FS KKR Capital: Red Flags Everywhere

Silicone Scrooge Insights340 FollowersFollow5ShareSavePlay(9min)CommentsSummaryFS KKR Capital (FSK) faces severe non-accrual issues and persistent dividend coverage shortfalls, prompting a major dividend reset and a Sell rating. FSK's non-accrual ratio has surged above 5%, far exceeding peers and signaling deteriorating portfolio quality and unacceptable risk for common equity holders. The base dividend will drop 30% to $0.45 in Q1 2026, with an uncertain $0.10 supplemental component tied to future loan performance. Despite trading at a 30% discount to book value, I see no margin of safety or justification to risk capital in FSK common shares. Richard Drury/DigitalVision via Getty Images Starting in Q424, a painful downtrend in excess coverage has manifested for FS KKR Capital (FSK), which now resulted in a major reset of the business’s distribution strategy. FS KKR Capital, which has been notoriousThis article was written bySilicone Scrooge Insights340 FollowersFollowI’m a retail investor based in Sydney with three years of experience focusing on achieving financial independence through strategic investments in AI-driven companies. Although I don’t come from a traditional finance background, I’ve developed a strong passion for understanding how artificial intelligence is transforming the global economy. Over the past few years, I’ve become increasingly fascinated by the possibilities of AI—how it’s reshaping industries, driving innovation, and creating new investment frontiers. My portfolio is primarily centered around leading AI-related companies such as NVIDIA and others at the forefront of this technological revolution. I believe we’re only in the early stages of AI’s impact, and the coming decade will present remarkable opportunities for both retail and institutional investors. My goal is to continue learning, sharing insights, and building long-term wealth by investing in the technologies shaping our future.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsWhat drives the Sell rating on FS KKR Capital (FSK)?A persistently high non-accrual ratio, chronic dividend undercoverage, and a structurally weak portfolio—especially low first-lien exposure—make FSK's risk profile unacceptable.How does the new dividend policy affect FSK's income coverage and investor outlook?The base dividend will be cut 30% to $0.45 in Q1 2026, with a supplemental $0.10 possible, improving coverage but leaving future payouts and stability highly uncertain.Is the 30% price-to-book discount enough to compensate for FSK's risks?No discount is sufficient given FSK's portfolio quality and dividend risks; I recommend avoiding the common shares regardless of the current valuation.Recommended For You