FS KKR Capital (NYSE:FSK) reported third-quarter 2026 net investment income of $0.46 per share, aided by a one-time dividend from portfolio company Belk and a temporary incentive fee waiver. The company said it is prioritizing share repurchases and lower leverage as it works through challenged investments.
Net asset value was $18.28 per share as of September 30, down from $18.30 at the end of the second quarter. Chief Financial Officer Steven Lilly said a decline in portfolio values reduced net asset value by $0.19 per share, while share repurchases added $0.16 per share.
The board declared a fourth-quarter distribution of $0.44 per common share and a special distribution of $0.20 per share, both payable in December. Chief Executive Officer and Chairman Michael Forman said the special payment represents a portion of estimated accumulated spillback income and is intended to distribute additional taxable income in connection with the company’s regulated investment company status.
Income Supported by Dividend and Fee Waiver
Third-quarter total investment income rose $4 million from the prior quarter to $294 million. Interest income fell $11 million to $206 million, primarily because of a smaller investment portfolio and assets placed on non-accrual, Lilly said. Dividend and fee income increased $15 million to $88 million.
The results included a $25 million non-recurring dividend from Belk, which increased net investment income by $0.08 per share, according to Chief Investment Officer and President Dan Pietrzak. KKR’s waiver of its portion of the subordinated incentive fee on income added $12 million to third-quarter net investment income.
The third quarter was the second of four consecutive quarters covered by the waiver. Asked whether the arrangement might become permanent, Pietrzak said fees are discussed with the board annually but did not announce a change.
For the fourth quarter, Lilly said the company expects GAAP net investment income per share in a range equivalent to 8% to 9% of net asset value per share on an annualized basis. He noted that the Belk dividend would not recur and that the company typically recognizes its annual excise tax provision in the fourth quarter. He also expects a roughly $17 million dividend from portfolio company JW Aluminum.
Repurchases and Portfolio Management
FS KKR purchased $90 million of common stock, or approximately 8 million shares, from the June 29 inception of its buyback plan through October 30, Forman said. That represented 30% of the $300 million program. During the third quarter alone, the company repurchased approximately 6.2 million shares for $69 million, at an average price of $11.24 per share.
The company originated approximately $335 million in new investments during the quarter, while sales and repayments totaled $442 million, resulting in a net portfolio decrease of $107 million. Pietrzak said management is less focused on new deployment while it completes the buyback and works toward its leverage target of 1 to 1.25 times.
Asked about the timing of a return to net deployment, Pietrzak said he expects the buyback and leverage objectives to play out over the course of 2027, or roughly the next five quarters. At September 30, the company’s debt-to-equity ratio was 127%, while net debt-to-equity was 125%.
The investment portfolio had a fair value of $11.3 billion across 234 companies at quarter-end. First-lien loans represented approximately 59% of the portfolio, or about 69% when looking through to investments held by the company’s joint venture, Lilly said.
Non-Accruals Decline Despite New Additions
Non-accrual investments fell to 6.4% of the portfolio at cost and 3.4% at fair value, from 7.1% and 3.8%, respectively, at the end of June. The company added 3Pillar Global and New Era Technology to non-accrual during the quarter; together, those investments accounted for approximately $142 million at cost and $102 million at fair value.
Medallia was removed from non-accrual after a restructuring that produced a $66 million first-lien loan, a $42 million preferred equity investment and a $14 million common equity investment. Pietrzak cautioned that risks and uncertainties remain around its future performance.
In the analyst question-and-answer session, Pietrzak said approximately 25% of the portfolio would mature between now and 2028. He said he was less concerned about maturities generally than those in software, where valuations and lending markets have shifted.
Pietrzak also said Velocity Financial’s planned acquisition of Toorak, whose holding company Roemanu was FS KKR’s eighth-largest investment at quarter-end, is expected to close in the fourth quarter, subject to closing conditions.
About FS KKR Capital (NYSE:FSK)
FS KKR Capital Corp. (NYSE: FSK) is a business development company (BDC) that provides financing to private middle-market companies. The company primarily invests in senior secured loans and other debt instruments, while also making select equity investments. Its portfolio companies generally operate across a range of industries and are typically based in the United States.
FSK is externally managed by FS/KKR Advisor, LLC, a joint venture between FS Investments and KKR. The adviser combines FS Investments’ experience in serving individual and institutional investors with KKR’s global investment platform and private credit capabilities.
The company traces its history to FS Investment Corporation and Corporate Capital Trust, which combined in 2018 to create FS KKR Capital Corp.
