Fitch Downgrades FS KKR Capital to Junk on Deteriorating Asset Quality
Summary
Fitch Ratings has downgraded FS KKR Capital (FSK) to non-investment grade 'BB+' from 'BBB-', citing a continued deterioration in asset quality, elevated non-accrual investments, and additional realized losses. The rating agency highlighted FSK's 16% exposure to software companies facing AI disruption and noted that non-accrual investments accounted for 4.4% of its debt portfolio by value at the end of 2025. This downgrade follows a similar action by Moody's last month and comes as KKR's non-traded business development company, KKR FS Income Trust, recently limited redemptions. The move to junk status will likely increase FSK's borrowing costs and could restrict its access to capital, impacting its financial flexibility and profitability. For KKR & Co. Inc., which manages FSK, this signals increasing credit risk within its private credit portfolio and could have reputational implications for its broader asset management business, despite recent positive news regarding its fundraises and acquisitions. Investors should monitor FSK's asset quality trends and potential further rating actions across the BDC sector.
At the time of this announcement, FSK was trading at $10.16 on NYSE in the Finance sector, with a market capitalization of approximately $2.8B. The 52-week trading range was $9.72 to $22.68. This news item was assessed with negative market sentiment and an importance score of 8 out of 10. Source: Reuters.