Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time, Robert Paun, Director of Investor Relations will proceed with the introduction. Mr. Paun, you may begin.

Thank you, Amanda. Good morning, and welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2018 Earnings Conference Call. Please note that FS KKR Capital Corp. may be referred to as FSK, the fund or the company throughout the call. Today's conference call is being recorded and an audio replay of the call will be available for 30 days. Replay information is included in a press release that FSK issued on February 27, 2019. In addition, FSK has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter and full year ended December 31, 2018. A link to today's webcast and a presentation is available on the Investor Relations section of the company's website under Events and Presentations. Please note that this call is a property of FSK. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call includes forward-looking statements and we ask that you refer to FSK's most recent filing with the SEC for important factors that could cause actual results or outcomes to differ materially from these statements. FSK does not undertake to update its forward-looking statements unless required to do so by law. In addition, this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSK's fourth quarter and full year earnings release that was filed with the SEC on February 27, 2019. Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies. To obtain copies of the company's latest SEC filings, please visit FSK's website. Speaking on today's call will be Michael Forman, Chairman and Chief Executive Officer of FSK; Dan Pietrzak, Chief Investment Officer of FSK; and Brian Gerson, Head of Private Credit for FS Investments. We're also joined by Bill Goebel, Chief Financial Officer of FSK; and Craig Larson, Head of Investor Relations for KKR. I will now turn the call over to Michael.

Thank you, Robert, and welcome, everyone, to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2018 Earnings Conference Call, our first following the merger with Corporate Capital Trust. On today's call, I will update you on the progress over the past year, discuss FSK's current position in the marketplace and share some thoughts regarding our strategy going forward. Following my remarks, Dan Pietrzak will provide our perspective on the current lending environment and review our investment activity for the quarter. Brian Gerson will then discuss our financial results for the fourth quarter. To begin, I'd like to take a moment to review 2018. It was a transformative year during which we made significant progress positioning the company for long-term success. Some of our key accomplishments include the following. First, we received shareholder approval for the partnership between FS Investments and KKR. The partnership leverages our combined scale, investment acumen, distribution networks, relationships and institutional know-how. We complement each other's strengths and have established an effective operation, which we expect to leverage to deliver strong results to our shareholders. Second, we advanced our plan to optimize the company's capital structure closing a $2.1 billion revolver as part of a 3.4 billion five year omnibus credit facility that is also used by FSIC II and III. It is largest revolver ever arranged for a BDC franchise and speaks to the importance of scale and the quality of our collective relationships. Third, we completed the merger between CCT and FSIC, which is an important milestone for the franchise as we seek to run our business more efficiently, reduce risk through greater portfolio diversification and drive sustained value for our shareholders. Finally, we began capitalizing on the full benefits of the combined FS Investments and KKR platforms, generating consistent deal flow, driving origination…

Thank you, Michael. I will provide a few highlights of what we are seeing in the market and provide an update on our portfolio and investment activity during the quarter. Global equity and fixed income markets experienced significant volatility in Q4, which negatively impacted the leverage credit markets and investors sentiment deteriorated throughout the quarter. Both high-yield bond and bank loan mutual funds experienced record outflows in the fourth quarter. This shift in sentiment was reflected in bond and loan prices, which declined to a 2.5 year low the last week of December. The sell-off occurred despite relatively stable corporate fundamentals and near historic low corporate default rates, and we believe it was mainly technical in nature. Post the start of the year, we have seen some recovery in the broader markets as technical pressure has receded. However, retail outflows have continued in the leverage loan market, which could result in a more balanced supply and demand environment going forward. Our company is positioned well to capitalize on market volatility and the Q4 market action did create some opportunities for us and removed a little of the froth from the lending environment. That said, the pullback in January was quicker than we expected and hoped, and the overall market remains competitive. We are focused on being disciplined in our credit selection and are executing transactions where we believe there is an appropriate risk reward. We believe it's critically important to have broad origination capabilities so that we can be highly selective and have the ability to provide a wide range of solutions to sponsors and their portfolio companies. As far as deal volumes, KKR Credit reviewed approximately 1,250 private credit investment opportunities in 2018, meaningfully higher than the number we reviewed in 2017. We believe this is due to 3…

Thanks, Dan. I'll provide a summary of the financial results for the fourth quarter and the full year. As a reminder, we closed the merger between CCT and FSIC on December 19, 2018. While the year-end balance sheet shows the fully combined entity, FSK's financial results for the quarter reflect FSIC-only amounts up until December 19, 2018, and the combined FSK entity for the remaining 12 days of the year. First, we wanted to provide a few technical highlights related to the merger with Corporate Capital Trust. In accordance with the terms of the merger agreement, CCT shareholders received 2.3552 shares of FSIC common stock for each CCT share based upon the respective net asset values of each entity or a total of 292.3 million shares. Accounting standards required us to record the cost of the acquisition based on the fair value of the stock issued and CCT's investments were initially written down to reflect the market value of the shares issued, which traded as a discount to NAV. Upon confirmation of the merger, the CCT investments were then written back up to their respective fair values. As a result, you'll see $717 million in unrealized depreciation in our 10-K. On December 19, 2018, we posted an 8-K with adjustments made as part of the transaction. Please refer to that filing for further details. Important to note, as of December 31, all the assets on the balance sheet were valued at fair value and these merger accounting adjustments will not have an impact on the reported performance of FSK or the incentive fees accrued and/or paid by FSK and has been removed from the earnings presentation slides. Turning to the fourth quarter results, you can find our financial information, beginning on Slide 4 of the earnings presentation. For the fourth…

Thanks, Brian, and thank you to everyone for your time today. We appreciate your support. We're looking forward to updating you throughout 2019 as we make progress on our core objectives. With that, we will now open the call for questions.

[Operator Instructions] Our first question comes from line Fin O’Shea of Wells Fargo Securities. Your line is open. Fin O’Shea: Just the first one on the non-traded. So appreciating the color there. Is this just to help clarify, have you changed your philosophy and your desire objective to merge that, those vehicles in so far as that you wouldn't, if the market came back for you? Or is this a bit of kind of accepting the public markets conditions for a longer period of time?

Fin, and we try to be as clear as we could in the script today about our intentions. And I would say that our view has evolved a little bit. Talking to investors and analysts, we've recognized the concerns. We're not ready yet to announce our plan with the nontraded, specifically FSIC II and FSIC III and CCT II but expect to do so on the coming months. And at this point, we're not contemplating a combination of those vehicles with FS/KKR public vehicle. Fin O’Shea: I'll just move to originations. Just forgive me here if I'm misreading, 220 million FSK 530 million, I think the 220 million means maybe the second half of the quarter or the really second last couple weeks after they merged. Can you give us context on FS/KKR platform wide? And then if you will, KKR Credit direct lending platform wide of your fourth quarter activity, just to give us an idea of what the BDCs were allocated, understanding that they were already pretty fully levered.

Sure, Fin. Happy to do it. And I know the numbers sure are a bit confusing because, in that 220 million number, we're excluding kind of the CCT activity pre-December 19. But just to rehash, in totality, the total BDC franchise for the last three quarters would have been 4 billion or 5 billion of our originations versus 3.9 billion of paydowns. And FSK specifically, inclusive of CCT, would have been 1.84 billion versus 1.65 billion. And then in the quarter, you're right, I mean the FSK number is the 220 million. I think when you add that with CCT activity, the deployment number would have been the 534 million. And then in terms of paydowns, the 397 million would have been sort of 613 million inclusive of all that. I think we were happy with our portfolio activity. In Q4, we did see a fair amount of paydowns. We mentioned a handful of those on the call, a lot of those were sort of a long time in the works. In terms of the overall kind of the KKR Credit platform, going to your question, I mean, you know the way our exemptive relief works. Our BDCs are a meaningful part of our private credit activity, so I don't have a specific number, but it would have been for a lack of better word, majority. Fin O’Shea: No, thank you. And just one more, if I may. On the Conway JV, can you give an update. You guys are both very large and diverse platforms. Just in terms of where you are today, understanding that origination-based partnerships can be more nuanced and complex. Can you kind of give us some color on how you two agree upon what form of origination we'll be seeing there going forward?

No, good question. The JV was an important part of CCT's balance sheet. Arguably, it's undersized today when we think about FSK in totality. We try to make clear on the call, I think we do have an intention of growing the JV over time. I think we've had a very good relationship with our partners to date. We talk constantly, there is joint decision making as it relates to kind of deals and investments that go in there. I think we've been on the same page with regards to what our goals were with that. But I think you'll see more to come from us in the coming quarters on how we intend to kind of expand and grow that. The performance of that has been good. The inception to date IRR is roughly 13%. We think it does give broader access to the overall KKR credit platform, at least the way we've used it to date. So I think we've been happy with it and we'll continue to press forward.

Our next question comes from the line of Terry Ma of Barclays.

I just wanted to follow-up on the JV. Do you have a target of how big you want to grow that over time? As a percentage of portfolio.

I think -- yes, no, it's a very fair question. I think nothing that's necessarily written in stone, but I think we would like it to grow to roughly 10% of the portfolio.

Okay. Got it. And in terms of a quarterly dividend run rate, how should we think about that over the next couple of quarters? Is it kind of like the $7.3 million a good baseline?

Yes. But I think when we think about kind of activity-wise, the market clearly sold off in December. It's kind of pulled back in January, the market remains competitive. But I think we feel good with regards to the mix of deal flow as well as the other levers that will allow us to grow things including the JV. But as Brian said, we've got some assumption.

Okay. Got it. And then in terms of the asset base financing, can you just talk about the strategy there? What you find attractive and type of returns you expect to generate?

Sure, happy to do. I mean, I think the first point to be clear is that, that's not structured products' activity, right? I think we try to -- we want to make that sort of point upfront. We are finding assets or asset classes that have been underserved by either banks pulling back or providers of capital falling away. We find ways to play in those asset classes. We like the up, down in terms of the risk reward. We're generally secured on something, and so the example that I will give, which is probably the largest one inside of FSK today is Toorak. So Toorak is a residential mortgage bridge lending business. We've given capital to them over the last several years. That used to be a space where Wall Street Trading Desk and Hedge Fund used to play fairly meaningfully. They fell away, there was a real need for dedicated capital there. These are loans given to individuals to renovate and sell granular residential housing in the United States. Big business. Toorak has been quite successful. We've acquired in excess of $2.5 billion of loans to date. And when you think about it from a risk reward, they're doing lending that's 75% LTV. The loans that they're acquiring are financed by Wall Street banks, as well as insurance companies who like that risk. We end up sitting roughly 50% to 75% LTV against U.S. housing and earning mid-teens type return. Does that make sense?

Thank you. Our next question comes from the line of Christopher Testa of National Securities. Your line is open.

Just wondering on how much are the pre-2013 vintages not on nonaccrual or remaining? And also, if you could give us an indication, again, outside of the nonaccruals, how much of the book is marked below $80 million currently?

I'll take a stab at the 2013 point just to -- and I might not have sort of a firm number as it relates to kind of age vintage. But obviously, FSK as a combination of FSIC and CCT. So you've already kind of knocked out half. I think you're looking at probably sub-10 sort of plus percent of the book in that kind of vintage bucket. I think the bigger point is we've spent a tremendous amount of time, loan by loan over the course of the last year doing everything possible to maximize value as we would kind of always do. I think we've got our arms very firmly around where we sit now. I think you'll see kind of the risk ratings of 3s and 4s that would have been published kind of inside of the K. So we still got some real work to do, but I think we've made really good progress over '18. Things like ThermaSys were very unfortunate. That was a position that we tried, in many ways, everything possible to work through. We spent a lot of time considering new money options. We just decided, at the end of the day that, that was not the wise things for our investors to do, so we proceeded with the restructuring sort of as is. So that was a tough decision, but I think it was the right decision. And then going to your question about assets, sort of your under $80 million is roughly 10%.

Okay. And are most of those also having overlapped with the pre-2013 vintages?

I think a decent amount, yes. I think there has been some smaller names, probably specifically in retail that have taken some pain as that environment's kind of changed but we can try to follow up with the more specific number, but probably half of that number.

Okay. All right. Now that's better. And looking at where you guys sit with leverage, and obviously, that should come down given the rally in well-known bond markets year-to-date so far, so that'll give you a little bit of wiggle room. But you're at an inflection point where repurchases are still going to be very accretive and you guys, kudos to you for putting in such a massive repurchase program and getting a lot done quarter to date. I'm just wondering why not take the reduced asset coverage. And I fully understand that you guys want to keep the rating agencies happy, but at the same time, if it gives you more room to do greater amounts of repurchases, you're lowering your cost of equity even if it marginally increases the cost of your debt. And therefore, your WACC actually comes out relatively the same. So I'm just wondering what the rationale was there.

Well certainly, each time we've announced share purchase plans we've executed, and I think that puts us in a different class as some of our other peers. I mean, if you look at the numbers, we've done 140 million of repurchases since March of 2018. We've done 325 million of purchases since November of 2017, and we just announced we did approximately 40 million in the new stock purchase. So we'll continue to be vigilant on this issue. We believe that, that thing in FSK, at its current price, is a grade investment and we'll continue to move forward with our strategy.

And then maybe just as it relates to the leverage side of that, I mean now that we're done with the merger, I will say we're spending more time on this -- the leverage point we are in, we'll call more detailed dialogue with all the stakeholders. We understand your rating agency point. We're trying to balance that with being effective on the liability side. But clearly, used prudently we do think that increased leverage can be beneficial to shareholders, so we're mindful about that. It's something we're spending kind of real time on now. And then just to take a little bit further, just to talk about where we sit today, because I think your observation is a very good one. We did end the quarter at 0.7 times net. We've obviously got the share buyback plan. We have been busy on the origination side. The one thing, just to give some flavor on though, we do have an 8 billion book. Almost all these deals have either cash flow sweeps or hard amortization payments, some of them even bigger than your normal 1%. You do get a fair amount of paydowns, and we do have a pretty active projection in terms of a handful of names, let's call five or six names within the portfolio that we expect to get paid down in the coming months or quarters. So I think it's a fairly dynamic process, something we spend a lot of time on, but we understand your point.

And you're referring to call protections on those names you're expecting to repay, right?

No, I didn't mean call protection. I just mean, as we think about...

I mean, the cash flow sweeps and covenants. Okay. Got it.

Yes, I mean, if you just think about assets reductions in the vehicle, you get some normal amortization from amortization, you get some additional amortization from cash flow sweeps, but we just know some deals that are either at the rating agencies or in the process of being sold, so we know we're getting repaid.

Now that makes sense. And one more, if I may. Just a bit on Terry's question. You guys said, JV would be roughly a 10% target, so would the remainder of the 30% basket be more opportunistic things across the KKR platform and maybe some foreign lending as well?

Yes I think that's a fair way to think about it. We want to be prudent with that 30% bucket. I think we've got one of the benefits of the merged entity here, at least as it related to CCT's additional capacity. I think we've been able -- we want to make -- investors have access to all the things that we can do and kind of use that bucket. But your two examples there would be what I would think about. And from time to time, we do see a regular way U.S. kind of public name, but that's probably a smaller percentage.

Your next question comes from the line of Casey Alexander of Compass Point.

Can you discuss sort of the, first off, the structure of the share repurchase program, is the portion that's automatic through a 10b5-1? Or is it all discretional? And how do you think about price sensitivity in the share repurchase program?

It is all pursuant to a 10b5-1 program, so it is -- none of it is discretionary nor could it be in light of the way 10b5 works. So we -- the Board approved the plan, we implemented the plan. The plan is still in place and we'll continue to move forward with the plan.

Okay. Secondly, I understand $68 million of the markdowns was ThermaSys, the $105 million was energy and general mark to the market. Do you have any sort of sense of approximately how much recovery there's been thus far in the first quarter on the energy and the credit spread-related assets?

Yes, this is Brian speaking. I think it's still -- there has been modest recovery, but I think it's hard to put an exact number on it at this point. You're right in pointing out that it was $15 million of energy mark-to-market-related movement that was really two names FourPoint and Ascent both investments we feel very good about. The remainder was pretty broad based across the portfolio excluding the $68 million from ThermaSys.

Yes, I mean there's certainly been strong recovery in the leverage loan market. And so I mean you don't have any sense of 50%, 40%, 70% anything like that?

Yes, I mean -- and we agree with you in the context that December was a very volatile month. It seemed like there was continued volatility in January for about four days, and then things kind of picked up the other manner. I think we're just a little bit hesitant to put an exact kind of percentage on that. But there definitely has been some pickup and it should be at a decent percentage.

Our next question comes from the line of Ryan Lynch of KBW.

First question, the prior [NCB,] FSIC had a little bit of a higher equity component of its portfolio, and I know that was a big focus of rotating out of some of these nonyielding equity investments. With the merger, FSK equity portfolio is a little bit smaller, about 7.5% of its portfolio today. So I just wanted to know, are you guys comfortable with that current exposure that you guys have? Or is that still one of the goals to kind of reduce that? And if you are planning on reducing that, where you kind of see that running at on a go-forward basis?

Ryan, it's a good question, thank you. I think we did make real progress during '18 inside of FSIC on the equity book. I think the number specifically was, we started the year at 13%, it went to 10% inside of FSIC. And now on the merged combined entity it's 7%, 7.5%. I think there's -- it's probably two parts to it. One, we are comfortable with what we own in there, right? The larger -- some of the larger positions, I think the top-5 positions actually make up roughly 2/3 of that balance. We know those names well, some of those names we think has quite good underlying performance, quite good sort of deal activities. The largest name, which is Home Partners, is an important investment for us, something we spend a lot of time on, something that was a proper and true sort of equity investment kind of day 1, nothing to do with any type of restructuring. So I think we feel comparable with what we own. That said, on the other side, we would like that number to be lower. I'm not sure there's a perfect science to it, but I think we would probably want 4%, 5% sort of target for that equity bucket.

But I think I'd also add is that, well, we'd like it to come down, we are not forced sellers, by any means.

Sure. Okay, that makes sense. And then just one other one. For those investors who maybe aren't as familiar with the CCT sort of entity. Can you maybe just describe the JV's investment strategy and how that compares with the FSK's investment strategy?

Yes, I mean. So I'd probably break those apart a little bit. I mean we had set up the JV probably at a bit of a different manner than others that have been in the market. We had set it up with a real strategic objective to allow us to use it opportunistically but also use it to expand that nonEPC bucket. And we were fortunate that we've got a very good financing line in there from Goldman. We've had some good partners, and I think we've been able to grow that nicely over the past 4 to 8 quarters, so we've been happy there. I think in terms of marrying the 2 together now inside of FSK, I think the foundations of what FSIC and CCT did were fairly similar. I think we're evolving now in -- we were evolving FSIC for the last 3 quarters of last year to more align with the KKR sort of credit platform, mainly from an origination perspective. So I think the goals of the JV remain the same. I think we will probably, as we continue to look to grow it, take a step back and make sure it continues to align, it continues to have the right leverage sort of -- et cetera, but I think that alignment is there

Thank you. And this does conclude our question-and-answer session for today. I'd like to turn the call back over to Mr. Michael Forman for any closing remarks.

Thank you, everybody, for listening in today. We appreciate the comments, the questions, and look forward to continuing our relationship with all of you. So thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.