10-Q: FS KKR Capital Corp. Reports Q2 2026 Results

FS KKR Capital Corp. reported a net loss of $475 million for the six months ended June 30, 2026, a significant decrease from the prior year's net loss of $89 million, with net asset value per share declining to $18.30.

Summary

• FS KKR Capital Corp. reported a net loss of $475 million for the six months ended June 30, 2026, compared to a net loss of $89 million for the same period in 2025.
• Net investment income decreased to $239 million for the six months ended June 30, 2026, down from $360 million in the prior year.
• Net asset value per share decreased to $18.30 as of June 30, 2026, from $20.89 as of December 31, 2025.
• The company issued 6,000,000 shares of Cumulative Convertible Perpetual Preferred Stock, Series A, on June 29, 2026, raising $150 million.
• Total investments at fair value decreased to $11,418 million as of June 30, 2026, from $13,009 million as of December 31, 2025.
• The company repurchased approximately $4 million of its common stock during the six months ended June 30, 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to a significant decrease in net investment income and a substantial net loss for the period, alongside a decline in net asset value per share.

Positives

• The company issued $150 million in preferred stock, strengthening its capital position.
• The company has $3,052 million in available borrowings under its financing arrangements.
• The weighted average annual yield on accruing debt investments was 9.8% as of June 30, 2026.

Negatives

• Net loss for the six months ended June 30, 2026, was $475 million, a significant increase from $89 million in the prior year.
• Net investment income decreased by 33.6% to $239 million for the six months ended June 30, 2026, compared to $360 million in the prior year.
• Net asset value per share decreased from $20.89 at the end of 2025 to $18.30 at the end of Q2 2026.
• Total investments decreased by $1,591 million from $13,009 million at year-end 2025 to $11,418 million at June 30, 2026.
• The company experienced a net change in unrealized depreciation on investments of $455 million for the six months ended June 30, 2026.
• The company has $1,110.5 million in unfunded debt commitments as of June 30, 2026.

Risks

• The company's ability to pay dividends on and/or repurchase shares of Convertible Preferred Stock may be limited by Maryland law, the 1940 Act, and the terms of its debt facilities.
• Purchases of common stock under the Company Share Repurchase Authorization may have the effect of maintaining the market price of our common stock at levels above those that would otherwise prevail.
• Repurchases will diminish our cash reserves, which could impact our ability to finance future growth and to pursue possible future strategic opportunities.
• The company is subject to interest rate risk, as a significant portion of its investments are variable rate and its borrowings are at floating rates.
• The company faces foreign currency risk on investments denominated in foreign currencies.
• The company is subject to litigation from purported stockholders alleging materially false and/or misleading statements and/or omissions concerning portfolio valuations, restructuring, and distribution strategy.

Future Outlook

The company's future outlook is impacted by its ability to manage its investment portfolio, control expenses, and navigate market conditions. The issuance of preferred stock and ongoing share repurchase program are key strategic actions. The company intends to maintain its qualification as a RIC and BDC.

Management Comments

• The decrease in expenses during the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 can primarily be attributed to a decrease in management fees and interest expense as a result of the lower asset base and leverage during the three and six months ended June 30, 2026, in addition to the reduction in subordinated income incentive fees as a result of lower investment income as discussed above and the partial waiver of such subordinated income incentive fee during the three months ended June 30, 2026.
• The decrease in interest and PIK income during the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 is primarily attributable to a reduction in the size of our investment portfolio, in addition to the Company placing certain assets on non-accrual status during the three and six months ended June 30, 2026.
• The net change in unrealized appreciation (depreciation) on investments during the six months ended June 30, 2026 was driven primarily by reduced valuations of certain portfolio companies during the six months ended June 30, 2026, including COPJV, Production Resources Group and Medallia Inc.

Industry Context

StockSavvy.ai notes that FS KKR Capital Corp. operates as a Business Development Company (BDC) in the middle-market lending space. The filing reflects typical industry challenges such as managing portfolio quality, interest rate sensitivity, and the impact of economic conditions on borrowers. The company's strategy involves direct originations and a focus on senior secured loans, which are generally considered less risky within the debt capital structure.

Comparison to Industry Standards

• The weighted average annual yield on accruing debt investments of 9.8% as of June 30, 2026, is competitive within the BDC industry, though specific comparisons depend on the risk profile of the underlying portfolio.
• The company's leverage ratio, indicated by asset coverage of 179% for senior securities representing indebtedness, is within regulatory limits but higher leverage can amplify both gains and losses compared to less leveraged peers.
• The significant increase in net unrealized depreciation on investments for the period suggests potential underperformance relative to peers that may have better managed their portfolio valuations or had more resilient underlying investments.

Legal Proceedings

• A purported stockholder, Calvin Stuart, filed a securities class action complaint alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 regarding portfolio valuations, restructuring, and distribution strategy.
• A purported stockholder, Theodore Goodman, filed a shareholder derivative complaint asserting breach of fiduciary duties and other claims against officers and directors related to internal controls and misleading statements.
• A purported stockholder, Larry Jones, filed a derivative complaint against the Adviser for breach of fiduciary duty under Section 36(b) of the 1940 Act, alleging excessive fees.
• A purported stockholder, Employees Retirement System of the City of St. Louis, filed a derivative complaint against the Adviser for breach of fiduciary duty under Section 36(b) of the 1940 Act, alleging excessive fees.

Related Party Transactions

• The Adviser receives a base management fee and an incentive fee based on performance.
• The Adviser is reimbursed for administrative expenses incurred on behalf of the Company.
• The Adviser waived 50% of the subordinated income incentive fee for fiscal quarters ending June 30, 2026, through March 31, 2027.
• The Company issued $150 million of Convertible Preferred Stock to KKR Alternative Assets L.P.

Stakeholder Impact

• Common stockholders may experience dilution upon conversion of preferred stock or if shares are repurchased at prices below NAV.
• Preferred stockholders are entitled to priority in dividends and liquidation preferences.
• The company's ability to pay distributions to common stockholders may be impacted by its financial performance and regulatory requirements.
• The ongoing litigation could potentially impact the company's reputation and financial resources.

Next Steps

• Continue to manage the investment portfolio to generate current income and capital appreciation.
• Monitor and manage unfunded commitments and available liquidity.
• Evaluate market conditions for potential share repurchases under the authorized program.
• Continue to manage interest rate and foreign currency risks through hedging strategies.
• Respond to ongoing legal proceedings.

Key Dates

Recommendation

The significant increase in net loss, decrease in net investment income, decline in net asset value per share, and substantial unrealized depreciation on investments indicate deteriorating financial performance. The company's substantial debt and unfunded commitments, coupled with ongoing litigation and the dilutive impact of preferred stock issuance, present considerable risks. While the company has access to liquidity and a diversified portfolio, the current trend suggests a negative outlook for common stockholders.

Keywords

Business Development Company, BDC, Investment Company, Senior Secured Loans, Asset Based Finance, Credit Opportunities, Preferred Stock, Leverage