April 9 (Reuters) – Fitch Ratings on Thursday downgraded its rating on a private credit fund jointly run by Future Standard and KKR to junk territory, citing continued deterioration in its asset quality.
The U.S. private credit industry is staring at a period of higher borrower defaults, as AI disrupts software companies, which account for a major chunk of the sector’s portfolios.
Fitch said roughly 16% of FS KKR Capital’s portfolio is exposed to software companies, where artificial intelligence could disrupt business models and pressure credit quality.
Fitch downgraded the rating on private credit fund FS KKR Capital to a non-investment grade BB+ from a lower medium grade BBB-, also citing the persistence of elevated non-accruals and the recognition of additional realized losses. It kept its outlook at negative.
FSK’s non‑accrual investments – loans that are no longer generating interest or principal payments – accounted for 4.4% of its debt portfolio by value at the end of 2025, the ratings agency said.
KKR’s non-traded business development company, KKR FS Income Trust, limited redemptions last week after facing a surge in redemption requests.
Fitch added that BDCs would continue to face a competitive environment, weaker earnings and dividend coverage metrics, along with pressure on asset quality metrics in 2026.
Last month, FSK was downgraded by Moody’s Ratings by a notch from Baa3 to Ba1, below investment grade, with a stable outlook.
Separately, Fitch also completed a peer review of 12 U.S. business development companies where it assigned Rating Outlooks are Positive for two BDCs, Negative for one BDC and Stable for nine BDCs.
(Reporting by Pragyan Kalita in Bengaluru; Editing by Anil D’Silva)
