Moody’s Ratings downgraded FS KKR Capital Corp, a private credit fund managed by KKR and Future Standard, to junk status, citing deteriorating asset quality and rising non-accrual loans. The fund’s rating was lowered from Baa3 to Ba1, reflecting a significant decline in profitability and net asset value compared to its peers. As of the end of 2025, non-accrual loans reached 5.5% of total investments, one of the highest rates among rated business development companies (BDCs).
This downgrade signals increasing distress in the private credit sector, with retail investors withdrawing funds amid fears of credit losses, particularly in software loans. The implications are serious; the downgrade could raise borrowing costs for FS KKR, further squeezing returns and potentially leading to a cycle of greater losses. The fund’s recent performance, including a $114 million net loss in Q4 2025, underscores these challenges.
Market professionals should monitor FS KKR’s response to this downgrade, as it may indicate broader trends in credit quality and investor sentiment within the private credit landscape.
Source: cnbc.com