FSKR - Earnings call transcript Q4 2020

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Operator

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

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

Robert Paun

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

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

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

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

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

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

Michael Forman

you, KKR conference Thank XXXX and II’s earnings Capital Robert, fourth FS call. to welcome quarter everyone Corp.

continue feel the gather the to Given of enormity occurred we and results. operating humble to discuss as events our XXXX, we financial during which

We also will acknowledge the that impacted compelling the while those hope whose for the return normalcy, FSKR. same never without reasons quarter The of COVID-XX. XXXX of the effects for been fourth in have a to was be by for to there for lives question have are quarter many directly world world positive

our quarter, per our earned new the $X.X investment experienced asset teams out net billion share During value we our originated increase in investments. of $X.XX and an dividend. We approximately

ended available range our billion public approximately FSKR quarterly near-term in was forward and the perspective, $X.XX also our with above our guidance BDC, meaningful leading a per successes, $X.XX of perspective, and fourth which and liquidity our strategic step share in we earnings above per toward quarter long-term the From maturities. the franchise November, outlined adjusted dividend no debt midpoint forward FSK a and market a share middle our was significant believe creating In our operating proposed net share interesting the last of merger addition quarter, liquidity From share a of of $X.XX $X.XX which we quarter’s per those to was announced premier of per an shareholders. during step lending roughly $X.XX we we with significant goal fourth for income call.

expect first approximate share. net per $X.XX we our income forward, to investment quarter Looking

XXXX. Board and of closing value and period as receiving X.X% share proposed of to the XXXX. at our solicitation expect meetings perspective, share begin shortly distribution we'll conditions. equates after our to FSKR for of on net declared proxy quarter, will yield As $XX.XX such, per $X.XX we each has FSK’s a December May of a the anticipate per approval shareholder for FSK this scheduled and and asset merger other annualized month, first XX, of conclude From an merger customary close FSKR’s shareholders should the XX, by We which

to we scheduled, as remains merger the timeline month expect proposed during the the close Assuming of June.

provider to we single accomplishments for The the as of middle plan so provide the capital enthusiasm only upper I'll the over size, market turn of strength to with last with operating become combine our we companies color for to and and what XXXX, scale, with balance many to a discipline market call market. team BDC on reach, to FSK premier the team come and but sheet we to additional FSKR. that, year, is turn create a combination gratitude the not a to in do and quarter. over investing will As And the Dan with the

Dan Pietrzak

macro earnings recent have we Thanks, Michael. focused certain In observations. our calls, on

would high-yield that investment M&A pipelines, BDC activity of markets expected. that lead largely economy we the that a the intervention to are would robust, continue, rebuilding continue re-emergence out would be the as in playing of to and corporate Our views governmental

and ingredients to sustained of Federal elements filled will with we into and opportunities. consumer which garner an XXXX, by includes believe clean in investment an we in and believe operating focus inflation initiatives easy key education, comps, As chain involvement the on be for rebound the of economy has economic to companies, a these Reserve we meaningful outlook spending, and expected year the governmental with targeting supply relatively growth many spending year-over-year Combining infrastructure, energy XXXX healthcare, move and attention. governmental continue resilience,

to thereby alternatives one attractive to believe interchangeably attracting how way scale, these According can when are they relevant to and of private private at competitive BDC private illustrate to is increasingly firms few markets. long-term lead believe with which platform, be more is KKR of scale, the poised a reported like in platforms is credit industry, a to be syndicated loan which We leading credit the years. credit such three these strategic transaction by volume, the prospects. this last surveyed a differentiators. study able recent the equity on over credit private use larger to XX% of borrowers. company LLP, Within new reported the their XX% we continue same Statistics they will Dechert able increase as operate delivered the growth platform size And utilized firms

distinct corresponding our transaction private favorably goal asset credit is increase of as ourselves to volume. more capture share as grow continues position a to in As fair to the than possible class, as our

Advisor significant quarter, fourth on remained FSKR. on we billion the of total quality. of volume originated billion BDC FS/KKR the which our were During investment during closed Despite $X.X within across focused structure very investments the $X.X we investments and the approximately of franchise, quarter,

as of of bit lower closure XXXX transaction rate little actually approximately compared our rate screened during closure than historical under a X% Our to X%. is

and opportunities companies quarter FSKR came In our invested illustrating this from in addition, previously XX% approximately originations relationships. and of of KKR, the by our incumbency power

of our when in combined $X.X investments of growth quarter. with net to million portfolio sales billion net equated million venture, sales and repayments, factoring of during $XXX Our joint $XXX the total to

January in During in $XXX repayments. investments, we closed experienced $XXX and February million XXXX, million and we

part platforms, performance we The $X.X detailed of points metrics through the other we like we it's Advisor current basis basis larger to of cumulative the XXXX, level XXXX, of FS/KKR XX than depreciation. markets. December average information in levels billion same and investments XX, quarters December providing ago, do starting originated cumulative few the as be in for depreciation. FSKR from A XX is impossible Since in of in follows. first experienced XX, investment approximately and we we've precise, during summarized was liquidity While have through approximately the investments FS/KKR FSKR experienced a higher the of elevated began of Advisor. new updated syndicated the billion $X.X given points expect XXXX, point new formed And made repayments

in to be pleased the we manner illustrate more on with call more able investment And turn conservative to on the portfolio specifics. for over our investment we our years. performance continue has presentation which investment last some discuss positions. believe that, Brian points be been the team turning to to operating investor three This structures, our is toward data I'll in companies deliver the what continue with we website. to with portfolio information XX And We Slide the to are and believe detailed these investment defensible

Brian Gerson

Dan. Thanks,

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

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

believe have protection. of the and joint we comprised approximately X.X% meaningful accruing represented yield finance loans portfolio, to an as approximately XX% The our debt XX, X.X% X% to investments weighted compared based principal September asset addition, on XXXX as finance venture equating lien asset first is or investments represented of based December portfolio XX% In of predominantly XX, investments XXXX. which the average was of our additional at which

XXXX. of made of experienced we In were April our surrounding the Advisor in investments FS/KKR by terms establishment the related its color approximately repayments quarter, since the repayments XX% during to

and plastic package January financial appreciate dislike focused is our volumes. We the we million of One in financing originally on business in a packaging quality. of While production $XXX was Packaging, to investment led designer small-to-medium assets, which these the sponsor. by was Pretium losing originated markets sized XXXX. their particular manufacturer fund of acquisition in loan we asset a view term rigid Pretium the

in fourth investment its full new the during a capital And rolled structure the company proceeds million $XXX.X lien quarter we on the based loan. portion term Our second refinanced as performance. was into strong repaid a of

and ambulatory build. to February electronic the was million Another acquisition of are investment the investments exactly Athenahealth February preferred XXXX, to and during records this full revenue comprehensive a company health million In company, refinancing are we of pursuant IT support sheet. the a technology sponsors. companies. $XXX cycle model care software based investments and offering were by lien, co-lead health and of to balance management a second investment million to the a $XXX year. outcomes hospital group cloud $XX.X repaid equity track of and Athenahealth, $XXX million and preferred investing FSKR's we type second seeking These lien record of company's repaid financial in types is of

amount fourth million depreciation the the million appreciation quarter, million. and quarter total unrealized across we experienced During was $XX we portfolio experienced during of depreciation and realized the totaled of $XXX portfolio net realized during the $XXX quarter. our and unrealized The

Dan earlier in to the is his portfolio, As comments, XXX% of investment has Advisor to depreciation FS/KKR recovered the year alluded attributed due XX% to experienced of the the COVID. the which in we

positioning We growth. during just are for the investments as future significant and certain made are year these the with pleased restructuring, progress with results, pleased we legacy we portfolio

Resource detail. investments in the nonaccrual did Steven over of and with PRG, Intermediate Production any the the and on nonaccrual X.X% The quarter. three to a new compared restructured basis, place fair our value portfolio September approximately X.X% decline X.X% our portfolio X.X% a the discuss fourth more Group quarter CDS of Holdings a and end was Chisholm. nonaccruals the primarily were Finally, not was sold. related XX. And turn fourth removal of nonaccruals represented in a to during quarter, to basis, that, value from and of basis I'll Chisholm results to in investments, on as our and cost fair call on our PRG a U.S. CDS on of the We of on perspective, cost basis as financial

Steven Lilly

Thanks, framed behind easily the thereby results, our hopefully color My comments them on Brian. a transparent manner. framing will understandable in primarily and be

by offset impacted $XX First, million to experienced of average significant primarily investment was assets following. increase about in an the of total our the portfolio. increase spoke, interest quarter-over-quarter We Dan repayments investment which due income activity $XX in our across by yielding income investment million our the

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

recurring this from million as to expect Other totaled typically related COVID dividends quarter-to-quarter during paying the various we income quarter million know, a companies you spring. million last portfolio events dividend $XX $XX to the of recover companies portfolio and many approximately continue As $X basis. dividend approximate from between on of

totaled our origination fee the during quarter, representing the income $XX to and directly activity quarter. an increase million Finally, during tied The fourth increase quarter-over-quarter. million $XX of was repayment

an expense utilized increased quarter XXXX quarter increased to by increased during our $X.XX in our during detailed due investment on as fees by quarter. $X our in quarter, the $X is share of NII overall prior per we bridge to and million of The share per to $X.XX due was starting per interest leverage per by follows: during Management XQ the during GAAP, the a average increase due of of amount increased value increased Our million NAV the assets basis was the the quarter. $XX.XX higher portfolio. the the gross compared quarter-over-quarter by NAV share share, to largely

NAV impacted by share was share during our per Additionally share per of quarter. positively repurchases the $X.XX

share a forward reduced to our we to in results December per fourth guidance adjusted per share XX, guidance of follows. share first perspective, expect NAV these share From during The quarter from sum is was per of as NAV our quarter looking our NII $X.XX Our of share first activities $XX.XX. quarter the $X.XX dividend. of XXXX our bridge NII $X.XX. approximate The per per

$XXX is is to in quarter-over-quarter. million coupled billion income during quarter, and is certain with the fourth experienced million of origination of Our expected of due $X higher first fewer are of the impact fact to quarter. increase offset close recurring there well we as interest the we'll expected $X.X the the quarter. anticipated assets, by approximate The we activity investments the fourth partially interest income yielding to repayments as as quarter, which two have be higher first will that This during the compared days additional

expect our during JV dividend income associated million the We recurring approximate with $XX to quarter.

income approximate remain interest during to quarter-over-quarter. We $XX the we expect dividend an fee expense From our and standpoint, will quarter. million relatively other expense flat expect first

million million quarter. expenses expect by $X the value the during first will quarterly average to fee approximate portfolio our on increase first quarter. investment other management higher approximately We of during the And the based our G&A quarter, expect $X during we

and XX% respectively our of balance as levels In our terms of the XX% These levels right debt-to-equity were at an side levels XX, XX% of XX% XXXX. leverage gross sheet, December and our XX, September and represent respectively XXXX. net leverage from increase of

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

Michael we the debt secured few of overall to with questions. structure for that, capital XX% remarks, is call back of an average And the X.X%. Our call approximately cost I'll turn weighted for with before a closing open

Michael Forman

Steven. Thanks,

a Like feeling many companies, XXXX looking referenced in experienced I enviable As in we significant earlier of challenges. of with we call, on position the the back are accomplishment.

and was forward our management looking. team However, disciplined

enter our performance our pleased the the strength balance extremely team, the of portfolio I'm improve. which XXXX, rotational and we investment continue dynamics sheet, with our investment of of to As

for the the In operator, XXXX. am and December closing would credit look XX, And excited $XX assets growing our will a basis BDC with our open pro an FS we forma forward is later questions. I truly on As call with that, as part industry, proposed this of single year, with FSK in long-term becoming like we U.S approximately KKR major to rapidly of of a a franchise merger billion the become which to prospects. by markets,

Operator

Compass comes Point. [Operator question Instructions] you. from Our Casey Alexander of Thank first

open. is line Your

Casey Alexander

good these post up And as their merger? disparate you sheet. in My to leads and structure, Hi, merger? that that unsecured to Or clean that like you the certainly is all more liability Most you the would before facilities credit really mentioned is facility that to which on something would heavy. secured have the question something to credit BDCs XX% like is morning. balance debt address would look

Dan Pietrzak

Hey, Thanks a and for it’s question. Dan. good that, Casey,

start off in target – got of gotten a here perspective, we've a to see unsecured FSK mean, clearly looks we terms a of done. the think you initial like from mix. I can deal what I

underweight disadvantage a do labor We sort So are or we bit either with costs just I have think this of here. challenge entity is little rated. issuance, how of

is But with do So have debt minds after think thing only the of We we we but continually in that think merger it's be position our it's I about would complete. it will thinking could and now looking with The like do upcoming think be maturities, liability or revolver the important. we quite value the our sort feel near-term unsecured comfortable on at structure, the note we whether I I a no focus. we're unsecured.

Casey Alexander

this I balance constrained facilities? balance by that feel the room the quarter, are the into is continuing you have on by you credit expand kind upcoming still you mean, point Or the capacity of in everything heading to expand driven comfortable merger? this at fact sheet. sheet to Do

Dan Pietrzak

And pretty comfortable. happy think we origination we're QX. the are inside volume with we I of No, saw

think just I that with available we happy do the have. pretty also liquidity we’re

Casey Alexander

some I'll others Great. and out very questions. right. ask Thanks much. some All step let

Dan Pietrzak

Casey. you, Thank

Operator

Thank you.

of comes Finian Fargo Our O’Shea Wells Securities. from next question

line open. Your is

Finian O’Shea

Thanks having morning. good on. Hi, for me

there's yields quarter. question to have this shifts came space somewhat those to on the bit the XX consistent, made but recurring, a in we across portfolio First COP, down which lien yields mostly significant least saw said think at I first you that looks is improving as

expect to some just you you if my hopefully provide XX% is and with produce? agree color to to comments there, if Dan you want continue So something the

Dan Pietrzak

Yes.

XX% I think is the fair.

we've little JV maybe the roughly target about that happy able XX%, a been been the entities. for of sort more percent bit the to being we've always JV talked think and of ramp we've overall here I the

side bit grow I room there's but we got that little is the to of think so growth little a of XX% on do there, think to maybe inside JV fair a assumption. a FSKR I

Finian O’Shea

strategy anymore. then question. part Okay. of little XX%, not a you're too bit finance much but of of your Thank room, to close book related The sort asset-based a been both you. growing And BDCs, another in has fairly

control So the finances, where would generally stuff asset-based obviously you – and sticky pretty it. that's

of So this a is your or to more and create you complete? say is this out headroom can or for, intend part book or something would you more so built that

Dan Pietrzak

Yes, sort construction think public and given. mean, about of guidance, just, you I we've portfolio if

we've think is sort Finance I the ABF XX% the Asset talked bucket XX%. about bucket, to Based of

of we're So there. sort

I the think like additional what manage that we've happy available we've with been wise. there's help downside the bucket. deal joint yield seen We protection. Obviously flow XX% does We venture there. us think

we're think I to I'll little pretty mature. bit look – room see a probably we going we're if getting, can create always there, what more to but say

is but in see It activity right. do we the still think that part I a you're stickier decent of of amount you market.

Finian O’Shea

back Okay, as the great. I'll hop well. in queue

Operator

further like remarks. I'd Pietrzak the call for [Operator Instructions] at time. to closing over this no Dan back any Thank to I'm questions you. showing turn

Dan Pietrzak

hope your thank And again for to all you do look you talking healthy. spring. forward and thank you. We your And Thank safe we today remain you in that Thank joining you support. the you. and the families for call and with

Operator

Thank and conclude that you. gentlemen, conference. does Ladies today's

great participating, day. As a you may Have disconnect. you all all

FS KKR Capital Corp. II (FSKR) 2 Mar 212020 Q4 Earnings call transcript