FSK - Earnings call transcript Q3 2020

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Operator

Good morning, ladies and gentlemen, and welcome to FS KKR Capital Corp's Third Quarter 2020 Earnings Conference Call. The lines will be in a listen-only mode during remarks by FSK's management. At the conclusion of the company's remarks, we'll begin the question-and-answer session, at which time, I will give you instructions on entering the queue. Please note that this conference is being recorded. At this time, Robert Paun, Head of Investor Relations will proceed with the introduction. Mr. begin. may you Paun,

Robert Paun

FSK, morning XXXX to note call conference information the is FSK a Release Earnings Corp to KKR Good be call. included throughout the Corp.'s replay that KKR Today's Third and Capital as issued audio referred XX be Quarter that Conference may Fund and you. or FS Company X, is welcome in Capital FS the call the available Thank Call. XXXX. on recorded for being an of will Replay November days. Press Please

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

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

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

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

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

Michael Forman

FS XXXX to Capital Earnings Thank Quarter Call. you, everyone, and Corp.'s Third Robert, Conference KKR welcome,

wishes adapt investment me your your to of seem leading up unrest, post-COVID work somehow the let seem Thanks offer associated job to times. my events and function presidential I every normal. The with country doing country almost First, continue continued business well to each of permeated has a teams. continues our our dedication proud extraordinary the is extremely election, our aspect the weeks, during pandemic these has to the entirely consumed uncertainties been our our the combined In effects with to almost team of social society. recent be have by ongoing election. and the to and as of a KKR to FS day-to-day to operating team environment. continues The you, our loved largely The in world. of of begun virtual coworkers ones cadence

portfolio sponsors to stronger with Our creation. as of continue for maximizing customers, building resulting perspective, X.X% we divided. in together time-to-market an increase long operations, included cash quarter, begin weeks, supply The few just holiday products. in appreciated an reserves, team per share has will positioning KKR $X.XX quarter investment things value make asset companies. net season value of such during net income the From hope teams these as toward investment closely country focused These working our investment FS than an our seen third of job investment exceptional was healing end. that to done by our recognizing operating share, during and a above with decisions on [ph] approximately the $X.X we streamlining public no a in that Thanksgiving liquidity portfolio, $X.XX proactively decisions meaningful are perspective, are debt available ways above liquidity per their quarter chains share billion as process our $X.XX tangible of move management are of as decisions our in which Across quarter, was is per manifesting our business themselves maturities. companies for also we term guidance. ended quarter the of share the From communicating third dividend the well-informed with we near-term value with have X% and we These the have per our realigning and

our Looking forward fourth share. expect our investors net investment a quarter to $X.XX consistent we with approximate value, X% of of of net to per asset dividend income our strategy long-term targeting currently adjusted yield

on for of the of As per NAV which to such, on provide $X.XX end over the of X.X% declared share distribution our equates our I'll turn team the market quarter. to call of to $XX.XX And Dan share quarter, the additional that, XX, Board of fourth an a September with as color cents has and XXXX. annualized yield

Dan Pietrzak

or those to is to in of XX% still approximately believe market of we highlighted From our M&A reemergence our of a perspective, terms we levels of And investment pipeline while pre-COVID quarter the has in transaction a trends have volumes, a many levels. Michael. activity. Thanks, not rebuilding develop, to alongside the continued earnings macro of XX% including second calls back it recovered

by regard quarter September and high illustrated as topic experience the XXXX disconnect in issuance to general meaningful year-to-date call, markets, the economy with of to near-term the we us concerns $XXX XX, and recovery. to [indiscernible] and economic detail through yield raise economic market monthly between our discussed Another performance in ongoing below second U.S. fueled of Recession. The still record-level record continues levels billion annual continues of questions high year issuances depressed only refinancings record $XXX the and March monthly In The not full issuance the is seen remain market a $X of billion continues the in the loan evaporated the leveraged through January during in since Great by set which level to July. and market, record XXXX. market February yield billion be

both from August driven many to in in to current yields. parent M&A, to Pricing of we of in Federal desire to loans work believe refinancing market However, a KKR generate returned long for level balance record yield the the managers target part Reserve's loan an overall the has access and borrowers healthy X.X% have effort by the to leveraged of put the environment money issuances, with reducing LBO, activity. instances aggressive and of and term many September, as From a perspective, leveraged in the levels of market been goal fed's has to low to by X.X%. stated unemployment continue

While simultaneously illustrates clearly targeting on targeting first with a jobs X% inflation feds distant of year, the inflation around per recovery second. of focus

narrow we a XXXX As during a the will this are lens platform, result, KKR stimulus relating a to unprecedented investments, invest we but time. possibly participating into believe new are processes significant we FS levels of credit continuing to and active with number in of continue Across beyond. government well

standpoint. While fragile are we still of underwriting aspects to nature the exercising of returns, is from economy, many attractive our the goal an generate caution adjusted given risk

terms our share benefit of structural Additionally, the relationships while existing see bias, maintaining first seeing of we especially relationships demand significantly are the new of focus opportunities perceived and transactions. in incumbency with still hinges protection returned we renewed sponsors. pre-COVID a borrowers as Across from health yield fair FS selective middle has positions the platform, cases, have well strong as financing we and second. high pricing These market levels. our and end markets, with the some key which quality upper KKR on created our where for In positions of us to principle allowed deep to

we of a which the below fundamental quarter, in investments, during capabilities capacity $XXX standpoint. new processing As from million still a is these our originated or result third drivers

a investments total mention repayments of $XXX X October on the FSK to $XX from during with sales X, investments. million November our in in and combined should approximately during to million factoring that quarter. portfolio of sales closed million $XXX equated net million period net the Our to joint I venture an of $XXX when reduction additional

quarter, we new even $X.X September began basis FS Slide though The positioned our from KKR starting depreciation, metrics the includes the few through we billion information result, disciplined Last into $X.X investor from performance FS detailed perspective, KKR as we of experienced we we same experienced standpoint we X.XX% last a have and the move origination of through cumulative providing have and of an months investments have is investments the XX, of detailed point the on XX, XX are we approximately we was summarized information effects Since believe This originated in From which XXXX, cumulative portfolio of as made we As website. remained December investment appreciation. on XXXX, presentation an is our year. COVID. new well Advisor. approximately for XX follows. think updated Advisor formed, billion of points overall the

toward we points what to with in be period satisfied illustrate time positions. are continue team companies conservative this operating data and our investment able we these performance we believe over the manner We to investment more deliver defensible structures been turning more has with investment which in portfolio to the believe be the

of liquidity XX% and to level KKR. will portfolio stimulus within activity lenders, the point, We developed we the which relative function Advisor originated either function forward-looking of perspective, in as believe markets government on herd support and Lastly we a continue this today -- federal is, the for been until to has effective of approximately government the vaccine of achieved. been line ways economy has M&A public a exist an is where continue to or to dollars corporate quarter, of find with to is normalcy. in continue band will receipt continue somewhat immunity FS third of originated both our believe by in by KKR COVID has will support will the market, From XX% are continue the some and borrowers end that broader will been the

future actions trust the government. the investors' course, assumptions, depend of federal operators' large Of these collective in on part in and

government difficult monetary longer intervention We support believe increasingly manner, non-disruptive in required. to economy is will a the unwind also in the the be

the recovery may our are that, road believe Nevertheless, thorough ourselves the result, full over in some back a that pleased investment pleased at the confident And that are look no capital is with are times be for decisions the foreseeable the analysis As find quarter us are of on currently to that to while making specifics. lead the the and on begin portfolio has XXXX. with observations Brian reason significant call and operating we we federal still we performance government And than normal. the for our These I'll diligence, to dependence quarter. far we markets have this to forward with acknowledge are to other we future. investment to we world based volatile, if from we turn investment-portfolio to as placed well-positioned are the discuss we conclude

Brian Gerson

Thanks, Dan.

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

a as compared at of on on first third was quarter. and X.X% of of realized the throughout XX XX. The as due fair were nonaccrual end portfolio perspective, secured non-accrual previous approximately on and with valuation our weighted decline or the X% was experienced investments in new investments by yield focus debt nonaccruals are and The follows. during portfolio increased our in was quarter. not perspective, investments did $XXX September as the XXXX. positions compared September to of certain XX% investment The depreciation million debt basis approximately across restructured. average our lien as third cost to senior of X.X% XX% X.X% quarter valuation higher results associated X.X% and total portfolio unrealized X% value the XXXX, our details our quarter, average million. portfolio $XXX overall the XX, of of on as a June portfolio quarter, our the and yielding on portfolio yield exit place as X.X% continue XX. to at four nonaccrual an senior basis, We We amount loans The during weighted of debt primarily our represented secured the occurring quarterly From June consisted assets to to any a of From

includes appreciation reversal the portfolio associated Dairy, company of depreciation $XXX Mood and certain FourPoint Media. quarterly with restructuring, million Our of including unrealized Borden

million which by during positive remaining appreciation continue results quarter the Our impacted $XXX widening the initially inputs primarily operating for first portfolio driven of valuation a recover. second and improved of to combination conditions specific in general market was quarters, but during and by spread investments

was continuing Our million during unrealized unrealized to depreciation and realized legacy effects impacted XX% the our to the $XXX over be by of depreciation many total investments, COVID. quarter, related of certain

losses, from realized to related previously depreciation restructurings. of million $XXX approximately mentioned primarily the addition, In

the and results earnings portion of teams that, operating investments series across to to the dedicated over completed represents portfolio we team of internal our in work perspective. and a of the believe Steven to specifics these for during these challenging financial valuation the of instrumental with an detail. having having processes, step investment these us from investment [ph] seamlessly a many dedicated our more discussed second we our group call, call which of on navigate legacy KKR's meaningful a complicated alongside situations. professionals value was quarter both our to restructurings time-consuming discuss able of And I'll While turn demonstrates worker

Steven Lilly

in reporting on a our our Dan Thanks, behind Brian and way in to Brian. linking on release press results, financial contained already be color will which them less-focused comments XX-Q, transparent touched. focus on more earnings and My metrics rather but Michael, the comments hopefully and the have informative broader more

income, our experienced investment million investment First, in quarter-over-quarter We $XX the in extent portfolio, due was higher decline coupled yielding following. a of to of $X and interest to declines impacted our continued with million by across primarily repayments decline the income total lesser a our LIBOR. assets

average through Given investment we compression which XX majority basis floating rate has its now that of XX% worked the our floors, LIBOR-based has portfolio. interest points, the vast rate portfolio of believe way

venture during the income increased of income the and our quarter. fee to million from our quarter, income $X components the Our The dividend and quarter. by included dividend fee of dividend third second as largest compared million joint during $XX.X

a fee approximate recurring investments know, between this you and $XX of dividends basis. many Other expect As we $XX totaled the quarter-to-quarter quarter. typically from during $XX million dividend quarter asset-based income primarily on million $X million and million to income during our finance totaled approximately the

follows. is amount our the quarter-over-quarter of the on during quarter Our interest drawn the and lower rate. the [ph] compared due benefited of average to by we bridge in to $X quarter LIBOR as XX% quarter a sheet value detailed basis $X during approximately million from as by balance our fees the million expense as floating assets share per quarter. net gross the is The Management during decreased asset prior declined reduction

value an XXXX $XX.XX share per Our of increased due by $X.XX investment income asset portfolio. increase overall share increased $X.XX our net and value further by of net of was was share per in investment starting per QX the to

investment guidance quarter $X.XX income share of to per is approximate our fourth From quarter the we $X.XX. a follows. September Our sum as and value perspective, share approximate our net forward-looking our share recurring of income per per share our our share investment reduced these to GAAP share during to in net of value we The results per quarter asset asset activities per expect net was $XX.XX. our investment bridge the third per XX from dividend, $X.XX expect guidance fourth by $X.XX net net income

associated expect expected JV expect recurring million; Our associated dividend new to flat have expense approximate quarter-over-quarter approximately expense each we investment other and fourth LIBOR of remain million $XX rate coupled yields to with be increase quarter-over-quarter, with more income based and portfolio approximate interest income as other of our that the expect interest quarter. we during quarter-over-quarter. given our other, the achieved; we relatively portfolio been somewhat the will offset quarter; value most floors quarterly fourth fee floating relatively we with management $X is we by will and investments income our $XX now quarter our expect will an expect standpoint, to the dividend higher repayments general static our on fee our From million average flat during flat expenses during administrative and remain

the $X both of Finally, market the quarter investment income back accurately, to operational is taxes net we more investment our provide and during the the per To it for calculate a add approximately Nevertheless, fourth reflect to excise income nature recurring to important calculations. excise business, expect bridge believe we taxes pay share. we net totaling ongoing million.

reaching somewhat the asset yield time, in achieving our dividend of our resultant portfolios, it quarterly investment target asset be volatility have X% yield net over our a will value our net yield companies' on due less to acknowledge equate standpoint. to the to the reminder, from X% COVID change on our of dividend over said, exceed first quarters on a effects our our most XXXX be may for but or X% where quarters we that operational three are in quarter-to-quarter investors. being in been dividends we with policy As an and despite will there be fluctuate value to That certain per quarter-to-quarter target expect this yield value. we the business dividend a long share, that asset pleased would able we far net annualized during dividend our normal of to term, means per greater Obviously, than concert range the fluctuations the share

our leverage our and sheet, and equity respectively. the of levels side In first net quarter leverage to during balance the represent levels second XXX% are of and XXX% decline our right terms a debt gross levels These from year. this of

liquidity billion said we our is equates and XX% overall available which a approximately weighted of And of second $X.X is with an portfolio, percentage. earnings as very we XX%, to structure, of of which secured liability pleased debt the XX% with on investment value Our to continued be quarter call, cost our of average comfortable our X.X%. unsecured

In terms no of XXXX. until debt maturities, maturities of we middle have the

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

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

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

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

Michael Forman

Steven. Thanks,

seems call, government establishment believe foreseeable from of continue term would economy That in benefits As world to at active long deep relationships work we the the plan best the management, ways. platform proactive investors decision established issues BDC a the sponsor the to faces county making, what dedicated the we opportune future. FS industry we've the throughout the will that KKR be to time. and of teams, rigor federal investment we operators, accrue our of tangible mentioned for structured to play this coming believe fruition we FSKK, in seasoned are broad to the believe portfolio for based no an our very From we to shortage said, of continue materialize to the there's beginning to to as as advisor committee role

would call questions. forward to operator, future look for to We open the like update And that, with you will on progress. we continuing to

Operator

Alexander And Instructions] of Casey points. first [Operator compass with the our from comes line question

Your line is open. now

Casey Alexander

for a Can around put being came going get in fair right I'm run of higher up generated amount by of run number. to portfolio. normal dividends and And a a the rate Hi, to a There's fluctuation forward? the at been good just rate morning. than you kind trying pencil

Dan Pietrzak

Yes, Dan, morning. Casey's its good

seen venture I the think of dividend quarters. joint over out the several the growth you've last

maybe the did little some have there's get we bit portfolio there. started asset quarter. a out think We more to I to of strong that growth performance steady this have based state, finance

COVID but the of You know, little probably off, ways are maybe sort those sort a been some numbers bit of up of noticed, there of in mainly reasons I catch was million. sort returned at income higher, some if sort paying, it thing because due to they those was turned look to had there. only $X in then fee for our of the some And you and other quarter,

and the But I think for what you $XX prior million and fee in probably range in seeing you're quarters the bounds income. to dividend that's $X was million. the of ranges four the sort know,

Casey Alexander

my stole fee was you question, well, income. Okay, next which about

circumstances? a where have discussed we bit Because because for would time point in brainers have returned they to in COVID coming spreads to that point some standpoint, little any to that cases under refinancing the Is me that structured at that got terms, companies start the pipeline that levels. bit a stronger to From COVID into are a been better, COVID the deals seems logical terms were they're time, have the reasons You going come a performs through of of may market financial see for be condition to their be may somewhat there where little money? market? to dinged kind that done no and first, well pre exceedingly and to it pricing in

Dan Pietrzak

Yes, of good though. a couple ways, in down break probably I question. it now it's a

sort or of have of of just market sort things COVID weren't by participants but could sort forms us, other I a the seeking already capital. of of lot Maybe of the sort by think done impacted different done market. those names come either

for what pricing on still but pipeline just perspective, XX% is today, money think ones you by built have see supply the demand very up number, people more is fairway which even quoted to just are the would the of XX I you impacted, that sort a market. maybe bit to but XX mean, basis think COVID center seen are the story February, some From we in of a that catching on do a busy, scrutiny pre a invested is of little more activity, XX% to that so if of harder, maybe least think there's pipeline perspective, think has backs. or in point I as up to call January ad at definitely deploy bit we'll say, transactions levels. teams do a in from have we're do think are documentation. sure. things seeing for not COVID scrutiny think I I we who be to work credit this buying there's there's that But points. back I we want them a is more want wide those I it, little the more credit, I to we on

we're that's the sort things So, in today I think seeing of the way market.

Casey Alexander

you. thank folks step and ask you. the right, other questions. Thank some queue some back All Okay. I'll let in

Operator

Thank you.

question with comes Rick Morgan. line of JP the next Our from Shane

Your line is now open.

Rick Shane

I And hope my everybody. taking questions. everybody's thank morning, Good well. for you

loans the and higher portfolio quarter. repayments to effort you they're the combination appreciate really of the look the the When mix we all, very of yielding fact of that the do higher it's where repaid about of we the so disproportionately opportunities, this guidance where much spreads forward. think we highlighted you helpful at again, we the When provide overall realize the as think are investment see third in going considering, the and do I point? think you're given drift But in lower about that spreads size stabilize, particularly are it's drift marginal portfolio, now marginal. that First to

Dan Pietrzak

Good hope your and morning well. as wells Rick

sort that stable now. I are think spreads let's of fairly called

XXX XXX I where have think and we have deal in of to are deals May wide. have That very long, would about a would last thought every weren't or a there done been we basis April, didn't points would necessarily talked there. that scenario lot

way, I it type think we'll that unitranche know, You call for regular loan.

of a be environment, I seeing stable do, of think sort let's spread can fairly, second earn it question, think normal to we on the basis maybe Casey's out little that opportunistic COVID investments. there lien something are kind had that but on more we things comfortable we're that of can that call recovery, or type an impact, a a back maybe whether bit that we're I

I exists, I portfolio portfolio think way those is think construction. terms So in we've constructed way continue of will that today the opportunities a we the

made quarter, that we've got repayments and sort protection I many of yield second of think two names. knowing that about first dividend the I wasn't comment quarter your in of sort But obviously, with you Principal just of the goals there really targets meet. we're of was looking repayments mean, one to the yielding or being build investments, the but sort to to higher portfolio a skewed in very the basis diversified kind so

Rick Shane

the asked the then market and power the And all terms I'm structure? in it. any Got in of of protections terms in context basically, same regained of covenants has in question,

Dan Pietrzak

relates think of for sort come pricing discipline have, fairway to I back has of call a it center backs sort out that Yes, we to while deal as just bit I of pre has what and covenants. and there the there, do add are COVID structure think, we'll more levels?

basis. continue have covenant. you lien employ Right, [ph] forward you're enough I will big to us to that that say supposed is of to we're not see go a think before; strategy you've sort Unitron a I first believer a us product paid this the think on getting heard notch, and

the it. a think I little lender the more bit of to to sides waited

Rick Shane

very you thank much. Dan,

Operator

you. Thank our Jefferies. with the John next from question line of [ph] And comes

now Your is open. line

Unidentified Analyst

guys. much. morning, Good very Thanks

the on be the we a QX of industry characteristics or but characteristics question little of maybe kind tag recent thinking should end any about? but last First post and not pipeline, so terms the recent of bit geographical to a question, of investment activity,

Dan Pietrzak

you think will bar on don't Good in impacted morning, focused about names worried assume any by we risk we I many call ways, underwriting per I should the John. it be wouldn't not non-cyclical higher today, have are se, COVID. think we that of we that wave bar, with that being geographical second

this kind I think playing. we're You bit but sort when closed last sort industries news deals the we're together about quarter, and in the over defense be pipeline would know, the that the two changes sort of quarter of dynamic so I of those lot a the of of today, should expect yesterday, we that that quarter And committed sure. first come things expect, to playing sort we obviously, next of think to hopefully you way were the for underwriting month think but the that's were that a that of

Unidentified Analyst

is or about originations then do And something was term, just in net quarter asset that? that quarter of that that was sort of deployments, your a that of think the mix How more component that might a in of the long a portion. last based pretty just bigger quarter? be we call it or finance of big the within itself an Was that opportunity one deal, presented Okay. particular

Dan Pietrzak

the on construction no, good I'd portfolio start it's sort Yes, a piece. of question.

now. finance being XX% we've think based and there portfolio. about, kind We're it between somewhere talked of let's XX% I asset of the call

think I that. about So we're happy

I but XX% transaction You much was probably sort on I normal wouldn't bit, of too little skewing total fairly that know, to the opportunistic construction. focus that small does quarters, versus numbers there inside we because into side, come I guidance read that more we're on to kind did, of that's origination a one of the portfolio think think from the XX% mind the qX

Unidentified Analyst

of lot Okay. you kind to COVID getting also you of back parts level. even to a normal talked of financings markets But of LBO or activities, other maybe about the pre Dan of terms, And like then up. acquisition that's in creeping question. kind referred kind and

you XXXX. look into as Just

of the in kind stimulus. Assuming might less it opinion slow some deal lined more the the more of an flow? of or on we but straight same of drivers shapes not the market be recovery recovery next how Do you terms of call that up have a year or have, guys the levels

Dan Pietrzak

a it's know, question. You good

think their that's on been of and stabilized, than it's seen easier deal. a going a I offensive companies arguably just lot do I competitor recent a think sort to sort months of the add new buy has we've probably effectively businesses of today as on

So probably percentage wise, I been think is higher. us, that for

and we're with to they more hired. to, see way processes but I and used will happen as ways much mean, maybe think think starting done. as regular are be, occur as historical much as norms people I I finding M&A to people are traveling deals advisors not get or are

the environment around let's that if of we're think be can wave today, are in comfort bumpy a sort the you'll may traditional we continue on up see of large be I guys. call around sort I side. understanding but so very bit think some second pick sort lockdowns, economy and of that, of pipeline, have and the M&A just people volatile, an thanks much, more that to Great,

Operator

with the Fargo you. And Wells comes question Finian Thank O'Shea our Securities. next of line from

open. now is line Your

Finian O'Shea

you. Thank morning. good Hey,

levels, when is Is permanent to on question out? more first you you go variable again, perhaps target point appreciating you'll a this the NAV stabilized? certain Just the back where concept? fixed we transitory dividend a feel a of or think Should there all as laid policy dividend

Dan Pietrzak

start can and maybe I'll Fin Yes, add this. to Steven

gotten from I market. think the a lot of feedback we've

probably stability. variable what of why don't is, But, You is know, sense think, But I you of does think I component a BDC Steven, understanding make us. I also, to it's some of of add this what the combination real to bit a and product think a that sense kind that? creating

Steven Lilly

Yes.

we permanent a shift, the terms would benefit time, pricing industry There's a same not transitory itself becomes quality, way, think think of pipeline, so very with about an this shift. many BDC's dividend difficult credit inputs have rate to the deal rather of quarter variables, think, a changing handle lots that quarter over this in we've changing for So than it's BDC. And that talked a platform. just Dan's our you environments, interest as every a more in we of environments, lot I every frankly, that right all And operator. fixed as just deal

way having time, period think and of we go long target to floating a mature, for think that to yield NAV for more investors frankly. we industry of creates policy the better of industry sustained enlightened, as continues a over the more a type matches a So as

Finian O'Shea

a think the hurdle What helpful. a of similarly of do you That's concept rate? floating

Dan Pietrzak

I interesting it's does the what align with rate floating of it these of mean, Fin. loans. an question types argue could which Yes, you general investments vehicles are are

in your as sort of how think You of you little to liability asset there, it puts manage of know of about a the kind side. probably that side other complexity bit

most floors. some with think of You also deals I know, there's do LIBOR because and of come the sort complexity

So, concept is probably that I mean, think I interesting.

complexities though a think I honest. challenge, could be the be to

Finian O'Shea

for Understand, Thank guys. you, that's all me.

Operator

of James. Robert Our comes Raymond next the Dodd from question with line

line is Your open. now

Robert Dodd

kind about the it competed those can total mean, morning. structures, leverage, might in add a about COVID with question to Back you a and backs Hi, but etcetera. you maybe adjusted better, just word spike. however reduced, pricing competitive mean comments I guys. [indiscernible] given if have The other back, the lower risk not return of the about been of seem it's spread what so But your spreads, higher. spread are Dan, might or have [ph] kind Doc's given been yield away, talking I better I speak what's if components market after if have but been. to obviously. want to about, don't not are mean, to Good forward talking very

pricing? what return So spread those of right rather now than have total impact the pricing kind just implied in did

Dan Pietrzak

documents April I'm but in mean, what Yes, give of an you of or sure value interesting would away COVID question. are in it's are been not a pre them common that those a pieces an they ton deal. better, so not are entirely items, would documents standpoint. pricing have far sort I from other May

saw You through. inflating add that know, maybe was done, think EBITDA, obviously, backs are covenants, are of sure. better, where I that deals focus on was on Add holding, backs challenges And the for sort certain were think I market come I the think cash didn't

XX%-ish [ph], our get an do when it's XXX benefit you but credits would overall the think of but some larger points two probably for mean, there'll way you I and mind, be lien our So, on call in ID, your plus from locked portfolio, to all putting all I sort say unlevered second assumption the in maybe of time, fees an impact, a steel basis. of it's in about space, companies, those, we're that better unitron probably of your your be I the lien think the think lot you Pro, an probably view regular those that's or down you LIBOR is some of they be We've call I will been level portfolio. of second times pretty selective prepared can this credits

You so XXX of know, lien on they're syndicated of basis points what just we the back talking basis back probably first points the XXX said, markets, probably now unitron.

I So, an know, overall ways yield where considering that's there's been here, of I to But you we've overall the especially think think attractive rates way pretty about. build, sort thinking are.

Robert Dodd

that. Appreciate

[indiscernible] I dividend obviously, paid this back, quarter. a asset the On mean,

for of of backed for mix in has a maintaining something either what in for in better rebound asset in XX% XX% but other or you a to would higher shifting target lack market, that those the obviously, versus to that interested lows XX% it to seeing the So security term portfolio. lower? for for take be but still you you're Even, going it the areas, kind XX%

Dan Pietrzak

very the and like heard backing It fond those calls They a of of prior, is us it that sector you've margin. sort sort a generally on we of higher, are paying talk deals. sort collateral overall of about of we are

governor focus in would that on originated, not sort that directly think corporate obviously, sort the middle focused of uptrend platform I we a strategic market. to of to of our is on take probably there higher, why the loans, purpose here is

So, I lot downside what attractive see this But stuff we as sort natural of obviously one a return. there another that's like non-EPC; very governor piece protection think can you really so think that. and of be of sort got and again, we real of I

that So we're I comfortable with today. balance think

down the as the we and widen spreads allocation. think saw are we book. some could I if liquid and to asset and But maybe the spreads in we take just see lending portfolio asset think in have didn't space. we base other it cognizant more situations, wide these finance flex about We're dynamic we

just stay range. in can't into I sort XX% would So But that of you probably that quickly. move to XX%

Robert Dodd

you. Thank

Operator

you. Thank

Bryce from with question next comes National Securities. Our Rowe

Bryce Rowe

ask a the the about appreciate Good Thanks. bit I Dan morning and/or little and you Wanted restructurings, taking to questions here. Brian.

losses. associated of realized the reversals mentioned $XXX million with You

gain So with or have curious might those assets associated kind what on of was exits? what mark and been loss those the

Brian Gerson

Brian. Bryce, it's

$XXX million depreciation same with and those losses realized had we associated of So reversal unrealized of of $XXX million assets.

much top So on of it's each pretty other.

Bryce Rowe

you the the pipeline, you about -- quarter. again, good process restructurings then within provided and last at And quarter. the encouraging. talk you the you there, that's can the outcome Dan, four Great, then the if on noted bit restructurings the third in organization guys on from a restructuring will, current if perspective Maybe that of detail some your we a around restructuring here thoughts little look

restructurings months? the six So the potential three over three to of here portfolio about just next Thanks. how think you curious current to

Dan Pietrzak

and off Brian sort start I'll take and of Maybe with add, I'll too. the the Thanks will team. for just that part first

added to dating actually idea wanting have really the the of XXXX, back leaned someone we there. think over of I sort into dedicated sort added is to time, a April timeframe. restructuring that We've of end of team.

we we're think have I happy that very that.

has team effective. minds the think I our hard, are tremendously worked very

of not to to be know adds do the I prepared names value watch people when we we spot, in these value amendments a we us companies, might to all business to make. think prepared it the do to trying We're need because we're just but is take kind thoughtful of of need what just be can these when on list that, not lot adds company get for they over of a sort the with that. to but

value team that think we us So of lot a generally. adds

what partnered that we equity at effectively with I I think in quarter. of marked ourselves zero. paper, took call back We best-in-class. put stake the we take That example would Borden We've there, sort inside one we a was some got good stake. a equity is an position think

get work hard management think the hard with team we to that do we to recovery brain I support to investment. initial that was that to maximize that team were our sit, of our and versus I to work lot So going a But to point. where think to we're try damage happy

Brian Gerson

potentially certainly probably gas-weighted lien is that We mentioning. balance to by impacted were the FourPoint control we basically tranche Bryce, of the a SG&A converted and in so It's think equity in name And also commodity the lien the to another road. second Xx de-levered Back M&A down from summer It hedged. EMP to in a July, business well hedges important. control investors equity, well some they're that sheet, Yes, took second of us it under we the took allows were opportunities did company where worth close to we prices. in business. as XX% significantly we a some of business. business, some had was XX% leverage. notes Xx of We focus is their on as we the restructuring COVID as and part The decline in and

Bryce Rowe

current guidance to you about here the of forward getting more to near term? how nonaccruals? Are restructured think on over closer some portfolio helpful. And that's the Okay, just any

Brian Gerson

pleased it, see on with Yes, I'm and portfolio, how happy on. today the names a of some don't where these were we and sort that basis. we think sit But pipeline', I the forward I think of sure and near not of anywhere was we've so pretty call think are perspective, things there sort guidance we'll words, ‘restructuring focused I rotated clearly, we're your

Okay.

Bryce Rowe

Okay. you thank All time. the Appreciate right, guys.

Brian Gerson

you. Thank

Operator

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

open. line now Your is

Ryan Lynch

and despite, FSK pretty similar then Really, for performance in for several investors for big, in in specific my NAV. liquid and background caused has QX, QX some loan years. in opposite QX NAV. pretty the a in issues the past last maybe to different was credit I I and prices performance credit the thanks big quarters morning, credit think been you several of spreads fact, that saw big decline And markdowns uptick credit that focus some a QX's over think taking due Good and that was versus dramatically questions. the

you the those QX the in and between markdowns you call? think much your still than of And make the out a restructuring turned that there certainty So think portfolio performance too really corner with perspective, stressed current Or just there do from has the that what portfolio? investments? QX's credit changed is to

Dan Pietrzak

your and for over you has Thank that. go There's think ‘credit sort QX a of Ryan. sort of in morning, maybe changed performance' the Good couple back I that kind more through to we names been the of step Yes. different a point, work focused portfolio. we've we don't to certain I pieces to if would there. QX, on was much specific and rotating continue take very it I think

XX% You KKR saw challenges had originated -- we've in the our XX from think some got percent, some legitimate of sort on from I overall plus sort KKR, of plus we've FS older names. of Advisor, comments, these earlier

dig side not recovery the quite been names I deep of been we've those on frankly restructuring on great. have rates and the some forced think

that think I has been the So driver.

sort -- market website sure Now we've want $X.X quarters make assets. understands cumulative so on this our Page start slide and that's $XX up million. Total since the depreciation the Advisor, -- the what deck good do of originated of this XX we to Over billion of of was XX now.

about That's over annual million X% $XX of I think talk of of almost well probably context, target when we investments, range billion losses. $X.X a you sort in put inside the with that in quarters. XX

think really we've good made I progress. So some

the both the I what origination portfolio the of think we're team quite side. done on also side, but on has proud

still work originations are it the this some names of sort manner But to to believe companies defensive to some the and think investors. in our for do creative continuing in we to corner build strong I we portfolio think portfolio there. with a believe turned as continue got do relates and I what we've forward look and good to we our

Ryan Lynch

there's had current one well lot as color. and a Thanks Okay. pricing the of been discussion in I the then know pipeline. terms I market, just one. for on other And as your

guys' at, you at here? forward going just point, levels going are from at leverage guys repayments Or expectation [indiscernible] set I where as look this that what's today, leverage originations? forward to understand you guys' leverage match I are going levels from with thoughts Just and targets you the

Dan Pietrzak

wrong our leverage with I'm to if quarter. Yes. sure assumption. at the happy X.Xx not target that's We've We this were range. sort down it's the of that come too see net, inside

Xx Our X.XXx of changed. target range to hasn't

there. expect operate within expect this you think to should I So us

from QX, to only but is near it we take what beginning debt and think we feel from it in of we not we on would probably obviously very of that above is the that may liquidity, time both the then are I available maturities in term see where the liquidity which QX. think be and a there there been I would sort way good opportunity also a today have volatility, capitalize perspective, market

Ryan Lynch

and on Okay. Understood. on today me. That's congrats all for the the I time the appreciate next quarter.

Dan Pietrzak

you. Thank

Operator

and Thank from the you. Point. follow-up And with comes our last Compass Casey line question Alexander question of

Your line is now open.

Casey Alexander

quick Yes, just check. want that to is real math for I this because Steve

us your absorbed front quarters level-set of of waivers stream you If we'd have in we earnings do many back? look know additional going incentive before they're if how fee you forward,

Steven Lilly

there's quarter that to range Clearly period of quarter, guidance, Casey, an quarters Clearly be said time. ago it we to expected direction, guess, guidance we from our the in books now fourth fee. two of gave in positive six in a probably the not five incentive kind I too. that we moved for the

the not you that's we But bookend offline up can for [indiscernible]. of follow math. a having also me forgive for hopefully, and bit a exact maybe So

Casey Alexander

Yes.

that'd you Thank be to great. If you. want follow up offline,

Steven Lilly

much. so Thanks Great.

Casey Alexander

question. taking Thanks Awesome. for my

Steven Lilly

Thanks, Casey.

Operator

would Thank Dan answer you. And turn back to conference the I call this and does to conclude session. closing for question today's remarks. like Pietrzak now

Dan Pietrzak

We Thank talking again to you remain look and thank family Thanks, time again. do everyone do the to for and healthy taking again your hope you. that forward you We we soon. safe to want today. and

Operator

Everybody, you Ladies and by. gentlemen, this concludes standing you today's conference for may disconnect. call. Thank now

FS KKR Capital (FSK) 10 Nov 202020 Q3 Earnings call transcript