JPMorgan Chase-led group reins in credit

Key Points:

• A JPMorgan Chase-led group of banks reduced their credit line to FS KKR Capital Corp. by $648 million, about 14%, shortly before KKR announced a $300 million injection to stabilize the troubled private credit fund.
• KKR will invest $150 million as equity and spend another $150 million to buy shares from investors seeking to exit, aiming to support the fund amid a nearly 50% share price decline and a Moody's downgrade to junk status.
• The fund reported $560 million in losses for Q1, with non-performing loans rising to 8.1%, and FSK executives warned of potential further deterioration in individual portfolio companies.
• The JPMorgan-led lenders raised interest rates on the remaining credit line and lowered the minimum shareholders' equity floor, signaling expectations of continued asset value declines while providing FSK more flexibility to avoid default.
• FSK plans to reduce new investments, focus on existing portfolio support, shrink its balance sheet, and repurchase shares, with KKR also agreeing to waive half its incentive fees for four quarters to aid recovery.