FS KKR Capital Corp. has posted a 6.8% weekly gain to $12.25, driven by a sharp reversal in short positioning that stands in striking contrast to the credit stress still visible in the underlying portfolio.
The lending market tells the most dramatic story of the week. Just a fortnight ago, availability had collapsed to near zero — as low as 0.56% on July 23, meaning virtually every share in the lending pool was already borrowed. That borrow squeeze has since unwound at speed. Availability has climbed to 64% as of August 11, a 151% improvement week-on-week, as short sellers exited positions rather than roll expensive borrows. Estimated short shares fell 13% across the week to roughly 13.1 million. Cost to borrow has come down sharply too, easing to 2.2% from peaks above 4.9% in late July — less than half where it was trading a month ago. The ORTEX short score has drifted lower alongside the exodus, dropping from 64.0 at end of July to 59.9 now, suggesting the bearish conviction that drove the earlier squeeze has cooled materially.
Options positioning adds another layer to the bullish-leaning setup. The put/call ratio has fallen to 0.55, the lowest reading of the past 52 weeks, and sits roughly 0.7 standard deviations below its 20-day average of 0.63. That shift — call-heavy relative to recent norms — aligns with the short-covering dynamic. Taken together, the positioning picture looks less like a fundamental re-rating and more like a mechanical unwind of a crowded short that had built through July.
The Street is cautiously following the price higher, though the tone remains neutral. RBC Capital raised its target to $13 from $11 this week, maintaining a Sector Perform rating — the firm's first upward revision after cutting targets in both February and April. Truist Securities moved similarly, lifting its Hold target to $12 from $11 on August 7. Neither firm upgraded its rating; both are acknowledging that the worst may be priced in without committing to a recovery call. The stock at $12.25 now trades fractionally above Truist's target and just below RBC's, which limits the implied Street upside. The mean analyst price target of $17.33 looks stale relative to the current price environment — most of the targets underpinning that average predate the Q2 NAV miss and the non-accrual spike to 5.3%. The PB multiple of 0.62x reflects the market's continued scepticism about book value; FSK trades at a meaningful discount to NAV, consistent with BDC peers that have seen portfolio deterioration.
Among those peers, FSK's 6.8% weekly gain was notably aggressive. TCPC rose 10.8% and BBDC gained 8.6% over the same period, suggesting broader BDC sentiment has turned. ARCC and NMFC were more muted at 1.6% and 3.3% respectively. FSK's outperformance relative to higher-quality names like ARCC likely reflects its greater sensitivity to the short squeeze dynamic rather than a fundamental reassessment of credit quality.
The key question heading toward the November earnings date is whether the portfolio credit metrics — non-accruals at 5.3%, a shrinking debt book — stabilise or continue deteriorating. The short-covering rally has reset the positioning clock; what comes next depends on whether the next quarterly print gives short sellers a reason to rebuild.
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