Investor accuses FS KKR Capital of duping public amid yearslong losses

PHILADELPHIA (CN) — FS KKR Capital Corp., one of the world's largest business development companies, is facing a securities class action after an investor accused the company of artificially inflating its value while it incurred steep and consistent investment portfolio losses.

"Defendants materially misled the investing public, thereby inflating the price of FS KKR Capital's securities, by publicly issuing false and/or misleading statements and/or omitting to disclose material facts necessary to make defendants' statements … not false or and/or misleading," wrote Calvin Stuart, a KKR Capital investor who initiated the suit, in his complaint filed Monday.

On May 8, 2024 — the start of Stuart's proposed class period — the company announced its first quarter results and touted purported successes.

In that news release, the company asserted it had "made significant progress restructuring certain nonaccruing investments," claiming the "long-term earnings power of FSK continues to be healthy and we have confidence in our ability to continue to reward shareholders with attractive distributions."

Throughout 2024 and into 2025, Stuart says the firm claimed it was continuing to improve its portfolio credit profile, and that restructuring would solve any concerns about legacy investments that weren't bringing in interest.

But Stuart asserts that by Aug. 6, 2025, a different reality began to emerge.

In second quarter earnings reports for 2025, FS KKR Capital revealed its net asset value had declined from $23.37 to $21.93 per share — down 6.2% from the previous quarter — with its total fair value of investments falling by $474 million.

The firm's share prices fell 8.2% on the news, dropping $1.66 to close at $18.58 per share on Aug. 7, 2025.

Still, the firm insisted its portfolio remained foundationally sound, asserting its lackluster operating results and corresponding net asset value could be pinned on "company specific issues affecting four portfolio companies, each of which have been discussed on prior earnings calls," Stuart says.

Then, on Feb. 25 — the end of Stuart's proposed class period — he says "the truth fully emerged."

Announcing its fourth quarter and full year 2025 earnings, FS KKR Capital said its net asset value had continued to decline to $20.89, down 5% from its prior quarter valuation of $21.99. Furthermore, its total fair value of investments had fallen another $406 million, Stuart says.

With losses continuing to mount, FS KKR Capital's chief investment officer Daniel Pietrzak said in an earnings call the credit firm's woes reflected "challenges in certain legacy investments … as well as challenges in certain current adviser originated investments," pinpointing four such companies: Medallia, Cubic Corp, KBS and 48forty.

However, the difficulties went further, as Pietrzak added those investments accounted for about half the company's losses. He added that the firm's nonaccrual rate remained above the long-term industry average, Stuart claims.

Following the news, the firm's stock price fell 15.24%, dropping $2.03 to close at $11.29 per share on Feb. 26.

"These material misstatements and/or omissions had the cause and effect of creating in the market an unrealistically positive assessment of the company and its financial and well-being and prospects, thus causing the company's securities to be overvalued and artificially inflated," Stuart wrote in his complaint.

Stuart is seeking class certification and compensatory damages for himself and other class members.

FS KKR Capital is managed by FS/KKR Advisor, a joint venture partnership between global investment firms Future Standard and KKR.

An FS KKR Capital spokesperson declined to comment on pending litigation.