FS KKR Capital Q3 NII Rises, Dividend Coverage Reaches 105%

FS KKR Capital Corp. (NYSE: FSK) reported higher third-quarter net investment income and maintained its quarterly distribution, while realized and unrealized investment losses continued to weigh on net asset value. The company also declared a $0.20-per-share special distribution tied to estimated accumulated spillback income.

Net investment income for the quarter ended September 30, 2026, was $127 million, or $0.46 per share, up from $122 million, or $0.44 per share, in the second quarter. Adjusted net investment income, a non-GAAP measure, rose to $127 million, or $0.46 per share, from $120 million, or $0.43 per share.

The results included a $12 million benefit from KKR’s waiver of half of the subordinated income incentive fee that would otherwise be payable. The waiver began in the second quarter of 2026 and is scheduled to remain in place through the quarter ending March 31, 2027, with no recoupment of waived fees.

Total investment income increased to $294 million from $290 million in the previous quarter. Interest income declined to $160 million from $175 million, while payment-in-kind interest income rose to $46 million from $42 million and dividend and other income increased to $84 million from $68 million. Net expenses fell to $165 million from $168 million, reflecting the incentive fee waiver.

FSK recorded $54 million of net realized and unrealized losses, compared with $154 million of losses in the second quarter. The latest result included $130 million of net realized losses, partly offset by $76 million of net unrealized gains. Net assets resulting from operations applicable to common stockholders increased by $71 million, equivalent to basic earnings of $0.26 per share, after a $34 million decrease in the prior quarter.

Net asset value was $18.28 per share at quarter-end, compared with $18.30 on June 30. Net investment income and a $0.16-per-share benefit from common-share repurchases largely offset common and preferred distributions and $0.19 per share of realized and unrealized losses.

Distributions and share repurchases

FSK paid a third-quarter distribution of $0.44 per common share and declared another $0.44-per-share distribution for the fourth quarter. Third-quarter NII represented 105% of the declared base distribution, excluding the special distribution.

The company separately declared a special distribution of $0.20 per common share, representing part of its estimated accumulated spillback income and intended to distribute additional taxable income in connection with its regulated investment company status.

Under a $300 million repurchase authorization, FSK had bought back $90 million of common shares as of October 30 at a weighted average price of $11.14 per share. The program runs through June 1, 2027, unless extended or completed earlier, but does not require the company to repurchase a specified number of shares and may be modified, suspended or discontinued.

Portfolio contracts as repayments exceed funding

The investment portfolio had a fair value of $11.31 billion at September 30, down from $11.42 billion at the end of June. New investment fundings totaled $335 million, while sales and repayments reached $442 million, producing net investment activity of negative $107 million. About 65% of third-quarter investments represented additional funding for existing portfolio companies.

First-lien senior secured loans accounted for 58.9% of portfolio fair value, and total senior secured investments represented 63.2%. Looking through the Credit Opportunities Partners joint venture, the senior secured proportion was 73.2%. The portfolio included 234 companies across 23 industries, with the 10 largest positions accounting for 21% of fair value.

The weighted average annual yield on accruing debt investments was 10.0%, up from 9.8% in the second quarter, while the weighted average stated interest rate on borrowings increased to 5.6% from 5.5%. Floating-rate investments represented 86.4% of debt investments. Investments on non-accrual status accounted for 3.4% of portfolio fair value, highlighting continuing credit risk within the portfolio.

Liquidity and leverage

FSK ended the quarter with $3.4 billion of liquidity from undrawn debt capacity, cash and unsettled trades. Debt-to-equity remained at 1.27 times, while the non-GAAP net debt-to-equity ratio increased to 1.25 times from 1.22 times.

Unsecured financing represented 73% of drawn leverage, and borrowings had a weighted average maturity of 3.9 years. Approximately 90% of long-term debt matures in 2028 or later. FSK said its June 2026 issuance of $900 million of unsecured notes due in 2031 covers all of its 2027 maturities.

The company cautioned that future performance, distribution levels, repurchase activity and financial conditions remain subject to economic changes, geopolitical risks, regulatory developments and operating disruptions. It also said past performance is not necessarily indicative of future results.