What changed in this filing

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Item 1. Business

2021-03-01 compared with 2020-02-27 · 414 added, 414 removed, 383 unchanged (68% of the section changed)

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permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term.

In an order dated April 3, 2018, the SEC granted exemptive relief permitting us, subject to the

In an order dated January 5, 2021, the SEC granted exemptive relief permitting us, subject to the

satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions, including investments originated and directly negotiated by the Advisor or KKR Credit

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and Plan of Merger, or the 2018 Merger Agreement, dated as of July 22, 2018, by and among us, CCT, IC Acquisition, Inc., a former wholly-owned subsidiary of the Company, or Merger Sub, and the Advisor.

Pursuant to the Merger Agreement, CCT was

first merged with and into Merger Sub, with CCT as the surviving corporation, and, immediately following such merger, CCT was then merged with and into the Company, with the Company as the surviving company, or the Merger.

In accordance with

the terms of the Merger Agreement, at the time of the transactions contemplated by the Merger Agreement, each outstanding share of CCT common stock was converted into the right to receive 2.3552 shares of our common stock.

As a result, we

issued an aggregate of approximately 292,324,670 shares of our common stock to former CCT stockholders.

Following the consummation of the Merger, we entered into a new investment advisory agreement with the Advisor, or the investment

advisory agreement.

Pursuant to the 2018 Merger

Agreement, CCT was first merged with and into Merger Sub, with CCT as the surviving corporation, and, immediately following such merger, CCT was then merged with and into the Company, with the Company as the surviving company, or the 2018

In accordance with the terms of the 2018 Merger Agreement, at the time of the transactions contemplated by the 2018 Merger Agreement, each outstanding share of CCT common stock was converted into the right to receive 2.3552 shares

of our common stock.

As a result, we issued an aggregate of approximately 292,324,670 shares of our common stock to former CCT stockholders.

Following the consummation of the 2018 Merger, we entered into a new investment advisory

agreement with the Advisor, or the investment advisory agreement.

Share and exchange ratio amounts in the foregoing do not reflect the Reverse Stock Split as discussed below.

Reverse Stock Split

On June 15, 2020, the Company filed

Articles of Amendment to its Articles of Incorporation, or the Reverse Stock Split Amendment, with the State Department of Assessments and Taxation of the State of Maryland to effect a 4 to 1 reverse split of the Companys shares of common

stock, or the Reverse Stock Split.

The Reverse Stock Split became effective in accordance with the terms of the Reverse Stock Split Amendment on June 15, 2020.

As a result of the Reverse Stock Split, every four shares of the Companys

common stock issued and outstanding were automatically combined into one share of the Companys common stock, and the number of outstanding shares of the Companys common stock was reduced from approximately 495.0 million to

approximately 123.8 million as of June 15, 2020.

The Reverse Stock Split did not modify the rights or preferences of the Companys common stock.

The Company also filed a separate Articles of Amendment to its Articles of Incorporation

with the State Department of Assessments and Taxation of the State of Maryland to provide that there would be no change in the par value of $0.001 per share as a result of the Reverse Stock Split.

Pending Merger with FSKR

On November 23, 2020, the Company entered into an Agreement and Plan of Merger, or the 2020 Merger Agreement, with FS KKR Capital Corp II., a Maryland corporation, or FSKR and, together with the

Company, the Funds, Rocky Merger Sub, Inc., a Maryland corporation and wholly-owned subsidiary of FSK, or Merger Sub, and the Advisor.

The 2020 Merger Agreement provides that, subject to the conditions set forth in the 2020 Merger Agreement, Merger

Sub will merge with and into FSKR, with FSKR continuing as the surviving company and as a wholly-owned subsidiary of the Company, or the First Merger, and, immediately thereafter, FSKR will merge with and into the Company, with the Company

continuing as the surviving company or, together with the First Merger, the 2021 Merger.

See Note 14 to our consolidated financial statements included in this annual report on Form 10-K for additional

About the Advisor

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The Advisor is a

partnership between an affiliate of Franklin Square Holdings, L.P.

partnership between an affiliate of Franklin

Square Holdings, L.P.

(which does business as FS Investments), or FS Investments, and KKR Credit.

Our chairman and chief executive officer, Michael C.

Forman, serves as the Advisors chairman and

chief executive officer.

The Advisor has significant experience in private lending and private equity investing, and has

developed an expertise in using all levels of a firms capital structure to produce income-generating investments, while focusing on risk management.

Forman, serves as the Advisors

chairman and chief executive officer.

The Advisor has significant experience in private lending and private equity investing,

and has developed an expertise in using all levels of a firms capital structure to produce income-generating investments, while focusing on risk management.

The Advisor also has extensive knowledge of the managerial, operational and regulatory

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standards for investor protection, education and transparency.

FS Investments is headquartered in Philadelphia, PA, with offices in New York, NY, Orlando, FL and Washington, DC.

The firm had approximately $24 billion in assets under management

as of December 31, 2019.

FS Investments is headquartered in Philadelphia, PA, with offices in New York, NY, Orlando, FL and Leawood, KS.

The firm had approximately $23 billion in assets under management as of

December 31, 2020.

About KKR Credit

KKR Credit is a Delaware limited liability company, located at 555 California Street, 50th Floor, San Francisco, CA 94104, registered as an investment adviser with the SEC under the Advisers Act.

had approximately $218 billion of assets under

management as of December 31, 2019 across investment funds, structured finance vehicles, specialty finance companies and separately managed accounts that invest capital in both liquid and

had approximately $78 billion of assets under management as of December 31, 2020 across investment funds, structured finance vehicles, specialty finance companies and separately managed accounts that invest capital in both liquid and

illiquid credit strategies on behalf of some of the largest public and private pension plans, global financial institutions, university endowments and other institutional and public market investors.

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Potential Market Opportunity

We believe that there are and will continue to be significant investment opportunities in the senior secured and second lien secured loan asset class, as well as investments in debt securities of middle

We believe significant investment opportunities will continue to present themselves in the senior secured and second lien secured loan asset class, as well as investments in debt securities of middle

market companies.

Attractive Opportunities in Senior Secured and Second Lien Secured Loans

We believe that opportunities in senior secured and second lien secured loans are significant because of the variable rate structure of

most senior secured debt issues and because of the strong defensive characteristics of this investment class.

Senior secured debt also provides strong defensive characteristics.

Because this debt has priority in payment among an issuers

security holders (i.e., holders are due to receive payment before junior creditors and equity holders), they carry the least potential risk among investments in the issuers capital structure.

Further, these investments are secured by the

issuers assets, which may be seized in the event of a default, if necessary.

They generally also carry restrictive covenants aimed at ensuring repayment before junior creditors, such as most types of unsecured bondholders, and other security

holders and preserving collateral to protect against credit deterioration.

The variable rate structure of most senior secured and second lien secured loans present significant opportunities across the asset class,

particularly within a rising interest rate environment.

Additionally, the strong defensive characteristics inherent to many securities across the asset class make them compelling to many investors.

Because senior secured debt has priority in payment

among an issuers security holders (i.e., holders are due to receive payment before junior creditors and equity holders), they carry the least potential risk within the issuers capital structure.

Further, senior secured debt investments

are secured by the issuers assets, which may be seized in the event of a default.

Senior secured loans generally also carry restrictive covenants aimed at ensuring repayment before junior creditors, including unsecured bondholders and other

security holders, preserving collateral to protect against credit deterioration.

Opportunity in Middle Market Private Companies

In addition to investing in senior secured and second lien secured loans generally, we believe that the market for lending

to private companies, particularly middle market private companies within the United States, is underserved and presents a compelling investment opportunity.

We believe that the following characteristics support our belief:

In addition to investing in senior secured and second lien secured loans, we believe that the market for lending to private companies,

particularly middle market private companies within the United States, is underserved and presents a compelling investment opportunity.

The following characteristics support our belief:

Large Target Market.

We believe middle market companies represent a significant portion of the growth segment of the U.S.

economy and often

require substantial capital investment to grow their businesses.

We also believe there is significant private equity capital for investment in middle market companies that has not been invested and we expect that private equity firms will continue

to leverage their investments in middle market companies with senior secured and second lien secured loans.

Middle market U.S.

companies have historically represented a significant portion of the growth segment of the U.S.

These companies also often require substantial capital investment to grow their businesses.

Historically, significant private equity capital has been available for investment in middle market companies and we expect that private equity firms will

continue to leverage their investments in middle market companies with senior secured and second lien secured loans.

Limited Investment Competition.

Despite the size of the market, we believe that regulatory changes and other factors have diminished the role of

traditional financial institutions in providing financing to middle market companies in favor of lending to large corporate clients and leading syndication efforts for capital markets transactions.

Further, we believe there is a lack of lenders that

are willing to hold large amounts of middle market loans, and therefore we believe our ability to eliminate syndication risk by holding middle market loans is a competitive advantage.

We also believe that lending and originating new loans to middle market companies, which are often private, generally requires a greater

dedication of a lenders time and resources compared to lending to larger companies, due in part to the smaller size of each investment and the often fragmented nature of information available from these companies.

Further, many investment

firms lack the breadth and scale necessary to identify investment opportunities, particularly in regards to directly originated investments in middle market companies, and thus we believe that attractive investment opportunities are often

In addition, middle market companies may require more active monitoring and participation on the lenders part.

We believe that many large financial organizations, which often have relatively high cost structures, are not suited to

deal with these factors and instead emphasize services and transactions to larger corporate clients with a consequent reduction in the availability of financing to middle market companies.

Despite the size of the market, regulatory changes and other factors have diminished the role of traditional

financial institutions in providing financing to middle market companies in favor of lending to large corporate clients and leading syndication efforts for capital markets transactions.

Further, we believe a limited number of of lenders are willing

to hold large amounts of middle market loans.

As a result, we believe our ability to eliminate syndication risk by holding middle market loans is a competitive advantage.

Lending and originating new loans to middle market companies, which are often private, generally requires a greater dedication of a

lenders time and resources compared to lending to larger companies as it is often more difficult to make investments in, and acquire information, about smaller companies .

Many investment firms lack the breadth and scale necessary to identify

investment opportunities, particularly directly originated investments in middle market companies, which may result in their overlooking many attractive investment opportunities.

Middle market companies also may require more active monitoring and

participation on the lenders part.

We believe that many large financial organizations, which often have relatively high cost structures, are not suited to deal with these factors and instead emphasize services and transactions to larger

corporate clients, resulting in a reduction in the availability of financing to middle market companies.

Attractive Market Segment.

We believe that the underserved nature of such a large segment of the market can at times create a significant

opportunity for investment.

In many environments, we believe that middle market companies are

more likely to offer attractive economics in terms of transaction pricing, up-front and ongoing fees, prepayment penalties and security features in the

form of stricter covenants and quality collateral than loans to larger companies.

In addition, as compared to larger companies, middle market companies often have simpler capital structures and carry less leverage, thus aiding the structuring and

negotiation process and allowing us greater flexibility in structuring favorable transactions.

Potential Competitive

The underserved nature of such a large segment of the market can at times create significant investment

opportunities.

In many environments, lending to middle market companies may offer more attractive economics than lending to larger corporations in terms of transaction pricing, up-front and ongoing fees,

prepayment penalties, stricter covenants and quality collateral.

In addition, middle market companies often have simpler capital structures and carry less leverage than larger companies, thus aiding the structuring and negotiation process and

allowing us greater flexibility in structuring favorable transactions.

Potential Competitive Strengths

We believe that we offer investors the following potential competitive strengths:

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KKR & Co.s Capital Markets franchise to support the origination of new private credit investment opportunities.

Through KKR & Co.s Capital Markets franchise, the Advisor benefits from expanded sources of deal flow,

real-time market intelligence on pricing trends and continuous dialogue with issuers and sponsors to provide holistic financing solutions to current and prospective portfolio companies.

In addition, KKR & Co.s Capital Markets

franchise gives us the ability to access and originate larger transactions and enhances the Advisors ability to manage risk.

Focus on larger middle market companies and customized one-stop credit solutions

We are focused on providing customized credit solutions to private upper middle market companies, which we generally define as companies

with annual EBITDA of at least $50 million at the time of our investment.

Based on its size and scale, the KKR Credit platform is able to originate, commit to and hold positions in excess of $1 billion in a given transaction.

allows us to serve in the lead financing role for certain larger middle market companies with more than $100 million in EBITDA.

We believe our ability to underwrite an entire transaction provides financial sponsors and companies with a greater

degree of financing certainty and further enhances our competitive position.

The KKR Credit platform also offers a variety of financing structures and has the flexibility to structure investments to meet the needs of companies.

Finally, we believe

that the upper end of the middle market is less competitive as fewer lenders have the requisite size and scale to provide holistic solutions for these companies.

Through KKR & Co.s Capital

Markets franchise, the Advisor benefits from expanded sources of deal flow, real-time market intelligence on pricing trends and continuous dialogue with issuers and sponsors to provide holistic

financing solutions to current and prospective portfolio companies.

In addition, KKR & Co.s Capital Markets franchise gives us the ability to access and originate larger transactions and enhances the Advisors ability to manage

Focus on larger middle market companies and customized one-stop credit

We are focused on providing customized credit solutions to private upper middle market companies, which we

generally define as companies with annual EBITDA of at least $50 million at the time of our investment.

Based on its size and scale, the KKR Credit platform is able to originate, commit to and hold positions in excess of $1 billion in a

given transaction.

This size allows us to serve in the lead financing role for certain larger middle market companies with more than $100 million in EBITDA.

We believe our ability to underwrite an entire transaction provides financial sponsors

and companies with a greater degree of financing certainty and further enhances our competitive position.

The KKR Credit platform also offers a variety of financing structures and has the flexibility to structure investments to meet the needs of

Finally, we believe that the upper end of the middle market is less competitive as fewer lenders have the requisite size and scale to provide holistic solutions for these companies.

Long-term investment horizon

Our long-term investment horizon gives

us great flexibility, which we believe allows us to maximize returns on our investments.

Unlike most private equity and venture capital funds, as well as many private debt funds, we are not required to return capital to our stockholders once we exit

a portfolio investment.

We believe that freedom from such capital return requirements, which allows us to invest using a longer-term focus, provides us with the opportunity to increase total returns on invested capital, compared to other private

company investment vehicles.

Our long-term investment horizon gives us great flexibility, which we believe allows us to maximize returns on our investments.

Unlike most private equity and venture capital funds, as well as many

private debt funds, we are not required to return capital to our stockholders once we exit a portfolio investment.

We believe that freedom from such capital return requirements, which allows us to invest using a longer-term focus, provides us with

the opportunity to increase total returns on invested capital, compared to other private company investment vehicles.

Disciplined, income-oriented investment philosophy

The Advisor employs a defensive investment approach focused on long-term credit performance and principal protection.

This investment

approach involves a multi-stage selection process for each investment opportunity, as well as ongoing monitoring of each investment made, with particular emphasis on early detection of deteriorating credit conditions at portfolio companies which

would result in adverse portfolio developments.

This strategy is designed to maximize current income and minimize the risk of capital loss while maintaining the potential for long-term capital appreciation.

This investment approach involves a multi-stage selection process for each investment

opportunity, as well as ongoing monitoring of each investment made, with particular emphasis on early detection of deteriorating credit conditions at portfolio companies which would result in adverse portfolio developments.

This strategy is designed

to maximize current income and minimize the risk of capital loss while maintaining the potential for long-term capital appreciation.

Investment expertise across all levels of the corporate capital structure

The Advisor believes that its broad expertise and experience investing at all levels of a companys capital

structure enable us to manage risk while affording us the opportunity for significant returns on our investments.

We attempt to capitalize on this expertise in an effort to produce and maintain an investment portfolio that will perform in a broad

range of economic conditions.

The Advisor believes that its broad expertise and experience investing at all levels of a companys capital structure enable us to manage risk while affording us the opportunity for significant

returns on our investments.

We attempt to capitalize on this expertise in an effort to produce and maintain an investment portfolio that will perform in a broad range of economic conditions.

Ability to create bespoke financing solutions through asset-based opportunities

The Advisor believes that there is an expansive and growing opportunity to create customized solutions in underserved

asset classes, including across the aircraft, consumer finance and auto and equipment finance sectors.

The Advisor will seek to identify investments with strong collateral protection, a low correlation to the broader markets and equity-like

upside potential.

The Advisor believes that there is an expansive and growing opportunity to create customized solutions in underserved asset classes,

including across the aircraft, consumer finance and auto and equipment finance sectors.

The Advisor will seek to identify investments with strong collateral protection, a low correlation to the broader markets and equity-like upside potential.

Maintenance of portfolio diversification

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Although we do not

expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest.

We may purchase interests in loans or make other debt investments, including investments in

senior secured bonds, through secondary market transactions in the OTC market or directly from our target companies as primary market or directly originated investments.

In connection with our debt investments, we may on occasion receive equity

interests such as warrants or options as additional consideration.

We may also purchase or otherwise acquire interests in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or

exchanged for common stock or other equity or the cash value of common stock or other equity, including through a co-investment with a financial sponsor or possibly the restructuring of an investment.

addition, a portion of our portfolio may be comprised of bonds, structured products, other debt securities and derivatives.

expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans

in which we may invest.

We may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the OTC market

or directly from our target companies as primary market or directly originated investments.

In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration.

purchase or otherwise acquire interests in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or

other equity, including through a co-investment with a financial sponsor or possibly the restructuring of an investment.

In addition, a portion of our portfolio may be comprised of bonds, structured products,

other debt securities and derivatives.

The Advisor will seek to tailor our investment focus as market conditions evolve.

Depending on market conditions, we may

increase or decrease our exposure to less senior portions of the capital structures of our portfolio companies or otherwise make opportunistic investments, such as where the market price of loans, bonds or other securities reflects a lower value

than deemed warranted by the Advisors fundamental analysis.

Such investment opportunities may occur due to general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the

broader investment community and may include event driven investments, anchor orders and structured products.

When identifying

prospective portfolio companies, we focus primarily on the attributes set forth below, which we believe will help us generate higher total returns with an acceptable level of risk.

While these criteria provide general guidelines for our investment

decisions, if we believe the benefits of investing are sufficiently strong, not all of these criteria necessarily will be met by each portfolio company in which we choose to invest.

Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structures of

our portfolio companies or otherwise make opportunistic investments, such as where the market price of loans, bonds or other securities reflects a lower value than deemed warranted by the Advisors fundamental analysis.

Such investment

opportunities may occur due to general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community and may include event driven investments, anchor

orders and structured products.

When identifying prospective portfolio companies, we focus primarily on the attributes set

forth below, which we believe will help us generate higher total returns with an acceptable level of risk.

While these criteria provide general guidelines for our investment decisions, if we believe the benefits of investing are sufficiently strong,

not all of these criteria necessarily will be met by each portfolio company in which we choose to invest.

These attributes are:

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venture with SCRS.

SCJV invests its capital in a range of investments, including senior secured loans (both first lien and second lien) to middle market companies, broadly syndicated loans, equity, warrants and other investments.

We and SCRS each

have 50% voting control of SCJV and together are required to agree on all investment decisions as well as certain other significant actions for SCJV.

As of December 31, 2019, SCJV had total capital commitments of $1.0 billion,

$875 million of which was from us and the remaining $125 million of which was from SCRS.

SCJV invests its capital in a range of investments, including senior secured

loans (both first lien and second lien) to middle market companies, broadly syndicated loans, equity, warrants and other investments.

We and SCRS each have 50% voting control of SCJV and together

are required to agree on all investment decisions as well as certain other significant actions for SCJV.

As of December 31, 2020, SCJV had total capital commitments of $1 billion, $875 million of which was from us and the remaining

$125 million of which was from SCRS.

As of December 31, 2020, we had funded approximately $809.2 million of our commitment.

Additionally, as of December 31, 2019, SCJV had

$233.9 million of borrowing capacity.

As of December 31, 2019, our investment in SCJV was approximately $479.0 million at fair value.

Additionally, as of December 31, 2020, SCJV had $328.0 million of borrowing capacity.

December 31, 2020, our investment in SCJV was approximately $712.5 million at fair value.

We do not consolidate SCJV in our consolidated financial statements.

Investment Types

primarily focus on the following investment types:

We primarily focus on the following investment types:

Senior Secured Loans

Senior secured loans are situated at the top of a companys capital structure.

Because these loans generally have priority in

payment, they carry the least risk among all investments in a firm.

Generally, our senior secured loans are expected to have maturities of three to seven years, offer some form of amortization, and have first priority security interests in the

assets of the borrower.

Generally, we expect that the interest rate on our senior secured loans typically will have variable rates over a standard benchmark, such as the prime rate or the London Interbank Offered Rate, or LIBOR.

Second Lien Secured Loans

Second lien secured loans are immediately junior to senior secured loans and have substantially the same maturities, collateral and covenant structures as senior secured loans.

Because these loans generally have priority in payment, they carry the least risk among all investments in a firm.

Generally, our senior secured loans are expected to have maturities of three to seven years, offer some form of amortization, and have first priority security interests in the assets of the borrower.

Generally, we expect that the interest rate on

our senior secured loans typically will have variable rates over a standard benchmark, such as the prime rate or the London Interbank Offered Rate, or LIBOR.

Second Lien Secured Loans

however, are granted a second priority security interest in the assets of the borrower, which means that any realization of collateral will generally be applied to pay senior secured loans in full before second lien secured loans are paid and the

value of the collateral may not be sufficient to repay in full both senior secured loans and second lien secured loans.

Second lien secured loans are immediately

junior to senior secured loans and have substantially the same maturities, collateral and covenant structures as senior secured loans.

Second lien secured loans, however, are granted a second priority security interest in the assets of the borrower,

which means that any realization of collateral will generally be applied to pay senior secured loans in full before second lien secured loans are paid and the value of the collateral may not be sufficient to repay in full both senior secured loans

and second lien secured loans.

In return for this junior ranking, second lien secured loans generally offer higher returns compared to senior secured debt.

These higher returns come in the form of higher interest and in some cases the potential for equity participation through warrants, though to a lesser extent than with subordinated loans.

Generally, we expect these loans to carry a fixed rate, or a

floating current yield over a standard benchmark.

In addition, we may receive additional returns from any warrants we may receive in connection with these investments.

These higher returns come in the form of higher interest and in some cases the potential for

equity participation through warrants, though to a lesser extent than with subordinated loans.

Generally, we expect these loans to carry a fixed rate, or a floating current yield over a standard benchmark.

In addition, we may receive additional

returns from any warrants we may receive in connection with these investments.

Senior Secured Bonds

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provide us with the opportunity to further enhance our returns over time through equity investments in our portfolio companies.

In addition, we may hold equity-related securities, such as rights and warrants that may be converted into or exchanged

for common stock or other equity or the cash value of common stock or other equity, generally obtained in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such

as an institutional investor or private equity firm.

In the future, we may achieve liquidity through a merger or acquisition of a portfolio company, a public offering of a portfolio companys stock or by exercising our right, if any, to require

a portfolio company to repurchase the equity-related securities we hold.

In addition, we may hold equity-

related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, generally obtained in

conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm.

In the future, we may achieve liquidity through a

merger or acquisition of a portfolio company, a public offering of a portfolio companys stock or by exercising our right, if any, to require a portfolio company to repurchase the equity-related securities we hold.

Convertible Securities

We may invest in convertible securities, such as bonds, debentures, notes, preferred stocks or other securities that may be converted

into, or exchanged for, a specified amount of common stock of the same or different issuer within a particular period of time at a specified price or formula.

invest in non-U.S.

We may invest in convertible securities, such as bonds, debentures, notes, preferred stocks or other securities that may be converted into, or exchanged for, a specified amount of common stock of the same

or different issuer within a particular period of time at a specified price or formula.

We may invest in non-U.S.

securities, which may include securities denominated in U.S.

dollars or in non-U.S.

currencies and securities of companies in emerging markets, to the

extent permitted by the 1940 Act.

currencies and securities of companies in emerging markets, to the extent permitted by the 1940 Act.

Investments in Asset-Based Opportunities

We may invest in asset-based opportunities through joint ventures, investment platforms, private investment funds or other business

entities that provide one or more of the following services:

origination or sourcing of potential investment opportunities, due diligence and negotiation of potential investment opportunities and/or servicing, development and management

(including turnaround) and disposition of investments.

Such investments may be in or alongside existing or newly formed operators, consultants and/or managers that pursue such opportunities and may or may not include capital and/or assets

contributed by third party investors.

Such investments may include opportunities to direct-finance physical assets, such as airplanes and ships, and/or operating assets, such as financial service entities, as opposed to investment securities, or to

invest in origination and/or servicing platforms directly.

These asset-based opportunities are expected to offer mezzanine-like structural downside protection as well as asset collateral, and equity-like upside that can be achieved through

appreciation at the asset-level or, in the case of platforms, through growth of the enterprise value.

Key areas of focus include, without limitation, aircraft, real estate and consumer finance.

We may invest in

asset-based opportunities through joint ventures, investment platforms, private investment funds or other business entities that provide one or more of the following services:

origination or sourcing of potential investment opportunities,

due diligence and negotiation of potential investment opportunities and/or servicing, development and management (including turnaround) and disposition of investments.

Such investments may be in or alongside existing or newly formed operators,

consultants and/or managers that pursue such opportunities and may or may not include capital and/or assets contributed by third party investors.

Such investments may include opportunities to direct-finance physical assets, such as airplanes and

ships, and/or operating assets, such as financial service entities, as opposed to investment securities, or to invest in origination and/or servicing platforms directly.

These asset-based opportunities are expected to offer mezzanine-like structural

downside protection as well as asset collateral, and equity-like upside that can be achieved through appreciation at the asset-level or, in the case of platforms, through growth of the enterprise value.

areas of focus include, without limitation, aircraft, real estate and consumer finance.

Structured Products

We may invest in structured products, which may include collateralized debt obligations, collateralized bond obligations, collateralized loan obligations, structured notes and credit-linked notes.

issuers of such investment products may be

structured as trusts or other types of pooled investment vehicles.

Such products may also involve the deposit with or purchase by an entity of the underlying investments and the issuance by that

entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments.

We may also invest from time to time in derivatives,

including total return swaps, interest rate swaps, credit default swaps and foreign currency forward contracts.

We anticipate that any use of derivatives would primarily be as a substitute for investing in conventional securities or to hedge

potential risk that is identified by the Advisor.

We may invest in structured products, which may include collateralized debt obligations, collateralized bond

obligations, collateralized loan obligations, structured notes and credit-linked notes.

The issuers of such investment products may be structured as trusts or other types of pooled investment vehicles.

Such products may also involve the deposit with

or purchase by an entity of the underlying investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments.

We may also invest from time to time in derivatives, including total return swaps, interest rate swaps, credit default swaps and foreign currency forward contracts.

We anticipate that any use of

derivatives would primarily be as a substitute for investing in conventional securities or to hedge potential risk that is identified by the Advisor.

Investments with Third-Parties

We may co-invest with third parties through partnerships, joint ventures or other

entities, thereby acquiring jointly-controlled or non-controlling interests in certain investments in conjunction with participation by one or more third parties in such investment.

venture partners or third party managers may include former personnel of the Advisor or its affiliates or associated persons.

may co-invest with third parties through partnerships, joint ventures or other entities, thereby acquiring jointly-controlled

or non-controlling interests in certain investments in conjunction with participation by one or more third parties in such investment.

Such joint venture partners or third party managers may include

former personnel of the Advisor or its affiliates or associated persons.

Cash and Cash Equivalents

We may maintain a certain level of cash or equivalent instruments, including money market funds, to make follow-on investments, if necessary, in existing portfolio

companies or to take advantage of new opportunities.

We may maintain a certain level of cash or equivalent instruments, including money market funds, to make

follow-on investments, if necessary, in existing portfolio companies or to take advantage of new opportunities.

Comparison of Targeted Debt Investments to Corporate Bonds

Loans to private companies are debt instruments that can be compared to corporate bonds to aid an investors

understanding.

As with corporate bonds, loans to private companies can range in credit quality depending on security-specific factors, including total leverage, amount of leverage senior to the security in question, variability in the issuers

cash flows, the quality of assets securing debt and the degree to which such assets cover the subject companys debt obligations.

As is the case in the corporate bond market, we will require greater returns for securities that we perceive to

carry increased risk.

The companies in which we invest may be leveraged, often as a result of leveraged buyouts or other recapitalization transactions, and, in many cases, will not be rated by national rating agencies.

When our targeted debt

investments do carry ratings from a NRSRO, we believe that such ratings generally will be below investment grade (rated lower than Baa3 by Moodys or lower than BBB- by S&P).

To the extent we make unrated investments, we believe that such investments would likely receive similar ratings if they were to be examined by a NRSRO.

Compared to below-investment grade corporate bonds that are typically available to the public,

our targeted senior secured and second lien secured loan investments are higher in the capital structure, have priority in receiving payment, are secured by the issuers assets, allow the lender to seize collateral if necessary, and generally

exhibit higher rates of recovery in the event of default.

private companies are debt instruments that can be compared to corporate bonds to aid an investors understanding.

As with corporate bonds, loans to private companies can range in credit quality depending on security-specific

factors, including total leverage, amount of leverage senior to the security in question, variability in the issuers cash flows, the quality of assets securing debt and the degree to which

such assets cover the subject companys debt obligations.

As is the case in the corporate bond market, we will require greater returns for securities that we perceive to carry increased risk.

The companies in which we invest may be leveraged,

often as a result of leveraged buyouts or other recapitalization transactions, and, in many cases, will not be rated by national rating agencies.

When our targeted debt investments do carry ratings from a NRSRO, we believe that such ratings

generally will be below investment grade (rated lower than Baa3 by Moodys or lower than BBB- by S&P).

To the extent we make unrated investments, we believe that such

investments would likely receive similar ratings if they were to be examined by a NRSRO.

Compared to below-investment grade corporate bonds that are typically available to the public, our targeted senior

secured and second lien secured loan investments are higher in the capital structure, have priority in receiving payment, are secured by the issuers assets, allow the lender to seize collateral if necessary, and generally exhibit higher rates

of recovery in the event of default.

Corporate bonds, on the other hand, are often unsecured obligations of the issuer.

The market for loans to private companies possesses several key differences compared to the corporate bond market.

For instance, due to a possible lack of debt ratings for certain middle market firms, and

also due to the reduced availability of information for private companies, investors must conduct extensive due diligence investigations before committing to an investment.

This intensive due diligence process gives the investor significant access

to management, which is often not possible in the case of corporate bondholders, who rely on underwriters, debt rating agencies and publicly available information for due diligence reviews and monitoring of corporate issuers.

While holding these

investments, private debt investors often receive monthly or quarterly updates on the portfolio companys financial performance, along with possible representation on the companys board of directors, which allows the investor to take

remedial action quickly if conditions happen to deteriorate.

Due to reduced liquidity, the relative scarcity of capital and extensive due diligence and expertise required on the part of the investor, we believe that private debt securities typically

offer higher returns than corporate bonds of equivalent credit quality.

market for loans to private companies possesses several key differences compared to the corporate bond market.

For instance, due to a possible lack of debt ratings for certain middle market firms, and also due to the reduced availability of

information for private companies, investors must conduct extensive due diligence investigations before committing to an investment.

This intensive due diligence process gives the investor significant access to management, which is often not

possible in the case of corporate bondholders, who rely on underwriters, debt rating agencies and publicly available information for due diligence reviews and monitoring of corporate issuers.

While holding these investments, private debt investors

often receive monthly or quarterly updates on the portfolio companys financial performance, along with possible representation on the companys board of directors, which allows the investor to take remedial action quickly if conditions

happen to deteriorate.

Due to reduced liquidity, the relative scarcity of capital and extensive due diligence and expertise required on the part of the investor, we believe that private debt securities typically offer higher returns than corporate

bonds of equivalent credit quality.

Investment Process

The investment professionals employed by the Advisor or its affiliates have spent their careers developing the resources necessary to

invest in private companies.

Our current transaction process is highlighted below.

The investment professionals employed by the Advisor or its affiliates have spent their careers developing the resources necessary to invest in private companies.

Our current transaction process is

highlighted below.

Our Transaction Process

The relationships of the Advisor and its affiliates provide us with access to a robust and established pipeline of investment

opportunities sourced from a variety of different investment channels, including private equity sponsors, non-sponsored corporates, financial advisors, banks, brokers and family offices.

Once a potential investment has been identified, the Advisor screens the opportunity and makes a preliminary determination concerning whether to proceed with a more comprehensive

deal-level due diligence review.

The relationships of the Advisor and its affiliates provide us with access to a robust and established pipeline of investment opportunities sourced from a variety of different investment channels,

including private equity sponsors, non-sponsored corporates, financial advisors, banks, brokers and family offices.

Once a potential investment has

been identified, the Advisor screens the opportunity and makes a preliminary determination concerning whether to proceed with a more comprehensive deal-level due diligence review.

Pipeline/Risk Update.

Upon review of the full deal pipeline, the Advisor raises

key risks and issues to determine whether or not an investment meets our basic investment criteria and offers an acceptable probability of attractive returns with identifiable downside risk.

The objective is for the Advisor to identify a suitable

and attractive opportunity for a more comprehensive due diligence review based on the facts and circumstances surrounding the investment.

Deal-level Q&A:

Upon review of the full deal pipeline, the Advisor raises key risks and issues to determine whether or

not an investment meets our basic investment criteria and offers an acceptable probability of attractive returns with identifiable downside risk.

The objective is for the Advisor to identify a suitable and attractive opportunity for a more

comprehensive due diligence review based on the facts and circumstances surrounding the investment.

After an investment has been identified and preliminary due diligence has been completed, screening memos and a credit research analysis is prepared.

These reports

are reviewed by the Advisors investment committee, or the Investment Committee, to discuss key diligence and structuring issues.

Following the Advisors review, the Investment Committee will complete any incremental due diligence prior to

formal Investment Committee approval.

Though each transaction may involve a somewhat different approach, the Advisors diligence of each opportunity could include:

These reports are reviewed by the Advisors investment committee, or

the Investment Committee, to discuss key diligence and structuring issues.

Following the Advisors review, the Investment Committee will complete any incremental due diligence prior to formal Investment Committee approval.

transaction may involve a somewhat different approach, the Advisors diligence of each opportunity could include:

a full operational analysis to identify the key risks and opportunities of the targets business, including a detailed review of historical and

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Portfolio Monitoring.

The Advisor monitors our portfolio with a focus toward anticipating negative credit

To maintain portfolio company performance and help to ensure a successful exit, the Advisor works closely with, as applicable, the lead equity sponsor, loan syndicator, portfolio company management, consultants, advisers and other security

holders to discuss financial position, compliance with covenants, financial requirements and execution of the companys business plan.

In addition, depending on the size, nature and performance of the transaction, we may occupy a seat or serve

as an observer on a portfolio companys board of directors or similar governing body.

Typically, the Advisor receives

financial reports detailing operating performance, sales volumes, cost of goods sold, operating expenses, operating margins, cash flows, financial position and other key operating metrics on a quarterly basis from our portfolio companies.

Advisor uses this data, combined with due diligence gained through contact with the companys customers, suppliers, competitors, market research and other methods, to conduct an ongoing, rigorous assessment of the companys operating

performance and prospects.

In addition to various risk management and monitoring tools, the Advisor uses an

investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio.

The Advisor monitors our portfolio with a focus toward anticipating negative credit events.

To maintain portfolio company performance and help to ensure a successful exit, the

Advisor works closely with, as applicable, the lead equity sponsor, loan syndicator, portfolio company management, consultants, advisers and other security holders to discuss financial position, compliance with covenants, financial requirements and

execution of the companys business plan.

In addition, depending on the size, nature and performance of the transaction, we may occupy a seat or serve as an observer on a portfolio companys board of directors or similar governing body.

Typically, the Advisor receives financial reports detailing operating performance, sales volumes, cost of goods sold,

operating expenses, operating margins, cash flows, financial position and other key operating metrics on a quarterly basis from our portfolio companies.

The Advisor uses this data, combined with due diligence gained through contact with the

companys customers, suppliers, competitors, market research and other methods, to conduct an ongoing, rigorous assessment of the companys operating performance and prospects.

In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the

expected level of returns on each investment in our portfolio.

The Advisor uses an investment rating scale of 1 to 4.

Managements Discussion and Analysis of

Financial Condition and Results of OperationsPortfolio Asset Quality for a description of the conditions associated with each investment rating.

Managements Discussion and Analysis of Financial Condition and Results of

OperationsPortfolio Asset Quality for a description of the conditions associated with each investment rating.

Valuation Process.

We determine the net asset value of our investment portfolio each quarter.

Securities are valued at fair value as determined in good faith by our board of directors.

connection with that determination, the Advisor provides our board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent

portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.

Securities are valued at fair value

as determined in good faith by our board of directors.

In connection with that determination, the Advisor provides our board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative

dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure , or ASC Topic 820, issued by the Financial

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Level 1, defined as observable inputs such as quoted prices in active markets;

Level 2, which includes inputs such as quoted

prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market;

and Level 3, defined as unobservable inputs for which little or no market data exists, therefore

requiring an entity to develop its own assumptions.

With respect to investments for which market quotations are not readily

available, we undertake a multi-step valuation process each quarter, as described below:

Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market;

and Level 3, defined as unobservable inputs for

which little or no market data exists, therefore requiring an entity to develop its own assumptions.

With respect to

investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:

our quarterly fair valuation process begins by the Advisor providing financial and operating information with respect to each portfolio company or

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rates, call features, put features and other relevant terms of the debt.

For investments without readily available market prices, we may incorporate these factors into discounted cash

flow models to arrive at fair value.

Other factors that may be considered include the borrowers ability to adequately service its debt, the fair market value of the borrower in relation to

the face amount of its outstanding debt and the quality of collateral securing our debt investments.

For convertible debt

securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the security into which the debt may convert) at the conversion price.

To value such an option, a

standard option pricing model may be used.

Our equity interests in portfolio companies for which there is no liquid public

market are valued at fair value.

Our board of directors, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value.

of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position.

For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition,

recapitalization, restructuring or other related items.

The Advisor, any approved independent third-party valuation services

and our board of directors may also consider private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry

practices in determining fair value.

The Advisor, any approved independent third-party valuation services and our board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, and may apply

discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of directors, in consultation with

the Advisor and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value.

Generally, the value of our equity interests in public companies for which market quotations are readily available

is based upon the most recent closing public market price.

For investments without readily available market prices, we may incorporate these factors into discounted cash flow models to arrive at fair value.

Other factors that may be

considered include the borrowers ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments.

For convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase

the underlying security (i.e., the security into which the debt may convert) at the conversion price.

To value such an option, a standard option pricing model may be used.

Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value.

Our board of directors, in its determination of fair value, may consider various factors,

such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value.

All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual

investment position.

For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

The Advisor, any approved independent third-party valuation services and our board of directors may also consider private merger and

acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair

may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of directors, in

consultation with the Advisor and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value.

Generally, the value of our equity interests in public companies for which market quotations are

readily available is based upon the most recent closing public market price.

Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security,

the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination.

Our board of directors subsequently values these warrants or other equity securities

received at their fair value.

the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity

securities received at the time of origination.

Our board of directors subsequently values these warrants or other equity securities received at their fair value.

The fair values of our investments are determined in good faith by our board of directors.

board of directors is responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process.

Our board of directors has delegated day-to-day responsibility for implementing our valuation policy to the Advisor, and has authorized the Advisor to utilize independent third-party valuation

and pricing services that have been approved by our board of directors.

Our board of directors is responsible for the

valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process.

Our board of directors has

delegated day-to-day responsibility for implementing our valuation policy to the Advisor, and has authorized the Advisor to utilize independent third-party

valuation and pricing services that have been approved by our board of directors.

The valuation committee is responsible for overseeing the Advisors implementation of the valuation process.

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Our investment activities are managed by the Advisor and supervised by our board of directors, a majority of whom are independent.

Under the investment advisory agreement, we have agreed to pay the

Advisor an annual base management fee based on the average weekly value of our gross assets (excluding cash and cash equivalents) and an incentive fee based on our performance.

See Notes 2 and 4 to our consolidated financial statements included in

this annual report on Form 10-K for a description of the fees we pay to the Advisor.

From time to time, the Advisor may enter into sub-advisory relationships with registered investment advisers that possess skills or attributes that the Advisor

believes will aid it in achieving our investment objectives.

The Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund

accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services.

The Advisor also performs, or oversees the performance of, our corporate operations and required administrative

services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC.

In addition, the Advisor assists us in calculating our net asset value,

overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to

us by others.

Pursuant to our administration agreement, dated April 9, 2018, or the administration agreement, we

reimburse the Advisor for expenses necessary to perform services related to our administration and operations, including the Advisors allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR

Credit providing administrative services to us on behalf of the Advisor.

We reimburse the Advisor no less than quarterly for all costs and expenses incurred by the Advisor in performing its obligations and providing personnel and facilities under

the administration agreement.

The Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics.

Our board of directors reviews the methodology employed in

determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of the Advisor.

Our board of directors then assesses the reasonableness of such reimbursements for expenses

allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available.

In addition, our board of directors considers

whether any single third-party service provider would be capable of providing all such services at comparable cost and quality.

Finally, our board of directors compares the total amount paid to the Advisor for such services as a percentage of our

net assets to the same ratio as reported by other comparable BDCs.

We have contracted with State Street Bank and Trust Company

to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by the Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and

records, processing trade information provided by us and performing testing with respect to RIC compliance.

the investment advisory agreement, we have agreed to pay the Advisor an annual base management fee based on the average weekly value of our gross assets (excluding cash and cash equivalents) and an incentive fee based on our performance.

and 4 to our consolidated financial statements included in this annual report on Form 10-K for a description of the fees we pay to the Advisor.

From time to time, the Advisor may enter into sub-advisory relationships with registered

investment advisers that possess skills or attributes that the Advisor believes will aid it in achieving our investment objectives.

The Advisor oversees our day-to-day

operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services.

The Advisor also performs, or oversees

the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC.

In addition, the Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and

the performance of administrative and professional services rendered to us by others.

Pursuant to our administration

agreement, dated April 9, 2018, or the administration agreement, we reimburse the Advisor for expenses necessary to perform services related to our administration and operations, including the Advisors allocable portion of the

compensation and related expenses of certain personnel of FS Investments and KKR Credit providing administrative services to us on behalf of the Advisor.

We reimburse the Advisor no less than quarterly for all costs and expenses incurred by the

Advisor in performing its obligations and providing personnel and facilities under the administration agreement.

The Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other

reasonable metrics.

Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of the Advisor.

directors then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service

providers known to be available.

In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality.

Finally, our board of directors compares

the total amount paid to the Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.

We have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review

by the Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance.

As a BDC, we are required to comply with certain regulatory requirements.

we are permitted to finance investments using debt, our ability to use debt will be limited in certain significant respects pursuant to the 1940 Act.

Within the limits of existing regulation, we will adjust our use of debt, according to market

conditions, to the level we believe will allow us to generate maximum risk-adjusted returns.

Also, while we are permitted to finance investments using debt,

our ability to use debt will be limited in certain significant respects pursuant to the 1940 Act.

Within the limits of existing regulation, we will adjust our use of debt, according to market conditions, to the level we believe will allow us to

generate maximum risk-adjusted returns.

See Regulation. We have elected to be treated for U.S.

federal income tax purposes, and intend to qualify annually, as a RIC under the

We have elected to be regulated as a BDC under the 1940 Act and as a RIC under the Code.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates,

principal underwriters and affiliates of those affiliates or underwriters, as described below.

federal income tax purposes, and intend to qualify annually, as a RIC under the Code.

elected to be regulated as a BDC under the 1940 Act and as a RIC under the Code.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, principal underwriters and affiliates of those

affiliates or underwriters, as described below.

The 1940 Act also requires that a majority of our directors be persons other than interested persons, as that term is defined in the 1940 Act.

In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities.

The 1940 Act defines a

majority of the outstanding voting securities as the lesser of (i) 67% or more of the voting securities present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or

(ii) 50% of our outstanding voting securities.

We will generally not be able to issue and sell our common stock at a

price per share, after deducting underwriting commissions and discounts, that is below our net asset value per share.

We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the

then-current net asset value of our common stock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale.

At the 2019 annual stockholders

meeting, our stockholders approved the sale of shares of our common stock at a price below the then-current net asset value per share, subject to certain conditions, during the period beginning on July 16, 2019 and expiring on July 16,

We currently do not intend to utilize this authority to sell shares of our common stock at a price below the then-current net asset value per share.

In addition, we may generally issue new shares of our common stock at a price below net asset

value per share in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.

In addition, the 1940 Act provides that we may

not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities.

The 1940 Act defines a majority of the outstanding voting securities as

the lesser of (i) 67% or more of the voting securities present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (ii) 50% of our outstanding voting securities.

We will generally not be able to issue and sell our common stock at a price per share, after deducting underwriting

commissions and discounts, that is below our net asset value per share.

We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our

board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders

approve such sale.

At the 2020 annual stockholders meeting, our stockholders approved the sale of shares of our common stock at a price below the then-current net asset value per share, subject

to certain conditions, during the period beginning on July 15, 2020 and expiring on July 15, 2021.

We currently do not intend to utilize this authority to sell shares of our common stock at a price below the then-current net asset value

In addition, we may generally issue new shares of our common stock at a price below net asset value per share in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.

As a BDC, we are subject to certain regulatory restrictions in making our investments.

For example, BDCs generally are not permitted to co-invest with certain

affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC.

However, BDCs are permitted to, and may, simultaneously co-invest in transactions

where price is the only negotiated term.

In an order dated April 3, 2018, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions, to co-invest in certain

privately negotiated investment transactions, including investments originated and directly negotiated by the Advisor or KKR Credit, with our co-investment affiliates.

Under the terms of this relief, a

required majority (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that

(1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the

transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategy and any criteria established by our board of directors.

Under the 1940 Act, we may only invest up to 30% of our portfolio in entities that are not considered eligible portfolio

companies under the 1940 Act, including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the 1940 Act and publicly traded entities whose public equity market capitalization

exceeds the levels provided for under the 1940 Act.

We may invest up to 100% of our assets in securities acquired directly

from issuers in privately negotiated transactions.

For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC.

However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term.

In an order dated January 5, 2021, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions, including investments originated and directly negotiated by the Advisor or KKR Credit, with our

co-investment affiliates.

Under the terms of this relief, a required majority (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in

connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not

involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategy and any criteria

established by our board of directors.

Under the 1940 Act, we may only invest up to 30% of our portfolio in entities that are

not considered eligible portfolio companies under the 1940 Act, including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the 1940 Act and publicly traded entities whose

public equity market capitalization exceeds the levels provided for under the 1940 Act.

We may invest up to 100% of our assets

in securities acquired directly from issuers in privately negotiated transactions.

Our intention is to not write (sell) or buy put or call options to manage risks associated with the publicly traded securities of our portfolio companies.

We may enter into hedging transactions to

manage the risks associated with interest rate and currency fluctuations.

We may purchase or otherwise receive warrants or options to purchase the common stock of our portfolio companies in connection with acquisition financings or other

enter into hedging transactions to manage the risks associated with interest rate and currency fluctuations.

We may purchase or otherwise receive warrants or options to purchase the common stock of our portfolio companies in connection with

acquisition financings or other investments.

In connection with such an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances.

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federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) as distributions to our stockholders.

As a RIC, we will be subject to a 4% nondeductible federal excise tax on certain

undistributed income unless we distribute distributions in a timely manner to our stockholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the

calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains in excess of capital losses, or capital gain net income (as adjusted for certain ordinary losses), for the

one-year period ending October 31 of that calendar year and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we

As a RIC, we will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute distributions in a timely manner to our stockholders generally of an amount at

least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains in excess of capital

losses, or capital gain net income (as adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year and (3) any net ordinary income and capital

gain net income for the preceding years that were not distributed during such years and on which we paid no U.S.

federal income tax, or the Excise Tax Avoidance Requirement.

Any distribution declared by us during October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually

paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S.

stockholders, on December 31 of the calendar year in which the distribution was declared.

We have previously incurred, and may incur in the future, such excise tax on a portion of our income and capital gains.

While we intend to

distribute income and capital gains to minimize exposure to the 4% excise tax, we may not be able to, or may choose not to, distribute amounts sufficient to avoid the imposition of the tax entirely.

In that event, we generally will be liable for the

excise tax only on the amount by which we do not meet the excise tax avoidance requirement.

In order to qualify as a RIC for

Any distribution declared by us during October, November or December of any

calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S.

stockholders, on

December 31 of the calendar year in which the distribution was declared.

We have previously incurred, and may incur in

the future, such excise tax on a portion of our income and capital gains.

While we intend to distribute income and capital gains to minimize exposure to the 4% excise tax, we may not be able to, or may choose not to, distribute amounts sufficient to

avoid the imposition of the tax entirely.

In that event, we generally will be liable for the excise tax only on the amount by which we do not meet the excise tax avoidance requirement.

In order to qualify as a RIC for U.S.

federal income tax purposes, we must, among other things:

8 unchanged sentences

government securities or securities of other RICs, of one

issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain qualified publicly-traded partnerships, or the

Diversification Tests.

A RIC is limited in its ability to deduct expenses in excess of its investment

company taxable income.

publicly-traded partnerships, or the Diversification Tests.

RIC is limited in its ability to deduct expenses in excess of its investment company taxable income.

If our expenses in a given tax year exceed our investment company taxable income, we may experience a net operating loss for that tax year.

However, a RIC is not permitted to carry forward net operating losses to subsequent

tax years and such net operating losses do not pass through to its stockholders.

In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain.

A RIC may not use any net capital losses (that is,

the excess of realized capital losses over realized capital gains) to offset its investment company taxable income, but may carry forward such net capital losses, and use them to offset future capital gains, indefinitely.

Due to these limits on

deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several years that we are required to distribute and that is taxable to our stockholders even if such taxable income is greater than the net

income we actually earn during those years.

federal income tax purposes, we may be required to recognize taxable

income in circumstances in which we do not receive a corresponding payment in cash.

For example, if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest

or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each tax year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether

cash representing such income is received by us in the same tax year.

We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or

are paid in non-cash compensation such as warrants or stock.

We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to

receipt of cash.

Further, we have elected to amortize market discount and include such amounts in our taxable income in the current tax year, instead of upon their disposition, as an election not to do so would limit our ability to deduct interest

expense for tax purposes.

a RIC is not permitted to carry forward net operating losses to subsequent tax years and such net operating losses do not pass through to its stockholders.

In addition, deductible expenses can be used only to offset investment company taxable

income, not net capital gain.

A RIC may not use any net capital losses (that is, the excess of realized capital losses over realized capital gains) to offset its investment company taxable income, but may carry forward such net capital losses, and

use them to offset future capital gains, indefinitely.

Due to these limits on deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several years that we are required to distribute and that is

taxable to our stockholders even if such taxable income is greater than the net income we actually earn during those years.

federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a

corresponding payment in cash.

For example, if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt

instruments that were issued with warrants), we must include in income each tax year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the

same tax year.

We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in

non-cash compensation such as warrants or stock.

We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of

tax purposes.

We invest a portion of our net assets in below investment grade instruments.

Investments in these

types of instruments may present special tax issues for us.

federal income tax rules are not entirely clear about issues such as when we may cease to

accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on obligations in

default should be allocated between principal and income and whether exchanges of debt instruments in a bankruptcy or workout context are taxable.

We will address these and other issues to the extent necessary in order to seek to ensure that we

distribute sufficient income to avoid any material U.S.

Investments in these types of

instruments may present special tax issues for us.

federal income tax rules are not entirely clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be

taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt instruments in a bankruptcy or workout context are taxable.

We will address

these and other issues to the extent necessary in order to seek to ensure that we distribute sufficient income to avoid any material U.S.

federal income or excise tax.

Because any original issue discount

or other amounts accrued will be included in our investment company taxable income for the tax year of the accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we

will not have received any corresponding cash amount.

As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under Subchapter M of the Code.

We may have to sell or otherwise dispose of

some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose.

If we are not able to obtain cash from other sources, we may fail

to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

Although we do not presently expect to

do so, we are authorized to borrow funds and to sell or otherwise dispose of assets in order to satisfy distribution requirements.

However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations

and other senior securities are outstanding unless certain asset coverage tests are met.

See RegulationSenior Securities. Moreover, our ability to sell or otherwise dispose of assets to meet the Annual

Distribution Requirement may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests.

If we sell or otherwise dispose of assets in order to

meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

A portfolio company in which we invest may face financial difficulties that require us to

work-out, modify or otherwise restructure our investment in the portfolio company.

Any such transaction could, depending upon the specific terms of the transaction, result in unusable capital losses and future

non-cash income.

Any such transaction could also result in our receiving assets that give rise to non-qualifying income for purposes of the 90% Income Test or otherwise

would not count toward satisfying the Diversification Tests.

Some of the income that we might otherwise earn, such as fees for

providing managerial assistance, certain fees earned with respect to our investments, income recognized in a work-out or restructuring of a portfolio investment, or income recognized from an equity investment

in an operating partnership, may not satisfy the 90% Income Test.

To manage the risk that such income might disqualify us as a RIC for failure to satisfy the 90% Income Test, one or more subsidiary entities treated as U.S.

corporations for

entity-level income tax purposes may be employed to earn such income and (if applicable) hold the related asset.

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the tax year of the accrual, we may be required to make a distribution to our

stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax

treatment under Subchapter M of the Code.

We may have to sell or otherwise dispose of some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities

for this purpose.

If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell or otherwise dispose of assets in order to satisfy distribution requirements.

However, under the 1940 Act, we

are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain asset coverage tests are met.

See RegulationSenior Securities. Moreover, our ability to sell or otherwise dispose of assets to meet the Annual Distribution Requirement may be limited by (1) the

illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests.

If we sell or otherwise dispose of assets in order to meet the Annual Distribution Requirement or the Excise

Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

portfolio company in which we invest may face financial difficulties that require us to work-out, modify or otherwise restructure our investment in the portfolio company.

Any such transaction could, depending

upon the specific terms of the transaction, result in unusable capital losses and future non-cash income.

Any such transaction could also result in our receiving assets that give rise to non-qualifying income for purposes of the 90% Income Test or otherwise would not count toward satisfying the Diversification Tests.

Some of the income that we might otherwise earn, such as fees for providing managerial assistance, certain fees earned with respect to our investments, income recognized in a work-out or restructuring of a portfolio investment, or income recognized from an equity investment in an operating partnership, may not satisfy the 90% Income Test.

To manage the risk that such income might

disqualify us as a RIC for failure to satisfy the 90% Income Test, one or more subsidiary entities treated as U.S.

corporations for entity-level income tax purposes may be employed to earn such income and (if applicable) hold the related asset.

Such subsidiary entities will be required to pay U.S.

federal income tax on their earnings, which ultimately will reduce the yield to

our stockholders on such fees and income.

Our primary competitors for investments include other BDCs and investment funds (including private equity funds, mezzanine funds and CLO funds).

In addition, alternative investment vehicles, such as hedge

funds, have begun to invest in areas in which they have not traditionally invested, including making investments in middle market private U.S.

federal income tax on their earnings, which ultimately will reduce the yield to our stockholders on such fees and income.

Our primary competitors for investments include other BDCs and

investment funds (including private equity funds, mezzanine funds and CLO funds).

In addition, alternative investment vehicles, such as hedge funds, have begun to invest in areas in which they have not traditionally invested, including making

investments in middle market private U.S.

We also compete with traditional financial services companies such as commercial banks.

believe we will be able to compete with these entities for financing opportunities on the basis of, among other things, the experience of the Advisor and its affiliates.

Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do.

For example, some competitors may have a lower cost of capital and

access to funding sources that are not available to us.

In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have and may not be subject to the regulatory restrictions that the 1940 Act imposes

on us as a BDC or the restrictions that the Code imposes on us as a RIC.

These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible

structuring than us.

We believe we will be able to compete with these entities for financing opportunities on the basis of, among

other things, the experience of the Advisor and its affiliates.

Many of our competitors are substantially larger and have

considerably greater financial, technical and marketing resources than we do.

For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us.

In addition, some of our competitors may have

higher risk tolerances or different risk assessments than we have and may not be subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the restrictions that the Code imposes on us as a RIC.

These characteristics could

allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than us.

We do not currently have any employees.

Each of our executive officers is a principal, officer or employee of the Advisor or its affiliates, which manages and oversees our investment operations.

the future, the Advisor may directly retain personnel based upon its needs.

Each of our executive

officers is a principal, officer or employee of the Advisor or its affiliates, which manages and oversees our investment operations.

In the future, the Advisor may directly retain personnel based upon its needs.

Available Information

We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act.

This information is

available free of charge by calling us collect at (215) 495-1150 or on our website at www.fskkrcapitalcorp.com .

Information contained on our website is not incorporated into this annual

report on Form 10-K and you should not consider such information to be part of this annual report on Form 10-K.

Such information is also available from the EDGAR

database on the SECs web site at www.sec.gov .

file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act.

This information is available free of charge by calling us collect at (215) 495-1150 or on our website at www.fskkradvisor.com/fsk .

Information contained on our website is not incorporated into this annual report on Form

10-K and you should not consider such information to be part of this annual report on Form 10-K.

Such information is also available from the EDGAR database on the

SECs web site at www.sec.gov .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business