SAN FRANCISCO, Aug. 6 /PRNewswire-FirstCall/ -- KKR Financial
Holdings LLC (NYSE:KFN) ("KFN" or the "Company") today announced
its results for the second quarter ended June 30, 2009. Second
Quarter 2009 Results For the three and six months ended June 30,
2009, KFN reported net income of $20.6 million, or $0.14 per
diluted common share, and $7.6 million, or $0.05 per diluted common
share, respectively. For the three and six months ended June 30,
2008, net income totaled $37.6 million, or $0.25 per diluted common
share and $51.5 million, or $0.39 per diluted common share,
respectively. KFN's second quarter 2009 results reflect net
investment income before provision for loan losses of $67.5
million, which is offset by non-investment expenses of $17.4
million, a provision for loan losses of $12.8 million and other
losses totaling $16.5 million. Other losses totaling $16.5 million
primarily consist of the following: (i) net losses on asset
dispositions from KKR Financial CLO 2009-1, Ltd. ("CLO 2009-1")
totaling $27.2 million (see discussion below); (ii) net losses on
asset sales and lower of cost or market adjustments for loans
transferred to held for sale for assets not held in CLO 2009-1
totaling $13.2 million; (iii) other-than-temporary impairment
charges on certain securities classified as available-for-sale
totaling $6.2 million; (iv) net realized and unrealized losses on
investments in residential mortgage-backed securities totaling $7.4
million; (v) net realized and unrealized gains from derivative
positions that primarily consist of credit default swaps and total
rate of return swaps totaling $26.5 million; (vi) gain on
retirement of convertible notes totaling $6.9 million; and (vii)
net realized and unrealized gains on short positions totaling $2.5
million. Convertible Senior Notes During June 2009, the Company
completed two transactions to exchange a total of $15.7 million par
value of convertible notes for 7.2 million of the Company's common
shares. These transactions resulted in the Company recording a gain
of $6.9 million, or approximately $0.05 per diluted common share,
which was partially offset by a write-off of $0.1 million of
unamortized debt issuance costs and $0.4 million of other
associated costs. Book Value Per Common Share The Company's book
value per common share outstanding was $5.69 and $4.40 as of June
30, 2009 and December 31, 2008, respectively. Actions Taken to
Improve KFN's Liquidity Profile Actions Taken Relative to the
Company's Senior Secured Asset-Based Revolving Credit Facility On
August 5, 2009, the Company amended the credit agreement related to
its $300.0 million senior secured asset-based revolving credit
facility (the "Credit Facility") due November 2010 to reflect the
following: -- Reduction in Credit Facility size from $300.0 million
to $200.0 million with additional $12.5 million quarterly
reductions in facility size occurring on September 30, 2009,
December 31, 2009, March 31, 2010 and June 30, 2010; -- Final
maturity of Credit Facility extended from November 10, 2010 to
November 10, 2011; -- Increase in interest rate from LIBOR plus
3.00% to LIBOR plus 4.00%; -- Reduction in the adjusted tangible
net worth covenant from $1 billion to $700 million; -- Ability to
utilize up to $50 million of unrestricted cash to repurchase
outstanding debt; -- Ability to pay dividends up to 50% of the
Company's estimated taxable income; and -- Ability to issue debt
secured by a second lien on the Company's assets. The Credit
Facility is an asset-based facility and borrowings outstanding
under the facility are based on the market value of the investments
pledged to the Credit Facility. The amendment to the Credit
Facility provides the Company with increased flexibility in meeting
its debt maturity obligations. Actions Taken Relative to CLO 2009-1
In response to both improvements in the credit market and increases
in leveraged loan prices during the second quarter of 2009, the
Company sold certain of its investments financed in CLO 2009-1 in
order to generate proceeds to repay the entire amount of senior
notes outstanding, which amount totaled approximately $560.8
million as of March 31, 2009. The Company focused such sales on
assets which had the highest prices relative to par with a weighted
average price of the assets sold of 88% of par value and a cash
yield of 3.90% compared to CLO 2009-1's senior notes cost of
capital of LIBOR plus 4.25%. On July 24, 2009, the Company retired
the remaining outstanding senior notes of CLO 2009-1. Prior to the
retirement of the senior notes, an affiliate of the Company held a
20% interest in the subordinated notes issued by CLO 2009-1. As
part of the deleveraging of CLO 2009-1, the subordinated notes held
by the Company's affiliate were retired in exchange for a 20%
interest in each of CLO 2009-1's assets which remained following
the deleveraging. Following the deleveraging transaction and the
pro rata distribution of 20% of the remaining assets to the
Company's affiliate, the Company now holds the residual assets of
CLO 2009-1, which consist of approximately $317.4 million par
amount of corporate debt investments with an estimated fair value
of $242.4 million and approximately $14.9 million in cash and
receivables. The Company believes that based on current interest
rates these assets will generate approximately $11.4 million of
annualized cash interest income for the Company that would have
otherwise been used to amortize and pay interest on the senior
notes issued by CLO 2009-1, which had a coupon of three-month LIBOR
plus 4.25%. The retirement of the senior notes issued by CLO 2009-1
included the payment of a $28.8 million placement fee to the senior
note holders that was paid from the cash held by CLO 2009-1. The
placement fee was structured to be paid by CLO 2009-1 on a
quarterly basis over the life of the transaction and the $28.8
million amount reflects the present value of the future quarterly
fee payments. As we consolidate CLO 2009-1 under GAAP, this fee
will be reflected as an expense during the third quarter of 2009
that will be partially offset by a gain that will be recognized
from the retirement of the subordinated notes issued by CLO 2009-1
to an affiliate. Actions Taken Relative to KKR Financial CLO
2005-1, Ltd. ("CLO 2005-1"), KKR Financial CLO 2005-2, Ltd. ("CLO
2005-2"), and KKR Financial CLO 2006-1, Ltd. ("CLO 2006-1")
Subsequent to the quarter ended June 30, 2009, the Company
surrendered for cancellation, without consideration, approximately
$298.4 million in aggregate principal amount of mezzanine notes and
junior notes ("Surrendered Notes") issued to the Company by the
issuers of CLO 2005-1, CLO 2005-2 and CLO 2006-1. The Surrendered
Notes were promptly cancelled upon receipt by the trustee of each
transaction and the related debt was extinguished by the issuers
thereof. The Company believes that this transaction brings the
over-collateralization ("OC") tests for these three CLOs into
compliance, enabling the mezzanine noteholders and the Company as
sole holder of the subordinated notes of these three CLOs, to
resume receiving cash flows from these transactions during the
period when the OC tests are maintained. The details of the
mechanics of the CLOs and the OC tests are described in further
detail in the Sources of Funds section of the MD&A in the
Company's Form 10-Q for the quarter ended June 30, 2009 that was
filed today with the Securities and Exchange Commission. In
accordance with accounting principles generally accepted in the
United States of America, the Company consolidates its CLO
subsidiaries and therefore does not expect this transaction to have
an impact on its condensed consolidated financial statements.
Similarly, as CLO 2005-1, CLO 2005-2 and CLO 2006-1 are treated as
disregarded entities for tax purposes, this transaction is not
expected to have any tax implications for the Company or its
shareholders. Information for Investors: Conference Call and
Webcast The Company will host a conference call and audio webcast
to review its second quarter 2009 results on Thursday, August 6,
2009, at 5:00 p.m. EST. The conference call may be accessed by
dialing (877) 548-7903 (Domestic) or (719) 325-4851
(International); a pass code is not required. A telephonic replay
of the call will be available through Thursday, August 20, 2009 by
dialing (888) 203-1112 (Domestic) and (719) 457-0820
(International) / pass code 4301621. Supplemental materials that
will be discussed during the call and the live audio web cast will
be available in the Investor Relations section of the Company's
website at
http://www.kkr.com/kfi/kfn_webcasts_presentations_and_important_documents.cfm.
An audio replay of the web cast will be archived in the Investor
Relations section of the Company's website. About KKR Financial
Holdings LLC KKR Financial Holdings LLC is a publicly traded
specialty finance company that invests in multiple asset classes.
KKR Financial Holdings LLC is externally managed by KKR Financial
Advisors LLC, a wholly-owned subsidiary of Kohlberg Kravis Roberts
& Co. (Fixed Income) LLC, which is a wholly-owned subsidiary of
Kohlberg Kravis Roberts & Co. L.P. Additional information
regarding KKR Financial Holdings LLC is available at
http://www.kkr.com/. Statements in this press release which are not
historical fact may be deemed forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Although KKR Financial Holdings LLC believes the expectations
reflected in any forward-looking statements are based on reasonable
assumptions, the Company can give no assurance that its
expectations will be attained. Factors that could cause actual
results to differ materially from the Company's expectations
include completion of pending investments, continued ability to
source new investments, the availability and cost of capital for
future investments, competition within the specialty finance
sector, economic conditions, credit loss experience, availability
of financing, maintenance of sufficient liquidity, and other risks
disclosed from time to time in the Company's filings with the SEC.
Schedule I KKR Financial Holdings LLC CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED) (Amounts in thousands, except per share
information) For the For the For the For the three three six six
months months months months ended ended ended ended June 30, June
30, June 30, June 30, 2009 2008 2009 2008 ---- ---- ---- ---- Net
investment income: Securities interest income $23,252 $34,788
$52,104 $74,597 Loan interest income 121,919 184,550 251,123
401,087 Dividend income 26 1,092 287 1,908 Other interest income
106 4,998 462 16,074 --- ----- --- ------ Total investment income
145,303 225,428 303,976 493,666 Interest expense (72,403) (128,037)
(162,285) (282,102) Interest expense to affiliates (5,379) (19,707)
(11,184) (47,525) Provision for loan losses (12,808) (10,000)
(39,795) (10,000) ------- ------- ------- ------- Net investment
income 54,713 67,684 90,712 154,039 ------ ------ ------ -------
Other loss: Net realized and unrealized gain (loss) on derivatives
and foreign exchange 26,505 (5,918) 38,901 (52,934) Net realized
and unrealized loss on investments (46,553) (17,217) (106,757)
(30,976) Net realized and unrealized loss on residential
mortgage-backed securities, residential mortgage loans, and
residential mortgage-backed securities issued, carried at estimated
fair value (7,445) (5,594) (26,864) (14,772) Net realized and
unrealized gain on securities sold, not yet purchased 2,479 1,664
3,916 8,650 Gain on restructuring and extinguishment of debt 6,892
17,225 41,463 17,225 Other income 1,578 513 2,911 5,469 ----- ---
----- ----- Total other loss (16,544) (9,327) (46,430) (67,338)
------- ------ ------- ------- Non-investment expenses: Related
party management compensation 10,304 10,387 21,516 19,546 General,
administrative and directors expenses 2,975 5,752 5,378 10,274
Professional services 2,090 1,071 5,475 2,928 Loan servicing 2,056
2,391 4,192 4,960 ----- ----- ----- ----- Total non-investment
expenses 17,425 19,601 36,561 37,708 ------ ------ ------ ------
Income from continuing operations before income tax expense 20,744
38,756 7,721 48,993 Income tax expense (135) (116) (88) (116) ----
---- --- ---- Income from continuing operations 20,609 38,640 7,633
48,877 (Loss) income from discontinued operations - (1,079) - 2,668
--- ------ --- ----- Net income $20,609 $37,561 $7,633 $51,545
======= ======= ====== ======= Net income per common share: Basic
Income per share from continuing operations $0.14 $0.25 $0.05 $0.38
===== ===== ===== ===== Income per share from discontinued
operations $- $- $- $0.02 === === === ===== Net income per share
$0.14 $0.25 $0.05 $0.40 ===== ===== ===== ===== Diluted Income per
share from continuing operations $0.14 $0.25 $0.05 $0.37 =====
===== ===== ===== Income per share from discontinued operations $-
$- $- $0.02 === === === ===== Net income per share $0.14 $0.25
$0.05 $0.39 ===== ===== ===== ===== Weighted-average number of
common shares outstanding: Basic 151,202 146,025 150,462 130,289
======= ======= ======= ======= Diluted 151,202 146,025 150,462
130,289 ======= ======= ======= ======= Schedule II KKR Financial
Holdings LLC CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in
thousands, except share information) June 30, December 31, 2009
2008 ---- ---- Assets Cash and cash equivalents $114,353 $41,430
Restricted cash and cash equivalents 288,944 1,233,585 Securities
available-for-sale, $603,979 and $553,441 pledged as collateral as
of June 30, 2009 and December 31, 2008, respectively 604,916
555,965 Corporate loans, net of allowance for loan losses of
$473,202 and $480,775 as of June 30, 2009 and December 31, 2008,
respectively 6,646,440 7,246,797 Residential mortgage-backed
securities, at estimated fair value, $76,572 and $102,814 pledged
as collateral as of June 30, 2009 and December 31, 2008,
respectively 76,572 102,814 Residential mortgage loans, at
estimated fair value 2,218,319 2,620,021 Corporate loans held for
sale 168,547 324,649 Private equity investments, at estimated fair
value 54,016 5,287 Derivative assets 11,562 73,869 Interest and
principal receivable 83,395 116,788 Reverse repurchase agreements
80,344 88,252 Other assets 98,186 105,625 ------ ------- Total
assets $10,445,594 $12,515,082 =========== =========== Liabilities
Collateralized loan obligation senior secured notes $5,793,906
$7,487,611 Collateralized loan obligation junior secured notes to
affiliates 632,542 655,313 Secured revolving credit facility
256,597 275,633 Convertible senior notes 275,800 291,500 Junior
subordinated notes 288,671 288,671 Residential mortgage-backed
securities issued, at estimated fair value 2,080,592 2,462,882
Accounts payable, accrued expenses and other liabilities 37,694
60,124 Accrued interest payable 34,602 61,119 Accrued interest
payable to affiliates 3,245 3,987 Related party payable 5,960 2,876
Securities sold, not yet purchased 77,637 90,809 Derivative
liabilities 58,734 171,212 ------ ------- Total liabilities
9,545,980 11,851,737 --------- ---------- Shareholders' Equity
Preferred shares, no par value, 50,000,000 shares authorized and
none issued and outstanding at June 30, 2009 and December 31, 2008
- - Common shares, no par value, 500,000,000 shares authorized, and
158,139,238 and 150,881,500 shares issued and outstanding at June
30, 2009 and December 31, 2008, respectively - - Paid-in-capital
2,559,898 2,550,849 Accumulated other comprehensive loss (49,195)
(268,782) Accumulated deficit (1,611,089) (1,618,722) ----------
---------- Total shareholders' equity 899,614 663,345 -------
------- Total liabilities and shareholders' equity $10,445,594
$12,515,082 =========== =========== Investor Contact Laurie Poggi
Kohlberg Kravis Roberts & Co. L.P. 415-315-3718 Media Contact
Peter McKillop/Kristi Huller 212-750-8300 DATASOURCE: KKR Financial
Holdings LLC CONTACT: investors, Laurie Poggi of Kohlberg Kravis
Roberts & Co. L.P., +1-415-315-3718, or media, Peter McKillop
or Kristi Huller, both of Kohlberg Kravis Roberts & Co. L.P.,
+1-212-750-8300, Web Site: http://www.kkr.com/
Copyright
Kkr Financial (NYSE:KFN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Kkr Financial (NYSE:KFN)
Historical Stock Chart
From Sep 2023 to Sep 2024