FS Credit Opportunities Corp. Q4 FY2024 earnings call

• FSCO outperformed high-yield bonds by ~603 basis points and loans by ~530 basis points in 2024. • Increased monthly distribution by ~5% in March 2024 and 7.5% in January 2025, with annualized distribution yield as of Feb 27, 2025, at 10.7% based on NAV and 11.2% based on market price. • Deployed $884 million in 2024, with 70% in private credit assets. • Made progress in reducing discount to NAV, narrowing to ~5% by Dec 31, 2024, from 18% a year earlier. • Portfolio remained fully invested in Q4 2024, with sales, exits, and repayments of $260 million exceeding purchases of $226 million (excluding portfolio hedges) in Q4; annual purchases excluding hedges $884 million vs sales, exits, repayments $849 million. • Focus on private credit as core, investing in lower and core middle market companies, both sponsored and non-sponsored, with strong ability to control deal terms and structure investments. • Leverage structure includes multiyear fixed rate preferred debt providing flexibility.

In 2024, FSCO delivered a net return of 14.25% based on net asset value. The fund paid distributions of $0.71 per share in 2024, with net investment income covering distributions. Deployed $884 million across private and public credit assets in 2024, with ~$618 million (70%) in private credit assets at an average yield of 12.1%. Private credit investments represented ~65% of the portfolio as of year-end, up from 47% a year ago. Senior secured debt comprised ~84% of the portfolio, unsecured debt ~5%, asset-based finance ~3%, and equity and other investments ~8%.

• Acknowledged potential volatility in 2025 due to trade policy and political uncertainty. • Focus on businesses with strong cash flows, modest leverage, and experienced management. • Continue to focus on senior debt with strong terms and attractive yields. • Leverage size and scale to drive differentiated FEO as one of the largest credit-focused closed-end funds. • Ability to invest across private and public markets to allocate capital to best risk-adjusted return opportunities.

• Volatility driven by trade policy and political uncertainty could affect portfolio mark-to-market. • Tariffs could impact US businesses' supply chains, create inflationary pressures, and choke consumer demand. • Immigration constraints could put upward pressure on labor costs, affecting consumers. • Potential risks in private equity-owned companies with asset leakage or lender disputes. • Significant EBITDA add backs in credits may not materialize.

Q: With the election behind us, what are your expectations for M&A and deal flow relative to what we saw last year?

A: Starting to see signals of M&A market improving, new administration and SEC viewed as business friendly, spurring activity; saw pickup in Q4, closed nine direct originations in Q4.

Q: Are there any political concerns you're keeping an eye on with the new administration, most notably, tariffs or other potential challenges?

A: Tariffs are a concern as they can affect supply chains, create inflationary pressures, and choke consumer demand; working to avoid investments overly affected by tariffs and invest in insulated credits.

Q: In January, you raised the monthly dividend by about 7.5%. Any insights into what forward-looking dividend policy may look like while in light of a current rate in light of current rate expectations?

A: Continuously review distribution policy by analyzing fund's earnings profile, forward-looking base rates, and yields of credit-based peers; have significant spill-back dollars for cushion in case of rate declines or yield tightening; portion of earnings from fee-based income not directly tied to interest rate direction.

Q: It looks like the portfolio is now 65% private. This compares to 47% a year earlier. Do you believe that this is the higher end of the range? And do you expect allocation to continue -- do you expect the allocation to continue to grow?

A: Approaching higher end of range; private credit is a key differentiator, business has grown with expanded origination capabilities in private credit, and higher quality deal flow now available, so trend of increased allocation to private credit is expected to continue at the margin.

Q: How are the deals that you've recently closed compared to spreads in the broader market when looking at the broader private credit market?

A: Average transaction in private credit market printing around 500 for sponsor deals; fourth quarter's nine new private originations for FSCO had an average GAAP yield of 11.3%, close to a spread of 700, showing difference between portfolio originations/managed and broader private credit market.

Q: It looks like leverage ticked up at the end of the year at 0.6 debt to equity. Do you plan on maintaining that level going forward?

A: Leverage level elevated near year-end due to timing of funding investments; generally expected to remain in line with historical trend, largely dependent on market opportunities available; NAV growth in recent quarters reduces effect of leverage on NAV.

Q: Staying on the topic of leverage, because I noticed that you have a couple of preferred maturities maturing in November of this year, how do you plan on addressing those maturities? And will that materially increase the cost of leverage?

A: Have exploratory conversations with banks and plan to engage a bank to refinance; pricing for new preferreds appears attractive, likely inside existing preferred spreads and weighted average cost of leverage; preferreds due in 2025 were put on during zero rate environment, so total cost likely above those tranches.

Q: Are there any updates on investments in the portfolio that are on non-accrual?

A: Non-accruals as a percentage of fair market value approximately 2.5%, no new non-accruals in the quarter, and comfortable with this level.