Key Takeaways:
Berger Montague has filed a class action lawsuit against FS KKR Capital Corp. (NYSE: FSK) after the business development company’s stock plunged 15.24% in one day amid mounting credit quality concerns.
The lawsuit, filed on behalf of investors, "concerns whether FSK KRR and certain of its officers and/or directors have engaged in securities fraud or other unlawful business practices," according to a similar notice from law firm Pomerantz LLP.
The legal action follows the company's February 25, 2026, earnings report, where it revealed net asset value had fallen to $20.89 per share, down 5% from the prior quarter. Investments on non-accrual status rose to 3.4% of the portfolio at fair value, up from 2.9% in the previous quarter. The company also cut its dividend to $0.48 per share from $0.70.
The lawsuit adds to the pressure on FSK, which has seen its stock trade at roughly half its net asset value, reflecting deep investor skepticism. The stock's 15.24% drop on February 26 to close at $11.29 per share marked a significant loss for investors during the class period.
The class period covers from May 8, 2024, to February 25, 2026. The lawsuit alleges that during this time, FSK failed to disclose the deteriorating credit quality of its portfolio. This includes a net asset value decline of 6.2% in the second quarter of 2025 and a further 5% in the fourth quarter, as detailed in filings from law firm Pomerantz, which is also investigating claims.
Concerns about FSK's credit quality have been mounting. Analysts at RBC Capital and Keefe, Bruyette & Woods recently downgraded the stock, with RBC citing an expected increase in funding costs following a Moody's ratings downgrade. Non-accrual investments, a key indicator of credit stress, increased to 5.5% of the portfolio at cost in the fourth quarter of 2025.
The lawsuit introduces significant legal and financial uncertainty for FS KKR, which is already grappling with poor credit performance and waning investor confidence. Investors will be closely watching the company's first-quarter earnings, expected before the market opens on May 8, 2026, for any further deterioration in its portfolio.
This article is for informational purposes only and does not constitute investment advice.
