FS KKR Capital (US:FSK)2023-02-28 16:34Financial Data and Key Metrics Changes - The adjusted net investment income per share for the full year grew over 10% compared to 2021 [13] - The net asset value declined 1.6% quarter-over-quarter, with a December 31, 2022 net asset value per share of $24.89 [14][121] - Total investment income increased by $38 million quarter-over-quarter, driven by increased interest income [65] - The weighted average yield on accruing debt investments was 11.4% as of December 31, 2022, compared to 10.4% as of September 30 [120] Business Line Data and Key Metrics Changes - The investment portfolio had a fair value of $15.4 billion, consisting of 197 portfolio companies, down from $15.8 billion and 195 companies as of September 30, 2022 [23] - During the fourth quarter, the company originated approximately $863 million of new investments, primarily focused on fundings and add-on financings to existing portfolio companies [31] - The largest negative movers in the portfolio were Pure Fishing and KBS, impacted by credit performance-related issues [24] Market Data and Key Metrics Changes - The company expects above-average levels of volatility in the near term due to the Federal Reserve's focus on fighting inflation and ongoing geopolitical issues [18] - The portfolio companies reported a weighted average year-over-year EBITDA growth rate of approximately 15% across companies invested in since April 2018 [30] - The median interest coverage for portfolio companies at the end of the fourth quarter was 1.9 times [32] Company Strategy and Development Direction - The company continues to rotate its investment portfolio into FS KKR originated assets, with a focus on larger companies in the upper end of the middle market [12][58] - The management team believes the increased volatility and economic uncertainty have created compelling investment opportunities for large-scale private debt investors [19] - The company plans to maintain a minimum supplemental distribution of $0.06 per share throughout 2023, equating to a total minimum distribution of $0.70 per share per quarter [15][36] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's future and confidence in generating strong results for shareholders [43] - The macroeconomic environment is expected to remain challenging throughout 2023, with uncertainty over inflation and interest rates [18] - Management noted that while there has been a slight uptick in amendment activity, it is considered normal course of business and not indicative of fundamental weaknesses in the companies [80] Other Important Information - The company repurchased $87 million of shares under its $100 million share repurchase program, with $13 million remaining as of February 24, 2023 [3] - The board declared a first-quarter total distribution of $0.70 per share, raising the quarterly-based dividend to $0.64 per share, a 5% increase from the previous quarter [27] Q&A Session Summary Question: Will higher interest rates impact deal activity? - Management indicated that the M&A market is looking for comfort that inflation is under control, and deal activity may remain slow until there is more clarity on the economic landscape [46][57] Question: How does the company view asset-based finance opportunities? - The company maintains a 10% to 15% allocation to asset-based finance and sees it as an attractive asset class to invest in [50] Question: What is driving the increase in amendment activity? - The increase in amendment activity is primarily driven by financial performance metrics and regular loan covenant adjustments [96][98] Question: Are the performance issues in portfolio companies considered transitory? - Management believes the performance issues are transitory and reflects normal market adjustments rather than fundamental weaknesses [63][82]