FS KKR Capital Corp. 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated December 22, 2020, details two material definitive agreements entered into by FS KKR Capital Corp. (the Company) and its subsidiaries. The Company is a closed-end management investment company focused on investing in collateralized loan obligations (CLOs) and other credit assets.
Key Financial Metrics and Debt Structure
The filing outlines significant refinancing and credit facility restructuring activities:
- CLO Reset Transaction: On December 22, 2020, the Company's subsidiary, FS KKR MM CLO 1 LLC, refinanced its original $378.7 million term debt with a new private placement of $383.7 million in senior secured notes (CLO Reset Notes).
- Class A-1R: $281.4 million (3-month LIBOR + 1.85%)
- Class A-2R: $20.5 million (3-month LIBOR + 2.25%)
- Class B-1R: $32.421 million (3-month LIBOR + 2.60%)
- Class B-2R: $17.379 million (Fixed 3.011%)
- Class C-R: $32.0 million (3-month LIBOR + 3.10%); held 100% by the Company.
- Maturity: January 15, 2031.
- Equity Interest: Membership interests held by the Company had a nominal value of approximately $128.8 million at closing.
- Revolving Credit Facility: On December 23, 2020, the Company entered into a Second Amended and Restated Senior Secured Revolving Credit Facility.
- Initial Capacity: Up to $4.025 billion in borrowings.
- Expansion Option: Option to increase commitments by up to $2.0125 billion.
- Letters of Credit: Initial aggregate face amount up to $400 million.
- Interest Rates: Variable based on borrowing base coverage (Alternate Base Rate + 0.75% to 1.00% or LIBOR + 1.75% to 2.00%).
- Commitment Fee: 0.375% to 0.50% per annum on unused portions.
- Termination/Maturity: Revolver terminates December 23, 2024; loans mature December 23, 2025.
Material Changes Versus Prior Period
The primary material change is the refinancing of the CLO 1 notes, increasing the total principal amount from $378.7 million to $383.7 million and extending the maturity to 2031. Additionally, the Company significantly expanded its liquidity capacity by amending its revolving credit facility, increasing the initial aggregate borrowing limit to $4.025 billion (up from the prior facility terms not fully detailed in this text but noted as an amendment to the 2018/2019 facility).
Guidance, Risks, and Covenants
The filing does not provide forward-looking financial guidance or revenue projections. Key operational and risk factors include:
- Financial Covenants: The Revolving Credit Facility requires the Company to maintain a minimum shareholders' equity and a 150% asset coverage ratio (or higher if statutory requirements dictate).
- Mandatory Prepayment: The Revolving Credit Facility requires mandatory prepayment of interest and principal if the adjusted asset coverage ratio falls below 185% during the term-out period.
- Fee Waivers: The Company has irrevocably waived base management fees and subordinated interest on the CLO Reset Transaction for as long as it serves as portfolio manager.
- Security: Obligations under the Revolving Credit Facility are secured by a first priority security interest in substantially all of the Company's assets and are guaranteed by certain subsidiaries.
Investor Verification Checklist
- Verify the current asset coverage ratio to ensure compliance with the 150% covenant and the 185% threshold for mandatory prepayments.
- Confirm the utilization rate of the new $4.025 billion revolving credit facility to assess liquidity usage.
- Review the interest rate environment (LIBOR levels) to estimate the cost of the floating-rate CLO Reset Notes and Revolver borrowings.
- Examine the portfolio composition of the CLO 1 Issuer to understand the collateral backing the $383.7 million in notes.
- Check for any events of default or covenant breaches that could trigger immediate repayment of the Revolving Credit Facility.