FS KKR Capital (US:FSK)2025-05-07 20:28Investment Activity - For the three months ended March 31, 2025, total purchases amounted to $1,998 million, while sales and repayments were $1,407 million, resulting in a net portfolio activity of $591 million[329]. - Senior secured loans—first lien represented 63% of new investment activity with purchases of $1,256 million and repayments of $853 million[329]. - The company’s investment portfolio primarily consists of senior secured loans and second lien secured loans of private middle market U.S. companies[317]. - The number of portfolio companies increased to 224 as of March 31, 2025, up from 214 at the end of 2024[332]. - The joint venture, Credit Opportunities Partners JV, LLC, had total debt investments of $3,380.3 million as of March 31, 2025, compared to $3,019.6 million at the end of 2024[339]. - The largest investment in a single portfolio company within COPJV was $128.0 million as of March 31, 2025[339]. - The portfolio composition by industry classification showed that the capital goods sector accounted for 12.6% of the total portfolio as of March 31, 2025[341]. Financial Performance - The company generated revenues primarily from interest income on debt investments, along with non-recurring fees such as commitment, closing, and performance-based fees[323]. - Total investment income for the three months ended March 31, 2025, was $400 million, a decrease of 7.8% from $434 million for the same period in 2024[344]. - Interest income decreased to $240 million (60.0% of total income) in Q1 2025 from $315 million (72.6% of total income) in Q1 2024, primarily due to declining base rates[344][346]. - Net investment income for Q1 2025 was $187 million ($0.67 per share), down from $212 million ($0.76 per share) in Q1 2024[352]. - The net change in unrealized appreciation for Q1 2025 was $(50) million, compared to $207 million in Q1 2024, driven by reduced valuations of certain portfolio companies[355]. - Operating expenses decreased to $213 million in Q1 2025 from $222 million in Q1 2024, primarily due to lower subordinated income incentive fees[349][350]. Portfolio Valuation - As of March 31, 2025, the total fair value of the investment portfolio was $14,122 million, an increase from $13,490 million as of December 31, 2024[330]. - The total fair value of direct originations was $13,767.5 million as of March 31, 2025, up from $13,010.9 million[334]. - The percentage of variable rate debt investments based on fair value rose to 67.2% from 65.8%[332]. - The percentage of investments rated 1 (performing) remained stable at 69% for both March 31, 2025, and December 31, 2024, while the percentage of investments rated 3 (underperforming) increased from 4% to 6%[343]. Cash and Securities - As of March 31, 2025, the company had $472 million in cash and cash equivalents, with $2,635 million available under financing arrangements[357]. - The total outstanding amount of senior securities issued was $8,009 million, with an asset coverage ratio of 182% as of March 31, 2025[358][359]. - The fair value of the 3.400% Notes was approximately $987 million as of March 31, 2025[7]. - The fair value of the 6.125% Notes was approximately $720 million as of March 31, 2025[7]. - The carrying value of the 6.875% Notes increased by $9 due to effective hedge accounting[8]. - The company has issued $29 million in standby letters of credit under the Senior Secured Revolving Credit Facility as of March 31, 2025[6]. Dividends and Taxation - The company declared total dividends of $0.70 per share for the three months ended March 31, 2025, compared to $0.75 per share for the same period in 2024[368]. - The board of directors declared a regular quarterly distribution of $0.70 per share on May 5, 2025, to be paid on or about July 2, 2025[369]. - The company intends to make distributions of at least 90% of its investment company taxable income to maintain RIC tax status[363]. - The company is subject to a 4% nondeductible federal excise tax on certain undistributed income unless timely distributions are made[365]. Risk Management - The company aims to maintain rigorous portfolio monitoring to anticipate negative credit events within its portfolio[319]. - The weighted average annual yield on accruing debt investments was 11.0% as of March 31, 2025, consistent with the previous quarter[334]. - A 250 basis point increase in interest rates would result in a $240 million decrease in interest income and a $115 million decrease in net interest income[390]. - The net contractual amount of foreign currency forward contracts totaled $197.9 million as of March 31, 2025, all related to hedging foreign currency denominated debt investments[397]. - The company utilizes interest rate swap strategies to hedge against interest rate risks[389]. - A prolonged reduction in interest rates may adversely affect the company's net investment income[388]. - A 10% unfavorable change in foreign currency exchange rates would reduce the fair value of investments denominated in foreign currencies by approximately $89.7 million[395]. - The company is typically a net receiver of foreign currencies related to its international investment positions, benefiting from a weaker U.S. dollar[396].