Company Overview - FS KKR Capital Corp. (NYSE: FSK) is a publicly traded business development company (BDC) focused on providing customized credit solutions to private middle market U.S. companies [5] - The company primarily invests in senior secured debt and, to a lesser extent, subordinated debt of private middle market companies [5] Upcoming Financial Results - FS KKR Capital Corp. plans to release its first quarter 2025 results after the close of trading on the New York Stock Exchange on May 7, 2025 [1] - A conference call to discuss the results will be hosted via live webcast on May 8, 2025, at 9:00 a.m. (Eastern Time) [2] Investor Participation - Research analysts wishing to participate in the conference call must register a day in advance or at least 15 minutes before the call [3] - A replay of the call will be available shortly after its conclusion on the Investor Relations section of FSK's website [4] Advisory and Management - FS KKR Capital Corp. is advised by FS/KKR Advisor, LLC, a partnership between FS Investments and KKR Credit [6] - FS Investments manages over $85 billion in assets and provides access to a broad suite of alternative asset classes and strategies [7] - KKR Credit, a subsidiary of KKR & Co. Inc., focuses on generating attractive investment returns through a disciplined investment approach [8]

Core Viewpoint - FS KKR Capital (NYSE: FSK) is highlighted as a strong Business Development Company (BDC) investment opportunity, offering both high recurring dividend income and potential for upside revaluation [1] Financial Performance - The non-accrual percentage for FS KKR Capital slightly deteriorated in Q4'24, indicating a minor decline in the quality of its loan portfolio [1]

Financial Data and Key Metrics Changes - In Q4 2024, FSK generated net investment income of $0.61 per share and adjusted net investment income of $0.66 per share, compared to guidance of approximately $0.63 and $0.68 per share respectively [16][17] - The net asset value per share decreased to $23.64 from $23.82 in Q3 2024, impacted by a decrease in the overall value of the investment portfolio and the total quarterly distribution paid [36][40] - Total investment income decreased by $34 million quarter over quarter to $407 million, primarily due to a decline in base rates and delayed closings of new investments [34][35] Business Line Data and Key Metrics Changes - In Q4, FSK originated $891 million of new investments, compared to $1.46 billion of exits, with no sales to the joint venture during the quarter [22][23] - New direct lending investments had a weighted average EBITDA of approximately $206 million and a weighted average coupon of approximately SOFR plus 516 basis points [24] - Non-accruals represented 3.7% of the portfolio on a cost basis and 2.2% on a fair value basis, a slight improvement from 3.8% and 1.7% respectively in Q3 2024 [25][26] Market Data and Key Metrics Changes - The weighted average yield on accruing debt investments decreased to 11% as of December 31, 2024, down from 11.5% in Q3 2024, primarily due to a decline in base rates and spread compression [33] - The current macroeconomic environment is characterized by a balancing act between growth desires, inflationary pressures, and interest rate adjustments, impacting M&A activity [20][21] Company Strategy and Development Direction - The company aims to improve credit quality and overall portfolio stability, having reduced non-accrual investments by 58% during 2024 [11] - FSK plans to maintain a disciplined origination strategy, entering 2025 with significant liquidity to capitalize on expected increases in M&A activity [12][15] - The company expects to provide shareholders with total distributions of at least $2.80 per share in 2025, consisting of a quarterly base distribution of $0.64 and a supplemental distribution of $0.06 [15][38] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the timing of increased M&A activity, suggesting it may take longer to materialize than some industry observers forecast [20] - The company remains optimistic about the direct lending market fundamentals, noting strong revenue and earnings growth among borrowers [21] - Management highlighted the importance of maintaining downside protection in underwriting deals, especially in a borrower-friendly market [122] Other Important Information - FSK's investment portfolio had a fair value of $13.5 billion as of December 31, 2024, consisting of 214 portfolio companies [31] - The company issued $700 million of unsecured notes due 2030 during Q4, which were swapped to floating rates [39] - Available liquidity stood at $4.8 billion, with a significant portion of the balance sheet comprised of unsecured debt [40] Q&A Session Summary Question: Dividend outlook and spillover income - Management confirmed confidence in the dividend outlook, emphasizing the importance of spillover income and maintaining a base and supplemental distribution strategy [44][46] Question: Spread trends and risk characterization - Management noted spread compression across credit markets, with current direct lending deals yielding around 10% total return, indicating a more borrower-friendly market [50][52] Question: New originations and pipeline fill - Management indicated that a few deals rolled over from Q4 to Q1, with a growing pipeline driven by private equity sponsors needing to liquidate back books [56][60] Question: M&A activity and asset-backed finance outlook - Management characterized the asset-backed finance market as having significant activity, with expectations for continued interest and unique origination opportunities [70][73] Question: Areas of weakness in the portfolio - Management acknowledged some idiosyncratic issues affecting specific issuers but maintained a generally constructive outlook on the economy and portfolio performance [75][78] Question: Fee income and repayment activity - Management indicated that fee income may fluctuate, with expectations for additional repayments in Q1, and emphasized the importance of discipline in deal-making [112][120]

Financial Data and Key Metrics Changes - In 2024, the company reduced non-accrual investments by 58% to 3.7% on a cost basis and 2.2% on a fair value basis [11][25][26] - The net investment income for the fourth quarter was $0.61 per share, while adjusted net investment income was $0.66 per share, compared to guidance of approximately $0.63 and $0.68 per share respectively [16][37] - The weighted average yield on accruing debt investments decreased to 11% as of December 31, 2024, down from 11.5% as of September 30, 2024 [33] Business Line Data and Key Metrics Changes - The company originated $891 million of new investments in the fourth quarter, compared to $1.46 billion of exits [22] - New originations consisted of approximately 63% in first lien loans, 36% in asset-based finance investments, and 1% in equity or other investments [23] - The weighted average EBITDA of new direct lending investments was approximately $206 million, with a weighted average coupon of approximately SOFR plus 516 basis points [24] Market Data and Key Metrics Changes - The company reported a 12.1% yield on average net asset value for shareholders in 2024, with a total return of 23% [19] - Credit defaults remained largely contained across the industry, with borrowers continuing to generate revenue and earnings growth [21] - The company noted that the current macroeconomic environment is a balancing act between growth desires, inflationary pressures, and interest rate adjustments [20] Company Strategy and Development Direction - The company aims to improve credit quality and overall portfolio stability, maintain a strong balance sheet, and provide shareholders with an annual distribution of $2.80 per share [12][13][15] - The company plans to utilize its relationships to originate attractive investments and expects M&A activity to increase materially in 2025 and beyond [12][15] - The focus remains on senior secured investments, with approximately 58% of the portfolio in first lien loans as of December 31, 2024 [32] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the timing of increased M&A activity, suggesting it may take longer to materialize than some industry observers forecast [20] - The company remains optimistic about the direct lending market fundamentals, citing strong tailwinds and reduced interest burdens for portfolio companies [21] - Management highlighted the importance of maintaining discipline in origination, even if it means passing on certain transactions [12] Other Important Information - The company issued $700 million of unsecured notes due in 2030 during the fourth quarter, which were swapped to floating rates [39] - As of December 31, 2024, the investment portfolio had a fair value of $13.5 billion, consisting of 214 portfolio companies [31] - The company expects to provide total distributions of at least $2.80 per share in 2025, with a combination of base and supplemental distributions [38] Q&A Session Summary Question: Dividend outlook and spillover income - Management indicated confidence in the dividend outlook, noting that spillover income is a significant factor [43][44] - The base distribution is set at $0.64 per share, with a supplemental distribution of $0.06 per share [44][46] Question: Spread compression and risk - Management acknowledged spread compression across credit markets, with a current direct lending deal yielding around 5% before fees [48][49] Question: New originations and pipeline fill - Management noted that a few deals slipped from Q4 to Q1, impacting fee income, but the pipeline is filling with private equity sponsors looking to offload back books [55][60] Question: M&A activity and asset-backed finance outlook - Management characterized the asset-backed finance market as having significant activity, with a focus on proprietary origination angles [70][73] Question: Areas of concern in the portfolio - Management indicated that any issues observed have been idiosyncratic to specific issuers, with overall portfolio EBITDA growth at approximately 16% [74][76] Question: Fee income and repayment activity - Management expects a certain amount of additional repayments in Q1, with a better balance of new deals versus repayments anticipated [120]

Group 1 - FS KKR Capital (FSK) is a notable stock within the Finance group, which is currently ranked 1 in the Zacks Sector Rank, indicating strong performance relative to other sectors [2][3] - The Zacks Rank system highlights stocks with characteristics that are likely to outperform the market, and FS KKR Capital has a Zacks Rank of 2 (Buy), suggesting a positive outlook [3] - Over the past 90 days, the Zacks Consensus Estimate for FSK's full-year earnings has increased by 0.4%, indicating improved analyst sentiment and a stronger earnings outlook [4] Group 2 - Year-to-date, FS KKR Capital has gained approximately 5.4%, outperforming the average gain of 4.4% for Finance stocks [4] - FS KKR Capital is part of the Financial - SBIC & Commercial Industry, which includes 37 stocks and is currently ranked 54 in the Zacks Industry Rank, with an average gain of 3.9% year-to-date [6] - In comparison, another Finance stock, Alexander's (ALX), has returned 6.9% year-to-date and has a Zacks Rank of 1 (Strong Buy), indicating strong performance within the sector [5][7]

Quarter and Year Ended December 31, 2024 All information is as of December 31, 2024 unless otherwise noted Summary of Quarterly Results FS KKR Capital Corp. F i n a n c i a l I n f o r m a t i o n | | • Net investment income (NII) for the quarter ended December 31, 2024 was $171 million, or $0.61 per share, as compared to $215 million, or $0.77 per share, for the quarter ended September 30, 2024. | | --- | --- | | | • Adjusted net investment income (Adjusted NII) for the quarter ended December 31, 2024 was ...

Core Insights - FS KKR Capital reported a revenue of $407 million for the quarter ended December 2024, reflecting a year-over-year decline of 9% and an EPS of $0.66 compared to $0.75 a year ago [1] - The reported revenue fell short of the Zacks Consensus Estimate of $421.81 million, resulting in a surprise of -3.51%, while the EPS also missed the consensus estimate of $0.67 by -1.49% [1] Financial Performance Metrics - Investment income from fee income was reported at $7 million, significantly lower than the estimated $21.43 million by analysts [4] - Dividend and other income from investments was $76 million, exceeding the average estimate of $66.02 million [4] - Paid-in-kind interest income showed a substantial year-over-year increase of 105.6%, reported at $74 million compared to the estimated $62.28 million [4] - Interest income was reported at $257 million, slightly below the average estimate of $274.63 million [4] Stock Performance - Over the past month, shares of FS KKR Capital have returned +1.9%, contrasting with the Zacks S&P 500 composite's decline of -2.3% [3] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential outperformance against the broader market in the near term [3]

Group 1: Earnings Performance - FS KKR Capital reported quarterly earnings of $0.66 per share, missing the Zacks Consensus Estimate of $0.67 per share, and down from $0.75 per share a year ago, representing an earnings surprise of -1.49% [1] - The company posted revenues of $407 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 3.51%, and down from $447 million year-over-year [2] - Over the last four quarters, FS KKR Capital has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times [2] Group 2: Stock Performance and Outlook - FS KKR Capital shares have increased approximately 7.8% since the beginning of the year, outperforming the S&P 500's gain of 1.3% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the upcoming quarter is $0.66 on revenues of $407.37 million, and for the current fiscal year, it is $2.60 on revenues of $1.62 billion [7] Group 3: Industry Context - The Financial - SBIC & Commercial Industry, to which FS KKR Capital belongs, is currently in the top 20% of over 250 Zacks industries, indicating a favorable outlook for the sector [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, suggesting that tracking these revisions can be beneficial for investors [5] - The Zacks Rank for FS KKR Capital is currently 2 (Buy), indicating expectations for the stock to outperform the market in the near future [6]

Conference Call - FS KKR Capital Corp. will host a conference call on February 27, 2025, to discuss its Q4 and full year 2024 results[4] - The press release announcing the conference call was dated January 23, 2025[4] Stock Information - The company is listed on the New York Stock Exchange under the trading symbol FSK[2]

Investment Valuation and Fair Value - The fair value of the investment portfolio is determined quarterly, with publicly-traded securities valued at the reported closing price on the valuation date [77]. - For investments without readily available market prices, a multi-step valuation process is conducted each quarter, involving independent third-party pricing services [78]. - The valuation methods for portfolio companies may vary based on industry and company-specific considerations, focusing on enterprise value assessments [82]. - Fair value for fixed income investments is influenced by factors such as prevailing interest rates and the borrower's ability to service its debt [83]. - The Adviser may utilize independent third-party valuation services to ensure fair value determinations are reliable and accurate [81]. - The fair value of investments is subject to uncertainty, as many portfolio investments do not have readily available market prices [221]. Regulatory Compliance and Restrictions - The company is regulated as a Business Development Company (BDC) under the 1940 Act, which imposes certain restrictions on transactions and requires a majority of independent directors [102]. - The company must distribute at least 90% of its investment company taxable income to maintain RIC tax treatment [114]. - The company is subject to a 4% nondeductible federal excise tax on certain undistributed income unless it meets the Excise Tax Avoidance Requirement [116]. - The company must ensure that at least 90% of its gross income is derived from qualifying sources to satisfy the 90% Income Test [120]. - The company is limited in its ability to deduct expenses in excess of its investment company taxable income, which may lead to net operating losses [122]. - The company may utilize subsidiary entities to manage income that could disqualify it as a RIC for failing to satisfy the 90% Income Test [129]. - The company is subject to regulatory restrictions under the 1940 Act and the Code, which may limit its investment flexibility compared to competitors [131]. - The company must satisfy ongoing tests to maintain RIC tax treatment, which may restrict cash distributions necessary for stockholder returns [269]. Investment Strategy and Risks - The Adviser integrates sustainability considerations into the investment decision-making process, assessing potential financial and reputational risks [91]. - The company operates in a highly competitive market for investment opportunities, facing competition from public and private funds, commercial banks, and hedge funds, which may have greater financial resources and lower costs of capital [148]. - The company may incur additional leverage under the Small Business Credit Availability Act, which could enhance its investment capacity [140]. - The company faces risks associated with changes in interest rates, which could adversely affect its investment portfolio [144]. - The company may experience lower short-term returns due to increased competition in the private debt markets, which could impact long-term targets [149]. - The company primarily invests in privately held companies, which presents challenges such as reduced access to capital markets and diminished capital resources [231]. - The company may face risks related to covenants in its debt financing arrangements, which could adversely affect its ability to meet investment obligations [248]. Financial Performance and Distributions - The company must distribute at least 90% of its taxable income to maintain RIC tax treatment, which may limit available capital for investments [180]. - The company may incur excise tax on undistributed income and capital gains, which could affect its distribution strategy [117]. - The company cannot assure stockholders of achieving specified levels of cash distributions, as these depend on various factors including earnings and compliance with regulations [250]. - The company may pay distributions from offering proceeds, borrowings, or asset sales if cash flows from operations are insufficient to fund declared distributions [253]. - The company may experience fluctuations in quarterly results due to investment criteria, interest rates, and general economic conditions [164]. Sustainability and Environmental Risks - Sustainability-related risks may impose additional costs and affect investment returns, depending on the company's exposure to such risks [174]. - The company faces potential declines in investment value due to sustainability-related events, which depend on various factors including market conditions [175]. - Sustainability risk evaluations may rely on third-party data, which can be subjective and may not fully address significant sustainability factors [176]. - Increased attention to sustainability could lead to higher compliance costs and impact operational results if the company fails to meet regulatory requirements [177]. Debt and Leverage - The company is authorized to borrow funds to satisfy distribution requirements, but must meet asset coverage tests before making distributions [126]. - The company may incur debt that ranks equally with or senior to its investments, which could affect repayment in case of insolvency [213]. - A significant portion of the investment portfolio consists of senior secured debt with maturities typically ranging from three to seven years [224]. - The total assets of the company are approximately $19.3 billion, with $11.8 billion in debt outstanding and a weighted average cost of funds of 5.51% [246]. Investment Types and Characteristics - The company may invest in derivatives, exposing it to market, liquidity, and leverage risks, which could magnify potential gains or losses [156]. - The company may invest in structured products, which include collateralized debt obligations and structured notes, but these investments are subject to higher risks of total loss and illiquidity [200]. - The company may invest in middle market companies, which have limited financial resources and may struggle to meet debt obligations, increasing the risk of loss [212]. - The company may invest in private investment funds, exposing it to underlying risks and additional fees, which could adversely affect investment returns [206]. - The company may invest in original issue discount and PIK instruments, which carry specific risks [144]. Market and Economic Conditions - The company may face challenges in meeting the Annual Distribution Requirement due to the illiquid nature of its portfolio [126]. - Inflation could adversely impact the operating results of portfolio companies, affecting their ability to service debt [191]. - The company may face risks associated with international investments, including currency devaluations and adverse changes in foreign laws and regulations [205]. - Rising interest rates could increase the cost of funds, materially reducing net investment income [225]. Corporate Governance and Management - The company has no employees and relies on the Adviser and its affiliates for investment operations, which may impact its ability to achieve investment objectives if the Adviser loses senior management [132][144]. - The company’s board of directors has the authority to change operating policies and strategies without prior notice, which could adversely affect investment outcomes [153]. - Stockholder activism could result in significant costs and divert management's attention, potentially affecting stock price and investment strategy [173]. - Certain provisions in the company's charter and bylaws may deter takeover attempts and impact the value of common stock [256].