FS KKR Capital (US:FSK)2023-05-05 15:03Financial Data and Key Metrics Changes - For Q1 2023, the company generated net investment income of $0.81 per share and adjusted net investment income of $0.78 per share, exceeding public guidance of $0.77 and $0.74 per share respectively [10] - The net asset value increased to $24.93 per share, up from $24.89 per share in Q4 2022, despite a slight decline in the investment portfolio value [39] - Total investment income rose by $7 million quarter-over-quarter, driven by increased interest income, totaling $369 million [35] Business Line Data and Key Metrics Changes - The investment portfolio had a fair value of $15.3 billion as of March 31, 2023, down from $15.4 billion at the end of 2022, with 189 portfolio companies [22] - New investments in Q1 2023 totaled approximately $270 million, with 87% coming from existing portfolio companies [18] - The weighted average yield on accruing debt investments increased to 11.7% from 11.4% in the previous quarter [24] Market Data and Key Metrics Changes - The company ended Q1 2023 with approximately $3 billion in available liquidity [11] - Interest expense increased to $114 million, reflecting rising base rates on secured debt facilities [37] - Non-accruals totaled 5.5% on a cost basis and 2.7% on a fair value basis, compared to 4.9% and 2.4% respectively at the end of 2022 [30] Company Strategy and Development Direction - The company plans to maintain a minimum quarterly supplemental distribution of $0.06 per share throughout 2023, with total distributions expected to reach a minimum of $2.95 per share [14] - The focus remains on senior secured investments, with 61% of the portfolio in first lien loans as of March 31, 2023 [22] - The company anticipates that increased volatility and economic uncertainty will create compelling investment opportunities [16] Management's Comments on Operating Environment and Future Outlook - Management expects inflation to remain elevated and believes the higher interest rate environment will persist longer than anticipated [15] - The company is seeing a ramp-up in M&A activity inquiries, although overall transaction volumes are expected to remain below average for the next few quarters [16] - The portfolio is performing well, with borrowers demonstrating the ability to pass through price increases, maintaining acceptable EBITDA margins [17] Other Important Information - The company completed a $100 million share repurchase program, repurchasing $32 million of shares in March [11] - Special distributions totaling $0.15 per share will be paid in three equal installments throughout 2023 [13] - The gross and net debt to equity levels were 125% and 118% respectively, unchanged from the previous quarter [43] Q&A Session Summary Question: Can you discuss the recent increase in deal activity? - Management noted an uptick in inquiries from sell-side firms and existing borrowers, indicating potential future M&A activity, although the overall environment remains slow [52] Question: What are the best opportunities in the current market? - The direct lending market is seen as extremely attractive, with credit spreads on new loans approximately 100 basis points higher than a year ago [53] Question: How is the company managing its funding profile? - The company is satisfied with its unsecured debt issued prior to 2022 and plans to remain active in the market while being prudent with its funding strategy [75]