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Executive Summary

FS KKR Capital Corp. closed its previously announced $150M issuance of 6,000,000 shares of Cumulative Convertible Perpetual Preferred Stock, Series A, to KKR Alternative Assets L.P., priced at $25 per share. Concurrently, the adviser agreed to waive 50% of its subordinated income incentive fee through March 2027, and the company entered into a registration rights agreement with KKR. Proceeds will support general corporate purposes, including potential common stock repurchases or debt repayment.

Key Financial Metrics

Key Facts

• Closed issuance and sale of 6,000,000 shares of Cumulative Convertible Perpetual Preferred Stock, Series A, at $25.00 per share, for gross proceeds of $150.0 million
• Initial dividend rate of 5.00% in cash or 7.00% in PIK, increasing annually by 1.00% after 5.5 years from issue date
• Initial conversion price of $18.83 per common share; convertible after six months; initial conversion rate of 1.32767 common shares per preferred share
• One-year lock-up for KKR (through June 29, 2027) on sales of preferred stock or common stock issuable upon conversion, with exceptions for company redemption or conversion
• Adviser waived 50% of subordinated income incentive fee from Q2 2026 through Q1 2027; no recoupment
• Holders of preferred stock get as-converted voting rights and the right to elect two board members (initially James H. Kropp and Elizabeth J. Sandler)
• Company may redeem for cash at any time; after three years may redeem in stock if 30-day VWAP >= conversion price; holders may put after six years
• Upon change of control, holders of a majority can require full cash redemption at liquidation preference plus accrued dividends

Financial Impact

Gross proceeds of $150 million from the preferred issuance increase total capital by that amount, with an annual dividend cost of up to $7.5M (cash mode) or $10.5M (PIK mode). The adviser fee waiver reduces Q2 2026 through Q1 2027 incentive fees by 50% of the subordinated income incentive fee, amount not quantified in filing.

Risk Factors

• Dilution risk from conversion of up to 6M preferred shares into common stock (at initial rate of ~7.97M common shares, or ~3% of outstanding common)
• Potential NAV pressure if preferred dividend costs exceed incremental investment returns on proceeds
• Step-up in dividend rate after 5.5 years increases fixed-cost burden
• Change-of-control redemption right could force cash outflow in certain M&A scenarios

Market Snapshot

Documents Analyzed

This report is based on 8 SEC documents filed with EDGAR.

US Market Status

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