FS KKR Capital Corp. 8-K Summary
Business Context and Reporting Period
FS KKR Capital Corp. (FSK) filed this Current Report on Form 8-K on June 25, 2019, regarding a material definitive agreement entered into by its wholly owned special purpose financing subsidiary, FS KKR MM CLO 1 LLC (the "Issuer"). The Company serves as the portfolio manager for the Issuer.
Key Financial Metrics and Transaction Details
The Company completed a $378.7 million term debt securitization (the "CLO Transaction"). The capital structure of the 2019-1 Notes issued by the Issuer is as follows:
- Total Proceeds: $378,700,000
- Class A-1 Senior Secured Floating Rate Notes: $299,400,000 (LIBOR + 1.70%)
- Class A-2 Senior Secured Floating Rate Notes: $52,300,000 (LIBOR + 2.50%)
- Class B Secured Deferrable Floating Rate Notes: $27,000,000 (LIBOR + 4.10%)
- Maturity Date: July 15, 2030
- Collateral: Diversified portfolio of middle market loans and participation interests.
- Membership Interests: The Company holds 100% of the Issuer's membership interests, which had a nominal value of approximately $128.8 million at closing.
Material Changes and Management Commentary
The primary material change is the execution of the CLO Transaction, which involves the transfer of an initial loan portfolio from the Company to the Issuer in exchange for a portion of the net cash proceeds. Any excess of the fair market value of the loan portfolio over the cash purchase price is deemed a capital contribution by the Company to the Issuer.
Management commentary highlights that the Company will serve as the portfolio manager under a Portfolio Management Agreement. Notably, the Company has elected to irrevocably waive any base management fee or subordinated interest to which it may be entitled under this agreement for as long as it serves as portfolio manager.
Risks and Contingencies
The 2019-1 Notes are secured obligations of the Issuer and are subject to customary covenants and events of default. The notes have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption. The filing text does not provide specific details on liquidity metrics, revenue, or profit margins for the reporting period, as this is a transaction-specific filing.
Investor Verification Checklist
- Verify the composition and credit quality of the initial loan portfolio transferred to the Issuer.
- Confirm the exact cash proceeds received by the Company versus the fair market value of the transferred assets to determine the capital contribution amount.
- Review the full text of the Indenture (Exhibit 10.1) for specific covenants and events of default.
- Assess the impact of the waived management fees on the Company's future revenue streams from this subsidiary.