA, 6.8%, 10/15/2019  (e)(f)  Chemicals   550    559    560 
Diamondback Energy, Inc., 4.8%, 11/1/2024  (e)  Independent Oil & Gas   36    37    37 
Diamondback Energy, Inc., 5.4%, 5/31/2025  (e)(f)  Independent Oil & Gas   118    123    123 
Diamondback Energy, Inc., 5.4%, 5/31/2025  (e)  Independent Oil & Gas   14    15    15 
Frontier Communications Corp., 9.0%, 8/15/2031  (e)  Wirelines   215    162    140 
Frontier North, Inc., 6.7%, 2/15/2028  (e)  Wirelines   460    397    414 
Liberty Interactive LLC, 4.0%, 11/15/2029  (e)  Media Entertainment   577    402    413 
Mallinckrodt International Finance SA / Mallinckrodt CB LLC, 5.6%, 10/15/2023  (e)(f)  Pharmaceuticals   56    49    48 
Natural Resource Partners LP / NRP Finance Corp., 10.5%, 3/15/2022  (e)  Metals and Mining   315    335    340 
Parsley Energy LLC / Parsley Finance Corp., 5.4%, 1/15/2025  (e)(f)  Independent Oil & Gas   200    203    202 
Parsley Energy LLC / Parsley Finance Corp., 5.3%, 8/15/2025  (e)(f)  Independent Oil & Gas   300    304    303 
Parsley Energy LLC / Parsley Finance Corp., 5.6%, 10/15/2027  (e)(f)  Independent Oil & Gas   170    176    175 
Puerto Rico Commonwealth Aqueduct & Sewer Auth., 6.0%, 7/1/2038  (e)  Water & Sewer   195    115    149 

 

See notes to unaudited schedule of investments.

  

 2 

 

 

FS Credit Income Fund

Unaudited Schedule of Investments (continued)

As of January 31, 2018

(in thousands, except share and per share amounts)

 

Portfolio Company(a)  Footnotes  Industry  Principal
Amount(b)		   Amortized
Cost		   Fair
Value(c)		 
RSP Permian, Inc., 5.3%, 1/15/2025  (e)(g)  Independent Oil & Gas  $402   $413   $419 
SemGroup Corp. / Rose Rock Finance Corp., 5.6%, 11/15/2023  (e)  Midstream   405    397    400 
Shelf Drill Holdings Ltd., 8.3%, 2/15/2025  (e)(f)(g)  Oil Field Services   233    233    233 
Sprint Communications, Inc., 7.0%, 3/1/2020  (e)(f)  Wireless   465    500    497 
Sprint Communications, Inc., 6.0%, 11/15/2022  (e)  Wireless   70    73    70 
Sterling Entertainment, 10.3%, 1/15/2025     Media Entertainment   813    801    821 
Teck Resources Ltd., 5.4%, 2/1/2043  (e)  Metals and Mining   30    30    31 
Teekay Shuttle Tankers LLC, 7.1%, 8/15/2022  (e)  Transportation Services   600    608    603 
Vizient Inc., 10.4%, 3/1/2024  (e)(f)(g)  Medical-Wholesale Drug Distribution   260    294    294 
Weatherford International LLC, 6.8%, 6/15/2037  (e)  Oil Field Services   470    418    413 
Weatherford International Ltd., 8.3%, 6/15/2023  (e)  Oil Field Services   390    394    413 
Total Unsecured Bonds              8,067    8,163 
CLO / Structured Credit—28.7%                     
ALESCO Preferred Funding XIV Ltd., 2.1%, 9/23/2037     USD CDO   919    667    681 
Ares XXXII CLO Ltd., 4.9%, 11/15/2025     USD CLO   250    251    252 
Atrium XII, 4.5%, 4/22/2027  (f)  USD CLO   250    250    251 
Babson CLO Ltd. 2013-I, 4.3%, 1/20/2028  (f)  USD CLO   250    250    251 
Battalion CLO V Ltd., 5.2%, 4/17/2026  (f)  USD CLO   465    467    468 
Cairn CLO IV B.V., 5.7%, 1/30/2028     EUR CLO  €200    231    252 
Catamaran CLO 2013-1 Ltd., 4.3%, 1/27/2028  (f)  USD CLO  $250    250    251 
CIFC Funding 2012-II-R Ltd., 3.9%, 1/20/2028  (f)  USD CLO   250    250    251 
GLG Euro CLO I DAC, 6.6%, 4/15/2028     EUR CLO  €250    290    318 
Harvest CLO X DAC, 4.7%, 11/15/2028     EUR CLO   220    261    276 
ICG US CLO 2014-3 Ltd., 5.3%, 1/25/2027  (f)  USD CLO  $250    252    253 
Neuberger Berman CLO XX Ltd., 4.1%, 1/15/2028  (f)  USD CLO   250    250    251 
OCP CLO 2015-10 Ltd., 4.4%, 10/26/2027  (f)  USD CLO   250    250    250 
Orwell Park CLO Designated Activity Co., 4.5%, 7/18/2029     EUR CLO  €200    236    252 
Preferred Term Securities XX Ltd. / Preferred Term Securities XX, Inc., 2.0%, 3/22/2038  (f)  USD CDO  $440    333    333 
Preferred Term Securities XXIV Ltd. / Preferred Term Securities XXIV, Inc., 2.0%, 3/22/2037  (f)  USD CDO   445    332    329 
Tikehau CLO B.V., 2.4%, 8/4/2028     EUR CLO  €165    193    206 
Tikehau CLO B.V., 4.6%, 8/4/2028     EUR CLO   170    198    212 
Tymon Park CLO Ltd., 4.6%, 1/21/2029     EUR CLO   100    122    124 
VOYA CLO Ltd., 4.1%, 1/18/2029  (f)  USD CLO  $250    250    252 
Washington Mill CLO Ltd., 5.2%, 4/20/2026  (f)  USD CLO   250    251    252 
Total CLO / Structured Credit              5,834    5,965 
Emerging Markets Debt—10.3%                     

 

See notes to unaudited schedule of investments.

 

 3 

 

 

FS Credit Income Fund

Unaudited Schedule of Investments (continued)

As of January 31, 2018

(in thousands, except share and per share amounts)

 

Portfolio Company(a)  Footnotes  Industry  Principal
Amount(b)		   Amortized
Cost		   Fair
Value(c)		 
Oi S.A., 9.8%, 9/15/2016  (h)  Wirelines  R$7,215   $800   $852 
Provincia de Entre Rios Argentina, 8.8%, 2/8/2025  (e)(f)  Local Authority  $380    402    401 
Provincia de la Rioja, 9.8%, 2/24/2025  (e)(f)  Local Authority   800    879    877 
Total Emerging Markets Debt              2,081    2,130 
                      
Portfolio Company(a)  Footnotes              Amortized
Cost		   Fair
Value(c)		 
Short-Term Investments—12.0%                     
State Street Institutional Treasury Plus Money Market Fund - Institutional Class, 1.22%  (i)                  $2,489   $2,489 
Total Short-Term Investments              2,489    2,489 
TOTAL INVESTMENTS—120.1%             $24,446   $24,924 
Liabilities in Excess of Other Assets—(20.1)%                   (4,169)
Net Assets—100.0%                  $20,755 
Shares outstanding at period end                   1,603,587 
Net asset value per common share at period end                  $12.94 

 

See notes to unaudited schedule of investments.

 

 4 

 

  

FS Credit Income Fund

Unaudited Schedule of Investments (continued)

As of January 31, 2018

(in thousands)

 

Forward Foreign Currency Exchange Contracts

 

Counterparty  Contract
Settlement
Date		  Currency
to be
Received		  Value   Currency
to be
Delivered		  Value   Unrealized
Appreciation
(Depreciation)		 
JPMorgan Chase Bank  06/20/2018  USD   82   BRL   265   $- 
JPMorgan Chase Bank  06/20/2018  USD   100   BRL   322    (1)
JPMorgan Chase Bank  06/20/2018  USD   13   BRL   43    - 
JPMorgan Chase Bank  06/20/2018  USD   11   BRL   36    - 
BNP Paribas Securities Co.  06/20/2018  USD   1,192   EUR   951    (50)
BNP Paribas Securities Co.  06/20/2018  USD   1,130   EUR   901    (48)
BNP Paribas Securities Co.  06/20/2018  USD   312   EUR   249    (13)
BNP Paribas Securities Co.  06/20/2018  EUR   369   USD   463    21 
BNP Paribas Securities Co.  06/20/2018  USD   76   EUR   61    (4)
BNP Paribas Securities Co.  06/20/2018  EUR   198   USD   248    12 
BNP Paribas Securities Co.  06/20/2018  USD   160   EUR   128    (7)
JPMorgan Chase Bank  06/20/2018  EUR   1,205   USD   1,511    46 
JPMorgan Chase Bank  06/20/2018  EUR   345   USD   433    13 
JPMorgan Chase Bank  06/20/2018  USD   128   EUR   102    (2)
JPMorgan Chase Bank  06/20/2018  EUR   126   USD   158    - 
BNP Paribas Securities Co.  06/20/2018  USD   267   GBP   187    (13)
BNP Paribas Securities Co.  06/20/2018  GBP   43   USD   61    3 
JPMorgan Chase Bank  06/20/2018  GBP   139   USD   198    - 
                      $(43)

 

BRL – Brazilian Real.

EUR – Euro.

GBP – British Pound.

USD – U.S. Dollar.

 

Cross-Currency Basis Swaps

 

Counterparty  Fund
Pays		  Fund
Receives		  Notional
Amount		   Expiration
Date		  Periodic
Payment
Frequency		  Premiums
Paid/
(Received)		   Value ($)   Net Unrealized
Appreciation/
(Depreciation)		 
JPMorgan Chase Bank N.A. New York  Three Month EURIBOR plus a spread of (0.33375%)  Three Month USD LIBOR  EUR 347    01/16/2023  Quarterly  $-   $(431)  $(13)
JPMorgan Chase Bank N.A. New York  Three Month EURIBOR plus a spread of (0.33375%)  Three Month USD LIBOR  EUR 1,209    01/16/2023  Quarterly   -    (1,501)   (46)
                    $-   $(1,932)  $(59)

 

EURIBOR – Euro Interbank Offered Rate (As of January 31, 2018, Three Month EURIBOR was (0.33)%)

LIBOR – London Interbank Offered Rate (As of January 31, 2018, Three Month USD LIBOR was 1.78%)

 

Investments Sold Short

 

Portfolio Company(a)  Footnotes  Industry  Par(b)   Cost   Fair
Value(c)		 
U.S. Treasury—(0.9)%                     
U.S. Treasury Note, 2.375%, 5/15/27  (j)  U.S. Treasury  $(195)  $(194)  $(190)
Total Securities Sold Short             $(194)  $(190)

 

See notes to unaudited schedule of investments.

 

 5 

 

  

FS Credit Income Fund

Unaudited Schedule of Investments (continued)

As of January 31, 2018

(in thousands)

 

 
(a) Security may be an obligation of one or more entities affiliated with the named company.
   
(b) Denominated in U.S. dollars unless otherwise noted.
   
(c) Fair value is determined by the Fund’s board of trustees. For information on the Fund’s policy regarding valuation of investments, fair value hierarchy levels and other significant accounting policies, please refer to the Fund’s most recent audited consolidated financial statement.
   
(d) Certain variable rate securities in the Fund's portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of January 31, 2018, the three-month London Interbank Offered Rate ("L") was 1.78%.
   
(e)  Security or a portion thereof is pledged as collateral supporting the amounts outstanding under the prime brokerage facility with BNP Paribas Prime Brokerage, Inc. (“BNP”). Securities may be rehypothecated from time to time as permitted by Rule 15c-1(a)(1) promulgated under the Securities Exchange Act of 1934, as amended, subject to the terms and conditions governing the prime brokerage facility with BNP. As of January 31, 2018, there were no securities rehypothecated by BNP.
   
(f)  Restricted security as to resale. As of January 31, 2018, the Fund held 50.2% of its net assets, with a fair value of $10,410, in restricted securities.
   
(g) Position or portion thereof unsettled as of January 31, 2018.
   
(h) Security is in default.
   
(i) Rate represents the seven-day yield as of January 31, 2018.
   
(j) Security is non-income producing.

 

See notes to unaudited schedule of investments.

 

 6 

 

 

FS Credit Income Fund

Notes to Unaudited Schedule of Investments

As of January 31, 2018

(in thousands)

 

Investment Portfolio

 

The information contained in this section should be read in conjunction with the Fund’s audited financial statement contained in its annual report for the fiscal year ended October 31, 2017.

 

The following table summarizes the composition of the Fund’s investment portfolio at cost and fair value as of January 31, 2018:

 

   January 31, 2018 
   Amortized Cost(1)   Fair Value   Percentage
of Portfolio		 
Senior Secured Loans—First Lien  $1,286   $1,329    5%
Senior Secured Bonds  4,689   4,848    19%
Unsecured Bonds   8,067    8,163    33%
CLO / Structured Credit   5,834    5,965    24%
Emerging Markets Debt   2,081    2,130    9%
Short-Term Investments   2,489    2,489    10%
Total  $24,446   $24,924    100%

 

 
(1)Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

 

As of January 31, 2018, the Fund was not deemed to “control” any of its portfolio companies and was not deemed to be an “affiliated person” of any of its portfolio companies, each as defined in the 1940 Act.

 

In general, under the 1940 Act, the Fund would be presumed to “control” a portfolio company if it owned more than 25% of its voting securities or it had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if it owned 5% or more of its voting securities.

  

The Fund’s investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, which require the Fund to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of January 31, 2018, the Fund did not have any investments with unfunded commitments. The Fund maintains sufficient cash on hand and/or available borrowings to fund any unfunded commitments should the need arise.

 

 7 

 

  

FS Credit Income Fund

Notes to Unaudited Schedule of Investments (continued)

As of January 31, 2018

(in thousands)

 

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of January 31, 2018:

 

   January 31, 2018 
Industry Classification  Fair Value   Percentage
of Portfolio		 
USD CLO  $2,982    12%
Media Entertainment   2,634    11%
Chemicals   2,050    8%
Independent Oil & Gas   1,786    7%
EUR CLO   1,640    7%
Wirelines   1,406    6%
USD CDO   1,343    5%
Local Authority   1,278    5%
Oil Field Services   1,268    5%
Transportation Services   1,157    5%
Retailers   1,000    4%
Healthcare   615    2%
Consumer Products   614    2%
Industrial Other   599    2%
Wireless   567    2%
Midstream   400    2%
Metals and Mining   371    2%
Medical-Wholesale Drug Distribution   294    1%
Automotive   234    1%
Water & Sewer   149    1%
Pharmaceuticals   48    0%
Short-Term Investments   2,489    10%
Total  $24,924    100%

 

The table below describes the geographic concentration of the Fund’s investment portfolio and enumerates the percentage, by fair value, of the total portfolio assets in such geographic locations as of January 31, 2018:

 

   January 31, 2018 
Geographic Locations(1)  Fair Value   Percentage
of Portfolio		 
United States  $17,443    69%
Argentina   1,278    5%
Luxembourg   1,207    5%
Marshall Islands   1,157    5%
Ireland   970    4%
Brazil   852    3%
Netherlands   670    3%
France   461    2%
Bermuda   413    2%
Cayman Islands   233    1%
Denmark   209    1%
Canada   31    0%
Total  $24,924    100%

 

 
(1) Geographic location based on the portfolio company's headquarters or principal place of business.

 

 8 

 

  

FS Credit Income Fund

Notes to Unaudited Schedule of Investments (continued)

As of January 31, 2018

(in thousands)

 

Under existing accounting guidance, fair value is defined as the price that the Fund would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Fund. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The Fund classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

 

Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets.

 

Level 3: Inputs that are unobservable for an asset or liability.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

As of January 31, 2018, the Fund’s investments were categorized as follows in the fair value hierarchy:

 

Valuation Inputs  January 31, 2018 
Level 1 - Price quotations in active markets  $- 
Level 2 - Significant other observable inputs   24,924 
Level 3 - Significant unobservable inputs   - 
   $24,924 

  

As of January 31, 2018, the Fund’s investments sold short, forward foreign currency exchange contracts and cross-currency basis swaps were categorized as follows in the fair value hierarchy:

 

   January 31, 2018 
Valuation Inputs  Assets   Liabilities 
Level 1—Price quotations in active markets  $95   $138 
Level 2—Significant other observable inputs   -    249 
Level 3—Significant unobservable inputs   -    - 
Total  $95   $387 

 

 9 

 

  

Item 2. Controls and Procedures.

 

(a) The Fund’s principal executive officer and principal financial officer have evaluated the Fund’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act) as of a date within 90 days of the filing of this Form N-Q and have concluded that the Fund’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the Fund in this Form N-Q was recorded, processed, summarized and reported timely.

 

(b) There was no change in the Fund’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the Fund’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

Item 3. Exhibits.

 

The certifications of the Fund’s principal executive officer and principal financial officer required by Rule 30a-2(a) under the 1940 Act are attached hereto.

 

 10 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  FS Credit Income Fund
     
  By: /s/ Michael C. Forman
    Name: Michael C. Forman
    Title: President and Chief Executive Officer
    Date: March 30, 2018

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

  By: /s/ Michael C. Forman
    Name: Michael C. Forman
    Title: President and Chief Executive Officer
      (Principal Executive Officer)
    Date: March 30, 2018
     
  By: /s/ Edward T. Gallivan, Jr.
    Name: Edward T. Gallivan, Jr.
    Title: Chief Financial Officer
      (Principal Financial Officer)
    Date: March 30, 2018