FS KKR Capital Corp (FSK) Q4 2018 Earnings Conference Call Transcript

FSK earnings call for the period ending December 31, 2018.

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FS KKR Capital Corp  (NYSE:FSK)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2018 Earnings Conference Call. Your lines will be in a listen-only mode during remarks by FSK's management. At the conclusion of the Company's remarks, we will begin the question-and-answer session. (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.

Robert Paun -- Director of Investor Relations

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 filings 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.

Michael Forman -- Chairman & Chief Executive Officer

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 revolving credit facility that is also used by FSIC II and III. It is the largest revolver ever arranged for a BDC franchise and speaks to 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 activity, all through a highly collaborative working relationship between our firms.

As we look to 2019, we remain focused on a handful of key objectives, delivering to our shareholders a competitive and stable dividend that is supported by recurring investment earnings, preserving capital, and positioning FSK as a best-in-class BDC that's well aligned with our shareholders. While we are not immune to the market volatility experienced in the end of the fourth quarter, we've made progress toward these objectives. We continue to generate deal flow from and expand upon a broad sourcing platform as Dan will cover in a few minutes. This allows us to be selective, and we believe our selectivity is a critical competitive advantage in today's credit environment.

We lowered our cost of financing, capturing a projected annual interest expense savings of approximately $10 million, and we've increased scale and further diversified the portfolio.

Finally, initiating our recent share purchase program is perhaps the most significant step we've taken to demonstrate our conviction and our alignment with our shareholders. The Board-authorized $200 million share repurchase program reflects our view that FSK's recent share price presents a strong buying opportunity. Our repurchase activity also demonstrates our high degree of confidence in this partnership, the portfolio and our long-term plans. As we've stated in the past, we believe buying FSK is a compelling investment opportunity when the shares are trading at a meaningful discount to NAV.

In a relatively short period of time, we purchased about $40 million in shares out of the $200 million authorized amount. In fact, the combined FSK entity has purchased approximately $140 million in shares since March 2018, and $325 million since listing of CCT in November 2017. Needless to say, we are fully committed to aligning ourselves with shareholders and are bullish on the future of the franchise.

One final topic I'd like to address. Our plans for the non-traded funds on the FS/KKR platform. We do not believe it makes sense to merge the non-traded funds into FSK at this time and instead continue to work on other strategies for the non-traded funds that will create liquidity and value for those shareholders.

To recap, 2018 proved to be a transformational year. We are proud of all that we have accomplished on behalf of our shareholders since announcing the formation of the strategic partnership between FS and KKR. Size, scale, portfolio diversification and strong origination capabilities and selectivity matter, particularly in the current lending environment, and we believe we are well positioned to capitalize on the full benefits of the FS and KKR platforms.

We remain focused on underwriting high-quality new originations, actively managing and maximizing value in the unperforming credits and driving near- and long-term value for our shareholders.

I will now turn the call over to Dan to discuss our portfolio activity during the quarter. Dan?

Daniel Pietrzak -- Chief Investment Officer

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 leveraged credit markets as investor 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 leveraged 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 three reasons. First is the expanded footprint of the team that allows us to expand our coverage universe. Second is the work we have done with sponsors and corporates post the announcement of the FS/KKR transaction to solidify and expand those relationships. And third is high-market deal volumes.

Of the opportunities reviewed, we closed on approximately 3%, which is lower than our long-term average of roughly 5%. From this, our total BDC franchise deployed approximately $4.5 billion in the past three quarters compared to $3.9 billion in sales and paydowns.

During the same period, when including CCT's transaction activity prior to the merger, on a pro forma basis, FSK deployed approximately $1.84 billion versus $1.65 billion in sales and paydowns, excluding sales to our JV. Across these new originations, which continue to be focused on the upper end of the middle market, we have included a high degree of structural protections, including financial covenants, significant equity cushion, call protection and deleveraging mechanisms, which include hard amortization payments and cash flow sweeps.

We also continue to believe that the FSK portfolio will benefit from increasing exposure to both asset-based finance transactions, which we believe have compelling risk-adjusted returns in the current market, and our JV, which allows access to more of the KKR Credit platform, including non-eligible portfolio company investments. With the closing of the merger, we are focused on expanding the size of our JV in the upcoming quarters.

Similar to the prior two quarters, as Michael alluded to, certain portfolio companies continue to have a negative impact on results in the fourth quarter. The largest of these was ThermaSys, which had a significant impact on the NAV decline in the fourth quarter. A restructuring of the company closed at the end of the year and our mark reflects that restructuring and the equity stake we now own. This investment was a subordinated debt position in a cyclical industry originated in 2012.

Outside of a few specific names with performance issues, other mark-to-market declines in the portfolio were primarily due to the volatility we saw in the credit markets as market inputs are used directly in our valuation process. Brian will speak about this in more detail later.

Going forward, I expect the portfolio will be increasingly more diversified, as shown by our current exposure to our top 10 names in FSK versus the older concentrations in FSIC and reflective of our focus on senior secured opportunities, not unsecured mezzanine loans to smaller EBITDA businesses such as ThermaSys.

Moving to activity in the fourth quarter. Deployment at FSK was $220 million, up from $184 million in the third quarter. And when combining activity across CCT and FSIC, deployment was $534 million in the quarter, up from $475 million in the third quarter. Sales and paydowns at FSK were $397 million in the fourth quarter, and across FSIC and CCT, were $613 million.

The total fourth quarter activity was primarily driven by paydowns of our positions in Altus aerospace, Latham Pool Products, Vee Pak and Plaskolite. And as has been the case in the prior several quarters, repayments of loan positions were driven by either company sales or capital markets refinancing as opposed to competitor refinancings.

In Q4, examples of our largest new investments were Tangoe and Pure Fishing. Tangoe is an existing portfolio company of Marlin Equity Partners and provides telecom expense management software and services to customers serving more than 40% of the Fortune 500. We provided a $300 million unitranche facility to finance the acquisition of an adjacent software and services provider. FSK committed $99 million of the financing facilities, inclusive of $52 million committed by CCT prior to the merger, while the rest of our BDC platform and KKR Credit-managed funds committed the balance.

Pure Fishing is a leading global wholesaler of fishing equipment, including rods, reels, line, bait and other products. We got comfortable with their market position and lack of cyclicality and provided a $180 million second-lien term loan to finance Sycamore Partners' acquisition of the company. FSK committed $81 million of the facility, inclusive of $43 million committed by CCT prior to the merger, while the rest of our BDC platform committed the balance.

As shown on Slide 7, at year-end, our investment portfolio had a fair value of $7.4 billion, consisting of 204 portfolio companies. One of the key benefits of our merger with CCT has been increased portfolio diversification, which is a key risk mitigation tool. At year-end, our top 10 largest portfolio companies by fair value decreased to 19% of the portfolio from 36% of the portfolio at the end of Q3. In addition, our average hold position at fair value decreased from 1% of the portfolio at the end of Q3 to 0.5% at the end of Q4.

Consistent with our focus on senior secured investments, our portfolio is now compromised of 74% senior secured investments with 54% in first-lien loans at year-end. Also consistent with our focus on financing borrowers at the upper end of the middle market, the median EBITDA of our borrowers was $56 million, and the average leverage was 5 times. One of our key initiatives within the portfolio has been to reduce our equity exposure and rotate out of non-income producing investments. For the year, we had total proceeds of approximately $119 million related to six fully exited positions. These exits, combined with the impact of the merger with CCT, ultimately led to equity investments compromising 7% of the portfolio on a fair value basis as of year-end, down from 13% to begin the year. We're making progress here, but we still have more to do in this front and would like that number to be lower.

As far as the portfolio return profile, the gross portfolio yield prior to leverage and excluding non-income-producing assets was 10.8% at 12/31/2018. This was down from 11.1% at the end of the third quarter, primarily due to the merger with CCT, which had a slightly lower yield and increased somewhat due to an uptick in base rates.

Before I turn the call over to Brian, let me provide a brief update on our post quarter investment activity. From January 1 through February 22, we had new investment fundings totaling $413 million, almost entirely in originated strategy investments, with net deployment of approximately $206 million. More specifically, we recently closed a $665 million financing to back H.I.G. Capital's acquisition of Lipari Foods, a specialty and branded food distributor that sources, manufactures and distributes into the US grocery retail market with an emphasis on perimeter of the store products. FSK committed $127 million of the financing facilities, while our BDC platform and other KKR Credit-managed funds committed the balance.

In addition, we also recently closed the financing backing Veritas Capital and Elliott Advisors' acquisition of Athenahealth, a provider of cloud-based IT solutions including electronic healthcare, record and revenue cycle management software and services to ambulatory and hospital customers. This was essentially a $1 billion-plus club deal with us and another large player in the private credit space, which speaks to the power of the scale of our platform.

FSK committed $169 million of the financing facilities, while the rest of our BDC platform and other KKR Credit-managed funds committed approximately another $400 million.

I'll now turn the call over to Brian to discuss our financial results during the quarter.

Brian Gerson -- Head of Private Credit for FS Investments

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 at 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 appreciation 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 quarter net investment income was $0.19 per share, which was in line with our mid-January preliminary guidance and compares to $0.23 per share for the third quarter of 2018 and $0.22 per share in the fourth quarter of 2017. Net investment income declined compared to the third quarter due to the impact of excise taxes and higher incentive fees in the fourth quarter. The decline in net investment income, compared to the fourth quarter of last year, is primarily attributed to the placement of certain assets on non-accrual and net sales and repayment activity during the year. Also, prepayment activity was higher in Q4 of 2017, leading to increased fee income.

Net realized and unrealized losses on investments were $172 million in the fourth quarter or $0.62 per share. Approximately $68 million of the net realized and unrealized loss was attributable to the previously discussed restructuring of ThermaSys.

In addition, approximately $15 million of mark-to-market declines were related to our energy positions, while the remaining $90 million of net losses were generally spread out across the portfolio and were primarily driven by changes in the market-based valuation metrics. At year-end approximately 1% of FSK's portfolio was on non-accrual on a fair value basis, down from 1.9% pro forma for the combined entity at September 30, 2018. Non-accruals decreased quarter-over-quarter due to the restructuring of ThermaSys and the combination with the CCT portfolio.

Now looking at full-year results, our net investment income for the full year was $0.82 per share, in line with our preliminary estimated range that we shared in mid-January of $0.80 to $0.83 per share.

Turning to dividends. One of our core objectives is to provide a competitive and stable dividend that is supported by recurring investment earnings and our net investment income for the full year fully covered our $0.76 per share distribution.

During the quarter, we paid a regular $0.19 per share dividend, representing a 9.7% annualized yield based on our year-end NAV. We also paid a special dividend of $0.09 per share in December for a full-year distribution total of $0.85 per share in 2018.

Our Board of Directors declared a fourth quarter dividend of $0.19 per share, which was paid on January 2, 2019, and a first quarter dividend of $0.19 per share, which will be paid on or about April 2, 2019, to stockholders of record as of the close of business on March 20, 2019.

The fund's net asset value was $7.84 per share as of December 31, 2018, in line with our preliminary estimated range of $7.82 to $7.86 per share. This compares to $7.92 at the time of the merger and $8.64 per share at September 30, 2018.

The main drivers of the change in NAV were the net realized and unrealized gains and losses during the fourth quarter, as previously discussed.

Turning to the balance sheet. We ended the year with total investments at fair value of $7.4 billion, total cash of $104 million and total assets of $7.7 billion.

Moving to the right-hand side of the balance sheet, total debt was $3.4 billion, with total committed debt of $4.6 billion diversified across lenders. Our net debt-to-equity at the end of the quarter was 79%. Our weighted average cost of debt was approximately 4.6% at year-end, relatively flat compared to the end of the third quarter. We have a $400 million 2019 unsecured bond, which matures in July. And we are currently evaluating alternatives for its refinancing, but would note that we had $1.2 billion of undrawn capacity under our existing revolving credit facilities at year-end, which provides us flexibility in dealing with this maturity.

I'll now turn the call back to Michael.

Michael Forman -- Chairman & Chief Executive Officer

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 up for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from line Fin O'Shea of Wells Fargo Securities. Your line is open.

Finian O'Shea -- Wells Fargo Securities -- Analyst

Hi guys. Good morning. Thanks for taking my question. 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 or 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?

Michael Forman -- Chairman & Chief Executive Officer

Thanks Fin. And we tried 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. In talking to investors and analysts folk, we've recognized the concerns. We're not ready yet to announce our plan for the non-traded, 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 KR (ph) public vehicle.

Finian O'Shea -- Wells Fargo Securities -- Analyst

Okay. Thank you for the color there. I'll just move to originations. I think it's -- just forgive me here if I'm misreading, $220 million at FSK, $530 million -- I think the $220 million means maybe the second half of the quarter or the really second -- last couple of 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.

Brian Gerson -- Head of Private Credit for FS Investments

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 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 long times in -- a long time in the works. In terms of the overall kind of 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 a -- for lack of a better word, a majority.

Finian O'Shea -- Wells Fargo Securities -- Analyst

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?

Brian Gerson -- Head of Private Credit for FS Investments

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 tried 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 the 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.

Operator

Thank you. Our next question comes from the line of Terry Ma of Barclays. Your line is open.

Terry Ma -- Barclays -- Analyst

Hey. Good morning. 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.

Brian Gerson -- Head of Private Credit for FS Investments

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.

Terry Ma -- Barclays -- Analyst

Okay. Got it. 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?

Daniel Pietrzak -- Chief Investment Officer

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, I think that's a fair assumption.

Terry Ma -- Barclays -- Analyst

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

Brian Gerson -- Head of Private Credit for FS Investments

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 I'll -- 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 funds 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 US housing and earning mid-teens type returns. Does that make sense?

Terry Ma -- Barclays -- Analyst

Yes, that's helpful. Thank you. That's it for me.

Operator

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

Christopher Testa -- National Securities -- Analyst

Hi. Good morning. Thank you for taking my questions. Just wondering on how much of the pre-2013 vintages not on non-accrual are remaining? And also, if you could give us an indication, again, outside of the non-accruals, how much of the book is marked below $80 million currently?

Brian Gerson -- Head of Private Credit for FS Investments

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 is 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 -- under $80 million is roughly 10%.

Christopher Testa -- National Securities -- Analyst

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

Daniel Pietrzak -- Chief Investment Officer

I think a decent amount, yes. I think there have 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 a more specific number, but probably half of that number.

Christopher Testa -- National Securities -- Analyst

Okay. All right. No, that's fair. And looking at where you guys sit with leverage, and obviously, that should come down given the rally in well-known (ph) 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.

Michael Forman -- Chairman & Chief Executive Officer

Well certainly, each time we've announced share purchase plans we've executed, and I think that puts us in a different class than some of the other -- 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 investing in FSK, at its current price, is a great investment and we'll continue to move forward with our strategy.

Daniel Pietrzak -- Chief Investment Officer

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 points. 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 it 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, there are -- we do have an $8 billion book. But 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.

Christopher Testa -- National Securities -- Analyst

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

Daniel Pietrzak -- Chief Investment Officer

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

Christopher Testa -- National Securities -- Analyst

Okay. You mean the cash flow sweeps and covenants. Okay. Got it.

Daniel Pietrzak -- Chief Investment Officer

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 that we know are getting repaid.

Christopher Testa -- National Securities -- Analyst

Got it. Okay. No, that makes sense. Thank you. 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?

Daniel Pietrzak -- Chief Investment Officer

Yeah, 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, as 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 US kind of public name, but that's probably a smaller percentage.

Christopher Testa -- National Securities -- Analyst

Got it. Okay, great. Thanks for taking my questions today.

Daniel Pietrzak -- Chief Investment Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Casey Alexander of Compass Point. Your line is open.

Casey Alexander -- Compass Point -- Analyst

Hi. Good morning. Can you discuss sort of the, first off, the structure of the share repurchase program? Is there a 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?

Daniel Pietrzak -- Chief Investment Officer

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.

Casey Alexander -- Compass Point -- Analyst

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?

Brian Gerson -- Head of Private Credit for FS Investments

Yeah, this is Brian speaking. I think it's still -- there has been some modest recovery, but I think it's hard to put an exact number on 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.

Casey Alexander -- Compass Point -- Analyst

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

Brian Gerson -- Head of Private Credit for FS Investments

Yeah, 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 a decent percentage.

Casey Alexander -- Compass Point -- Analyst

Yeah. Okay, great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from the line of Ryan Lynch of KBW. Your line is open.

Ryan Lynch -- KBW -- Analyst

Hey. Good morning. First question, the prior NCB FSIC (ph) 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 non-yielding equity investments. With the merger, FSK's equity portfolio is a little bit smaller, about 7.5% of it is 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 do you kind of see that running at on a go-forward basis?

Brian Gerson -- Head of Private Credit for FS Investments

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% and went to 10% inside of FSIC. And now on the merged combined entity it's 7%, 7.5%. I think there'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 five positions actually make up roughly two-thirds 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 one, nothing to do with any type of restructuring. So I think we feel comfortable 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.

Daniel Pietrzak -- Chief Investment Officer

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

Ryan Lynch -- KBW -- Analyst

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?

Brian Gerson -- Head of Private Credit for FS Investments

Yeah, I mean. So I'd probably break those apart a little bit. I mean we had set up the JV probably in 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 non-EPC 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 four to eight quarters, so we've been happy there.

I think in terms of marrying the two 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 three 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.

Ryan Lynch -- KBW -- Analyst

Okay. Those were all my questions. I appreciate the time today.

Operator

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.

Michael Forman -- Chairman & Chief Executive Officer

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.

Operator

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.

Duration: 51 minutes

Call participants:

Robert Paun -- Director of Investor Relations

Michael Forman -- Chairman & Chief Executive Officer

Daniel Pietrzak -- Chief Investment Officer

Brian Gerson -- Head of Private Credit for FS Investments

Finian O'Shea -- Wells Fargo Securities -- Analyst

Terry Ma -- Barclays -- Analyst

Christopher Testa -- National Securities -- Analyst

Casey Alexander -- Compass Point -- Analyst

Ryan Lynch -- KBW -- Analyst

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