Moody’s Downgrades FS KKR Capital
Moody’s has downgraded FS KKR Capital, a private credit vehicle managed by KKR and FS Investments, to Ba1, which places it below investment grade, according to a report cited in Private Equity Wire. The downgrade stems from “continued asset quality challenges,” including pressure on the fund’s portfolio performance and profitability relative to peers.
Reasons Behind the Downgrade
The ratings agency highlighted several specific concerns, such as the fund’s non-accrual rate rising to 5.5% of total investments at the end of 2025, among the highest in its peer group. Moody’s also noted additional investments marked down, including exposure to Medallia, and a higher proportion of payment-in-kind (PIK) income compared to peers, which it described as an indicator of weaker earnings quality; PIK structures allow borrowers to accrue interest as additional debt rather than cash payments.
Potential Implications for the Fund
This downgrade could lead to increased borrowing costs for FS KKR Capital, a $14bn vehicle that relies on debt markets to boost returns, as business development companies like this one typically seek investment-grade ratings to access a wider investor base and lower financing costs. As widely known in private credit markets, such ratings changes can affect funding strategies for funds dependent on leverage.
Fund’s Current Financial Standing
Despite the downgrade, FS KKR Capital maintains solid liquidity with approximately $2.5bn available, following the repayment of a $1bn note earlier this year, according to the report by Bloomberg as covered in Private Equity Wire.
