8-K: FS KKR Capital Corp. Announces Third Quarter 2024 Results, Declares $0.70 Dividend

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

Summary

• FS KKR Capital Corp. (FSK) announced its financial results for the quarter ended September 30, 2024.
• The company reported net investment income of $0.77 per share, consistent with the previous quarter.
• Adjusted net investment income was $0.74 per share, slightly down from $0.75 per share in the prior quarter.
• Net asset value decreased to $23.82 per share from $23.95 per share at the end of June 2024.
• The company experienced a total net realized and unrealized loss of $0.20 per share, an improvement from the $0.39 per share loss in the previous quarter.
• Adjusted net realized and unrealized loss was $0.17 per share, compared to $0.37 per share in the prior quarter.
• Earnings per share were $0.57, up from $0.37 in the previous quarter.
• Total purchases amounted to $1,136 million, while sales and repayments totaled $1,321 million, including $370 million in sales to a joint venture.
• The net debt to equity ratio remained stable at 109% as of September 30, 2024.
• FSK paid cash distributions to stockholders totaling $0.70 per share.
• The company's total fair value of investments was $13.9 billion, with 67% in senior secured securities.
• The weighted average annual yield on accruing debt investments was 11.9%, or 11.5% excluding merger accounting impacts, down from 12.3% and 12.0% respectively in the previous quarter.
• Investments on non-accrual status represented 1.7% of the total investment portfolio at fair value and 3.8% at amortized cost.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While there are some slight decreases in key metrics, the company outperformed its guidance, reduced non-accrual investments, and declared a consistent dividend. The management's optimism about future M&A activity also contributes to the positive sentiment.

Positives

• FSK outperformed its public guidance by earning $0.74 per share of Adjusted Net Investment Income.
• The company originated approximately $1.1 billion of new investments.
• Non-accrual investments were further reduced.
• The total net realized and unrealized loss improved to $0.20 per share from $0.39 per share in the previous quarter.
• Earnings per share increased to $0.57 from $0.37 in the previous quarter.

Negatives

• The net asset value per share decreased from $23.95 to $23.82.
• Adjusted net investment income per share decreased slightly from $0.75 to $0.74.
• The weighted average annual yield on accruing debt investments decreased from 12.3% to 11.9%.

Risks

• The company's performance is subject to economic changes, potential disruptions from terrorism, natural disasters, or pandemics.
• Changes in laws or regulations and conditions in the company's operating area could impact results.
• The price of FSK's common stock on the New York Stock Exchange is subject to market fluctuations.

Future Outlook

The company is optimistic that strong economic underpinnings will facilitate a potential increase in M&A activity in 2025.

Management Comments

• Michael C. Forman, Chief Executive Officer & Chairman, stated that FSK outperformed its public guidance by earning $0.74 per share of Adjusted Net Investment Income.
• Michael C. Forman also noted that the company originated approximately $1.1 billion of new investments and further reduced non-accrual investments.
• Management is optimistic about the potential for increased M&A activity in 2025 due to strong economic underpinnings.

Industry Context

This announcement reflects the performance of a business development company (BDC) in the current economic environment, focusing on providing credit solutions to middle market companies. The results are indicative of the challenges and opportunities in the private credit space, including interest rate fluctuations and credit risk management.

Comparison to Industry Standards

• FSK's net investment income of $0.77 per share is within the range of other BDCs, but the slight decrease in adjusted net investment income and NAV per share may be a concern for investors.
• The weighted average yield on accruing debt investments of 11.9% is competitive, but the decrease from 12.3% may indicate a shift in the portfolio or market conditions.
• The non-accrual rate of 1.7% at fair value is relatively low compared to some BDCs, suggesting effective credit management.
• Companies like Ares Capital Corporation (ARCC) and Main Street Capital (MAIN) are comparable BDCs, and their results should be compared to FSK's to assess relative performance.

Related Party Transactions

• The company sold $370 million of investments to its joint venture, Credit Opportunities Partners JV, LLC.

Stakeholder Impact

• Shareholders will receive a fourth quarter distribution of $0.70 per share.
• The company's performance impacts the value of shareholder investments.
• Employees are affected by the overall financial health and performance of the company.
• The company's investment activities impact the middle market companies they provide credit to.

Next Steps

• FSK will host a conference call on November 7, 2024, to discuss the third quarter results.
• The company will pay a fourth quarter distribution of $0.70 per share on or about December 18, 2024.

Key Dates

Keywords

Business Development Company, BDC, Investment Income, Net Asset Value, Dividend, Senior Secured Debt, Non-Accrual Investments, Credit, Middle Market, FS KKR Capital Corp