FS KKR Capital (FSK) - 2024 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents FS KKR Capital Corp.'s unaudited consolidated financial statements for Q2 2024, detailing financial position, performance, cash flows, and investment portfolio Consolidated Balance Sheets The Consolidated Balance Sheets provide a snapshot of the company's financial position as of June 30, 2024, compared to December 31, 2023, detailing assets, liabilities, and stockholders' equity | Metric | June 30, 2024 (Unaudited) | December 31, 2023 | |:----------------------------|:--------------------------|:------------------| | Total investments, at fair value | $14,087 million | $14,649 million | | Cash | $408 million | $223 million | | Total assets | $15,101 million | $15,469 million | | Total liabilities | $8,394 million | $8,620 million | | Total stockholders' equity | $6,707 million | $6,849 million | | Net asset value per share | $23.95 | $24.46 | Unaudited Consolidated Statements of Operations The Unaudited Consolidated Statements of Operations detail the company's financial performance for the three and six months ended June 30, 2024, and 2023, highlighting investment income, operating expenses, and net changes in assets | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:----------------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total investment income | $439 million | $462 million | $873 million | $918 million | | Total operating expenses | $224 million | $233 million | $446 million | $460 million | | Net investment income | $215 million | $229 million | $427 million | $458 million | | Total net realized and unrealized gain (loss) | $(110) million | $(87) million | $(149) million | $(117) million | | Net increase (decrease) in net assets from operations | $105 million | $142 million | $278 million | $341 million | | Earnings (Losses) per Share (basic and diluted) | $0.37 | $0.51 | $0.99 | $1.22 | Unaudited Consolidated Statements of Changes in Net Assets This statement outlines the changes in net assets for the three and six months ended June 30, 2024, and 2023, driven by operations, stockholder distributions, and capital share transactions | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:----------------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net investment income (loss) | $215 million | $229 million | $427 million | $458 million | | Net realized gain (loss) on investments, etc. | $(45) million | $(211) million | $(291) million | $(265) million | | Net change in unrealized appreciation (depreciation) | $(69) million | $128 million | $125 million | $155 million | | Net increase (decrease) in net assets from operations | $105 million | $142 million | $278 million | $341 million | | Distributions to stockholders | $(210) million | $(210) million | $(420) million | $(406) million | | Net assets at beginning of period | $6,812 million | $6,983 million | $6,849 million | $7,012 million | | Net assets at end of period | $6,707 million | $6,915 million | $6,707 million | $6,915 million | Unaudited Consolidated Statements of Cash Flows The Unaudited Consolidated Statements of Cash Flows present the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2024, and 2023 | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:------------------------------------------------|:-------------------------------|:-------------------------------| | Net cash provided by (used in) operating activities | $842 million | $1,008 million | | Net cash provided by (used in) financing activities | $(640) million | $(985) million | | Total increase (decrease) in cash | $202 million | $23 million | | Cash, and foreign currency at end of period | $433 million | $274 million | Consolidated Schedules of Investments This section provides a detailed breakdown of the company's investment portfolio by type, industry, and fair value as of June 30, 2024, and December 31, 2023, along with information on foreign currency forward contracts and interest rate swaps Investment Portfolio Composition (Fair Value) | Investment Type | June 30, 2024 (Unaudited) | December 31, 2023 | |:--------------------------------------|:--------------------------|:------------------| | Senior Secured Loans—First Lien | $8,181 million | $8,529 million | | Senior Secured Loans—Second Lien | $925 million | $1,090 million | | Other Senior Secured Debt | $121 million | $99 million | | Subordinated Debt | $360 million | $323 million | | Asset Based Finance | $2,025 million | $2,077 million | | Credit Opportunities Partners JV, LLC | $1,388 million | $1,397 million | | Equity/Other | $1,087 million | $1,134 million | | Total Investments | $14,087 million | $14,649 million | Unfunded Loan Commitments | Commitment Type | June 30, 2024 (Unaudited) | |:--------------------------------------|:--------------------------| | Unfunded debt investments | $1,269.5 million | | Unfunded equity/other commitments | $481.4 million | | Unfunded commitments to COPJV | $735.2 million | Foreign Currency Forward Contracts (June 30, 2024) | Settlement Date | Counterparty | Amount and Transaction | US$ Value at Settlement Date | US$ Value at June 30, 2024 | Unrealized Appreciation (Depreciation) | |:----------------|:---------------------------|:-----------------------|:-----------------------------|:---------------------------|:---------------------------------------| | Various | JP Morgan Chase Bank | Various | $121.4 million | $125.3 million | $(3.9) million | Interest Rate Swaps (June 30, 2024) | Description | Hedged Item | Company Receives | Company Pays | Notional Amount | Fair Value | Change in Unrealized Appreciation/(Depreciation) | |:-----------------|:-------------|:-----------------|:-----------------|:----------------|:-----------|:-------------------------------------------------| | Interest Rate Swap | 6.875% Notes | 6.875% | SOFR + 2.754% | $200 million | $0 million | $0 million | | Interest Rate Swap | 6.875% Notes | 6.875% | SOFR + 2.788% | $400 million | $(1) million | $(1) million | | Total | | | | $600 million| $(1) million| $(1) million | Notes to Unaudited Consolidated Financial Statements These notes provide essential context and detailed explanations for the financial statements, covering the company's business, accounting policies, share transactions, related party dealings, distribution practices, investment portfolio specifics, financial instruments, fair value methodologies, financing arrangements, commitments, and financial highlights Note 1. Principal Business and Organization FS KKR Capital Corp. is an externally managed business development company (BDC) focused on generating current income and long-term capital appreciation primarily through investments in senior secured and second lien secured loans of private middle-market U.S. companies - The Company is an externally managed, non-diversified, closed-end management investment company regulated as a Business Development Company (BDC) under the 1940 Act and intends to qualify as a Regulated Investment Company (RIC) for U.S. federal income tax purposes[89] - Investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation, primarily through investments in senior secured loans and second lien secured loans of private middle-market U.S. companies[90] - The Company is externally managed by FS/KKR Advisor, LLC (the Adviser)[91] Note 2. Summary of Significant Accounting Policies This note outlines the accounting principles, estimates, and specific policies for revenue recognition, incentive fees, and derivative instruments, emphasizing GAAP compliance and the treatment of various financial items - Financial statements are prepared in accordance with GAAP for interim financial information, with all adjustments considered necessary for fair presentation[92] - Capital gains incentive fee is 20.0% of cumulative incentive fee capital gains, calculated net of realized capital losses and unrealized capital depreciation, and is accrued quarterly including unrealized gains[92] - Subordinated income incentive fee is 17.5% of pre-incentive fee net investment income, subject to a quarterly hurdle rate of 1.75% (8.48% annually after catch-up)[93] - Revenue recognition: Interest income is accrued, dividend income on ex-dividend date. Loan origination fees, OID, and market discount are amortized as interest income. Structuring and non-recurring upfront fees are recognized when earned[93] - Derivative instruments (foreign currency forward contracts and interest rate swaps) are recognized at fair value. Certain interest rate swaps are designated as hedging instruments in qualifying fair value hedge accounting relationships, with changes in fair value recorded in interest expense[93] Note 3. Share Transactions This note summarizes the company's share repurchase activities and distribution reinvestment plan (DRP) for the six months ended June 30, 2024, and 2023 - During the six months ended June 30, 2024, the DRP administrator purchased 1,628,448 shares of common stock in the open market for $32 million[95] - The share repurchase program, which allowed for aggregate purchases up to $54 million, concluded during the six months ended June 30, 2023, after repurchasing 1,665,317 shares for $32 million[96] Note 4. Related Party Transactions This note details the compensation structure for the Investment Adviser, including management and incentive fees, administrative expense reimbursements, and discusses potential conflicts of interest and exemptive relief related to co-investments - The Adviser is entitled to an annual base management fee of 1.50% of average weekly gross assets (excluding cash), reduced to 1.0% on assets financed using leverage over 1.0x debt-to-equity[98] - The income incentive fee rate was reduced from 20% to 17.5% and the total return lookback provision was removed from the subordinated incentive fee on income, effective with the investment advisory agreement[98] Fees and Expenses Accrued to Adviser | Related Party | Description | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:--------------|:---------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | The Adviser | Base Management Fee | $54 million | $56 million | $109 million | $114 million | | The Adviser | Subordinated Incentive Fee on Income | $45 million | $47 million | $88 million | $93 million | | The Adviser | Administrative Services Expenses | $2 million | $4 million | $5 million | $7 million | - The Company relies on an exemptive relief order (dated January 5, 2021) to co-invest in certain privately negotiated investment transactions with affiliates of the Adviser, including those originated by the Adviser or KKR Credit[105] - An affiliated investment vehicle, which committed $100 million to a $350 million investment vehicle, entered into trading plans to facilitate sales of the Company's common stock in September 2022, August 2023, and March 2024, with all programs having concluded[106][107] Note 5. Distributions This note details the company's distribution policy, including regular and special cash distributions, the distribution reinvestment plan (DRP), and the tax attributes of distributions Cash Distributions Declared | Period | Per Share | Amount (millions) | |:-------------------|:----------|:------------------| | Fiscal 2023 Total | $1.45 | $406 | | Fiscal 2024 Total | $1.50 | $420 | - A regular quarterly cash distribution of $0.70 per share was declared on July 31, 2024, payable on October 2, 2024. Special distributions totaling $0.10 per share were paid in two equal installments by Q2 2024[108] - The Distribution Reinvestment Plan (DRP) automatically reinvests cash dividends or distributions for stockholders who do not opt out, with shares either issued new or purchased in the open market based on market price relative to NAV[109][110] Sources of Cash Distributions (Tax Basis) | Source of Distribution | 2024 Distribution Amount (millions) | 2024 Percentage | 2023 Distribution Amount (millions) | 2023 Percentage | |:-----------------------|:------------------------------------|:----------------|:------------------------------------|:----------------| | Net investment income | $420 | 100% | $406 | 100% | - As of June 30, 2024, the Company had capital loss carryforwards of approximately $2,323 million available to offset future realized capital gains[115] Note 6. Investment Portfolio This note provides a detailed breakdown of the investment portfolio by type and industry, highlights control and affiliated investments, and outlines unfunded commitments and the structure of the Credit Opportunities Partners JV, LLC (COPJV) Investment Portfolio Composition (Fair Value) | Investment Type | June 30, 2024 (Unaudited) | December 31, 2023 | |:--------------------------------------|:--------------------------|:------------------| | Senior Secured Loans—First Lien | 58.1% | 58.2% | | Asset Based Finance | 14.4% | 14.2% | | Software & Services | 15.9% | 16.9% | | Health Care Equipment & Services | 12.0% | 11.7% | | Total Investments | $14,087 million | $14,649 million | - As of June 30, 2024, the Company held investments in 29 portfolio companies it deemed to 'control' and 11 portfolio companies it deemed to be an 'affiliated person' but not 'control'[120] Unfunded Commitments (June 30, 2024) | Commitment Type | Amount (millions) | |:--------------------------------------|:------------------| | Unfunded debt investments | $1,269.5 | | Unfunded equity/other commitments | $481.4 | | Unfunded commitments to COPJV | $735.2 | - Credit Opportunities Partners JV, LLC (COPJV) is a joint venture with South Carolina Retirement Systems Group Trust (SCRS), with total capital commitments of up to $2,640 million (87.5% from Company, 12.5% from SCRS). The Company and SCRS each have 50% voting control[125] COPJV Selected Financial Information | Metric | June 30, 2024 (Unaudited) | December 31, 2023 | |:--------------------------------------|:--------------------------|:------------------| | Total investments, at fair value | $3,124.1 million | $3,470.8 million | | Total assets | $3,536.7 million | $3,743.0 million | | Total liabilities | $1,950.4 million | $2,146.6 million | | Member's equity | $1,586.3 million | $1,596.4 million | | Net increase in net assets from operations | $108.9 million | $71.8 million | Note 7. Financial Instruments This note details the company's derivative instruments, including foreign currency forward contracts and interest rate swaps, and their fair value and impact on financial statements Derivative Instruments Fair Value (Not Designated as Hedge) | Derivative Instrument | June 30, 2024 (Unaudited) | December 31, 2023 | |:---------------------------------|:--------------------------|:------------------| | Foreign currency forward contracts | $(4) million | $9 million | Net Realized and Unrealized Gains/Losses on Derivatives (Not Designated as Hedge) | Derivative Instrument | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---------------------------------|:-------------------------------|:-------------------------------| | Net realized gain (loss) on foreign currency forward contracts | $19 million | $4 million | | Net change in unrealized appreciation (depreciation) on foreign currency forward contracts | $(13) million | $(3) million | | Total | $6 million | $1 million | - The Company entered into interest rate swap agreements with a total notional amount of $600 million, maturing on August 15, 2029, to hedge exposure to changes in fair value of its 6.875% Notes due 2029. These swaps are designated as qualifying fair value hedges[135][136] Note 8. Fair Value of Financial Instruments This note explains the fair value hierarchy (Level 1, 2, 3) used for financial instruments and details the valuation techniques and significant unobservable inputs applied to Level 3 investments Fair Value Hierarchy of Investments | Valuation Inputs | June 30, 2024 (Unaudited) | December 31, 2023 | |:----------------------------------|:--------------------------|:------------------| | Level 1—Price quotations in active markets | $1 million | $1 million | | Level 2—Significant other observable inputs | $137 million | $178 million | | Level 3—Significant unobservable inputs | $12,561 million | $13,073 million | | Investments measured at net asset value | $1,388 million | $1,397 million | | Total | $14,087 million | $14,649 million | - The Company's board of directors oversees the valuation of portfolio investments, with the Adviser responsible for implementing the valuation process, which includes using independent valuation firms for debt and equity investments without broker quotes[141][142] Level 3 Valuation Techniques and Unobservable Inputs (June 30, 2024) | Type of Investment | Fair Value (millions) | Valuation Technique | Unobservable Input | Range (Weighted Average) | |:-------------------|:----------------------|:--------------------|:-------------------|:-------------------------| | Senior Debt | $7,575 | Discounted Cash Flow| Discount Rate | 5.6% - 19.5% (11.3%) | | Senior Debt | $1,246 | Waterfall | EBITDA Multiple | 0.2x - 10.6x (7.8x) | | Subordinated Debt | $325 | Discounted Cash Flow| Discount Rate | 10.7% - 15.5% (13.0%) | | Asset Based Finance| $1,374 | Discounted Cash Flow| Discount Rate | 5.6% - 42.7% (11.9%) | | Equity/Other | $604 | Waterfall | EBITDA Multiple | 0.6x - 15.8x (7.3x) | Note 9. Financing Arrangements This note details the company's outstanding financing arrangements, including various credit facilities and unsecured notes, along with their terms, asset coverage, and recent changes - As of June 30, 2024, the aggregate amount outstanding of senior securities was $8,001 million, and the Company's asset coverage was 184%, exceeding the 150% requirement[151] Outstanding Financing Arrangements (June 30, 2024) | Arrangement | Type | Amount Outstanding (millions) | Amount Available (millions) | |:---------------------------------------------|:--------------------------|:------------------------------|:----------------------------| | Ambler Credit Facility | Revolving Credit Facility | $161 | $39 | | CCT Tokyo Funding Credit Facility | Revolving Credit Facility | $232 | — | | Darby Creek Credit Facility | Revolving Credit Facility | $654 | $96 | | Meadowbrook Run Credit Facility | Revolving Credit Facility | $248 | $52 | | Senior Secured Revolving Credit Facility | Revolving Credit Facility | $687 | $3,885 | | Unsecured Notes (various maturities) | Unsecured Notes | $5,195 | — | | 6.875% Notes due 2029 | Unsecured Notes | $600 | — | | CLO-1 Notes | Collateralized Loan Obligation | $274 | — | | Total | | $8,001 | $4,072 | - For the six months ended June 30, 2024, average borrowings were $8,176 million with a weighted average interest rate of 5.42%[156] - On June 6, 2024, the Company issued $600 million aggregate principal amount of 6.875% Notes due August 15, 2029, which are general unsecured obligations[158][159] - The Senior Secured Revolving Credit Facility and Darby Creek Credit Facility were amended in June 2024 to replace CDOR benchmark provisions with CORRA benchmark provisions[161][162] Note 10. Commitments and Contingencies This note addresses the company's legal proceedings, unfunded commitments to portfolio companies, and other guarantees - The Company is not currently subject to any material legal proceedings, nor are any material legal proceedings threatened against it[165] Unfunded Commitments (June 30, 2024) | Category | Commitment Amount (millions) | |:---------------------------------------|:-----------------------------| | Senior Secured Loans—First Lien | $1,063.5 | | Senior Secured Loans—Second Lien | $3.0 | | Subordinated Debt | $12.1 | | Asset Based Finance | $191.9 | | Total Debt Commitments | $1,269.5 | | Unfunded Asset Based Finance/Other commitments | $481.4 | | Unfunded commitment to COPJV | $735.2 | - The Company has sufficient liquidity to fund its unfunded commitments, which include revolving credit facilities and delayed draw term loans[169] - The Company has no guarantees outstanding on behalf of portfolio companies as of June 30, 2024, and December 31, 2023[171] Note 11. Financial Highlights This note presents key financial highlights, including per share data, total returns, and various financial ratios for the six months ended June 30, 2024, and the year ended December 31, 2023 Per Share Data and Ratios | Metric | Six Months Ended June 30, 2024 (Unaudited) | Year Ended December 31, 2023 | |:----------------------------------------------------------|:-------------------------------------------|:-----------------------------| | Net asset value, beginning of period | $24.46 | $24.89 | | Net increase (decrease) in net assets from operations | $0.99 | $2.48 | | Net asset value, end of period | $23.95 | $24.46 | | Per share market value, end of period | $19.73 | $19.97 | | Total return based on net asset value | 4.05% | 10.12% | | Total return based on market value | 6.47% | 32.45% | | Ratio of net investment income to average net assets | 12.38% | 12.67% | | Ratio of total operating expenses to average net assets | 12.93% | 13.32% | | Asset coverage per unit | 1.84 | 1.83 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition, results of operations, and liquidity, covering investment objectives, revenue and expense drivers, and critical accounting policies Overview The overview reiterates the company's status as an externally managed BDC and RIC, outlining its investment objectives to generate current income and capital appreciation, primarily through direct originations of debt in middle-market U.S. companies - The Company is an externally managed, non-diversified, closed-end management investment company regulated as a BDC and has elected to be treated as a RIC[181] - Investment objectives are to generate current income and long-term capital appreciation, focusing on debt investments in middle-market U.S. companies (EBITDA of $50 million to $150 million) through direct originations[181][182] - The portfolio primarily consists of senior secured and second lien secured loans, with a defensive investment approach emphasizing long-term credit performance and principal protection[181][183] Revenues Revenues are primarily generated from interest income on debt investments, supplemented by various fees and dividends, with a decrease in interest and PIK income but an increase in fee income for the six months ended June 30, 2024 - Principal revenues are interest income on debt investments, with additional revenues from commitment, closing, origination, structuring, diligence, monitoring, consulting, prepayment, and performance-based fees, as well as dividends[186] - Decrease in interest and PIK income for the three and six months ended June 30, 2024, compared to the prior year, primarily due to repayment of higher-yielding positions and assets placed on non-accrual status[207] - Increase in fee income for the three and six months ended June 30, 2024, primarily attributable to increased origination activity[208] - Decrease in dividend income for the three and six months ended June 30, 2024, due to lower dividends on certain asset-based finance investments[208] Expenses Operating expenses primarily consist of management and incentive fees, administrative services expenses, and interest expense, with total operating expenses decreasing due to lower incentive and management fees - Primary operating expenses include management and incentive fees, administrative services expenses, and interest expense from financing arrangements[187] Operating Expenses | Expense | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:-----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Management fees | $54 million | $56 million | $109 million | $114 million | | Subordinated income incentive fees | $45 million | $47 million | $88 million | $93 million | | Administrative services expenses | $2 million | $4 million | $5 million | $7 million | | Interest expense | $115 million | $118 million | $231 million | $232 million | | Total operating expenses | $224 million | $233 million | $446 million | $460 million | - The decrease in total operating expenses for the three and six months ended June 30, 2024, is primarily due to lower subordinated income incentive fees and management fees, resulting from a lower asset base and reduced investment income[211] Net Investment Income Net investment income decreased for both the three and six months ended June 30, 2024, primarily due to lower overall investment income Net Investment Income | Period | Net Investment Income (millions) | Per Share | |:--------------------------------------|:---------------------------------|:----------| | Three months ended June 30, 2024 | $215 | $0.77 | | Three months ended June 30, 2023 | $229 | $0.82 | | Six months ended June 30, 2024 | $427 | $1.53 | | Six months ended June 30, 2023 | $458 | $1.63 | - The decrease in net investment income is primarily attributed to lower investment income during the respective periods[213] Net Realized Gains or Losses The company experienced net realized losses on investments for both the three and six months ended June 30, 2024, partially offset by net realized gains on foreign currency forward contracts Net Realized Gains (Losses) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:-----------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net realized gain (loss) on investments | $(64) million | $(214) million | $(307) million | $(272) million | | Net realized gain (loss) on foreign currency forward contracts | $19 million | $1 million | $19 million | $4 million | | Net realized gain (loss) on foreign currency | $0 million | $2 million | $(3) million | $3 million | | Total net realized gain (loss) | $(45) million | $(211) million | $(291) million | $(265) million | Net Change in Unrealized Appreciation (Depreciation) The net change in unrealized appreciation (depreciation) for the three months ended June 30, 2024, was a depreciation, while for the six months, it was an appreciation, influenced by asset performance and conversion of unrealized depreciation to realized losses Net Change in Unrealized Appreciation (Depreciation) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:--------------------------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net change in unrealized appreciation (depreciation) on investments | $(48) million | $127 million | $138 million | $158 million | | Net change in unrealized appreciation (depreciation) on foreign currency forward contracts | $(21) million | $1 million | $(13) million | $(3) million | | Net change in unrealized gain (loss) on foreign currency | $4 million | $(4) million | $17 million | $(7) million | | Total net change in unrealized appreciation (depreciation) | $(65) million | $124 million | $142 million | $148 million | - The net change in unrealized appreciation (depreciation) during the three and six months ended June 30, 2024, was primarily driven by depreciation on several specific assets in the portfolio along with the conversion of unrealized depreciation to realized losses[215] Net Increase (Decrease) in Net Assets Resulting from Operations The net increase in net assets resulting from operations decreased for both the three and six months ended June 30, 2024, compared to the prior year periods Net Increase in Net Assets from Operations | Period | Net Increase (millions) | Per Share | |:--------------------------------------|:------------------------|:----------| | Three months ended June 30, 2024 | $105 | $0.37 | | Three months ended June 30, 2023 | $142 | $0.51 | | Six months ended June 30, 2024 | $278 | $0.99 | | Six months ended June 30, 2023 | $341 | $1.22 | Financial Condition, Liquidity and Capital Resources This section provides an overview of the company's financial position, liquidity, and capital resources, including cash, available borrowings, unfunded commitments, financing arrangements, and RIC tax status and distribution policies Overview The company maintains a strong liquidity position with significant cash and available borrowings, along with liquid investments, to fund its unfunded commitments and support its investment strategy - As of June 30, 2024, the Company had $433 million in cash and foreign currency and $4,072 million in borrowings available under its financing arrangements[217] - The Company had unfunded debt investments with aggregate unfunded commitments of $1,269.5 million, unfunded equity/other commitments of $481.4 million, and unfunded commitments of $735.2 million to COPJV[217] - The Company's asset coverage was 184% as of June 30, 2024, exceeding the 150% requirement under the 1940 Act[218] Financing Arrangements The company's financing arrangements include various revolving credit facilities and unsecured notes, with a total of $8,001 million outstanding and $4,072 million available as of June 30, 2024 Outstanding Financing Arrangements (June 30, 2024) | Arrangement | Type | Amount Outstanding (millions) | Amount Available (millions) | |:---------------------------------------------|:--------------------------|:------------------------------|:----------------------------| | Ambler Credit Facility | Revolving Credit Facility | $161 | $39 | | CCT Tokyo Funding Credit Facility | Revolving Credit Facility | $232 | — | | Darby Creek Credit Facility | Revolving Credit Facility | $654 | $96 | | Meadowbrook Run Credit Facility | Revolving Credit Facility | $248 | $52 | | Senior Secured Revolving Credit Facility | Revolving Credit Facility | $687 | $3,885 | | Unsecured Notes (various maturities) | Unsecured Notes | $5,195 | — | | 6.875% Notes due 2029 | Unsecured Notes | $600 | — | | CLO-1 Notes | Collateralized Loan Obligation | $274 | — | | Total | | $8,001 | $4,072 | RIC Status and Distributions The company maintains its RIC tax status by distributing at least 90% of its investment company taxable income and aims to avoid excise tax. It pays regular quarterly cash distributions, with no return of capital reported for the six months ended June 30, 2024 - The Company has elected to be taxed as a RIC and must distribute at least 90% of its investment company taxable income each tax year to qualify[222] - The Company is subject to a 4% nondeductible federal excise tax on certain undistributed income unless timely distributions are made[223] - Regular cash distributions are authorized, declared, and paid quarterly, with distributions reinvested under the DRP remaining taxable to U.S. stockholders[224][225] - No portion of the distributions paid during the six months ended June 30, 2024, or 2023, represented a return of capital[225] Critical Accounting Policies and Estimates This section highlights the critical accounting policy for the valuation of portfolio investments, particularly Level 3 assets, which involves significant management judgment and estimates due to inherent uncertainties Valuation of Portfolio Investments The valuation of portfolio investments, especially Level 3 assets, is a critical accounting policy involving a multi-step process overseen by the board and implemented by the Adviser, utilizing various valuation techniques and independent services - Valuation of portfolio investments, particularly Level 3 investments, is identified as a critical accounting policy due to significant judgments and assumptions about inherently uncertain matters[229] - The board of directors oversees valuation, with the Adviser designated as the valuation designee responsible for implementing the portfolio valuation process[230] - A multi-step valuation process is undertaken quarterly for investments without readily available market prices, involving independent third-party pricing/valuation services, internal review by the Adviser, and oversight by the valuation committee and board[232] - Valuation techniques include discounted cash flow models, enterprise valuation (market or income approach), EBITDA multiples, and standard option pricing models for convertible debt and equity interests[235][236][237] Contractual Obligations The company has contractual obligations primarily related to investment advisory and administrative services agreements with its Adviser - The Company has agreements with the Adviser for investment advisory and administrative services, involving an annual base management fee, an incentive fee based on performance, and reimbursement for administrative expenses[239] Off-Balance Sheet Arrangements The company currently has no off-balance sheet arrangements - The Company currently has no off-balance sheet arrangements, including risk management of commodity pricing or other hedging practices[240] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, specifically interest rate risk and foreign currency risk, and outlines strategies employed to manage these exposures, including sensitivity analyses and the use of derivative instruments Interest Rate Risk The company is exposed to interest rate fluctuations, with a majority of its debt investments paying variable rates. It uses interest rate swaps to manage this risk, and a sensitivity analysis shows the potential impact on net interest income - As of June 30, 2024, 68.8% of portfolio investments were variable interest rate debt, and 7.8% were fixed interest rate debt[241] - Many variable rate investments have interest rate floors, which may delay increases in interest income until benchmark rates rise beyond a threshold[241] - The Company uses interest rate swap strategies to hedge risks associated with changing interest rates, particularly for its floating-rate borrowings[242] Sensitivity of Net Interest Income to Interest Rate Changes (12-month period) | Basis Point Change in Interest Rates | Increase (Decrease) in Net Interest Income (millions) | Percentage Change in Net Interest Income | |:-------------------------------------|:------------------------------------------------------|:-----------------------------------------| | Down 250 basis points | $(173) | (18.9)% | | Down 100 basis points | $(69) | (7.5)% | | Up 100 basis points | $69 | 7.5% | | Up 250 basis points | $173 | 18.9% | Foreign Currency Risk The company is exposed to foreign currency exchange rate movements on its foreign-denominated investments. It uses foreign currency forward contracts and foreign currency borrowings to hedge against these risks - Investments denominated in foreign currencies are subject to exchange rate movements, affecting fair values and cash flows[244] Effect of 10% Adverse Change in Foreign Currency Exchange Rates (June 30, 2024) | Foreign Currency | Fair Value (millions) | Reduction in Fair Value if 10% Adverse Change (millions) | |:-----------------------|:----------------------|:---------------------------------------------------------| | British Pound Sterling | $194.8 | $19.5 | | Euros | $432.8 | $43.3 | | Swedish Krona | $89.5 | $9.0 | | Total | $719.6 | $72.1 | - The Company uses foreign currency forward contracts and has the ability to borrow in foreign currencies under its Senior Secured Revolving Credit Facility to hedge against foreign currency risks[247][248] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended June 30, 2024 Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024 - The chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures were effective to provide reasonable assurance that disclosure obligations would be met as of June 30, 2024[249] Changes in Internal Control Over Financial Reporting There were no material changes in the company's internal control over financial reporting during the three months ended June 30, 2024 - There was no change in the Company's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting during the three-month period ended June 30, 2024[250] PART II—OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is not currently involved in any material legal proceedings, nor are any threatened against it - The Company is not currently subject to any material legal proceedings, nor are any material legal proceedings threatened against it[252] ITEM 1A. RISK FACTORS There are no material changes to the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K - There are no material changes from the risk factors included within the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q[253] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's share repurchase program and various affiliated purchaser and seller programs, all of which have concluded, with no purchases or sales by affiliated purchasers during the quarter ended June 30, 2024 Share Repurchase Program The company's share repurchase program, which allowed for purchases up to $54 million, concluded after repurchasing 1,665,317 shares for $32 million during the three months ended March 31, 2023 - The Share Repurchase Program, renewed on October 31, 2022, for up to $54 million, concluded after repurchasing 1,665,317 shares for $32 million during the three months ended March 31, 2023[254][255] Affiliate Purchaser Programs Several affiliated purchaser and seller programs, including those from September 2021, December 2021, September 2022, August 2023, and March 2024, have all concluded, with no shares purchased by or on behalf of the company or any affiliated purchaser during the quarter ended June 30, 2024 - Multiple affiliated purchaser programs (September 2021, December 2021) and affiliated seller programs (September 2022, August 2023, March 2024) have concluded, with all aggregate purchase/sale amounts expended[256][257][258][259][260] - No shares of common stock were purchased by or on behalf of the Company or any 'affiliated purchaser' during the quarterly period ended June 30, 2024[260][261] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the company - This item is not applicable[262] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - This item is not applicable[262] ITEM 5. OTHER INFORMATION This section confirms that no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the fiscal quarter ended June 30, 2024 Rule 10b5-1 Trading Plans No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the fiscal quarter ended June 30, 2024 - None of the Company's directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities to satisfy Rule 10b5-1(c) conditions during the fiscal quarter ended June 30, 2024[263] ITEM 6. EXHIBITS This section lists the exhibits filed with the quarterly report, including Inline XBRL documents and supplemental indentures/amendments related to financing arrangements - Exhibits filed include Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase, and Cover Page Interactive Data File[264] - Also filed are the Thirteenth Supplemental Indenture (June 6, 2024) for the 6.875% Notes due 2029, the Fourth Amendment to the Senior Secured Revolving Credit Agreement (June 26, 2024), and the Thirteenth Amendment to the Loan and Servicing Agreement (June 27, 2024)[266] SIGNATURES The quarterly report is duly signed on behalf of FS KKR Capital Corp. by its Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer - The quarterly report is signed by Michael C. Forman (Chief Executive Officer), Steven Lilly (Chief Financial Officer), and William Goebel (Chief Accounting Officer) on August 6, 2024[267]