Earnings call transcript: FS KKR Capital beats Q1 2025 forecasts

FS KKR Capital Corp (FSK) reported its first-quarter 2025 earnings, surpassing Wall Street expectations with an adjusted net investment income of $0.65 per share against a forecast of $0.64. The company also reported total investment income of $400 million, slightly above the anticipated $395.72 million. Following the announcement, FSK’s stock price increased by 1.23% in after-hours trading, reflecting investor optimism. According to InvestingPro data, FSK maintains a strong market position with a $5.53 billion market capitalization and has demonstrated consistent shareholder returns with 12 consecutive years of dividend payments.

Key Takeaways

• FS KKR Capital exceeded EPS and revenue forecasts for Q1 2025.
• Stock price rose by 1.23% in after-hours trading.
• The company originated $2 billion in new investments.
• FS KKR Capital closed its second middle market CLO, raising $380 million.
• Guidance indicates continued market volatility and potential yield compression.

Company Performance

FS KKR Capital demonstrated resilience in Q1 2025 by outperforming earnings expectations. The company maintained a strong position in the private credit sector, benefiting from its diversified origination channels and focus on upper middle market companies. Despite a decrease in net asset value per share to $23.37 from $23.64 in Q4 2024, the company remains robust with available liquidity of $3.2 billion. InvestingPro analysis reveals the company’s impressive financial health with a "GREAT" overall score of 3.18, supported by a strong current ratio of 2.86, indicating liquid assets significantly exceed short-term obligations.

Financial Highlights

• Revenue: $400 million (slightly above forecast)
• Earnings per share: $0.65 (beat forecast by $0.01)
• Net asset value per share: $23.37 (decreased from $23.64 in Q4 2024)
• Available liquidity: $3.2 billion
• Gross/Net debt to equity: 122%/114%

Earnings vs. Forecast

FS KKR Capital’s adjusted net investment income of $0.65 per share surpassed the forecasted $0.64, marking a positive surprise of approximately 1.56%. This performance aligns with the company’s historical trend of meeting or slightly exceeding earnings expectations, despite a challenging macroeconomic environment.

Market Reaction

Following the earnings announcement, FS KKR Capital’s stock price rose by 1.23%, closing at $19.69. This increase reflects investor confidence in the company’s ability to navigate market volatility and sustain its investment income. The current stock price remains within its 52-week range of $17.42 to $24.10, indicating stable performance relative to broader market trends. InvestingPro data shows FSK trades at an attractive P/E ratio of 9.43 and offers a substantial dividend yield of 14.65%, making it particularly interesting for income-focused investors. For detailed valuation analysis and additional insights, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

For Q2 2025, FS KKR Capital projects a GAAP net investment income of approximately $0.64 per share and adjusted net investment income of $0.62 per share. The company anticipates total distributions for 2025 to reach $2.80 per share, comprising $2.56 in base distributions and $0.24 in supplemental distributions. Management expects ongoing market volatility and potential yield compression.

Executive Commentary

CEO Michael Foreman emphasized the strength of private credit, stating, "Private credit thrives in part because of its consistent ability to generate a steady stream of current income for its investors." CIO Dan Peterzak highlighted the company’s risk management focus, noting, "We want to get paid as much as we can on any individual loan."

Risks and Challenges

• Potential recession and geopolitical uncertainty affecting M&A activity.
• Tariff impacts on approximately 8% of the portfolio.
• Exposure to industries like consumer durables and industrials facing economic pressures.
• Anticipated yield compression in the lending market.
• Non-accruals represent 3.5% on a cost basis, posing a risk to income streams.

FS KKR Capital remains vigilant in addressing these challenges while leveraging its strong credit platform to capitalize on market opportunities.

Full transcript - FS KKR Capital Corp (FSK) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp. First Quarter twenty twenty five Earnings Conference Call. Your lines will be in a listen only mode during the remarks by FSK’s management. At the conclusion of the company’s remarks, we will begin the question and answer session, at which time I will give you instructions on entering the queue.

Please note that this conference is being recorded. At this time, Anna Kleinhan, Head of Investor Relations, will proceed with the introduction. Ms. Kleinhan, you may now begin.

Anna Kleinhan, Head of Investor Relations, FS KKR Capital Corp: Thank you. Good morning, and welcome to FSKKR Capital Corp’s First Quarter twenty twenty five Earnings Conference Call. Please note that FSKKR Capital Corp may be referred to as FSK, the Fund, or the Company throughout the call. Today’s conference call is being recorded, and an audio replay of the call will be available for thirty days. Replay information is included in a press release that FSK issued yesterday.

In addition, FSK has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended 03/31/2025. A link to today’s webcast and the presentation is available on the Investor Relations section of the company’s website under Events and Presentations. Please note that this call is the property of FSK. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today’s conference call includes forward looking statements and are subject to risks and uncertainties that could affect FSK or the economy generally.

We ask that you refer to FSK’s most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements. FSK does not undertake to update its forward looking statements unless required to do so by law. In addition, this call will include certain non GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSK’s first quarter earnings release that was filed with the SEC on 05/07/2025. Non GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.

In addition, these non GAAP financial measures may not be the same as similarly named measures reported by other companies. To obtain copies of the company’s latest SEC filings, please visit FSK’s website. Speaking on today’s call will be Michael Foreman, chief executive officer and chairman Dan Peterzak, chief investment officer and co president and Steven Lilly, chief financial officer. Also joining us on the call today are Co Chief Operating Officers, Drew O’Toole and Ryan Wilson. I’ll now turn the call over to Michael.

Michael Foreman, Chief Executive Officer and Chairman, FS KKR Capital Corp: Thank you, Anna, and good morning, everyone. Thank you all for joining us for FSK’s first quarter twenty twenty five earnings conference call. I’d like to begin this morning’s call with a few comments regarding some of the uncertainties in the world. Since our last earnings call in February of this year, our country’s economic outlook, the volatility associated with both debt and equity markets, the major geopolitical risks have all worsened. Not only are investors faced with the task of analyzing new and different risk elements, but they are forced to react to daily headlines regarding the current administration’s announcements.

Indeed for investors who value stability, the current market is challenging at best. As Dan will discuss in more detail, we’ve been taking proactive steps to provide investors with the most accurate information and the best overall investor experience as it relates to FSK during this challenging time. And while no one would have predicted exactly the events which have transpired over these last many weeks, our team did envision that volatility would rise from time to time and 2025 would be the year of transition for interest rates. Those are main reasons we announced in February our board’s intention to maintain our 64¢ per share quarterly distribution, and also our $6 per share supplemental distribution for each of the four quarters during 2025. Our goal was and still is to provide investors with both transparency and stability of income from FSK.

Our view rests upon the premise that by early next year, the macroeconomic environment will settle down, providing BDCs with a more clear picture of interest rates, tariffs, and other key drivers of economic activity. Our strategy of building a healthy balance of spillover income during periods of higher interest rates enables us to provide stability and confidence in our quarterly distributions during these periods of greater market volatility, regardless of variances in our net investment income on a quarter to quarter basis. Additionally, starting late last year, the team began analyzing our portfolio in terms of both tariffs and those exposure. And those analyses have been further refined over the last several weeks. Again, Dan will address this topic during his comments.

And now I’d like to shift to FSK’s first quarter performance. During the first quarter, FSK generated net investment income totaling $0.67 per share and adjusted net investment income totaling $0.65 per share as compared to our public guidance of approximately $0.66 and $0.64 per share respectively. From a liquidity perspective, we ended the quarter with approximately $3,200,000,000 of available liquidity. Consistent with my earlier comments, our board has declared a second quarter distribution of $0.70 per share, consisting of our base distribution of $0.64 per share and a supplemental distribution of $06 per share. This total distribution equates to a 12% yield on our March 31 NAV of $0.02 $3.03 $7 per share.

And with that, I’ll turn the call over to Dan.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Thanks, Michael. As we discussed on our fourth quarter earnings call, our view at the time was that increases in M and A activity this year would take longer to materialize due to geopolitical uncertainty. That view still holds true even more so now. As expected, the more liquid markets are bearing the brunt of the current volatility, with wider credit spreads and uneven trading. Over the last month, spreads have also begun to widen on certain private direct lending deals due to the market volatility.

As Michael noted earlier, we have been in close contact with sponsors and management teams and have run extensive analysis in an effort to stay up to date with the latest tariff policies and impacted countries. Additionally, as we originate new investments, we are evaluating each deal for potential risks related to tariffs or Doge. As a result, we believe we have a good understanding of the first order potential tariff impacts on the portfolio. However, we remain cautious as second or third order impacts are still unknown, and depending on the ultimate tariff resolution, may take real time to play out. Based on our current portfolio analysis, we believe approximately 8% of our portfolio could have direct exposure to tariff policies, should they become permanent.

And while DOGE exposure is more difficult to quantify, we currently estimate low to mid single digit DOGE exposure. The industry is most impacted by potential tariff policies are consumer durables, consumer discretionary, consumer staples and industrials, which falls within our capital goods classification. The industries most impacted by those are software and services, healthcare equipment and services, and aerospace and defense, which falls within our capital goods classification. I would clarify that this information is top down in nature and therefore remains too early to attempt to specifically quantify what impacts these items could have on individual portfolio companies from an EBITDA and free cash flow perspective. The good news is our typical portfolio company tends to be large and a market share leader, and therefore maintains highly diversified customer and supplier relationships.

As a result, these companies typically enjoy more pricing power, which allows them to pass through price increases compared to smaller companies. Since identifying potential tariff related headwinds in November, we have taken a proactive approach to managing exposure across the portfolio. Notably, during the quarter, we achieved a full exit on two portfolio companies that we believe exhibited more risk from a tariff and cycle standpoint. The first example, three sixty Group, is a company whose products are primarily sourced from China. The second example, Lakeview Farms, is a food products business subject to consumer purchasing behavior.

We are pleased with both outcomes as the investments were repaid at par. Another bright spot is our asset based finance portfolio, which we view as particularly compelling during periods like this. Traditional secured and unsecured corporate credit investing hinges largely on future earnings forecasts and cash flow assumptions, which are obviously vulnerable to macro shifts. ABS investments by contrast are anchored in contractual structures tied directly to tangible collateral. We would note however, that we are mindful about our consumer related exposure in our ABS portfolio.

Though we are focused almost entirely on secured risk or high FICO score prime borrowers. Overall, we continue to be bullish on ABS positive impact to our portfolio and the diversification benefits it provides. Turning to FSK’s investment activity. During the first quarter, we originated approximately $2,000,000,000 of new investments. Approximately 45% of our new investments were focused on add on financings to existing portfolio companies and long term KKR relationships.

Our new investments combined with $1,100,000,000 of net sales and repayments, when factoring in sales to our joint venture equated to a net portfolio increase of $881,000,000 New originations consisted of approximately 63% in first lien loans, 1% in other senior secured debt, 19% in asset based finance, 15% in capital calls to the joint venture, and 2% in equity and other investments. Our new direct lending investment commitments had a weighted average EBITDA of approximately $257,000,000 5 point 5 times leverage through our security, and a weighted average coupon of approximately SOFR plus five zero five basis points. Though the first quarter of the year has traditionally resulted in seasonally slower new originations, this has been our strongest origination quarter from both a total and net deployment perspective since 2022. Despite the sluggishness of The U. S.

M and A market, during the first quarter, we experienced strong origination activity, driven by our expansive deal funnel, which continues to generate robust diversified deal flow. Our private credit team maintains strong sponsor relationships on a global basis, and our large base of incumbent borrowers remains a consistent and valuable source of repeat opportunities. We remain focused on the upper middle market, or companies with 50,000,000 to $150,000,000 of EBITDA, which tend to have more levers they can pull during challenging periods. In an environment like this, we’re acutely focused on investing in high quality companies with strong defensive positions. The weighted average EBITDA of our portfolio companies was $255,000,000 and the median EBITDA was $120,000,000 as of 03/31/2025.

Our portfolio companies reported a weighted average year over year EBITDA growth rate of approximately 10% across companies in which we have invested since April of twenty eighteen. Interest coverage levels remain steady with the median first quarter coverage at 1.7 times, unchanged quarter over quarter. At the end of the first quarter, non accruals represented 3.5% of our portfolio on a cost basis and 2.1% of our portfolio on a fair value basis. This compares to 3.7% of our portfolio on a cost basis and 2.2% of our portfolio on a fair value basis as of 12/31/2024. We also believe it is helpful to provide the market with information based on FSK assets originated by KKR Credit.

Non accruals relating to the 90% of our total portfolio, which has been originated by KKR Credit and the FSKKR Advisor were 2% on a cost basis and 1% on a fair value basis as of the end of the first quarter. This compares to 2% on a cost basis and 0.8% on a fair value basis as of the end of the fourth quarter. During the first quarter, ’2 investments were added to nonaccrual status and three investments were removed. Our first lien senior secured position in New Era was added to nonaccrual, contributing $29,000,000 of cost and $23,000,000 of fair value. Additionally, our second lien investment in CUBA Corp was added to nonaccrual, contributing $43,000,000 of cost and $34,000,000 of fair value.

Our position in Alacrity Solutions was restructured during the quarter, which resulted in the $22,000,000 of cost and $16,000,000 of fair value being removed from non accrual. Our position in Accuride was also restructured during the quarter, which resulted in $8,000,000 of cost and $2,000,000 of fair value being removed from non accrual. Our remaining subordinated debt position in Miami Beach Medical was converted to equity in conjunction with the company’s wind down, removing $18,000,000 of cost and $12,000,000 of fair value from non accrual. Also during the quarter, JW Aluminum refinanced a $300,000,000 high yield bond with a new $350,000,000 offering. This resulted in a $77,000,000 par paydown on our senior secured bond and a $21,000,000 paydown on our preferred equity position.

Given this investment has been on non accrual since Q4 twenty twenty three, we are pleased with this outcome. Performance at JWA has been strong and the company is a beneficiary of the recent tariff news. In terms of other portfolio updates, Production Resource Group and four thousand eight hundred forty were our two largest markdowns during the first quarter. PRG continues to be impacted by certain tour cancellations and margin pressure, and 4,840 has been impacted by labor costs and excess inventory. Separately, we’re pleased to note that the sale of Maverick Natural Resources, a legacy position which has been in the portfolio since 2014, has closed.

As a result, FSK received $18,000,000 in cash and $25,000,000 of diversified energy company common stock. With that, I’ll turn the call over to Stephen.

Steven Lilly, Chief Financial Officer, FS KKR Capital Corp: Thanks, Dan. As of 03/31/2025, our investment portfolio had a fair value of $14,100,000,000 consisting of two twenty four portfolio companies. At the end of the first quarter, our 10 largest portfolio companies represented 20% of the fair value of our portfolio compared to 21% as of the end of the fourth quarter. We continue to focus on senior secured investments as our portfolio consisted of approximately fifty eight percent first lien loans and 63% senior secured debt as of March 31. In addition, our joint venture represented 11.8% of the fair value of our portfolio.

As a result, when investors consider our entire portfolio, looking through to the investments in our joint venture, then first lien loans total approximately 67% of our total portfolio and senior secured investments total approximately 73% of our portfolio as of March 31. The weighted average yield on accruing debt investments was 10.8% as of March 31, a decrease of 20 basis points compared to 11% as of December 31. The decrease primarily is attributable to incremental spread compression on new investments and the decline in base rates. As a reminder, the calculation of weighted average yield is adjusted to exclude the accretion associated with the merger of FSKR. Our total investment income decreased by $7,000,000 quarter over quarter to $400,000,000 primarily due to two fewer days in the first quarter compared with the fourth quarter, the paydown of higher yielding investments and lower spreads on new originations.

The primary components of our total investment income during the quarter were as follows: total interest income was $3.00 $2,000,000 a decrease of $22,000,000 quarter over quarter dividend and fee income totaled $98,000,000 an increase of $15,000,000 quarter over quarter Our total dividend and fee income during the quarter is summarized as follows: $46,000,000 of recurring dividend income from our joint venture other dividends from various portfolio companies totaling approximately $35,000,000 during the quarter and fee income totaling approximately $17,000,000 during the quarter. Our interest expense totaled $113,000,000 a decrease of $3,000,000 quarter over quarter. Our weighted average cost of debt was 5.5% as of March 31. Management fees totaled $52,000,000 a decrease of $1,000,000 quarter over quarter. And incentive fees totaled $39,000,000 an increase of $4,000,000 quarter over quarter.

Other expenses totaled $9,000,000 during the first quarter, unchanged quarter over quarter. The detailed bridge in our net asset value per share on a quarter over quarter basis is as follows. Our ending 4Q twenty twenty four net asset value per share of $23.64 was increased by GAAP net investment income of $0.67 per share and was decreased by $0.24 per share due to a decrease in the overall value of our investment portfolio. Our net asset value per share was reduced by our $0.70 per share total distribution paid during the quarter. The sum of these activities results in our 03/31/2025 net asset value per share of $23.37 From a forward looking guidance perspective, we acknowledge the many factors currently affecting The U.

S. Economy. As a result, while we continue to provide guidance in an effort to be as transparent as possible with the investment community, there is the potential for greater variance within our guidance categories than in prior periods. With that said, we expect second quarter twenty twenty five GAAP net investment income to approximate $0.64 per share, and we expect our adjusted net investment income to approximate $0.62 per share. Detailed second quarter guidance is as follows: Our recurring interest income on a GAAP basis is expected to approximate $3.00 $2,000,000 We expect recurring dividend income associated with our joint venture to approximate $56,000,000 We expect other fee and dividend income to approximate $43,000,000 during the second quarter.

From an expense standpoint, we expect management fees to approximate $53,000,000 We expect incentive fees to approximate $36,000,000 We expect interest expense to approximate $124,000,000 And we expect other G and A expenses to approximate $10,000,000 And as Michael indicated during his remarks, our 2025 distribution guidance remains in place as we currently expect our distributions during the year will total $2.8 per share comprised of $2.56 per share of base distributions and $0.24 per share of supplemental distributions. Turning to our capital structure. In March, we closed on our second middle market CLO, raising $380,000,000 of low cost secured debt priced at a weighted average rate of SOFR plus 158 basis points. We are pleased with this financing given it is match funded with no mark to market at an attractive rate. Additionally, in March, we amended our Morgan Stanley funding facility where we reduced the spread from 2.7% to 1.95% and extended the maturity date by two years to November 2028.

As of 03/31/2025, our gross and net debt to equity levels were 122114%, respectively, compared to 112104% at 12/31/2024. At March 31, our available liquidity was $3,200,000,000 and approximately 54% of our drawn balance sheet and 41% of our committed balance sheet was comprised of unsecured debt. And with that, I’ll turn the call back to Michael for a few closing remarks before we open the call for questions.

Michael Foreman, Chief Executive Officer and Chairman, FS KKR Capital Corp: Thanks, Stephen. In closing, while the broader environment remains uncertain, we believe that FSK has taken and is continuing to take proactive steps to deliver for our shareholders. Many private credit providers have navigated volatile markets extremely well in the past, and we believe FSK is well positioned to navigate this period of uncertainty as well. Private credit thrives in part because of its consistent ability to generate a steady stream of current income for its investors. We are confident in our business strategy and believe both the breadth of the KKR credit platform and our strong balance sheet will allow us to continue to succeed going forward.

And with that, operator, we’d like to open the line for questions.

Conference Operator: Thank you. As a reminder, to ask a question, you will need to press 11 and wait for your name to be announced. Please stand by while we compile the Q and A roster. Your first question comes from the line of John Hecht of Jefferies. John, please go ahead.

John Hecht, Analyst, Jefferies: Good morning, guys. Thanks very much

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: for taking my

John Hecht, Analyst, Jefferies: questions. First one is just, I guess, kind of, I guess, from a modeling perspective, the timing of deployments last quarter. And then also, is the full effect of rate changes in the run rate from last quarter? Or should we expect some more adjustments coming into this quarter from an asset yield perspective?

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Good morning, John. Maybe Stephen will comment on some of the modeling points. I think we were happy with the origination number. Think a couple of things to point out. We talked about in the last call, right?

There was some carryover slippage from the prior quarter, deals we thought were going to get done in December. On the other side of that, I think from a diversification of deployment, we’re also pretty happy, right? We’re growing the JV. That was a focus area for us. We continue to deploy into our asset based finance activities, and we are also focused on getting some additional non U.

S. Exposure, right? So, those three buckets were probably half of the total $2,000,000,000 My guess is from a modeling perspective, it’s probably pretty balanced and thinking about kind of the ins and the outs. Stephen, do you mind if would add?

: Yeah, John, it’s most of the declining rates is flowed through now, as of the end of the first quarter. But as you know from the comments on the call, you know, we went down from 11% down to 10.8% on a weighted average yield basis. So, you know, that flow through in the portfolio will affect us and that’s effectively why the guidance that we gave, our interest income is, the recurring interest income is effectively flat at around $300,000,000 for the first quarter and then also guidance for the second quarter.

John Hecht, Analyst, Jefferies: Okay. And then, Dan, you give some color around the fact that some of the high activity in 1Q was kind of a catch up. But I’m wondering when you think about your pipeline now and activity overall within your own platform, it’s clear that you guys had a much more active first quarter than I guess the overall market. So I’m wondering, there certain categories of assets or characteristics of transactions that you guys, as FSK and attached to KKR are maybe gaining market share? Or is there anything that you could talk about that’s a reflection of the competitive environment that’s given you guys incremental opportunities?

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah. And think, John, maybe a couple of sort of pieces there. One, you know, I do, you know, kind of like that we’re kind of sourcing from different pieces and really giving, you know, FSK access to everything we’re doing in private credit, you could probably give the benefit to, as I said, you know, a couple of deals out of Europe and the activity in our asset based finance business. You know, I think in terms of just broader activity levels, think we were definitely, you know, walking into the year feeling like it was going to be a very active and busy ’25. That started to slow down a little bit.

That’s why we commented in February, we were kind of pushing that M and A thesis out a little bit. It definitely slowed down in Q2, right? I think everybody hit a general pause button post April 2. I think we will continue to benefit from a large existing book. I think we’ll continue to benefit from those diversified origination sources or channels.

But I think there’s going need to be some more certainty out there before you see more regular way transactions, is my guess.

John Hecht, Analyst, Jefferies: Okay. Really appreciate the color. Thank you.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Thank you.

Conference Operator: Excuse me. One moment for your next question. The next question comes from the line of Casey Alexander of Compass Point Research and Trading. Casey, please go ahead.

Casey Alexander, Analyst, Compass Point Research and Trading: Hi. Good morning, and, thank you for taking my questions. Dan, this is, for you. You know, KKR has a really highly regarded macro group. And and I wanna take this opportunity to ask, you know, how does the macro group, which is feeding you information, see the odds of recession changing with what’s happening now?

And how does the macro group see it impacting private credit going forward?

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah, good morning, Casey. Think you’ll make Henry McVeigh and team happy with that comment. So thank you. You know, we are lucky, you know, being part of KKR to have access to those resources. I mean, Henry sits, you know, probably less than 30 feet from me.

You know, we have almost a monthly call with his team and the broader private credit team where, you know, we hear what’s on their mind, they actually get hear what’s kind of on our mind here, what’s kind of going on in the portfolio sort of feeding in the views that actually happened yesterday this month. So there is an active dialogue there. And I don’t want to speak sort of fully framed, but I’ll give you kind of, you know, the starting point was kind of good, right? The sense of the health of the economy, the health of the corporates where the consumer sat, you know, uncertainty is bad. I think the initial tariff numbers that came out post liberation day were much wider than any kind of forecast.

You know, I think there’s a general consensus that the chances of a recession are what I will say probably more likely than not, albeit that could very well be a technical one, or one that’s fairly muted. You know, I think we’re trying to spend more and more time on what we’d see as the tail risk to that, like where it could, you know, sort of get worse. But, you know, we do use that team a lot. The dialogue is sort of strong and, you know, that said, there has been a fair amount of uncertainty and kind of moves out there. Obviously, was, I don’t know if it’s been formally announced, but I saw the headlines this morning with kind of the first sort of quote unquote big trade deal being signed.

But, you know, we got to stay on top of

Casey Alexander, Analyst, Compass Point Research and Trading: My second question is, you know, you talked about the weighted average yield came down to 10.8%. When I look at the new money yields of 9.5%, is it reasonable to expect some additional yield compression as the portfolio churns because it’s very likely that your repays are significantly yielding materially higher than where your new money yields are.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Casey, it’s not an unfair sort of point. I mean, I think that the number is probably closer to nine, eight or sort of 10. When you especially when you factor in some of the OID and sort of potential fee income, you know, I think, you know, we are very focused on risk, right? You know, we want to get paid as much as we can on any individual loan. But I think we’re also prepared to walk away from loans if it sort of doesn’t make sense.

You know, I am happy we, you know, got some growth into the joint venture. We’ve been talking about that for some time. You know, and I do think it’s at some point, we will see, you know, that M and A market sort of return, albeit I think we’re probably done sort of predicting that in some ways, right? But that’s the longer probably side of it. And you’ll get some additional sort of fee income generated.

But yes, I think you continue to have some downward pressure on that 10.8.

Casey Alexander, Analyst, Compass Point Research and Trading: Just slipping in one last one, we’re hearing about loans spilling over from the broadly syndicated market into the private credit market. Wouldn’t those generally be associated with somewhat lower new origination yields as compared to stuff that just sits in private creditor, am I mistaken about that?

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: It’s probably a fair point. I mean, you could probably argue there’s a pretty high correlation between quality and size of business and where the spread might sort of land. I think almost as a tailwind for private credit from the COVID activity, I do think more and more companies and or sponsors have been willing to use it as a lending tool, think people have gotten more comfortable with it. I think historically, I feel like people use direct lending or private credit for certainty of execution. I do think that’s extended to including kind of really wanting to know your lender.

You know, we’ve always had a thesis, the loan market and the bond market will continue to exist. I do continue though to see, you know, growth kind of here more companies accessing it. And then in times of volatility, hopefully able to sort of step in and lend against some attractive sort of companies. You know, we did make a comment in our prepared remarks, we saw spreads widen a bit, you know, probably not as much as we’d have liked to see if we’re honest about that. But, you know, I’m not sure the volatility is done.

So, we’re going to be, you know, continue to focus on providing solutions if the market, you know, does struggle on this syndicated time.

Casey Alexander, Analyst, Compass Point Research and Trading: All right. Thank you for taking my questions. I appreciate it.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Thanks. Have a good day.

Conference Operator: One moment for your next question. The next question comes from the line of Ken Li of RBC Capital Markets. Ken, please go ahead.

Ken Li, Analyst, RBC Capital Markets: Hey, good morning. Thanks for taking my question. Just given the views for continued macro uncertainty there, any updated thoughts on where preferred leverage ranges could go over the near term there? Thanks.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah, good morning, Ken. I think we’ve built our target range on leverage kind of thinking about sort of all markets, right? And we’ve always talked about sort of one times to 1.25 times, ended the quarter at 1.14, ended the quarter with north of $3,000,000,000 of available liquidity. So I don’t think there’s really a change in range there. I as important as the range is I think your activity on just your liability side generally, We were happy with the execution on the CLO.

We think it’s another diversified funding source for companies like this. I think we were happy with what we kind of commented on the Morgan Stanley sort of facility, I think the management team on the FSK side and a lot of folks, you know, from the broader deal teams who have spent real time on the financing facility, so have done a really nice job, I think we feel quite good with where we sit from a liability perspective today.

Ken Li, Analyst, RBC Capital Markets: Great, very helpful there. And then one follow-up, if I may, just on the asset based financing side, the ABF portfolio, I think in the prepared remarks, you mentioned that there could be some retail oriented risks there. Maybe you could just remind us again which particular investments you think that this could center on? And maybe just remind us again some of the downside protection in a lot of these ABF investments there? Thanks.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah, no, I think we wanted to make the point fair during our prepared remarks, right? We are still very excited about the broader opportunity in the ABS sort of space. I did call out specifically, we’re just mindful about the consumer risk we do have. That is a small percentage of FSK, it’s roughly 3% of total size. I think when we have been active in the consumer space, we’ve generally targeted either secured risk, higher FICO score type risk, or what I call, you know, kind of either loans to homeowners or other sort of short duration loans.

You know, maybe just two examples for it, as we’ve talked about on prior calls, you know, one would be PayPal, the European deal, but that is a portfolio that, you know, effectively turns, you know, every 90 days. So, I think that’s a good risk mitigating into it. And then we talked about Discover in the past, which is a private student loan portfolio, but it’s mainly, you know, parent cosigners, I think the average FICO score there is like seven sixty, right? So, I think the starting point of the consumer makes us kind of, you know, feel good that even with the tariff noise, even with other things, they’re going to continue to perform. I think we’re worried a little bit more about the non prime or the sub prime consumer, because I think, you know, by definition in my mind, you know, tariffs will put additional sort of cost into the system that somebody has to pay for.

Ken Li, Analyst, RBC Capital Markets: Great. Very helpful there. Thanks again.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Okay, thanks. Have a good day.

Conference Operator: One moment for your next question. The next question comes from the line of Finian O’Shea of Wells Fargo Securities. Finian, please go ahead.

Finian O’Shea, Analyst, Wells Fargo Securities: Hey, everyone. Good morning. Thanks. Steven, I think the guide for non JV and other fee was 43. Does that imply a sort of continued strength in the ABF group or other fee income?

Thanks.

: Yes, in the first quarter, we were a little heavier on ABF dividends, distributions and as you know, that business can be a little bit lumpy quarter to quarter or it varies quarter to quarter. So we’re a little bit lighter there in terms of guidance for the second quarter, but that’s made up, if you will, you know, almost exactly within a million dollars or so of additional dividends from or growth in dividends from the joint venture. As Dan mentioned in his comments, continued to scale that.

Finian O’Shea, Analyst, Wells Fargo Securities: So is it other, is it just fee income that’s supposed to jump?

: No. Fee income is down, I think, $3,000,000 quarter over quarter.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: And maybe, Finn, we’ll make sure we can follow-up with you after the tip kinda tie that out, because I wanna make sure you you have the the right numbers.

Finian O’Shea, Analyst, Wells Fargo Securities: Okay, sure. Then, Dan, one on ABF, sort of tying to perhaps Casey’s question on yields. A lot of the new ABF, maybe with the exception of Opendoor looks like senior debt below 500 type spreads. Is this way it’s is this maybe from your senior high grade style group or is this the way it’s going, for you overall in ABF?

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah, and then I think what you’re picking up there is the receivables, and inventory deals we’ve been doing. So, know, and the market has generally called that more ABL, but it’s included within our kind of ABF sort of classification here. So that’s generally, you know, to a company. Sometimes it’s senior secured, sometimes it’s done, you know, in an SPV. You know, I think we’re getting good overall return pick up there versus direct lending, because you’re usually, you know, north of 500 and there’s pretty significant kind of upfront fee income and or exit fee income.

I would probably separate that from, you know, what I would call the traditional, you know, ABF deals that I’m talking about, like the Discover, or like, you know, PayPal or the stuff we’ve been doing in aviation leasing, which would be still higher than that. And then, know, the high grade business that you sort of referenced, like that is a very, you know, large, you know, activity for us, you know, it does keep the ABF team sort of active in addition to the, you know, more regular way or sort of opportunistic deals, but those high grade deals are generally an IG plus product that wouldn’t be part of the FSK portfolio. I think you’re picking up the receivables and inventory stuff.

Finian O’Shea, Analyst, Wells Fargo Securities: Very helpful. Thanks so much.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Have a good day.

Conference Operator: One moment for your next question. The next question comes from the line of Robert Dodd of Raymond James. Robert, please go ahead.

Anna Kleinhan, Head of Investor Relations, FS KKR Capital Corp0: Thank you. You got it right the second time, Dodd. Hi, guys. Two questions. I’m gonna talk out of both sides of my mouth here.

One on JW Aluminum. And to your point, it it it should be a beneficiary. I mean, locally sourced scrap, domestic producer, etcetera, paying down debt. The bond investors on the refinance obviously think they’re gonna get repaid. The PIC preferred still on non accrual, but there’s a lot of positive trends there.

I mean, how close do you think that asset, it’s a pretty big one obviously, is to that preferred going back on accrual given all the positive trends and the fact that obviously you just got partially repaid at par on that trench, which may indicate it’s collectible at par and maybe worth taking into income.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah, I mean, and appreciate the question. You know, I think the deal team has done kind of great work, think on this name, you know, over the last, you know, several years. It’s traditionally been in a, what I’ll call, a hard industry. You know, we’re kind of a minority there, but I think the overall ownership group has been well coordinated as well. I think, you know, Robert, we’re very happy to get that bond deal done, right?

Very happy to effectively take some money off the table on the bottom parts of the capital structure. You know, earnings we have seen there have been strong. You know, I think that there is definitely the what I will call the tailwind for what’s going on as a benefit. So, I think we’re happy about that. I think we’re going to be pretty thoughtful though, we’re pretty conservative about putting something, you know, back on accrual.

But, you know, I think time will tell. And I think we’re going to continue to be active with the name to see if we can capitalize on the current market environment that again, I think is a tailwind for the business.

Anna Kleinhan, Head of Investor Relations, FS KKR Capital Corp0: Got it. Got it. Thank you on that. And congratulations on the work done on that asset. Second question, kind of the opposite side.

I’m looking at the chart on page 10 of the presentation and it shows, you know, over the last two quarters kind of median leverage in the portfolio has gone down four tenths. Over the same time period, the average borrower cost, I. E. The income yield to you, has gone down like 70 basis points. But the interest coverage has gone up a tiny bit, but not much.

It looks like there’s some kind of diversion divergence between the interest coverage trends and, you know, the portfolio yield and the leverage in the portfolio. So can you I mean, I’m probably missing something, but can you kind of explain what’s what’s going on there? Why interest coverage isn’t isn’t improving at a faster pace given portfolio leverage is falling and rates are falling?

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah, I’ll just bring it up to the page 10 here. I do think you probably got a little bit of a lag effect, number one. And number two, while I kind of can see the trend sort of the point you’re putting, I think we’re all talking about just kind of like, point one, zero point two sort of numbers that could also include some rounding. We’ll do a little bit of work on the other side and circle back, but my sense is probably more of a lag.

: Yes, primarily the lag, Robert. When rates were going, interest rates were rising, there were lots of questions on BDC calls, ours included, you know, is how are people calculating interest coverage and those types of things, you know, is it is it trailing? Is it forward? Is it a mix? And so, you know, some of it basically the answer to your question is just a little bit of a lag.

Anna Kleinhan, Head of Investor Relations, FS KKR Capital Corp0: Okay, got it. Thank you.

Conference Operator: One moment for your next question. The next question comes from the line of Maxwell Fritcher of Truist. Maxwell, please go ahead.

Michael Foreman, Chief Executive Officer and Chairman, FS KKR Capital Corp: Thank you. Good morning. I’m on for Mark Hughes. Given the assumption of economic uncertainty persisting through 2025 in a possible recession case, Do you anticipate any material difference in deal activity in the upper middle market or the target upper market that you’re operating in versus maybe the core middle and lower middle market?

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Yeah. And and good morning. We’re having a little bit of a hard time hearing you, I think I gotcha. You know, I you could probably make a case, that some of the activity in in the larger company size could be more muted because it does probably rely on a more active M and A market, including kind of sponsor to sponsor sales. I think that said, I think the benefit that we have, and I think a lot of the other large players have, of this kind of incumbent

Michael Foreman, Chief Executive Officer and Chairman, FS KKR Capital Corp: Thank you. I think I’m having a little technical difficulties on my side, so I’ll leave it there. Appreciate the answers.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Okay. Have a good day.

Conference Operator: One moment for your next question. Actually, I am showing no further questions, so I would now like to turn it back over to Pete for closing remarks.

Dan Peterzak, Chief Investment Officer and Co-President, FS KKR Capital Corp: Dan, thank you. Everyone, thank you for taking the time today and your questions. We’re wishing everybody a good summer. We look forward to talking to you again in August. If there are any follow-up points, though, please don’t hesitate to reach out to the team.

So thanks, have a good day.

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