News & Analysis

FS KKR ramps JV and asset-based investments, trims equity positions

The BDC’s asset-based investments are targeting an unlevered gross return in the mid-teens, with commitments made in the first quarter to an aircraft leasing company and a mortgage lender.

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FS KKR Capital Corporation has seen its asset-based finance positions grow more than 80 percent over the past year and put capital into its newly created joint venture with Conway Capital.

“We are focused on increasing investment income and driving yield by rotating out of non-income-producing assets and increasing our exposure to our strategic JV and asset-based finance investments,” Michael Forman, chief executive, said on the firm’s second-quarter earnings call.

Philadelphia-based FS KKR has upped its asset-based investments form 5.0 percent to 9.1 percent, according to the firm’s first-quarter earnings results released Thursday. The firm is targeting higher returns for the strategy, even before accounting for commitments made with borrowed funds.

Chief investment officer Dan Pietrzak said: “In the current market, we are targeting low double-digit returns on our asset-based finance deals on an unlevered basis, in line with what we have seen historically, which we believe continue to be compelling returns on the risk-adjusted basis, especially given our views on downside protection.”

Investments for the quarter included K2 Aviation, a company providing airplane sightseeing tours of Alaska; Altavair, an aviation leasing business; and Toorak Capital Partners, which offers construction loans and mortgages in the US and UK.

FS KKR’s joint venture with Conway, an affiliate of Guggenheim Life and Annuity Company and Delaware Life Insurance Company, is making up a larger part of its portfolio. The partnership consisted of 4.1 percent, up from 4 percent at year-end.

The JV had total debt investments of $621.4 million across 34 companies, up form $537.7 million across 33 businesses at the end of the year. The vehicle’s unfunded commitments decreased from $22.5 million as of 31 December to $14.1 million as of 31 March.

The firm has also been reducing its equity positions, which stood at 7.8 percent as of 31 March, down from 12.3 percent the same time last year.