FS KKR Capital (US:FSK)2021-05-11 17:55Financial Data and Key Metrics Changes - In Q1 2021, the company originated $417 million of new investments and experienced an increase in net asset value, outperforming the target 9% annualized dividend yield on net asset value [9][10] - Net investment income was $0.63 per share, exceeding the quarterly dividend of $0.60 per share and public guidance by $0.02 per share [11][12] - The company ended the quarter with approximately $1.9 billion of available liquidity and no meaningful near-term debt maturities [12][53] - The NAV per share increased from $25.02 at the end of Q4 2020 to $26.03 as of March 31, 2021 [49] Business Line Data and Key Metrics Changes - The investment portfolio had a fair value of $6.5 billion, down from $6.8 billion, with 152 portfolio companies compared to 164 previously [32] - The weighted average yield on accruing debt investments decreased to 8.6% from 8.8% due to the repayment of higher-yielding assets [34] - The company experienced net portfolio appreciation of $121 million, with total realized and unrealized appreciation of $249 million during the quarter [40] Market Data and Key Metrics Changes - Unemployment decreased from 6.9% to 6.1% over two quarters, indicating a positive trend in the labor market [16] - The company noted a significant increase in revenues and EBITDA among financial sponsors and portfolio companies over the last three to four quarters [18] Company Strategy and Development Direction - The company plans to continue targeting a 9% minimum unrealized revenue and is preparing for a proposed merger with FSKR, which is expected to enhance strategic opportunities [13][15][56] - The focus remains on being selective in underwriting to ensure downside protection in the current market [22][76] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued improvement in free cash flow growth across many sectors, despite potential inflationary pressures [19] - The company is focused on maintaining a disciplined approach to origination and risk management, especially in light of potential economic changes [78][80] Other Important Information - The company placed two investments on non-accrual status during the quarter, while one asset was placed back on accrual status [41][42] - Approximately 84% of the yielding investment portfolio is now comprised of investments originated by KKR [39] Q&A Session Summary Question: Discussion on pipeline and competition from syndicated loan channel - Management noted a healthy pipeline and emphasized that they are not directly competing with the syndicated market, focusing instead on the unique offerings of private credit [62][63] Question: Potential for rotation from equity assets - Management confirmed ongoing efforts to rotate out of equity positions, with a focus on maintaining quality and performance [64] Question: High level of pre-payments and JV investments - Management explained that the decision to sell investments into the JV was strategic, allowing for better management of non-earning assets [65] Question: Quality of originations and pipeline expectations - Management expressed confidence in the quality of originations, emphasizing a selective approach to ensure strong credit quality [98] Question: Mix of first lien versus second lien investments - Management confirmed a focus on first lien investments for conservatism, while remaining open to second lien opportunities under specific conditions [105][106]