FS KKR Capital Corp. · NYSE:FSK
FS KKR Capital — Investor Day (November 2022)
104 slides from FS KKR Capital's investor day presentation, Nov 17, 2022
Slide 1: FS KKR Capital Corp. 2022 Analyst & Investor Day
FS KKR Capital Corp. 2022 Analyst & Investor Day November 17, 2022 All information is as of September 30, 2022 unless otherwise noted
Slide 2: Important Disclosure Notice
Important Disclosure Notice 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
Slide 3: Agenda
Agenda Section Presenter(s) Welcome & Introductions Robert Paun & Craig Larson A Bridge from FSK’s 2021 Investor Day Steven Lilly Economic Update Henry McVey Private Credit Industry Overview & Outlook Daniel Pietrzak KKR Credit Overview KKR Credit Investment Team FSK Overview Daniel Pietrzak FSK Por
Slide 4: FSK Management Team Speakers
FSK Management Team Speakers Daniel Pietrzak Brian Gerson Steven Lilly Co-President and CIO, Co-President, Chief Financial Officer, FSK FSK FSK • Joined KKR in 2016 • Joined FS Investments in 2017 • Joined FS Investments in 2019 • Co-Head of KKR Private Credit • Serves as Head of Private Credit at F
Slide 5: KKR Investment Team Speakers
KKR Investment Team Speakers Lauren Krueger George Mueller Cathy Madigan Avi Korn Managing Director, Managing Director, Managing Director, Managing Director, KKR Credit KKR Credit KKR Credit KKR Credit • Joined KKR in 2018 • Joined KKR in 2009 • Joined KKR in 2019 • Joined KKR in 2018 • Leads KKR Cr
Slide 6: Key Themes for Today
Key Themes for Today 1 KKR Credit is a leading player in the private credit industry 2 FSK has achieved its 2021 Investor Day goals 3 Our platform has been built with broad capabilities and an institutionalized focus 4 FSK has built a leading capital structure within the BDC industry 5 We believe FS
Slide 7: A Bridge from FSK's 2021 Investor Day
A BRIDGE FROM FSK’S 2021 INVESTOR DAY
Slide 8: FSK: What We've Accomplished
FSK: What We’ve Accomplished Since April 2018 Since 2021 Investor Day Successfully merged six separate BDCs, creating a single BDC Increased quarterly adjusted NII per share from $0.61 to with ~$17bn of assets $0.734 Rotated ~90% of Legacy Advisor’s income producing Significantly outperformed divide
Slide 9: FSK: A Leading BDC
FSK: A Leading BDC Total Assets Under Management Ranked by Publicly Traded BDC Advisor/Manager ($bn)1 $22.0 $16.7 $13.4 $9.9 $7.7 $5.8 $4.1 $3.7 $3.3 $2.9 $2.9 $2.7 $2.6 $2.6 $2.5 $2.5 $2.1 $1.8 $1.3 $1.4 ARCC FSK ORCC BXSL PSEC GBDC MAIN GSBD NMFC HTGC TSLX PNNT & OCSL MFIC BCSF SLRC CGBD TCPC PFLT
Slide 10: FS/KKR: A Global Advisor
FS/KKR: A Global Advisor Focus • Investment structures: • Senior secured Size & Scale • Asset Based Finance Global Market Reach • Junior capital • ~$17 billion publicly traded BDC • Upper middle market: • Financial sponsor relationships within $186 billion KKR Credit across multiple countries platfo
Slide 11: FS/KKR: Significant BDC Industry Involvement
FS/KKR: Significant BDC Industry Involvement Maintain full-time lobbying presence in Washington D.C. Direct involvement with potential AFFE legislation Coordinated with the SEC regarding industry regulations FS/KKR maintains significant involvement in FSK is represented on the SBIA Board of Governor
Slide 12: Economic Update
ECONOMIC UPDATE FSK | FS KKR Capital Corp.
Slide 13: Private Credit Industry Overview & Outlook
PRIVATE CREDIT INDUSTRY OVERVIEW & OUTLOOK
Slide 14: Private Credit Continues To Benefit From Favorable Tailwinds
Private Credit Continues To Benefit From Favorable Tailwinds Rise in Private Equity Dry Powder Creates Strong Demand for Banks Share of Lending Has Declined Materially Continued Shift Away From Banks Private Credit Private Equity Dry Powder1 Banks Share of Total Primary Market Issuance2 More Borrowe
Slide 15: Private Credit Offers Superior Structures and Enhanced Yields
Private Credit Offers Superior Structures and Enhanced Yields Private Credit Market Trends Over time, Private Credit as Private Credit documents an asset class has consistently Equity cushion percentage 1 produced 150-200bps of 2 remains attractive 3 provide more principal protection features illiqu
Slide 16: Why We Like the Current Lending Environment
Why We Like the Current Lending Environment Jan-22 Nov-22 Change Spread 550-575 bps 650-675 bps +100 bps OID & Fees 2.0% 3.0% +1.0% SOFR (3M)1 / Floor 0.09% / 0.75% 4.27% / 0.75% +3.52% Projected IRR (4yr) 6.75% 11.52% +4.77% Incremental yield & improving structures result in compelling investment o
Slide 17: KKR Credit Overview
KKR CREDIT OVERVIEW FSK | FS KKR Capital Corp.
Slide 18: KKR Overview
KKR Overview $496 billion Total KKR Firm AUM1 $186 billion KKR Credit AUM1 Leveraged Credit Private Credit Strategic Investments $104bn $73bn $9bn • Leveraged Loans • Opportunistic • First Lien / • Asset Based • Capital Solutions • Cross Asset Class Credit Unitranche Finance • High Yield Bonds • Opp
Slide 19: KKR Private Credit: Overview
KKR Private Credit: Overview $73 billion Investment Committee Private Credit AUM 25+ Average Years of Experience ~110 Investment Professionals Direct Lending Junior Capital Asset Based Finance • Directly originated and privately • Directly originated and privately • Investments backed by diverse poo
Slide 20: KKR Private Credit: Fundamentals
KKR Private Credit: Fundamentals Platform Investing • Ownership is in our DNA • Fundamental cash flow based • Seasoned team credit investors • Broad capabilities • “PE Style” due diligence • High-touch portfolio monitoring KKR Private Credit Origination Partnership • Focus on Direct Origination • In
Slide 21: KKR Private Credit: A Growing Asset Class
KKR Private Credit: A Growing Asset Class Private Credit as an asset class has been growing at an annualized rate of 14.9% since 20061 As of 2021, 72% of endowments & pension funds had allocations to Private Credit2 61% of endowments & pension funds anticipate increasing their allocations to private
Slide 22: KKR Credit: Origination
KKR CREDIT: ORIGINATION FSK | FS KKR Capital Corp.
Slide 23: Corporate Credit Overview
Corporate Credit Overview Corporate Lending Strategy Capital Base • Seeks to achieve better risk-adjusted returns through: – Upper middle-market borrowers (generally $50mm+ EBITDA, larger for more junior investments) $31 billion AUM2 – Control of transaction structure and terms • Global footprint an
Slide 24: KKR Private Credit: Origination Capabilities
KKR Private Credit: Origination Capabilities Our dedicated origination resources engage in multiple sourcing avenues Financial sponsor coverage Non-sponsor coverage effort of over 200 equity investors for issuers of all types Regular communication with investment banks and trading Global Coverage Ma
Slide 25: KKR Private Credit: Origination Capabilities
KKR Private Credit: Origination Capabilities ~7,600 Investments Evaluated and $47bn Closed Over the Last 5+ Years1 # of Investments 1,600 1,600 1,400 1,360 1,310 1,300 1,240 1,200 1,000 800 760 600 400 320 345 175 210 210 200 200 87 39 5% 38 3% 40 3% 38 3% 5% 52 4% 0 2017 2018 2019 2020 2021 YTD 202
Slide 26: KKR Private Credit: How We Go-To-Market
KKR Private Credit: How We Go-To-Market Our Approach What We Deliver Consistent Growth Years Strong brand and established market reputation Comprehensive capital solutions at scale 15+ Comprehensive capital solutions at scale Origination conducted within an Transaction leadership experienced investm
Slide 27: KKR Private Credit: Power of Incumbency
KKR Private Credit: Power of Incumbency Breadth of Footprint Results Advantages Private credit issuer portfolio: Positively selecting new ~330 companies totaling $73bn investments Leveraged credit issuer portfolio: ~1,000 companies totaling $104bn Credit investment professionals: ~190 ~40% incumbent
Slide 28: Why Borrowers and Portfolio Companies Partner With Us
Why Borrowers and Portfolio Companies Partner With Us More than a Lender - A Value-Added Capital Solutions Provider Comprehensive capital solutions at scale Access to KKR full capabilities • KKR has led an estimated 50% of $1bn+ transactions in the US between 2020-2022 • Global Macro, ESG, Public Af
Slide 29: Case Study: Lipari
Case Study: Lipari Transaction Overview • In January 2019, KKR Credit provided an initial Unitranche Term Loan to support HIG Capital’s (“HIG”) acquisition of Lipari • KKR Credit supported Lipari’s M&A strategy under HIG’s ownership with additional capital • KKR Credit engaged HIG early on a potenti
Slide 30: KKR Credit: Investment Process
KKR CREDIT: INVESTMENT PROCESS
Slide 31: KKR Credit Investment Philosophy
KKR Credit Investment Philosophy KKR Credit utilizes a fundamental investment approach and leverages proprietary resources to generate attractive risk- adjusted returns Dedicated Sourcing Capital Preservation Active Portfolio Management • “Single-platform sourcing” • Steward investors’ capital as if
Slide 32: Benefits of the Upper Middle Market
Benefits of the Upper Middle Market Our Direct Lending strategy primarily targets the upper end of the middle market, which we believe to be more defensive and more resilient through various market cycles Financial Sponsor Backing Stronger Credit Profiles Sponsors provide professional management, ov
Slide 33: KKR Private Credit: Leveraging the Strength of Our Platform
KKR Private Credit: Leveraging the Strength of Our Platform Investment Structuring and Screening Iterative Due Diligence Ongoing Portfolio Management Approval Ongoing relationship with management Primary due diligence completed on 1 company fundamentals PMU provides ongoing monitoring Iterations wit
Slide 34: KKR Private Credit: "PE Style" Due Diligence
KKR Private Credit: “PE Style” Due Diligence Investment diligence is a bottoms up and fundamentals focused underwriting process Company Diligence Industry Diligence Unique KKR Diligence • Focus on durability and sustainability of • Focus on company’s value proposition and • Liquid Credit team may ha
Slide 35: KKR Private Credit: ESG Approach
KKR Private Credit: ESG Approach Dedicated Team with Proprietary ESG Investment Ongoing Deep Expertise Scoring Process Monitoring 1 2 3 4 Investment team partners ESG scorecards are managed ESG analysis and scores are Deal teams are responsible for with Global KKR ESG within KKR’s internal credit di
Slide 36: Portfolio Monitoring Unit: Overview
Portfolio Monitoring Unit: Overview The PMU lies at the center of Portfolio Monitoring Unit (“PMU”) is a dedicated team of KKR’s credit ecosystem to credit analysts responsible for ongoing credit monitoring and monitor, analyze, and report on unbiased assessment the health of portfolio companies Ens
Slide 37: Portfolio Review Process
Portfolio Review Process Institutionalized, consistent and real time monitoring to identify potential underperformance, trends for future underwrites, and developing incumbent opportunities PMC Resources and Toolkit Process Credit QB – Internal system aggerates credit information Real time summaries
Slide 38: KKR: Creating Value Across Our Portfolio Companies
KKR: Creating Value Across Our Portfolio Companies KKR has over 14 years experience directly helping portfolio companies realize value from procurement KKR Programs Total Firmwide Value Created Since 2007 Dedicated team of experienced procurement $2.4bn of run rate cost reduction across entire profe
Slide 39: KKR Credit: Restructuring and Governance
KKR CREDIT: RESTRUCT URI NG AND GOVERNA NC E
Slide 40: KKR Private Credit: Restructuring and Governance Overview
KKR Private Credit: Restructuring and Governance Overview Founded in 2017, the Global Restructuring and Governance Team partners with underperforming companies What We Do How We Do It Identify situations early • Identify and monitor watchlist credits Turnaround underperforming businesses • Proactive
Slide 41: KKR Private Credit: Restructuring Workflow
KKR Private Credit: Restructuring Workflow Identify Amend Monitor Restructure Optimize Exit • Identify • Covenant amendment • Increased reporting • Invest new capital • Establish performance • Monetize Investment underperforming milestones • Repricing • Board representation • Restructure existing cr
Slide 42: Case Studies
Case Studies Company Overview Restructuring Team Impact Outcome • Influenced deal terms and economics, provided guidance on • On track to produce record EBITDA in 2022 and is well positioned for Production Resource Group is a future governance and structure and drove operational and financial profit
Slide 43: KKR Credit: Asset Based Finance
KKR CREDIT: ASSET BASED FINANCE
Slide 44: Asset Based Finance Overview
Asset Based Finance Overview Asset Based Finance Strategy Capital Base and Returns • Targets attractive risk-adjusted returns through: – Diverse exposure to investments backed by large and diversified pools of financial and hard assets $35 billion 12.1% – Multi-strategy and asset class approach Asse
Slide 45: Asset Based Finance: Focus Areas
Asset Based Finance: Focus Areas Privately originated and negotiated investments Focus on thematic investing in underserved, hard-to-access, and mispriced assets Seeking illiquidity and structuring premiums (return/income) versus Multi-asset class approach to identify the best relative value across
Slide 46: Case Studies: Asset Based Finance
Case Studies: Asset Based Finance Transaction Overview Transaction Overview • Investments in single family rental homes which provides customers with a unique • Premier private aviation services platform that provides aircraft management, private option to purchase the home over a certain time perio
Slide 47: FSK Overview
FSK OVERVIEW FSK | FS KKR Capital Corp.
Slide 48: FSK: Overview
FSK: Overview Publicly traded business development company focused on investing in upper middle-market companies FSK Corporate Overview Investment Portfolio Summary $5.6bn Market Cap1 $15.8bn Portfolio Size 13.8% Annualized Dividend Yield (Stock)2 195 Portfolio Companies6 10.8% Annualized Dividend Y
Slide 49: FSK: Operating Approach
FSK: Operating Approach KKR Credit ~190 Investment Team Portfolio Monitoring Board & FSK operates & Valuation Team 16 20 Executive Team with the direct involvement of over 250 FSK professionals Key Third Party Capital Markets Valuation Firms 2 70+ Team Tax, Legal, Accounting 30+ & Financial Reportin
Slide 50: FSK: Portfolio Construction
FSK: Portfolio Construction First Lien Loans Credit Opportunities Partners JV, LLC Asset Based Finance • Unitranche structures • $4.0bn in assets (would equate to the 8th largest • Investments focused on portfolios of financial publicly traded BDC as measured by total assets) and hard assets • Typic
Slide 51: FSK Investment Portfolio Overview – JV Look Through
FSK Investment Portfolio Overview – JV Look Through 90% 17% 78% $207mm / 6.2x of debt investments FV in top 10 of investments in Wtd. average portfolio company are floating rate1 investments senior secured debt EBITDA & leverage2 Security Exposure (by fair value) Sector Exposure (by fair value) 2.4%
Slide 52: First Lien Senior Secured Loans Overview
First Lien Senior Secured Loans Overview FS/KKR Advisor First Lien Deployment by Industry (by fair value) Represents 68% of total deployment by FS/KKR Advisor 14.9% 19.5% 2.5% ~$14bn of total fundings to over 190 3.2% 3.9% borrowers 4.1% 13.9% 6.9% 7.7% 11.8% Weighted average leverage at time of 11.
Slide 53: Credit Opportunities Partners JV, LLC Overview
Credit Opportunities Partners JV, LLC Overview FSK’s joint venture with South Carolina Retirement Systems Group Trust (“SCRS”) Key Portfolio Benefits Key Statistics Key Terms of the Partnership • Facilitates greater ability to maximize KKR’s • Scaled investment vehicle with total AUM of • FSK and SC
Slide 54: Asset Based Finance: FSK Focus Areas
Asset Based Finance: FSK Focus Areas Privately originated and negotiated investments Focus on thematic investing in underserved, hard-to-access, and mispriced assets Seeking illiquidity and structuring premiums (return/income) versus Multi-asset class approach to identify the best relative value acr
Slide 55: FSK Portfolio Review & Capital Structure
FSK PORTFOLIO REVIEW & CAPITAL STRUCTURE
Slide 56: Portfolio Rotation Analysis: Advisor
Portfolio Rotation Analysis: Advisor Total Portfolio Advisor Rotation since Q2 20181 Income Producing Asset Advisor Rotation since Q2 20181 4.9% 13.7% 7.4% 9.7% 3.7% 4.2% 25.7% 22.4% Q2 2018 Q3 2022 Q2 2018 Q3 2022 69.4% 70.2% 82.1% 86.6% Prior Advisor KKR FS/KKR Advisor Investments originated by KK
Slide 57: Portfolio Rotation Analysis: Industry
Portfolio Rotation Analysis: Industry Significant portfolio rotation has emphasized defensive industries and de-emphasized more cyclical industries Market Value Change By Industry From Q2 2018 to Q3 20221 Top 10 Industries Q2 20181 Capital Goods Software & Services 1,383 16.7% Software & Services He
Slide 58: Portfolio Rotation Analysis: EBITDA
Portfolio Rotation Analysis: EBITDA The FSK portfolio has been positioned with a focus on upper middle market borrowers Portfolio Company Size1 Portfolio Distribution by Company Size1 45% $250 40% 38% $207 35% 34% $200 % of Portfolio Fair Value 30% 28% $150 25% 23% EBITDA 20% $99 $100 15% 13% 13% 13
Slide 59: Portfolio Analysis: Loan to Value
Portfolio Analysis: Loan to Value Loan to Value by Vintage1 60% 55% 55% 51% 50% 47% 44% 40% 30% 20% 10% 0% 2018 2019 2020 2021 2022 59
Slide 60: Portfolio Analysis: Leverage Statistics
Portfolio Analysis: Leverage Statistics Debt Multiple vs. EBITDA1 Debt Multiple vs. EV Multiple1 35% $300 35% 14.4x 15.0x 13.6x $267 12.8x $252 12.4x 13.0x 30% 30% $250 11.0x 25% 25% $200 8.7x 9.0x $163 20% 20% $143 7.0x $150 15% $116 15% 5.0x $100 10% 10% 3.0x $50 5% 5% 1.0x 0% $- 0% -1.0x <4x 4x-5
Slide 61: Portfolio Analysis: Interest Coverage Sensitivity
Portfolio Analysis: Interest Coverage Sensitivity Interest Coverage Analysis – Median1 Interest Coverage Analysis – Weighted Average2 2.5x 3.0x 2.3x 2.1x 2.5x 2.5x 2.0x 1.9x 2.3x 1.8x 2.1x 1.6x 2.0x 1.5x 2.0x 1.8x 1.5x 1.7x 1.5x 1.0x 1.0x 0.5x 0.5x 0.0x 0.0x Q3 Reported Q3 + 100 Q3 + 200 Q3 + 300 Q3
Slide 62: Portfolio Analysis: Financial Performance
Portfolio Analysis: Financial Performance 16,000 100% Total Fair Value Avg LTM EBITDA margin Avg LTM Gross margin 90% 14,000 80% 12,000 70% 10,000 60% Despite high 8,000 37% 40% 41% 42% 43% 43% 43% 42% 42% 42% 40% 50% 40% inflation 6,000 24% 30% 22% 22% 22% 23% 23% 23% 23% 22% 22% 4,000 the average
Slide 63: Portfolio Analysis: Non-Accruals & Non-Income Producing Assets
Portfolio Analysis: Non-Accruals & Non-Income Producing Assets Non-Accruals Non-Income Producing 1,200 Cost Fair Value 1,200 Cost Fair Value 1,000 1,000 957.2 853.9 889.6 883.4 828.5 800 800 700.4 656.8 600 600 391.8 400 400 200 200 0 0 Q2'21 Q3'22 Q2'21 Q3'22 Fair Value Roll-Forward Fair Value Roll
Slide 64: Positive Impacts of a Rising Rate Environment
Positive Impacts of a Rising Rate Environment Approximate Annual Earnings Per Share Impact with an Increase in Base Rates from September 30, 20221 $0.60 89% floating rate debt investments2 $0.51 $0.50 $0.40 $0.38 52% fixed rate debt3 $0.30 $0.25 $0.20 $0.13 $0.10 Targeted net debt to equity 1.00x-1.
Slide 65: Capital Structure: Overview
Capital Structure: Overview FS/KKR Advisor – Capital Structure Accomplishments2 Wtd. Avg Cost of Debt: 4.8% Wtd. Avg Cost of Debt: 4.2% Borrowing Capacity: $2,114 4% 19% Secured Debt: 44% Q2 20183 Q3 2022 $4,431 52% 1.19x 81% Net D/E1 Unsecured Notes: Secured Unsecured CLO $4,745 Created flexible st
Slide 66: Capital Structure: Key Principles
Capital Structure: Key Principles Conservatively Structured Maintaining Our Investment Grade Rating • 52% of drawn leverage is unsecured Enhances access to capital market solutions • 71% of drawn leverage is not subject to MTM tests Rating Outlook • Target leverage set at 1.00-1.25x Baa3 Stable – Pr
Slide 67: Capital Structure: Looking Forward
Capital Structure: Looking Forward Well positioned with no short-term needs, which allows us to be opportunistic and focus on our long-term goals Target Benefits to FSK Future Goals • Provides flexibility • Enhance bond liquidity 40-60% Unsecured Bond • Supports our IG rating • Maintain and expand c
Slide 68: FSK: Observations & Outlook
FSK: OBSERVATIONS & OUTLOOK FSK | FS KKR Capital Corp.
Slide 69: Consistent Dividend Coverage Since Implementing Current Strategy
Consistent Dividend Coverage Since Implementing Current Strategy Base Dividend Coverage1 Total Dividend Coverage2 120% 123% 120% 120% 120% 114% 107% 108% 110% 107% 103% 105% 105% 103% 105% 105% 103% 103% 106% 100% $0.65 $0.63 $0.68 $0.67 $0.68 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.61 $0
Slide 70: FSK: Quarterly Dividend Yield / NAV
FSK: Quarterly Dividend Yield / NAV Base Dividend Yield / NAV1 Total Dividend Yield / NAV2 11.0% 11.0% 10.5% 10.5% 10.5% 10.1% 10.0% 10.1% 10.0% 10.0% 10.0% 10.0% 10.0% 9.8% 9.7% 9.7% 9.4% 9.4% 9.4% 9.5% 9.5% 9.3% 9.2% 9.1% 9.1% 9.0% 8.9% 8.8% 8.8% 9.0% 8.5% 8.5% 8.0% 8.0% 7.5% 7.5% 7.0% 7.0% Q2 202
Slide 71: Q4 2022 Guidance
Q4 2022 Guidance Q3-2022 Results Q4-2022 Guidance Interest Income (GAAP) 318 347 Joint Venture Dividend Income 50 53 Other Dividend and Fee Income 43 31 Total Investment Income 411 431 Investment Advisory Fees & Expenses 61 61 Subordinated Income Incentive Fees1 25 24 Interest Expense 96 110 Other G
Slide 72: Discernible Updates: Q1 2023 Outlook
Discernible Updates: Q1 2023 Outlook ($0.01) ($0.05) $0.04 $0.08 $0.75 $0.73 Q4-2022 Est. Q1-2023 Incentive Fee Impact of Hypothetical Adjusted NII Day Count Adjustment 1 Waiver Rising Rates 2 Adjusted NII 72
Slide 73: Characteristics of a Successful BDC
Characteristics of a Successful BDC 1 Maintain a sound dividend policy Maximize quarterly pay-out ratio while still covering full dividend paid with NII 2 Originate high quality investments Maximize investment returns while balancing risk and preserving NAV 3 Create a strong balance sheet Utilize si
Slide 74: Potential Future Return Analysis
Potential Future Return Analysis Investment 80% Price to 85% Price to 90% Price to 95% Price to 100% Price to Portfolio NAV NAV NAV NAV NAV Implied Price1 $20.24 $21.51 $22.77 $24.04 $25.30 1 year 16.7% 23.1% 29.6% 36.0% 42.4% 2 year 14.2% 17.0% 19.7% 22.4% 25.0% 3 year 13.0% 14.7% 16.3% 17.8% 19.4%
Slide 75: Final Thoughts
Final Thoughts FSK is continuing to build a track record of communicating with clarity and achieving its stated corporate goals Our strong fixed rate oriented capital structure provides stability, while our floating rate based investment portfolio provides NII upside opportunities The FS/KKR Advisor
Slide 76: Questions & Discussion
QUESTIONS & DISCUSSION FSK | FS KKR Capital Corp.
Slide 77: Appendix: Q3 Earnings Supplement & Additional Information
APPENDIX: Q3 EARNINGS SUPPLEMENT & ADDITIONAL INFORMATION
Slide 78: Financial Results
Financial Results (Dollar amounts in millions, except per share data) 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 NII per share $0.71 $0.66 $0.77 $0.71 $0.76 Adjusted NII per share(1) $0.64 $0.65 $0.72 $0.67 $0.73 Net realized and unrealized gains (losses) per share $0.24 ($0.02) $0.02 ($0.96) ($1.21)
Slide 79: Portfolio Highlights
Portfolio Highlights As of and for Three Months Ended (Dollar amounts in millions) 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 Investment at Fair Value: First Lien Senior Secured Loans 61.2% 60.7% 59.9% 61.9% 61.9% Second Lien Senior Secured Loans 10.6% 9.7% 8.6% 8.0% 7.9% Other Senior Secured Debt 0.9
Slide 80: FSK Investment Portfolio Overview
FSK Investment Portfolio Overview 195 19% 71% $99mm / 6.0x portfolio companies(1) FV in top-10 portfolio of investments in median portfolio company EBITDA & companies(2) senior secured debt(2) leverage(3) 89% 10.4% 2.5% ~80% of debt investments wtd. avg. annual yield on non-accrual rate at FV lead,
Slide 81: Quarterly Investment Activity
Quarterly Investment Activity Asset Mix of New Purchases(1) $2,781 $2,071 $2,068 90% 55% 78% 2% $907 (2) $804 0% 21% 49% 3% 69% 9% 4% 0% 1% 1% 20% 5% 3% 18% 16% 19% 7% 2% 2% 11% 14% 1% Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Portfolio Roll ($ in millions) 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 Inv
Slide 82: Net Asset Value Bridge
Net Asset Value Bridge $0.76 ($0.67) ($1.21) $0.01 $26.41 $26.41 $26.50 $25.29 $25.30 $25.30 6/30/2022 Net Investment Distribution Net Realized Share Buyback 9/30/2022 NAV Income & Unrealized Losses NAV Note: Per share data derived using the weighted average shares outstanding during the period, exc
Slide 83: Capital Structure: Overview
Capital Structure: Overview Key Highlights Capital Structure Overview • 1.19x Net Debt-to-Equity as of September 30, 2022, compared to 1.15x Funding Source Senior Secured Revolver due 2027 Committed 4,655 Outstanding 2,665 Undrawn 1,978(3) Maturity 5/17/2027 Wtd. Avg. Rate S+1.75% - 1.88% as of June
Slide 84: Credit Opportunities Partners JV, LLC Overview
Credit Opportunities Partners JV, LLC Overview FSK’s joint venture with South Carolina Retirement 4.8% Senior Secured Loans—First Lien Systems Group Trust (SCRS) 0.1% 13.9% Senior Secured Loans—Second Lien 0.6% Primarily senior secured assets Security Exposure Other Senior Secured Debt 10.8% (by fai
Slide 85: Direct Origination Investments EBITDA and Credit Statistics
Direct Origination Investments EBITDA and Credit Statistics Direct Origination Portfolio Company Median EBITDA Direct Origination Portfolio Company Coverage Ratios $99.3 7.0x 6.1x 6.0x 5.9x 5.9x $81.4 $80.5 6.0x 5.6x 5.6x $77.7 $76.0 $78.8 $76.2 5.5x 5.6x 5.5x 5.4x 5.2x 5.3x $71.2 $67.7 $65.7 $68.7
Slide 86: Operating Results
Operating Results For The Three Months Ended (Dollar amounts in millions, except per share data) 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 Total investment income $360 $364 $396 $379 $411 Net expenses (159) (163) (176) (176) (194) Net investment income before taxes $201 $201 $220 $203 $217 Excise tax
Slide 87: Operating Results Detail
Operating Results Detail For The Three Months Ended (Dollar amounts in millions, except per share data) 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 Investment income: Interest income $239 $245 $261 $247 $279 Payment-in-kind interest income 35 37 43 40 39 Fee income 31 26 29 13 26 Total dividend and oth
Slide 88: Balance Sheet
Balance Sheet As of (Dollar amounts in millions, except per share data) 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 Assets Total investments, at fair value $15,824 $16,101 $16,554 $16,178 $15,792 Cash 229 258 362 232 264 Foreign currency, at fair value 12 119 7 37 2 Receivable for investments sold and
Slide 89: Quarterly Gain/Loss Information
Quarterly Gain/Loss Information For The Three Months Ended (Dollar amounts in millions, except per share data) 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 Realized gain/loss Net realized gain (loss) on investments: Non-controlled/unaffiliated investments $60 $50 ($26) $177 $16 Non-controlled/affiliated
Slide 90: FSK Legacy Portfolio Income Producing Investments
FSK Legacy Portfolio Income Producing Investments Quarterly Issuer Asset Class Industry Fair Value NII/Share1 PSKW LLC (dba ConnectiveRx) First Lien Senior Secured Loan Health Care Equipment & Services $292.5 $0.02 Production Resource Group LLC First Lien Senior Secured Loan Media & Entertainment 24
Slide 91: Q3 2022 Non-Accruals
Q3 2022 Non-Accruals Issuer Asset Class Industry Fair Value Global Jet Capital LLC Asset Based Finance Commercial & Professional Services $ 232.0 5 Arch Income Fund 2 LLC First Lien Senior Secured Loan Diversified Financials 62.4 NBG Home First & Second Lien Senior Secured Loans Consumer Durables &
Slide 92: End Notes
END NOTES FSK | FS KKR Capital Corp.
Slide 93: End Notes
End Notes Slide 8 – FSK: What We’ve Accomplished Slide 8 – FSK: What We’ve Accomplished (cont.) 1. Effective as of April 9, 2018, FB Income Advisor, LLC, FSK’s former investment adviser A reconciliation of GAAP net investment income to adjusted net investment income can resigned and FS/KKR Advisor,
Slide 94: End Notes
End Notes Slide 15 – Private Credit Offers Superior Structures and Enhanced Yields Slide 19 – KKR Private Credit: Overview 1. Bloomberg, Morningstar LSTA Leveraged Loan Index BSL B Rated as of September 30, 1. Based on weighted average KKR Credit role in KKRLP III & KKRLP IV, excluding broadly 2022.
Slide 95: End Notes
End Notes Slide 23 – Corporate Credit Overview (cont.) Slide 25 – KKR Private Credit: Origination Capabilities 2. Presentation Corporate Credit AUM includes $28.7bn Direct Lending AUM and $1.8bn 1. YTD 2022 data shown as of September 30, 2022. Number of deals funded includes Junior Debt AUM as of Se
Slide 96: End Notes
End Notes Slide 32 – Benefits of the Upper Middle Market Slide 48 – FSK: Overview (cont.) 1. LCD Default Review Q3 2022. Comprises loans closed between 1995 and Q3 2021. 2. The annualized dividend yield based on the market stock price uses Q3 2022 declared dividend of $0.68 per share annualized, div
Slide 97: End Notes
End Notes Slide 50 – FSK: Portfolio Construction Slide 52 – First Lien Senior Secured Loans Overview (cont.) 1. Looks through to FSK’s portfolio companies held solely in COPJV. Weighted average 1. Based on underlying Direct Origination corporate investments using most recently yield on accruing debt
Slide 98: End Notes
End Notes Slide 57 – Portfolio Rotation Analysis: Industry Slide 61 – Portfolio Analysis: Interest Coverage Sensitivity 1. Advisor formed in April 2018. Q2 2018 period pro-forma for the Merger. Looks 1. Based on underlying Direct Origination corporate investments using most recently through to portf
Slide 99: End Notes
End Notes Slide 65 – Capital Structure: Overview Slide 71 – Q4 2022 Guidance 1. Net debt-to-equity ratio is debt outstanding, net of cash and foreign currency and net 1. Net of the $15 million incentive fee waiver beginning in Q3 2021. The Advisor has payable/receivable for investments purchased/sol
Slide 100: End Notes
End Notes Slide 74 – Potential Future Return Analysis (cont.) 2. Represents FSK’s closing market price of $19.68 per share as of November 11, 2022. The payment of future distributions on FSK’s shares of common stock is subject to the discretion of FSK’s board of directors and applicable legal restri
Slide 101: Key Terms
Key Terms Term Definition “ABF” Asset Based Finance investments, which derive returns from recurring, often contractual cash flows of, diversified pools of underlying hard and financial assets; Acquired Fund Fees and Expenses rule which requires registered funds, such as open-end funds, that invest
Slide 102: Key Terms
Key Terms Term Definition “LTV” Quotient obtained by dividing a company’s (i) aggregate indebtedness by the (ii) value of the asset securing the loan; “M&A” Mergers and Acquisitions; “Merger” The merger of CCT, FSKR, FSIC III, FSIC IV, and CCT II with and into FSK (the "Merger"); “MOIC” Multiple On
Slide 103: 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 104: 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