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FS KKR Capital Corp (FSK)·Q1 2025 Earnings Summary

Executive Summary

  • Adjusted net investment income per share of $0.65 slightly exceeded S&P Global consensus of $0.6487; total investment income of $400M topped consensus $395.2M. Management guided Q2 2025 GAAP NII ~$0.64 and adjusted NII ~$0.62 as yields compress and fee/dividend income normalizes . Values retrieved from S&P Global.*
  • NAV per share fell to $23.37 from $23.64, driven by $0.24 per-share net realized/unrealized losses despite strong origination (~$2.0B) and stable non-accruals (2.1% FV; 3.5% cost) .
  • Liquidity remains robust ($3.2B available), leverage increased modestly (net debt/equity 114%), and funding diversified with a $380M middle market CLO (SOFR +158 bps) and an amended Morgan Stanley facility (spread 1.95%, maturity extended) .
  • Distribution policy maintained: $0.70 per share declared for Q2 (base $0.64 + supplemental $0.06), consistent with the Board’s intention to keep $0.64 base and $0.06 supplemental for all four quarters of 2025 .

What Went Well and What Went Wrong

What Went Well

  • Origination momentum: ~$2.0B of new investments, strongest net deployment since 2022; ~63% first lien, ~19% asset-based finance; JV scaled to 11.8% of portfolio fair value .
  • Fee and dividend resilience: Dividend and fee income totaled $98M, partially offsetting lower interest income amid rate declines; recurring JV dividends were $46M in Q1 .
  • Non-accruals stable/improving: 2.1% of portfolio at fair value and 3.5% at cost (down vs 2.2% FV/3.7% cost in Q4); several names removed via restructuring/wind-down .

Management quotes:

  • “We are pleased to deliver a strong start to the year, generating $0.65 per share of Adjusted Net Investment Income and originating approximately $2.0 billion of new investments.” — Michael Forman .
  • “Our asset-based finance portfolio…is particularly compelling during periods like this.” — Daniel Pietrzak .

What Went Wrong

  • NAV pressure: Net realized/unrealized losses widened to $0.24 per share (adjusted -$0.22), with markdowns at Production Resource Group and 4840; “earnings per share” (GAAP) declined to $0.43 vs $0.52 in Q4 .
  • Yield compression: Weighted average yield on accruing debt investments fell to 10.8% ex-merger (from 11.0%), driven by base rate declines and spread compression on new originations .
  • Macro/tariff uncertainty: Management highlighted elevated volatility and tariff/DOGE exposures; ~8% of portfolio could have direct tariff exposure, with second/third-order impacts uncertain .

Financial Results

Quarterly Per-Share Metrics

MetricQ3 2024Q4 2024Q1 2025
GAAP EPS (Net increase per share)$0.57 $0.52 $0.43
GAAP Net Investment Income per share$0.77 $0.61 $0.67
Adjusted Net Investment Income per share$0.74 $0.66 $0.65

Revenue (Total Investment Income) YoY

MetricQ1 2024Q1 2025
Total Investment Income ($USD Millions)$434 $400
Net Investment Income ($USD Millions)$212 $187
NII Margin (%)48.9% 46.8%

Estimate Comparison (S&P Global)

MetricConsensusActualSurprise
Primary EPS (per share)$0.6487*$0.65 +$0.0013 (inline to slight beat)*
Revenue (Total Investment Income, $USD Millions)$395.2*$400 +$4.8 (+1.2%)*

Note: Values retrieved from S&P Global.*

Segment/Asset-Class Mix

Segment (% of FV)Dec 31, 2024Mar 31, 2025
Senior Secured Loans — First Lien57.8% 58.1%
Senior Secured Loans — Second Lien5.1% 4.8%
Other Senior Secured Debt0.9% 0.4%
Subordinated Debt1.7% 1.7%
Asset Based Finance15.6% 15.4%
Credit Opportunities Partners JV10.1% 11.8%
Equity/Other8.8% 7.8%
Variable Rate Debt Investments65.8% 67.2%
Fixed Rate Debt Investments9.5% 8.2%

KPIs and Balance Sheet

KPIQ4 2024Q1 2025
NAV per Share$23.64 $23.37
Net Debt/Equity104% 114%
Total Fair Value of Investments ($USD Millions)$13,490 $14,122
Cash, Cash Equivalents & FX ($USD Millions)$296 $472
Liquidity Availability ($USD Billions)$4.4 $2.6 undrawn + $0.472 cash; total availability cited $3.2
Weighted Avg Yield on Accruing Debt (ex-merger)11.0% 10.8%
Weighted Avg Yield on All Debt (ex-merger)10.4% 10.2%
Non-Accruals (% FV / % Cost)2.2% / 3.7% 2.1% / 3.5%
Debt Composition (Unsecured / Secured)75% / 25% 54% / 46%
Total Purchases / Sales & Repayments ($USD Millions)$891 / $1,462 $1,998 / $1,407 (incl. $290 to JV)
Weighted Avg Effective Interest Rate5.45% 5.48%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP Net Investment Income per shareQ2 2025N/A~$0.64 New
Adjusted Net Investment Income per shareQ2 2025N/A~$0.62 New
Recurring Interest Income ($USD Millions)Q2 2025N/A~$302 New
JV Recurring Dividends ($USD Millions)Q2 2025N/A~$56 New
Other Fee & Dividend Income ($USD Millions)Q2 2025N/A~$43 New
Management Fees ($USD Millions)Q2 2025N/A~$53 New
Incentive Fees ($USD Millions)Q2 2025N/A~$36 New
Interest Expense ($USD Millions)Q2 2025N/A~$124 New
Other G&A ($USD Millions)Q2 2025N/A~$10 New
Distributions (Base + Supplemental)FY 2025Maintain $0.64 base + $0.06 supplemental each quarter $2.80 total ($2.56 base + $0.24 supplemental) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Tariffs/Macro VolatilityNot explicitly highlighted in PRsExtensive analysis; ~8% direct tariff exposure; cautious on second/third-order effects Rising uncertainty
Asset-Based Finance (ABF)ABF ~14–16% of FV; supportive mix Viewed as compelling in volatile periods; consumer exposure ~3% of FSK; focus on secured/high FICO Strategic emphasis maintained
Origination ActivityQ3: ~$1.1B new; net negative ~$2.0B new; strongest net deployment since 2022; ~63% first lien; ~19% ABF Accelerating
Yields/CompressionYields declining across Q3→Q4 Further compression (accruing 10.8% ex-merger); base rates down; spreads compressed Downward pressure
Non-AccrualsQ3 FV 1.7%; Q4 FV 2.2% FV 2.1%; actions: additions and removals; JV-originated non-accruals lower Stable to improving
Leverage/Liquidity/FundingNet debt/equity ~104–109%; liquidity $3.5–$4.4B Net debt/equity 114%; $380M CLO; facility spread cut; liquidity $3.2B Proactive optimization
M&A/Deal FlowAnticipated build; Q3 originations resilient Near-term slowdown post-April; diversified channels sustain activity Paused broadly
AI/Technology InitiativesNot discussedNot discussedN/A

Management Commentary

  • Prepared remarks emphasized stability of distributions: “Our strategy of building spillover income during prior periods of elevated interest rates supports the continued stability of our $0.64 base and $0.06 supplemental quarterly distributions amid the current market volatility.” — Michael Forman .
  • Macro tone and guidance framing: “We expect second quarter 2025 GAAP net investment income to approximate $0.64 per share, and…adjusted net investment income to approximate $0.62 per share.” — Steven Lilly .
  • Portfolio construction and ABF: “ABS investments…are anchored in contractual structures tied directly to tangible collateral…we continue to be bullish on ABS positive impact.” — Daniel Pietrzak .
  • Confidence in platform and balance sheet: “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.” — Michael Forman .

Q&A Highlights

  • Yield outlook and rate flow-through: Most rate decline has flowed through; recurring interest income guided flat around ~$300M; expect continued modest yield compression .
  • Pipeline/mix and market share: Activity diversified (Europe, ABF, JV growth); broader M&A slowed in Q2; incumbency and multiple channels support deal flow .
  • Recession odds and tariff backdrop: KKR Macro sees recession “more likely than not,” potentially muted; tariff developments remain fluid .
  • ABF consumer exposure and downside protection: Consumer ABF ~3% of FSK; focus on secured risk, high FICO (e.g., Discover avg FICO ~760; PayPal portfolio turns every ~90 days) .
  • Specific credits: JW Aluminum refinancing reduced exposure; beneficiary of recent tariff news; cautious on returning to accruals .
  • Leverage range and liability management: Target leverage 1.0x–1.5x remains; CLO execution and facility amendment improve funding mix .

Estimates Context

  • EPS vs consensus: Adjusted NII per share $0.65 slightly above S&P Global Primary EPS consensus $0.6487; in-line performance amid lower base rates and spread compression. Values retrieved from S&P Global.*
  • Revenue vs consensus: Total investment income $400M beat S&P Global consensus $395.2M on higher dividend/fee income and robust originations. Values retrieved from S&P Global.*
  • Forward: Street targets largely stable; target price consensus $17.33*; recommendation text not available via S&P in this pull. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Distribution visibility is a support: The Board’s maintained base and supplemental distributions and Q2 NII guidance anchor near-term yield, a likely stock support amid macro volatility .
  • Origination strength offsets yield compression: Despite lower base rates and spreads, strong net deployment, ABF dividends, and JV scaling underpinned Q1 results; monitor sustainability if M&A remains subdued .
  • Portfolio risk remains contained: Non-accruals stable; proactive exits and restructurings; watch credits flagged for margin pressure (PRG, 4840) and tariff/DOGE-exposed sectors .
  • Funding improvements enhance resilience: New CLO and facility spread cut/maturity extension reduce funding costs and diversify liabilities; supports capacity to deploy in volatility .
  • NAV sensitivity persists: Mark-to-market and specific markdowns drove NAV down; equity/other exposures and fair value marks can swing quarterly prints .
  • Near-term trading: Neutral-to-positive setup on maintained distributions and slight beats; headline risk from macro/tariff news and yield compression could cap multiple; watch Q2 fee/dividend normalization .
  • Medium-term thesis: Scale, diversified origination channels, and ABF/JV engines position FSK to compound NII in a normalized rate regime; careful credit selection and liability optimization are key drivers .