KBRA Assigns Rating to Franklin BSP Capital Corporation's $300 Million Senior Unsecured Notes due 2029

KBRA assigns a rating of BBB to Franklin BSP Capital Corporation's (FBCC) $300 million, 7.25% senior unsecured notes due 2029. The rating Outlook is Stable. Proceeds will be used for the repayment of secured debt.

Key Credit Considerations

The rating and Outlook are supported by FBCC’s affiliation with Franklin Templeton, a leading global asset manager with ~$1.8 trillion in AUM as of June 30, 2026, as well as FBCC's ties to Franklin Templeton's wholly owned subsidiary, Benefit Street Partners ("BSP"), a credit platform with $93 billion in AUM as of June 30, 2026. The credit platform includes a $25.5 billion direct lending platform that provides SEC exemptive relief to co-invest among BSP affiliates and enhances scale in the competitive private credit environment.

The rating is also supported by FBCC's diversified $4.1 billion investment portfolio, comprised of 151 companies. As of June 30, 2026, the investment portfolio is comprised mostly of first lien senior secured loans (76.3%, and 90.9% when looking through to the joint venture ("JV"), Post Road Equipment Finance, LLC, and Siena Capital Finance, LLC) to middle market companies. The investment portfolio includes 35 industries, excluding investments in the JV. The top three portfolio sectors, excluding investments in JVs and asset based finance, are Health Care Providers & Services, Professional Services, and Software. Notably, at 9.5% of the investment portfolio, software is comparatively low. Despite 1H26 negative valuation marks, non-accrual investments as a percentage of total investments, at 2.7% and 1.7% of cost and fair value, respectively, remain acceptable. Payment-in-kind income is low relative to peers at 3.1% of investment income.

Further supporting the rating is FBCC’s solid access to capital markets, backed by a diversified funding base that includes a secured bank facility, SPV asset facilities, and senior unsecured debt. As of June 30, 2026, FBCC’s liquidity was solid with available bank lines and cash/equivalents of $740 million, including $704.6 million of bank line availability and $35.4 million of unrestricted cash, compared with no near-term maturities and unfunded portfolio company commitments of $678.3 million, a portion of which remains contingent upon the satisfaction of covenant and transaction-related conditions. With preferred equity accounted for as unsecured debt, pro forma unsecured debt to total debt is ~48% with the new issuance, providing solid financial flexibility and sufficient unencumbered assets for the benefit of the unsecured noteholders. Gross and net leverage, including preferred equity as debt, are 1.25x and 1.21x, respectively, within FBCC's 1.00x–1.25x target range. Although reported leverage excludes debt within unconsolidated investment vehicles, KBRA considers this exposure in its analysis and believes FBCC’s economic leverage profile remains appropriate for the current rating level.

Strengths are counterbalanced by potential risks related to FBCC’s business as a BDC, the illiquid nature of the assets, and retained earnings constraints as a regulated investment company ("RIC"), as well as an uncertain economic environment with high base rates, inflation, and geopolitical risk.

Franklin BSP Capital Corporation is a non-traded externally managed non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940. The company has elected to be treated as a RIC. The company is managed by Franklin BSP Capital Adviser L.L.C., an affiliate of Benefit Street Partners, which is a wholly-owned subsidiary of Franklin Templeton.

Rating Sensitivities

The rating is unlikely to be upgraded in the intermediate term. The Outlook could be revised to Negative, or the rating could be downgraded, if there is a significant downturn in the U.S. economy that has a negative impact on earnings performance, asset quality, and leverage. Other unexpected asset quality deterioration, a sustained rise in leverage metrics, or a significant change in senior management or strategy could also pressure the ratings.

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