FSK: A Gamble on Discounted Debt

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Diameter Capital Partners, a firm whose name suggests a worrying level of precision in a world built on approximations, has taken a position in FS KKR Capital Corp. (FSK 1.57%). They’ve acquired a respectable 2,272,393 shares – enough to comfortably furnish a small principality, or at least a particularly well-appointed office – worth approximately $33.65 million. It’s a move that, shall we say, raises an eyebrow. Not a particularly judgmental eyebrow, mind you. Just…observant.

What Happened (Or, A Brief History of Discounted Expectations)

Diameter, in a filing dated February 17, 2026, declared its interest in FSK. The purchase represents a significant outlay, though in the grand scheme of things, it’s merely a rounding error in the accounts of the truly wealthy. The net increase in position value, factoring in both the initial investment and the market’s rather pessimistic assessment of FSK’s prospects, came to $33.65 million. Which, let’s be honest, is a figure that sounds far more impressive than it actually is when you consider the context.

What Else To Know (Or, The Numbers Tell a Tale)

  • This is a new venture for Diameter, representing 3.8% of their reportable Assets Under Management (AUM) as of December 31, 2025. A small slice of the pie, perhaps, but a slice nonetheless.1
  • Their top five holdings, as of the same date, are as follows:
    • NASDAQ: SATS: $409.57 million (45.8% of AUM)
    • NYSE: MBC: $66.35 million (7.4% of AUM)
    • NYSE: TDS: $43.76 million (4.9% of AUM)
    • NYSE: SILA: $40.79 million (4.6% of AUM)
    • NYSE: FSK: $33.65 million (3.8% of AUM)
  • As of Friday, FSK shares were trading at a rather subdued $9.99, a 51% decline over the past year. The S&P 500, meanwhile, has been enjoying a rather boisterous 16% ascent.2 A stark contrast, wouldn’t you agree?

Company Overview (Or, What They Actually Do)

Metric Value
Revenue (TTM) $113 million
Net income (TTM) $11 million
Dividend yield 25%
Price (as of Friday) $9.99

Company Snapshot (Or, The Business of Lending to Those Who Need It Most)

  • FS KKR Capital provides customized credit solutions, primarily through senior secured and subordinated debt investments in private U.S. middle market companies. In layman’s terms, they lend money to businesses that aren’t quite rich enough to get loans from the really important banks.
  • Their revenue is generated primarily from interest income on these debts, with a bit of extra income from equity interests and opportunistic investments in corporate bonds. It’s a delicate balancing act, akin to juggling hedgehogs.
  • They target private middle market firms in the United States, focusing on companies with annual revenues between $10 million and $2.5 billion and EBITDA of $50 million to $100 million. These are the companies that keep the economy humming, even if nobody notices.

FS KKR Capital Corp. is, in essence, a business development company specializing in debt investments for U.S. middle market firms. They’re experts at structuring senior secured loans and, to a lesser extent, subordinated debt, often obtaining equity interests as part of the deal. Their strategy revolves around providing tailored credit solutions to established private companies. It’s a noble pursuit, really, even if it doesn’t always make them rich.

What This Transaction Means for Investors (Or, A Gamble on a Discount)

This move is…interesting. It’s a bet on one of the most unloved corners of the market: private credit. FS KKR Capital’s recent stock performance suggests the firm is facing headwinds, and the financials reflect this. Net investment income held up at $0.48 per share last quarter, enough to cover the dividend, but earnings swung to a loss, and net asset value drifted lower to $20.89. That gap between NAV and a stock price under $10 is doing most of the talking.

So, does Diameter’s move signal they believe the market has overreacted? For a fund that already holds concentrated positions in names like EchoStar and Telephone and Data Systems, this fits a pattern. These are capital structure plays where downside is often tied to credit quality, and upside comes from income and mean reversion. If credit conditions stabilize, the discount to NAV and double-digit yield could look compelling. However, if they worsen, leverage cuts both ways. It’s a bit like betting on a tortoise in a race against a hare – potentially rewarding, but requiring a great deal of patience… and a strong stomach.

1

AUM, or Assets Under Management, is a measure of how much money a fund controls. It’s a bit like counting sheep, only the sheep are made of money.

2

The S&P 500 is a stock market index that represents the performance of 500 of the largest publicly traded companies in the United States. It’s a bit like a popularity contest, only the contestants are companies and the judges are investors.

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2026-03-20 18:23