FS KKR Capital (US:FSK)2023-08-08 16:10Financial Data and Key Metrics Changes - The company generated net investment income of $0.82 per share and adjusted net investment income of $0.78 per share, exceeding public guidance [90] - The net asset value per share as of June 30, 2023, was $24.69, down from $24.89 at the start of the year and $24.93 as of March 31, 2023 [90][112] - The company declared a third quarter regular distribution of $0.70 per share, consisting of a base distribution of $0.64 and a supplemental distribution of $0.06 [90][106] Business Line Data and Key Metrics Changes - The investment portfolio had a fair value of $14.8 billion, down from $15.3 billion as of March 31, 2023, with a decrease attributed to the sale of lower-yielding assets [9][96] - The company originated $363 million in new investments during the second quarter, primarily focused on add-on financings [7][109] - The weighted average yield on accruing debt investments increased to 12.1% as of June 30, 2023, compared to 11.7% as of March 31, 2023 [35] Market Data and Key Metrics Changes - The company reported a median interest coverage of 1.6 times for its portfolio companies at the end of the second quarter [8] - Non-accruals improved to 4.8% on a cost basis and 2.5% on a fair value basis, compared to 5.5% and 2.7% respectively as of March 31, 2023 [112] - The company expects recurring dividend income from its joint venture to approximate $54 million [114] Company Strategy and Development Direction - The company is focused on large high-quality borrowers with strong operating margins and deep equity cushions, with 59.5% of the portfolio in first lien loans [111] - The company is actively seeking opportunities in the asset-based finance sector, particularly due to pressures on regional banks [40][108] - The company aims to continue producing strong financial results and rewarding shareholders with attractive dividends over the long term [91][105] Management's Comments on Operating Environment and Future Outlook - Management noted that the resilience of the labor market and strong consumer spending make it unlikely for the economy to slow down significantly [92] - The company anticipates that the recent increase in new investment activity will not materially impact financial results until the fourth quarter of 2023 or early 2024 [93] - Management expressed optimism about the increasing deal flow and the potential for favorable origination activity [44][108] Other Important Information - The company completed the sale of approximately $500 million of lower-yielding investments to increase investment capacity [109] - The total investment income increased by $6 million quarter-over-quarter to $462 million, driven by increased interest income [142] - The company expects third quarter 2023 GAAP net investment income to approximate $0.79 per share [143] Q&A Session Summary Question: Update on Global Jet asset - Management indicated that the underlying performance of the assets remains strong, with good management and cost control [17] Question: Average price of portfolio sale as a percentage of par value - Management explained that the market is currently wide on a spread level, and the portfolio rotation was a strategic decision [20][21] Question: Inbound opportunities from regional banks - Management confirmed they are actively looking for opportunities to partner with banks on transactions, including buying entire portfolios [41] Question: Current share price and actions to narrow discount to NAV - Management emphasized the importance of consistent performance and guidance to improve market perception [30][31] Question: Driving factors behind portfolio sale - Management clarified that the sale was a strategic move related to a specific asset, Solera, which had temporary cash flow adjustments [125] Question: Restructuring environment and valuation changes - Management acknowledged that the restructuring process can be complex and that some situations have become more challenging [134][135]