On this page of StockholderLetter.com we present the latest annual shareholder letter from FS KKR Capital Corp — ticker symbol FSK. Reading current and past FSK letters to shareholders can bring important insights into the investment thesis.

 •  4/25/2025 Letter Continued (Full PDF)
 •  More "Investment Companies & Venture Capital" Category Stockholder Letters
 •  FSK Benford's Law Stock Score = 62

FSK Shareholder/Stockholder Letter Transcript:

Fellow Stockholder,
On behalf of my colleagues at FS Investments and our partners at KKR Credit, I hope this letter finds you well following a year of
significant change in the global economy, financial markets, and political landscape.
FS KKR Capital Corp. (   FSK   ) delivered a total return to shareholders of over 23% in 2024 thanks to the hard work, dedication, and
strategic focus of our entire team. This performance was driven by our focus on four key objectives during the year:

Delivering a consistent, high level of income. FSK paid distributions to shareholders totaling $2.90 per share during 2024,
consisting of a base distribution of $2.80 per share and $0.10 per share in special distributions. This equates to a 12.1% yield
on our average net asset value during the year. Based on our current view of interest rates and the earnings power of FSK, we
believe we will continue to provide shareholders with an attractive distribution in 2025.

Remaining disciplined amid a competitive lending environment. Since the establishment of FS/KKR Advisor, LLC (the
   FS/KKR Advisor   ) almost seven years ago, we have originated over $27 billion of new investments. During 2024, our goal
was to remain extremely disciplined from an origination standpoint, even if that discipline meant passing on certain
transactions. In 2024, our investment team deployed $4.7 billion of capital into compelling new transactions. We enter 2025
with ample liquidity which will serve as a competitive strength as we evaluate new investment opportunities.

Improving credit quality and portfolio stability. The percentage of assets on non-accrual fell 58% during the year. As of
December 31, 2024, FSK   s non-accrual rate was 3.7% on a cost basis and 2.2% on a fair value basis. Within the 89% of the
portfolio originated by KKR Credit, non-accruals were even lower, at just 2.0% on a cost basis and 0.8% on a fair value basis
as of December 31, 2024.

Maintaining our strong balance sheet. During 2024, we issued $1.3 billion of unsecured notes maturing in 2029 and 2030.
The proceeds of these issuances were used primarily to repay outstanding debt. We continue to proactively manage our
liability structure for upcoming maturities, and we expect to continue to opportunistically access the unsecured market during
2025.
The macroeconomic environment presents a balancing act for investors between expectations for strong yet moderating growth,
lingering inflationary pressures, and evolving monetary policy expectations. Additionally, increasing uncertainty surrounding threats
of significant tariffs with large trading partners has somewhat tempered enthusiasm for a quick start to 2025 from a merger and
acquisition (   M&A   ) standpoint, as companies take steps to quantify what effects these potential policies may have on their
businesses. We continue to expect a robust increase in M&A activity over the coming years but believe the increase may take longer to
materialize than certain industry observers have been forecasting.
Against this backdrop, we continue to see strong tailwinds in the direct lending market. Lower interest rates have eased borrowing
costs for portfolio companies compared to the highs of 2023, while still delivering attractive levels of income-driven total return for
investors. Credit defaults have remained largely contained across the business development company (   BDC   ) industry, and
borrowers continue to generate solid revenue and earnings growth. All of this points to direct lending market fundamentals remaining
strong, and we believe the scales will continue moving in favor of private credit providers.
Looking forward, we believe FSK is well positioned to capitalize within this operating environment for the following reasons:

Our world-class credit platform: FSK is one of the largest publicly traded BDCs in the market, with approximately $14.2
billion in assets under management as of December 31, 2024. Additionally, our access to KKR Credit   s global, multi-channel
origination network of financial sponsors, corporate issuers, and third-party intermediaries provides us with a consistently
deep channel of deal flow, economies of scale, and in-depth market insights.

Focus on senior secured debt: Since the establishment of the FS/KKR Advisor, we have maintained a disciplined
underwriting approach focused on what we believe are well collateralized senior secured investment structures. As of
December 31, 2024, approximately 73% of our total investment portfolio   s fair value was comprised of senior secured debt,
including investments held in Credit Opportunities Partners JV, LLC, a joint venture between FSK and South Carolina
Retirement Systems Group Trust.

Competitive advantages through our focus on the upper middle market and asset-based finance: We remain focused on
large, high-quality borrowers with strong operating margins and significant equity cushions. The weighted average EBITDA

of our portfolio companies was $239 million as of December 31, 2024. Additionally, our portfolio companies reported a
weighted average year-over-year EBITDA growth rate of approximately 16% across companies in which we have invested
since the inception of the FS/KKR Advisor in April 2018. FSK is further differentiated by our dedicated focus on private
asset-based finance (   ABF   ) investments, which represented 15.6% of the portfolio   s fair value as of December 31, 2024. As
many banks exit non-core commercial and consumer-lending businesses, KKR Credit   s ABF platform helps fill the market
void and provides our investors with access to the diversification and potential income benefits of directly originated
investments backed by diversified pools of hard assets.

Strong liquidity position: As noted, we anticipate an improving M&A environment in 2025 and the coming years driven by
a more favorable regulatory landscape coupled with significant dry powder among private equity sponsors. FSK had
approximately $4.8 billion in committed, readily available capital as of December 31, 2024. This strong liquidity position
enables FSK to be proactive while also remaining highly selective in evaluating new investment opportunities.
We remain focused on our strategy and the opportunities ahead of us in 2025. Our portfolio continues to demonstrate strong credit
performance, and our balance sheet provides us with ample liquidity to take advantage of quality transactions during 2025 and
beyond. As always, we appreciate your continued support.
Sincerely,
Michael Forman
Chairman & CEO
FS Investments

4/25/2025 Letter Continued (Full PDF)

 

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