FS KKR’s Health Clinic Rollup Exposure Could Face Downside Risk Based on Certain Elevated Fair-Value Marks; Largest Holding, MB2, in Structurally Stronger Position

Credit Research: Lexie Wang Relevant Item: Octus’ BDC Database Throughout parts of the most recent earnings season, analysts expressed concern surrounding private equity-backed clinical rollups, of which business development company, or BDC, FS KKR had approximately $846.7 million of total invested capital on a cost basis, or 6.3% of its total portfolio, as of Dec. 31, 2025. Additional exposure comes from holdings in the fund’s majority-owned joint venture, Credit Opportunities Partners JV LLC, which has 4% of its portfolio on a cost basis invested in clinical rollups. This report focuses on FS KKR’s clinical rollup exposure. It is likely that other BDCs have a greater share of their portfolios in these types of investments. We chose to focus on FS KKR, however, since two of its largest positions are in Affordable Care and Dental Care Alliance, which could both face near-term out-of-court restructurings. Dental Care Alliance was on nonaccrual status as of Dec. 31. The company’s largest clinical rollup, MB2 Dental, is widely held by other private credit lenders and marked at par as of Dec. 31. On FS KKR’s fourth-quarter 2025 call, management was asked about weakness in rollups within the health care space, specifically requesting to know the[...]