The KKR logo on the floor of the New York Stock Exchange on August 23, 2018.
Brendan McDiarmid | Reuters
Moody’s Ratings on Monday downgraded the private credit fund run by KKR and Future Standard to junk after a rise in non-performing loans and a series of poor performance.
The rating agency downgraded FS KKR Capital Corp.’s debt rating by one notch from Baa3 to Ba1, pushing it into “junk” territory, citing deterioration in the quality of the fund’s underlying assets compared to peers.
According to the report, outstanding loans, meaning borrowers who stopped making payments, rose to 5.5% of total investments at the end of 2025, one of the highest percentages among rated BDCs.
“This downgrade reflects FSK’s ongoing asset quality challenges, resulting in lower profitability and a significant decline in net asset value over time relative to its business development company (BDC) peers,” Moody’s said.
Moody’s move is the latest sign of woes in the private credit industry. Concerns about future credit losses, especially related to software loans, have retail investors rushing to withdraw their funds and hitting the gates. Funds like FS KKR issue bonds to generate income, so a Moody’s downgrade could increase borrowing costs and reduce future returns.
Moody’s also flagged other aspects of the fund that could expose it to greater losses over time, including higher leverage, a higher proportion of pay-in-kind loans, and a lower proportion of first-lien loans relative to its peers.
According to Moody’s, FS KKR posted a net loss of $114 million in the fourth quarter alone, leaving its net income for all of 2025 at just $11 million.
The foundation did not respond to requests for comment.
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