KBRA Assigns Rating to FS KKR Capital Corp.'s $400 Million Senior Unsecured Notes due January 15, 2031

KBRA assigns a rating of BBB to FS KKR Capital Corp.'s (NYSE: FSK or "the company") $400 million, 6.125% senior unsecured notes due January 15, 2031. The rating Outlook is Stable. The proceeds will be used for general corporate purposes.

Key Credit Considerations

The rating is supported by FSK’s affiliation with KKR & Co.’s (“KKR”) $648 billion AUM investment platform, including its $261 billion credit platform (“KKR Credit”). This affiliation provides FSK with SEC exemptive relief to co-invest alongside other KKR Credit-affiliated entities. In addition, the platform offers substantial resources, including research, sourcing, underwriting, and restructuring expertise. As the third largest publicly traded business development company (BDC), FSK maintains a well-diversified investment portfolio totaling $13.6 billion at fair value (FV), with a median portfolio company EBITDA of $114 million. As of June 30, 2025, the portfolio comprised 218 companies across 23 sectors, excluding the joint venture. The investments include first-lien senior secured loans (59%) and first-priority asset-based finance (ABF) loans (14.7%) to upper-middle-market companies. The top three sector exposures, excluding the joint venture, are Software & Services (19.4%), Commercial & Professional Services (14.5%), and Capital Goods (13.8%).

Further supporting the rating is FSK’s highly diversified funding mix which includes secured bank facilities, unsecured senior debt, and CLOs and is enhanced by the scale and connectivity of the KKR Credit platform allowing for broad access to the capital markets. As of June 30, 2025, the company had $2.4 billion in available bank lines and $312 million in cash and cash equivalents (including foreign currency), offset by $1.4 billion in unsecured debt maturities over the next two years and $2.1 billion in unfunded commitments. Most of the unfunded commitments are subject to performance tests and/or adviser approval. Unsecured debt represented approximately 54% of total debt, supporting financial flexibility and offering meaningful unencumbered assets for unsecured noteholders. Post quarter-end, the company amended and upsized its senior secured revolver, increasing the total commitment to $4.7 billion from $4.6 billion and extended the maturity to July 3030 as well reduced the spread by 10 bps. As of June 30, 2025, FSK’s gross and net leverage ratios were 1.30x and 1.26x, respectively, slightly above the company’s target net leverage range of 1.0x to 1.25x. The asset coverage ratio is relatively low when compared with peers at 177% due to recent declines in NAV from unrealized and realized losses but above the 150% regulatory minimum. KBRA expects leverage to decline with increasing credit quality of the investment portfolio over time.

Credit strengths are counterbalanced by FSK’s elevated proportion (29%) of non-qualifying investments, which includes equity, a joint venture, and positions in non-U.S. portfolio companies and U.S. public companies. However, the company’s joint venture accounts for approximately 12% of total investments and is primarily composed of first-lien senior secured loans to upper-middle-market companies located outside the U.S. with low non-accruals. As of June 30, 2025, eleven portfolio companies were on non-accrual, representing 5.3% and 3.0% of total investments at cost and FV, respectively. Further counterbalancing the strengths are the potential risks related to FSK’s illiquid assets, retained earnings constraints as a regulated investment company (RIC), and uncertain economic environment with high base rates, inflation, and geopolitical risks that could lead to higher non-accruals.

FSK is an externally managed, closed-end, non-diversified investment management company that elected to be treated as a Business Development Company (BDC) under the 1940 Act and as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment taxable income. The company was formed as a Maryland corporation. The company is managed by FS/KKR Advisor, LLC, a partnership of FS Investments and KKR Credit that was formed in 2018. The KKR Credit platform is a subsidiary of KKR & Co.

Rating Sensitivities

The rating is unlikely to be upgraded in the intermediate term. A rating downgrade and/or Outlook change to Negative could be considered if a prolonged downturn in the U.S. economy has material impacts on performance and non-accruals that significantly affect capital, leverage, and liquidity metrics. An increased focus on riskier investments or a significant change in the current management structure coupled with a negative change in strategy, credit monitoring, and/or originations could also pressure the rating.

This report has been updated on September 19, 2025, to revise pricing information.

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