April 9 - Fitch Ratings on Thursday cut its rating on the private credit fund run jointly by Future Standard and KKR to non-investment grade, citing a sustained weakening in the portfolio's credit quality.
The ratings action reduced the fund's grade to BB+ from BBB-, and the agency kept the outlook at negative. Fitch pointed to persistent elevated non-accruals and additional realized losses as drivers of the downgrade.
Fitch said roughly 16% of FS KKR Capital's portfolio is concentrated in software companies, a segment the agency said could face business-model disruption from artificial intelligence that would put pressure on credit metrics. The agency also reported that non-accrual investments - loans that have stopped generating interest or principal payments - represented 4.4% of the fund's debt portfolio by value at the end of 2025.
The downgrade follows other recent credit-rating setbacks for the fund. Last month Moody's lowered its rating on FSK by one notch from Baa3 to Ba1, which sits below investment grade, while assigning a stable outlook.
Fitch noted market stress beyond the single fund. It highlighted that KKR's non-traded business development company, KKR FS Income Trust, limited redemptions after experiencing a surge in requests, a move that underscores liquidity pressures in the non-traded BDC space.
Looking ahead, Fitch said business development companies are expected to face a competitive operating environment, weaker earnings and reduced dividend coverage metrics, together with ongoing pressure on asset quality metrics into 2026.
As part of its broader review activity, Fitch completed a peer review of 12 U.S. business development companies. The agency assigned Positive outlooks to two BDCs, a Negative outlook to one BDC and Stable outlooks to nine others.
Context for markets and investors
The downgrade signals heightened credit risk within parts of the private credit market, particularly where portfolios concentrate in sectors vulnerable to rapid technological change. The combination of rising non-accruals and redemption pressures at non-traded vehicles may influence liquidity and valuation dynamics for funds and related BDCs.