• Net Investment Income: $0.61 per share; adjusted net investment income of $0.66 per share.
• Capital Deployment: $4.7 billion deployed in new transactions during 2024.
• Annual Distribution: $2.90 per share achieved in 2024.
• Unsecured Notes Issuance: $600 million maturing in 2029 and $700 million maturing in 2030.
• Investment Portfolio Fair Value: $13.5 billion as of December 31, 2024.
• Weighted Average Yield on Accruing Debt Investments: 11% as of December 31, 2024.
• Total Investment Income: $407 million for the fourth quarter.
• Interest Expense: $116 million for the fourth quarter.
• Net Asset Value Per Share: $23.64 as of December 31, 2024.
• Available Liquidity: $4.8 billion as of December 31, 2024.

• Warning! GuruFocus has detected 5 Warning Signs with FSK.

Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• FS KKR Capital Corp (NYSE:FSK) reduced nonaccrual investments by 58% during 2024, improving credit quality and portfolio stability.
• The company deployed $4.7 billion of capital into new transactions in 2024, maintaining a disciplined origination strategy.
• FS KKR Capital Corp (NYSE:FSK) achieved its goal of providing shareholders with an annual distribution of $2.90 per share.
• The company issued $1.3 billion in unsecured notes during 2024, strengthening its balance sheet.
• FS KKR Capital Corp (NYSE:FSK) reported a total return of 23% for shareholders in 2024, reflecting strong performance.

Negative Points

• The decline in interest rates is expected to reduce FS KKR Capital Corp (NYSE:FSK)'s net investment income in 2025.
• The company experienced a decrease in total investment income by $34 million quarter-over-quarter due to lower base rates and delayed investment closings.
• FS KKR Capital Corp (NYSE:FSK) noted that M&A activity may take longer to materialize than expected due to macroeconomic uncertainties.
• Nonaccruals represented 3.7% of the portfolio on a cost basis as of the end of the fourth quarter, indicating some ongoing credit challenges.
• The weighted average yield on accruing debt investments decreased by 50 basis points to 11% as of December 31, 2024.

Q & A Highlights

Q: Can you elaborate on your confidence in the dividend outlook, particularly regarding spillover income and its impact on adjusted net investment income? A: Daniel Pietrzak, Co-President and Chief Investment Officer, explained that the dividend policy, which includes a base and supplemental component, remains attractive. The company has been over-earning in recent years due to favorable rate and spread environments, allowing them to reward shareholders with additional earnings. Steven Lilly, CFO, added that the spillover balance represents 2.7 quarters of total dividends, which they plan to reduce to around 2.3 quarters, aligning with their long-term target of plus or minus two quarters.

Q: How would you characterize the spreads you're getting per unit of risk, such as leverage, given the decline in base rates and spread compression? A: Daniel Pietrzak noted that there has been significant spread compression across credit markets, with more stability in new deals recently. The regular direct lending deal is around 4.75% to 5% before fee income. While repricings are occurring, they are generally linked to well-performing names, and the total return remains attractive at approximately 10%.

Q: Can you provide any granularity on how much in terms of new originations got rolled over from Q4 to Q1? A: Daniel Pietrzak mentioned that a handful of deals were delayed, which would have generated about $0.02 to $0.03 in fee income. The delay was merely a timing difference.

Q: With M&A activity potentially delayed, where are you seeing pipeline growth? Are private equity sponsors bringing forward some back books, or are these companies insulated from government policies? A: Daniel Pietrzak explained that while a significant increase in M&A activity is expected, it may take longer to materialize due to factors like tariffs and government policies. However, they are busier now than in previous years, and the pipeline is building, indicating increased deal activity in the future.

Q: How do you view the asset-backed finance side of your business, given its growth potential? A: Daniel Pietrzak highlighted that asset-backed finance is a significant part of their business, with a team of 50 people and over $65 billion in total AUM. The market is large and growing, with unique origination angles that they plan to exploit. It feels similar to the direct lending market 5-10 years ago, with increasing interest from institutional investors.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.