FS KKR Sells $900 Million Bonds in Rare Junk-Rated BDC Deal

A private credit fund jointly managed by Future Standard and KKR & Co. sold $900 million of junk bonds on Monday, according to people familiar with the matter, in a rare high-yield offering by a publicly traded credit fund.

FS KKR Capital Corp. boosted the size of its offering from an initial target of at least $400 million, one of the people said, asking not to be identified because the discussions are private. The notes yield 7.5%, the person added. That’s at the lower end of initial price talk in the mid- to high-7% range, and comes after the deal attracted $1.5 billion of demand, the people said.

Proceeds from the bonds may be used to refinance debt, one of the people said.

FS KKR, a type of private credit fund known as a business development company, has suffered after writing down struggling loans it made. It cut its dividend twice in the last year. In March, Moody’s Ratings cut the BDC to junk, and in April, Fitch followed suit. In May, KKR said it was injecting $300 million into the BDC, buying preferred equity and tendering for $150 million of the firm’s shares.

The bond sale was run by Bank of America Corp., Bank of Montreal, JPMorgan Chase & Co., KKR Capital Markets LLC, Royal Bank of Canada and SMBC Nikko Securities Inc.

A representative for KKR declined to comment, while spokespeople for the banks either declined or didn’t respond to requests for comment.

“Ultimately, we’d like to see the company execute on the turnaround, but the pricing gives investors a reasonable margin of safety while that plays out,” said Michael O’Brien, investment analyst at Hilton Capital Management.