FSK - Earnings call transcript Q2 2020

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Operator

Good morning ladies and gentlemen. Welcome to FS KKR Capital Corp.'s Second Quarter 2020 Earnings Conference Call.

Your lines will be in a listen-only mode during remarks by FSK’s management. At the conclusion of the company's remarks, we will begin the question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. Paun, Investor Robert with will time, introduction. this Head Relations, of proceed At Mr. begin. you Paun, may

Robert Paun

KKR release Good you. Corp.'s conference that or referred XXXX Capital welcome the FSK, second earnings may fund, FS to note call on is call as Please for XX available company Thank call. and XXth, conference Today's and included call. be a being quarter recorded issued morning throughout to an Replay will the information Corp. be that audio XXXX. the is replay August in Capital press of FS FSK KKR the days.

this In of form property important link that respect website FSK. company's by a actual its to call to Presentations. and the Today's presentation today's undertake required FSK call forward-looking you call any rebroadcast law. June on so that recent for for outcomes with cause or presentation with and posted update and unauthorized Please portfolio note ended materially differ information performance webcast Investor factors the statements. financial and financial addition, of to these FSK prohibited. of the on refer does statements available could Relations section do its the website ask the that is filings has SEC includes we FSK's results A is conference containing from to to the most Events forward-looking strictly to XXXX. its under this in not quarter unless statements supplemental XXth, is Any

certain measures. call this include will addition, financial In non-GAAP

be second with XXXX. considered accordance in for information SEC with isolation financial as can to the substitute GAAP reconciliations on August that related not nature was be or prepared considered the filed comparable measures, the measures For GAAP. information release be should in should FSK's in found in earnings directly a and quarter supplemental XXth, Non-GAAP such most

as FSK's please financial obtain similarly the non-GAAP the filings, other may named measures not of measures by same visit companies. To website. be reported SEC copies addition, In these latest company's

Michael Executive joining and and O'Toole are Co-President; Chief on call will on Chief Dan Officers, Also now Co-Chief to Officer. the Brian I be Chief over will Speaking Operating Officer today's phone and Ryan Pietrzak, Michael. Forman, and Financial Gerson, us Co-President; Steven Investment Chairman the Lilly, Officer; turn Wilson. call Drew

Michael Forman

Also, operating has team with our COVID we remind I to and everyone Corp's welcome, Thank environment. that us second like in like adapted call. FS four-for-one unprecedented how conference hope to of world. fully first quarter your friends all as your to virtual Robert other a the full Capital remaining and your had healthy work earnings you, the you, its safe previously I'd effectuated I'm like and start, split FSK. Like during quarter was colleagues, quarter for KKR that say to everyone FS To are June, as activities start, second during reverse this operational XXXX stock pleased KKR that announced I'd family, companies, time. a

In world, share faster have reopenings degrees. into much challenges, all renewed state per call, markets a months and have the than information or contained result varying just this take few would the such experienced information rebounded public a many country recent As account. in In ago. to we'll across have predicted equity financial economies local weeks, the observers

facing. the War equity II, hand, seen major and since government markets, companies rising Great scale World the looking part plans On almost one through the to all are operational Depression a on current in stimulus challenges not thanks are

intently management teams the focused in a world. on as of perspective, providing credit liquidity, sponsors portfolio the detail his in From hand, discuss are other operating costs, opportunities. are and the view growth discerning markets new On maintaining our a comments, Dan will and cutting different financial

is markets than markets and has markets the more equity the focused the almost long-term. equity credit entirely economic the as on Our pricing the realities the risk accurately climate of are current view look through

often of more which arbiter As time the view [ph] be will a lot case, a is primary is reasons. market's

investment Perhaps During first estimated led somewhere we well one of estimates to to been our extent prior approximately have BDCs that fell XX% estimates related industry the quality on and offset the on was our an low middle the of the of hand approximately not we by XX% vintages, a to recent end, in other the owing provided discussed by earnings the our spread has KKR, widening. these high on range on portfolio COVID or which the XX% assets quarter, of as more calls. depreciation high Most nature end. surprisingly, legacy with

of In during the evaluation our process results. terms the NAV, second quarter, yielded following

our the of within previously spread appreciation and experienced portfolio, the portion was multiple majority we contractions. COVID-related First, widening of impacted by our which

previously write-downs and challenge investments Second, and legacy fully that credit energy additional experienced including certain we investments in restructured. were investments

that the experienced impacted a we continues portion depreciation further of Third, by modest the be portfolio to effects a amount of of COVID.

with near-term dividend call, with to currently of was value our was From operating decline quarter no per which $X.X discuss our the quarter investment income valuation earnings proportion investment approximately we quarterly in of portfolio during a detail which call, his share X.X% forward-looking in our that NAV share outlined net per quarter, X.X% results net above quarter we last a maturities. resulted our share. total second summary, strategy liquidity second the quarter, $X.XX consistent approximate during basis. on per portfolio a during declined results, expect per dividend we a Shifting share. net our perspective, our of investment per $X.XX income debt the the to billion will in share third the ended Brian in our by meaningful approximately was in our the during While $X.XX perspective, $X.XX From liquidity with

per our June yield share $XX.XX such, of annualized which equates As declared the quarter, third of an XXXX. distribution per NAV our XX.X% to XX, on Board in has of as $X.XX a share of

extremely strategic mutual updates, industry which with SEC pleased see and we proposed forward the are SEC's recent BDC of to include regard the requirements to funds disclosure terms meaningful rule. In fund exchange progress the traded modifications to

For presence the maintained see and results we have and from officials years. years, other's last We've several of gratifying the in emerge is an both over voice maintained behalf to industry. tangible significant our It active appointed elected BDC the on a efforts. Washington also with

the minute call over turn KKR the a entire like take recognize to I to Before team. FS Dan, to I'd

call of an and them you've but represented exceptional an BDC who and They Some many of leader FS not in you know, these focused, people industry They franchise met. group across such over of team capacities. this KKR are dedicated their of as the work individual the unique hardworking, strong, leadership to of work own XXX multiple on are making individuals metrics.

to over that acknowledge rotate call the of team. these we because work closer there's still our are we the of individuals. we turn our Dan While the do to can goals quality assure that, work with as to you achieving portfolio, and I'll I the And of

Dan Pietrzak

Thanks Michael.

healthy have have unprecedented your would Before We Michael's last my also been that a hope they several tremendous. done this to friends your comment. has like team. to the over I I safe part work and and formal remaining reiterate strong you, am the months do begin proud team colleagues, and your are during I remarks, be this I time. family, of closing

providing coming of Actions While own a we continue regardless levels fiscal liquidity unprecedented to support quarters. real prospect over mandates. governmental method Federal possibility environment, to are though of navigate reopening, economic by forward recovery the stimulus the government as of for and macroeconomic the of federal feels remains uncertain which public its an and for which substantial the market, support economy offer increasingly lurching Reserve, towards an is it and the pillars

$XXX contemplate balance may As high we $XXX of basis, to On observations a high terms the established of loan fashion, high what a billion. record unexpected year and the of analyze with billion. record was market. activity year-to-date a a is associated framing yield the start quarter yield level a the second of quarterly helpful yield In also represented in issuance few issuance XXXX the somewhat market it by bring, leverage

of since mark lowest XXXX. issuance for since interesting bonds yield one-third which Almost been the the bonds specifics. sponsor-related XX% time year-to-date have used dropped of secured high However, XXXX M&A to secured of financial XX% of which headline the level activity are since yield high first some activity, bond this crisis. level crisis Only the below and number contain represents financial details the financial marks fund year-to-date the highest the

a market, Again, fund helps hand, quarter inform about per $XX level it as on companies billion unprecedented that steadily market of loan of outflows been record issuances operating and of flows low the pace Understanding total yield was even the negative debt sold time, has January have an eclipsing is back March XX%. a been Finally, in in leveraged market to zero cash of for leveraged quite reserves $XX funds early build the in increased loan February, because XX%. month. slow the mutual hot important cash billion building been have between as percentage high level XXXX's of and to which us range fourth and at as since

portfolio data multiples to and effort, on approach. acquiring portfolio in which with current our M&A new portfolio following competing valuation XXXX two market reduced transactions. we are the focus with merging continued future XX% the origination Across CLO establishing financial tackling and for many liquidity. view key companies; a three, significantly a could market activity sponsors XXXX. landscape one, assessing solidifying points compared for existing businesses; of year-to-date In positions addition, existing liquidity on approximately or issuance middle these down companies two, is at Number see dynamics as Squarely potential the involve items; for companies and

balance most seeing and the steps This depressed are or pipeline over outlined. pick until M&A is view volumes are to quarter. of likely two their sponsors said, just up at we remain XXXX three of the between I drives our expectation least That so. are last one the during month steps fourth generally of the Our

not follow-ons some of as to rally are with picture, and underpinned companies, at a very market historical within the end modest having June, existing were investments, that of for macro by according S&P. of reasons; our and markets, $XXX does additional the market we stretching basis XX% involves good understanding the to par issuers It public investments. on we Despite platform, most protection risk focus focused trading As all in the of The COVID that on quarter, overall leveraged financing XX our above note the which yield. the the principle approximately points protect involve loan million structures at the a investments during names. level only in originated combination of of issuers or were we compared to new which new

total the added with reviewing Even would the million management our strong meaning portfolio in position, of of in face-to-face, share investments, the asset point complexities like to equated our $XX data given today. factoring the $XXX our the and One business continue million quarter. associated to I remain given on relates sales and approximately that of when travel, associated $XXX market issues process, especially to Despite net performance. special underwriting takes of due repayments joint this and understanding commitments with doing during extremely with diligence Our with selective second during operations. new time, net making meeting sales to teams million venture concept combined to liquidity we origination reduction

Now performance to KKR wanted investment we in some of two-year FS context provide our the to-date. mark the the establishment that passed have Advisor, we FSK since on

cumulative portfolio from as believe investments is experienced have $X.X data originated approximately was companies in through XXXX, effects December points record follows. the the starting XXXX, approximately of formed of to toward made basis more are $X.X investment cumulative investment what points depreciation, conservative defensible FS billion new And Advisor track turning XX investments we more point these COVID. same Our manner KKR in we new billion and June experienced through XXth, in structures of illustrate the have Since XXst, We the we and we believe of which a operating which positions. includes with X.XX% be the appreciation.

leader will with industry investment steps believe we do goal taking becoming be our perfect, the an are management While I we and an standpoint. commensurate from not

information this I quarterly that slide our is note presentation, Finally, should on XX. investor in earnings detailed

assets Advisor, modest of in the of terms the origination portfolio and In by our quarter, given XX% of XX% originated total comprised approximately portfolio of Credit FS been still KKR volume the during rotation, the by our approximately portfolio assets second originated is platform. KKR investment have

additional access X% revolvers portfolio the operations the quarter, relief of through to our XX% COVID. for request activity, today, sort and of waivers have requests, that while revolvers in portfolio of first approximately Of stabilized. second or of year, also we of repay may quarter we as some companies these companies portfolio these approximately companies several asked portfolio have early of certain seen balance have and terms have capital In relating granted we as our the expect

The In From in portfolio have seen we the trust our call quite companies to actively scale of they we all on offers world. are remain and the forward-looking times is believe two more stronger injections are are lean will within franchise and on capital the that will receiving names be that, and for relationship investment do steps like we I well. and earlier; we a portfolio. towards addition, that move transact I'll with we ranges for and three more emerge platform relevant basis to where both and across some new to Credit operational post-COVID equity to several value sponsors, Credit the into a Times additional new portfolio sponsors is these capital price relationships exit even and with establishing multiples to KKR standpoint believe turn a existing market for existing portfolio view and assets updates of knowledge, over on perspective, And companies industry that real-time as expertise, engaged well-positioned transactional our where multiples KKR from elements Brian a while purchase and discuss specifics. [ph] scarce a seeking these companies. in outlined

Brian Gerson

Thanks Dan.

portfolio had billion consisting portfolio fair As of $X.X March investment value and quarter, quarters. a of of in XXX fair several portfolio companies top remains of XXX our of a second our XX, This portfolio, largest XX $X.X as June XXXX. compares XX% to to results At XXth, the which last our with the portfolio end of value companies. our of represented line companies the billion

during portfolio loans as yield We on to our non-accrual debt to lien of our in XXth, fair our XXXX portfolio XXth. XX% the at X.X% X.X% decline quarter. perspective, of at our senior primarily our of consisted as first continue secured the and as of the average and weighted LIBOR XXXX. From a as non-accruals The value a June debt average on senior June a accruing portfolio investments portfolio focus The represented compared due quarter, March X% to cost of XX% X.X% in yield end was on basis of approximately investments weighted secured on was XX, basis. the of second decline

million, fair placed five with respectively. $XX $XXX non-accrual During that cost value combined we quarter, million and the investments are and a of

and largest its premium to its designer audio meaningfully systems been FourPoint Our is the North FourPoint was and and DEI non-accruals sales marketer impacted basis. commodity net Energy which combined E&P the on legacy our On per for of $X.XX is basis, in has a negatively is investment, new income being of quarterly by share non-accrual been approximately investments, largest distribution. due reduced and have America on Sales the in during COVID restructured. impact DEI account a two quarter Energy. brick-and-mortar investments legacy investment process of a prices

exposure to energy these effects aviation following of which X.X%, industry terms the more industries and X.X%, traditional concentrations, mall-based retail we leasing we durables have account apparel consumer X.X%. are believe sensitive COVID, exposure; Collectively, the X.X%, and In of equipment goods services and and portfolio commercial services diversified services and investment include X.X%, capital X.X%, X.X%, financials estate portfolio. professional for XX.X%, commercial and largest healthcare sectors X.X% our total The XX%, real in X.X%. software of of our

first was of market million mentioned million $XXX across by for our the quarter. positive initially results portfolio as a investment $XXX improved valuation quarterly experienced impacted results the a associated spread The valuation declined during Michael the from during perspective, we by with portfolio general of investments As or the widening the follows; quarter second our inputs quarter. and conditions appreciation primarily X.X% during operating and details evaluation combination driven are

we our investment back these continues increase toward stabilize, economy continue the to believe will basis. cost names move in As to as portion portfolio of value this their

approximately Our investments, that investments portfolio and in which first, restructured. offset of million legacy prior credit-challenged appreciation energy following; FSK was fully depreciation were previously and of including the all Care $XXX by Advisor, the certain were consummated certain investments, to

investments, the five million certain $XXX our by effects total DEI Of with continuing result driven specific The exposure. by Global. whose investments decline quarter credits, was valuations credit-challenged Second, and Hilding Media, COVID. associated declined the million a the previously the Mood Anders, Sales, Borden our Amtek valuation $XX of legacy in by of as decline are of and energy investments approximately Dairy, XX% and five during

challenged prior been you from of the these pandemic. many COVID had know, disproportionately therefore, by were As companies positions impacted to the of calls, and onset prior in

believe including [ph] platform we the and team, on firm private the parted Dairy Mood the have ability KKR by Borden CEO for founded asset. the and maximize Borden company full we Loan share million which term Dean of [ph] common out of Foods, of FSK bid of company. loan equity its $XX received a rata Engles the credit million Gregg XX% used the of to of Media as the the a equity to dedicated Term diluted held On Borden, recovery Partners, bankruptcy. A and to fully these Dairy, $XX investments. was leverage pro to purchase we resources Specific follows; However, Capitol Peak with workout a are to former the updates FSK $XXX for million

investing invested first-lien its Media Term lenders company. recapitalize and filed the has, XXXX, hours to submitted prepackaged B, XX supported RSA second-lien within by on plan XXX% July world, was around COVID of like reorganization by severe company's XXX% confirmed falls resort, category Loan share XX% company, million of XXth, rata customers In that for concluded comprehensive would and addition, in the the decision. the additional Media impacts the the retail, who Approximately Mood pro automotive, was of operate business diligence, conditions, into $XX under of caused of businesses industry. a After business restaurant, travel, to, the ended that pursuant and a the its that many prudent Mood pandemic. equity and/or adjacent lenders into which of bankruptcy of current immediate used a been to substantial up others or face be the aviation and the in, wake we especially a ballots. FSK

recovery. basis hopeful aggregate Media, exposure we're DEI for Hilding a energy stabilized help the combined of a However, Sales, a XX%. combined to our connection Global series Dairy, environment support received a the healthier will a that up sheet, and the with market with that with and more $XXX in warrants of balance a plan equity Mood fair value XX% we and of billion, of value with company million Borden $XXX blended and of an have representing Anders, Amtek cost of

beginning the difficult us names, result, is been has we As are legacy believe working the that from it to worst a standpoint. while, depreciation these through behind

the covenants. has jeopardy $XX for-profit sponsors, they in tolerance COVID include conjunction impacted are received also our response Certain the thrift of majority Savers operating in injected In valuation on To to value America. a Group, activity largest of support an Benefits and companies of COVID-XX portion of declined Like Turning this We as to Savers, capital loan the their effects within North well from the credit stores in $XXX pandemic. term to with are retailer shut credit, the been as were have violating face portfolio and spring remaining continued of in as equity equity junior this own these by million of of retailers, type [ph] perspective operations. result million The Entertainment first-lien private by many within from Savers adversely specializing the $XX million pricing infusion the examples a our have not during provide sponsors its from during the the call companies covenants the protection back reset quarter, e-commerce investment. investments. is a financial to and operating received company's additional We platform an Entertainment and in live Group of the in Benefits in equity and entertainment and incremental liquidity. consumer million light to employers, financial covenants to then company leisure entertainment recently The on exchange first-lien dollar the company's provide impact an as own facilities. to call from partners their employment We vendors our performance, million detail. the program. reporting corporate with of product reset hotels, $XXX travel for with sponsors, we product I'll we the brands, outbreak COVID In offering benefit. offer and expected an $XX who infusion to discuss corporate credit other over employees along with that, results improved pricing the in Steven turn And enhanced and to rights. financial more of

Steven Lilly

Brian. Thanks,

quarter a comments, method a standpoint. my financial communicating began During of first we introducing different from

touched. $XX that a quarter, theme, the Michael, million financial metrics to our results, To with earnings comments decline will them reporting and comments more rather this in informative in As be focused broader and that our have to the release contained Dan XX way press already investment and focused income hopefully on but Q, less on behind on linking the color we continue Brian transparent which in which end, related the more following. our my

by in million. $X reduced our income reduction the First, quarterly interest LIBOR

certain sold interest by approximately which and assets quarter $X we reduced the both and million. previous cash income quarter, Additionally, during our PIK

As basis income a floors, reminder, averaged debt which our of have points. investments $X our XX% reduced XX rate Non-accrual by million. assets interest floating

healthy the in significantly they we a to as from million on and reduction declined $X as dividends fee pandemic. companies by capital our our of portfolio fewer height maintaining by during made of income quarter, the million, income declined dividend certain the commitments focused Finally, $X positions liquidity owing during

in Management $X reduction floating we liabilities quarter-over-quarter in declined The as our approximately share drawn per by million declined the to benefited in expense reduction interest million from follows. LIBOR, our the bridge fees value XX% a Our rate. the are during due as $X NAV quarter, quarter of of overall as is during investment detailed basis our the portfolio. on a by

per totaling per $X.XX. $XX.XX increased by Our starting NAV of repurchases share share $X.XX to of was XXXX and share XQ per NII

$XX.XX. share $X.XX was $X.XX June per which by Our our dividend, reduced perspective, cents our NAV our results the spoke, per From share NAV share XX and bridge these about NII Brian share. per follows. the a portfolio forward of per $X.XX of in NII as per looking share per The $X.XX of from guidance totaled our value third decline second our quarter share is quarter activities in which to of sum

income million yield approximately recurring Our portfolio. LIBOR and the investment overall lower interest of be average to our expected lower rates to weighted is due $XX

and the about reduction during per approximately our expense level the we we expense LIBOR. results our benefit approximately of of the which expect interest third We From decline lower our but profile. an quarter, liquidity of more still in activities million the share quarter, equals these from increase third income spoke million combination companies million $X amount quarter quarter, expect from NII during conservative as an maintaining $XX by The than dividend. $X.XX our during still which standpoint, declared will dividend expectation in slightly the activity third with of normalized is fee represents a origination coupled which given approximate to lower which second portfolio the Dan $X of approximately earlier,

that quarter-to-quarter standpoint, such NAV based or minimum expect net long-term reminder, on operational be expect to resulting our on over may share annualized than dividends As we COVID yield quarterly will share, to what a greater our per periods. in quarters a where fluctuations basis this less our range X% greater volatility will we of we from business the per during as the due acknowledge to asset value experiencing in a swings normal what there a be experience would an than as more are yield we in certain equate is

line XXXX. right of our levels the net In of terms of our of debt are levels balance respectively, and and with leverage QX to sheet, side of gross end as our in XXX% the XXX% equity

the Our available our a is which approximately liquidity percentage. of comfortable of XX% $X.X of very value to equates investment billion portfolio,

be with XX% which We and X.X%. our cost debt of is of unsecured continue structure, average liability with XX%, to secured an pleased overall

have year, in XXXX. In no terms we of of or debt maturities the balance during maturities, this

debt During have of approximately of tranches billion, of the mature, XXXX, $X.X our totaling XX% capital which three middle we full structure. representing

largest XXXX, of Our year structure capital and forward. of is roll our XX% will maturities approximately

Finally, which $XX revolver June perspective, unfunded with commitments, unfunded million from commitments of to an asset-based $XXX of million and finance commitments unfunded portfolio. as of related approximately XX, XXXX, primarily had associated facilities million debt represented we $XXX commitments of equity our

during approximately with quarter, $XX the the second under collective repaid During fundings of million these experienced million we being commitments approximately $X of quarter. amount that

majority during specific or for commitments acquisitions, certain our of equity expenditures quarter call, and in therefore, subject and are consent. generally including our first threshold unfunded used situations earnings other the debt tests, capital said our we performance or As to

drawn are a they on back for commitments with on disclosed in to capacity not for that, we quarter-to-quarter the closing meaningful informational for I'll be As a result, all call our these questions. will purposes. Michael And believe open do turn any the a We few call basis. remarks in XX-Q before

Michael Forman

portfolio. the has FS to overall stable reiterating are FS behalf as On KKR well Steven. platform tilt close within economy our of The believe KKR cash investments high to existing quality the in healthy by experience we like Thanks, originated beginning both companies operating team, with in as I'd positive streams. the we entire flow

will corresponding quarters. begin legacy to and a remaining way where move As closer valuation investments, to pieces beginning NAV back we investment our from of portfolio perhaps a the we to settle our future before to work begin in standpoint, through move the per during point positive share

our high through positions. team new quality originating an while -- certain assets, has teams job simultaneously working investment excellent investment Our done legacy

operator, As we franchise. our questions. the power normal, and also COVID would the harnessing our to we world call to like transition looks forward forward open fully portfolio look for BDC that, And to completing finding the a with of new

Operator

Thank Our Alexander Casey from first comes Point. Compass you. with question [Indiscernible]

question. may You with your proceed

Casey Alexander

Yes. And of in have me, on it been at for shareholder think of two room that's do shareholders sort to going stabilized outflow looks for KKR because marketplace. you're the for yeah, tired -- elephant the it BDCs, quick morning. the for and has pull like Hi. if is I in yourselves, I'm pin And questions do Good not merging I the is, it can of FS the staunched. been three obvious you you. reports. the sort you because the writing think do frankly, two question One when

on you So forward when that you do that? can think move

Michael Forman

Thanks, the the we're past is this focused certainly, will And Casey. considering We to. portfolios. progress I'll and we're shareholder question. community open the going from Michael. say we now try positioning. right of We quarter, drive we're from that take think hear we've And made we to I anything value, from a received the feedback investors the course. understand on and But evolve portfolios. and continue to lot to strategic certainly still alternatives all would that we're you, analyst’s that This

well. and our what on we the but So feel a we market hear plate, as like you lot we says at point, say this have

Casey Alexander

Okay. Thank you. Great.

in around into pretty far Secondly, into JV, X% to it you're the terms assets to JV? to up now maximized of go the is relates the you total Have willing how Dan, as JV dropping of the portfolio. the much

Dan Pietrzak

I question. Good you're Casey. X% about today. morning, -- good being right Yes,

I of maybe a XX% think, a bit little about target more. we've talked

be. to we’ve wherever room point think to some it's we I getting from more go. construction, got a it So portfolio want to the probably But

Casey Alexander

non-income then rotated And into income in of out step that I'll and then substantial strategy and earning the that question, And question. is, out I'll assets there's getting way portfolio. a down Okay. What's getting assets? the for get amount company's the my after earning that of some last

Dan Pietrzak

Yes, no, and good a question, that's very Casey.

the of and number that's non-accruals mean, both terms right team think biggest you're in big focus this is too I I equity that right, of management now, numbers.

amount we news NII will we able is, out I rotate think good the can decent a mean that pretty are when create. of to that

focus. that's it is So big why a

mean, something sort basis, of goes but a there's frankly, And the the we're years a we I that from. be important going reviewing level right positions couple coming have on be positions it's couple to in make up, we very item line be and to a of some very by it detail negotiations very a that of it's we down. is might we're minority frequent that will coming control, think I tactical, number the There's quarters now, owner, item. of in sure quite position-by-position in over it line that don't them moved outcome right? on bottoms because

Casey Alexander

my right. taking Thanks All it. I for questions. Great. appreciate

Dan Pietrzak

Casey. you, Thank

Operator

Thank you.

Our next with comes Shane from JPMorgan. Rick question

question. You may proceed your with

Rick Shane

of data on about the believe guys, the the my very I I is that thanks some for for quarter, very, challenging expectations provide I the certainly Hey, environment, taking questions. clarify helpful. the trying want those the is which forward-look, we XX%. it's Steven, to commentary reconcile I'm though, to points we said sort appreciate target you return third that about it's transparency in with what NAV X%. which one to two And acknowledge. efforts a at comment, is being And just If look

Steven Lilly

Sure, Rick. it's Thanks Thanks. your for of combination I think terms a Yes, in this quarter. question. things of

a we of our a said. yield target would of time I period say first is NAV that, a sustained minimum, The on have over X% which

first So that I input. think is the

moving NAVs folks. And we also with, three is there maybe and just with assets not typically in as indirect on this this comments in of that well is other volatility the have The level were than like would second a our group there industry, some script do. especially is BDC -- in franchise, this more COVID expected a there -- but heightened input period, are

talking to at more as So, and appreciation some in is, as think, terms related I hope to spread And time, COVID we continue were that a of we normal experienced market portfolio, would their about over we back have would in of way directions. there about one first look technicals. in talked quarter those I widening conclusion move names were we think, some the

total we But a target think So, is script, could in to one below specific return we you good, of as quarter said terms the in could first think a that XX%, actually, -- we over a the well. long-haul, step know, be very the we we quarter, X% at we in X% could go shareholders.

Rick Shane

it. Got

in the repurchase? And guys, discount of the for Okay. a highest shares, to increase of it particularly make if in to at your of you your yields status? opportunity huge order implications minimum to is in there aggressive distribution I BDC does look, there's the sense not distribution. you're trading do to Then, repurchasing the you I'm light of dynamic And light for balance efficiency space. more curious, in am and have distribution that probably maintain perhaps here, are a the one efficient any curious you? a that's estimate with you What which history NAV, that especially to of in terms growth be RIC ways dividend of

Dan Pietrzak

and and can Rick, add this. Yes, sort to start Dan. this Steven of is I'll

I historically. we mean, completed the you're, focused obviously think been, I We right. program on think, pretty this buybacks I have the quarter. million you're stock $XXX

million we look $XXX bought you shares this of supplemental, and If back almost between the CCT. at

I think of our think is do in balance position sheet trying mind balance -- we're well. that something as to that our I always that with sort

we that slightly we're from above leverage want target think I not still but far to our number, where be. away

as had that So, feel else Rick free you I asked to anything that you think that the well. there. to add it or But, know, Steven, to status RIC play -- clearly around points will, know, the into

Steven Lilly

not. Well,

would quarters, think exactly -- say in the covered a it's people there. income I is back be, in -- we say over spill I'd I only the so I But of for Rick spill think thing number have or of where don't add of a do to some BDCs at we manageable want level have very well, fairway we're we maybe when us like way positive some guess, but where terms I -- to he the in it the the Dan. middle many it's just in

gave $X.XX is standpoint, XX and and just NII So the the for the we keeping -- with dividend of for distribution I give guidance that. - a in think from for XX the of third XX quarter

Rick Shane

Okay, guys Thank you much. great. very

Steven Lilly

much. so Thanks

Dan Pietrzak

Thank you.

Operator

you. Thank

with Our next Ryan Carr Jefferies. question comes from

your question. with proceed may You

Ryan Carr

thank questions. morning. for my Good taking you And

question, you spillover? have you us can you what just -- income, you give of can First mentioned level a terms sense just spillover retained of in

Michael Forman

It's little north Sure. million. of a $XXX

Ryan Carr

they've next declines. within in question a that percentage the related sense to inactive? us the XX guess, floors portfolio point as And saw LIBOR of Okay, what to basis great. you what LIBOR has you place? I mostly Can yield, And then the decline for given been level quarter-to-quarter and give

Dan Pietrzak

have Yes. we're specific the But, think that to still And in that -- market deals, I'm doing only in LIBOR, is, take that is Dan, I X% driven this we is correct. is quoted will script. all that. in I -- the today numbers happy mean, of LIBOR XX points mean, the And you're really remain I U.S. the specifically mind my that. and for floors. off

We have of have is a floor that out but zero, the done just Europe, transactions market. which some which might floor at is

have -- the expect of went I of finally up of a that not floor. XX%, the the LIBOR continue. you we number north to there, script the but standard should about think So quoted in And if XX%

Ryan Carr

to environment. and I'm last the I consistent deal And opportunistically for moving very But thinking in and is to your are opportunities dealing outlook mean, curious be the bounce of year? That question, this current that your how environment helpful. pretty terms the leverage deal origination might on the hear leverage forward? you you how quarter. you. is Thank And thoughts

Michael Forman

I going Yes. world, in seen than in months on we've the last month No, prior. clearly all in fair more with we the in activity the pipeline did think question

of focus, sort of think I April, was and May. inward even everyone most very

QX make as the things of overall, got seeing, in can Obviously, from the a travel said, starting of to competitor. did see maybe decent but, to it So, deals in we I current looking of I I muted we environment, bit signs we've we're work still existing my be prepared I done, amount life. portfolio get acquire and companies of remarks, expand lack kind think harder. operations, a as That make are comment in and and think past from -- of activity expect the a more home, would does to QX than

we are think are we're on, So pretty positions, which supporting value those focused pretty we lender added. incumbent

Ryan Carr

Thank much. you very

Michael Forman

Thank you.

Operator

And from our with you. KBW. Lynch Thank question next Ryan comes

may with your You question. proceed

Ryan Lynch

Hey, questions. for Thanks my good taking morning.

to commentary specific The gave first credits. one outlining do some with some good guys you has

been the decline were these under Somewhere relationship. the and investments look struggled investments of investments originated we're think that legacy relationship quarters, from have not at drove advisor just significant this previous When and of have commentary. that some some the of helpful legacy troubled recently over I quarter, advisor the a the previous just the or several that that I credits kind are was previous portion

large Some Hilding Belk, of these legacy were the platform, ones are a mind. just that investments under originated to KKR couple come the Anders, of

new the have investments put of under advisor than how historically guys So investors work past previous commentary to good are to better and these forward, troubles kind how the of and through while gave underwriting one even are you ground, into them on the are marked that today of comfortable, that move trying get that those do get today going been be put underground relationship? some are you the and where credits

Dan Pietrzak

there. question we about think, to A Yes. And prepared the want And of you good the yes, there know, deck of been on think some sort we hands all these from, are prior transparent sort been Ryan, we mentioned we in in -- board across be to and, value where are you seeing I the it's we've certain challenges and good maximize, recovery the morning, you know, advisor remarks, sort -- of definitely then to there's portfolio. calls -- Dan. I these of past, as in definitely in while assets kind has relationship,

So, one. I think number that's

two wrong, out a know, call Two, definitely that Amtek the Hilding KKR them not that assets. scripts in have historic to underperformed names of that you we you're are there's we're point of out. that sort and of just So handful with

KKR would to tried provide one, Number roughly in the in of years, different XX%-odd very human long advisor some I things. over by color think is capital, a terms the on by, scale, the size come way it last, this has footprint very side KKR a of platform I terms terms new originated -- itself. just we two say scripts, XX% the in by the business. of and five in both both in

think when out team I really execution, know, we versus, build And taken it some the think the business, And, I wasn't of every private, origination think different. from ways part sit perspective. of context needs it team, to to I to know, I necessarily, public you that's facet, market really to where positioning and something five the today think legal the resources bit it I in on more I here entity, structuring be to BDC years and investment a probably like you a hiring when think ago, was that important. is, rescue from but your appropriate be point a in you Hilding would was to

the start So, I of slides about well, try did one, have think we two, on that's the how advisor. Ryan, that performed since to point some give color we new

slide new presentation. of a purposes for this Here. This is the

and that need X.XX I machine includes million quality, the mistakes, pandemic. origination information, low $XXX you billion And type global ourselves, And X.XX risk high number that can $XXX versus you hopefully, you in to the satisfied to think with honest a quarters I be quarters principal call we investments. the think with, billion. I a I be perfect, put -- only we will think versus not we're will looking not think sort that of million on nine we without know, will machine is is that of be is it but think underwriting but it is see this nine I know, the

Ryan Lynch

color movements you helpful. the in the points your fair -- of with script -- overall guys and That's Understood. definitely really on on get so some good some portfolio that your did some was and Okay.

Just question more one for me.

as kind and have just right out, the its solidify here just guys the that near-term? quarter You net How the fairly occurred composed pursuing guys comfortable improve at guys unsecured I'm the liability we an cost of structure that you offering today? some in sheet. repayments you liquidity additional in be you helped side today. or current but balance did unsecured wondering had sit of notes there recently been hand bond other issues also are looking Obviously, this which high credit a as your any Or will

Dan Pietrzak

look we've maybe as And so points, the we Yes. I right, of fair I revolver. one, our got you page nine supplement, a -- I I like question. best-in-class think investor at a if do think, mean, couple structure, think liability

been we've to think I CLO tap on meaningfully in the we've unsecured able side been market, market. the

maturities. As Steven no mentioned, near-term we have

feel pretty good we we think I with today. where sit

of You I did think we just mention the Maybe on in we were couple a deal points that, did that environment. in April. a different

right investor points. interest volatility. of like obviously, good for very fact that, not the that thing liabilities, to had midst market then, sitting cost the something to the bond price tremendous our to feel it do does XX April That had, not and sheet, the we We was of viewed today. So in the do of a proactive, do. right the that less unsecured And as side, in on amount would balance move the basis to we want something that than were said, we we or middle that didn't

want But that that make a on at statement willing the I I security time. that it's wrong that to price, think, comments strong but hindsight, note. at I -- thing place, and do, people were and to provide at So, think right time on those -- that the just to

Ryan Lynch

I the -- Understood. time had. my that appreciate Those my questions morning. Okay. this are I all

Dan Pietrzak

Thank you, Ryan.

Operator

Thank you.

question comes Fargo. Wells Finian next Our from with O'Shea

may with question. proceed You your

Finian O'Shea

meaningfully holding of of is well. questions. doing here. form on how a us overall, answered been ahead parts I couple A and debt most up as in securitization as slowed? Global your the a portfolio of travel And ask know, Hope I'll mezz have just investment notes? senior in remind there you there? can business you lots is you morning. -- Dan, air describe asked Good of that Hi. everyone's Jet, as

Dan Pietrzak

Finian. morning, for Good question. Yes. the Thanks

have well have bonds there of quite on on different traded business the performance is warehouse kept their occasions of obligors post level those beast has set strong, of bank corporates And think securitizations is the investor group they that were form actually than deep. in Jet, facility, us markets pretty leasing a to numerous that high taking front assets. commercial or quite in the Global of of it who be loans I terms been I they base on diversified that, or others would net from capital to a senior It sort worth think debt just say is a is in -- out I COVID, can either aviation. just large

of access portfolio. nature are I is than the people private think leasing to a we that So, pandemic very the credit are different seeing portfolio And of makeup valuing commercial the aircraft. that

go So, post-COVID, some trading look and out you above portfolio prices the traded performance down good of see nicely would if very you now. par but that there, at is are have actually I they bond right And recovered believe.

Finian O'Shea

exposures, you Okay. to tied That's on, housing. generally helpful. And then I think residential have some

others? maybe I this recall recession on Toorak, Labs? are. don't think of went how what I the Opendoor income than X there this is But can kind cetera Arch to But et delineate also -- you the down shut Arch how these businesses hit harder non-accrual quarter. different

Michael Forman

XX residential This into a mortgage to or mean loans. transaction, has run I gone off. prepared or normal, going LTV. this Arch bit that that than a remarks. is in of sort it's honest, have on good to And we should no, a amortization that let's is call Not right. portfolio of non-accrual really more essentially bridge little maybe the Yes, is The question. be different though something a addressed similar it X Toorak

getting mortgage or to think sort has back to end consumer all financing activities we're COVID the closer of driven I level delinquencies. higher So the a of portfolio. of across

the period good run continue the than investment we're income. it the think be X which debt appropriate in different think of interest was as very one. delever We is to rather just will didn't just overall the operating. to We'd much a still is the very Arch I off accrue stub which Toorak,

and for XX roughly kind Toorak, for loans right remember the environment are is attractive now. think that But are LTV of both unlevered. Arch again, upper them these single-digits X I to pretty

in that life it to do. for the But think is where thing very and So X not deal matter risk reward Arch -- I remains as it just a more interesting. the prudent really is performance its a

Finian O'Shea

you. a type all final or couple sort a book, That's a to appreciated. together, worst Sure. narrative higher things Tying Thank outlined end of behind the beginning just And is the helpful. level legacy you which then question. us of

Can to Casey's comments the on, question me too you out commercial for pin about go more forward stuck that of One stability waiting pulling and the proposing portfolio to vehicles. ultimately you're just things tie do you call in guess on you the those before FSK on to now but portfolio the see I forward? or portfolio's, we're What both your move want the together?

Dan Pietrzak

too. me back of let sort touch comments to tie and on then that it Michael's And

lot. was comments more, portfolio. I getting the think are a -- the And that got Borden restructured we've happy here we some outcomes been think done laser on focused we've I we're the

to other you'll we a with to mentioned, dollars forward, working of some names those work required the COVID impacted names come X% we're of its the to so move amendments lot to done. some amendments Obviously, even doing want we're I think equity of the those real when have XX%, I get in material, some blow.

I So to focused on get the just we've to right think the to been trying very spot. portfolio

being is up where the a with energy, X names said I If good and that end kind we those on happy, you of on restructuring done. are as we the comments, marked look at we work Brian's think number gets

as and will work positive a got portfolio. progress still still that bunch lot then heard folks on options But some -- the a we the something consider forward, forward. our We going move be and we are on that's Casey's as quarter on I I of made we comment do. mind think And from forward. strategic We we have we the this of know to we think

Finian O'Shea

Great. Thank that's all me. And for you, Dan.

Dan Pietrzak

Thanks.

Operator

Thank you.

question Dodd next from Our with Robert James. comes Raymond

your with question. proceed may You

Robert Dodd

your capital, minimum morning. X%, quarter portion Hi, it's of together. to Eric being mean, question obviously, than a assets portfolio stood next going talking ties mean, you're be and NAV that's large producing of that more with ROE I in Casey that with now. I kind right and guys. non-income about first Good

targets. into than evolves ROE expect we're higher seeing but quarter, well your potentially income even that of the be next that is So to go in would potentially producing, excess,

seeing of the came can minimum that you Can what give any on on color tight what -- sitting spreads can give you in in investments we what see X%, with incremental into forward? the any when terms So based color in up historically to you that and the market portfolio of compared you we're was built us us that? going was in

Michael Forman

start Yes. Good I can it. morning, to add Robert. Steven Maybe and can you

bottoms that said, I sort one I that sort mark. add construction fair where I bottoms that BDC I thinking of rational But of want number. obviously sort to of and of where what for we market sort is. pricing up, think we portfolio think make will of rate and of up going we're about a please. we be, sort return Steven, to is And as just Steven And good the want the to a statement call long-term think is think

Steven Lilly

And assets, point it terms a of in grows et involved. it's appropriate earlier you in will good for fee extent time think at Dan portfolio to we incentive Obviously, some about the agree the up. in be non-income things to that that income the current to obviously would environment I it in in then come in the with we're producing transitioning And that some over Dan -- in talked achieving cetera and waived to Obviously, as all do producing as I we we obviously, thing have it's Robert, Yes. that the struck what living being over appropriately assets now. are future the that's what acknowledge to bottoms back. call, experiencing. terms is investors said, the like all environment,

the right in wouldn't say tried But model. an yes, things But it's especially evolve, of operational market were there's the -- well are. the get so the environment so expectation given we'll as those allowance now, is I terms we And tight balance. to meaningfully that, for in things how

Robert Dodd

something General more then And at given originated be again. than capital this origination than symbol that. could BDC things of I there's we some I if appreciate mean, looked those starting the more I imagine I your heavy happen can tech I the to on focus, on on name like put kind is things couple the portfolio, manufacturing you it. But in side, another it, today? deal those diligence constraints of can, can activity AM there if goods, rather due capital remotely to a can environment on you the due mean goods. for diligence Got

Michael Forman

on underwrote we the originally two don't spent in and AM what XXXX, mean, challenges as Yes, we and a I it's General using resources probably of lot my macro fair moments doing, when -- to the Petraeus. that time U.S. more right. And interrupt the government of like, probably was question. the General firm to like there's was at worry that, dog definitely deals -- well. like mean, I

is then and low it one now. lever because government focused was the because your high about easier more right. going, could probably but to right arms your exposures that deal. We're actually it's he that Robert, on for maybe to And much been more existing have very a kind So, get it, add-ons deals point, borrower generally to excited new of spending around where was was your

Robert Dodd

Yes.

Michael Forman

that deals. sort hindrance to be will of And a

there's folks travel a down slow that that I with volume. we think local cetera. take, maybe that like, find to if additional we But resources, the one sites thing way risk if Now will more suspect, is sector et a who to will I advisors there's want M&A said we could

Robert Dodd

very obviously, adds of take one again, Then and mean, on, financial thing. if be that could those I question it. -- kind workouts. I I two restructuring Got But again, complications. the but on is boots it. apply and workouts ground appreciate it hands can the actual that workout different

distressed environment going just obviously is delay these So perspective? economically, to I'm the workout to not from operational a assets? this improvements group

Michael Forman

the done on this quarter of as really no team really thinking to at thinking focus dedicated Yes, not a hired but we past, about about about fourth And time, think, we've talked the I a economy XXXX, fair. I in mean, COVID, obviously U.S. fortunate tremendously getting last have happen. frankly dedicated didn't people work it take That who've like to felt But downturn. the over we highly X months. arguably quite that for downturn ready think a were had we're I qualified, that. hard Yes, or to X

So, them we easier, the right? make owe of it It's blonde. to on doesn't you team If -- gratitude bit things that side. be all a want obviously I think for

are been said, able sort Borden. had that consultants mentioned we've very get resources to Capstone, is the our why leverage important, think teams we inside of been that I we on partner management own on advisors, ground. able which to We've of the

through. I call it that, recovery see, play starting we'll to sort So, we're think of

the economy how right bigger and like question that schools There's QX, things obviously, I open? look what's QX, think sort of will things. the different states to Will in going impact is now. different on going

level requires our not intention slow is just So think it's but to up. focus, an it extra I of it

Robert Dodd

it. Got Thanks. the I appreciate color. Okay.

Michael Forman

you. Thank

Operator

to I'm time. Pietrzak call you. this would back any at now further Dan remarks. And for not Thank questions like over the any I to turn showing further

Dan Pietrzak

and time We summer. questions. available and always Thank today safe any the that healthy know. your do period let Well, during this of the questions follow-up just you the you. all very hope good us at and rest time, enjoy great. We're remain for thank Well, you for

Operator

concludes for today's and Ladies conference participating. this you Thank you. gentlemen, Thank call.

disconnect. now may You

FS KKR Capital (FSK) 11 Aug 202020 Q2 Earnings call transcript