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

_______________________________________________ 
FORM N-CSR 
_______________________________________________
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-22802
 
_______________________________________________
FS Credit Opportunities Corp.
(Exact name of registrant as specified in charter)
 _______________________________________________
201 Rouse Boulevard
Philadelphia, Pennsylvania
(Address of principal executive offices)


19112
(Zip code)
 
 _______________________________________________

Michael C. Forman
FS Credit Opportunities Corp.
201 Rouse Boulevard
Philadelphia, Pennsylvania 19112
(Name and address of agent for service)
 _______________________________________________ 
Registrant’s telephone number, including area code: (215) 495-1150
Date of fiscal year end: December 31
Date of reporting period: December 31, 2023
 
 
 


Item 1. Reports to Stockholders.
(a)The annual report, or the Annual Report of FS Credit Opportunities Corp., or the Fund, for the year ended December 31, 2023 transmitted to stockholders pursuant to Rule 30e-1 promulgated under the Investment Company Act of 1940, as amended, or the 1940 Act, is as follows:


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FSCO Portfolio Highlights
As of December 31, 2023 (unless otherwise noted)
Senior secured debt represented 81% of the Fund’s portfolio.
Portfolio composition (by fair value)*
Industry classification (by fair value)*
Senior Secured Loans—First Lien55 %Consumer Services14 %
Senior Secured Loans—Second Lien7 %Health Care Equipment & Services14 %
Senior Secured Bonds19 %Financial Services11 %
Subordinated Debt5 %Commercial & Professional Services10 %
Asset Based Finance4 %Consumer Durables & Apparel7 %
Equity/Other10 %Pharmaceuticals, Biotechnology & Life Sciences7 %
Capital Goods6 %
Consumer Discretionary Distribution & Retail5 %
Energy5 %
Materials4 %
Transportation4 %
Software & Services3 %
Automobiles & Components2 %
Insurance2 %
Real Estate Management & Development2 %
Consumer Staples Distribution & Retail1 %
Equity Real Estate Investment Trusts (REITs)1 %
Food, Beverage & Tobacco1 %
Household & Personal Products1 %
Technology Hardware & Equipment0 %
_____________
* Derivatives are not included in this table. Holdings subject to change.

FSCO Officers + Directors
Officers
Michael FormanStephen S. Sypherd
President & Chief Executive OfficerVice President, Treasurer & Secretary
James BeachJames F. Volk
Chief Operating OfficerChief Compliance Officer
Edward T. Gallivan, Jr.
Chief Financial Officer
Board of Directors
Michael FormanBarbara J. Fouss
ChairmanDirector
Chairman & Chief Executive OfficerExecutive Director
FS InvestmentsGravina Family Office
Keith BethelPhilip E. Hughes, Jr.
DirectorDirector
Partner & Chief Executive OfficerVice-Chairman
Triple B Hospitality GroupKeystone Industries
Walter W. Buckley, IIIRobert N.C. Nix, III
DirectorDirector
Managing Partner & Co-Chief Investment OfficerPresident
SEMCAPPleasant News, Inc.
Della Clark
Director
President
The Enterprise Center





Management’s Discussion of Fund Performance (Unaudited)
Fellow Stockholder,
We hope that this letter finds you and your families well following a year of fundamental shifts in the financial markets, economy, and geopolitical landscape. 2024 opens with optimism that a recession has been avoided. However, falling yet persistent inflation, tighter credit conditions, an election cycle and continued geopolitical conflicts could introduce periods of volatility for investors.
While we prepare for the year ahead, we are proud of the performance we delivered for our shareholders in 2023, including:
•Delivered strong returns for stockholders: FS Credit Opportunities Corp., or the Fund, or FSCO, returned 20.11% in 2023 on a net basis, outperforming the high yield bond and senior secured loan indexes by 667 basis points, or bps, and 707bps, respectively.1 We believe our performance reflects the dynamic nature of our strategy, investing across public and private credit with a focus on generating return premiums driven by the complexity of a company’s balance sheet, the illiquidity of an asset, unconventional ownership or corporate events.
•Increased the Fund's distribution: We increased the Fund’s annualized distribution amount by 15% in July driven by rising market yields and the continued strong performance of our investment portfolio. This was the second increase in the annualized distribution amount since the Fund’s common stock listed on the New York Stock Exchange, or NYSE, in November 2022.
•Completed all phases of FSCO's listing: In November 2023, FSCO marked the one-year anniversary of the listing of the Fund’s common stock on the NYSE. We implemented a phased approach to listing with the final phase completed on May 15, 2023. The discount at which the Fund's common stock traded relative to its net asset value, or NAV, narrowed significantly during the year. We believe the improvement reflects of the health of the portfolio, the Fund’s strong performance, broader market strength and the reduced selling pressure on the stock after all phases of the listing were completed. While the stock price to NAV discount has narrowed, we believe the current discount at which the stock is trading compared to the NAV is still too large and not indicative of the health of the portfolio or the forward return potential of our diversified credit strategy.
Market Summary
Economic growth defied expectations in 2023 despite a range of macro headwinds. In an effort to tame inflationary pressures, the Federal Reserve raised rates 525bps during one of its most aggressive rate hiking cycles ever. The final 100bps of rate hikes occurred in early to mid-2023 before the Federal Reserve paused rate hikes at its September 2023 meeting. The 10-year Treasury yield ended 2023 roughly where it began the year, but it took an approximately 170bps up-and-down roller coaster ride in between as the soft-landing narrative quickly replaced the higher-for-longer sentiment that prevailed through most of the year. Despite the volatile rate environment, consumers continued to power the U.S. economy driven by pent up savings and a still-strong jobs picture.
Credit markets generated solid double-digit returns in 2023, benefiting from the combination of the constructive macro environment, solid corporate earnings, a favorable technical environment, and historically attractive yields. High yield bonds led performance during the annual reporting period, returning 13.5% compared to 13.3% for senior secured loans. Across both loan and high yield markets, returns on lower-rated securities far outpaced those of higher-rated credits. CCC rated bonds returned 20.4% during the year compared to 11.4% for BB rated bonds.1 A similar pattern played out in the loan market as CCC rated loans returned 17.5% and outpaced returns on BB rated loans by 736bps.2
Although the technical environment supported credit prices, driven by strong investor demand and reduced supply, the fundamental backdrop deteriorated modestly during the year as evidenced by an uptick in defaults and lower recovery rates.2 The high yield default rate, including distressed exchanges, increased to 2.88% as of December 31, 2023 while loan defaults and distressed exchanges rose to 3.08%. This compares to default rates of 1.65% for high yield bonds and 1.59% for loans as of December 31, 2022.3 Meanwhile, recovery rates took a noteworthy decline, hitting 38% for loans—a record low—and 33% for bonds, which was not a record low, but far below high yield bonds’ long-term average recovery rate of 40%.3 With this in mind, we believe the market environment required a deep, bottom-up understanding of fundamental credit risks and we remained focused on businesses with strong cash flows, moderate leverage profiles and management teams with deep operational experience managing through market cycles.
FSCO Performance
FSCO generated net total returns of 20.11% for the year ended December 31, 2023 driven by strong earnings, as net investment income fully covered distributions of $0.64 per share and the Fund’s net asset value increased by $0.59 per share, or 9.32% during the year.
As of December 31, 2023, the Fund offered an attractive annualized distribution yield of 9.88% based on NAV and 12.06% based on the stock price. We believe this is attractive on an absolute and relative basis compared to our closed-end fund peers when considering the distribution coverage. Since the current investment team assumed management of the Fund in January 2018, net investment income has fully funded the distribution. Over that time, net investment income represented an average of 115% of distributions paid to shareholders.
1
Management’s Discussion of Fund Performance (Unaudited)(continued)
The largest contributor to performance during the year resulted from unrealized appreciation in New Giving, Inc., one of the Fund’s largest holdings, a directly originated investment in a healthcare and pharmaceuticals firm. The company significantly grew revenue and earnings as operational measures implemented in 2022 continued to positively impact the business throughout 2023. This investment highlights our ability to identify situations where return premiums exist due to the complexity of a company’s balance sheet. FSCO received common equity and warrants as part of our debt investment, which provides the potential for meaningful additional capital appreciation. Beyond the largest contributor, positive performance was broad based across the portfolio in 2023, as contributors far outpaced detractors. Opportunistic equity hedges modestly detracted from the Fund’s return during the year amid the strong environment for equities.
As of December 31, 2023, the portfolio was defensively positioned, with 81% allocated to senior secured debt. Approximately 47% of the portfolio was comprised of senior private originated debt with strong terms at attractive yields. We believe being senior in the capital structure may help protect stockholder value, especially if there is either a prolonged period of sluggishness or a material deceleration in economic growth. The portfolio has low average duration of just over one year, with 56% of the portfolio comprised of floating rate assets as of December 31, 2023. The portfolio and, in turn, our stockholders benefited from rising interest rates as evidenced by our ability to increase the annualized distribution rate in July.4
Outlook
While the market backdrop during 2023 was characterized by resilient economic data and strong performance across most credit asset classes, financial markets continued to wrestle with the forward path of the economy and geopolitical conflicts throughout the year. Against this backdrop, we remain cautious about the economic outlook, and continue to see potential for future periods of volatility. We believe the solid index-level returns last year masked strong underlying crosscurrents in the public and private credit markets. Performance differences across ratings and asset classes could become more pronounced if economic growth slows in 2024. We believe active management combined with sound fundamental credit underwriting will remain critical to driving returns and avoiding excess risk in the year ahead.
We continue to focus on senior debt investments with strong terms at attractive yields or expected total returns and generally avoid debt in private equity-owned companies where we think there could be material risk of asset leakage or disputes between lenders. We believe the flexibility of our strategy and the expertise of our team have helped drive strong outperformance versus the loan and high yield bond indices and that FSCO offers a differentiated value proposition for several key reasons:
•Fully scaled credit platform: FSCO is one of the largest credit-focused closed-end funds in the market, with $2.1 billion in assets as of December 31, 2023. Size and scale matter in credit investing, especially when it comes to maximizing deal flow, mitigating risks, and achieving economies of scale. The portfolio management team also leverages the full resources, infrastructure, and expertise of FS Investments, a $76 billion alternative asset manager.5
•Flexible strategy investing across public and private credit: Our ability to invest across public and private markets differentiates us from traditional credit funds and allows us to adjust allocations based on where we believe the best risk-adjusted return opportunities lie. Our goal is to dynamically allocate capital to the most attractive opportunities across the credit and business cycle, and we think this leads to enhanced stockholder returns relative to a more confined strategy. Importantly, we are not constrained by a specific asset class mandate—we can invest across loans, bonds, structured credit and highly structured equity investments and across fixed / floating rate assets.
•Strong track record: Since the current investment team assumed all portfolio management responsibilities in January 2018, the Fund has outperformed high yield bonds by 260bps and loans by 171bps. The team has invested more than $7 billion over the last six years in non-traditional areas of the credit market, including opportunistic and event-driven credit, dislocated/special situations and private structured capital solutions.
•Competitive cost structure: We believe our cost structure provides FSCO with a unique advantage. 43% of the Fund’s drawn leverage is comprised of fixed rate preferred debt financings, which provide favorable regulatory treatment vs. traditional term or revolving credit facilities and provide flexibility in the types of assets we can borrow against.
We believe we have a Fund and platform built to drive strong risk-adjusted returns through a diverse range of economic and financial market conditions.
Thank you for your continued support and trust in us.
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Andrew Beckman
Portfolio Manager, FSCO
Head of Liquid Credit and Special Situations
2
Management’s Discussion of Fund Performance (Unaudited)(continued)
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1 Senior secured loans represented by the S&P/LSTA Leveraged Loan Index. High yield bonds represented by the ICE BofAML U.S. High Yield Index. Investment grade represented by the ICE BofAML U.S. Corporate Index. One cannot invest directly in an index.
2 Credit ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All Fund securities except for those labelled “Not Rated” and “Other” have been rated by Moody’s, S&P or Fitch, which are each a Nationally Recognized Statistical Rating Organization, or NRSRO. All Index securities except for those labelled “Not Rated” have been rated by Moody’s or S&P. Credit ratings are subject to change. One cannot invest directly into an index.
3 J.P. Morgan, as of December 31, 2023. Recovery rates based on last twelve months.
4 The payment of future distribution on FSCO’s common shares is subject to the discretion of FSCO’s board of directors and applicable legal restrictions and, therefore, there can be no assurance as to the amount or timing of any such future distribution.
5 Total AUM estimated as of September 30, 2023. References to “assets under management” or “AUM” represent the assets managed by FS Investments or its strategic partners as to which FS Investments is entitled to receive a fee or carried interest (either currently or upon deployment of capital) and general partner capital. FS Investments calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of FS Investments’ investment funds; (ii) uncalled capital commitments from these funds, including uncalled capital commitments from which FS Investments is currently not earning management fees or carried interest; (iii) the value of outstanding CLOs (excluding CLOs wholly-owned by FS Investments); (iv) the fair value of FS KKR Capital Corp. joint venture assets and FS Specialty Lending joint venture assets; and (v) the fair value of other assets managed by FS Investments. The AUM also includes the estimated AUM of Portfolio Advisors, LLC as of December 31, 2022, which FS acquired through a merger on June 30, 2023. AUM for Portfolio Advisors, LLC is measured as adjusted reported value plus unfunded commitments. FS Investments’ calculation of AUM may differ from the calculations of other asset managers and, as a result, FS Investments’ measurements of its AUM may not be comparable to similar measures presented by other asset managers. FS Investments’ definition of AUM is not based on any definition of AUM that may be set forth in agreements governing the investment funds, vehicles or accounts that it manages and is not calculated pursuant to any regulatory definitions.






















____________________
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Statements included herein may constitute “forward-looking” statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements with regard to future events or the future performance or operations of FSCO, or the Fund. Words such as “intends,” “will,” “expects,” and “may” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. Factors that could cause actual results to differ materially include changes in the economy, geopolitical risks, risks associated with possible disruption to the Fund’s operations or the economy generally due to hostilities, terrorism, natural disasters or pandemics such as COVID-19, future changes in laws or regulations and conditions in the Fund’s operating area, unexpected costs, the price at which the Fund’s shares of common stock may trade on the New York Stock Exchange and such other factors that are disclosed in the Fund’s filings with the Securities and Exchange Commission. The inclusion of forward-looking statements should not be regarded as a representation that any plans, estimates or expectations will be achieved. Any forward-looking statements speak only as of the date of this communication. Except as required by federal securities laws, the Fund undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on any of these forward-looking statements.
3
Management’s Discussion of Fund Performance (Unaudited)(continued)
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Average Annual Total Return
FS Credit Opportunities Corp.For the Year Ended
December 31, 2023		For the Five Years Ended
December 31, 2023		Since Inception
Net Asset Value (NAV)(1)
20.11%6.19%5.11%
Market Price Common Stock(2)
36.57%—46.29%
______________
(1)The Fund commenced operations on December 12, 2013.
(2)The Fund listed its common stock on the NYSE on November 14, 2022.

Performance quoted represents past performance, which may be higher or lower than current performance. Past performance is not indicative of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original costs. Returns reflect the reinvestment of distributions made by the Fund, if any. The returns shown do not reflect taxes that an investor would pay on Fund distributions or on the sale of Fund shares. On December 14, 2020, FS Global Credit Opportunities Fund–A (FSGCO–A), FS Global Credit Opportunities Fund–ADV (FSGCO–ADV), FS Global Credit Opportunities Fund–D (FSGCO–D), FS Global Credit Opportunities Fund–T (FSGCO–T), and FS Global Credit Opportunities Fund–T2 (FSGCO–T2) (the “Feeder Funds”) merged into the Fund. Performance for stockholders who initially invested in the Feeder Funds would differ based on fees. The investment returns shown do not include selling commissions and dealer manager fees, which could have totaled up to 8% of FSGCO–A’s public offering price, up to 2% of FSGCO–D’s public offering price, up to 4% of FSGCO–T’s public offering price, and up to 4% of FSGCO–T2’s public offering price. Had such selling commissions and dealer manager fees been included, performance would be lower. To obtain the most recent month-end performance, visit www.fsinvestments.com.
For the month of December 2023, the monthly distribution rate per share of common stock was $0.057, representing an annualized distribution rate of 9.88% based on the Fund’s net asset value per share of common stock of $6.92, and a distribution rate of 12.06% based on the Fund's market value per share of common stock of $5.67. During the year ended December 31, 2023, the entire $0.64 distribution per share of common stock was made from net investment income. None of the distribution was a return of capital.
For the year ended December 31, 2023, 76.10% of distributions qualified as interest related dividends for the Fund’s stockholders which are exempt from U.S. withholding tax applicable to non U.S. stockholders. For the year ended December 31, 2023, 88.36% of distributions qualified as excess interest income for purposes of Internal Revenue Code Section 163(j).
For the Fund’s current expense ratio, please refer to the Financial Highlights section of this report.
4
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of FS Credit Opportunities Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities of FS Credit Opportunities Corp. (the “Fund”), including the consolidated schedule of investments, as of December 31, 2023, and the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, the consolidated financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Fund at December 31, 2023, the consolidated results of its operations and its cash flows for the year then ended, the consolidated changes in its net assets for each of the two years in the period then ended and its consolidated financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian, brokers and others; when replies were not received from brokers and others, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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We have served as auditor of one or more FS Investments investment companies since 2013.

Philadelphia, Pennsylvania
February 29, 2024

5
FS Credit Opportunities Corp.
Consolidated Schedule of Investments
As of December 31, 2023 (in thousands, except share amounts)
Portfolio Company(a)
FootnotesIndustry
Rate(b)
Floor(b)
Maturity
 Principal
Amount(c)
 Amortized
Cost
 Fair
Value(d)
Senior Secured Loans—First Lien—78.2%
Aimbridge Acquisition Co. Inc.(e)Consumer ServicesS+3750.00%2/2/26$1,979 $1,842 $1,850 
ANCILE Solutions, Inc.(e)(l)Software & ServicesS+700, 3.0% PIK (3.0% Max PIK)1.00%6/11/2633,163 33,163 33,660 
Arrow Purchaser Inc.(e)Consumer Discretionary Distribution & RetailS+6751.00%4/15/2613,175 13,165 11,792 
Ascena Retail Group, Inc.(e)(i)(p)Consumer Discretionary Distribution & RetailL+4500.75%8/21/2235,525 11,795 178 
Auris Luxembourg III S.a r.l(e)Health Care Equipment & ServicesS+3750.00%2/27/269,922 9,413 9,820 
Aveanna Healthcare LLC(e)Health Care Equipment & ServicesS+3750.50%7/17/2819,848 17,306 18,529 
BridgeBio Pharma, Inc.(l)Pharmaceuticals, Biotechnology & Life Sciences6.0%, 3.0% PIK (3.0% Max PIK)11/17/2621,092 20,900 19,563 
CCS-CMGC Holdings, Inc.(e)Health Care Equipment & ServicesS+5500.00%10/1/2537,331 33,974 31,690 
Chinos Intermediate 2, LLC(e)Consumer Discretionary Distribution & RetailS+8001.00%9/10/2728,399 28,735 29,392 
CircusTrix Holdings, LLC(l)Consumer ServicesS+6751.00%7/18/2833,465 33,465 33,757 
CircusTrix Holdings, LLC(g)(l)Consumer ServicesS+6751.00%7/18/254,301 4,301 4,339 
CircusTrix Holdings, LLC(g)(l)Consumer ServicesS+6751.00%7/18/282,151 2,151 2,169 
Claros Mortgage Trust, Inc.(e)Financial ServicesS+4500.50%8/9/269,948 9,562 9,600 
CPC Acquisition Corp.(e)MaterialsS+3750.75%12/29/2711,700 9,150 9,506 
Cresco Labs, LLC(e)Pharmaceuticals, Biotechnology & Life Sciences9.5%8/12/2641,000 40,199 37,720 
Curia Global, Inc.(e)Pharmaceuticals, Biotechnology & Life SciencesS+3750.75%8/30/262,690 2,383 2,428 
Drive Assurance Corp.(l)InsuranceS+10001.00%5/23/2811,345 11,276 11,345 
Domain Timberlake Note Issuer, LLC(l)Real Estate Management & DevelopmentS+6501.0%12/20/2929,000 29,000 29,000 
First Brands Group, LLC(e)Automobiles & ComponentsS+5001.00%3/30/2731,201 30,214 31,006 
First Brands Group, LLC(e)Automobiles & ComponentsS+5001.00%3/30/274,950 4,787 4,922 
Gold Rush Amusements, Inc.(l)Consumer ServicesS+7502.00%10/12/2830,673 30,060 30,060 
GSM Midco, LLC(l)Consumer ServicesS+7251.00%3/25/2738,000 37,591 37,478 
Knowlton Development Corporation Inc.(e)Household & Personal ProductsS+5000.00%8/15/2821,000 20,370 20,858 
Lance East Holdings Pty Ltd.(l)Financial Services16.8%9/12/2615,000 15,000 15,431 
LHS Borrower, LLC(e)Capital GoodsS+4750.50%2/16/29990 856 898 
LifeScan Global Corp.(e)Health Care Equipment & ServicesS+6500.00%12/31/2652,500 50,824 39,506 
Lucky Bucks, LLC(e)Consumer ServicesS+7501.00%10/2/281,237 1,163 1,225 
Lucky Bucks, LLC(e)Consumer ServicesS+7501.00%10/2/292,475 2,475 2,203 
See notes to consolidated financial statements.
6
FS Credit Opportunities Corp.
Consolidated Schedule of Investments (continued)
As of December 31, 2023 (in thousands, except share amounts)
Portfolio Company(a)
FootnotesIndustry
Rate(b)
Floor(b)
Maturity
 Principal
Amount(c)
 Amortized
Cost
 Fair
Value(d)
Maverick Gaming, LLC(e)Consumer ServicesS+7501.00%9/3/26$15,125 $14,943 $11,173 
MLN US HoldCo LLC(e)(i)(p)Technology Hardware & EquipmentS+4500.00%11/30/252,837 2,469 331 
Monitronics International, LLC(e)(q)Commercial & Professional ServicesS+7503.00%6/30/2851,498 51,506 51,412 
Mountaineer Merger Corp.(e)Consumer Discretionary Distribution & RetailS+7000.00%10/26/2813,875 13,584 10,458 
Neovia Logistics, LP(e)TransportationS+9000.50%11/1/2747,365 43,682 37,892 
Nephron Pharmaceuticals Corp.(l)Pharmaceuticals, Biotechnology & Life SciencesS+9001.50%9/11/2638,000 36,860 36,670 
New SK HoldCo Sub LLC(e)Consumer ServicesS+675, 1.5% PIK (1.5% Max PIK)0.75%6/30/2728,699 26,946 28,643 
North Atlantic Imports, LLC(l)Consumer Durables & ApparelS+7500.50%10/15/2616,875 16,886 17,761 
One Call Corp.(e)Health Care Equipment & ServicesS+5500.75%4/22/2741,030 39,516 35,577 
Powerhouse Intermediate, LLC(l)Commercial & Professional ServicesS+10251.00%1/12/2738,001 36,784 38,239 
Pretium PKG Holdings, Inc.(e)MaterialsS+5001.00%10/2/2821,959 21,615 21,575 
Propulsion Acquisition, LLC(e)(l)Capital GoodsS+6501.50%7/31/2624,808 24,788 25,088 
Pyxus Holdings Inc.(e)Food, Beverage & TobaccoS+8001.50%12/31/2712,234 9,526 8,227 
Pyxus Holdings Inc.(e)Food, Beverage & TobaccoS+8001.50%12/31/278,156 7,446 7,843 
Retail Services WIS Corp.(e)Commercial & Professional ServicesS+8351.00%5/20/2513,570 13,380 13,434 
River Ranch One Investments, Ltd.(l)Real Estate Management & Development13.5% PIK (13.5% Max PIK)9/11/2615,250 15,250 15,346 
River Ranch One Investments, Ltd.(g)(l)Real Estate Management & Development13.5% PIK (13.5% Max PIK)9/11/2621,750 21,750 21,886 
S&S Holdings LLC(e)Consumer Durables & ApparelS+5000.50%3/11/2821,845 21,404 21,421 
Salt Creek Aggregator HoldCo, LLC(e)(l)Energy8.0% PIK (8.0% Max PIK)7/12/2619,173 19,273 18,957 
SuperRego, LLC(l)Consumer Services7.5%, 7.5% PIK (7.5% Max PIK)7/30/2616,182 15,965 15,089 
Syncapay, Inc.(e)Software & ServicesS+6501.00%12/10/2730,052 29,225 30,127 
TCFIII Owl Finance LLC(l)Capital Goods12.0% PIK (12.0% Max PIK)1/30/2755,506 54,850 47,735 
TKC Holdings, Inc.(e)Consumer Staples Distribution & RetailS+5501.00%5/15/285,575 4,770 5,343 
Travelpro Group Holdings, Inc.(l)(n)Consumer Durables & ApparelS+8003.00%10/24/2843,000 41,966 41,925 
TruGreen, LP(e)Commercial & Professional ServicesS+4000.75%11/2/2713,905 12,839 13,457 
United Gaming LLC(e)(l)Consumer ServicesS+9006/9/2545,467 45,269 45,467 
United Gaming LLC(g)(l)Consumer ServicesS+9006/9/25686 686 686 
Total Senior Secured Loans—First Lien1,148,298 1,101,687 
Unfunded Loan Commitments(28,888)(28,888)
Net Senior Secured Loans—First Lien1,119,410 1,072,799 
See notes to consolidated financial statements.
7
FS Credit Opportunities Corp.
Consolidated Schedule of Investments (continued)
As of December 31, 2023 (in thousands, except share amounts)
Portfolio Company(a)
FootnotesIndustry
Rate(b)
Floor(b)
Maturity
 Principal
Amount(c)
 Amortized
Cost
 Fair
Value(d)
Senior Secured Loans—Second Lien—9.9%
Astro One Acquisition Corp.(e)(i)(l)(p)Consumer Durables & ApparelS+8500.8%9/17/29$10,000 $8,607 $500 
Eversana Life Sciences Services, LLC(e)Health Care Equipment & ServicesS+8000.0%12/17/297,000 6,914 6,230 
LaserShip, Inc.(e)TransportationS+7500.0%5/7/2927,272 27,133 22,909 
MLN US HoldCo LLC(e)(i)(p)Technology Hardware & EquipmentS+8750.0%11/30/2614,396 12,099 1,260 
New Giving Acquisition, Inc.(l)(q)Health Care Equipment & Services12.5%2/19/2845,000 44,259 45,844 
NGS US Finco, LLC(e)EnergyS+8501.0%8/21/2630,000 29,796 28,050 
S&S Holdings LLC(e)Consumer Durables & ApparelS+8750.5%3/9/295,000 5,011 4,369 
Salt Creek Aggregator HoldCo, LLC(e)(i)(l)(p)Energy 7/12/273,701 1,996 2,359 
Salt Creek Aggregator HoldCo, LLC(e)(i)(l)(p)Energy 7/12/2723,486 18,450 17,291 
TruGreen, LP(e)Commercial & Professional ServicesS+8500.8%11/2/2810,000 9,857 7,708 
Total Senior Secured Loans—Second Lien164,122 136,520 
Senior Secured Bonds—26.2%
Aretec Escrow Issuer Inc.(n)(o)Financial Services10.0%8/15/3014,000 14,000 14,895 
Blackstone Mortgage Trust, Inc.(n)(o)Financial Services3.8%1/15/272,000 1,660 1,781 
CSVC Acquisition Corp.(n)(o)Commercial & Professional Services7.8%6/15/2541,897 36,410 39,654 
Digicel International Finance Ltd.(n)(o)Financial Services8.8%5/25/2441,249 40,476 38,621 
Encore Capital Group, Inc.(o)Financial Services5.4%2/15/26£1,000 1,158 1,219 
Full House Resorts, Inc.(n)(o)Consumer Services8.3%2/15/28$23,340 21,057 21,961 
Guitar Center, Inc.(n)(o)Consumer Discretionary Distribution & Retail8.5%1/15/2637,000 37,120 32,325 
Hunt Companies, Inc.(n)(o)Financial Services5.3%4/15/2910,000 7,975 8,934 
JW Aluminum Co.(n)(o)Materials10.3%6/1/2643,500 43,644 43,838 
LHS, LLC(l)Capital Goods12.0% PIK (12.0% Max PIK)2/26/2735,471 35,190 31,790 
Medicine Man Technologies, Inc., Convertible Note(l)Pharmaceuticals, Biotechnology & Life Sciences9.0%, 4.0% PIK (4.0% Max PIK)12/3/2616,286 16,082 13,985 
Navios Logistics Finance, Inc.(n)(o)Transportation10.8%7/1/2525,000 25,000 24,716 
North Atlantic Imports, LLC, Convertible Note(l)Consumer Durables & Apparel14.0%, 0.0% PIK (7.0% Max PIK)11/30/2731,250 31,253 45,391 
TKC Holdings, Inc.(n)(o)Consumer Staples Distribution & Retail6.9%5/15/2815,977 14,873 14,796 
Triumph Group Inc.(n)(o)Capital Goods9.0%3/15/288,500 8,406 9,049 
Trulieve Cannabis Corp.(o)Pharmaceuticals, Biotechnology & Life Sciences8.0%10/6/2620,000 20,000 16,917 
Total Senior Secured Bonds354,304 359,872 
See notes to consolidated financial statements.
8
FS Credit Opportunities Corp.
Consolidated Schedule of Investments (continued)
As of December 31, 2023 (in thousands, except share amounts)
Portfolio Company(a)
FootnotesIndustry
Rate(b)
Floor(b)
Maturity
 Principal
Amount(c)
 Amortized
Cost
 Fair
Value(d)
Subordinated Debt—6.9%
Acrisure LLC(n)(o)Insurance10.1%8/1/26$31,000 $30,923 $32,424 
Advisor Group Holdings, Inc.(n)(o)Financial Services10.8%8/1/2720,200 19,441 20,524 
Five Point Operating Co., LP(n)(o)Equity Real Estate Investment Trusts (REITs)7.9%11/15/2523,521 21,616 23,308 
PRA Group, Inc.(n)(o)Financial Services7.4%9/1/256,295 5,899 6,264 
PRA Group, Inc.(n)(o)Financial Services8.4%2/1/2812,390 11,251 11,936 
Total Subordinated Debt89,130 94,456 
Asset Based Finance—5.8%
BCP Great Lakes II - Series A Holdings LP(l)Financial Services11.3%7/31/308,426 8,296 8,289 
BCP Great Lakes II - Series A Holdings LP(g)(l)Financial Services11.3%7/31/301,048 1,048 1,031 
Bridge Street CLO I Ltd., Subordinated Notes(l)(m)(n)(q)Financial Services21.4%1/20/3428,200 23,673 24,955 
Bridge Street CLO II Ltd., Subordinated Notes(l)(m)(n)(q)Financial Services19.5%7/20/3428,560 24,880 25,108 
Bridge Street CLO III Ltd., Subordinated Notes(l)(m)(n)(q)Financial Services6.1%10/20/3427,600 26,582 21,430 
Total Asset Based Finance84,479 80,813 
Unfunded Commitments(1,048)(1,048)
Net Asset Based Finance83,431 79,765 

Portfolio Company(a)
FootnotesIndustry
Rate(b)
Floor(b)
Shares/Units/Number of ContractsCost
 Fair
Value(d)
Equity/Other—13.8%
BusPatrol LLC, Warrants, 12/31/31, Strike: $0.01(i)(l)Commercial & Professional Services 6,408 1,314 — 
Carnelian Point Holdings LP, Warrants, 6/30/27, Strike: $10.00(e)(i)Consumer Services 30,146 30 30 
Chinos Holdings, Inc., Warrants(i)Consumer Discretionary Distribution & Retail 412,738 1,447 1,031 
Drive Assurance Corp., Common Stock(i)(l)Insurance 18,760 19 308 
Drive Assurance Corp., Preferred Stock(l)Insurance10.0% PIK (10.0% Max PIK) 1,051 1,051 1,232 
Guitar Center, Inc., Preferred Equity(e)(l)Consumer Discretionary Distribution & Retail15.0% 7,770 7,770 4,230 
Lucky Bucks, LLC, Common Equity(e)(i)Consumer Services 350,344 4,905 4,905 
Monitronics International, LLC, Common Equity(e)(i)(q)Commercial & Professional Services 997,489 13,517 20,947 
Nelson Global Products, Inc., Common Stock(i)(l)Automobiles & Components 43,998 1,231 1,324 
See notes to consolidated financial statements.
9
FS Credit Opportunities Corp.
Consolidated Schedule of Investments (continued)
As of December 31, 2023 (in thousands, except share amounts)
Portfolio Company(a)
FootnotesIndustry
Rate(b)
Floor(b)
Shares/Units/Number of ContractsCost
 Fair
Value(d)
Nelson Global Products, Inc., Series A Preferred Stock(i)(l)Automobiles & Components 1,268 $1,268 $1,268 
New Giving Acquisition, Inc., Common Stock(i)(l)(q)Health Care Equipment & Services 188,561 330 76,443 
New Giving Acquisition, Inc. Warrants, 8/19/29, Strike: $0.01(i)(l)(q)Health Care Equipment & Services 16,667 29 6,757 
Penn Foster Inc., Preferred Equity, 11/17/27(e)(l)Consumer ServicesS+975 (S+975 Max PIK)1.0% 59,395 58,587 36,242 
RDV Resources Oil & Gas, Inc., Common Equity(i)(l)Energy 457,704 3,618 803 
SCM EPIC, LLC, Common Equity(i)(k)(l)(r)Energy 34,800 35,861 29,470 
SCM Topco, LLC, Series B Preferred Equity, 7/13/28(i)(k)(l)(p)Energy 27,398 2,449 2,671 
SCM Topco, LLC, Series C Common Equity(i)(k)(l)Energy 196 — — 
SCM Topco, LLC, Warrants, 7/10/28, Strike: $75,000(i)(k)(l)Energy 1 — — 
Selecta Group B.V., Contingent Value Notes(h)(i)(l)Consumer Discretionary Distribution & Retail 7 3 — 
Selecta Group B.V., Warrants(h)(i)(l)Consumer Discretionary Distribution & Retail 98 2 — 
SuperRego, LLC, Warrants, 7/30/28, Strike: $0.01(i)(l)Consumer Services 139,285 56 1,623 
Total Equity/Other133,487 189,284 
TOTAL INVESTMENTS—140.8%$1,943,884 1,932,696 
Cash, Cash Equivalents and Foreign Currency—7.7%(f)106,203 
Credit Facilities Payable—(28.4)%(390,000)
Term Preferred Shares, at Liquidation Value, Net—(21.7)%(298,516)
Other Assets in Excess of Liabilities—1.6%(j)22,168 
NET ASSETS—100.0%$1,372,551 
_________________
£ – British Pound.


See notes to consolidated financial statements.
10
FS Credit Opportunities Corp.
Consolidated Schedule of Investments (continued)
As of December 31, 2023 (in thousands, except share amounts)
Forward Foreign Currency Exchange Contracts
CounterpartyContract Settlement DateCurrency to be ReceivedValueCurrency to be DeliveredValueUnrealized Appreciation (Depreciation)
JPMorgan Chase Bank, N.A.1/16/24USD1,259 GBP1,000 $(15)
Total$(15)
_________________
GBP – British Pound.
USD – U.S. Dollar.
_________________
(a)Security may be an obligation of one or more entities affiliated with the named company.
(b)
Certain variable rate securities in FS Credit Opportunities Corp.’s, or the Fund’s, portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of December 31, 2023, the three-month London Interbank Offered Rate, or LIBOR, or L, was 5.59% and the one-month and three-month Term Secured Overnight Financing Rate, or Term SOFR, or S, was 5.35% and 5.33%, respectively. Term SOFR based contracts may include a credit spread adjustment that is charged in addition to the base rate and basis point spread. PIK means paid-in-kind. PIK income accruals may be adjusted based on the fair value of the underlying investment. Variable rate securities with no floor rate use the respective benchmark rate in all cases.
(c)Denominated in U.S. dollars, unless otherwise noted.
(d)Fair value is determined by the Fund’s investment adviser, FS Global Advisor, LLC which has been designated by the Fund’s Board of Directors as its valuation designee. The Fund’s current Valuation Policy complies with SEC Rule 2a-5, Good Faith Determinations of Fair Value, and addresses the valuation of investments, fair value hierarchy levels and other significant valuation-related procedures, reporting and recordkeeping. See Note 2 and Note 8 for additional information regarding the fair value of the Fund's financial instruments.
(e)Security or portion thereof held by Blair Funding LLC, or Blair Funding, a wholly-owned subsidiary of the Fund, and is pledged as collateral supporting the amounts outstanding under Blair Funding’s credit facility with Barclays Bank PLC, as administrative agent and Wells Fargo Bank, National Association, as collateral agent (see Note 9).
(f)
Includes $11,501 of a short-term investment held in the Allspring Government Money Market Fund with a 7-day yield of 5.3% as of December 31, 2023.
(g)Security is an unfunded commitment.
(h)
Security or portion thereof held by FS Global Credit Opportunities (Luxembourg) S.à r.l., a wholly-owned subsidiary of the Fund.
(i)Security is non-income producing.
(j)Includes the effect of forward foreign currency exchange contracts.
(k)Security held within FS Global Investments, Inc., a wholly-owned subsidiary of the Fund.
(l)Security is classified as Level 3 in the Fund’s fair value hierarchy (see Note 8).
(m)
Securities of collateralized loan obligations, or CLOs, where an affiliate of the Fund’s investment adviser serves as collateral manager and administrator (see Note 4). The fair value of the investment is inclusive of the present value of future senior management fee and subordinated management fee cash flows from the collateral manager and administrator of the CLOs to the Fund.
(n)
Exempt from registration under Rule 144A of the Securities Act of 1933, as amended. Such securities may be deemed liquid by the investment adviser and may be resold, normally to qualified institutional buyers in transactions exempt from registration. As of December 31, 2023, the total market value of Rule 144A securities amounted to $458,444, which represented approximately 33.4% of net assets.
(o)
Security or portion thereof held by Bucks Funding, a wholly-owned subsidiary of the Fund, and is pledged as collateral supporting the amounts outstanding under Bucks Funding’s prime brokerage facility with BNP Paribas Prime Brokerage International, Ltd., or BNP PBIL. Securities held by Bucks Funding may be rehypothecated from time to time as permitted by Rule 15c-1(a)(1) promulgated under the Securities Exchange Act of 1934, as amended, subject to the terms and conditions governing Bucks Funding’s prime brokerage facility with BNP PBIL (see Note 9). As of December 31, 2023, no securities were rehypothecated by BNP PBIL. The Fund earned $1 of income from rehypothecated securities during the year ended December 31, 2023.
(p)
Security was on non-accrual status as of December 31, 2023.
See notes to consolidated financial statements.
11
FS Credit Opportunities Corp.
Consolidated Schedule of Investments (continued)
As of December 31, 2023 (in thousands, except share amounts)
(q)
Under the Investment Company Act of 1940, as amended, the Fund generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2023, the Fund held investments in portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control.” The following table presents certain information with respect to investments in portfolio companies of which the Fund was deemed to be an affiliated person as of December 31, 2023:
Portfolio Company
Fair Value at
December 31, 2022
Gross Additions(1)
Gross Reductions(2)
Net Realized Gain (Loss)Net Change in Unrealized Appreciation (Depreciation)
Fair Value at
December 31, 2023
Interest Income(3)
Fee Income(3)
Senior Secured Loans—First Lien
Monitronics International, LLC$— $51,765 $(259)$— $(94)$51,412 $3,470 $— 
Sungard AS New Holdings III, LLC(4)
468 — (6,308)— 5,840 — — — 
Sungard AS New Holdings III, LLC(4)
2,118 — (2,118)— — — — — 
Senior Secured Loans—Second Lien
New Giving Acquisition, Inc.44,775 140 — — 929 45,844 5,843 — 
Sungard AS New Holdings III, LLC(4)
— — (14,729)— 14,729 — — — 
Asset Based Finance
Bridge Street CLO I Ltd., Subordinated Notes24,783 250 (1,174)— 1,096 24,955 3,649 — 
Bridge Street CLO II Ltd., Subordinated Notes25,261 98 (761)— 510 25,108 4,215 — 
Bridge Street CLO III Ltd., Subordinated Notes18,830 — (983)— 3,583 21,430 1,753 — 
Equity/Other
Monitronics International, LLC— 13,517 — — 7,430 20,947 — — 
New Giving Acquisition, Inc., Common Stock6,911 — — — 69,532 76,443 — 878 
New Giving Acquisition, Inc. Warrants, 8/19/29, Strike: $0.01611 — — — 6,146 6,757 — — 
Total$123,757 $65,770 $(26,332)$— $109,701 $272,896 $18,930 $878 
_________________
(1)Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and/or the movement of an existing portfolio company into this category from a different category.
(2)Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and/or the movement of an existing portfolio company out of this category into a different category.
(3)Interest and fee income are presented for the full year ended December 31, 2023.
(4)The Fund was deemed to be an “unaffiliated person” of the portfolio company during the year ended December 31, 2023. Transfers out have been presented at amortized cost and are deemed to have occurred at the beginning of the reporting period.
See notes to consolidated financial statements.
12
FS Credit Opportunities Corp.
Consolidated Schedule of Investments (continued)
As of December 31, 2023 (in thousands, except share amounts)
(r)
Under the Investment Company Act of 1940, as amended, the Fund 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, 2023, the Fund held investments in portfolio companies of which it is deemed to be an “affiliated person” and deemed to “control.” The following table presents certain information with respect to investments in portfolio companies of which the Fund was deemed to be an affiliated person and deemed to control as of December 31, 2023:
Portfolio CompanyFair Value at
December 31, 2022
Gross Additions(1)
Gross Reductions(2)
Net Realized Gain (Loss)Net Change in Unrealized Appreciation (Depreciation)
Fair Value at
December 31, 2023
Asset Based Finance
BCP Great Lakes II - Series A Holdings LP (3)
$32,234 $— $(32,438)$— $204 $— 
Equity/Other
SCM EPIC, LLC, Common Equity32,430 — — — (2,960)29,470 
Total$64,664 $— $(32,438)$— $(2,756)$29,470 
_________________
(1)Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
(2)Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.
(3)The Fund held this investment as of December 31, 2023 but it was deemed to be an “unaffiliated person” of the portfolio company as of December 31, 2023. Transfers out have been presented at amortized cost and are deemed to have occurred at the beginning of the reporting period.



See notes to consolidated financial statements.
13
FS Credit Opportunities Corp.
Consolidated Statement of Assets and Liabilities
(in thousands, except share and per share amounts)

December 31, 2023
Assets
Investments, at fair value
Non-controlled/unaffiliated investments (amortized cost—$1,723,247)$1,630,330 
Non-controlled/affiliated investments (amortized cost—$184,776)272,896 
Controlled/affiliated investments (amortized cost—$35,861)29,470 
Investments, at fair value (amortized cost—$1,943,884)1,932,696 
Cash and cash equivalents105,919 
Foreign currency (cost—$273)284 
Interest receivable32,775 
Collateral held at broker1,061 
Receivable for investments sold and repaid12,437 
Deferred financing costs1,006 
Prepaid expenses and other assets410 
Total assets$2,086,588 
Liabilities
Payable for investments purchased$65 
Credit facilities payable(1)
390,000 
Term preferred shares (net of unamortized discount and deferred financing costs of $180 and $1,304, respectively)(1)
298,516 
Interest expense payable6,129 
Stockholder distributions payable513 
Management fees payable7,434 
Incentive fees payable3,288 
Administrative services expense payable791 
Accounting and administrative fees payable200 
Professional fees payable673 
Directors’ fees payable186 
Unrealized depreciation on forward foreign currency exchange contracts15 
Other accrued expenses and liabilities6,227 
Total liabilities$714,037 
Net assets$1,372,551 
Commitments and contingencies(2)
Composition of net assets
Common stock, $0.001 par value, unlimited shares authorized, 198,355,867 shares issued and outstanding$198 
Capital in excess of par value1,659,921 
Retained earnings (accumulated deficit)(287,568)
Net assets$1,372,551 
Net asset value per share of common stock at period end$6.92 
______________
(1)See Note 9 for a discussion of the Fund’s financing arrangements and term preferred shares.
(2)See Note 11 for a discussion of the Fund’s commitments and contingencies.
See notes to consolidated financial statements.
14
FS Credit Opportunities Corp.
Consolidated Statement of Operations
(in thousands)
Year Ended
December 31, 2023
Investment income
From non-controlled/unaffiliated investments:
Interest income$195,944 
Paid-in-kind interest income25,609 
Fee income19,495 
Dividend income384 
From non-controlled/affiliated investments:
Interest income18,930 
Fee income878 
Total investment income261,240 
Operating expenses
Management fees28,413 
Incentive fees16,622 
Administrative services expenses4,706 
Accounting and administrative fees493 
Interest expense43,924 
Dividend expense on investments sold short4,367 
Professional fees1,884 
Directors’ fees678 
Other general and administrative expenses3,715 
Total operating expenses104,802 
Net investment income before taxes156,438 
Excise taxes4,581 
Net investment income151,857 
Realized and unrealized gain/loss
Net realized gain (loss) on investments:
Non-controlled/unaffiliated investments(132,758)
Net realized gain (loss) on swap contracts(257)
Net realized gain (loss) on options written17,657 
Net realized gain (loss) on investments sold short520 
Net realized gain (loss) on forward foreign currency exchange contracts(200)
Net realized gain (loss) on foreign currency(173)
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled/unaffiliated investments100,948 
Non-controlled/affiliated investments109,701 
Controlled/affiliated investments(2,756)
Net change in unrealized appreciation (depreciation) on swap contracts127 
Net change in unrealized appreciation (depreciation) on investments sold short(2,129)
Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts121 
Net change in unrealized gain (loss) on foreign currency184 
Total net realized gain (loss) and unrealized appreciation (depreciation)90,985 
Net change in provision for taxes on unrealized gains on investments97 
Net increase (decrease) in net assets resulting from operations$242,939 
See notes to consolidated financial statements.
15
FS Credit Opportunities Corp.
Consolidated Statements of Changes in Net Assets
(in thousands)
Year Ended December 31,
20232022
Operations
Net investment income$151,857 $134,203 
Net realized gain (loss) (115,211)(53,076)
Net change in unrealized appreciation (depreciation) on investments and provision for taxes on unrealized gains on investments207,990 (239,569)
Net change in unrealized appreciation (depreciation) on swap contracts127 182 
Net change in unrealized appreciation (depreciation) on investments sold short(2,129)2,129 
Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts
121 600 
Net change in unrealized gain (loss) on foreign currency184 (161)
Net increase (decrease) in net assets resulting from operations242,939 (155,692)
Stockholder distributions(1)
Distributions to stockholders(126,714)(101,965)
Net decrease in net assets resulting from stockholder distributions(126,714)(101,965)
Capital share transactions(2)
Reinvestment of stockholder distributions— 24,915 
Repurchases of common stock— (17,365)
Net increase (decrease) in net assets resulting from capital share transactions— 7,550 
Total increase (decrease) in net assets116,225 (250,107)
Net assets at beginning of period1,256,326 1,506,433 
Net assets at end of period$1,372,551 $1,256,326 
______________
(1)See Note 5 for a discussion of the distributions declared by the Fund.
(2)See Note 3 for a discussion of transactions with respect to the Fund’s common stock.
See notes to consolidated financial statements.
16
FS Credit Opportunities Corp.
Consolidated Statement of Cash Flows
(in thousands)
Year Ended
December 31, 2023
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations$242,939 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of long-term investments(681,944)
Paid-in-kind interest(25,609)
Proceeds from sales and repayments of long-term investments687,623 
Purchases to cover investments sold short (50,881)
Premiums received on swap contracts, net (637)
Premiums received on options written 21,295 
Premiums paid on exit of options written (3,638)
Net realized (gain) loss on investments132,758 
Net realized (gain) loss on options written(17,657)
Net realized (gain) loss on investments sold short(520)
Net change in unrealized (appreciation) depreciation on investments and provision for taxes on unrealized gains on investments(207,990)
Net change in unrealized (appreciation) depreciation on swap contracts(127)
Net change in unrealized (appreciation) depreciation on investments sold short2,129 
Net change in unrealized (appreciation) depreciation on forward foreign currency exchange contracts (121)
Accretion of discount(12,116)
Amortization of discount and deferred financing costs1,789 
(Increase) decrease in collateral held at broker51,784 
(Increase) decrease in receivable for investments sold and repaid(1,081)
(Increase) decrease in interest receivable(2,569)
(Increase) decrease in prepaid expenses and other assets(104)
Increase (decrease) in swap income payable(17)
Increase (decrease) in payable for investments purchased 65 
Increase (decrease) in interest expense payable(1)
(717)
Increase (decrease) in management fees payable(87)
Increase (decrease) in incentive fees payable (226)
Increase (decrease) in administrative services expense payable293 
Increase (decrease) in accounting and administrative fees payable(345)
Increase (decrease) in professional fees payable94 
Increase (decrease) in directors’ fees payable57 
Increase (decrease) in other accrued expenses and liabilities919 
Net cash provided by (used in) operating activities135,359 
Cash flows from financing activities
Stockholder distributions paid(126,201)
Repurchases of term preferred shares(1)
(100,000)
Borrowings under credit facilities(1)
150,000 
Repayments under credit facilities(1)
(45,000)
Deferred financing costs paid(24)
Net cash provided by (used in) financing activities(121,225)
Total increase (decrease) in cash, restricted cash and foreign currency(2)
14,134 
Cash, cash equivalents, restricted cash and foreign currency at beginning of period(3)
92,069 
Cash, cash equivalents and foreign currency at end of period$106,203 
Supplemental disclosure
Excise taxes paid$3,553 
See notes to consolidated financial statements.
17
FS Credit Opportunities Corp.
Consolidated Statement of Cash Flows (continued)
(in thousands)

______________
(1)See Note 9 for a discussion of the Fund’s financing arrangements and term preferred shares. During the year ended December 31, 2023, the Fund paid interest expense of $42,852 on financing arrangements and term preferred shares.
(2)Includes net change in unrealized gain (loss) on foreign currency of $177.
(3)Includes cash, cash equivalents and foreign currency of $90,279 and restricted cash of $1,790. Restricted cash is the cash collateral required to be posted pursuant to the Fund’s derivative contracts.

See notes to consolidated financial statements.
18
FS Credit Opportunities Corp.
Consolidated Financial Highlights
(in thousands, except share and per share amounts)
Year Ended December 31,
20232022202120202019
Per Share Data:(1)
Net asset value, beginning of period$6.33 $7.64 $7.30 $7.50 $7.58 
Results of operations
Net investment income(2)
0.77 0.68 0.56 0.57 0.70 
Net realized gain (loss) and unrealized appreciation (depreciation)0.46 (1.47)0.29 (0.22)(0.21)
Net increase (decrease) in net assets resulting from operations1.23 (0.79)0.85 0.35 0.49 
Stockholder Distributions:(3)
Distributions from net investment income(0.64)(0.52)(0.51)(0.55)(0.57)
Net decrease in net assets resulting from stockholder distributions(0.64)(0.52)(0.51)(0.55)(0.57)
Net asset value, end of period$6.92 $6.33 $7.64 $7.30 $7.50 
Market price common stock, end of period$5.67 $4.71 — — — 
Shares outstanding, end of period198,355,867 198,355,867 197,137,781 198,572,491 199,244,649 
Total return at net asset value(4)
20.11 %(10.69)%11.90 %5.49 %6.58 %
Total return at market price(5)
36.57 %7.19 %— — — 
Ratio/Supplemental Data:
Net assets, end of period$1,372,551 $1,256,326 $1,506,433 $1,449,623 $1,493,802 
Ratio of net investment income to average net assets(6)
11.49 %9.71 %7.32 %8.27 %9.23 %
Ratio of total operating expenses to average net assets(6)(10)
8.28 %7.53 %5.58 %5.12 %5.21 %
Portfolio turnover36 %33 %55 %67 %75 %
Total amount of credit facility borrowings outstanding exclusive of treasury securities$390,000 $285,000 $435,000 $385,000 $125,427 
Asset coverage, per $1,000 of credit facility borrowings(7)(9)
$5,285 $6,630 $5,373 $5,509 $14,417 
Asset coverage per unit of credit facility borrowings(7)
5.28 6.63 5.37 5.51 14.42 
Total amount of term preferred shares outstanding(9)
$300,000 $400,000 $400,000 $300,000 $200,000 
Asset coverage, per $1,000 liquidation value per share of term preferred shares and credit facilities(8)(9)
$2,987 $2,759 $2,799 $3,096 $5,557 
Asset coverage per unit of term preferred shares and credit facilities(8)(9)
2.99 2.76 2.80 3.10 5.56 
______________
(1)Per share data may be rounded in order to compute the ending net asset value per share.
(2)The per share data was derived by using the average number of shares of common stock outstanding during the applicable period.
(3)The per share data for distributions reflects the actual amount of distributions declared per share of common stock during the applicable period.
See notes to consolidated financial statements.
19
FS Credit Opportunities Corp.
Consolidated Financial Highlights (continued)
(in thousands, except share and per share amounts)
(4)The total return for each period presented is historical and is calculated by determining the percentage change in net asset value, assuming the reinvestment of all distributions in additional shares of common stock of the Fund at the Fund’s net asset value per share as of the share closing date occurring on or immediately following the distribution payment date. The historical calculation of total return in the table should not be considered a representation of the Fund’s future total return, which may be greater or less than the total return shown in the table due to a number of factors, including, among others, the Fund’s ability or inability to make investments that meet its investment criteria, the interest rates payable on the debt securities the Fund acquires, the level of the Fund’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Fund encounters competition in its markets and general economic conditions. As a result of these and other 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 return on the Fund during the applicable period.
(5)The total return based on market value for each period presented was calculated based on the change in market price during the applicable period, including the impact of distributions reinvested in accordance with the Fund's amended and restated distribution reinvestment plan, or the DRP. Total return based on market value does not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of shares of the Fund’s common stock. The historical calculation of total return based on market value in the table should not be considered a representation of the Fund’s future total return based on market value, which may be greater or less than the return shown in the table due to a number of factors, including the Fund’s ability or inability to make investments in companies that meet its investment criteria, the interest rates payable on the debt securities the Fund acquires, the level of the Fund’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Fund encounters competition in its markets, general economic conditions and fluctuations in common stock market value. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. Ratio for the year ended December 31, 2022 is not annualized.
(6)Average daily net assets is used for this calculation.
(7)Represents value of the Fund’s total assets available to cover senior securities, less all liabilities and indebtedness not represented by credit facility borrowings and term preferred shares, to the aggregate amount of credit facility borrowings outstanding representing indebtedness.
(8)Represents value of the Fund’s total assets available to cover senior securities, less all liabilities and indebtedness not represented by credit facility borrowings and term preferred shares, to the aggregate amount of credit facility borrowings and term preferred shares outstanding representing indebtedness.
(9)Presentation of certain amounts in the consolidated financial highlights for the years ended December 31, 2020 and 2019 have been updated to conform to the presentation of such amounts for the years ended December 31, 2023, 2022 and 2021.
(10)For the year ended December 31, 2022, the expense ratio includes one-time, non-recurring listing advisory fees, and other listing expenses incurred in connection with the listing on the NYSE. Had the Fund not incurred these expenses, the expense ratio would have been 7.27%.



See notes to consolidated financial statements.
20
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts)
Note 1. Principal Business and Organization
FS Credit Opportunities Corp., or the Fund, is organized as a Maryland corporation. Prior to March 23, 2022, the Fund was organized as a Delaware statutory trust. On March 23, 2022, the Fund completed its conversion into a Maryland corporation and changed its name to FS Credit Opportunities Corp. The Fund was originally organized on January 28, 2013, operating under the name FS Global Credit Opportunities Fund, and commenced investment operations on December 12, 2013. The Fund is a closed-end management investment company registered under the Investment Company Act of 1940, as amended, or the 1940 Act, 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, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. Effective November 14, 2022, the Fund listed its common stock on the New York Stock Exchange, or the NYSE, under the ticker symbol "FSCO."
The Fund’s investment adviser is FS Global Advisor, LLC, or FS Global Advisor, which is a private investment firm that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and an affiliate of the Fund’s sponsor, Franklin Square Holdings, L.P., or FS Investments.
As of December 31, 2023, the Fund had various wholly-owned subsidiaries, including special-purpose financing subsidiaries and subsidiaries through which it holds interests in certain portfolio companies. The consolidated financial statements include both the Fund’s accounts and the accounts of the wholly-owned subsidiaries consolidated as of December 31, 2023 in accordance with U.S. generally accepted accounting principles, or GAAP. All intercompany transactions have been eliminated in consolidation. Certain of the Fund’s consolidated subsidiaries may be subject to foreign income taxes. Additionally, one of the Fund’s consolidated subsidiaries is subject to U.S. federal and state income taxes.
The Fund’s primary investment objective is to generate an attractive total return consisting of a high level of current income and capital appreciation, with a secondary objective of capital preservation.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements of the Fund have been prepared in accordance with GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. As provided under Accounting Standards Codification Topic 946, Financial Services—Investment Companies, or ASC Topic 946, the Fund will generally not consolidate its investment in a company other than a substantially or wholly-owned investment company or controlled operating company whose business consists of providing services to the Fund. Accordingly, the Fund consolidated the accounts of the Fund's substantially wholly-owned subsidiaries in its consolidated financial statements. The Fund is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under ASC Topic 946. The Fund has evaluated the impact of subsequent events through the date of the consolidated financial statements were issued.
Use of Estimates: The preparation of the Fund’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Many of the amounts have been rounded and all amounts are in thousands, except share and per share amounts.
Cash and Cash Equivalents: The Fund considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Fund may invest its cash in a money market fund, which is stated at fair value. The Fund’s cash and cash equivalents are maintained with high credit quality financial institutions.
Valuation of Portfolio Investments: The Fund determines the net asset value, or NAV, of its common stock on each day that the NYSE is open for business as of the close of the regular trading session on the NYSE. The Fund calculates the NAV of its common stock by subtracting liabilities (including accrued expenses and distributions) from the total assets of the Fund (the value of securities, plus cash and other assets, including interest and distributions accrued but not yet received) and dividing the result by the total number of its outstanding shares of common stock. The Fund’s assets and liabilities are valued in accordance with the principles set forth below.
The Fund's board of directors, or the Board, is responsible for overseeing the valuation of the Fund's portfolio investments at fair value as determined in good faith pursuant to FS Global Advisor's valuation policy, or the Valuation Policy. Under the Valuation Policy, the Board has designated FS Global Advisor as the party with day-to-day responsibility for implementing the portfolio's valuation process set forth in the Valuation Policy subject to the oversight of the Board. Portfolio securities and other assets for which market quotes are readily available are valued at market value. In circumstances where market quotes are not readily available, FS Global Advisor has adopted methods for determining the fair value of such securities and other assets, pursuant to the responsibility for applying such fair valuation methods that has been designated to it by the Board. In connection with the valuation process, the Board receives valuation reports from FS Global Advisor as valuation designee on a quarterly basis.
21
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820, issued by the Financial Accounting Standards Board, or 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 for identical securities; 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.
The Fund expects that its portfolio will primarily consist of securities listed or traded on a recognized securities exchange or automated quotation system, or exchange-traded securities, or securities traded on a privately negotiated over-the-counter secondary market for institutional investors for which indicative dealer quotes are available, or over-the-counter, or OTC, securities. The Fund also may invest in certain illiquid securities issued by private companies and/or thinly traded public companies. These investments are generally subject to restrictions on resale and ordinarily have not established a trading market.
For purposes of calculating NAV, the Fund uses the following valuation methods:
•The market value of each exchange-traded security is the last reported sale price at the relevant valuation date on the composite tape or on the principal exchange on which such security is traded.
•If no sale is reported for an exchange-traded security on the valuation date or if a security is an OTC security, the Fund values such investments using quotations obtained from an approved independent third-party pricing service, which provides prevailing bid and ask prices that are screened for validity by such service from dealers on the valuation date. If a quoted price from such pricing service is deemed by FS Global Advisor to be unreliable (and therefore, not readily available), FS Global Advisor may recommend that the investment may be fair valued by some other means, including, but not limited to, a valuation provided by an approved independent third-party valuation service or by FS Global Advisor's Fair Value Committee, or the Fair Value Committee. For investments for which an approved independent third-party pricing service is unable to obtain quoted prices, the Fund may obtain bid and ask prices directly from dealers who make a market in such securities. In all cases, investments are valued at the mid-point of the prevailing bid-ask range obtained from such sources unless there is a compelling reason to use some other value within the bid-ask range and the justification thereof is documented and retained by FS Global Advisor.
•To the extent that the Fund holds investments for which no active secondary market exists and, therefore, no bid and ask prices can be readily obtained, the Fund will value such investments at fair value as determined in good faith by FS Global Advisor, under the oversight of the Board, in accordance with the Valuation Policy. In making such determination, it is expected that FS Global Advisor may rely upon valuations obtained from an approved independent third-party valuation service. With respect to these investments for which market quotations are not readily available, the Fund undertakes a multi-step valuation process each quarter, as described below:
•The quarterly fair valuation process begins with FS Global Advisor facilitating the delivery of updated quarterly financial and other information relating to each investment to the independent third-party valuation service;
•The independent third-party valuation service then reviews and analyzes the information, along with relevant market and economic data, and determines proposed valuations for each investment according to the valuation methodologies in the Valuation Policy and communicates the information to FS Global Advisor in the form of a valuation range;
•FS Global Advisor then reviews the preliminary valuation information for each portfolio company or investment and provides feedback about the accuracy, completeness and timeliness of the valuation-related inputs considered by the independent third-party valuation service and any suggested revisions thereto prior to the independent third-party valuation service finalizing its valuation range;
•FS Global Advisor then provides the audit committee of the Board with valuation-related information for each investment along with any applicable supporting materials and other information that is relevant to the fair valuation process;
•The audit committee of the Board meets with FS Global Advisor to receive the relevant quarterly reporting and to discuss any questions from the audit committee in connection with the audit committee's role in overseeing the fair valuation process; and preliminary valuations will then be presented to and discussed with the audit committee of the Board;
•Following the completion of fair valuation oversight activities, the audit committee of the Board, with assistance from FS Global Advisor, provides the Board with a report regarding the quarterly valuation process.
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to the Fund’s consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on the
22
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
Fund’s consolidated financial statements. In making its determination of fair value, FS Global Advisor may use any independent third-party pricing or valuation service, for which it has performed the appropriate level of due diligence. However, FS Global Advisor shall not be required to determine fair value in accordance with the valuation provided by any single source, and may use any relevant data, including information sourced by FS Global Advisor, or from any approved independent third-party valuation or pricing service, that FS Global Advisor deems to be reliable in determining fair value under the circumstances.
Below is a description of factors that FS Global Advisor, any approved independent third-party valuation service and the audit committee of the Board may consider when determining the fair value of the Fund’s investments.
The valuation methods utilized for each portfolio company may vary depending on industry and company-specific considerations. Typically, the first step is to make an assessment as to the enterprise value of the portfolio company’s business in order to establish whether the portfolio company’s enterprise value is greater than the amount of its debt as of the valuation date. This analysis helps to determine a risk profile for the applicable portfolio company and its related investments, and the appropriate valuation methodology to utilize as part of the security valuation analysis. The enterprise valuation may be determined using a market or income approach.
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, the Fund may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing the borrower’s debt.
For convertible debt securities, fair value will generally approximate 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.
Valuation of CLO subordinated notes considers a variety of relevant factors, including recent purchases and sales known to FS Global Advisor in similar securities and output from a third-party financial model. The third-party financial model contains detailed information on the characteristics of CLOs, including recent information about assets and liabilities, and is used to project future cash flows. Key inputs to the model include assumptions for future loan default rates, recovery rates, prepayment rates, reinvestment rates and discount rates. These are determined by considering both observable and third-party market data and prevailing general market assumptions and conventions.
The Fund’s equity interests in companies for which there is no liquid public market are valued at fair value. Generally, the value of the Fund’s equity interests in public companies for which market quotations are readily available will be based upon the most recent closing public market price.
When the Fund receives 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. The Board will subsequently value the warrants or other equity securities received at fair value.
When utilized, derivatives will be priced in the same manner as securities and loans, i.e. primarily by approved independent third-party pricing services, or secondarily through counterparty statements if there are no prices available from such pricing services. With respect to credit derivatives, where liquidity is limited due to the lack of a secondary market for the underlying reference obligation and where a price is not provided by an approved independent third-party pricing service, such derivatives will be valued after considering, among other factors, the valuation provided by the counterparty with which the Fund has established the position. For other over-the-counter derivatives, the value of the underlying securities, among other factors, will be reviewed and considered by FS Global Advisor in determining the appropriate fair value.
Forward foreign currency exchange contracts typically will be valued at their quoted daily prices obtained from an independent third party. Swaps (other than centrally cleared) typically will be valued using valuations provided by an approved independent third-party pricing service. Such valuations generally will be based on the present value of fixed and projected floating rate cash flows over the term of the swap contract and, in the case of credit default swaps, generally will be based on credit spread quotations obtained from broker-dealers and expected default recovery rates determined by the approved independent third-party pricing service using proprietary models. Future cash flows will be discounted to their present value using swap rates provided by electronic data services or by broker-dealers. Centrally cleared swaps are valued at the daily settlement price provided by the central clearing counterparty. The aggregate settlement values and notional amounts of the forward foreign currency exchange contracts and swap contracts are not recorded in the consolidated statement of assets and liabilities. Fluctuations in the value of the forward foreign currency exchange contracts and swap contracts are recorded in the consolidated statement of assets and liabilities as an asset (liability) and in the consolidated statement of operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as net realized gains (losses).
23
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
Revenue Recognition: Security transactions are accounted for on the trade date. The Fund records interest income on an accrual basis to the extent that it expects to collect such amounts. The Fund records dividend income on the ex-dividend date. The Fund does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such income. The Fund’s policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. The Fund considers many factors relevant to an investment when placing it on or removing it from non-accrual status, including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that the Fund 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 become current and are likely to remain current based on the Fund’s judgment.
Loan origination fees, original issue discount, market discount and market premium are capitalized and such amounts are amortized/accreted as interest income over the respective term of the loan or security, except market premium on callable bonds, which are amortized to the call date. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. The Fund records prepayment fees on loans and securities as fee income when it receives such amounts. For the year ended December 31, 2023, the Fund recognized $2,673 in structuring and upfront fee revenue.
The Fund invests in Collateralized Loan Obligations, or CLOs. Interest income from investments in the “equity” class of these CLOs (in the Fund's case, subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with Accounting Standards Codification Topic 325-40-35, Beneficial Interests in Securitized Financial Assets, or ASC Topic 325. The Fund monitors the expected cash inflows from its equity investments in CLOs, including the expected principal repayments. The effective yield is determined and updated quarterly.
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. The Fund measures 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. Net change in unrealized gains or losses on foreign currency reflects the change in the value of receivables or accruals during the reporting period due to the impact of foreign currency fluctuations.
Income Taxes: The Fund 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. To maintain qualification as a RIC, the Fund must, among other things, meet certain source-of-income and asset diversification requirements and distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income,” which is generally the Fund’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. As a RIC, the Fund will not have to pay corporate-level U.S. federal income taxes on any income that it distributes to its stockholders. The Fund intends to make distributions in an amount sufficient to maintain its RIC status each year. The Fund also will be subject to nondeductible U.S. federal excise taxes if it does not distribute at least 98% of net ordinary income, 98.2% of capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no U.S. federal income taxes.
Uncertainty in Income Taxes: The Fund evaluates its 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 the Fund’s 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. The Fund recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense on its consolidated statement of operations. During the year ended December 31, 2023, the Fund did not incur any interest or penalties.
The Fund has analyzed the tax positions taken on U.S. federal and state income tax returns for all open tax years, and has recorded a provision for taxes on unrealized gains on investments of $455 for the year ended December 31, 2023 in the Fund's consolidated financial statements. The Fund’s U.S. federal and state income and U.S. federal excise tax returns for tax years for which the applicable statutes of limitations have not yet expired are subject to examination by the Internal Revenue Service, or the IRS, and state departments of revenue.
Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign
24
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, helps to manage the overall exposure to the currencies in which some of the investments and borrowings held by the Fund are denominated. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts contains the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
Credit Default Swaps: The Fund enters into credit default swaps to manage credit risk, gain exposure to a credit in which it may otherwise invest or to enhance its returns. When the Fund is the buyer of a credit default swap contract, the Fund is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation (or basket of debt obligations) from the counterparty to the contract if a specified credit event with respect to the issuer of the debt obligation, such as a U.S. or foreign corporate issuer or sovereign issuer, occurs. In return, the Fund pays the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no specified credit event occurs, the Fund would have paid the stream of payments and received no proceeds from the contract. When the Fund is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay to the buyer of the protection an amount up to the notional amount of the swap and in certain instances take delivery of securities of the reference entity upon the occurrence of a credit event, as defined under the terms of that particular swap agreement. Credit events are contract specific but may include bankruptcy, failure to pay principal or interest, restructuring, obligation acceleration and repudiation or moratorium. If the Fund is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Fund could be required to make would be an amount equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of a buy protection credit default swap agreement entered into by the Fund for the same referenced obligation. As the seller of a credit default swap contract, the Fund may create economic leverage because, in addition to its net assets, the Fund is subject to investment exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily and is recorded as realized loss or gain. The Fund records an increase or decrease to unrealized appreciation (depreciation) on credit default swaps in an amount equal to the change in daily valuation. Upfront payments or receipts, if any, are recorded as unamortized swap premiums paid or received, respectively, and are amortized over the life of the swap contract as realized losses or gains. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation (depreciation) on credit default swaps to determine the market value of swaps as presented in Note 6 and Note 8. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction.
Collateralized Loan Obligation – Warehouses: A Collateralized Loan Obligation Warehouse, or CLO Warehouse, is an entity organized for the purpose of holding syndicated bank loans, also known as leveraged loans, prior to the issuance of securities from that same vehicle. During the warehouse period, a CLO Warehouse will secure investments and build a portfolio of primarily leveraged loans and other debt obligations. The warehouse period terminates when the collateralized loan obligation vehicle issues various tranches of securities to the market. At this time, financing through the issuance of debt securities and subordinated notes is used to repay the bank financing.
Options: The Fund may purchase or write call and put options in an effort to manage risk and/or generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. Premiums paid on options purchased and premiums received on options written are reflected as an asset and liability, respectively. The amount of the asset or liability is subsequently marked-to-market to reflect the current fair value of the option purchased or written. When an instrument is purchased or sold through an exercise of an option, the related premium received is deducted from the basis of the instrument acquired or added to the proceeds of the instrument sold. When an option expires, the Fund realizes a gain on the option to the extent of the premiums received. When an option is exercised, the Fund realizes a loss to the extent the cost of closing the option exceeds the premiums received, or a gain to the extent the premiums received exceed the cost of closing the option.
Distributions: Distributions to the Fund’s stockholders are recorded as of the record date. Subject to the discretion of the Board and applicable legal restrictions, the Fund intends to authorize and declare and pay ordinary cash distributions on a monthly basis. Net realized capital gains, if any, will be distributed or deemed distributed at least annually. Distributions to holders of Term Preferred Shares are accrued on a daily basis as described in Note 9. As required by Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity, issued by the FASB, the Fund includes the accrued distributions on its Term Preferred Shares as an operating
25
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
expense due to the fixed term of this obligation. For tax purposes, the payments made to holders of the Fund’s Term Preferred Shares are treated as distributions.
Recent Accounting Pronouncements: In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”),” which clarifies guidance for fair value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023 and for interim periods within those fiscal years, with early adoption permitted. The Fund has concluded that this guidance will not have a material impact on its consolidated financial statements.
Note 3. Share Transactions
There were no reinvestment of distributions or repurchases of common stock during the year ended December 31, 2023. Below is a summary of transactions with respect to shares of the Fund’s common stock during the year ended December 31, 2022:
Year Ended
December 31, 2022
 SharesAmount
Reinvestment of Distributions3,546,222 $24,915 
Repurchases of Common Stock(2,328,136)(17,365)
Net Proceeds from Share Transactions1,218,086 $7,550 
Share Repurchase Program
Historically, in order to provide stockholders with limited liquidity, the Fund conducted quarterly repurchases of common stock. Any offer to repurchase common stock was conducted solely through written tender offer materials mailed to each stockholder.
The Fund’s quarterly repurchases were conducted on such terms as determined by the Board in its complete and absolute discretion unless, in the judgment of the independent directors, such repurchases would not have been in the best interests of stockholders or would have violated applicable law.
In anticipation of the Fund listing its common stock on the NYSE, the Board suspended the Fund’s share repurchase program effective March 31, 2022. Following the listing of the Fund's common stock on the NYSE, shares of the Fund's common stock are generally only available for purchase and sale in the secondary market at prevailing market prices rather than at net asset value, and the Fund's quarterly tender offers have been permanently suspended.
During the year ended December 31, 2023, the administrator for the Fund's DRP, purchased 865,193 shares of common stock in the open market at an average price per share of $5.23 (totaling $4,526) pursuant to the DRP, and distributed such shares to participants in the DRP. During the period from January 1, 2024 to February 29, 2024, the administrator for the DRP purchased 88,140 shares of common stock in the open market at an average price per share of $5.73 (totaling $505) pursuant to the DRP, and distributed such shares to participants in the DRP. For additional information regarding the terms of the DRP, see Note 5.
FSH Seed Capital Vehicle I LLC, a wholly-owned subsidiary of the Fund's sponsor, FS Investments, entered into a share purchase plan on June 12, 2023. FSH Seed Capital Vehicle I LLC's plan provides for the purchase of an aggregate dollar value of the Fund's common stock of $8,536 between July 12, 2023 and June 12, 2024. FSH Seed Capital Vehicle I LLC's trading plan was entered into during an open insider trading window and was established to comply with Rule 10b5-1 and Rule 10b-18, and to qualify for the safe harbors thereunder, under the Securities Exchange Act of 1934, as amended, and the Fund's policies regarding insider transactions. During the year ended December 31, 2023, 321,821 shares of common stock were purchased by FSH Seed Capital Vehicle I LLC; however, FSH Seed Capital Vehicle I LLC's purchases were made in open-market transactions, not pursuant to the share purchase plan.
Note 4. Related Party Transactions
Compensation of the Investment Adviser and its Affiliates
Prior to November 14, 2022, pursuant to the investment advisory agreement, dated as of April 18, 2019, or the Investment Advisory Agreement, FS Global Advisor was entitled to (a) an annual management fee of 1.50% of the Fund’s average daily gross assets (gross assets equaled total assets set forth on the Fund’s consolidated statement of assets and liabilities) and (b) an incentive fee based on the Fund’s performance.
26
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (continued)
On November 14, 2022, the Fund and FS Global Advisor amended and restated the Investment Advisory Agreement, or the A&R Investment Advisory Agreement. Pursuant to the A&R Investment Advisory Agreement, effective as of November 14, 2022, FS Global Advisor is entitled to (a) an annual management fee of 1.35% of the Fund’s average daily gross assets (gross assets equals total assets set forth on the Fund’s consolidated statement of assets and liabilities) and (b) an incentive fee based on the Fund’s performance. Management fees are calculated and payable quarterly in arrears.
Under the A&R Investment Advisory Agreement, the incentive fee is calculated and payable quarterly in arrears based upon the Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter, and is subject to a preferred return rate, expressed as a rate of return on the Fund’s net assets, equal to 1.50% per quarter (or an annualized hurdle rate of 6.00%), subject to a “catch-up” feature. For this purpose, “pre-incentive fee net investment income” means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Fund receives from portfolio companies) accrued during the calendar quarter, minus the Fund’s operating expenses for the quarter (including the management fee, expenses reimbursed to FS Global Advisor under the administration agreement, dated as of July 15, 2013, by and between the Fund and FS Global Advisor, or the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred shares, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with paid-in-kind interest and zero coupon securities), accrued income that the Fund has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
The calculation of the incentive fee for each quarter is as follows:
•No incentive fee is payable in any calendar quarter in which the Fund’s pre-incentive fee net investment income does not exceed the quarterly preferred return rate of 1.50% (6.00% annualized);
•100% of the Fund’s pre-incentive fee net investment income, if any, that exceeds the preferred return rate but is less than or equal to 1.667% in any calendar quarter (6.667% annualized) is payable to FS Global Advisor. This portion of the Fund’s pre-incentive fee net investment income which exceeds the preferred return rate but is less than or equal to 1.667% is referred to as the “catch-up.” The “catch-up” provision is intended to provide FS Global Advisor with an incentive fee of 10.0% on all of the Fund’s pre-incentive fee net investment income when the Fund’s pre-incentive fee net investment income reaches 1.667% in any calendar quarter; and
•10.0% of the amount of the Fund’s pre-incentive fee net investment income, if any, that exceeds 1.667% in any calendar quarter (6.667% annualized) is payable to FS Global Advisor once the preferred return rate and catch-up have been achieved (10.0% of all the Fund’s pre-incentive fee net investment income thereafter is allocated to FS Global Advisor).
Under the Administration Agreement, the Fund reimburses FS Global Advisor for its actual costs incurred in providing administrative services to the Fund, including FS Global Advisor’s allocable portion of the compensation and related expenses of certain personnel of FS Investments providing administrative services to the Fund on behalf of FS Global Advisor. Such services include general ledger accounting, fund accounting, legal services, investor and government relations and other administrative services. FS Global Advisor also performs, or oversees the performance of, the Fund’s corporate operations and required administrative services, which includes being responsible for the financial records that the Fund is required to maintain and preparing reports to the Fund’s stockholders and reports filed with the Securities and Exchange Commission, or the SEC. In addition, FS Global Advisor assists the Fund in calculating NAV, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to the Fund’s stockholders, and generally overseeing the payment of the Fund’s expenses and the performance of administrative and professional services rendered to the Fund by others. FS Global Advisor is required to allocate the cost of these services to the Fund based on factors such as assets, revenues and/or time allocations. At least annually, the Board reviews the methodology employed in determining how the expenses are allocated to the Fund and the proposed allocation of administrative expenses among the Fund and certain affiliates of FS Global Advisor. The Board then assesses the reasonableness of such reimbursements for expenses allocated to the Fund based on the breadth, depth and quality of such services as compared to the estimated cost to the Fund of obtaining similar services from third-party service providers known to be available. In addition, the Board considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Board compares the total amount paid to FS Global Advisor for such services as a percentage of the Fund’s net assets to the same ratio as reported by other comparable investment companies. The Fund will not reimburse FS Global Advisor for any services for which it receives a separate fee or for any administrative expenses allocated to a controlling person of FS Global Advisor.
27
FS Credit Opportunities Corp.
Notes to 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 incurred under the Investment Advisory Agreement, A&R Investment Advisory Agreement and the Administration Agreement during the year ended December 31, 2023:
Related PartySource AgreementDescriptionAmount
FS Global AdvisorA&R Investment Advisory Agreement
Management Fee(1)
$28,413 
FS Global AdvisorA&R Investment Advisory Agreement
Incentive Fee(2)
$16,622 
FS Global AdvisorAdministration Agreement
Administrative Services Expenses(3)
$4,706 
______________
(1)During the year ended December 31, 2023, $28,500 in management fees were paid to FS Global Advisor. As of December 31, 2023, $7,434 in management fees were payable to FS Global Advisor.
(2)During the year ended December 31, 2023, $16,848 in incentive fees were paid to FS Global Advisor. As of December 31, 2023, $3,288 in incentive fees were payable to FS Global Advisor.
(3)During the year ended December 31, 2023, the Fund paid $3,949 in administrative services expenses to FS Global Advisor.
Potential Conflicts of Interest
FS Global 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, a private fund and a real estate investment trust sponsored by FS Investments, or the Fund Complex. As a result, such personnel provide or expect to provide investment advisory services to certain others funds 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 the investment personnel of FS Global Advisor are not currently providing investment advisory services for clients other than for the Fund Complex, they may do so in the future. In the event that FS Global Advisor provides investment advisory services to other clients in the future, it intends to allocate investment opportunities in a fair and equitable manner consistent with the Fund’s investment objectives and strategies, so that the Fund will not be disadvantaged in relation to any other client of FS Global Advisor or its management team. In addition, even in the absence of FS Global Advisor retaining additional clients, it is possible that some investment opportunities may be provided to other entities in the Fund Complex, rather than to the Fund.
Exemptive Relief
The Fund has been granted exemptive relief by the SEC that permits the Fund to participate in certain negotiated co-investments alongside other funds managed by FS Global Advisor or certain of its affiliates, subject to certain conditions, including (i) that a majority of the Board who have no financial interest in the co-investment transaction and a majority of the Board who are not “interested persons,” as defined in the 1940 Act, approve the co-investment and (ii) that the price, terms and conditions of the co-investment will be identical for each fund participating pursuant to the exemptive relief.
Bridge Street CLO I Ltd., Bridge Street CLO II Ltd. and Bridge Street CLO III Ltd. (each, a CLO Issuer)
The collateral manager and administrator of each CLO Issuer, FS Structured Products Advisor, LLC, or FSSPA, is an affiliate of FS Global Advisor. In accordance with an agreement between FSSPA and the Fund, as long as the Fund owns more than 4.99% of any CLO Issuer’s equity, FSSPA will reimburse the Fund on a quarterly basis in an amount equal to all of the compensation received by FSSPA from each of Bridge Street CLO I Ltd., Bridge Street CLO II Ltd. and a portion of the compensation received by FSSPA from Bridge Street CLO III Ltd., equal to the Fund's percentage ownership of Bridge Street CLO III Ltd.'s subordinated notes, in each case, for FSSPA's collateral management and collateral administrator services less certain administrative costs borne by FSSPA during the relevant quarter as defined in the agreement.
Bridge Street Warehouse CLO I Ltd., Bridge Street Warehouse CLO II Ltd. and Bridge Street Warehouse CLO III Ltd., collectively, the CLO Warehouses, were wholly owned by the Fund during their respective warehouse phases. During the warehouse phases, the CLO Warehouses financed the majority of their loan purchases using their respective warehouse financing facilities. On the respective CLO issuance dates, the warehouse phases terminated when the respective CLO Issuer issued to the market various tranches of notes, including the issuance of subordinated notes to the Fund in each case. On such date, the respective CLO Issuer, following a merger with its respective Warehouse, used the proceeds from its note issuance to repay the warehouse financing facility.
28
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Related Party Transactions (continued)
The following table presents summary information with respect to the Fund’s related party Warehouse and CLO issuances:
CLO IssuerWarehouse NameWarehouse Commencement DateCLO Issuance DateTotal CLO Notes IssuedSubordinated Notes Issued to the Fund
Bridge Street CLO I Ltd.Bridge Street Warehouse CLO I Ltd.March 13, 2020January 28, 2021$353,700 $28,200 
Bridge Street CLO II Ltd.Bridge Street Warehouse CLO II Ltd.March 29, 2021September 2, 2021$355,950 $28,560 
Bridge Street CLO III Ltd.Bridge Street Warehouse CLO III Ltd.September 10, 2021December 28, 2022$349,500 $27,600 
Note 5. Distributions
During the years ended December 31, 2023 and 2022, the Fund declared and paid cash distributions of $0.64 per share of common stock in the total amount of $126,714 and $0.52 per share of common stock in the total amount of $101,965, respectively.
On January 11, 2024 and February 9, 2024, the Board declared regular monthly cash distributions for January and February 2024, respectively, each in the amount of $0.057 per share of common stock. The regular monthly cash distributions have been or will be paid monthly to stockholders of record as of monthly record dates previously determined by the Board. From time to time, the Fund may also pay special interim cash distributions at the discretion of the Board. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Board.
Historically, the Fund had an “opt in” DRP for its stockholders in which stockholders of the Fund could elect to have their cash distributions reinvested in additional shares of common stock of the Fund. To the extent that stockholders reinvested their cash distributions, the Fund used the proceeds to purchase additional shares of common stock of the Fund. As such, a portion of the cash distributions paid by the Fund would be reinvested in additional shares of common stock of the Fund. On July 14, 2022, the Board adopted the DRP, which became effective as of the date that the Fund's common stock was listed on the NYSE, November 14, 2022, or the Listing Date, and on September 27, 2022, the Board approved the termination of the prior DRP effective October 3, 2022.
Pursuant to the DRP, unless a stockholder specifically elects to receive cash, all distributions declared following the Listing Date will be payable in shares of common stock of the Fund. The Board and the Fund's stockholders previously approved a proposal for the Fund to implement share transfer restrictions on the Fund's shares of common stock for a period of 180 days following the Listing Date, and accordingly the DRP was suspended through May 15, 2023. On May 16, 2023, the Board approved the reinstatement of the DRP.
The Fund may fund its cash distributions to stockholders from any sources of funds legally available to it, including offering proceeds, borrowings, net investment income, short-term and long-term capital gains proceeds from the sale of assets, gains from credit default swaps, non-capital gains proceeds from the sale of assets and distributions on account of preferred and common equity. The Fund has not established limits on the amount of funds it may use from available sources to make distributions.
The following table reflects the sources of the cash distributions on a tax basis that the Fund declared on its common stock during the years ended December 31, 2023 and 2022:
Year Ended December 31,
20232022
Source of DistributionDistribution AmountPercentageDistribution AmountPercentage
Net investment income(1)
$126,714 100 %$101,965 100 %
Total$126,714 100 %$101,965 100 %

____________________
(1)The Fund’s net investment income on a tax basis for the years ended December 31, 2023 and 2022 was $164,630 and $157,046, respectively. The determination of the tax attributes of the Fund’s distributions is made annually as of the end of the Fund’s fiscal year based upon the Fund’s taxable income for the full year and distributions paid for the full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.
The Fund’s net investment income on a tax basis may be adjusted based on the filing of the Fund’s tax return. The difference between the Fund’s GAAP-basis net investment income and its tax-basis net investment income is primarily due to the tax treatment of
29
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 5. Distributions (continued)
unrealized appreciation (depreciation) on certain investments, realized foreign currency gains (losses), amortization of listing expenses, accrual of income for tax different from accrual of income for GAAP, reclassification on certain derivatives, non-deductible excise tax, non-deductible interest expense on Term Preferred Shares and fees recognized upon prepayment of loans.
The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income for the year ended December 31, 2023:
GAAP-basis net investment income$151,857 
Tax treatment of unamortized original issue discount and prepayment fees(13,890)
Mark-to-market unrealized appreciation (depreciation) on derivatives121 
Foreign currency gains (losses)(373)
Non-deductible excise tax4,581 
Non-deductible interest expense and deferred financing costs on Term Preferred Shares17,784 
Amortization of listing expenses794 
Other miscellaneous differences3,756 
Tax-basis net investment income$164,630 
The Fund may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences. During the year ended December 31, 2023, the Fund increased retained earnings (accumulated deficit) by $7,033 and decreased capital in excess of par value by $7,033. This reclassification has no impact on the net assets of the Fund.
As of December 31, 2023, the components of retained earnings (accumulated deficit) on a tax basis were as follows:
Distributable ordinary income$108,060 
Capital loss carryover(1)
(360,982)
Net unrealized appreciation (depreciation)(26,435)
Other temporary differences(8,211)
Total$(287,568)
____________________
(1)The capital loss carryover is available to reduce capital gain distribution requirements in future years and does not expire. As of December 31, 2023, the Fund had a long-term capital loss carryover of $348,832 and short-term capital loss carryover of $12,150. Future utilization of these losses may be limited. Any unused balances resulting from such limitations may be carried forward into future years indefinitely.
The aggregate cost of the Fund’s investments for U.S. federal income tax purposes totaled $1,958,684 as of December 31, 2023. Aggregate net unrealized appreciation (depreciation) on a tax basis was $(25,988), which was comprised of gross unrealized appreciation of $128,372 and gross unrealized depreciation of $154,360, as of December 31, 2023.
As of December 31, 2023, the Fund had a gross deferred tax asset of $20,674 resulting from deferred interest expense, capital losses and net operating losses in the Fund’s wholly-owned taxable subsidiary and a deferred tax liability of $3,984 resulting from unrealized appreciation on investments held by the Fund’s wholly-owned taxable subsidiary. As of December 31, 2023, the wholly-owned taxable subsidiary, FS Global Investments, Inc. anticipated that it would be unable to fully utilize the deferred tax asset, therefore, the deferred tax asset was offset by a valuation allowance of $17,145. For the year ended December 31, 2023, the Fund recorded a provision (benefit) for taxes related to FS Global Investments, Inc. of $(97) related to the deferred tax liability. As of December 31, 2023, the Fund had a deferred tax liability of $455.
Note 6. Financial Instruments
The Fund may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include forward contracts, futures contracts, swap contracts and written options and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered.
The Fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The Fund may enter into forward foreign currency exchange contracts to gain or reduce exposure, to foreign currencies. A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a specified date. These
30
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financial Instruments (continued)
contracts help to manage the overall exposure to the currencies in which some of the investments and borrowings held by the Fund are denominated and in some cases, may be used to obtain exposure to a particular market.
Each forward foreign currency exchange contract is marked-to-market daily and the change in market value is recorded as unrealized appreciation (depreciation) in the consolidated statement of assets and liabilities. When a contract is closed, a realized gain or loss is recorded in the consolidated statement of operations equal to the difference between the value at the time it was opened and the value at the time it was closed. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The use of forward foreign currency exchange contracts contains the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.
The Fund is subject to credit risk in the normal course of pursuing its investment objectives. The Fund may enter into total return swap and credit default swap contracts to manage its credit risk, to gain exposure to a credit in which it may otherwise invest or to enhance its returns. The Fund may also purchase and write call and put options in an effort to manage risk and/or generate gains from options premiums.
Credit default swaps are contracts in which one party makes a periodic stream of payments to another party in exchange for protection in the event of a specified credit event with respect to a specified issuer of a debt obligation. Credit events are contract specific but may include bankruptcy, failure to pay principal or interest, restructuring, obligation acceleration and repudiation or moratorium.
If the Fund is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Fund could be required to make would be an amount equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of a buy protection credit default swap agreement entered into by the Fund for the same referenced obligation. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily and is recorded as realized gain or loss. The Fund records an increase or decrease to unrealized appreciation (depreciation) on credit default swaps in an amount equal to the change in daily valuation. Upfront payments or receipts, if any, are recorded as unamortized swap premiums paid or received, respectively, and are amortized over the life of the swap contract as realized gains or losses. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation (depreciation) on credit default swaps to determine the market value of swaps. Credit default swaps involve certain risks, including the risk that the seller may be unable to fulfill the transaction.
The Fund may enter into swap contracts containing provisions allowing the counterparty to terminate the contract under certain conditions, including, but not limited to, a decline in the Fund’s NAV below a certain level over a certain period of time, which would trigger a payment by the Fund for those swaps in a liability position. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the writer to sell (if the option is exercised), the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period.
In purchasing and writing options, the Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that it may not be able to enter into a closing transaction due to an illiquid market, or market risk. Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.
The fair value of open derivative instruments (which are not considered to be hedging instruments for accounting purposes) by risk exposure as of December 31, 2023 was as follows:
Fair Value
Derivative
Assets		Derivative
Liabilities
Foreign Currency Risk
Forward foreign currency exchange contracts— 
$ 15(1)
______________
The Fund’s derivative assets and liabilities at fair value by risk, presented in the table above, are reported on a gross basis on the Fund’s consolidated statement of assets and liabilities and located as follows:
(1)Unrealized depreciation on forward foreign currency exchange contracts.

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FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financial Instruments (continued)
The following table presents the Fund’s derivative assets and liabilities by counterparty, net of amounts available for offset under a master netting agreement and net of the related collateral received by the Fund for assets or pledged by the Fund for liabilities as of December 31, 2023:
Counterparty
Derivative Assets(1)
Derivative Liabilities(1)
Net Value of Derivatives
Non-Cash Collateral (Received) Pledged(2)
Cash Collateral (Received) Pledged(2)
Net Amount of Derivative
Assets (Liabilities)(3)
JPMorgan Chase Bank, N.A.— $(15)$(15)— $15 — 
______________
(1)Exchanged-traded or centrally-cleared derivatives are excluded from these reported amounts.
(2)In some instances, the actual amount of the collateral received and/or pledged may be more than the amount shown due to overcollateralization.
(3)Net amount of derivative assets and liabilities represents the net amount due from the counterparty to the Fund and the net amount due from the Fund to the counterparty, respectively, in the event of default.
The effect of derivative instruments (which are not considered to be hedging instruments for accounting purposes) on the Fund’s consolidated statement of operations by risk exposure for the year ended December 31, 2023 was as follows:
Net Realized Gain (Loss) on Derivatives Recognized in IncomeNet Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income
Foreign Currency Risk
Forward foreign currency exchange contracts
$ (200)(1)
$ 121(2)
Credit Risk
Credit default swaps
$ (257)(3)
$ 127(4)
Market Risk
Options purchased
$ (28,152)(5)
—
Options written
$ 17,657(6)
—
______________
The Fund’s derivative instruments at fair value by risk, presented in the table above, are reported on the Fund’s consolidated statement of operations and located as follows:
(1)Net realized gain (loss) on forward foreign currency exchange contracts.
(2)Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts
(3)Net realized gain (loss) on swap contracts.
(4)Net change in unrealized appreciation (depreciation) on swap contracts
(5)Net realized gain (loss) on investments—non-controlled/unaffiliated.
(6)Net realized gain (loss) on options written.
The average notional amounts of forward foreign currency exchange contracts, credit default swaps and options written outstanding during the year ended December 31, 2023, which are indicative of the volumes of these derivative types, were $16,835, $6,500 and $4,077, respectively.
When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as a liability. The amount of the liability is subsequently marked-to-market to reflect the current fair value of the option written. Written options activity for the year ended December 31, 2023 was as follows:
Options Written
Fair value at beginning of period$— 
Net realized gain (loss)17,657 
Net change in unrealized appreciation (depreciation)— 
Premiums received on options written(21,295)
Premiums paid on exit3,638 
Fair value at end of period$— 
32
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Investment Portfolio
The following table summarizes the composition of the Fund’s investment portfolio at cost and fair value as of December 31, 2023:
Amortized Cost(1)
Fair ValuePercentage of Portfolio
Senior Secured Loans—First Lien$1,119,410 $1,072,799 55 %
Senior Secured Loans—Second Lien164,122 136,520 7 %
Senior Secured Bonds354,304 359,872 19 %
Subordinated Debt89,130 94,456 5 %
Asset Based Finance83,431 79,765 4 %
Equity/Other133,487 189,284 10 %
Total$1,943,884 $1,932,696 100 %
______________
(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 Fund would be presumed to “control” a portfolio company if it owned more than 25% of its voting securities or 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 December 31, 2023, the Fund held investments in five portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control,” and held an investment in one portfolio company of which it is deemed to “control,” each as defined in the 1940 Act. For additional information with respect to such portfolio companies, see footnotes (q) and (r) to the consolidated schedule of investments as of December 31, 2023 included herein.
The Fund’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Fund to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of December 31, 2023, the Fund had four senior secured loan investments with aggregate unfunded commitments of $28,888 and one asset based finance investment with an unfunded commitment of $1,048. The Fund maintains sufficient cash on hand and/or available borrowings 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 December 31, 2023:
Industry ClassificationFair ValuePercentage of Portfolio
Automobiles & Components$38,520 2 %
Capital Goods114,560 6 %
Commercial & Professional Services184,851 10 %
Consumer Discretionary Distribution & Retail89,406 5 %
Consumer Durables & Apparel131,367 7 %
Consumer Services271,762 14 %
Consumer Staples Distribution & Retail20,139 1 %
Energy99,601 5 %
Equity Real Estate Investment Trusts (REITs)23,308 1 %
Financial Services208,970 11 %
Food, Beverage & Tobacco16,070 1 %
Health Care Equipment & Services270,396 14 %
Household & Personal Products20,858 1 %
Insurance45,309 2 %
Materials74,919 4 %
Pharmaceuticals, Biotechnology & Life Sciences127,283 7 %
Real Estate Management & Development44,482 2 %
Software & Services63,787 3 %
Technology Hardware & Equipment1,591 0 %
Transportation85,517 4 %
Total$1,932,696 100 %
Purchases and sales of securities during the year ended December 31, 2023, other than short-term securities and U.S. government obligations, were $681,944 and $687,623, respectively.
33
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Fair Value of Financial Instruments
Under existing accounting guidance, fair value is defined as the price that the Fund would receive upon selling an asset or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes valuation techniques that maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Fund. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The Fund classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:
Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets.
Level 3: Inputs that are unobservable for an asset or liability.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
As of December 31, 2023, the Fund’s investments and derivatives were categorized as follows in the fair value hierarchy:
Asset DescriptionLevel 1Level 2Level 3Total
Senior Secured Loans—First Lien$— $560,036 $512,763 $1,072,799 
Senior Secured Loans—Second Lien— 70,526 65,994 136,520 
Senior Secured Bonds— 268,706 91,166 359,872 
Subordinated Debt— 94,456 — 94,456 
Asset Based Finance— — 79,765 79,765 
Equity/Other— 26,913 162,371 189,284 
Total Investments— 1,020,637 912,059 1,932,696 
Total Assets$— $1,020,637 $912,059 $1,932,696 
Liability DescriptionLevel 1Level 2Level 3Total
Forward Foreign Currency Exchange Contracts— 15 — 15 
Total Liabilities$— $15 $— $15 
The Board is responsible for overseeing the valuation of the Fund’s portfolio investments at fair value as determined in good faith pursuant to the Valuation Policy. The Board has designated FS Global Advisor, as the Fund's valuation designee, with day-to-day responsibility for implementing the Fund’s portfolio valuation process set forth in the Valuation Policy, subject to oversight by the Board.
The Fund’s investments consist primarily of debt securities that are traded on a private over-the-counter market for institutional investors and are typically classified as Level 2 within the fair value hierarchy. Except as described below, the Fund values its investments, forward foreign currency exchange contracts and credit default swaps by using the midpoint of the prevailing bid and ask prices from dealers on the date of the period end, which are provided by an independent third-party pricing service and screened for validity by such service. Investments that are traded on an active public market are valued at their closing price as of the date of the financial statements and are classified as Level 1 within the fair value hierarchy. Debt investments, for which broker quotes are not available, are valued by an independent third-party valuation firm, which determines the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated prepayments and other relevant terms of the investments. Except as described above, all of the Fund’s equity/other investments are also valued by the same independent valuation firm, which determines 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 valued by an independent third-party valuation firm are typically classified as Level 3 within the fair value hierarchy. An investment that is newly issued and purchased near the date of the financial statements is valued at cost if FS Global Advisor determines that the cost of such investment is the best indication of its fair value. When a current price is not available from an independent third-party pricing service, investments of minimal value may be valued by FS Global Advisor as determined in good faith.
FS Global Advisor periodically benchmarks the bid and ask prices it receives from the third-party pricing service and/or dealers and independent valuation firms against the actual prices at which the Fund purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Fund’s management in purchasing and selling these investments in other investment
34
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Fair Value of Financial Instruments (continued)
funds managed by the sponsor, FS Global Advisor believes that these prices are reliable indicators of fair value. FS Global Advisor reviewed the valuation determinations made with respect to these investments and determined that they were made in a manner consistent with the Valuation Policy.
The following is a reconciliation of investments for which significant unobservable inputs (Level 3) were used in determining fair value for the year ended December 31, 2023:
Senior Secured Loans—First LienSenior Secured Loans—Second LienSenior Secured BondsSubordinated DebtAsset Based FinanceEquity/OtherTotal
Fair value at beginning of period$491,290 $66,986 $64,300 $125 $106,465 $119,449 $848,615 
Accretion of discount (amortization of premium)4,732 201 119 — 58 137 5,247 
Net realized gain (loss)(5,138)(14,729)— (125)(748)(2,320)(23,060)
Net change in unrealized appreciation (depreciation)3,564 6,245 15,938 — 6,621 51,160 83,528 
Purchases201,121 1 6,272 — 6,383 — 213,777 
Paid-in-kind interest11,955 — 4,537 — — 3,412 19,904 
Sales and repayments(194,761)(360)— — (39,014)(9,467)(243,602)
Transfers into Level 3(1)
— 7,650 — — — — 7,650 
Fair value at end of period$512,763 $65,994 $91,166 $— $79,765 $162,371 $912,059 
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$1,265 $(8,484)$15,938 $— $5,529 $50,191 $64,439 
______________
(1)Transfers into Level 3 are deemed to have occurred as a result of, among other factors, changes in liquidity, the depth and consistency of prices from third-party pricing services and the existence of observable trades in the market. Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting year. For the year ended December 31, 2023, transfers into Level 3 were due to decreased price transparency.
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of December 31, 2023 are as follows:
Type of InvestmentFair Value
Valuation Technique(1)
Unobservable InputRangeWeighted Average
Senior Secured Loans—First Lien$483,763 Market ComparablesMarket Yield (%)8.3%-21.5%14.3%
29,000 
Other(2)
Senior Secured Loans—Second Lien65,494 Market ComparablesMarket Yield (%)11.7%-17.8%12.5%
500 
Other(2)
Senior Secured Bonds91,166 Market ComparablesMarket Yield (%)15.3%-40.4%20.1%
Asset Based Finance79,765 Discounted Cash FlowDiscount Rate (%)14.3%-16.0%14.8%
Equity/Other132,098 Market ComparablesMarket Yield (%)33.5%-34.0%33.8%
EBITDA Multiples (x)5.3x-10.0x6.4x
29,470 Discounted Cash FlowDiscount Rate (%)13.0%13.0%
803 
Other(2)
Total$912,059 
______________
(1)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 value based on expected outcome of proposed corporate transactions, other factors or determined in good faith by FS Global Advisor.
35
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 9. Financing Arrangements and Term Preferred Shares
The following table presents summary information with respect to the Fund’s outstanding financing arrangements and term preferred shares as of December 31, 2023:
ArrangementType of ArrangementRate
Amount
Outstanding(2)
Amount
Available		Maturity Date
Bucks Funding Facility(1)
Revolving Credit FacilityS+1.30%$105,000 $95,000 
September 26, 2024(4)
Blair Funding Facility(1)
Revolving Credit Facility
S+2.65%(3)
— 65,000 December 15, 2024
Blair Funding Facility(1)
Term Loan
S+2.65%(3)
285,000 — December 15, 2024
Series 2025 Term Preferred Shares(5)
Fixed Rate Shares4.49%50,000 — November 1, 2025
Series 2025-2 Term Preferred Shares(5)
Fixed Rate Shares4.00%50,000 — November 1, 2025
Series 2026 Term Preferred Shares(5)
Fixed Rate Shares5.426%100,000 — February 1, 2026
Series 2027 Term Preferred Shares(5)
Fixed Rate Shares2.95%100,000 — January 31, 2027
Total$690,000 $160,000 
______________
(1)Borrowings of each of the Fund’s financing facilities are considered senior securities representing indebtedness for purposes of complying with the asset coverage requirements under the 1940 Act applicable to closed-end management investment companies.
(2)The carrying amount outstanding under the facility approximates its fair value, unless otherwise noted.
(3)Term SOFR is subject to a 0.00% floor.
(4)As described below, this facility generally is terminable upon 270 days’ notice by BNP PBIL or two business days’ notice by the Fund. As of December 31, 2023, neither party to the facility had provided notice of its intent to terminate the facility.
(5)As of December 31, 2023, the fair value of the Series 2025 Term Preferred Shares, Series 2025-2 Term Preferred Shares, Series 2026 Term Preferred Shares and the Series 2027 Term Preferred Shares was approximately $50,135, $50,681, $104,424 and $98,384, respectively. These valuations are considered Level 3 valuations within the fair value hierarchy.
For the year ended December 31, 2023, the components of total interest expense for the Fund’s financing arrangements and term preferred shares were as follows:
Interest Expense(1)
Amortization of Deferred Financing Costs and DiscountTotal
Bucks Funding Facility$2,980 $— $2,980 
Blair Funding Facility23,160 1,043 24,203 
Series 2023 Term Preferred Shares—Floating Rate(2)
1,828 56 1,884 
Series 2023 Term Preferred Shares—Fixed Rate(2)
1,546 61 1,607 
Series 2025 Term Preferred Shares2,245 142 2,387 
Series 2025-2 Term Preferred Shares2,000 142 2,142 
Series 2026 Term Preferred Shares5,426 117 5,543 
Series 2027 Term Preferred Shares2,950 228 3,178 
Total$42,135 $1,789 $43,924 
______________
(1)Interest expense includes the effect of unused fees and commitment fees, if any. Interest under the Bucks Funding Facility is payable monthly or may be capitalized on the principal balance as additional cash borrowing. Interest under the Blair Funding Facility is payable quarterly in arrears commencing June 15, 2021. Dividends under the Series 2025 Term Preferred Shares, Series 2025-2 Term Preferred Shares, Series 2026 Term Preferred Shares and Series 2027 Term Preferred Shares are each payable semi-annually in arrears.
(2)On August 1, 2023, the Fund redeemed in full the Series 2023 Term Preferred Shares—Floating Rate and Series 2023 Term Preferred Shares—Fixed Rate.
The Fund’s average borrowings and weighted average interest rate for the year ended December 31, 2023 were $677,027 and 6.05%, respectively. As of December 31, 2023, the Fund’s weighted average effective interest rate on borrowings was 6.29%. Weighted average interest rate and weighted average effective interest rate do not include the effect of unused fees and commitment fees, if any.
Bucks Funding Facility
On March 10, 2015, Bucks Funding, a wholly-owned financing subsidiary of the Fund, entered into a committed facility arrangement, or as subsequently amended, the Bucks Funding Facility, with BNP Paribas Prime Brokerage International, Ltd., or BNP PBIL, on behalf of itself and as agent for BNP Paribas. The Bucks Funding Facility provides for borrowings in U.S. dollars up to an aggregate principal amount of $200,000 of revolving loans. Bucks Funding also borrowed $100,000 of term loans in U.S. dollars under the Bucks Funding
36
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 9. Financing Arrangements and Term Preferred Shares (continued)
Facility and repaid the term loans in full prior to the April 22, 2021 maturity date solely applicable to the term loans. Bucks Funding may also borrow additional amounts on an uncommitted basis, at the discretion of BNP Paribas, to the extent the pledged collateral provides sufficient coverage for such additional borrowings.
Bucks Funding may terminate the Bucks Funding Facility upon two business days’ notice. Absent a default or facility termination event, BNP PBIL is required to provide Bucks Funding with 270 days’ notice prior to terminating or materially amending the terms of the revolving loans.
Under the Bucks Funding Facility, revolving loan borrowings bear interest at the rate of Term SOFR, plus 1.30% per annum. Interest is payable monthly in arrears or may be capitalized on the principal balance as additional cash borrowing. Bucks Funding is required to pay a non-usage fee of 0.55% per annum to the extent less than 90% of the aggregate principal amount of available revolving loans has not been utilized and 0% per annum if 90% or more has been utilized.
Under the Bucks Funding Facility, Bucks Funding has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other requirements customary for facilities of this type. The value of securities required to be pledged by Bucks Funding is determined in accordance with the margin requirements described in the Bucks Funding Facility agreements. The Bucks Funding Facility agreements contain events of default and termination events customary for similar financing transactions.
Bucks Funding’s obligations under the Bucks Funding Facility are secured by a first priority security interest in substantially all of the assets of Bucks Funding, including its portfolio of assets. In connection with the Bucks Funding Facility, the Fund entered into a Parent Guaranty, pursuant to which the Fund has agreed to guaranty Bucks Funding’s obligations under the Bucks Funding Facility.
Securities held by Bucks Funding may be rehypothecated from time to time as permitted by Rule 15c-1(a)(1) promulgated under the Securities Exchange Act of 1934, as amended, subject to the terms and conditions governing Bucks Funding's U.S. PB Agreement, or the PB Agreement, with BNP PBIL. Under the terms of the PB Agreement, BNP PBIL has the ability to borrow hypothecated securities, or Rehypothecated Securities, and agrees to pay Bucks Funding a fee in connection with any borrowing of Rehypothecated Securities. The fee is computed daily at a rate of 70% of the difference between the fair market rate and Fed Funds Open and is paid monthly. Bucks Funding can designate any hypothecated security as ineligible for rehypothecation and can recall any Rehypothecated Security at any time and BNP PBIL must return it or an equivalent security in a commercially reasonable period. If BNP PBIL fails to return the security or an equivalent security, Bucks Funding will have the right to the cash equivalent of payments or distributions actually made but which Bucks Funding did not receive due to BNP PBIL's failure. As of December 31, 2023, no securities were rehypothecated and Bucks Funding received income in the amount of $1 during the year ended December 31, 2023.
The Fund incurred costs in connection with obtaining and amending and restating the Bucks Funding Facility, which the Fund recorded as deferred financing costs on its consolidated statement of assets and liabilities and amortized to interest expense over the life of the facility. As of December 31, 2023, all of such deferred financing costs had been amortized to interest expense.
Blair Funding Facility
On December 16, 2020, Blair Funding LLC, or Blair Funding, a wholly-owned financing subsidiary of the Fund, entered into a credit and security agreement, or as subsequently amended, the Blair Funding Facility, with Barclays Bank PLC, or Barclays, as administrative agent, Wells Fargo Bank, National Association, or Wells Fargo, as collateral agent, collateral administrator and securities intermediary, and the lenders from time to time party thereto. The Blair Funding Facility provides for borrowings in U.S. dollars, Canadian dollars, Euros and pounds sterling in an aggregate principal amount of (i) $285,000 of term loans and (ii) $65,000 of revolving loans on a committed basis. The maturity date for the Blair Funding Facility is December 15, 2024.
Under the Blair Funding Facility, borrowings bear interest at the rate of Term SOFR (subject to a 0.0% floor) plus a 0.20% benchmark adjustment plus (i) to the extent the Fund is rated “A3” or higher by Moody’s Investors Services, Inc., 2.65% per annum, or (ii) otherwise, 3.55% per annum. Interest rates under the Blair Funding Facility will increase by (i) 0.50% per annum if certain asset coverage requirements are not satisfied and (ii) 0.25% if the value of the Fund’s assets securing indebtedness other than indebtedness incurred under the Blair Funding Facility exceeds 25% of the value of the Fund’s total assets. Interest is payable quarterly in arrears. Blair Funding is subject to an unused fee of 0.55% per annum on the average daily unused portion of the revolving credit facility amount. The Blair Funding Facility also contains a prepayment premium for term loans prepaid during the first 30 months after closing, equal to (i) a spread make-whole fee on the aggregate principal amount of term loans prepaid prior to the second anniversary of the closing date, and (ii) 2.0% of the aggregate principal amount of term loans prepaid during the six-month period immediately following the second anniversary of the closing date.
Under the Blair Funding Facility, Blair Funding has made certain representations and warranties and must comply with various covenants, reporting requirements and other requirements customary for facilities of this type. In addition, Blair Funding must maintain a specified minimum asset coverage ratio. The Blair Funding Facility contains events of default customary for similar financing
37
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 9. Financing Arrangements and Term Preferred Shares (continued)
transactions. Upon the occurrence and during the continuation of an event of default, Barclays may declare the outstanding advances and all other obligations under the Blair Funding Facility immediately due and payable.
Blair Funding’s obligations under the Blair Funding Facility are secured by a first priority security interest in substantially all of the assets of Blair Funding, including its portfolio of assets. In connection with the Blair Funding Facility, the Fund entered into a guarantee and security agreement, pursuant to which the Fund has agreed to guarantee Blair Funding’s obligations under the Blair Funding Facility and secure Blair Funding’s obligations thereunder with a pledge of the Fund’s equity interest in Blair Funding.
The Fund incurred costs in connection with obtaining the Blair Funding Facility, which the Fund has recorded as deferred financing costs on its consolidated statement of assets and liabilities and amortizes to interest expense over the life of the facility. As of December 31, 2023, $1,006 of such deferred financing costs had yet to be amortized to interest expense.
Term Preferred Shares
As of December 31, 2023, the Fund had 300,000 issued and outstanding shares of preferred stock, each with a $1,000 liquidation preference per share, which consisted of the Series 2025 Term Preferred Shares, the Series 2025-2 Term Preferred Shares, the Series 2026 Term Preferred Shares and the Series 2027 Term Preferred Shares, or collectively, the Term Preferred Shares.
The Term Preferred Shares will rank senior in right of payment to the Fund’s common stock, will rank equal in right of payment with any other series of preferred shares that the Fund may issue in the future and will be subordinated in right of payment to the Fund’s existing and future indebtedness.
The terms of the Term Preferred Shares require the Fund to maintain asset coverage, as defined in Section 18 of the Investment Company Act of 1940 and modified for certain limitations on investments in issuers in a consolidated group and in equity securities, with respect to the Term Preferred Shares of at least 225%.
The Fund is obligated to redeem its Term Preferred Shares by the date as specified in the applicable series of Term Preferred Shares' offering document, or Term Redemption Date, unless redeemed in accordance with their terms prior to such date. The Fund may, at its sole option, redeem the Term Preferred Shares at the liquidation price, subject to payment of a make-whole premium, through the earlier date as specified in its offering document, or Optional Redemption Expiration Date. In addition, the Fund is obligated to redeem its Term Preferred Shares upon the occurrence of certain events, for example if FS Global Advisor, LLC, or an affiliate thereof, ceases to be the Fund's investment advisor and is not timely replaced by another investment advisor reasonably acceptable to holders of a majority of the applicable series of Term Preferred Shares.
The following table presents additional information with respect to the Fund’s Term Preferred Shares as of December 31, 2023:
Term Preferred Shares SeriesRateIssuance DateTerm Redemption DateOptional Redemption Expiration Date
Series 2025(1)
4.49%October 22, 2020November 1, 2025October 22, 2023
Series 2025-24.00%October 22, 2020November 1, 2025May 1, 2025
Series 20265.426%November 1, 2018February 1, 2026November 1, 2025
Series 20272.95%November 2, 2021January 31, 2027October 31, 2026
______________
(1)As of December 31, 2023, the Fund had not opted to early redeem the Series 2025 Term Preferred Shares.

The Term Preferred Shares are considered debt of the Fund for accounting purposes; therefore, the liquidation preference, which approximates fair value of the Term Preferred Shares, is recorded as a liability on its consolidated statement of assets and liabilities net of deferred financing costs. As of December 31, 2023, FS Global Advisor has determined that the fair value of the Series 2025 Term Preferred Shares, Series 2025-2 Term Preferred Shares, Series 2026 Term Preferred Shares and the Series 2027 Term Preferred Shares was approximately $50,135, $50,681, $104,424 and $98,384, respectively. Fair value was obtained using quotations from an approved independent third-party pricing service. Fair value could vary if market conditions change materially. The Fund records unpaid dividends in interest expense payable on its consolidated statement of assets and liabilities, and the dividends accrued and paid on the Term Preferred Shares are included as a component of interest expense on its consolidated statement of operations. The Term Preferred Shares are treated as equity for tax purposes.
As of December 31, 2023, $298,516 was outstanding under the Term Preferred Shares, net of discounts and deferred financing costs of $180 and $1,304, respectively. The Fund incurred costs in connection with issuing the Term Preferred Shares, which the Fund has recorded as deferred financing costs on its consolidated statement of assets and liabilities and amortizes to interest expense over the life of the Term Preferred Shares. As of December 31, 2023, $1,304 of such deferred financing costs had yet to be amortized to interest expense.
38
FS Credit Opportunities Corp.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Concentration of Risk
Investing in the Fund involves risks, including, but not limited to, those set forth below. The risks described below are not, and are not intended to be, a complete enumeration or explanation of the risks involved in an investment in the Fund. For a more complete discussion of the risks of investing in the Fund, see the sub-section entitled "Risk Factors" under the section "Summary of Updated Information Regarding the Fund (Unaudited)" below.
Senior Secured Debt Risk: Senior secured debt typically will be secured by liens on the assets and/or cash flows of the borrower and holds the most senior position in its capital structure. Senior secured debt in most circumstances is initially fully collateralized by the borrower’s assets and thus it is repaid before unsecured debt and equity. Substantial increases in interest rates, however, may cause an increase in loan defaults as borrowers may lack resources to meet higher debt service requirements, or as a result of the impact on general business conditions caused by higher interest rates, and there can be no guarantee that secured senior debt, even if fully collateralized at origination, will be fully repaid after an event of default or if collateral values have fallen. Also, the security for the Fund’s senior secured debt investments may not be recognized for a variety of reasons, including the failure to make required filings by lenders, trustees or other responsible parties and, as a result, the Fund may not have priority over other creditors as anticipated.
Credit Risk: The Fund’s debt investments are subject to the risk of non-payment of scheduled interest or principal by the borrowers with respect to such investments. Such non-payment would likely result in a reduction of income to the Fund and a reduction in the value of the debt investments experiencing non-payment.
Although the Fund may invest in investments that FS Global Advisor believes are secured by specific collateral, the value of which may exceed the principal amount of the investments at the time of initial investment, there can be no assurance that the liquidation of any such collateral would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or principal payments with respect to such investment, or that such collateral could be readily liquidated. In addition, in the event of bankruptcy of a borrower, the Fund could experience delays or limitations with respect to its ability to realize the benefits of the collateral securing an investment. Under certain circumstances, collateral securing an investment may be released without the consent of the Fund. Moreover, the Fund’s investments in secured debt may be unperfected for a variety of reasons, including the failure to make required filings by lenders, trustees or other responsible parties and, as a result, the Fund may not have priority over other creditors as anticipated. The Fund’s right to payment and its security interest, if any, may be subordinated to the payment rights and security interests of more senior creditors. Certain of these investments may have an interest-only payment schedule, with the principal amount remaining outstanding and at risk until the maturity of the investment. In this case, a portfolio company’s ability to repay the principal of an investment may be dependent upon a liquidity event or the long-term success of the company, the occurrence of which is uncertain.
Companies in which the Fund invests could deteriorate as a result of, among other factors, an adverse development in their business, a change in the competitive environment or an economic downturn. As a result, companies that the Fund expected to be stable may operate, or expect to operate, at a loss or have significant variations in operating results, may require substantial additional capital to support their operations or maintain their competitive position, or may otherwise have a weak financial condition or be experiencing financial distress.
Non-U.S. Securities Risk: Investments in certain securities and other instruments of non-U.S. issuers or borrowers, or non-U.S. securities, involve factors not typically associated with investing in the United States or other developed countries, including, but not limited to, risks relating to: (i) differences between U.S. and non-U.S. securities markets, including potential price volatility in and relative illiquidity of some non-U.S. securities markets; the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements; and less government supervision and regulation; (ii) other differences in law and regulation, including fewer investor protections, less stringent fiduciary duties, less developed bankruptcy laws and difficulty in enforcing contractual obligations; (iii) certain economic, geo-political and political risks, including potential economic, political or social instability; exchange control regulations; restrictions on foreign investment and repatriation of capital, possibly requiring government approval; expropriation or confiscatory taxation; other government restrictions by the United States or other governments; higher rates of inflation; higher transaction costs; and reliance on a more limited number of commodity inputs, service providers and/or distribution mechanisms; and (iv) the possible imposition of local taxes on income and gains recognized with respect to securities and assets. Certain non-U.S. markets may rely heavily on particular industries or non-U.S. capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or countries, organizations, entities and/or individuals, changes in international trading patterns, trade barriers and other protectionist or retaliatory measures. International trade barriers or economic sanctions against non-U.S. countries, organizations, entities and/or individuals may adversely affect the Fund’s non-U.S. holdings or exposures. Certain non-U.S. investments may become less liquid in response to social, political or market developments or adverse investor perceptions, or become illiquid after purchase by the Fund, particularly during periods of market turmoil. Certain non-U.S. investments may become illiquid when, for instance, there are few, if any, interested buyers and sellers or when dealers are unwilling to make a market for certain securities. When the Fund holds illiquid investments, its portfolio may be harder to value, especially in changing markets. The risks of investments in emerging markets, including the risks described above, are usually greater than the risks involved in investing in more developed markets. Because non-U.S. securities may trade on days when the Fund’s shares of common stock are not priced, NAV may change at times when shares of common stock cannot be sold.
39
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Concentration of Risk (continued)
Foreign Currency Risk: Investments made by the Fund, and the income received by the Fund with respect to such investments, may be denominated in various non-U.S. currencies. However, the books of the Fund are maintained in U.S. dollars. Accordingly, changes in currency values may adversely affect the U.S. dollar value of portfolio investments, interest and other revenue streams received by the Fund, gains and losses realized on the sale of portfolio investments and the amount of distributions, if any, made by the Fund. In addition, the Fund may incur substantial costs in converting investment proceeds from one currency to another. The Fund may enter into derivative transactions designed to reduce such currency risks. Furthermore, the portfolio companies in which the Fund invests may be subject to risks relating to changes in currency values. If a portfolio company suffers adverse consequences as a result of such changes, the Fund may also be adversely affected as a result.
Derivatives Risk: The Fund may use derivative instruments including, in particular, swaps and other similar transactions, in seeking to achieve its investment objective or for other reasons, such as cash management, financing activities or to hedge its positions. Accordingly, these derivatives may be used in limited instances as a form of leverage or to seek to enhance returns, including speculation on changes in credit spreads, interest rates or other characteristics of the market, individual securities or groups of securities. If the Fund invests in a derivative for speculative purposes, the Fund will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative’s cost. The use of derivatives may involve substantial leverage. The use of derivatives may subject the Fund to various risks, including counterparty risk, currency risk, leverage risk, liquidity risk, correlation risk, index risk and regulatory risk.
Furthermore, the Fund’s ability to successfully use derivatives depends on FS Global Advisor’s ability to predict pertinent securities prices, interest rates, currency exchange rates and other economic factors, which cannot be assured. Additionally, segregated liquid assets, amounts paid by the Fund as premiums and cash or other assets held in margin accounts with respect to derivatives are not otherwise available to the Fund for investment purposes.
Rule 18f-4 under the 1940 Act, or the Derivatives Rule, provides a comprehensive framework for the use of derivatives by registered investment companies. The Derivatives Rule permits registered investment companies, subject to various conditions described below, to enter into derivatives transactions and certain other transactions notwithstanding the restrictions on the issuance of “senior securities” under Section 18 of the 1940 Act.
Registered investment companies that don’t qualify as “limited derivatives users” as defined below, are required by the Derivatives Rule to, among other things, (i) adopt and implement a derivatives risk management program, or DRMP, and new testing requirements; (ii) comply with a relative or absolute limit on fund leverage risk calculated based on value-at-risk, or VaR; and (iii) comply with new requirements related to Board and SEC reporting. The DRMP is administered by a “derivatives risk manager,” who is appointed by the Board and periodically reviews the DRMP and reports to the Board.
The Derivatives Rule provides an exception from the DRMP, VaR limit and certain other requirements for a registered investment company that limits its “derivatives exposure” to no more than 10% of its net assets (as calculated in accordance with the Derivatives Rule) (a “limited derivatives user”), provided that the registered investment company establishes appropriate policies and procedures reasonably designed to manage derivatives risks, including the risk of exceeding the 10% “derivatives exposure” threshold.
The requirements of the Derivatives Rule may limit the Fund’s ability to engage in derivatives transactions as part of the Fund’s investment strategies. These requirements may also increase the cost of the Fund’s investments and cost of doing business, which could adversely affect the value of the Fund’s investments and/or its performance. The rule also may not be effective to limit the Fund’s risk of loss. In particular, measurements of VaR rely on historical data and may not accurately measure the degree of risk reflected in the Fund’s derivatives or other investments. There may be additional regulation of the use of derivatives transactions by registered investment companies, which could significantly affect the Fund’s use. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives transactions may make them more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets.
Rule 144A Securities Risk: The Fund may purchase certain securities eligible for resale to qualified institutional buyers as contemplated by Rule 144A under the Securities Act of 1933, or Rule 144A Securities. Rule 144A provides an exemption from the registration requirements of the Securities Act of 1933 for the resale of certain restricted securities to certain qualified institutional buyers. One effect of Rule 144A is that certain restricted securities may be considered liquid, though no assurance can be given that a liquid market for Rule 144A Securities will develop or be maintained. However, where a substantial market of qualified institutional buyers has developed for certain unregistered securities purchased by the Fund pursuant to Rule 144A, the Fund intends to treat such securities as liquid securities in accordance with procedures approved by the Board. Because it is not possible to predict with certainty how the market for Rule 144A Securities will develop, the Board directs FS Global Advisor to carefully monitor the Fund’s investments in such securities with particular regard to trading activity, availability of reliable price information and other relevant information. To the extent that, for a period of time, qualified institutional buyers cease purchasing restricted securities pursuant to Rule 144A, the Fund’s investing in such securities may have the effect of increasing the level of illiquidity in its investment portfolio during such period.
40
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Concentration of Risk (continued)
Subordinated Loans Risk: Subordinated loans generally are subject to similar risks as those associated with investments in senior loans, except that such loans are subordinated in payment and/or lower in lien priority to first lien holders. In the event of default on a subordinated loan, the first priority lien holder has first claim to the underlying collateral of the loan to the extent such claim is secured. Additionally, an oversecured creditor may be entitled to additional interest and other charges in bankruptcy increasing the amount of their allowed claim. Subordinated loans are subject to the additional risk that the cash flow of the borrower and property securing the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior obligations of the borrower. This risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Subordinated loans generally have greater price volatility than senior loans and may be less liquid.
Below Investment Grade Rating Risk: The Fund may invest unlimited amounts in debt instruments that are rated below investment grade, which are often referred to as “high-yield” securities or “junk bonds.” Below investment grade senior loans, high-yield securities and other similar instruments are rated “Ba1” or lower by Moody’s, “BB+” or lower by S&P or “BB+” or lower by Fitch or, if unrated, are judged by FS Global Advisor to be of comparable credit quality. While generally providing greater income and opportunity for gain, below investment grade debt instruments may be subject to greater risks than securities or instruments that have higher credit ratings, including a higher risk of default. The credit rating of a corporate bond and senior loan that is rated below investment grade does not necessarily address its market value risk, and ratings may from time to time change, positively or negatively, to reflect developments regarding the borrower’s financial condition. Below investment grade corporate bonds and senior loans and similar instruments often are considered to be speculative with respect to the capacity of the borrower to timely repay principal and pay interest or dividends in accordance with the terms of the obligation and may have more credit risk than higher rated securities. Lower grade securities and similar debt instruments may be particularly susceptible to economic downturns. It is likely that a prolonged or deepening economic recession could adversely affect the ability of some borrowers issuing such corporate bonds, senior loans and similar debt instruments to repay principal and pay interest on the instrument, increase the incidence of default and severely disrupt the market value of the securities and similar debt instruments.
LIBOR and SOFR Risk: Following their publication on June 30, 2023, no settings of the London Interbank Offered Rate, or LIBOR, continue to be published on a representative basis and publication of many non-U.S. dollar LIBOR settings has been entirely discontinued. On July 29, 2021, the U.S. Federal Reserve System, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, formally recommended replacing U.S.-dollar LIBOR with SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities. In April 2018, the Bank of England began publishing its proposed alternative rate, the Sterling Overnight Index Average, or SONIA. Each of SOFR and SONIA significantly differ from LIBOR, both in the actual rate and how it is calculated. Further, on March 15, 2022, the Consolidation Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, or LIBOR Act, was signed into law in the United States. This legislation established a uniform benchmark replacement process for certain financial contracts that mature after June 30, 2023 that do not contain clearly defined or practicable LIBOR fallback provisions. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve System.
In addition, the U.K. Financial Conduct Authority, or FCA, which regulates the publisher of LIBOR (ICE Benchmark Administration), has announced that it will require the continued publication of the one-, three- and six-month tenors of U.S.-dollar LIBOR on a non-representative synthetic basis until the end of September 2024, which may result in certain non-U.S. law-governed contracts and U.S. law-governed contracts not covered by the federal legislation remaining on synthetic U.S.-dollar LIBOR until the end of this period. Although the transition process away from LIBOR has become increasingly well-defined (e.g. the LIBOR Act now provides a uniform benchmark replacement for certain LIBOR-based instruments in the United States), the transition process is complex, and it could cause a disruption in the credit markets generally and could have adverse impacts on the Fund’s business, financial condition and results of operations, including, among other things, increased volatility or illiquidity in markets for instruments that continue to rely on LIBOR or which have been transitioned away from LIBOR to a different rate like SOFR and, in any case, could result in a reduction in the value of certain of the Fund’s investments.
Control Share Acquisitions: The Fund’s Bylaws previously opted into the Maryland Control Share Acquisition Act, or the MCSAA. The MCSAA does not apply to the voting rights of any person acquiring shares of any class or series of stock of the Fund other than common stock. Some uncertainty around the general application under the 1940 Act of state control share statutes exists as a result of recent court decisions, and in some circumstances, uncertainty may also exist in how to enforce the control share restrictions contained in state control share statutes against beneficial owners who hold their shares through financial intermediaries. On June 29, 2023, a stockholder of the Fund, who did not hold any control shares as of June 27, 2023, filed a complaint in federal district court seeking to invalidate the application of the MCSAA to the Fund, along with 15 other closed-end funds and trustees of some of the other funds. On December 5, 2023, the U.S. District Court for the Southern District of New York issued a ruling granting summary judgment in favor of the stockholder and ordering a rescission of the defendant funds’ control share provisions in their respective bylaws. The Fund and the other defendant funds have appealed to the Second Circuit Court of Appeals, which granted a request by two of the funds to expedite the appeal. A briefing on the expedited appeal is expected to be completed by March 5, 2024, with oral argument, if any, to follow as
41
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Concentration of Risk (continued)
soon as practicable thereafter. There can be no assurance as to the outcome of this matter or as to the ultimate resolution as to the general application of the 1940 Act to state control share statutes, including the MCSAA.
Market Disruption and Geopolitical Risks: Certain local, regional or global events such as war (including Russia’s invasion of Ukraine and the Israel-Hamas war), acts of terrorism, the spread of infectious illnesses and/or other public health issues, or other events may have a significant impact on a security or instrument. These types of events and others like them are collectively referred to as “Market Disruptions and Geopolitical Risks” and they may have adverse impacts on the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. Some of the impacts noted in recent times include, but are not limited to, volatility in markets, embargos, political actions, supply chain disruptions, restrictions to investment and/or monetary movement including the forced selling of securities or the inability to participate in impacted markets. The duration of these events could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on an investment in the Fund. The ultimate impact of Market Disruptions and Geopolitical Risks on the financial performance of the Fund’s investments is not reasonably estimable at this time. Management is monitoring these events.
Economic Downturn or Recession: Many of the Fund's investments may be issued by companies susceptible to economic slowdowns or recessions. Therefore, the Fund's non-performing assets are likely to increase, and the value of its portfolio is likely to decrease, during these periods. A prolonged recession may result in losses of value in the Fund's portfolio and a decrease in the Fund's revenues, net income and NAV. Unfavorable economic conditions also could increase the Fund's funding costs, limit the Fund's access to the capital markets or result in a decision by lenders not to extend credit to it on terms it deems acceptable. These events could prevent the Fund from increasing investments and harm the Fund's operating results.
Inflation and Deflation Risk: Inflation risk is the risk that the value of certain assets or income from the Fund’s investments may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s securities and distributions to its shareholders can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with the Fund’s use of leverage would likely increase, which would tend to further reduce returns to investors.
Certain of the Fund’s portfolio companies are in industries that may be impacted by inflation. If such portfolio companies are unable to pass any increases in their costs of operations along to their customers, it could adversely affect their operating results and impact their ability to pay interest and principal on the Fund’s loans, particularly if interest rates rise in response to inflation. In addition, any projected future decreases in the Fund’s portfolio companies’ operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of the Fund’s investments could result in future realized or unrealized losses and therefore reduce the Fund’s net assets resulting from operations.
Deflation risk is the risk that prices throughout the economy decline over time, or the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.
Interest Rate Risk: The Fund is subject to financial market risks, including changes in interest rates. General interest rate fluctuations may have a substantial negative impact on the Fund’s investments, investment opportunities and cost of capital and, accordingly, may have a material adverse effect on the Fund’s investment objectives, the Fund’s rate of return on invested capital and the Fund’s ability to service its debt and make distributions to stockholders. In addition, an increase in interest rates would make it more expensive to use debt for the Fund’s financing needs, if any.
The Fund’s investment portfolio primarily consists of senior secured debt. The longer the duration of these securities, generally, the more susceptible they are to changes in market interest rates. As market interest rates increase, those securities with a lower yield-at-cost can experience a mark-to-market unrealized loss. An impairment of the fair market value of its investments, even if unrealized, must be reflected in the Fund’s financial statements for the applicable period and may therefore have a material adverse effect on the Fund’s results of operations for that period.
Because the Fund incurs indebtedness to make investments, the Fund’s net investment income is dependent, in part, upon the difference between the rate at which it borrows funds or pays interest on any debt securities and the rate at which the Fund invests these funds. The recent increases in interest rates will make it more expensive to use debt to finance the Fund’s investments and to refinance any financing arrangements. In addition, certain of the Fund’s financing arrangements provide for adjustments in the loan interest rate along with changes in market interest rates. Therefore, in periods of rising interest rates, the Fund’s cost of funds will increase, which could materially reduce the Fund’s net investment income. Any reduction in the level of interest rates on new investments relative to interest rates on the Fund’s current investments could also adversely impact the Fund’s net investment income.
The Fund has and may continue to structure the majority of its debt investments with floating interest rates to position the Fund’s portfolio for rate increases. However, there can be no assurance that this will successfully mitigate the Fund’s exposure to interest rate risk. For example, in rising interest rate environments, payments under floating rate debt instruments generally would rise and there may be a significant number of issuers of such floating rate debt instruments that would be unable or unwilling to pay such increased
42
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Concentration of Risk (continued)
interest costs and may otherwise be unable to repay their loans. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. Investments in floating rate debt instruments may also decline in value in response to rising interest rates if the interest rates of such investments do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, the Fund’s fixed rate investments may decline in value because the fixed rate of interest paid thereunder may be below market interest rates.
Furthermore, because a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the Fund’s debt investments, an increase in interest rates would make it easier for the Fund to meet or exceed the incentive fee hurdle rate in its Investment Advisory Agreement and may result in a substantial increase of the amount of incentive fees payable to the Advisor with respect to pre-incentive fee net investment income.
Russia/Ukraine and Other Global Conflicts Market Risk: The ongoing invasion of Ukraine by Russia and related sanctions have increased global political and economic uncertainty. In February 2022, Russia invaded Ukraine and, in response, the United States and many other countries placed economic sanctions on certain Russian entities and individuals. Because Russia is a major exporter of oil and natural gas, the invasion and related sanctions have reduced the supply, and increased the price, of energy, which is accelerating inflation and may exacerbate ongoing supply chain issues. There is also the risk of retaliatory actions by Russia against countries which have enacted sanctions, including cyberattacks against financial and governmental institutions, which could result in business disruptions and further economic turbulence. Although the Fund has no direct exposure to Russia or Ukraine, the broader consequences of the invasion may have a material adverse impact on the Fund’s portfolio and the value of an investment in the Fund. Moreover, sanctions and export control laws and regulations are complex, frequently changing, and increasing in number, and they may impose additional legal compliance costs or business risks associated with the Fund’s operations. The price and liquidity of investments may fluctuate widely as a result of the conflict and related events. How long the armed conflict and related events will last cannot be predicted. These tensions and any related events could have significant impact on the Fund’s performance and the value of an investment in the Fund.
In early October 2023, conflict in the Middle East involving Hamas and Israel intensified. The situation in the Middle East remains uncertain, and its long-term effects remain to be seen. Any impacts on the Fund’s business or results of operations cannot be predicted.
On January 31, 2020, the United Kingdom ended its membership in the European Union (the “EU”) referred to as Brexit. The longer term economic, legal, political and social implications of Brexit remain unclear. Brexit has led to ongoing political and economic uncertainty and periods of increased volatility in both the U.K. and in wider European markets for some time. Brexit could lead to calls for similar referendums in other European jurisdictions, which could cause increased economic volatility in the European and global markets. This mid- to long-term uncertainty could have adverse effects on the economy generally and on the Fund’s ability to earn attractive returns. In particular, currency volatility could mean that the Fund’s returns are adversely affected by market movements and could make it more difficult, or more expensive, for the Fund to execute prudent currency hedging policies. Potential decline in the value of the British Pound and/or the Euro against other currencies, along with the potential further downgrading of the U.K.’s sovereign credit rating, could also have an impact on the performance of certain investments made in the U.K. or Europe.
Pandemic and Force Majeure Risk: Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of the Fund’s control. The Fund, FS Global Advisor, and the portfolio companies in which the Fund invests in could be affected by force majeure events (i.e., events beyond the control of the party claiming that the event has occurred, such as acts of God, fire, flood, earthquakes, outbreaks of an infectious disease, pandemic or any other serious public health concern, war, terrorism, labor strikes, major plant breakdowns, pipeline or electricity line ruptures, failure of technology, defective design and construction, accidents, demographic changes, government macroeconomic policies, social instability, etc.). Some force majeure events could adversely affect the ability of a party (including the Fund, FS Global Advisor, a portfolio company or a counterparty to the Fund, FS Global Advisor, or a portfolio company) to perform its obligations until it is able to remedy the force majeure event. In addition, force majeure events, such as the cessation of the operation of equipment for repair or upgrade, could similarly lead to the unavailability of essential equipment and technologies. These risks could, among other effects, adversely impact the cash flows available from a portfolio company, cause personal injury or loss of life, including to a senior manager of FS Global Advisor or its affiliates, damage property, or instigate disruptions of service. In addition, the cost to a portfolio company or the Fund of repairing or replacing damaged assets resulting from such force majeure event could be considerable. It will not be possible to insure against all such events, and insurance proceeds received, if any, could be inadequate to completely or even partially cover any loss of revenues or investments, any increases in operating and maintenance expenses, or any replacements or rehabilitation of property. Certain events causing catastrophic loss could be either uninsurable, or insurable at such high rates as to adversely impact the Fund, FS Global Advisor, or portfolio companies, as applicable. Force majeure events that are incapable of or are too costly to cure could have permanent adverse effects. Certain force majeure events (such as war or an outbreak of an infectious disease) could have a broader negative impact on the world economy and international business activity generally, or in any of the countries in which the Fund invests or its portfolio companies operate specifically. Such force majeure events could result in or coincide with: increased volatility in the global securities, derivatives and currency markets; a decrease in the reliability of market prices and difficulty in valuing assets; greater fluctuations in
43
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Concentration of Risk (continued)
currency exchange rates; increased risk of default (by both government and private issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; less governmental regulation and supervision of the securities markets and market participants and decreased monitoring of the markets by governments or self-regulatory organizations and reduced enforcement of regulations; limited, or limitations on, the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; inability to purchase and sell investments or otherwise settle security or derivative transactions (i.e., a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
In early 2020, an outbreak of a novel strain of coronavirus, or COVID-19, emerged globally. The outbreak of COVID-19 and its variants resulted in closing international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general public concern and uncertainty. This outbreak negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. On May 5, 2023, the World Health Organization declared the end of the global emergency status for COVID-19. The United States subsequently ended the federal COVID-19 public health emergency declaration effective May 11, 2023. Although vaccines for COVID-19 are widely available, it is unknown how long certain circumstances related to the pandemic will persist, whether they will reoccur in the future, and what additional implications may follow from the pandemic. The impact of these events and other epidemics or pandemics in the future could adversely affect Fund performance.
Market Price of Common Stock: Common stock of closed-end funds frequently trades at a price lower than their net asset value. This is commonly referred to as “trading at a discount.” This characteristic of common stock of closed-end funds is a risk separate and distinct from the risk that the Fund’s net asset value may decrease. Both long and short-term investors, including investors who sell their common stock within a relatively short period after the Listing Date, will be exposed to this risk. The Fund is designed primarily for long-term investors and should not be considered a vehicle for trading purposes. Whether investors will realize a gain or loss upon the sale of the Fund’s common stock will depend upon whether the market value of the shares at the time of sale is above or below the price the investor paid, taking into account transaction costs, for the common stock and is not directly dependent upon the Fund’s net asset value. Because the market value of the Fund’s common stock will be determined by factors such as the relative demand for and supply of the common stock in the market, general market conditions and other factors beyond the control of the Fund, the Fund cannot predict whether its common stock will trade at, below or above NAV, or below or above the initial listing price for the stock.
Cybersecurity Risks: Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. The Fund, its affiliates and the Fund’s and its affiliates’ respective third-party service providers are subject to cybersecurity risks. Cybersecurity risks have significantly increased in recent years and, while the Fund has not experienced any material losses relating to cyber attacks or other information security breaches, it could suffer such losses in the future.
The Fund’s affiliates and respective third-party service providers’ computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize confidential and other information, including non-public personal information and sensitive business data, processed and stored in, and transmitted through, computer systems and networks, or otherwise cause interruptions or malfunctions in the Fund’s operations or the operations of the Fund’s affiliates and the Fund and its affiliates’ respective third-party service providers. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect the Fund’s business, financial condition or results of operations. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, the Fund may be required to expend significant additional resources to modify protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks.
Cash Balance Risk: The Fund’s cash is held in accounts at U.S. banking institutions. Cash held by the Fund and its portfolio companies in non-interest-bearing and interest-bearing operating accounts may exceed the Federal Deposit Insurance Corporation insurance limits. If such banking institutions were to fail, the Fund or its portfolio companies could lose all or a portion of those amounts held in excess of such insurance limitations. In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems, which could adversely affect the Fund and its portfolio companies’ business, financial condition, results of operations, or prospects.
Although the Fund assesses its portfolio companies’ banking relationships as necessary or appropriate, the Fund and its portfolio companies’ access to funding sources and other credit arrangements in amounts adequate to finance or capitalize the Fund or its
44
FS Credit Opportunities Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Concentration of Risk (continued)
portfolio companies’ respective current and projected future business operations could be significantly impaired by factors that affect the Fund or its portfolio companies, the financial institutions with which the Fund or its portfolio companies have arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which the Fund or its portfolio companies have financial or business relationships but could also include factors involving financial markets or the financial services industry generally.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for the Fund or its portfolio companies to acquire financing on acceptable terms or at all.
Note 11. Commitments and Contingencies
The Fund enters into contracts that contain a variety of indemnification provisions. The Fund’s maximum exposure under these arrangements is unknown; however, the Fund has not had prior claims or losses pursuant to these contracts. Management of FS Global Advisor has reviewed the Fund’s existing contracts and expects the risk of loss to the Fund to be remote.
The Fund is not currently subject to any material legal proceedings and, to the Fund’s knowledge, no material legal proceedings are threatened against the Fund. From time to time, the Fund may be a party to certain legal proceedings in the ordinary course of business, including proceedings related to the enforcement of the Fund’s rights under contracts with its portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, to the extent the Fund becomes party to such proceedings, the Fund would assess whether any such proceedings will have a material adverse effect upon its financial condition or results of operations.
See Note 4 for a discussion of the Fund’s commitments to FS Investments and its affiliates.
Note 12. Redomiciling and Conversion to Maryland Corporation
On March 23, 2022, FS Global Credit Opportunities Fund, a Delaware statutory trust, or FSGCO, completed its conversion into a Maryland corporation and changed its name to FS Credit Opportunities Corp., or the Succeeding Entity, and such conversion, the Conversion.
In connection with the Conversion, the Fund filed (a) a Certificate of Conversion with the Delaware Secretary of State, (b) Articles of Conversion with the Maryland State Department of Assessments and Taxation, and (c) Articles of Incorporation with the Maryland State Department of Assessments and Taxation, and each became immediately effective.
FS Global Advisor continues to serve as the Fund’s investment adviser following the Conversion. There were no changes to the Fund’s investment objective and strategies, portfolio management team, policies and procedures or the members of the Board overseeing the Fund as a result of the Conversion.
In the Conversion, each issued and outstanding common share of beneficial interest of FSGCO were automatically converted into one share of common stock of the Succeeding Entity. Each issued and outstanding Term Preferred Share, Series 2023 – Floating Rate, Term Preferred Share, Series 2023 – Fixed Rate, Term Preferred Share, Series 2026, Term Preferred Share, Series 2025, Term Preferred Share, Series 2025-2, and Term Preferred Share, Series 2027 of FSGCO were automatically converted into one Term Preferred Share, Series 2023 – Floating Rate, Term Preferred Share, Series 2023 – Fixed Rate, Term Preferred Share, Series 2026, Term Preferred Share, Series 2025, Term Preferred Share, Series 2025-2, and Term Preferred Share, Series 2027 of the Succeeding Entity, respectively.
There was no tax impact to the Fund or its stockholders as a direct result of the Conversion.
Following the Conversion, the rights of the Fund’s stockholders are governed by Maryland General Corporation Law and the Fund's Articles of Incorporation and Bylaws, which Bylaws previously opted into the Maryland Control Share Acquisition Act (see "Control Share Acquisitions" above for additional information).
45
FS Credit Opportunities Corp.
Supplemental Information (Unaudited)
Changes in Accountants and Disagreements with Accountants on Accounting and Financial Disclosure
The Fund has not had any changes in its independent registered public accounting firm or disagreements with its independent registered public accounting firm on accounting or financial disclosure matters since its inception.
Board of Directors
Information regarding the members of the Board is set forth below. The directors have been divided into two groups—interested directors and independent directors. The address for each director is c/o FS Credit Opportunities Corp., 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112.
NameAgeTerm of Office and Length of Time ServedTitlePrincipal Occupation(s) During the Past Five YearsNumber of Registered Investment Companies in Fund Complex* Overseen by DirectorOther Directorships
Held by Director
Interested Directors
Michael C. Forman(1)
62Current term expires in 2025. Has served since January 2013. Chairman, President and Chief Executive OfficerChairman and Chief Executive Officer of FS Investments2FS Credit Income Fund (since 2016); FS Credit Real Estate Income Trust, Inc. (since 2016); FS Specialty Lending Fund (formerly known as FS Energy and Power Fund) (since 2010); FS KKR Capital Corp. (since 2007); and KKR FS Income Trust (since 2022)
Independent Directors
Keith Bethel57Current term expires in 2025. Has served since February 2023.DirectorFounding Partner and Chief
Executive Officer for The
Triple B Hospitality Group
(since 2021); and Chief
Growth Officer of Aramark
Corporation (2016 – 2020)		1None
Walter W. Buckley, III63Current term expires in 2026. Has served since June 2013. DirectorManaging Partner and Co-Founder of SEMCAP (since 2018); Chief Executive Officer of Actua Corporation (1996 – 2018); and President
of Actua Corporation
(1996 – 2001; 2002 – 2009).		1Actua Corporation (since 1996)
Della Clark70Current term expires in 2025. Has served since February 2023.DirectorPresident and Chief Executive Officer of The Enterprise Center (since 1992)1None
Barbara J. Fouss54Current term expires in 2026. Has served since November 2013.DirectorExecutive Director at Gravina Family Office (since 2022); Credit Specialist at Providence Bank (2020 – 2022); Director of Strategic Initiatives of Sun National Bank (2012 – 2013)1None
Philip E. Hughes, Jr.74Current term expires in 2024. Has served since June 2013. DirectorVice-Chairman of Keystone
Industries (2011 – present);
President of Sovereign
Developers, LP, (1999 –
present); Owner and Operator of Philip E. Hughes, Jr., CPA, Esq. Accounting, Tax and Business Services; President of Fox Park Corporation (2005 – present).		1None
Robert N.C. Nix, III68Current term expires in 2024. Has served since October 2019.DirectorPresident of Pleasant News, Inc. (since 1995);1None
____________________
*The registered investment companies in the “Fund Complex” consist of the Fund, and FS Specialty Lending Fund.
(1)Mr. Forman is deemed to be an “interested person” of the Fund, as defined in Section 2(a)(19) of the 1940 Act, due to his role as a controlling person of FS Global Advisor.
46
FS Credit Opportunities Corp.
Supplemental Information (Unaudited) (continued)
Executive Officers
Information regarding the executive officers of the Fund is set forth below. The address for each executive officer is c/o FS Credit Opportunities Corp., 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112.
NameAgePosition Held with RegistrantLength of Time ServedPrincipal Occupation(s) During the Past Five Years
Michael C. Forman62Chairman, President and Chief Executive OfficerSince 2013Chairman and Chief Executive Officer, FS Investments
Edward T. Gallivan, Jr.61Chief Financial OfficerSince 2018Chief Financial Officer, FS Specialty Lending Fund (formerly known as FS Energy and Power Fund), FS Credit Income Fund
Stephen S. Sypherd46Vice President, Treasurer and SecretarySince 2013
General Counsel, FS Investments
James F. Volk61Chief Compliance OfficerSince 2015Managing Director, Fund Compliance, FS Investments
Statements of Additional Information
The Fund’s statement of additional information contains additional information regarding the Fund’s directors and executive officers and is available upon request and without charge by calling the Fund collect at 215-495-1150 or by accessing FS Investments’ website at www.fsinvestments.com.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at http://www.sec.gov.
Proxy Voting Policies and Procedures
The Fund has delegated its proxy voting responsibility to FS Global Advisor, the Fund’s investment adviser. Stockholders may obtain a copy of FS Global Advisor’s proxy voting policies and procedures upon request and without charge by calling the Fund collect at 215-495-1150 or on the SEC’s website at http://www.sec.gov.
Proxy Voting Record
Information regarding how FS Global Advisor voted proxies relating to the Fund’s portfolio securities during the most recent twelve-month period ended June 30 is available upon request and without charge by making a written request to the Fund’s Chief Compliance Officer at FS Credit Opportunities Corp., 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112, Attn: Chief Compliance Officer, by calling the Fund collect at 215-495-1150 or on the SEC’s website at http://www.sec.gov.
Distribution Reinvestment Plan
Historically, the Fund had an “opt in” DRP pursuant to which the Fund’s stockholders could elect to have the full amount of their cash distributions reinvested in additional shares of common stock of the Fund. If a stockholder did not elect to participate in the Fund’s prior DRP, the stockholder would automatically receive any distributions the Fund declared in cash.
On September 27, 2022, the Board approved the termination of the Fund’s prior distribution reinvestment plan, effective as of October 3, 2022. On July 14, 2022, the Board adopted the DRP, which became effective as of the Listing Date. The Board and the Fund's stockholders previously approved a proposal for the Fund to implement share transfer restrictions on the Fund's shares of common stock for a period of 180 days following the Listing Date, and accordingly the DRP was suspended during that period. On May 16, 2023, the Board approved the reinstatement of the DRP.
Pursuant to the DRP, the Fund will reinvest all cash dividends or distributions declared by the Board on behalf of stockholders who do not elect to receive their distributions in cash. As a result, if the Board declares a distribution, then stockholders who have not elected to “opt out” of the DRP will have their distributions automatically reinvested in additional shares of the Fund’s common stock.
With respect to each distribution pursuant to the DRP, the Fund reserves the right to either issue new shares of common stock or purchase shares of common stock in the open market in connection with implementation of the DRP. Unless the Fund, in its sole discretion, otherwise directs the plan administrator, (A) if the per share market price (as defined in the DRP) is equal to or greater than the estimated net asset value per share (rounded up to the nearest whole cent) of the Fund’s common stock on the payment date for the distribution, then the Fund will issue shares of common stock at the greater of (i) net asset value per share of common stock or (ii) 95% of the market price; or (B) if the per share market price is less than the net asset value per share, then, in the sole discretion of the Fund, (i) shares of common stock will be purchased in open market transactions for the accounts of participants to the extent
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Supplemental Information (Unaudited) (continued)
practicable, or (ii) the Fund will issue shares of common stock at net asset value per share. Pursuant to the terms of the DRP, the number of shares of common stock to be issued to a participant will be determined by dividing the total dollar amount of the distribution payable to a participant by the price per share at which the Fund issues such shares; provided, however, that shares purchased in open market transactions by the plan administrator will be allocated to a participant based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market.
If a stockholder receives distributions in the form of common stock pursuant to the DRP, such stockholder generally will be subject to the same federal, state and local tax consequences as if it elected to receive distributions in cash. If the Fund’s common stock is trading at or below net asset value, a stockholder receiving distributions in the form of additional common stock will be treated as receiving a distribution in the amount of cash that they would have received if they had elected to receive the distribution in cash. If the Fund’s common stock is trading above net asset value, a stockholder receiving distributions in the form of additional common stock will be treated as receiving a distribution in the amount of the fair market value of the Fund’s common stock. The stockholder’s basis for determining gain or loss upon the sale of common stock received in a distribution will be equal to the total dollar amount of the distribution payable to the stockholder. Any stock received in a distribution will have a holding period for tax purposes commencing on the day following the day on which the shares of common stock are credited to the stockholder’s account.
The Fund reserves the right to amend, suspend or terminate the DRP. A stockholder may terminate its account under the DRP by notifying the plan administrator in writing. All correspondence concerning the DRP should be directed to the plan administrator by mail at FS Credit Opportunities Corp., c/o SS&C Technologies, Inc., 1055 Broadway, Kansas City, Missouri 64105. A stockholder may obtain a copy of the DRP by request to the plan administrator or by contacting the Fund.
Board of Directors - New Directors
On February 22, 2023, the Board appointed Ms. Della Clark and Mr. Keith Bethel as new independent members of the Board and as members of the Board's Nominating and Corporate Governance Committee. As independent directors, Ms. Clark and Mr. Bethel are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Fund or FS Global Advisor and are each “independent” as defined by Rule 303A.00 in the NYSE Listed Company Manual.
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Summary of Updated Information Regarding the Fund (Unaudited)
The following information in this annual report is a summary of certain information about the Fund and changes since the Fund’s most recent annual report for December 31, 2022, or the “prior disclosure date”. This information may not reflect all of the changes that have occurred since you purchased the Fund.
Investment Objectives
There have been no changes in the Fund’s investment objectives since the prior disclosure date.
The Fund’s primary investment objective is to generate attractive total return consisting of a high level of current income and capital appreciation, with a secondary objective of capital preservation.
Principal Investment Strategies and Policies
There have been no changes in the Fund’s Principal Investment Strategies and Policies since the prior disclosure date.
The Fund invests primarily in a portfolio of secured and unsecured floating and fixed rate loans, bonds and other types of credit instruments, which, under normal circumstances, will represent at least 80% of the Fund’s net assets (plus the amount of any borrowings for investment purposes). For purposes of this policy, “credit instruments” may include senior secured loans, unsecured loans, corporate bonds, notes, bills, debentures, distressed securities, mezzanine securities, collateralized debt obligations, collateralized bond obligations, collateralized loan obligations, bank loans, corporate loans, government and municipal obligations, mortgage-backed securities, asset-backed securities, repurchase agreements and other fixed-income instruments of a similar nature that may be represented by derivatives such as options, forwards, futures contracts or swap agreements. The Fund invests its assets in investments in a number of different countries throughout the world, and currently invests primarily in those countries where creditors’ rights are protected by law, such as countries in North America and Western Europe, although in select situations the Fund may invest in securities of issuers domiciled elsewhere. The credit instruments in which the Fund invests typically are rated below investment grade by rating agencies or would be rated below investment grade if they were rated. Credit instruments that are rated below investment grade (commonly referred to as “high yield” securities or “junk bonds”) are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. The Fund seeks to achieve its investment objectives by focusing on high conviction investment opportunities across the investment universe that it believes offer potentially attractive risk-adjusted income and returns. To accomplish this, the Fund focuses on strategies such as Opportunistic Credit, Special Situations and Capital Structure Solutions.
Investment Opportunities and Strategies
FS Global Advisor believes that opportunities exist in non-traditional areas of the credit market that can offer enhanced return potential. These opportunities may offer above market returns because they are misunderstood or can be difficult to source, analyze, structure and/or have illiquidity premiums.
The Fund seeks to achieve its investment objectives by focusing on strategies such as Opportunistic Credit (including event-driven and market price inefficiencies), Special Situations and Capital Structure Solutions. By focusing on these opportunities, FS Global Advisor believes it can create a portfolio that offers high potential income and returns while limiting the risk of the Fund. These strategies are described in further detail below.
Opportunistic Credit
Event-Driven
The Fund may take advantage of dislocations that arise in the markets due to an impending event for which the market’s apparent expectation of value differs substantially from the view of FS Global Advisor. Event-driven investing requires FS Global Advisor to make judgments concerning, among other things, (i) the likelihood that an event will occur and (ii) the impact such event will have on the value of a company’s loans and securities. Such events may include a looming debt maturity or default, merger, spin-off or other corporate reorganization, an adverse regulatory or legal ruling or a material contract expiration, any of which may significantly improve or impair a company’s financial position. Event-driven investing depends much more heavily on FS Global Advisor’s ability to successfully predict the outcomes of these events than on underlying macroeconomic fundamentals such as the level of interest rates or gross domestic product. As a result, successful event-driven strategies may offer substantial diversification benefits and the ability to generate performance in uncertain market environments. The Fund’s investment strategy revolves around a thorough due diligence process and is based on the belief that a deep understanding of companies and the industries in which they operate is critical to generating positive income and returns.
Market Price Inefficiencies
The Fund seeks to capitalize on market price inefficiencies by investing in loans, bonds and other securities for which the income of such investment reflects a higher risk premium or the market price of such investment reflects a lower value than deemed warranted by FS Global Advisor’s fundamental analysis. These opportunities may often be idiosyncratic in nature, as specific issues or complexity related to a prospective investment may drive the excess yield or total return potential. FS Global Advisor believes that market price inefficiencies may occur due to, among other things, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community. Market price inefficiencies may also arise from broader market dislocations, which can
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include broad-based, risk-off sentiment across multiple markets as well as specific technical dislocations within a single market. FS Global Advisor seeks to allocate capital to securities that have been mispriced by the market and that it believes represent attractive investment opportunities.
Special Situations
The Fund’s special situations credit strategy provides flexibility to take advantage of secondary market credit opportunities with asymmetrical risk and return profiles. The Fund seeks to purchase instruments at a discount to intrinsic value from forced sellers or unnatural holders as a result of stress, distress or major events, or change at a company or industry level. The need for holders to transition out of a credit combined with a high level of complexity surrounding the investment can present an opportunity to purchase instruments at a significant discount to its fair value as determined by FS Global Advisor. Such investment opportunities may include investments in loans, bonds and other securities issued by companies that are over levered, facing temporary or permanent business issues, have a current or pending covenant violation, have looming debt maturities and may lack the ability to refinance or have defaulted on their debt instruments. Investments may include purchasing a portion of outstanding debt, the entire tranche or a portfolio of investments. Opportunities can be created by idiosyncratic issues at the company or industry level or by a macro driven credit cycle.
Idiosyncratic opportunities can generate attractive returns at any point in the credit cycle, with low correlation to credit market indexes. Macro driven credit cycles can provide an additional source of risk-adjusted return to the investment strategy by increasing the investible universe which is often coupled with market dislocations that creates increased discounts to intrinsic value.
Capital Structure Solutions
Constrained mandates create an opportunity to lend to companies that do not satisfy conventional lending criteria. Non-traditional borrowers include companies that are overlevered, stressed or distressed businesses, companies without financial sponsors, business / industries in transition, or companies with unconventional assets. Traditional lenders, whether banks, private credit funds or others tend to avoid lending to these businesses because of regulations, limited investment mandates or lack of expertise.
Based on prior experience, FS Global Advisor believes that it can offer target portfolio companies a variety of customized financing solutions to meet their capital needs while providing the Fund with attractive risk-adjusted returns. These solutions are highly structured and offer yield premiums compared to traditional private lending and investments in high yield and broadly syndicated loans. The highly structured nature of the investments can also provide for significant downside protection. FS Global Advisor believes that this capital structure solutions investment strategy provides the Fund with an alternative and differentiated capability that diversifies and enhances its risk-adjusted return profile.
The Fund’s capital structure solutions will be targeted towards companies in need of rescue capital, debtor in possession financing, capital to restructure the operations or capital structure of a business, overlevered companies that need growth capital, companies that need capital to finance unconventional assets, companies that need liquidity to deal with transitions or other highly complex situations. There is often limited or no market reciprocation for these types of business, which in turn, creates an opportunity for capital solutions to be highly structured with both strong creditor protections to limit downside and structured returns and success fees to provide attractive risk-adjusted return profiles.
Other
Investments may also include other assets or opportunities that are consistent with the Fund’s investment approach, provided that such investments are appropriate from a tax, regulatory and operational perspective. The Fund’s investment objectives and strategies, including the Fund’s intention, under normal circumstances, to invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in credit instruments, are not considered to be fundamental by the Fund and may be changed without the vote of the Fund’s stockholders by the Board with at least 60 days’ written notice provided to stockholders.
The Fund’s flexible strategy across several areas of opportunity allows FS Global Advisor to focus on what we believe are the most attractive opportunities across both the public and private markets at any given point in time. We believe this helps to mitigate timing risk and contributes to consistent deal flow.
Portfolio Composition
Securities
The Fund may invest in both public and private U.S. and non-U.S. debt and equity securities, including, without limitation, senior secured, second lien and unsecured loans, secured and unsecured bonds, loans made to companies involved in bankruptcy or insolvency proceedings (including debtor-in-possession loans), loans made to refinance distressed companies, securities issued by the U.S. Treasury and foreign governments, derivatives, structured products, convertible bonds, preferred stocks and any other type of credit or equity investment that is consistent with the Fund’s investment objectives. In making these investments, the Fund seeks to purchase a limited number of investments across the investment spectrum that FS Global Advisor believes are mispriced and offer the potential for exceptional risk- adjusted income and returns.
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Summary of Updated Information Regarding the Fund (Unaudited)
Geography
The Fund invests primarily in those countries where creditors’ rights are protected by law, such as countries in North America and Western Europe, although in select situations the Fund may invest in securities of issuers domiciled elsewhere. The geographic areas of focus are subject to change from time to time and may be changed without notice to the Fund’s stockholders. There is no minimum or maximum limit on the amount of the Fund’s assets that may be invested in non-U.S. Securities.
Other Characteristics
The Fund invests in companies regardless of market capitalization and may focus on a relatively small number of issuers. The Fund may invest without limitation in distressed securities or other debt that is in default or the issuers of which are engaged in bankruptcy or insolvency proceedings. The mix of the Fund’s investments at any time will depend on the industries and types of loans and securities FS Global Advisor believes represent the best risk-adjusted income and returns within the Fund’s investment strategies.
FS Global Advisor expects that the Fund’s assets will generally be invested in passive positions, although it is possible in certain circumstances the Fund may acquire controlling positions in issuers or seek active participation in the form of representation on creditors’ committees, equity holders’ committees or other groups. In these situations, the Fund will leverage the expertise of FS Global Advisor to seek preservation or enhancement of the Fund’s investment position.
The Fund may hold select and potentially significant positions in equity securities, including common stock and convertible securities, or other assets that the Fund receives in exchange for its credit instruments as part of a reorganization process, and may hold those assets until such time as FS Global Advisor believes that a disposition is most advantageous. Such assets, to the extent received as part of a reorganization process, will be considered “credit instruments” for purposes of the Fund’s intention to invest, under normal circumstances, at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in credit instruments. The Fund may also purchase select positions in equity securities, including common stock and convertible securities. Such assets, to the extent purchased in the market or not received as part of a reorganization process, will not be considered “credit instruments” for this purpose.
The Fund’s portfolio may consist of both long and short positions. The Fund may also, among other things, use hedging techniques when appropriate from time to time; however, the Fund is under no obligation to do so. Hedging techniques may include capital structure arbitrage to take advantage of inefficiencies in the pricing between securities of the same or affiliated issuers or short positions in debt or equity securities expressed in either the cash or derivatives markets. The Fund may also use derivatives to hedge its foreign currency exposure resulting from its holdings of non-U.S. Securities and may use various indices to hedge the Fund’s portfolio during certain market cycles. For purposes of compliance with the Fund’s intention, under normal circumstances, to invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in credit instruments, investments in derivatives will be valued based on their daily marked-to-market (net) value.
The Fund may invest its excess funds in money market instruments, commercial paper, certificates of deposit and bankers’ acceptances, among other instruments. In addition, and in response to adverse market, economic or political conditions, the Fund may invest in high quality fixed income securities, money market instruments and money market funds or may hold significant positions in cash or cash equivalents for defensive purposes.
Borrowings
The Fund is permitted to borrow using any form or combination of financial leverage instruments, including credit facilities such as bank loans or commercial paper, the issuance of preferred shares or notes, reverse repurchase agreements or other forms of synthetic leverage. Subject to prevailing market conditions, the Fund may add financial leverage to its portfolio representing up to 33 1/3% (in the event leverage is obtained solely through debt) to 50% (in the event leverage is obtained solely though preferred stock) of the Fund’s total assets (including the assets subject to, and obtained with the proceeds of, such instruments, which is the maximum amount permitted under the 1940 Act). The Fund may use leverage opportunistically and may choose to increase or decrease its leverage, or use different types or combinations of leveraging instruments, at any time based on the Fund’s assessment of market conditions and the investment environment.
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after doing so the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the value of the Fund's total assets including the amount borrowed). Additionally, under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. Under the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the total asset value of the Fund's portfolio is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such liquidation value may not exceed 50% of the Fund's Managed Assets). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its common stock unless, at the time of such declaration, the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of such liquidation value of the preferred shares.
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Effective August 19, 2022, Rule 18f-4 replaced the asset segregation framework previously used by funds to comply with limitations on leverage imposed by the 1940 Act. Rule 18f-4 generally mandates that a fund either limit derivatives exposure to 10% or less of its net assets as a limited derivative user, or Limited Derivatives User, or in the alternative implement: (i) limits on leverage calculated based on value-at-risk; and (ii) a written derivatives risk management program administered by a derivatives risk manager appointed by the fund's board, including a majority of the independent directors, that is periodically reviewed by the board.
Rule 18f-4 permits the Fund to enter into reverse repurchase agreements and similar financing transactions, notwithstanding limitations on the issuance of senior securities under Section 18 of the 1940 Act, provided that the Fund either (i) treats these transactions as derivatives transactions under Rule 18f-4, or (ii) ensures that the 300% asset coverage ratio discussed above is met with respect to such transactions and any other borrowings in the aggregate. Since the prior disclosure date, the "Borrowings" section has been updated to reflect regulatory changes pursuant to Rule 18f-4 under the 1940 Act.
The use of leverage creates an opportunity for increased income and returns for Fund stockholders but, at the same time, creates risks, including the likelihood of greater volatility in the NAV of and distributions on Fund Common Stock. There can be no assurance that the Fund will use leverage or that its leveraging strategy will be successful during any period in which it is employed. The Fund may be subject to investment restrictions of one or more nationally recognized statistical rating organizations, or NRSROs, and/or credit facility lenders as a result of its use of financial leverage. These restrictions may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. It is not anticipated that these covenants or portfolio requirements will significantly impede FS Global Advisor in managing the Fund’s portfolio in accordance with its investment objectives and strategies. Nonetheless, if these covenants or guidelines are more restrictive than those imposed by the 1940 Act, the Fund may not be able to utilize as much leverage as it otherwise could have, which could reduce the Fund’s investment income and returns. In addition, the Fund expects that any notes it issues or credit facility/commercial paper program it enters into would contain covenants that, among other things, will likely impose geographic exposure limitations, credit quality minimums, liquidity minimums, concentration limitations and currency hedging requirements on the Fund. These covenants would also likely limit the Fund’s ability to pay distributions in certain circumstances, incur additional debt, change fundamental investment policies and engage in certain transactions, including mergers and consolidations. Such restrictions could cause FS Global Advisor to make different investment decisions than if there were no such restrictions and could limit the ability of the Fund Board and Fund stockholders to change fundamental investment policies.
In connection with the use of a credit facility for leverage, the Fund may permit the lender, subject to certain conditions, to rehypothecate (i.e., lend to other counter-parties) portfolio securities pledged by the Fund up to the amount of the loan balance outstanding. The Fund would expect the terms of the credit facility to provide that the Fund would continue to receive dividends and interest on rehypothecated securities. The Fund also would expect to have the right under the credit facility to recall rehypothecated securities from the lender on demand. The Fund would also expect that, if the lender fails to deliver a recalled security in a timely manner, the credit facility would provide for compensation to the Fund by the lender for any fees or losses related to the failed delivery or, in the event a recalled security will not be returned by the lender, for the Fund, upon notice to the lender, to reduce the loan balance outstanding by the amount of the recalled security failed to be returned.
The Fund would expect the terms of any such credit facility pursuant to which portfolio securities pledged by the Fund are rehypothecated to provide for the Fund's receipt of a portion of the fees earned by the lender in connection with the rehypothecation of such portfolio securities. The use of a credit facility that permits the lender to rehypothecate the Fund's pledged portfolio securities entails risks, including the risk that the lender will be unable or unwilling to return rehypothecated securities which could result in, among other things, the Fund's inability to find suitable investments to replace the unreturned securities, thereby impairing the Fund's ability to achieve its investment objectives.
Effects of Leverage
The following table illustrates the effect of leverage on returns from an investment in shares of our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. The calculation assumes (i) $2.3 billion in total assets, (ii) a weighted average cost of funds of 6.05%, (iii) $848.5 million in debt outstanding and (iv) $1.4 billion in net assets. In order to compute the “Corresponding return to stockholders,” the “Assumed Return on Our Portfolio (net of expenses)” is multiplied by the assumed total assets to obtain an assumed return to us. From this amount, the interest expense is calculated by multiplying the assumed weighted average cost of funds times the assumed debt outstanding, and the product is subtracted from the assumed return to us in order to determine the return available to stockholders. The return available to stockholders is then divided by our net assets to determine the “Corresponding return to stockholders.” Actual interest payments may be different.

Assumed Return on Our Portfolio (net of expenses)(10)%(5)%0%5%10%
Corresponding return to stockholders (19.7)%(11.4)%(3.2)%5.0%13.3%
Similarly, assuming (i) $2.3 billion in total assets, (ii) a weighted average cost of funds of 6.05% and (iii) $848.5 million in debt outstanding, our assets would need to yield an annual return (net of expenses) of approximately 1.94% in order to cover the annual interest payments on our outstanding debt.
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Summary of Updated Information Regarding the Fund (Unaudited)
Principal Risk Factors
Investing in the Fund involves risks, including, but not limited to, those set forth below. The risks described below are not, and are not intended to be, a complete enumeration or explanation of the risks involved in an investment in the Fund. The risks described below are considered the principal risks involved in an investment of the Fund. Various risk factors included below have been updated since the prior disclosure date to reflect certain updates.
Additionally, since the prior disclosure date, LIBOR and SOFR Risk, Market Disruption and Geopolitical Risk, Economic Downturn or Recession, Control Share Acquisitions, Inflation or Deflation, Interest Rate Risks, Russia/Ukraine and Other Global Conflicts Market Risk, and Cybersecurity Risks have been added as principal risk factors of the Fund.
Senior Secured Debt Risk. Senior secured debt typically will be secured by liens on the assets and/or cash flows of the borrower and holds the most senior position in its capital structure. Senior secured debt in most circumstances is initially fully collateralized by the borrower’s assets and thus it is repaid before unsecured debt and equity. Substantial increases in interest rates, however, may cause an increase in loan defaults as borrowers may lack resources to meet higher debt service requirements, or as a result of the impact on general business conditions caused by higher interest rates, and there can be no guarantee that secured senior debt, even if fully collateralized at origination, will be fully repaid after an event of default or if collateral values have fallen. Also, the security for the Fund’s senior secured debt investments may not be recognized for a variety of reasons, including the failure to make required filings by lenders, trustees or other responsible parties and, as a result, the Fund may not have priority over other creditors as anticipated.
Credit Risk. The Fund’s debt investments are subject to the risk of non-payment of scheduled interest or principal by the borrowers with respect to such investments. Such non-payment would likely result in a reduction of income to the Fund and a reduction in the value of the debt investments experiencing non-payment.
Although the Fund may invest in investments that FS Global Advisor believes are secured by specific collateral, the value of which may exceed the principal amount of the investments at the time of initial investment, there can be no assurance that the liquidation of any such collateral would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or principal payments with respect to such investment, or that such collateral could be readily liquidated. In addition, in the event of bankruptcy of a borrower, the Fund could experience delays or limitations with respect to its ability to realize the benefits of the collateral securing an investment. Under certain circumstances, collateral securing an investment may be released without the consent of the Fund. Moreover, the Fund’s investments in secured debt may be unperfected for a variety of reasons, including the failure to make required filings by lenders, trustees or other responsible parties and, as a result, the Fund may not have priority over other creditors as anticipated. The Fund’s right to payment and its security interest, if any, may be subordinated to the payment rights and security interests of more senior creditors. Certain of these investments may have an interest-only payment schedule, with the principal amount remaining outstanding and at risk until the maturity of the investment. In this case, a portfolio company’s ability to repay the principal of an investment may be dependent upon a liquidity event or the long-term success of the company, the occurrence of which is uncertain.
Companies in which the Fund invests could deteriorate as a result of, among other factors, an adverse development in their business, a change in the competitive environment or an economic downturn. As a result, companies that the Fund expected to be stable may operate, or expect to operate, at a loss or have significant variations in operating results, may require substantial additional capital to support their operations or maintain their competitive position, or may otherwise have a weak financial condition or be experiencing financial distress.
Non-U.S. Securities Risk. Investments in certain securities and other instruments of non-U.S. issuers or borrowers, or non-U.S. securities, involve factors not typically associated with investing in the United States or other developed countries, including, but not limited to, risks relating to: (i) differences between U.S. and non-U.S. securities markets, including potential price volatility in and relative illiquidity of some non-U.S. securities markets; the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements; and less government supervision and regulation; (ii) other differences in law and regulation, including fewer investor protections, less stringent fiduciary duties, less developed bankruptcy laws and difficulty in enforcing contractual obligations; (iii) certain economic, geo-political and political risks, including potential economic, political or social instability; exchange control regulations; restrictions on foreign investment and repatriation of capital, possibly requiring government approval; expropriation or confiscatory taxation; other government restrictions by the United States or other governments; higher rates of inflation; higher transaction costs; and reliance on a more limited number of commodity inputs, service providers and/or distribution mechanisms; and (iv) the possible imposition of local taxes on income and gains recognized with respect to securities and assets. Certain non-U.S. markets may rely heavily on particular industries or non-U.S. capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or countries, organizations, entities and/or individuals, changes in international trading patterns, trade barriers and other protectionist or retaliatory measures. International trade barriers or economic sanctions against non-U.S. countries, organizations, entities and/or individuals may adversely affect the Fund’s non-U.S. holdings or exposures. Certain non-U.S. investments may become less liquid in response to social, political or market developments or adverse investor perceptions, or become illiquid after purchase by the Fund, particularly during periods of market turmoil. Certain non-U.S. investments may become illiquid when, for instance, there are few, if any, interested buyers and sellers or when dealers are unwilling to make a market for certain securities. When the Fund holds illiquid investments, its portfolio may be harder to value, especially in changing markets. The risks of investments in emerging markets, including the risks described above, are usually greater than the risks
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involved in investing in more developed markets. Because non-U.S. securities may trade on days when the Fund’s shares of common stock are not priced, NAV may change at times when shares of common stock cannot be sold.
Foreign Currency Risk. Investments made by the Fund, and the income received by the Fund with respect to such investments, may be denominated in various non-U.S. currencies. However, the books of the Fund are maintained in U.S. dollars. Accordingly, changes in currency values may adversely affect the U.S. dollar value of portfolio investments, interest and other revenue streams received by the Fund, gains and losses realized on the sale of portfolio investments and the amount of distributions, if any, made by the Fund. In addition, the Fund may incur substantial costs in converting investment proceeds from one currency to another. The Fund may enter into derivative transactions designed to reduce such currency risks. Furthermore, the portfolio companies in which the Fund invests may be subject to risks relating to changes in currency values. If a portfolio company suffers adverse consequences as a result of such changes, the Fund may also be adversely affected as a result.
Derivatives Risk. The Fund may use derivative instruments including, in particular, swaps and other similar transactions, in seeking to achieve its investment objective or for other reasons, such as cash management, financing activities or to hedge its positions. Accordingly, these derivatives may be used in limited instances as a form of leverage or to seek to enhance returns, including speculation on changes in credit spreads, interest rates or other characteristics of the market, individual securities or groups of securities. If the Fund invests in a derivative for speculative purposes, the Fund will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative’s cost. The use of derivatives may involve substantial leverage. The use of derivatives may subject the Fund to various risks, including counterparty risk, currency risk, leverage risk, liquidity risk, correlation risk, index risk and regulatory risk.
Furthermore, the Fund’s ability to successfully use derivatives depends on FS Global Advisor’s ability to predict pertinent securities prices, interest rates, currency exchange rates and other economic factors, which cannot be assured. Additionally, segregated liquid assets, amounts paid by the Fund as premiums and cash or other assets held in margin accounts with respect to derivatives are not otherwise available to the Fund for investment purposes.
Rule 18f-4 under the 1940 Act, or the Derivatives Rule, provides a comprehensive framework for the use of derivatives by registered investment companies. The Derivatives Rule permits registered investment companies, subject to various conditions described below, to enter into derivatives transactions and certain other transactions notwithstanding the restrictions on the issuance of “senior securities” under Section 18 of the 1940 Act.
Registered investment companies that don’t qualify as “limited derivatives users” as defined below, are required by the Derivatives Rule to, among other things, (i) adopt and implement a DRMP, and new testing requirements; (ii) comply with a relative or absolute limit on fund leverage risk calculated based on VaR; and (iii) comply with new requirements related to Board and SEC reporting. The DRMP is administered by a “derivatives risk manager,” who is appointed by the Board and periodically reviews the DRMP and reports to the Board.
The Derivatives Rule provides an exception from the DRMP, VaR limit and certain other requirements for a registered investment company that limits its “derivatives exposure” to no more than 10% of its net assets (as calculated in accordance with the Derivatives Rule) (a “limited derivatives user”), provided that the registered investment company establishes appropriate policies and procedures reasonably designed to manage derivatives risks, including the risk of exceeding the 10% “derivatives exposure” threshold.
The requirements of the Derivatives Rule may limit the Fund’s ability to engage in derivatives transactions as part of the Fund’s investment strategies. These requirements may also increase the cost of the Fund’s investments and cost of doing business, which could adversely affect the value of the Fund’s investments and/or its performance. The rule also may not be effective to limit the Fund’s risk of loss. In particular, measurements of VaR rely on historical data and may not accurately measure the degree of risk reflected in the Fund’s derivatives or other investments. There may be additional regulation of the use of derivatives transactions by registered investment companies, which could significantly affect the Fund’s use. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives transactions may make them more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets.
Rule 144A Securities Risk. The Fund may purchase certain securities eligible for resale to qualified institutional buyers as contemplated by Rule 144A under the Securities Act of 1933, or Rule 144A Securities. Rule 144A provides an exemption from the registration requirements of the Securities Act of 1933 for the resale of certain restricted securities to certain qualified institutional buyers. One effect of Rule 144A is that certain restricted securities may be considered liquid, though no assurance can be given that a liquid market for Rule 144A Securities will develop or be maintained. However, where a substantial market of qualified institutional buyers has developed for certain unregistered securities purchased by the Fund pursuant to Rule 144A, the Fund intends to treat such securities as liquid securities in accordance with procedures approved by the Board. Because it is not possible to predict with certainty how the market for Rule 144A Securities will develop, the Board directs FS Global Advisor to carefully monitor the Fund’s investments in such securities with particular regard to trading activity, availability of reliable price information and other relevant information. To the extent that, for a period of time, qualified institutional buyers cease purchasing restricted securities pursuant to Rule 144A, the Fund’s investing in such securities may have the effect of increasing the level of illiquidity in its investment portfolio during such period.
Subordinated Loans Risk. Subordinated loans generally are subject to similar risks as those associated with investments in senior loans, except that such loans are subordinated in payment and/or lower in lien priority to first lien holders. In the event of default on a
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subordinated loan, the first priority lien holder has first claim to the underlying collateral of the loan to the extent such claim is secured. Additionally, an oversecured creditor may be entitled to additional interest and other charges in bankruptcy increasing the amount of their allowed claim. Subordinated loans are subject to the additional risk that the cash flow of the borrower and property securing the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior obligations of the borrower. This risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Subordinated loans generally have greater price volatility than senior loans and may be less liquid.
Below Investment Grade Rating Risk. The Fund may invest unlimited amounts in debt instruments that are rated below investment grade, which are often referred to as “high-yield” securities or “junk bonds.” Below investment grade senior loans, high-yield securities and other similar instruments are rated “Ba1” or lower by Moody’s, “BB+” or lower by S&P or “BB+” or lower by Fitch or, if unrated, are judged by FS Global Advisor to be of comparable credit quality. While generally providing greater income and opportunity for gain, below investment grade debt instruments may be subject to greater risks than securities or instruments that have higher credit ratings, including a higher risk of default. The credit rating of a corporate bond and senior loan that is rated below investment grade does not necessarily address its market value risk, and ratings may from time to time change, positively or negatively, to reflect developments regarding the borrower’s financial condition. Below investment grade corporate bonds and senior loans and similar instruments often are considered to be speculative with respect to the capacity of the borrower to timely repay principal and pay interest or dividends in accordance with the terms of the obligation and may have more credit risk than higher rated securities. Lower grade securities and similar debt instruments may be particularly susceptible to economic downturns. It is likely that a prolonged or deepening economic recession could adversely affect the ability of some borrowers issuing such corporate bonds, senior loans and similar debt instruments to repay principal and pay interest on the instrument, increase the incidence of default and severely disrupt the market value of the securities and similar debt instruments.
LIBOR and SOFR Risk. Following their publication on June 30, 2023, no settings of LIBOR continue to be published on a representative basis and publication of many non-U.S. dollar LIBOR settings has been entirely discontinued. On July 29, 2021, the U.S. Federal Reserve System, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, formally recommended replacing U.S.-dollar LIBOR with SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities. In April 2018, the Bank of England began publishing its proposed alternative rate, SONIA. Each of SOFR and SONIA significantly differ from LIBOR, both in the actual rate and how it is calculated. Further, on March 15, 2022, the Consolidation Appropriations Act of 2022, which includes the LIBOR Act, was signed into law in the United States. This legislation established a uniform benchmark replacement process for certain financial contracts that mature after June 30, 2023 that do not contain clearly defined or practicable LIBOR fallback provisions. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve System.
In addition, the U.K. FCA, which regulates the publisher of LIBOR (ICE Benchmark Administration), has announced that it will require the continued publication of the one-, three- and six-month tenors of U.S.-dollar LIBOR on a non-representative synthetic basis until the end of September 2024, which may result in certain non-U.S. law-governed contracts and U.S. law-governed contracts not covered by the federal legislation remaining on synthetic U.S.-dollar LIBOR until the end of this period. Although the transition process away from LIBOR has become increasingly well-defined (e.g. the LIBOR Act now provides a uniform benchmark replacement for certain LIBOR-based instruments in the United States), the transition process is complex, and it could cause a disruption in the credit markets generally and could have adverse impacts on the Fund’s business, financial condition and results of operations, including, among other things, increased volatility or illiquidity in markets for instruments that continue to rely on LIBOR or which have been transitioned away from LIBOR to a different rate like SOFR and, in any case, could result in a reduction in the value of certain of the Fund’s investments.
Control Share Acquisitions. The Fund’s Bylaws previously opted into the Maryland Control Share Acquisition Act, or the MCSAA. The MCSAA does not apply to the voting rights of any person acquiring shares of any class or series of stock of the Fund other than common stock. Some uncertainty around the general application under the 1940 Act of state control share statutes exists as a result of recent court decisions, and in some circumstances, uncertainty may also exist in how to enforce the control share restrictions contained in state control share statutes against beneficial owners who hold their shares through financial intermediaries. On June 29, 2023, a stockholder of the Fund, who did not hold any control shares as of June 27, 2023, filed a complaint in federal district court seeking to invalidate the application of the MCSAA to the Fund, along with 15 other closed-end funds and trustees of some of the other funds. On December 5, 2023, the U.S. District Court for the Southern District of New York issued a ruling granting summary judgment in favor of the stockholder and ordering a rescission of the defendant funds’ control share provisions in their respective bylaws. The Fund and the other defendant funds have appealed to the Second Circuit Court of Appeals, which granted a request by two of the funds to expedite the appeal. A briefing on the expedited appeal is expected to be completed by March 5, 2024, with oral argument, if any, to follow as soon as practicable thereafter. There can be no assurance as to the outcome of this matter or as to the ultimate resolution as to the general application of the 1940 Act to state control share statutes, including the MCSAA.
Market Disruption and Geopolitical Risks. Certain local, regional or global events such as war (including Russia’s invasion of Ukraine and the Israel-Hamas war), acts of terrorism, the spread of infectious illnesses and/or other public health issues, or other events may have a significant impact on a security or instrument. These types of events and others like them are collectively referred to as “Market Disruptions and Geopolitical Risks” and they may have adverse impacts on the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. Some of the impacts noted in recent times include, but are not limited to, volatility in markets, embargos, political actions, supply chain
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disruptions, restrictions to investment and/or monetary movement including the forced selling of securities or the inability to participate in impacted markets. The duration of these events could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on an investment in the Fund. The ultimate impact of Market Disruptions and Geopolitical Risks on the financial performance of the Fund’s investments is not reasonably estimable at this time. Management is monitoring these events.
Economic Downturn or Recession. Many of the Fund's investments may be issued by companies susceptible to economic slowdowns or recessions. Therefore, the Fund's non-performing assets are likely to increase, and the value of its portfolio is likely to decrease, during these periods. A prolonged recession may result in losses of value in the Fund's portfolio and a decrease in the Fund's revenues, net income and NAV. Unfavorable economic conditions also could increase the Fund's funding costs, limit the Fund's access to the capital markets or result in a decision by lenders not to extend credit to it on terms it deems acceptable. These events could prevent the Fund from increasing investments and harm the Fund's operating results.
Inflation and Deflation Risk. Inflation risk is the risk that the value of certain assets or income from the Fund’s investments may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s securities and distributions to its shareholders can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with the Fund’s use of leverage would likely increase, which would tend to further reduce returns to investors.
Certain of the Fund’s portfolio companies are in industries that may be impacted by inflation. If such portfolio companies are unable to pass any increases in their costs of operations along to their customers, it could adversely affect their operating results and impact their ability to pay interest and principal on the Fund’s loans, particularly if interest rates rise in response to inflation. In addition, any projected future decreases in the Fund’s portfolio companies’ operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of the Fund’s investments could result in future realized or unrealized losses and therefore reduce the Fund’s net assets resulting from operations.
Deflation risk is the risk that prices throughout the economy decline over time, or the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.
Interest Rate Risk. The Fund is subject to financial market risks, including changes in interest rates. General interest rate fluctuations may have a substantial negative impact on the Fund’s investments, investment opportunities and cost of capital and, accordingly, may have a material adverse effect on the Fund’s investment objectives, the Fund’s rate of return on invested capital and the Fund’s ability to service its debt and make distributions to stockholders. In addition, an increase in interest rates would make it more expensive to use debt for the Fund’s financing needs, if any.
The Fund’s investment portfolio primarily consists of senior secured debt. The longer the duration of these securities, generally, the more susceptible they are to changes in market interest rates. As market interest rates increase, those securities with a lower yield-at-cost can experience a mark-to-market unrealized loss. An impairment of the fair market value of its investments, even if unrealized, must be reflected in the Fund’s financial statements for the applicable period and may therefore have a material adverse effect on the Fund’s results of operations for that period.
Because the Fund incurs indebtedness to make investments, the Fund’s net investment income is dependent, in part, upon the difference between the rate at which it borrows funds or pays interest on any debt securities and the rate at which the Fund invests these funds. The recent increases in interest rates will make it more expensive to use debt to finance the Fund’s investments and to refinance any financing arrangements. In addition, certain of the Fund’s financing arrangements provide for adjustments in the loan interest rate along with changes in market interest rates. Therefore, in periods of rising interest rates, the Fund’s cost of funds will increase, which could materially reduce the Fund’s net investment income. Any reduction in the level of interest rates on new investments relative to interest rates on the Fund’s current investments could also adversely impact the Fund’s net investment income.
The Fund has and may continue to structure the majority of its debt investments with floating interest rates to position the Fund’s portfolio for rate increases. However, there can be no assurance that this will successfully mitigate the Fund’s exposure to interest rate risk. For example, in rising interest rate environments, payments under floating rate debt instruments generally would rise and there may be a significant number of issuers of such floating rate debt instruments that would be unable or unwilling to pay such increased interest costs and may otherwise be unable to repay their loans. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. Investments in floating rate debt instruments may also decline in value in response to rising interest rates if the interest rates of such investments do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, the Fund’s fixed rate investments may decline in value because the fixed rate of interest paid thereunder may be below market interest rates.
Furthermore, because a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the Fund’s debt investments, an increase in interest rates would make it easier for the Fund to meet or exceed the incentive fee hurdle rate in its Investment Advisory Agreement and may result in a substantial increase of the amount of incentive fees payable to the Advisor with respect to pre-incentive fee net investment income.
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Russia/Ukraine and Other Global Conflicts Market Risk. The ongoing invasion of Ukraine by Russia and related sanctions have increased global political and economic uncertainty. In February 2022, Russia invaded Ukraine and, in response, the United States and many other countries placed economic sanctions on certain Russian entities and individuals. Because Russia is a major exporter of oil and natural gas, the invasion and related sanctions have reduced the supply, and increased the price, of energy, which is accelerating inflation and may exacerbate ongoing supply chain issues. There is also the risk of retaliatory actions by Russia against countries which have enacted sanctions, including cyberattacks against financial and governmental institutions, which could result in business disruptions and further economic turbulence. Although the Fund has no direct exposure to Russia or Ukraine, the broader consequences of the invasion may have a material adverse impact on the Fund’s portfolio and the value of an investment in the Fund. Moreover, sanctions and export control laws and regulations are complex, frequently changing, and increasing in number, and they may impose additional legal compliance costs or business risks associated with the Fund’s operations. The price and liquidity of investments may fluctuate widely as a result of the conflict and related events. How long the armed conflict and related events will last cannot be predicted. These tensions and any related events could have significant impact on the Fund’s performance and the value of an investment in the Fund.
In early October 2023, conflict in the Middle East involving Hamas and Israel intensified. The situation in the Middle East remains uncertain, and its long-term effects remain to be seen. Any impacts on the Fund’s business or results of operations cannot be predicted.
On January 31, 2020, the United Kingdom ended its membership in the European Union (the “EU”) referred to as Brexit. The longer term economic, legal, political and social implications of Brexit remain unclear. Brexit has led to ongoing political and economic uncertainty and periods of increased volatility in both the U.K. and in wider European markets for some time. Brexit could lead to calls for similar referendums in other European jurisdictions, which could cause increased economic volatility in the European and global markets. This mid- to long-term uncertainty could have adverse effects on the economy generally and on the Fund’s ability to earn attractive returns. In particular, currency volatility could mean that the Fund’s returns are adversely affected by market movements and could make it more difficult, or more expensive, for the Fund to execute prudent currency hedging policies. Potential decline in the value of the British Pound and/or the Euro against other currencies, along with the potential further downgrading of the U.K.’s sovereign credit rating, could also have an impact on the performance of certain investments made in the U.K. or Europe.
Pandemic and Force Majeure Risk. Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of the Fund’s control. The Fund, FS Global Advisor, and the portfolio companies in which the Fund invests in could be affected by force majeure events (i.e., events beyond the control of the party claiming that the event has occurred, such as acts of God, fire, flood, earthquakes, outbreaks of an infectious disease, pandemic or any other serious public health concern, war, terrorism, labor strikes, major plant breakdowns, pipeline or electricity line ruptures, failure of technology, defective design and construction, accidents, demographic changes, government macroeconomic policies, social instability, etc.). Some force majeure events could adversely affect the ability of a party (including the Fund, FS Global Advisor, a portfolio company or a counterparty to the Fund, FS Global Advisor, or a portfolio company) to perform its obligations until it is able to remedy the force majeure event. In addition, force majeure events, such as the cessation of the operation of equipment for repair or upgrade, could similarly lead to the unavailability of essential equipment and technologies. These risks could, among other effects, adversely impact the cash flows available from a portfolio company, cause personal injury or loss of life, including to a senior manager of FS Global Advisor or its affiliates, damage property, or instigate disruptions of service. In addition, the cost to a portfolio company or the Fund of repairing or replacing damaged assets resulting from such force majeure event could be considerable. It will not be possible to insure against all such events, and insurance proceeds received, if any, could be inadequate to completely or even partially cover any loss of revenues or investments, any increases in operating and maintenance expenses, or any replacements or rehabilitation of property. Certain events causing catastrophic loss could be either uninsurable, or insurable at such high rates as to adversely impact the Fund, FS Global Advisor, or portfolio companies, as applicable. Force majeure events that are incapable of or are too costly to cure could have permanent adverse effects. Certain force majeure events (such as war or an outbreak of an infectious disease) could have a broader negative impact on the world economy and international business activity generally, or in any of the countries in which the Fund invests or its portfolio companies operate specifically. Such force majeure events could result in or coincide with: increased volatility in the global securities, derivatives and currency markets; a decrease in the reliability of market prices and difficulty in valuing assets; greater fluctuations in currency exchange rates; increased risk of default (by both government and private issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; less governmental regulation and supervision of the securities markets and market participants and decreased monitoring of the markets by governments or self-regulatory organizations and reduced enforcement of regulations; limited, or limitations on, the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; inability to purchase and sell investments or otherwise settle security or derivative transactions (i.e., a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
In early 2020, COVID-19 emerged globally. The outbreak of COVID-19 and its variants resulted in closing international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general public concern and uncertainty. This outbreak negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and
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unforeseen ways. On May 5, 2023, the World Health Organization declared the end of the global emergency status for COVID-19. The United States subsequently ended the federal COVID-19 public health emergency declaration effective May 11, 2023. Although vaccines for COVID-19 are widely available, it is unknown how long certain circumstances related to the pandemic will persist, whether they will reoccur in the future, and what additional implications may follow from the pandemic. The impact of these events and other epidemics or pandemics in the future could adversely affect Fund performance.
Market Price of Common Stock. Common stock of closed-end funds frequently trades at a price lower than their net asset value. This is commonly referred to as “trading at a discount.” This characteristic of common stock of closed-end funds is a risk separate and distinct from the risk that the Fund’s net asset value may decrease. Both long and short-term investors, including investors who sell their common stock within a relatively short period after the Listing Date, will be exposed to this risk. The Fund is designed primarily for long-term investors and should not be considered a vehicle for trading purposes. Whether investors will realize a gain or loss upon the sale of the Fund’s common stock will depend upon whether the market value of the shares at the time of sale is above or below the price the investor paid, taking into account transaction costs, for the common stock and is not directly dependent upon the Fund’s net asset value. Because the market value of the Fund’s common stock will be determined by factors such as the relative demand for and supply of the common stock in the market, general market conditions and other factors beyond the control of the Fund, the Fund cannot predict whether its common stock will trade at, below or above NAV, or below or above the initial listing price for the stock.
Stockholder Activism. The Fund may in the future become the target of stockholder activism. Stockholder activism could result in substantial costs and divert management’s and the Board’s attention and resources from its business. Also, the Fund may be required to incur significant legal and other expenses related to any activist stockholder matters. Further, the Fund’s stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any stockholder activism.
Secondary Market for the Common Stock. The issuance of shares of common stock of the Fund through the Fund’s DRP may have an adverse effect on the secondary market for the Fund’s shares. The increase in the number of outstanding shares resulting from the issuances pursuant to the DRP and the discount to the market price at which such shares may be issued, may put downward pressure on the market price for the common shares. When the shares of the common stock are trading at a premium, the Fund may also issue shares that may be sold through private transactions effected on the NYSE or through broker-dealers.
Anti-Takeover Provisions. Maryland law and the Fund’s Charter and Bylaws include provisions that could limit the ability of other entities or persons to acquire control of the Fund, including the adoption of a staggered board of directors and the supermajority voting requirements. These provisions could deprive the stockholders of opportunities to sell their common stock at a premium over the then current market price of the common shares or at NAV.
Cybersecurity Risks. Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. The Fund, its affiliates and the Fund’s and its affiliates’ respective third-party service providers are subject to cybersecurity risks. Cybersecurity risks have significantly increased in recent years and, while the Fund has not experienced any material losses relating to cyber attacks or other information security breaches, it could suffer such losses in the future.
The Fund’s affiliates and respective third-party service providers’ computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize confidential and other information, including non-public personal information and sensitive business data, processed and stored in, and transmitted through, computer systems and networks, or otherwise cause interruptions or malfunctions in the Fund’s operations or the operations of the Fund’s affiliates and the Fund and its affiliates’ respective third-party service providers. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect the Fund’s business, financial condition or results of operations. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, the Fund may be required to expend significant additional resources to modify protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks.
Cash Balance Risk. The Fund’s cash is held in accounts at U.S. banking institutions. Cash held by the Fund and its portfolio companies in non-interest-bearing and interest-bearing operating accounts may exceed the Federal Deposit Insurance Corporation insurance limits. If such banking institutions were to fail, the Fund or its portfolio companies could lose all or a portion of those amounts held in excess of such insurance limitations. In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems, which could adversely affect the Fund and its portfolio companies’ business, financial condition, results of operations, or prospects.
Although the Fund assesses its portfolio companies’ banking relationships as necessary or appropriate, the Fund and its portfolio companies’ access to funding sources and other credit arrangements in amounts adequate to finance or capitalize the Fund or its portfolio companies’ respective current and projected future business operations could be significantly impaired by factors that affect the Fund or its portfolio companies, the financial institutions with which the Fund or its portfolio companies have arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or
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failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which the Fund or its portfolio companies have financial or business relationships but could also include factors involving financial markets or the financial services industry generally.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for the Fund or its portfolio companies to acquire financing on acceptable terms or at all.
Portfolio Manager Information. There have been no changes in the Fund’s portfolio managers or background since the prior disclosure date.
Fund Organizational Structure. On March 23, 2022, FS Global Credit Opportunities Fund, a Delaware statutory trust, completed its conversion into a Maryland corporation and changed its name to FS Credit Opportunities Corp. Following the conversion, the rights of the Fund's stockholders are governed by Maryland General Corporation Law and the Fund's Articles of Incorporation and Bylaws, which Bylaws previously opted into the Maryland Control Share Acquisition Act (see "Control Share Acquisitions" above for additional information). The Fund has also implemented a staggered Board. See "Anti-Takeover Provisions" and "Note 12 - Redomiciling and Conversion to Maryland Corporation" above for additional information.
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Privacy Policy
FS Investments (“we,” “our” or “us”) and its affiliates take measures to ensure that the use and disclosure of your private personal information is consistent with applicable law.
This Consumer Information Privacy Policy (this “Privacy Policy”) explains what non-public personal information (“NPI”) we collect, why we collect it, how we protect your NPI, and how and why, in certain cases, we share such information with our affiliates or with other parties. This Privacy Policy may be amended from time to time.
This Privacy Policy applies to NPI collected or used in connection with our investment offerings and services to individuals for personal, family or household purposes. This disclosure is made on behalf of FS Investments and its affiliates listed under the heading “Application of Privacy Policy to FS Investments and our affiliates” below.
Information that we collect and may disclose
We collect information from and about you to provide the level of service that you expect. NPI about you may include: your name, mailing address, email address, tax identification number, age, account information, investment amounts in our sponsored offerings, marital status, number of dependents, assets, debts, income, net worth, employment history, financial statements, beneficiary information, personal bank account information, credit history information, broker-dealer, financial advisor, individual retirement account (“IRA”) custodian, account joint owners and other similar parties, the FS Investments’ investments and services you purchase, your FS Investments investment balance and transactional history, and the fact that you are or have been an investor in FS Investments’ investments and particulars related to any such investment.
Specific examples of personal information that we may collect and disclose to affiliates and certain third parties include:
a.Information we receive from you on applications, subscription agreements or other forms. Examples include your name, mailing address and email address.
b.Information about your transactions with us, our affiliates and others, such as account balances, payment history, account activity and financial statements. If you visit our website, information you submit to us on our website forms and information we collect through ‘cookies.’
c.If you create a login and password on our website to access your FS Investments investment, we will collect and use the login and password to verify your identity and for our internal use in maintaining your website account.
d.Information obtained from others, such as credit reports from consumer credit reporting agencies.
How we use and disclose information
FS Investments, its affiliates and its third-party service providers work together to provide a variety of investments and services and may need to share some or all the NPI collected about you to maintain an efficient and effective network of offerings and services. We believe that by sharing information about you and your accounts with our affiliates and partners, we are better able to serve your investment needs and to suggest services or educational materials that may be of interest to you. The responsible use and disclosure of the NPI we collect is crucial to our ability to provide our clients with the types of products and services they expect and may occur under a variety of different circumstances. For example, we may:
a.Use your personally identifiable information (“PII) internally for the purposes of furthering our business, which may include analyzing your information, matching your information with the information of others, processing services, maintaining accounts, resolving disputes, preventing fraud and verifying your identity.
b.Disclose your PII when required by law (e.g., in connection with judicial, administrative or investigative matters).
c.Use and disclose your PII on an aggregate basis. This means that we may combine parts of your information with parts of the information from our other investors without including your name, complete telephone number, complete email address or your street address. Examples of how we use aggregate information include determining the most common ZIP Code among investors that use the website and disclosing that ZIP Code to other parties, or determining and disclosing demographic information such as the average income of investors in our sponsored investments.
Sharing with our affiliates
We may share your PII with our affiliates engaged in investment or other related financial service activities. Examples might include customer-initiated service requests, establishing and managing your investment, completing your investor transactions and sharing information with parties acting at your request and on your account, such as your broker-dealer, financial advisor, joint owners and IRA custodian.
Sharing with non-affiliated service providers
We may disclose your personal information to non-affiliated service providers who perform business functions on our behalf, which may include marketing of our own sponsored investments and services, check printing and data processing. Non-affiliated third-party service providers often aid us in the efficient and effective delivery of services, and there may be circumstances in which it is necessary to disclose NPI we collect to such parties. However, before we disclose NPI to a non-affiliated party, we require it to agree to keep our investor information confidential and secure and to use it only as authorized by us.
Also, we will only share your NPI with non-affiliated third parties under circumstances not covered by state or federal law “opt-out” notice exceptions, such as servicing a financial product or service authorized by the customer, resolving consumer disputes

and protecting against potential fraud or unauthorized transactions. Should this policy ever change in the future, you will be given adequate notice and the option to “opt-out” of such disclosure.
We may also disclose the following information to companies that perform marketing services on our behalf or to other financial institutions with whom we have joint marketing agreements:
a.Information we receive from you on applications or other forms, such as your name, address, Social Security number, assets and income.
b.Information about your transactions with us, our affiliates or others, such as your payment history and parties to the transactions.
c.Information we receive from a consumer-reporting agency, such as your creditworthiness and credit history.
We require all joint marketers to have written contracts with us that specify appropriate use of your personal information, require them to take steps to safeguard your personal information, and prohibit them from making unauthorized or unlawful use of your personal information.
FS Investments and its affiliates do not share, sell or rent your personal, private information with outside marketers who may want to offer their own products and services to you.
How we protect your information
FS Investments and its affiliates maintain a comprehensive information security program designed to ensure the security and confidentiality of customer information, protect against threats or hazards to the security of such information, and prevent unauthorized access. This program includes:
a.Procedures and specifications for administrative, technical and physical safeguards.
b.Security procedures related to the processing, storage, retention and disposal of confidential information.
c.Programs to detect, prevent and, when necessary, respond to attacks, intrusions or unauthorized access to confidential information.
d.Restricting access of customer information to employees who need to know that information to provide products and services to you, and appointing specific employees to oversee our information security program.
Availability of this Privacy Policy
We will provide notice of this Privacy Policy annually, as long as you maintain an ongoing relationship with us. The most up-to-date Privacy Policy is posted on our website. For additional information you may call our Privacy Policy Specialist at 215-220-6651.
Notification of changes to our Privacy Policy
If we decide to change this Privacy Policy, we will post those changes on our website so our users and investors are always aware of what information we collect, use and disclose. If at any point we decide to use or disclose your PII in a manner different from that stated at the time it was collected, we will notify you in writing. We will otherwise use and disclose a user’s or an investor’s PII in accordance with the privacy policy that was in effect when such information was collected.
Change in control
If FS Investments or any of its affiliates experience a “change in control” (as defined below), then we may amend our information practices as described in this Privacy Policy. We will disclose your PII to the company or other legal entity that succeeds us (subject to the change in control or the operation of the website). The privacy policy of the succeeding legal entity will then govern the PII that FS Investments or its affiliates collected from you under this Privacy Policy or such successor entity’s privacy policy. However, if applicable law prohibits the succeeding legal entity’s privacy policy from governing your PII, then this Privacy Policy shall continue to govern. “Change in control” means any of the following events:
a.A reorganization, merger, consolidation, acquisition or other restructuring involving all or substantially all of FS Investments or an affiliate’s voting securities and/or assets, by operation of law or otherwise.
b.Insolvency.
c.A general assignment for the benefit of creditors.
d.The appointment of a receiver.
e.The filing of a bankruptcy or insolvency proceeding.
f.The liquidation of assets.
Questions about this Privacy Policy
If you have any questions about this Privacy Policy and/or our personal information practices, please call our Privacy Policy Specialist at 215-220-6651.
Application of Privacy Policy to FS Investments and our affiliates
This Privacy Policy applies to FS Investments and the following affiliated FS Investments companies: FS Investment Solutions, LLC; Franklin Square Holdings, L.P.; Franklin Square Holdings, G.P., LLC; any fund or other investment sponsored by FS Investments and their respective subsidiaries and investment advisers; and all other funds or entities created in the future that offer investment or services to individuals for personal, family or household purposes.


























































www.fsinvestments.comAN23-FSCO
© 2024 FS Investments

Item 1. Reports to Stockholders.
(b) The following is a copy of the notice transmitted to stockholders in reliance on Rule 30e-3 under the 1940 Act that contains disclosures specified by paragraph (c)(3) of that rule:

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Item 2. Code of Ethics.
(a)The registrant has adopted a Code of Business Conduct and Ethics (as amended, the “Code of Ethics”) that applies to all officers, trustees, directors and other personnel of the Fund and FS Global Advisor, LLC, the Fund’s investment adviser (“FS Global Advisor”), including the Fund’s principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions.

(b)Not applicable.

(c)On August 9, 2023, the Board approved the amended Code of Ethics. The material changes included, among other things, new verbiage to explicitly state that employees of the Fund of the Adviser, may, if they prefer to do so, report suspected securities law violations directly to the SEC. A copy of the Code of Ethics is included herein as Exhibit (a)(1) and also is available on the Fund’s “Corporate Governance” page on FS Investments’ website at www.fsinvestments.com.

(d)During the period covered by the Annual Report included in Item 1(a) of this Form N-CSR, the Fund did not grant any waiver, explicit or implicit, from a provision of the Code of Ethics to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The amendments reflected in the Code of Ethics and discussed above did not relate to or result in any waiver, explicit or implicit, of any provision of the Fund’s previous Code of Business Conduct and Ethics.

(e)Not applicable.

(f)A copy of the Code of Ethics is included herein as Exhibit (a)(1) and also is available on the Fund’s “Corporate Governance” page on FS Investments’ website at www.fsinvestments.com.

Item 3. Audit Committee Financial Expert.
(a)(1)    The Board has determined that the Fund has at least one “audit committee financial expert” serving on the audit committee of the Board (the “Audit Committee”), as such term is defined for purposes of Item 3 of Form N-CSR.
(a)(2)    The Board has determined that Philip E. Hughes, Jr. is an “audit committee financial expert” and “independent,” as such terms are defined for purposes of Item 3 of Form N-CSR.
(a (a)(3)    Not applicable.

Item 4. Principal Accountant Fees and Services.
(a)Audit Fees. The aggregate fees billed to the Fund for the fiscal years ended December 31, 2023 and 2022 for professional services rendered by Ernst & Young LLP, the Fund’s independent registered public accounting firm (“Ernst & Young”), for the audit of the Fund’s annual financial statements and services that are normally provided by Ernst & Young in connection with statutory and regulatory filings or engagements were $355,000 and $338,950, respectively.

(b)Audit-Related Fees. The aggregate fees billed to the Fund for the fiscal years ended December 31, 2023 and 2022 for assurance and related services by Ernst & Young that were reasonably related to the performance of the audit of the Fund’s financial statements and not reported in Item 4(a) above were $0 and $2,000, respectively. Audit-related fees for the year ended December 31, 2022 represent fees billed for access to management resources.

(c)Tax Fees. The aggregate fees billed to the Fund for the fiscal years ended December 31, 2023 and 2022 for professional services rendered by Ernst & Young for tax compliance, tax advice and tax planning were $6,489 and $330, respectively. Tax fees for the years ended December 31, 2023 and 2022 represent fees billed for tax compliance services provided in connection with the review of the Fund’s tax returns and services provided in connection with the operation of a wholly-owned subsidiary of the Fund.

(d)All Other Fees. No fees were billed to the Fund for the fiscal years ended December 31, 2023 and 2022 for products and services provided by Ernst & Young, other than the services reported in Items 4(a) through (c) above.


(e)Audit Committee Pre-Approval Policies and Procedures.

(1)The Audit Committee has adopted, and the Board has approved, a Policy on Pre-Approval of Audit and Non-Audit Services (the “Policy”), which is intended to comply with Rule 2-01 of Regulation S-X and sets forth guidelines and procedures to be followed by the Fund when retaining an auditor to perform audit, audit-related, tax and other services for the Fund. The Policy permits such services to be pre-approved by the Audit Committee pursuant to either a general pre-approval or specific pre-approval. Unless a type of service provided by the auditor has received general pre-approval, it requires specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels require specific pre-approval by the Audit Committee.

(2)All services described in paragraphs (b) and (c) of this Item 4 were pre-approved before the engagement by the Audit Committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X. Consequently, none of such services were required to be approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f)Not applicable.

(g)The aggregate non-audit fees billed by Ernst & Young for services rendered to the Fund, FS Global Advisor and any entity controlling, controlled by or under common control with FS Global Advisor that provides ongoing services to the Fund for the fiscal years ended December 31, 2023 and 2022 were $6,489 and $2,330, respectively.

(h)Not applicable.

(i)Not applicable.

(j)Not applicable.

Item 5. Audit Committee of Listed Registrants.
(a)The Fund has a separately designated standing Audit Committee established in accordance with Section 3 (a)(58)(A) of the Exchange Act and is comprised of the following members:
Philip E. Hughes, Jr., Chairman
Robert N.C. Nix, III
Barbara J. Fouss

(b)Not applicable.


Item 6. Investments.
(a)The Fund’s consolidated schedule of investments as of December 31, 2023 is included as part of the Annual Report included in Item 1(a) of this Form N-CSR.

(b)Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Fund has delegated the responsibility for voting proxies relating to its voting securities to FS Global Advisor, pursuant to the proxy voting policies and procedures of FS Global Advisor. FS Global Advisor’s proxy voting policies and procedures are included herein as Exhibit (a)(5).

Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1)    Information regarding the portfolio managers primarily responsible for the day-to-day management of the Fund’s portfolio as of the date hereof is set forth below. Messrs. Beckman and Heilbut have served as portfolio managers since 2018. Mr. Hoffman has served as a portfolio manager since the Fund’s inception.

Andrew Beckman serves as Managing Director, Head of Liquid Credit, of FS Investments. Prior to joining FS Investments, he served as a Partner and the Head of Corporate Credit and Special Situations at DW Partners, a $3 billion corporate credit manager. Mr. Beckman also serves as the portfolio manager of the Fund. Prior to joining DW Partners, he built and managed Magnetar Capital’s event-driven credit business and was the head of its Event Credit and Credit Opportunities Fund, managing over $2 billion. Earlier in his career, Mr. Beckman was co-head of Goldman Sachs’ special situations multi-strategy investing group.
Nicholas Heilbut serves as Director of Research and Portfolio Manager for the Fund. Prior to joining FS Investments, Mr. Heilbut was a Managing Director at DW Partners. Prior to joining DW Partners, he was Senior Analyst / Head of Research for Magnetar Capital’s event-driven and special situations business. Earlier in his career Mr. Heilbut served as a Senior Analyst at Serengeti Asset Management and before that, he was a Vice President in Goldman Sachs’ Special Situations Multi-Strategy Investing Group.
Robert Hoffman serves as Managing Director, Credit Wealth Solutions at FS Investments and is a subject matter expert on the corporate credit markets and select alternative investment solutions. He develops key communications and resources to help position and educate on FS Investments’ products. He previously served as the firm’s Head of Investment Research, leading the team that analyzes the fundamentals behind market movements, macroeconomic trends, and the performance of specific industries. Mr. Hoffman has over 20 years of experience in the investment and financial services industry. Prior to joining FS Investments, he was an Executive Director at Nomura Corporate Research and Asset Management, Inc., an asset management firm with approximately $20 billion in assets under management. At Nomura, he was responsible for loan portfolio management and trading, and he and his team managed nearly $3 billion in loan assets for retail and institutional clients. Prior to becoming a portfolio manager, he was a senior credit analyst focusing primarily on first-and second-lien corporate loan issues. He covered a range of sectors including energy and gas, utilities, healthcare, chemicals, technology, autos and industrials. Mr. Hoffman graduated from Columbia University with a BA in Political Science and is a Chartered Financial Analyst

(a)(2)    The portfolio managers primarily responsible for the day-to-day management of the Fund also manage other registered investment companies, other pooled investment vehicles and other accounts, as indicated below. The following table identifies, as of December 31, 2023: (i) the number of other registered investment companies, other pooled investment vehicles and other accounts managed by each portfolio manager; (ii) the total assets of such companies, vehicles and accounts; and (iii) the number and total assets of such companies, vehicles and accounts that are subject to an advisory fee based on performance:
Number of Accounts
Assets of Accounts
(in thousands)(1)
Number of Accounts Subject to a Performance Fee
Assets Subject to a
Performance Fee (in thousands)(1)
Andrew Beckman
Registered Investment Companies 1$2,220,168——
Other Pooled Investment Vehicles1$154,0671$154,067
Other Accounts3$1,048,7993$1,048,799
Nicholas Heilbut
Registered Investment Companies 1$2,220,168——
Other Pooled Investment Vehicles1$154,0671$154,067
Other Accounts3$1,048,7993$1,048,799
Robert Hoffman
Registered Investment Companies 1$830,288——
Other Pooled Investment Vehicles————
Other Accounts————
____________________
(1)The assets for the accounts with fiscal year ends of October 31 represent assets as of January 31, 2024.
Potential Conflicts of Interest
FS Global Advisor and certain of its affiliates may experience conflicts of interest in connection with the management of the Funds, including, but not limited to, the following:
•The managers, officers and other personnel of FS Global Advisor allocate their time, as they deem appropriate, between advising the Fund and managing and operating other investment activities and business activities in which they may be involved;
•The principals of FS Global Advisor may serve as officers, paid advisors, directors or in comparable management functions for portfolio companies in which the Fund invests, and may receive compensation in connection therewith;

•The Fund may now, or in the future, compete with certain affiliates for investments, subjecting FS Global Advisor and its affiliates to certain conflicts of interest in evaluating the suitability of investment opportunities and making or recommending acquisitions or sales on the Fund’s behalf;
•The Fund may now, or in the future, compete with other funds or clients managed or advised by FS Global Advisor or affiliates of FS Global Advisor for investment opportunities, subjecting FS Global Advisor and its affiliates to certain conflicts of interest in evaluating the suitability of investment opportunities and making or recommending acquisitions on the Fund’s behalf;
•Subject to applicable law, FS Global Advisor and its affiliates may now, or in the future, acquire, hold or sell securities in which the Fund invests;
•Regardless of the quality of the assets acquired by the Fund, the services provided to the Fund or whether the Fund makes distributions to stockholders, FS Global Advisor will receive the management fee in connection with the management of the Fund’s portfolio;
•From time to time, to the extent consistent with the 1940 Act and the rules and regulations promulgated thereunder, the Fund and other clients for which FS Global Advisor or its affiliates provides investment management services or carry on investment activities may make investments at different levels of an issuer’s capital structure or otherwise in different classes of an issuer’s securities, as may be permitted by law and subject to compliance with appropriate procedures. These investments give rise to inherent conflicts of interest or perceived conflicts of interest between or among the various classes of securities that may be held by the Fund and such other clients and may make certain investment opportunities, which might otherwise be desirable, unavailable or impractical even if appropriate procedures are in place. Additionally, investment at different levels of an issuer’s capital structure or otherwise in different classes of an issuer’s securities by the Fund and other clients of FS Global Advisor or its affiliates may result in FS Global Advisor or its affiliates coming into possession of confidential or material, non-public information that would limit the ability of the Fund to acquire or dispose of investments, even if such acquisition or disposition would otherwise be desirable. This could constrain the Fund’s investment flexibility and result in the Fund being unable or restricted from initiating transactions in certain securities or liquidating or selling certain investments at a time when FS Global Advisor would otherwise take an action;
•FS Global Advisor and its respective affiliates may give advice and recommend securities to other clients, family or friends, in accordance with the investment objectives and strategies of such other clients, family or friends, which may differ from advice given to, or the timing or nature of the action taken with respect to, the Fund so long as it is their policy, to the extent practicable, to recommend for allocation and/or allocate investment opportunities to the Fund on a fair and equitable basis relative to their other clients, family and friends, even though their investment objectives may overlap with those of the Fund;
•FS Global Advisor and its affiliates may have existing business relationships or access to material non-public information that would prevent it from considering, approving or consummating an investment opportunity (including a disposition of an existing investment) that would otherwise fit within the Fund’s investment objective and strategies. This could constrain the Fund’s investment flexibility and result in the Fund being unable or restricted from initiating transactions in certain securities or liquidating or selling certain investments at a time when FS Global Advisor would otherwise take such an action;
•To the extent permitted by the 1940 Act and interpretations of the staff of the SEC, and subject to the allocation policies of FS Global Advisor and any of its affiliates, as applicable, FS Global Advisor, and any of its affiliates may deem it appropriate for the Fund and one or more other investment accounts managed by FS Global Advisor or any of its affiliates to participate in an investment opportunity. In an order dated August 11, 2020, the SEC granted exemptive relief permitting the Fund, subject to satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FS Global Advisor. Any of these co-investment opportunities may give rise to conflicts of interest or perceived conflicts of interest among the Fund and the other participating accounts. To mitigate these conflicts, FS Global Advisor will seek to execute such transactions for all of the participating investment accounts, including the Fund, on a fair and equitable basis and in accordance with their respective allocation policies, taking into account such factors as the relative amounts of capital available for new investments and the investment programs and portfolio positions of the Fund, the clients for which participation is appropriate and any other factors deemed appropriate; and
•The 1940 Act prohibits certain “joint” transactions with certain of the Fund’s affiliates, which in certain circumstances could include investments in the same portfolio company (whether at the same or different times), without the prior approval of the SEC. If a person, directly or indirectly, acquires more than 5% of the voting securities of the Fund, FS Global Advisor (or its controlling entities), the Fund will be prohibited from buying any securities or other property from or selling any securities or other property to such person or certain of that person’s affiliates, or entering into joint

transactions with such persons, absent the availability of an exemption or prior approval of the SEC. Similar restrictions limit the Fund’s ability to transact business with its officers or directors or their affiliates. The SEC has interpreted the 1940 Act rules governing transactions with affiliates to prohibit certain “joint transactions” involving entities that share a common investment adviser. As a result of these restrictions, the scope of investment opportunities that would otherwise be available to the Fund may be limited.

(a)(3)    The following description regarding portfolio manager compensation is provided as of December 31, 2023. FS Global Advisor’s investment personnel are not employed by the Fund and receive no direct compensation from the Fund in connection with their investment management activities.
Consistent with FS Investments’ integrated culture, FS Investments has one firm-wide compensation and incentive structure, which covers investment personnel who render services to the Fund on behalf of FS Global Advisor. FS Investments’ compensation structure is designed to align the interests of the investment personnel serving the Fund with those of stockholders and to give everyone a direct financial incentive to ensure that all of FS Investments’ resources, knowledge and relationships are utilized to maximize risk-adjusted returns for each strategy.
Each of FS Investments’ senior executives (other than Michael C. Forman, who is compensated through his ownership interests in FS Global Advisor and FS Investments’ other investment adviser entities), including each of the investment personnel who render services to the Fund on behalf of FS Global Advisor, receives a base salary and is eligible for a discretionary bonus. In addition to discretionary bonuses, investment professionals of FS Global Advisor are eligible to receive incentive compensation from FS Global Advisor based on the gross return of the Fund, taking into account, among other things, total net advisory fees received by and overhead and other expenses of FS Global Advisor.
All final compensation decisions are made by the executive committee of FS Investments based on input from managers. Base compensation and discretionary bonuses are not formulaic, but rather are judgment and merit driven, and are determined based on a combination of overall firm performance, individual contribution and performance and relevant market and competitive compensation practices for other businesses.
The compensation information disclosed within this subsection is as of December 31, 2023.
(a)(4)    The following table shows the dollar range of equity securities in the Fund beneficially owned by each member of FS Global Advisor’s investment committee as of December 31, 2023, based on the net asset value per share of the Fund’s common stock as of December 31, 2023.
Name of Investment Committee Member
Dollar Range of Equity Securities in the Fund(1)
Andrew BeckmanNone
Nicholas HeilbutNone
Robert Hoffman$50,001-$100,000
____________________
(1)Dollar ranges are as follows: None, $1—$10,000, $10,001—$50,000, $50,001—$100,000, $100,001—$500,000, $500,001—$1,000,000 or Over $1,000,000.
(b)    Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
The following table provides information concerning FSH Seed Capital Vehicle I LLC, a wholly-owned subsidiary of FS Investments, purchases of the Fund's common stock, par value $0.001 per share (“common stock”), during the year ended December 31, 2023. All amounts are in thousands, except share and per share amounts.
AFFILIATED PURCHASER PURCHASES OF EQUITY SECURITIES
Period
(a)
Total Number of Shares Purchased(1)
(b)
Average Price Paid per Share		(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d)
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
May 1 to May 31, 202378,000 $4.48 — $9,651
June 1 to June 30, 2023243,821 $4.59 — $8,536
Total321,821 $4.56 — 
____________________
(1)All shares of common stock were purchased by FSH Seed Capital Vehicle I LLC, a wholly-owned subsidiary of the Fund's sponsor, FS Investments, under a trading plan. FSH Seed Capital Vehicle I LLC’s plan provides for the purchase of an aggregate dollar value of the Fund's shares of common stock of $8,536 between July 12, 2023 and June 12, 2024. FSH Seed Capital Vehicle I LLC’s trading plan was entered into during an open insider trading window and was established to comply with Rule 10b5-1 and Rule 10b-18, and to qualify for the safe harbors thereunder, under the Securities Exchange Act of 1934, as amended, and the Fund’s policies regarding insider transactions. During the year ended December 31, 2023, all shares of common stock were purchased by FSH Seed Capital Vehicle I LLC; however, FSH Seed Capital Vehicle I LLC's purchases were made in open-market transactions, not pursuant to the share purchase plan.

Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which the Fund’s stockholders may recommend nominees to the Board during the period covered by the Annual Report included in Item 1(a) of this Form N-CSR.
Item 11. Controls and Procedures.
(a)The Fund’s principal executive officer and principal financial officer have evaluated the Fund’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act) as of a date within 90 days of the filing of this Form N-CSR and have concluded that the Fund’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported timely.
(b)There was no change in the Fund’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this Form N-CSR that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a)    Not applicable.
(b)    Not applicable.
Item 13. Exhibits.
(a)(3)    Not applicable.
(a)(4)    Not applicable.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FS Credit Opportunities Corp.
By:
/s/ MICHAEL C. FORMAN
Michael C. Forman
President and Chief Executive Officer
Date: February 29, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By:
/s/ MICHAEL C. FORMAN
Michael C. Forman
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 29, 2024
By:
/s/ EDWARD T. GALLIVAN, JR.
Edward T. Gallivan, Jr.
Chief Financial Officer
(Principal Financial Officer)
Date: February 29, 2024

FS CREDIT OPPORTUNITIES CORP. CODE OF BUSINESS CONDUCT AND ETHICS (August 2023)

 
INTRODUCTION Ethics are important to FS Credit Opportunities Corp. (the “Company, collectively with the Company, “our,” “us” or “we”) and to its management. The Company is committed to the highest ethical standards and to conducting its business with the highest level of integrity. All Access Persons (as defined herein) of the Company and all Access Persons and associated persons of the Company’s investment adviser, FS Global Advisor, LLC (the “Adviser”), are responsible for maintaining this level of integrity and for complying with the policies contained in this Code of Business Conduct and Ethics (this “Code”). If you have a question or concern about what is proper conduct for you or anyone else, please raise these concerns with the Company’s Chief Compliance Officer or any member of the Company’s management, or follow the procedures outlined in applicable sections of this Code. This Code has been adopted by the Boards of Trustees (collectively, the “Board”) of the Company in accordance with Rule 17j-l(c) under the Investment Company Act of 1940, as amended (the “1940 Act”), Item 406 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the May 9, 1994 Report of the Advisory Group on Personal Investing by the Investment Company Institute. Rule 17j-l generally describes fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by an investment company registered under the 1940 Act if effected by access persons of such a company. PURPOSE OF THIS CODE This Code is intended to: • help you recognize ethical issues and take the appropriate steps to resolve these issues; • deter ethical violations to avoid any abuse of a position of trust and responsibility; • maintain the confidentiality of our business activities; • assist you in complying with applicable securities laws; • assist you in reporting any unethical or illegal conduct; and • reaffirm and promote our commitment to a corporate culture that values honesty, integrity and accountability. Further, it is the policy of the Company that no affiliated person of our organization shall, in connection with the purchase or sale, directly or indirectly, by such person of any security held or to be acquired by the Company:

 
• employ any device, scheme or artifice to defraud us; • make any untrue statement of a material fact or omit to state to us a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading; • engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon us; or • engage in any manipulative practices with respect to our business activities. All Access Persons, as a condition of employment or service or continued employment or service to the Company and the Adviser, as applicable, will acknowledge annually, in writing, that they have received a copy of this Code, read it, and understand that this Code contains our expectations regarding their conduct. The Chief Compliance Officer, or his or her designee, is responsible for obtaining three quarterly certifications, along with one annual certification, from each Access Person and each Supervised Person, acknowledging that he/she has acted in accordance with the policies and procedures set forth in this Code during the time period and that each Access Person and Supervised Person has read and understands the Code. We are committed to fostering a culture of compliance. We, therefore, urge any Access Person or Supervised Person to contact the Chief Compliance Officer for any reason. No employee will be penalized, and their employment status will not be jeopardized by communicating with the Chief Compliance Officer. Reports of violations or suspected violations also may be submitted anonymously to the Chief Compliance Officer, by calling the employee hotline at 844-995-4986. Any retaliatory action taken against any person who reports a violation, or a suspected violation of this Code is itself a violation of this Code and cause for appropriate corrective action, including dismissal. Rule 21F-17(a) under the Securities and Exchange Act of 1934 states that no person may take any action to impede an individual from communicating directly with the Securities and Exchange Commission staff (“SEC”) about a possible securities law violation. Accordingly, if an employee of the Company or the Adviser prefers to do so, such employee may report suspected securities law violations directly to the SEC. PRINCIPLES OF BUSINESS CONDUCT All Access Persons of the Company and Access Persons and associated persons of the Adviser will be subject to the following guidelines covering business conduct, except as noted below: Conflicts of Interest You must avoid any conflict, or the appearance of a conflict, between your personal interests and our interests. A conflict exists when your personal interests in any way interfere with our interests, or when

 
you take any action or have any interests that may make it difficult for you to perform your job objectively and effectively. Corporate Opportunities Each of us has a duty to advance the legitimate interests of the Company when the opportunity to do so presents itself. Therefore, you may not: • take for yourself personally opportunities, including investment opportunities, discovered through the use of your position with us or the Adviser, or through the use of either’s property or information; • use our or the Adviser’s property, information, or position for your personal gain or the gain of a family member; or • compete, or prepare to compete, with us or the Adviser. Confidentiality You must not disclose confidential information regarding us, the Adviser, our affiliates, our lenders, our clients, or our other business partners, unless such disclosure is authorized or required by law. Confidential information includes all non-public information that might be harmful to, or useful to the competitors of, the Company, our affiliates, our lenders, our clients, or our other business partners. This obligation will continue until the information becomes publicly available, even after you leave FS Investments, as defined below. Fair Dealing You must endeavor to deal fairly with our customers, suppliers and business partners, and any other companies or individuals with whom we do business or come into contact, including fellow employees and our competitors. You must not take unfair advantage of these or other parties by means of: • manipulation; • concealment; • abuse of privileged information; • misrepresentation of material facts; or • any other unfair-dealing practice. Protection and Proper Use of Company Assets Our assets are to be used only for legitimate business purposes. You should protect our assets and ensure that they are used efficiently. Incidental personal use of telephones, cell phones, fax machines, copy machines, digital scanners, personal computers or tablets and similar equipment is generally allowed if there is no significant added cost to us, it does not interfere with your work duties, and is not related to an illegal activity or to any outside business.

 
Compliance with Applicable Laws, Rules and Regulations Each of us has a duty to comply with all laws, rules and regulations that apply to our business. The Company has an insider trading policy with which directors, managers, officers and Access Persons of the Company and the Adviser must comply. A copy of such Statement on the Prohibition of Insider Trading is included as Appendix I of the Company’s Compliance Manual. Please talk to our Chief Compliance Officer if you have any questions about how to comply with the above regulations and other laws, rules and regulations. In addition, we expect you to comply with all of our policies and procedures that apply to you. We may modify or update our policies and procedures in the future and may adopt new Company policies and procedures from time-to-time. Access persons who are employees of FS Investments are also expected to observe the terms of the Franklin Square Holdings, L.P. Code of Business Conduct and Ethics. Equal Opportunity; Harassment We are committed to providing equal opportunity in all of our employment practices including selection, hiring, promotion, transfer, and compensation of all qualified applicants and employees without regard to race, color, sex or gender, sexual orientation, religion, age, national origin, disability, citizenship status, marital status or any other status protected by law. With this in mind, there are certain behaviors that will not be tolerated. These include harassment, violence, intimidation, and discrimination of any kind involving race, color, sex or gender, sexual orientation, religion, age, national origin, disability, citizenship status, marital status, or any other status protected by law. Gifts and Entertainment Gifts can appear to compromise the integrity and honesty of our personnel. On the other hand, business colleagues often wish to provide small gifts to others as a way of demonstrating appreciation or interest. We have attempted to balance these considerations in the policy which follows. No Access Person employed by the Company or Access Person or associated person of the Adviser shall accept a gift that is over $200 in value or invitation that involves entertainment that is over $500 in value from any person or entity that does business with, is likely to do business with, or is soliciting business from, the Company or the Adviser excepts as follows: . (i) payment of out-of-town accommodation expenses by a sponsor of an industry, company or business conference held within the United States involving multiple attendees from outside the firm where your expenses are being paid by the sponsor on the same basis as those other attendees (Access Persons are required to obtain approval from the Chief Compliance Officer, or his or her designee, prior to accepting out-of-town accommodations or travel expenses); (ii) a business gift given to an Access Person from a business or corporate gift list on the same basis as other recipients of the sponsor and not personally selected for such Access Person (e.g., holiday gifts); and (iii) gifts from a sponsor to celebrate or acknowledge a transaction or event that are given to a wide group of recipients and not personally selected for the Access Person (e.g., closing dinner gifts, gifts given at an industry conference or seminar). As a general rule, Access Persons may not accept an invitation that is excessive (over $500 on a per person basis) or not usual and customary. If an Access Person believes the meal or entertainment might be excessive, he or she must obtain approval from the Chief Compliance Officer. Gifts to the Adviser as a whole or to an entire department (for example, accounting, analysts, etc.) may exceed the $200

 
limitation, but such gifts must be approved by the Chief Compliance Officer, or his or her designee. Access Persons who are employees of FS may also be subject to further restrictive limitations on gifts as outlined in the Franklin Square Holdings, L.P. Code of Business Conduct and Ethics.. Standards for giving gifts/entertainment are identical to those governing the acceptance of gifts/entertainment (that is, gifts given should be restricted to items worth $200 or less and entertainment provided should be restricted to amounts of $500 or less, subject to pre-approval from the Chief Compliance Officer, or his or her designee, as applicable). On the whole, good taste and judgment must be exercised in both the receipt and giving of gifts/entertainment. Every person subject to this Code must avoid gifts or entertainment that would compromise the Company’s or Adviser’s standing or reputation. If you are offered or receive any gift/entertainment which is either prohibited or questionable, you must inform the Chief Compliance Officer, or his or her designee. Outside Trustees are not subject to these requirements. All gifts/entertainment, received or given over a de minimus amount of $25, shall be reflected in the gift log (for FS Employees) using ComplySci, the online compliance portal on FS Inside and must contain a basic description of the gift, a good faith estimate of the value of the gift, and the date the gift was received or entertainment attended. Solicitation of gifts is strictly prohibited. The direct or indirect giving of, offering to give or promising to give, money or anything of value to a foreign official, a foreign political party or party official, or any candidate for foreign political office in order to corruptly obtain or retain a business benefit, is generally prohibited and is subject to additional requirements and limitations. If you intend to give, offer or promise such a gift, you must inform the Chief Compliance Officer, or his or her designee, immediately. Accuracy of Company Records We require honest and accurate recording and reporting of information in order to make responsible business decisions. This requirement includes such data as quality, safety, and personnel records, as well as financial records. All financial books, records and accounts must accurately reflect transactions and events, and conform both to required accounting principles and to our system of internal controls. Retaining Business Communications The law requires us to maintain certain types of corporate records, usually for specified periods of time. Failure to retain those records for those minimum periods could subject us to penalties and fines, cause the loss of rights, obstruct justice, place us in contempt of court, or seriously disadvantage us in litigation. From time-to-time we establish retention or destruction policies in order to ensure legal compliance. We expect you to fully comply with any published records retention or destruction policies, provided that you should note the following exception: If you believe, or we inform you, that our records are relevant to any litigation or governmental action, or any potential litigation or action, then you must preserve those records until we determine the records are no longer needed. This exception supersedes any

 
previously or subsequently established destruction policies for those records. If you believe that this exception may apply or have any questions regarding the possible applicability of this exception, please contact our Chief Compliance Officer. The personal records of Outside Trustees are not subject to these requirements. Please note that Ring Central is the Company’s only approved texting functionality. All business communications sent via text message must be sent through the Ring Central functionality. Compliance Training An integral part of the FS Investments’ compliance program is the periodic compliance training that is provided to all employees. It is important that you complete all such compliance training in a timely and thorough manner. Outside Employment Without the written consent of the Chief Compliance Officer of the Company, or his or her designee and your manager, no Access Person of the Company or Access Person or associated person of the Adviser is permitted to: • be engaged in any other financial services business for profit; • be employed or compensated by any other business for work performed; or • have a significant (more than 5% equity) interest in any other financial services business, including, but not limited to, banks, brokerages, investment advisers, insurance companies or any other similar business. Requests for outside employment waivers should be made in writing to the Chief Compliance Officer, or his or her designee, through the ComplySci compliance portal on FS Inside. Such requests should also include the written approval of your manager. Outside Trustees are not subject to these requirements but should give notice to the Chief Compliance Officer, or his or her designee prior to entering into any such engagement or employment. Service as a Director/Trustee No Access Person of the Company or Access Person or associated person of the Adviser shall serve as a director/trustee (or member of a similar governing body) or officer of any organization without prior written authorization from the Chief Compliance Officer, or his or her designee. Any request to serve on the board of such an organization must include the name of the entity and its business, the names of the other board members, and a general reason for the request. Such requests must be submitted through ComplySci, the online compliance portal on FS Inside. Outside Trustees are not subject to these requirements but should give notice to the Chief Compliance Officer, or his or her designee, prior to serving as a director/trustee or officer of any such organization.

 
Political Contributions Persons associated with the Company, the Adviser or any of their affiliated organizations are subject to FS Investments’ Political Contributions and Pay-to-Play Political Activity Policy. Please consult this policy for specific requirements relating to any proposed political contribution. Outside Trustees are not subject to the pre-clearance or annual disclosure requirements. Media Relations We must speak with a unified voice in all dealings with the press and other media. As a result, our Chief Executive Officer, or his or her designee, is the sole contact for media seeking information about the Company or the Adviser. Any requests from the media must be referred to our Chief Executive Officer, or his or her designee. Intellectual Property Information Information generated in our business is a valuable asset. Protecting this information plays an important role in our growth and ability to compete. Such information includes, but is not limited to: business and research plans; objectives and strategies; trade secrets; unpublished financial information; salary and benefits data; and lender and other business partner lists. Officer, principals and Access Persons of the Company and the Adviser who have access to our intellectual property information are obligated to safeguard it from unauthorized access and: • not disclose this information to persons outside of the Company; • not use this information for personal benefit or the benefit of persons outside of the Company; and • not share this information with other Access Persons of the Company and the Adviser except on a legitimate “need to know” basis. Internet and E-Mail Policy FS Investments provides an e-mail system and Internet access to its employees to help them do their work. You may use the e-mail system and the Internet only for legitimate business purposes in the course of your duties. Incidental and occasional personal use is permitted, but never for personal gain or any improper or illegal use. Further, you are permitted to post information on public forums, such as blogs or social networking sites (e.g., Facebook®, Twitter® or LinkedIn®) outside of work, but you should consider how the use of social media can reflect upon FS Investments. LinkedIn® postings should be limited to your title and general role within the Company. You may not, however, indicate that you work for us in a public forum if other information posted on that site could cause harm to our reputation. Moreover, information about us (or any interaction with another person) that is posted in a public forum might be construed by the U.S. Securities and Exchange Commission (the “SEC”) or its staff as an advertisement that is subject to strict regulations. Consequently, you are prohibited from posting information about us or your specific activities within the Company (other than your title and general role within the Company) in any public forum without the explicit pre-approval of the management team and the Chief Compliance Officer, or his or her designee.

 
You must also consult with the management team and the Chief Compliance Officer, or his or her designee, prior to posting any information in any public forum, where you could be viewed as acting in your capacity as an associated person of the Company. You are prohibited from sharing proprietary information about our operations or investment decisions, or posting any non-public information, in any public forum. You are required to comply, at all relevant times, with the Acceptable Use Policy adopted by FS Investments and applicable to the Company. You are required to comply, at all relevant times, with the Acceptable Use Policy and the Social Media Policy adopted by Franklin Square Capital Partners, L.P. and which is applicable to the Company and the Adviser. Reporting Violations and Complaint Handling You are responsible for compliance with the rules, standards and principles described in this Code. In addition, you should be alert to possible violations of this Code by the Company’s or the Adviser’s Access Persons or associated persons, and you are expected to report any violation promptly. Normally, reports should be made to your immediate supervisor. Under some circumstances, it may be impractical, or you may feel uncomfortable raising a matter with your supervisor. In those instances, you are encouraged to contact our Chief Compliance Officer who will investigate and report the matter to our Chief Executive Officer and/or the Board, as the circumstance dictates. You will also be expected to cooperate in any investigation of a violation. Anyone who has a concern about our conduct, the conduct of an Access Person of the Company or an Access Person or associated Person of the Adviser or our accounting, internal accounting controls or auditing matters, may communicate that concern to the Audit Committee of the Board by direct communication with our Chief Compliance Officer or by e-mail or in writing. All reported concerns shall be promptly forwarded to the Chairperson of the Audit Committee and will be simultaneously addressed by our Chief Compliance Officer in the same way that other concerns are addressed by us. The status of all outstanding concerns forwarded to the Chairperson of the Audit Committee will be reported on a quarterly basis by our Chief Compliance Officer. The Audit Committee may direct that certain matters be presented to the full Board and may also direct special treatment, including the retention of outside advisors or counsel, for any concern reported to it. All reports will be investigated and, whenever possible, requests for confidentiality shall be honored. While anonymous reports will be accepted, please understand that anonymity may hinder or impede the investigation of a report. All cases of questionable activity or improper actions will be reviewed for appropriate action, discipline or corrective actions. Whenever possible, we will keep confidential the identity of employees, officers, trustees or directors who are accused of violations, unless or until it has been determined that a violation has occurred. There will be no reprisal, retaliation or adverse action taken against any officer, trustee or Access Person of the Company or Access person or associated person of the Adviser who, in good faith, reports or assists in the investigation of, a violation or suspected violation, or who makes an inquiry about the appropriateness of an anticipated or actual course of action. For reporting concerns about the Company’s or the Adviser’s conduct, the conduct of an Access Person of the Company or Access Person or associated person of the Adviser, or about the

 
Company’s or the Adviser’s accounting, internal accounting controls or auditing matters, you may contact the Company at the address set forth below: ADDRESS: Chief Compliance Officer FS Credit Opportunities Corp. 201 Rouse Boulevard Philadelphia, PA 19112 In the case of a confidential, anonymous submission, employees should set forth their concerns in writing and forward them in a sealed envelope to the Chairperson of the Audit Committee, in care of our Chief Compliance Officer, such envelope to be labeled with a legend such as: “To be opened by the Audit Committee only.” An Access Person’s violation of this Code and related requirements may result in certain sanctions, as described more fully in Appendix A.

 
CODE OF ETHICS The persons specified in the following discussion will be subject to the provisions of this Code of Ethics (this “Code of Ethics”). Scope of this Code of Ethics In order to prevent the Company’s Access Persons or Access Persons or associated persons of the Adviser, as defined below, from engaging in any of these prohibited acts, practices or courses of business, the Company has adopted this Code of Ethics which has been approved by the Board. Definitions Access Person. “Access Person” means: (i) any director, trustee, officer, partner, employee or Advisory Person (as defined below) of the Company or any associate persons, officers, principals and interested directors of the Adviser and (ii) any director, trustee, officer or general partner of a principal underwriter of the Company who, in the ordinary course of business, has access to non-public information regarding the purchase or sale of Covered Securities (as defined below), or non-public information regarding the portfolio holdings of the Company or who is involved in making investment recommendations to the Company or who has access to such recommendations that are non-public. However, the term “Access Person” shall not include a Disinterested Trustee (as defined below). Access Persons will be classified under one of the following three categories: 1. A Tier 1 Access Person (“Tier 1 Access Person”) is defined as an individual, including Supervised Persons, engaged in portfolio management, trading, investment management and/or investment decision-making, and has access to non-public information, as well as information regarding the pipeline(s), purchases or sales of securities of one or more Clients. These roles include, but are not limited to, portfolio analysts, portfolio managers, and traders. 2. A Tier 2 Access Person (“Tier 2 Access Person”) is defined as an individual who has access to non-public information, but is not involved in portfolio management, trading, investment management and/or investment decision-making of the Adviser. 3. A Tier 3 Access Person (“Tier 3 Access Person”) is defined as an individual who does not meet the criteria of a Tier 1 Access Person or a Tier 2 Access Person, defined above. Advisory Person. “Advisory Person” of the Company means: (i) any officer, principal or associated person of the Adviser (or any Sub-adviser of the Company, if applicable) or of any company in a control relationship to the Company or such investment adviser, who, in connection with his or her regular duties, makes, participates in, or obtains information regarding the purchase or sale of a Covered Security (as defined below) by the Company, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Company or adviser who obtains information concerning recommendations made to the Company with regard to the purchase or sale of a Covered Security. An “Advisory Person” shall not include a Disinterested Trustee (as defined below).

 
Automatic Investment Plan. “Automatic Investment Plan” refers to any program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation, including a dividend reinvestment plan. Beneficial Interest. “Beneficial Interest” includes any entity, person, trust, or account with respect to which an Access Person exercises investment discretion or provides investment advice. A beneficial interest shall be presumed to include all accounts in the name of or for the benefit of the Access Person, his or her spouse, dependent children, or any person living with him or her or to whom he or she contributes economic support. Beneficial Ownership. “Beneficial Ownership” shall be determined in accordance with Rule 16a-1(a)(2) under the Exchange Act, except that the determination of direct or indirect Beneficial Ownership shall apply to all securities, and not just equity securities, that an Access Person has or acquires. Rule 16a-1(a)(2) provides that the term “beneficial owner” means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares a direct or indirect pecuniary interest in any equity security. Therefore, an Access Person may be deemed to have Beneficial Ownership of securities held by members of his or her immediate family sharing the same household, or by certain partnerships, trusts, corporations, or other arrangements. Blackout Period. “Blackout Period” shall mean that timeframe in which an Access Person or a Disinterested Trustee is not permitted to purchase or sell the securities of the Company. The Blackout Period is in affect at all times of the year except for during the Window Period (as defined below). Notwithstanding this prohibition, an Access Person or a Disinterested Trustee may purchase or sell securities of the Company during a Blackout Period if such transactions are made pursuant to a pre- existing written plan, contract, instruction, or arrangement under Rule 10b5-1 (“Approved 10b5-1 Plan” as that term is defined in the Statement on the Prohibition of Insider Trading located in Appendix I of the Company’s Compliance Manual). Only Tier 1 and Tier 2 Access Persons shall be subject to the Blackout Period and the corresponding Window Period (as defined below). Board. “Board” shall mean the Company’s Board of Trustees. Control. “Control” shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act. Covered Security. “Covered Security” means a security as defined in Section 2(a)(36) of the 1940 Act, except that it does not include: (i) direct obligations of the government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments including repurchase agreements; (iii) shares issued by registered open-end investment companies (i.e., mutual funds) (other than those sponsored by FS Investments); and (iv) exchange traded funds structured as unit investment trusts or open-end funds. A Covered Security also includes any cryptocurrency derivative and any currency forward transaction. Disinterested Trustee. “Disinterested Trustee” means a trustee of the Company who is not an “interested person” of the Company within the meaning of Section 2(a)(19) of the 1940 Act. The Chief Compliance Officer shall have discretion to determine whether a trustee should be treated as a “Disinterested Trustee” for purposes of this Code of Ethics.

 
Initial Public Offering. “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933, as amended (the “Securities Act”), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act. Limited Offering. “Limited Offering” means an offering that is exempt from registration under the Securities Act pursuant to Section 4(a)(2) or Section 4(a)(6) or pursuant to Rules 504, 505 or 506 under the Securities Act. Outside Trustee. “Outside Trustee” means any trustee of the Company other than Michael C. Forman. Purchase or Sale of a Covered Security. “Purchase or Sale of a Covered Security” is broad and includes, among other things, the writing of an option to purchase or sell a Covered Security, or the use of a derivative product to take a position in a Covered Security. Restricted List. The “Restricted List” identifies those securities which the Company or its Access Persons may not trade due to some restriction under the securities laws whereby the Company or its Access Persons may be deemed to possess material non-public information about the issuer of such securities. The Restricted List is inclusive of all restricted securities relating to the Company and any other investment vehicle sponsored by FS Investments and may include securities in which FS Investments has invested or is otherwise considering. Supervised Person. A “Supervised Person” means any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of any entity that provides investment advice on behalf of the Company and is subject to the supervision and control of the Company; provided, however, that the term “Supervised Person” shall not include a Disinterested Trustee. Window Period. “Window Period” shall mean that timeframe in which an Access Person or a Disinterested Trustee is permitted to purchase or sell securities of the Company. Typically, the Window Period begins at the opening of trading on the second business day following the earlier of the date on which the Company publicly release financial results designated by the Company’s Chief Compliance Officer or Chief Financial Officer, working together with the Adviser’s legal department, as sufficient to open the window period or the filing with the SEC of the Company’s annual and semi-annual certified shareholder reports on Form N-CSR or the Company’s Regulation S-X compliant portfolio schedule listing holdings as of March 31st or September 30th quarter ends attached as an exhibit to Form N-PORT, and extends for thirty (30) calendar days thereafter, provided that the window period of any quarter will end not later than the tenth (10th) calendar day prior to the beginning of the next quarter. As a result, it is possible that the window period for any quarter may, at times, be shorter than thirty (30) calendar days or not open at all. Should the end of the “window period” fall on a weekend, such window will be extended through the close of business on the following business day. Standards of Conduct 1. No Access Person, Supervised Person or Disinterested Trustee shall engage, directly or indirectly, in any business transaction or arrangement for personal profit that is not in the best interests of the Company or its shareholders; nor shall he or she make use of any confidential information gained by reason of his or her employment by or affiliation with the Company, or any of its affiliates, in order to derive

 
a personal profit for himself or herself or for any Beneficial Interest, in violation of the fiduciary duty owed to the Company and its shareholders. 2. A Tier 1 Access Person recommending or authorizing the purchase or sale of a Covered Security by the Company shall, at the time of such recommendation or authorization, disclose any Beneficial Interest in, or Beneficial Ownership of, such Covered Security or the issuer thereof. 3. No Access Person, Supervised Person or Disinterested Trustee shall dispense any information concerning securities holdings or securities transactions of the Company to anyone outside the Company without obtaining prior written approval from our Chief Compliance Officer, or such person or persons as our Chief Compliance Officer may designate to act on his or her behalf. Notwithstanding the preceding sentence, such Access Person may dispense such information without obtaining prior written approval: • when there is a public report containing the same information; • when such information is dispensed in accordance with compliance procedures established to prevent conflicts of interest between the Company and its affiliates; • when such information is reported to the Board; or • in the ordinary course of his or her duties on behalf of the Company. 4. All personal securities transactions should be conducted consistent with this Code of Ethics and in such manner as to avoid actual or potential conflicts of interest, the appearance of a conflict of interest, or any abuse of an individual’s position of trust and responsibility within the Company. 5. A pre-clearance of an Access Person’s personal security transaction shall be effective for two (2) business days following the receipt of the pre-clearance request. After such timeframe if the transaction is not completed, an Access Person shall be required to submit a new pre-clearance request through the ComplySci portal on FS Inside. 6. All Access Persons are required to comply with all of the provisions of the Code, as applicable. Only violations involving Tier 1 Access Persons and Tier 2 Access Persons shall be subject to the requirement that the Company’s Chief Compliance Officer report such violations to the Board. Restricted Transactions General Prohibition. No Access Person shall purchase or sell, directly or indirectly, any Covered Security (including any security issued by the issuer of such Covered Security) unless such Access Person shall have obtained prior written approval for such purpose from our Chief Compliance Officer, or his or her designee. 1. An Access Person who becomes aware that the Company is considering the purchase or sale of any Covered Security must immediately notify our Chief Compliance Officer, or his or her designee, of any interest that such Access Person may have in any outstanding Covered Security (including any security issued by the issuer of such Covered Security).

 
• An Access Person shall similarly notify our Chief Compliance Officer, or his or her designee, of any other interest or connection that such Access Person might have in or with such issuer. • Once an Access Person becomes aware that the Company is considering the purchase or sale of a Covered Security in its portfolio, such Access Person may not engage in any transaction in such Covered Security (including any security issued by the issuer of such Covered Security). Accordingly, any pre-clearance request by such Access Person with respect to such Covered Security will be denied. • The foregoing notifications or permission may be provided orally but should be confirmed in writing as soon and with as much detail as possible. 2. Securities Appearing on Portfolio Reports, Pipeline Reports and the Restricted List. The holdings of the Company’s portfolio are detailed in the Portfolio Report that will be updated, as necessary. Access Persons will receive, as frequently as necessary, the names of those entities that are being considered for investment by the Company in the Company’s Pipeline Report. 3. Initial Public Offerings and Limited Offerings. Access Persons of the Company must obtain approval from our Chief Compliance Officer, or his or her designee, before, directly or indirectly, acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering. 4. Securities Under Review. No Access Persons shall execute a securities transaction in any security issued by an entity that the Company owns in its portfolio or is considering for purchase or sale unless such Access Person shall have obtained prior written approval (pre- clearance) for such purpose from our Chief Compliance Officer, or his or her designee. 5. Trading in the Company’s Securities. No Access Person or Disinterested Trustee may purchase or sell (tender) the Company’s securities during a Blackout Period unless the purchase or sale is made pursuant to an Approved 10b5-1 Plan as that term is defined in the Company’s Statement on the Prohibition of Insider Trading (see Appendix I of the Company’s Compliance Manual). In addition, all other purchases and sales of the Company’s securities can only occur during an open Window Period. All purchases and sales of the Company’s securities during an open Window Period must be pre-cleared by the CCO or his or her designee using the Company’s online compliance portal, ComplySci. on “FS Inside,” the intranet website provided and maintained by the Company’s sponsor, FS Investments. See also the Company’s Statement on the Prohibition of Insider Trading. 6. Acquisition of Shares in Companies that Access Persons Hold Through Limited Offerings. Access Persons who have been authorized to acquire securities in a Limited Offering must disclose that investment to our Chief Compliance Officer, or his or her designee, when they are involved in the Company’s subsequent consideration of an investment in the issuer, and the Company’s decision to purchase such securities must be independently reviewed by Advisory Persons with no personal interest in that issuer.

 
Management of the Restricted List Our Chief Compliance Officer, or his or her designee, will manage placing and removing names from the Company’s Restricted List. Should an Access Person learn of material non-public information concerning the issuer of any security, that information must be provided to our Chief Compliance Officer, or his or her designee, so that the issuer can be included on the Restricted List. The Chief Compliance Officer will note the nature of the information learned, the time the information was learned and the other persons in possession of this information. The Chief Compliance Officer, or his or her designee, will maintain this information in a log. Upon the receipt of such information, our Chief Compliance Officer, or his designee, will revise the Restricted List. The Adviser, any affiliated investment advisers, or any non-discretionary sub-adviser (if applicable) will be directed to advise the Company when they have obtained information that causes them to be restricted from trading in the securities of any of the names appearing in the Company’s Pipeline or Portfolio Reports (as discussed above). This information will be provided to our Chief Compliance Officer, or his or her designee, who will add the name(s) to the Restricted List. Any non-discretionary Sub-Advisers (if applicable) or affiliated investment advisers, will also be required to notify the Company’s Chief Compliance Officer, or his or her designee, if they are restricted from trading in the securities of any of the issuers discussed with the Company for possible inclusion in the Company’s portfolio. The contents of the Restricted List are highly confidential and must not be disclosed to any person or entity outside of the Company absent approval of our Chief Compliance Officer, or his or her designee, or the Chief Executive Officer. Procedures to Implement this Code of Ethics The following reporting procedures have been established to assist Access Persons in avoiding a violation of this Code of Ethics, and to assist the Company in preventing, detecting and imposing sanctions for violations of this Code of Ethics. Every Access Person must follow these procedures. Questions regarding these procedures should be directed to our Chief Compliance Officer. All Access Persons are subject to the reporting requirements set forth in the next section, except as follows: • with respect to transactions effected for, and Covered Securities (including any security issued by the issuer of such Covered Security) held in, any account over which the Access Person has no direct or indirect influence or control; and • those transactions effected pursuant to an Automatic Investment Plan. Reporting Requirements The Company shall appoint a Chief Compliance Officer who shall furnish each Access Person with a copy of this Code of Ethics along with the other sections of this Code, and any amendments, upon commencement of employment by or affiliation with the Company or the Adviser and may distribute any updates to the Code via electronic means thereafter.

 
Each Access Person is required to certify, through a written acknowledgment, within 10 days of commencement of employment or affiliation with the Company or the Adviser, that he or she has received, read and understands all aspects of this Code of Ethics and recognizes that he or she is subject to the provisions and principles detailed herein. In addition, our Chief Compliance Officer shall notify each Access Person of his or her obligation to file an initial holdings report, quarterly transaction reports, and annual holdings reports, as described below. Pre-Clearance Requests Policy FS Investments and its personnel are subject to certain laws and regulations governing personal securities trading. The pre-clearance request process is designed to reasonably mitigate personal securities transactions from, intentionally or unintentionally, interfering or conflicting with the investment directives of FS Investments, its clients, and/or business partners. All Access Persons (as defined herein) of the Company, all Access Persons of the Adviser, and employees of Franklin Square Holdings L.P. are required to abide by the following pre-clearance policy. Note - Disinterested Trustees (as defined herein) of the Company are not required to pre-clear securities transactions. Pre-clearance approval from the Chief Compliance Officer, or his or her designee, must be obtained prior to entering into any securities transaction, unless such purchase or sale is made in the following plan or account type: • An approved 10b5-1 plan (as defined in the Statement on the Prohibition on Insider Trading). • A variable insurance contract held exclusively in a sub-account of an insurance company. • An account in which you have no direct or indirect influence or control over the account, or the securities held therein (such as, a managed account where you do not maintain discretion) is also exempt from the pre-clearance request requirements. Regardless of how owned, the following securities and investments do not require pre-clearance: • A bankers’ acceptances, bank certificates of deposit, commercial paper, and high-quality short- term debt instruments, including repurchase agreements. • A money market instrument. • An open-end fund/mutual fund (other than one sponsored by FS Investments) (Please be reminded that any product sponsored by FS Investments, regardless of its structure, must be pre- cleared and certain products sponsored by FS Investments may be subject to a black-out period.) • An exchange-traded fund. • A U.S. government security. Pre-clearance requests should be submitted using the online compliance portal, ComplySci, that can be accessed via FS Inside, the intranet website provided and maintained by the Company’s sponsor, FS Investments. The pre-clearance request shall include the following: • Name; • Date of the pre-clearance request; • The name of the broker who will execute the transaction;

 
• The name of the security, the type of security, and estimated trade value in dollars; and • Whether the transaction is a purchase or sale. In determining whether to approve the transaction, the Chief Compliance Officer, or his or her designee, will consider whether the opportunity to purchase or sell such securities creates an actual or potential conflict of interest or whether you are being offered the opportunity because of your position. The Chief Compliance Officer, or his or her designee, will document and communicate the approval or disapproval of each such request via the ComplySci portal. Initial Holdings Reports Each Access Person must, no later than 10 days after the person becomes an Access Person, submit to our Chief Compliance Officer, or his or her designee. a report of the Access Person’s current securities holdings. The information provided must be current as of a date no more than 45 days prior to the date the person becomes an Access Person. The report must include the following: • the title and type of the security and, as applicable, the exchange ticker symbol or CUSIP number, the number of shares held for each security, and the principal amount; • the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and • the date the Access Person submits the report. Quarterly Certifications Each Access Person must, no later than 30 days after the end of each calendar quarter, confirm to our Chief Compliance Officer, or his or her designee, all of the Access Person’s transactions involving a Covered Security (including any security issued by the issuer of such Covered Security) in which the Access Person had, or as a result of the transaction acquired, any direct or indirect Beneficial Ownership during the calendar quarter most recently ending. Disinterested Trustees must provide such confirmation or file such a report if such trustee knew or, in the ordinary course of fulfilling his or her official duties as a trustee of the Company, should have known that during the 15-day period immediately preceding or after the date of the transaction in a Covered Security by the trustee such Covered Security is or was purchased or sold by the Company or the Adviser or the Company or the Adviser considered purchasing or selling such Covered Security. The Access Person must confirm the following information: • the date of the transaction; • the title and, as applicable, the exchange ticker symbol or CUSIP number, of each reportable security involved, the interest rate and maturity date of each reportable security involved, the number of shares of each reportable security involved, and the principal amount of each reportable security involved; • the nature of the transaction (i.e., purchase, sale or other type of acquisition or disposition);

 
• the price of the security at which the transaction was effected; • the name of the broker, dealer or bank with or through which the transaction was effected, and the date the account(s) were established; and • the date the Access Person confirms such transactions or submits a report. With respect to any account established by an Access Person during the reporting quarter in which any Covered Securities were held for the direct or indirect benefit of the Access person, the Access Person must report (a) the name of the broker, dealer or bank with whom the Access Person established the account, (b) the date the account was established, and (c) the date the information is submitted. This certification will be sent to each Access Person via the ComplySci portal. Annual Certification Each Access Person must confirm to our Chief Compliance Officer, or his or her designee, an annual holdings report reflecting holdings as of a date no more than 45 days before the confirmation or report is submitted. The Annual Certification must be submitted at least once every 12 months, on a date to be designated by the Company. Our Chief Compliance Officer, or his or her designee, will notify every Access Person of the date. Each confirmation or report must include: • the title and, as applicable, the exchange ticker symbol or CUSIP number, of each reportable security involved, the interest rate and maturity date of each reportable security involved, the number of shares of each reportable security involved, and the principal amount of each reportable security involved; • the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and • the date the Access Person submits the confirmation or report. The annual certification request will be distributed to each Access Person via the ComplySci portal. All Access Persons and Disinterested Trustees must also annually certify, through a written acknowledgment, to our Chief Compliance Officer, or his or her designee, that: (1) they have read, understood and agree to abide by this Code of Ethics; (2) they have complied with all applicable requirements of this Code of Ethics; and (3) if required, they have reported all transactions and holdings that they are required to report under this Code of Ethics. ADMINISTRATION OF THIS CODE Our Chief Compliance Officer has overall responsibility for administering this Code and reporting on the administration of and compliance with this Code and related matters to our Board. Our Chief Compliance Officer shall review all reports to determine whether any transactions recorded therein constitute violations of this Code. Before making any determination that a violation has been committed by a person subject to this Code, such person shall be given an opportunity to supply

 
additional explanatory material. Our Chief Compliance Officer shall maintain copies of the reports as required by Rule 17j-1(f) under the 1940 Act. No less frequently than annually, our Chief Compliance Officer must furnish to the Board, and the Board must consider, a written report that describes any issues arising under this Code or its procedures since the last report to the Board, including, but not limited to, information about material violations of this Code or its procedures and any sanctions imposed in response to material violations. This report should also certify that the Company has adopted procedures reasonably designed to prevent persons subject to this Code from violating this Code. SANCTIONS FOR CODE VIOLATIONS All violations of this Code will result in appropriate corrective action, up to and including dismissal. See Appendix A for a description of sanctions that can result from such Code violations. APPLICATION/WAIVERS All Access Persons of the Company and all Access persons and associated persons of the Adviser are subject to this Code. Insofar as other policies or procedures of the Company or the Adviser govern or purport to govern the behavior or activities of all persons who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. Any amendment or waiver of this Code for an executive officer or member of the Board must be made by the Board and disclosed on Form N-CSR. RECORDS The Company shall maintain records with respect to this Code in the manner and to the extent set forth below, which records may be maintained on microfilm or electronic storage media under the conditions described in Rule 31a-2(f) under the 1940 Act and shall be available for examination by representatives of the SEC: 1. A copy of this Code and any other code of ethics of the Company that is, or at any time within the past five years has been, in effect shall be maintained in an easily accessible place; 2. A record of any violation of this Code and of any action taken as a result of such violation shall be maintained in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; 3. A copy of each report made by an Access Person or duplicate account statement received pursuant to this Code, shall be maintained for a period of not less than five years from the end of the fiscal year in which it is made or the information is provided, the first two years in an easily accessible place;

 
4. A record of all persons who are, or within the past five years have been, required to make reports pursuant to this Code, or who are or were responsible for reviewing these reports, shall be maintained in an easily accessible place; 5. A copy of each report made to the Board shall be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place; and 6. A record of any decision, and the reasons supporting the decision, to approve the direct or indirect acquisition by an Access Person of Beneficial Ownership in any securities in an Initial Public Offering or a Limited Offering shall be maintained for at least five years after the end of the fiscal year in which the approval is granted. REVISIONS AND AMENDMENTS This Code may be revised, changed or amended at any time by the Board. Following any material revisions or updates, an updated version of this Code will be distributed to you and will supersede the prior version of this Code effective upon distribution. We may ask you to sign an acknowledgement confirming that you have read and understood any revised version of this Code, and that you agree to comply with the provisions thereof.

 
E-1 Appendix A Code of Business Conduct and Ethics Sanctions Upon discovering a violation of the Code of Ethics (“Code”), FS Investments (“FS”) may impose sanctions as it deems appropriate, including, without limitation, a letter warning, disgorgement of profits, termination of trading privileges or suspension or termination of the Access Person, dependent, in part, on the materiality of the violation. A Material Violation includes any active trading violations (i.e., failure to pre-clear a trade, short-term trading, etc.). A Non-Material violation includes any reporting violations (e.g., not disclosing a new account within the required time frame, not certifying to transactions by the deadline). The schedule below is not all inclusive and is intended to serve as a guideline for the imposition of a sanction. Violations will be aggregated during a 12-month time period: Non-Material Violations: 1st Violation: Recorded warning to the Access Person that the Code has been violated and a review of the requirements of the Code. 2nd Violation: Written notification to the Access Person, with a copy to the Access Person’s supervisor and a review of the requirements of the Code. 3rd Violation: Written notification to the Access Person, Access Person’s Supervisor and to the CEO and CIO of the FS, as well as another review of the requirements of the Code. Material Violations: 1st Violation: Written notification to the Access Person that the Code has been violated, with a copy to the Access Person’s supervisor and a review of the requirements of the Code. 2nd Violation: Written notification to the Access Person, Access person’s Supervisor, CEO and CIO, as well as a 5-business day suspension of trading privileges. Compliance will review, with the Access Person, the requirements of the Code. 3rd Violation: Written notification to the Access Person, Access person’s Supervisor, CEO and CIO, as well as a 10-business day suspension of trading privileges. At this point, it will be up to the CCO, CIO, and CEO to determine whether one or more of the following are appropriate: a disgorgement of profits (such disgorgement to be donated to a mutually agreed-upon charity), termination of trading privileges, termination of the Access Person, and/or any other additional sanctions deemed appropriate.

 

Exhibit (a)(2)

CERTIFICATIONS
I, Michael C. Forman, certify that:
1.I have reviewed this report on Form N-CSR of FS Credit Opportunities Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 29, 2024
/s/ MICHAEL C. FORMAN
Michael C. Forman
Chief Executive Officer








CERTIFICATIONS
I, Edward T. Gallivan, Jr., certify that:
1.I have reviewed this report on Form N-CSR of FS Credit Opportunities Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 29, 2024
/s/ EDWARD T. GALLIVAN, JR.
Edward T. Gallivan, Jr.
Chief Financial Officer

G-2 FS CREDIT OPPORTUNITIES CORP. PROXY VOTING POLICIES AND PROCEDURES FS Credit Opportunities Corp., a Delaware statutory trust (the “Company”), has delegated its proxy voting responsibility to its investment adviser, FS Global Advisor, LLC (the “Adviser”). The Proxy Voting Policies and Procedures of the Adviser are set forth below. (The guidelines are reviewed periodically by the Adviser and the Company’s non-interested trustees, and, accordingly, are subject to change. Introduction As an investment adviser registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), the Adviser has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, the Adviser recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients. These policies and procedures for voting proxies for the investment advisory clients of the Adviser are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act. Proxy Policies The Adviser has retained ISS Governance Services (“ISS”) to assist in the proxy voting process. The Investment Management Team manages the Adviser’s relationship with ISS, and ensures that ISS votes all proxies according to the Company’s specific instructions and Adviser’s general guidance, and retains all required documentation associated with proxy voting. The Adviser requires ISS to notify the Adviser if ISS experiences a material conflict of interest in the voting of the Company’s proxies. The Adviser has adopted the following proxy voting procedures designed to ensure that proxies are properly identified and voted, and that any conflicts of interest are addressed appropriately: • The Adviser is made aware of specific opportunities to vote proxies by ISS • The authority to make proxy voting decisions of the Adviser is held by the Investment Committee, who is responsible for monitoring each of the Company’s investments. The Investment Committee may delegate its authority to vote proxies to one or more members of the Investment Management Team, including the Lead Portfolio Manager. • Absent specific instructions to the contrary, the Investment Committee votes the Company’s proxies according to recommendations made by ISS. Any investment professional who suggests deviating from these recommendations must provide the Adviser CCO with a written explanation of the reason for the deviation, as well as a representation that the employee and Adviser are not conflicted in making the chosen voting decision. • The Adviser’s Investment Committee has the ability to override any determinations made by the Investment Team or Lead Portfolio Manager with respect to voting the Company’s proxies, to the extent such authority has been delegated to such parties. The Adviser Chief Compliance Officer will maintain a memorandum detailing the rationale for any instance in which a decision

 
G-3 on how to vote a proxy was overridden. • The Adviser will not neglect its proxy voting responsibilities, but the Adviser may abstain from voting if it deems that abstaining is in the Company’s best interest. For example, the Adviser may be unable to vote securities that have been lent by the custodian. Also, proxy voting in certain countries involves “share blocking,” which limits the Adviser’s ability to sell the affected security during a blocking period that can last for several weeks. The potential consequences of being unable to sell a security may outweigh the benefits of participating in a proxy vote so the Adviser generally abstains from voting when share blocking is required. The Adviser Chief Compliance Officer will prepare and maintain memoranda describing the rationale for any instance in which the Adviser does not vote the Company’s proxy. • ISS will retain the following information in connection with each proxy vote: o The Issuer’s name; o The security’s ticker symbol or CUSIP, as applicable; o The shareholder meeting date; o The number of shares that Adviser voted; o A brief identification of the matter voted on; o Whether the matter was proposed by the Issuer or a security-holder; o Whether Adviser cast a vote; o How Adviser cast its vote (for the proposal, against the proposal, or abstain); and o Whether Adviser cast its vote with or against management. • While not currently applicable, if the Adviser votes the same proxy in two directions, the Adviser Chief Compliance Officer will maintain documentation describing the reasons for each vote (e.g., the Adviser believes that voting with management is in one Company’s best interests, but another Company gave specific instructions to vote against management). • Any attempt to influence the proxy voting process by issuers or others not identified in these policies and procedures should be promptly reported to the Adviser Chief Compliance Officer. • The Investment Committee reviews the Company’s proxy votes to ensure all votes cast by the Company are in compliance with the best interest of the Company’s shareholders. Fixed Income Securities In addition to covering the voting of equity securities, this policy also applies generally to voting and/or consent rights of fixed income securities, including but not limited to, plans of reorganization, waivers and consents under applicable indentures. However, the policy does not apply to consent rights that primarily entail decisions to buy or sell investments, such as tender or exchange offers, conversions, put options, redemption and Dutch auctions. This proxy policy is designed and implemented in a manner reasonably expected to ensure that voting and consent rights are exercised in the best interests of the Company’s shareholders.

 
G-4 For the voting of fixed income securities, the Adviser believes the potential for material conflicts of interest to arise between the interests of the Company and the interests of the Adviser is limited. However, there may be a potential for a conflict of interest which the Adviser or its related persons or entities may be a named party to, or participating in a bankruptcy work-out or other similar committee with respect to the issuer. In such instances, the Investment Management Team must notify the Adviser CCO or Deputy Adviser CCO prior to casting any decision on behalf of clients. In addition, neither the Adviser nor ISS will be able to vote for any securities on loan by an account. In the event that the Adviser is aware of a material vote on behalf of the Company and the Adviser has the ability to call back loans and is aware of the securities on loan by the custodian, the Adviser may call back the loan and vote the proxy if time permits. Proxy Voting Records Information regarding how the Adviser voted proxies with respect to the Company’s portfolio securities during the most recent 12-month period ending June 30 will be available without charge by making a written request to the Adviser’s Chief Compliance Officer, FS Credit Opportunities Corp., 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112 or by calling the Adviser collect at (215) 495-1150, or on the SEC’s website at http://www.sec.gov.

 

Exhibit (b)
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Certified Shareholder Report on Form N-CSR of FS Credit Opportunities Corp. (the “Fund”) for the year ended December 31, 2023, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Form N-CSR”), Michael C. Forman, as Chief Executive Officer of the Fund, and Edward T. Gallivan, Jr., as Chief Financial Officer of the Fund, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
•The Form N-CSR fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

•The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund.

Date: February 29, 2024
/s/ MICHAEL C. FORMAN
Michael C. Forman
Chief Executive Officer
/s/ EDWARD T. GALLIVAN, JR.
Edward T. Gallivan, Jr.
Chief Financial Officer

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