Moody’s Downgrades to Junk a Private Credit Fund Managed by KKR, Future Standard

The downgrade came the same day that Apollo received an increase of redemption requests from investors.

Traders work on the floor during the opening bell of the New York Stock Exchange in New York City. Timothy A. Clary/AFP via Getty Images

Moody’s Ratings downgraded a private credit fund managed by Future Standard and KKR to “junk,” citing a rise in troubled loans and persistently weak earnings.

In a March 23 report, the credit ratings agency cut the debt ratings of Future Standard and KKR Capital Corp by one notch, from Baa3 to Ba1. Moody’s said the fund’s underlying asset quality had deteriorated more sharply than that of its industry counterparts.

Non-accrual loans—borrowers who have stopped making payments—rose to 5.5 percent of total investments at the end of 2025, one of the highest levels among these rated vehicles.

The action pushed the fund into junk territory.

“The downgrade reflects [FS KKR’s] continued asset-quality challenges, which have resulted in weaker profitability and greater net asset value erosion over time relative to business development company (BDC) peers,” Moody’s said in the report.

“The downgrade also reflects other credit-negative characteristics of FSK’s credit profile, including leverage at the high end of the peer group and less senior-oriented asset composition.”

Looking ahead, there could be another downgrade if asset quality and profitability weaken further, liquidity positions slump, and investment compositions decline, Moody’s noted.

Shares of KKR fell by about 3 percent during the Mar. 24 trading session. The stock has declined by 30 percent so far this year.

The downgrade came the same day as asset management juggernaut Apollo revealed it received a massive increase in redemption requests from its flagship credit fund.

Apollo stated in a Mar. 23 Securities and Exchange Commission (SEC) filing that it received withdrawal inquiries equaling 11.2 percent of shares outstanding in the first quarter—higher than the 5 percent cap the fund permits.

Moving forward, unlike some of its industry competitors, Apollo will maintain its 5 percent limit and return about 45 percent of the capital to shareholders requesting their money back.

“Today’s decision reflects our ongoing commitment to long-term value creation for the Fund’s shareholders,” Apollo said in the regulatory filing.

“As long-term stewards of capital, we have a fiduciary duty to act in the best interests of all Fund investors, balancing the interests of shareholders seeking liquidity with those who choose to remain invested.”

The share price of Apollo sank 4 percent and has fallen 25 percent this year.

Private Credit Stress

The $2 trillion private credit industry has been rattled this year as scores of companies face rising default risks, shrinking margins, growing leverage, and evaporating liquidity.

The sector has witnessed meteoric growth since the Great Recession, as investors sought yield amid ultra-low interest rates. In recent years, companies diversified their client base from affluent institutional investors to retail investors, a group that might not be accustomed to high risk.

This year, investment firms—from BlackRock to Blue Owl—have witnessed a rush of investors attempting to redeem their holdings from these loans. Some have agreed to their investors’ requests, while others have capped withdrawals.

Views are mixed on whether this is the start of something bigger—akin to the global financial crisis—or an isolated event confined to a small corner of the financial markets.

Concerns were exacerbated after one of the largest private credit funds managed by Blackstone registered its first monthly loss in more than three years in February. The $83 billion fund posted a negative 0.4 percent return.

Earlier this month, Blackstone raised its withdrawal limit from 5 percent to 7 percent, and senior executives threw in about $400 million to honor these requests.

Mark Malek, Siebert Financial CIO, says the business media are “treating it like a rounding error,” but he thinks there may be something beneath the surface.

“That is not a minor footnote. That is a stress signal,” Malek said in a note emailed to The Epoch Times. “And then, almost simultaneously, the same fund announced it is repackaging some of its underlying loans into a new CLO–a collateralized loan obligation–and selling it to fresh buyers. The packaging changes. The loans inside do not.”

Blackstone’s stock fell 3 percent on Mar. 24, and is down 31 percent year to date.

While stress is appearing across the private credit market, any substantial disruption is unlikely to spill over into the broader economy, says Lawrence Gillum, chief fixed-income strategist at LPL Financial.

Since the collapse of First Brands Group and Tricolor Holdings this past fall, market watchers have pointed to various parallels to what happened almost 20 years ago. But there are also “distinct and important differences,” Gillum notes.

“What we’re seeing today looks more like a healthy repricing and shift in sentiment—not the start of a broad credit unwind,” he said in a Mar. 18 research note.

“Historically, systemic risk becomes a concern when corporate debt grows significantly faster than the overall economy. By that measure, we are not seeing red flags.”

More details will be coming as funds managed by Ares Management, Goldman Sachs, and Oaktree will update investors on their private credit funds.

Current conditions may not elicit panic, but they should force investors to pay attention, Malek added.