April 9 (Reuters) - Fitch Ratings on Thursday downgraded

its rating on a private credit fund jointly run by Future

Standard and KKR to junk territory, citing continued

deterioration in its asset quality.

The U.S. private credit industry is staring at a period of

higher borrower defaults, as AI disrupts software ‌companies,

which account for a major chunk of the sector's portfolios.

Fitch said roughly 16% of FS KKR Capital's ( FSK ) portfolio is

exposed to software companies, where artificial intelligence

could disrupt business models and pressure credit quality.

Fitch downgraded the rating on private credit fund FS KKR

Capital ( FSK ) to a non-investment grade BB+ from a lower

medium grade BBB-, also citing the persistence of elevated

non-accruals and the recognition of additional realized losses.

It kept its outlook at negative.

FSK's non-accrual investments - loans that are no longer

generating interest or principal payments - accounted for 4.4%

of its debt portfolio by value at the end of 2025, the ratings

agency said.

KKR's non-traded business development company, KKR FS Income

Trust, limited redemptions last week after facing a surge in

redemption requests.

Fitch added that BDCs would continue to face a competitive

environment, weaker earnings and dividend coverage metrics,

along with pressure on asset quality metrics in 2026.

Last month, FSK was downgraded by Moody's Ratings by a notch

from Baa3 to Ba1, below investment grade, with a stable outlook.

Separately, Fitch also completed a peer review of 12 U.S.

business development companies where it assigned Rating Outlooks

are Positive for two BDCs, Negative for one BDC and Stable for

nine BDCs.