FS KKR Capital Corp (NYSE:FSK) Q1 2022 Earnings Conference Call May 10, 2022 9:00 AM ET Company Participants Robert Paun - Head, IR Michael Forman - Chairman and CEO Dan Pietrzak - CIO and Co-President Brian Gerson - Co-President Steven Lilly - CFO Ryan Wilson - Co-COO Conference Call Participants Kenneth Lee - RBC Capital Markets Melissa Wedel - JPMorgan Paul Johnson - KBW Casey Alexander - Compass Point Bryce Rowe - Hovde Group Operator Good morning, ladies and gentlemen and welcome to FS KKR Capital Corp ...

FS KKR Capital Corp. F i n a n c i a l I n f o r m a t i o n Quarter Ended March 31, 2022 All information is as of March 31, 2022 unless otherwise noted Summary of Quarterly Results | --- | --- | |-------|-------| | | | | | | | | • | | | | | | | | | • | | | • | | | • | Dividend Net investment income (NII) for the quarter ended March 31, 2022 was $220 million, or $0.77 per share, as compared to $189 million, or $0.66 per share, for the quarter ended December 31, 2021. Adjusted net investment income (Adjusted ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 814-00757 FS KKR Capital Corp. (Exact name of registrant as specified in its charter) (State of Incorporation) 201 Rouse Boulevard Philadelphia, Pennsylvania 191 ...

FS KKR Capital Corp. F i n a n c i a l I n f o r m a t i o n Quarter and Year Ended December 31, 2021 All information is as of December 31, 2021 unless otherwise noted Summary of Quarterly Results Fourth Quarter Performance Dividend • Net investment income (NII) for the quarter ended December 31, 2021 was $189 million, or $0.66 per share, as compared to $201 million, or $0.71 per share, for the quarter ended September 30, 2021. • Adjusted net investment income (Adjusted NII) for the quarter ended December 3 ...

FS KKR Capital Corp (NYSE:FSK) Q4 2021 Earnings Conference Call March 1, 2022 9:00 AM ET Company Participants Robert Paun - Head,IR Michael Forman - Chairman and CEO Dan Pietrzak - CIO and Co-President Brian Gerson - Co-President Steven Lilly - CFO Ryan Wilson - Co-COO Conference Call Participants John Hecht - Jefferies Bryce Rowe - Hovde Group Ryan Lynch - KBW Casey Alexander - Compass Point Finian O'Shea - Wells Fargo Kenneth Lee - RBC Capital Markets Melissa Wedel - JP Morgan Operator Good morning, ladie ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K COMMISSION FILE NUMBER: 814-00757 FS KKR Capital Corp. (Exact name of registrant as specified in its charter) 201 Rouse Boulevard Philadelphia, Pennsylvania 19112 (Address of principal executive offices) (Zip Code) Maryland 26-1630040 (State of Incorporation) (I.R.S. Employer Identification Number) Registrant's telephone number, including area code: (215) 495-1150 Securities registered pursuant to Section 12( ...

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for FS KKR Capital Corp as of September 30, 2021, and for the three and nine months then ended, reflecting a significant increase in assets and liabilities primarily due to the FSKR merger in June 2021 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets significantly increased to $16.62 billion from $7.24 billion at December 31, 2020, primarily due to the FSKR merger, leading to a rise in total stockholders' equity to $7.74 billion and NAV per share to $27.14 Consolidated Balance Sheet Highlights (in millions, except per share data) | Metric | September 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Investments, at fair value | $15,824 | $6,780 | | Total Assets | $16,620 | $7,237 | | Total Liabilities | $8,884 | $4,141 | | Total Stockholders' Equity | $7,736 | $3,096 | | Net Asset Value per share | $27.14 | $25.02 | - The substantial increase in assets, liabilities, and equity between **December 31, 2020**, and **September 30, 2021**, is primarily attributable to the merger with FSKR, which was completed on **June 16, 2021**[145](index=145&type=chunk)[339](index=339&type=chunk) [Unaudited Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) For Q3 2021, total investment income was $360 million, resulting in a net increase in net assets of $270 million, while for the nine months ended September 30, 2021, total investment income was $717 million, leading to a net increase in net assets of $1.33 billion, a significant turnaround from the prior year Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $360 | $147 | $717 | $476 | | Net Investment Income | $201 | $78 | $395 | $253 | | Total Net Realized and Unrealized Gain (Loss) | $69 | $132 | $939 | $(801) | | Net Increase (Decrease) in Net Assets | $270 | $210 | $1,334 | $(548) | | Earnings (Losses) per Share | $0.95 | $1.70 | $7.13 | $(4.40) | [Unaudited Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) For the nine months ended September 30, 2021, net assets increased by $4.64 billion, driven by a $1.33 billion net increase from operations and a $3.64 billion increase from capital share transactions, primarily the FSKR merger, partially offset by $335 million in distributions Changes in Net Assets for the Nine Months Ended September 30, 2021 (in millions) | Category | Amount | | :--- | :--- | | Net Assets at beginning of period | $3,096 | | Net increase from operations | $1,334 | | Distributions to stockholders | $(335) | | Issuance of common stock (FSKR Merger) | $3,642 | | Repurchases of common stock | $(1) | | **Net Assets at end of period** | **$7,736** | [Unaudited Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2021, net cash used in operating activities was $306 million, while net cash provided by financing activities was $356 million, resulting in a total increase in cash of $50 million for the period Consolidated Cash Flows for the Nine Months Ended September 30 (in millions) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(306) | $559 | | Net cash provided by (used in) financing activities | $356 | $(529) | | **Total increase (decrease) in cash** | **$50** | **$30** | - A significant non-cash activity during the period was the FSKR merger, where the company issued **$3.65 billion** in common stock to acquire **$7.23 billion** in investments and assume **$3.79 billion** in debt[28](index=28&type=chunk) [Consolidated Schedules of Investments](index=8&type=section&id=Consolidated%20Schedules%20of%20Investments) As of September 30, 2021, the total investment portfolio had a fair value of $15.82 billion, with Senior Secured First Lien loans comprising the largest portion at 61.2%, and the schedule provides detailed listings of each investment Portfolio Composition by Investment Type (September 30, 2021) | Investment Type | Fair Value (in millions) | Percentage of Portfolio | | :--- | :--- | :--- | | Senior Secured Loans—First Lien | $9,689 | 61.2% | | Senior Secured Loans—Second Lien | $1,669 | 10.6% | | Asset Based Finance | $1,999 | 12.6% | | Credit Opportunities Partners JV, LLC | $1,399 | 8.8% | | Equity/Other | $839 | 5.3% | | Other Debt | $229 | 1.5% | | **Total** | **$15,824** | **100.0%** | [Notes to Unaudited Consolidated Financial Statements](index=39&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's accounting policies and financial results, covering the FSKR merger, related party transactions, share repurchase programs, investment portfolio composition, fair value measurements, financing arrangements, and subsequent events [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=85&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's Q3 2021 financial performance, emphasizing the FSKR merger's impact on portfolio size and composition, with 94.9% of the portfolio in directly originated investments and net investment income increasing to $201 million for the quarter - The company's investment strategy focuses on directly originated transactions, which comprised **94.9%** of the total portfolio by fair value as of **September 30, 2021**[381](index=381&type=chunk) - The acquisition of **FSKR** on **June 16, 2021**, significantly impacted the company's financial position and results, leading to a substantial increase in the size of the investment portfolio[363](index=363&type=chunk) - Management notes that the **COVID-19 pandemic** has negatively impacted some portfolio companies and may continue to do so, potentially affecting investment income and valuations[373](index=373&type=chunk)[374](index=374&type=chunk) [Portfolio and Investment Activity](index=89&type=section&id=Portfolio%20and%20Investment%20Activity) For the nine months ended September 30, 2021, total investment purchases were $11.76 billion, including $7.23 billion from the FSKR merger, while sales and repayments totaled $3.72 billion, leading to a portfolio fair value of $15.82 billion across 190 companies Portfolio Summary | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Number of Portfolio Companies | 190 | 164 | | Total Fair Value of Investments | $15,824 million | $6,780 million | | % of Investments on Non-Accrual | 3.7% | 2.5% | | Weighted Avg. Yield on Accruing Debt | 9.1% | 8.8% | - Based on an internal investment rating system, **77%** of the portfolio was rated '1' (performing as expected) and **14%** was rated '2' (performing, but requires closer monitoring) as of **September 30, 2021**[386](index=386&type=chunk) [Results of Operations](index=92&type=section&id=Results%20of%20Operations) For Q3 2021, total investment income significantly increased to $360 million from $147 million in Q3 2020, primarily due to the larger portfolio post-merger, resulting in net investment income of $201 million and a net increase in net assets from operations of $270 million Results of Operations Comparison (Three Months Ended Sep 30) | Metric (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Total Investment Income | $360 | $147 | | Total Net Expenses | $159 | $69 | | Net Investment Income | $201 | $78 | | Net Realized/Unrealized Gain (Loss) | $69 | $132 | | **Net Increase in Net Assets** | **$270** | **$210** | - The increase in investment income was primarily attributed to the larger asset base following the **FSKR merger** Fee income also rose due to higher structuring and prepayment fees from increased investment activity[389](index=389&type=chunk)[390](index=390&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=94&type=section&id=Financial%20Condition,%20Liquidity%20and%20Capital%20Resources) As of September 30, 2021, the company maintained strong liquidity with $241 million in cash and $1.92 billion available under financing arrangements, while total outstanding debt was $8.51 billion and the asset coverage ratio stood at 191%, exceeding regulatory requirements Liquidity and Capital Resources (as of September 30, 2021) | Metric | Amount (in millions) | | :--- | :--- | | Cash and Foreign Currency | $241 | | Available Borrowings | $1,921 | | Total Outstanding Debt | $8,511 | | Unfunded Commitments | $2,175.2 | - The company's asset coverage ratio was **191%** as of **September 30, 2021**, comfortably above the required **150%** minimum[403](index=403&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=100&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks, primarily interest rate and foreign currency risks, with 69.2% of its portfolio in variable-rate debt, and it uses derivatives and foreign currency borrowings to hedge foreign currency exposure - As of **September 30, 2021**, **69.2%** of the investment portfolio at fair value consisted of variable-rate debt, while **9.3%** was fixed-rate debt[439](index=439&type=chunk) Interest Rate Sensitivity Analysis (Annual Impact in millions) | Basis Point Change in Interest Rates | Change in Net Interest Income | | :--- | :--- | | Up 500 basis points | $230 | | Up 300 basis points | $106 | | Up 100 basis points | $(18) | | Down 13 basis points | $5 | - The company manages foreign currency risk through derivative instruments and by borrowing in foreign currencies As of **September 30, 2021**, it had **$202.7 million** in notional foreign currency forward contracts[449](index=449&type=chunk)[450](index=450&type=chunk) [Controls and Procedures](index=102&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the period[452](index=452&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[453](index=453&type=chunk) [PART II—OTHER INFORMATION](index=103&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Legal Proceedings](index=103&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is it aware of any material legal proceedings being threatened against it - FS KKR Capital Corp reports **no material legal proceedings** against the company as of the filing date[456](index=456&type=chunk) [Risk Factors](index=103&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K and subsequent quarterly reports - The company states there are **no material changes** to the risk factors disclosed in its most recent Form 10-K[457](index=457&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=103&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase activities, including the activation of a $100 million share repurchase program in September 2021 and an affiliated purchaser's separate $100 million program, under which 589,074 shares were repurchased in Q3 - In **November 2020**, the board authorized a **$100 million** stock repurchase program, which became effective in **September 2021**[458](index=458&type=chunk) - An affiliated purchaser also began a program in **September 2021** to buy up to **$100 million** of the company's common stock[460](index=460&type=chunk) Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 1 - Jul 31, 2021 | — | $— | | Aug 1 - Aug 31, 2021 | — | $— | | Sep 1 - Sep 30, 2021 | 589,074 | $22.32 | [Defaults upon Senior Securities](index=104&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) Not applicable [Mine Safety Disclosures](index=104&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable [Other Information](index=104&type=section&id=Item%205.%20Other%20Information) Not applicable [Exhibits](index=104&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the quarterly report, including merger agreements, articles of incorporation, bylaws, indentures for various note offerings, investment advisory and administration agreements, and various credit facility agreements - Key exhibits filed include the Amended and Restated Investment Advisory Agreement dated **June 16, 2021**, and various supplemental indentures related to recent note offerings[469](index=469&type=chunk)[471](index=471&type=chunk)[473](index=473&type=chunk)

Financial Data and Key Metrics Changes - The second quarter of 2021 saw adjusted net income of $0.74 per share, exceeding the quarterly dividend of $0.60 per share by $0.14 [17] - The net asset value (NAV) per share increased to $26.84 from $26.03 in the previous quarter, reflecting a positive change in portfolio valuations [50] - Total investment income increased by $20 million quarter-over-quarter, driven by the merger's contribution and investment activity [47] Business Line Data and Key Metrics Changes - The investment team originated $2.3 billion of new investments during the second quarter, with a weighted average yield of 7.9% [16][26] - The portfolio consisted of 56.4% first lien loans and 70.1% senior secured debt as of June 30, 2021 [38] - The joint venture now represents 10% to 15% of the portfolio, reflecting a strategic shift to leverage broader origination networks [25][68] Market Data and Key Metrics Changes - The economic environment remains active, with a strong pipeline of originations and a positive outlook for portfolio companies [20][74] - The competitive landscape for private credit has intensified, with increased capital raised for middle market private equity [93] Company Strategy and Development Direction - The merger with FS KKR Capital Corp II has positioned the company as a leader in the specialty finance sector, with approximately $16 billion in assets [14] - The focus is on rotating into stronger companies in less volatile industries and enhancing diversification across industries and issuer positions [23] - The company aims to maintain a balanced portfolio with a significant portion in first lien senior loans and asset-based finance investments [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic recovery and the potential for continued growth in the private credit market [20][74] - There is a cautious approach to underwriting, emphasizing the sustainability of EBITDA in the current investment environment [74] - The company anticipates a third-quarter dividend of $0.65 per share, reflecting the additional net investment income generated [53] Other Important Information - The company has a strong liquidity position with $3.6 billion available, equating to approximately 24% of the investment portfolio's value [55] - The effective average cost of debt is 3.38%, with ongoing efforts to reduce higher-priced debt [55] Q&A Session Summary Question: What is the cadence of originations in the third quarter? - The pipeline remains strong, with approximately $1 billion of originations since the end of Q2, indicating a busy quarter ahead [65] Question: How does the company view the shift towards upper middle market investing? - The company has strategically focused on the upper end of the middle market, targeting companies with $50 million to $100 million in EBITDA, which has proven to be less competitive and more resilient [66] Question: What is the current pipeline and investment environment? - The investment environment is positive, with strong performance metrics across portfolio companies, but caution is advised regarding the sustainability of EBITDA [74] Question: Can you discuss the relative yields and competitive environment? - The market is competitive, with pricing pressures observed, but the company believes it can leverage its size and scale to navigate these challenges effectively [93] Question: What are the expectations for the joint venture's leverage? - The joint venture is currently under-leveraged at 0.75 times, with a target range of 1 to 1.25 times, indicating room for growth [105]

FSK | FS KKR Capital Corp. FS KKR Capital Corp. Financial Information QUARTER ENDED JUNE 30, 2021 Summary of Quarterly Results | --- | --- | |----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | | • Net investment inc ...

PART I—FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements.) Presents unaudited consolidated financial statements as of June 30, 2021, reflecting significant asset and liability increases due to the FSKR merger [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets more than doubled to **$15.7 billion** by June 30, 2021, primarily due to the FSKR merger, with NAV per share rising to **$26.84** Consolidated Balance Sheet Highlights (in millions, except per share data) | Metric | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Investments, at fair value | $14,734 | $6,780 | | Total Assets | $15,723 | $7,237 | | Total Liabilities | $8,070 | $4,141 | | Total Stockholders' Equity | $7,653 | $3,096 | | Net Asset Value per Share | $26.84 | $25.02 | - The significant growth in the balance sheet is a direct result of the merger with FSKR, which was completed on June 16, 2021[139](index=139&type=chunk) [Unaudited Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) Net assets increased by **$865 million** for Q2 2021, driven by higher investment income and significant net realized and unrealized gains Key Operating Results (in millions) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $206 | $150 | $357 | $329 | | Net Investment Income | $116 | $77 | $194 | $175 | | Total Net Realized and Unrealized Gain (Loss) | $749 | $(132) | $870 | $(933) | | Net Increase (Decrease) in Net Assets | $865 | $(55) | $1,064 | $(758) | [Unaudited Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased by **$4.56 billion** in H1 2021, primarily from capital share transactions related to the FSKR merger and operations Changes in Net Assets for the Six Months Ended June 30 (in millions) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Net Increase (Decrease) from Operations | $1,064 | $(758) | | Net Decrease from Stockholder Distributions | $(149) | $(170) | | Net Increase (Decrease) from Capital Share Transactions | $3,642 | $(47) | | **Total Increase (Decrease) in Net Assets** | **$4,557** | **$(975)** | | Net Assets at Beginning of Period | $3,096 | $3,866 | | **Net Assets at End of Period** | **$7,653** | **$2,891** | [Unaudited Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities was **$544 million** in H1 2021, with the FSKR merger involving **$7.23 billion** in non-cash investment acquisitions Cash Flow Summary for the Six Months Ended June 30 (in millions) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $544 | $477 | | Net Cash Used in Financing Activities | $(236) | $(488) | | **Total Increase (Decrease) in Cash** | **$308** | **$(11)** | - In connection with the 2021 Merger, the company issued **$3.65 billion** in common stock, acquired investments with a cost of **$7.23 billion**, and assumed debt of **$3.79 billion**, which are treated as non-cash activities[25](index=25&type=chunk) [Consolidated Schedules of Investments](index=8&type=section&id=Consolidated%20Schedules%20of%20Investments) Total investment portfolio fair value reached **$14.73 billion** by June 30, 2021, heavily weighted towards Senior Secured Loans at **68.8%** Investment Portfolio Composition as of June 30, 2021 (in millions) | Investment Type | Fair Value | % of Portfolio | | :--- | :--- | :--- | | Senior Secured Loans—First Lien | $8,316 | 56.4% | | Senior Secured Loans—Second Lien | $1,827 | 12.4% | | Other Senior Secured Debt | $186 | 1.3% | | Subordinated Debt | $99 | 0.7% | | Asset Based Finance | $1,905 | 12.9% | | Credit Opportunities Partners JV, LLC | $1,396 | 9.5% | | Equity/Other | $1,005 | 6.8% | | **Total** | **$14,734** | **100.0%** | [Notes to Unaudited Consolidated Financial Statements](index=40&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Notes detail accounting policies, FSKR merger impact, related-party transactions, portfolio composition, financing, and distributions, highlighting **$1.76 billion** in unfunded commitments - The merger with FSKR on June 16, 2021, was accounted for as an asset acquisition, with the fair value of consideration allocated to assets acquired and liabilities assumed[341](index=341&type=chunk) - The company has significant unfunded commitments totaling **$1.76 billion** as of June 30, 2021, including **$951.2 million** in debt investments, **$454.7 million** in equity/other, and **$350.2 million** to its Credit Opportunities Partners JV[206](index=206&type=chunk)[328](index=328&type=chunk) - As of June 30, 2021, the company had **$7.74 billion** in senior securities outstanding and an asset coverage ratio of **199%**, compliant with the **150%** regulatory requirement[294](index=294&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=83&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, portfolio activity, and liquidity, highlighting the **$14.7 billion** portfolio scale post-FSKR merger and **$116 million** net investment income for Q2 2021 [Portfolio and Investment Activity](index=87&type=section&id=Portfolio%20and%20Investment%20Activity) Investment portfolio grew to **$14.7 billion** across **195** companies by June 30, 2021, largely due to the FSKR merger, with **93.8%** directly originated and improved asset quality Portfolio Composition by Fair Value | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Investments (Fair Value) | $14,734M | $6,780M | | Number of Portfolio Companies | 195 | 164 | | % of Direct Originations | 93.8% | 95.1% | | % of Investments on Non-Accrual | 3.0% | 2.5% | Investment Rating Distribution by Fair Value | Investment Rating | % of Portfolio (June 30, 2021) | % of Portfolio (Dec 31, 2020) | | :--- | :--- | :--- | | 1 (Highest Quality) | 74% | 67% | | 2 | 17% | 23% | | 3 | 6% | 5% | | 4 (Lowest Quality) | 3% | 5% | [Results of Operations](index=90&type=section&id=Results%20of%20Operations) Q2 2021 total investment income rose to **$206 million**, with net investment income at **$116 million**, and a net increase in net assets of **$865 million** driven by unrealized gains Comparison of Q2 2021 vs Q2 2020 (in millions) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Total Investment Income | $206 | $150 | | Total Operating Expenses | $90 | $73 | | Net Investment Income | $116 | $77 | | Net Realized Gain (Loss) | $51 | $(69) | | Net Unrealized Appreciation (Depreciation) | $698 | $(63) | | **Net Increase (Decrease) in Net Assets** | **$865** | **$(55)** | - The increase in dividend income was primarily attributed to dividends from the Credit Opportunities Partners JV, LLC and a one-time **$20 million** dividend from an equity investment[384](index=384&type=chunk) - The significant net change in unrealized appreciation was driven by **$628 million** of appreciation from merger accounting associated with the 2021 Merger[392](index=392&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=92&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) Strong liquidity as of June 30, 2021, with **$499 million** cash and **$2.7 billion** available under financing, maintaining a **199%** asset coverage ratio Liquidity and Capital Resources as of June 30, 2021 (in millions) | Metric | Amount | | :--- | :--- | | Cash and Foreign Currency | $499 | | Available Borrowings | $2,727 | | Total Debt Outstanding | $7,740 | | Unfunded Commitments (Debt, Equity, JV) | $1,756.1 | - The company's asset coverage ratio was **199%** as of June 30, 2021, compliant with the **150%** minimum requirement for BDCs[396](index=396&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=98&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Exposed to interest rate and foreign currency risks, with **68.0%** of the portfolio in variable-rate debt, a **100** basis point rate increase could decrease annual net interest income by **$11 million** - As of June 30, 2021, **68.0%** of the portfolio's fair value was in variable-rate debt investments, while **9.0%** was in fixed-rate debt[435](index=435&type=chunk) Interest Rate Sensitivity Analysis (in millions) | Basis Point Change in Interest Rates | Change in Annual Net Interest Income | | :--- | :--- | | Down 15 bps | $4 | | Up 100 bps | $(11) | | Up 300 bps | $111 | | Up 500 bps | $233 | - The company manages foreign currency risk through derivative instruments and by borrowing in foreign currencies[443](index=443&type=chunk) As of June 30, 2021, it had **$190.7 million** in notional foreign currency forward contracts[444](index=444&type=chunk) [Item 4. Controls and Procedures](index=99&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[446](index=446&type=chunk) - No material changes in internal control over financial reporting occurred during the three-month period ended June 30, 2021[448](index=448&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=101&type=section&id=Item%201.%20Legal%20Proceedings.) The company is not currently subject to any material legal proceedings, nor is it aware of any material legal proceedings being threatened against it - FS KKR Capital Corp reports no material legal proceedings as of the filing date[450](index=450&type=chunk) [Item 1A. Risk Factors](index=101&type=section&id=Item%201A.%20Risk%20Factors.) No material changes from prior risk factors, except for a new risk concerning the potential inability to realize anticipated benefits from the 2021 merger with FSKR - A new risk factor has been added regarding the potential failure to realize anticipated benefits from the 2021 Merger with FSKR, including cost savings and successful integration of the investment portfolio[452](index=452&type=chunk)[453](index=453&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=101&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The Affiliated Purchaser did not purchase any shares of the company's common stock during the six months ended June 30, 2021 - The Affiliated Purchaser, an investment vehicle associated with the Advisor's owners, made no purchases of the company's common stock in the first half of 2021[454](index=454&type=chunk) [Item 3. Defaults upon Senior Securities](index=101&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities.) Not applicable, the company reports no defaults upon its senior securities [Item 4. Mine Safety Disclosures](index=101&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) Not applicable [Item 5. Other Information](index=101&type=section&id=Item%205.%20Other%20Information.) Not applicable [Item 6. Exhibits](index=101&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including merger agreements, articles of amendment, indentures, credit agreements, and officer certifications