FS KKR Capital Corp.

What they do

FS KKR Capital Corp. is an externally managed, non-diversified, closed-end BDC. It invests primarily in senior secured debt (first and second lien loans, senior secured bonds) of private U.S. middle-market companies (EBITDA of $50M-$150M), with smaller positions in subordinated loans and asset-based financing. It may also hold equity interests received with debt investments and, opportunistically, corporate bonds, structured products, and derivatives.

Revenue drivers

• Senior secured debt investments — Core portfolio, primarily first and second lien secured loans and senior secured bonds; generates interest income. Fair value of total investments was $11.4B as of June 30, 2026.
• Subordinated loans and other debt — Smaller, but unlimited, allocation to subordinated loans and asset-based financing; carries higher yield potential with higher risk.
• Equity and other securities — Occasional equity interests (warrants, options, co-investments) and, at times, structured products and derivatives; provide capital appreciation and additional income.

Recent performance

For Q2 2026, net investment income was $0.44 per share, up from $0.42 in Q1 2026, and adjusted NII was $0.43 per share. Net asset value per share declined to $18.30 from $18.83 at March 31, 2026. The company reported earnings loss per share of ($0.13) for Q2, improved from ($1.57) in Q1, due to a total net realized and unrealized loss of $0.56 per share. Full-year 2025 net income was only $11.0M (EPS $0.04), down from $585.0M in 2024, while dividends per share were $2.80 in 2025 vs $2.90 in 2024. As of June 30, 2026, total assets were $11.99B, shareholder equity $5.12B, and long-term debt $6.47B.

Strategy

Management is focused on reducing leverage: debt-to-equity was 127% at Q2-end, down from 138% at Q1, and net debt-to-equity was 122%. The company is rotating the portfolio to improve credit quality and reduce non-accrual assets. Strategic actions include a $150M tender offer completed by a KKR subsidiary, a $150M convertible preferred issuance, a $300M share repurchase program that commenced in June 2026, and a 50% subordinated income incentive fee waiver. Management also notes ongoing portfolio rotation efforts to enhance portfolio quality.

Risks

• Credit risk on below-investment-grade loans — Most debt investments are rated below investment grade, exposing FSK to higher default risk and potential realized losses.
• Leverage and liquidity risk — Debt-to-equity ratio of 127% as of June 30, 2026, with long-term debt of $6.47B, increases sensitivity to interest rate changes and refinancing conditions.
• Concentration in private middle-market companies — Focus on private U.S. middle-market firms can lead to less liquidity, harder valuations, and heightened cyclical impact.
• Market volatility and valuation risk — Significant net realized and unrealized losses in recent quarters ($0.56 per share in Q2 2026) reflect potential further markdowns.

Outlook

Management expects continued progress on portfolio performance and leverage reduction. The third-quarter 2026 distribution of $0.44 per share was declared, supported by the incentive fee waiver. The share repurchase program is active, with additional repurchases made in July-August 2026. Management emphasizes improving portfolio quality and long-term shareholder value.