FS KKR Capital (FSK) risk factors, 2026 10-K

Risks Related to Our Business and Structure

1. 01significant extent on the continued service of the Adviser, as well as its senior management team. The departure of any members of the Adviser’s senior management team could have a material adverse effect on our ability to achieve our investment objectivesnew
2. 02We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses25% rewritten
3. 03Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval
4. 04Changes in laws or regulations governing our operations or the operations of our business partners may adversely affect our business or cause us to alter our business strategy
5. 05The Small Business Credit Availability Act allows us to incur additional leverage42% rewritten
6. 06Any failure by the Adviser to manage and support our investment process may hinder the achievement of our investment objectivesnew
7. 07We may invest in derivatives or other assets that expose us to certain risks, including market risk, liquidity risk and other risks similar to those associated with the use of leverage
8. 08As a public company, we are subject to regulations not applicable to private companies, such as provisions of the Sarbanes-Oxley Act. Efforts to comply with such regulations will involve significant expenditures, and non-compliance with such regulations may adversely affect us
9. 09We may experience fluctuations in our quarterly results
10. 10We are subject to risks associated with artificial intelligence and machine learning technology31% rewritten
11. 11We and the Adviser could be the target of litigation80% rewritten
12. 12It may be difficult to bring suit or foreclosure in non-U.S. countriesnew
13. 13Any unrealized losses we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distributionnew
14. 14We may not be able to obtain all required state licensesnew
15. 15Our business and operations could be negatively affected if we become subject to stockholder activism, which could cause us to incur significant expense, hinder the execution of our investment strategy or impact our stock price
16. 16Increasing scrutiny from stakeholders and regulators with respect to sustainability matters may impose additional costs and expose us to additional risks

Risks Related to the Adviser and its Affiliates; Conflicts of Interest

1. 17The Adviser and its affiliates, including our officers and some of our directors, face conflicts of interest as a result of compensation arrangements between us and the Adviser, which could result in actions that are not in the best interests of our stockholders
2. 18We may be obligated to pay the Adviser incentive compensation on income that we have not received
3. 19We may be obligated to pay the Adviser incentive compensation even if we incur a net loss due to a decline in the value of our portfolionew
4. 20There may be conflicts of interest related to obligations the Adviser’s senior management and investment teams have to our affiliates and to other clients47% rewritten
5. 21The Adviser’s liability is limited under each of the Advisory Agreement and the Administration Agreement, and we are required to indemnify it against certain liabilities, which may lead it to act in a riskier manner on our behalf than it would when acting for its own account
6. 22Our shares may be purchased by the Adviser or its affiliatesnew
7. 23The Adviser relies on key personnel, the loss of any of whom could impair its ability to successfully manage usnew

Risks Related to Business Development Companies and RICs

1. 24Failure to maintain our status as a BDC would reduce our operating flexibility
2. 25We are uncertain of our sources for funding our future capital needs and if we cannot obtain debt or equity financing on acceptable terms, or at all, our ability to acquire investments and to expand our operations will be adversely affected
3. 26The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC
4. 27Regulations governing our operation as a BDC and a RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth51% rewritten
5. 28Our ability to enter into transactions with our affiliates is restricted

Risks Related to Our Investments

1. 29Our investments in prospective portfolio companies may be risky, and we could lose all or part of our investmentnew
2. 30Our investments in first lien, senior secured loans, senior secured bonds, asset based finance investments and, to a lesser extent, subordinated debt and equity of private U.S. companies, including middle-market companies, may be risky and there is no limit on the amount of any such investments in which we may invest45% rewritten
3. 31Asset-backed securities and structured products present additional risksnew
4. 32Our investments in private investment funds, including hedge funds, private equity funds, limited liability companies and other business entities, subject us indirectly to the underlying risks of such private investment funds and additional fees and expenses21% rewritten
5. 33payment of sales loads and (in the case of closed-end investment companies) sometimes substantial premiums above the value of such investment companies’ portfolio securitiesnew
6. 34Price declines in the medium- and large-sized U.S. corporate debt market may adversely affect the fair value of our portfolio, reducing our NAV through increased net unrealized depreciationnew
7. 35Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies
8. 36We may enter into securities lending agreementsnew
9. 37We may acquire various structured financial instruments for purposes of “hedging” or reducing our risks, which may be costly and ineffective and could reduce the cash available to service debt or for distribution to stockholders
10. 38Investing in middle-market companies involves a number of significant risks, any one of which could have a material adverse effect on our operating results
11. 39Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
12. 40Any investments in securities or assets of publicly traded companies are subject to the risks inherent in investing in public securitiesnew
13. 41There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
14. 42Second priority liens on collateral securing debt investments that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us
15. 43We generally will not control our portfolio companies
16. 44Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies43% rewritten
17. 45Declines in market values or fair market values of our investments could result in significant net unrealized depreciation of our portfolio, which in turn would reduce our net asset value
18. 46A significant portion of our investment portfolio does not have a readily available market price and is and will be recorded at fair value in accordance with policies and procedures approved by our Board of Directors and, as a result, there is and will be uncertainty as to the value of our portfolio investments
19. 47We are exposed to risks associated with changes in interest rates
20. 48A covenant breach by our portfolio companies may harm our operating results
21. 49Our portfolio companies may be highly leveraged
22. 50We may not realize gains from our equity investments
23. 51An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies
24. 52A lack of liquidity in certain of our investments may adversely affect our business
25. 53We may not have the funds or ability to make additional investments in our portfolio companies
26. 54Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
27. 55Our investments may include original issue discount and PIK instruments
28. 56We may use a wide range of investment techniques that could expose us to a diverse range of risksnew
29. 57We may from time to time enter into total return swaps, credit default swaps or other derivative transactions which expose us to certain risks, including credit risk, market risk, liquidity risk and other risks similar to those associated with the use of leverage
30. 58A total return swap is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the total return swap and the debt obligations underlying the total return swap. In addition, we may incur certain costs in connection with a total return swap that could in the aggregate be significant41% rewritten
31. 59are buying credit protection, there is a risk that we will not properly assess the risk of the underlying issuer, no credit event will occur and we will receive no benefit for the premium paidnew
32. 60Technological innovations and industry disruptions may negatively impact usnew
33. 61We may invest through joint ventures, partnerships or other special purpose vehicles and our investments through these vehicles may entail greater risks, and investments in which we have a non-controlling interest may involve risks specific to third-party management of those investments
34. 62Syndication of Co-Investmentsnew

Risks Related to Debt Financing

1. 63We currently incur indebtedness to make investments, which magnifies the potential for gain or loss on amounts invested in our common stock and may increase the risk of investing in our common stock
2. 64Similarly, assuming (i) $16.9 billion in total assets, (ii) a weighted average cost of funds of 5.45% and (iii) $10.9 billion in debt outstanding, our assets would need to yield an annual return (net of expenses) of approximately 3.52% in order to cover the annual interest payments on our outstanding debtnew
3. 65Provisions in a credit facility may limit our investment discretionnew
4. 66Changes in interest rates may affect our cost of capital and net investment incomenew
5. 67We have formed and may in the future form one or more CLOs, which may subject us to certain structured financing risksnew
6. 68earnings and, in turn, cash potentially available for distribution to us for distribution to shareholders. To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by us as owner of equity interests in the CLOnew

Risks Related to an Investment in Our Common Stock

1. 69There is a risk that investors in our common stock may not receive distributions or that distributions may not increase, or may decrease, over time
2. 70Our distribution proceeds may exceed our earnings. Therefore, portions of the distributions that we make may represent a return of capital to stockholders, which will lower their tax basis in their shares of common stock
3. 71Our shares of common stock may trade at a discount to net asset value, and such discount may be significant
4. 72We may pay distributions from offering proceeds, borrowings or the sale of assets to the extent our cash flows from operations, net investment income or earnings are not sufficient to fund declared distributions
5. 73A stockholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us
6. 74Stockholders may experience dilution in their ownership percentage if they do not participate in our distribution reinvestment plan
7. 75Certain provisions of our charter and bylaws as well as provisions of the MGCL could deter takeover attempts and have an adverse impact on the value of our common stock
8. 76Recent court decisions have created uncertainty surrounding the application of MCSAA
9. 77The net asset value of our common stock may fluctuate significantly
10. 78The market price of our common stock may fluctuate significantly
11. 79Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings
12. 80If we issue preferred stock, debt securities or convertible debt securities, the net asset value and market value of our common stock may become more volatile
13. 81Holders of any preferred stock that we may issue will have the right to elect members of the Board of Directors and have class voting rights on certain matters
14. 82We have obtained the approval of our stockholders to issue shares of our common stock at prices below the then-current net asset value per share of our common stock, and any such issuance could materially dilute our stockholders’ interest in our common stock and reduce our net asset value per share

Risks Related to U.S. Federal Income Tax

1. 83We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy the RIC annual distribution requirements
2. 84Some of our investments may be subject to corporate-level income tax49% rewritten
3. 85We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
4. 86Our portfolio investments may present special tax issues
5. 87If we do not qualify as a “publicly offered regulated investment company,” as defined in the Code, you will be taxed as though you received a distribution of some of our expenses33% rewritten
6. 88Legislative or regulatory tax changes could adversely affect investors

General Risks

1. 89Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect the debt and equity capital markets, which may have a negative impact on our business and operations
2. 90Future economic recessions or downturns could impair our portfolio companies and harm our operating results
3. 91Events outside of our control could negatively affect our portfolio companies and our results of operations41% rewritten
4. 92Uncertainty about U.S. federal government initiatives, including tariffs and global trade negotiations, could negatively impact our business, financial condition and results of operations52% rewritten
5. 93Global economic, political and market conditions may adversely affect our business, results of operations and financial condition47% rewritten
6. 94Any of the foregoing events could result in substantial or total losses to the Company in respect of certain investments, which losses will likely be exacerbated by the presence of leverage in a portfolio company’s capital structure
7. 95Economic sanction laws in the United States and other jurisdictions may prohibit us and our affiliates from transacting with certain countries, individuals and companies