Moody’s cuts rating on private credit fund run by KKR and Future Standard to junk

Moody’s Ratings on Monday downgraded private loan fund to be managed by KKR And Future Standard It is being scrapped by mounting bad loans and a string of weak earnings.

The rating firm downgraded FS KKR Capital Corp’s debt rating as follows: a notch By moving from Baa3 to Ba1, he said the fund’s underlying asset quality had deteriorated further than its peers, pushing it into “junk” territory.

According to the report, non-accrual loans, that is, borrowers who have stopped making payments, rose to 5.5% of total investments by the end of 2025; this is one of the highest rates among rated BDCs.

“The downgrade reflects FSK’s ongoing asset quality challenges, which have resulted in weaker profitability and greater net asset value erosion over time relative to its business development company (BDC) peers,” Moody’s said. he said.

Moody’s move is the latest sign of trouble in the private credit world. Retail investors are rushing and rushing for doors to withdraw their funds due to concerns about impending credit losses, especially on software loans. asset managers Karataş with Blue Owl they had to deal with increasing repayment demands from private loan funds; It’s the latest sign of stress in a category that has experienced explosive growth over the past decade.

Funds like FS KKR are issuing debt to help juice returns, so a downgrade from Moody’s could increase borrowing costs and therefore reduce future returns.

“FSK remains in a good position despite the decision,” a spokesperson said in an email to CNBC, referring to the fund by ticker symbol. “It has a strong, well-regulated liability structure with no 2026 unsecured maturities and limited short-term maturities, allowing us to continue to support our portfolio companies and navigate the current market environment.”

Moody’s also flagged other aspects of the fund that could expose it to larger losses over time, including higher leverage, a higher percentage of pay-in-kind loans and a lower percentage of first mortgage loans than its peers.

FS KKR posted a net loss of $114 million in the fourth quarter alone and generated net income of just $11 million for all of 2025, according to Moody’s.