FS KKR Capital Corp. private credit fund downgraded to junk by Moody's
A private credit fund jointly managed by Future Standard and KKR & Co. has lost one of its investment-grade ratings due to "continued asset quality challenges," potentially leading to higher borrowing costs for the $14 billion investment vehicle.
According to Moody's, the fund's non-accrual rate increased to 5.1% of its investment portfolio by the end of last year, with concerns raised over other assets that have experienced significant markdowns. Moody's consequently downgraded FS KKR Capital Corp.'s rating to Ba1.
This downgrade is a rare event in the $1.8 trillion private credit market and signals potential liquidity issues within the sector. Similarly, one of the world's largest funds, Apollo, recently limited withdrawals from its private credit fund after more than 11% of investors requested exits.
Future Standard and KKR are well-known global investment firms managing significant assets in private credit. FS KKR Capital Corp. is one of their leading joint funds, focusing on private loans for companies across various industries.
The Moody's downgrade highlights serious asset quality challenges and increases the company's potential cost of capital, serving as a warning for investors to reassess risks in the private credit market.
The private credit sector is expected to face further corrections and stricter asset quality requirements, affecting financing conditions for funds and their investors.
