FS KKR Capital Corp. Class Action Lawsuit – FSK

Introduction

A securities class action lawsuit has been filed against FS KKR Capital Corp. (NYSE: FSK), its Chief Executive Officer Michael C. Forman, and its Chief Financial Officer Steven Lilly in the United States District Court for the Eastern District of Pennsylvania. The complaint, filed by plaintiff Calvin Stuart through Glancy Prongay & Wolke LLP, alleges that defendants made materially false and misleading statements between May 8, 2024 and February 25, 2026, overstating the effectiveness of the Company's portfolio restructuring efforts, the accuracy of its portfolio valuations, and the durability of its shareholder distribution strategy. As the truth emerged through two corrective disclosures revealing accelerating portfolio deterioration, rising non-accrual rates, and a dividend cut, FSK shares suffered cumulative declines exceeding 23%, causing significant losses to investors who purchased shares during the Class Period.

Company Profile

FS KKR Capital Corp. is a Business Development Company ("BDC") that specializes in making private loans to companies. The Company's principal source of revenue is interest income earned on its debt investments, as well as fees and dividends from its portfolio companies. FS KKR Capital's common stock trades on the New York Stock Exchange under the ticker symbol FSK, and its principal executive offices are located in Philadelphia, Pennsylvania.

Class Period

May 8, 2024 – February 25, 2026

Investors who purchased or acquired FS KKR Capital Corp. (FSK) securities during the Class Period may be entitled to seek recovery under the federal securities laws.

Allegations

The complaint alleges that throughout the Class Period, FS KKR Capital and its senior executives painted a picture of steady portfolio improvement and disciplined risk management that did not reflect the true condition of the Company's investment portfolio. Beginning with first quarter 2024 results announced on May 8, 2024, CEO Michael C. Forman repeatedly assured investors that the Company had made "significant progress restructuring certain non-accruing investments" and that the "long-term earnings power of FSK continues to be healthy." Over five consecutive quarters, management touted declining non-accrual rates, portfolio stability, and the Company's ability to "continue rewarding shareholders with attractive distributions."

According to the complaint, these statements were materially false and misleading because defendants overstated the effectiveness of the Company's portfolio restructuring efforts for its non-accrual companies. Each quarter from Q1 2024 through Q1 2025, management highlighted declining non-accrual rates — from 4.2% at fair value in Q1 2024 down to 1.7% in Q3 2024 — as evidence of a successful workout strategy. CEO Forman's quarterly press releases emphasized themes of "portfolio stability," "strong performance," and "disciplined capital deployment," while the Company's SEC filings repeatedly certified that its disclosure controls, internal controls over financial reporting, and board-supervised valuation processes were all operating effectively.

The complaint further alleges that defendants overstated the valuation of the Company's portfolio investments and the effectiveness of its valuation process. As a BDC, FS KKR Capital is required to carry its investments at fair value, and its net asset value per share is a critical metric investors use to assess the Company's financial health. The complaint contends that the reported NAV figures — which ranged from $24.32 in Q1 2024 to $23.37 in Q1 2025 — did not accurately reflect the deteriorating condition of key portfolio holdings, including investments in Production Resource Group, 48forty, Kellermeyer Bergensons Services, Worldwise, Medallia, and Cubic Corp. Moreover, plaintiffs allege that defendants overstated the durability of the Company's quarterly distribution strategy, which was ultimately cut from $0.70 to $0.48 per share when the depth of portfolio problems could no longer be concealed.

The Truth Emerges

The truth began to partially emerge on August 6, 2025, when FS KKR Capital reported second quarter 2025 earnings after the market closed. The results revealed that net asset value had plummeted to $21.93 per share — a decline of $1.44, or 6.2%, from the prior quarter — while the total fair value of investments fell $474 million to $13.648 billion. The Company reported a loss per share of negative $0.75, a swing of $1.18 or 274.4% from the prior quarter's positive earnings, and total net realized and unrealized losses of negative $1.36 per share, a deterioration of 466.7%. Non-accrual investments surged to 3.0% and 5.3% of the portfolio at fair value and amortized cost, respectively, up from 2.1% and 3.5% just one quarter earlier. In the accompanying earnings call, Chief Investment Officer Daniel Pietrzak identified four troubled portfolio companies — Production Resource Group, 48forty, Kellermeyer Bergensons Services, and Worldwise — as the primary drivers of the decline, acknowledging that three were "larger investments" in the portfolio. Despite the severity of the disclosure, management maintained that these were merely "company specific issues" that had been "discussed on prior earnings calls."

The full scope of the Company's portfolio deterioration was revealed on February 25, 2026, when FS KKR Capital announced fourth quarter and full year 2025 earnings. Net asset value had declined further to $20.89 per share — down $1.10, or 5%, from the prior quarter — and the total fair value of investments fell another $406 million to $13.009 billion. The Company reported a loss per share of negative $0.41 and total net realized and unrealized losses of negative $0.89 per share. Non-accrual investments climbed again to 3.4% and 5.5% of the portfolio at fair value and amortized cost. Critically, Pietrzak was forced to acknowledge that the Company's "recent underperformance reflects challenges in certain legacy investments" as well as "challenges in certain current adviser originated investments such as Medallia, Cubic Corp, KBS and 48forty" — revealing that the problems extended well beyond the four companies identified in the August disclosure. The four largest problem investments accounted for only "50% of net realized and unrealized losses," meaning that half of the Company's losses came from additional, previously undisclosed portfolio weaknesses. Pietrzak also conceded that the Company's non-accrual rate was "above the long-term BDC industry average cost basis, nonaccrual rate of approximately 3.8%." The Company simultaneously slashed its quarterly dividend to $0.48 per share from $0.70, directly contradicting months of assurances about distribution stability.

Market Reaction

Following the partial disclosure on August 6, 2025, FSK shares fell $1.66, or 8.20%, to close at $18.58 per share on August 7, 2025, on unusually heavy trading volume. The market's reaction reflected investors' reassessment of the Company's portfolio health, though management's characterization of the problems as isolated to four specific companies temporarily limited the damage.

The far more severe correction came after the February 25, 2026 disclosure. On February 26, 2026, FSK shares plunged $2.03, or 15.24%, to close at $11.29 per share on unusually heavy trading volume. The magnitude of the decline reflected investors' realization that portfolio deterioration was far more widespread than previously disclosed, that the Company's non-accrual rate had breached the industry average, and that the dividend cut undermined the distribution stability narrative that had been central to management's investor communications throughout the Class Period.

Next Steps

●      Lead Plaintiff Deadline: July 6, 2026

●      The Court will issue its order for lead plaintiff and counsel in the weeks after submissions are due.

●      The Court will then consider motion for class certification.

●      The Court will later consider a motion to dismiss.

Disclaimer: This shareholder alert is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for personalized guidance. No specific outcomes are guaranteed.

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