8-K: FS KKR Capital Corp. Announces Second Quarter 2024 Results and Declares $0.70 per Share Distribution

FS KKR Capital Corp. reported its second quarter 2024 financial results, including a net investment income of $0.77 per share and declared a third quarter distribution of $0.70 per share.

Summary

• FS KKR Capital Corp. announced its financial and operating results for the quarter ended June 30, 2024.
• The company reported a net investment income of $0.77 per share, slightly up from $0.76 per share in the previous quarter.
• Adjusted net investment income was $0.75 per share, compared to $0.73 per share in the prior quarter.
• The net asset value decreased to $23.95 per share from $24.32 per share as of March 31, 2024.
• The company experienced a total net realized and unrealized loss of $0.39 per share, compared to a loss of $0.14 per share in the previous quarter.
• Adjusted net realized and unrealized loss was $0.37 per share, compared to $0.11 per share in the prior quarter.
• Earnings per share were $0.37, down from $0.62 in the previous quarter.
• Total purchases were $1,260 million, while sales and repayments totaled $1,336 million.
• The net debt to equity ratio remained stable at 109% as of June 30, 2024.
• The company paid cash distributions to stockholders totaling $0.75 per share during the quarter.
• The board of directors declared a third quarter distribution of $0.70 per share, consisting of a base distribution of $0.64 per share and a supplemental distribution of $0.06 per share.
• The total fair value of investments was $14.1 billion, with 66% invested in senior secured securities.
• The weighted average annual yield on accruing debt investments was 12.3%, down from 12.5% in the previous quarter.
• Investments on non-accrual status represented 1.8% of the total investment portfolio at fair value, a decrease from 4.2% in the previous quarter.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the decrease in net asset value and increase in losses, although the company is maintaining distributions and reducing non-accrual investments. The results are mixed, with some positive and negative aspects.

Positives

• Net investment income per share increased slightly compared to the previous quarter.
• Adjusted net investment income per share also saw an increase.
• The company declared a third quarter distribution of $0.70 per share.
• Non-accrual investments decreased significantly, indicating improved portfolio health.
• The company's investment activity increased year-over-year.
• The company has a large portfolio of $14.1 billion with a significant portion in senior secured securities.

Negatives

• Net asset value per share decreased from $24.32 to $23.95.
• The company experienced a net realized and unrealized loss of $0.39 per share, a significant increase from the previous quarter's loss of $0.14 per share.
• Earnings per share decreased from $0.62 to $0.37 compared to the previous quarter.
• The weighted average annual yield on accruing debt investments decreased slightly from 12.5% to 12.3%.

Risks

• The company's performance is subject to economic changes, terrorism, natural disasters, and pandemics.
• Changes in laws and regulations could impact the company's operations.
• The price of the company's common stock is subject to market fluctuations.
• The company's future performance is not guaranteed and is subject to various uncertainties.

Future Outlook

The company expects to provide a minimum of $2.90 per share in distributions during 2024, but there is no guarantee of future distributions.

Management Comments

• Michael C. Forman, Chief Executive Officer & Chairman, stated that the second quarter was another solid quarter for FSK.
• He noted that the company generated $0.75 per share of Adjusted Net Investment Income, investment activity increased year-over-year, and workout teams reduced non-accrual investments.
• He also mentioned that the results enable the company to continue rewarding shareholders with attractive distributions.

Industry Context

FS KKR Capital Corp. operates as a business development company (BDC), which is a sector that provides financing to middle-market companies. The results reflect the current economic environment and the company's strategy in managing its investment portfolio.

Comparison to Industry Standards

• FS KKR Capital Corp.'s net investment income of $0.77 per share is within the range of other BDCs, but the decrease in net asset value and increase in net realized and unrealized losses may be a concern compared to peers.
• The company's non-accrual rate of 1.8% is better than some BDCs, indicating a healthier portfolio.
• The distribution yield of $0.70 per share is competitive, but the total return will depend on the company's ability to maintain its net asset value.
• Companies like Ares Capital Corporation (ARCC) and Main Street Capital (MAIN) are often used as benchmarks in the BDC sector, and a detailed comparison of their metrics would provide a more comprehensive view of FSK's performance.

Stakeholder Impact

• Shareholders will receive a third quarter distribution of $0.70 per share.
• The decrease in net asset value may negatively impact shareholder value.
• Employees are likely to be impacted by the company's overall performance.
• The company's performance may affect its relationships with its portfolio companies and other stakeholders.

Next Steps

• The company will host a conference call on August 7, 2024, to discuss the second quarter results.
• An investor presentation will be made available on the company's website prior to the conference call.
• The third quarter distribution of $0.70 per share will be paid on or about October 2, 2024.

Key Dates

Keywords

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