FS KKR Capital (US:FSK)2025-05-08 14:02Financial Data and Key Metrics Changes - For Q1 2025, the company generated net investment income of $0.67 per share and adjusted net investment income of $0.65 per share, compared to public guidance of approximately $0.66 and $0.64 per share respectively [11] - The company ended the quarter with approximately $3.2 billion of available liquidity [11] - The net asset value per share decreased from $23.64 at the end of Q4 2024 to $23.37 at the end of Q1 2025 [30] Business Line Data and Key Metrics Changes - The company originated approximately $2 billion of new investments during the first quarter, with 45% focused on add-on financings to existing portfolio companies [18] - New investments included approximately 63% in first lien loans, 19% in asset-based finance, and 15% in capital calls to the joint venture [19] - The weighted average yield on accruing debt investments decreased to 10.8% as of March 31, down from 11% at the end of Q4 2024 [28] Market Data and Key Metrics Changes - Approximately 8% of the portfolio could have direct exposure to tariff policies, while low to mid single-digit exposure to DOGE is estimated [15] - Non-accruals represented 3.5% of the portfolio on a cost basis and 2.1% on a fair value basis, showing slight improvement from 3.7% and 2.2% respectively at the end of Q4 2024 [21] Company Strategy and Development Direction - The company aims to maintain a stable income for investors by keeping a consistent distribution strategy, with a declared second quarter distribution of $0.70 per share [11] - The focus remains on upper middle market companies with EBITDA between $50 million and $150 million, which are believed to have more resilience during challenging periods [20] - The company is actively managing exposure to tariffs and has exited two portfolio companies deemed to have higher risks related to tariffs [16] Management's Comments on Operating Environment and Future Outlook - The management expressed concerns about the worsening economic outlook and increased volatility in debt and equity markets [8] - The expectation is that the macroeconomic environment will stabilize by early next year, providing clearer insights into interest rates and other economic drivers [10] - The management remains cautious about the potential for a recession but believes that the company is well-positioned to navigate the current uncertainties [49] Other Important Information - The company closed on its second middle market CLO, raising $380 million of low-cost secured debt [33] - The management team has amended the Morgan Stanley funding facility, reducing the spread and extending the maturity date [33] Q&A Session Summary Question: Timing of deployments and rate changes impact - Management noted that the origination number was satisfactory and that the decline in rates has mostly flowed through as of the end of Q1 [38][40] Question: Market share and competitive environment - Management indicated that they are gaining market share through diversified origination sources and strong sponsor relationships, although M&A activity has slowed [41][43] Question: Macro group insights on recession odds - The macro group sees a higher likelihood of a recession, albeit potentially muted, and is actively monitoring economic indicators [48] Question: Yield compression expectations - Management acknowledged the potential for additional yield compression as the portfolio churns, with new money yields expected to be lower than previous repayments [50][52] Question: Asset-based financing risks - Management highlighted that consumer-related risks in the asset-based finance portfolio are being monitored, with a focus on secured, high FICO score borrowers [62] Question: Interest coverage trends - Management explained that the lag effect in interest coverage metrics is due to the timing of rate changes and portfolio adjustments [84]