KKR's publicly traded private credit vehicle FS KKR Capital Corporation reported rising troubled loans and lower fourth-quarter income, sending shares down 15%. The business development company manages a $13bn portfolio focused on loans to private-equity-backed mid-sized companies from the 2021-2022 takeover boom.

Net investment income declined to $0.48 per share in Q4, down from $0.57 in the prior quarter. The fund marked down several assets, including software-linked exposures like Medallia debt, acquired by Thoma Bravo for $6.4bn in 2022, now valued below 80 cents on the dollar. Other adjustments affected debt tied to Cubic Corporation, AmeriVet, Dental Care Alliance, and defense contractors.

Rising interest rates and slower exit markets pressure highly leveraged companies across private equity. Bain & Co estimates firms manage approximately $4tn of unsold assets globally. Despite recent challenges, FSK has generated a 9.1% net internal rate of return since inception. The developments reflect an ongoing adjustment phase within private credit as managers reassess valuations and manage risk exposures in the higher-rate environment.