FS KKR Private Credit Fund Sinks on Dividend Cut, Bad Loans

(Bloomberg) — Future Standard and KKR & Co. A private loan fund co-managed by the company fell after cutting its dividend by more than expected as earnings fell due to low interest rates and losses from troubled investments.

FS KKR Capital Corp., a direct-lending business development company, fell as much as 18% on Thursday, the biggest intraday drop since 2020. BDC reduced its quarterly distribution from 70 cents per share to 48 cents; This was a deeper cut than executives had previously signaled at 55 cents. About 3.4% of the portfolio, or roughly $440 million, was unaccrued at year-end, meaning the fund no longer expected to collect interest on those investments; This rate was 2.9% three months ago.

“Certain challenges related to several investments” weighed on the results, Chief Executive Michael Forman said in a statement.

On Thursday’s earnings call, management responded to a question from Wells Fargo analyst Finian O’Shea about BDC’s path forward, saying they were pleased with the FS-KKR partnership and focused on expanding the portfolio.

“The bottom line here is that we have too many non-income-producing assets,” said Dan Pietrzak, the fund’s chief investment officer.

In the fourth quarter, loans to Dental Care Alliance, Gracent and Lionbridge Technologies were placed on non-accrual status. So are investments in AmeriVet Partners and Alacrity Solutions. Lenders including KKR took control of Alacrity early last year.

From Bloomberg Intelligence: FS KKR’s Repair Efforts Face New Obstacles

FS KKR also reduced its loan to software company Medallia to about 79 cents on the dollar from 91 cents in the previous quarter.

–With help from Brian Chappatta.

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