KKR’s publicly traded credit vehicle, FS KKR Capital Corporation, fell 15% after reporting a rise in troubled loans and lower investment income, highlighting stress in private credit markets, according to a report by the Financial Times.
The fund also announced a dividend cut alongside markdowns across its portfolio.
FSK oversees a $13bn portfolio, primarily comprising loans to private-equity-backed mid-market companies originating from a decade-long wave of buyouts. The portfolio has been hit by growing defaults and mark-to-market losses, particularly in software and other technology firms vulnerable to AI-driven disruption, as well as roll-ups in dental clinics, veterinary networks, janitorial services, and defence contractors.
Net investment income fell to $0.48 per share in Q4 from $0.57 in Q3. Notable write-downs included Cubic Corporation, acquired in 2021 by an affiliate of hedge fund Elliott Management and PE group Veritas Capital, AmeriVet, owned by AEA Investors, and Dental Care Alliance, a PE-backed roll-up. Other portfolio losses mirrored markdowns across listed credit vehicles, such as Medallia, acquired by Thoma Bravo in 2022, where valuations dropped below 80 cents on the dollar.
The markdowns come amid broader investor concerns over rising credit losses and redemption pressure in private credit, which have weighed on the shares of listed alternatives including KKR, Blackstone, Ares Management, and Blue Owl. Despite the fourth-quarter weakness, FSK maintains a net IRR of 9.1% since inception, with some asset sales undertaken to recalibrate the portfolio.
