KKR FS Income Trust Select

11/12/2025 | Press release | Distributed by Public on 11/12/2025 14:07

Quarterly Report for Quarter Ending SEPTEMBER 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
(in thousands, except share and per share amounts and percentages)
The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report, "we," "us," "our" and the "Company" refer to KKR FS Income Trust Select and the "Adviser" refers to FS/KKR Advisor, LLC.
Forward-Looking Statements
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:
•our future operating results;
•our business prospects and the prospects of the companies in which we may invest;
•the impact of the investments that we expect to make;
•the ability of our portfolio companies to achieve their objectives;
•our current and expected financings and investments;
•changes in the general interest rate environment;
•the elevated levels of inflation, and its impact on our portfolio companies and on the industries in which we invest;
•the adequacy of our cash resources, financing sources and working capital;
•the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies;
•our contractual arrangements and relationships with third parties;
•actual and potential conflicts of interest with the other funds managed by the Adviser, Future Standard, KKR Credit or any of their respective affiliates;
•the dependence of our future success on the general economy and its effect on the industries in which we may invest;
•general economic, political and industry trends and other external factors, including uncertainty surrounding the financial and political stability of the United States and other countries;
•our use of financial leverage;
•the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments;
•the ability of the Adviser or its affiliates to attract and retain highly talented professionals;
•our ability to maintain our qualification as a RIC and as a BDC;
•the impact on our business of U.S. and international financial reform legislation, rules and regulations;
•the effect of changes to tax legislation on us and the portfolio companies in which we may invest and our and their tax position; and
•the tax status of the enterprises in which we may invest.
Words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause our actual results to differ materially from those expressed or forecasted in the forward-looking statements. Factors that could cause actual results to differ materially include changes relating to those set forth above and the following, among others:
•changes in the economy;
•geo-political risks;
•risks associated with possible disruption in our operations or the economy generally due to terrorism, natural disasters or pandemics; and
•future changes in laws or regulations and conditions in our operating areas.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Shareholders should not place undue reliance on these forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Shareholders are advised to consult any additional disclosures that we may make directly to shareholders or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act.
Overview
We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. Formed as a Delaware statutory trust on April 19, 2023, we are externally managed by the Adviser, which manages our day-to-day operations and provides us with investment advisory and administrative services pursuant to the terms of the Advisory Agreement and the Administration Agreement. The Adviser is registered as an investment adviser with the SEC. We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. We commenced operations concurrent with the initial closing on the Seed Contribution on February 27, 2024.
The Adviser oversees (subject to the oversight of the Board, a majority of whom are not "interested persons," as defined in Section 2(a)(19) of the 1940 Act) the management of our operations and is responsible for making investment decisions with respect to our portfolio pursuant to the terms of the Advisory Agreement. Under the Advisory Agreement, we have agreed to pay the Adviser an annual management fee, or the Base Management Fee, as well as an incentive fee, or the Incentive Fee, based on our investment performance.
We are conducting the continuous Private Offering of our Common Shares in reliance on exemptions from the registration requirements of the Securities Act, including the exemption provided by Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, Regulation S under the Securities Act and other exemptions from the registration requirements of the Securities Act.
Investments
Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We seek to meet our investment objectives by:
•utilizing the experience and expertise of the management team of the Adviser;
•employing a defensive investment approach focused on long-term credit performance and preservation of principal;
•focusing primarily on debt investments in a broad array of private U.S. companies, including middle-market companies, which we define as companies with annual EBITDA of $50 million to $150 million at the time of investment;
•investing primarily in established, stable enterprises with positive cash flows; and
•maintaining rigorous portfolio monitoring in an attempt to anticipate and pre-empt negative credit events within our portfolio, such as an event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company.
We pursue our investment objective by investing primarily in the debt of private middle market U.S. companies with a focus on originated transactions sourced through the network of the Adviser and its affiliates. We define direct originations as any investment where our investment adviser or its affiliates had negotiated the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These directly originated transactions include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions.
See "Item 1. Business - Investment Objectives and Strategy"in the annual report on Form 10-K for the year ended December 31, 2024 filed with the SEC for more information.
Revenues
The principal measure of our financial performance is net change in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net unrealized appreciation or depreciation on investments and net unrealized gain or loss on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost,
including the respective realized gain or loss on foreign currency for those foreign-denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign-denominated investments. Net unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations.
We principally generate revenues in the form of interest income on the debt investments and asset based finance investments, or ABF Investments, we hold, as well as dividends and other distributions on the equity or other securities we hold. In addition, we generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees.
Expenses
Our primary operating expenses include the payment of management and incentive fees and other expenses under the Advisory Agreement and the Administration Agreement, interest expense from financing arrangements and other indebtedness, and other expenses necessary for our operations. The management and incentive fees compensate the Adviser for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.
The Adviser 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 Adviser 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 shareholders and reports filed with the SEC. In addition, the Adviser assists us in calculating our NAV, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our shareholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.
Pursuant to the Administration Agreement, we reimburse the Adviser for expenses necessary to perform services related to our administration and operations, including the Adviser's allocable portion of the compensation and related expenses of certain personnel of Future Standard and KKR Credit providing administrative services to us on behalf of the Adviser. We reimburse the Adviser no less than monthly for all costs and expenses incurred by the Adviser in performing its obligations and providing personnel and facilities under the Administration Agreement. The Adviser allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. The Board 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 Adviser. The Board 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, the Board considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Board compares the total amount paid to the Adviser for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.
Except as provided in the Administration Agreement and the Advisory Agreement, we bear all expenses of our operations and transactions, including all other expenses incurred by the Adviser in performing services for us and administrative personnel paid by the Adviser, subject to the limitations included in the Advisory Agreement and the Administration Agreement. See Note 4 to our unaudited consolidated financial statements included herein for more information regarding the expenses borne by us and, thus, our shareholders.
In addition, 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 Adviser, 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. We pay State Street Bank and Trust Company directly for the costs of such services.
The Adviser has agreed to advance all of our organizational and offering expenses on our behalf (including legal, accounting, printing, mailing, subscription processing and filing fees and expenses and other offering expenses, including costs associated with technology integration between our systems and those of our participating brokers, reasonable bona fide due diligence expenses of participating brokers supported by detailed and itemized invoices, costs in connection with preparing sales materials and other marketing expenses, design and website expenses, fees and expenses of our transfer agent, fees to attend retail seminars sponsored by participating brokers and costs, expenses and reimbursements for travel (provided that we will not be required to bear the cost of private airfare in excess of comparable first-class/business rates on a commercial airline, if available), meals, accommodations, entertainment and other similar expenses related to meetings or events with prospective investors, brokers, registered investment advisors or financial or other advisors, but excluding the shareholder servicing and/or distribution fee) through a date determined by the Adviser in its discretion. We had no obligation to reimburse the Adviser for such advanced expenses until the initial issuance of Common Shares to non-affiliated investors after commencement of the monthly closings for the Private Offering, which commenced
on March 28, 2024. As of September 30, 2025, we had incurred organizational and offering expenses of $760 and $2,493, respectively, which expenses the Adviser elected to cover pursuant to the Expense Support Agreement, subject to reimbursement by us pursuant to its terms. See "Expense Support and Conditional Reimbursement" below for more information. In no event will we bear in excess of $1.5 million in organizational expenses; the Adviser has agreed to be responsible for any organizational expenses in excess of $1.5 million.
From time to time, the Adviser or its affiliates may pay third-party providers of goods or services. We will reimburse the Adviser or such affiliates thereof for any such amounts paid on our behalf. From time to time, the Adviser may defer or waive fees and/or rights to be reimbursed for expenses. All of the foregoing expenses will ultimately be borne by our shareholders.
Expense Support and Conditional Reimbursement
We have entered into the Expense Support Agreement with the Adviser. The Adviser may elect to pay certain of our expenses on our behalf, including, but not limited to, organizational and offering expenses and any of our expenses related to investor relations, outside legal counsel and other outside advisors and experts, finance, operations and administration, each, an Expense Payment, provided that no portion of the payment will be used to pay any of our interest expense or distribution and/or shareholder servicing fees. Any Expense Payment that the Adviser has committed to pay must be paid by the Adviser to us in any combination of cash or other immediately available funds no later than 90 days after such commitment was made in writing, and/or offset against amounts due from us to the Adviser or its affiliates.
Following any calendar month in which Available Operating Funds (as defined below) exceed the cumulative distributions accrued to our shareholders based on distributions declared with respect to record dates occurring in such calendar month (the amount of such excess referred to as Excess Operating Funds), we will pay such Excess Operating Funds, or a portion thereof, to the Adviser until such time as all Expense Payments made by the Adviser to us within three years prior to the last business day of such calendar month have been reimbursed. Any payments required to be made by us are referred to as a Reimbursement Payment. Available Operating Funds means the sum of (i) our net investment income (excluding organizational and offering costs and extraordinary expenses, taxes (including excise tax) and accrued capital gains incentive fees on unrealized appreciation) and (ii) our net capital gains.
For the nine months ended September 30, 2025 and the year ended December 31, 2024, the Adviser has agreed to pay $895 and $2,215, respectively, in Expense Payments, subject to reimbursement by us in accordance with the Expense Support Agreement.
Fees and Expenses
The following table illustrates the aggregate fees and expenses that we expect to incur and that shareholders can expect to bear, either directly or indirectly, during the following twelve months.
Shareholder transaction expenses (fees paid directly from shareholder investment)
Maximum sales load imposed on purchases(1)
3.00 %
Annual operating expenses (as a percentage of average net assets attributable to shares)(2)
Base Management Fee(3)
1.25 %
Incentive fees payable under our investment advisory agreement(4)
-
Interest payments on borrowed funds(5)
4.17 %
Distribution/Servicing Fees(6)
0.85 %
Organizational and offering costs(7)
-
Other expenses(8)
0.49 %
Total annual expenses 6.76 %
Waiver of management and subordinated income incentive fees(3)
-
Net annual expenses 6.76 %
_______________
(1)If Class S shares are purchased through certain financial intermediaries, they may directly charge transaction or other fees, including upfront placement fees or brokerage commissions, in such amount as they may determine. Class S shares will be subject to a maximum sales load of up to 3.0% of the offering price, or may forgo a sales load in favor of a brokerage commission imposed by a selling agent. Certain participating broker-dealers in the Private Offering may offer Class S shares subject to a placement agent fee of 0.50% of the offering price, and up to 1.5%, provided that the sum of the sales load and placement agent fee will not exceed 3.5% of the offering price. Investors should consult with their selling agents about the upfront placement fees or brokerage commissions and any additional fees or charges their selling agents might impose.
(2)Amount assumes that we sell $646.0 million worth of Class S shares during the following twelve months and that we receive proceeds from such sales of approximately $626.6 million, resulting in estimated average net assets of $1,128.2 million based on current asset levels. That amount also assumes that we borrow funds of approximately 64% of our average net assets during such period. Actual expenses will depend on the number of Class S shares we sell in the Private Offering and the amount of leverage we employ, if any. There can be no assurance that we will sell $646.0 million worth of Class S shares during the following twelve months.
(3)The Base Management Fee is calculated and payable quarterly in arrears at an annual rate of 1.25% of our average monthly net assets during such period. The Adviser agreed to waive the Base Management Fee and subordinated income incentive fee through September 30, 2025.
(4)Based on our current business plan, we anticipate that we may have capital gains and interest income that could result in the payment of an Incentive Fee to the Adviser in the following twelve months. However, the Incentive Fee payable to the Adviser is based on our performance and will not be paid unless we achieve certain performance targets. As we cannot predict whether we will meet the necessary performance targets, we have assumed that no Incentive Fee will be paid for purposes of this table. We expect the Incentive Fees we pay to increase to the extent we earn greater interest income through our investments in portfolio companies, and realize capital gains upon the sale of investments in our portfolio companies.
(5)Interest payments on borrowed funds represents an estimate of our annualized interest expense based on our total borrowings as of September 30, 2025. At September 30, 2025, the weighted average effective interest rate for total outstanding debt was 6.53%. We may borrow additional funds from time to time to make investments to the extent we determine that the economic situation is conducive to doing so. To the extent that we determine it is appropriate to borrow funds to make investments, the costs associated with such borrowing will be indirectly borne by our shareholders.
Our ability to incur leverage during the following twelve months depends, in large part, on the amount of money we are able to raise through the sale of Class S shares in the Private Offering and capital markets conditions.
(6)Distribution/Servicing Fees reflect an annual shareholder servicing and/or distribution fee of 0.85% per annum of the NAV, as of the beginning of the first calendar day of the applicable month, of the Class S shares. The Distribution/Servicing Fees will accrue daily and be paid monthly beginning on the first day of the applicable month.
(7)The Adviser has agreed to advance all of our organizational and offering expenses on our behalf through a date determined by the Adviser in its discretion. We will reimburse the Adviser for any such amounts paid on our behalf pursuant to the terms of the Expense Support Agreement. See "Expenses" and "Expense Support and Conditional Reimbursement" sections above for more information.
(8)Other expenses primarily include accounting, legal and auditing fees, as well as the reimbursement of the compensation of administrative personnel and fees payable to our directors who do not also serve in an executive officer capacity for us or the Adviser. The amount presented in the table reflects estimated amounts we expect to pay during the following twelve months and does not include preferred pricing arrangements we may receive from certain parties as a newly formed entity.
Example
The following example demonstrates the projected dollar amount of total expenses that would be incurred over various periods with respect to a $10,000 hypothetical investment in the Class S shares assuming reinvestment of all distributions at NAV and that our direct and indirect annual operating expenses would remain at the percentage levels set forth in the table above (assuming we borrow an amount of approximately 64% of our average net assets):
1 Year 3 Years 5 Years 10 Years
Shareholders would pay the following expenses on a $10,000 investment, assuming a 5% annual return(1)
$950 $2,216 $3,437 $6,308
Shareholders would pay the following expenses on a $10,000 investment, assuming a 5% annual return entirely from realized capital gains $1,008 $2,373 $3,674 $6,665
_______________
(1)Assumes no return from net realized capital gains or net unrealized capital appreciation.
While the example assumes, as required by SEC rules, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. As noted, the example includes the capital gains incentive fee but does not include the subordinated income incentive fee under the Advisory Agreement, which, assuming a 5% annual return, would either not be payable or have an immaterial impact on the expense amounts shown above. If we achieve sufficient returns on our investments to trigger an Incentive Fee of a material amount, our expenses, and returns to our investors, would be higher.
This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.
Portfolio Investment Activity for the Three and Nine Months Ended September 30, 2025 and for the Year Ended December 31, 2024
Total Portfolio Activity
The following tables present certain selected information regarding our portfolio investment activity for the three and nine months ended September 30, 2025:
For the Three Months Ended
For the Nine Months Ended
Net Investment Activity September 30, 2025 September 30, 2025
Purchases $ 305,320 $ 770,686
Sales and Repayments (49,920) (95,097)
Net Portfolio Activity $ 255,400 $ 675,589
For the Three Months Ended
For the Nine Months Ended
September 30, 2025 September 30, 2025
New Investment Activity by Asset Class Purchases Percentage Sales and Repayments Percentage Purchases Percentage Sales and Repayments Percentage
Senior Secured Loans-First Lien $ 201,549 66 % $ 42,729 86 % $ 558,603 72 % $ 69,850 73 %
Asset Based Finance 103,771 34 % 7,191 14 % 212,083 28 % 25,247 27 %
Total $ 305,320 100 % $ 49,920 100 % $ 770,686 100 % $ 95,097 100 %
The following table summarizes the composition of our investment portfolio at cost and fair value as of September 30, 2025 and December 31, 2024:
September 30, 2025
(Unaudited)
December 31, 2024
Amortized
Cost(1)
Fair Value Percentage
of Portfolio
Amortized
Cost(1)
Fair Value Percentage
of Portfolio
Senior Secured Loans-First Lien $ 874,634 $ 881,693 78.0 % $ 384,043 $ 385,040 87.1 %
Asset Based Finance 243,226 249,347 22.0 % 56,158 56,839 12.9 %
Total $ 1,117,860 $ 1,131,040 100.0 % $ 440,201 $ 441,879 100.0 %
_____________________
(1)Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.
The following table presents certain selected information regarding the composition of our investment portfolio as of September 30, 2025 and December 31, 2024:
September 30, 2025 December 31, 2024
Number of Portfolio Companies 123 65
% of Direct Originations in Investment Portfolio
100.0% 100.0%
% Variable Rate Debt Investments (based on fair value)(1)
89.1% 93.8%
% Fixed Rate Debt Investments (based on fair value)(1)
6.5% 4.7%
% Other Income Producing Investments (based on fair value)(2)
1.0% 0.9%
% Non-Income Producing Investments (based on fair value) 3.4% 0.6%
Weighted Average Annual Yield on Accruing Debt Investments(1)(3)
9.3% 9.7%
Weighted Average Annual Yield on All Debt Investments(4)
9.3% 9.7%
_____________________
(1)"Debt Investments" means investments that pay or are expected to pay a stated interest rate, stated dividend rate or other similar stated return.
(2)"Other Income Producing Investments" means investments that pay or are expected to pay interest, dividends or other income to the Company on an ongoing basis but do not have a stated interest rate, stated dividend rate or other similar stated return.
(3)The Weighted Average Annual Yield on Accruing Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each accruing Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each accruing Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period. Stated annual interest rate for floating rate Debt Investments assumes the greater of (a) the respective base rate in effect as of September 30, 2025, and (b) the stated base rate floor. The base rate utilized in this calculation may not be indicative of the base rates for specific contracts as of September 30, 2025.
(4)The Weighted Average Annual Yield on All Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period. Stated annual interest rate for floating rate Debt Investments assumes the greater of (a) the respective base rate in effect as of September 30, 2025, and (b) the stated base rate floor. The base rate utilized in this calculation may not be indicative of the base rates for specific contracts as of September 30, 2025.
For the nine months ended September 30, 2025, our total return based on NAV was 8.75%. For the year ended December 31, 2024, our total return based on NAV was 8.16%. See footnote 5 to the table included in Note 11 to our unaudited consolidated financial statements included herein for information regarding the calculation of our total return based on NAV.
Portfolio Composition by Industry Classification
The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of September 30, 2025 and December 31, 2024:
September 30, 2025
(Unaudited)
December 31, 2024
Industry Classification
Fair Value Percentage of Portfolio Fair Value Percentage of Portfolio
Banks $ 13,164 1.2 % $ - -
Capital Goods 159,649 14.1 % 30,967 7.0 %
Commercial & Professional Services 99,721 8.8 % 66,472 15.0 %
Consumer Durables & Apparel 7,332 0.6 % 5,645 1.3 %
Consumer Services 87,837 7.8 % 46,637 10.6 %
Equity Real Estate Investment Trusts (REITs) 5,176 0.5 % 6,203 1.4 %
Financial Services 109,494 9.7 % 40,738 9.2 %
Food, Beverage & Tobacco 20,094 1.8 % - -
Health Care Equipment & Services 138,489 12.2 % 87,245 19.8 %
Insurance 79,718 7.0 % 61,906 14.0 %
Materials 29,050 2.6 % 18,997 4.3 %
Media & Entertainment 7,195 0.6 % - -
Pharmaceuticals, Biotechnology & Life Sciences 12,591 1.1 % - -
Real Estate Management & Development 81,090 7.2 % 23,491 5.3 %
Software & Services 243,428 21.5 % 39,704 9.0 %
Technology Hardware & Equipment 1,318 0.1 % 1,320 0.3 %
Transportation 34,862 3.1 % 11,607 2.6 %
Utilities 832 0.1 % 947 0.2 %
Total $ 1,131,040 100.0 % $ 441,879 100.0 %
Portfolio Asset Quality
In addition to various risk management and monitoring tools, the Adviser uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. The Adviser uses an investment rating scale of 1 to 4. The following is a description of the conditions associated with each investment rating:
Investment Rating
Summary Description
1 Performing investment-generally executing in accordance with plan and there are no concerns about the portfolio company's performance or ability to meet covenant requirements.
2 Performing investment-no concern about repayment of both interest and our cost basis but company's recent performance or trends in the industry require closer monitoring.
3 Underperforming investment-some loss of interest or dividend possible, but still expecting a positive return on investment.
4 Underperforming investment-concerns about the recoverability of principal or interest.
The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of September 30, 2025 and December 31, 2024:
September 30, 2025 December 31, 2024
Investment Rating Fair
Value 		Percentage of
Portfolio 		Fair
Value 		Percentage of
Portfolio
1 $ 1,104,062 98 % $ 437,871 99 %
2 26,978 2 % 4,008 1 %
3 - - - -
4 - - - -
Total $ 1,131,040 100 % $ 441,879 100 %
The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2025 and September 30, 2024
Revenues
Our investment income for the three and nine months ended September 30, 2025 and 2024 was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Amount Percentage of Total Income Amount Percentage of Total Income Amount Percentage of Total Income Amount Percentage of Total Income
Interest income $ 22,359 91.1 % $ 5,290 85.5 % $ 52,665 89.4 % $ 7,992 88.5 %
Paid-in-kind interest income
672 2.7 % 186 3.0 % 1,927 3.3 % 186 2.1 %
Fee income 1,253 5.1 % 711 11.5 % 3,773 6.4 % 848 9.4 %
Dividend income 272 1.1 % - - 560 0.9 % - -
Total investment income(1)
$ 24,556 100.0 % $ 6,187 100.0 % $ 58,925 100.0 % $ 9,026 100.0 %
___________
(1)Such revenues represent $23,723 and $5,939 of cash income earned as well as $833 and $248 in non-cash portions relating to accretion of discount and PIK interest for the three months ended September 30, 2025 and 2024, respectively. Such revenues represent $56,572 and $8,767 of cash income earned as well as $2,353 and $259 in non-cash portions relating to accretion of discount and PIK interest for the nine months ended September 30, 2025 and 2024, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.
The level of interest income we receive is generally related to the balance of income-producing investments, multiplied by the weighted average yield of our investments. We expect the dollar amount of interest and any dividend income that we earn to increase as the size of our investments portfolio increases.
Fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees and other non-recurring fees. As such, fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.
The increase in interest, PIK, fee and dividend income for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 is primarily due to the increase in the size of our investment portfolio, partially offset by a decline in yields due to the lower interest rate environment.
Expenses
Our operating expenses for the three and nine months ended September 30, 2025 and 2024 were as follows:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2025 2024 2025 2024
Management fees $ 2,289 $ 649 $ 5,376 $ 960
Subordinated income incentive fees 2,273 727 5,696 1,067
Capital gains incentive fees 657 111 1,146 138
Interest expense
4,551 96 10,538 96
Administrative services expenses 697 267 1,378 447
Distribution/servicing fees
1,489 349 3,411 461
Share transfer agent fees 132 85 267 107
Accounting and administrative fees 108 22 259 34
Audit expense 173 100 446 198
Other expenses 713 188 1,368 296
Total operating expenses 13,082 2,594 29,885 3,804
Management and incentive fee waivers (4,562) (1,376) (11,072) (2,027)
Expense waiver - (662) (895) (1,009)
Net operating expenses $ 8,520 $ 556 $ 17,918 $ 768
The following table reflects selected expense ratios as a percent of average net assets for the three and nine months ended September 30, 2025 and 2024:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2025 2024 2025 2024
Ratio of operating expenses to average net assets 1.73 % 1.16 % 4.99 % 3.41 %
Ratio of expense waivers to average net assets(1)
(0.60) % (0.91) % (2.00) % (2.72) %
Ratio of net operating expenses to average net assets 1.13 % 0.25 % 2.99 % 0.69 %
Ratio of net incentive fees and interest expense to average net assets(1)
0.69 % 0.09 % 1.95 % 0.21 %
Ratio of net operating expenses, excluding certain expenses, to average net assets 0.44 % 0.16 % 1.04 % 0.48 %
__________
(1)Ratio data may be rounded in order to recompute the ending ratio of net operating expenses to average net assets or net operating expenses, excluding certain expenses, to average net assets.
We generally expect our general and administrative expenses to decrease as a percentage of our average net assets because of the anticipated growth in the size of our asset base.
The increase in expenses for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024 is primarily due to the increase in the size of our investment portfolio, which increased the acceleration of our operational activity during the three and nine months ended September 30, 2025 and the incurrence of borrowings under the K-FITS Eiffel-1 Credit Facility and the Senior Secured Revolving Credit Facility, which increased interest expense.
Interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance, changes in amounts outstanding under our financing arrangements and benchmark interest rates such as SOFR, among other factors.
Net Investment Income
Our net investment income totaled $16,036 ($0.54 per share) and $5,631 ($0.64 per share) for the three months ended September 30, 2025 and 2024, respectively. The increase in net investment income during the three months ended September 30, 2025 compared to the three months ended September 30, 2024 can primarily be attributed to the increase in interest, PIK, fee and dividend income discussed above.
Our net investment income totaled $41,007 ($1.75 per share) and $8,258 ($1.89 per share) for the nine months ended September 30, 2025 and 2024, respectively. The increase in net investment income during the nine months ended September 30, 2025 compared
to the nine months ended September 30, 2024 can primarily be attributed to the increase in interest, PIK, fee and dividend income discussed above.
Net Realized Gains or Losses
Our net realized gains (losses) on investments, foreign currency forward contracts and foreign currency for the three and nine months ended September 30, 2025 and 2024 were as follows:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2025 2024 2025 2024
Net realized gain (loss) on investments(1)
$ 24 $ - $ (156) $ -
Net realized gain (loss) on foreign currency forward contracts (71) 8 (122) 8
Net realized gain (loss) on foreign currency (298) (48) (337) (45)
Total net realized gain (loss) $ (345) $ (40) $ (615) $ (37)
______________
(1)We sold investments and received principal repayments of $12,724 and $37,196, respectively, during the three months ended September 30, 2025 and $0 and $8,126, respectively, during the three months ended September 30, 2024. We sold investments and received principal repayments of $26,420 and $68,677, respectively, during the nine months ended September 30, 2025 and $0 and $8,297, respectively, during the nine months ended September 30, 2024.
Net Change in Unrealized Appreciation (Depreciation)
Our net change in unrealized appreciation (depreciation) on investments, foreign currency forward contracts and unrealized gain (loss) on foreign currency for the three and nine months ended September 30, 2025 and 2024 were as follows:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2025 2024 2025 2024
Net change in unrealized appreciation (depreciation) on investments $ 4,903 $ 990 $ 11,502 $ 1,209
Net change in unrealized appreciation (depreciation) on foreign currency forward contracts 154 (67) (296) (67)
Net change in unrealized gain (loss) on foreign currency 549 8 (1,420) 3
Total net change in unrealized appreciation (depreciation) $ 5,606 $ 931 $ 9,786 $ 1,145
The net change in unrealized appreciation (depreciation) during the three and nine months ended September 30, 2025 and 2024 were driven primarily by appreciation on several specific assets in the portfolio.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the three months ended September 30, 2025, the net increase in net assets resulting from operations was $21,297 ($0.72 per share) compared to a net increase in net assets resulting from operations of $6,522 ($0.71 per share) for the three months ended September 30, 2024.
For the nine months ended September 30, 2025, the net increase in net assets resulting from operations was $50,178 ($2.14 per share) compared to a net increase in net assets resulting from operations of $9,366 ($2.07 per share) for the nine months ended September 30, 2024.
Financial Condition, Liquidity and Capital Resources
Overview
We intend to generate cash primarily from the net proceeds from the Private Offering and from cash flows from interest and fees earned from our investments and principal repayments and proceeds from sales of our investments. We may also fund a portion of our investments through borrowings from banks and issuances of senior securities, including before we have fully invested the proceeds of the Private Offering. Our primary use of cash will be investments in portfolio companies, payments of our expenses, including management fees, incentive fees and interest expenses, payment of cash distributions to our shareholders and repurchases of our Common Shares under our discretionary share repurchase program.
As of September 30, 2025, we had $26,153 in cash and foreign currency, which we held in custodial accounts, and $280,400 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. As of September 30, 2025, we had unfunded debt investments with aggregate unfunded commitments of $230,470 and unfunded equity/other commitments of
$20,587. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.
We intend to utilize leverage to finance our investments. The amount of leverage that we employ will be subject to the restrictions of the 1940 Act and the supervision of the Board. At the time of any proposed borrowing, the amount of leverage we employ will also depend on our Adviser's assessment of market and other factors. We have established credit facilities and other financing arrangements, and intend to establish one or more additional credit facilities or enter into other financing arrangements to facilitate investments and the timely payment of our expenses.
Asset Coverage
Under the provisions of the 1940 Act, following approval from our initial shareholders of the reduced asset coverage requirements under Section 61(a)(2) of the 1940 Act on February 21, 2024, which approval became effective on February 22, 2024, we are currently permitted to issue "senior securities" only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after each issuance of senior securities. For purposes of the 1940 Act, "asset coverage" means the ratio of (1) the total assets of a BDC, less all liabilities and indebtedness not represented by senior securities, to (2) the aggregate amount of senior securities representing indebtedness (plus, in the case of senior securities represented by preferred stock, the aggregate involuntary liquidation preference of such BDC's preferred stock). While any senior securities remain outstanding, we will be required to make provisions to prohibit any dividend distribution to our shareholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the dividend distribution or repurchase.
As of September 30, 2025, the aggregate amount outstanding of the senior securities issued by us was $344,600. As of September 30, 2025, our asset coverage ratio as calculated under the 1940 Act was 336%.
Prior to investing in securities of portfolio companies, we invest the cash received from fees, interest and dividends earned from our investments and principal repayments and proceeds from sales of our investments primarily in cash, cash equivalents, including money market funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.
Financing Arrangements
The following table presents summary information with respect to our outstanding financing arrangements as of September 30, 2025:
As of September 30, 2025
(Unaudited)
Arrangement Type of Arrangement Rate Amount
Outstanding 		Amount
Available 		Maturity Date
Senior Secured Revolving Credit Facility(1)
Revolving Credit Facility
SOFR+2.125%(2)
$ 94,600
(3)
$ 130,400 July 2, 2029
K-FITS Eiffel-1 Credit Facility(1)
Revolving Credit Facility
SOFR+1.95%(4)
250,000 150,000 September 19, 2030
Total $ 344,600 $ 280,400
______________
(1)The carrying amount outstanding under the facility approximates its fair value.
(2)The benchmark rate is subject to a 0% floor.
(3)Amount includes borrowing in Euros and pounds sterling. Euro balance outstanding of €7,750 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.17 as of September 30, 2025. Pounds sterling balance outstanding of £33,850 has been converted to U.S. dollars at an exchange rate of £1.00 to $1.34 as of September 30, 2025to reflect total amount outstanding in U.S. dollars.
(4)The benchmark is determined by reference to the currency advanced, and the applicable margin is determined by the currency advanced. During the reinvestment period, the applicable margin can range from 1.95% to 2.15%; following the reinvestment period, each applicable margin increases by 0.50%.
See Note 9 to our unaudited consolidated financial statements included herein for additional information regarding our financing arrangements.
RIC Status and Distributions
We have elected and intend to qualify annually for federal income tax purposes to be treated as a RIC under Subchapter M of the Code. In order to maintain our qualification as a RIC, we must, among other things, make distributions of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, each tax year. As long as the distributions are declared by the later of the fifteenth day of the tenth month following the close of a tax year or the due date of the tax return for such tax year, including extensions, distributions paid up to twelve months after the current tax year generally
can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our shareholders to qualify for and maintain our RIC tax status each tax year. We are also subject to a 4% nondeductible federal excise tax on certain undistributed income unless we make distributions in a timely manner to our shareholders 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"(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. Any distribution declared by us during October, November or December of any calendar year, payable to shareholders 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 shareholders, on December 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any cash distributions.
Subject to applicable legal restrictions, and to the extent that we have taxable income available, we intend to make distributions to holders of our Common Shares. We intend to make monthly distributions to holders of our Common Shares and such distributions are recorded on the record date. All such distributions will be paid at the discretion of the Board and will depend on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as the Board may deem relevant from time to time.
The IRS currently requires that a RIC has two or more classes of stock allocate to each such class proportionate amounts of each type of its income (such as ordinary income and capital gains) based upon the percentage of total dividends paid to each class for the tax year. Accordingly, while our Preferred Shares were outstanding, we allocated capital gain dividends, if any, between our Common Shares and Preferred Shares in proportion to the total dividends paid to each class with respect to such tax year.
Prior to the redemption of all of our issued and outstanding Series A Preferred Shares on August 1, 2024, we paid dividends and distributions to our preferred shareholders semi-annually on or before June 30 and December 31 of each year.
During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a shareholder's investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our shareholders. No portion of the distributions paid during the nine months ended September 30, 2025 or 2024 represented a return of capital.
We intend to make our regular distributions in the form of cash, out of assets legally available for distribution, except for those shareholders who have elected to receive their distributions in the form of additional Common Shares under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. shareholder.
The following tables reflect the cash distributions per share that we have declared on our Common Shares during the nine months ended September 30, 2025 and 2024:
For the Nine Months Ended September 30, 2025
Date Declared
Distribution
Record Date
Payment Date
Distribution per Share
January 10, 2025 Regular January 31, 2025 February 26, 2025 $ 0.20
February 11, 2025 Regular February 28, 2025 March 27, 2025 0.20
March 10, 2025 Regular March 31, 2025 April 28, 2025 0.20
March 10, 2025 Special March 31, 2025 April 28, 2025 0.08
April 14, 2025 Regular April 30, 2025 May 28, 2025 0.20
May 9, 2025 Regular May 30, 2025 June 26, 2025 0.20
June 6, 2025 Regular June 30, 2025 July 29, 2025 0.20
July 14, 2025 Regular July 31, 2025 August 27, 2025 0.20
July 31, 2025 Regular August 29, 2025 September 26, 2025 0.20
August 28, 2025 Regular September 30, 2025 October 29, 2025 0.20
Total
$ 1.88
For the Nine Months Ended September 30, 2024
Date Declared
Distribution
Record Date
Payment Date
Distribution per Share
June 11, 2024 Regular June 28, 2024 July 29, 2024 $ 0.20
June 11, 2024 Special June 28, 2024 July 29, 2024 0.08
July 11, 2024 Regular July 31, 2024 August 28, 2024 0.20
July 31, 2024 Regular August 30, 2024 September 26, 2024 0.20
September 16, 2024 Regular September 30, 2024 October 29, 2024 0.20
September 16, 2024 Special September 30, 2024 October 29, 2024 0.08
Total
$ 0.96
See Note 5 to our unaudited consolidated financial statements included herein for additional information regarding our distributions.
Recent Developments
Distributions
On October 8, 2025, the Board declared a distribution of $0.20 per Common Share, payable on or about November 25, 2025 to shareholders of record as of the close of business on October 31, 2025. Additionally, on October 30, 2025, the Board declared a distribution of $0.20 per Common Share, payable on or about December 29, 2025 to shareholders of record as of the close of business on November 28, 2025. Shareholders may receive the distribution payments in cash or in Common Shares in accordance with their election under the Company's distribution reinvestment plan.
Private Offering Closings
On October 1, 2025, we issued and sold 2,056,193 Common Shares in the Private Offering (with the final number of Common Shares issued being determined on October 21, 2025 pursuant to Subscription Agreements entered into with the participating investors for aggregate consideration of $52,782.
On November 3, 2025, we issued and sold Common Shares in the Private Offering pursuant to Subscription Agreements entered into with the participating investors for aggregate consideration of approximately $42,696. The final number of Common Shares issued as of November 3, 2025 in connection with the monthly closing will be determined at a later date in connection with the Company's determination of its net asset value per Common Share as of October 31, 2025.
Critical Accounting Policies and Estimates
Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management utilizes available information, including our past history, industry standards and the current economic environment, among other factors, in forming the estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in Note 2 to our unaudited consolidated financial statements included herein.
Critical accounting policies are those that require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. We have identified one of our accounting policies, valuation of portfolio investments, specifically the valuation of Level 3 investments, as critical because it involves significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below and in the notes to our unaudited consolidated financial statements included herein.
As of September 30, 2025, our investment portfolio, valued at fair value in accordance with our Board-approved valuation policy, represented 96.20% of our total assets, as compared to 96.02% of our total assets as of December 31, 2024.
Valuation of Portfolio Investments and Determination of NAV
Valuation of Portfolio Investments
The Board is responsible for overseeing the valuation of our portfolio investments at fair value as determined in good faith pursuant to the Adviser's valuation policy. As permitted by Rule 2a-5 of the 1940 Act, the Board has designated the Adviser as our valuation designee with day-to-day responsibility for implementing the portfolio valuation process set forth in the Adviser's valuation policy.
Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the FASB clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical securities; 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.
The Adviser determines the fair value of our investment portfolio on at least a quarterly basis. Securities that are publicly-traded with readily available market prices will be valued at the reported closing price on the valuation date. Securities that are not publicly-traded with readily available market prices will be valued at fair value as determined in good faith by the Adviser, in accordance with valuation policies approved by the Board. In connection with that determination, the Adviser will prepare 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 pricing and valuation services.
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 Adviser facilitating the delivery of updated quarterly financial and other information relating to each investment to an independent third-party pricing or valuation service;
•the independent third-party pricing or valuation service then reviews and analyzes the information, along with relevant market and economic data, and determines proposed valuations for each portfolio company or investment according to the valuation methodologies in the Adviser's valuation policy and communicates the information to the Adviser in the form of a valuation range for Level 3 assets;
•the Adviser then reviews the preliminary valuation information for each portfolio company or investment and provides feedback about the accuracy, completeness and timeliness of the valuation-related inputs considered by the independent third-party pricing or valuation service and any suggested revisions thereto prior to the independent third-party pricing or valuation service finalizing its valuation range;
•the Adviser then provides the Board's valuation committee with its valuation determinations and valuation-related information for each portfolio company or investment, along with any applicable supporting materials; and other information that is relevant to the fair valuation process as required by the Adviser's Board-reporting obligations;
•the Board's valuation committee meets with the Adviser to receive the relevant quarterly reporting from the Adviser and to discuss any questions from the valuation committee in connection with the valuation committee's role in overseeing the fair valuation process; and
•following the completion of its fair value oversight activities, the valuation committee (with the assistance of the Adviser) provides the Board with a report regarding the quarterly valuation process.
In circumstances where the Adviser deems appropriate, the Adviser's internal valuation team values certain investments. When performing the internal valuations, the Adviser utilizes similar valuation techniques as an independent third-party pricing service would use. Such valuations are approved by an internal valuation committee of the Adviser, with oversight from the valuation committee of the Board, as described above.
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, the Adviser may use any independent third-party pricing or valuation services for which it has performed the appropriate level of due diligence. However, the Adviser is not required to determine fair value in accordance with the valuation provided by any single source, and may use any relevant data, including
information sourced by the Adviser or provided by any independent third-party valuation or pricing service that the Adviser deems to be reliable in determining fair value under the circumstances. Below is a description of factors that the Adviser and any independent third-party valuation services may consider when determining the fair value of our investments.
The valuation methods utilized for each portfolio company may vary depending on industry and company-specific considerations. Typically, the first step is to make an assessment as to the enterprise value of the portfolio company's business in order to establish whether the portfolio company's enterprise value is greater than the amount of its debt as of the valuation date. This analysis helps to determine a risk profile for the applicable portfolio company and its related investments, and the appropriate valuation methodology to utilize as part of the security valuation analysis. The enterprise valuation may be determined using a market or income approach.
Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Adviser may incorporate these factors into discounted cash flow models to arrive at fair value. Various methods may be used to determine the appropriate discount rate in a discounted cash flow model.
Domestic and foreign fixed-income instruments and non-exchange traded derivatives are normally valued on the basis of quotes obtained from brokers and dealers or pricing services using data reflecting the earlier closing of the principal markets for those securities. Bank loans, including senior secured floating rate and fixed-rate loans, are valued by using readily available market quotations or another commercially reasonable method selected by an independent, third-party pricing service that has been engaged by the Adviser, or, if such independent, third-party valuations are not available, by using broker quotations. Senior secured adjustable, variable or floating rate loans for which an active secondary market exists to a reliable degree will be valued at the bid price in the market for such loans, as provided by a loan pricing service. Directly originated loans are valued on an individual loan level. In doing so, the Adviser may engage an independent, third-party valuation agent, and fair valuation of such loans will be performed using inputs that incorporate borrower level data, including significant events affecting the issuer or collateral and market developments. Prices obtained from independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Exchange traded options, futures and options on futures are valued at the settlement price determined by the relevant exchange. The value of swaps, including credit default swaps, total return swaps and interest rate swaps will be determined by obtaining at least one dealer quotation (including information from counterparties) or valuations from third-party pricing services. If no quotations or valuations are available, or if such quotations or valuations are believed to be unreliable, swaps will be fair valued pursuant to procedures adopted by the Adviser and overseen by the Board.
Other factors that may be considered include the borrower's 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 the 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. 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. The Adviser will normally use pricing data for domestic or foreign equity securities received shortly after the close of the primary securities exchange on which such securities trade and does not normally take into account trading, clearances or settlements that take place after the close of the exchange.
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. The Adviser subsequently values these warrants or other equity securities received at their fair value.
See Note 8 to our unaudited consolidated financial statements included herein for additional information regarding the fair value of our financial instruments.
Determination of NAV
We expect to determine our NAV for the Common Shares each month as of the last day of each calendar month, and in no event less frequently than quarterly. The NAV per share for our Common Shares is determined by dividing the value of total assets attributable to the Common Shares minus liabilities attributable to the Common Shares by the total number of Common Shares outstanding at the date as of which the determination is made. We will use the valuation procedures set forth above in order to
determine our NAV, as applied by the Adviser as our valuation designee under Rule 2a-5 under the 1940 Act. Fair value pricing may require subjective determinations about the value of a security. If events materially affecting the price of foreign portfolio securities occur between the time when their price was last determined on such foreign securities exchange or market and the time when our NAV was last calculated (for example, movements in certain U.S. securities indices which demonstrate strong correlation to movements in certain foreign securities markets), such securities may be valued at their fair value as determined in good faith in accordance with procedures established by the Adviser and overseen by the Board.
For purposes of calculating NAV, all assets and liabilities initially expressed in foreign currencies will be converted into U.S. dollars at prevailing exchange rates as may be determined in good faith by the Adviser under the supervision of the Board. Although the Adviser's policy is intended to result in a calculation of our NAV that fairly reflects security values as of the time of pricing, we cannot ensure that fair values determined by the Adviser would accurately reflect the price that we could obtain for a security if it were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by the Adviser when determining fair value may differ from the value that would be realized if the securities were sold.
The NAV calculation is available generally within 20 business days after the end of the applicable month. Changes in our monthly NAV will reflect factors including, but not limited to, accruals for net portfolio income, interest expense and unrealized/realized gains (losses) on assets, any applicable organizational and offering costs and any expense reimbursements. When the Adviser determines NAV as of a day that is not the last day of a calendar quarter in connection with a drawdown on capital commitments or, for monthly closings to investors for immediate cash investment, as of the last day of a month that is not also the last day of a calendar quarter, we intend to update the value of securities with reliable market quotations to the most recent market quotation. For securities without reliable market quotations, the Adviser's valuation team will generally value such assets at the most recent quarterly valuation unless the Adviser determines that a significant observable change has occurred since the most recent quarter-end with respect to the investment (which determination may be as a result of a material event at a portfolio company, material change in market spreads, secondary market transaction in the securities of an investment or otherwise). If the Adviser determines such a change has occurred with respect to one or more investments, the Adviser will determine whether to update the value for each relevant investment using a range of values from an independent valuation firm, where applicable, in accordance with the Adviser's valuation policy, pursuant to authority designated by the Board. Additionally, the Adviser may otherwise determine to update the most recent quarter-end valuation of an investment without reliable market quotations that the Adviser considers to be material to the Company using a range of values from an independent valuation firm.
The most recently determined NAV per share for the Common Shares will be reported by the Company under cover of a Current Report on Form 8-K filed with the SEC.
Other Contractual Obligations
We have entered into the Advisory Agreement and Administration Agreement with the Adviser to provide us with investment advisory and administrative services. Payments for investment advisory services under the Advisory Agreement are equal to (a) an annual Base Management Fee based on the average monthly value of the Company's net assets during the most recently completed calendar quarter, and (b) an Incentive Fee based on our performance. The Adviser is reimbursed for administrative expenses incurred on our behalf. See Note 4 to our unaudited consolidated financial statements included herein for a discussion of these agreements and for the amount of fees and expenses accrued under these agreements during the nine months ended September 30, 2025.
If any of our contractual obligations are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under our Advisory Agreement and our Administration Agreement.
Off-Balance Sheet Arrangements
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of September 30, 2025, we had off-balance sheet arrangements with the Financing Provider, under the Cliffwater Facility Agreement, as described below.
Warehousing Transaction
On May 9, 2024, and as amended on March 24, 2025, the Company entered into the Cliffwater Facility Agreement, with Cliffwater and the Financing Provider, each an unaffiliated third party, to acquire portfolio investments from time to time by purchasing all or a portion of certain investments owned and held by the Financing Provider at the Company's or the Financing Provider's request pursuant to the terms and provisions of the Warehousing Transaction. The Cliffwater Facility Agreement creates a forward obligation of the Financing Provider to sell, and a forward obligation of the Company or its designee to purchase, all or a portion of certain investments owned and held by the Financing Provider at the Company's or Cliffwater's request pursuant to the
terms and conditions of the Cliffwater Facility Agreement. Prior to the date on which (i) an insolvency proceeding is commenced by the Company or (ii) an insolvency proceeding is commenced against the Company and is not dismissed or stayed within 60 days, the Company's obligation to purchase such investments is conditional upon satisfying certain conditions, including that the Company has met the Capital Condition. The Company made customary representations and warranties in the Cliffwater Facility Agreement.
Subject to satisfaction of the Capital Condition, the Cliffwater Facility Agreement provides that, on or prior to the twenty-four month anniversary of March 29, 2024, or the Scheduled Facility End Date, Cliffwater can require the Company to purchase from the Financing Provider such investments entered into in connection with the Cliffwater Facility Agreement (x) with respect to such investment initially acquired by the Financing Provider prior to the date that the Company has raised investor subscriptions that are callable, have been called or received in an aggregate amount of at least $1.0 billion, or the Subscription Threshold Date, in an amount up to 3.0% of the aggregate subscriptions that the Company has raised on or prior to the trade date of any purchase and (y) with respect to such investment initially acquired by the Financing Provider on or after the Subscription Threshold Date, in an amount up to 2.0% of the aggregate subscriptions that the Company has raised on or prior to the trade date of any purchase. Such purchases will be at the prices determined under the Cliffwater Facility Agreement, as discussed further below; provided that, (i) the Company may, on one occasion, extend the Scheduled Facility End Date by three months and (ii) if no notice requiring a purchase or sale, as applicable, of such investments is delivered in accordance with the Cliffwater Facility Agreement by the Scheduled Facility End Date, none of the parties to the Cliffwater Facility Agreement may require the other party to purchase or sell, as applicable, such investments after the Scheduled Facility End Date.
In connection with investments (other than Warehouse Asset Based Finance Investments (as defined below)):
(A) The Financing Provider will receive during the period commencing on the date the Financing Provider acquires an investment and ending on the date immediately preceding the trade date of such investment, or the Holding Period, (i) all principal proceeds, all OID and Fees (as defined in the Cliffwater Facility Agreement) paid on account of any portion of an underlying purchased loan that is repaid or prepaid and not available to be reborrowed and an available unfunded commitment that has been terminated, not funded and is not available to be reborrowed by the underlying obligor and all amendment fees on such investments it holds pursuant to the Cliffwater Facility Agreement, in each case, during the Holding Period, (ii) all cash interest and payment-in-kind interest and all fees (other than one-time fees) that regularly accrue and are payable to all lenders under the underlying documents for such investments on account of such lenders' loans or commitments outstanding pursuant to such underlying documents, in each case, during the Holding Period and (iii) additional consideration for any such investments transferred to the Purchaser that have paid OID and Fees prior to the trade date during the Holding Period equal to an amount from 0.25% to 1.50% (based on the length of time such asset is held by the Financing Provider) of the par value or unfunded amount, as applicable, of any such investment as of immediately prior to any transfer of such investment by the Financing Provider to the Company, or the Additional Consideration.
(B) Following fulfillment of the conditions precedent to the Company's obligations to purchase any loans under the Cliffwater Facility Agreement, the Company will purchase such loans owned and held by the Financing Provider under the Cliffwater Facility Agreement at a purchase price equal to (i) the par amount of such loan plus, without duplication, (ii) PIK interest accrued during the Holding Period and PIK interest accrued but not capitalized prior to the Holding Period minus (iii) the sum of (x) OID, upfront fees and other similar fees on account of such purchase loan (all of which are attributable to the Holding Period) plus (y) any termination fees or other similar fees during the Holding Period plus (iv) solely to the extent that such loan has paid OID, upfront fees or other similar fees, the Additional Consideration.
(C) Similarly, following fulfillment of the conditions precedent to the Company's obligations to purchase any unfunded commitments under the Cliffwater Facility Agreement, the Company will purchase such assets owned and held by the Financing Provider under the Cliffwater Facility Agreement at a purchase price equal to (i) zero plus (ii) solely to the extent that such unfunded commitment has paid OID, upfront fees or other similar fees, the Additional Consideration minus (iii) OID, upfront fees and other similar fees on account of such unfunded commitment. The above purchase price calculations are subject to adjustment in certain circumstances under the Cliffwater Facility Agreement.
In connection with investments, including related unfunded commitments, underwritten primarily on investments backed by large and diversified pools of financial hard and contractual assets, or the Warehouse Asset Based Finance Investments, following fulfillment of the conditions precedent to the Company's obligations to purchase any Warehouse Asset Based Finance Investments under the Cliffwater Facility Agreement, the Company will purchase such Warehouse Asset Based Finance Investments owned and held by the Financing Provider under the Cliffwater Facility Agreement at a purchase price equal to (i) the funded cost of such Warehouse Asset Based Finance Investments, minus (ii) the amount of any PIK interest accrued during the Holding Period, minus (iii) the amount of any OID upfront fees and other similar fees on account of such Warehouse Asset Based Finance Investments during the Holding Period, minus (iv) an amount equal to 11% per annum (or, after the one year anniversary of the date the Financing Provider acquired the Warehouse Asset Based Finance Investments, 12%) on the aggregate funded investment cost during the Holding Period of such Warehouse Asset Based Finance Investments, minus, (v) the amount of interest, dividends, fees and other amounts (other than proceeds of principal and other amounts paid on account of indemnification and reimbursement expenses) received by the Financing Provider during the Holding Period on account of such Warehouse Asset Based Finance Investments. This purchase price calculation
is subject to adjustment in certain circumstances under the Cliffwater Facility Agreement. Except as set forth above, the Company receives all other economics arising before, during and after the Holding Period on such Asset-Based Finance.
In the event the settlement date for any purchase by the Company occurs (i) on or before seven business days after the applicable trade date, or a Delayed Comp Trigger Date, the above amounts received by the Financing Provider will be extended to the Delayed Comp Trigger Date and (ii) after the seventh business day after the applicable trade date (in the event such purchase has not occurred by way of a participation), the amounts received by the Financing Provider will include the amounts set forth in the foregoing clause (i) through the Delayed Comp Trigger Date and will also include an amount equal to daily simple SOFR plus 11.448 basis points for each day that elapses between the Delayed Comp Trigger Date and the applicable settlement date. The Company will receive all other OID and Fees and all termination fees, prepayment premiums, make-whole or similar fees or payments with respect to such investments.
Unless otherwise agreed to by the Company, Cliffwater and the Financing Provider, each investment transaction under the Cliffwater Facility Agreement is expected to be for portfolio investments with a purchase price of at least $1.0 million or, if less, the purchase price of all remaining portfolio investments, including related unfunded commitments, held by the Financing Provider.
The fair value of the loans under the Cliffwater Facility Agreement is not reflected in the purchase price. As such, for loans, to the extent the Company is required to buy a loan from the Financing Provider, the Company bears the risk of the fair value of such loan falling below the par value. In contrast, to the extent that the Company is not required to buy a loan, the Financing Provider bears the risk of the fair value of such loan falling below such par value. Similarly, for unfunded commitments, to the extent the Company is required to buy an unfunded commitment, it will bear the risk of being required to buy a loan that, upon funding, may be valued below the par value. In contrast, to the extent that the Company is not required to buy a loan, the Financing Provider will bear such risk.
The portfolio investments expected to be purchased by the Company from time to time pursuant to the Cliffwater Facility Agreement are expected to generally consist of directly originated loans to middle-market U.S. companies consistent with the Company's investment objective and investment strategies. There are no material differences between the underwriting standards used in the acquisition of the portfolio investments the Company expects to acquire pursuant to the Cliffwater Facility Agreement and the underwriting standards to be employed by the Adviser on the Company's behalf for any other portfolio investments to be acquired or held by the Company from time to time.
As of September 30, 2025, the conditions precedent to the Company'sobligation to purchase any additional investments from the Financing Provider had not been met. The Company does not hold any beneficial interest in the warehouse.
During the nine months ended September 30, 2025, the Company purchased investments, including unfunded commitments, with a cost of $42,296 from the Financing Provider. As of September 30, 2025, none of these purchases are included in payable for investments purchased in the unaudited consolidated statement of assets and liabilities. For the period from October 1, 2025 through November 7, 2025, there were no investments purchased by the Company from the Financing Provider.
As of November 7, 2025, there were 25 loans with an aggregate commitment par value of $85,609, inclusive of $39,224 of unfunded commitments, that the Financing Provider purchased and was holding at the Company's request pursuant to the Cliffwater Facility Agreement.
KKR FS Income Trust Select published this content on November 12, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 12, 2025 at 20:07 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]