FSK Reports Second Quarter 2019 Financial Results and Declares Regular Distribution for Third Quarter

August 7, 2019

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

(PRNewsfoto/FS/KKR Advisor, LLC)

Financial Highlights for the Quarter Ended June 30, 2019(1)

  • Net investment income of $0.19 per share, compared to $0.19 per share for the quarter ended June 30, 2018
  • Adjusted net investment income of $0.19 per share, compared to $0.19 per share for the quarter ended June 30, 2018(2)
  • Total net realized and unrealized gain of $0.00 per share, compared to a total net realized and unrealized loss of $0.32 per share for the quarter ended June 30, 2018
  • Paid cash distributions to stockholders totaling $0.19 per share(3)
  • Total purchases of $513 million versus $692 million of sales and repayments
  • Net asset value of $7.88 per share, compared to $7.86 per share as of March 31, 2019
  • FSK repurchased $81 million of shares year-to-date through August 6, 2019 under the previously announced $200 million share repurchase program

"We are pleased with our financial results in the second quarter, our continued execution against our strategic initiatives, and our disciplined investment activity," said Michael Forman, Chairman and Chief Executive Officer of FSK.  "We continued to take meaningful steps to improve FSK, as we further optimized our capital structure while strengthening our balance sheet, expanded our joint venture with a new partner, received shareholder approval to increase regulatory leverage, and continued our share repurchase program."

Declaration of Regular Distribution for Third Quarter 2019

FSK's board of directors has declared a regular cash distribution for the third quarter of $0.19 per share, which will be paid on or about October 2, 2019 to stockholders of record as of the close of business on September 18, 2019.

 

Summary Consolidated Results
     
   

Three Months Ended

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

June 30, 2019

March 31, 2019

June 30, 2018

Total investment income

$199

$195

$96

Net investment income

101

95

46

Net increase (decrease) in net assets resulting from operations

101

101

(31)
       

Net investment income per share

$0.19

$0.18

$0.19

Adjusted net investment income per share(2)

$0.19

$0.18

$0.19

Total net realized and unrealized gain (loss) per share

$0.00

$0.01

$(0.32)

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

$0.19

$0.19

$(0.13)

Stockholder distributions per share(3)

$0.19000

$0.19000

$0.19000

Net asset value per share at period end

$7.88

$7.86

$8.87

Weighted average shares outstanding

522,199,688

527,507,132

242,801,446

Shares outstanding, end of period

520,268,915

524,082,691

240,602,753
       
 

(dollars amounts in millions)

  

As of
June 30, 2019

As of
December 31, 2018

Total fair value of investments

  

$7,283

$7,387

Total assets

  

7,744

7,705

Total stockholders' equity

  

4,098

4,166

 

  Portfolio Highlights as of June 30, 2019

  • Total fair value of investments was $7.3 billion of which 72% was invested in senior secured securities.
  • Direct originations(4) represented approximately 89% of the portfolio by fair value as of June 30, 2019.
  • Weighted average annual yield on accruing debt investments(5) was 10.5%, compared to 10.8% as of March 31, 2019. 
  • Weighted average annual yield on all debt investments(5) was 9.8%, compared to 10.2% as of March 31, 2019.
  • Exposure to the top ten largest portfolio companies by fair value was 21% as of June 30, 2019, compared to 20% as of March 31, 2019.

 

Total Portfolio Activity
 
 

Three Months Ended

  

(dollar amounts in millions)

June 30, 2019

March 31, 2019

June 30, 2018

  

Purchases

$513

$549

$240

  

Sales and redemptions

(692)

(510)

(350)

  

Net portfolio activity

$(179)

$39

$(110)

  
   

Portfolio Data

 As of June 30, 2019

 As of December 31, 2018

  

Total fair value of investments

$7,283

$7,387

  

Number of Portfolio Companies

197

204

  

% of Investments on Non-Accrual 

(based on fair value)(6)

1.2%

1.0%

  
     

Asset Class (based on fair value)

    

Senior Secured Loans — First Lien

52.8%

54.2%

  

Senior Secured Loans — Second Lien

15.8%

15.1%

  

Other Senior Secured Debt

3.8%

4.6%

  

Subordinated Debt

5.4%

5.8%

  

Asset Based Finance

9.9%

9.0%

  

Strategic Credit Opportunities Partners, LLC

4.0%

4.0%

  

Equity/Other

8.3%

7.3%

  
       

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

      

% Variable Rate Debt Investments

67.4%

68.1%

  

% Fixed Rate Debt Investments

15.9%

16.5%

  

% Other Income Producing Investments

8.0%

6.8%

  

% Non-Income Producing Investments(7)

7.5%

7.6%

  

% of Investments on Non-Accrual

1.2%

1.0%

  
       

 

 

Direct Originations

   
     

Direct Originations Portfolio Data

As of June 30, 2019

As of December 31, 2018

Total Fair Value of Direct Originations

$6,483

$6,510

Leverage and Liquidity as of June 30, 2019

  • Net debt to equity ratio(8) of 77%, based on $3.5 billion in total debt outstanding and $288 million of cash and foreign currency and stockholders' equity of $4.1 billion. FSK's weighted average effective interest rate (including the effect of non-usage fees) was 4.60%.
  • Cash and foreign currency of $288 million and availability under its financing arrangements of $1,466 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 Thursday, August 8, 2019, to discuss its second quarter 2019 financial results. All interested parties are welcome to participate. You can access the conference call by dialing (833) 818-6808 and using the conference ID 4144187 approximately 10 minutes prior to the call. The conference call will also be webcast, which can be accessed from the Investor Relations section of FSK's website at www.fskkrcapitalcorp.comunder 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.comunder Events and Presentations. 

Supplemental Information

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

About FS KKR Capital Corp.

FS KKR Capital Corp. (NYSE: FSK) is a 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 March 31, 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., 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. (NYSE: KKR), 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 June 30, 2019, which FSK filed with the U.S. Securities and Exchange Commission (the SEC) on August 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 June 30, 2019 and FSK's other reports filed with the SEC can be found on FSK's website at www.fskkrcapitalcorp.comand 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 ($ in millions, except per share data)

        
   

Three Months Ended

  

Six Months Ended
   

June 30,

  

June 30,
   

2019

  

2018

  

2019

  

2018

Investment income

                

Interest income

  

$

145

    

$

78

    

$

298

    

$

153

  

Paid-in-kind interest income

  

8

    

9

    

16

    

17

  

Fee income

  

8

    

3

    

19

    

6

  

Dividend income

  

3

    

—

    

4

    

7

  

From non-controlled/affiliated investments:

                

Interest income

  

9

    

2

    

11

    

4

  

Paid-in-kind interest income

  

4

    

1

    

8

    

4

  

From controlled/affiliated investments:

                

Interest income

  

2

    

1

    

5

    

2

  

Paid-in-kind interest income

  

—

    

2

    

4

    

4

  

Dividend income

  

20

    

—

    

29

    

—

  

     Total investment income

  

199

    

96

    

394

    

197

  
                 

Operating expenses

                

Management fees

  

28

    

15

    

57

    

33

  

Subordinated income incentive fees

  

25

    

11

    

49

    

23

  

Administrative services expenses

  

2

    

1

    

3

    

2

  

Accounting and administrative fees

  

1

    

0

    

1

    

0

  

Interest expense

  

41

    

21

    

84

    

41

  

Directors' fees

  

0

    

0

    

0

    

1

  

Other general and administrative expenses

  

1

    

2

    

4

    

3

  

     Total operating expenses

  

98

    

50

    

198

    

103

  

     Management fee waiver

  

—

    

(0)

    

—

    

(3)

  

     Net expenses

  

98

    

50

    

198

    

100

  

Net investment income

  

101

    

46

    

196

    

97

  
                 

Realized and unrealized gain/loss

                

Net realized gain (loss) on investments:

                

Non-controlled/unaffiliated investments

  

(51)

    

41

    

(66)

    

37

  

Non-controlled/affiliated investments

  

(8)

    

(10)

    

(8)

    

(10)

  

Controlled/affiliated investments

  

—

    

0

    

(3)

    

0

  

Net realized gain (loss) on swap contracts

  

(11)

    

—

    

(10)

    

—

  

Net realized gain (loss) on foreign currency

  

3

    

0

    

5

    

0

  

Net change in unrealized appreciation (depreciation) on investments:

                

Non-controlled/unaffiliated investments

  

49

    

(82)

    

19

    

(99)

  

Non-controlled/affiliated investments

  

24

    

(21)

    

77

    

(27)

  

Controlled/affiliated investments

  

(12)

    

(8)

    

(19)

    

(18)

  

Net change in unrealized appreciation (depreciation) on swap contracts

  

10

    

—

    

14

    

—

  

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

  

(2)

    

—

    

(1)

    

—

  

Net change in unrealized gain (loss) on foreign currency

  

(2)

    

3

    

(2)

    

2

  

     Total net realized and unrealized gain (loss)

  

—

    

(77)

    

6

    

(115)

  

Net increase (decrease) in net assets resulting from operations

  

$

101

    

$

(31)

    

$

202

    

$

(18)

  
                 

Per share information—basic and diluted

                

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

  

$

0.19

    

$

(0.13)

    

$

0.38

    

$

(0.08)

  

Weighted average shares outstanding

  

522,199,688

    

242,801,446

    

524,838,748

    

244,249,274

  

 

 

 

 

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

        
   

June 30, 2019

    
   

(Unaudited)

  

December 31, 2018

Assets

        

Investments, at fair value

        

Non-controlled/unaffiliated investments (amortized cost—$6,100 and $6,457, respectively)

  

$

5,879

    

$

6,217

  

Non-controlled/affiliated investments (amortized cost—$624 and $382, respectively)

  

677

    

358

  

Controlled/affiliated investments (amortized cost—$851 and $917, respectively)

  

727

    

812

  

Total investments, at fair value (amortized cost—$7,575 and $7,756, respectively)

  

7,283

    

7,387

  

Cash

  

211

    

101

  

Restricted cash

  

53

    

—

  

Foreign currency, at fair value (cost—$24 and $3, respectively)

  

24

    

3

  

Receivable for investments sold and repaid

  

86

    

144

  

Income receivable

  

77

    

60

  

Unrealized appreciation on foreign currency forward contracts

  

3

    

3

  

Deferred financing costs

  

5

    

6

  

Prepaid expenses and other assets

  

2

    

1

  

       Total assets

  

$

7,744

    

$

7,705

  
         

Liabilities

        

Payable for investments purchased

  

$

17

    

$

6

  

Debt (net of deferred financing costs of $8 and $3, respectively)

  

3,441

    

3,391

  

Unrealized depreciation on swap contracts

  

2

    

16

  

Unrealized depreciation on foreign currency forward contracts

  

1

    

0

  

Stockholder distributions payable

  

100

    

45

  

Management fees payable

  

28

    

20

  

Subordinated income incentive fees payable

  

25

    

14

  

Administrative services expense payable

  

1

    

1

  

Interest payable

  

26

    

28

  

Other accrued expenses and liabilities

  

5

    

18

  

       Total liabilities

  

3,646

    

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, 520,268,915 and 531,478,739 shares issued and outstanding, respectively

  

1

    

1

  

Capital in excess of par value

  

4,164

    

4,235

  

Retained earnings (accumulated deficit)

  

(67)

    

(70)

  

       Total stockholders' equity

  

4,098

    

4,166

  

       Total liabilities and stockholders' equity

  

$

7,744

    

$

7,705

  

Net asset value per share of common stock at period end

  

$

7.88

    

$

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
 

June 30, 2019

March 31, 2019

June 30, 2018

GAAP net investment income per share

$0.19

$0.18

$0.19

Plus capital gains incentive fees per share

—

—

—

Plus excise taxes per share

—

—

—

Plus one-time expenses per share

—

—

—

Adjusted net investment income per share(2)

$0.19

$0.18

$0.19
   
   

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 June 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 June 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 June 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 divided by net assets.

 

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/fsk-reports-second-quarter-2019-financial-results-and-declares-regular-distribution-for-third-quarter-300898223.html

SOURCE FS KKR Capital Corp.