FS Credit Opportunities: Recent Selling Turned Our Short Position Into A Long One

2026-03-06 03:11:11 ET

In recent months, the BDC sector has been under pressure, and most of the BDCs' common stocks trade at large discounts. FS Credit Opportunities Corp. (FSCO) is not a BDC, but it is a closed-end fund with very similar assets to those of a BDC. FSCO is also trading at a deep discount, but we believe the market is underestimating the quality of the portfolio and its revenue structure. The fund is heavily positioned in senior secured loans. The gross asset yield and expected return on equity look attractive, especially when considering the significant discount to NAV. In the following lines, we will examine in detail FSCO's structure, sector exposure, debt, historical profitability, and expenses to assess whether the current discount level represents an opportunity. We have recently been bearish on FSCO and were even holding a short position as a part of a pair trade discussed in this past article:

Trying To Catch The BDC Bottom With A Pair Trade (Part 3) - Golub Capital Vs. FSCO ...

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