10-K: FS KKR Capital Corp. Reports Annual Results for 2024

FS KKR Capital Corp. releases its 10-K filing, detailing its financial performance and investment portfolio as of December 31, 2024.

Summary

• FS KKR Capital Corp. (FSK) has released its 10-K filing for the fiscal year ended December 31, 2024.
• The company is an externally managed, non-diversified, closed-end management investment company regulated as a BDC and intending to qualify as a RIC.
• As of December 31, 2024, FSK had total assets of approximately $14.2 billion.
• The investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation.
• FSK primarily invests in senior secured loans and second lien secured loans of private middle market U.S. companies.
• The Adviser employs a defensive investment approach focused on long-term credit performance and preservation of principal.
• The company also co-invests with South Carolina Retirement Systems Group Trust (SCRS) through Credit Opportunities Partners JV, LLC (COPJV).
• As of December 31, 2024, COPJV had total capital commitments of $2.6 billion, $2.3 billion of which was from FSK and $0.3 billion of which was from SCRS.
• As of December 31, 2024, FSK had funded approximately $1.6 billion of its commitment to COPJV.
• As of December 31, 2024, FSKs investment in COPJV was approximately $1.4 billion at fair value.
• For the year ended December 31, 2024, the total return based on net asset value was 8.50% and the total return based on market value was 25.29%.

Sentiment

Score: 6

Explanation: The document is a factual report of the company's financial performance and investment portfolio. While the company reports positive returns, it also acknowledges various risks and challenges. Overall, the sentiment is neutral.

Positives

• The company has a defensive investment approach focused on long-term credit performance and preservation of principal.
• FSK has a large, scalable, global platform with seasoned investment professionals.
• The company has long-standing relationships and international capital market capabilities to source investments.
• FSK is focused on larger middle-market companies and customized one-stop credit solutions.
• The company has a long-term investment horizon.
• FSK has the ability to create bespoke financing solutions through asset-based opportunities.
• The company maintains portfolio diversification.

Negatives

• The company operates in a highly competitive market for investment opportunities.
• FSK is subject to regulatory restrictions in making investments.
• The company may be obligated to pay the Adviser incentive compensation on income that it has not received.
• There is a risk that investors in the company's common stock may not receive distributions.
• Portions of the distributions that the company makes may represent a return of capital to stockholders.
• The company's shares of common stock may trade at a discount to net asset value.

Risks

• If the investment advisory agreement were to be terminated, or if the Adviser loses any members of its senior management team, the company's ability to achieve its investment objectives could be significantly harmed.
• The inability of the Adviser to generate investment opportunities through relationships with private equity sponsors, investment banks and commercial banks could adversely affect the company's business.
• The company operates in a highly competitive market for investment opportunities.
• The Small Business Credit Availability Act, or SBCA Act, allows the company to incur additional leverage.
• Failure to safeguard the security of the company's data could compromise its ability to conduct business.
• The Adviser and its affiliates face conflicts of interest as a result of arrangements between the company and the Adviser and related to obligations the Adviser and its affiliates have to the company's affiliates and to other clients.
• The company may be obligated to pay the Adviser incentive compensation on income that it has not received.
• The company may face additional competition because employees of the Adviser are not prohibited from raising money for or managing another entity that makes the same types of investments that the company targets.
• Failure to maintain the company's status as a BDC would reduce its operating flexibility.
• The company's ability to acquire investments may be adversely affected if it cannot obtain financing.
• The requirement that the company invest a sufficient portion of its assets in qualifying assets could preclude it from investing in accordance with its current business strategy; conversely, the failure to invest a sufficient portion of its assets in qualifying assets could result in its failure to maintain its status as a BDC.
• Inflation may adversely affect the business, results of operations and financial condition of the company's portfolio companies.
• The company's investments in prospective portfolio companies may be risky, and it could lose all of its investment.
• The company's investments in private investment funds subject it indirectly to the underlying risks of such private investment funds and additional fees and expenses.
• There may be circumstances where the company's debt investments could be subordinated to claims of other creditors or it could be subject to lender liability claims. If there is a default, the value of any collateral securing the company's debt investments may not be sufficient to repay in full both the other creditors and the company.
• Declines in market values or fair market values of the company's investments could result in significant net unrealized depreciation of its portfolio, which in turn would reduce its net asset value.
• A significant portion of the company's investment portfolio does not have a readily available market price and is and will be recorded at fair value in accordance with policies and procedures approved by its board of directors and, as a result, there is and will be uncertainty as to the value of its portfolio investments.
• The company is exposed to risks associated with changes in interest rates.
• The company's investments may include original issue discount and PIK instruments.
• The company may from time to time enter into derivative transactions which expose it to certain risks.
• The company currently incurs indebtedness to make investments, which magnifies the potential for gain or loss on amounts invested in its common stock and may increase the risk of investing in its common stock.
• The agreements governing the company's debt financing arrangements contain various covenants which, if not complied with, could have a material adverse effect on its ability to meet its investment obligations.
• There is a risk that investors in the company's common stock may not receive distributions.
• Portions of the distributions that the company makes may represent a return of capital to stockholders.
• The company's shares of common stock may trade at a discount to net asset value and it may issue shares at prices below its then-current net asset value.
• The company may pay distributions from offering proceeds, borrowings or the sale of assets.
• Certain provisions of the company's charter and bylaws as well as provisions of the Maryland General Corporation Law, or the MGCL, could deter takeover attempts and have an adverse impact on the value of its common stock.
• Holders of any preferred stock that the company issues will have the right to elect members of the board of directors.
• Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect the debt and equity capital markets, which may have a negative impact on the company's business and operations.
• Future economic recessions or downturns could impair the company's portfolio companies and harm its operating results.
• Events outside of the company's control, including public health crises, could negatively affect its portfolio companies and its results of operations.
• If a period of capital market disruption and instability continues for an extended period of time, there is a risk that investors in the company's equity securities may not receive distributions consistent with historical levels or at all or that its distributions may not grow over time and a portion of its distributions may be a return of capital.
• Uncertainty about federal government initiatives could negatively impact the company's business, financial condition and results of operations.
• Economic sanction laws in the United States and other jurisdictions may prohibit the company and its affiliates from transacting with certain countries, individuals and companies.

Future Outlook

The Adviser will seek to tailor the company's investment focus as market conditions evolve and may increase or decrease exposure to less senior portions of the capital structures of its portfolio companies or otherwise make opportunistic investments.

Industry Context

The document provides insight into the competitive landscape of the BDC sector, highlighting the increasing competition for investment opportunities and the need for specialized expertise in lending to middle-market companies.

Comparison to Industry Standards

• The document does not provide a direct comparison to industry standards.
• However, it mentions that the company competes with other BDCs, investment funds, commercial and investment banks, and private equity and hedge funds.
• It also notes that some competitors may have lower costs of capital, access to funding sources not available to the company, and higher risk tolerances.

Related Party Transactions

• The company has entered into agreements with the Adviser to provide it with investment advisory and administrative services.
• The company reimburses the Adviser for expenses necessary to perform services related to its administration and operations, including the Advisers allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR Credit providing administrative services to the company on behalf of the Adviser.

Stakeholder Impact

• The company's performance and investment decisions directly impact its stockholders, who rely on the company for income and capital appreciation.
• The company's portfolio companies are affected by its investment decisions and its ability to provide them with capital and managerial assistance.
• The company's lenders and creditors are affected by its ability to comply with covenants and repay its debt obligations.

Next Steps

• The Adviser will seek to tailor the company's investment focus as market conditions evolve.
• The company intends to make sufficient distributions to its stockholders to qualify for and maintain its RIC tax status each tax year.

Key Dates

Keywords

FS KKR Capital Corp, Financial Results, Investment Portfolio, Business Development Company, Senior Secured Loans, Second Lien Loans, Capital Appreciation, Credit Opportunities Partners JV, Net Asset Value, Market Value, Financial Performance, Investments, BDC, RIC