FS KKR Capital (US:FSK)2021-05-09 16:00PART I—FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion for FS KKR Capital Corp. as of March 31, 2021 Item 1. Financial Statements This section presents FS KKR Capital Corp.'s unaudited consolidated financial statements, including balance sheets, operations, cash flows, and investment schedules, for Q1 2021 and 2020 Consolidated Balance Sheets As of March 31, 2021, total assets decreased to $6.96 billion, while total stockholders' equity increased to $3.22 billion, raising NAV per share to $26.03 Consolidated Balance Sheet Summary (in millions, except per share data) | Metric | March 31, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total investments, at fair value | $6,457 | $6,780 | | Total assets | $6,964 | $7,237 | | Total liabilities | $3,743 | $4,141 | | Total stockholders' equity | $3,221 | $3,096 | | Net asset value per share | $26.03 | $25.02 | Unaudited Consolidated Statements of Operations Net assets increased by $199 million ($1.61 per share) in Q1 2021, a significant turnaround from a $703 million decrease in Q1 2020, driven by unrealized gains Consolidated Statements of Operations Summary (in millions, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total investment income | $151 | $179 | | Total operating expenses | $73 | $81 | | Net investment income | $78 | $98 | | Total net realized and unrealized gain (loss) | $121 | $(801) | | Net increase (decrease) in net assets | $199 | $(703) | | Earnings per Share (basic and diluted) | $1.61 | $(5.59) | Unaudited Consolidated Statements of Changes in Net Assets Net assets increased by $125 million to $3.221 billion in Q1 2021, primarily due to a $199 million operational gain, contrasting with an $838 million decrease in Q1 2020 Changes in Net Assets (in millions) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net assets at beginning of period | $3,096 | $3,866 | | Net increase (decrease) from operations | $199 | $(703) | | Distributions to stockholders | $(74) | $(95) | | Repurchases of common stock | $— | $(40) | | Total increase (decrease) in net assets | $125 | $(838) | | Net assets at end of period | $3,221 | $3,028 | Unaudited Consolidated Statements of Cash Flows Net cash provided by operating activities was $435 million, while financing activities used $477 million, resulting in a $42 million net cash decrease for Q1 2021 Consolidated Statements of Cash Flows Summary (in millions) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $435 | $131 | | Net cash provided by (used in) financing activities | $(477) | $(44) | | Total increase (decrease) in cash | $(42) | $87 | Consolidated Schedules of Investments The investment portfolio's fair value was $6.46 billion, primarily debt-weighted with 51.2% in Senior Secured First Lien loans, and key concentrations in Capital Goods, Software & Services, and SCJV Investment Portfolio Composition by Type (as of March 31, 2021) | Investment Type | Fair Value (in millions) | Percentage of Portfolio | | :--- | :--- | :--- | | Senior Secured Loans—First Lien | $3,303 | 51.2% | | Senior Secured Loans—Second Lien | $713 | 11.0% | | Other Senior Secured Debt | $81 | 1.3% | | Subordinated Debt | $79 | 1.2% | | Asset Based Finance | $948 | 14.7% | | Strategic Credit Opportunities Partners, LLC | $732 | 11.3% | | Equity/Other | $601 | 9.3% | | Total | $6,457 | 100.0% | - The company's total investments had an amortized cost of $6.89 billion and a fair value of $6.46 billion as of March 31, 202146 Notes to Unaudited Consolidated Financial Statements These notes detail the company's business, accounting policies, and financial activities, including the pending FSKR merger, advisor fees, investment portfolio, SCJV, financing, distributions, and Level 3 asset valuation - The company has entered into a merger agreement with FS KKR Capital Corp II (FSKR), expected to close in the second or third quarter of 2021, with FSK as the surviving company124287 - The company's investment in its joint venture, Strategic Credit Opportunities Partners, LLC (SCJV), had a fair value of $731.9 million as of March 31, 2021, with SCJV itself holding total investments with a fair value of $1.66 billion40193 - As of March 31, 2021, the company had total unfunded commitments of $523.5 million, consisting of $252.0 million in debt investments, $205.7 million in equity/other, and $65.8 million to its SCJV181277 Management's Discussion and Analysis of Financial Condition and Results of Operations Management reviews Q1 2021 financial performance, noting a $199 million net asset increase driven by portfolio appreciation, $460 million net repayments, 94.9% direct originations, strong liquidity, and the pending FSKR merger Q1 2021 vs Q1 2020 Performance Summary (in millions) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Total Investment Income | $151 | $179 | | Net Investment Income | $78 | $98 | | Net Realized/Unrealized Gain (Loss) | $121 | $(801) | | Net Increase (Decrease) in Net Assets | $199 | $(703) | - During Q1 2021, portfolio activity resulted in net repayments of $460 million, with $417 million in purchases and $877 million in sales and repayments330 - As of March 31, 2021, 94.9% of the total portfolio at fair value consisted of direct originations, with a weighted average annual yield on all direct origination debt investments of 7.7%339 - The company's asset coverage ratio was 189% as of March 31, 2021, exceeding the required minimum of 150%252357 Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and foreign currency risks, with 60.1% of its portfolio in variable-rate debt; a 300 bps rate hike could increase net interest income by $63 million, and foreign currency exposure is hedged - As of March 31, 2021, 60.1% of the investment portfolio at fair value consisted of variable-rate debt investments386 Interest Rate Sensitivity Analysis (Annual Impact in millions) | Basis Point Change | Increase (Decrease) in Net Interest Income | | :--- | :--- | | Down 19 bps | $1 | | Up 100 bps | $1 | | Up 300 bps | $63 | | Up 500 bps | $126 | - The company manages foreign currency risk through derivative instruments and borrowing in foreign currencies, holding $64.8 million in notional foreign currency forward contracts and outstanding borrowings in Euros, Canadian dollars, British pounds, and Australian dollars as of March 31, 2021393395 Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures as of March 31, 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 March 31, 2021397 - No changes occurred during the quarter ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting398 PART II—OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings The company reports no material legal proceedings, nor is it aware of any threatened against it - FS KKR Capital Corp. reports no material legal proceedings as of the filing date401 Risk Factors No material changes to the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K are reported - The company states there are no material changes from the risk factors included in its most recent Annual Report on Form 10-K402 Unregistered Sales of Equity Securities and Use of Proceeds The Affiliated Purchaser did not purchase any of the company's common stock during the quarter ended March 31, 2021 - The Affiliated Purchaser, an investment vehicle associated with the Advisor's owners, made no purchases of the company's common stock during the first quarter of 2021403 Defaults upon Senior Securities This section is not applicable to the company's current reporting requirements Mine Safety Disclosures This section is not applicable to the company's current reporting requirements Other Information This section is not applicable to the company's current reporting requirements Exhibits This section lists all exhibits filed with the quarterly report, including key agreements, corporate documents, and certifications