FS KKR Capital Corp. Q2 FY2026 earnings call

The provided transcript only contains the question-and-answer portion and closing remarks of the earning call, with no opening managerial statements, financial results overviews, or formal operational highlights presented by management.

No segment-level financial performance data (absolute revenue amounts or revenue contribution percentages) was disclosed in the provided transcript.

• FSK maintains its strategic target of reducing leverage to the middle of its target range over the medium term; leverage may fluctuate at the upper end of the range for the next couple of quarters before reaching the target.
• Share repurchases will proceed gradually through 2026 and 2027, consistent with the firm's previously communicated intention to fulfill the authorized repurchase plan, with activity paced to balance leverage targets and liquidity constraints.
• Management expects prepayment and repayment activity to remain at muted levels in Q3, but forecasts that activity will eventually ramp back up to more traditional historical levels.

• Elevated geopolitical tensions related to Iran have contributed to lighter-than-expected M&A and new deal activity, driving slower-than-forecast prepayment and repayment volumes.
• Ongoing elevated redemption activity in the non-traded finance space created market volatility that widened loan spreads earlier in the quarter, though spreads have partially retracted as near-term redemption concerns calmed.
• The firm holds large positions in a small set of specific companies (PRG, ATX, Witter, Paraton, Lionbridge, and Medallia) that drove the majority of mark-downs recorded in the quarter.

Q: Can you provide details on the $500 million in recent loan sales, including what assets were sold and if ongoing sales are expected? / A: The $500 million loan sale was ordinary course business, focused on reducing large out-sized high-quality asset exposures that carried lower margins than the market currently offers. Combined with over $1.3 billion in total repayments, the sale brought FSK's leverage back down into its target range. There was no industry or asset-type specific theme to the sold loans. / A: The mark-downs recorded this quarter came almost entirely from a small set of previously flagged names: PRG, ATX, Witter, Paraton, Lionbridge, and Medallia, with no new large negative marks from other unrelated portfolio assets.

Q: What is the target long-term portfolio composition after FSK's ongoing strategic repositioning, and what is the outlook for the firm's JV stake? / A: Management will continue on the existing path, increasing the share of 1st lien loans in the portfolio while reducing exposure to second lien and junior tranche assets. Asset-based finance (ABF) and JV holdings will remain in the 10-15% range each, consistent with prior guidance. The JV stake is currently at a comfortable level, and future adjustments will depend on ongoing discussions with the JV partner that balance both parties' interests.

Q: What is FSK's activity outlook for loan sales/prepayments for H2 2025, and what is the priority after completing the current phase of leverage adjustment and fee waivers? / A: Prepayment activity has been slower than expected this year, matching broader industry trends of light M&A and new deal activity, partially due to Iran-related geopolitical tensions. Activity has picked up slightly after the end of Q2 but remains muted, so Q3 volumes are expected to stay light before eventually ramping back to traditional levels. FSK intends to continue executing its authorized share repurchase plan, with the near-term focus on resolving heavy lifting for non-income producing assets to get leverage to the middle of the target range by 2027. / A: Share repurchase activity will follow standard 10b-5-1 program rules, paced to respect market volumes and leverage targets. Given current stock pricing, repurchases are attractive, and the full plan is expected to be completed gradually over 2026 and 2027.

Q: Have you seen any changes to new loan pricing or spreads as activity picked up after Q2, and how do you balance reinvestment vs share repurchases? / A: Activity picked up as market sentiment around Iran stabilized, with spreads widening by up to 75 basis points earlier in the quarter driven by ongoing elevated redemptions in the non-traded space. Spreads have retraced slightly as near-term redemption noise calmed, but overall the market has shifted to a lender-friendly environment, which FSK welcomes. The firm will balance new investment (focused mostly on delayed draw term loans and revolver fundings this quarter) with share repurchases, prioritizing getting leverage back to the middle of the target range while fulfilling the repurchase authorization.