Moody’s has downgraded FS KKR Capital, a private credit vehicle managed by KKR and FS Investments, to Ba1, pushing the fund below investment grade, according to a report by Bloomberg.
The downgrade reflects “continued asset quality challenges”, according to Moody’s, citing pressure on portfolio performance and profitability relative to peers. The move could increase borrowing costs for the approximately $14bn vehicle, which relies on debt markets to enhance returns.
The fund’s non-accrual rate rose to 5.5% of total investments at the end of 2025, among the highest levels in its peer group. Moody’s also highlighted concerns around additional investments that have been marked down, including exposure to Medallia.
The ratings agency further pointed to a higher proportion of payment-in-kind (PIK) income relative to peers, describing it as an indicator of weaker earnings quality. PIK structures are used by borrowers to take on additional debt as a way of paying off interest.
Business development companies such as FS KKR Capital typically seek to maintain investment-grade ratings to access a broader investor base and reduce financing costs. Despite the downgrade, Moody’s noted the fund retains solid liquidity, with approximately $2.5bn available following the repayment of a $1bn note earlier this year.
