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FS KKR Capital Corp II: Did Your Broker Recommend Shares of This Risky BDC?

Jul 16, 2021 Business Development Company

Investors May Have Lost Substantial Amount of Money Following Unsuitable Recommendations

Franklin Square KKR Capital II Fund (FSKR), also referred to as FS KKR Capital Corp II, lost significant money following the economic crash of 2020. This was foreseeable since Franklin Square Capital Corp II is a business development company (BDC) – a type of investment company that loans money to private businesses that need capital. BDCs typically suffer losses during an economic crash when businesses cannot pay back their loans.

The Financial Industry Regulatory Authority (FINRA) requires that brokers only recommend suitable investments. Before they recommend an investment, your broker should know your financial goals and understand your risk tolerance. If you expressed a desire for reliable income or preservation of your capital, a risky BDC was not the right investment for you. Brokers either knew or should have known the potential for losses.

The good news: You can recover your investment loss through FINRA arbitration. Many broker-dealers require investors to resolve their disputes through arbitration rather than a civil lawsuit. Securities lawyers can assess your case and guide you through the FINRA arbitration process.

FS KKR Capital Corp II Stock

FS KKR Capital Corp II came about following a merger of four non-traded business development companies:

  • FS Investment Corporation II (FSIC II)
  • FS Investment Corporation III (FSIC III)
  • FS Investment Corporation IV (FSIC IV)
  • Corporate Capital Trust II (CCT II)

In June 2021, FS KKR Capital Corp II (FSKR) made its debut on the stock exchange. At the same time, the company performed a 4-to-1 reverse stock split. Reverse stock splits consolidate the number of shares on the market, making each share worth more while the total value of the company does not change.

Despite the reverse stock split, many investors were disappointed by the value of FSKR shares. Business Development Companies suffered tremendous losses after many companies shut down in the wake of the Covid-19 pandemic. Mackenzie Capital Management, a company that specializes in discount real estate securities, made FSKR shareholders a tender offer of $4.10 per share, followed by a revised offer of $1.50 per share just two days later.

FS KKR Capital Corp II Complaints

When investors sign up for BDC investments, they may be tempted by the potential for high dividend yields and capital appreciation. BDCs can produce yields as high as 7% to 11%. While those steep yields are possible, nothing is guaranteed. They also come with the following risks, which brokers should make sure investors understand:  

  • High Fees and Commissions: Financial advisors typically earn a 1% commission, while BDCs can come with commissions as high as 7% to 10%. Brokers may be motivated by the commissions rather than their investors’ best interests to recommend BDC shares.
  • Leverage: Business development companies might use leverage – also known as debt – to finance their loans. This increases the risk that shares will decline in value. On top of that, BDCs provide loans to companies in financial distress, making them risky investments in the first place.
  • Liquidity: Before Franklin Square Capital Corp II made its debut on the stock market, its shares were illiquid, meaning they would be difficult to sell. Investors should have known that they might be stuck with their investment.

What Should If Do I Lost Money on Shares of Franklin Square Capital Corp II?  

Kurta Law has decades of experience recovering investor losses. Jonathan Kurta has defended broker-dealers in investor disputes and knows how your broker will try to defend their case. Contact Kurta Law for a free case evaluation: Call 212-658-1502 or email jkurta@kurtalawfirm.com.