FS KKR Q3 Earnings Rebound as Investment Income Falls Year Over Year

FS KKR Capital Corp. (FSK ) reported third-quarter results on November 5, 2026, including earnings of $0.26 per common share, reversing a $0.13-per-share loss in the second quarter as investment losses narrowed. For the quarter ended September 30, 2026, total investment income fell to $294 million from $373 million in the third quarter of 2025.

GAAP net investment income rose to $0.46 per share from $0.44 in the second quarter, while the dollar amount fell to $127 million from $159 million a year earlier. The company thus delivered sequential per-share growth alongside a year-over-year contraction in net investment income dollars.

The total net realized and unrealized loss narrowed to $0.19 per share from $0.56 in the second quarter, helping move earnings back into positive territory. In dollar terms, FSK recorded a $54 million total net realized and unrealized loss, compared with a $55 million gain a year earlier. The net increase in net assets from operations applicable to common stockholders was $71 million, down from $214 million.

Lower expenses partly offset the decline in investment income. Net expenses were $165 million after a $12 million subordinated income incentive-fee waiver, compared with $210 million and no such waiver in the year-earlier quarter. Interest expense declined to $99 million from $116 million.

Repayments Reshape the Portfolio

FSK purchased $335 million of investments during the third quarter, while sales and repayments totaled $442 million. Investments at fair value declined to $11.306 billion at September 30 from $11.418 billion at June 30, 2026. First-lien senior secured loans accounted for 58.9% of portfolio fair value, up from 58.7%, and senior secured securities overall represented 63.2%.

Chief Executive Officer and Chairman Michael C. Forman described the intended direction: “As our investment team continues focusing on portfolio rotation, we expect our portfolio will move toward more first lien exposure.”

Credit measures were mixed. Investments on non-accrual status fell to 3.4% of the portfolio at fair value and 6.4% at amortized cost, from 3.8% and 7.1%, respectively, at June 30. The weighted average annual yield on accruing debt investments rose to 10.0% from 9.8%, while the yield on all debt investments increased to 9.0% from 8.8%. Separately, non-income-producing investments, excluding those on non-accrual, increased to 7.8% of fair value from 6.6%, tempering the improvement shown by the non-accrual rate.

Buybacks and Distributions Continue

Net asset value was $18.28 per common share at September 30, little changed from $18.30 at June 30 but below $20.89 at December 31, 2025. From the repurchase plan’s commencement on June 29, 2026, through September 30, FSK repurchased 6,533,672 common shares for $73 million at an average price of $11.20, including commissions.

The company repurchased another 1,546,162 shares from October 1 through October 30, 2026, for $17 million at an average price of $10.88, including commissions. A third-party agent executed those October purchases on the open market at prices below net asset value per share. The weighted average purchase price for the full June 29–October 30 period was $11.14, including commissions.

FSK paid a third-quarter common-stock distribution of $0.44 per share, slightly below quarterly GAAP net investment income per share. The board declared the same regular distribution for the fourth quarter and a $0.20-per-share special distribution on October 7, 2026, with the public announcement following on October 8. The special distribution represents part of estimated accumulated spillback income and is intended to distribute additional taxable income in connection with maintaining regulated investment company treatment.

Debt to equity was 127% at September 30, unchanged from June 30, based on $6.3 billion of total debt outstanding and $5.0 billion of common stockholders’ equity. Net debt to equity rose to 125% from 122%; FSK defines it as debt including convertible preferred stock, net of cash, cash equivalents, foreign currency and the net receivable or payable for investments sold, repaid or purchased, divided by net assets. Cash, cash equivalents and foreign currency totaled $111 million, with $3.2 billion available under financing arrangements, subject to borrowing-base and other limitations.

The quarter therefore combines a sequential earnings recovery with lower year-over-year income and a smaller investment base. The open question for the rotation strategy is whether it can sustain per-share income as the portfolio contracts, with buybacks continuing, net leverage higher and non-income-producing investments accounting for a larger share of fair value.