FS Credit Opportunities Corp.

FSCO reported a net return of 1.69% based on NAV in Q4 2025, and a 2025 net total return of 10.89%. The Fund said it paid distributions of approximately $0.20 per share in the quarter versus net investment income of $0.12 per share, including NAV depreciation of $0.08 per share. As of December 31, 2025, first-lien senior secured loans were approximately 83% of fair value, private credit was about 75% of fair value, and software and services exposure was 8.8%. The Fund deployed $182 million in Q4 and $541 million in 2025 net investment activity, and completed a $200 million issuance of fixed-rate term preferred securities on October 21, 2025 to refinance preferred shares maturing in 2025 and early 2026. Forward-looking commentary was qualitative rather than formal guidance: management said it continues to see better opportunities in private credit, is deploying conservatively, and is maintaining a defensive portfolio posture with roughly 20% debt-to-equity and about 58% of drawn leverage in preferred shares.

Andrew Beckman framed the quarter as evidence that the strategy is working, pointing to strong NAV return, continued monthly distributions, and continued access to capital markets. His tone was defensive but confident: he repeatedly emphasized mature cash-flowing businesses, structural protections, and a bottom-up approach that avoids cyclical sectors and risky software structures like ARR loans. He also highlighted that FSCO can shift between public and private opportunities, which he said supports stronger risk-adjusted returns across market cycles.

Nick Heilbut focused on market conditions, portfolio construction, and capital structure. He noted high-yield bonds returned 8.5% in 2025 and leveraged loans 5.9%, while recoveries fell to multiyear lows at 26.8% for high-yield bonds and 34.8% for loans. He said about 90% of new investment activity was in privately originated investments, 97% of that in first-lien senior secured loans, and that 19 new private credit investments in 2025 were originated at a weighted average spread of SOFR plus 661 basis points, with about 95% carrying maintenance covenants. He also said leverage is being used conservatively, with approximately 20% debt-to-equity and about 58% of drawn leverage in preferred shares.

In Q&A, analysts pressed on software exposure, rates, sector positioning, deployment, leverage, credit stress, and public versus private value. Management said software exposure is 8.8% and is diversified, with no single investment in the top 10 and a preference for mature, cash-generative, high-switching-cost businesses rather than ARR loans. They said leverage remains conservative at about 20% debt-to-equity, no broad signs of stress are visible aside from one disclosed idiosyncratic issue, and private credit still offers better relative value than public markets.