FSK - Earnings call transcript Q2 2022

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Operator

Good morning, ladies and gentlemen, and welcome to the FS KKR Capital Corp.'s Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. 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 Second 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 August days. press Please

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

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

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

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

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

Michael Forman

you, to Earnings Thank Quarter and Capital XXXX FS Call. Robert, Corp.'s Welcome Conference everyone. good Second morning, KKR

first investment equity environments. are half broader benefits reminded FSK, multiple we opportunity of the investors which risk-adjusted the the With yields markets across for of significant during the consistent market the volatility of year, dividend-focused experienced companies like offer

degree Our originated last team investment continues the financial stability investments due a of over to portfolio of has quality our experience the years. X-plus to high

quarter total net we results, and During financial on per totaling $X.XX to a investment per totaling distribution $X.XX income per income Based adjusted approximately has the our quarter, third share share declared $X.XX our compared Board share. guidance second of $X.XX investment public respectively. our quarterly and generated share, per $X.XX of net as

also increasing distribution of this our we're share. As base part per $X.XX distribution, to quarterly

net in The asset of X.X% marginally market investment decline multiple quarter-over-quarter. quarter debt in of portfolio detail the widening investments $XXX contraction. during during as market, overall with our of will first value the billion the during this team primarily private second our X.X% value investment portfolio slowed comments, the decline investment of Consistent $X.X our volume to to value Dan spread to equated the his in during discuss year. compared originated As due a of origination and more quarter the declined investments our quarter million

million $XX August be our investments X, share forward-looking to position repurchased as of to the of shares us From call additional perspective, the enable million of we program. terms quarter. and through to liquidity into our to And program repurchase market believe will we this strong regard the with we $XXX under In approximately XXXX, second over a opportunistic on move provide with new Dan in color I'll that, team half the the turn the year. have

Daniel Pietrzak

Thanks, Michael.

a we risk. As of contributed supply heightened recession, monitor continue of to These market volatility. directly half fears the the enter factors, and we higher second the coupled persistence rates geopolitical closely constraints, ongoing to interest with year, inflation, of have

Federal quarterly volatile maintaining inflation. review a decision a including having curb rates to with the operating take team. comprehensive process to interest rigorous terms ultimately a workout believe aggressive raising we While will the underscore believe these portfolio and approach times that a We seasoned of help Reserve's more stance of in importance monitoring,

In have addition, loan with structures low the largely X-plus over years, and a consisting constructed minded interest strong portfolio last ratios. coverage we lien first defensively of values to

competitive strong cash to continue with positions flows. We resilient on focus and companies

limited we cyclical those While discretionary in exposure have to as our time, more at on such the companies industries, spending. focused consumer same

origination a protection investor the strong as asset-based volatility. will navigate In from market increased frequently from focuses believe and long-term private We position we especially contractual public of financial differentiator diversification, will volatility with and key structures, a of streams finance our mentioned attractive strength paired to for both issuer our returns, of the times investment in our demand on which addition large investment the is capital enable investments maintaining perspective, perspective. believe operate to continue collateral, which risk-adjusted lead private environments. traditional capital while a provide portfolio size, still pools market structure earlier, during downside sponsor industry-leading for opportunities business, structural markets, us us. Michael We we increased to current capabilities associated an to cash scale, credit with strong believe flow From

existing portfolio for investments companies. for Turning financings the we perspective, origination the originated million on to an focused $XXX were From add-on activity predominantly quarter. of

X related liquid to has the time, the to and it buyers is months businesses. where volatility which to trends, an high-quality color, in for purchase the financing environment macro same in than terms of for believe to has access reduction even In buyers multiples. difficult market more created activity are price grappling the credit X more we M&A sellers usual over determine markets At made last acceptable

these types of and market for During standards high-quality environments, vital to maintain it our is underwriting credit process. us disciplined

decrease of to joint over expect venture, $XXX combined coming to As these and we quarter. a million investments, equated $XXX the the with sales factoring portfolio result, $XX of million during a to total opportunities repayments, net conditions many our Of attractive create market will months. million in our sales invest of when net

recapping increase on net we to outlined of opportunities September X Investor investment that share terms In basis the XXXX our income our a Day. per during

nonincome-producing into income-producing certain of out rotating was assets. assets First

the Investor Second, $X.XX our balance debt midpoint cost our view additional was sheet. income. other share our At to on range. net leverage of we target selectively and the that communicated somewhere closer unsecured per up per of factors, interest And generate these our quarter XXXX, third, opportunities operating certain higher refinancing by of Day, end to we're depending could prevailing on rates adjusted investment

totaled remaining addition, net which legacy income contribution $X.XX share, investment analyzed In adjusted the we per to also our quarter. portfolio's per

bridge moves through approximately be taking had interest that pleased in have $X.XX can per second projected. income per we adjusted we quarter of had are detailed During X quarterly XX of of rates, upward rate all At that share XXXX, achieved seen before incremental recent into our rate report our to share The the quarter end first run we stated achieved quarters. $X.XX presentation. of XXXX investment run adjusted we incremental we quarterly account investment the call, Slide of the on net income earnings net

In legacy addition, we to our have continued rotate portfolio.

share our contribution was XX% second generated per are of per quarterly of adjusted of quarter, legacy $X.XX came from $X.XX end the valued net And by income of of investments share of costs share, the this per As higher. the investments. at $X.XX investment

end of XX% yielding of portfolio. the we As rotated investment second the our of quarter, have

to we our share net with to increasing rotating basis a pleased portfolio progress the income adjusted on per with have be originated respect investment assets. made KKR both and investment our continue into quarterly quite We

provides that, minutes. a hear will Brian. progress call over to our evidence quarter this in You with the when few Steven turn just third further I'll And of guidance

Brian Gerson

Thanks, Dan.

As quarter, prior our second portfolio consisting a billion had XXX which $XX.X value of approximately investment companies largest decline our end from a XX, of of of portfolio the fair the XX represents represented XXXX, portfolio quarters. our June slight companies. portfolio, of At XX%

portfolio secured We June senior to consisted of lien on XX.X% focus also first as our of of XX.X% loans of debt XX. as secured investments and continue senior

or XX.X%, X.X% was asset-based yield In to investments lien at of equating represented investments. addition, venture comprised weighted portfolio X.X% predominantly The to loans first as XX. XX, finance debt represented the and investments our XX.X% of on portfolio, compared the of XXXX, of June accruing March additional X.X% which is joint an average finance asset-based

As a weighted is was the primarily Including experienced comprised yielding adjusted The XX% average with is accretion June to of XX, approximately the rise investment FSKR. or we associated our effects quarter, the our the in with portfolio base KKR advisor. XXXX, reminder, weighted the with merger quarter Credit of during in FS/KKR the of yield the by originated now investment either investments the rates. associated increase exclude during average yield the activity second of as

progress we have are rotating As assets. proud Dan we the made, mentioned, of legacy

On impact the merger accounting, Global was company's information investments experienced and we during have The we of quarter to provided spread excluding Jet. the During the portfolio multiple widening detailed contraction. experienced on of million. calls, second investment depreciation primarily depreciation portfolio quarter, we regarding net $XXX legacy the market in earnings recent tied

positioning quarters, principal last with while to actively company the business also receive their the to several ourselves working Over we've support payments. been

mezzanine on first quantum on cumulative of which of value face our principal tranche. payments principal being Based mezzanine received the approximately repayments, of million $XX to half During of we've of tranche. equates the our XX% received total XXXX, the

At restored preferred we call, first in our tranche from X.X%. tranche time, earnings the XX%. year, During our accrual from we mezzanine rate of on rate on X% to our to as quarter equity X% same accrual decreased our last this discussed we the our

the the During we on our accrual quarter, reduce tranche decision second to the equity made to X. preferred

rate increases asset decision was no the overall recent funding. to the on level and of impact the While with perform cost delinquencies, on coupled interest company preferred, our the the virtually the value potential of with company's based at the continues

X.X% combined of quarter, $XX.X market preferred status. $XX.X including debt removed equity fair and the million quarter's on investments value and placed XXXX, as a and we to value with a investment basis small a basis Global the market value nonaccrual cost of in of on legacy a nonaccrual XX, on X X a portfolio the on Based cost approximately with nonaccruals small Jet, During basis compared from March X.X% our XXXX. June XX, value a million fair of on totaled investment activity and of on X.X% fair fair as basis X.X%

of yielding originated portfolio. rotated market helpful XX% been that investment to KKR portfolio has be upon with information Credit assets it in our based would Given we our the providing the thought begin by

the XX% cost second FSK end has value that, Care relating fair to been portfolio, the by the and of our on And I'll basis. the on a As Steven. X.X% of turn Credit over adviser which with call the of non-accruals basis quarter, and KKR a to originated X.X% were

Steven Lilly

Brian. Thanks,

the of near-term our of results. on effects interest the During rates call, financial this expected I'll portion on focus rising

guidance second forward-looking our and sheet. balance Our our results, quarter

$X.XX interest company basis rising expected to approximately a is provided third contracts while interest impact existing points to the the levels. began of every from we During at our And rate higher positively environment rate share resetting portfolio how income of detailed increases rate by quarter, XX-Q. our investment is there expect in breakout interest per XXX benefit as

up view For investment is per approximately in could planning net share, increase $X.XX rates XXX per $X.XX our point which quarter. by every our basis per to purposes, high-level share short-term annual move equates to that income

second results that experienced quarter, Turning both the quarter-over-quarter, due income and end at we for of income quarter experienced primarily second of during quarter. which $XX by we the the to the nonrecurring interest during $X our the quarter, onetime quarter-over-quarter. was repayments discussed. million decreased first million first million to financial first the during the fee Total The on Dan earnings and Total interest our which income call of flat and dividend the income discussed our the income as quarter, total totaled investment follows: $XX volume second quarter lower quarter million components were the $XXX during quarter, during of investment originations,

and portfolio fee and fee companies other our approximately income million totaling million follows: million. Our various is of second during $XX income summarized the dividend dividend recurring income $XX quarter from joint $XX dividends as totaling venture, from approximately

asset-based our than dividend the continued second of payments dividend primarily joint and higher Our to investments. the due from ramping was certain income expected venture during larger-than-expected quarter, finance

expense we base $X leverage interest of at the the rising totaled and increase were to an Our rates operating target quarter-over-quarter quarter. $XX million million, due throughout fact that

cost Our weighted which of incentive million fees increase during was totaled the Management of quarter, $XX Incentive X.X% million during is $X $XX of quarter-over-quarter. million debt million were the at net average second fee June quarter, XX. fees the waiver. an $XX

merger-related was adviser have announced, As spread not our reminder, part acquisition share income the XQ share FSKR closed of due a decreased earn of net quarter-over-quarter $XX.XX $XX third evenly as quarters, a by follows: portfolio. quarter detailed our does on net GAAP FSK's of during earnings is of accretion discussed fee the to with as FSKR. as And which bridge XXXX, as value share we per June was by net just $X.XX incentive of fees of previously the calls, asset adviser of million XXXX. investment a on overall X will an our ending on the The in increased merger, decrease over prior share, our associated the any basis per value value per in of the began FSK, which asset in of waive investment per $X.XX XXXX and incentive

these per $X.XX guidance in The $X.XX share dividend activities we asset of share during due by value of $XX.XX. our share, the interest share XXXX rates. per GAAP per share increase the net asset share approximate our results reduced a as quarter guidance adjusted forward-looking net Our June net to repurchases. was and Detailed expect expected our increased $XXX XXXX third and From quarter reflects $X.XX sum to XX, a quarter by basis value the per GAAP on paid per which net expect to we in investment recurring income our approximate base per is of income investment $X.XX to third approximate million, income share. is follows: impact perspective,

with venture associated income dividend to recurring our expect $XX We joint million. approximate

other during fees fee our we million standpoint, $XX an to income dividend the approximate quarter. expect We From expect $XX to expense and management third million. approximate

$XX the to $XX expect We waiver quarterly incentive fees of net million million. approximate

$XX We interest our to million. expect expense And approximate expect to expenses million. $XX approximate we other G&A

investment not relates income net adjusted This during difference GAAP a investments net link categories spoke affected. income, which between accretion income. merger due of the investment of Investor are to of and of earlier, per from adjusted interest $X.XX rate Other reminder, $X.XX of year to September expected revenues our the share the As the per about quarter in our our run time In difference an the of number, quarterly key of expenses recurring investment to to average our and investment our income net and equates inputs First, Day guidance, share investment accounting. share. to $X.XX effort adjusted approximately last Dan affects which to our quarterly per share $X.XX to to per the $X.XX our share XXXX income the weighted by net another liability income adjustments as lowered per guidance share net at $X.XX and add and per $X.XX that quarter third then number Investor per We accrual adjusted due leverage. due higher costs higher share by are and with we began income that Day we follows: compared our as provided

portfolio which run of result Lastly, Day. to as per our to portfolio's due our These higher $X.XX our compared Investor bridge can $X.XX also adjustments we our on weighted of in $X.XX rate yield seen time per XX by third at current increased investment the a share. equals guidance on per Slide detailed share average our quarter net be earnings of yield This website. of adjusted our presentation share, income

quarter, gross This of to In respectively, and terms compares at respectively, first debt of of overall June of the and of comprised and the drawn sheet XXXX. was XX% $X.X At XXX% of and balance XX, liquidity balance our of sheet At to net XX, of our the side to the and right billion. equity was were X.X%. debt gross and levels XXX%, effective cost average second was XXXX. sheet, as of end debt net balance June end committed our our debt of approximately of quarter XX% available XXX% the equity XXX%, our unsecured our

among complete revolving During We to with an closing the our are back pleased the an long-term few platform enhanced to other for, we things, extension we from operational Michael the credit $X.XX amendment And as XXXX. maturity as were the strength investment with questions. provides call second remarks profile quarter, it further and well and open the XXXX of we senior our turn reflected The liquidity secured both community. the commitments of the of call FSK debt to closing to to I'll increase billion for an amendment maturity this of the that, total for is very date amendment by maintain relationships as before fortunate to facility. a

Michael Forman

open volatility. Thanks, enables the our strong This meaningful will during that achieved a from the period with In private period recurring increased continued we we our of team's total investment strategic that, Steven. And call From perspective. of income forward-looking generate both we've and dividend estimated to provide to fourth a FSK initiatives. return for our opportunities execution the net quarter believe from XXX% the the us questions. demand current XXXX we would credit with shareholders, market for perspective, a we growth for strength proud of like continued returns a operator, to net of time. of Investor organic over in X-quarter Day, achieve could operate I'm growth of the income position investment since

Operator

Instructions]. [Operator

Hecht line John from of Our first Jefferies. comes question with the

John Hecht

Congratulations the set pace on year. you last achieving out rapid Analyst on in goals the all Day

sounds some First other the based or NPA, at Global one that is, the and NPA. of percentage on assets you about of it least you talked the out Jet of of the resolved de-risked like what kind

level. you're about as is then one, number other that here monitor So inflation portfolio quality forth. any good talk in in guess, the portfolio at of what pretty seeing and level, you given big kind performance of -- assets I just so we And maybe looking terms EBITDA the credit things suggest there and

Daniel Pietrzak

Investor the top the for thanks the the numbers almost half pretty kind the John, board, been about line have good across on words portfolio, the just thinking stuff. XXXX. Day of first And for

we've been defensive think in I that of fortunate We've we've the companies upper the that fortunate we've portfolio. building a end that middle market. been are been been targeting

I just to more more pricing had think have levers they power, pull.

I think sort the of now. of bit company, sort on impacts of real. we real every little challenges cautious a are are chain said, Inflation that issues wage supply things kind remain right

portfolio review quarterly So we probably just days about XX had our ago.

we positioned. because I feel where think how pretty it's really I sits, the think, book of good been

So any think to I don't particular there's watch. names

we've like we think again, very a I the spots could kind a a spot. think is think been bigger lighter now. year little market and of talked portfolio 'XX bumpy good well discretionary, bit second And we've that be the challenge about consumer the in overall I think things I of we pretty But be might wise. start of think half the

John Hecht

you wider then mentioned talk environment about deal maybe the spreads. And Okay.

market I covenants, was activity in last deal impacted we by the are Where guess, choppiness quarter spreads, given in conditions. I the terms ongoing market. terms of the overall think that now

Daniel Pietrzak

question No, in environment. good that's a this

would than forecasted That's think of slower I just the down, you exacerbated. kind right? year been have always that about would M&A think XXXX volumes 'XX. probably we have If

many the I syndicated disrupted shut. think clearly other and market loan side in ways, of the is though, on that,

think, So us for lending is very good this and market. providing opportunities that I for

I now a of where cautious think right bit also you've think lender-friendly. gotten being positions. kind sizing that little market a definitely on is everybody I it's a And of market is more

thing been -- covenants, think a of probably you of risk. That unlevered cetera. dollars in X% et targeting upper is middle last good think again, loans When of But sort they've is time that, as to, you're where feels more market. dollar last at XX% we're think where loan risk is the I structures definitely as quite some of I of sort or on you're for end to the good. So sort interesting point returns about definite new the of are terms that pricing

we a our excited think for So as One feel I about. lending next pretty moment question, environment, please.

Operator

Our comes Alexander from next with the of line Casey question Compact Point.

Casey Alexander

couple of of a on that income? assuming a then interest maintenance I'm have question. I includes and your questions PIK $XXX guidance income Steven, million, just broader

Steven Lilly

does. Yes, Casey, it

Casey Alexander

Yes.

thought I so. Okay.

what of those losses delineate that you losses how during is recoverability versus occurred credit-based quarter, of the to on some get related in those between at what Secondly, were markdowns mark-to-market much market-adjusted spread some can the trying deposits. were of percentage degree I'm of

Daniel Pietrzak

hit that did of I X.X turn I question. think of levered. company a have But when be not X think of could I be I of been will market if you of those, there think, acquisition, lot But would those, an could right? be probably pieces part fair remaining it that, more say a a recovery. bump, Casey. of or related. sort all mean, turns do about maybe it number ways, would X No, One, that XX% I of sort think would about XX%, or the spread

just the XX% points. issues XX% credit So are other. Is But of versus leverage I said, issues I it's lot I would that those think as sort like to much a about market, real as credit helpful? of think credit market, not

Casey Alexander

maybe Yes, has And fully things of than other fledged more a guys workout is. platforms. Yes. that lot at it many experience have you a course, team these

allow rates recession is either the different to feel the from the more which period economic that were this you slow are great from crisis, recoveries how down balance road. an quite I of slowing assume clearly last we managing maybe into economy Does or to in question the entering that of This we've to down. uncertainty recessions better be have and unexpected. in depending to been of entered upon outcome into more credit time this expenses, about that's financial coming the demand portfolio than their the timing COVID in and So give raising for the inventories arguably that by in we've on that bolstering terms this helpful past you Should would your work with would My of prepare Fed companies out inflation. interest levels down way brakes their terms telegraphed economy is sheet, is X result of them put through? managing the expected

Daniel Pietrzak

It's an interesting sort of point or an interesting question.

I move think had you're sort we've seen to Back right. in the you valuation X, I a probably got we've for to This on NASDAQ the best 'XX, things X/XX. was XXXX is That bubble, not which to for mean consumer point negative. comp big like of confidence, was lack so years. a of the so this. driven of and XX the time probably really had the the -- back you of last -- the 'XX a is

which don't you other pretty side that had today. of you high that, numbers, of some the have Now sort unemployment

gets teams, I play So a but breached both covenant think also many of different with or I apple you on in that thing of have lot work correct not had fairly some telegraphed probably will it I things is that hand, of you're lot is months a on that a get other because terms The side or think if out or this over think couple chance loan kind many to because of this companies, quarters, the well manage bites X other management there. a of quite the frankly, get inflationary investment to of new of is risk to capital have of professionals environment. only reset probably a not sort sort in

put surprises leaning on out the of do well. will I as I are portfolio. but think Casey mean, tell I expanding monitoring even our there about probably couple we review portfolio it spending we've a you time more been anyway, talked quarterly we I to team. process could So a in

we make about our are Because said, to but the sure really We team couple an sort exceptional continue we in sort quarters we expand bumpy expecting just there. to of book, I that feel of want workout good think market-wise. a I'm like of spot I

Brian Gerson

not add, I thing Brian, that a Casey, market behavior credit quicker. as loans, facilitates we'd more XXXX a if kind think big to and is has And that it's that that process that's activity workout XXXX, that we crisis, think expect one And frame, other in XXXX And around time We I XXXX, you tend know, sort compare see evolved this we're syndicates. of to, and I'd efficient in saw the control financial much the lot. again. go private same our you and COVID, of

Operator

Our next with question of comes from the KBW. line Ryan Lynch

Ryan Lynch

question like loans guys that exited and base the I there. investment get to equity reduce I your on couple your also A had in it -- on X looked wanted thoughts your subordinated our just you questions First -- Capital. One, like looked was of took it of overall guys' you guys cost investments. off, some exposure

and that's Certainly, then there's on in equity going continue shift hear rates business. housing dramatic your just did the how little sizable pretty recent a that kind transaction have one, up hold bit? interest been business prices, a you also, that overall up guys regarding would love Obviously, just trends in in these housing that reduce to Turack a you number expect I investment forward? exposure market and So of a And in shifts is volume. it how holding -- if sizable investment. you to

Daniel Pietrzak

sort did so capital terms from reduce in other sort now. I lines take of getting exposure off we or the of working question, of of think your Ryan, sure, sources capital just that that a couple Yes, we providing were

as are remain team has its overall think So the I excellent of ever business, we -- done in right. terms the I in you I an think think job confident as

a sized I us. it's for decent think position

ways. it's I estate losses, for both a but it's also of the think difficult been obviously is us. consistency some the pleased and a It much the just we've from performed, to terms in perspective more market how pay that of been able real with in quite loan size dividends

tremendous of housing sort seen growth. You've price

You've rental seen growth. sort strong of very

mute I will . think potentially for that volumes

the of is I think capitalized maybe side that, are. as of the as on not a lot well other industry they

about of the -- XX quite they yields the I XX So to in up. "equity last points basis points capital loan. their them those yields And think frankly, or going attractive opportunities money for they're think, meaning is really a of below wider that's are months. achieve a XXX sort LTV it's loans, the to is for mean XX I X are probably you" lend on I XX, asset they're loan that able

I we think forward. where the feel in lending about portfolio opportunity So sits that on good again there the

I mind we thing a -- is sold in providing on pay able they're loans be renovated the side buying is longer maybe to for of that's then think that that do much go if -- to But of and and is homes more keep the yields capital definitely to these X take down, get a some little are could attractive. pretty bit volumes off. again, business

position. good So feel we about the quite

Ryan Lynch

update. Okay. That's a helpful

That's the just on global on jets. was X other another update. Okay. company And a specific helpful

put pretty XXXX, And rates the that's value. then is I'm part higher value is fair with from change. that that wrong you so capital a true. forward XX X keep using leases nonaccrual that of It's are markdowns? correct going things fully. just second then potentially want little continual I'm I and Obviously, the throughout rates months the sounds be is question is in It is the next calculated today. me current if rising you going to that sounds And rates sure and to well. does trajectory assumption to to to very understanding the could the meaningfully just like we're of fair And like just the Or causing think value off. mark continue the throughout that. performing that XXXX, impact curve in not your make on have comments, raise the bit fair if structure the that see I the mark they how today might and your that reduce commentary It Fed

Daniel Pietrzak

Yes.

curve So it's number there. on the is sort short answer the forward X of using yes,

remember, there's of and delinquencies mean in And aviation say, correct. part of in you the that. to done the no portfolio. the your of it's go extremely even I described generally back way a is, has If business well. virtually portfolio, asset of sort it or you X lending sort I private first lease sort would

talked we've of sort sort this prior of about calls. think I on

think company the of management an bunch excellent has company a team. The I has things very done good.

kind think a returns was ROE banks, just of exacerbated further same moving which handful going way. by competitors or loan business, the not really around just know put I of and pressure the their funding up lease has arguably centered on of costs the have yields which

half $XX proceeds things I first the I think together, when the almost you during note piece. put principal as that X So drove got talked we think we of that about that, of those on XXXX. mezzanine us to And on

itself So doing question. is the company more quite of ROE It's an well.

Ryan Lynch

Okay.

for and it stress is plan of I is lower, on Just performing anything structure higher rate of there's what's sort mean sounds it? continue business more investment? can if just means market market -- that the dependent mean on case, do I the -- versus capital the like that that you performance of the I can capital true? Because is everything investment well, -- guys spot, that on largely market tough one in if rates rates structure that sense, is more go to one. just of moves. it how improve your is that's kind on do which And makes is and there but market ultimate to a the Or on dependent the that investment your it rates described if go quick stress been kind what just you of it? mean, performance Is if follow-up I

Daniel Pietrzak

is Yes. think structure in tough the I a don't capital spot.

But maybe hope I think asset side versus like. strong. specialty not of job. just finance spend the time if a done returns what maybe more has on company. management to it's That a The this just get is able side that business company this team when of -- said, or ultimately and of sort liability overly quite can they compare brand sort they're for you good we very you'd separately,

call, a And some of their have will time think strong. are of think spending to the I working boost generate the other company origination channels been what quite to lot we with alternatives on I I kind ROE.

we cognizant in So ROE the today. is progress. just I the where we a But hence, is I are sit lot of of think where ROA think and that's where

Operator

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

Robert Dodd

on accrual I I it at accrual sort and restructured or it can the done and come question future equity capital on But question, what mean point given the is for coming is, given is or the back of preferred preferred effectively back [indiscernible] on structure, low. rest apologize some likelihood the in to -- point this this And the comment. some car on I is at some the quite But Ryan's of to horse. common mean, to following is of, you've up the of

Daniel Pietrzak

case there you think Robert, accrual. where paint on is it come I a could definitely -- think -- can I back it a

to We probably that the models. I put of think wouldn't we're not play that. forecasting in sort

the I more the business. job with done What back of said, a to improve think they've with good we things, continually able quite questions. years. I last do handful to the Ryan, fair was of probably going good be of which this were management the -- will there's team owners of think some to and asking of I there sort over Like sort other

the I book very good. story think the credit of is

model think that fair or to don't could, it in yes, of So I that. for would be plan sort it but

Robert Dodd

you reversed And does, syndicated mean does Structures your right that of a of market the spreads next do The Got I you mean, the this question. frozen good syndicated competitive taking to come said, about that. now, about yields fairly think market come it. of widening of if point. itself on a so you seems I I it share for -- kind represent syndicated one, change positive seems kind the mean, it quite have give started to of nonetheless, take But is when you thoughts just I good. you're markets. are it which any has in as appreciate far seeing the I think to the QX dynamic in. your more or still are XX% back does good. if for But side, the dysfunctional, from quarter. what us during kind guys the market XX% color on could that's back? market

Daniel Pietrzak

I some gotten you've markets perform. think getting you're probably correct articles in There's how to an perform XX% the the spread there. some initial probably secondary syndicated this. in of to XX%, on the back markets of news been have That's step move and started

some positions You There's larger There's of sort have sort decent-sized selling see up end of LBOs pretty probably it. of would can have handful yet. been dollar some that being been been not of those a that issued losses. banks

let's started correct. markets markets way it, using the all of loans, need credit market get risk some to are So someone cleared off private to interest the opportunities I that them right, it. lenders underwrite good of on in as if ourselves. to the you need think is an that call probably, risk, suspect you like get for be because I sort you not needs issue that that or question terms I have to to and this the rational new for of put such underwrite to people mean But would

and I handful private even just who as enhanced option. would prefer have are continue think to credit they a years and almost a that been ago of more there maybe borrowers get more sponsors

think more there's I So of users this.

good. environment lending the think I is So

for I think good time. remain will some it

Operator

moment for One question, please. next our

line question Jordan comes with Wells next of from Fargo. Witten Our the

Unidentified Analyst

if have position liabilities total total quantify understand. Jet. you FSK's the ahead can and another help even something tell Global mezz and much question just us you maybe then better as preferred. would us as simple leverage on FSK's how Can is just I above And assets a of

Daniel Pietrzak

you we the before. And have I I securitization market. frequent might this issuer about think talked with guys a I think, they're in mean Jordan,

So a facilities wouldn't conservative. quite corporate are leverage leverage that put normal sort you term. And pretty those in above of frankly, are

all XX XX LTV sort I they be would context. of in investment think grade probably the actually of sort

happy frequent of and time sits above. if So you into those like successful they're a spend more some that, issuer sort you And on with a we're but markets. what to that's issuer

Operator

JPMorgan. with Wedel Melissa from comes question next Our

Melissa Wedel

questions Good today. morning. taking Appreciate some you

range, Given that you've on itself, sort of which is from to Day. the Investor in you now portfolio of really your out of expectations gotten leverage midpoint laid target as target

of appetite higher So leverage the I'm curious about end increasing towards for range. the portfolio that your

taking that sort to of the market. things a Given more cautious to you're approach

Daniel Pietrzak

our leverage the at of think change to I operate Yes. I prefer probably don't And a many have ways, target. we think way in stated to in range. that any we midpoint

in. of deals situations up repayments sort business in lines a some the perfectly. There same there private So you sort be we maybe they're Obviously, might lending can of happen, lean could do. week, can be of same be of not a could that nothing handful the month. that sort There

little a of want we think I So flexibility in bit there.

-- area would I there prepared in we're I to it deals that sense to that here to in operate there's do. from up think And take what are of probably I if good prefer we're think the So and really said, expect. a we because bit that's the at

Melissa Wedel

helpful. That's Okay.

that of you against your curious still about where that's ones I'm or a has active. moved some heard way guys attractiveness originations focus, extrapolating the portfolio on they stock existing If the think if comments of quarter. the really the that of of of I volatility deals were portfolio created guess, have area lot in some your I companies. opportunity of correctly, been in you sort the Appreciate companies and the your new how own given And around and some markets of color. any new dislocations, second buying you existing some focused

Daniel Pietrzak

there. of No, there's a Yes. of couple in sort points

I it or benefited an incumbent we've always lender the position. in correct, probably or way described mean, remarks. incumbent lending an ways, many you're that's think and in our from we either enjoyed I from as prepared

the you know they you you have know management when for time, companies team, You some how been with perform.

half I origination very or past. your we we originations, positively quarters, but selecting well just in prior that talked think had you're sort about positively the have the of names sort lent add-ons, to of both could biased flow. of been In almost

companies the by done generally lending type think that continuing performing. these like of add-ons to are Obviously, So being definition I are we grow that

market We pricing some the are of those add-ons to reflect on get kind to current to generally able concessions position. the

business I good us. that's for a So think

or should add-on sort to the look to I piece. of think that lender you incumbent we will expect that continue exploit

We buying active in have been very stock. back

that I think, to it back different were to get last the years done X-plus over And that with handful bought the get million of we I probably filled. plan current are will we transactions should the FSK. think relates as expect where $XXX you over to

Operator

I Pietrzak now today. for that, conference with our we to back for like closing remarks. Q&A Dan session the would And to conclude turn

Daniel Pietrzak

any thank available attending team is you, additional your for The have any everyone, summer. Thanks you again. questions. if additional call. Well, today's

Operator

and we conclude with may ladies you gentlemen, now you participating for today's and that, Thank conference. And disconnect.

FS KKR Capital (FSK) 9 Aug 222022 Q2 Earnings call transcript