What FS KKR Capital (FSK) Said on Its Q3 Earnings Call

FS KKR Capital Corp. reported third-quarter 2026 net investment income of $0.46 per share, according to the company's earnings call as reported by MarketBeat. Results were aided by a $25 million non-recurring dividend from portfolio company Belk and a temporary incentive fee waiver from KKR, which added $12 million. Chief Investment Officer and President Dan Pietrzak said the quarter was the second of four consecutive quarters covered by the waiver, but he did not announce any change to make the arrangement permanent. Total investment income rose $4 million quarter over quarter to $294 million, while interest income fell $11 million to $206 million on a smaller portfolio and assets placed on non-accrual. Dividend and fee income increased $15 million to $88 million.

Net asset value stood at $18.28 per share at September 30, versus $18.30 at the end of June. Chief Financial Officer Steven Lilly said declining portfolio values reduced NAV by $0.19 per share, offset by $0.16 per share from share repurchases. The board declared a fourth-quarter distribution of $0.44 per common share and a special distribution of $0.20 per share, both payable in December. Chief Executive Officer and Chairman Michael Forman said the special payment reflects a portion of estimated accumulated spillback income and is intended to distribute additional taxable income tied to the company's regulated investment company status. For the fourth quarter, Lilly guided to GAAP net investment income per share equal to 8% to 9% of NAV on an annualized basis, noting the Belk dividend will not recur and an expected roughly $17 million dividend from JW Aluminum.

FSK has purchased $90 million of common stock, about 8 million shares, from the June 29 inception of its buyback plan through October 30, representing 30% of the $300 million program, Forman said. In the third quarter alone, the company repurchased roughly 6.2 million shares for $69 million at an average price of $11.24. Management is less focused on new deployment while it completes the buyback and works toward a leverage target of 1.0 to 1.25 times. Pietrzak said he expects the buyback and leverage objectives to play out over 2027, roughly the next five quarters. The company originated about $335 million of new investments during the quarter against $442 million of sales and repayments, a net portfolio decrease of $107 million. Debt-to-equity was 127% and net debt-to-equity was 125% at quarter-end.

The investment portfolio had a fair value of $11.3 billion across 234 companies. First-lien loans comprised about 59% of the portfolio, or roughly 69% including investments held through its joint venture. Non-accruals declined to 6.4% of the portfolio at cost and 3.4% at fair value, from 7.1% and 3.8% in June. FSK added 3Pillar Global and New Era Technology to non-accrual, together about $142 million at cost and $102 million at fair value. Medallia was removed from non-accrual following a restructuring that produced a $66 million first-lien loan, a $42 million preferred equity investment and a $14 million common equity investment, though Pietrzak cautioned that risks remain. About 25% of the portfolio matures before 2028, and Pietrzak said he was less concerned about maturities generally than about software exposure, where valuations and lending markets have shifted. He also said Velocity Financial's planned acquisition of Toorak, whose holding company Roemanu was FSK's eighth-largest investment at quarter-end, is expected to close in the fourth quarter, subject to closing conditions.