KBRA Assigns Rating to FS KKR Capital Corp.'s $900 Million Senior Unsecured Notes Due 2031
KBRA assigns a rating of BBB- to FS KKR Capital Corp.'s (NYSE:FSK) ("the company") $900 million 7.50% senior unsecured notes due 2031. The rating Outlook is Stable. Proceeds will be used for general corporate purposes with the potentiality of repaying outstanding secured indebtedness.
Key Credit Considerations
The rating is supported by FSK's affiliation with KKR & Co.'s ("KKR") approximately $758 billion platform, including its large and established $293 billion AUM credit business, which provides significant benefits in sourcing, underwriting, restructuring capabilities, and capital markets access. In 2Q26, KKR announced several shareholder support measures for FSK, including a planned $150 million tender offer for common shares and a $150 million convertible preferred equity investment.
FSK also maintains a diversified funding profile, including unsecured debt, bank facilities, and CLOs, with a meaningful proportion of unsecured funding that enhances financial flexibility. As of March 31, 2026, FSK had solid liquidity, including $2.6 billion in available bank lines and $129 million in cash, offset by $900 million in unsecured debt maturing within two years ($400 million in January 2027, $500 million in July 2027) and $1.8 billion in unfunded portfolio commitments, most of which are not expected to be drawn.
Counterbalancing these strengths, FSK has had a sustained deterioration in credit profile, driven by recently elevated realized and unrealized losses and a material increase in non-accrual investments, pressuring net asset value (NAV) and increasing regulatory leverage of 1.38x, above the company's target of 1.0x-1.25x. The asset coverage ratio of 172% provides a 15% cushion above the regulatory minimum of 150%. Total realized and unrealized losses approximated $624 million in 2025 with an additional net loss of $558 million in 1Q26 due to portfolio company credit deterioration, particularly in concentrated underperforming investments. At 1Q26, non-accrual investments increased to 8.1% of total investments at cost and 4.2% at fair value in 1Q26. A decline in portfolio valuations from credit spread widening and continued pressure on portfolio credit quality could further impact credit metrics.
Additional counterbalancing constraints include a relatively high proportion of non-qualifying investments (25.8%), including equity positions, joint venture investment, and investments in non-U.S. and public companies, which introduce additional complexity and potential volatility relative to more traditional senior secured lending strategies. Other considerations include structural risks inherent in the BDC business model, including exposure to illiquid investments, constraints on retained earnings due to regulated investment company (RIC) status, and sensitivity to macroeconomic conditions.
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. An Outlook revision to Negative or a rating downgrade could occur if macroeconomic conditions weaken significantly, resulting in greater than expected pressure on earnings, asset quality, and leverage, including sustained increases in leverage that pressure asset coverage, or a meaningful rise in non-accrual investments relative to peers.
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Methodology
Disclosures
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.
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.
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.
Doc ID: 1015287
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Analytical Contacts
Kevin Kent, Director (Lead Analyst)
+1 301-960-7045
kevin.kent@kbra.com
Teri Seelig, Managing Director
+1 646-731-2386
teri.seelig@kbra.com
Business Development Contact
Constantine Schidlovsky, Senior Director
+1 646-731-1338
constantine.schidlovsky@kbra.com