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KBRA Affirms Rating for KKR Income Opportunities Fund Mandatory Redeemable Preferred Shares

6 Mar 2026   |   New York

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KBRA affirms its rating of 'A' and maintains its Stable outlook for the outstanding Mandatory Redeemable Preferred Shares ("MRPS") of KKR Income Opportunities Fund (NYSE: KIO) ("KIO" or the "Fund").

KKR Income Opportunities Fund is a diversified, closed-end management investment company registered under the Investment Company Act of 1940 (the "1940 Act") and managed by KKR Credit Advisors (US) LLC. KIO primarily invests in first and second lien loans, unsecured loans, and high-yield corporate debt instruments of varying maturities. The Fund commenced operations on July 25, 2013, and its common shares trade on the New York Stock Exchange under the symbol "KIO."

The rating is primarily driven by KIO's asset coverage, liquidity, and management experience. Since the MRPS issuance in October 2019, total asset coverage has ranged from 243% to 358% with an average of 286%, driven by stable credit performance of the underlying assets and active management of Fund leverage.

Key Credit Considerations

  • Asset Coverage: The 1940 Act requires a minimum asset coverage ratio of 200% on total leverage (including senior debt and preferred shares) and 300% on senior debt to maintain the ability to issue additional debt or preferred shares. Furthermore, the MRPS financing documents require maintaining a minimum total leverage asset coverage of 225%. KIO has demonstrated its ability and willingness to meet these requirements. As of January 31, 2026, total leverage asset coverage was 321%, compared to 353% as of February 24, 2025. Since the MRPS issuance in October 2019, total leverage asset coverage has ranged from 243% to 358% with an average of 286%.
  • Valuation of Portfolio Assets: The Fund is comprised primarily of Level I securities (U.S. Treasury securities, mutual funds, etc.) and Level II securities (corporate bonds, leveraged loans, etc.), which generally have observable direct or indirect market values based on secondary market activity. As of December 2025, KIO holds approximately 15.2% of its total market value in Level III securities (equities, CLOs, etc.), up from 13.0% as of February 2025. The proportion of Level III securities has increased because of the addition of CLOs, which are classified as Level III securities, to the portfolio as well as some migration of securities downward from Level II as a result of restructurings or reorganizations.
  • Asset Liquidity: As of December 2025, the majority of the Fund's assets are relatively liquid securities. Currently, 44.3% of the Fund's market value is allocated to leveraged loans, 43.1% is in high yield bonds, 10.4% in CLOs or CDOs, and 2.3% in equities and other investments. These asset classes generally trade in active secondary markets which provide for transparent pricing and trade execution, should any of the securities need to be sold to satisfy debt service requirements.
  • Diversified Investments: The Fund portfolio comprises 318 investment positions across 255 unique issuers as of December 31, 2025, compared to 312 positions across 249 unique issuers as of February 2025. Out of the Fund’s total market value, the largest single holding represents 2.3%, the top issuer represents 3.1%, and the top ten issuers comprise 24.3%. For comparison, the portfolio as of February 2025 consisted of 312 positions across 249 unique issuers, with the largest holding representing 2.3%, the top issuer representing 2.9%, and the top ten issuers making up 21.7% of the total market value. The Fund investments operate in various sectors, with Hotels, Restaurants & Leisure representing the largest industry allocation (11.6% of total market value), followed by Financial Services (10.7%) and Software (9.2%). The diversity across investment holdings, issuers, and industries helps mitigate idiosyncratic risk.
  • Risk Involved in Sub-Investment Grade Securities: The Fund invests primarily in below investment grade loans, bonds, and other fixed-income instruments that are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. Currently, KIO’s portfolio is rated below investment grade, which implies substantial credit risk in the underlying investment portfolio.
  • Manager's Experience and Track Record: Founded in 1976, KKR is an asset management firm with approximately $744 billion of assets under management (“AUM”) and more than 710 investment professionals as of December 31, 2025. KKR Credit has roughly $322 billion AUM (43% of the firm's total AUM). Within KKR Credit, the Leveraged Credit Platform is roughly $143 billion in size and incorporates leveraged loans (including revolving credit facilities), high yield bonds, opportunistic credit, and structured credit (including CLOs and asset-backed securities).

Rating Sensitivities

  • Significant Change in Asset Quality: A sustained deterioration in the weighted average credit quality of the Fund’s portfolio and/or a material increase in exposure to equity or equity-like investments could result in negative rating pressure. Conversely, a sustained improvement in the overall credit quality of the Fund’s investments could result in positive rating pressure.
  • Significant Change in Asset Coverage: A decline in asset coverage below the minimum 1940 Act requirements coupled with the Fund manager’s inability to liquidate assets and demonstrate a clear intent and capacity to cure the deficiency within the required 30-day period could negatively impact the rating. Conversely, a long-term trend of higher-quality Fund investments could result in positive rating changes.

To access ratings and relevant documents, click here.

Click here to view the report.

Related Publications

Methodologies

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

This credit rating is endorsed by Kroll Bond Rating Agency Europe Limited for use in the European Union and by Kroll Bond Rating Agency UK Limited for use in the UK. Information on a credit rating’s endorsement status is available on its rating page at KBRA.com.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

There are certain issuers, entities or transactions rated by KBRA Europe or KBRA UK that may be or have relationships with Shareholders and/or Shareholder-Related Companies, as that term is defined in KBRA’s Shareholder and Shareholder Related Companies for KBRA Europe and KBRA UK Policy and Procedure. Relevant disclosure information may be found here.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

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