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Investing.com -- Fitch Ratings has affirmed FS KKR Capital Corp.’s (NYSE:FSK) long-term issuer default rating at ’BBB-’ while revising its outlook to negative from stable, the rating agency announced Monday.
The outlook change reflects FSK’s ongoing challenges with elevated non-accruals, realized losses from portfolio restructurings, high paid-in-kind income, and a weakened asset coverage cushion compared to peers.
As of the second quarter of 2025, FSK’s non-accrual investments represented 3.5% of its debt portfolio at value and 6.3% at cost, up from 2.5% and 4.2% respectively at the end of 2024. These figures exceed peer averages.
The business development company recognized $175 million in net realized losses during the first half of 2025, representing 1.3% of its portfolio value. This follows $476 million in losses during 2024. Cumulative net realized losses since inception reached $1.4 billion through the first half of 2025.
FSK’s gross leverage ratio increased to 1.31x as of June 30, 2025, up from 1.12x at the end of 2024, driven by increased borrowings and portfolio write-downs. The adjusted net leverage was 1.20x, up from 1.04x. This resulted in an asset coverage cushion of 15.0%, which Fitch noted is at the low end of its ’bbb’ category benchmark range.
The company’s net investment income coverage of base dividends fell below 100% in the second quarter, reaching 97.7% for the first half of 2025. When adjusted for non-cash income and expenses, this coverage dropped to 68.6%.
Despite these challenges, Fitch affirmed FSK’s rating based on its access to investment resources through affiliations with KKR Credit Advisors and Franklin Square Holdings, its experienced management team, solid funding flexibility, and demonstrated access to unsecured debt markets.
FSK has $1.0 billion of notes coming due in January 2026. As of June 30, 2025, the company had $312 million in cash and foreign currency, with $2.5 billion available on its secured credit facilities.
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