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Fitch Downgrades KKR Credit Fund to Junk
10 Apr
Summary
- Fitch Ratings downgraded FS KKR Capital to BB+.
- AI disruption in software poses credit risks.
- Fund faces elevated non-accruals and losses.
Fitch Ratings downgraded FS KKR Capital's rating to BB+ from BBB- on April 9, 2026, citing significant asset quality deterioration. This action places the fund in non-investment grade territory. The downgrade was influenced by persistent elevated non-accruals and newly recognized realized losses.
Artificial intelligence poses a growing risk to the private credit sector, particularly affecting software companies. Approximately 16% of FS KKR Capital's portfolio is exposed to this sector, where AI could disrupt business models and pressure credit quality. Non-accrual investments, representing loans no longer generating payments, constituted 4.4% of the debt portfolio by value at the close of 2025.
KKR's non-traded business development company, KKR FS Income Trust, recently limited redemptions following a surge in requests. Fitch anticipates that business development companies will continue to face a competitive environment, weaker earnings, and pressure on asset quality metrics throughout 2026. Moody's Ratings also downgraded FSK last month from Baa3 to Ba1.
Separately, Fitch's peer review assigned Positive Outlooks to two U.S. business development companies, a Negative Outlook to one, and Stable Outlooks to nine others.
