FS Specialty Lending Fund Lures Investors with Double-Digit Yield

PHILADELPHIA, PA – January 12, 2026 – FS Specialty Lending Fund (NYSE: FSSL) captured the attention of income-seeking investors today by declaring its monthly distribution for January 2026. The fund announced a payout of $0.1375 per share, a figure that translates into a compelling annualized distribution yield of 11.7% based on its market price at the end of 2025.

Managed by Future Standard, a global alternative asset manager with $86 billion in assets, the distribution underscores the fund's focus on delivering high current income. While the 9.1% yield based on the fund's Net Asset Value (NAV) is also robust, the double-digit market yield is turning heads in a competitive landscape. However, behind the headline number lies a story of strategic transformation, a complex investment mandate, and a set of risks and rewards that warrant a closer look.

This announcement is more than a routine dividend declaration; it represents a milestone in the fund's new identity as a publicly traded vehicle providing access to the intricate world of non-traditional credit.

A New Chapter for an Evolving Fund

The FS Specialty Lending Fund of today is vastly different from its predecessor. The fund, which commenced trading on the New York Stock Exchange on November 13, 2025, was formerly known as FS Energy & Power Fund. That entity, as its name implied, was primarily focused on investments in private U.S. energy and power companies.

Beginning in 2023, the fund underwent a significant strategic overhaul, pivoting away from its concentrated energy portfolio toward a diversified credit strategy. This transition has been deliberate, with the fund actively rotating its holdings. As of the first quarter of 2025, diversified credit investments already constituted 88% of the portfolio, a clear indicator of its new direction. This shift was designed to enhance earnings power and provide more stable, diversified sources of income for shareholders.

Coinciding with its new strategy and public listing, FSSL has also changed its distribution policy. After previously paying quarterly dividends, the fund announced a move to a monthly payout schedule starting in January 2026. This shift to more frequent payments is often favored by income-oriented investors who rely on regular cash flow. The declared $0.1375 monthly distribution is the first under this new cadence, setting a benchmark for shareholders moving forward.

The Engine Room: Unpacking Alternative Credit

At the heart of FSSL’s high-yield potential is its specialized investment mandate. The fund operates as a Business Development Company (BDC), a type of publicly traded closed-end fund created by Congress to facilitate investment in smaller, developing, and financially troubled private companies.

FSSL's strategy is to generate current income and, secondarily, long-term capital appreciation by investing in a broad array of credit opportunities. Its focus areas include:

• Event-Driven Credit: Investing in the debt of companies undergoing specific corporate events like mergers, acquisitions, or restructurings.
• Special Situations: Capitalizing on unique or distressed circumstances, where traditional lenders may be unwilling to participate.
• Private Capital Solutions: Providing tailored, direct financing to private companies that lack access to public debt markets.

This strategy positions FSSL squarely within the booming private credit market, an asset class that has grown to nearly $2 trillion globally. As traditional banks have pulled back from lending to middle-market companies due to stricter capital requirements, non-bank lenders and BDCs like FSSL have stepped in to fill the void. For public investors, BDCs offer a liquid, exchange-traded vehicle to gain exposure to the otherwise illiquid and inaccessible world of private lending.

The Price of Yield: Risk and Reward

While an 11.7% market yield is attractive, sophisticated investors understand that higher returns are typically accompanied by higher risk. One of the most telling metrics for FSSL is its valuation. The fund's market price has been trading at a significant discount to its Net Asset Value (NAV) per share—the underlying value of its investment portfolio. As of early January 2026, this discount was over 20%.

This discount can be interpreted in two ways. On one hand, it may present a compelling value opportunity, allowing investors to buy into the fund's portfolio for less than its intrinsic worth and collect a higher effective yield. On the other hand, a persistent discount can signal market concerns about the quality of the underlying assets, the sustainability of the distribution, or the risks inherent in the fund's strategy.

Investors in FSSL must be aware of the specific risks associated with BDCs and the private credit market. These include:

• Credit Risk: The primary risk is that the companies FSSL lends to may default on their debt obligations, leading to a loss of principal and income for the fund.
• Illiquidity: While FSSL shares are publicly traded, its underlying investments in private companies are illiquid and cannot be easily sold. This can make it difficult for the fund to exit positions quickly in a downturn.
• Interest Rate Sensitivity: Changes in interest rates can affect the value of the fund's investments and the financial health of its portfolio companies.
• Leverage: BDCs often use leverage (borrowed money) to enhance returns, but this also magnifies potential losses.

What Investors Need to Know

For shareholders and prospective investors, understanding the practical implications of an FSSL investment is critical. The fund's distributions are not guaranteed and can be adjusted by the Board of Trustees based on portfolio performance and market conditions.

Furthermore, the tax treatment of the distributions is a key consideration. As a BDC that elects to be treated as a Regulated Investment Company (RIC), FSSL passes most of its income through to shareholders. Investors will receive a Form 1099-DIV at the end of the year, which will break down the character of the distributions. A significant portion is often taxed as ordinary income, which is subject to higher rates than qualified dividends. Some of the distribution may also be classified as a non-taxable return of capital, which reduces an investor's cost basis in their shares.

FSSL's journey is a reflection of a broader trend in financial markets: the democratization of alternative investments. Under the stewardship of Future Standard, the fund aims to leverage its manager's deep expertise in the U.S. middle market to uncover opportunities that others overlook. As with any high-yield instrument, a thorough review of the fund's filings and a clear understanding of its unique strategy are essential before committing capital.