FS Credit Real Estate Income Trust Launches $1.02 Billion CLO
The structured transaction includes multiple note classes and aims to enhance financing flexibility.
February 24, 2025
FS Credit Real Estate Income Trust, Inc. (FS CREIT) has executed a $1.02 billion collateralized loan obligation (CLO), leveraging its subsidiary FS Rialto Sub-REIT LLC to structure the deal. The CLO closed on February 19, 2025, through FS Rialto 2025-FL10 Issuer, LLC, a newly formed entity handling the issuance.
Transaction Structure and Note Classes
The transaction includes six offered note classes and three non-offered classes, each structured with distinct risk and return characteristics. The Class A Notes, totaling approximately $580 million, received the highest credit ratings, while lower-tier classes carry increased risk exposure. The notes have a final maturity in August 2042 unless repaid or redeemed sooner.
Key Participants
FS CREIT will act as the collateral manager, overseeing the underlying portfolio of commercial real estate loans. Wilmington Trust is serving as the trustee, while Computershare Trust Company is managing administrative and custodial functions. The transaction was placed with the assistance of a syndicate of financial institutions, including:
- Goldman Sachs
- Barclays
- Wells Fargo Securities
- Citigroup
- Other participating firms
Use of Proceeds and Safeguards
Proceeds from the issuance were allocated toward acquiring an initial pool of collateral interests, refinancing existing obligations, and executing related investment strategies. The CLO structure incorporates safeguards to protect investors, including note protection tests designed to ensure that capital levels and interest coverage remain within required thresholds. If conditions fall below these levels, excess cash flow will be redirected to senior noteholders until compliance is restored.
Investor Flexibility and Tax Considerations
The deal also includes exchangeability provisions, allowing investors to convert certain note classes into proportionate interests in others. Additionally, the structure is expected to generate taxable income under the Internal Revenue Code’s taxable mortgage pool provisions. While FS CREIT intends to absorb these tax liabilities at the corporate level, the final treatment remains subject to interpretation.
Strategic Outlook
By issuing this CLO, FS CREIT aims to expand its financing capacity, enhance liquidity, and optimize its real estate investment strategy. The structure provides investors with access to a diversified pool of commercial mortgage assets, aligning with the firm’s broader approach to capital deployment.
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