FS KKR Capital Corporation, a publicly traded private credit vehicle managed by KKR, reported an increase in troubled loans and lower fourth-quarter income, prompting a 15% decline in its share price, according to a report by the Financial Times.

The business development company oversees a $13bn portfolio, largely composed of loans extended to private-equity-backed mid-sized companies during the record 2021–2022 takeover cycle.

Net investment income fell to $0.48 per share in the fourth quarter, down from $0.57 in the prior quarter. The fund also reduced the valuation of certain assets, reflecting a broader repricing across parts of the private credit market.

Software-linked exposures accounted for some of the most significant markdowns. Loans tied to Medallia, acquired by Thoma Bravo for $6.4bn in 2022, were written down to below 80 cents on the dollar. Other adjustments affected debt linked to Cubic Corporation, AmeriVet, Dental Care Alliance, janitorial services businesses, and defence contractors.

The recalibration comes as rising interest rates and slower exit markets place pressure on highly leveraged companies across the private equity landscape. Consultancy Bain & Co estimates private equity firms are currently managing approximately $4tn of unsold assets globally.

However, despite the recent quarter’s challenges, a person familiar with the matter said FSK has generated a 9.1% net internal rate of return since inception. Part of the fourth-quarter performance reflected asset sales undertaken to rebalance and calibrate the portfolio.

The developments underscore the ongoing adjustment phase within private credit, as managers reassess valuations and manage risk exposures in a higher-rate environment. At the same time, the long-term return profile of diversified private lending strategies remains a core attraction for institutional investors seeking yield and downside protection.

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