FSK's net investment income has not covered its dividend. Non-accruals are rising and leverage is near highs. The November earnings report will test the payout.
Alpha Score of 49 reflects weak overall profile with weak momentum, strong value, poor quality, moderate sentiment.
FS KKR Capital (FSK) has lost roughly half its value since the last bearish coverage on Seeking Alpha. The BDC's net asset value per share has slipped, and the portfolio's exposure to lower-rated private credit is drawing scrutiny from analysts who track the sector.
The core concern is dividend sustainability. FSK's net investment income has not fully covered its distribution in recent quarters, forcing the firm to dip into accumulated earnings. A dividend cut would pressure the stock further, given that yield-chasing investors make up a large chunk of the shareholder base.
Non-accrual loans have ticked up. The BDC reported a 2.1% non-accrual rate at last count, up from 1.6% a year earlier. Higher borrowing costs are squeezing the smaller portfolio companies that FSK lends to, and a slowing economy would accelerate that trend.
Leverage is another flag. FSK's debt-to-equity ratio sits near the high end of its historical range. The BDC has been issuing new debt at elevated rates to fund originations, which compresses net interest margins.
KKR & Co. Inc. (KKR) manages FSK's portfolio. The stock carries an Alpha Score of 47/100, rated Mixed, reflecting the tension between a strong sponsor and a deteriorating credit cycle.
FSK's next earnings report is due in early November. The dividend declaration that follows will tell investors whether management sees the same risks the market is pricing in.
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