FS KKR Capital Corp. II — Merger or Acquisition (March 2021)
59 slides from FS KKR Capital Corp. II's merger presentation, Mar 9, 2021
Slide 1: FS KKR BDC Franchise Investor Presentation
FS KKR BDC Franchise Investor Presentation March 2021
Slide 2: FS KKR Advisor & Market Overview
FS KKR Advisor & Market Overview
Slide 3: FS KKR: at a Glance
FS KKR: at a Glance Size & Scale Market Reach Scope Two BDCs (FSK and FSKR) totalling ~$16bn in assets integrated within KKR’s $78bn credit platform ~140(1) dedicated KKR Credit investment professionals Global financial sponsor and corporate borrower relationships Investment and leadership team with
Slide 4: FS KKR: Competitive Advantages
FS KKR: Competitive Advantages ~$16bn of assets in the combined FS KKR BDC franchise Ability to make individual investments up to $1bn Direct access to full KKR investment network Lead, Co-lead or Sole Lender in >95% of total deals¹ Cumulative KKR Credit commitments of approximately $36bn² Below ave
Slide 5: FS KKR: Market Leading BDC Franchise
FS KKR: Market Leading BDC Franchise 1. As of December 31, 2020 FSKR FSK Total Assets Under Management Ranked by BDC Advisor/Manager ($bn)1
Slide 6: FS KKR Advisor Overview
($252bn AUM) ($23bn AUM) FS KKR Advisor Overview As of December 31, 2020. As of December 31, 2020. Includes legacy investments in KKR Financial Holdings LLC, a specialty finance vehicle listed on the New York Stock Exchange and various collateralized loan obligation vehicles. As of March 2021 Abilit
Slide 7: Established in 1976, KKR is a Leading Investment Firm
Established in 1976, KKR is a Leading Investment Firm with over Four Decades of Investing Experience Note: AUM figures as of December 31, 2020. Please see “Important Information” for important information regarding the calculation of AUM. Includes legacy investments in KKR Financial Holdings LLC, a
Slide 8: Large, Scalable Platform
Large, Scalable Platform $78bn of credit AUM ~1404 dedicated KKR investment professionals across 9 cities and 7 countries 1,200+ issuers across the KKR credit platform Disciplined Investment Process “PE-style” KKR-led due diligence standard Fundamental credit investment philosophy based on rigorous
Slide 9: KKR's Proprietary Origination Network
KKR’s Proprietary Origination Network Note: Please see “Important Information” at the end of this Presentation for further information on KKR’s inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions. Direct Rel
Slide 10: Rigorous Investment Review Process
Rigorous Investment Review Process KKR’s investment process combines multiple touchpoints within the firm Screening 1 – 2 Weeks Due Diligence 2 – 6 Weeks Structuring, Documentation & Approval 1 – 2 Weeks Structuring discussions with borrower, legal, accounting and tax Iterations with KKR and BDC Inv
Slide 11: Highly Selective and Disciplined Origination
Highly Selective and Disciplined Origination Note: Does not look through to activity within FSK’s investment in SCJV and FSKR’s investment in COP. SCJV is a joint venture between FSK and South Carolina Retirement Systems Group Trust (“SCRS”). COP is a joint venture between FSKR and SCRS. Originated
Slide 12: KKR Credit Platform: Tangible Results
Note: Figures above represent commitments across KKR platform. KKR Credit Platform: Tangible Results Committed $363mm to an $800mm Second Lien Term Loan Provided $182mm of a $600mm Preferred Equity Tranche U.S. residential bridge loan purchasing company Built de novo platform backing seasoned manage
Slide 13: Exemptive Relief Aligns Stakeholders' Interests
Note: All stats as of December 31, 2020 unless otherwise noted. Excludes impact of FSK’s investment in SCJV and FSKR’s investment in COP. Exemptive Relief Aligns Stakeholders’ Interests Asset Classes Uses of Capital Senior Secured First Lien Second Lien Asset Based Finance Growth M&A LBOs Carve-outs
Slide 14: Comparable Portfolio Statistics: FSK & FSKR
Note: Information based on most recently reported Direct Origination financial information. Excludes extreme outliers, Equity/Other investments, and Asset Based Finance investments. Comparable Portfolio Statistics: FSK & FSKR Average metric FSK FSKR 1st lien 2nd lien 1st lien 2nd lien Average Portfo
Slide 15: Overview of U.S. Middle Market Lending
Overview of U.S. Middle Market Lending Leading World Economies ($tn) Opportunity U.S. MM Private transactions allow for more customized structures than syndicated deals Pricing 100-200 bps above syndicated market The middle market provides attractive investment yields on an absolute and relative bas
Slide 16: Primary Focus: The Upper Middle Market
Primary Focus: The Upper Middle Market Market Participants Competitive Dynamics Lower MM Middle MM Upper MM BSL Market $3–25mm EBITDA $25–50mm EBITDA $50–100mm EBITDA $100mm+ EBITDA Limited balance sheets Single scope product offerings Extreme competition Highly structured financings with specific c
Slide 17: FSK | FS KKR Capital Corp.
FSK | FS KKR Capital Corp. = 2 ra ® > Oo ‘< 7) uo
Slide 18: FSK Portfolio Overview
Note: All stats as of December 31, 2020 unless otherwise noted. Does not look through to FSK’s portfolio companies held solely in SCJV. Figure excludes the impact of FSK’s investment in SCJV. See FSK’s Annual Report on Form 10-K for its definition of debt investments. See FSK’s Annual Report on Form
Slide 19: FSK Quarterly Investment Activity
Includes net sales to SCJV. Zero represents an amount less than 0.5%. FSK Quarterly Investment Activity Asset Mix of New Purchases(2) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 First Lien Senior Secured Loans 72% 73% 52% 44% 57% Second Lien Senior Secured Loans 8% 0% 0% 0% 15% Other Senior Secured Debt
Slide 20: FSK Direct Origination Investments EBITDA and Credit Statistics
Note: Information based on most recently reported Direct Origination financial information FSK Direct Origination Investments EBITDA and Credit Statistics Direct Origination Portfolio Company Median EBITDA Direct Origination Portfolio Company Coverage Ratios
Slide 21: FSK Funding and Liquidity Management
Includes Cash, Restricted Cash, and Cash denominated in foreign currency. Net debt-to-equity ratio is debt outstanding, net of cash and foreign currency and net payable/receivable for investments purchased/sold and repaid, divided by net assets. Weighted average as of December 31, 2020. Includes the
Slide 22: FSK's SCJV Offers Key Investor Benefits
Net debt-to-equity ratio is debt outstanding, net of cash and foreign currency and net payable/receivable for investments purchased/sold and repaid, divided by net assets. Net debt-to-equity ratio expected to decline as capital calls are issued in connection with the settlement of outstanding trades
Slide 23: FS / KKR Advisor Performance: FSK New Investments
FSK New Investments by Quarter ($mm) Performance of new investments ($mm)1,2 Cumulative app. / (dep.) Cumulative investments Cumulative appreciation totaled 0.42% as of December 31, 2019 Cumulative appreciation totaled 0.44% on investments totaling $4.5bn as of December 31, 2020 Cumulative app. / (d
Slide 24: FSKR | FS KKR Capital Corp. II
FSKR | FS KKR Capital Corp. II FSKR Overview
Slide 25: FSKR Portfolio Overview
Note: All stats as of December 31, 2020 unless otherwise noted. Does not look through to FSKR’s portfolio companies held solely in COP. Figure excludes the impact of FSKR’s investment in COP. See FSKR’s Annual Report on Form 10-K for its definition of debt investments. See FSKR’s Annual Report on Fo
Slide 26: FSKR Quarterly Investment Activity
Includes net sales to COP. Zero represents an amount less than 0.5%. FSKR Quarterly Investment Activity Asset Mix of New Purchases(2) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 First Lien Senior Secured Loans 46% 82% 15% 93% 71% Second Lien Senior Secured Loans 11% 3% 1% 0% 16% Other Senior Secured Deb
Slide 27: FSKR Direct Origination Investments EBITDA and Credit Statistics
Note: Information based on most recently reported Direct Origination financial information Direct Origination Portfolio Company Median EBITDA Direct Origination Portfolio Company Coverage Ratios FSKR Direct Origination Investments EBITDA and Credit Statistics
Slide 28: FSKR Funding and Liquidity Management
FSKR Funding and Liquidity Management Low net leverage with an extended maturity ladder and a large $2.4 billion revolver Short term flexibility of $1.4 billion of undrawn debt capacity Unsecured debt represents approximately 12% of our drawn debt Leverage over Time ($mm) Funding Vehicles ($mm) Matu
Slide 29: FSKR's COP Offers Key Investor Benefits
FSKR’s COP Offers Key Investor Benefits FSKR’s joint venture with South Carolina Retirement Systems Group Trust Primarily senior secured assets Key Portfolio Benefits Allows FSKR to access the full capabilities of KKR platform Yield enhancing Key Terms of the Partnership FSKR and SCRS share voting c
Slide 30: FS / KKR Advisor Performance: FSKR New Investments
FSKR New Investments by Quarter ($mm) Performance of new investments ($mm)1,2 Cumulative app. / (dep.) Cumulative investments Cumulative depreciation totaled 0.62% as of December 31, 2019 Cumulative depreciation totaled 0.45% on investments totaling $5.1bn as of December 31, 2020 Cumulative app. / (
Slide 31: Merger of FSK and FSKR
Merger of FSK and FSKR
Slide 32: FSK and FSKR Are Highly Complementary
FSK and FSKR Are Highly Complementary The Boards of FSK and FSKR have unanimously approved the merger On a combined basis, FSK and FSKR will seek to create long-term value through the benefits of: Scale & operating leverage Portfolio diversification Cost synergies Funding efficiencies Enhanced stock
Slide 33: Merger Considerations
Merger Considerations Stock-for-stock merger with exchange ratio determined by respective net asset values (“NAV”) of FSK and FSKR prior to closing (NAV-for-NAV) Combined company to continue to trade under the ticker symbol “FSK” on NYSE Distributions Consistent with recent guidance, 9.0% target min
Slide 34: Each BDC Benefits Strategically from Merging
Each BDC Benefits Strategically from Merging ($M, Unless Otherwise Stated) FSK FSKR Pro forma1 Investment portfolio $6,780 $7,968 $14,748 % senior secured 65.2% 76.5% 71.2% Number of portfolio companies 164 155 203 Direct originations (based on FV) 95.1% 91.7% 93.2% % non-accrual investments (based
Slide 35: Side-by-Side Comparison: SCJV and COP
Side-by-Side Comparison: SCJV and COP ($M, Unless Otherwise Stated) SCJV COP Pro forma1 Investment portfolio $1,544 $1,292 $2,836 % senior secured 81.4% 88.6% 84.7% Number of portfolio companies 66 65 100 Unfunded commitments 22 2 24 Level 3 investments (% of total) 85.0% 74.4% 80.2% % non-accrual i
Slide 36: Potential to Improve Balance Sheet Positioning
Potential to Improve Balance Sheet Positioning Key Considerations Consolidated, simplified pro forma capital structure provides incremental flexibility Combined company expected to benefit from FSK’s investment grade credit ratings and ability to access the unsecured markets Funding Mix Evolution $M
Slide 37: Enhanced Portfolio Diversification
Enhanced Portfolio Diversification FSK FSKR Pro forma Number of portfolio companies 164 155 203 Top 10 portfolio companies (% of portfolio FV)¹ 22% 24% 21% Senior secured debt investments (% of portfolio FV) 65.2% 76.5% 71.2% Debt investments that are floating rate (% of portfolio FV) 87.6% 90.3% 88
Slide 38: Investment Overlap Analysis of FSK & FSKR
Investment Overlap Analysis of FSK & FSKR FSKR Top Holdings (as % of Portfolio FMV) FSK Top Holdings (as % of Portfolio FMV) Portfolio Overlap between FSK and FSKR1 Note: All stats as of December 31, 2020 unless otherwise noted. Figure excludes the impact of investments in the Joint Ventures with So
Slide 39: Appendix
Appendix
Slide 40: Overview of Overall KKR ESG Management
Note: Responsible Investment Policy as of May 15, 2020 and subject to change. Available at: https://www.kkr.com/_files/pdf/KKR_Overall_RI_Policy_2020.pdf Overview of Overall KKR ESG Management Evaluate material ESG risks and opportunities applicable for the industry or asset type(s) with regard to t
Slide 41: KKR's Approach to ESG Management
KKR’s Approach to ESG Management Gating issues List – KKR Credit utilizes a “Gating Issues” list that defines key business activities that may pose significant risks to investment value or to KKR to ensure early focus on these topics IC Memo Checklist – KKR Credit Investment Committee Memos have an
Slide 42: FSKR Financial Results
FSKR Financial Results (Dollar amounts in millions, except per share data) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 NII per share(1) $0.67 $0.55 $0.44 $0.52 $0.59 Adjusted NII per share(1) (2) $0.68 $0.55 $0.48 $0.52 $0.61 Net realized and unrealized gains (losses) per share(1) ($0.67) ($4.72) ($0.30
Slide 43: FSKR Portfolio Highlights
Does not look through to FSKR’s portfolio companies held solely in COP. COP is a joint venture between FSKR and South Carolina Retirement Systems Group Trust (SCRS). Represents interest rates on Debt Investments (see FSKR’s Annual Report on Form 10-K for the definition of Debt Investments) at US$ Fa
Slide 44: FSKR Net Asset Value Bridge Q4 2020
Per share data derived using the weighted average shares outstanding during the period. Numbers may not sum due to rounding. FSKR Net Asset Value Bridge Q4 2020(1)(2)
Slide 45: FSK Financial Results
FSK’s one-time expenses for the three months ended December 31, 2020 consist of $1M associated with the acceleration of deferred financing costs in conjunction with the closing of a debt facility during the quarter. Adjusted net investment income is a non-GAAP financial measure. Adjusted net investm
Slide 46: FSK Operating Results Detail
FSK Operating Results Detail For The Three Months Ended (Dollar amounts in millions, except per share data) 12/31/19 3/31/20 6/30/20 9/30/20 12/31/20 Investment income: Interest income $133 $131 $112 $98 $103 Payment-in-kind interest income 21 16 15 17 18 Fee income 16 12 6 3 12 Total dividend and o
Slide 47: FSK Balance Sheet
Includes accrued performance-based incentive fees, accrued investment advisory fees, accrued directors’ fees, administrative expenses payable and deferred tax liabilities. The share and per share amounts reflect the FSK Reverse Stock Split on a retroactive basis. FSK Balance Sheet As of (Dollar amou
Slide 48: FSK Quarterly Gain/Loss Information
FSK Quarterly Gain/Loss Information For The Three Months Ended (Dollar amounts in millions, except per share data) 12/31/19 3/31/20 6/30/20 9/30/20 12/31/20 Realized gain/loss Net realized gain (loss) on investments: Non-controlled/unaffiliated investments ($31) ($92) ($48) ($99) ($84) Non-controlle
Slide 49: FSKR Financial Results
FSKR Financial Results (Dollar amounts in millions, except per share data) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 NII per share(1) $0.67 $0.55 $0.44 $0.52 $0.59 Adjusted NII per share(1) (2) $0.68 $0.55 $0.48 $0.52 $0.61 Net realized and unrealized gains (losses) per share(1) ($0.67) ($4.72) ($0.30
Slide 50: FSKR Portfolio Highlights
Does not look through to FSKR’s portfolio companies held solely in COP. COP is a joint venture between FSKR and South Carolina Retirement Systems Group Trust (SCRS). Represents interest rates on Debt Investments (see FSKR’s Annual Report on Form 10-K for the definition of Debt Investments) at US$ Fa
Slide 51: FSKR Net Asset Value Bridge Q4 2020
Per share data derived using the weighted average shares outstanding during the period. Numbers may not sum due to rounding. FSKR Net Asset Value Bridge Q4 2020(1)(2)
Slide 52: FSKR Non-GAAP Reconciliation
FSKR’s one-time expenses for the three months ended June 30, 2020 consist of advisory fees in connection with the listing of its shares on the NYSE. FSKR’s one-time expense for the three months ended December 31, 2020 consist of banker fees in connection with the proposed merger with FSK. Adjusted n
Slide 53: FSKR Operating Results Detail
FSKR Operating Results Detail For The Three Months Ended (Dollar amounts in millions, except per share data) 12/31/19 3/31/20 6/30/20 9/30/20 12/31/20 Investment income: Interest income $102 $151 $126 $120 $130 Payment-in-kind interest income 7 14 16 16 18 Fee income 12 15 7 5 22 Total dividend and
Slide 54: FSKR Balance Sheet
Includes accrued performance-based incentive fees, accrued investment advisory fees, accrued directors’ fees, administrative expenses payable and deferred tax liabilities. The share and per share amounts reflect the FSKR Reverse Stock Split on a retroactive basis. FSKR Balance Sheet As of (Dollar am
Slide 55: FSKR Quarterly Gain/Loss Information
FSKR Quarterly Gain/Loss Information For The Three Months Ended (Dollar amounts in millions, except per share data) 12/31/19 3/31/20 6/30/20 9/30/20 12/31/20 Realized gain/loss Net realized gain (loss) on investments: Non-controlled/unaffiliated investments ($9) ($217) ($34) ($131) ($260) Non-contro
Slide 56: Forward-Looking Statements
Forward-Looking Statements Statements included herein may constitute “forward-looking” statements as that term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Liti
Slide 57: Important Information
Important Information The data and information presented are for informational purposes only. The information contained herein should be treated in a confidential manner and may not be transmitted, reproduced or used in whole or in part for any other purpose, nor may it be disclosed without the prio
Slide 58: Important Information
Important Information Employees of KKR Credit Advisors (US) LLC, Prisma Capital Partners LP and KKR Capital Markets LLC located in the United States are dual employees of Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, “KKR”). Participation of KKR Private Equity, KKR Capital Market
Slide 59: Important Information
Important Information The indices referenced herein are broad-based securities market indices and used for illustrative purposes only. They have been selected because they are well known and easily recognizable. Broad-based securities indices are unmanaged and are not subject to fees and expenses ty
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