Diameter Capital Initiates Position in FSK Shares
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Mar 20 2026
0mins
Should l Buy FSK?
Source: NASDAQ.COM
- New Position: Diameter Capital Partners initiated a new position in FS KKR Capital Corp. during Q4 by acquiring 2,272,393 shares, resulting in a position value increase of $33.65 million, reflecting confidence in the private credit market.
- AUM Proportion: This new position constitutes 3.8% of Diameter Capital's total assets under management, indicating a strategic focus on the private credit sector amid current market conditions.
- Financial Performance: While FS KKR reported net investment income of $0.48 per share sufficient to cover its dividend, the company swung to a loss with net asset value declining to $20.89, raising concerns about its future performance.
- Market Signal: Diameter's investment may suggest a belief that the market has overreacted to private credit, and if credit conditions stabilize, the current discount to NAV and double-digit yield could attract more investor interest.
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Analyst Views on FSK
Wall Street analysts forecast FSK stock price to rise
6 Analyst Rating
0 Buy
6 Hold
0 Sell
Hold
Current: 9.910
Low
15.50
Averages
17.25
High
18.50
Current: 9.910
Low
15.50
Averages
17.25
High
18.50
About FSK
FS KKR Capital Corp. is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company. The Company is focused on providing customized credit solutions to private middle market United States companies. Its investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. Its portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle market United States companies and, to a lesser extent, subordinated loans and certain asset-based financing loans of private United States companies. It may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from its target companies as primary market or directly originated investments. The Company is managed by FS/KKR Advisor, LLC.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Market Growth: According to Barclays, the private credit market ballooned to $1.8 trillion in the first half of 2025, up from approximately $250 billion during the financial crisis, indicating strong demand for financing among mid-sized businesses.
- High-Risk Alerts: The bankruptcies of First Brands and Tricolor prompted JPMorgan CEO Jamie Dimon to warn of potential systemic issues in private credit, highlighting vulnerabilities within the sector.
- Investor Structure Shift: Unlike the depositors during the 2008 crisis, the current investor base for private credit consists mainly of institutional investors such as pensions and sovereign wealth funds, which are more capable of locking up capital for extended periods, thereby reducing systemic risk.
- Normalizing Credit Conditions: While the private credit market faces increased stress, the majority of investments are in investment-grade loans, with only a small portion in high-yield loans, suggesting that the overall stability of the market remains relatively strong.
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Market Dynamics: This phenomenon could influence the broader lending landscape and the strategies employed by private credit investors.
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- Default Rate Warning: Morgan Stanley warns that default rates in private credit direct lending could spike to 8%, significantly above the historical average of 2-2.5%, which would have a major impact on sectors heavily reliant on high leverage, particularly in software.
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- Market Growth: According to Barclays, the private credit market ballooned to $1.8 trillion in the first half of 2025, up from approximately $250 billion during the financial crisis, indicating strong demand for financing among mid-sized businesses.
- High-Risk Alerts: The bankruptcies of First Brands and Tricolor prompted JPMorgan CEO Jamie Dimon to warn of potential systemic issues in private credit, highlighting vulnerabilities within the sector.
- Investor Structure Shift: Unlike the depositors during the 2008 crisis, the current investor base for private credit consists mainly of institutional investors such as pensions and sovereign wealth funds, which are more capable of locking up capital for extended periods, thereby reducing systemic risk.
- Normalizing Credit Conditions: While the private credit market faces increased stress, the majority of investments are in investment-grade loans, with only a small portion in high-yield loans, suggesting that the overall stability of the market remains relatively strong.
See More
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- Medallia's Market Position: Medallia is identified as a significant issue within the private credit markets, highlighting its challenges and vulnerabilities.
- Exposure of Firms: Two firms are noted to have the most exposure to Medallia, indicating potential risks for their financial stability.
See More
Private Credit Fund Investors Concerned About a Specific Loan Payment Type
Private Credit Funds: A significant portion of income for large private credit funds is derived from borrowers who repay their interest using IOUs rather than cash.
Borrower Behavior: This trend indicates a reliance on non-cash repayment methods among certain borrowers, raising questions about the sustainability of such practices.
Financial Implications: The use of IOUs may impact the risk profile of private credit funds and their overall financial health.
Market Dynamics: This phenomenon could influence the broader lending landscape and the strategies employed by private credit investors.
See More
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Current Market Sentiment: Investors are facing uncertainty due to ongoing conflicts, often referred to as the "fog of war."
Future Outlook: Despite current challenges, there is optimism regarding the future performance of the U.S. stock market once the situation stabilizes.
See More
Private Credit Markets Face Liquidity Test Amid Rising Defaults
- Liquidity Pressure Intensifies: Ares Management has capped investor redemptions in its $10.7 billion private credit fund at 5% after withdrawal requests surged to 11.6%, reflecting growing concerns over credit quality that could further undermine investor confidence in the sector.
- Default Rate Warning: Morgan Stanley warns that default rates in private credit direct lending could spike to 8%, significantly above the historical average of 2-2.5%, which would have a major impact on sectors heavily reliant on high leverage, particularly in software.
- Market Reset Signal: While rising default rates may cause pain for some funds, industry experts believe this could lead to better underwriting practices and more realistic valuations, ultimately freeing up capital for stronger businesses and promoting a healthy reset in the market.
- Concentrated Risk Areas: The software sector accounts for approximately 26% of direct lending, and as fears of AI disruption grow, attention has shifted to this area, with some smaller issuers experiencing default rates as high as 10.9%, highlighting the vulnerability of highly leveraged borrowers.
See More
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- Dividend Cut Impact: FS KKR Capital Corp reduced its dividend from $0.70 to $0.48 per share, reflecting challenges associated with specific investments, which may lead to decreased investor confidence and affect future dividend payments.
- Portfolio Risk: As of year-end 2026, approximately 3.4% of FS KKR's portfolio, roughly $440 million, was on non-accrual, indicating the company does not expect to collect interest on these investments, further intensifying financial pressure.
- Stock Price Volatility: Following the dividend cut announcement, FS KKR's stock price fell by $2.52, or 18.92%, over the next two trading sessions, closing at $10.80 per share, indicating market concerns regarding the company's financial health.
- Legal Investigation Initiated: Pomerantz LLP is investigating whether FS KKR and its executives engaged in securities fraud or other unlawful business practices, potentially leading to class action lawsuits that could further impact the company's reputation and shareholder trust.
See More
