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TABLE OF CONTENTS

Table of Contents

 

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



FORM 10-Q



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

 

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

o

 

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

COMMISSION FILE NUMBER: 814-00841



FS Energy and Power Fund
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  27-6822130
(I.R.S. Employer
Identification No.)

201 Rouse Boulevard
Philadelphia, Pennsylvania

(Address of principal executive office)

 


19112
(Zip Code)

Registrant's telephone number, including area code: (215) 495-1150



        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 ý    No o.

        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 o    No o.

        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 o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

Emerging growth company o

        If an emerging growth company, indicate by check mark if the registrant has elected to not 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. o

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

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

        The issuer had 441,636,540 common shares of beneficial interest outstanding as of November 13, 2017.

   


Table of Contents


TABLE OF CONTENTS

 
   
  Page  

PART I—FINANCIAL INFORMATION

       

ITEM 1.

 

FINANCIAL STATEMENTS

       

 

Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016

    1  

 

Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016

    2  

 

Unaudited Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2017 and 2016

    3  

 

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

    4  

 

Consolidated Schedules of Investments as of September 30, 2017 (Unaudited) and December 31, 2016

    5  

 

Notes to Unaudited Consolidated Financial Statements

    21  

ITEM 2.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    52  

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    69  

ITEM 4.

 

CONTROLS AND PROCEDURES

    70  

PART II—OTHER INFORMATION

   
 
 

ITEM 1.

 

LEGAL PROCEEDINGS

    71  

ITEM 1A.

 

RISK FACTORS

    71  

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

    71  

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

    71  

ITEM 4.

 

MINE SAFETY DISCLOSURES

    71  

ITEM 5.

 

OTHER INFORMATION

    71  

ITEM 6.

 

EXHIBITS

    72  

 

SIGNATURES

    78  

Table of Contents


PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements.

FS Energy and Power Fund

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


 
  September 30, 2017
(Unaudited)
  December 31,
2016
 

Assets

             

Investments, at fair value

             

Non-controlled/unaffiliated investments (amortized cost—$3,552,508 and $2,959,314, respectively)

  $ 3,384,392   $ 2,838,377  

Non-controlled/affiliated investments (amortized cost—$883,774 and $977,010, respectively)

    857,892     1,071,032  

Controlled/affiliated investments (amortized cost—$27,164 and $26,664, respectively)

        1,031  

Total investments, at fair value (amortized cost—$4,463,446 and $3,962,988, respectively)

    4,242,284     3,910,440  

Cash

    97,565     317,520  

Receivable for investments sold and repaid

    18,288     22  

Income receivable

    63,730     37,857  

Deferred financing costs

    1,032     2,443  

Reimbursement due from sponsor(1)

    7,095      

Prepaid expenses and other assets

    117     15  

Total assets

  $ 4,430,111   $ 4,268,297  

Liabilities

             

Payable for investments purchased

  $ 21,240   $ 6,046  

Credit facilities payable (net of deferred financing costs of $1,988 and $1,045, respectively)(2)

    1,218,012     547,620  

Repurchase agreement payable (net of deferred financing costs of $0 and $91, respectively)(2)

        324,909  

Shareholder distributions payable

    10,875     9,474  

Management fees payable

    22,031     20,855  

Administrative services expense payable

    1,054     1,477  

Interest payable

    4,723     4,328  

Trustees' fees payable

    244     250  

Other accrued expenses and liabilities

    4,026     4,444  

Total liabilities

    1,282,205     919,403  

Commitments and contingencies ($22,457 and $0, respectively)(3)

             

Shareholders' equity

             

Preferred shares, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding

         

Common shares, $0.001 par value, 700,000,000 shares authorized, 447,166,265 and 440,162,095 shares issued and outstanding, respectively

    447     440  

Capital in excess of par value(4)

    3,854,106     3,802,263  

Accumulated undistributed net realized gains (losses) on investments and gain/loss on foreign currency(4)

    (457,695 )   (387,452 )

Accumulated undistributed (distributions in excess of) net investment income(4)

    (27,770 )   (13,738 )

Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency

    (221,182 )   (52,619 )

Total shareholders' equity

    3,147,906     3,348,894  

Total liabilities and shareholders' equity

  $ 4,430,111   $ 4,268,297  

Net asset value per common share at period end

  $ 7.04   $ 7.61  

(1)
See Note 4 for a discussion of expense reimbursements payable to the Company by its investment adviser and affiliates and recoupment of such amounts paid by the Company to its investment adviser and affiliates.

(2)
See Note 8 for a discussion of the Company's financing arrangements.

(3)
See Note 9 for a discussion of the Company's commitments and contingencies.

(4)
See Note 5 for a discussion of the sources of distributions paid by the Company.

   

See notes to unaudited consolidated financial statements.

1


Table of Contents

FS Energy and Power Fund

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


 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2017   2016   2017   2016  

Investment income

                         

From non-controlled/unaffiliated investments:

                         

Interest income

  $ 56,016   $ 66,628   $ 201,939   $ 207,825  

Paid-in-kind interest income

    5,704     8,665     16,461     18,119  

Fee income

    7,056     2,624     37,419     5,251  

From non-controlled/affiliated investments:

                         

Interest income

    28,660     9,727     53,525     30,872  

Paid-in-kind interest income

    3,635     1,738     9,957     6,195  

Fee income

            656     7,356  

Total investment income

    101,071     89,382     319,957     275,618  

Operating expenses

                         

Management fees

    22,031     20,086     67,104     55,725  

Subordinated income incentive fees(1)

            10,499     5,774  

Administrative services expenses

    611     1,118     2,218     2,885  

Share transfer agent fees

    658     750     2,066     2,134  

Accounting and administrative fees

    384     384     1,216     994  

Interest expense(2)

    13,648     8,921     35,454     27,200  

Trustees' fees

    244     245     744     757  

Offering costs

        755         1,378  

Other general and administrative expenses

    563     1,392     2,672     3,624  

Total operating expenses

    38,139     33,651     121,973     100,471  

Less: Expense reimbursement from sponsor(3)

    (7,095 )       (25,315 )    

Add: Expense recoupment to sponsor(3)

            2,858      

Net expenses

    31,044     33,651     99,516     100,471  

Net investment income

    70,027     55,731     220,441     175,147  

Realized and unrealized gain/loss

                         

Net realized gain (loss) on investments:

                         

Non-controlled/unaffiliated

    7,271     (118,187 )   (70,244 )   (196,536 )

Non-controlled/affiliated

    (1,060 )   (1,699 )       572  

Net realized gain (loss) on foreign currency

            1      

Net change in unrealized appreciation (depreciation) on investments:

                         

Non-controlled/unaffiliated

    13,176     194,873     (47,179 )   454,465  

Non-controlled/affiliated

    (20,439 )   19,447     (119,904 )   147,788  

Controlled/affiliated

        (3,837 )   (1,531 )   (17,037 )

Net change in unrealized gain (loss) on foreign currency

    (1 )   (2 )   51     12  

Total net realized and unrealized gain (loss)

    (1,053 )   90,595     (238,806 )   389,264  

Net increase (decrease) in net assets resulting from operations

  $ 68,974   $ 146,326   $ (18,365 ) $ 564,411  

Per share information—basic and diluted

                         

Net increase (decrease) in net assets resulting from operations (Earnings per Share)

  $ 0.16   $ 0.35   $ (0.04 ) $ 1.41  

Weighted average shares outstanding

    443,940,981     421,515,796     442,503,872     400,151,400  

(1)
See Note 2 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.

(2)
See Note 8 for a discussion of the Company's financing arrangements.

(3)
See Note 4 for a discussion of expense reimbursements payable to the Company by its investment adviser and affiliates and recoupment of such amounts paid by the Company to its investment adviser and affiliates.

   

See notes to unaudited consolidated financial statements.

2


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Statements of Changes in Net Assets

(in thousands)


 
  Nine Months Ended
September 30,
 
 
  2017   2016  

Operations

             

Net investment income

  $ 220,441   $ 175,147  

Net realized gain (loss) on investments and foreign currency

    (70,243 )   (195,964 )

Net change in unrealized appreciation (depreciation) on investments

    (168,614 )   585,216  

Net change in unrealized gain (loss) on foreign currency

    51     12  

Net increase (decrease) in net assets resulting from operations

    (18,365 )   564,411  

Shareholder distributions(1)

             

Distributions from net investment income

    (234,473 )   (211,989 )

Net decrease in net assets resulting from shareholder distributions

    (234,473 )   (211,989 )

Capital share transactions(2)

             

Issuance of common shares

        313,739  

Reinvestment of shareholder distributions

    140,580     132,928  

Repurchases of common shares

    (88,730 )   (45,151 )

Net increase (decrease) in net assets resulting from capital share transactions

    51,850     401,516  

Total increase (decrease) in net assets

    (200,988 )   753,938  

Net assets at beginning of period

    3,348,894     2,417,861  

Net assets at end of period

  $ 3,147,906   $ 3,171,799  

Accumulated undistributed (distributions in excess of) net investment income(1)

  $ (27,770 ) $ (22,818 )

(1)
See Note 5 for a discussion of the sources of distributions paid by the Company.

(2)
See Note 3 for a discussion of the Company's common share transactions.

   

See notes to unaudited consolidated financial statements.

3


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Statements of Cash Flows
(in thousands)


 
  Nine Months Ended
September 30,
 
 
  2017   2016  

Cash flows from operating activities

             

Net increase (decrease) in net assets resulting from operations

  $ (18,365 ) $ 564,411  

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:

             

Purchases of investments

    (1,591,008 )   (679,004 )

Paid-in-kind interest

    (26,418 )   (24,314 )

Proceeds from sales and repayments of investments

    1,064,392     425,906  

Net realized (gain) loss on investments

    70,244     195,964  

Net change in unrealized (appreciation) depreciation on investments

    168,614     (585,216 )

Accretion of discount

    (17,668 )   (11,514 )

Amortization of deferred financing costs

    3,160     2,355  

Amortization of deferred offering costs

        1,378  

(Increase) decrease in receivable for investments sold and repaid

    (18,266 )   13,497  

(Increase) decrease in income receivable

    (25,873 )   (14,060 )

(Increase) decrease in expense reimbursement due from sponsor(1)

    (7,095 )    

(Increase) decrease in prepaid expenses and other assets

    (102 )   180  

Increase (decrease) in payable for investments purchased

    15,194     8,075  

Increase (decrease) in management fees payable

    1,176     1,748  

Increase (decrease) in subordinated income incentive fees payable

        (12,048 )

Increase (decrease) in administrative services expense payable

    (423 )   (316 )

Increase (decrease) in interest payable(2)

    395     778  

Increase (decrease) in trustees' fees payable

    (6 )   (9 )

Increase (decrease) in other accrued expenses and liabilities

    (418 )   (954 )

Net cash provided by (used in) operating activities

    (382,467 )   (113,143 )

Cash flows from financing activities

             

Issuance of common shares

        320,654  

Reinvestment of shareholder distributions

    140,580     132,928  

Repurchases of common shares

    (88,730 )   (45,151 )

Offering costs incurred

        (3,600 )

Shareholder distributions

    (233,072 )   (212,009 )

Borrowings under credit facilities(2)

    858,263      

Borrowings under repurchase agreement(2)

        16  

Repayments of credit facilities(2)

    (186,928 )   (175,638 )

Repayments of repurchase facility(2)

    (325,000 )    

Deferred financing costs paid

    (2,601 )   (1,607 )

Net cash provided by (used in) financing activities

    162,512     15,593  

Total increase (decrease) in cash

    (219,955 )   (97,550 )

Cash at beginning of period

    317,520     368,867  

Cash at end of period

  $ 97,565   $ 271,317  

Supplemental disclosure

             

State taxes paid

  $ 5   $ 109  

Non-cash purchase of investments

  $ (16,957 ) $ (309,593 )

Non-cash sales of investments

  $ 16,957   $ 309,593  

(1)
See Note 4 for a discussion of expense reimbursements payable to the Company by its investment adviser and affiliates and recoupment of such amounts paid by the Company to its investment adviser and affiliates.

(2)
See Note 8 for a discussion of the Company's financing arrangements. During the nine months ended September 30, 2017 and 2016, the Company paid $26,945 and $15,751, respectively, in interest expense on the credit facilities and $4,954 and $8,316, respectively, in interest expense pursuant to the repurchase agreement.

   

See notes to unaudited consolidated financial statements.

4


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments
As of September 30, 2017
(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—30.0%

                                         

Abaco Energy Technologies LLC

  (g)(j)   Service & Equipment   L+700, 2.5% PIK (2.5% Max PIK)     1.0 % 11/20/20   $ 86,850   $ 83,074   $ 85,112  

Allied Wireline Services, LLC

  (k)(l)   Service & Equipment   L+400, 5.5% PIK (5.5% Max PIK)     1.5 % 2/28/19     113,526     112,957     111,681  

Altus Power America, Inc. 

  (j)(p)   Power   L+750     1.5 % 9/30/21     77,378     77,378     78,442  

Altus Power America, Inc. 

  (e)(p)   Power   L+750     1.5 % 9/30/21     23,872     23,872     24,200  

BL Sand Hills Unit, L.P. 

  (l)   Upstream   Prime+650     3.5 % 12/17/17     40,807     35,439     30,809  

BL Sand Hills Unit, L.P. 

  (e)   Upstream   Prime+650     3.5 % 12/17/17     15,000     13,027     11,325  

Cactus Wellhead, LLC

  (f)(j)   Service & Equipment   L+600     1.0 % 7/31/20     64,867     63,143     63,678  

Cimarron Energy Inc. 

      Service & Equipment   L+1150 (11.5% Max PIK)     1.0 % 12/15/19     24,811     24,811     21,710  

CITGO Holding, Inc. 

  (f)   Downstream   L+850     1.0 % 5/12/18     26,081     26,281     26,375  

Crestwood Holdings LLC

  (f)   Midstream   L+800     1.0 % 6/19/19     29,273     29,341     29,237  

Eagle Midstream Canada Finance Inc. 

  (m)   Midstream   8.5%         9/27/20     175,000     175,000     175,000  

Gulf Finance, LLC

  (f)   Midstream   L+525     1.0 % 8/25/23     18,531     18,056     17,593  

Industrial Group Intermediate Holdings, LLC

      Service & Equipment   L+800     1.3 % 5/31/20     23,040     23,040     23,155  

JSS Holdings, Inc. 

  (l)   Service & Equipment   L+800, 0.0% PIK (2.5% Max PIK)     1.0 % 3/31/23     14,970     14,831     14,979  

JSS Holdings, Inc. 

  (e)   Service & Equipment   L+800, 0.0% PIK (2.5% Max PIK)     1.0 % 3/31/23     2,727     2,727     2,729  

Lusk Operating LLC

  (r)(z)(aa)   Upstream   Prime+500 PIK (8.8% Max PIK)     3.3 % 10/31/17     28,997     27,164      

MB Precision Holdings LLC

      Service & Equipment   L+725, 2.25% PIK (2.25% Max PIK)     1.3 % 1/23/21     13,569     13,569     12,552  

Moxie Liberty LLC

  (j)   Power   L+650     1.0 % 8/21/20     14,457     14,524     12,930  

Panda Temple Power, LLC

  (j)(r)(z)   Power   L+625     1.0 % 3/6/22     9,923     9,782     6,930  

Panda Temple Power, LLC

      Power   L+900     1.0 % 4/28/18     377     377     377  

Power Distribution, Inc. 

      Power   L+725     1.3 % 1/25/23     30,004     30,004     30,304  

Strike, LLC

      Midstream   L+800     1.0 % 5/30/19     7,000     7,000     7,175  

Strike, LLC

  (e)   Midstream   L+800     1.0 % 5/30/19     28,000     27,546     28,700  

Strike, LLC

  (j)   Midstream   L+800     1.0 % 11/30/22     39,218     38,195     39,806  

Swift Worldwide Resources US Holdings Corp. 

  (j)   Service & Equipment   L+1000, 1.0% PIK (1.0% Max PIK)     1.0 % 7/20/21     58,466     58,466     58,612  

UTEX Industries, Inc. 

  (f)   Service & Equipment   L+400     1.0 % 5/21/21     24,272     21,932     21,997  

Warren Resources, Inc. 

  (j)(l)(p)   Upstream   L+900, 1.0% PIK (1.0% Max PIK)     1.0 % 5/22/20     79,034     79,034     77,453  

Warren Resources, Inc. 

  (e)(p)   Upstream   L+900, 1.0% PIK (1.0% Max PIK)     1.0 % 5/22/20     5,590     5,590     5,478  

Total Senior Secured Loans—First Lien

                                1,056,160     1,018,339  

Unfunded Loan Commitments

                                (72,762 )   (72,762 )

Net Senior Secured Loans—First Lien

                                983,398     945,577  

See notes to unaudited consolidated financial statements.

5


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2017
(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—27.7%

                                         

Aethon United BR LP

      Upstream   L+675     1.0 % 9/8/23   $ 85,938   $ 84,651   $ 84,898  

Aethon United BR LP

  (e)   Upstream   L+675     1.0 % 9/8/23     39,063     39,063     38,590  

Arena Energy, LP

  (j)(k)   Upstream   L+900, 4.0% PIK (4.0% Max PIK)     1.0 % 1/24/21     106,579     106,579     104,010  

Ascent Resources—Marcellus, LLC

  (r)(z)   Upstream   L+750     1.0 % 8/4/21     10,000     9,874     725  

Brock Holdings III, Inc. 

  (j)(z)   Service & Equipment   Prime+725         3/16/18     29,605     29,646     15,617  

Chief Exploration & Development LLC

  (f)(j)   Upstream   L+650     1.0 % 5/16/21     32,656     31,813     32,034  

Chisholm Oil and Gas Operating, LLC

  (j)(k)(l)   Upstream   L+800     1.0 % 3/21/24     196,000     196,000     196,608  

Emerald Performance Materials, LLC

  (f)   Downstream   L+775     1.0 % 8/1/22     11,819     11,761     11,838  

Fieldwood Energy LLC

  (f)(j)   Upstream   L+713     1.3 % 9/30/20     33,591     34,107     16,124  

Granite Acquisition, Inc. 

  (f)   Power   L+725     1.0 % 12/19/22     18,694     18,315     18,764  

Gruden Acquisition, Inc. 

  (j)   Service & Equipment   L+850     1.0 % 8/18/23     15,000     14,440     14,281  

Horn Intermediate Holdings, Inc. 

  (j)   Service & Equipment   L+775     1.3 % 10/2/18     50,250     50,250     49,999  

Jonah Energy LLC

      Upstream   L+650     1.0 % 5/12/21     36,523     35,555     36,535  

P2 Upstream Acquisition Co. 

  (f)(j)   Service & Equipment   L+800     1.0 % 4/30/21     42,399     42,025     40,703  

Penn Virginia Holding Corp. 

  (m)   Upstream   L+700     1.0 % 9/29/22     50,000     50,000     50,000  

Talos Production LLC

  (k)(l)   Upstream   11.0%         4/3/22     43,250     40,364     40,925  

Titan Energy Operating, LLC

  (k)(p)   Upstream   2.0%, L+1100 PIK (L+1100 Max PIK)     1.0 % 2/23/20     113,409     99,256     81,167  

UTEX Industries, Inc. 

  (f)(j)   Service & Equipment   L+725     1.0 % 5/20/22     85,192     79,022     76,864  

Total Senior Secured Loans—Second Lien

                                972,721     909,682  

Unfunded Loan Commitment

                                (39,063 )   (39,063 )

Net Senior Secured Loans—Second Lien

                                933,658     870,619  

See notes to unaudited consolidated financial statements.

6


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2017
(in thousands, except share amounts)


 
 
Portfolio Company(a)   Footnotes   Industry   Rate(b)   Floor   Maturity   Principal
Amount(c)
  Amortized
Cost
  Fair
Value(d)
 

Senior Secured Bonds—17.7%

                                         

Black Swan Energy Ltd. 

  (j)(m)   Upstream   9.0%         1/20/24   $ 90,000   $ 90,000   $ 88,875  

CITGO Holding, Inc. 

  (f)   Downstream   10.8%         2/15/20     9,000     9,053     9,765  

CSVC Acquisition Corp. 

  (f)   Service & Equipment   7.8%         6/15/25     30,608     30,608     30,034  

EP Energy LLC

  (f)(h)(m)   Upstream   8.0%         2/15/25     54,880     52,791     42,806  

FourPoint Energy, LLC

  (j)(k)(l)(p)   Upstream   9.0%         12/31/21     235,125     228,910     239,534  

Mirant Mid-Atlantic Trust

  (f)(h)   Power   10.1%         12/30/28     31,752     33,747     30,304  

Ridgeback Resources Inc. 

  (k)(m)(p)   Upstream   12.0%         12/29/20     3,887     3,821     3,887  

Sunnova Energy Corp. 

  (j)(p)   Power   6.0%, 6.0% PIK (6.0% Max PIK)         10/24/18     33,173     33,173     33,173  

Velvet Energy Ltd. 

  (j)(l)(m)   Upstream   9.0%         10/5/23     80,000     80,000     79,416  

Total Senior Secured Bonds

                                562,103     557,794  

Subordinated Debt—42.8%

                                         

Alta Mesa Holdings, LP

  (f)(h)(o)   Upstream   7.9%         12/15/24     20,425     20,425     22,072  

Archrock Partners, L.P. 

  (h)(m)(o)   Midstream   6.0%         4/1/21     8,555     7,661     8,427  

Archrock Partners, L.P. 

  (h)(m)   Midstream   6.0%         10/1/22     14,283     12,595     14,015  

Ascent Resources Utica Holdings, LLC

  (f)(h)(j)   Upstream   10.0%         4/1/22     225,000     225,000     242,719  

Bellatrix Exploration Ltd. 

  (f)(h)(m)(o)   Upstream   8.5%         5/15/20     60,120     59,159     56,269  

Brand Energy & Infrastructure Services, Inc. 

  (f)(h)   Service & Equipment   8.5%         7/15/25     44,759     44,759     48,508  

Canadian International Oil Corp. 

  (m)   Upstream   9.0%         7/10/22     100,000     97,082     98,500  

Canbriam Energy Inc. 

  (f)(h)(j)(m)(o)   Upstream   9.8%         11/15/19     115,200     112,990     118,440  

Compressco Partners, LP

  (f)(h)(o)   Service & Equipment   7.3%         8/15/22     20,050     19,923     18,534  

Covey Park Energy LLC

  (h)(o)   Upstream   7.5%         5/15/25     8,333     8,333     8,723  

Dynegy Finance I/II Inc. 

  (h)(m)(o)   Power   7.6%         11/1/24     24,542     23,825     25,462  

Eclipse Resources Corp. 

  (f)(h)(m)(o)   Upstream   8.9%         7/15/23     62,745     57,307     64,296  

EP Energy LLC

  (h)(m)(o)   Upstream   9.4%         5/1/20     48,970     44,786     40,974  

EP Energy LLC

  (h)(m)   Upstream   6.4%         6/15/23     27,095     20,263     16,797  

EV Energy Partners, L.P. 

  (f)(h)(o)   Upstream   8.0%         4/15/19     48,814     39,274     17,756  

Extraction Oil & Gas Holdings, LLC

  (h)(o)   Upstream   7.9%         7/15/21     37,500     37,500     39,609  

Genesis Energy, L.P. 

  (f)(m)   Midstream   6.8%         8/1/22     23,540     23,012     24,092  

See notes to unaudited consolidated financial statements.

7


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2017
(in thousands, except share amounts)


 
 
Portfolio Company(a)   Footnotes   Industry   Rate(b)   Floor   Maturity   Principal
Amount(c)
  Amortized
Cost
  Fair
Value(d)
 

Genesis Energy, L.P. 

  (f)(m)   Midstream   6.0%         5/15/23   $ 15,280   $ 14,226   $ 15,204  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         1/30/25     818     818     832  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         4/30/25     5,199     5,199     5,289  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         9/3/25     1,074     1,074     1,093  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         9/29/25     1,011     1,011     1,029  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         12/2/26     889     889     905  

Global Partners L.P. 

  (f)(h)(m)(o)   Midstream   6.3%         7/15/22     69,435     69,282     70,650  

Global Partners L.P. 

  (f)(m)   Midstream   7.0%         6/15/23     2,824     2,453     2,862  

Great Western Petroleum, LLC

  (f)(h)(o)   Upstream   9.0%         9/30/21     35,830     35,710     36,385  

Gulfport Energy Corporation

  (h)(m)   Upstream   6.0%         10/15/24     10,000     10,000     10,099  

Jupiter Resources Inc. 

  (h)(m)   Upstream   8.5%         10/1/22     76,125     72,252     54,671  

Lonestar Resources America Inc. 

  (f)(h)   Upstream   8.8%         4/15/19     24,200     24,033     23,625  

Martin Midstream Partners L.P. 

  (f)(h)(m)(o)   Midstream   7.3%         2/15/21     24,660     24,018     25,210  

Moss Creek Resources, LLC

  (l)   Upstream   L+800     1.5 % 4/7/22     65,000     65,000     65,796  

ONEOK, Inc. 

  (f)(m)   Midstream   7.5%         9/1/23     12,600     11,763     15,124  

SRC Energy Inc. 

  (j)(m)   Upstream   9.0%         6/14/21     40,000     40,000     41,700  

Tenrgys, LLC

  (j)(k)   Upstream   L+900     2.5 % 12/23/18     75,000     75,000     55,688  

Whiting Petroleum Corp. 

  (h)(m)(o)   Upstream   5.0%         3/15/19     11,685     10,909     11,732  

Whiting Petroleum Corp. 

  (f)(m)   Upstream   5.8%         3/15/21     7,000     6,444     6,882  

WildHorse Resource Development Corporation

  (h)(m)(o)   Upstream   6.9%         2/1/25     10,000     9,928     9,992  

Zachry Holdings, Inc. 

  (f)   Service & Equipment   7.5%         2/1/20     23,925     23,930     24,707  

Total Subordinated Debt

                                1,357,833     1,344,668  

See notes to unaudited consolidated financial statements.

8


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2017
(in thousands, except share amounts)


 
 
Portfolio Company(a)   Footnotes   Industry    
   
   
  Number of
Shares
  Amortized
Cost
  Fair
Value(d)
 

Equity/Other—16.6%(n)

                                         

Abaco Energy Technologies LLC, Common Equity

  (r)   Service & Equipment                   6,944,444   $ 6,944   $ 521  

Abaco Energy Technologies LLC, Preferred Equity

  (r)   Service & Equipment                   28,942,003     1,447     2,894  

Allied Downhole Technologies, LLC, Common Equity

  (k)(q)(r)   Service & Equipment                   7,431,113     7,223     2,229  

Allied Downhole Technologies, LLC, Warrants, 2/28/2019

  (k)(q)(r)   Service & Equipment                   5,344,680     1,865     1,603  

Altus Power America Holdings, LLC, Common Equity

  (k)(p)(r)   Power                   12,474,205     12,474     11,850  

Altus Power America Holdings, LLC, Preferred Equity

  (k)(p)(s)   Power                   25,792,683     25,793     25,825  

AP Exhaust Holdings, LLC, Class A1 Common Units

  (k)(q)(r)   Service & Equipment                   8          

AP Exhaust Holdings, LLC, Class A1 Preferred Units

  (k)(q)(r)   Service & Equipment                   803     895     895  

Ascent Resources Utica Holdings, LLC, Common Equity

  (r)(t)   Upstream                   148,692,909     44,700     37,173  

BL Sand Hills Unit, L.P., Net Profits Interest

  (r)(v)   Upstream                   N/A     5,180      

BL Sand Hills Unit, L.P., Overriding Royalty Interest

  (v)   Upstream                   N/A     740     35  

Chisholm Oil and Gas, LLC, Series A Units

  (i)(r)   Upstream                   11,472,461     11,472     11,243  

Cimarron Energy Holdco Inc., Common Equity

  (r)   Service & Equipment                   3,675,487     3,323      

Extraction Oil & Gas, Inc., Common Equity

  (k)(r)   Upstream                   1,140,637     11,250     17,554  

FourPoint Energy, LLC, Common Equity, Class C-II-A Units

  (k)(p)(q)(r)   Upstream                   66,000     66,000     22,770  

FourPoint Energy, LLC, Common Equity, Class D Units

  (k)(p)(q)(r)   Upstream                   12,374     8,176     4,300  

FourPoint Energy, LLC, Common Equity, Class E-II Units

  (i)(p)(r)   Upstream                   274,688     68,672     92,020  

FourPoint Energy, LLC, Common Equity, Class E-III Units

  (i)(k)(p)(q)(r)   Upstream                   222,750     55,688     76,292  

Global Jet Capital Holdings, LP, Preferred Equity

  (r)   Service & Equipment                   2,785,562     2,786     3,203  

Industrial Group Intermediate Holdings, LLC, Common Equity

  (k)(q)(r)   Service & Equipment                   472,755     473     733  

JSS Holdco, LLC, Net Profits Interest

  (r)   Service & Equipment                   N/A         67  

Lusk Operating LLC, Common Equity

  (r)(u)(aa)   Upstream                   2,000          

MB Precision Investment Holdings LLC, Class A-2 Units

  (k)(q)(r)   Service & Equipment                   490,213     490      

PDI Parent LLC, Common Equity

  (r)   Power                   1,384,615     1,385     1,454  

Ridgeback Resources Inc., Common Equity

  (k)(l)(m)(p)(r)(w)   Upstream                   9,599,928     58,985     55,635  

SandRidge Energy, Inc., Common Equity

  (h)(l)(m)(o)(r)   Upstream                   1,009,878     22,542     20,288  

Sunnova Energy Corp., Common Equity

  (p)(r)   Power                   6,667,368     25,026     34,737  

Sunnova Energy Corp., Preferred Equity

  (p)(r)   Power                   578,468     3,080     3,077  

Swift Worldwide Resources Holdco Limited, Common Equity

  (m)(r)(x)   Service & Equipment                   3,750,000     6,029     1,875  

Synergy Offshore LLC, Preferred Equity

  (k)(r)(y)(z)   Upstream                   71,131     93,009     48,654  

TE Holdings, LLC, Common Equity

  (i)(r)   Upstream                   2,225,950     18,921     6,678  

TE Holdings, LLC, Preferred Equity

  (l)(r)   Upstream                   1,475,531     14,734     14,018  

Titan Energy, LLC, Common Equity

  (k)(p)(r)   Upstream                   555,496     17,554     2,500  

Total Safety Holdings, LLC, Common Equity

  (j)(r)   Service & Equipment                   12,897     4,707     4,595  

Warren Resources, Inc., Common Equity

  (l)(p)(r)   Upstream                   4,415,749     20,754     15,014  

White Star Petroleum Holdings, LLC, Common Equity

  (i)(r)   Upstream                   4,867,084     4,137     3,894  

Total Equity/Other

                                626,454     523,626  

TOTAL INVESTMENTS—134.8%

                              $ 4,463,446     4,242,284  

LIABILITIES IN EXCESS OF OTHER ASSETS—(34.8%)

                                      (1,094,378 )

NET ASSETS—100.0%

                                    $ 3,147,906  

See notes to unaudited consolidated financial statements.

9


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)

As of September 30, 2017
(in thousands, except share amounts)


 
 

            

(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 September 30, 2017, the three-month London Interbank Offered Rate, or LIBOR or 'L,' was 1.33% and the U.S. Prime Lending Rate, or Prime, was 4.25%. PIK means paid-in-kind.
(c)
Denominated in U.S. dollars, unless otherwise noted.
(d)
Fair value determined by the Company's board of trustees (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 FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8).
(g)
Position or portion thereof unsettled as of September 30, 2017.
(h)
Security or portion thereof held within Berwyn 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 Berwyn 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).
(i)
Security held within FS Energy Investments, LLC, a wholly-owned subsidiary of the Company.
(j)
Security or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan facility with Goldman Sachs Bank USA (see Note 8).
(k)
Security or portion thereof held within Foxfields Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan facility with Fortress Credit Co LLC (see Note 8).
(l)
Security or portion thereof held within Bryn Mawr Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Barclays Bank PLC (see Note 8).
(m)
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 a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of September 30, 2017, 71.7% of the Company's total assets represented qualifying assets.
(n)
Listed investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.
(o)
Security or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8). As of September 30, 2017, the fair value of securities rehypothecated by BNP was $241,320.
(p)
Under the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's voting securities and generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of September 30, 2017, the Company held investments in portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control". The following table presents certain information with respect to such portfolio companies for the nine months ended September 30, 2017:

See notes to unaudited consolidated financial statements.

10


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2017
(in thousands, except share amounts)


 
 
Portfolio Company   Fair Value at
December 31,
2016
  Purchases,
Paid-in-Kind
Interest and
Other
  Sales,
Repayments
and Other
  Accretion of
Discount
  Net Change
in Unrealized
Appreciation
(Depreciation)
  Fair Value at
September 30,
2017
  Interest
Income(3)
  Fee
Income(3)
 

Senior Secured LoansFirst Lien

                                                 

Altus Power America, Inc.(1)

  $ 73,294   $ 5,433   $   $   $ 43   $ 78,770   $ 5,326   $  

Sunnova Asset Portfolio 5 Holdings, LLC

    151,148         (149,652 )   2,217     (3,713 )       6,992      

Warren Resources, Inc.(2)

    78,437     597             (1,693 )   77,341     6,651      

Senior Secured LoansSecond Lien

                                                 

Titan Energy Operating, LLC

    85,427     9,000     (332 )   3,454     (16,382 )   81,167     23,114      

Senior Secured Bonds

                                                 

FourPoint Energy, LLC

    240,709             1,051     (2,226 )   239,534     16,294      

Ridgeback Resources Inc. 

    3,887             12     (12 )   3,887     353      

Sunnova Energy Corp. 

        33,173                 33,173     2,089     656  

Equity/Other

                                                 

Altus Power America Holdings, LLC, Common Equity

    12,474                 (624 )   11,850          

Altus Power America Holdings, LLC, Preferred Equity

    23,982     1,811             32     25,825     2,663      

FourPoint Energy, LLC, Common Equity, Class C-II-A Units

    31,845                 (9,075 )   22,770          

FourPoint Energy, LLC, Common Equity, Class D Units

    6,032                 (1,732 )   4,300          

FourPoint Energy, LLC, Common Equity, Class E-II Units

    125,670                 (33,650 )   92,020          

FourPoint Energy, LLC, Common Equity, Class E-III Units

    107,477                 (31,185 )   76,292          

Ridgeback Resources Inc., Common Equity

    58,985                 (3,350 )   55,635          

Sunnova Energy Corp., Common Equity

    36,204                 (1,467 )   34,737          

Sunnova Energy Corp., Preferred Equity

    3,141                 (64 )   3,077          

Titan Energy, LLC, Common Equity

    13,332                 (10,832 )   2,500          

Warren Resources, Inc., Common Equity

    18,988                 (3,974 )   15,014          

Total

  $ 1,071,032   $ 50,014   $ (149,984 ) $ 6,734   $ (119,904 ) $ 857,892   $ 63,482   $ 656  

            

    (1)
    Security includes a partially unfunded commitment with an amortized cost of $23,872 and a fair value of $24,200.
    (2)
    Security includes a partially unfunded commitment with an amortized cost of $5,590 and a fair value of $5,478.
    (3)
    Interest and fee income presented for the full nine months ended September 30, 2017.

See notes to unaudited consolidated financial statements.

11


Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2017
(in thousands, except share amounts)


 
 
(q)
Security held within FSEP Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.
(r)
Security is non-income producing.
(s)
Security is held within EP Altus Investments, LLC, a wholly-owned subsidiary of Foxfields Funding LLC.
(t)
Security held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.
(u)
Security held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company.
(v)
Security held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company.
(w)
Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of September 30, 2017.
(x)
Investment denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of September 30, 2017.
(y)
Security held within EP Synergy Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.
(z)
Security was on non-accrual status as of September 30, 2017.
(aa)
Under the 1940 Act, the Company generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of September 30, 2017, the Company held an investment in one portfolio company of which it is deemed to be an "affiliated person" of and deemed to "control". The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an "affiliated person" of and deemed to "control" for the nine months ended September 30, 2017:
Portfolio Company   Fair Value at
December 31,
2016
  Purchases,
Paid-in-Kind
Interest and
Other
  Sales,
Repayments
and Other
  Accretion of
Discount
  Net
Realized
Gain (Loss)
  Net Change
in Unrealized
Appreciation
(Depreciation)
  Fair Value at
September 30,
2017
   
   
 

Senior Secured Loans—First Lien

                                                       

Lusk Operating LLC

  $ 1,031   $ 1,500   $           $ (2,531 )                

Equity/Other

                                                       

Lusk Operating LLC, Common Equity

            (1,000 )           1,000                  

Total

  $ 1,031   $ 1,500   $ (1,000 )         $ (1,531 )                

See notes to unaudited consolidated financial statements.

12


Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments
As of December 31, 2016
(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—27.2%

                                         

Abaco Energy Technologies LLC

  (g)(i)(j)   Service & Equipment   L+700, 2.5% PIK (2.5% Max PIK)     1.0 % 11/20/20   $ 60,455   $ 58,038   $ 45,795  

Allied Wireline Services, LLC

  (g)(i)(k)(l)   Service & Equipment   L+400, 5.5% PIK (5.5% Max PIK)     1.5 % 2/28/19     108,920     108,099     106,877  

Alon USA Partners, L.P. 

  (g)(i)(j)(m)   Downstream   L+800     1.3 % 11/26/18     11,063     11,199     11,035  

Altus Power America, Inc. 

  (j)(p)   Power   L+750     1.5 % 9/30/21     71,945     71,945     73,294  

Altus Power America, Inc. 

  (e)(p)   Power   L+750     1.5 % 9/30/21     29,305     29,305     29,854  

AP Exhaust Acquisition, LLC

  (g)(l)   Service & Equipment   L+775     1.5 % 1/16/21     15,811     15,811     14,309  

BL Sand Hills Unit, L.P. 

  (l)   Upstream   Prime+650     3.5 % 12/17/17     40,821     35,451     38,321  

BL Sand Hills Unit, L.P. 

  (e)   Upstream   Prime+650     3.5 % 12/17/17     15,000     13,027     14,081  

Cactus Wellhead, LLC

  (g)(i)(j)   Service & Equipment   L+600     1.0 % 7/31/20     56,392     54,715     51,458  

Cimarron Energy Inc. 

  (g)   Service & Equipment   L+775, 3.8% PIK (3.8% Max PIK)     1.0 % 12/15/19     23,664     23,664     24,019  

CITGO Holding, Inc. 

  (f)   Downstream   L+850     1.0 % 5/12/18     16,822     16,947     17,109  

Crestwood Holdings LLC

  (f)(g)   Midstream   L+800     1.0 % 6/19/19     29,703     29,794     29,146  

EnergySolutions, LLC

  (i)(j)   Service & Equipment   L+575     1.0 % 5/29/20     18,193     17,965     18,375  

Gulf Finance, LLC

  (f)(i)   Midstream   L+525     1.0 % 8/25/23     18,953     18,407     19,095  

Industrial Group Intermediate Holdings, LLC

  (i)   Service & Equipment   L+800     1.3 % 5/31/20     22,240     22,240     22,573  

Lusk Operating LLC

  (r)(z)(aa)   Upstream   Prime+500 PIK (8.8% Max PIK)     3.3 % 1/31/17     27,497     25,664     1,031  

MB Precision Holdings LLC

  (g)   Service & Equipment   L+725, 1.5% PIK (1.5% Max PIK)     1.3 % 1/23/20     12,853     12,853     12,355  

Moxie Liberty LLC

  (g)(j)   Power   L+650     1.0 % 8/21/20     32,155     32,241     31,794  

P2 Upstream Acquisition Co. 

  (f)   Service & Equipment   L+400     1.0 % 10/30/20     5,101     4,801     4,865  

Panda Temple Power, LLC

  (j)   Power   L+625     1.0 % 3/6/22     9,825     9,677     8,744  

Panda Temple Power II, LLC

  (g)(j)   Power   L+600     1.3 % 4/3/19     27,531     27,761     25,604  

ProPetro Services, Inc. 

  (i)   Service & Equipment   L+625     1.0 % 9/30/19     10,839     10,833     9,837  

Strike, LLC

  (e)   Midstream   L+800     1.0 % 5/30/19     35,000     34,482     34,475  

Strike, LLC

  (i)(j)(bb)   Midstream   L+800     1.0 % 11/30/22     52,500     50,937     51,975  

Sunnova Asset Portfolio 5 Holdings, LLC

  (j)(l)(p)   Power   12.0%, 0.0% PIK (12.0% Max PIK)         11/14/21     149,652     147,435     151,148  

Swift Worldwide Resources US Holdings Corp. 

  (g)(j)   Service & Equipment   L+1100     1.0 % 7/20/21     58,614     58,614     58,614  

UTEX Industries, Inc. 

  (f)   Service & Equipment   L+400     1.0 % 5/21/21     5,432     4,275     5,085  

Warren Resources, Inc. 

  (k)(p)   Upstream   L+900, 1.0% PIK (1.0% Max PIK)     1.0 % 5/22/20     78,437     78,437     78,437  

Warren Resources, Inc. 

  (e)(p)   Upstream   L+900, 1.0% PIK (1.0% Max PIK)     1.0 % 5/22/20     5,590     5,590     5,590  

Total Senior Secured Loans—First Lien

                                1,030,207     994,895  

Unfunded Loan Commitments

                                (82,404 )   (82,404 )

Net Senior Secured Loans—First Lien

                                947,803     912,491  

See notes to unaudited consolidated financial statements.

13


Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(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—26.1%

                                         

Alison US LLC

  (f)(j)(m)   Service & Equipment   L+850     1.0 % 8/29/22   $ 23,722   $ 22,591   $ 23,011  

Ameriforge Group Inc. 

  (g)   Service & Equipment   L+750     1.3 % 12/21/20     35,950     36,352     5,707  

AP Exhaust Acquisition, LLC

      Service & Equipment   12.0% PIK (12.0% Max PIK)         9/28/21     3,763     3,763     3,279  

Arena Energy, LP

  (i)(k)   Upstream   L+900, 4.0% PIK (4.0% Max PIK)     1.0 % 1/24/21     103,410     103,410     103,927  

Ascent Resources—Marcellus, LLC

      Upstream   L +750     1.0 % 8/4/21     10,000     9,874     1,325  

Ascent Resources—Utica, LLC

  (g)(j)(k)(l)   Upstream   L+950     1.5 % 9/30/18     285,257     284,490     287,753  

Brock Holdings III, Inc. 

  (g)(j)   Service & Equipment   L+825     1.8 % 3/16/18     29,605     29,699     28,273  

Chief Exploration & Development LLC

  (f)(i)   Upstream   L+650     1.3 % 5/16/21     36,576     35,139     35,935  

Emerald Performance Materials, LLC

  (f)   Downstream   L+775     1.0 % 8/1/22     11,819     11,754     11,834  

EP Energy, LLC

  (f)(m)   Upstream   L+875     1.0 % 6/30/21     17,209     17,379     18,047  

Fieldwood Energy LLC

      Upstream   L+713     1.3 % 9/30/20     41,047     41,788     29,246  

Granite Acquisition, Inc. 

  (f)   Power   L+725     1.0 % 12/19/22     20,150     19,718     19,445  

Gruden Acquisition, Inc. 

  (j)   Service & Equipment   L+850     1.0 % 8/18/23     15,000     14,372     11,875  

Horn Intermediate Holdings, Inc. 

  (g)(j)   Service & Equipment   L+775     1.3 % 10/2/18     50,250     50,250     50,250  

Jonah Energy LLC

  (f)(i)   Upstream   L+650     1.0 % 5/12/21     34,293     33,325     32,579  

Neff Rental LLC

  (f)(j)   Service & Equipment   L+625     1.0 % 6/9/21     33,789     33,089     33,657  

Oxbow Carbon LLC

  (g)   Midstream   L+700     1.0 % 1/17/20     15,000     14,927     14,738  

P2 Upstream Acquisition Co. 

  (f)(g)(j)   Service & Equipment   L+800     1.0 % 4/30/21     34,099     34,144     31,243  

Titan Energy Operating, LLC

  (k)(p)   Upstream   2.0%, L+900 PIK (L+900 Max PIK)     1.0 % 2/23/20     104,409     87,134     85,427  

UTEX Industries, Inc. 

  (f)(j)   Service & Equipment   L+725     1.0 % 5/20/22     36,192     36,227     25,696  

W3 Co. 

  (g)(j)   Service & Equipment   L+800     1.3 % 9/13/20     14,795     14,943     6,695  

WP CPP Holdings, LLC

  (g)(j)   Service & Equipment   L+775     1.0 % 4/30/21     14,680     14,394     13,927  

Total Senior Secured Loans—Second Lien

                                948,762     873,869  

See notes to unaudited consolidated financial statements.

14


Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)


 
 
Portfolio Company(a)   Footnotes   Industry   Rate(b)   Floor   Maturity   Principal
Amount(c)
  Amortized
Cost
  Fair
Value(d)
 

Senior Secured Bonds—11.9%

                                         

Calpine Corp. 

  (f)(m)   Power   5.3%         6/1/26   $ 19,800   $ 19,809   $ 19,508  

Cheniere Corpus Christi Holdings, LLC

  (f)   Midstream   7.0%         6/30/24     4,000     4,134     4,357  

CITGO Holding, Inc. 

  (f)   Downstream   10.8%         2/15/20     9,000     9,063     9,645  

EP Energy LLC

  (h)(m)   Upstream   8.0%         11/29/24     10,000     10,000     10,780  

FourPoint Energy, LLC

  (j)(k)(l)(p)   Upstream   9.0%         12/31/21     235,125     227,859     240,709  

Mirant Mid-Atlantic Trust

  (f)(h)   Power   10.1%         12/30/28     31,752     33,838     26,936  

Ridgeback Resources Inc. 

  (k)(m)(p)   Upstream   12.0%         12/29/20     3,887     3,809     3,887  

Velvet Energy Ltd. 

  (j)(l)(m)   Upstream   9.0%         10/5/23     80,000     80,000     81,792  

Total Senior Secured Bonds

                                388,512     397,614  

Subordinated Debt—31.2%

                                         

Alta Mesa Holdings, LP

  (h)   Upstream   7.9%         12/15/24     20,425     20,425     21,242  

Archrock Partners, L.P. 

  (h)(m)   Midstream   6.0%         4/1/21     8,555     7,505     8,384  

Archrock Partners, L.P. 

  (h)(m)   Midstream   6.0%         10/1/22     14,283     12,400     13,881  

Bellatrix Exploration Ltd. 

  (f)(h)(m)   Upstream   8.5%         5/15/20     53,590     52,560     52,753  

Brand Energy & Infrastructure Services, Inc. 

  (f)(h)   Service & Equipment   8.5%         12/1/21     43,311     42,479     44,502  

Calpine Corp. 

  (f)(m)   Power   5.8%         1/15/25     5,100     5,093     4,941  

Canbriam Energy Inc. 

  (f)(h)(j)(m)   Upstream   9.8%         11/15/19     115,200     112,341     121,536  

Compressco Partners, LP

  (f)(h)(m)   Service & Equipment   7.3%         8/15/22     20,050     19,908     18,972  

Crestwood Equity Partners L.P. 

  (f)(m)   Midstream   6.1%         3/1/22     5,500     5,500     5,641  

Dynegy Finance I/II Inc. 

  (f)(m)   Power   7.6%         11/1/24     22,542     21,968     20,894  

Dynegy Finance I/II Inc. 

  (f)(m)   Power   8.0%         1/15/25     12,000     11,995     11,243  

Eclipse Resources Corp. 

  (f)(h)(m)(o)   Upstream   8.9%         7/15/23     59,745     53,883     62,334  

EP Energy LLC

  (h)(m)   Upstream   9.4%         5/1/20     19,970     16,006     18,440  

EV Energy Partners, L.P. 

  (h)(m)   Upstream   8.0%         4/15/19     48,814     36,060     34,609  

Extraction Oil & Gas Holdings, LLC

  (h)(o)   Upstream   7.9%         7/15/21     37,500     37,500     40,313  

Genesis Energy, L.P. 

  (f)(m)   Midstream   6.8%         8/1/22     23,540     22,949     24,473  

See notes to unaudited consolidated financial statements.

15


Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)


 
 
Portfolio Company(a)   Footnotes   Industry   Rate(b)   Floor   Maturity   Principal
Amount(c)
  Amortized
Cost
  Fair
Value(d)
 

Genesis Energy, L.P. 

  (f)(m)   Midstream   6.0%         5/15/23   $ 15,280   $ 14,116   $ 15,599  

GenOn Energy, Inc. 

  (h)   Power   7.9%         6/15/17     4,000     3,945     2,868  

GenOn Energy, Inc. 

  (h)   Power   9.9%         10/15/20     32,698     34,010     22,419  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         1/30/25     732     732     727  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         4/30/25     4,649     4,649     4,620  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         9/3/25     961     961     955  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         9/29/25     904     904     899  

Global Jet Capital Inc. 

      Service & Equipment   15.0% PIK (15.0% Max PIK)         12/2/26     795     795     795  

Global Partners L.P. 

  (f)(h)(m)(o)   Midstream   6.3%         7/15/22     69,435     69,264     66,831  

Global Partners L.P. 

  (h)(m)(o)   Midstream   7.0%         6/15/23     2,824     2,419     2,744  

Great Western Petroleum, LLC

  (f)(h)   Upstream   9.0%         9/30/21     23,830     23,692     24,932  

Gulfport Energy Corp. 

  (f)(m)   Upstream   6.0%         10/15/24     10,000     10,000     10,205  

Jupiter Resources Inc. 

  (h)(m)   Upstream   8.5%         10/1/22     71,125     67,772     61,760  

Laredo Petroleum, Inc. 

  (f)(m)   Upstream   7.4%         5/1/22     25,384     25,093     26,375  

Lonestar Resources America Inc. 

  (h)   Upstream   8.8%         4/15/19     21,500     21,566     19,780  

Martin Midstream Partners L.P. 

  (f)(h)(m)   Midstream   7.3%         2/15/21     29,660     29,102     29,438  

NRG Energy, Inc. 

  (f)(m)   Power   7.3%         5/15/26     28,000     27,823     27,965  

ONEOK, Inc. 

  (f)(h)(m)   Midstream   7.5%         9/1/23     28,000     26,887     31,910  

SandRidge Energy, Inc. 

  (l)(m)(r)   Upstream   0.0%         10/4/20     10,550     14,060     13,245  

Synergy Resources Corp. 

  (j)(m)   Upstream   9.0%         6/14/21     40,000     40,000     41,700  

Talos Production LLC

  (h)   Upstream   9.8%         2/15/18     43,250     43,249     24,004  

Tenrgys, LLC

  (j)   Upstream   L+900     2.5 % 12/23/18     75,000     75,000     73,125  

Whiting Petroleum Corp. 

  (h)(m)   Upstream   5.0%         3/15/19     11,685     10,552     11,739  

Zachry Holdings, Inc. 

  (f)   Service & Equipment   7.5%         2/1/20     23,925     23,934     24,374  

Total Subordinated Debt

                                1,049,097     1,043,167  

See notes to unaudited consolidated financial statements.

16


Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)


 
 
Portfolio Company(a)   Footnotes   Industry    
   
   
  Number of
Shares
  Amortized
Cost
  Fair
Value(d)
 

Equity/Other—20.4%(n)

                                         

Abaco Energy Technologies LLC, Common Equity

  (r)   Service & Equipment                   6,944,444   $ 6,944   $ 347  

Abaco Energy Technologies LLC, Preferred Equity

  (r)   Service & Equipment                   28,942,003     1,447     1,447  

Allied Downhole Technologies, LLC, Common Equity

  (k)(q)(r)   Service & Equipment                   7,431,113     7,223     5,945  

Allied Downhole Technologies, LLC, Warrants, 2/28/2019

  (k)(q)(r)   Service & Equipment                   5,344,680     1,865     4,276  

Altus Power America Holdings, LLC, Common Equity

  (p)(r)   Power                   12,474,205     12,474     12,474  

Altus Power America Holdings, LLC, Preferred Equity

  (p)(s)   Power                   23,981,707     23,982     23,982  

AP Exhaust Holdings, LLC, Common Equity

  (k)(q)(r)   Service & Equipment                   811     811     41  

Ascent Resources Utica Holdings, LLC, Common Equity

  (r)(t)   Upstream                   148,692,909     44,700     33,307  

BL Sand Hills Unit, L.P., Net Profits Interest

  (r)(v)   Upstream                   N/A     5,180     570  

BL Sand Hills Unit, L.P., Overriding Royalty Interest

  (v)   Upstream                   N/A     740     212  

Cimarron Energy Holdco Inc., Common Equity

  (r)   Service & Equipment                   3,201,631     2,991     1,921  

Extraction Oil & Gas, Inc. Common Equity

  (k)(r)   Upstream                   1,140,637     11,250     22,858  

Fortune Creek Co-Invest I L.P., LP Interest

  (m)(r)(w)(z)   Midstream                   N/A     16,697     553  

FourPoint Energy, LLC, Common Equity, Class C-II-A Units

  (k)(p)(q)(r)   Upstream                   66,000     66,000     31,845  

FourPoint Energy, LLC, Common Equity, Class D Units

  (k)(p)(q)(r)   Upstream                   12,374     8,176     6,032  

FourPoint Energy, LLC, Common Equity, Class E-II Units

  (p)(r)(cc)   Upstream                   274,688     68,672     125,670  

FourPoint Energy, LLC, Common Equity, Class E-III Units

  (k)(p)(q)(r)(cc)   Upstream                   222,750     55,688     107,477  

Global Jet Capital Holdings, LP, Preferred Equity

  (r)   Service & Equipment                   2,785,562     2,786     2,786  

Industrial Group Intermediate Holdings, LLC, Common Equity

  (k)(q)(r)   Service & Equipment                   472,755     473     827  

Lusk Operating LLC, Common Equity

  (r)(u)(aa)   Upstream                   2,000     1,000      

MB Precision Investment Holdings LLC, Class A-2 Units

  (k)(q)(r)   Service & Equipment                   490,213     490     98  

Ridgeback Resources Inc., Common Equity

  (k)(l)(m)(p)(r)(w)   Upstream                   9,599,928     58,985     58,985  

SandRidge Energy, Inc., Common Equity

  (h)(m)(o)(r)   Upstream                   447,491     11,187     10,538  

Summit Midstream Partners, LLC, Preferred Equity

  (l)   Midstream                   24,830     24,830     24,955  

Sunnova Energy Corp., Common Equity

  (p)(r)   Power                   6,667,368     25,026     36,204  

Sunnova Energy Corp., Preferred Equity

  (p)(r)   Power                   578,468     3,080     3,141  

Swift Worldwide Resources Holdco Limited, Common Equity

  (m)(r)(x)   Service & Equipment                   3,750,000     6,029     1,875  

Synergy Offshore LLC, Preferred Equity

  (k)(y)   Upstream                   66,250     83,988     89,040  

TE Holdings, LLC, Common Equity

  (r)(cc)   Upstream                   2,225,950     18,921     16,695  

TE Holdings, LLC, Preferred Equity

  (r)   Upstream                   1,475,531     14,734     22,133  

Titan Energy, LLC, Common Equity

  (k)(p)(r)   Upstream                   555,496     17,554     13,332  

Warren Resources, Inc., Common Equity

  (l)(p)(r)   Upstream                   4,415,749     20,754     18,988  

White Star Petroleum Holdings, LLC, Common Equity

  (r)(cc)   Upstream                   4,867,084     4,137     4,745  

Total Equity/Other

                                628,814     683,299  

TOTAL INVESTMENTS—116.8%

                              $ 3,962,988     3,910,440  

LIABILITIES IN EXCESS OF OTHER ASSETS—(16.8%)

                                      (561,546 )

NET ASSETS—100.0%

                                    $ 3,348,894  

See notes to unaudited consolidated financial statements.

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FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)


 
 

(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, 2016, the three-month London Interbank Offered Rate, or LIBOR or 'L,' was 1.00% and the U.S. Prime Lending Rate, or Prime, was 3.75%. PIK means paid-in-kind.
(c)
Denominated in U.S. dollars, unless otherwise noted.
(d)
Fair value determined by the Company's board of trustees (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 FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank AG, New York Branch (see Note 8).
(g)
Security or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Natixis, New York Branch (see Note 8).
(h)
Security or portion thereof held within Berwyn 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 Berwyn 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).
(i)
Security or portion thereof held within Wayne Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Wells Fargo Securities, LLC (see Note 8).
(j)
Security or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the repurchase transaction with Goldman Sachs Bank USA (see Note 8).
(k)
Security or portion thereof held within Foxfields Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan facility with Fortress Credit Co LLC (see Note 8).
(l)
Security or portion thereof held within Bryn Mawr Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Barclays Bank PLC (see Note 8).
(m)
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 a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of December 31, 2016, 77.1% of the Company's total assets represented qualifying assets.
(n)
Listed investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.
(o)
Security or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8). As of December 31, 2016, the fair value of securities rehypothecated by BNP was $106,488.

See notes to unaudited consolidated financial statements.

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FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)


 
 
(p)
Under the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's voting securities and generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2016, the Company held investments in portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control". The following table presents certain information with respect to such portfolio companies for the year ended December 31, 2016:
Portfolio Company   Fair Value at
December 31,
2015
  Purchases,
Paid-in-Kind
Interest and
Other
  Sales,
Repayments
and Other
  Accretion of
Discount
  Net
Realized
Gain (Loss)
  Net Change
in Unrealized
Appreciation
(Depreciation)
  Fair Value at
December 31,
2016
  Interest
Income
  Fee
Income
 

Senior Secured Loans—First Lien

                                                       

Altus Power America, Inc. 

      $ 88,820   $ (16,875 )         $ 1,349   $ 73,294   $ 5,835      

Sunnova Asset Portfolio 5 Holdings, LLC

      $ 258,383   $ (114,519 ) $ 1,991   $ 566   $ 4,727   $ 151,148   $ 21,050   $ 7,356  

Warren Resources, Inc. 

      $ 78,437                   $ 78,437   $ 11,477   $ 335  

Senior Secured Loans—Second Lien

                                                       

Titan Energy Operating, LLC

      $ 85,609       $ 1,525       $ (1,707 ) $ 85,427   $ 5,685      

Senior Secured Bonds

                                                       

FourPoint Energy, LLC

  $ 222,069       $ (55,688 ) $ 1,535       $ 72,793   $ 240,709   $ 24,737      

Ridgeback Resources Inc. 

      $ 3,809               $ 78   $ 3,887   $ 12      

Equity/Other

                                                       

Altus Power America Holdings, LLC, Common Equity

      $ 12,474                   $ 12,474          

Altus Power America Holdings, LLC, Preferred Equity

      $ 23,982                   $ 23,982   $ 1,554      

FourPoint Energy, LLC, Common Equity, Class C-II-A Units

  $ 46,200                   $ (14,355 ) $ 31,845          

FourPoint Energy, LLC, Common Equity, Class D Units

  $ 8,724                   $ (2,692 ) $ 6,032          

FourPoint Energy, LLC, Common Equity, Class E-II Units

      $ 68,672               $ 56,998   $ 125,670          

FourPoint Energy, LLC, Common Equity, Class E-III Units

      $ 55,688               $ 51,789   $ 107,477          

Ridgeback Resources Inc., Common Equity

      $ 58,985                   $ 58,985          

Sunnova Energy Corp., Common Equity

      $ 25,026               $ 11,178   $ 36,204          

Sunnova Energy Corp., Preferred Equity

      $ 46,196   $ (43,122 )     $ 6   $ 61   $ 3,141          

Titan Energy, LLC, Common Equity

      $ 17,554               $ (4,222 ) $ 13,332          

Warren Resources, Inc., Common Equity

      $ 20,754               $ (1,766 ) $ 18,988          
(q)
Security held within FSEP Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.
(r)
Security is non-income producing.
(s)
Security is held within EP Altus Investments, LLC, a wholly-owned subsidiary of the Company.
(t)
Security held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.
(u)
Security held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company.
(v)
Security held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company.
(w)
Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2016.
(x)
Investment denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2016.
(y)
Security held within EP Synergy Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.
(z)
Security was on non-accrual status as of December 31, 2016.

See notes to unaudited consolidated financial statements.

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FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)


 
 
(aa)
Under the 1940 Act, the Company generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2016, the Company held an investment in one portfolio company of which it is deemed to be an "affiliated person" of and deemed to "control". The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an "affiliated person" of and deemed to "control" for the year ended December 31, 2016:
Portfolio Company   Fair Value at
December 31,
2015
  Purchases,
Paid-in-Kind
Interest and
Other
  Sales,
Repayments
and Other
  Accretion of
Discount
  Net
Realized
Gain (Loss)
  Net Change
in Unrealized
Appreciation
(Depreciation)
  Fair Value at
December 31,
2016
 

Senior Secured Loans—First Lien

                                           

Lusk Operating LLC

      $ 17,414               $ (16,383 ) $ 1,031  

Senior Secured Bonds

                                           

Sunnova Asset Portfolio 5 Holdings, LLC

  $ 244,349       $ (244,349 )                

Equity/Other

                                           

Lusk Operating LLC, Common Equity

                             

Sunnova Holdings, LLC, Common Equity

  $ 29,561       $ (29,561 )                
(bb)
Position or portion thereof unsettled as of December 31, 2016.
(cc)
Security held within FS Energy Investments, LLC, a wholly-owned subsidiary of the Company.

See notes to unaudited consolidated financial statements.

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FS Energy and Power Fund

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



Note 1. Principal Business and Organization

        FS Energy and Power Fund, or the Company, was formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced investment operations on July 18, 2011 upon raising gross proceeds in excess of $2,500, or the minimum offering requirement, from sales of its common shares of beneficial interest, or common shares, in its continuous public offering to persons who were not affiliated with the Company or the Company's investment adviser, FS Investment Advisor, LLC, or FS Advisor, a private investment firm that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, and an affiliate of the Company.

        The Company 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. The Company is an externally managed, non-diversified, closed-end management investment company that 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 September 30, 2017, the Company had five wholly-owned financing subsidiaries, seven wholly-owned subsidiaries through which it holds interests in certain portfolio companies and two wholly-owned subsidiaries through which it expects to hold interests in certain portfolio companies. The unaudited consolidated financial statements include both the Company's accounts and the accounts of its wholly-owned subsidiaries as of September 30, 2017. All significant intercompany transactions have been eliminated in consolidation. Certain of the Company's consolidated subsidiaries are subject to U.S. federal and state income taxes.

        The Company's investment objective is to generate current income and long-term capital appreciation by investing primarily in privately-held U.S. companies in the energy and power industry. The Company's investment policy is to invest, under normal circumstances, at least 80% of its total assets in securities of energy and power related, or Energy, companies. The Company considers Energy companies to be those companies that engage in the exploration, development, production, gathering, transportation, processing, storage, refining, distribution, mining, generation or marketing of natural gas, natural gas liquids, crude oil, refined products, coal or power, including those companies that provide equipment or services to companies engaged in any of the foregoing.

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 U.S. generally accepted accounting principles, 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, 2016 included in the Company's annual report on Form 10-K. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The December 31, 2016 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, 2016. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification Topic 946, Financial Services—Investment Companies. The Company has

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FS Energy and Power Fund

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


Note 2. Summary of Significant Accounting Policies (Continued)

evaluated the impact of subsequent events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.

        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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Many of the amounts have been rounded, and all amounts are in thousands, except share and per share amounts.

        Capital Gains Incentive Fee:    The Company entered into an investment advisory and administrative services agreement with FS Advisor, dated as of April 28, 2011, which was amended on August 10, 2012, and which, as amended, is referred to herein as the investment advisory and administrative services agreement. 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 such agreement). Such fee equals 20.0% of the Company's incentive fee capital gains (i.e., the Company's realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee 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 FS Advisor as if the Company's entire portfolio was liquidated at its fair value as of the balance sheet date even though FS Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

        Subordinated Income Incentive Fee:    Pursuant to the investment advisory and administrative services agreement, FS Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income, 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 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor does 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 1.625%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of the Company's common shares (including proceeds from its distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share repurchases pursuant to the Company's share repurchase program. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is 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 2.031%, or 8.125% annually, of adjusted capital. Thereafter, FS Advisor is entitled to receive 20.0% of pre-incentive fee net investment income.

        Reclassifications:    Certain amounts in the unaudited consolidated financial statements for the three and nine months ended September 30, 2016 may have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements for the three and nine months ended September 30, 2017. These reclassifications had no material impact on the Company's consolidated financial position, results of operations or cash flows as previously reported.

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FS Energy and Power Fund

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


Note 2. Summary of Significant Accounting Policies (Continued)

        Revenue Recognition:    In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides for revenue recognition based on the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. When it becomes effective, the new revenue recognition guidance in ASU No. 2014-09 will replace most revenue recognition guidance under existing GAAP. In 2016, the FASB issued additional guidance that clarified, amended and technically corrected prior revenue recognition guidance. The new revenue recognition guidance applies to all entities and all contracts with customers to provide goods or services in the ordinary course of business, excluding, among other things, financial instruments as well as certain other contractual rights and obligations. For public entities, the new standards are effective during the interim and annual periods beginning after December 15, 2017, with early adoption permitted. The standards permit the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the applicability of the new revenue recognition guidance to the Company's revenue recognition policies and assessing the impact of this guidance on the Company's consolidated financial statements.

Note 3. Share Transactions

        Below is a summary of transactions with respect to the Company's common shares during the nine months ended September 30, 2017 and 2016:

 
  Nine Months Ended September 30,  
 
  2017   2016  
 
  Shares   Amount   Shares   Amount  

Gross Proceeds from Offering

      $     46,441,062   $ 343,786  

Reinvestment of Distributions

    18,821,761     140,580     19,503,968     132,928  

Total Gross Proceeds

    18,821,761     140,580     65,945,030     476,714  

Commissions and Dealer Manager Fees

                (30,047 )

Net Proceeds to Company

    18,821,761     140,580     65,945,030     446,667  

Share Repurchase Program

    (11,817,591 )   (88,730 )   (6,701,687 )   (45,151 )

Net Proceeds from Share Transactions

    7,004,170   $ 51,850     59,243,343   $ 401,516  

Public Offering of Shares

        In November 2016, the Company closed its continuous public offering of common shares to new investors. The Company sold 449,543,498 common shares (as adjusted for share distributions) for gross proceeds of $4,362,119 in its continuous public offering, including shares issued pursuant to its distribution reinvestment plan during that period. Following the closing of its continuous public offering, the Company has continued to issue shares pursuant to its distribution reinvestment plan. As of November 13, 2017, the Company had raised total gross proceeds of $4,570,880, including $200 of seed capital contributed by the principals of FS Advisor in December 2010 and $20,004 in proceeds raised from the principals of FS Advisor, other individuals and entities affiliated with FS Advisor, certain members of the Company's board of trustees and certain individuals and entities affiliated with GSO Capital Partners LP, or GSO, the Company's investment sub-adviser, in a private placement conducted in April 2011 (see Note 4).

Share Repurchase Program

        The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company's board of trustees will consider the following factors, among others, in making its

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FS Energy and Power Fund

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


Note 3. Share Transactions (Continued)

determination regarding whether to cause the Company to offer to repurchase common shares 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 common shares or portions thereof; and

    the condition of the securities markets.

        Historically, the Company limited the number of common shares to be repurchased during any calendar year to the lesser of (i) the number of common shares the Company can repurchase with the proceeds it receives from the issuance of common shares under the Company's distribution reinvestment plan and (ii) 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter. On May 5, 2017, the board of trustees of the Company further amended the share repurchase program. As amended, the Company will limit the maximum number of common shares to be repurchased for any repurchase offer to the greater of (A) the number of common shares that the Company can repurchase with the proceeds it has received from the sale of common shares under its distribution reinvestment plan during the twelve-month period ending on the date the applicable repurchase offer expires (less the amount of proceeds used to repurchase common shares on each previous repurchase date for repurchase offers conducted during such twelve-month period) (this limitation is referred to as the twelve-month repurchase limitation) and (B) the number of common shares that the Company can repurchase with the proceeds the Company receives from the sale of common shares under its distribution reinvestment plan during the three-month period ending on the date the applicable repurchase offer expires (this limitation is referred to as the three-month repurchase limitation). In addition to this limitation, the maximum number of common shares to be repurchased for any repurchase offer will also be limited to 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter. As a result, the maximum number of common shares to be repurchased for any repurchase offer will not exceed the lesser of (i) 10% of the weighted average number of common shares 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.

        The Company intends to offer to repurchase common shares at a price equal to the price at which common shares are issued pursuant to the Company's distribution reinvestment plan on the distribution date coinciding with the applicable share repurchase date. The price at which common shares are issued under the Company's distribution reinvestment plan is determined by the Company's board of trustees or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per common share as determined in good faith by the Company's board of trustees 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 common share as of such date. The Company's board of trustees may amend, suspend or terminate the share repurchase program at any time, upon 30 days' notice.

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FS Energy and Power Fund

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


Note 3. Share Transactions (Continued)

        The following table provides information concerning the Company's repurchases of common shares pursuant to its share repurchase program during the nine months ended September 30, 2017 and 2016:

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(1)
  Aggregate
Consideration
for Repurchased
Shares
 

Fiscal 2016

                                   

December 31, 2015

  January 6, 2016     2,716,924     100 %   0.73 % $ 6.750   $ 18,339  

March 31, 2016

  April 6, 2016     2,196,742     100 %   0.56 % $ 6.345     13,938  

June 30, 2016

  July 6, 2016     1,788,021     100 %   0.43 % $ 7.200     12,874  

Total

        6,701,687                     $ 45,151  

Fiscal 2017

                                   

December 31, 2016

  January 3, 2017     2,239,480     100 %   0.51 % $ 7.700   $ 17,244  

March 31, 2017

  April 17, 2017     4,587,306     100 %   1.03 % $ 7.750     35,552  

June 30, 2017

  July 3, 2017     4,990,805     100 %   1.12 % $ 7.200     35,934  

Total

        11,817,591                     $ 88,730  

(1)
On October 13, 2016, and in connection with the closing of its continuous public offering, the Company amended the terms of its share repurchase program, which was first effective for the Company's quarterly repurchase offer for the fourth quarter of 2016 to provide that shares repurchased under the program would be repurchased at a price determined as described above. Prior to amending the share repurchase program, the Company offered to repurchase common shares at a price equal to 90% of the offering price in effect on the date of repurchase.

        On October 2, 2017, the Company repurchased 7,682,421 common shares (representing 100% of common shares tendered for repurchase and 1.72% of the shares outstanding as of such date) at $7.15 per share for aggregate consideration totaling $54,929.

Note 4. Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

        Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of 2.0% of the average value of the Company's gross assets (gross assets equals total assets as set forth on the Company's consolidated balance sheets) and an incentive fee based on the Company's performance. The Company commenced accruing fees under the investment advisory and administrative services agreement on July 18, 2011, upon commencement of the Company's investment operations. Base management fees are paid on a quarterly basis in arrears. See Note 2 for a discussion of the capital gains and subordinated income incentive fees that FS Advisor may be entitled to under the investment advisory and administrative services agreement.

        Pursuant to an investment sub-advisory agreement between FS Advisor and GSO, or the sub-advisory agreement, GSO will receive 50% of all management and incentive fees payable to FS Advisor under the investment advisory and administrative services agreement with respect to each year.

        The Company reimburses FS Advisor for expenses necessary to perform services related to the Company's administration and operations, including FS Advisor's allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings, L.P., or FS Investments, the Company's sponsor and an affiliate of FS Advisor, providing administrative services to the Company on behalf of FS Advisor. The amount of the reimbursement payable to FS Advisor is the lesser of (1) FS 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. FS Advisor is required to allocate the cost of such services to the Company based

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FS Energy and Power Fund

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


Note 4. Related Party Transactions (Continued)

on factors such as assets, revenues, time allocations and/or other reasonable metrics. The Company's board of trustees reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of the administrative expenses among the Company and certain affiliates of FS Advisor. The Company's board of trustees then assesses the reasonableness of such reimbursements for expenses allocated to the Company 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 providers known to be available. In addition, the Company's board of trustees 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 trustees, among other things, compares the total amount paid to FS Advisor for such services as a percentage of the Company's net assets to the same ratio as reported by other comparable BDCs. The Company will not reimburse FS Advisor for any services for which it receives a separate fee, or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FS Advisor.

        Under the investment advisory and administrative services agreement, the Company, either directly or through reimbursement to FS Advisor or its affiliates, was responsible for its organization and offering costs in an amount up to 1.5% of gross proceeds raised in the Company's continuous public offering. Organization and offering costs primarily included legal, accounting, printing and other expenses relating to the Company's continuous public offering, including costs associated with technology integration between the Company's systems and those of its selected broker-dealers, marketing expenses, salaries and direct expenses of FS Advisor's personnel, employees of its affiliates and others while engaged in registering and marketing the Company's common shares, which included the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

        Prior to satisfaction of the minimum offering requirement and for a period of time thereafter, FS Investments funded certain of the Company's organization and offering costs. Following this period, the Company paid certain of its organization and offering costs directly and reimbursed FS Advisor for offering costs incurred by FS Advisor on the Company's behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares. Organization and offering costs funded directly by FS Investments were recorded by the Company as a contribution to capital. The offering costs were offset against capital in excess of par value on the consolidated financial statements and the organization costs were charged to expense as incurred by the Company. All other offering costs, including costs incurred directly by the Company, amounts reimbursed to FS Advisor for ongoing offering costs and any reimbursements paid to FS Investments for organization and offering costs previously funded, were recorded as a reduction of capital. Commencing January 1, 2016, offering costs incurred by the Company were deferred and amortized as an expense over twelve months. Following the closing of the Company's continuous public offering to new investors in November 2016, all deferred offering costs were expensed.

        The dealer manager for the Company's continuous public offering was FS Investment Solutions, LLC (formerly FS2 Capital Partners, LLC), or FS Investment Solutions, which is one of the Company's affiliates. Under the dealer manager agreement among the Company, FS Advisor and FS Investment Solutions, or the dealer manager agreement, FS Investment Solutions was entitled to receive sales commissions and dealer manager fees in connection with the sale of common shares in the Company's continuous public offering, all or a portion of which were re-allowed to selected broker-dealers and financial representatives. The dealer manager agreement terminated in connection with the closing of the Company's continuous public offering in November 2016.

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FS Energy and Power Fund

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 accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and nine months ended September 30, 2017 and 2016:

 
   
   
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
Related Party   Source Agreement   Description   2017   2016   2017   2016  

FS Advisor

  Investment Advisory and Administrative Services Agreement   Base Management Fee(1)   $ 22,031   $ 20,086   $ 67,104   $ 55,725  

FS Advisor

  Investment Advisory and Administrative Services Agreement   Subordinated Incentive Fee on Income(2)           $ 10,499   $ 5,774  

FS Advisor

  Investment Advisory and Administrative Services Agreement   Administrative Services Expenses(3)   $ 611   $ 1,118   $ 2,218   $ 2,885  

FS Advisor

  Investment Advisory and Administrative Services Agreement   Offering Costs(4)       $ 950       $ 3,320  

FS Advisor

  Expense Support and Conditional Reimbursement Agreement   Expense Recoupment(5)           $ 2,858   $  

FS Investment Solutions

  Dealer Manager Agreement   Dealer Manager Fee(6)       $ 1,704       $ 5,822  

(1)
During the nine months ended September 30, 2017, $58,207 in base management fees were paid to FS Advisor and $7,721 in base management fees were applied to offset the liability of FS Investments under the expense reimbursement agreement (see "—Expense Reimbursement" below). During the nine months ended September 30, 2016, $53,977 in base management fees were paid to FS Advisor. As of September 30, 2017, $22,031 in base management fees were payable to FS Advisor, and it is intended that $7,095 of such fees will be applied to offset the liability of FS Investments under the expense reimbursement agreement and the balance, $14,936, will be paid to FS Advisor.

(2)
During the nine months ended September 30, 2017, $10,499 in subordinated incentive fees on income were applied to offset the liability of FS Investments under the expense reimbursement agreement (see "—Expense Reimbursement" below). See footnote (1) above for an additional offset to the liability of FS Investments under the expense reimbursement agreement. During the nine months ended September 30, 2016, $17,822 of subordinated incentive fees on income were paid to FS Advisor. As of September 30, 2017, the Company did not have any subordinated incentive fee on income payable to FS Advisor.

(3)
During the nine months ended September 30, 2017 and 2016, $2,061 and $2,784, respectively, of the accrued administrative services expenses related to the allocation of costs of administrative personnel for services rendered to the Company by FS Advisor and the remainder related to other reimbursable expenses. The Company paid $2,641 and $3,201 in administrative services expenses to FS Advisor during the nine months ended September 30, 2017 and 2016, respectively.

(4)
During the nine months ended September 30, 2016, the Company incurred offering costs of $3,600, of which $3,320 related to reimbursements to FS Advisor for offering costs incurred on the Company's behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares.

(5)
During the nine months ended September 30, 2017 and 2016, the Company accrued $2,858 and $0, respectively, for expense recoupments payable to FS Advisor under the expense reimbursement agreement (see "—Expense Reimbursement" below). During the nine months ended September 30, 2017 and 2016, $2,858 and $0, respectively, of expense recoupments were paid to FS Advisor. As of September 30, 2017, the Company did not have any expense recoupments payable to FS Advisor.

(6)
Represents aggregate dealer manager fees retained by FS Investment Solutions and not re-allowed to selected broker-dealers or financial representatives.

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FS Energy and Power Fund

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


Note 4. Related Party Transactions (Continued)

Capital Contribution by FS Advisor and GSO

        In December 2010, Michael C. Forman and David J. Adelman, the principals of FS Advisor, contributed an aggregate of $200 to purchase 22,444 common shares (as adjusted for share distributions) at $8.91 per share, which represents the initial public offering price (as adjusted for share distributions), net of selling commissions and dealer manager fees. The principals have agreed not to tender these common shares for repurchase as long as FS Advisor remains the Company's investment adviser.

        In April 2011, pursuant to a private placement, Messrs. Forman and Adelman agreed to purchase, through affiliated entities controlled by each of them, 224,444 additional common shares (as adjusted for share distributions) at $8.91 per share (as adjusted for share distributions). The principals have agreed not to tender these common shares for repurchase as long as FS Advisor remains the Company's investment adviser. In connection with the same private placement, certain members of the Company's board of trustees and other individuals and entities affiliated with FS Advisor agreed to purchase 1,459,320 common shares (as adjusted for share distributions), and certain individuals and entities affiliated with GSO agreed to purchase 561,111 common shares (as adjusted for share distributions), in each case at a price of $8.91 per share (as adjusted for share distributions). In connection with the private placement, the Company issued an aggregate of 2,244,875 common shares (as adjusted for share distributions) for aggregate proceeds of $20,004, upon satisfaction of the minimum offering requirement on July 18, 2011. As of November 13, 2017, the Company has issued an aggregate of 6,164,991 common shares (as adjusted for share distributions) for aggregate gross proceeds of $51,381 to members of its board of trustees and individuals and entities affiliated with FS Advisor and GSO, including common shares sold to Messrs. Forman and Adelman in December 2010 and common shares sold in the private placement conducted in April 2011.

Potential Conflicts of Interest

        FS Advisor's senior management team is comprised of substantially the same personnel as the senior management teams of the investment advisers to certain other BDCs, open-and closed-end management investment companies and real estate investment trusts sponsored by FS Investments, or the Fund Complex. As a result, such personnel provide investment advisory services to certain other funds or products in the Fund Complex and such personnel may serve in similar or other capacities for the investment advisers to future investment vehicles in the Fund Complex. While none of the investment advisers are currently providing investment advisory services to clients other than the funds in the Fund Complex, any, or all, may do so in the future. In the event that FS Advisor or its management team undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in a fair and equitable manner consistent with the Company's investment objectives and strategies, if necessary, so that the Company will not be disadvantaged in relation to any other client of FS Advisor or its management team. For additional information regarding potential conflicts of interest, see the Company's annual report on Form 10-K for the year ended December 31, 2016.

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, the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated

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FS Energy and Power Fund

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


Note 4. Related Party Transactions (Continued)

investment transactions with certain affiliates of FS Advisor, including FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, and any future BDCs that are advised by FS Advisor or its affiliated investment advisers, or collectively the Company's co-investment affiliates. The Company believes this relief has and may continue to enhance its ability to further its investment objectives and strategy. The Company believes this relief may also increase favorable investment opportunities for the Company, in part, by allowing it to participate in larger investments, together with the Company's co-investment affiliates, than would be available to it if such relief had not been obtained. Because the Company did not seek exemptive relief to engage in co-investment transactions with its investment sub-adviser, GSO, and its affiliates, it will continue to be permitted to co-invest with GSO and its affiliates only in accordance with existing regulatory guidance (e.g., where price is the only negotiated term).

Expense Reimbursement

        Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or, the expense reimbursement agreement, FS Investments has agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that no portion of the Company's distributions to shareholders will be paid from its offering proceeds or borrowings. However, because certain investments the Company may make, including preferred and common equity investments, may generate dividends and other distributions to the Company that are treated for tax purposes as a return of capital, a portion of the Company's distributions to shareholders may also be deemed to constitute a return of capital for tax purposes to the extent that the Company may use such dividends or other distribution proceeds to fund its distributions to shareholders. Under those circumstances, FS Investments will not reimburse the Company for the portion of such distributions to shareholders that represent a return of capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to shareholders.

        Under the expense reimbursement agreement, FS Investments will reimburse the Company quarterly for expenses in an amount equal to the difference between the Company's cumulative distributions paid to its shareholders in each quarter, less the sum of the Company's net investment company taxable income, net capital gains 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 are not included in net investment company taxable income or net capital gains) in each quarter.

        Pursuant to the expense reimbursement agreement, the Company has a conditional obligation to reimburse FS Investments for any amounts funded by FS Investments under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments funded such amount, the sum of the Company's net investment company taxable income, net capital gains and the amount of any dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the distributions paid by the Company to its shareholders; provided, however, that (i) the Company will only reimburse FS Investments for expense support payments made by FS Investments with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause "other operating expenses" (as defined below) (on an annualized basis and net of any expense support payments received by the Company during such fiscal year) to exceed the lesser of (A) 1.75% of the Company's average net assets attributable to its common shares for the fiscal year-to-date period after taking such payments into account and (B) the percentage of the Company's average net assets attributable to its

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FS Energy and Power Fund

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


Note 4. Related Party Transactions (Continued)

common shares represented by "other operating expenses" during the fiscal year in which such expense support payment from FS Investments was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from FS Investments made during the same fiscal year) and (ii) the Company will not reimburse FS Investments for expense support payments made by FS Investments if the aggregate amount of distributions per share declared by the Company in such calendar quarter is less than the aggregate amount of distributions per share declared by the Company in the calendar quarter in which FS Investments made the expense support payment to which such reimbursement relates. The Company is not obligated to pay interest on the payments it receives from FS Investments. "Other operating expenses" means the Company's total "operating expenses" (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. "Operating expenses" means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.

        The Company or FS Investments may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by FS Investments, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by FS Investments, FS Investments will be required to fund any amounts accrued thereunder as of the date of termination. Similarly, the Company's conditional obligation to reimburse FS Investments pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.

        During the nine months ended September 30, 2017, the Company accrued $25,315 for expense reimbursements that FS Investments has agreed to pay, including $7,095 in expense reimbursements accrued for the three months ended September 30, 2017. As discussed in the footnotes to the table above, the Company offset $7,721 in management fees payable and $10,499 in subordinated income incentive fees payable by the Company to FS Advisor during the nine months ended September 30, 2017. As of September 30, 2017, the Company had $7,095 of reimbursements due from FS Investments, which the Company expects to offset against management fees payable by the Company to FS Advisor.

        As discussed above, under the expense reimbursement agreement, amounts reimbursed to the Company by FS Investments may become subject to repayment by the Company in the future. During the nine months ended September 30, 2017, the Company paid $2,858 in expense recoupments to FS Investments. As of September 30, 2017, $22,457 of reimbursements may become subject to repayment by the Company to FS Investments in the future.

        The following table reflects the expense reimbursement payments due from FS Investments to the Company as of September 30, 2017 that may become subject to repayment by the Company to FS Investments:

For the Three Months Ended   Amount of
Expense
Reimbursement
Payment
  Annualized "Other
Operating Expenses" Ratio
as of the Date of Expense
Reimbursement
  Annualized Rate
of Distributions
Per Share(1)
  Reimbursement
Eligibility
Expiration

March 31, 2017

  $ 15,362 (2)   0.40 %   9.14 % March 31, 2020

June 30, 2017

        N/A     N/A   N/A

September 30, 2017

    7,095     0.36 %   9.91 % September 30, 2020

Total

  $ 22,457                

(1)
The annualized rate of distributions per share is expressed as a percentage equal to the projected annualized distribution amount as of the end of the applicable period (which is calculated by annualizing the regular monthly cash distribution per share as of such date without compounding), divided by the Company's distribution reinvestment price per share as of such date.

(2)
Amount has been reduced by the $2,858 accrued during the nine months ended September 30, 2017 for expense recoupments payable to FS Investments.

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FS Energy and Power Fund

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


Note 4. Related Party Transactions (Continued)

        FS Investments is controlled by the Company's chairman, president and chief executive officer, Michael C. Forman, and the Company's vice-chairman, David J. Adelman. There can be no assurance that the expense reimbursement agreement will remain in effect or that FS Investments will reimburse any portion of the Company's expenses in future quarters.

FS Benefit Trust

        On May 30, 2013, FS Benefit Trust was formed as a Delaware statutory trust for the purpose of awarding equity incentive compensation to employees of FS Investments and its affiliates. During the nine months ended September 30, 2016, FS Benefit Trust purchased $142 of the Company's common shares at a price equal to 90% of the public offering price in effect on the applicable purchase date.

Note 5. Distributions

        The following table reflects the cash distributions per share that the Company declared and paid on its common shares during the nine months ended September 30, 2017 and 2016:

 
  Distribution  
For the Three Months Ended   Per Share   Amount  

Fiscal 2016

             

March 31, 2016

  $ 0.17713   $ 66,720  

June 30, 2016

    0.17713     70,788  

September 30, 2016

    0.17713     74,481  

Total

  $ 0.53139   $ 211,989  

Fiscal 2017

             

March 31, 2017

  $ 0.17713   $ 77,984  

June 30, 2017

    0.17713     78,374  

September 30, 2017

    0.17713     78,115  

Total

  $ 0.53139   $ 234,473  

        Effective November 30, 2016, and subject to applicable legal restrictions and the sole discretion of the Company's board of trustees, the Company authorizes, declares and pays regular cash distributions on a monthly basis. On September 29, 2017 and October 30, 2017, the Company's board of trustees declared regular monthly cash distributions for October 2017 and November 2017, respectively. These distributions have been or will be paid monthly to shareholders of record as of monthly record dates previously determined by the Company's board of trustees in the amount of $0.059042 per share. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company's board of trustees.

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

        On October 13, 2016, the Company further amended and restated its distribution reinvestment plan, or the amended distribution reinvestment plan, which first applied to the reinvestment of cash distributions paid on or after November 30, 2016. Under the original plan, cash distributions to participating shareholders were reinvested in additional common shares at a purchase price equal to 90% of the public offering price per share in effect as of the date of issuance. Under the amended

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FS Energy and Power Fund

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


Note 5. Distributions (Continued)

distribution reinvestment plan, cash distributions to participating shareholders will be reinvested in additional common shares at a purchase price determined by the Company's board of trustees, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per common share as determined in good faith by the Company's board of trustees 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 common share as of such date. Any distributions reinvested under the plan will remain taxable to a U.S. shareholder.

        The Company may fund its cash distributions to shareholders from any sources of funds legally available to it, including proceeds from the sale of the Company's common shares, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from FS Investments. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

        For the nine months ended September 30, 2017, certain portions of the Company's distributions were funded through the reimbursement of certain expenses by FS Investments and its affiliates, including through the offset of certain investment advisory fees by FS Advisor, that are, if certain conditions are met, subject to repayment by the Company within three years. Any such distributions funded through expense reimbursements or the offset of advisory fees are not based on the Company's investment performance, and can only be sustained if the Company achieves positive investment performance in future periods and/or FS Investments and its affiliates continues to make such reimbursements or offset such fees. The Company's future repayments of amounts reimbursed or offset by FS Investments or its affiliates will reduce the distributions that shareholders would otherwise receive in the future. There can be no assurance that the Company will continue to achieve the performance necessary to sustain its distributions or that the Company will be able to pay distributions at a specific rate or at all. FS Investments and its affiliates have no obligation to offset or waive advisory fees or otherwise reimburse expenses in future periods. If FS Investments had not reimbursed certain of the Company's expenses, 10% of the aggregate amount of distributions paid during the nine months ended September 30, 2017 would have been funded from offering proceeds or borrowings.

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FS Energy and Power Fund

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


Note 5. Distributions (Continued)

        The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common shares during the nine months ended September 30, 2017 and 2016:

 
  Nine Months Ended September 30,  
 
  2017   2016  
Source of Distribution   Distribution
Amount
  Percentage   Distribution
Amount
  Percentage  

Offering proceeds

  $       $      

Borrowings

                 

Net investment income (prior to expense reimbursement)(1)

    210,425     90 %   209,564     99 %

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 investments in portfolio companies

    1,591     0 %   2,425     1 %

Expense reimbursement from sponsor

    22,457     10 %        

Total

  $ 234,473     100 % $ 211,989     100 %

(1)
During the nine months ended September 30, 2017 and 2016, 82.5% and 81.5%, respectively, of the Company's gross investment income on a tax basis was attributable to cash income earned and 0.3% and 5.0%, respectively, was attributable to non-cash income earned. In addition, 14.0% and 10.6%, respectively, was attributed to paid-in-kind, or PIK, interest and 3.2% and 2.9%, respectively, was attributed to accretion of discount during the nine months ended September 30, 2017 and 2016.

        The Company's net investment income on a tax basis for the nine months ended September 30, 2017 and 2016 was $232,882 and $198,465, respectively. As of September 30, 2017 and December 31, 2016, the Company had $0 and $242, respectively, of undistributed ordinary income on a tax basis and distributions received from investments in portfolio companies.

        During the nine months ended September 30, 2017, certain investments in the portfolio were restructured or experienced defaults due to the continued depressed prices of oil and natural gas, and the Company may experience additional restructurings or defaults in the future. These restructurings and defaults may have an impact on the level of income received by the Company. As a result, the Company is continuing to evaluate the current distribution rate payable on its common shares and there can be no assurance that the Company will be able to maintain a monthly cash distribution amount of $0.059042 per common share.

        The difference between the Company's GAAP-basis net investment income and its tax-basis net investment income was primarily due to the reclassification of unamortized original issue discount and prepayment fees recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the impact of consolidating certain subsidiaries for purposes of computing GAAP-basis net investment income but not for purposes of computing tax-basis net investment income and income subject to tax but not recorded for GAAP purposes.

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FS Energy and Power Fund

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 and tax-basis net investment income during the nine months ended September 30, 2017 and 2016:

 
  Nine Months Ended
September 30,
 
 
  2017   2016  

GAAP-basis net investment income

  $ 220,441   $ 175,147  

Reclassification of unamortized original issue discount and prepayment fees

    (20,176 )   (3,503 )

GAAP versus tax-basis impact of consolidation of certain subsidiaries

    21,443     11,343  

Income subject to tax not recorded for GAAP

    11,190     14,118  

Other miscellaneous differences

    (16 )   1,360  

Tax-basis net investment income

  $ 232,882   $ 198,465  

        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 shareholders are reported to shareholders annually on Form 1099-DIV.

        As of September 30, 2017 and December 31, 2016, the components of accumulated earnings (deficit) on a tax basis were as follows:

 
  September 30, 2017
(Unaudited)
  December 31, 2016  

Distributable ordinary income, net of distributions received from investments in portfolio companies

  $   $ 242  

Accumulated capital losses(1)

    (421,056 )   (367,653 )

Other temporary differences

    (205 )   79  

Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency(2)

    (358,621 )   (115,266 )

Total

  $ (779,882 ) $ (482,598 )

(1)
Net capital losses may be carried forward indefinately, and their character is retained as short-term or long-term losses. As of September 30, 2017, the Company had short-term and long-term capital loss carryforwards available to offset future realized capital gains of $55,975 and $365,081, respectively.

(2)
As of September 30, 2017 and December 31, 2016, the gross unrealized appreciation on the Company's investments and unrealized gain on foreign currency was $101,522 and $224,411, respectively. As of September 30, 2017 and December 31, 2016, the gross unrealized depreciation on the Company's investments and unrealized loss on foreign currency was $460,143 and $339,677, respectively.

        The aggregate cost of the Company's investments for federal income tax purposes totaled $4,624,706 and $4,014,678 as of September 30, 2017 and December 31, 2016, respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis was $(358,621) and $(115,266) as of September 30, 2017 and December 31, 2016, respectively.

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FS Energy and Power Fund

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


Note 5. Distributions (Continued)

        As of September 30, 2017 and December 31, 2016, the Company had deferred tax liabilities of $0 and $46,278, respectively, resulting from unrealized appreciation on investments held by the Company's wholly-owned taxable subsidiaries and deferred tax assets of $88,136 and $81,116, respectively, resulting from unrealized depreciation on investments, and net operating and capital losses of the Company's wholly-owned taxable subsidiaries. As of September 30, 2017 and December 31, 2016, certain wholly-owned taxable subsidiaries anticipated that they would be unable to fully utilize their generated net operating and capital losses, therefore the deferred tax assets were offset by valuation allowances of $88,136 and $34,838, respectively. For the three and nine months ended September 30, 2017, the Company did not record a provision for taxes related to wholly-owned taxable subsidiaries.

Note 6. Investment Portfolio

        The following table summarizes the composition of the Company's investment portfolio at cost and fair value as of September 30, 2017 and December 31, 2016:

 
  September 30, 2017
(Unaudited)
  December 31, 2016  
 
  Amortized
Cost(1)
  Fair Value   Percentage
of Portfolio
  Amortized
Cost(1)
  Fair Value   Percentage
of Portfolio
 

Senior Secured Loans—First Lien

  $ 983,398   $ 945,577     22 % $ 947,803   $ 912,491     23 %

Senior Secured Loans—Second Lien

    933,658     870,619     21 %   948,762     873,869     22 %

Senior Secured Bonds

    562,103     557,794     13 %   388,512     397,614     10 %

Subordinated Debt

    1,357,833     1,344,668     32 %   1,049,097     1,043,167     27 %

Equity/Other

    626,454     523,626     12 %   628,814     683,299     18 %

Total

  $ 4,463,446   $ 4,242,284     100 % $ 3,962,988   $ 3,910,440     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 a portfolio company, and would be an "affiliated person" of a portfolio company if it owned 5% or more of its voting securities.

        As of September 30, 2017, the Company held investments in one portfolio company of which it is deemed to "control." As of September 30, 2017, the Company held investments in six portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control." For additional information with respect to such portfolio companies, see footnotes (p) and (aa) to the unaudited consolidated schedule of investments as of September 30, 2017 in this quarterly report on Form 10-Q.

        As of December 31, 2016, the Company held investments in one portfolio company of which it is deemed to "control." As of December 31, 2016, the Company held investments in six portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control." For additional information with respect to such portfolio companies, see footnotes (p) and (aa) to the consolidated schedule of investments as of December 31, 2016 in this quarterly report on Form 10-Q.

35


Table of Contents


FS Energy and Power Fund

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


Note 6. Investment Portfolio (Continued)

        The Company's investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving 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 September 30, 2017, the Company had six senior secured loan investments with aggregate unfunded commitments of $111,825 and five equity/other investments with aggregate unfunded commitments of $16,357. As of September 30, 2017, these unfunded equity/other investments were Altus Power America Holdings, LLC, preferred equity, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, Chisholm Oil and Gas, LLC and Synergy Offshore LLC. As of December 31, 2016, the Company had four senior secured loan investments with aggregate unfunded commitments of $82,404 and four equity/other investments with aggregate unfunded commitments of $14,942. As of December 31, 2016, these unfunded equity/other investments were Altus Power America Holdings, LLC, preferred equity, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy Offshore LLC. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

        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 September 30, 2017 and December 31, 2016:

 
  September 30, 2017
(Unaudited)
  December 31, 2016  
Industry Classification   Fair Value   Percentage
of Portfolio
  Fair Value   Percentage
of Portfolio
 

Upstream

  $ 2,674,312     63 % $ 2,270,769     58 %

Midstream

    445,549     11 %   343,713     9 %

Downstream

    47,978     1 %   49,623     1 %

Power

    313,957     7 %   523,153     13 %

Service & Equipment

    760,488     18 %   723,182     19 %

Total

  $ 4,242,284     100 % $ 3,910,440     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. 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.

36


Table of Contents


FS Energy and Power Fund

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


Note 7. Fair Value of Financial Instruments (Continued)

        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 September 30, 2017 and December 31, 2016, the Company's investments were categorized as follows in the fair value hierarchy:

Valuation Inputs   September 30, 2017
(Unaudited)
  December 31, 2016  

Level 1—Price quotations in active markets

  $ 40,342   $ 46,728  

Level 2—Significant other observable inputs

         

Level 3—Significant unobservable inputs

    4,201,942     3,863,712  

Total

  $ 4,242,284   $ 3,910,440  

        The Company's investments consist primarily of debt investments that are 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, call features, anticipated prepayments and other relevant terms of the debt. 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. Investments that are traded on an active public market are valued at their closing price as of the date of the financial statements. 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 trustees determines that the cost of such investment is the best indication of its fair value. Except as described above, the Company 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 an independent third-party pricing service and screened for validity by such service.

        The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing service and/or dealers, 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. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods, including the use of independent valuation firms, to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers or where the Company's board of trustees otherwise determines that the use of such other method is appropriate. The Company periodically benchmarks the valuations provided by the independent valuation firms against the actual prices at which it purchases and sells its investments. The valuation committee of the board of trustees, or the valuation committee, and the board of trustees reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company's valuation policy.

37


Table of Contents


FS Energy and Power Fund

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


Note 7. Fair Value of Financial Instruments (Continued)

        The following is a reconciliation for the nine months ended September 30, 2017 and 2016 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:

 
  For the Nine Months Ended September 30, 2017  
 
  Senior
Secured
Loans—
First Lien
  Senior
Secured
Loans—
Second Lien
  Senior
Secured
Bonds
  Subordinated
Debt
  Equity/
Other
  Total  

Fair value at beginning of period

  $ 912,491   $ 873,869   $ 397,614   $ 1,043,167   $ 636,571   $ 3,863,712  

Accretion of discount (amortization of premium)

    3,769     5,850     1,034     7,015         17,668  

Net realized gain (loss)

    (4,219 )   (42,952 )   801     (8,916 )   (14,958 )   (70,244 )

Net change in unrealized appreciation (depreciation)

    (2,509 )   11,854     (13,411 )   (7,235 )   (139,572 )   (150,873 )

Purchases

    316,317     417,845     240,254     596,374     25,820     1,596,610  

Paid-in-kind interest

    9,074     12,282     361     950     3,751     26,418  

Sales and repayments

    (289,346 )   (408,129 )   (68,859 )   (286,687 )   (28,328 )   (1,081,349 )

Net transfers in or out of Level 3

                         

Fair value at end of period

  $ 945,577   $ 870,619   $ 557,794   $ 1,344,668   $ 483,284   $ 4,201,942  

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

  $ (2,208 ) $ (16,657 ) $ (8,966 ) $ (41,985 ) $ (51,054 ) $ (120,870 )

 

 
  For the Nine Months Ended September 30, 2016  
 
  Senior
Secured
Loans—
First Lien
  Senior
Secured
Loans—
Second Lien
  Senior
Secured
Bonds
  Subordinated
Debt
  Equity/
Other
  Total  

Fair value at beginning of period

  $ 929,790   $ 923,402   $ 323,948   $ 579,740   $ 312,618   $ 3,069,498  

Accretion of discount (amortization of premium)

    3,352     1,528     1,133     4,145     1,356     11,514  

Net realized gain (loss)

    (18,725 )   (72,127 )   (10,043 )   (95,075 )   6     (195,964 )

Net change in unrealized appreciation (depreciation)

    27,892     180,197     81,938     246,276     50,080     586,383  

Purchases

    164,903     178,067     44,470     296,960     286,643     971,043  

Paid-in-kind interest

    11,782     6,526     468     784     4,754     24,314  

Sales and repayments

    (237,149 )   (298,810 )   (78,995 )   (40,920 )   (79,625 )   (735,499 )

Net transfers in or out of Level 3

                         

Fair value at end of period

  $ 881,845   $ 918,783   $ 362,919   $ 991,910   $ 575,832   $ 3,731,289  

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

  $ (464 ) $ 107,781   $ 18,520   $ 182,255   $ 68,922   $ 377,014  

38


Table of Contents


FS Energy and Power Fund

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 September 30, 2017 and December 31, 2016 were as follows:

Type of Investment   Fair Value at
September 30, 2017
(Unaudited)
  Valuation Technique(1)   Unobservable Input   Range   Weighted
Average
 

Senior Secured Loans—First Lien

  $ 458,588   Market Comparables   Market Yield (%)   7.8% - 18.3%   11.2 %

            EBITDA Multiples (x)   4.8x - 8.0x   5.8x  

            Proved Reserves Multiples (Mmboe)   $6.0 - $6.5   $6.4  

            PV-10 Multiples (x)   0.4x - 0.5x   0.5x  

    175,000       Cost   100% - 100%   100.0 %

    311,989   Market Quotes   Indicative Dealer Quotes   68.0% - 103.0%   97.4 %

Senior Secured Loans—Second Lien

   
557,134
 

Market Comparables

 

Market Yield (%)

 

8.9% - 16.9%

 
10.2

%

            EBITDA Multiples (x)   6.0x - 6.5x   6.3x  

    50,000       Cost   100% - 100%   100.0 %

    15,617   Other(2)   Other(2)   N/A   N/A  

    247,868   Market Quotes   Indicative Dealer Quotes   6.3% - 100.8%   92.2 %

Senior Secured Bonds

   
411,712
 

Market Comparables

 

Market Yield (%)

 

8.3% - 10.3%

 
9.0

%

            Production Multiples (Mboe/d)   $42,250.0 - $44,750.0   $43,500.0  

            Proved Reserves Multiples (Mmboe)   $10.0 - $11.0   $10.5  

            PV-10 Multiples (x)   0.7x - 0.8x   0.8x  

            EBITDA Multiples (x)   4.8x - 5.3x   5.0x  

    33,173   Other(2)   Other(2)   N/A   N/A  

    112,909   Market Quotes   Indicative Dealer Quotes   77.9% - 108.8%   90.7 %

Subordinated Debt

   
172,332
 

Market Comparables

 

Market Yield (%)

 

7.3% - 14.8%

 
9.0

%

            Production Multiples (Mboe/d)   $27,500.0 - $30,000.0   $28,750.0  

            PV-10 Multiples (x)   0.9x - 1.0x   1.0x  

            EBITDA Multiples (x)   7.0x - 7.5x   7.3x  

            Discount Rate (%)   22.5% - 27.5%   25.0 %

    1,172,336   Market Quotes   Indicative Dealer Quotes   36.3% - 120.1%   99.4 %

Equity/Other

   
442,877
 

Market Comparables

 

EBITDA Multiples (x)

 

4.8x - 16.0x

 
8.6x
 

            Production Multiples (Mboe/d)   $42,250.0 - $50,000.0   $44,729.9  

            Proved Reserves Multiples (Mmboe)   $4.3 - $11.3   $9.9  

            Production Multiples (MMcfe/d)   $5,750 - $6,750.0   $6,250.0  

            Proved Reserves Multiples (Bcfe)   $1.7 - $1.9   $1.8  

            PV-10 Multiples (x)   0.4x - 3.3x   2.4x  

            Capacity Multiple ($/kW)   $2,500.0 - $2,750.0   $2,625.0  

            Market Yield (%)   13.8% - 14.3%   14.0 %

    35   Discounted Cash Flow   Discount Rate (%)   7.5% - 21.8%   20.6 %

    67   Option Valuation Model   Volatility (%)   30.0% - 30.0%   30.0 %

    15,014   Other(2)   Other(2)   N/A   N/A  

    25,291   Market Quotes   Indicative Dealer Quotes   $2.6 - $367.5   $70.8  

Total

  $ 4,201,942                  

(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 an independent third-party pricing service and screened for validity by such service. 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 a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) 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.

(2)
Fair valued based on expected outcome of proposed corporate transactions, the expected value of the liquidation preference of the investment or other factors.

39


Table of Contents


FS Energy and Power Fund

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, 2016   Valuation Technique(1)   Unobservable Input   Range   Weighted
Average
 

Senior Secured Loans—
First Lien

  $ 581,550   Market Comparables   Market Yield (%)   8.0% - 17.8%   11.5 %

    1,024   Other(2)   Other(2)   N/A   N/A  

    329,917   Market Quotes   Indicative Dealer Quotes   72.0% - 102.0%   93.7 %

Senior Secured Loans—
Second Lien

   
530,636
 

Market Comparables

 

Market Yield (%)

 

8.8% - 22.9%

 
12.7

%

    343,233   Market Quotes   Indicative Dealer Quotes   12.0% - 105.4%   89.6 %

Senior Secured Bonds

   
326,388
 

Market Comparables

 

Market Yield (%)

 

7.5% - 9.0%

 
8.0

%

            Production Multiples (Mboe/d)   $45,000.0 - $50,000.0   $47,500.0  

            Proved Reserves Multiples (Mmboe)   $14.5 - $15.0   $14.8  

            EBITDA Multiples (x)   6.8x - 7.3x   7.0x  

            PV-10 Multiples (x)   0.8x - 0.9x   0.9x  

    71,226   Market Quotes   Indicative Dealer Quotes   84.2% - 109.3%   96.6 %

Subordinated Debt

   
122,821
 

Market Comparables

 

Market Yield (%)

 

7.5% - 15.3%

 
11.2

%

    920,346   Market Quotes   Indicative Dealer Quotes   54.5% - 125.5%   97.7 %

Equity/Other

   
594,404
 

Market Comparables

 

EBITDA Multiples (x)

 

4.5x - 16.3x

 
9.4x
 

            Production Multiples (Mmb/d)   $2,225.0 - $55,000.0   $41,329.5  

            Proved Reserves Multiples (Mmboe)   $0.7 - $15.0   $8.9  

            PV-10 Multiples (x)   0.3x - 2.1x   0.7x  

            Capacity Multiple ($/kW)   $2,375.0 - $2,875.0   $2,625.0  

            Undeveloped Acreage Multiple ($/acre)   $8,000.0 - $10,000.0   $9,000.0  

            Market Yield (%)   10.0% - 14.3%   12.2 %

        Discounted Cash Flow   Discount Rate (%)   9.3% - 24.8%   23.7 %

    3,339   Other(2)   Other(2)   N/A   N/A  

    38,828   Market Quotes   Indicative Dealer Quotes   $7.0 - $16.0   $10.7  

Total

  $ 3,863,712                  

(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 an independent third-party pricing service and screened for validity by such service. 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 a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement.

(2)
Fair valued based on expected outcome of proposed corporate transactions, the expected value of the liquidation preference of the investment or other factors.

Note 8. Financing Arrangements

        The following tables present a summary of information with respect to the Company's outstanding financing arrangements as of September 30, 2017 and December 31, 2016. 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, 2016 and the additional disclosure set forth in this Note 8.

 
  As of September 30, 2017 (Unaudited)
Facility(1)   Type of
Arrangement
  Rate   Amount
Outstanding
  Amount
Available
  Maturity Date

Barclays Credit Facility

  Revolving   L+3.25%   $   $ 100,000   May 18, 2021

BNP Facility

  Prime Brokerage   L+1.35%(2)     300,000       June 27, 2018(3)

Deutsche Bank Credit Facility

  Revolving   L+2.05%     340,000       June 11, 2018

Fortress Facility

  Term   L+5.00%(4)     155,000       November 6, 2020

Goldman Facility

  Term   L+3.72%     425,000       September 15, 2019

Total

          $ 1,220,000   $ 100,000    

40


Table of Contents


FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)


(1)
The carrying amounts outstanding under the facilities approximate their fair value.

(2)
Beginning on January 2, 2017, borrowings under the BNP facility began to accrue interest at a rate equal to LIBOR plus 1.35%.

(3)
As described below, the BNP facility generally is terminable upon 270 days' notice by either party. As of September 30, 2017, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the facility.

(4)
As described below, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR plus 5.00%, subject to a floor of 0.75%.
 
  As of December 31, 2016
Facility(1)   Type of
Arrangement
  Rate   Amount
Outstanding
  Amount
Available
  Maturity Date

Barclays Credit Facility

  Revolving   L+3.25%   $   $ 100,000   May 18, 2021

BNP Facility

  Prime Brokerage   L+1.10%(2)     113,737     186,263   September 27, 2017(3)

Deutsche Bank Credit Facility

  Revolving   L+2.05%(4)     200,000     115,000   June 11, 2017

Fortress Facility

  Term   L+5.00%(5)     155,000       November 6, 2020

Goldman Repurchase Financing

  Repurchase   L+3.38%(6)     325,000       September 15, 2018

Natixis Credit Facility

  Revolving   CP+2.25%     50,328       July 11, 2023

Wells Fargo Credit Facility

  Revolving   L+2.50% to 2.75%     29,600     30,400   September 9, 2018

Total

          $ 873,665   $ 431,663    

(1)
The carrying amounts outstanding under the facilities approximate their fair value.

(2)
Beginning on January 2, 2017, borrowings under the BNP facility will accrue interest at a rate equal to LIBOR plus 1.35%.

(3)
As described below, the BNP facility generally is terminable upon 270 days' notice by either party. As of December 31, 2016, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the BNP facility.

(4)
Prior to June 11, 2016, borrowings under the Deutsche Bank credit facility accrued interest at a rate equal to LIBOR plus 1.80% per annum. Beginning on June 11, 2016, borrowings under the Deutsche Bank credit facility accrue interest at a rate equal to LIBOR plus 2.05% per annum.

(5)
As described below, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR plus 5.00%, subject to a floor of 0.75%.

(6)
Prior to September 21, 2016, borrowings under the Goldman repurchase financing accrued interest at a rate equal to LIBOR plus 2.75% per annum. Beginning on September 21, 2016, borrowings under the Goldman repurchase financing accrue interest at a rate equal to LIBOR plus 3.38% per annum.

41


Table of Contents


FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

        For the three and nine months ended September 30, 2017 and 2016, the components of total interest expense for the Company's financing arrangements were as follows:

 
  Three Months Ended September 30,  
 
  2017   2016  
Facility(1)   Direct
Interest
Expense(2)
  Amortization
of Deferred
Financing
Costs
  Total
Interest
Expense
  Direct
Interest
Expense(2)
  Amortization
of Deferred
Financing
Costs
  Total
Interest
Expense
 

Barclays Credit Facility

  $ 96   $ 15   $ 111   $ 97   $ 8   $ 105  

BNP Facility

    1,825         1,825     810         810  

Deutsche Bank Credit Facility

    2,285     298     2,583     1,609     276     1,885  

Fortress Facility

    2,401     68     2,469     1,495     68     1,563  

Goldman Facility

    5,425     148     5,573              

Goldman Repurchase Financing

                2,879     33     2,912  

Natixis Credit Facility

    64         64     460     262     722  

Wells Fargo Credit Facility

    62     961     1,023     791     133     924  

Total

  $ 12,158   $ 1,490   $ 13,648   $ 8,141   $ 780   $ 8,921  

(1)
Borrowings of each of the Company's wholly-owned special-purpose financing subsidiaries 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 may include non-usage fees.
 
  Nine Months Ended September 30,  
 
  2017   2016  
Facility(1)   Direct
Interest
Expense(2)
  Amortization
of Deferred
Financing
Costs
  Total
Interest
Expense
  Direct
Interest
Expense(2)
  Amortization
of Deferred
Financing
Costs
  Total
Interest
Expense
 

Barclays Credit Facility

  $ 301   $ 43   $ 344   $ 142   $ 10   $ 152  

BNP Facility

    4,537         4,537     2,326         2,326  

Deutsche Bank Credit Facility

    6,163     856     7,019     4,871     869     5,740  

Fortress Facility

    6,946     203     7,149     4,480     202     4,682  

Goldman Facility

    8,762     265     9,027              

Goldman Repurchase Financing

    4,305     91     4,396     8,384     97     8,481  

Natixis Credit Facility

    750     342     1,092     1,783     781     2,564  

Wells Fargo Credit Facility

    530     1,360     1,890     2,859     396     3,255  

Total

  $ 32,294   $ 3,160   $ 35,454   $ 24,845   $ 2,355   $ 27,200  

(1)
Borrowings of each of the Company's wholly-owned special-purpose financing subsidiaries 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 may include non-usage fees.

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FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

        For the nine months ended September 30, 2017 and 2016, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Company's financing arrangements were as follows:

 
  Nine Months Ended September 30,  
 
  2017   2016  
Facility   Cash Paid
for Interest
Expense
  Average
Borrowings(7)
  Effective
Interest
Rate
  Weighted
Average
Interest
Rate(1)
  Cash Paid
for Interest
Expense
  Average
Borrowings
  Effective
Interest
Rate
  Weighted
Average
Interest
Rate(1)
 

Barclays Credit Facility(2)

  $ 301   $ 549         4.56 % $   $          

BNP Facility(3)(4)

    4,777     200,403     2.68 %   2.99 %   2,341     113,737     1.95 %   2.69 %

Deutsche Bank Credit Facility(3)(5)

    5,837     230,037     3.38 %   3.53 %   4,941     222,190     2.71 %   2.88 %

Fortress Facility(3)(5)

    6,654     155,000     6.06 %   5.91 %   3,580     89,600     5.75 %   6.57 %

Goldman Facility(5)

    7,824     235,623     4.97 %   4.90 %                

Goldman Repurchase Financing(6)

    4,954     128,571         4.42 %   8,316     324,985     4.03 %   3.39 %

Natixis Credit Facility(6)

    943     28,470         3.47 %   1,881     78,700     3.32 %   2.98 %

Wells Fargo Credit Facility(6)

    609     18,878         3.70 %   3,008     107,330     3.47 %   3.50 %

  $ 31,899   $ 997,531     4.10 %   4.27 % $ 24,067   $ 936,542     3.53 %   3.49 %

(1)
If applicable, the weighted average interest rate presented for periods of less than one year is annualized, unless otherwise noted below.

(2)
The weighted average interest rate includes the effect of non-usage fees and is representative of a two day period for which borrowings were outstanding during the nine months ended September 30, 2017. Interest is paid quarterly in arrears and commenced on February 6, 2017.

(3)
Effective interest rate and weighted average interest rate may include non-usage fees.

(4)
Interest is paid monthly in arrears.

(5)
Interest is paid quarterly in arrears.

(6)
Interest was paid quarterly in arrears.

(7)
The average borrowings calculated for the period in which amounts were outstanding during the nine months ended September 30, 2017 were $75,000, $389,849, $325,000, $36,489 and $24,897 under the the Barclays credit facility, Goldman facility, Goldman repurchase financing, Natixis credit facility and Wells Fargo credit facility, respectively.

Barclays Credit Facility

        On May 18, 2016, Bryn Mawr Funding LLC, or Bryn Mawr Funding, a wholly-owned subsidiary, entered into a revolving credit facility, or the Barclays credit facility, with Barclays Bank PLC, or Barclays, as administrative agent, and the lenders from time to time party thereto. The Barclays credit facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies in an aggregate amount of up to $100,000, including a subfacility for the issuance of letters of credit for Bryn Mawr Funding's account in an aggregate face amount of up to $10,000. Bryn Mawr Funding's obligations to Barclays under the Barclays credit facility are secured by a first priority security interest in substantially all of the assets of Bryn Mawr Funding, including its portfolio of assets and the assets of its subsidiaries, subject to customary exceptions. In addition, the Company has agreed to guaranty the obligations of Barclays and grant a first priority lien in favor of Barclays, for the benefit of the lenders, on the membership interests in Bryn Mawr Funding.

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FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

        The Barclays credit facility provides for a four year revolving period followed by a one year term-out period, after which time all outstanding advances and other amounts will become due and payable. Interest under the Barclays credit facility for (i) loans for which the Company elects the eurocurrency option is payable at a rate equal to LIBOR plus 3.25% per annum; and (ii) loans for which the Company elects the base rate option is payable at a rate equal to 2.25% per annum plus the greatest of (a) the U.S. Prime Rate, (b) the federal funds effective rate for such day plus 0.50%, (c) three-month LIBOR plus 1.00% per annum and (d) zero. Bryn Mawr Funding will pay a commitment fee of 0.375% per annum on the unused portion of the commitments under the Barclays credit facility during the revolving period and letter of credit participation fees and a fronting fee on the average daily amount of any letters of credit issued under the Barclays credit facility. Interest and fees are payable in arrears at the end of each interest period or three-month measurement period, as applicable, and, in each case, began on October 31, 2016.

        The Company incurred costs in connection with obtaining the Barclays credit facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Barclays credit facility. As of September 30, 2017, $211 of such deferred financing costs had yet to be amortized to interest expense.

BNP Facility

        On December 11, 2013, Berwyn Funding LLC, or Berwyn Funding, the Company's wholly-owned, special-purpose financing subsidiary, entered into a committed facility arrangement, or the BNP facility, with BNP Paribas Prime Brokerage, Inc., or BNP. As amended to date, BNP's maximum commitment under the BNP facility is $300,000. The BNP facility was effected through a committed facility agreement by and between Berwyn Funding and BNP, or the committed facility agreement, a U.S. PB Agreement by and between Berwyn Funding and BNP and a special custody and pledge agreement by and among Berwyn Funding, BNP and State Street Bank and Trust Company, or State Street, as custodian, each dated as of December 11, 2013, as amended to date, and which are collectively referred to herein as the BNP financing agreements.

        The Company may contribute securities to Berwyn Funding from time to time, subject to certain restrictions set forth in the committed facility agreement, and will retain a residual interest in any securities contributed through its ownership of Berwyn Funding or will receive fair market value for any securities sold to Berwyn Funding. Berwyn Funding may purchase additional securities from various sources. Berwyn Funding has appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. Berwyn Funding will pledge certain of its securities as collateral to secure borrowings under the BNP facility. Such pledged securities will be held in a segregated custody account with State Street. The value of securities required to be pledged by Berwyn Funding is determined in accordance with the margin requirements described in the BNP financing agreements. Berwyn Funding's obligations to BNP under the BNP facility are secured by a first priority security interest in substantially all of the assets of Berwyn Funding, including its portfolio of securities. The obligations of Berwyn Funding under the BNP facility are non-recourse to the Company and the Company's exposure under the BNP facility is limited to the value of the Company's investment in Berwyn Funding. On May 4, 2016, Berwyn Funding entered into an amendment to the BNP financing arrangements that permits Berwyn Funding to enter into trades, including but not limited to purchasing options, through the prime brokerage arrangement provided under the BNP financing arrangements.

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FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

        Prior to January 2, 2017, borrowings under the BNP facility accrued interest at a rate equal to three-month LIBOR plus 1.10% per annum and Berwyn Funding paid a non-usage fee of 0.55% per annum to the extent the aggregate principal amount available under the BNP facility was not borrowed. On May 4, 2016, Berwyn Funding entered into an amendment to the BNP facility which increased the (i) interest rate payable on borrowings to LIBOR plus 1.35% per annum effective on and after January 2, 2017 and (ii) the commitment fee payable on all unused amounts to, effective on and after January 2, 2017, (a) 0.65% per annum on unused amounts so long as 75% or more of the facility amount is utilized or (b) 0.85% per annum on unused amounts if less than 75% of the facility amount is utilized. Berwyn Funding may terminate the committed facility agreement upon 270 days' notice. Subject to certain cancellation rights, and absent a default or facility termination event, BNP is required to provide Berwyn Funding with 270 days' notice prior to terminating or amending the committed facility agreement.

        Under the terms of the BNP financing agreements, BNP has the ability to borrow a portion of the pledged collateral, or, collectively, the rehypothecated securities, subject to certain limits. Berwyn Funding may designate any security within the pledged collateral as ineligible to be a rehypothecated security, provided there remain securities eligible to be rehypothecated within the segregated custody account in an amount equal to the outstanding borrowings owed by Berwyn Funding to BNP. Berwyn Funding may recall any rehypothecated security at any time and BNP must return such security or an equivalent security within a commercially reasonable period. In the event BNP does not return the security, Berwyn Funding will have the right to, among other things, apply and set off an amount equal to 100% of the then-current fair market value of such rehypothecated securities against any outstanding borrowings owed to BNP under the facility. Rehypothecated securities are marked-to-market daily and if the value of all rehypothecated securities exceeds 100% of the outstanding borrowings owed by Berwyn Funding under the facility, BNP may either reduce the amount of rehypothecated securities to eliminate such excess or deposit into the segregated custody account an amount of cash equal to such excess. Berwyn Funding will continue to receive interest and the scheduled repayment of principal balances on rehypothecated securities. For the nine months ended September 30, 2017 and 2016, Berwyn Funding received a fee of $4 and $0, respectively, from BNP for securities that had been rehypothecated pursuant to the BNP financing agreements. As of September 30, 2017 and December 31, 2016, the fair value of those securities rehypothecated by BNP was $241,320 and $106,488, respectively.

        The Company incurred costs in connection with obtaining and amending the BNP facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortized to interest expense over the 270 day period following the closing date of the BNP facility or the amendment thereto, as applicable. As of September 30, 2017, all of such deferred financing costs had been amortized to interest expense.

Deutsche Bank Credit Facility

        On June 24, 2011, FSEP Term Funding, LLC, or FSEP Funding, the Company's wholly-owned, special-purpose financing subsidiary, entered into a revolving credit facility, or the Deutsche Bank credit facility, with Deutsche Bank AG, New York Branch, or Deutsche Bank, as administrative agent and the lender party thereto. The Deutsche Bank credit facility subsequently was amended multiple times, most recently, to set the maximum commitments under the facility at $340,000 and extend the maturity date to June 11, 2018. On September 29, 2017, FSEP Funding borrowed an additional $50,000 commitment under the Deutsche Bank credit facility to increase the amount outstanding to $340,000, the facility's maximum commitment.

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FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

        Under the Deutsche Bank credit facility, the Company has transferred from time to time cash or securities to FSEP Funding as a contribution to capital and retains a residual interest in the contributed cash or securities through the Company's ownership of FSEP Funding. The Company may contribute additional cash or securities to FSEP Funding from time to time and FSEP Funding may purchase additional securities from various sources. FSEP Funding has appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. FSEP Funding's obligations to the lenders under the Deutsche Bank credit facility are secured by a first priority security interest in substantially all of the assets of FSEP Funding, including its portfolio of securities. The obligations of FSEP Funding under the Deutsche Bank credit facility are non-recourse to the Company and the Company's exposure under the Deutsche Bank credit facility is limited to the value of the Company's investment in FSEP Funding.

        During the period from June 24, 2011 to June 10, 2016, interest on borrowings under the Deutsche Bank credit facility accrued at a rate equal to LIBOR for an interest period closest to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding plus 1.80% per annum. During the period from June 11, 2016 to June 10, 2017, interest on borrowings under the Deutsche Bank credit facility accrued at a rate equal to LIBOR for an interest period closest to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding plus 2.05% per annum. Beginning June 11, 2017, interest on borrowings under the Deutsche Bank credit facility is based on three-month LIBOR plus 2.05% per annum. FSEP Funding is subject to a non-usage fee of 0.75% per annum to the extent that the aggregate principal amount available under the Deutsche Bank credit facility is not borrowed. Any amounts borrowed under the Deutsche Bank credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on June 11, 2018.

        The Company incurred costs in connection with obtaining and amending the Deutsche Bank credit facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Deutsche Bank credit facility. As of September 30, 2017, $821 of such deferred financing costs had yet to be amortized to interest expense.

Fortress Facility

        On November 6, 2015, Foxfields Funding LLC, or Foxfields Funding, a wholly owned financing subsidiary of the Company, entered into a senior secured multiple draw term loan facility, or the Fortress facility, with Fortress as administrative agent, the lenders from time to time party thereto and the other loan parties from time to time party thereto. The Fortress facility, as amended, provides for $155,000 of term loans available to be borrowed during the first two years after the initial closing date of November 6, 2015 with an option for the Company to request, at one or more times during the first two years after the closing date, that existing or new lenders, at their election provide up to $45,000 of additional commitments.

        Interest under the Fortress facility for (i) loans bearing interest by reference to LIBOR accrues at a rate equal to LIBOR (subject to a floor of 0.75%) plus 5.00% per annum, and (ii) loans bearing interest by reference to the base rate accrues at 4.00% per annum plus the greater of: (x) the per annum rate of interest announced, from time to time, within Wells Fargo Bank, National Association at its principal office in San Francisco as its "prime rate," and (y) 1.75% per annum. Interest is payable quarterly in arrears and began accruing during the quarter ended March 31, 2016. During the first year after the closing date, Foxfields Funding is subject to a commitment fee at a rate equal to 1.00% per annum of the average daily undrawn amount under the Fortress facility. Under certain conditions, Foxfields Funding will be subject to a prepayment premium if all or any part of the principal balance of the borrowings is prepaid prior to November 6, 2017. Foxfields Funding incurred certain customary fees, costs and expenses in connection with obtaining the Fortress facility.

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FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

        The Company incurred costs in connection with obtaining and amending the Fortress facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Fortress facility. As of September 30, 2017, $842 of such deferred financing costs had yet to be amortized to interest expense.

Goldman Repurchase Financing

        On September 11, 2014, through its two wholly-owned, special-purpose financing subsidiaries, Gladwyne Funding LLC, or Gladwyne Funding, and Strafford Funding LLC, or Strafford Funding, the Company entered into a debt financing arrangement with Goldman, which was subsequently twice amended, or the Goldman repurchase financing. Prior to its termination on April 19, 2017, the amount borrowed under the Goldman repurchase financing was $325,000. On April 19, 2017, in connection with the closing of the Goldman repurchase financing, (i) all of the Floating Rate Notes, or Notes, issued by Gladwyne Funding to Strafford Funding were canceled and the indenture under which the Notes were issued was discharged, (ii) the master repurchase agreement between Strafford Funding and Goldman and each transaction thereunder was terminated and (iii) accordingly, the Goldman repurchase financing was prepaid in full and terminated.

        As of September 30, 2017 and December 31, 2016, Notes in an aggregate principal amount of $0 and $577,750, respectively had been purchased by Strafford Funding from Gladwyne Funding and subsequently sold to Goldman under the Goldman repurchase financing for aggregate proceeds of $0 and $325,000, respectively. The carrying amount outstanding under the Goldman repurchase financing approximated its fair value. The Company funded each purchase of Notes by Strafford Funding through a capital contribution to Strafford Funding. As of September 30, 2017 and December 31, 2016, Strafford Funding's liability under the Goldman repurchase financing was $0 and $325,000, respectively, plus $0 and $649, respectively, of accrued interest expense. The Notes issued by Gladwyne Funding and purchased by Strafford Funding eliminate in consolidation on the Company's financial statements.

        The Company incurred costs in connection with obtaining and amending the Goldman repurchase financing, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortized to interest expense over the life of the Goldman repurchase financing. As of September 30, 2017, all of such deferred financing costs had been amortized to interest expense.

Goldman Facility

        On April 19, 2017, Gladwyne Funding entered into a Credit Agreement with Goldman, as lender, sole lead arranger and administrative agent, Citibank, N.A., as collateral agent, and Virtus Group, LP, as collateral administrator, or the Goldman term facility, pursuant to which Goldman advanced $325,000 to Gladwyne Funding with a 60-day availability period for Gladwyne Funding to borrow an additional $100,000. Pursuant to the Goldman term facility, the Company may contribute cash, loans or bonds to Gladwyne Funding from time to time, subject to certain restrictions, and will retain a residual interest in any assets contributed through its ownership of Gladwyne Funding or will receive fair market value for any assets sold to Gladwyne Funding. Gladwyne Funding may purchase additional assets from various sources. Gladwyne Funding has appointed the Company to manage its portfolio of assets pursuant to the terms of an investment management agreement. Gladwyne Funding's obligations to Goldman under the Goldman term facility are secured by a first priority security interest in substantially all of the assets of Gladwyne Funding, including its portfolio of assets. The obligations of Gladwyne Funding under the Goldman term facility are non-recourse to the Company, and the Company's exposure under the Goldman term facility is limited to the value of the Company's investment in Gladwyne Funding. On June 16, 2017, Gladwyne Funding borrowed the additional $100,000 commitment under the Goldman term facility to increase the amount outstanding to $425,000.

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FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

        As of September 30, 2017, borrowings under the Goldman term facility accrue interest at a rate equal to three-month LIBOR plus 3.72% per annum. Interest is payable in arrears beginning on June 15, 2017 and each quarter thereafter. The Goldman term facility will mature, and all outstanding principal and accrued and unpaid interest thereunder, will be due and payable, on September 15, 2019.

        If the Goldman term facility is accelerated prior to its stated maturity date due to an event of default or all or a portion of the borrowings are prepaid, then Gladwyne Funding must pay to Goldman a fee equal to the present value of the aggregate amount of the spread over LIBOR (3.72% per annum) that would have been payable to Goldman on the subject borrowings through the facility's maturity date had the acceleration or prepayment not occurred.

        Pursuant to the Goldman term facility, Gladwyne Funding has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. The Goldman term facility contains customary events of default for similar financing transactions, including: (a) failure to pay certain fees and make-whole amounts when due; (b) failure to post cash collateral as required; (c) the occurrence of insolvency events with respect to Gladwyne Funding; and (d) the admission by Gladwyne Funding of its inability to, or its intention not to, perform any of its obligations under the Goldman term facility.

        The Company incurred costs in connection with obtaining the Goldman term facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Goldman term facility. As of September 30, 2017, $1,146 of such deferred financing costs had yet to be amortized to interest expense.

Natixis Credit Facility

        On August 2, 2017, Energy Funding LLC, or Energy Funding, the Company's wholly-owned, special-purpose financing subsidiary, repaid and terminated the revolving credit facility, or the Natixis credit facility, which Energy Funding originally entered into on July 11, 2015 with Natixis, New York Branch, or Natixis, as administrative agent and lender, Wells Fargo Bank, National Association, as collateral agent and custodian, and the other lenders from time to time party thereto. The Natixis credit facility provided for revolving borrowings through January 11, 2015 in an aggregate principal amount up to $150,000 on a committed basis. Prior to the termination of the Natixis credit facility, borrowings under the Natixis credit facility accrued interest at a rate equal to the applicable commercial paper rate plus 2.25% per annum.

        The Company incurred costs in connection with obtaining the Natixis credit facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortized to interest expense over the life of the Natixis credit facility. As of September 30, 2017, all of such deferred financing costs had been amortized to interest expense.

Wells Fargo Credit Facility

        On July 27, 2017 and July 28, 2017, Wayne Funding LLC, or Wayne Funding, the Company's wholly-owned, special purpose financing subsidiary, repaid and terminated, respectively, the revolving credit facility, or the Wells Fargo credit facility, which Wayne Funding originally entered into on September 9, 2014 with Wells Fargo Securities, LLC, as administrative agent, each of the conduit lenders and institutional lenders from time to time party thereto and Wells Fargo Bank, National Association, collectively referred to herein as Wells Fargo, as the collateral agent, account bank and collateral custodian under the Wells Fargo credit facility. The Wells Fargo credit facility provided for borrowings in an aggregate principal amount up to $60,000 on a committed basis. Prior to the termination of the Wells Fargo credit facility, borrowings accrued interest at a rate equal to

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FS Energy and Power Fund

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


Note 8. Financing Arrangements (Continued)

three-month LIBOR plus a spread ranging between 2.50% and 2.75% per annum, depending on the composition of the portfolio of assets for the relevant period.

        The Company incurred costs in connection with obtaining the Wells Fargo credit facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortized to interest expense over the life of the Wells Fargo credit facility. As of September 30, 2017, all of such deferred financing costs had been amortized to interest expense.

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. Management of FS 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 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 any 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.

        See Note 4 for a discussion of the Company's commitments to FS Advisor and its affiliates (including FS Investments) and Note 6 for a discussion of the Company's unfunded commitments.

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FS Energy and Power Fund

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 nine months ended September 30, 2017 and the year ended December 31, 2016:

 
  Nine Months Ended
September 30, 2017
(Unaudited)
  Year Ended
December 31, 2016
 

Per Share Data:(1)

             

Net asset value, beginning of period

  $ 7.61   $ 6.50  

Results of operations(2)

             

Net investment income (loss)

    0.50     0.57  

Net realized and unrealized appreciation (depreciation) on investments and gain/loss on foreign currency

    (0.54 )   1.25  

Net increase (decrease) in net assets resulting from operations

    (0.04 )   1.82  

Shareholder distributions(3)

             

Distributions from net investment income

    (0.53 )   (0.67 )

Distributions representing tax return of capital

        (0.04 )

Net decrease in net assets resulting from shareholder distributions

    (0.53 )   (0.71 )

Capital share transactions

             

Issuance of common shares(4)

         

Repurchases of common shares(5)

         

Net increase (decrease) in net assets resulting from capital share transactions

         

Net asset value, end of period

  $ 7.04   $ 7.61  

Shares outstanding, end of period

    447,166,265     440,162,095  

Total return(6)

    (0.58 )%   29.53 %

Total return (without assuming reinvestment of distributions)(6)

    (0.53 )%   28.00 %

Ratio/Supplemental Data:

             

Net assets, end of period

  $ 3,147,906   $ 3,348,894  

Ratio of net investment income to average net assets(7)

    8.81 %   8.19 %

Ratio of total operating expenses to average net assets(7)

    4.84 %   4.88 %

Ratio of net expenses to average net assets(6)

    4.15 %   4.88 %

Portfolio turnover(8)

    25.75 %   35.85 %

Total amount of senior securities outstanding, exclusive of treasury securities

  $ 1,220,000   $ 873,665  

Asset coverage per unit(9)

    3.58     4.83  

(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 shares on a per share basis reflects the incremental net asset value changes as a result of the issuance of common shares, pursuant to the Company's distribution reinvestment plan. The issuance of common shares at a price that is greater than the net asset

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FS Energy and Power Fund

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


Note 10. Financial Highlights (Continued)

    value per share results in an increase in net asset value per share. The per share impact of the Company's issuance of common shares was an increase in net asset value of less than $0.01 per share during the nine months ended September 30, 2017.

(5)
The per share impact of the Company's repurchases of common shares was 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 Company's distribution reinvestment plan. 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 asset value per share at the beginning of the applicable period. The total returns (with and without assuming reinvestment of distributions) do not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of the Company's common shares. The total returns (with and without assuming reinvestment of distributions) include the effect of the issuance of common 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 (with and without assuming reinvestment of distributions) in the table should not be considered representations of the Company's future total returns (with and without assuming reinvestment of distributions), 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 shareholders.

(7)
Weighted average net assets during the applicable period are used for this calculation. Ratios for the nine months ended September 30, 2017 are annualized with the exception of certain expenses that may be non-recurring, such as subordinated income incentive fees. Annualized ratios for the nine months ended September 30, 2017 are not necessarily indicative of the ratios that may be expected for the year ending December 31, 2017. The following is a schedule of supplemental ratios for the nine months ended September 30, 2017 and year ended December 31, 2016:
   
  Nine Months Ended
September 30, 2017
(Unaudited)
  Year Ended
December 31, 2016
 
 

Ratio of subordinated income incentive fees to average net assets

    0.32 %   0.20 %
 

Ratio of interest expense to average net assets

    1.44 %   1.31 %
 

Ratio of offering costs to average net assets

        0.17 %
(8)
Portfolio turnover for the nine months ended September 30, 2017 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 included elsewhere in this quarterly report on Form 10-Q. In this report, "we," "us" and "our" refer to FS Energy and Power Fund.

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 financing arrangements 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 Fund Complex or any affiliates thereof;

    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 FS Advisor to locate suitable investments for us and to monitor and administer our investments;

    the ability of FS 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. Shareholders are advised to consult any additional disclosures that we may make directly to shareholders 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 formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced investment operations on July 18, 2011 upon raising gross proceeds in excess of $2,500 from sales of our common shares in our continuous public offering to persons who were not affiliated with us or FS Advisor. 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 2016, we closed our continuous public offering of common shares to new investors.

        Our investment activities are managed by FS Advisor and supervised by our board of trustees, a majority of whom are independent. Under our investment advisory and administrative services agreement, we have agreed to pay FS Advisor an annual base management fee based on our gross assets as well as incentive fees based on our performance. FS Advisor has engaged GSO to act as our investment sub-adviser. GSO assists FS Advisor in identifying investment opportunities and makes investment recommendations for approval by FS Advisor according to guidelines set by FS Advisor.

        Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies. This investment policy may not be changed without at least 60 days' prior notice to holders of our common shares of any such change.

        Our investment objective is to generate current income and long-term capital appreciation. We have identified and intend to focus on the following investment categories, which we believe will allow us to generate an attractive total return with an acceptable level of risk.

        Direct Originations:    We intend to leverage our relationships and our relationship with GSO and its global sourcing and origination platform, including its industry relationships, to directly source investment opportunities. Such investments are originated or structured for us or made by us and are not generally available to the broader market. These investments may include both debt and equity components, although we do not expect to make equity investments (other than income-oriented equity investments) independent of having an existing credit relationship. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions.

        Opportunistic:    We seek to capitalize on market price inefficiencies by investing in loans, bonds and other securities where the market price of such investment reflects a lower value than deemed warranted by our fundamental analysis. We believe that market price inefficiencies may occur due to, among other things, general dislocations in the markets, a misunderstanding by the market of a particular company or an Energy industry sub-sector being out of favor with the broader investment community. We seek to allocate capital to these securities that have been misunderstood or mispriced by the market and where we believe there is an opportunity to earn an attractive return on our investment. Such opportunities may include both event driven investments and anchor orders.

        In the case of event driven investments, we intend to take advantage of dislocations that arise in the markets due to an impending event and where the market's apparent expectation of value differs substantially from our fundamental analysis. Such events may include a looming debt maturity or default, a merger, spin-off or other corporate reorganization, an adverse regulatory or legal ruling, or a

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material contract expiration, any of which may significantly improve or impair a company's financial position. Compared to other investment strategies, event driven investing depends more heavily on our ability to successfully predict the outcome of an individual event rather than on underlying macroeconomic fundamentals. As a result, successful event driven strategies may offer both substantial diversification benefits and the ability to generate performance in uncertain market environments.

        We may also invest in certain opportunities that are originated and then syndicated by a commercial or investment bank but where we provide a capital commitment significantly above the average syndicate participant, i.e., an anchor order. In these types of investments, we may receive fees, preferential pricing or other benefits not available to other lenders in return for our significant capital commitment. Our decision to provide an anchor order to a syndicated transaction is predicated on a rigorous credit analysis, our familiarity with a particular company, Energy industry sub-sector or financial sponsor, and the broader investment experiences of FS Advisor and GSO.

        Broadly Syndicated/Other:    Although our primary focus is to invest in directly originated transactions and opportunistic investments, in certain circumstances we will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than our directly originated investments and provide a complement to our less liquid strategies. In addition, and because we typically receive more attractive financing terms on these positions than we do on our less liquid assets, we are able to leverage the broadly syndicated portion of our portfolio in such a way that maximizes the levered return potential of our portfolio.

        Our portfolio is comprised primarily of income-oriented securities, which refers to debt securities and income-oriented preferred and common equity interests, of privately-held Energy companies within the United States. We intend to weight our portfolio towards senior and subordinated debt. In addition to investments purchased from dealers or other investors in the secondary market, we expect to invest in primary market transactions and directly originated investments as this will provide us with the ability to tailor investments to best match a project's or company's needs with our investment objectives. Our portfolio may also be comprised of select income-oriented preferred or common equity interests, which refers to equity interests that pay consistent, high-yielding dividends, that we believe will produce both current income and long-term capital appreciation. These income-oriented preferred or common equity interests may include interests in master limited partnerships. In connection with certain of our debt investments or any restructuring of these debt investments, we may on occasion receive equity interests, including warrants or options, as additional consideration or otherwise in connection with a restructuring.

        In addition, a portion of our portfolio may be comprised of minority interests in the form of common or preferred equity or other 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, as well as derivatives, including total return swaps and credit default swaps. FS 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 other more opportunistic investments. We expect that the size of our individual investments will generally range between $5 million and $75 million each, although investments may vary proportionately as the size of our capital base changes and will ultimately be at the discretion of FS Advisor, subject to oversight by our board of trustees.

Revenues

        The principal measure of our financial performance is net increase or 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 foreign currency, net change in unrealized appreciation or depreciation on investments and net change in 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 foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net change in unrealized appreciation

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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 change in 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. We also generate revenues in the form of dividends and other distributions on the equity or other securities we may hold. In addition, we may generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned.

Expenses

        Our primary operating expenses include the payment of advisory fees and other expenses under the investment advisory and administrative services agreement, interest expense from financing arrangements and other expenses necessary for our operations. Our investment advisory fee compensates FS Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. FS Advisor is responsible for compensating our investment sub-adviser.

        We reimburse FS Advisor for expenses necessary to perform services related to our administration and operations, including FS Advisor's allocable portion of the compensation and related expenses of certain personnel of FS Investments providing administrative services to us on behalf of FS Advisor. Such services include the provision of general ledger accounting, fund accounting, legal services, investor relations and other administrative services. FS 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 shareholders and reports filed with the SEC. In addition, FS 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 shareholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. See "—Related Party Transactions" for additional information regarding the reimbursements payable to FS Advisor for administrative services and the methodology for determining the amount of any such reimbursements. We bear all other expenses of our operations and transactions. For additional information regarding these expenses, see our annual report on Form 10-K for the year ended December 31, 2016.

        In addition, we have contracted with State Street to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by FS 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 information regarding our expense reimbursement arrangement with FS Investments, see Note 4 to our unaudited consolidated financial statements included herein.

Portfolio Investment Activity for the Three and Nine Months Ended September 30, 2017 and for the Year Ended December 31, 2016

Total Portfolio Activity

        The following tables present certain selected information regarding our portfolio investment activity for the three and nine months ended September 30, 2017:

Net Investment Activity   For the
Three Months Ended
September 30, 2017
  For the
Nine Months Ended
September 30, 2017
 

Purchases

  $ 355,933   $ 1,607,965  

Sales and Repayments

    (310,268 )   (1,081,349 )

Net Portfolio Activity

  $ 45,665   $ 526,616  

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  For the
Three Months Ended
September 30, 2017
  For the
Nine Months Ended
September 30, 2017
 
New Investment Activity by Asset Class   Purchases   Percentage   Purchases   Percentage  

Senior Secured Loans—First Lien

  $ 178,894     50 % $ 316,317     20 %

Senior Secured Loans—Second Lien

    164,291     46 %   417,845     26 %

Senior Secured Bonds

            240,254     15 %

Subordinated Debt

    8,985     3 %   596,374     37 %

Equity/Other

    3,763     1 %   37,175     2 %

Total

  $ 355,933     100 % $ 1,607,965     100 %

        The following table summarizes the composition of our investment portfolio at cost and fair value as of September 30, 2017 and December 31, 2016:

 
  September 30, 2017
(Unaudited)
  December 31, 2016  
 
  Amortized
Cost(1)
  Fair Value   Percentage
of Portfolio
  Amortized
Cost(1)
  Fair Value   Percentage
of Portfolio
 

Senior Secured Loans—First Lien

  $ 983,398   $ 945,577     22 % $ 947,803   $ 912,491     23 %

Senior Secured Loans—Second Lien

    933,658     870,619     21 %   948,762     873,869     22 %

Senior Secured Bonds

    562,103     557,794     13 %   388,512     397,614     10 %

Subordinated Debt

    1,357,833     1,344,668     32 %   1,049,097     1,043,167     27 %

Equity/Other

    626,454     523,626     12 %   628,814     683,299     18 %

Total

  $ 4,463,446   $ 4,242,284     100 % $ 3,962,988   $ 3,910,440     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 September 30, 2017 and December 31, 2016:

 
  September 30, 2017   December 31, 2016  

Number of Portfolio Companies

    79     84  

% Variable Rate (based on fair value)

    40.6 %   43.6 %

% Fixed Rate (based on fair value)

    47.1 %   38.9 %

% Income Producing Equity/Other Investments (based on fair value)

    0.6 %   3.5 %

% Non-Income Producing Equity/Other Investments (based on fair value)

    11.7 %   14.0 %

Average Annual EBITDA of Portfolio Companies

  $ 194,115   $ 304,299  

Weighted Average Purchase Price of Debt Investments (as a % of par value)

    96.9 %   97.2 %

% of Investments on Non-Accrual (based on fair value)

    1.7 %   0.0 %

Gross Portfolio Yield Prior to Leverage (based on amortized cost)

    8.7 %   8.8 %

Gross Portfolio Yield Prior to Leverage (based on amortized cost)—Excluding Non-Income Producing Assets

    10.2 %   10.2 %

        Based on our regular monthly cash distribution rate of $0.059042 per share as of September 30, 2017 and December 31, 2016, and the price at which we issued shares pursuant to our distribution reinvestment plan of $7.15 and $7.70, respectively, per share, the annualized distribution rate to shareholders as of September 30, 2017 and December 31, 2016 was 9.91% and 9.20%, respectively. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital. For the nine months ended September 30, 2017 and year ended December 31, 2016, our total return was (0.58)% and 29.53%, respectively, and our total return without assuming reinvestment of distributions was (0.53)% and 28.00%, respectively.

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        Our estimated gross portfolio yield and annualized distribution rate to shareholders do not represent actual investment returns to shareholders. Our gross annual portfolio yield and distribution rate to shareholders are subject to change and in the future may be greater or less than the rates set forth above. See the sections entitled "Risk Factors" in our annual report on Form 10-K for the fiscal year ended December 31, 2016 and in our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with these statements.

Direct Originations

        The following tables present certain selected information regarding our direct originations for the three and nine months ended September 30, 2017:

New Direct Originations   For the
Three Months Ended
September 30, 2017
  For the
Nine Months Ended
September 30, 2017
 

Total Commitments (including unfunded commitments)

  $ 350,000   $ 902,558  

Exited Investments (including partial paydowns)

    (273 )   (486,062 )

Net Direct Originations

  $ 349,727   $ 416,496  

 

 
  For the
Three Months Ended
September 30, 2017
  For the
Nine Months Ended
September 30, 2017
 
New Direct Originations by Asset Class
    (including Unfunded Commitments)
  Commitment
Amount
  Percentage   Commitment
Amount
  Percentage  

Senior Secured Loans—First Lien

  $ 175,000     50 % $ 225,388     25 %

Senior Secured Loans—Second Lien

    175,000     50 %   371,000     41 %

Senior Secured Bonds

            122,812     14 %

Subordinated Debt

            165,000     18 %

Equity/Other

            18,358     2 %

Total

  $ 350,000     100 % $ 902,558     100 %

 

 
  For the
Three Months Ended
September 30, 2017
  For the
Nine Months Ended
September 30, 2017
 

Average New Direct Origination Commitment Amount

  $ 116,667   $ 60,171  

Weighted Average Maturity for New Direct Originations

    1/28/22     10/2/22  

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during Period

    8.4 %   8.9 %

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during Period—Excluding Non-Income Producing Assets

    8.5 %   9.1 %

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period

    10.8 %   11.1 %

        The following table presents certain selected information regarding our direct originations as of September 30, 2017 and December 31, 2016:

Characteristics of All Direct Originations held in Portfolio   September 30, 2017   December 31, 2016  

Number of Portfolio Companies

    35     28  

Average Annual EBITDA of Portfolio Companies

  $ 90,714   $ 71,509  

Average Leverage Through Tranche of Portfolio Companies—Excluding Equity/Other Securities

    5.5x     4.8x  

% of Investments on Non-Accrual (based on fair value)

    2.0 %   0.1 %

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations

    8.4 %   8.9 %

Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations—Excluding Non-Income Producing Assets

    10.7 %   11.4 %

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Portfolio Composition by Strategy

        The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the total portfolio assets in such strategies as of September 30, 2017 and December 31, 2016:

 
  September 30, 2017   December 31, 2016  
Portfolio Composition by Strategy   Fair Value   Percentage
of Portfolio
  Fair Value   Percentage
of Portfolio
 

Direct Originations

  $ 2,407,468     57 % $ 2,208,234     57 %

Opportunistic

    1,149,866     27 %   867,477     22 %

Broadly Syndicated/Other

    684,950     16 %   834,729     21 %

Total

  $ 4,242,284     100 % $ 3,910,440     100 %

        See Note 6 to our unaudited consolidated financial statements included herein for additional information regarding our investment portfolio.

Portfolio Asset Quality

        In addition to various risk management and monitoring tools, FS Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. FS Advisor uses an investment rating scale of 1 to 5. The following is a description of the conditions associated with each investment rating:

Investment Rating   Summary Description

1

  Investment exceeding expectations and/or capital gain expected.

2

  Performing investment generally executing in accordance with the portfolio company's business plan—full return of principal and interest expected.

3

  Performing investment requiring closer monitoring.

4

  Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment.

5

  Underperforming investment with expected loss of interest and some principal.

        The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of September 30, 2017 and December 31, 2016:

 
  September 30, 2017   December 31, 2016  
Investment Rating   Fair Value   Percentage
of Portfolio
  Fair Value   Percentage
of Portfolio
 

1

  $ 129,994     3 % $ 115,927     3 %

2

    3,195,806     75 %   2,719,833     70 %

3

    697,223     17 %   899,835     23 %

4

    57,782     1 %   85,427     2 %

5

    161,479     4 %   89,418     2 %

Total

  $ 4,242,284     100 % $ 3,910,440     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.

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Results of Operations

Comparison of the Three Months Ended September 30, 2017 and 2016

Revenues

        Our investment income for the three months ended September 30, 2017 and 2016 was as follows:

 
  Three Months Ended September 30,  
 
  2017   2016  
 
  Amount   Percentage of
Total Income
  Amount   Percentage of
Total Income
 

Interest income

  $ 84,676     84 % $ 76,355     85 %

Paid-in-kind interest income

    9,339     9 %   10,403     12 %

Fee income

    7,056     7 %   2,624     3 %

Total investment income(1)

  $ 101,071     100 % $ 89,382     100 %

(1)
Such revenues represent $86,460 and $75,249 of cash income earned as well as $14,611 and $14,133 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the three months ended September 30, 2017 and 2016, 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 investment income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest and any dividend income that we earn to increase if the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio increases.

        Fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

Expenses

        Our operating expenses for the three months ended September 30, 2017 and 2016 were as follows:

 
  Three Months Ended
September 30,
 
 
  2017   2016  

Management fees

  $ 22,031   $ 20,086  

Administrative services expenses

    611     1,118  

Share transfer agent fees

    658     750  

Accounting and administrative fees

    384     384  

Interest expense

    13,648     8,921  

Trustees' fees

    244     245  

Offering costs

        755  

Expenses associated with our independent audit and related fees

    132     114  

Legal fees

    74     132  

Printing fees

    305     727  

Insurance expense

    48     56  

Other

    4     363  

Total operating expenses

    38,139     33,651  

Less: Expense reimbursement from sponsor

    (7,095 )    

Net operating expenses

  $ 31,044   $ 33,651  

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        During the three months ended September 30, 2017 and 2016, our ratio of total operating expenses to average net assets was 1.21% and 1.10%, respectively. During the three months ended September 30, 2017 and 2016, the ratio of our net expenses to our average net assets, which includes $7,095 and $0, respectively, of expense reimbursements from FS Investments was 0.98% and 1.10%, respectively. During the three months ended September 30, 2017 and 2016, our ratio of total operating expenses to average net assets included $13,648 and $8,921, respectively, related to interest expense and $0 and $755, respectively, related to amortization of deferred offering costs. Without such expenses, our ratio of total operating expenses to average net assets would have been 0.78% and 0.78% for the three months ended September 30, 2017 and 2016, respectively. Interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.

Expense Reimbursement

        During the three months ended September 30, 2017 and 2016, we accrued $7,095 and $0, respectively, for expense reimbursements that FS Investments has agreed to pay. It is intended that these reimbursements will be funded through the offset of management fees payable by us to FS Advisor. Under the expense reimbursement agreement, amounts reimbursed to us by FS Investments may become subject to repayment by us in the future. During the three months ended September 30, 2017 and 2016, we did not accrue any expense recoupments payable to FS Advisor or its affiliates. See "—Overview—Expense Reimbursement" for a discussion of the expense reimbursement agreement.

Net Investment Income

        Our net investment income totaled $70,027 ($0.16 per share) and $55,731 ($0.13 per share) for the three months ended September 30, 2017 and 2016, respectively. The increase in net investment income on a per share basis can be attributed primarily to an increase in fee income and the reimbursement of expenses provided to us by FS Investments through the offset of certain advisory fees payable to FS Advisor.

Net Realized Gains or Losses

        We sold investments and received principal repayments of $306,350 and $3,918, respectively, during the three months ended September 30, 2017, from which we realized a net gain of $6,211. We sold investments and received principal repayments of $10,159 and $250,161, respectively, during the three months ended September 30, 2016, from which we realized a net loss of $119,886.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Unrealized Gain (Loss) on Foreign Currency

        For the three months ended September 30, 2017 and 2016, the net change in unrealized appreciation (depreciation) on investments totaled $(7,263) and $210,483, respectively, and the net change in unrealized gain (loss) on foreign currency was $(1) and $(2), respectively. The change in unrealized appreciation (depreciation) on our investments during the three months ended September 30, 2017 was primarily driven by the performance of our directly originated investments. The change in unrealized appreciation (depreciation) on our investments during the three months ended September 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our anchor order and broadly syndicated investments.

Increase (Decrease) in Net Assets Resulting from Operations

        For the three months ended September 30, 2017 and 2016, the net increase (decrease) in net assets resulting from operations was $68,974 ($0.16 per share) and $146,326 ($0.35 per share), respectively.

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Comparison of the Nine Months Ended September 30, 2017 and 2016

Revenues

        Our investment income for the nine months ended September 30, 2017 and 2016 was as follows:

 
  Nine Months Ended September 30,  
 
  2017   2016  
 
  Amount   Percentage of
Total Income
  Amount   Percentage of
Total Income
 

Interest income

  $ 255,464     80 % $ 238,697     87 %

Paid-in-kind interest income

    26,418     8 %   24,314     9 %

Fee income

    38,075     12 %   12,607     4 %

Total investment income(1)

  $ 319,957     100 % $ 275,618     100 %

(1)
Such revenues represent $279,323 and $242,463 of cash income earned as well as $40,634 and $33,155 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the nine months ended September 30, 2017 and 2016, 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 investment income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest and any dividend income that we earn to increase if the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio increases.

        Fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

Expenses

        Our operating expenses for the nine months ended September 30, 2017 and 2016, were as follows:

 
  Nine Months Ended
September 30,
 
 
  2017   2016  

Management fees

  $ 67,104   $ 55,725  

Subordinated income incentive fees

    10,499     5,774  

Administrative services expenses

    2,218     2,885  

Share transfer agent fees

    2,066     2,134  

Accounting and administrative fees

    1,216     994  

Interest expense

    35,454     27,200  

Trustees' fees

    744     757  

Offering costs

        1,378  

Expenses associated with our independent audit and related fees

    393     360  

Legal fees

    202     516  

Printing fees

    1,212     1,527  

Insurance expense

    139     174  

Other

    726     1,047  

Total operating expenses

    121,973     100,471  

Less: Expense reimbursement from sponsor

    (25,315 )    

Add: Expense recoupment to sponsor

    2,858      

Net operating expenses

  $ 99,516   $ 100,471  

        During the nine months ended September 30, 2017 and 2016, our ratio of total operating expenses to average net assets was 3.71% and 3.74%, respectively. During the nine months ended September 30, 2017 and 2016, the ratio of our net expenses to our average net assets, which includes $2,858 and $0,

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respectively, of expense recoupments payable to FS Investments and $25,315 and $0, respectively, of expense reimbursements from FS Investments, was 3.02% and 3.74%, respectively. During the nine months ended September 30, 2017 and 2016, our ratio of total operating expenses to average net assets included $35,454 and $27,200, respectively, related to interest expense, $10,499 and $5,774, respectively, related to accruals for incentive fees and $0 and $1,378, respectively, related to amortization of deferred offering costs. Without such expenses, our ratio of total operating expenses to average net assets would have been 2.31% and 2.46% for the nine months ended September 30, 2017 and 2016, respectively. 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 benchmark interest rates such as LIBOR, among other factors.

Expense Reimbursement

        During the nine months ended September 30, 2017 and 2016, we accrued $25,315 and $0, respectively, for expense reimbursements that FS Investments has agreed to pay. During the nine months ended September 30, 2017 and 2016, we offset $7,721 and $0, respectively, in management fees payable and $10,499 and $0, respectively, in subordinated income incentive fees payable by us to FS Advisor. Under the expense reimbursement agreement, amounts reimbursed to us by FS Investments may become subject to repayment by us in the future. During the nine months ended September 30, 2017 and 2016, we paid $2,858 and $0, respectively, in expense recoupments to FS Investments or its affiliates. See "—Overview—Expense Reimbursement" for a discussion of the expense reimbursement agreement.

Net Investment Income

        Our net investment income totaled $220,441 ($0.50 per share) and $175,147 ($0.44 per share) for the nine months ended September 30, 2017 and 2016, respectively. The increase in net investment income on a per share basis can be attributed primarily to an increase in fee income and the reimbursement of expenses provided to us by FS Investments through the offset of certain advisory fees payable to FS Advisor.

Net Realized Gains or Losses

        We sold investments and received principal repayments of $531,736 and $549,613, respectively, during the nine months ended September 30, 2017, from which we realized a net loss of $70,244. We sold investments and received principal repayments of $361,229 and $374,270, respectively, during the nine months ended September 30, 2016, from which we realized a net loss of $195,964. We realized a net gain of $1 from settlements on foreign currency during the nine months ended September 30, 2017.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Unrealized Gain (Loss) on Foreign Currency

        For the nine months ended September 30, 2017 and 2016, the net change in unrealized appreciation (depreciation) on investments totaled $(168,614) and $585,216, respectively, and the net change in unrealized gain (loss) on foreign currency was $51 and $12, respectively. The change in unrealized appreciation (depreciation) on our investments during the nine months ended September 30, 2017 was primarily driven by the performance of our directly originated investments. The change in unrealized appreciation (depreciation) on our investments during the nine months ended September 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our directly originated and anchor order investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

        For the nine months ended September 30, 2017 and 2016, the net increase (decrease) in net assets resulting from operations was $(18,365) ($(0.04) per share) and $564,411 ($1.41 per share), respectively.

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Financial Condition, Liquidity and Capital Resources

Overview

        As of September 30, 2017, we had $97,565 in cash, which we or our wholly-owned subsidiaries held in custodial accounts, and $100,000 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of FS Advisor, but in no event may leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See "—Financing Arrangements." As of September 30, 2017, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of September 30, 2017, we had six senior secured loan investments with aggregate unfunded commitments of $111,825 and five equity/other investments with aggregate unfunded commitments of $16,357. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

Public Offering of Shares, Private Placement, Distribution Reinvestment Plan and Share Repurchase Program

        In November 2016, we closed our continuous public offering of common shares to new investors. Following the closing of our continuous public offering, we continue to issue shares pursuant to our distribution reinvestment plan.

        We generate cash primarily from the issuance of shares under our distribution reinvestment plan and from cash flows from fees, interest and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments.

        Prior to investing in securities of portfolio companies, we invest the net proceeds from the issuance of shares under our distribution reinvestment plan as well as from sales and paydowns of existing 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.

        To provide our shareholders with limited liquidity, we conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in August 2012, and the repurchase occurred in connection with our October 1, 2012 semi-monthly closing.

        For additional information regarding our continuous public offering, private placement, distribution reinvestment plan and share repurchase program, see Note 3 to our unaudited consolidated financial statements included herein.

Financing Arrangements

        The following table presents a summary of information with respect to our outstanding financing arrangements as of September 30, 2017:

Facility(1)   Type of
Arrangement
  Rate   Amount
Outstanding
  Amount
Available
  Maturity Date

Barclays Credit Facility

  Revolving   L+3.25%   $   $ 100,000   May 18, 2021

BNP Facility

  Prime Brokerage   L+1.35%(2)     300,000       June 27, 2018(3)

Deutsche Bank Credit Facility

  Revolving   L+2.05%     340,000       June 11, 2018

Fortress Facility

  Term   L+5.00%(4)     155,000       November 6, 2020

Goldman Facility

  Term   L+3.72%     425,000       September 15, 2019

Total

          $ 1,220,000   $ 100,000    

(1)
The carrying amounts outstanding under the facilities approximates their fair value.

(2)
Beginning on January 2, 2017, borrowings under the BNP facility began to accrue interest at a rate equal to LIBOR plus 1.35%.

(3)
The BNP facility generally is terminable upon 270 days' notice by either party. As of September 30, 2017, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the facility.

(4)
As described in Note 8, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR plus 5.00%, subject to a floor of 0.75%.

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

RIC Tax Treatment and Distributions

        We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our shareholders. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our shareholders, for each tax year, dividends generally of an amount at least equal to 90% of our "investment company taxable income," which is generally the sum of our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for dividends paid. In addition, we may, in certain cases, satisfy the Annual Distribution Requirement by distributing dividends relating to a tax year after the close of such tax year under the "spillover dividend" provisions of Subchapter M of the Code. If we distribute a spillover dividend, such dividend will be included in a shareholder's gross income for the tax year in which the spillover distribution is paid. We intend to make sufficient distributions to our shareholders to maintain our RIC tax treatment each tax year. We will also be subject to nondeductible U.S. federal excise taxes on certain undistributed income unless we distribute in a timely manner to our shareholders of an amount at least equal to the sum of (1) 98% of our net ordinary taxable 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 over capital losses (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year and (3) any 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 by us during October, November or December of any calendar year, payable to our shareholders 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. shareholders, on December 31 of the calendar year in which the distribution was declared.

        Prior to the closing of our continuous public offering in November 2016, we declared regular cash distributions on a weekly basis, and paid such distributions on a monthly basis. Effective November 30, 2016, and subject to applicable legal restrictions and the sole discretion of our board of trustees, we intend to declare and pay regular cash distributions on a monthly basis. We will calculate each shareholder's specific distribution amount for the period using record and declaration dates and each shareholder's distributions will begin to accrue on the date that common shares are issued to such shareholder. From time to time, we may also pay special interim distributions in the form of cash or common shares at the discretion of our board of trustees. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of our board of trustees.

        During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make will represent a return of capital. A return of capital generally is a return of an investor's investment rather than a return of earnings or gains derived from our investment activities and will be made after deducting the fees and expenses payable in connection with our continuous public offering, including any fees payable to FS Advisor. Moreover, a return of capital will generally not be taxable, but will reduce each shareholder's cost basis in our common shares, and will result in a higher reported capital gain or lower reported capital loss when the common shares on which such return of capital was received are sold. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our shareholders.

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        The following table reflects the cash distributions per share that we have declared and paid on our common shares during the nine months ended September 30, 2017 and 2016:

 
  Distribution  
For the Three Months Ended   Per Share   Amount  

Fiscal 2016

             

March 31, 2016

  $ 0.17713   $ 66,720  

June 30, 2016

    0.17713     70,788  

September 30, 2016

    0.17713     74,481  

Total

  $ 0.53139   $ 211,989  

Fiscal 2017

             

March 31, 2017

  $ 0.17713   $ 77,984  

June 30, 2017

    0.17713     78,374  

September 30, 2017

    0.17713     78,115  

Total

  $ 0.53139   $ 234,473  

        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 for the nine months ended September 30, 2017 and 2016, the components of accumulated earnings on a tax basis and deferred taxes as of September 30, 2017 and December 31, 2016.

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 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 net asset value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith by our board of trustees. In connection with that determination, FS Advisor provides our board of trustees 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.

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        Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the FASB 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 FS Advisor's management team reviewing and documenting preliminary valuations of each portfolio company or investment, which valuations may be obtained from an independent third-party valuation service, if applicable;

    FS Advisor's management team then provides the valuation committee with the preliminary valuations for each portfolio company or investment;

    preliminary valuations are then discussed with the valuation committee;

    the valuation committee reviews the preliminary valuations and FS Advisor's management team, together with our independent third-party valuation services, if applicable, supplements the preliminary valuations to reflect any comments provided by the valuation committee;

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

    our board of trustees 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 FS 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 trustees may use any approved independent third-party pricing or valuation services. However, our board of trustees 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 FS Advisor or any approved independent third-party valuation or pricing service that our board of trustees deems to be reliable in determining fair value under the circumstances. Below is a description of factors that FS Advisor's management team, any approved independent third-party valuation services and our board of trustees 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 portfolio company 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.

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        Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of trustees, 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.

        FS Advisor's management team, any approved independent third-party valuation services and our board of trustees 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. FS Advisor's management team, any approved independent third-party valuation services and our board of trustees 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 trustees, in consultation with FS Advisor's management team 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 trustees 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 trustees. Our board of trustees is solely 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 trustees has delegated day-to-day responsibility for implementing our valuation policy to FS Advisor's management team, and has authorized FS Advisor's management team to utilize independent third-party valuation and pricing services that have been approved by our board of trustees. The valuation committee is responsible for overseeing FS 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 date. 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 previously recognized 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 payments 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

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interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. We record prepayment premiums on loans and securities as fee income when we earn 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 and the respective unrealized gain or loss on foreign currency for any foreign denominated investments we may hold. Net change in unrealized gains or losses on foreign currency reflects the change in the value of foreign currency held, 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 nine months ended September 30, 2017 and 2016, 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 FS 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 of 2.0% of the average value of our gross assets and (b) an incentive fee based on our performance. FS Advisor, and to the extent it provides such services, GSO, are reimbursed for administrative expenses incurred on our behalf. See Note 4 to our unaudited consolidated financial statements included herein for a discussion of these agreements and for the amount of fees and expenses accrued under these agreements during the nine months ended September 30, 2017 and 2016.

        A summary of our significant contractual payment obligations for the repayment of outstanding borrowings under the BNP facility, the Deutsche Bank credit facility, the Fortress facility and the Goldman facility at September 30, 2017 is as follows:

 
  Payments Due By Period  
 
  Total   Less than
1 year
  1-3 years   3-5 years   More than
5 years
 

BNP Facility(1)

  $ 300,000   $ 300,000   $   $      

Deutsche Bank Credit Facility(2)

    340,000     340,000              

Fortress Facility(3)

    155,000             155,000      

Goldman Facility(4)

    425,000         425,000          

Total

  $ 1,220,000   $ 640,000   $ 425,000   $ 155,000      

(1)
At September 30, 2017, no amounts remained unused under the BNP facility. The BNP facility generally is terminable upon 270 days' notice by either party. As of September 30, 2017, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the facility.

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(2)
At September 30, 2017, no amounts remained unused under the Deutsche Bank credit facility. All amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on June 11, 2018.

(3)
At September 30, 2017, no amounts remained unused under the Fortress facility. All amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on November 6, 2020.

(4)
At September 30, 2017, no amounts remained unused under the Goldman facility. All amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 15, 2019.

        As of September 30, 2017, no amounts were outstanding under the Barclays credit facility. All borrowed amounts under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 18, 2021.

Off-Balance Sheet Arrangements

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

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

        Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of 2.0% of the average value of our gross assets (gross assets equals total assets set forth on our consolidated balance sheet) and an incentive fee based on our performance. Pursuant to the investment sub-advisory agreement, GSO will receive 50% of all management and incentive fees payable to FS Advisor under the investment advisory and administrative services agreement with respect to each year. We commenced accruing fees under the investment advisory and administrative services agreement on July 18, 2011, upon commencement of our investment operations. Base management fees are paid on a quarterly basis in arrears.

        The dealer manager for our continuous public offering was FS Investment Solutions, which is one of our affiliates. Under the dealer manager agreement, FS Investment Solutions was entitled to receive sales commissions and dealer manager fees in connection with the sale of common shares in our continuous public offering, all or a portion of which were re-allowed to selected broker-dealers and financial representatives. The dealer manager agreement terminated in connection with the closing of our continuous public offering in November 2016.

        See Note 4 to our unaudited consolidated financial statements included herein for additional information regarding our related party transactions and relationships, including a description of the fees and amounts due to FS Advisor, capital contributions by FS Advisor and GSO, potential conflicts of interest, our exemptive relief order, our expense reimbursement arrangement with FS Investments and FS Benefit Trust's purchases of our common shares.

Recent Developments

        During the period from October 1, 2017 to November 13, 2017, we issued 2,152,696 common shares under our distribution reinvestment plan for gross proceeds of $15,341 at an average price per share of $7.13.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

        We are subject to financial market risks, including changes in interest rates. As of September 30, 2017, 40.6% of our portfolio investments (based on fair value) paid variable interest rates, 47.1% paid fixed interest rates, 0.6% were income producing equity/other investments and the remainder (11.7%) consisted of non-income producing equity or other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the variable rate investments we hold and to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from

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increasing until benchmark interest rates increase beyond a threshold amount. 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 FS Advisor with respect to our increased pre-incentive fee net investment income.

        Pursuant to the terms of the Barclays credit facility, BNP facility, Deutsche Bank credit facility, Fortress facility and Goldman facility, Bryn Mawr Funding, Berwyn Funding, FSEP Funding, Foxfields Funding and Gladwyne Funding, respectively, borrow at a floating rate based on a benchmark interest rate. To the extent that any present or future credit facilities 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.

        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 borrowing arrangements in effect as of September 30, 2017 (dollar amounts are presented in thousands):

Basis Point Change in Interest Rates   Increase
(Decrease)
in Interest
Income
  Increase
(Decrease)
in Interest
Expense
  Increase
(Decrease) in
Net Interest
Income
  Percentage
Change in
Net Interest
Income
 

Down 100 basis points

  $ (4,639 ) $ (12,200 ) $ 7,561     2.2 %

No change

                 

Up 100 basis points

  $ 16,504   $ 12,200   $ 4,304     1.3 %

Up 300 basis points

  $ 51,667   $ 36,599   $ 15,068     4.5 %

Up 500 basis points

  $ 86,942   $ 60,999   $ 25,943     7.7 %

        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 nine months ended September 30, 2017 and 2016, 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.

        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 September 30, 2017. 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.

        There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the three month period ended September 30, 2017 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 and, to our knowledge, no material legal proceedings are 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 any such proceedings will have a material 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 fiscal year ended December 31, 2016.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

        The table below provides information concerning our repurchases of common shares during the three months ended September 30, 2017 pursuant to our share repurchase program.

Period   Total
Number of
Shares
Purchased
  Average
Price Paid
per Share(2)
  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
 

July 1 to July 31, 2017

    4,990,805   $ 7.20     4,990,805     (1 )

August 1 to August 31, 2017

                 

September 1 to September 30, 2017

                 

Total

    4,990,805   $ 7.20     4,990,805     (1 )

(1)
The maximum number of common shares available for repurchase on July 3, 2017 was 10,224,187. A description of the maximum number of common shares 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.

(2)
On October 13, 2016, and in connection with the closing of our continuous public offering, we amended the terms of our share repurchase program, which was first effective for our quarterly repurchase offer for the fourth quarter of 2016 to provide that shares repurchased under the program would be repurchased at a price determined as described above. Prior to amending the share repurchase program, we offered to repurchase common shares at a price equal to 90% of the offering price in effect on the date of repurchase.

        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.

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Item 6.    Exhibits.

      

  3.1

 

Third Amended and Restated Declaration of Trust of FS Energy and Power Fund. (Incorporated by reference to Exhibit 3.1 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 10, 2017.)

  3.2

 

Amendment No. 1 to the Third Amended and Restated Declaration of Trust of FS Energy and Power Fund. (Incorporated by reference to Exhibit 3.2 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 10, 2017.)

  3.3

 

Second Amended and Restated Bylaws of FS Energy and Power Fund. (Incorporated by reference to Exhibit 3.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 1, 2017.)

  4.1

 

Second Amended and Restated Distribution Reinvestment Plan of FS Energy and Power Fund. (Incorporated by reference to Exhibit 4.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 17, 2016.)

10.1

 

Investment Advisory and Administrative Services Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Advisor, LLC. (Incorporated by reference to Exhibit (g)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)

10.2

 

Amendment No. 1 dated as of August 10, 2012, to Investment Advisory and Administrative Services Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Advisor, LLC. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 14, 2012.)

10.3

 

Investment Sub-advisory Agreement, dated as of April 28, 2011, by and between FS Investment Advisor, LLC and GSO Capital Partners LP. (Incorporated by reference to Exhibit (g)(2) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)

10.4

 

Dealer Manager Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Solutions, LLC (formerly FS2 Capital Partners, LLC) (Incorporated by reference to Exhibit (h)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)

10.5

 

Form of Follow-On Dealer Manager Agreement by and among FS Energy and Power Fund, FS Investment Advisor, LLC and FS Investment Solutions, LLC (formerly FS2 Capital Partners, LLC) (Incorporated by reference to Exhibit (h)(2) filed with Pre-Effective Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-184407) filed on May 10, 2013.)

10.6

 

2014 Follow-On Dealer Manager Agreement, dated as of January 7, 2015, by and among FS Energy and Power Fund, FS Investment Advisor, LLC and FS Investment Solutions, LLC (formerly FS2 Capital Partners, LLC) (Incorporated by reference to Exhibit (h)(3) filed with Post-Effective Amendment No. 1 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-199777) filed on April 1, 2015.)

10.7

 

Form of Selected Dealer Agreement (Included as Appendix A to the Dealer Manager Agreement). (Incorporated by reference to Exhibit (h)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)

10.8

 

Form of 2014 Follow-On Selected Dealer Agreement. (Included as Exhibit A to the Form of Follow-On Dealer Manager Agreement.) (Incorporated by reference to Exhibit (h)(5) filed with FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-199777) filed on October 31, 2014.)

10.9

 

Custodian Agreement, dated as of November 14, 2011, by and between State Street Bank and Trust Company and FS Energy and Power Fund. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on November 14, 2011.)

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10.10   Escrow Agreement, dated as of March 29, 2011, by and between FS Energy and Power Fund and UMB Bank, N.A. (Incorporated by reference to Exhibit (k) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)

10.11

 

Credit Agreement, dated as of June 24, 2011, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)

10.12

 

First Amendment to Credit Agreement, dated as of May 30, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 30, 2012.)

10.13

 

Second Amendment to Credit Agreement, dated as of August 28, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 30, 2012.)

10.14

 

Third Amendment to Credit Agreement, dated as of October 18, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 18, 2012.)

10.15

 

Fourth Amendment to Credit Agreement, dated as of June 24, 2013, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 25, 2013.)

10.16

 

Amended and Restated Credit Agreement, dated as of June 11, 2014, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 17, 2014.)

10.17

 

First Amendment to Amended and Restated Credit Agreement, dated as of June 11, 2015, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 15, 2015.)

10.18

 

Second Amendment to Amended and Restated Credit Agreement, dated as of June 10, 2016, by and among FSEP Term Funding,  LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and a lender, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 16, 2016.)

10.19

 

Third Amendment to Amended and Restated Credit Agreement, dated as of June 9, 2017, by and among FSEP Term Funding, LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and a lender, and the other lenders party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 14, 2017.)

10.20

 

Asset Contribution Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC. (Incorporated by reference to Exhibit 10.8 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)

10.21

 

Investment Management Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC. (Incorporated by reference to Exhibit 10.9 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)

10.22

 

Security Agreement, dated as of June 24, 2011, by and between FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.10 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)

10.23

 

ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of August 11, 2011, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.11 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 15, 2011.)

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10.24   Termination and Release Acknowledgment, dated as of May 11, 2012, by Citibank N.A. in favor of FS Energy and Power Fund. (Incorporated by reference to Exhibit 10.15 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)

10.25

 

Amendment Agreement, dated as of May 11, 2012, to the ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.16 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)

10.26

 

Amended and Restated Confirmation Letter Agreement, dated as of May 11, 2012, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.17 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)

10.27

 

Amended and Restated Confirmation Letter Agreement, dated as of October 11, 2012, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 12, 2012.)

10.28

 

Termination Acknowledgment (TRS), dated as of May 24, 2013, by and between EP Investments LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 31, 2013.)

10.29

 

Loan Agreement, dated as of May 24, 2013, by and among EP Funding LLC, the financial institutions and other lenders from time to time party thereto and Citibank, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)

10.30

 

Account Control Agreement, dated as of May 24, 2013, by and among EP Funding LLC, Citibank, N.A. and Virtus Group, LP. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)

10.31

 

Security Agreement, dated as of May 24, 2013, by and between EP Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)

10.32

 

Investment Management Agreement, dated as of May 24, 2013, by and between FS Energy and Power Fund and EP Funding LLC. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)

10.33

 

Credit Agreement, dated as of July 11, 2013, by and among Energy Funding LLC, Natixis, New York Branch, Wells Fargo Bank, National Association and the other lenders from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)

10.34

 

Securities Account Control Agreement, dated as of July 11, 2013, by and among Energy Funding LLC and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)

10.35

 

Collateral Management Agreement, dated as of July 11, 2013, by and between FS Energy and Power Fund and Energy Funding LLC. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)

10.36

 

Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated May 16, 2013, by and between FS Energy and Power Fund and Franklin Square Holdings, L.P. (Incorporated by reference to Exhibit 99.1 to FS Energy and Power Fund's Current report on Form 8-K filed on May 17, 2013.)

10.37

 

Committed Facility Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)

10.38

 

First Amendment Agreement, dated as of August 18, 2014, between BNP Paribas Prime Brokerage, Inc., on behalf of itself and as agent for the BNPP Entities, and Berwyn Funding LLC. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 21, 2014.)

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10.39   Fifth Amendment to the Committed Facility Agreement, dated as of May 4, 2016 by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.)

10.40

 

U.S. PB Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)

10.41

 

First Amendment to the U.S. PB Agreement, dated as of May 4, 2016, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.)

10.42

 

Special Custody and Pledge Agreement, dated as of December 11, 2013, by and among State Street Bank and Trust Company, Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)

10.43

 

Investment Management Agreement, dated as of December 11, 2013, by and between FS Energy and Power Fund and Berwyn Funding LLC. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)

10.44

 

Loan and Servicing Agreement, dated as of September 9, 2014, among Wayne Funding LLC, as borrower, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.45

 

First Amendment to the Loan and Servicing Agreement, dated as of October 13, 2016, among Wayne Funding LLC, as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, Wells Fargo Bank, National Association, as institutional lender, and Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 14, 2016.)

10.46

 

Purchase and Sale Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC, as purchaser, and FS Energy and Power Fund, as seller. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.47

 

Collateral Management Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC and FS Energy and Power Fund, as collateral manager. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.48

 

Securities Account Control Agreement, dated as of September 9, 2014, by and among Wayne Funding LLC, as pledgor, Wells Fargo Bank, National Association, as collateral agent, and Wells Fargo Bank, National Association, as securities intermediary. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.49

 

Amended and Restated Sale and Contribution Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Gladwyne Funding LLC. (Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.50

 

Indenture, dated as of September 11, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.51

 

First Supplemental Indenture, dated as of December 15, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)

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10.52   Second Supplemental Indenture, dated as of September 21, 2016, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 22, 2016.)

10.53

 

Gladwyne Funding LLC Floating Rate Notes due 2024. (Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.54

 

September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford Funding LLC, together with the related Annex and Master Confirmation thereto, each dated as of September 11, 2014. (Incorporated by reference to Exhibit 10.8 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.55

 

Amended and Restated September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford Funding LLC, dated as of September 21, 2016. (Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 22, 2016.)

10.56

 

Amended and Restated Master Confirmation, dated as of December 15, 2014, by and between Goldman Sachs Bank USA and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.2 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)

10.57

 

Second Amended and Restated Master Confirmation, dated as of September 21, 2016, by and between Goldman Sachs Bank USA and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.56 of FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on November 10, 2016.)

10.58

 

Revolving Credit Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.9 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.59

 

Amended and Restated Revolving Credit Agreement, dated as of December 15, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.3 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)

10.60

 

Amended and Restated Investment Management Agreement, dated as of September 11, 2014, by and between Gladwyne Funding LLC and FS Energy and Power Fund. (Incorporated by reference to Exhibit 10.10 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.61

 

Collateral Administration Agreement, dated as of September 11, 2014, by and among Gladwyne Funding LLC, FS Energy and Power Fund and Virtus Group, LP. (Incorporated by reference to Exhibit 10.11 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)

10.62

 

Term Loan and Security Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent, the lenders from time to time party thereto and the other loan parties from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)

10.63

 

Contribution Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields Funding LLC. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)

10.64

 

Investment Management Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields Funding LLC. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)

10.65

 

Securities Account Control Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent and State Street Bank and Trust Company. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)

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10.66   Guaranty, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC. (Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)

10.67

 

Pledge Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)

10.68

 

First Amendment to Term Loan and Security Agreement, dated as of November 25, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent, the lenders signatory thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 1, 2015.)

10.69

 

Senior Secured Revolving Credit Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as administrative agent, and the lenders from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)

10.70

 

Contribution Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)

10.71

 

Investment Management Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)

10.72

 

Control Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as collateral agent, and State Street Bank and Trust Company, as custodian. (Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)

10.73

 

Guaranty, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent. (Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)

10.74

 

Pledge Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent. (Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)

10.75

 

Guarantee, Pledge and Security Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, any subsidiary guarantors from time to time party thereto, Barclays Bank PLC, as revolving administrative agent, and Barclays Bank PLC, as collateral agent. (Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)

10.76

 

Credit Agreement, dated as of April 19, 2017, among Gladwyne Funding LLC, Goldman Sachs Bank USA, as lender, sole lead arranger and administrative agent, Citibank, N.A., as collateral agent, and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on April 25, 2017.)

31.1*

 

Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended.

31.2*

 

Certification of Chief Financial Officer pursuant to Rule 13a-14 under 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.

*
Filed herewith.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 13, 2017.

    FS Energy and Power Fund

 

 

By:

 

/s/ MICHAEL C. FORMAN

Michael C. Forman
Chief Executive Officer
(Principal Executive Officer)

 

 

By:

 

/s/ EDWARD T. GALLIVAN, JR.

Edward T. Gallivan, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)

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