This $10 Million Bet Signals Confidence in Private Credit Despite Market Pressure

On May 12, 2026, Thomas J. Herzfeld Advisors, Inc. disclosed a significant buy of FS Credit Opportunities Corp. (NYSE:FSCO), acquiring 1,780,154 shares in a transaction estimated at $10.05 million based on quarterly average pricing.

What happened

According to a SEC filing dated May 12, 2026, Thomas J. Herzfeld Advisors, Inc. increased its position in FS Credit Opportunities Corp. by 1,780,154 shares during the first quarter. The estimated transaction value, based on the quarter’s average share price, was $10.05 million. The fund ended the quarter with 3,679,935 shares of FSCO, and the value of its stake rose by $6.80 million, a figure that incorporates both purchases and price movement.

What else to know

• This filing reflects a buy, with FSCO accounting for 6.38% of 13F reportable AUM after the trade
• Top five fund holdings after the quarter:
  • NYSE: FSSL: $35.14 million (12.0% of AUM)
  • NYSE: PDX: $27.65 million (9.4% of AUM)
  • NYSE: FSCO: $18.77 million (6.4% of AUM)
  • NYSE: HFRO: $15.51 million (5.3% of AUM)
  • NASDAQ: HERZ: $12.51 million (4.3% of AUM)
• As of May 11, 2026, FSCO shares were priced at $5.12, down 28% over one year and vastly underperforming the S&P 500, which is instead up about 26% in the same period.

Company Overview

Company Snapshot

• FSCO offers a diversified portfolio of global credit instruments, including secured and unsecured loans, bonds, and other fixed income securities.
• It operates an event-driven investment model focused on identifying undervalued credit opportunities, aiming to generate total return from corporate events such as mergers, acquisitions, and reorganizations.
• It primarily focuses on global credit markets, with an emphasis on the United States and Europe.

FS Credit Opportunities Corp. is a closed-end fund specializing in global credit investments, leveraging a flexible mandate to target undervalued opportunities across sectors. The company employs a disciplined, event-driven strategy to capture value from market inefficiencies and corporate catalysts. Its approach is designed to deliver attractive risk-adjusted returns and a high dividend yield for investors seeking income and diversified credit exposure.

What this transaction means for investors

FSCO shares have been hammered over the past year amid a tough stretch for private credit, but Herzfeld appears to be leaning into the weakness rather than running from it, likely attracted by the fund’s unusually high yield and discounted valuation.

The underlying portfolio still looks relatively defensive for a credit vehicle. Roughly 83% of holdings were invested in senior secured first-lien loans as of year-end, while 97% of new private credit investments during the fourth quarter were senior secured debt. The fund also said private credit represented 75% of portfolio fair value, up from 65% a year earlier.

Importantly, management says distributions remain fully covered by net investment income, with FSCO paying approximately $0.80 per share during 2025. At recent prices, the annualized distribution rate approached 15.6% based on market value.

For long-term investors, the appeal here is fairly straightforward: unusually high income combined with discounted exposure to private lending markets. The risk, of course, is that credit conditions deteriorate further. Even management acknowledged spreads remain historically tight despite elevated macro uncertainty and geopolitical risks. If defaults rise materially, yields that look attractive today could come with more downside than investors expect.

Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.