FS KKR Capital Q2 Results: NII Down to $0.62 per Share

FS KKR Capital reported Q2 net investment income of $0.62 per share, down from $0.67 per share in Q1. Adjusted net investment income was $0.60 per share, down from $0.65 per share in Q1.

FS KKR Capital Corp. (FSK) has released its Q2 2025 earnings report, offering a mixed bag of results for income-focused investors. The company reported a net investment income (NII) of $0.62 per share, down from $0.67 per share in the previous quarter. Adjusted net investment income was $0.60 per share, down from $0.65 per share in Q1 [2].

The company also reported a net asset value (NAV) of $21.93 per share, down from $23.37 per share as of March 31, 2025. The total net realized and unrealized loss of $1.36 per share was also reported, compared to a total net realized and unrealized loss of $0.24 per share for the quarter ended March 31, 2025. The adjusted net realized and unrealized loss was $1.34 per share, down from $0.22 per share for the quarter ended March 31, 2025 [2].

FS KKR Capital's weighted average yield on accruing debt investments rose to 12.7% in Q2, up from 12.3% in Q1. However, the company's net debt-to-equity ratio as of June 30, 2025, was 120%, up from 114% as of March 31, 2025. The company's liquidity position remained strong, with $3.1 billion in available financing, but 58% of its debt is unsecured, exposing it to refinancing risks in a rising-rate environment [2].

FS KKR Capital's strategic focus on senior secured loans and disciplined portfolio management offers some reassurance, but the broader macroeconomic environment and structural challenges warrant a cautious approach. The company's ability to generate adjusted NII growth and its liquidity buffer provide a margin of safety, but the declining NAV, elevated leverage, and macroeconomic risks necessitate a risk-averse approach [3].

Key Considerations for Investors:
1. Yield Sustainability: The $0.70 per share distribution is supported by adjusted NII of $0.78, but the 94% coverage ratio for the base distribution leaves little room for error.
2. Credit Quality: Monitor non-accrual trends and the success of restructured investments like Wittur and NBG Home.
3. Leverage Management: Watch for refinancing activity and the impact of rising interest rates on unsecured debt costs.
4. Macro Outlook: The Federal Reserve's rate trajectory and M&A activity will be critical for FSK's long-term performance [3].

In conclusion, FSK's strategic positioning in high-yield senior secured debt and proactive portfolio management offer a compelling risk-reward profile. However, the current yield and NAV pressures suggest that investors should approach with caution, prioritizing diversification and a long-term horizon. For those willing to tolerate volatility, FSK remains a high-conviction play in the private credit space—but not without vigilance.

References:
[1] https://www.marketscreener.com/news/earnings-flash-fsk-fs-kkr-capital-corp-posts-q2-adjusted-eps-0-60-per-share-vs-factset-est-of-ce7c5ededb8eff2c
[2] https://seekingalpha.com/news/4480447-fs-kkr-capital-reports-q2-results
[3] https://www.ainvest.com/news/fs-kkr-capital-q2-2023-earnings-navigating-declining-nav-credit-risks-high-yield-world-2508/