On March 2, 2021, FS KKR Capital Corp. (FSK) held a conference call to discuss FSKs
financial results for the fiscal year and quarter ended December 31, 2020. The conference call contained information regarding FSKs proposed merger with FS KKR Capital Corp II. (FSKR).
The following are excerpts from the transcript of FSKs March 2, 2021 conference call discussing FSKs proposed merger with FSKR.
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Michael Craig Forman - FS KKR Capital
Corp.Chairman & CEO
Thank you, Robert, and welcome, everyone, to FS KKR Capital Corp.s Fourth Quarter 2020 Earnings
Conference Call. Given the enormity of the events which occurred during 2020, we continue to feel humble as we gather to discuss our financial and operating results. We also acknowledge that while there are compelling reasons for many in the world
to have hope for a return to normalcy, the world never will be the same for those whose lives have been directly impacted by the effects of COVID-19.
The fourth quarter of 2020 was, without question, a positive quarter for FSK. During the quarter, our investment teams originated approximately
$613 million of new investments. We experienced an increase in our net asset value, and we again outearned our target 9% annualized dividend yield on our net asset value. In addition to these successes, we announced the proposed merger of FSK
and FSKR. We amended our senior credit facility to extend its maturity by 1 year, and we access the public markets becoming only the third BDC in the history of the industry to raise $1 billion or more in a single unsecured debt offering. We
access this debt capital on extremely attractive terms, thereby not only fortifying our balance sheet but also locking in attractive long-term cost of capital.
From an operating perspective, our adjusted net investment income was $0.72 per share for the fourth quarter, which was $0.12 per share above our quarterly
dividend of $0.60 per share and also $0.08 per share above our public guidance at the end of the third quarter. From a liquidity perspective, we ended the quarter with approximately $1.4 billion of available liquidity with no meaningful
near-term debt maturities.
Looking forward, we expect our first quarter net investment income to approximate $0.61 a share. As such, our Board has
declared a distribution of $0.60 per share for the first quarter, which equates to an annualized yield of 9.6% on our net asset value of $0.2502 as of December 31, 2020. While we continue to believe a 9% annualized dividend yield is achievable,
we acknowledge that should competitive pressures and spread compression occur to the point that such a yield is not achievable, then our investing focus will continue to be protection of principal first with yield second.
From a merger perspective, we anticipate the proxy solicitation period will begin this month and will conclude at each of FSKs and FSKRs
shareholder meeting scheduled for May 21, 2021. We would expect the proposed merger to close shortly after receiving approval by FSK and FSKR shareholders and other customary closing conditions. Assuming the time line remains as scheduled, we
expect the proposed merger to close during the month of June.
As we turn to 2021, we do so not only with gratitude for the many accomplishments of our
team over the last year, but with enthusiasm for what is to come as we plan to combine FSK and FSKR. This combination will create a single BDC with the size, scale, market reach, balance sheet strength and investing discipline to become a premier
provider of capital to companies operating in the upper middle market.
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As we look forward to closing of our proposed merger with FSKR later this year, the FS KKR franchise will become a single BDC with approximately
$16 billion in assets on a pro forma basis as of December 31, 2020. In an industry which is growing rapidly and becoming a major part of the U.S. credit markets, I am truly excited by our long-term prospects.
And with that, operator, we would like to open the call for questions.
QUESTIONS AND ANSWERS
Finian Patrick OShea - Wells Fargo Securities, LLC, Research DivisionVP and Senior Equity Analyst
First on the dividend. Steven, I think you were talking about the 9% target. Can you remind us if you were intending to refix that post-merger or will it still
be variable somehow? And if so, can you provide more color on the sensitivities or what drives the variability? Will it be unrealized appreciation or is it more interest income over the line income statement type drivers?