8-K: FS KKR Capital Corp. Announces First Quarter 2024 Results and Declares $0.75 per Share Distribution

FS KKR Capital Corp. reported its first quarter 2024 results, including a net investment income of $0.76 per share and declared a total second quarter distribution of $0.75 per share.

Summary

• FS KKR Capital Corp. (FSK) announced its financial results for the quarter ended March 31, 2024.
• The company reported a net investment income of $0.76 per share, compared to $0.71 per share in the previous quarter.
• Adjusted net investment income was $0.73 per share, slightly down from $0.75 per share in the prior quarter.
• The net asset value decreased to $24.32 per share from $24.46 per share at the end of December 2023.
• FSK experienced a total net realized and unrealized loss of $0.14 per share, an improvement from a loss of $0.39 per share in the previous quarter.
• The company's earnings per share were $0.62, up from $0.32 in the prior quarter.
• Total investment purchases were $1,444 million, while sales and repayments totaled $1,855 million.
• The net debt to equity ratio was 109%, down from 113% at the end of the previous quarter.
• FSK paid cash distributions to stockholders totaling $0.75 per share during the quarter.
• The board of directors declared a second quarter distribution of $0.70 per share, plus a previously declared special distribution of $0.05 per share, resulting in a total distribution of $0.75 per share.
• The total fair value of investments was $14.2 billion, with 65% invested in senior secured securities.
• The weighted average annual yield on accruing debt investments was 12.5%, slightly down from 12.7% in the previous quarter.
• Investments on non-accrual status decreased to 4.2% of the total investment portfolio at fair value, compared to 5.5% at the end of the previous quarter.

Sentiment

Score: 7

Explanation: The sentiment is positive due to increased net investment income, a strong distribution, and a decrease in non-accrual investments, although there are some negative aspects such as a decrease in net asset value and adjusted net investment income.

Positives

• Net investment income per share increased compared to the previous quarter.
• The company declared a total second quarter distribution of $0.75 per share.
• The net debt to equity ratio improved, decreasing to 109%.
• The percentage of investments on non-accrual status decreased, indicating improved portfolio health.
• The company made progress restructuring certain non-accruing investments.

Negatives

• Adjusted net investment income per share slightly decreased compared to the previous quarter.
• The net asset value per share decreased from $24.46 to $24.32.
• The company experienced a net realized and unrealized loss of $0.14 per share, although this was an improvement from the previous quarter.
• The weighted average annual yield on accruing debt investments slightly decreased.

Risks

• The company's performance is subject to economic changes and market conditions.
• There are risks associated with potential disruptions in operations due to terrorism, natural disasters, or pandemics.
• Future changes in laws or regulations could impact the company's performance.
• The price of the company's common stock on the New York Stock Exchange is subject to market fluctuations.
• The company's investments are subject to credit risk and may not perform as expected.

Future Outlook

The company believes the long-term earnings power of FSK continues to be healthy and they have confidence in their ability to continue to reward shareholders with attractive distributions. The company undertakes no obligation to update or revise any forward-looking statements.

Management Comments

• We had an active start to 2024, as FSK generated $0.73 per share of Adjusted Net Investment Income and an annualized ROE of 10%.
• During the first quarter our investment activity increased, our liquidity position remained strong, and we made significant progress restructuring certain non-accruing investments.
• We believe the long-term earnings power of FSK continues to be healthy, and we have confidence in our ability to continue to reward shareholders with attractive distributions.

Industry Context

FSK operates as a Business Development Company (BDC), which is a sector focused on providing financing to middle-market companies. The results reflect the current economic environment and the company's strategy in managing its portfolio of debt investments. The company's focus on senior secured debt is typical for BDCs seeking to manage risk.

Comparison to Industry Standards

• FSK's net investment income of $0.76 per share is within the range of other BDCs, but it is important to compare this to peers with similar investment strategies and portfolio compositions.
• The net debt to equity ratio of 109% is a key metric for BDCs, and FSK's ratio is within the typical range for the industry, but it is important to compare this to peers with similar investment strategies and portfolio compositions.
• The weighted average annual yield on accruing debt investments of 12.5% is a key metric for BDCs, and FSK's yield is within the typical range for the industry, but it is important to compare this to peers with similar investment strategies and portfolio compositions.
• Companies like Ares Capital Corporation (ARCC) and Main Street Capital (MAIN) are often used as benchmarks for BDC performance, and a detailed comparison of their metrics would provide further context.

Related Party Transactions

• The company sold $190 million of investments to its joint venture Credit Opportunities Partners JV, LLC.

Stakeholder Impact

• Shareholders will receive a total distribution of $0.75 per share for the second quarter.
• The company's performance impacts the value of its stock and the returns for investors.
• The company's investment activities affect the companies it provides financing to.

Next Steps

• The company will host a conference call on May 9, 2024, to discuss the first quarter results.
• The second quarter distribution of $0.70 per share will be paid on or about July 2, 2024.
• The company will continue to monitor its portfolio and make adjustments as needed.

Key Dates

Keywords

Business Development Company, BDC, Net Investment Income, Distribution, Net Asset Value, Debt Investments, Non-Accrual Status, Leverage, Financial Results, FS KKR Capital Corp