FSCO: Weakness Related To Higher Rates (Rating Downgrade)

Summary

• FS Credit Opportunities is downgraded to hold due to weaker earnings and declining NAV momentum amid challenging debt markets.
• FSCO trades at a 12.48% discount to NAV, offering a 13.2% yield, but current net investment income no longer fully covers distributions.
• The portfolio is 80% first lien senior secured debt, mostly floating rate, making performance sensitive to interest rate trends and borrower health.
• Management’s track record and portfolio resilience support holding, but capital appreciation is limited; returns will primarily come from distributions.