FS KKR Capital Corp. (NYSE:FSK) Q1 2024 Earnings Call Transcript

Maxwell Fritscher: Got it, thank you. And then, switching gears to the second lien investments. Are you still seeing good opportunities there? Obviously, lenders are focusing or emphasizing their first lien, which you do have the majority of your portfolio, so that’s understandable. But any insight on the second lien, what you’re seeing there in terms of spread, yields, et cetera, how you’re looking at this?

Daniel Pietrzak: Yes. And Mark, I’m probably thinking about a little bit, oh, Max, I’m sorry, probably think about a little bit broader as kind of, junior debt is a whole category, right, thinking about second lien or things that might be more sort of as like. Obviously, activity has been kind of muted there for several years, because that is generally driven by a more active M&A market. We have seen a handful of deals, get done of late. They have been probably top decile businesses. So there has been second lien in those structures. Those structures were actually pretty darn tight from a spread perspective. Our sense is as the M&A volumes do pick up, there’s going to be more opportunity in that junior debt space. I think that’ll be an interesting opportunity as well considering that business I think we view as a little bit more cyclical.

So the time to kind of get in there is when, the M&A picks back up and the financing markets are going to need someone to kind of help fill that void. And those could be pretty attractive structures from a yield or a total return perspective. Now, all that being said, I think we’re quite mindful about portfolio construction here and making sure we’ve got a fair balance of kind of really leading with, which is the focus of this is, that kind of first lien of unit launch, senior secured risk.

Brian Gerson: And we have a pretty high bar for junior capital. We talk about the weighted average EBITDA of the portfolio being, call it P20, give or take. If you look at our junior debt investments, on average EBITDA is probably twice that. So, when we do go junior, they tend to be in much larger businesses. They tend to be businesses where sponsors have written billion dollar plus checks or multiple billion-dollar checks. That’s typically driven by new deal activity, as Dan mentioned.

Operator: Showing no further questions, I would like to turn it back over to Dan Pietrzak for closing remarks.

Daniel Pietrzak: Thank you all for joining the call today. We’re always available for any follow-up points that you might have. And we look forward to talking with you again next quarter. Have a good day.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.