The JPMorgan Chase & Co. building before a ribbon-cutting ceremony at the company’s new headquarters at 270 Park Avenue, New York City, USA, on October 21, 2025.
Eduardo Muñoz | Reuters
a JP Morgan ChaseReduce exposure to private credit funds jointly managed by leading banking groups KKR Just days before the asset manager announced it would spend $300 million to shore up its broken down fleet.
The fund is FS KKR Capital Co., Ltd.announced in a release Monday that KKR will inject $150 million in equity into the fund and use an additional $150 million to buy stock from investors looking to exit.
The moves, which the fund dubbed “strategic value enhancement activities,” came after the JPMorgan-led group on Friday cut its loan facility by $648 million, or about 14%, to $4.05 billion. Some lenders may have exited altogether without extending their contracts, according to the filing.
The fund is jointly managed by KKR and alternative asset management firm Future Standard, and is often referred to by its ticker. FSKhas become one of the most visible fault lines in the private credit story. The company’s stock price has fallen by nearly half over the past year, and it trades at a deep discount to the fund’s net asset value.
Moody’s downgraded FSK’s rating to “junk” in March amid mounting portfolio stress. Since then, loans to software maker Medallia and dental services company Affordable Care have stopped paying interest, FSK executives said on Monday.
FSK said the fund’s net asset value fell by about 10%, resulting in a loss of $2 per share in the first quarter, for a total loss of about $560 million, considering about 280 million shares.
FSK President Daniel Pietrzak told analysts on Monday that he was “disappointed with the company’s recent results.”
The company’s awareness of the situation and KKR’s actions to support the fund “confirm our view that there is a disconnect between FSK’s trading price and its intrinsic value,” Pietrzak added.
The fund said FSK loans that were no longer generating income jumped from 5.5% at year-end to 8.1% by the end of the first quarter.
Will it fall further?
In addition to reducing the loan facility, the JPMorgan-led group also raised interest rates on the remaining facilities, giving the fund more room to absorb losses without triggering a default.
The latter measure lowers the minimum shareholder equity limit from $5.05 billion to $3.75 billion, giving FSK some breathing room. However, this also indicates that lenders believe the company’s assets should fall further.
In a conference call Monday, FSK executives warned that despite the company’s efforts to stabilize its troubled portfolio companies, “personal names could deteriorate further.”
The FSK facility is funded by a syndicate of banks led by JPMorgan as the managing agent, whose role typically includes coordinating communications with lenders and negotiating amendments. ING Capital acted as collateral agent, but the names of other participating financial institutions are not listed in the filing.
JPMorgan, the largest U.S. bank by assets, is taking extensive steps to protect itself from disruptions to private credit, including writing down the value of private credit loans it holds as collateral on its books, CNBC reported in March. Many of the discounted loans are to software companies facing potential disruption from artificial intelligence.
Executives also said on Monday that FSK would significantly reduce new investments, focus on supporting existing portfolio companies and work to reduce its underleveraged balance sheet while carrying out share buybacks.
Apart from the $300 million KKR is spending to support FSK, the fund’s board also approved a separate $300 million share repurchase program, and KKR agreed to waive half of its incentive fees for four quarters.
“Works as designed”
FSK, which lends to private companies in the U.S. middle market, was formed in 2018 through the merger of two predecessor funds, making it the second-largest publicly traded business development company (BDC).
The fund’s largest single category of loans was for software and related services, accounting for 16.4% of its exposure at year-end.
The FSK issue has fueled debate over whether rapid growth in private credit poses systemic risks. Prominent investors, including DoubleLine Capital CEO Jeffrey Gundlach, have warned that private credit could spark the next financial crisis, drawing comparisons to the mortgage-backed securities market before the 2008 financial collapse.
The private credit industry pushes back against these comparisons, arguing that losses are spread out across investors rather than concentrated within the banking system.
“Private credit industry regulators have consistently recognized that the industry is capital conservative and structurally designed to mitigate rather than transmit risks to the financial system,” said Will Dunham, CEO of the American Investment Council, an industry group representing private equity and private credit companies.
“The private credit system is working as designed,” Dunham said.
