Moody’s downgraded the private credit fund managed by KKR and Future Standard to risk

Moody’s ratings On Monday it downgraded your credit rating finance Run by KKR and Future Standard into junk amid rising bad loans and a string of weak earnings.

The ratings firm cut FS KKR Capital Corp’s debt ratings by one notch to Ba1 from Baa3 – pushing it into “junk” territory – saying the fund’s underlying asset quality had worsened more than its peers.

Non-accrual loans, that is, borrowers who stopped making payments, rose to 5.5% of total investments at the end of 2025, one of the highest rates among rated business development countries, according to the report.

“The downgrade reflects FSK’s ongoing asset quality challenges, which have resulted in weaker profitability and greater erosion of net asset value over time relative to its BDC peers,” Moody’s said.

Moody’s move is the latest sign of distress in the world of private credit. Retail investors have been rushing to withdraw money, batting for the gates amid concerns about upcoming credit losses, especially on software loans. Funds like FS KKR issue debt to help achieve good returns, so a Moody’s downgrade could lead to increased borrowing costs, and therefore lower future returns.

Moody’s also noted other aspects of the fund that could expose it to greater losses over time, including higher leverage, a higher percentage of in-kind payment loans, and a lower percentage of first lien loans than its peers.

FS KKR posted a net loss of $114 million in the fourth quarter alone and had just $11 million in net income for all of 2025, according to Moody’s.

The fund did not immediately respond to a request for comment.