FS KKR Capital Corp. Gets BBB Rating for New Notes Issue

FS KKR Capital Corp. Receives BBB Rating

FS KKR Capital Corp. has recently been assigned a BBB rating for its new issuance of $100 million in senior unsecured notes, set to mature in 2030. These notes, which offer a 6.125% interest rate, are an addition to the company’s existing $600 million of similar unsecured notes, further solidifying its commitment to positive financial management and strategic growth.

Financial Strength and Market Diversification

This positive rating underscores the strength of FS KKR Capital Corp., often referred to simply as FSK, and highlights its significant ties to its parent company, KKR & Co. Leveraging a robust investment platform with assets under management totaling approximately $624 billion, FSK benefits from KKR Credit, which adds depth and resources to its operations. As the second largest publicly traded Business Development Company (BDC), FSK boasts a diversified investment portfolio valued at an impressive $13.9 billion. This portfolio includes equity stakes in 217 companies across 23 different sectors, with a strong focus on first lien senior secured deals and asset-based financing targeted towards upper-middle-market enterprises.

Investment Strategy and Portfolio Composition

FSK has a penchant for investing in higher-value markets, with an impressive median EBITDA of about $121 million across its holdings. The company’s portfolio is primarily concentrated in software and services, professional services, capital goods, and healthcare equipment, comprising 16%, 13%, 13%, and 12% of the total investments, respectively. This strategic placement positions FSK favorably against economic fluctuations, allowing for greater profitability and resilience.

Access to Capital and Financial Flexibility

FS KKR Capital Corp. demonstrates solid access to capital markets, enabling a diverse funding mix that includes secured bank facilities and unsecured debt issuance. The company's liquidity stands robust, with available credit lines of approximately $3.5 billion against upcoming unsecured debt maturity of $2.2 billion, demonstrating prudent financial management. Notably, the ratio of unsecured debt to total debt is around 66%, indicating a healthy balance sheet that allows for future growth and opportunities.

Risks and Challenges

While FSK boasts significant strengths, it is also faced with certain risks, particularly a high percentage of non-qualifying investments, which constitutes about 24% of its portfolio. These include equity stakes that may introduce volatility. The company has shown a proactive approach in managing its non-accruals, with a noted decrease in recent quarters, reflecting improved restructuring efforts. As of the latest quarter, the number of companies on non-accrual status has decreased, indicating an effective navigation through market challenges.

Implications of the Rating Outlook

The rating outlook remains stable, suggesting that while FSK continues to create sustainable value for its stakeholders, any potential downturn in market conditions could impact future operations. A downgrade could result if there is a sustained negative impact on performance metrics, particularly during economic downturns. Thus, FSK's strategy aligns closely with maintaining valuation standards and monitoring investment quality to mitigate risks associated with fluctuating market conditions.

About FS KKR Capital Corp.

FS KKR Capital Corp. is externally managed and operates as a closed-end, non-diversified investment management firm. It is categorized as a Business Development Company under the dictates of the Investment Company Act of 1940. The company is obligated to distribute at least 90% of its investment taxable income to shareholders, a requirement that shapes its operational strategies. It was established as a Maryland corporation and operates under the management of FS/KKR Advisor, LLC, a partnership formed between FS Investments and KKR Credit.

Frequently Asked Questions

What recent rating did FS KKR Capital Corp. receive?

FS KKR Capital Corp. has been assigned a BBB rating for its $100 million senior unsecured notes due 2030.

How is FS KKR Capital Corp. positioned in the market?

As the second largest publicly traded Business Development Company (BDC), FS KKR Capital Corp. has a diversified investment portfolio of $13.9 billion.

What is the main investment strategy of FS KKR Capital Corp.?

FS KKR Capital Corp. primarily invests in upper-middle-market companies focused on sectors such as software, healthcare, and capital goods.

What challenges does FS KKR Capital Corp. face?

The company faces risks associated with a significant percentage of non-qualifying investments and ongoing management of non-accrual status companies.

What is required by FS KKR Capital Corp. as a regulated investment company?

As a regulated investment company, FS KKR Capital Corp. must distribute at least 90% of its investment taxable income to its shareholders.

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