FS KKR Capital Corp Q1 FY2025 earnings call

• Michael Forman discussed market uncertainties such as economic outlook, debt/equity market volatility, and geopolitical risks, and maintained the $0.64 per share base distribution and $0.06 per share supplemental distribution for 2025.
• Dan Pietrzak addressed portfolio analysis regarding tariff and DOGE exposure, noting ~8% direct exposure to tariffs and low to mid-single-digit DOGE exposure; took proactive steps to manage portfolio exposure, achieved exits on 2 portfolio companies, and highlighted the asset-based finance portfolio's benefits. Also discussed investment activity, including ~$2 billion in new originations, with breakdown by types.
• Steven Lilly provided financial details: fair value of investment portfolio at $14.1 billion, interest and dividend income details, expense breakdowns, net asset value per share changes, and capital structure updates like closing a middle market CLO and amending a funding facility.

During the first quarter, FS KKR Capital Corp (FSK) generated net investment income totaling $0.67 per share and adjusted net investment income totaling $0.65 per share. Liquidity ended the quarter with approximately $3.2 billion. In terms of investment activity, FSK originated approximately $2 billion of new investments, with breakdowns including ~63% in first lien loans, ~1% in other senior secured debt, ~19% in asset-based finance, ~15% in capital costs to the joint venture, and ~2% in equity and other investments. The asset-based finance portfolio was highlighted as particularly compelling during volatile periods, providing diversification benefits.

• 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.
• Recurring interest income expected to approximate $302 million, recurring dividend income from joint venture ~$56 million, other fee and dividend income ~$43 million.
• Management fees expected ~$53 million, incentive fees ~$36 million, interest expense ~$124 million, other G&A expenses ~$10 million.
• 2025 distribution guidance remains $2.80 per share consisting of $2.56 per share base and $0.24 per share supplemental.

• Market volatility and geopolitical risks affecting the economic outlook.
• Uncertainty around tariff and DOGE impacts on portfolio companies, with second or third-order effects unknown.
• Potential recession and its tail risks.
• Consumer-related exposure in the ABS portfolio, though focused on secured risk or high FICO score prime borrowers.

Q: John Hecht asked about the timing of deployments last quarter and yield adjustments.

A: Dan Pietrzak and Steven Lilly discussed origination numbers, deployment diversification, and that most rate changes had flowed through by end of first quarter but potential for continued yield pressure.

Q: Casey Alexander asked about macro outlook, yield compression, and ABF yields.

A: Dan Pietrzak talked about macro team insights, yield compression potential, and ABF deals' yield characteristics.

Q: Ken Lee asked about leverage range and ABF risks.

A: Dan Pietrzak discussed leverage range and ABF risks, noting consumer risk was a small percentage, targeting secured risk/high FICOs.

Q: Finian O'Shea asked about ABF fee income.

A: Steven Lilly discussed ABF dividend lumpy nature and need for follow-up on numbers.

Q: Robert Dodd asked about JW Aluminum and interest coverage.

A: Dan Pietrzak and Steven Lilly addressed JW Aluminum's situation and interest coverage lag effects.

Q: Maxwell Fritscher asked about deal activity in different market segments.

A: Dan Pietrzak mentioned potential muted activity in larger companies relying on M&A but FSK's benefits.