FS KKR Capital Corp. Q4 FY2025 earnings call

Management Statement and Operational Highlights: In 2025, achieved goals of originating attractive investments, providing $2.80 per share distributions, and optimizing balance sheet. Acknowledged downward pressure on some investments in Q2 and Q4. 2026 goals include addressing underperforming assets, focusing on first lien senior secured originations, and preserving liquidity. In Q4, ~50% of net realized and unrealized losses from certain investments. Evaluated 13% more investment opportunities in 2025, selective in investment. Originated ~$1.1 billion new investments in Q4. 5 new investments added to non-accrual status and 1 removed in Q4.

FSKKR Capital Corp's fourth quarter and full year 2025 segment performance: Net investment income was 48 cents per share with adjusted net investment income of 52 cents per share. Net asset value per share declined by 5% to $20.89. Originated $5.6 billion of investments in 2025. Issued $400 million of new unsecured notes, closed $400 million bilateral lending facility, diversified funding sources through two new middle market CLOs, and amended senior secured revolving credit facility. New investments in Q4 were ~$1.1 billion, ~80% focused on add-on financings to existing portfolio companies and long-term KKR relationships. Non-accruals as of Dec 31 were 5.5% on cost basis and 3.4% on fair value basis, with new non-accruals added in Q4.

Guidance: Expect first quarter 2026 GAAP net investment income to approximate 45 cents per share, adjusted net investment income to approximate 44 cents per share. 2026 dividend may be ~9% of net asset value instead of original ~10%. Aggregate capital commitment to joint venture with South Carolina Retirement Systems Group Trust increased from $2.8 billion to ~$2.975 billion.

Risks: Non-investment-grade private debt investing may have underperforming assets from time to time. Portfolio volatility risk. Non-accrual rate above long-term BDC industry average. Specific risks in certain investments like medical roll-ups, operational underperformance, and potential AI impact on software companies.

Question and Answer: Finian O'Shea asked about company evolution and performance fee, management responded. Ethan K inquired about common factors in underperformance and AI impact, management answered. Aaron Sanovich asked about dealing with problem credits and JV equity change, management replied. Casey Alexander asked about stock repurchases and TORAC investment, management answered. Rick Shane asked about repurchasing shares vs new loans, management replied. Robert Dodd asked about markdowns and risk of more earnings loss, management answered. Dylan Hines asked about inflection point in non-accruals, management answered. Finian O'Shea followed up on dividend spillover, management responded.