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FSK Reports Third Quarter 2019 Results and Declares Regular Distribution for Fourth Quarter

|PR Newswire|About: FSK, KKR

PHILADELPHIA, Nov. 7, 2019 /PRNewswire/ -- FS KKR Capital Corp. (NYSE: FSK), a leading publicly traded business development company focused on providing customized credit solutions to private middle market U.S. companies, announced its financial and operating results for the quarter ended September 30, 2019, and that its board of directors has declared a fourth quarter 2019 regular distribution totaling $0.19 per share.

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Financial and Operating Highlights for the Quarter Ended September 30, 2019(1)

  • Net investment income of $0.22 per share, compared to $0.23 per share for the quarter ended September 30, 2018
  • Adjusted net investment income of $0.22 per share, compared to $0.24 per share for the quarter ended September 30, 2018(2)
  • Net asset value of $7.86 per share, compared to $7.88 per share as of June 30, 2019
  • Total net realized and unrealized loss of $0.08 per share, compared to a total net realized and unrealized loss of $0.28 per share for the quarter ended September 30, 2018
  • Paid cash distributions to stockholders totaling $0.19 per share(3)
  • Total purchases of $698 million versus $723 million of sales and repayments. Net investment activity in the third quarter was a negative $25 million, and positive $249 million, net of the $274 million of sales to joint venture
  • FSK repurchased $136 million of shares year-to-date through November 6, 2019 under the previously announced $200 million share repurchase program

"We delivered solid financial results in the third quarter," said Michael Forman, Chairman and Chief Executive Officer of FSK.  "Our strong origination activity resulted in further diversification of our investment portfolio. We also meaningfully expanded our joint venture, and we continued taking steps to strengthen our capital structure. As we move forward, I'm excited by the leadership team we have assembled and believe we are well-positioned for long-term success."

Declaration of Regular Distribution for Fourth Quarter 2019

FSK's board of directors has declared a regular cash distribution for the fourth quarter of $0.19 per share, which will be paid on or about January 3, 2020 to stockholders of record as of the close of business on December 18, 2019.

 

Summary Consolidated Results




Three Months Ended

(dollars in millions, except per share data)
(all per share amounts are basic and diluted)(1)

September 30, 2019

June 30, 2019

September 30, 2018

Total investment income

$199

$199

$95

Net investment income

115

101

56

Net increase (decrease) in net assets resulting from operations

71

101

(12)





Net investment income per share

$0.22

$0.19

$0.23

Adjusted net investment income per share(2)

$0.22

$0.19

$0.24

Total net realized and unrealized gain (loss) per share

$(0.08)

$0.00

$(0.28)

Net increase (decrease) in net assets resulting from operations
(Earnings per Share)

$0.14

$0.19

$(0.05)

Stockholder distributions per share(3)

$0.19000

$0.19000

$0.19000

Net asset value per share at period end

$7.86

$7.88

$8.64

Weighted average shares outstanding

516,523,604

522,199,688

239,495,341

Shares outstanding, end of period

512,262,372

520,268,915

239,154,069


(dollar amounts in millions)


As of
September 30, 2019

As of
December 31, 2018

Total fair value of investments


$7,218

$7,387

Total assets


7,774

7,705

Total stockholders' equity


4,024

4,166

 

  Portfolio Highlights as of September 30, 2019

  • Total fair value of investments was $7.2 billion of which 72% was invested in senior secured securities.
  • Direct originations(4) represented approximately 88% of the portfolio by fair value as of September 30, 2019.
  • Weighted average annual yield on accruing debt investments(5) was 10.1%, compared to 10.5% as of June 30, 2019.
  • Weighted average annual yield on all debt investments(5) was 9.6%, compared to 9.8% as of June 30, 2019.
  • Exposure to the top ten largest portfolio companies by fair value was 22% as of September 30, 2019, compared to 21% as of June 30, 2019.

 

Total Portfolio Activity




Three Months Ended


(dollar amounts in millions)

September 30, 2019

June 30, 2019

September 30, 2018


Purchases

$698

$513

$185


Sales and redemptions

(723)

(692)

(223)


Net portfolio activity

$(25)

$(179)

$(38)




Portfolio Data

 As of September 30, 2019

 As of December 31, 2018


Total fair value of investments

$7,218

$7,387


Number of Portfolio Companies

201

204


% of Investments on Non-Accrual 
(based on fair value)(6)

1.7%

1.0%





Asset Class (based on fair value)



Senior Secured Loans — First Lien

50.8%

54.2%


Senior Secured Loans — Second Lien

17.0%

15.1%


Other Senior Secured Debt

3.8%

4.6%


Subordinated Debt

5.4%

5.8%


Asset Based Finance

9.7%

9.0%


Strategic Credit Opportunities Partners, LLC

5.9%

4.0%


Equity/Other

7.4%

7.3%






Interest Rate Type (based on fair value)(5)




% Variable Rate Debt Investments

66.1%

68.1%


% Fixed Rate Debt Investments

15.2%

16.5%


% Other Income Producing Investments

10.8%

6.8%


% Non-Income Producing Investments(7)

6.2%

7.6%


% of Investments on Non-Accrual

1.7%

1.0%














Direct Originations


Direct Originations Portfolio Data

As of September 30, 2019

As of December 31, 2018

Total Fair Value of Direct Originations

$6,378

$6,510

 

Leverage and Liquidity as of September 30, 2019

  • Net debt to equity ratio(8) of 78%, based on $3.5 billion in total debt outstanding, $126 million of cash and foreign currency and $257 million of net receivable for investments sold and repaid and stockholders' equity of $4.0 billion. FSK's weighted average effective interest rate (including the effect of non-usage fees) was 4.44%.
  • Cash and foreign currency of $126 million and availability under its financing arrangements of $1,245 million, subject to borrowing base and other limitations.

Conference Call Information        

FSK will host a conference call at 10:00 a.m. (Eastern Time) on Friday, November 8, 2019, to discuss its third quarter 2019 financial and operating results. All interested parties are welcome to participate. Interested parties can access the conference call by dialing (833) 818-6808 and using the conference ID 9889809 approximately 10 minutes prior to the call. The conference call also will be webcast, which can be accessed from the Investor Relations section of FSK's website at www.fskkrcapitalcorp.com under Events and Presentations.

A replay of the call will be available shortly after the end of the call for a period of 30 days following the call by visiting the Investor Relations section of FSK's website at www.fskkrcapitalcorp.com under Events and Presentations. 

Supplemental Information

An investor presentation containing financial and operating information will be made available prior to the call in the Investor Relations section of FSK's website at www.fskkrcapitalcorp.com under Events and Presentations.

About FS KKR Capital Corp.

FS KKR Capital Corp. (NYSE: FSK) is a leading publicly traded business development company (BDC) focused on providing customized credit solutions to private middle market U.S. companies. FSK seeks to invest primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market companies to achieve the best risk-adjusted returns for its investors. FSK is advised by FS/KKR Advisor, LLC.  For more information, please visit www.fskkrcapitalcorp.com.

About FS/KKR Advisor, LLC

FS/KKR Advisor, LLC (FS/KKR) is a partnership between FS Investments and KKR Credit that serves as the investment adviser to BDCs with approximately $17 billion in assets under management as of June 30, 2019. The BDCs managed by FS/KKR include FSK, FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and Corporate Capital Trust II.

FS Investments is a leading asset manager dedicated to helping individuals, financial professionals and institutions design better portfolios. The firm provides access to alternative sources of income and growth, and focuses on setting industry standards for investor protection, education and transparency. FS Investments is headquartered in Philadelphia, PA with offices in New York, NY, Orlando, FL and Washington, DC. Visit www.fsinvestments.com to learn more.

KKR Credit is a subsidiary of KKR & Co. Inc. (KKR), a leading global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic manager partnerships that manage hedge funds. KKR aims to generate attractive investment returns for its fund investors by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside the capital it manages for fund investors and provides financing solutions and investment opportunities through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about KKR & Co. Inc., please visit KKR's website at www.kkr.com and on Twitter @KKR_Co.

Forward-Looking Statements and Important Disclosure Notice

This announcement may contain certain forward-looking statements, including statements with regard to future events or the future performance or operations of FSK. Words such as "believes," "expects," "projects," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. Factors that could cause actual results to differ materially include changes in the economy, risks associated with possible disruption in FSK's operations or the economy generally due to terrorism or natural disasters, future changes in laws or regulations and conditions in FSK's operating area, and the price at which shares of FSK's common stock trade on the New York Stock Exchange. Some of these factors are enumerated in the filings FSK makes with the SEC. FSK undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The press release above contains summaries of certain financial and statistical information about FSK. The information contained in this press release is summary information that is intended to be considered in the context of FSK's SEC filings and other public announcements that FSK may make, by press release or otherwise, from time to time. FSK undertakes no duty or obligation to update or revise the information contained in this press release. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. Investors should not view the past performance of FSK, or information about the market, as indicative of FSK's future results.

Other Information

The information in this press release is summary information only and should be read in conjunction with FSK's quarterly report on Form 10-Q for the quarter ended September 30, 2019, which FSK filed with the U.S. Securities and Exchange Commission (the SEC) on November 7, 2019, as well as FSK's other reports filed with the SEC. A copy of FSK's quarterly report on Form 10-Q for the quarter ended September 30, 2019 and FSK's other reports filed with the SEC can be found on FSK's website at www.fskkrcapitalcorp.com and the SEC's website at www.sec.gov.

Certain Information About Distributions

The determination of the tax attributes of FSK's distributions is made annually as of the end of its fiscal year based upon its taxable income and distributions paid, in each case, for the full year. Therefore, a determination as to the tax attributes of the distributions made on a quarterly basis may not be representative of the actual tax attributes for a full year. FSK intends to update stockholders quarterly with an estimated percentage of its distributions that resulted from taxable ordinary income. The actual tax characteristics of distributions to stockholders will be reported to stockholders annually on Form 1099-DIV.

The timing and amount of any future distributions on FSK's shares of common stock are subject to applicable legal restrictions and the sole discretion of its board of directors. There can be no assurance as to the amount or timing of any such future distributions, including the special distribution referenced herein.

FSK may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of shares of FSK's common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets and dividends or other distributions paid to it on account of preferred and common equity investments in portfolio companies. FSK has not established limits on the amount of funds it may use from available sources to make distributions. There can be no assurance that FSK will be able to pay distributions at a specific rate or at all.

Contact Information:

Investor Relations Contact

Robert Paun
Robert.Paun@fsinvestments.com

FS Investments Media Team

Melanie Hemmert
Melanie.Hemmert@fsinvestments.com

 

Income Statement ($ amounts in millions, except per share data)


Three Months Ended


Nine Months Ended



September 30,


September 30,



2019


2018


2019


2018

Investment income









Interest income


$

153



$

73



$

451



$

226


Paid-in-kind interest income


7



10



23



27


Fee income


7



4



26



10


Dividend income


5



1



9



8


From non-controlled/affiliated investments:









Interest income


7



1



18



5


Paid-in-kind interest income


4



2



12



6


From controlled/affiliated investments:









Interest income


3



1



8



3


Paid-in-kind interest income




3



4



7


Dividend income


13





42




     Total investment income


199



95



593



292











Operating expenses









Management fees


28



14



85



47


Subordinated income incentive fees


8





57



23


Administrative services expenses


4



1



7



3


Accounting and administrative fees


0



1



1



1


Interest expense


42



21



126



62


Directors' fees


1



0



1



1


Other general and administrative expenses


1



2



5



5


     Total operating expenses


84



39



282



142


     Management fee waiver




(0)





(3)


     Net expenses


84



39



282



139


Net investment income


115



56



311



153











Realized and unrealized gain/loss









Net realized gain (loss) on investments:









Non-controlled/unaffiliated investments


(17)



23



(83)



60


Non-controlled/affiliated investments


29





21



(10)


Controlled/affiliated investments


5



0



2



0


Net realized gain (loss) on swap contracts






(10)




Net realized gain (loss) on foreign currency forward contracts


2





6




Net realized gain (loss) on foreign currency


2



6



3



6


Net change in unrealized appreciation (depreciation) on investments:









Non-controlled/unaffiliated investments


(73)



(104)



(54)



(203)


Non-controlled/affiliated investments


(15)



8



62



(19)


Controlled/affiliated investments


12



6



(7)



(12)


Net change in unrealized appreciation (depreciation) on swap contracts


1





15




Net change in unrealized appreciation (depreciation) on foreign
currency forward contracts


7





6




Net change in unrealized gain (loss) on foreign currency


3



(7)



1



(5)


     Total net realized and unrealized gain (loss)


$

(44)



$

(68)



$

(38)



$

(183)


Net increase (decrease) in net assets resulting from operations


$

71



$

(12)



$

273



$

(30)











Per share information—basic and diluted









Net increase (decrease) in net assets resulting from operations
(Earnings per Share)


$

0.14



$

(0.05)



$

0.52



$

(0.12)


Weighted average shares outstanding


517,543,295



239,495,341



522,380,207



242,647,216


 

 

Balance Sheet ($ amounts in millions, except per share data)


September 30, 2019





(Unaudited)


December 31, 2018

Assets





Investments, at fair value





Non-controlled/unaffiliated investments (amortized cost—$6,009 and $6,457, respectively)


$

5,715



$

6,217


Non-controlled/affiliated investments (amortized cost—$598 and $382, respectively)


636



358


Controlled/affiliated investments (amortized cost—$979 and $917, respectively)


867



812


Total investments, at fair value (amortized cost—$7,586 and $7,756, respectively)


$

7,218



$

7,387


Cash


115



101


Foreign currency, at fair value (cost—$11 and $3, respectively)


11



3


Receivable for investments sold and repaid


328



144


Income receivable


84



60


Unrealized appreciation on foreign currency forward contracts


9



3


Deferred financing costs


6



6


Prepaid expenses and other assets


3



1


       Total assets


$

7,774



$

7,705







Liabilities





Payable for investments purchased


$

71



$

6


Debt (net of deferred financing costs of $9 and $3, respectively)


3,508



3,391


Unrealized depreciation on swap contracts


1



16


Unrealized depreciation on foreign currency forward contracts


0



0


Stockholder distributions payable


98



45


Management fees payable


28



20


Subordinated income incentive fees payable


8



14


Administrative services expense payable


4



1


Interest payable


29



28


Directors' fees payable


0



0


Other accrued expenses and liabilities


3



18


       Total liabilities


3,750



3,539


Commitments and contingencies










Stockholders' equity





Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding





Common stock, $0.001 par value, 750,000,000 shares authorized, 512,262,372 and 531,478,739 shares
issued and outstanding, respectively


1



1


Capital in excess of par value


4,117



4,235


Retained earnings (accumulated deficit)


(94)



(70)


       Total stockholders' equity


4,024



4,166


       Total liabilities and stockholders' equity


$

7,774



$

7,705


Net asset value per share of common stock at period end


$

7.86



$

7.84


 

Non-GAAP Financial Measures

This press release contains certain financial measures that have not been prepared in accordance with generally accepted accounting principles in the United States (GAAP). FSK uses these non-GAAP financial measures internally in analyzing financial results and believes that the use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing results and trends and in comparing FSK's financial results with other BDCs.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with FSK's consolidated financial statements prepared in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures has been provided in this press release, and investors are encouraged to review the reconciliation.

 

Reconciliation of Non-GAAP Financial Measures(1)



Three Months Ended


September 30, 2019

June 30, 2019

September 30, 2018

GAAP net investment income per share

$0.22

$0.19

$0.23

Plus capital gains incentive fees per share

Plus excise taxes per share

Plus one-time expenses per share(9)

(0.00)

0.01

Adjusted net investment income per share(2)

$0.22

$0.19

$0.24

 

1)

Per share data was derived by using the weighted average shares of FSK's common stock outstanding during the applicable period. Per share numbers may not sum due to rounding.



2)

Adjusted net investment income is a non-GAAP financial measure. Adjusted net investment income is presented for all periods as GAAP net investment income excluding (i) the accrual for the capital gains incentive fee for realized and unrealized gains; (ii) excise taxes; and (iii) certain non-recurring operating expenses that are one-time in nature and are not representative of ongoing operating expenses incurred during FSK's normal course of business (referred to herein as one-time expenses). FSK uses this non-GAAP financial measure internally in analyzing financial results and believes that the use of this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends and in comparing its financial results with other business development companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. A reconciliation of GAAP net investment income to adjusted net investment income can be found above.



3)

The per share data for distributions reflects the amount of distributions paid per share of our common stock to stockholders of record during each applicable period.



4)

See FSK's quarterly report on Form 10-Q for the three months ended September 30, 2019 for a description of FSK's investment strategies, including its definition of "direct originations."



5)

See FSK's quarterly report on Form 10-Q for the three months ended September 30, 2019 for important information, including information related to the calculation and definition of weighted average annual yield on accruing debt investments, weighted average annual yield on all debt investments, variable rate debt investments, fixed rate debt investments, other income producing investments and non-income producing investments.



6)

Interest income is recorded on an accrual basis. See FSK's quarterly report on Form 10-Q for the three months ended September 30, 2019 for a description of FSK's revenue recognition policy.



7)

Does not include investments on non-accrual status.



8)

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.



9)

FSK's one-time expenses for the three months ended September 30, 2019 consist of a reversal of $1 resulting from a reduction in the estimate for deferred taxes. FSK's one-time expenses for the three months ended September 30, 2018 were $1 resulting from the acceleration of the remaining unamortized deferred financing costs associated with the closing of the Hamilton Street Credit Facility.

 

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SOURCE FS KKR Capital Corp.