FS KKR Capital Corp. 10-Q Summary: Q1 2026
Business Context and Reporting Period
FS KKR Capital Corp. (NYSE: FSK) is an externally managed, non-diversified, closed-end management investment company regulated as a Business Development Company (BDC). The company invests primarily in senior secured loans, second lien secured loans, and subordinated loans of private middle-market U.S. companies. This report covers the quarterly period ended March 31, 2026.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Asset Value (NAV) per Share | $18.83 | $23.37 |
| Total Investments (Fair Value) | $12,269 million | $13,009 million |
| Total Assets | $12,825 million | $13,729 million |
| Total Debt (Net) | $7,271 million | $7,634 million |
| Cash and Cash Equivalents | $124 million | $181 million |
| Net Investment Income | $117 million | $187 million |
| Net Increase (Decrease) in Net Assets from Operations | $(441) million | $120 million |
| Earnings (Loss) per Share | $(1.57) | $0.43 |
| Asset Coverage Ratio | 172% | 182% |
| Weighted Average Yield on Accruing Debt | 9.9% | 10.1% |
Material Changes vs. Prior Period
- Significant Net Loss: The company reported a net decrease in net assets of $441 million ($1.57 per share) compared to a net increase of $120 million ($0.43 per share) in Q1 2025. This decline was driven primarily by a net change in unrealized depreciation of $377 million and net realized losses of $195 million.
- Portfolio Valuation Decline: Total investments at fair value decreased by approximately $740 million from the prior year-end ($13,009 million to $12,269 million). Management attributed the unrealized depreciation to reduced valuations of specific portfolio companies, including Affordable Care Inc., Production Resources Group, and Medallia Inc.
- Revenue Decline: Total investment income dropped to $304 million from $400 million in Q1 2025. This was due to lower interest and paid-in-kind (PIK) income, partially offset by higher dividends from the Credit Opportunities Partners JV (COPJV).
- Expense Reduction: Total operating expenses decreased to $187 million from $213 million, primarily due to lower subordinated income incentive fees ($25 million vs. $39 million) and management fees ($48 million vs. $52 million) resulting from the lower asset base.
- Debt Reduction: Total debt outstanding decreased by approximately $363 million to $7,271 million, while available borrowing capacity under the Senior Secured Revolving Credit Facility remains at $2,502 million.
Guidance, Outlook, and Recent Developments
- KKR Tender Offer: Concurrent with the release of results, KKR Alternative Assets L.P. announced a tender offer for up to $150 million of the company's common stock at a fixed price.
- Share Repurchase Program: On May 6, 2026, the Board authorized a new share repurchase program of up to $300 million. Repurchases are intended to occur at prices below NAV after the completion of the KKR tender offer.
- Convertible Preferred Stock: On May 10, 2026, the company entered into an agreement to sell $150 million of cumulative convertible perpetual preferred stock to KKR Alternative Assets L.P. Proceeds are intended for general corporate purposes, including funding the share repurchase program or debt repayment.
- Fee Waiver: KKR Credit has agreed to waive 100% of its portion (50% of the total) of the subordinated income incentive fee for four consecutive quarters beginning June 30, 2026.
- Legal Proceedings: A putative securities class action complaint was filed on May 4, 2026, alleging violations regarding portfolio valuations and distribution strategy. The company intends to vigorously defend the matter.
- Dividend: A regular quarterly distribution of $0.42 per share was declared on May 6, 2026, payable July 2, 2026.
Key Facts for Investor Verification
- Unrealized Depreciation Drivers: Verify the specific valuation methodologies and credit events impacting Affordable Care Inc., Production Resources Group, and Medallia Inc., which drove the $377 million unrealized loss.
- Non-Accrual Status: Confirm the list of assets placed on non-accrual status during the quarter, as this directly impacted the decline in interest and PIK income.
- Capital Structure Changes: Monitor the closing of the $150 million convertible preferred stock issuance and the execution of the $300 million share repurchase program to assess dilution and leverage impacts.
- Legal Risk: Track the status of the Stuart v. FS KKR Capital Corp. class action lawsuit filed in May 2026.
- Liquidity Position: Verify the company's ability to fund $1,326 million in unfunded debt commitments and $434 million in COPJV commitments given the current cash position of $124 million and available credit lines.