FS KKR Capital is executing a $600 million package of shareholder and balance-sheet initiatives involving KKR and FSK as the business development company works to improve portfolio quality and capitalize on a substantial discount between its share price and net asset value.
The initiatives include a $150 million tender offer for FSK shares conducted by a KKR subsidiary, a $150 million convertible preferred investment in FSK by a KKR subsidiary, and a $300 million FSK share repurchase program. FS/KKR Advisor is also providing a 50% subordinated income incentive fee waiver.
FSK began its own repurchase program on June 29, buying 377,800 shares for $4 million through quarter-end at an average price of $10.57. From July 1 through August 5, it purchased another 3.35 million shares for $36 million at an average $10.75. The weighted average purchase price across the period was $10.73.
That compares with net asset value of $18.30 per share at June 30, meaning the $10.73 weighted average repurchase price was approximately 41% below quarter-end NAV. NAV had declined from $18.83 at the end of March.
FSK generated Q2 net investment income of $0.44 per share and declared a $0.44-per-share third-quarter distribution. However, the company recorded $0.56 per share of net realized and unrealized losses.
Portfolio rotation was significant. FSK funded $590 million of purchases compared with $1.334 billion of sales and repayments. Its investment portfolio ended the quarter at $11.4 billion of fair value, with 63% in senior secured securities.
Credit metrics showed some improvement. Investments on non-accrual represented 3.8% of portfolio fair value, down from 4.2% at the end of Q1, while net debt-to-equity declined to 122% from 131%.
KEY QUOTES:
“During the second quarter, FSK generated Net Investment Income of $0.44 per share, reduced net leverage to within our target range, and made progress reducing our non-accrual assets. We remain focused on improving portfolio performance and delivering long-term value for shareholders.”
Michael C. Forman, Chief Executive Officer and Chairman of FS KKR Capital
“The strategic actions we announced in May are progressing as planned and reflect the FS/KKR Advisor’s continued conviction in the long-term value of FSK.”
“We believe these actions, together with our ongoing portfolio rotation efforts and focus on enhancing portfolio quality, strengthen FSK’s financial profile.”
Daniel R. Pietrzak, President and Chief Investment Officer of FS KKR Capital and Partner and Global Head of Private Credit at KKR
