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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-01151

FS Investment Corporation IV

(Exact name of registrant as specified in its charter)

	Maryland			47-3258730
	(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
	201 Rouse Boulevard Philadelphia, Pennsylvania			19112
	(Address of principal executive offices)			(Zip Code)

(215) 495-1150

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

There were 31,408,672 shares of the registrant’s Class T common stock outstanding as of May 10, 2019.

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PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

FS Investment Corporation IV

Consolidated Balance Sheets
(in thousands, except share and per share amounts)

	March 31, 2019 (Unaudited)			December 31, 2018
Assets
Investments, at fair value (amortized cost—$314,225 and $295,875, respectively)		$	311,687		$	288,841
Cash			3,832			16,651
Foreign currency, at fair value (cost—$215 and $114, respectively)			212			114
Due from counterparty			62,071			67,529
Receivable for investments sold and repaid			640			29
Income receivable			4,133			3,073
Receivable due on total return swap(1)			2,383			532
Prepaid expenses and other assets			—			17
Total assets		$	384,958		$	376,786
Liabilities
Unrealized depreciation on total return swap(1)		$	3,925		$	4,689
Payable for investments purchased			4,988			—
Credit facility payable(1)			32,500			35,000
Stockholder distributions payable			899			933
Distribution fees payable			622			631
Management fees payable			1,415			1,357
Subordinated income incentive fees payable(2)			1,394			903
Administrative services expense payable			173			101
Interest payable(1)			796			374
Directors’ fees payable			24			91
Other accrued expenses and liabilities			505			769
Total liabilities			47,241			44,848
Commitments and contingencies(3)
Stockholders’ equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding			—			—
Class A common stock, $0.001 par value, 250,000,000 shares authorized, none issued and outstanding			—			—
Class D common stock, $0.001 par value, 250,000,000 shares authorized, none issued and outstanding			—			—
Class T common stock, $0.001 par value, 250,000,000 shares authorized, 31,589,690 and 31,584,470 shares issued and outstanding, respectively			32			32
Class I common stock, $0.001 par value, 350,000,000 shares authorized, none issued and outstanding			—			—
Capital in excess of par value			342,193			342,137
Retained earnings (accumulated deficit)			(4,508)			(10,231)
Total stockholders’ equity			337,717			331,938
Total liabilities and stockholders’ equity		$	384,958		$	376,786
Net asset value per share of common stock at period end		$	10.69		$	10.51

(1)

See Note 8 for a discussion of the Company’s financing arrangements.

(2)

See Note 2 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees and capital gains incentive fees.

(3)

See Note 9 for a discussion of the Company’s commitments and contingencies.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation IV

Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)

	Three Months Ended March 31,
	2019			2018
Investment income
Interest income		$	7,460		$	6,089
Paid-in-kind interest income			410			279
Fee income			729			30
Dividend income			—			15
Total investment income			8,599			6,413
Operating expenses
Management fees(1)			1,415			1,857
Subordinated income incentive fees(2)			1,394			—
Capital gains incentive fees(2)			—			(735)
Administrative services expenses			170			78
Stock transfer agent fees			50			50
Accounting and administrative fees			55			51
Interest expense(3)			422			222
Distribution fees			779			621
Directors’ fees			28			284
Other general and administrative expenses			356			304
Operating expenses			4,669			2,732
Management fee waiver(1)			—			(232)
Net expenses			4,669			2,500
Net investment income (loss)			3,930			3,913
Realized and unrealized gain/loss
Net realized gain (loss) on investments			(289)			450
Net realized gain (loss) on total return swap(3)			2,383			2,477
Net realized gain (loss) on foreign currency			(13)			—
Net change in unrealized appreciation (depreciation) on investments			4,496			(4,607)
Net change in unrealized appreciation (depreciation) on total return swap(3)			764			(120)
Net change in unrealized gain (loss) on foreign currency			(3)			—
Total net realized and unrealized gain/loss			7,338			(1,800)
Net increase (decrease) in net assets resulting from operations		$	11,268		$	2,113
Per share information—basic and diluted
Net increase (decrease) in net assets resulting from operations (Earnings per Share)		$	0.36		$	0.07
Weighted average shares outstanding			31,458,921			31,707,046

(1)

See Note 4 for a discussion of the waiver by FSIC IV Advisor, LLC, the Company’s former investment adviser, of certain management fees to which it was otherwise entitled during the applicable period.

(2)

See Note 2 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees and capital gains incentive fees.

(3)

See Note 8 for a discussion of the Company’s financing arrangements.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation IV

Unaudited Consolidated Statements of Changes in Net Assets
(in thousands)

	Three Months Ended March 31,
	2019			2018
Operations
Net investment income (loss)		$	3,930		$	3,913
Net realized gain (loss) on investments and total return swap(1)			2,081			2,927
Net change in unrealized appreciation (depreciation) on investments			4,496			(4,607)
Net change in unrealized appreciation (depreciation) on total return swap(1)			764			(120)
Net change in unrealized gain (loss) on foreign currency			(3)			—
Net increase (decrease) in net assets resulting from operations			11,268			2,113
Stockholder distributions(2)
Distributions to stockholders			(5,545)			(5,247)
Net decrease in net assets resulting from stockholder distributions			(5,545)			(5,247)
Capital share transactions(3)
Reinvestment of stockholder distributions			2,931			3,226
Repurchases of common stock			(2,875)			(1,261)
Net increase in net assets resulting from capital share transactions			56			1,965
Total increase (decrease) in net assets			5,779			(1,169)
Net assets at beginning of period			331,938			351,537
Net assets at end of period		$	337,717		$	350,368

(1)

See Note 8 for a discussion of the Company’s financing arrangements.

(2)

See Note 5 for a discussion of the sources of distributions paid by the Company.

(3)

See Note 3 for a discussion of the Company’s capital share transactions.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation IV

Unaudited Consolidated Statements of Cash Flows
(in thousands)

	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations		$	11,268		$	2,113
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments			(39,645)			(4,706)
Paid-in-kind interest			(410)			(279)
Proceeds from sales and repayments of investments			21,557			12,020
Net realized (gain) loss on investments			289			(450)
Net change in unrealized (appreciation) depreciation on investments			(4,496)			4,607
Net change in unrealized (appreciation) depreciation on total return swap(1)			(764)			120
Accretion of discount			(141)			(123)
(Increase) decrease in due from counterparty			5,458			—
(Increase) decrease in receivable for investments sold and repaid			(611)			(6,664)
(Increase) decrease in income receivable			(1,060)			(1,389)
(Increase) decrease in receivable due on total return swap(1)			(1,851)			101
(Increase) decrease in prepaid expenses and other assets			17			15
Increase (decrease) in payable for investments purchased			4,988			—
Increase (decrease) in distribution fees payable			(9)			(223)
Increase (decrease) in management fees payable			58			29
Increase (decrease) in subordinated income incentive fees payable			491			—
Increase (decrease) in accrued capital gains incentive fees			—			(974)
Increase (decrease) in administrative services expense payable			72			—
Increase (decrease) in interest payable(1)			422			(65)
Increase (decrease) in directors’ fees payable			(67)			174
Increase (decrease) in other accrued expenses and liabilities			(264)			(58)
Net cash provided by (used in) operating activities			(4,698)			4,248
Cash flows from financing activities
Repurchases of common stock			(2,875)			(1,261)
Borrowings under credit facility(1)			12,500			—
Repayments under credit facility(1)			(15,000)			—
Distributions paid			(2,648)			(1,505)
Net cash provided by financing activities			(8,023)			(2,766)
Total increase (decrease) in cash			(12,721)			1,482
Cash and foreign currency at beginning of period			16,765			31,977
Cash and foreign currency at end of period		$	4,044		$	33,459
Supplemental disclosure
Non-cash purchase of investments		$	(341)		$	(3,961)
Non-cash sales of investments		$	341		$	(3,961)
Distributions reinvested		$	2,931		$	3,226
Excise and state taxes paid		$	174		$	225

(1)

See Note 8 for a discussion of the Company’s financing arrangements. During the three months ended March 31, 2019 and 2018, the Company paid $0 and $287, respectively, in interest expense on the credit facility.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation IV

Unaudited Consolidated Schedule of Investments
As of March 31, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—First Lien—54.2%
ABB CONCISE Optical Group LLC	(l)	Retailing	L+500		1.0%	6/15/23		$	845		$	848		$	807
Acosta Holdco Inc	(l)	Commercial & Professional Services	L+325		1.0%	9/26/21			2,684			2,016			1,265
Addison Holdings		Commercial & Professional Services	L+675		1.0%	12/29/23			11,945			11,945			12,065
All Systems Holding LLC		Commercial & Professional Services	L+725		1.0%	10/31/23			341			341			344
All Systems Holding LLC		Commercial & Professional Services	L+767		1.0%	10/31/23			3,260			3,260			3,293
American Tire Distributors Inc	(l)	Automobiles & Components	L+600, 1.00% PIK (1.00% Max PIK)		1.0%	9/1/23			272			255			269
American Tire Distributors Inc	(l)	Automobiles & Components	L+750		1.0%	9/2/24			1,726			1,531			1,549
Ammeraal Beltech Holding BV	(g)(l)	Capital Goods	E+375			7/30/25		€	1,000			1,157			1,123
Apex Group Limited	(e)(g)	Diversified Financials	L+650			6/15/23		$	211			206			180
Apex Group Limited	(g)(h)	Diversified Financials	L+650		1.0%	6/15/25			4,104			4,058			4,011
Apex Group Limited	(e)(g)(h)	Diversified Financials	L+650		1.0%	6/15/25			536			533			524
AVF Parent LLC		Retailing	L+725		1.3%	3/1/24			13,764			13,764			11,940
Borden Dairy Co		Food, Beverage & Tobacco	L+750		1.0%	7/6/23			4,375			4,375			3,971
Conservice LLC		Consumer Services	L+525			11/30/24			2,930			2,902			2,935
Conservice LLC	(e)	Consumer Services	L+525			11/30/24			547			544			535
Constellis Holdings LLC/Constellis Finance Corp		Capital Goods	L+575		1.0%	4/15/22			4,335			4,275			4,287
CSafe Global		Capital Goods	L+725		1.0%	11/1/21			96			96			96
CSafe Global	(e)	Capital Goods	L+725		1.0%	11/1/21			165			165			165
CSafe Global		Capital Goods	L+725		1.0%	10/31/23			2,229			2,229			2,251
Dade Paper and Bag Co Inc		Capital Goods	L+700		1.0%	6/10/24			421			421			405
Dade Paper and Bag Co Inc		Capital Goods	L+750		1.0%	6/10/24			3,302			3,302			3,236
Eagle Family Foods Inc	(e)	Food, Beverage & Tobacco	L+650		1.0%	6/14/23			379			375			321
Eagle Family Foods Inc		Food, Beverage & Tobacco	L+650		1.0%	6/14/24			2,507			2,482			2,428
Empire Today LLC		Retailing	L+700		1.0%	11/17/22			2,933			2,932			2,907
FullBeauty Brands Holdings Corp		Retailing	10.00%			6/30/19			185			185			180
FullBeauty Brands Holdings Corp		Retailing	L+900		1.0%	2/7/24			1,080			1,054			1,053
Hudson Technologies Co	(g)	Commercial & Professional Services	L+1,025		1.0%	10/10/23			5,635			5,589			3,987
Icynene Group Ltd		Materials	L+700		1.0%	11/30/24			6,913			6,912			6,705

See notes to unaudited consolidated financial statements.

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FS Investment Corporation IV

Unaudited Consolidated Schedule of Investments (continued)
As of March 31, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
JSS Holdings Ltd		Capital Goods	L+800, 0.00% PIK (2.50% Max PIK)		1.0%	3/31/23		$	9,971		$	9,898		$	10,270
Kodiak BP LLC		Capital Goods	L+725		1.0%	12/1/24			13,396			13,396			13,112
Lipari Foods LLC		Food & Staples Retailing	L+588		1.0%	1/4/25			11,198			11,110			11,099
Lipari Foods LLC	(e)	Food & Staples Retailing	L+588		1.0%	1/4/25			2,316			2,316			2,296
Murray Energy Corp		Energy	L+900		1.0%	2/12/21			1,000			995			994
North Haven Cadence Buyer Inc	(e)	Consumer Services	L+500		1.0%	9/2/21			188			188			188
North Haven Cadence Buyer Inc		Consumer Services	L+777		1.0%	9/2/22			761			761			752
North Haven Cadence Buyer Inc		Consumer Services	L+798		1.0%	9/2/24			3,656			3,656			3,610
North Haven Cadence Buyer Inc		Consumer Services	L+650		1.0%	9/2/24			1,020			1,020			1,007
North Haven Cadence Buyer Inc	(e)	Consumer Services	L+650		1.0%	9/2/24			21			21			21
PF Chang’s China Bistro Inc	(l)	Consumer Services	L+650			3/1/26			529			523			522
Power Distribution Inc		Capital Goods	L+725		1.3%	1/25/23			4,879			4,879			4,775
Propulsion Acquisition LLC	(l)	Capital Goods	L+600		1.0%	7/13/21			7,436			7,374			7,361
Reliant Rehab Hospital Cincinnati LLC		Health Care Equipment & Services	L+675		1.0%	8/30/24			5,510			5,464			5,434
Safariland LLC		Capital Goods	L+765		1.1%	11/18/23			4,766			4,766			4,307
Savers Inc		Retailing	L+650, 0.75% PIK (0.75% Max PIK)		1.5%	3/28/24		C$	3,945			2,902			2,916
Savers Inc		Retailing	L+650, 0.75% PIK (0.75% Max PIK)		1.5%	3/28/24		$	2,841			2,805			2,805
Sequel Youth & Family Services LLC		Health Care Equipment & Services	L+700		1.0%	9/1/23			1,220			1,220			1,231
Sequel Youth & Family Services LLC		Health Care Equipment & Services	L+800			9/1/23			7,000			7,000			7,063
Sorenson Communications LLC	(h)(l)	Telecommunication Services	L+650			3/14/24			5,196			4,988			5,150
SSC (Lux) Limited S.a r.l.	(g)	Health Care Equipment & Services	L+750		1.0%	9/10/24			6,385			6,385			6,435
Tangoe LLC		Software & Services	L+650		1.0%	11/28/25			4,766			4,720			4,706
Trace3 Inc		Software & Services	L+675		1.0%	8/5/24			7,497			7,497			7,497
Virgin Pulse Inc		Software & Services	L+650		1.0%	5/22/25			10,132			10,058			10,001
York Risk Services Group Inc	(l)	Insurance	L+375		1.0%	10/1/21			977			972			919
Total Senior Secured Loans—First Lien												192,666			187,303
Unfunded Loan Commitments												(4,348)			(4,348)
Net Senior Secured Loans—First Lien												188,318			182,955

See notes to unaudited consolidated financial statements.

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FS Investment Corporation IV

Unaudited Consolidated Schedule of Investments (continued)
As of March 31, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—Second Lien—10.2%
Ammeraal Beltech Holding BV	(g)	Capital Goods	L+800			7/27/26		$	4,804		$	4,712		$	4,703
athenahealth Inc		Health Care Equipment & Services	L+850		1.0%	2/11/27			5,990			5,932			6,020
Centric Group LLC	(l)	Retailing	L+800		1.0%	2/1/24			8,500			8,489			8,316
Chisholm Oil & Gas Operating LLC		Energy	L+800		1.0%	3/21/24			6,000			6,000			5,889
LBM Borrower LLC	(l)	Capital Goods	L+925		1.0%	8/20/23			2,427			2,387			2,378
One Call Care Management Inc		Insurance	L+375, 6.00% PIK (6.00% Max PIK)		1.0%	4/11/24			1,407			1,395			1,284
Pure Fishing Inc		Consumer Durables & Apparel	L+838		1.0%	12/31/26			4,301			4,258			4,326
Rise Baking Company		Food, Beverage & Tobacco	L+800		1.0%	8/9/26			1,652			1,637			1,623
Total Senior Secured Loans—Second Lien												34,810			34,539
Other Senior Secured Debt—6.9%
Akzo Nobel Specialty Chemicals	(f)(g)(l)	Materials	8.00%			10/1/26			618			618			623
APTIM Corp	(f)(h)(l)	Diversified Financials	7.75%			6/15/25			7,983			7,983			6,177
Artesyn Embedded Technologies Inc	(f)(l)	Technology Hardware & Equipment	9.75%			10/15/20			482			467			458
Black Swan Energy Ltd	(g)	Energy	9.00%			1/20/24			1,334			1,334			1,321
Genesys Telecommunications Laboratories Inc	(f)(l)	Technology Hardware & Equipment	10.00%			11/30/24			428			471			468
JC Penney Corp Inc	(f)(g)(l)	Retailing	5.65%			6/1/20			38			35			35
JW Aluminum Co	(f)(l)	Materials	10.25%			6/1/26			759			759			787
Lycra	(f)(g)(l)	Consumer Durables & Apparel	7.50%			5/1/25			1,015			1,027			1,002
Numericable-SFR	(f)(g)(l)	Software & Services	8.13%			2/1/27			333			333			337
Pattonair Holdings Ltd	(f)(g)(l)	Capital Goods	9.00%			11/1/22			1,259			1,300			1,282
Ply Gem Holdings Inc	(f)(l)	Capital Goods	8.00%			4/15/26			2,390			2,289			2,147
Velvet Energy Ltd	(g)	Energy	9.00%			10/5/23			3,000			3,000			3,067
Vivint Inc	(f)(l)	Commercial & Professional Services	7.88%			12/1/22			3,471			3,423			3,479
Vivint Inc	(f)(l)	Commercial & Professional Services	7.63%			9/1/23			2,299			2,115			1,962
Total Other Senior Secured Debt												25,154			23,145

See notes to unaudited consolidated financial statements.

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FS Investment Corporation IV

Unaudited Consolidated Schedule of Investments (continued)
As of March 31, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Subordinated Debt—17.4%
All Systems Holding LLC		Commercial & Professional Services	10.00% PIK (10.00% Max PIK)		10/31/22		$	7		$	7		$	7
Ascent Resources Utica Holdings LLC/ARU Finance Corp	(f)(l)	Energy	10.00%		4/1/22			6,500			6,500			7,119
athenahealth Inc, Preferred Stock		Health Care Equipment & Services	L+1,125 PIK (L+1,125 Max PIK)		11/30/25			2,995			2,995			3,029
Avantor Inc	(f)(l)	Pharmaceuticals, Biotechnology & Life Sciences	9.00%		10/1/25			12,500			12,503			13,547
CEC Entertainment Inc	(f)(l)	Consumer Services	8.00%		2/15/22			4,356			4,237			4,031
ClubCorp Club Operations Inc	(f)(l)	Consumer Services	8.50%		9/15/25			3,339			3,225			3,050
Diamond Resorts International Inc	(f)(l)	Consumer Services	10.75%		9/1/24			933			976			885
Hub International Ltd	(f)(l)	Insurance	7.00%		5/1/26			219			213			217
Intelsat Jackson Holdings SA	(f)(g)(l)	Media	5.50%		8/1/23			1,761			1,593			1,565
Ken Garff Automotive LLC	(f)(l)	Retailing	7.50%		8/15/23			1,837			1,852			1,867
LifePoint Hospitals Inc	(f)(l)	Health Care Equipment & Services	9.75%		12/1/26			2,344			2,318			2,435
Quorum Health Corp	(f)(l)	Health Care Equipment & Services	11.63%		4/15/23			735			732			662
SRS Distribution Inc	(f)(l)	Capital Goods	8.25%		7/1/26			3,567			3,517			3,433
Stars Group Holdings BV	(f)(g)(l)	Consumer Services	7.00%		7/15/26			521			521			544
Surgery Partners Holdings LLC	(f)(l)	Health Care Equipment & Services	6.75%		7/1/25			187			179			169
Team Health Inc	(f)(l)	Health Care Equipment & Services	6.38%		2/1/25			2,412			2,126			1,964
Vertiv Group Corp	(f)(l)	Technology Hardware & Equipment	9.25%		10/15/24			5,082			5,021			5,018
Vivint Inc	(f)(l)	Commercial & Professional Services	8.75%		12/1/20			2,327			2,246			2,295
York Risk Services Group Inc	(f)(l)	Insurance	8.50%		10/1/22			8,695			8,346			7,065
Total Subordinated Debt											59,107			58,902

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation IV

Unaudited Consolidated Schedule of Investments (continued)
As of March 31, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity		Number of Shares		Cost			Fair Value(d)
Equity/Other—3.6%
All Systems Holding LLC, Common Stock		Commercial & Professional Services						4		$	39		$	55
Altavair NewCo, Private Equity	(g)(j)	Capital Goods						314,950			315			323
ASG Technologies, Warrants	(j)	Software & Services				6/27/22		12,081			344			446
Australis Maritime, Private Equity	(g)(j)	Transportation						104,330			104			104
Chisholm Oil & Gas Operating LLC, Series A Units	(j)(k)	Energy						75,000			75			34
CSafe Global, Common Stock	(j)	Capital Goods						17,400			17			31
Empire Today LLC, Common Stock	(j)	Retailing						14			41			45
FullBeauty Brands Holdings Corp, Common Stock	(j)	Retailing						5,486			26			26
JSS Holdings Ltd, Net Profits Interest	(j)	Capital Goods						4			—			64
JW Aluminum Co, Common Stock	(j)	Materials						41			—			—
JW Aluminum Co, Preferred Stock		Materials	12.50% PIK			11/17/25		1,003			5,193			10,263
North Haven Cadence Buyer Inc, Common Stock	(j)	Consumer Services						208,333			208			354
Power Distribution Inc, Common Stock	(j)	Capital Goods						230,769			231			52
SSC (Lux) Limited S.a r.l., Common Stock	(g)(j)	Health Care Equipment & Services						11,364			227			279
Trace3 Inc, Common Stock	(j)	Software & Services						1,545			16			70
Total Equity/Other											6,836			12,146
TOTAL INVESTMENTS—92.3%										$	314,225			311,687
OTHER ASSETS IN EXCESS OF LIABILITIES— 7.7%														26,030
NET ASSETS—100.0%													$	337,717

Total Return Swap		Notional Amount			Unrealized Depreciation
Citibank TRS Facility (Note 8)	(g)		$	156,659		$	(3,925)

(a)

Security may be an obligation of one or more entities affiliated with the named company.

(b)

Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of March 31, 2019, the three-month London Interbank Offered Rate, or LIBOR or “L,” was 2.60% and the Euro Interbank Offered Rate, or EURIBOR, or “E”, was (0.31)%. PIK means paid-in-kind.

(c)

Denominated in U.S. dollars unless otherwise noted.

(d)

Fair value determined by the Company’s board of directors (see Note 7).

(e)

Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.

(f)

Security or portion thereof held within Broomall Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage facility with BNP Paribas Prime Brokerage, Inc., or BNP. Securities held within Broomall Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).

(g)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of March 31, 2019, 92.0% of the Company’s total assets represented qualifying assets. In addition, as described in Note 8, the Company also calculates its compliance with the qualifying asset test on a “look through” basis by disregarding the value of the Company’s total return swap and treating each loan underlying the total return swap as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 89.8% of the Company’s total assets represented qualifying assets as of March 31, 2019.

(h)

Position or portion thereof unsettled as of March 31, 2019.

(i)

Security was on non-accrual status as of March 31, 2019.

(j)

Security is non-income producing.

(k)

Security held within FSIC IV Investments, LLC, a wholly-owned subsidiary of the Company.

(l)

Security is classified as Level 2 in the Company’s fair value hierarchy (see Note 7).

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation IV

Consolidated Schedule of Investments
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—First Lien—48.0%
ABB CONCISE Optical Group LLC	(l)	Retailing	L+500		1.0%	6/15/23		$	848		$	851		$	814
Acosta Holdco Inc	(l)	Commercial & Professional Services	L+325		1.0%	9/26/21			2,691			2,022			1,653
Addison Holdings		Commercial & Professional Services	L+675		1.0%	12/29/23			11,976			11,976			11,996
All Systems Holding LLC		Commercial & Professional Services	L+767		1.0%	10/31/23			3,601			3,601			3,637
American Tire Distributors Inc	(l)	Automobiles & Components	L+750		1.0%	8/30/24			1,731			1,535			1,425
American Tire Distributors Inc	(l)	Automobiles & Components	L+650, 1.0% PIK (1.0% Max PIK)		1.0%	9/1/23			272			255			255
Ammeraal Beltech Holding BV	(g)(l)	Capital Goods	E+375			7/30/25		€	1,000			1,157			1,140
Apex Group Limited	(e)(g)	Diversified Financials	L+650			6/15/23		$	211			205			181
Apex Group Limited	(g)	Diversified Financials	L+650		1.0%	6/15/25			1,429			1,402			1,373
Apex Group Limited	(e)(g)	Diversified Financials	L+650		1.0%	6/15/25			690			677			662
Apex Group Limited	(g)	Diversified Financials	L+650		1.0%	6/15/25			230			226			221
Apex Group Limited	(e)(g)	Diversified Financials	L+650		1.0%	6/15/25			345			340			331
AVF Parent LLC		Retailing	L+725		1.3%	3/1/24			13,853			13,853			12,950
Borden Dairy Co		Food, Beverage & Tobacco	L+808		1.0%	7/6/23			4,375			4,375			3,978
Constellis Holdings LLC/Constellis Finance Corp		Capital Goods	L+575		1.0%	4/1/22			4,346			4,281			4,281
CSafe Global		Capital Goods	L+725		1.0%	11/1/21			26			26			26
CSafe Global	(e)	Capital Goods	L+725		1.0%	11/1/21			235			235			237
CSafe Global		Capital Goods	L+725		1.0%	10/31/23			2,234			2,233			2,256
Dade Paper and Bag Co Inc		Capital Goods	L+700		1.0%	6/10/24			422			422			405
Dade Paper and Bag Co Inc		Capital Goods	L+750		1.0%	6/10/24			3,311			3,311			3,244
Eagle Family Foods Inc	(e)	Food, Beverage & Tobacco	L+650		1.0%	6/14/23			379			375			323
Eagle Family Foods Inc		Food, Beverage & Tobacco	L+650		1.0%	6/14/24			2,513			2,487			2,475
Empire Today LLC		Retailing	L+700		1.0%	11/17/22			2,940			2,940			2,945
FullBeauty Brands Holdings Corp	(i)(j)(l)	Retailing	L+475		1.0%	10/14/22			4,824			1,439			1,469
Hudson Technologies Co	(g)	Commercial & Professional Services	L+1025		1.0%	10/10/23			5,635			5,587			4,029
Icynene Group Ltd		Materials	L+700		1.0%	11/30/24			6,930			6,930			6,739
JSS Holdings Ltd		Capital Goods	L+800, 0.0% PIK (2.5% Max PIK)		1.0%	3/31/23			9,958			9,882			10,257
Kodiak BP LLC		Capital Goods	L+725		1.0%	12/1/24			13,428			13,428			13,142
Murray Energy Corp		Energy	L+900		1.0%	2/12/21			1,000			994			996
North Haven Cadence Buyer Inc	(e)	Consumer Services	L+500		1.0%	9/2/21			188			187			188
North Haven Cadence Buyer Inc		Consumer Services	L+777		1.0%	9/2/24			1,055			1,055			1,044
North Haven Cadence Buyer Inc		Consumer Services	L+798		1.0%	9/2/24			3,656			3,656			3,620
North Haven Cadence Buyer Inc	(e)	Consumer Services	L+650		1.0%	9/2/24			750			750			743
Power Distribution Inc		Capital Goods	L+725		1.3%	1/25/23			4,891			4,891			4,891
Propulsion Acquisition LLC	(l)	Capital Goods	L+600		1.0%	7/13/21			8,281			8,199			8,198

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation IV

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Reliant Rehab Hospital Cincinnati LLC		Health Care Equipment & Services	L+675		1.0%	8/30/24		$	5,052		$	5,004		$	5,037
Safariland LLC		Capital Goods	L+765		1.1%	11/18/23			4,766			4,766			4,271
Sequel Youth & Family Services LLC		Health Care Equipment & Services	L+700		1.0%	9/1/23			1,223			1,223			1,245
Sequel Youth & Family Services LLC		Health Care Equipment & Services	L+800			9/1/23			7,000			7,000			7,125
SSC (Lux) Limited S.a r.l.	(g)	Health Care Equipment & Services	L+750		1.0%	9/10/24			6,385			6,385			6,449
Tangoe LLC		Software & Services	L+650		1.0%	11/28/25			4,778			4,731			4,730
Trace3 Inc		Diversified Financials	L+675		1.0%	8/5/24			7,516			7,516			7,440
Virgin Pulse Inc		Software & Services	L+650		1.0%	5/22/25			10,158			10,081			9,842
Westbridge Technologies Inc	(l)	Technology Hardware & Equipment	L+850		1.0%	4/28/23			2,850			2,805			2,857
York Risk Services Group Inc	(l)	Insurance	L+375		1.0%	10/1/21			980			975			919
Total Senior Secured Loans—First Lien												166,269			162,039
Unfunded Loan Commitments												(2,769)			(2,769)
Net Senior Secured Loans—First Lien												163,500			159,270
Senior Secured Loans—Second Lien—8.6%
Ammeraal Beltech Holding BV	(g)	Capital Goods	L+800			7/27/26			4,804			4,710			4,700
Centric Group LLC	(l)	Retailing	L+800		1.0%	2/1/24			8,500			8,488			8,384
Chisholm Oil & Gas Operating LLC		Energy	L+800		1.0%	3/21/24			6,000			6,000			5,929
LBM Borrower LLC	(l)	Capital Goods	L+925		1.0%	8/20/23			2,427			2,385			2,378
One Call Care Management Inc		Insurance	L+375, 6.0% PIK (6.0% Max PIK)			4/11/24			1,386			1,374			1,327
Pure Fishing Inc		Consumer Durables & Apparel	L+838		1.0%	12/31/26			4,301			4,258			4,258
Rise Baking Company		Food, Beverage & Tobacco	L+800		1.0%	8/9/26			1,652			1,636			1,637
Total Senior Secured Loans—Second Lien												28,851			28,613
Other Senior Secured Debt—8.0%
Akzo Nobel Specialty Chemicals	(f)(g)(l)	Materials	8.0%			10/1/26			618			618			579
APTIM Corp	(f)(l)	Diversified Financials	7.8%			6/15/25			8,783			8,783			6,642
Artesyn Embedded Technologies Inc	(f)(l)	Technology Hardware & Equipment	9.8%			10/15/20			482			465			446
Avantor Inc	(f)(l)	Pharmaceuticals, Biotechnology & Life Sciences	6.0%			10/1/24			1,282			1,282			1,261
Black Swan Energy Ltd	(g)	Energy	9.0%			1/20/24			1,334			1,334			1,287
Boyne USA Inc	(f)(l)	Consumer Services	7.3%			5/1/25			16			17			17
DJO Finance LLC/DJO Finance Corp	(f)(l)	Health Care Equipment & Services	8.1%			6/15/21			2,113			2,128			2,182
Genesys Telecommunications Laboratories Inc	(f)(l)	Technology Hardware & Equipment	10.0%			11/30/24			428			473			450
JC Penney Corp Inc	(f)(g)(l)	Retailing	5.7%			6/1/20			38			35			30
JW Aluminum Co	(l)	Materials	10.3%			6/1/26			759			759			757
Lycra	(f)(g)(l)	Consumer Durables & Apparel	7.5%			5/1/25			1,015			1,027			955

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation IV

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Numericable-SFR	(f)(g)(l)	Software & Services	8.1%		2/1/27		$	333		$	333		$	315
Pattonair Holdings Ltd	(f)(g)(l)	Capital Goods	9.0%		11/1/22			1,259			1,302			1,272
Ply Gem Holdings Inc	(f)(l)	Capital Goods	8.0%		4/15/26			2,390			2,286			2,199
Velvet Energy Ltd	(g)	Energy	9.0%		10/5/23			3,000			3,000			3,024
Vivint Inc	(f)(l)	Commercial & Professional Services	7.6%		9/1/23			2,299			2,107			1,881
Vivint Inc	(f)(l)	Commercial & Professional Services	7.9%		12/1/22			3,471			3,420			3,289
Total Other Senior Secured Debt											29,369			26,586
Subordinated Debt—19.3%
All Systems Holding LLC		Commercial & Professional Services	10.0% PIK (10.0% Max PIK)		10/31/22			7			7			7
Ascent Resources Utica Holdings LLC/ARU Finance Corp	(f)(l)	Energy	10.0%		4/1/22			6,500			6,500			6,652
Avantor Inc	(f)(l)	Pharmaceuticals, Biotechnology & Life Sciences	9.0%		10/1/25			12,500			12,502			12,508
CEC Entertainment Inc	(f)(l)	Consumer Services	8.0%		2/15/22			7,100			6,805			6,390
ClubCorp Club Operations Inc	(f)(l)	Consumer Services	8.5%		9/15/25			3,339			3,221			3,005
Diamond Resorts International Inc	(f)(l)	Consumer Services	10.8%		9/1/24			933			977			842
Exterran Energy Solutions LP/EES Finance Corp	(f)(g)(l)	Energy	8.1%		5/1/25			2,743			2,743			2,645
Great Lakes Dredge & Dock Corp	(f)(g)(l)	Capital Goods	8.0%		5/15/22			4,105			4,105			4,174
Intelsat Jackson Holdings SA	(f)(g)(l)	Media	5.5%		8/1/23			1,761			1,585			1,549
Ken Garff Automotive LLC	(f)(l)	Retailing	7.5%		8/15/23			1,837			1,852			1,823
LifePoint Hospitals Inc	(f)(l)	Health Care Equipment & Services	9.8%		12/1/26			2,344			2,318			2,233
PF Chang’s China Bistro Inc	(f)(l)	Consumer Services	10.3%		6/30/20			2,633			2,492			2,404
Quorum Health Corp	(f)(l)	Health Care Equipment & Services	11.6%		4/15/23			786			783			749
SRS Distribution Inc	(f)(l)	Capital Goods	8.3%		7/1/26			3,567			3,516			3,282
Stars Group Holdings BV	(f)(g)(l)	Consumer Services	7.0%		7/15/26			521			521			506
Surgery Partners Holdings LLC	(f)(l)	Health Care Equipment & Services	6.8%		7/1/25			416			397			360
Team Health Inc	(f)(l)	Health Care Equipment & Services	6.4%		2/1/25			2,412			2,117			1,969
Vertiv Group Corp	(f)(l)	Technology Hardware & Equipment	9.3%		10/15/24			5,082			5,018			4,523
Vivint Inc	(f)(l)	Commercial & Professional Services	8.8%		12/1/20			2,327			2,236			2,219
York Risk Services Group Inc	(f)(l)	Insurance	8.5%		10/1/22			8,695			8,323			6,087
Total Subordinated Debt											68,018			63,927

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation IV

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)		Floor	Maturity		Number of Shares		Cost			Fair Value(d)
Equity/Other—3.1%
All Systems Holding LLC, Common Stock		Commercial & Professional Services							4		$	39		$	45
ASG Technologies, Warrants	(j)	Software & Services					6/27/2022		12,081			344			351
Australis Maritime, Private Equity	(g)(j)	Transportation							104,330			104			104
Chisholm Oil & Gas Operating LLC, Series A Units	(j)(k)	Energy							75,000			75			32
CSafe Global, Common Stock	(j)	Capital Goods							17,400			17			24
Empire Today LLC, Common Stock	(j)	Retailing							14			41			40
JSS Holdings Ltd, Net Profits Interest	(j)	Capital Goods							—			—			64
JW Aluminum Co, Common Stock	(j)	Materials							41			—			—
JW Aluminum Co, Preferred Stock		Materials		12.5% PIK			11/17/2025		1,003			4,835			9,039
North Haven Cadence Buyer Inc, Common Equity	(j)	Consumer Services							208,333			208			318
Power Distribution Inc, Common Stock	(j)	Capital Goods							230,769			231			121
SSC (Lux) Limited S.a r.l., Common Stock	(g)(j)	Health Care Equipment & Services							11,364			227			278
Trace3 Inc, Common Stock		Diversified Financials							1,545			16			29
Total Equity/Other												6,137			10,445
TOTAL INVESTMENTS—87.0%											$	295,875			288,841
OTHER ASSETS IN EXCESS OF LIABILITIES— 13.0%															43,097
NET ASSETS—100.0%														$	331,938

Total Return Swap		Notional Amount			Unrealized Appreciation
Citibank TRS Facility (Note 8)	(g)		$	171,065		$	(4,689)

(a)

Security may be an obligation of one or more entities affiliated with the named company.

(b)

Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of December 31, 2018, the three-month London Interbank Offered Rate, or LIBOR or “L,” was 2.81% and the Euro Interbank Offered Rate, or EURIBOR, or “E”, was (0.31)%. PIK means paid-in-kind.

(c)

Denominated in U.S. dollars unless otherwise noted.

(d)

Fair value determined by the Company’s board of directors (see Note 7).

(e)

Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.

(f)

(g)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of December 31, 2018, 90.8% of the Company’s total assets represented qualifying assets. In addition, as described in Note 8, the Company also calculates its compliance with the qualifying asset test on a “look through” basis by disregarding the value of the Company’s total return swap and treating each loan underlying the total return swap as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 89.9% of the Company’s total assets represented qualifying assets as of December 31, 2018.

(h)

Position or portion thereof unsettled as of December 31, 2018.

(i)

Security was on non-accrual status as of December 31, 2018.

(j)

Security is non-income producing.

(k)

Security held within FSIC IV Investments, LLC, a wholly-owned subsidiary of the Company.

(l)

Security is classified as Level 2 in the Company’s fair value hierarchy (see Note 7).

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements
(in thousands, except share and per share amounts)

Note 1. Principal Business and Organization

FS Investment Corporation IV, or the Company, was incorporated under the general corporation laws of the State of Maryland on February 25, 2015 and formally commenced investment operations on January 6, 2016. In November 2017, the Company closed its continuous public offering of Class T common stock to new investors. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, the Company has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of March 31, 2019, the Company had various wholly-owned subsidiaries, including special-purpose financing subsidiaries and subsidiaries through which it holds interests in portfolio companies. The unaudited consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries as of March 31, 2019. All significant intercompany transactions have been eliminated in consolidation.

The Company’s investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. The Company’s portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle-market U.S. companies and, to a lesser extent, subordinated loans of private U.S. companies. In addition, a portion of the Company’s portfolio may be comprised of equity and equity-related securities, corporate bonds, structured products, other debt securities and derivatives, including total return swaps and credit default swaps.

The Company is externally managed by FS/KKR Advisor, LLC, or the Advisor, pursuant to an investment advisory and administrative services agreement, dated as of April 9, 2018, or the investment advisory and administrative services agreement. On April 9, 2018, GSO/Blackstone Debt Funds Management LLC, or GDFM, resigned as the investment sub-adviser to the Company and terminated the investment sub-advisory agreement, or the investment sub-advisory agreement, between FSIC IV Advisor, LLC, or FSIC IV Advisor, and GDFM, effective April 9, 2018. In connection with GDFM’s resignation as the investment sub-adviser to the Company, on April 9, 2018, the Company entered into the investment advisory and administrative services agreement, which replaced an investment advisory and administrative services agreement, dated September 21, 2015, or the FSIC IV Advisor investment advisory and administrative services agreement, by and between the Company and FSIC IV Advisor.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K for the year ended December 31, 2018. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The December 31, 2018 consolidated balance sheet and consolidated schedule of investments are derived from the Company’s audited consolidated financial statements as of and for the year ended December 31, 2018. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification, or ASC, Topic 946, Financial Services—Investment Companies.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

Use of Estimates: The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Capital Gains Incentive Fee: Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any capital gain incentive fees previously paid by the Company. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fees as if it were due and payable as of the end of such period. The Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to the Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

The Company “looks through” its total return swap, or TRS, between its wholly-owned financing subsidiary Cheltenham Funding LLC, or Cheltenham Funding, and Citibank, N.A., or Citibank, in calculating the capital gains incentive fee. Under this methodology, the portion of the net settlement payments received by the Company pursuant to the TRS which would have represented net investment income to the Company had the Company held the loans underlying the TRS directly is treated as net investment income subject to the subordinated incentive fee on income payable to the Advisor pursuant to the investment advisory and administrative services agreement, rather than as realized capital gains in accordance with GAAP, and any unrealized depreciation on individual loans underlying the TRS further reduces the capital gains incentive fee payable to the Advisor with respect to realized gains. See Note 8 for additional information regarding the Company’s TRS.

Subordinated Income Incentive Fee: Pursuant to the terms of the investment advisory and administrative services agreement, the Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income under the investment advisory and administrative services agreement, which is calculated and payable quarterly in arrears, equals 20.0% of the Company’s “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.75% per quarter (1.875% under the FSIC IV Advisor investment advisory and administrative services agreement), or an annualized hurdle rate of 7.0% (7.5% under the FSIC IV Advisor investment advisory and administrative services agreement). For purposes of this fee, “adjusted capital” means cumulative gross proceeds generated from sales of the Company’s common stock (including proceeds from its distribution reinvestment plan) reduced for amounts paid for share repurchases pursuant to the Company’s share repurchase program. As a result, the Advisor will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.75% (1.875% under the FSIC IV Advisor investment advisory and administrative services agreement). Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.1875%, or 8.75% annually (2.34375%, or 9.375% annually under the FSIC IV Advisor investment advisory and administrative services agreement), of the Company’s adjusted capital. Thereafter, the Advisor will be entitled to receive 20.0% of the pre-incentive fee net investment income.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

Reclassifications: Certain amounts in the unaudited consolidated financial statements as of and for the three months ended March 31, 2018 and the audited consolidated financial statements as of and for the year ended December 31, 2018 may have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements as of and for the three months ended March 31, 2019.

Revenue Recognition: Security transactions are accounted for on the trade date. The Company records interest income on an accrual basis to the extent that it expects to collect such amounts. The Company records dividend income on the ex-dividend date. Distributions received from limited liability company (“LLC”) and limited partnership (“LP”) investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. The Company does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such income. The Company’s policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. The Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that the Company will receive any previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on the Company’s judgment.

Loan origination fees, original issue discount and market discount are capitalized and the Company amortizes such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. For the three months ended March 31, 2019, the Company recognized $568 in structuring fee revenue. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

Recent Accounting Pronouncements: In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. ASU 2018-13 introduces new fair value disclosure requirements and eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2018-13 on its financial statements.

Note 3. Share Transactions

Below is a summary of transactions with respect to shares of the Company’s common stock during the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019					2018
	Shares		Amount			Shares		Amount
Reinvestment of Distributions		272,692		$	2,931		289,198		$	3,226
Share Repurchase Program		(267,472)			(2,875)		(113,036)			(1,261)
Net Proceeds from Share Transactions		5,220		$	56		176,162		$	1,965

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

During the period from April 1, 2019 to May 10, 2019, the Company issued 88,256 shares of Class T common stock pursuant to its distribution reinvestment plan, or DRP, for gross proceeds of $949 at an average price per share of $10.75. For additional information regarding the terms of the DRP, see Note 5.

The Company has submitted to the SEC an application for an exemptive order to permit it to offer multiple classes of shares of common stock. On July 31, 2018, the Company filed a new registration statement to offer multiple classes of shares of common stock, with each class having a different upfront sales load and fee and expense structure. The Company may recommence this offering upon receipt of an exemptive order from the SEC, although there is no assurance that the Company will receive such relief.

Share Repurchase Program

The Company intends to continue to conduct quarterly tender offers pursuant to its share repurchase program. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:

•

the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales);

•

the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);

•

the Company’s investment plans and working capital requirements;

•

the relative economies of scale with respect to the Company’s size;

•

the Company’s history in repurchasing shares of common stock or portions thereof; and

•

the condition of the securities markets.

Historically, the Company limited the number of shares of common stock to be repurchased during any calendar year to the lesser of (i) the number of shares of common stock that the Company could repurchase with the proceeds it received from the issuance of shares of common stock under the DRP and (ii) 10.0% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter. On May 9, 2017, the board of directors of the Company amended the share repurchase program. As amended, the Company limits the maximum number of shares of common stock to be repurchased for any repurchase offer to the greater of (A) the number of shares of common stock that the Company can repurchase with the proceeds it has received from the sale of shares of common stock under the DRP during the twelve-month period ending on the date the applicable repurchase offer expires (less the amount of proceeds used to repurchase shares of common stock on each previous repurchase date for repurchase offers conducted during such twelve-month period) (the Company refers to this limitation as the twelve-month repurchase limitation) and (B) the number of shares of common stock that the Company can repurchase with the proceeds it received from the sale of shares of common stock under the DRP during the three-month period ending on the date the applicable repurchase offer expires (the Company refers to this limitation as the three-month repurchase limitation). In addition to this limitation, the maximum number of shares of common stock to be repurchased for any repurchase offer will also be limited to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter. As a result, the maximum number of shares of common stock to be repurchased for any repurchase offer will not exceed the lesser of (i) 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter, and (ii) whichever is greater of the twelve-month repurchase limitation described in clause (A) above and the three-month repurchase limitation described in clause (B) above. At the discretion

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. The actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above. The Company’s board of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice.

On October 13, 2017, the Company further amended the terms of its share repurchase program, or the amended share repurchase program, which was first effective for the Company’s quarterly repurchase offer for the fourth quarter of 2017. Prior to amending the share repurchase program, the Company offered to repurchase shares of its common stock on a quarterly basis at a repurchase price equal to the net offering price in effect on each date of repurchase. Under the amended share repurchase program, the Company offers to repurchase shares of common stock at a price equal to the price at which shares of its common stock are issued pursuant to the DRP on the distribution date coinciding with the applicable share repurchase date. The price at which shares of common stock are issued under the DRP is determined by the Company’s board of directors or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per share as of such date.

The following table provides information concerning the Company’s repurchases of shares of its common stock pursuant to its share repurchase program during the three months ended March 31, 2019 and 2018:

For the Three Months Ended	Repurchase Date	Shares Repurchased		Percentage of Shares Tendered That Were Repurchased		Percentage of Outstanding Shares Repurchased as of the Repurchase Date		Repurchase Price Per Share			Aggregate Consideration for Repurchased Shares
Fiscal 2018
December 31, 2017	January 10, 2018		113,036		100%		0.36%		$	11.1549		$	1,261
Fiscal 2019
December 31, 2018	January 11, 2019		267,472		31%		0.85%		$	10.7500		$	2,875

On April 1, 2019, the Company repurchased 269,274 shares of common stock (representing 30% of the shares of common stock tendered for repurchase and 0.85% of the shares outstanding as of such date) at $10.7500 per share for aggregate consideration totaling $2,895.

Note 4. Related Party Transactions

Compensation of the Investment Advisor

Pursuant to the investment advisory and administrative services agreement, the Advisor is entitled to a base management fee calculated at an annual rate of 1.50% of the average weekly value of the Company’s gross assets (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) and an incentive fee based on the Company’s performance. The base management fee is payable quarterly in arrears. All or any part of the base management fee not taken as to any quarter will be deferred without interest and may be taken in such other quarter as the Advisor determines. See Note 2 for a discussion of the capital gains and subordinated income incentive fees that the Advisor may be entitled to under the Advisor investment advisory and administrative services agreement.

Pursuant to the FSIC IV Advisor investment advisory and administrative services agreement, which was in effect until April 9, 2018, FSIC IV Advisor was entitled to an annual base management fee equal to

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

2.0% of the average weekly value of the Company’s gross assets (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) and an incentive fee based on the Company’s performance. Effective February 1, 2017, FSIC IV Advisor contractually agreed to permanently waive 0.25% of the base management fee to which it was entitled under the FSIC IV Advisor investment advisory and administrative services agreement, so that the fee received equaled 1.75% of the Company’s average weekly gross assets. Pursuant to the investment sub-advisory agreement, GDFM was entitled to receive 50% of all management and incentive fees payable to FSIC IV Advisor under the FSIC IV Advisor investment advisory and administrative services agreement with respect to each year.

Pursuant to the investment advisory and administrative services agreement, the Advisor oversees the Company’s day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities and other administrative services. The Advisor also performs, or oversees the performance of, the Company’s corporate operations and required administrative services, which includes being responsible for the financial records that the Company is required to maintain and preparing reports for the Company’s stockholders and reports filed with the SEC. In addition, the Advisor assists the Company in calculating its net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others.

Pursuant to the investment advisory and administrative services agreement, the Company reimburses the Advisor for expenses necessary to perform services related to its administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings, L.P. (which does business as FS Investments) and KKR Credit Advisors (US), LLC, or KKR Credit, providing administrative services to the Company on behalf of the Advisor. The Company reimburses the Advisor no less than monthly for expenses necessary to perform services related to the Company’s administration and operations. The amount of this reimbursement is set at the lesser of (1) the Advisor’s actual costs incurred in providing such services and (2) the amount that the Company estimates it would be required to pay alternative service providers for comparable services in the same geographic location. The Advisor allocates the cost of such services to the Company based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. The Company’s board of directors reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of administrative expenses among the Company and certain affiliates of the Advisor. The Company’s board of directors then assesses the reasonableness of such reimbursements for expenses allocated to it based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party service providers known to be available. In addition, the Company’s board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Company’s board of directors compares the total amount paid to the Advisor for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs. The administrative services provisions of the FSIC IV Advisor investment advisory and administrative services agreement were substantially similar to the administrative services provisions of the investment advisory and administrative services agreement.

Shares of Class T common stock are subject to annual distribution fees of 1.00% of the estimated value of such shares, as determined in accordance with applicable rules of The Financial Industry Regulatory Authority, Inc., or FINRA. The annual distribution fees is paid by the Company to FS Investment Solutions, LLC, or FS Investment Solutions or the dealer manager, pursuant to a distribution plan adopted by the Company in compliance with Rules 12b-1 and 17d-3 under the 1940 Act, as if those

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

rules applied to the Company. Among other requirements, such plan must be approved annually by a vote of the Company’s board of directors, including the directors who are not “interested persons” as defined in the 1940 Act and have no direct or indirect financial interest in the operation of such plan or in any agreements related to such plan.

Except for Class T shares purchased by the principal of the Advisor, members of the Company’s board of directors and other individuals and entities affiliated with the Advisor, or through investment advisors whose contracts for investment advisory and related services include a fixed or “wrap” fee or other asset-based fee arrangement, annual distribution fees are expected to be reallowed to selected broker-dealers and financial representatives, unless noted in the table below. The annual distribution fees are intended to compensate the dealer manager and its affiliates, selected broker-dealers and financial representatives for services rendered and expenses incurred in connection with the ongoing marketing, sale and distribution of such shares.

The annual distribution fees accrue daily commencing upon the initial sale of shares of common stock in the Company’s continuous public offering until an investor reaches the sales charge cap, as defined below. The accruals as of and for the three months ended March 31, 2019 and 2018 reflect amounts beginning with the initial sale of shares of common stock in the Company’s continuous public offering through March 31, 2019 and 2018, respectively. The annual distribution fees are payable with respect to all shares of Class T common stock, other than shares issued under the DRP. The annual distribution fees will terminate for all Class T stockholders upon a liquidity event. In addition, the Company will stop paying the annual distribution fees with respect to any outstanding Class T share when the total underwriting compensation from the upfront selling commissions, dealer manager fees and annual distribution fees attributable to any share equals 7.25% of gross offering proceeds, or the sales charge cap. The sales charge cap applicable to certain shares, including shares sold prior to January 25, 2017, will be reduced by the amount of any upfront sales load that is waived for such shares or to otherwise account for any lower upfront sales load paid by an investor with respect to such shares.

The annual distribution fees for all Class T shares currently will terminate upon the earliest of (i) any Class T share purchased after January 25, 2017 reaching the applicable sales charge cap, (ii) the Company’s dealer manager advising the Company that the aggregate underwriting compensation payable from all sources (determined in accordance with applicable FINRA rules) would be in excess of 10% of the gross proceeds of this offering and (iii) a liquidity event. If, in the future, the Company receives exemptive relief to offer multiple share classes and if it offers a class of common stock with no sales load or asset-based service or annual distribution fee, or a No-Load Share Class, upon a Class T share reaching the applicable sales charge cap, such share will be converted into a share of such No-Load Share Class and will no longer be subject to ongoing annual distribution fees.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

The following table describes the fees and expenses the Company accrued under the FSIC IV Advisor investment advisory and administrative services agreement and the investment advisory and administrative services agreement and fees that FS Investment Solutions received pursuant to the Company’s distribution plan during the three months ended March 31, 2019 and 2018:

Related Party	Source	Description	Three Months Ended March 31,
Related Party	Source	Description	2019			2018
FSIC IV Advisor and the Advisor	FSIC IV Advisor Investment Advisory and Administrative Services Agreement and the Investment Advisory and Administrative Services Agreement	Base Management Fees(1)		$	1,415		$	1,625
FSIC IV Advisor and the Advisor	FSIC IV Advisor Investment Advisory and Administrative Services Agreement and the Investment Advisory and Administrative Services Agreement	Subordinated Incentive Fee on Income(2)		$	1,394			—
FSIC IV Advisor and the Advisor	FSIC IV Advisor Investment Advisory and Administrative Services Agreement and the Investment Advisory and Administrative Services Agreement	Capital Gains Incentive Fees(3)			—		$	(735)
FSIC IV Advisor and the Advisor	FSIC IV Advisor Investment Advisory and Administrative Services Agreement and the Investment Advisory and Administrative Services Agreement	Administrative Services Expenses(4)		$	170		$	78
FS Investment Solutions	Distribution Plan	Distribution Fees(5)		$	53		$	40

(1)

FSIC IV Advisor contractually agreed, effective February 1, 2017, to permanently waive 0.25% of its base management fee to which it is entitled under the FSIC IV Advisor investment advisory and administrative services agreement so that the fee received equaled 1.75% of the average value of the Company’s weekly gross assets. Under the investment advisory and administrative services agreement, the base management fee is equal to 1.50% of the average value of the Company’s weekly gross assets and the Advisor is not waiving any portion of such fee. As a result, the amount shown for the three months ended March 31, 2018 is net of waivers of $232. During the three months ended March 31, 2019 and 2018, $1,357 and $1,596, respectively, in base management fees were paid to the Advisor and/or FSIC IV Advisor. As of March 31, 2019, $1,415 in base management fees were payable to the Advisor.

(2)

During the three months ended March 31, 2019 and 2018, $903 and $0, respectively, of subordinated incentive fees on income were paid to the Advisor. As of March 31, 2019, a subordinated incentive fee on income of $1,394 was payable to the Advisor.

(3)

During the three months ended March 31, 2019, the Company did not accrue capital gains incentive fees based on the performance of its portfolio. During the three months ended March 31, 2018, the Company reversed $735 of capital gains incentive fees previously accrued based on the performance of its portfolio. As of March 31, 2019, the Company did not accrue any capital gains incentive fees. As of December 31, 2018, the Company had reversed $1,742 in capital gains incentive fees previously accrued based on the performance of its portfolio. No capital gains incentive fees are actually payable by the Company with respect to unrealized gains unless and until those gains are actually realized. The Company paid did not pay capital gains incentive fees during the three months ended March 31, 2019. See Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees.

(4)

During the three months ended March 31, 2019 and 2018, $132 and $51, respectively, of the accrued administrative services expenses related to the allocation of costs of administrative personnel for services rendered to the Company by the Advisor or FSIC IV Advisor and the remainder related to other reimbursable expenses, including reimbursement of fees related to transactional expenses for prospective investments, such as fees and expenses associated with performing due diligence reviews of investments that do not close, often referred to as “broken deal” costs. Broker deal costs were $8 for the three months ended March 31, 2019. The Company paid $98 and $78 in administrative services expenses to the Advisor and FSIC IV Advisor during the three months ended March 31, 2019 and 2018, respectively.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

(5)

Represents the distribution fees retained by FS Investment Solutions and not re-allowed to selected broker-dealers or financial representatives.

Potential Conflicts of Interest

The members of the senior management and investment teams of the Advisor serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as the Company does, or of investment vehicles managed by the same personnel. For example, the Advisor is the investment adviser to FS KKR Capital Corp., FS Investment Corporation II, FS Investment Corporation III and Corporate Capital Trust II, and the officers, managers and other personnel of the Advisor may serve in similar or other capacities for the investment advisers to future investment vehicles affiliated with FS Investments or KKR Credit. In serving in these multiple and other capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the Company’s best interests or in the best interest of the Company’s stockholders. The Company’s investment objectives may overlap with the investment objectives of such investment funds, accounts or other investment vehicles.

Co-Investment Exemptive Relief

As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term.

In an order dated June 4, 2013, or the FS Order, the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FSIC IV Advisor, including FS Energy and Power Fund, FS KKR Capital Corp., FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and any future BDCs that are advised by FSIC IV Advisor or its affiliated investment advisers. However, in connection with the investment advisory relationship with the Advisor, and in an effort to mitigate potential future conflicts of interest, the Company’s board of directors authorized and directed that the Company (i) withdraw from the FS Order, except with respect to any transaction in which the Company participated in reliance on the FS Order prior to April 9, 2018, and (ii) rely on an exemptive relief order, dated April 3, 2018, that permits the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions, including investments originated and directly negotiated by the Advisor or KKR Credit, with certain affiliates of the Advisor.

Base Management Fee Deferral Arrangement

On November 14, 2018, the Advisor announced that for any calendar quarter ending on or prior to September 30, 2019 it will defer the receipt of base management fees under the investment advisory and administrative services agreement if, and to the extent that, the Company’s distributions paid to the Company’s stockholders in the calendar quarter exceeds the sum of the Company’s investment company taxable income (as defined in the Code), net capital gains (as defined in Section 1222 of the Code) and dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent such amounts were not included in net investment company taxable income or net capital gains) in the calendar quarter, or collectively, the Company’s distributable funds on a tax basis. The Advisor will only receive any deferred fees in a future calendar quarter if, and to the extent that, the Company’s distributable funds on a tax basis in the future calendar quarter exceeds the Company’s distributions paid to the Company’s stockholders in such quarter. Prior to September 30, 2019, the Advisor will evaluate whether to extend this commitment to future quarters.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

During the three months ended March 31, 2019. the Advisor did not defer the receipt of any base management fees. As of March 31, 2019, there were no deferred base management fees subject to future payment by the Company.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company has declared on its common stock during the three months ended March 31, 2019 and 2018:

	Distribution(1)
For the Three Months Ended	Per Share			Amount
Fiscal 2018
March 31, 2018		$	0.17452		$	5,247
Fiscal 2019
March 31, 2019		$	0.17688		$	5,545

(1)

Distribution amounts and per share amounts shown are net of annual distribution fees, which began accruing on February 1, 2017. See Note 4 for a discussion regarding annual distribution fees.

The Company intends to declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. On February 19, 2019 and April 30, 2019, the Company’s board of directors declared regular monthly cash distributions for April 2019 through June 2019 and July 2019 through September 2019, respectively, each in the gross amount of $0.067258 per share. The gross amount declared includes the portion of the annual distribution fee amount, which is an expense of the Company and not paid to stockholders. These distributions, less the annual distribution fee amount, have been or will be paid monthly to stockholders of record as of monthly record dates previously determined by the Company’s board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive the distribution in cash unless they specifically “opt in” to the DRP so as to have their cash distributions reinvested in additional shares of the Company’s common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in the DRP.

On October 13, 2017, the Company amended and restated its DRP, or the amended DRP, which first applied to the reinvestment of cash distributions paid on or after November 29, 2017. Under the prior DRP, cash distributions to participating stockholders were reinvested in additional shares of the Company’s common stock at a purchase price equal to the net offering price in effect on the date of issuance. Under the amended DRP, cash distributions to participating stockholders will be reinvested in additional shares of the Company’s common stock at a purchase price determined by the Company’s board of directors or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per share of the Company’s common stock as of such date. Although distributions paid in the form of additional shares of common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders who elect to participate in the DRP will not receive any corresponding cash distributions with which to pay any such applicable taxes. Stockholders receiving distributions in the form of additional shares of common stock will be treated as receiving a distribution in the amount of the fair market value of the Company’s shares of common stock.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of the Company’s common stock pursuant to its DRP, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets and dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies. The Company has not established limits on the amount of funds it may use from available sources to make distributions. During certain periods, the Company’s distributions may exceed its earnings. As a result, it is possible that a portion of the distributions the Company makes may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be mailed to the Company’s stockholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all. No portion of the distribution paid during the three months ended March 31, 2019 and 2018 was funded through the reimbursement of operating expenses by FS Investments or the Advisor.

The following table reflects the sources of the cash distributions paid to stockholders on a tax basis that the Company has paid on its common stock during the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019					2018
Source of Distribution	Distribution Amount			Percentage		Distribution Amount			Percentage
Offering proceeds		$	—		—		$	—		—
Borrowings			—		—			—		—
Net investment income(1)			5,545		100%			5,247		100%
Short-term capital gains proceeds from the sale of assets			—		—			—		—
Long-term capital gains proceeds from the sale of assets			—		—			—		—
Non-capital gains proceeds from the sale of assets			—		—			—		—
Distributions on account of preferred and common equity			—		—			—		—
Total		$	5,545		100%		$	5,247		100%

(1)

During the three months ended March 31, 2019 and 2018, 93.6% and 94.0%, respectively, of the Company’s gross investment income was attributable to cash income earned, 1.6% and 1.6%, respectively, was attributable to non-cash accretion of discount and 4.8% and 4.4%, respectively, was attributable to paid-in-kind, or PIK, interest.

The Company’s net investment income on a tax basis for the three months ended March 31, 2019 and 2018 was $6,117 and $4,278, respectively. As of March 31, 2019 and December 31, 2018, the Company had $7,671 and $7,100, respectively, of undistributed net investment income and accumulated undistributed net realized gains on a tax basis.

The difference between the Company’s GAAP-basis net investment income (loss) and its tax-basis net investment income is primarily due to the reclassification of unamortized original issue discount, certain amendment fees and prepayment fees recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by the Company and the inclusion of a portion of the periodic net settlement payments due on its TRS in tax-basis net investment income.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

The following table sets forth a reconciliation between GAAP-basis net investment income (loss) and tax-basis net investment income during the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
GAAP-basis net investment income (loss)		$	3,930		$	3,913
Reversal of incentive fee accrual on unrealized gains			—			(735)
Reclassification of unamortized original issue discount, amendment fees and prepayment fees			(114)			(20)
Tax-basis net investment income portion of total return swap payments			2,109			1,076
Accretion of discount on total return swap			294			208
Other miscellaneous differences			(102)			(164)
Tax-basis net investment income		$	6,117		$	4,278

The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.

As of March 31, 2019 and December 31, 2018, the components of accumulated earnings on a tax basis were as follows:

	March 31, 2019 (Unaudited)			December 31, 2018
Distributable ordinary income (net investment income and short-term capital gains)		$	7,671		$	5,695
Distributable capital gains (accumulated capital losses)(1)			(3,173)			1,405
Other temporary differences			(871)			(886)
Net unrealized appreciation (depreciation) on investments and total return swap and gain (loss) on foreign currency(2)			(8,109)			(16,445)
Total		$	(4,482)		$	(10,231)

(1)

Net capital losses may be carried forward indefinitely, and their character is retained as short-term or long-term losses. As of March 31, 2019, the Company had short-term and long-term capital loss carryforwards available to offset future realized capital gains of $381 and $2,792, respectively.

(2)

As of March 31, 2019 and December 31, 2018, the gross unrealized appreciation on the Company’s investments and TRS was $12,199 and $8,731, respectively, and the gross unrealized depreciation on the Company’s investments was $20,308 and $25,176, respectively.

The aggregate cost of the Company’s investments, including the accretion of discount on the TRS, for U.S. federal income tax purposes totaled $315,868 and $300,597 as of March 31, 2019 and December 31, 2018, respectively. The aggregate net unrealized appreciation (depreciation) on investments on a tax basis, including the TRS, was $(8,109) and $(16,445) as of March 31, 2019 and December 31, 2018, respectively.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 6. Investment Portfolio

The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of March 31, 2019 and December 31, 2018:

	March 31, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	188,318		$	182,955		59%		$	163,500		$	159,270		55%
Senior Secured Loans—Second Lien			34,810			34,539		11%			28,851			28,613		10%
Other Senior Secured Debt			25,154			23,145		7%			29,369			26,586		9%
Subordinated Debt			59,107			58,902		19%			68,018			63,927		22%
Equity/Other			6,836			12,146		4%			6,137			10,445		4%
Total		$	314,225		$	311,687		100%		$	295,875		$	288,841		100%

The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of March 31, 2019 and December 31, 2018 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 8. The investments underlying the TRS had a notional amount and market value of $156,659 and $151,438, respectively as of March 31, 2019 and $171,065 and $164,955, respectively, as of December 31, 2018.

	March 31, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	304,597		$	294,980		64%		$	294,702		$	285,678		63%
Senior Secured Loans—Second Lien			75,190			73,952		16%			68,714			67,160		15%
Other Senior Secured Debt			25,154			23,145		5%			29,369			26,586		6%
Subordinated Debt			59,107			58,902		13%			68,018			63,927		14%
Equity/Other			6,836			12,146		2%			6,137			10,445		2%
Total		$	470,884		$	463,125		100%		$	466,940		$	453,796		100%

(1)

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

In general, under the 1940 Act, the Company 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. As of March 31, 2019 and December 31, 2018, the Company did not “control” and was not an “affiliated person” of any of its portfolio companies, each as defined in the 1940 Act.

The Company’s investment portfolio may contain loans and other unfunded arrangements that are in the form of lines of credit, revolving credit facilities, delayed draw credit facilities or other investments, pursuant to which the Company may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of March 31, 2019, the Company had eight unfunded debt investments with aggregate unfunded commitments of $4,348. As of December 31, 2018, the Company had seven unfunded debt investments with aggregate unfunded commitments of $2,769. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise. For additional details regarding the Company’s unfunded debt investments, see the Company’s unaudited consolidated schedule of investments as of March 31, 2019 and audited consolidated schedule of investments as of December 31, 2018.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 6. Investment Portfolio (continued)

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 March 31, 2019 and December 31, 2018:

	March 31, 2019 (Unaudited)					December 31, 2018
Industry Classification	Fair Value			Percentage of Portfolio		Fair Value			Percentage of Portfolio
Automobiles & Components		$	1,818		0%		$	1,680		1%
Capital Goods			65,636		21%			70,327		24%
Commercial & Professional Services			28,752		9%			28,756		10%
Consumer Durables & Apparel			5,328		2%			5,213		2%
Consumer Services			17,681		6%			18,140		6%
Diversified Financials			10,153		3%			15,657		5%
Energy			18,424		6%			20,565		7%
Food & Staples Retailing			11,079		4%			—		—
Food, Beverage & Tobacco			7,968		3%			8,038		3%
Health Care Equipment & Services			34,721		11%			27,627		9%
Insurance			9,485		3%			8,333		3%
Materials			18,378		6%			17,114		6%
Media			1,565		0%			1,549		1%
Pharmaceuticals, Biotechnology & Life Sciences			13,547		4%			13,769		5%
Retailing			32,897		11%			28,455		10%
Software & Services			23,057		7%			15,238		5%
Technology Hardware & Equipment			5,944		2%			8,276		3%
Telecommunication Services			5,150		2%			—		0%
Transportation			104		0%			104		0%
Total		$	311,687		100%		$	288,841		100%

Note 7. Fair Value of Financial Instruments

Under existing accounting guidance, fair value is defined as the price that the Company 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 valuation techniques that 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 Company. 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.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

The Company 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 March 31, 2019 and December 31, 2018, the Company’s investments and total return swap were categorized as follows in the fair value hierarchy:

Valuation Inputs	March 31, 2019 (Unaudited)						December 31, 2018
Valuation Inputs	Investments			Total Return Swap			Investments			Total Return Swap
Level 1—Price quotations in active markets		$	—		$	—		$	—		$	—
Level 2—Significant other observable inputs			104,282			—			115,687			—
Level 3—Significant unobservable inputs			207,405			(3,925)			173,154			(4,689)
Total		$	311,687		$	(3,925)		$	288,841		$	(4,689)

The Company’s investments consist primarily of debt investments that were either acquired directly from the issuer or traded on an over-the-counter market for institutional investors. Debt investments, for which broker quotes are not available are valued by independent valuation firms, which determine the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated repayments and other relevant terms of the investments. Except as described below, all of the Company’s equity/other investments are also valued by independent valuation firms, which determine the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. An investment that is newly issued and purchased near the date of the financial statements is valued at cost, if the Company’s board of directors determines that the cost of such investment is the best indication of its fair value. Such investments described above are typically classified as Level 3 within the fair value hierarchy. Investments that are traded on an active public market are valued at their closing price as of the date of the financial statements and are classified as Level 1 within the fair value hierarchy. Except as described above, the Company typically values its other investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which are provided by independent third-party pricing services and screened for validity by such services and are typically classified as Level 2 within the fair value hierarchy.

The Company values the TRS in accordance with the agreements between Cheltenham Funding and Citibank that collectively established the TRS, which agreements are collectively referred to herein as the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued by Citibank. Citibank bases its valuation on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to the Company for review and testing. The valuation committee of the Company’s

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

board of directors, or the valuation committee, and the board of directors review and approve the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis. To the extent the valuation committee or board of directors has any questions or concerns regarding the valuation of the loans underlying the TRS, such valuation is discussed or challenged pursuant to the terms of the TRS Agreement. See Note 8 for additional information regarding the TRS.

The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing services and/or dealers and independent valuation firms, as applicable, against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. The valuation committee and the board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation policy.

The following is a reconciliation for the three months ended March 31, 2019 and 2018 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:

	For the Three Months Ended March 31, 2019
	Senior Secured Loans— First Lien			Senior Secured Loans—Second Lien			Other Senior Secured Debt			Subordinated Debt			Equity/ Other			Total
Fair value at beginning of period		$	140,540		$	17,851		$	4,311		$	7		$	10,445		$	173,154
Accretion of discount (amortization of premium)			20			4			—			—			8			32
Net realized gain (loss)			1			—			—			—			—			1
Net change in unrealized appreciation (depreciation)			(942)			38			77			34			1,002			209
Purchases			24,656			5,930			—			2,995			341			33,922
Paid-in-kind interest			38			22			—			—			350			410
Sales and repayments			(323)			—			—			—			—			(323)
Net transfers in or out of Level 3			—			—			—			—			—			—
Fair value at end of period		$	163,990		$	23,845		$	4,388		$	3,036		$	12,146		$	207,405
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date		$	(942)		$	38		$	77		$	34		$	1,002		$	209

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

	For the Three Months Ended March 31, 2018
	Senior Secured Loans— First Lien			Senior Secured Loans— Second Lien			Other Senior Secured Debt			Subordinated Debt			Equity/ Other			Total
Fair value at beginning of period		$	137,737		$	35,420		$	20,196		$	71,532		$	2,285		$	267,170
Accretion of discount (amortization of premium)			36			9			—			78			—			123
Net realized gain (loss)			—			447			—			3			—			450
Net change in unrealized appreciation (depreciation)			(757)			(468)			(1,040)			(1,731)			(611)			(4,607)
Purchases			1,948			—			—			—			2,758			4,706
Paid-in-kind interest			14			—			—			—			265			279
Sales and repayments			(1,830)			(8,517)			—			(1,672)			(1)			(12,020)
Net transfers in or out of Level 3(1)			—			—			—			—			—			—
Fair value at end of period		$	137,148		$	26,891		$	19,156		$	68,210		$	4,696		$	256,101
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date		$	(737)		$	4		$	(1,040)		$	(1,657)		$	(610)		$	(4,040)

(1)

As of June 30, 2018, the Company determined to classify certain investments whose valuations were obtained from independent third-party pricing services as Level 2 in the fair value hierarchy as the Company identified significant other observable inputs in these market quotations. It is the Company’s policy to recognize transfers between levels at the beginning of the reporting period.

The following is a reconciliation for the three months ended March 31, 2019 and 2018 of the total return swap for which significant unobservable inputs (Level 3) were used in determining the fair value:

	For the Three Months Ended March 31,
	2019			2018
Fair value at beginning of period		$	(4,689)		$	868
Accretion of discount (amortization of premium)			—			—
Net realized gain (loss)			2,383			2,477
Net change in unrealized appreciation (depreciation)			764			(120)
Sales and repayments			(2,383)			(2,477)
Net transfers in or out of Level 3			—			—
Fair value at end of period		$	(3,925)		$	748
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to the total return swap still held at the reporting date		$	764		$	(120)

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of March 31, 2019 and December 31, 2018 were as follows:

Type of Investment

Fair Value at
March 31, 2019
(Unaudited)(1)

Valuation
Technique(2)

Unobservable Input

Range (Weighted
Average)(3)

Impact to
Valuation from
an Increase in
Input(4)

Senior Debt

176,956

Discounted Cash Flow

Discount Rate

8.06% – 15.04% (9.98%)

Decrease

5,220

Waterfall

EBITDA Multiple

5.02x – 5.75x (5.58x)

Increase

10,047

Cost

Subordinated Debt

3,029

Discounted Cash Flow

Discount Rate

11.58% – 11.58%
(11.58%)

Decrease

Waterfall

EBITDA Multiple

10.64x – 10.64x (10.64x)

Increase

Equity/Other

11,655

Waterfall

EBITDA Multiple

5.02x – 14.50x (7.75x)

Increase

Option Pricing Model

Equity Illiquidity Discount

15.00% – 15.00%
(15.00%)

Decrease

427

Cost

Total

207,405

Total Return Swap

(3,925)

Indicative Dealer
Quotes

72.58% – 100.75%
(93.77%)

Increase

(1)

Certain investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value.

(2)

For the assets and investments that have more than one valuation technique, the Company may rely on the stated techniques individually or in the aggregate based on a weight ascribed to each valuation technique, ranging from 0 – 100%. Indicative dealer quotes obtained for valuation purposes are reviewed by the Company relative to other valuation techniques.

(3)

Weighted average amounts are based on the estimated fair values.

(4)

This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Fair Value of Financial Instruments (continued)

Type of Investment

Fair Value at
December 31, 2018

Valuation
Technique(1)

Unobservable Input

Range

Weighted
Average

Senior Secured Loans—First Lien

131,529

Market Comparables

Market Yield (%)

8.1% – 16.8%

10.7%

EBITDA Multiples (x)

5.3x – 6.3x

5.8x

9,011

Cost

99.0% – 100.0%

99.5%

Senior Secured Loans—Second Lien

13,593

Market Comparables

Market Yield (%)

10.0% – 14.5%

11.9%

4,258

Cost

98.5% – 98.5%

98.5%

Other Senior Secured Debt

4,311

Market Comparables

Market Yield (%)

8.2% – 10.3%

9.4%

Subordinated Debt

Market Comparables

EBITDA Multiples (x)

9.6x – 10.1x

9.9x

Equity/Other

10,277

Market Comparables

EBITDA Multiples (x)

5.5x – 14.3x

7.4x

Option Valuation
Model

Volatility (%)

30.0% – 30.0%

30.0%

104

Cost

100.0% – 100.0%

100.0%

Total

173,154

Total Return Swap

(4,689)

Market Quotes

Indicative Dealer Quotes

75.9% – 100.0%

93.6%

(1)

Investments using a market quotes valuation technique were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services, with the exception of investments in the Total Return Swap, which were valued by using the bid price from dealers on the date of the relevant period end. Investments valued using an EBITDA multiple or a revenue multiple pursuant to the market comparables valuation technique may be conducted using an enterprise valuation waterfall analysis. For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.

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FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Financing Arrangements

The following tables present summary information with respect to the Company’s outstanding financing arrangements as of March 31, 2019 and December 31, 2018. For additional information regarding these financing arrangements, see the notes to the Company’s audited consolidated financial statements contained in its annual report on Form 10-K for the year ended December 31, 2018. Any significant changes to the Company’s financing arrangements during the three months ended March 31, 2019 are discussed below.

As of March 31, 2019
(Unaudited)

Arrangement

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity Date

BNP Facility(1)

Prime Brokerage

L+1.25%

32,500

17,500

December 26, 2019(2)

Citibank Total Return Swap

Total Return Swap

L+1.60%

156,659

18,341

N/A(3)

As of December 31, 2018

Arrangement

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity Date

BNP Facility(1)

Prime Brokerage

L+1.25%

35,000

15,000

September 27, 2019(2)

Citibank Total Return Swap

Total Return Swap

L+1.60%

171,065

3,935

N/A(3)

(1)

The carrying amount outstanding under the facility approximates its fair value.

(2)

This facility generally is terminable upon 270 days’ notice by either party. As of March 31, 2019 and December 31, 2018, neither party to the facility had provided notice of its intent to terminate the facility.

(3)

The TRS may be terminated by Cheltenham Funding at any time, subject to payment of an early termination fee if prior to the date 30 days before July 19, 2019 (April 19, 2019 as of March 31, 2019 and January 19, 2019 as of December 31, 2018), or by Citibank on or after July 19, 2019 (April 19, 2019 as of March 31, 2019 and January 19, 2019 as of December 31, 2018), in each case, in whole or in part, upon prior written notice to the other party.

For the three months ended March 31, 2019 and 2018, the components of total interest expense for the Company’s financing arrangement were as follows:

	Three Months Ended March 31,
	2019								2018
Arrangement(1)	Direct Interest Expense			Amortization of Deferred Financing Costs and Discount		Total Interest Expense			Direct Interest Expense			Amortization of Deferred Financing Costs and Discount		Total Interest Expense
BNP Facility(2)		$	422		—		$	422		$	222		—		$	222

(1)

Borrowings of the Company’s wholly-owned financing subsidiary are considered borrowings of the Company for purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.

(2)

Direct interest expense includes the effect of non-usage fees.

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the three months ended March 31, 2019 were $41,111 and 4.11%, respectively. As of March 31, 2019, the Company’s effective interest rate on borrowings was 4.38%.

Under its financing arrangements, the Company has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar financing arrangements. The Company was in compliance with all covenants required by its financing arrangements as of March 31, 2019 and December 31, 2018.

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

Citibank Total Return Swap

Counterparty			Description			Termination Date			Value as of March 31, 2019
Citibank			A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during a specified period, in return for periodic payments based on a fixed or variable interest rate.			Citibank may terminate the TRS on or after July 19, 2019 (April 19, 2019 as of March 31, 2019), unless certain specified events permit Citibank to terminate the TRS on an earlier date. Cheltenham Funding may terminate the TRS at any time upon providing no more than 30 days, and no less than 10 days, prior notice to Citibank, subject to an early termination fee if prior to the date 30 days before July 19, 2019 (April 19, 2019 as of March 31, 2019).			$(3,925)

As of March 31, 2019 and December 31, 2018, the fair value of the TRS was $(3,925) and $(4,689), respectively, which is reflected on the Company’s consolidated balance sheets as unrealized appreciation (depreciation) on total return swap. As of March 31, 2019 and December 31, 2018, the receivable due on the TRS was $2,383 and $532, respectively, which is reflected on the Company’s consolidated balance sheets as a receivable due on total return swap. As of March 31, 2019 and December 31, 2018, the Company posted $62,071 and $67,529, respectively, in cash collateral held by Citibank, of which only $60,321 and $64,991, respectively, was required to be posted. The cash collateral held by Citibank is reflected in the Company’s consolidated balance sheets as due from counterparty. The Company does not offset collateral posted in relation to the TRS with any unrealized appreciation or depreciation outstanding on its consolidated balance sheets as of March 31, 2019 and December 31, 2018.

For the three months ended March 31, 2019 and 2018, transactions in the TRS resulted in net realized gain (loss) on total return swap of $2,383 and $2,477, respectively, and unrealized appreciation (depreciation) on total return swap of $764 and $(120), respectively, both of which are reported on the Company’s consolidated statements of operations.

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

The following is a summary of the underlying loans subject to the TRS as of March 31, 2019:

Underlying Loan(1)	Industry	Rate(2)	Floor	Maturity	Notional Amount			Market Value			Unrealized Appreciation/ (Depreciation)
Access CIG LLC	Software & Services	L+775		2/27/26		$	411		$	400		$	(11)
Accuride Corp	Capital Goods	L+525	1.0%	11/17/23			3,319			2,918			(401)
Advantage Sales & Marketing Inc	Commercial & Professional Services	L+325	1.0%	7/23/21			4,466			3,972			(494)
Advantage Sales & Marketing Inc	Commercial & Professional Services	L+650	1.0%	7/25/22			739			603			(136)
American Bath Group LLC	Capital Goods	L+975	1.0%	9/30/24			2,760			2,985			225
ATX Networks Corp(3)	Technology Hardware & Equipment	L+600, 1.00% PIK (1.00% Max PIK)	1.0%	6/11/21			6,311			6,229			(82)
Belk Inc	Retailing	L+475	1.0%	12/12/22			5,988			5,554			(434)
Caprock Midstream LLC	Energy	L+475		11/3/25			1,811			1,746			(65)
CDS US Intermediate Holdings Inc(3)	Media	L+825	1.0%	7/10/23			3,238			2,888			(350)
Centric Group LLC(4)	Retailing	L+800	1.0%	2/1/24			7,772			7,600			(172)
CSM Bakery Products	Food, Beverage & Tobacco	L+400	1.0%	7/3/20			1,545			1,520			(25)
Dayton Superior Corp	Materials	L+800, 6.00% PIK (6.00% Max PIK)	1.0%	11/15/21			3,687			3,282			(405)
Diamond Resorts International Inc	Consumer Services	L+375	1.0%	9/2/23			7,511			7,361			(150)
Distribution International Inc	Retailing	L+500	1.0%	12/15/21			989			934			(55)
Eagleclaw Midstream Ventures LLC	Energy	L+425	1.0%	6/24/24			3,331			3,282			(49)
EIF Van Hook Holdings LLC	Energy	L+525		9/5/24			2,186			2,113			(73)
Foresight Energy LLC(3)	Materials	L+575	1.0%	3/28/22			3,352			3,286			(66)
Grocery Outlet Inc	Food & Staples Retailing	L+725		10/22/26			693			693			—
Gulf Finance LLC	Energy	L+525	1.0%	8/25/23			4,535			3,710			(825)
Ivanti Software Inc	Software & Services	L+425	1.0%	1/20/24			2,488			2,472			(16)
JC Penney Corp Inc(3)	Retailing	L+425	1.0%	6/23/23			412			382			(30)
Jo-Ann Stores Inc	Retailing	L+500	1.0%	10/20/23			1,911			1,917			6
Jostens Inc	Consumer Services	L+550		12/19/25			1,042			1,073			31
LBM Borrower LLC	Capital Goods	L+375	1.0%	8/20/22			8,455			8,132			(323)
LBM Borrower LLC(4)	Capital Goods	L+925	1.0%	8/20/23			5,808			5,820			12
LD Intermediate Holdings Inc	Software & Services	L+588	1.0%	12/9/22			6,750			6,506			(244)
MedAssets Inc	Health Care Equipment & Services	L+450	1.0%	10/20/22			5,591			5,428			(163)
Mitel US Holdings Inc	Technology Hardware & Equipment	L+450		11/30/25			43			42			(1)
Monitronics International Inc(3)	Commercial & Professional Services	L+550	1.0%	9/30/22			1,130			976			(154)
NaviHealth Inc.	Health Care Equipment & Services	L+500		8/1/25			4,401			4,470			69
OPE Inmar Acquisition Inc	Software & Services	L+800	1.0%	5/1/25			6,895			6,878			(17)
P2 Energy Solutions, Inc.	Software & Services	L+400	1.0%	10/30/20			2,394			2,515			121
P2 Energy Solutions, Inc.	Software & Services	L+800	1.0%	4/30/21			1,309			1,436			127
PAE Holding Corp	Capital Goods	L+550	1.0%	10/20/22			22			22			—
Paradigm Acquisition Corp	Health Care Equipment & Services	L+750		10/26/26			488			484			(4)
Peak 10 Holding Corp	Telecommunication Services	L+350		8/1/24			2,543			2,496			(47)
Peak 10 Holding Corp	Telecommunication Services	L+725	1.0%	8/1/25			4,582			4,058			(524)
Sequa Corp	Materials	L+500	1.0%	11/28/21			5,554			5,505			(49)
Sequa Corp	Materials	L+900	1.0%	4/28/22			2,270			2,230			(40)
SI Group Inc	Materials	L+475		10/15/25			859			886			27
SIRVA Worldwide Inc	Commercial & Professional Services	L+550		8/2/25			832			821			(11)
SIRVA Worldwide Inc	Commercial & Professional Services	L+950		8/2/26			706			657			(49)
SMG/PA	Consumer Services	L+700		1/23/26			1,124			1,123			(1)
Sorenson Communications LLC	Telecommunication Services	L+575	2.3%	4/30/20			9,898			9,799			(99)
Sutherland Global Services Inc(3)	Software & Services	L+538	1.0%	4/23/21			4,223			4,289			66

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

Underlying Loan(1)	Industry	Rate(2)	Floor	Maturity	Notional Amount			Market Value			Unrealized Appreciation/ (Depreciation)
Team Health Inc	Health Care Equipment & Services	L+275	1.0%	2/6/24		$	22		$	21		$	(1)
Vivint Inc	Commercial & Professional Services	L+500		4/1/24			5,659			5,515			(144)
WireCo WorldGroup Inc	Capital Goods	L+900	1.0%	9/30/24			1,585			1,558			(27)
York Risk Services Group Inc(4)	Insurance	L+375	1.0%	10/1/21			3,019			2,851			(168)
Total						$	156,659		$	151,438			(5,221)
Total TRS Accrued Income and Liabilities:													1,296
Total TRS Fair Value:												$	(3,925)

The following is a summary of the underlying loans subject to the TRS as of December 31, 2018:

Underlying Loan(1)	Industry	Rate(2)	Floor	Maturity	Notional Amount			Market Value			Unrealized Appreciation/ (Depreciation)
Access CIG LLC	Software & Services	L+775		2/27/26		$	411		$	398		$	(13)
Accuride Corp	Capital Goods	L+525	1.0%	11/17/23			3,327			3,342			15
Advantage Sales & Marketing Inc	Commercial & Professional Services	L+325	1.0%	7/23/21			4,477			4,138			(339)
Advantage Sales & Marketing Inc	Commercial & Professional Services	L+650	1.0%	7/25/22			739			648			(91)
Aleris International Inc	Materials	L+475		2/27/23			491			490			(1)
American Bath Group LLC	Capital Goods	L+975	1.0%	9/30/24			2,760			2,970			210
ATX Networks Corp(3)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)	1.0%	6/11/21			6,345			6,219			(126)
Belk Inc	Retailing	L+475	1.0%	12/12/22			6,008			5,572			(436)
Caprock Midstream LLC	Energy	L+475		11/3/25			1,811			1,710			(101)
CDS US Intermediate Holdings Inc(3)	Media	L+825	1.0%	7/10/23			3,238			2,632			(606)
Centric Group LLC(4)	Retailing	L+800	1.0%	2/1/24			7,772			7,668			(104)
CSM Bakery Products	Food, Beverage & Tobacco	L+400	1.0%	7/3/20			1,545			1,468			(77)
Dayton Superior Corp	Materials	L+800, 6.0% PIK (6.0% Max PIK)	1.0%	11/15/21			3,697			3,223			(474)
Diamond Resorts International Inc	Consumer Services	L+375	1.0%	9/2/23			7,530			7,135			(395)
Distribution International Inc	Retailing	L+500	1.0%	12/15/21			991			910			(81)
Eagleclaw Midstream Ventures LLC	Energy	L+425	1.0%	6/24/24			3,339			3,266			(73)
EIF Van Hook Holdings LLC	Energy	L+525		9/5/24			2,213			2,181			(32)
Foresight Energy LLC(3)	Materials	L+575	1.0%	3/28/22			3,352			3,285			(67)
Grocery Outlet Inc	Food & Staples Retailing	L+725		10/22/26			693			688			(5)
Gulf Finance LLC	Energy	L+525	1.0%	8/25/23			4,547			3,556			(991)
Ivanti Software Inc	Software & Services	L+425	1.0%	1/20/24			2,494			2,428			(66)
JC Penney Corp Inc(3)	Retailing	L+425	1.0%	6/23/23			415			371			(44)
Jo-Ann Stores Inc	Retailing	L+500	1.0%	10/20/23			1,954			1,873			(81)
Jostens Inc	Consumer Services	L+550		12/19/25			1,088			1,089			1
Koosharem LLC	Commercial & Professional Services	L+450	1.0%	4/18/25			538			519			(19)
LBM Borrower LLC	Capital Goods	L+375	1.0%	8/20/22			8,475			7,905			(570)
LBM Borrower LLC(4)	Capital Goods	L+925		8/20/23			5,808			5,820			12
LD Intermediate Holdings Inc	Software & Services	L+588	1.0%	12/9/22			6,840			6,802			(38)
MedAssets Inc	Health Care Equipment & Services	L+450	1.0%	10/20/22			5,605			5,413			(192)
Mitel US Holdings Inc	Technology Hardware & Equipment	L+450		11/30/25			1,649			1,598			(51)
Monitronics International Inc(3)	Commercial & Professional Services	L+550		9/30/22			1,133			1,038			(95)
NaviHealth Inc.	Health Care Equipment & Services	L+500		8/1/25			4,412			4,348			(64)
OPE Inmar Acquisition Inc	Software & Services	L+800		5/1/25			6,895			6,878			(17)
P2 Energy Solutions, Inc.	Energy	L+400	1.3%	10/30/20			2,400			2,458			58

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Financing Arrangements (continued)

Underlying Loan(1)	Industry	Rate(2)	Floor	Maturity	Notional Amount			Market Value			Unrealized Appreciation/ (Depreciation)
P2 Energy Solutions, Inc.	Energy	L+800	1.0%	4/30/21		$	1,309		$	1,425		$	116
Paradigm Acquisition Corp	Health Care Equipment & Services	L+750		10/26/26			488			489			1
Peak 10 Holding Corp	Telecommunication Services	L+325	1.0%	8/1/24			2,550			2,488			(62)
Peak 10 Holding Corp	Telecommunication Services	L+725		8/1/25			4,582			4,125			(457)
PF Chang’s China Bistro Inc	Consumer Services	L+500	1.0%	9/1/22			3,333			3,326			(7)
Savers Inc	Retailing	L+375	1.3%	7/9/19			553			530			(23)
Sequa Corp	Materials	L+500	1.0%	11/28/21			5,569			5,378			(191)
Sequa Corp	Materials	L+900	1.0%	4/28/22			2,270			2,159			(111)
SI Group Inc	Materials	L+475		10/15/25			861			859			(2)
SIRVA Worldwide Inc	Commercial & Professional Services	L+550		8/2/25			837			831			(6)
SIRVA Worldwide Inc	Commercial & Professional Services	L+950		8/2/26			706			649			(57)
SMG/PA	Consumer Services	L+700		1/23/26			1,124			1,093			(31)
Sorenson Communications LLC	Telecommunication Services	L+575	2.3%	4/30/20			9,924			9,887			(37)
Strike LLC	Energy	L+800	1.0%	11/30/22			2,771			2,849			78
Sutherland Global Services Inc(3)	Software & Services	L+538	1.0%	4/23/21			799			782			(17)
Sutherland Global Services Inc(3)	Software & Services	L+538	1.0%	4/23/21			3,434			3,358			(76)
Team Health Inc	Health Care Equipment & Services	L+275	1.0%	2/6/24			22			21			(1)
Vivint Inc	Commercial & Professional Services	L+500		4/1/24			5,673			5,523			(150)
Westbridge Technologies Inc(4)	Technology Hardware & Equipment	L+850	1.0%	4/28/23			4,655			4,738			83
WireCo WorldGroup Inc	Capital Goods	L+900	1.0%	9/30/24			1,586			1,562			(24)
York Risk Services Group Inc(4)	Insurance	L+375	1.0%	10/1/21			3,027			2,844			(183)
Total						$	171,065		$	164,955			(6,110)

Total TRS Accrued Income and Liabilities:													1,421
Total TRS Fair Value:												$	(4,689)

(1)

Loan may be an obligation of one or more entities affiliated with the named company.

(2)

The variable rate securities underlying the TRS bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of March 31, 2019 and December 31, 2018, three-month LIBOR was 2.60% and 2.81%, respectively.

(3)

The investment is not a qualifying asset under the 1940 Act. A BDC may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets.

(4)

Security is also held directly by the Company or one of its wholly-owned subsidiaries as of March 31, 2019 and/or December 31, 2018.

Note 9. Commitments and Contingencies

The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The Advisor has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material effect upon its financial condition or results of operations.

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Commitments and Contingencies (continued)

Unfunded commitments to provide funds to portfolio companies are not recorded in the Company’s consolidated statements of assets and liabilities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company has sufficient liquidity to fund these commitments. As of March 31, 2019, the Company’s unfunded commitments consisted of the following:

Category/Company(1)	Commitment Amount
Senior Secured Loans—First Lien
Apex Group Limited		$	206
Apex Group Limited			533
Conservice LLC			544
CSafe Global			165
Eagle Family Foods Inc			375
Lipari Foods LLC			2,316
North Haven Cadence Buyer Inc			188
North Haven Cadence Buyer Inc			21
Total unfunded loans		$	4,348

(1)

May be commitments to one or more entities affiliated with the named company.

As of March 31, 2019, the Company’s unfunded debt commitments have a fair value representing unrealized appreciation (depreciation) of $(118). The Company funds its equity investments as it receives funding notices from the portfolio companies. As of March 31, 2019, the Company’s unfunded equity commitments have a fair value of zero.

In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under such arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. The Company has no such guarantees outstanding at March 31, 2019 and December 31, 2018.

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 10. Financial Highlights

The following is a schedule of financial highlights of the Company for the three months ended March 31, 2019 and the year ended December 31, 2018:

	Three Months Ended March 31, 2019 (Unaudited)			Year Ended December 31, 2018
Per Share Data:(1)
Net asset value, beginning of period		$	10.51		$	11.12
Results of operations(2)
Net investment income			0.13			0.48
Net realized gain (loss) and unrealized appreciation (depreciation)			0.23			(0.40)
Net increase (decrease) in net assets resulting from operations			0.36			0.08
Stockholder distributions(3)
Distributions from net investment income			(0.18)			(0.69)
Distributions from net realized gain on investments			—			(0.01)
Net decrease in net assets resulting from stockholder distributions			(0.18)			(0.70)
Capital share transactions
Issuance of common stock(4)			—			0.01
Repurchases of common stock(5)			—			—
Net increase in net assets resulting from capital share transactions			—			0.01
Net asset value, end of period		$	10.69		$	10.51
Shares outstanding, end of period			31,589,690			31,584,470
Total return(6)			3.38%			0.60%
Total return (without assuming reinvestment of distributions)(6)			3.43%			0.81%
Ratio/Supplemental Data:
Net assets, end of period		$	337,717		$	331,938
Ratio of net investment income to average net assets(7)			4.70%			4.36%
Ratio of operating expenses to average net assets(7)			5.58%			3.80%
Ratio of net expenses to average net assets(7)			5.58%			3.72%
Portfolio turnover(8)			7.03%			32.71%
Total amount of senior securities outstanding, exclusive of treasury securities		$	128,838		$	141,074
Asset coverage per unit(9)			3.62			3.35

(1)

Per share data may be rounded in order to recompute the ending net asset value per share.

(2)

The per share data was derived by using the weighted average shares outstanding during the applicable period.

(3)

The per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.

(4)

The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock pursuant to the DRP. The issuance of common stock at an offering price, net of selling commissions, that is greater than the net asset value per share results in an increase in net asset value per share.

(5)

The per share impact of the Company’s repurchases of common stock is a reduction to net asset value of less than $0.01 per share during each period.

(6)

The total return for each period presented was calculated based on the change in net asset value during the applicable period, including the impact of distributions reinvested in accordance with the DRP. The total return (without assuming reinvestment of distributions) for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions per share which were declared during the applicable period and dividing the total by the net

TABLE OF CONTENTS

FS Investment Corporation IV

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 10. Financial Highlights (continued)

asset value per share at the beginning of the applicable period. The total returns do not consider the effect of any selling commissions or charges that may be incurred in connection with the sale of shares of the Company’s common stock. The total returns include the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculations of total returns in the table should not be considered representations of the Company’s future total returns, which may be greater or less than the returns shown in the table due to a number of factors, including the Company’s ability or inability to make investments in companies that meet its investment criteria, the interest rates payable on the debt securities the Company acquires, the level of the Company’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total returns on the Company’s investment portfolio during the applicable period and do not represent actual returns to stockholders.

(7)

Weighted average net assets during the applicable period are used for this calculation. Ratios for the three months ended March 31, 2019 are annualized, with the exception of capital gains incentive fees. Annualized ratios for the three months ended March 31, 2019 are not necessarily indicative of the ratios that may be expected for the year ending December 31, 2019. The following is a schedule of supplemental ratios for the three months ended March 31, 2019 and for the year ended December 31, 2018:

	Three Months Ended March 31, 2019 (Unaudited)		Year Ended December 31, 2018
Ratio of subordinated income incentive fees to average net assets		1.67%		0.43%
Ratio of accrued capital gains incentive fees to average net assets		—		(0.50)%
Ratio of interest expense to average net assets		0.50%		0.24%
Ratio of excise taxes to average net assets		—		0.10%

(8)

Portfolio turnover for the three months ended March 31, 2019 is not annualized.

(9)

Asset coverage per unit is the ratio of the carrying value of the Company’s total consolidated assets, less liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(in thousands, except share and per share amounts)

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us,” “our” and the “Company” refer to FS Investment Corporation IV.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:

•

our future operating results;

•

our business prospects and the prospects of the companies in which we may invest;

•

the impact of the investments that we expect to make;

•

the ability of our portfolio companies to achieve their objectives;

•

our current and expected financings and investments;

•

changes in the general interest rate environment;

•

the adequacy of our cash resources, financing sources and working capital;

•

the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies;

•

our contractual arrangements and relationships with third parties;

•

actual and potential conflicts of interest with the other funds advised by the Advisor, their respective current or future investment advisers or any of their affiliates;

•

the dependence of our future success on the general economy and its effect on the industries in which we may invest;

•

our use of financial leverage;

•

the ability of the Advisor to locate suitable investments for us and to monitor and administer our investments;

•

the ability of the Advisor or its affiliates to attract and retain highly talented professionals;

•

our ability to maintain our qualification as a RIC and as a BDC;

•

the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, and the rules and regulations issued thereunder;

•

the effect of changes to tax legislation on us and the portfolio companies in which we may invest and our and their tax position; and

•

the tax status of the enterprises in which we may invest.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason. Factors that could cause actual results to differ materially include:

•

changes in the economy;

•

risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and

•

future changes in laws or regulations and conditions in our operating areas.

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We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Overview

We were incorporated under the general corporation laws of the State of Maryland on February 25, 2015 and formally commenced investment operations on January 6, 2016. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. Prior to satisfying the minimum offering requirement, we had no operations except for matters relating to our organization. In November 2017, we closed our continuous public offering of shares of common stock to new investors.

We are externally managed by the Advisor pursuant to the investment advisory and administrative services agreement and supervised by our board of directors, a majority of whom are independent. On April 9, 2018, GDFM resigned as our investment sub-adviser and terminated its investment sub-advisory agreement effective April 9, 2018. In connection with GDFM’s resignation as our investment sub-adviser, on April 9, 2018, we entered into the investment advisory and administrative services agreement with the Advisor, which replaced an investment advisory and administrative services agreement with our former investment adviser, FSIC IV Advisor.

Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We pursue our investment objective by investing primarily in the debt of middle market U.S. companies with a focus on originated transactions sourced through the network of the Advisor and its affiliates. We define direct originations as any investment where the Advisor or its affiliates negotiates the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These directly originated transactions include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions.

Our portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle-market U.S. companies and, to a lesser extent, subordinated loans of private U.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans or make other debt investments, including investments in other senior secured debt, through secondary market transactions in the “over-the-counter” market or directly from our target companies as primary market or directly originated investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase or otherwise acquire interests in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, in our target companies, generally in conjunction with one of our debt investments, including through the restructuring of such investments, or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds, structured products, other debt securities and derivatives, including total return swaps and credit default swaps. The Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure or otherwise make opportunistic investments, such as where the market price of loans, bonds or other securities reflects a lower

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valuation than deemed warranted by the Advisor’s fundamental analysis, which may occur due to general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community and may include event driven investments, anchor orders and structured products.

The senior secured loans, second lien secured loans and other senior secured debt in which we invest generally have stated terms of three to seven years and subordinated debt investments that we make generally have stated terms of up to ten years, but the expected average life of such securities is generally between three and seven years. However, there is no limit on the maturity or duration of any security in our portfolio. Our debt investments may be rated by a NRSRO and, in such case, generally will carry a rating below investment grade (rated lower than “Baa3” by Moody’s or lower than “BBB-” by S&P). We also invest in non-rated debt securities.

Revenues

The principal measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on total return swap, net realized gain or loss on foreign currency, net unrealized appreciation or depreciation on investments, net unrealized appreciation or depreciation on total return swap and net unrealized gain or loss on foreign currency.

Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net realized gain or loss on total return swap is the net monthly settlement payments received on the TRS. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currencies fluctuations. Net unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized appreciation or depreciation on total return swap is the net change in the fair value of the TRS. Net unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations.

We principally generate revenues in the form of interest income on the debt investments we hold. In addition, we generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. We may also generate revenues in the form of dividends and other distributions on the equity/other securities we hold.

Expenses

Our primary operating expenses include the payment of management and incentive fees and other expenses under the investment advisory and administrative services agreement, interest expense from financing arrangements and other indebtedness, and other expenses necessary for our operations. The management and incentive fees compensate the Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.

The Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. The Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC. In addition, the Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

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Pursuant to the investment advisory and administrative services agreement, we reimburse the Advisor for expenses necessary to perform services related to our administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR Credit providing administrative services to us on behalf of the Advisor. We reimburse the Advisor no less than monthly for expenses necessary to perform services related to our administration and operations. The amount of this reimbursement is set at the lesser of (1) the Advisor’s actual costs incurred in providing such services and (2) the amount that we estimate we would be required to pay alternative service providers for comparable services in the same geographic location. The Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of the Advisor. Our board of directors then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available. In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of directors compares the total amount paid to the Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.

We bear all other expenses of our operations and transactions, including all other expenses incurred by the Advisor in performing services for us and administrative personnel paid by FS Investments and KKR Credit.

In addition, we have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by the Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance.

For additional information regarding our base management fee deferral arrangement with the Advisor, see Note 4 to our unaudited consolidated financial statements included herein.

Portfolio Investment Activity for the Three Months Ended March 31, 2019 and for the Year Ended December 31, 2018

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the three months ended March 31, 2019 and the year ended December 31, 2018:

Net Investment Activity	For the Three Months Ended March 31, 2019			For the Year Ended December 31, 2018
Purchases		$	39,645		$	120,984
Sales and Repayments			(21,557)			(89,188)
Net Portfolio Activity		$	18,088		$	31,796

	For the Three Months Ended March 31, 2019					For the Year Ended December 31, 2018
New Investment Activity by Asset Class	Purchases			Percentage		Purchases			Percentage
Senior Secured Loans—First Lien		$	30,166		76%		$	65,580		54%
Senior Secured Loans—Second Lien			5,930		15%			11,928		10%
Other Senior Secured Debt			—		—			12,868		11%
Subordinated Debt			3,208		8%			27,154		22%
Equity/Other			341		1%			3,454		3%
Total		$	39,645		100%		$	120,984		100%

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The following table summarizes the composition of our investment portfolio at cost and fair value as of March 31, 2019 and the year ended December 31, 2018:

	March 31, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	188,318		$	182,955		59%		$	163,500		$	159,270		55%
Senior Secured Loans—Second Lien			34,810			34,539		11%			28,851			28,613		10%
Other Senior Secured Debt			25,154			23,145		7%			29,369			26,586		9%
Subordinated Debt			59,107			58,902		19%			68,018			63,927		22%
Equity/Other			6,836			12,146		4%			6,137			10,445		4%
Total		$	314,225		$	311,687		100%		$	295,875		$	288,841		100%

The following table summarizes the composition of our investment portfolio at cost and fair value as of March 31, 2019 and December 31, 2018 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 8 to our unaudited consolidated financial statements included herein. The investments underlying the TRS had a notional amount and market value of $156,659 and $151,438, respectively, as of March 31, 2019 and $171,065 and $164,955, respectively, as of December 31, 2018.

	March 31, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	304,597		$	294,980		64%		$	294,702		$	285,678		63%
Senior Secured Loans—Second Lien			75,190			73,952		16%			68,714			67,160		15%
Other Senior Secured Debt			25,154			23,145		5%			29,369			26,586		6%
Subordinated Debt			59,107			58,902		13%			68,018			63,927		14%
Equity/Other			6,836			12,146		2%			6,137			10,445		2%
Total		$	470,884		$	463,125		100%		$	466,940		$	453,796		100%

(1)

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

The following table presents certain selected information regarding the composition of our investment portfolio as of March 31, 2019 and December 31, 2018:

	March 31, 2019	December 31, 2018
Number of Portfolio Companies	74	72
% Variable Rate Debt Investments (based on fair value)(1)(2)	70.7%	64.6%
% Fixed Rate Debt Investments (based on fair value)(1)(2)	28.7%	34.4%
% Other Income Producing Investments (based on fair value)(3)	0.0%	0.0%
% Non-Income Producing Investments (based on fair value)(2)	0.6%	0.5%
% of Investments on Non-Accrual (based on fair value)	—	0.5%
Weighted Average Annual Yield on Accruing Debt Investments(2)(4)	10.2%	9.9%

(1)

“Debt Investments” means investments that pay or are expected to pay a stated interest rate, stated dividend rate or other similar stated return.

(2)

Does not include investments on non-accrual status.

(3)

“Other Income Producing Investments” means investments that pay or are expected to pay interest, dividends or other income to the Company on an ongoing basis but do not have a stated interest rate, stated dividend rate or other similar stated return.

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(4)

The Weighted Average Annual Yield on Accruing Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each accruing Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period.

Based on our regular monthly gross cash distribution amount of $0.067258 per share as of March 31, 2019 and our distribution reinvestment price of $10.75 as of such date, the gross annualized distribution rate was 7.51% as of March 31, 2019. The gross annualized distribution rate includes annual distribution fees, as determined in accordance with applicable FINRA rules. The net annualized distribution rate to stockholders, which excludes annual distribution fees, was 6.63% as of March 31, 2019 based on our distribution reinvestment price of $10.75. During the three months ended March 31, 2019, our total return was 3.38% and our total return without assuming reinvestment of distributions was 3.43%.

Based on our regular monthly gross cash distribution amount of $0.067258 per share as of December 31, 2018 and our distribution reinvestment price of $10.75 as of such date, the gross annualized distribution rate was 7.51% as of December 31, 2018. The gross annualized distribution rate includes annual distribution fees, as determined in accordance with applicable FINRA rules. The net annualized distribution rate to stockholders, which excludes annual distribution fees, was 6.60% as of December 31, 2018 based on our distribution reinvestment price of $10.75. During the year ended December 31, 2018, our total return was 0.60% and our total return without assuming reinvestment of distributions was 0.81%.

Our weighted average annual yield on accruing debt investments may be higher than a stockholder’s yield on an investment in shares of our common stock. Our weighted average annual yield on accruing debt investments does not reflect operating expenses that may be incurred by us, nor does it include all of our investments. In addition, our weighted average annual yield on accruing debt investments and total return figures disclosed above do not consider the effect of any sales commissions or charges that may have been incurred in connection with the sale of shares of our common stock. Our weighted average annual yield on accruing debt investments, total return and annualized distribution rate to stockholders do not represent actual investment returns to stockholders, are subject to change and, in the future, may be greater or less than the rates set forth above. See the section entitled “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2018 and our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with these statements. See footnote 6 to the financial highlights table included in Note 10 to our unaudited consolidated financial statements included herein for information regarding the calculation of our total return.

Direct Originations

The following table presents certain selected information regarding our direct originations as of March 31, 2019 and December 31, 2018:

Characteristics of All Direct Originations held in Portfolio	March 31, 2019	December 31, 2018
Number of Portfolio Companies	39	34
% of Investments on Non-Accrual (based on fair value)	—	—
Total Cost of Direct Originations	$205,813	$171,245
Total Fair Value of Direct Originations	$201,555	$172,405
% of Total Investments, at Fair Value	64.7%	59.7%
Weighted Average Annual Yield on Accruing Debt Investments(1)	10.0%	10.3%

(1)

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Portfolio Composition by Industry Classification

See Note 6 to our unaudited consolidated financial statements included herein for additional information regarding the composition of our investment portfolio by industry classification.

Portfolio Asset Quality

In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. The Advisor uses an investment rating scale of 1 to 4. The following is a description of the conditions associated with each investment rating:

Investment Rating			Summary Description
1			Performing investment—generally executing in accordance with plan and there are no concerns about the portfolio company’s performance or ability to meet covenant requirements.
2			Performing investment—no concern about repayment of both interest and our cost basis but company’s recent performance or trends in the industry require closer monitoring.
3			Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment.
4			Underperforming investment—concerns about the recoverability of principal or interest.

The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of March 31, 2019 and December 31, 2018:

	March 31, 2019					December 31, 2018
Investment Rating	Fair Value			Percentage of Portfolio		Fair Value			Percentage of Portfolio
1		$	187,362		60%		$	162,944		56%
2			99,856		32%			105,896		37%
3			17,229		6%			16,758		6%
4			7,240		2%			3,243		1%
Total		$	311,687		100%		$	288,841		100%

The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.

Results of Operations

Comparison of the Three Months Ended March 31, 2019 and 2018

Revenues

Our investment income for the three months ended March 31, 2019 and 2018 was as follows:

	Three Months Ended March 31,
	2019					2018
	Amount			Percentage of Total Income		Amount			Percentage of Total Income
Interest income		$	7,460		87%		$	6,089		95%
Paid-in-kind interest income			410		5%			279		4%
Fee income			729		8%			30		1%
Dividend income			—		—			15		0%
Total investment income(1)		$	8,599		100%		$	6,413		100%

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(1)

Such revenues represent $8,048 and $6,031 of cash income earned as well as $551 and $382 in non-cash portions relating to accretion of discount and PIK interest for the three months ended March 31, 2019 and 2018, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

The level of interest income we receive is generally related to the balance of income-producing investments multiplied by the weighted average yield of our investments. Fee income is transaction based, and typically consists of prepayment fees and structuring fees. As such, fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

The increase in interest income during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 can be primarily attributed to the higher average invested balance during the quarter ended March 31, 2019, compared to the quarter ended March 31, 2018. The increase in fee income during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was primarily due to the increase of origination activity during the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

Expenses

Our operating expenses for the three months ended March 31, 2019 and 2018 were as follows:

	Three Months Ended March 31,
	2019			2018
Management fees		$	1,415		$	1,857
Subordinated income incentive fees			1,394			—
Capital gains incentive fees			—			(735)
Administrative services expenses			170			78
Stock transfer agent fees			50			50
Accounting and administrative fees			55			51
Interest expense			422			222
Distribution fees			779			621
Directors’ fees			28			284
Expenses associated with our independent audit and related fees			63			63
Legal fees			50			20
Printing fees			73			73
Other			170			148
Total operating expenses			4,669			2,732
Management fee waiver			—			(232)
Net expenses		$	4,669		$	2,500

The following table reflects selected expense ratios as a percent of average net assets for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019		2018
Ratio of operating expenses to average net assets		1.39%		0.78%
Ratio of management fee waiver to average net assets(1)		—		(0.07)%
Ratio of net operating expenses to average net assets		1.39%		0.71%
Ratio of incentive fees and interest expense to average net assets(1)		(0.54)%		0.15%
Ratio of net operating expenses, excluding certain expenses, to average net assets		0.85%		0.86%

(1)

Ratio may be rounded in order to recompute the ending ratio of net operating expenses to average net assets or net operating expenses, excluding certain expenses, to average net assets.

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Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in amounts outstanding under our financing arrangements and benchmark interest rates such as LIBOR, among other factors.

Net Investment Income (Loss)

Our net investment income (loss) totaled $3,930 ($0.13 per share) and $3,913 ($0.12 per share) for the three months ended March 31, 2019 and 2018, respectively. The increase in net investment income for the three months ended March 31, 2019 can be attributed to the increase in interest income as discussed above, offset by higher incentive fees and interest expense.

Net Realized Gains or Losses

Our net realized gains (losses) on investments, total return swap and foreign currency for the three months ended March 31, 2019 and 2018, were as follows:

	Three Months Ended March 31,
	2019			2018
Net realized gain (loss) on investments(1)		$	(289)		$	450
Net realized gain (loss) on total return swap			2,383			2,477
Net realized gain (loss) on foreign currency			(13)			—
Total net realized gain (loss)		$	2,081		$	2,927

(1)

We sold investments and received principal repayments of $12,777 and $8,780, respectively, during the three months ended March 31, 2019 and $10,186 and $1,834, respectively, during the three months ended March 31, 2018.

Net Change in Unrealized Appreciation (Depreciation)

Our net change in unrealized appreciation (depreciation) on investments, total return swap and unrealized gain (loss) on foreign currency for the three months ended March 31, 2019 and 2018, were as follows:

	Three Months Ended March 31
	2019			2018
Net change in unrealized appreciation (depreciation) on investments		$	4,496		$	(4,607)
Net change in unrealized appreciation (depreciation) on total return swap			764			(120)
Net change in unrealized gain (loss) on foreign currency			(3)			—
Total net change in unrealized appreciation (depreciation)		$	5,257		$	(4,727)

During the three months ended March 31, 2019, the net unrealized appreciation on our investments and TRS was primarily driven by appreciation of our first lien senior secured loans.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended March 31, 2019 and 2018, the net increase (decrease) in net assets resulting from operations was $11,268 ($0.36 per share) and $2,113 ($0.07 per share), respectively.

Financial Condition, Liquidity and Capital Resources

Overview

As of March 31, 2019, we had $4,044 in cash and foreign currency, which we or our wholly-owned financing subsidiaries held in custodial accounts, and $62,071 in cash held as collateral by Citibank under the terms of the TRS. In addition, as of March 31, 2019, we had $18,341 in capacity available under the TRS and $17,500 in borrowings available under our other financing arrangement, subject to borrowing

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base and other limitations. As of March 31, 2019, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of March 31, 2019, we had eight debt investments with aggregate unfunded commitments of $4,348. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

We currently generate cash primarily from cash flows from fees, interest and dividends earned from our investments, as well as from the issuance of shares under our distribution reinvestment plan, and principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of the Advisor, but in no event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See “—Financing Arrangements.”

Prior to investing in securities of portfolio companies, we invest the cash received from fees, interest and dividends earned from our investments and from the issuance of shares under the distribution reinvestment plan, as well as principal repayments and proceeds from sales of our investments primarily in cash, cash equivalents, including money market funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.

Financing Arrangements

The following table presents summary information with respect to our outstanding financing arrangements as of March 31, 2019:

Arrangement

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity Date

BNP Facility(1)

Prime Brokerage

L+1.25%

32,500

17,500

December 26, 2019(2)

Citibank Total Return Swap

Total Return Swap

L+1.60%

156,659

18,341

N/A(3)

(1)

The carrying amount outstanding under the facility approximates its fair value.

(2)

As described in Note 8 to our unaudited consolidated financial statements included herein, this facility generally is terminable upon 270 days’ notice by either party. As of March 31, 2019, neither party to the facility had provided notice of its intent to terminate the facility.

(3)

The TRS may be terminated by Cheltenham Funding at any time, subject to payment of an early termination fee if prior to the date 30 days before July 19, 2019 (April 19, 2019 as of March 31, 2019), or by Citibank on or after July 19, 2019 (April 19, 2019 as of March 31, 2019), in each case, in whole or in part, upon prior written notice to the other party.

For additional information regarding our financing arrangements, see Note 8 to our unaudited consolidated financial statements included herein.

RIC Status and Distributions

We have elected to be subject to tax as a RIC under Subchapter M of the Code. In order to qualify for RIC tax treatment, we must, among other things, make distributions of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, each tax year. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of a tax year or the due date of the tax return for such tax year, including extensions, distributions paid up to twelve months after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to qualify for and maintain our RIC tax status each tax year. We are also subject to a 4% nondeductible federal excise taxes on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains in excess of capital losses or “capital gain net income” (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. Any distribution declared

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by us during October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S. stockholders, on December 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any cash distributions. If we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Our first distribution was declared for stockholders of record as of January 12, 2016. Prior to the closing of our continuous public offering in November 2017, we declared regular cash distributions on a quarterly basis and paid such distributions on a monthly basis to stockholders of record, as determined on a weekly basis. Effective November 29, 2017, and subject to applicable legal restrictions and the sole discretion of our board of directors, we declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis to stockholders of record, as determined on a monthly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date we accept such stockholder’s subscription for shares of our common stock. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.

During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the three months ended March 31, 2019 was funded through the reimbursement of operating expenses by the Advisor.

We intend to continue to make our regular distributions in the form of cash, out of assets legally available for distribution, except for those stockholders who elect to receive their distributions in the form of shares of our common stock under the DRP. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. stockholder.

The following table reflects the cash distributions per share that we have declared on our common stock during the three months ended March 31, 2019 and 2018:

	Distribution(1)
For the Three Months Ended	Per Share			Amount
Fiscal 2018
March 31, 2018		$	0.17452		$	5,247
Fiscal 2019
March 31, 2019		$	0.17688		$	5,545

(1)

Distribution amounts and per share amounts shown are net of annual distribution fees, which began accruing on February 1, 2017. See Note 4 to our unaudited consolidated financial statements included herein for a discussion regarding annual distribution fees.

See Note 5 to our unaudited consolidated financial statements included herein for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income to our tax-basis net investment income and the components of accumulated earnings on a tax basis.

Critical Accounting Policies

Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are

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inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

Valuation of Portfolio Investments

We determine the fair value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith by our board of directors. In connection with that determination, the Advisor provides our board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the Financial Accounting Standards Board, clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:

•

our quarterly fair valuation process begins with the Advisor reviewing and documenting valuations of each portfolio company or investment, which valuations are obtained from an independent third-party valuation service and provide a valuation range;

•

the Advisor then provides the valuation committee of our board of directors, or the valuation committee, with its valuation recommendation for each portfolio company or investment, along with supporting materials;

•

preliminary valuations are then discussed with the valuation committee;

•

our valuation committee reviews the preliminary valuations and the Advisor, together with our independent third-party valuation services, if applicable, supplement the preliminary valuations to reflect any comments provided by the valuation committee;

•

following its review, the valuation committee will recommend that our board of directors approve our fair valuations; and

•

our board of directors discusses the valuations and determines the fair value of each such investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of the Advisor, the valuation committee and any independent third-party valuation services, if applicable.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, our board of directors may use any approved independent third-party pricing

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or valuation services. However, our board of directors is not required to determine fair value in accordance with the valuation provided by any single source, and may use any relevant data, including information obtained from the Advisor or any approved independent third-party valuation or pricing service that our board of directors deems to be reliable in determining fair value under the circumstances. Below is a description of factors that the Advisor, any approved independent third-party valuation services and our board of directors may consider when determining the fair value of our investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments.

For convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.

Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of directors, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

The Advisor, any approved independent third-party valuation services and our board of directors may also consider private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Advisor, any approved independent third-party valuation services and our board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of directors, in consultation with the Advisor and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of directors subsequently values these warrants or other equity securities received at their fair value.

The fair values of our investments are determined in good faith by our board of directors. Our board of directors is responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of directors has delegated day-to-day responsibility for implementing our valuation policy to the Advisor, and has authorized the Advisor to utilize independent third-party valuation and pricing services that have been approved by our board of directors. The valuation committee is responsible for overseeing the Advisor’s implementation of the valuation process.

See Note 7 to our unaudited consolidated financial statements included herein for additional information regarding the fair value of our financial instruments.

Revenue Recognition

Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect such amounts. We record dividend income on the ex-dividend

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date. Distributions received from a limited liability company (“LLC”) and limited partnership (“LP”) investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such income. Our policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. We consider many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that we will receive any previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on our judgment.

Loan origination fees, original issue discount and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. For the three months ended March 31, 2019, we recognized $568 in structuring fee revenue. We record prepayment premiums on loans and securities as fee income when we receive such amounts.

Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net Change in Unrealized Gains or Losses on Foreign Currency

Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized. Net change in unrealized gains or losses on foreign currency reflects the change in the value of receivables or accruals during the reporting period due to the impact of foreign currency fluctuations.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the three months ended March 31, 2019 and 2018, we did not incur any interest or penalties.

See Note 2 to our unaudited consolidated financial statements included herein for additional information regarding our significant accounting policies.

Contractual Obligations

We have entered into an agreement with the Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory and administrative services agreement are equal to (a) an annual base management fee based on the average weekly value of our gross assets and (b) an incentive fee based on our performance. The Advisor is reimbursed for administrative expenses incurred on our behalf. See Note 4 to our unaudited consolidated financial statements included herein for a discussion of this agreement and for the amount of fees and expenses accrued under similar agreements with FSIC IV Advisor during the three months ended March 31, 2019 and 2018.

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A summary of our significant contractual payment obligations related to the repayment of our outstanding indebtedness at March 31, 2019 is as follows:

		Payments Due By Period
	Maturity Date(1)	Total			Less than 1 year			1 – 3 years		3 – 5 years		More than 5 years
BNP Facility(2)	December 26, 2019		$	32,500		$	32,500		—		—		—

(1)

Amounts outstanding will mature, and all accrued and unpaid interest thereunder will be due and payable, on the maturity date.

(2)

At March 31, 2019, $17,500 remained unused under the BNP Facility. The BNP Facility generally is terminable upon 270 days’ notice by either party. As of March 31, 2019, neither Broomall Funding nor BNPP had provided notice of its intent to terminate the facility.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Recently Issued Accounting Standards

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement—Disclosures Framework—Changes to Disclosure Requirements of Fair Value Measurement (Topic 820), or ASU 2018-13. ASU 2018-13 introduces new fair value disclosure requirements and eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of ASU 2018-13 on our financial statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk. (dollar amounts in thousands)

We are subject to financial market risks, including changes in interest rates. As of March 31, 2019, 70.7% of our portfolio investments (based on fair value) were debt investments paying variable interest rates and 28.7% were debt investments paying fixed interest rates while 0.0% were other income producing investments and 0.6% consisted of non-income producing investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to the Advisor with respect to our increased pre-incentive fee net investment income.

Pursuant to the terms of the TRS between Cheltenham Funding and Citibank, Cheltenham Funding pays fees to Citibank at a floating rate equal to one-month LIBOR plus 1.60% or 1.50% per annum, as applicable, on the utilized notional amount of the loans subject to the TRS in exchange for the right to receive the economic benefit of a pool of loans having a maximum notional amount of $175,000. Pursuant to the terms of the BNP Facility, borrowings are at a floating rate based on LIBOR. To the extent that any present or future credit facilities, total return swap agreements or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding, or financing arrangements in effect, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

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The following table shows the effect over a twelve-month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the composition of our investment portfolio, including the accrual status of our investments, and our financing arrangements in effect as of March 31, 2019:

Basis Point Change in Interest Rates	Increase (Decrease) in Interest Income(1)			Increase (Decrease) in Interest Expense		Increase (Decrease) in Net Interest Income			Percentage Change in Net Interest Income
Down 100 basis points		$	(3,771)		(1,892)		$	(1,879)		(7.9)%
No change			—		—			—		—
Up 100 basis points		$	3,843		1,892		$	1,951		8.2%
Up 300 basis points		$	11,536		5,675		$	5,861		24.7%
Up 500 basis points		$	19,229		9,458		$	9,771		41.2%

(1)

Assumes no defaults or prepayments by portfolio companies over the next twelve months. Includes the net effect of the change in interest rates on the unrealized appreciation (depreciation) on the TRS. Pursuant to the TRS, Cheltenham Funding receives from Citibank all interest payable in respect of the loans included in the TRS and pays to Citibank interest at a rate equal to one-month LIBOR plus 1.60% per annum on the utilized notional amount of the loans subject to the TRS. As of March 31, 2019, all of the loans underlying the TRS (based on fair value) paid variable interest rates.

We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the three months ended March 31, 2019 and 2018, we did not engage in interest rate hedging activities.

In addition, we may have risk regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Valuation of Portfolio Investments.”

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019.

Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act) that occurred during the three month period ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material adverse effect upon our financial condition or results of operations.

Item 1A.

Risk Factors.

There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2018, as supplemented by our quarterly report on Form 10-Q for the quarter ended March 31, 2019.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information concerning our repurchases of shares of our Class T common stock pursuant to our share repurchase program during the quarter ended March 31, 2019:

Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
January 1 to January 31, 2019		267,472		$	10.7500		267,472		—(1)
February 1 to February 28, 2019		—			—		—		—
March 1 to March 31, 2019		—			—		—		—
Total		267,472		$	10.7500		267,472		—(1)

(1)

The maximum number of shares available for repurchase on January 11, 2019 was 267,472. A description of the calculation of the maximum number of shares of common stock that may be repurchased under our share repurchase program is set forth in Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q.

See Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for a more

detailed discussion of the terms of our share repurchase program.

Item 3.

Defaults upon Senior Securities.

Not applicable.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.

3.1

Articles of Amendment and Restatement of FS Investment Corporation IV (Incorporated by reference to Exhibit (a)(2) to Pre-Effective Amendment No. 4 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on September 24, 2015).

	Page
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018		1
Unaudited Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018		2
Unaudited Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2019 and 2018		3
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018		4
Consolidated Schedules of Investments as of March 31, 2019 (Unaudited) and December 31, 2018		5
Notes to Unaudited Consolidated Financial Statements		14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		41
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		55
ITEM 4. CONTROLS AND PROCEDURES		56
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		57
ITEM 1A. RISK FACTORS		57
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		57
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		57
ITEM 4. MINE SAFETY DISCLOSURES		57
ITEM 5. OTHER INFORMATION		57
ITEM 6. EXHIBITS		57
SIGNATURES		61

	3.2			Bylaws of FS Investment Corporation IV (Incorporated by reference to Exhibit (b) to Pre-Effective Amendment No. 2 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on September 14, 2015).
	4.1			Form of Subscription Agreement (Incorporated by reference to Appendix A filed with FS Investment Corporation IV’s final prospectus filed on April 28, 2017 with the Securities and Exchange Commission pursuant to Rule 497 of the Securities Act of 1933, as amended).
	4.2			Distribution Reinvestment Plan of FS Investment Corporation IV (Incorporated by reference to Exhibit (e) to Pre-Effective Amendment No. 4 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on September 24, 2015).
	4.3			Amended and Restated Distribution Reinvestment Plan of FS Investment Corporation IV. (Incorporated by reference to Exhibit 4.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on October 13, 2017.)
	10.1			Investment Advisory and Administrative Services Agreement, dated as of September 21, 2015, by and between FS Investment Corporation IV and FSIC IV Advisor, LLC. (Incorporated by reference to Exhibit (g)(1) to Pre-Effective Amendment No. 4 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on September 24, 2015.)
	10.2			Investment Sub-Advisory Agreement, dated as of September 21, 2015, by and between FSIC IV Advisor, LLC and GSO/Blackstone Debt Funds Management LLC (Incorporated by reference to Exhibit (g)(2) to Pre-Effective Amendment No. 4 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on September 24, 2015).
	10.3			Investment Advisory and Administrative Services Agreement, dated as of April 9, 2018, by and between FS Investment Corporation IV and FS/KKR Advisor, LLC (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on April 9, 2018).
	10.4			Amended and Restated Dealer Manager Agreement, dated as of November 11, 2015, by and among FS Investment Corporation IV, FSIC IV Advisor, LLC and FS2 Capital Partners, LLC (Incorporated by reference to exhibit (h)(1) to Post-Effective Amendment No. 2 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on November 12, 2015).
	10.5			Second Amended and Restated Dealer Manager Agreement, dated as of January 25, 2017, by and among the Registrant, FSIC IV Advisor, LLC and FS Investment Solutions, LLC (Incorporated by reference to exhibit (h)(1) to Post-Effective Amendment No. 7 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on February 2, 2017).
	10.6			Form of Selected Dealer Agreement. (Incorporated by reference to Exhibit (h)(2) to Post-Effective Amendment No. 7 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on February 2, 2017).
	10.7			Custodian Agreement, by and between FS Investment Corporation IV and State Street Bank and Trust Company (Incorporated by reference to Exhibit (j) to Pre-Effective Amendment No. 4 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239)filed on September 24, 2015).
	10.8			Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated as of October 9, 2015, by and between FS Investment Corporation IV and Franklin Square Holdings, L.P. (Incorporated by reference to Exhibit (k)(2) to Post-Effective Amendment No. 1 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on October 9, 2015).

	10.9			Expense Support and Conditional Reimbursement Agreement, dated as of April 9, 2018, by and between FS Investment Corporation IV and FS/KKR Advisor, LLC. (Incorporated by reference to Exhibit 10.2 to FS Investment Corporation IV’s Current Report on Form 8-K filed on April 9, 2018)
	10.10			Amended and Restated Distribution Plan (Incorporated by reference to Exhibit (k)(3) filed with Post-Effective Amendment No. 7 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on February 2, 2017).
	10.11			Amended and Restated Class Shares Plan (Incorporated by reference to Exhibit (k)(4) to Post-Effective Amendment No. 7 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on February 2, 2017).
	10.12			ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of January 19, 2016, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on January 22, 2016).
	10.13			Amended and Restated Paragraph 13 of the Credit Support Annex, dated as of September 5, 2017, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit (k)(6) to Post-Effective Amendment No. 9 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on October 18, 2017).
	10.14			Confirmation Letter Agreement, dated as of January 19, 2016, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to FS Investment Corporation IV’s Current Report on Form 8-K filed on January 22, 2016).
	10.15			Amended and Restated Confirmation Letter Agreement, dated as of April 12, 2016, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on April 14, 2016).
	10.16			Second Amended and Restated Confirmation Letter Agreement, effective as of June 3, 2016, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on June 8, 2016).
	10.17			Third Amended and Restated Confirmation Letter Agreement, effective as of June 30, 2016, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on June 13, 2016).
	10.18			Fourth Amended and Restated Confirmation Letter Agreement, effective as of January 19, 2017, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on February 1, 2017).
	10.19			Fifth Amended and Restated Confirmation Letter Agreement, effective as of July 19, 2017, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on July 24, 2017).
	10.20			Sixth Amended and Restated Confirmation Letter Agreement, effective as of September 5, 2017, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit (k)(13) to Post-Effective Amendment No. 9 to FS Investment Corporation IV’s registration statement on Form N-2 (File No. 333-204239) filed on October 18, 2017).

	10.21			Seventh Amended and Restated Confirmation Letter Agreement, effective as of January 19, 2018, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on January 23, 2018).
	10.22			Eighth Amended and Restated Confirmation Letter Agreement, effective as of July 19, 2018, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on July 24, 2018).
	10.23			Ninth Amended and Restated Confirmation Letter Agreement, effective as of January 19, 2019, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on January 22, 2019).
	10.24			Tenth Amended and Restated Confirmation Letter Agreement, effective as of April 19, 2019, by and between Cheltenham Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on April 19, 2019).
	10.25			Guarantee, dated as of January 19, 2016, by FS Investment Corporation IV in favor of Citibank, N.A. (Incorporated by reference to Exhibit 10.4 to FS Investment Corporation IV’s Current Report on Form 8-K filed on January 22, 2016).
	10.26			Committed Facility Agreement, dated and effective as of March 1, 2017, by and between Broomall Funding LLC and BNP Paribas Prime Brokerage International, Ltd (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IV’s Current Report on Form 8-K filed on February 15, 2017).
	10.27			U.S. PB Agreement, dated and effective as of March 1, 2017, by and between Broomall Funding LLC and BNP Paribas Prime Brokerage International, Ltd., on behalf of itself and as agent for the BNPP Entities (Incorporated by reference to Exhibit 10.2 to FS Investment Corporation IV’s Current Report on Form 8-K filed on February 15, 2017).
	10.28			First Amendment Agreement, dated as of May 29, 2018, to the Committed Facility Agreement, dated as of March 1, 2017, between BNP Paribas Prime Brokerage International, Ltd. and Broomall Funding LLC (Incorporated by reference to Exhibit 10.32 to FS Investment Corporation IV’s Quarterly Report on Form 10-Q filed on August 14, 2018).
	10.29			Second Amendment Agreement, dated as of December 31, 2018, to the Committed Facility Agreement, dated as of March 1, 2017, between BNP Paribas Prime Brokerage International, Ltd. and Broomall Funding LLC (Incorporated by reference to Exhibit 10.28 to FS Investment Corporation IV’s Annual Report on Form 10-K filed on March 18, 2019).
	31.1*			Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
	31.2*			Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
	32.1*			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

				FS INVESTMENT CORPORATION IV
				By:			/s/ Michael C. Forman Michael C. Forman Chief Executive Officer (Principal Executive Officer)
				By:			/s/ William Goebel William Goebel Chief Financial Officer (Principal Financial and Accounting Officer)