KBRA's BBB rating sparks debate over FS KKR Capital Corp.'s $100 million bonds

In the United States, on December 27, 2024, Kroll Bond Rating Agency (KBRA) assigned a rating of BBB to FS KKR Capital Corp.'s $100 million senior unsecured notes due January 15, 2030. This issuance is part of an add-on to the company's previous $600 million senior unsecured notes, originally settled on November 20, 2024. The proceeds from this new issuance will be utilized for general corporate purposes and to repay existing indebtedness. As a leading public business development company (BDC), FS KKR Capital Corp. manages a diversified investment portfolio valued at $13.9 billion across 217 portfolio companies, primarily focused on the U.S. upper-middle-market segment. The company has solid relationships with KKR & Co., bolstering its standing with a $624 billion investment platform, which includes a credit platform valued at $242 billion. This affiliation enables FS KKR Capital Corp. to take advantage of SEC exemptive relief for co-investment opportunities, further enhancing its operational capabilities. Despite having solid access to capital markets and a diversified funding mix, FS KKR has faced challenges with non-accruals that have remained consistently higher than those of its peers, leading to a cautious evaluation of its overall financial health. Although there have been improvements in non-accrual situations in the past two quarters, nine companies were still in non-accrual status by September 30, 2024. The rating assigned by KBRA comes with a Stable Outlook; however, a prolonged economic downturn could adversely impact the company's performance metrics, particularly in non-accrual levels and overall asset valuations. This rating emphasizes both the strengths and potential vulnerabilities of FS KKR Capital Corp. within the evolving credit market landscape.