FSK's 6.125% Unsecured Notes Due 2031: A Strategic Move for Capital Structure Optimization and Yield in a High-Rate Environment

FS KKR Capital Corp. (FSK) has recently priced a $400 million issuance of 6.125% unsecured notes due 2031, a move that underscores its strategic approach to capital structure optimization while capitalizing on the current high-interest-rate environment. For investors, this offering presents a compelling yield opportunity, particularly when benchmarked against prevailing market rates and FSK's robust financial position.

Capital Structure Optimization: Flexibility and Liquidity

FSK's capital structure is already highly diversified, with unsecured debt accounting for 54% of its total debt as of March 31, 2025KBRA Affirms Ratings for FS KKR Capital Corp.^[2]. This mix includes secured bank facilities, unsecured senior debt, and collateralized loan obligations (CLOs), providing the company with significant financial flexibility. The new 6.125% notes, rated BBB by KBRAKBRA Affirms Ratings for FS KKR Capital Corp.^[2], align with FSK's strategy to maintain a balanced leverage profile. As of June 30, 2025, FSK's gross and net leverage ratios stood at 1.30x and 1.26x, respectivelyKBRA Assigns Rating to FS KKR Capital Corp.’s $400 Million Senior Unsecured Notes due January 15, 2031^[1], slightly above its target net leverage range of 1.0x to 1.25xKBRA Affirms Ratings for FS KKR Capital Corp.^[2]. The proceeds from the issuance will be allocated for general corporate purposes, including repaying outstanding indebtednessKBRA Affirms Ratings for FS KKR Capital Corp.^[2], which could help reduce near-term refinancing risks given $1.4 billion in unsecured debt maturities over the next two yearsKBRA Assigns Rating to FS KKR Capital Corp.’s $400 Million Senior Unsecured Notes due January 15, 2031^[1].

FSK's affiliation with KKR & Co.'s $664 billion AUM investment platformKBRA Affirms Ratings for FS KKR Capital Corp.^[2] further strengthens its access to capital markets, a critical advantage in a tightening credit environment. The company also recently upsized its senior secured revolver to $4.7 billion, extending its maturityKBRA Assigns Rating to FS KKR Capital Corp.’s $400 Million Senior Unsecured Notes due January 15, 2031^[1], which enhances liquidity alongside its $2.4 billion in available bank lines and $312 million in cash as of June 30, 2025KBRA Assigns Rating to FS KKR Capital Corp.’s $400 Million Senior Unsecured Notes due January 15, 2031^[1].

Yield Opportunity in a High-Rate Environment

The 6.125% coupon on FSK's notes offers a significant premium over current market benchmarks. As of September 2025, the 10-year U.S. Treasury yield hovers around 4.04%US Treasury Rates: Bond & Bill Yields with Duration Analysis^[3], while the Moody's Seasoned Aaa Corporate Bond Yield stands at 5.16%KBRA Assigns Rating to FS KKR Capital Corp.’s $400 Million Senior Unsecured Notes due January 15, 2031^[1]. This positions FSK's notes to deliver a yield of 6.125%, outperforming both risk-free Treasury yields and high-grade corporate bonds by margins of 210 bps and 96 bps, respectively. For income-focused investors, this spread reflects a compelling risk-reward profile, particularly given FSK's BBB credit ratings from both FitchKBRA Assigns Rating to FS KKR Capital Corp.’s $400 Million Senior Unsecured Notes due January 15, 2031^[1] and KBRAKBRA Affirms Ratings for FS KKR Capital Corp.^[2], which signal moderate credit risk but strong recovery prospects in stress scenariosKBRA Assigns Rating to FS KKR Capital Corp.’s $400 Million Senior Unsecured Notes due January 15, 2031^[1].

Moreover, the notes' structure—callable at par one month before maturityKBRA Affirms Ratings for FS KKR Capital Corp.^[2]—provides FSK with flexibility to refinance if rates decline, while the “make-whole” premium for early redemption protects noteholders from opportunistic refinancing. In a high-rate environment where central banks remain cautious about cutting rates, this feature could preserve the notes' yield for a longer duration.

Risk Considerations and Sector Positioning

FSK's investment portfolio, valued at $13.6 billionKBRA Affirms Ratings for FS KKR Capital Corp.^[2], is concentrated in first-lien senior secured loans (58%) and asset-based finance (15%), with top sector exposures in software, capital goods, and professional services. These sectors have demonstrated resilience in inflationary environments, aligning with FSK's focus on upper-middle-market companies with strong cash flow generation. However, investors should monitor macroeconomic risks, such as a potential recession or tightening credit conditions, which could impact the underlying collateral quality of FSK's portfolio.

Conclusion

FSK's 6.125% unsecured notes due 2031 represent a strategic capital raise that enhances liquidity, optimizes leverage, and delivers an attractive yield in a high-rate environment. With a BBB credit rating, diversified capital structure, and access to KKR's credit platform, FSK is well-positioned to navigate near-term challenges while offering investors a premium return relative to benchmark yields. For those seeking to balance income generation with moderate credit risk, these notes present a compelling addition to a diversified fixed-income portfolio.