FS KKR Capital Corp Q4 FY2024 earnings call

Michael Forman's Remarks

• 2024 accomplishments: Reduced non-accrual investments by 58%, maintained disciplined origination, achieved $2.90 per share distribution, and strengthened balance sheet with note issuances.
• 2025 goals: Utilize relationships for accretive investments, provide $2.80 in total distributions, and ladder balance sheet for investment-grade ratings.

Dan Pietrzak's Remarks

• 2024 was a strong execution year with over $27 billion in new investments since FS KKR Advisor's establishment, generating 9.6% unlevered IRR.
• Portfolio updates: Worldwide restructured, Maverick Natural Resources announced sale, and details on new investments and exits.

Steven Lilly's Remarks

• Financial results: Net investment income $0.61 per share, adjusted net investment income $0.64 per share; portfolio fair value $13.5 billion; interest expense and fees details; net asset value per share changes.

FS KKR Capital Corp's fourth quarter saw $891 million of new investments. New originations consisted of approximately 63% in first lien loans, 36% in asset-based finance investments, and 1% in equity or other investments. The weighted average EBITDA of new direct lending investments was approximately $206 million, with 5.4 turns of leverage and a weighted average coupon of approximately SOFR plus 516 basis points. Portfolio companies had a weighted average year-over-year EBITDA growth rate of approximately 16%. Non-accruals represented 3.7% of the portfolio on a cost basis and 2.2% on a fair value basis as of December 31, 2024.

Forward-Looking Statements

• Expect to provide shareholders with $2.80 of total distributions in 2025 via $0.64 quarterly base distribution and $0.06 quarterly supplemental distribution.
• Anticipate first-quarter 2025 GAAP net investment income to approximate $0.66 per share and adjusted net investment income to approximate $0.64 per share.
• Plan to proactively ladder the balance sheet to maintain and enhance investment-grade ratings.

Risks Discussed

• Macroeconomic factors including inflation, interest rate adjustments, and geopolitical issues like executive orders and tariffs.
• Uncertainties in M&A activity materializing as expected due to policy impacts.
• Potential impact of credit defaults and idiosyncratic issues with portfolio companies.

Q: Kenneth Lee asked about dividend outlook and spread per unit of risk.

A: Dan Pietrzak and Steven Lilly discussed dividend policy, spillover income, and spread compression in new deals.

Q: Casey Alexander asked about pipeline fill and Maverick sale.

A: Dan Pietrzak discussed pipeline build and Maverick sale above mark.

Q: Robert Dodd asked about asset-backed finance and portfolio weakness.

A: Dan Pietrzak talked about asset-backed market and idiosyncratic portfolio issues.

Q: Finian O'Shea asked about fees and dividend taxable income.

A: Dan Pietrzak and Steven Lilly discussed fee income volatility and dividend strategy.

Q: Maxwell Fritscher asked about portfolio positioning and M&A mix.

A: Dan Pietrzak discussed portfolio positioning on tariffs and M&A mix trends.

Q: Melissa Wedel asked about fee income and deal slips.

A: Dan Pietrzak and Steven Lilly discussed fee income volatility and first-quarter deal activity.