Hi YXI friends,

Today, we are reviewing FS KKR Capital Corp (FSK), another large publicly traded BDC.

FSK currently pays an attractive dividend yield of 14%. The big question is - what’s the catch?

Let’s dive in to FSK’s portfolio composition, Q2 performance, the potential red flags, and its valuation.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. FSK’s Standing in the BDC Market: Size, Strategy, and Competitive Pressures

With a $14.1 billion book value, FSK is the second largest publicly traded BDC in the US.

Boasting a portfolio of 208 companies, FSK invests primarily in private US based companies with $100 million+ of EBITDA. This target segment is further downstream than BXSL’s $200 million average EBITDA (see our previous writeup here). However, the $100 million EBITDA market seems to be hot right now, as the private credit market experiences increasing competition.

BDCs are finding the private credit market more and more competitive over the past quarters, which tend to lead to more cheaply priced deals (i.e. tighter spreads) with potentially smaller or poorer quality companies. The current trend is also towards the add-on financing of existing portfolio companies.

There is a “KKR” halo over FSK, as it “operates within KKR’s $237 billion credit platform and $100 billion private credit strategy”.

This essentially translates to “Trust us. We are the smartest guys in the room. We know what we are doing.”

2. FSK’s Investment Portfolio: Debt Types, Asset-Based Finance, and Non-Accrual Concerns

Subscribe to YX Premium to read the rest.