July 19, 2011

Equity Research
Fifth Street Finance Corp.
FSC:Previews Earnings Miss, But Shows Strong Expected CQ3 Growth Summary. Fifth Street provided CQ2 2011 earnings guidance of $0.24-0.26 per share, below consensus estimates of $0.28 per share, but in line with our $0.25 per share estimate. The primary driver of the CQ2 2011 earnings miss is lowerthan-expected portfolio originations. In CQ2 2011, FSC announced that it funded $116MM of loans on a gross basis, well below our $215MM expectation. That said, FSC announced it had already closed $51MM of loans QTD, and we believe this puts the company on strong footing for an origination beat in CQ3 2011. Prepayment activity remains the key question in investors minds, and it is our view that FSC will exhibit lower prepayment speeds relative to the BDC peer group. As a result, we would expect FSC earnings to accelerate in CH2 2011 as portfolio growth/financial leverage increase. Action Item. We would continue to accumulate shares of FSC at the current price level. In CQ2 2011, we expect FSC will demonstrate that it has the ability to meaningfully grow leverage and the investment portfolio without additional equity capital. Furthermore, we believe the CH2 2011 spread environment is much more conducive to loan investors and we expect this will drive interest income, fee revenue, and NOI higher. Thus, we expect that in CH2 2011 FSC will follow a upward price trend similar to the BDC average in 2010. See Figure 1. Note that this 25% increase in BDC prices occurred from July to December 2010 (the S&P 500 rose 22%) and was driven by three key environmental factors: (1) increased loan/ investment volumes, (2) stable credit spreads, and (3) limited defaults/losses. Based on our review of industry trends/volumes/spreads, we expect a similar environment to play out in 2011. Thus, we believe investors should focus on perceived beta plays (i.e. FSC) at discounted valuations (i.e. high dividend yields and/or low P/B). Valuation Range: $14.00 to $15.00 Based on FSC's fundamental factor score in our BDC value scorecard, we believe the stock should trade our estimated BDC earnings yield range of 8.6-9.1%. This implies a valuation range of $14-15 per share based on our 2012 NOI estimate. Risks to our valuation range include repayment risk, an extended period of capital markets illiquidity, or significant deterioration in credit quality. Investment Thesis: Our outlook for FSC is predicated on the belief that the company is better positioned than many of its peers, especially with regards to capital, growth and portfolio structuring.

Outperform
Sector: BDC/RIC Overweight Company Note
2010A CASH EPS Q1 (Dec.) Q2 (Mar.) Q3 (June) Q4 (Sep.) FY CY FY P/E Rev.(MM) $0.22 0.26 0.26 0.21 $0.95 $0.99 11.8x $69 2011E Curr. Prior NC $0.26 A 0.27 A NC 0.25 NC 0.28 NC $1.06 NC $1.11 10.6x $117 2012E Curr. Prior $0.31 NC 0.32 NC 0.32 NC 0.32 NC $1.26 NC NE 8.9x $185

Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful V = Volatile, = Company is on the Priority Stock List

Cash EPS is net operating income (NOI) per share.

Ticker Price (07/19/2011) 52-Week Range: Shares Outstanding: (MM) Market Cap.: (MM) S&P 500: Avg. Daily Vol.: Dividend/Yield: LT Debt: (MM) LT Debt/Total Cap.: ROE: 3-5 Yr. Est. Growth Rate: CY 2011 Est. P/CASH EPS-toGrowth: Last Reporting Date:

FSC $11.20 $9-14 66.7 $747.0 1,316.99 936,001 $1.28/11.4% $138.0 16.0% 10.0% 5.0% 2.0x 05/04/2011 After Close

Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters

(443) 263-6521 / joel.houck@wellsfargo.com

Joel Houck, CFA, Senior Analyst

(443) 263-6410 / jonathan.bock@wellsfargo.com

Jonathan Bock, CFA, Associate Analyst

Please see page 3 for rating definitions, important disclosures and required analyst certifications
Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.

Specialty Finance

WELLS FARGO SECURITIES, LLC EQUITY RESEARCH DEPARTMENT

Company Description:
Fifth Street Finance Corp. (FSC) is a business development company (BDC) regulated under the Investment Company Act of 1940. FSC lends to and invests in small and mid-sized companies with annual revenues between $25 million and $250 million in connection with investments by private equity sponsors. FSC will primarily invest in debt securities but may also invest in equity where appropriate. FSC completed its IPO in June 2008. Figure 1 WFBDC Index Price Action (2010 Present)
140 135 130 125 120 115 110 105 100 95 90 85 80 75 Feb Jan Jun Jul Mar May Oct Nov Aug Dec Sep Apr
2 0 11 No te that as institutio nal lo an vo lumes / M &A activity increased in 201 B DC prices increased 25% fro m 0, July-1 to Dec-1 0 0. 2 0 10

Source: Wells Fargo Securities, LLC

Fifth Street Finance Corp.

WELLS FARGO SECURITIES, LLC EQUITY RESEARCH DEPARTMENT

Required Disclosures
F ifth S treet F in an ce C o rp. (F S C ) 3-yr. P rice P erfo rm an ce rp .
$16.00 $15.00 $14.00 $13.00 $12.00 $11.00 $10.00 $9.00

Security Price

$8.00 $7.00 $6.00 $5.00 $4.00 8/13/08 12/3/08 8/12/09 9/8/10 3/23/11 12/30/09 12/29/10 12/31/08 7/13/11 9/10/08 10/8/08 5/20/09 1/27/10 3/24/10 5/19/10 6/16/10 8/11/10 12/1/10 1/26/11 4/20/11 5/18/11 11/5/08 11/4/09 7/16/08 3/25/09 4/22/09 6/17/09 7/15/09 12/2/09 2/24/10 4/21/10 7/14/10 1/28/09 2/25/09 10/7/09 10/6/10 11/3/10 2/23/11 9/9/09 6/15/11

Date
Date 7/21/2008 7/21/2008 8/8/2008 1/15/2009 6/1/2009 7/27/2009 12/29/2009 2/2/2010 2/5/2010 4/14/2010 6/28/2010 8/6/2010 2/15/2011 2/16/2011 4/26/2011 6/13/2011 Publication Price ($) 8.78 9.77 6.90 9.75 9.96 10.71 10.97 13.09 11.74 10.42 13.60 13.36 11.96 Rating Code Shanahan 1 1 1 1 1 1 1 Harris 1 1 1 Houck 1 1 1 Val. Rng. Low 10.00 11.00 9.00 10.00 11.00 12.00 13.00 14.00 13.00 12.00 13.00 16.00 14.00 Val. Rng. High 11.00 12.00 10.00 11.00 12.00 13.00 14.00 15.00 14.00 13.00 15.00 17.00 15.00 Close Price ($) 7.47 7.79 6.36 9.20 9.30 10.95 10.95 13.09 11.64 10.32 13.67 13.31 11.51

Source: W ells Fargo Securities, LLC estimates and Reuters data Sym bol Key Rating Downgrade Rating Upgrade Valuation Range Change Initiation, Resumption, Drop or Suspend Analyst Change Split Adjustment Rating Code Key 1 Outperform/Buy 2 Market Perform/Hold 3 Underperform/Sell SR NR NE Suspended Not Rated No Estimate

Additional Information Available Upon Request

I certify that: 1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and 2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report. Wells Fargo Securities, LLC maintains a market in the common stock of Fifth Street Finance Corp. Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for Fifth Street Finance Corp. within the past 12 months. Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from Fifth Street Finance Corp. Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from Fifth Street Finance Corp. in the past 12 months. Fifth Street Finance Corp. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to Fifth Street Finance Corp. Fifth Street Finance Corp. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related

Specialty Finance

WELLS FARGO SECURITIES, LLC EQUITY RESEARCH DEPARTMENT

services to Fifth Street Finance Corp. An affiliate of Wells Fargo Securities, LLC has received compensation for products and services other than investment banking services from Fifth Street Finance Corp. in the past 12 months. Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from Fifth Street Finance Corp. in the past 12 months. Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in Fifth Street Finance Corp. The analyst responsible for covering Fifth Street Finance Corp. has an investment interest in a hedge fund that may invest in the securities or options mentioned in this report. The analyst does not direct any investment decisions made by the fund.Wells Fargo Securities, LLC and affiliate policy prohibits research personnel from disclosing a rating, recommendation or investment thesis for review by an issuer or investor prior to the publication of a research report containing such rating, recommendation or investment thesis. Materials prepared by Wells Fargo Securities, LLC and affiliate research personnel are based on public information. Wells Fargo Securities, LLC and its affiliates prohibit analysts, their associates and members of their households from maintaining a direct financial interest in the securities or options of any company that the analyst covers except in limited circumstances as permitted by Wells Fargo Securities, LLC and affiliate policy. FSC: Risks to our valuation range include repayment risk, an extended period of capital markets illiquidity, or significant deterioration in credit quality. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLCs research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not limited to investment banking revenue.

STOCK RATING

1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY 2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD 3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL

SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.

VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading. As of: July 19, 2011 46% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Outperform. 51% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Market Perform. 3% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Underperform. Wells Fargo Securities, LLC has provided investment banking services for 44% of its Equity Research Outperform-rated companies. Wells Fargo Securities, LLC has provided investment banking services for 49% of its Equity Research Market Perform-rated companies. Wells Fargo Securities, LLC has provided investment banking services for 46% of its Equity Research Underperform-rated companies.

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Fifth Street Finance Corp.

WELLS FARGO SECURITIES, LLC EQUITY RESEARCH DEPARTMENT

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SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE