KKR will inject $300 million into FS KKR Capital, the private credit fund said on Monday, taking steps to shore up the vehicle after it disclosed enlarging losses and a marked drop in net asset value per share.
Under the plan, KKR will buy $150 million of convertible perpetual preferred stock and has launched a tender offer for up to $150 million in common stock. The firm is offering $11 per share in the tender and said it "believes the intrinsic value of FSK’s common stock is in excess" of that level. Separately, the fund authorized a $300 million stock repurchase program.
FS KKR Capital has seen a steep deterioration in market performance and investor confidence. The traded funds such as FSK that KKR manages jointly with Future Standard have underperformed on public markets, and holders of related non-traded products have sought to pull capital as concerns have grown about underwriting standards and the exposure of software borrowers to disruption from artificial intelligence.
Over the past year the fund has lost 46% of its value, and ratings agency Fitch downgraded it to junk territory last month. Net asset value per share fell to $18.83 from $20.89 at the end of December. Loss per share widened to $1.57 from 41 cents in the comparable period.
Credit performance metrics also deteriorated. Non-accruals - loans that have stopped paying interest or are unlikely to be repaid - rose to 4.2% of the portfolio’s fair value from 3.4% at the end of December. Analysts at Raymond James said the worsening rate was "exacerbating FSK’s concerning credit trends versus peers".
The fund attributed the decline in asset value to a combination of holdings that had already pressured results in prior quarters, newly designated non-accrual assets and spread widening, meaning investors were demanding higher yields for assets perceived as riskier across debt markets.
Among the holdings marked down was software firm Medallia. People familiar with the matter said Medallia is set to be returned to its creditors in a move that could eliminate $5.1 billion in equity for its owner Thoma Bravo and co-investors.
Raymond James added a forward-looking caution, saying: "We believe the remaining portfolio quality ... is likely to deteriorate through the remainder of 2026." That assessment followed the fund’s disclosures on asset write-downs and credit stress indicators.
Context and implications
The package of preferred stock purchases, the tender for common shares and a fresh repurchase authorization represent a coordinated attempt by KKR to stabilize FSK’s capital structure and support share liquidity. The moves come as both market pricing and underlying credit metrics point to elevated risk in the fund’s portfolio.
Investors and market participants will be watching the evolution of non-accruals, further mark-to-market adjustments and any additional actions KKR or co-managers undertake to limit further erosion of NAV and investor confidence.