FS KKR Capital Corp. Announces Fourth Quarter and Full Year 2023 Results
- FSK declares a distribution of $0.70 per share for the first quarter of 2024, combined with a special distribution for a total of $0.75 per share.
- Financial highlights for the quarter ended December 31, 2023, include net investment income of $0.71 per share, adjusted net investment income of $0.75 per share, net asset value of $24.46 per share, total net realized and unrealized loss of $0.39 per share, and earnings per share of $0.32.
- The company reported total purchases of $680 million versus $664 million of sales and repayments for the quarter, with a net debt to equity ratio of 113% as of December 31, 2023.
- For the year ended December 31, 2023, FSK had net investment income of $3.18 per share, adjusted net investment income of $3.11 per share, total net realized and unrealized loss of $0.70 per share, and paid cash distributions to stockholders totaling $2.95 per share.
- CEO Michael C. Forman highlighted a successful 2023 with a return on equity of 10% and plans for increased private market transaction activity in 2024, expecting distributions to total a minimum of $2.90 per share.
- None.
Insights
The recent declaration by FS KKR Capital Corp. of a first quarter 2024 distribution of $0.70 per share, alongside a special distribution, culminating in a $0.75 per share payout, is a notable event for investors and market analysts. This distribution announcement is particularly significant when juxtaposed with the company's net investment income reporting a decrease from $0.84 to $0.71 per share quarter-over-quarter. The decrease in net investment income and net asset value, from $24.89 to $24.46 per share, suggests that FSK may be experiencing some underlying portfolio challenges, possibly due to the inflationary pressures and a higher interest rate environment as stated by the CEO.
Moreover, the company's net debt to equity ratio increased slightly from 110% to 113%, which indicates a higher leverage position. While this may not be alarming in isolation, it warrants attention as it could impact the company's financial flexibility in adverse market conditions. The total net realized and unrealized loss of $0.39 per share further underscores potential volatility in the investment portfolio. Investors should consider these factors in the context of the company's overall performance and risk management strategies.
The strategic commentary provided by the CEO, Michael C. Forman, sheds light on the company's portfolio rotation strategy and its forward-looking stance on private market transaction activity. The projection of a minimum of $2.90 per share in distributions for 2024 signals a commitment to shareholder returns. This forward guidance could be a positive signal for investors, reflecting management's confidence in the company's ability to maintain or increase its distribution levels despite the challenges faced in the previous quarter.
The mention of KKR's experienced workout team suggests that the company is proactively addressing the challenges faced by some portfolio companies. The effectiveness of these workout strategies could be a critical factor in the company's ability to sustain performance and deliver on its distribution promises. The role of private equity expertise in managing and turning around portfolio companies is a key element that can differentiate FSK's performance in a competitive market.
FSK's financial results and distribution declarations must be contextualized within the broader economic environment of inflationary pressures and higher interest rates. These macroeconomic factors can affect the performance of investment portfolios, especially those with exposure to variable-rate debt instruments or companies sensitive to economic cycles. The company's acknowledgment of these pressures indicates a realistic appraisal of the external challenges that could impact its portfolio companies.
Furthermore, the increase in private market transaction activity anticipated for 2024 could be indicative of a shift in investor sentiment or a search for yield in a potentially stabilizing economic environment. The ability of FSK to navigate this landscape and capitalize on transactional opportunities will be critical in maintaining its distribution levels and achieving the projected annual return on equity.
Declares First Quarter 2024 Distribution of
Financial and Operating Highlights for the Quarter Ended December 31, 2023(1)
- Net investment income of
$0.71 $0.84
- Adjusted net investment income(2) of
$0.75 $0.80
- Adjusted net investment income(2) of
- Net asset value of
$24.46 $24.89 $24.89
- Total net realized and unrealized loss of
$0.39 $0.11
- Adjusted net realized and unrealized loss(2) of
$0.36 $0.14
- Adjusted net realized and unrealized loss(2) of
- Earnings per Share of
$0.32 $0.95
- Total purchases of
$680 million $664 million $146 million
- Net debt to equity ratio(3) as December 31, 2023 was
113% , compared to110% as of September 30, 2023
- Paid cash distributions to stockholders totaling
$0.75
Financial and Operating Highlights for the Year Ended December 31, 2023(1)
- Net investment income of
$3.18 $3.05
- Adjusted net investment income(2) of
$3.11 $2.93
- Adjusted net investment income(2) of
- Total net realized and unrealized loss of
$0.70 $2.73
- Adjusted net realized and unrealized loss(2) of
$0.56 $2.54
- Adjusted net realized and unrealized loss(2) of
- Paid cash distributions to stockholders totaling
$2.95
"2023 was another successful year for FSK as we generated an annual return on equity of
Declaration of Distribution for First Quarter 2024
FSK's board of directors has declared a cash distribution for the first quarter of
Portfolio Highlights as of December 31, 2023
- Total fair value of investments was
$14.6 billion 66% was invested in senior secured securities.
- Weighted average annual yield on accruing debt investments(5) was
12.7% , compared to12.7% as of September 30, 2023. Excluding the impact of merger accounting, weighted average annual yield on accruing debt investments was12.2% , compared to12.2% as of September 30, 2023.
- Weighted average annual yield on all debt investments(5) was
11.2% , compared to11.9% as of September 30, 2023. Excluding the impact of merger accounting, weighted average annual yield on all debt investments was10.7% , compared to11.3% as of September 30, 2023.
- Exposure to the top ten largest portfolio companies by fair value was
19% , compared to20% as of September 30, 2023.
- As of December 31, 2023, investments on non-accrual status represented
5.5% and8.9% of the total investment portfolio at fair value and amortized cost, respectively, compared to2.4% and4.8% as of September 30, 2023.
Portfolio Data | As of December 31, 2023 | As of September 30, 2023 | |
Total fair value of investments | |||
Asset Class (based on fair value) | |||
Senior Secured Loans — First Lien | 58.2 % | 59.8 % | |
Senior Secured Loans — Second Lien | 7.5 % | 7.5 % | |
Other Senior Secured Debt | 0.7 % | 0.9 % | |
Subordinated Debt | 2.2 % | 2.0 % | |
Asset Based Finance | 14.2 % | 11.8 % | |
Credit Opportunities Partners JV, LLC | 9.5 % | 9.6 % | |
Equity/Other | 7.7 % | 8.4 % | |
Interest Rate Type (based on fair value) | |||
% Variable Rate Debt Investments | 66.0 % | 68.6 % | |
% Fixed Rate Debt Investments | 7.9 % | 8.9 % | |
% Other Income Producing Investments | 15.2 % | 15.6 % | |
% Non-Income Producing Investments(7) | 5.4 % | 4.5 % | |
% of Investments on Non-Accrual(6) | 5.5 % | 2.4 % |
Leverage and Liquidity as of December 31, 2023
- Net debt to equity ratio(3) of
113% , based on$8.2 billion $231 million $246 million $6.8 billion 5.42% .
- Cash and foreign currency of
$231 million $3.4 billion
- As of December 31, 2023,
63% of the Company's$8,223 million 37% in secured debt.
Conference Call Information
FSK will host a conference call at 9:00 a.m. (Eastern Time) on Tuesday, February 27, 2024, to discuss its fourth quarter and full year 2023 results. All interested parties are welcome to participate and can access the live conference call by registering using the following URL: https://register.vevent.com/register/BI663dbca9cfed4412a7a519e4424faafe. Participants are requested to register a day in advance or at a minimum 15 minutes before the start of the call. Once registered, they will receive the dial-in numbers and their unique PIN number. When they dial in, they will input their PIN and be placed into the call. The conference call will also be webcast, which can be accessed from the Investor Relations section of FSK's website at www.fskkradvisor.com under Events.
A replay of the call will be available shortly after the end of the call by visiting the Investor Relations section of FSK's website under Events or by using the following URL: https://edge.media-server.com/mmc/p/h5cgrv26/
Supplemental Information
An investor presentation containing financial and operating information will be made available prior to the call in the Investor Relations section of FSK's website at www.fskkradvisor.com under Earnings presentations.
About FS KKR Capital Corp.
FSK is a leading publicly traded business development company (BDC) focused on providing customized credit solutions to private middle market
About FS/KKR Advisor, LLC
FS/KKR Advisor, LLC (FS/KKR) is a partnership between FS Investments and KKR Credit that serves as the investment adviser to FSK and other business development companies.
FS Investments is a global alternative asset manager dedicated to delivering superior performance and innovative investment and capital solutions. The firm manages over
KKR Credit is a subsidiary of KKR & Co. Inc., a leading global investment firm that manages multiple alternative asset classes, including private equity, credit and real assets, with strategic manager partnerships that manage hedge funds. KKR aims to generate attractive investment returns for its fund investors by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside the capital it manages for fund investors and provides financing solutions and investment opportunities through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR's website at www.kkr.com and on Twitter @KKR_Co.
Forward-Looking Statements and Important Disclosure Notice
This announcement may contain certain forward-looking statements, including statements with regard to future events or future performance or operations of FSK. Words such as "believes," "expects," "projects," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. Factors that could cause actual results to differ materially include changes in the economy, risks associated with possible disruption in FSK's operations or the economy generally due to terrorism, geo-political risks, natural disasters or pandemics such as COVID-19, future changes in laws or regulations and conditions in FSK's operating area and the price at which shares of FSK's common stock trade on the New York Stock Exchange. Some of these factors are enumerated in the filings FSK makes with the SEC. FSK undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The press release above contains summaries of certain financial and statistical information about FSK. The information contained in this press release is summary information that is intended to be considered in the context of FSK's SEC filings and other public announcements that FSK may make, by press release or otherwise, from time to time. FSK undertakes no duty or obligation to update or revise the information contained in this press release. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. Investors should not view the past performance of FSK, or information about the market, as indicative of FSK's future results.
Other Information
The information in this press release is summary information only and should be read in conjunction with FSK's annual report on Form 10-K for the year ended December 31, 2023, which FSK filed with the
Certain Information About Distributions
The determination of the tax attributes of FSK's distributions is made annually as of the end of its fiscal year based upon its taxable income and distributions paid, in each case, for the full year. Therefore, a determination as to the tax attributes of the distributions made on a quarterly basis may not be representative of the actual tax attributes for a full year. FSK intends to update stockholders quarterly with an estimated percentage of its distributions that resulted from taxable ordinary income. The actual tax characteristics of distributions to stockholders will be reported to stockholders annually on Form 1099-DIV.
The timing and amount of any future distributions on FSK's shares of common stock are subject to applicable legal restrictions and the sole discretion of its board of directors. There can be no assurance as to the amount or timing of any such future distributions.
FSK may fund its cash distributions to stockholders from any sources of funds legally available to it, including net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to it on account of preferred and common equity investments in portfolio companies, proceeds from the sale of shares of FSK's common stock and borrowings. FSK has not established limits on the amount of funds it may use from available sources to make distributions. There can be no assurance that FSK will be able to pay distributions at a specific rate or at all.
Contact Information:
Investor Relations Contact
Robert Paun
Robert.Paun@fsinvestments.com
FS Investments Media Team
Melanie Hemmert
Melanie.Hemmert@fsinvestments.com
Consolidated Statements of Operations (in millions, except share and per share amounts) | ||||||
Year Ended December 31, | ||||||
2023 | 2022 | 2021 | ||||
Investment income | ||||||
From non-controlled/unaffiliated investments: | ||||||
Interest income | $ 1,183 | $ 1,020 | $ 641 | |||
Paid-in-kind interest income | 108 | 72 | 52 | |||
Fee income | 30 | 74 | 88 | |||
Dividend and other income | 14 | 50 | 30 | |||
From non-controlled/affiliated investments: | ||||||
Interest income | 25 | 28 | 21 | |||
Paid-in-kind interest income | 39 | 48 | 19 | |||
Fee income | 1 | 6 | 2 | |||
Dividend and other income | 28 | 7 | — | |||
From controlled/affiliated investments: | ||||||
Interest income | 87 | 58 | 25 | |||
Paid-in-kind interest income | 45 | 43 | 36 | |||
Fee income | 4 | — | 1 | |||
Dividend and other income | 266 | 229 | 166 | |||
Total investment income | 1,830 | 1,635 | 1,081 | |||
Operating expenses | ||||||
Management fees | 226 | 245 | 173 | |||
Subordinated income incentive fees | 181 | 159 | 77 | |||
Administrative services expenses | 12 | 15 | 12 | |||
Accounting and administrative fees | 4 | 5 | 3 | |||
Interest expense | 467 | 365 | 231 | |||
Other general and administrative expenses | 26 | 22 | 19 | |||
Total operating expenses | 916 | 811 | 515 | |||
Incentive fee waiver | — | (60) | (30) | |||
Net expenses | 916 | 751 | 485 | |||
Net investment income before taxes | 914 | 884 | 596 | |||
Excise taxes | 22 | 19 | 12 | |||
Net investment income | 892 | 865 | 584 | |||
Realized and unrealized gain/loss | ||||||
Net realized gain (loss) on investments: | ||||||
Non-controlled/unaffiliated investments | (147) | 136 | 28 | |||
Non-controlled/affiliated investments | (21) | 84 | 192 | |||
Controlled/affiliated investments | (175) | (71) | (49) | |||
Net realized gain (loss) on foreign currency forward contracts | 8 | 10 | 0 | |||
Net realized gain (loss) on foreign currency | 12 | 23 | (7) | |||
Net change in unrealized appreciation (depreciation) on investments: | ||||||
Non-controlled/unaffiliated investments | 30 | (679) | 478 | |||
Non-controlled/affiliated investments | 9 | (131) | 94 | |||
Controlled/affiliated investments | 127 | (171) | 156 | |||
Net change in unrealized appreciation (depreciation) on foreign currency forward | (15) | 16 | 12 | |||
Net change in unrealized gain (loss) on foreign currency | (21) | 15 | 30 | |||
Total net realized and unrealized gain (loss) | (193) | (768) | 934 | |||
Provision for taxes on realized and unrealized gains on investments | (3) | (5) | — | |||
Realized loss on extinguishment of debt | — | — | (3) | |||
Net increase (decrease) in net assets resulting from operations | $ 696 | $ 92 | $ 1,515 | |||
Per share information—basic and diluted | ||||||
Net increase (decrease) in net assets resulting from operations (Earnings per Share) | $ 2.48 | $ 0.32 | $ 7.16 | |||
Weighted average shares outstanding | 280,276,768 | 283,508,494 | 211,670,361 | |||
Consolidated Balance Sheets (in millions, except share and per share amounts) | ||||
December 31, | ||||
2023 | 2022 | |||
Assets | ||||
Investments, at fair value | ||||
Non-controlled/unaffiliated investments (amortized cost— | $ 10,568 | $ 12,026 | ||
Non-controlled/affiliated investments (amortized cost— | 745 | 443 | ||
Controlled/affiliated investments (amortized cost— | 3,336 | 2,908 | ||
Total investments, at fair value (amortized cost— | 14,649 | 15,377 | ||
Cash | 223 | 248 | ||
Foreign currency, at fair value (cost— | 8 | 3 | ||
Receivable for investments sold and repaid | 246 | 212 | ||
Income receivable | 290 | 227 | ||
Unrealized appreciation on foreign currency forward contracts | 13 | 25 | ||
Deferred financing costs | 32 | 23 | ||
Prepaid expenses and other assets | 8 | 9 | ||
Total assets | $ 15,469 | $ 16,124 | ||
Liabilities | ||||
Payable for investments purchased | $ — | $ 14 | ||
Debt (net of deferred financing costs and discount of | 8,187 | 8,694 | ||
Unrealized depreciation on foreign currency forward contracts | 4 | 1 | ||
Stockholder distributions payable | 196 | 192 | ||
Management and investment adviser fees payable | 56 | 59 | ||
Subordinated income incentive fees payable | 41 | 27 | ||
Administrative services expense payable | 5 | 6 | ||
Interest payable | 98 | 90 | ||
Other accrued expenses and liabilities | 33 | 29 | ||
Total liabilities | 8,620 | 9,112 | ||
Commitments and contingencies | ||||
Stockholders' equity | ||||
Preferred stock, | — | — | ||
Common stock, | 0 | 0 | ||
Capital in excess of par value | 9,437 | 9,610 | ||
Retained earnings (accumulated deficit) | (2,588) | (2,598) | ||
Total stockholders' equity | 6,849 | 7,012 | ||
Total liabilities and stockholders' equity | $ 15,469 | $ 16,124 | ||
Net asset value per share of common stock at year end | $ 24.46 | $ 24.89 | ||
Non-GAAP Financial Measures
This press release contains certain financial measures that have not been prepared in accordance with generally accepted accounting principles in
Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with FSK's consolidated financial statements prepared in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures has been provided in this press release, and investors are encouraged to review the reconciliation.
Reconciliation of Non-GAAP Financial Measures(1) | |||
Three Months Ended | |||
December 31, 2023 | September 30, 2023 | ||
GAAP net investment income per share | |||
Accretion resulting from merger accounting | ( | ( | |
Excise Taxes | — | ||
Adjusted net investment income per share(2) | |||
GAAP Net realized and unrealized gain (loss) per share | ( | ||
Unrealized appreciation from merger accounting | |||
Adjusted net realized and unrealized gain(2) | ( | ||
Year Ended | |||
December 31, 2023 | December 31, 2022 | ||
GAAP net investment income per share | |||
Accretion resulting from merger accounting | ( | ( | |
Excise Taxes | |||
Adjusted net investment income per share(2) | |||
GAAP Net realized and unrealized gain (loss) per share | ( | ( | |
Unrealized appreciation from merger accounting | |||
Adjusted net realized and unrealized gain(2) | ( | ( | |
1) | Per share data was derived by using the weighted average shares of FSK's common stock outstanding during the applicable period. Per share numbers may not sum due to rounding. |
2) | Adjusted net investment income is a non-GAAP financial measure. Adjusted net investment income is presented for all periods as GAAP net investment income excluding (i) the accrual for the capital gains incentive fee for realized and unrealized gains; (ii) excise taxes (iii) the impact of accretion resulting from merger accounting; and (iv) certain non-recurring operating expenses that are one-time in nature and are not representative of ongoing operating expenses incurred during FSK's normal course of business. FSK uses this non-GAAP financial measure internally in analyzing financial results and believes that the use of this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends and in comparing its financial results with other business development companies. Adjusted net realized and unrealized gain is a non-GAAP financial measure. Adjusted net realized and unrealized gain is presented for all periods as GAAP realized and unrealized gains to exclude the impact of the merger accounting. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. A reconciliation of GAAP net investment income to adjusted net investment income and GAAP net realized and unrealized gain to adjusted net realized and unrealized gain can be found above. |
3) | Net debt to equity ratio is debt outstanding, net of cash and foreign currency and net payable/receivable for investments purchased/sold and repaid, divided by net assets. |
4) | The per share data for distributions reflects the amount of distributions paid per share of our common stock to stockholders of record during each applicable period. |
5) | See FSK's annual report on Form 10-K for the year ended December 31, 2023 for important information, including information related to the calculation and definition of weighted average annual yield on accruing debt investments, weighted average annual yield on all debt investments, variable rate debt investments, fixed rate debt investments, other income producing investments and non-income producing investments. |
6) | Interest income is recorded on an accrual basis. See FSK's annual report on Form 10-K for the year ended December 31, 2023 for a description of FSK's revenue recognition policy. |
7) | Does not include investments on non-accrual status. |
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SOURCE FS Investments
FAQ
What is FS KKR Capital Corp.'s first quarter 2024 distribution per share?
What were the financial highlights for the quarter ended December 31, 2023?
What were the total purchases and sales for FSK in the quarter ended December 31, 2023?
What was FSK's net debt to equity ratio as of December 31, 2023?
What was FSK's net investment income per share for the year ended December 31, 2023?
How much did FSK pay in cash distributions to stockholders for the year ended December 31, 2023?
What return on equity did FSK achieve in 2023?
What are FSK's expectations for private market transaction activity in 2024?
What challenges did some of FSK's portfolio companies face during the quarter ended December 31, 2023?
