Exhibit 10.7


 


INVESTMENT ADVISORY AGREEMENT


BETWEEN


FIFTH STREET SENIOR FLOATING RATE CORP.


AND


FIFTH STREET MANAGEMENT LLC


 


This Investment Advisory Agreement (this
“Agreement”) made this 27th day of June, 2013, by and between FIFTH STREET SENIOR FLOATING RATE CORP.,
a Delaware corporation (the “Company”), and FIFTH STREET MANAGEMENT LLC, a Delaware limited liability
company (the “Adviser”).


 


WHEREAS, the Company is a newly organized
closed-end management investment fund that intends to elect to be treated as a business development company (“BDC”)
under the Investment Company Act of 1940, as amended (the “Investment Company Act”); and


 


WHEREAS, the Adviser is registered under
the Investment Advisers Act of 1940, as amended (the “Advisers Act”); and


 


WHEREAS, the Company desires to retain the
Adviser to furnish investment advisory services to the Company on the terms and conditions hereinafter set forth, and the Adviser
wishes to be retained to provide such services;


 


NOW, THEREFORE, in consideration of the
premises and for other good and valuable consideration, the parties hereby agree as follows:


 


1. Duties of the Adviser.


 


(a) The Company hereby employs the Adviser
to act as the investment adviser to the Company and to manage the investment and reinvestment of the assets of the Company, subject
to the supervision of the Board of Directors of the Company, (the “Board”) for the period and upon the
terms herein set forth, (i) in accordance with the investment objective, policies and restrictions that are set forth in the reports
and/or registration statements that the Company files with the Securities and Exchange Commission (the “SEC”)
from time to time; (ii) during the term of this Agreement in accordance with all other applicable federal and state laws, rules
and regulations, and the Company's charter and by-laws; and (iii) in accordance with the Investment Company Act. Without limiting
the generality of the foregoing, the Adviser shall, during the term and subject to the provisions of this Agreement (A) determine
the composition of the portfolio of the Company, the nature and timing of the changes therein and the manner of implementing such
changes; (B) identify, evaluate and negotiate the structure of the investments made by the Company; (C) close, monitor and service
the Company's investments; (D) determine the securities and other assets that the Company shall purchase, retain, or sell; (E)
perform due diligence on prospective portfolio companies; and (F) provide the Company with such other investment advisory, research
and related services as the Company may, from time to time, reasonably require for the investment of its funds. The Adviser shall
have the power and authority on behalf of the Company to effectuate its investment decisions for the Company, including the execution
and delivery of all documents relating to the Company's investments and the placing of orders for other purchase or sale transactions
on behalf of the Company. In the event that the Company determines to obtain debt financing, the Adviser shall arrange for such
financing on the Company's behalf, subject to the oversight and approval of the Company's Board.


 


(b) The Adviser hereby accepts such employment
and agrees during the term hereof to render the services described herein for the compensation provided herein.


 


(c) The Adviser is hereby authorized to
enter into one or more sub-advisory agreements with other investment advisers (each, a “Sub-Adviser”)
pursuant to which the Adviser may obtain the services of the Sub-Adviser(s) to assist the Adviser in fulfilling its responsibilities
hereunder. Specifically, the Adviser may retain a Sub-Adviser to recommend specific securities or other investments based upon
the Company's investment objective and policies, and work, along with the Adviser, in structuring, negotiating, arranging or effecting
the acquisition or disposition of such investments and monitoring investments on behalf of the Company, subject to the oversight
of the Adviser and the Company. The Adviser and not the Company shall be responsible for any compensation payable to any Sub-Adviser.
Any sub-advisory agreement entered into by the Adviser shall be in accordance with the requirements of the Investment Company Act
and other applicable federal and state law.


 




    	 



    	 



    

 


(d) The Adviser shall, for all purposes
herein provided, be deemed to be an independent contractor and, except as expressly provided or authorized herein, shall have no
authority to act for or represent the Company in any way or otherwise be deemed an agent of the Company.


 


(e) Subject to review by and the overall
control of the Board of the Company, the Adviser shall keep and preserve for the period required by the Investment Company Act
any books and records relevant to the provision of its investment advisory services to the Company and shall specifically maintain
all books and records with respect to the Company's portfolio transactions and shall render to the Company's Board such periodic
and special reports as the Board may reasonably request. The Adviser agrees that all records that it maintains for the Company
are the property of the Company and shall surrender promptly to the Company any such records upon the Company's request, provided
that the Adviser may retain a copy of such records.


 


2. Company's Responsibilities and Expenses Payable by
the Company.


 


All personnel of the Adviser, when and to
the extent engaged in providing investment advisory services hereunder, and the compensation and routine overhead expenses of such
personnel allocable to such services, shall be provided and paid for by the Adviser and not by the Company. The Company shall bear
all other costs and expenses of its operations and transactions, including (without limitation) fees and expenses relating to:
offering expenses; the investigation and monitoring of the Company's investments; the cost of calculating the Company's net asset
value; the cost of effecting sales and repurchases of shares of the Company's common stock and other securities; management and
incentive fees payable pursuant to the investment advisory agreement; fees payable to third parties relating to, or associated
with, making investments and valuing investments (including third-party valuation firms); interest payments and other costs related
to borrowings; transfer agent and custodial fees; fees and expenses associated with marketing efforts (including attendance at
investment conferences and similar events); federal and state registration fees; any exchange listing fees; federal, state and
local taxes; independent directors' fees and expenses; brokerage commissions; costs of proxy statements, stockholders' reports
and notices; costs of preparing government filings, including periodic and current reports with the SEC; fidelity bond, liability
insurance and other insurance premiums; and printing, mailing, independent accountants and outside legal costs and all other direct
expenses incurred by either FSC, Inc. or the Company in connection with administering the Company's business, including payments
under the administration agreement dated as of June 27, 2013 (the “Administration Agreement”) that will
be based upon the Company's allocable portion of overhead and other expenses incurred by the Company's administrator, FSC, Inc.,
in performing its obligations under the Administration Agreement and the compensation of the Company's chief financial officer
and chief compliance officer, and their respective staffs.


 


3. Compensation of the Adviser.


 


The Company agrees to pay, and the Adviser
agrees to accept, as compensation for the services provided by the Adviser hereunder, a base management fee (“Base
Management Fee”) and an incentive fee (“Incentive Fee”) as hereinafter set forth. The Adviser
may agree to temporarily or permanently waive, in whole or in part, the Base Management Fee and/or the Incentive Fee. See Appendix
A for examples of how these fees are calculated.


 


(a) The Base Management Fee shall be calculated
at an annual rate of 1.00% of the Company's gross assets, including any investments made with borrowings, but excluding any cash
and cash equivalents. For purposes of this Agreement, the term “cash and cash equivalents” will have the meaning ascribed
to it from time to time in the notes to the financial statements that the Company files with the SEC. The Base Management Fee shall
be payable quarterly in arrears, and shall be calculated based on the average value of the Company's gross assets at the end of
the two most recently completed quarters. The Base Management Fee for any partial month or quarter shall be appropriately prorated.


 







    	 



    	 



    

 


(b) The Incentive Fee shall consist of two
parts, as follows:


 


		(i)	The first part shall be calculated and payable quarterly in arrears
based on the Company's “Pre-Incentive Fee Net Investment Income'' for the immediately preceding quarter. For this purpose,
''Pre-Incentive Fee Net Investment Income'' means interest income, dividend income and any other income (including any other fees
(other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees
or other fees that the Company receives from portfolio companies) accrued during the quarter, minus the Company's operating expenses
for the quarter (including the Base Management Fee, expenses payable under the Administration Agreement with FSC, Inc., and any
interest expense and dividends paid on any issued and outstanding preferred stock, 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 payment-in-kind interest and zero coupon securities), accrued income that the Company 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. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the
Company's net assets at the end of the immediately preceding quarter, shall be compared to a ''hurdle rate'' of 1.5% per quarter
(6% annualized), subject to a ''catch-up'' provision measured as of the end of each quarter. The Company's net investment income
used to calculate this part of the incentive fee is also included in the amount of the Company's gross assets used to calculate
the 1% base management fee. The operation of the incentive fee with respect to the Company's Pre-Incentive Fee Net Investment Income
for each quarter is as follows:



 


		•	No incentive fee is payable to the Adviser in any quarter in which
the Company's Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.5% (the ''preferred return'' or ''hurdle'').



 


		•	50% of the Company's Pre-Incentive Fee Net Investment Income with
respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than
or equal to 2.5% in any quarter (10% annualized) is payable to the Adviser. This portion of the Pre-Incentive Fee Net Investment
Income (which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the “catch-up.” The “catch-up”
provision is intended to provide the Adviser with an incentive fee of 20% on all of the Company's Pre-Incentive Fee Net Investment
Income as if a hurdle rate did not apply when the Company's Pre- Incentive Fee Net Investment Income exceeds 2.5% in any quarter.



 


		•	20% of the amount of the Company's Pre-Incentive Fee Net Investment
Income, if any, that exceeds 2.5% in any quarter (10% annualized) is payable to the Adviser once the hurdle is reached and the
catch-up is achieved, (20% of all Pre-Incentive Fee Net Investment Income thereafter is allocated to the Adviser).



 


		(ii)	The second part of the incentive fee shall be determined and payable
in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date),
commencing on September 30, 2013 and shall equal 20% of the Company's realized capital gains, if any, on a cumulative basis from
inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation
on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.



 


4. Covenants of the Adviser.


 


The Adviser covenants that it will maintain
its registration as an investment adviser under the Advisers Act. The Adviser agrees that its activities will at all times be in
compliance in all material respects with all applicable federal and state laws governing its operations and investments.


 


5. Brokerage Commissions.


 


The Adviser is hereby authorized, to the
fullest extent now or hereafter permitted by law, to cause the Company to pay a member of a national securities exchange, broker
or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of
such exchange, broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith, taking
into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty
of execution, and operational facilities of the firm and the firm's risk and skill in positioning blocks of securities, that such
amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member,
broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to the Company's
portfolio, and constitutes the best net results for the Company.


 




    	 



    	 



    

 


6. Other Activities of the Adviser.


 


The services of the Adviser to the Company
are not exclusive, and the Adviser may engage in any other business or render similar or different services to others including,
without limitation, the direct or indirect sponsorship or management of other investment based accounts or commingled pools of
capital, however structured, having investment objectives similar to those of the Company, so long as its services to the Company
hereunder are not impaired thereby, and nothing in this Agreement shall limit or restrict the right of any manager, partner, member
(including its members and the owners of its members), officer or employee of the Adviser to engage in any other business or to
devote his or her time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any
fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to,
one or more of the Company's portfolio companies, subject to applicable law). So long as this Agreement or any extension, renewal
or amendment remains in effect, the Adviser shall be the only investment adviser for the Company, subject to the Adviser's right
to enter into sub-advisory agreements. The Adviser assumes no responsibility under this Agreement other than to render the services
called for hereunder. It is understood that directors, officers, employees and stockholders of the Company are or may become interested
in the Adviser and its affiliates, as directors, officers, employees, partners, stockholders, members, managers or otherwise, and
that the Adviser and directors, officers, employees, partners, stockholders, members and managers of the Adviser and its affiliates
are or may become similarly interested in the Company as stockholders or otherwise.


 


7. Responsibility of Dual Directors, Officers and/or Employees.


 


If any person who is a manager, partner,
member, officer or employee of the Adviser is or becomes a director, officer and/or employee of the Company and acts as such in
any business of the Company, then such manager, partner, member, officer and/or employee of the Adviser shall be deemed to be acting
in such capacity solely for the Company, and not as a manager, partner, member, officer or employee of the Adviser or under the
control or direction of the Adviser, even if paid by the Adviser.


 


8. Limitation of Liability of the Adviser; Indemnification.


 


The Adviser (and its officers, managers,
partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other
person or entity affiliated with the Adviser) shall not be liable to the Company for any action taken or omitted to be taken by
the Adviser in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment
adviser of the Company (except to the extent specified in Section 36(b) of the Investment Company Act concerning loss resulting
from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation
for services, and the Company shall indemnify, defend and protect the Adviser (and its officers, managers, partners, members (and
their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated
with the Adviser, each of whom shall be deemed a third party beneficiary hereof) (collectively, the “Indemnified Parties”)
and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys' fees and
amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including an action or suit by or in the right of the Company or its security
holders) arising out of or otherwise based upon the performance of any of the Adviser's duties or obligations under this Agreement
or otherwise as an investment adviser of the Company. Notwithstanding the preceding sentence of this Section 8 to the contrary,
nothing contained herein shall protect or be deemed to protect the Indemnified Parties against or entitle or be deemed to entitle
the Indemnified Parties to indemnification in respect of, any liability to the Company or its security holders to which the Indemnified
Parties would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the Adviser's
duties or by reason of the reckless disregard of the Adviser's duties and obligations under this Agreement.


 


9. Effectiveness, Duration and Termination of Agreement.


 


This Agreement shall become effective as
of the date above written. This Agreement shall remain in effect for two years from the date hereof, and thereafter shall
continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually
by (a) the vote of the Company's Board, or by the vote of a majority of the outstanding voting securities of the Company and (b)
the vote of a majority of the Company's directors who are not parties to this Agreement or “interested persons” (as
such term is defined in Section 2(a)(19) of the Investment Company Act) of any such party, in accordance with the requirements
of the Investment Company Act and each of whom is an “independent director” under applicable New York Stock Exchange
listing standards. This Agreement may be terminated at any time, without the payment of any penalty, upon 60 days' written notice,
by the vote of a majority of the outstanding voting securities of the Company, or by the vote of the Company's directors or by
the Adviser. This Agreement shall automatically terminate in the event of its “assignment” (as such term is defined
for purposes of Section 15(a)(4) of the Investment Company Act). The provisions of Paragraph 8 of this Agreement shall remain in
full force and effect, and the Adviser shall remain entitled to the benefits thereof, notwithstanding any termination of this Agreement.


 




    	 



    	 



    

 


10. Notices.


 


Any notice under this Agreement shall be
given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.


 


11. Amendments.


 


This Agreement may be amended by mutual
consent.


 


12. Entire Agreement; Governing Law.


 


This Agreement contains the entire agreement
of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof.
Notwithstanding the place where this Agreement may be executed by any of the parties hereto, this Agreement shall be construed
in accordance with the laws of the State of New York. For so long as the Company is regulated as a BDC under the Investment Company
Act, this Agreement shall also be construed in accordance with the applicable provisions of the Investment Company Act. In such
case, to the extent the applicable laws of the State of New York, or any of the provisions herein, conflict with the provisions
of the Investment Company Act, the latter shall control. To the fullest extent permitted by law, in the event of any dispute arising
out of the terms and conditions of this Agreement, the parties hereto consent and submit to the jurisdiction of the courts of the
State of New York in the county of New York and of the U.S. District Court for the Southern District of New York.


 




    	 



    	 



    

 


IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed on the date above written.


 


	 	FIFTH STREET SENIOR FLOATING

RATE CORP.
	 	 	 
	 	By:	/s/ Bernard D. Berman
	 	 	Name: Bernard D. Berman
	 	 	Title: President
	 	 	 
	 	FIFTH STREET MANAGEMENT LLC
	 	 	 
	 	By:	/s/ Bernard D. Berman
	 	 	Name: Bernard D. Berman
	 	 	Title: President


 




    	 



    	 



    

 


Appendix A


 


Example 1: Income Related Portion of Incentive Fee for Each
Quarter 

 


Scenario 1 

 


Assumptions 

 


Investment income (including interest, dividends,
fees, etc.) = 1.25%


Hurdle rate(1) = 1.5%


Management fee(2) = 0.25%


Other expenses (legal, accounting, custodian,
transfer agent, etc.)(3) = 0.2%


Pre-Incentive Fee Net Investment Income


(investment income - (management fee + other
expenses) = 0.80%


Pre-Incentive Fee Net Investment Income does
not exceed hurdle rate, therefore there is no income-related incentive fee.

 


Scenario 2 

 


Assumptions 

 


Investment income (including interest, dividends,
fees, etc.) = 2.65%


Hurdle rate(1) = 1.5%


Management fee(2) = 0.25%


Other expenses (legal, accounting, custodian,
transfer agent, etc.)(3) = 0.2%


Pre-Incentive Fee Net Investment Income


(investment income - (management fee + other
expenses) = 2.2%


Incentive fee = 50% × Pre-Incentive
Fee Net Investment Income (subject to “catch-up”)(4)


= 50% × (2.2% - 1.5%)


= 0.35%


Pre-Incentive Fee Net Investment Income exceeds
the hurdle rate, but does not fully satisfy the “catch-up” provision, therefore the income related portion of the incentive
fee is 0.35%.

 


Scenario 3 

 


Assumptions 

 


Investment income (including interest, dividends,
fees, etc.) = 3.25%


Hurdle rate(1) = 1.5%


Management fee(2) = 0.25%


Other expenses (legal, accounting, custodian,
transfer agent, etc.)(3) = 0.2%


Pre-Incentive Fee Net Investment Income


(investment income - (management fee + other
expenses) = 2.8%


Incentive fee = 50% × Pre-Incentive
Fee Net Investment Income (subject to “catch-up”)(4)


 


Incentive fee = 50% × “catch-up”
+ (20% × (Pre-Incentive Fee Net Investment Income - 2.5%))

 


Catch up = 2.5% - 1.5%

 


= 1.0%


 


Incentive fee = (50% × 1.0%) + (20%
× (2.8% - 2.5%))

 


= 0.50% + (20% × 0.3%)

 


= 0.50% + 0.06%

 


= 0.56%


 


Pre-Incentive Fee Net Investment Income exceeds
the hurdle rate, and fully satisfies the “catch-up” provision, therefore the income related portion of the incentive
fee is 0.56%.


 




    	 



    	 



    

 


		(1)	Represents 6% annualized hurdle rate.



 


		(2)	Represents 1% annualized base management fee.



 


		(3)	Excludes organizational expenses and the expenses of our initial public
offering, as these amounts will be paid by Fifth Street Management on our behalf.



 


		(4)	The “catch-up” provision is intended to provide our investment
adviser with an incentive fee of 20% on all Pre- Incentive Fee Net Investment Income as if a hurdle rate did not apply when our
net investment income exceeds 2.5% in any quarter.



 


Example 2: Capital Gains Portion of Incentive Fee(*): 

 


Scenario 1: 

 


Assumptions 

 


Year 1: $20 million investment made in Company
A (“Investment A”), and $30 million investment made in Company B (“Investment B”)


Year 2: Investment A sold for $50 million
and fair market value (“FMV”) of Investment B determined to be $32 million


Year 3: FMV of Investment B determined to
be $25 million


Year 4: Investment B sold for $31 million


 


The capital gains portion of the incentive
fee would be:

 


Year 1: None


Year 2: Capital gains incentive fee of $6
million - ($30 million realized capital gains on sale of Investment A multiplied by 20%)


Year 3: None - $5 million (20% multiplied
by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains
fee paid in Year 2)


Year 4: Capital gains incentive fee of $200,000
- $6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (capital gains incentive fee taken
in Year 2)

 


Scenario 2 

 


Assumptions 

 


Year 1: $20 million investment made in Company
A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment
made in Company C (“Investment C”)


Year 2: Investment A sold for $50 million,
FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million


Year 3: FMV of Investment B determined to
be $27 million and Investment C sold for $30 million


Year 4: FMV of Investment B determined to
be $24 million


Year 5: Investment B sold for $20 million


 


The capital gains incentive fee, if any,
would be:

 


Year 1: None


Year 2: $5 million capital gains incentive
fee - 20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on
Investment B)


Year 3: $1.4 million capital gains incentive
fee(1) - $6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized
capital depreciation)) less $5 million capital gains incentive fee received in Year 2


Year 4: None


 




    	 



    	 



    

 


Year 5: None - $5 million (20% multiplied
by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million
cumulative capital gains incentive fee paid in Year 2 and Year 3(2)


 


		*	The hypothetical amounts of returns shown are based on a percentage
of our total net assets and assume no leverage. There is no guarantee that positive returns will be realized and actual returns
may vary from those shown in this example.



 


		(1)	As illustrated in Year 3 of Scenario 1 above, if we were to be wound
up on a date other than our fiscal year end of any year, we may have paid aggregate capital gains incentive fees that are more
than the amount of such fees that would be payable if we had been wound up on our fiscal year end of such year.



 


		(2)	As noted above, it is possible that the cumulative aggregate capital
gains fee received by our investment adviser ($6.4 million) is effectively greater than $5 million (20% of cumulative aggregate
realized capital gains less net realized capital losses or net unrealized depreciation ($25 million)).