KKR Financial Holdings LLC Announces Sale of $5.1 Billion of Residential Mortgage Loans
August 15 2007 - 8:47AM
PR Newswire (US)
SAN FRANCISCO, Aug. 15 /PRNewswire-FirstCall/ -- KKR Financial
Holdings LLC (NYSE:KFN) ("KFN" or the "Company") today announced
the sale of approximately $5.1 billion of residential mortgage
loans. Prior to the Company's conversion from a real estate
investment trust ("REIT") to a limited liability company in May
2007, KFN invested in residential real estate assets in order to
satisfy the requirements to be treated as a REIT for U.S. federal
income tax purposes. As a REIT, at least 75% of the Company's gross
income had to be generated by real estate assets, which for the
Company consisted of its investments in residential mortgage
assets. In order to meet this requirement, the Company sought to
limit its exposure to both interest rate risk and credit risk by
investing in floating rate and hybrid rate assets that were hedged
with interest rate derivatives and by investing in residential
mortgage assets with high credit quality due to the underlying
collateral having a weighted average FICO(R) score of 728 and a
weighted average loan-to- value ratio of 71%. As previously
announced, the Company no longer intends to invest in residential
real estate assets and it intends to dispose of its existing
portfolio through either a run-off of the assets through principal
payments and prepayments or through a strategic alternative,
including actively pursuing the sale of the common stock of its
REIT subsidiary. The Company recently sold $5.1 billion of its
residential mortgage assets and terminated related interest rate
swaps, which sale will result in a net loss of approximately $40.0
million. After the sale, the Company owns approximately $5.8
billion of mortgage loans primarily in the form of residential
mortgage-backed securities. The Company currently finances
approximately $5.3 billion of its remaining residential
mortgage-backed securities portfolio through non-recourse
asset-backed secured liquidity note facilities, and the Company
currently has an aggregate net equity investment in such facilities
totaling approximately $200.0 million. Due to the unprecedented
disruption in the residential mortgage and global commercial paper
markets, the Company has initiated discussions with the investors
in its asset-backed secured liquidity note facilities regarding
various alternatives to resolve potential funding disruptions
resulting from the current market environment. In connection with
the execution of or failure to execute any of the strategies
discussed in this press release, the Company presently estimates
that it may need to record a charge of up to the amount of its
approximately $200.0 million net equity investment in the
asset-backed liquidity note facilities described above and
additional liabilities in an estimated range of $0 to $50.0
million. No assurance can be made that any of the strategies being
evaluated by the Company will be successfully executed. In light of
the level of disruption and volatility in commercial paper and
broader credit markets, estimates of potential exposure are
necessarily subject to future revision. As previously announced on
August 2, 2007, the Company will be paying a distribution of $0.56
per common share on August 30, 2007 to shareholders of record on
August 16, 2007. About KKR Financial Holdings LLC KKR Financial
Holdings LLC is a specialty finance company that uses leverage with
the objective of generating competitive risk-adjusted returns. The
Company seeks to achieve its investment objective by investing in
(i) corporate loans and debt securities, (ii) marketable equity
securities, and (iii) non-marketable equity securities. The Company
also makes opportunistic investments in other asset classes from
time to time, including investments in residential and commercial
mortgage loans and securities. KKR Financial Advisors LLC manages
the Company pursuant to a management agreement. KKR Financial
Holdings LLC and KKR Financial Advisors LLC are affiliates of
Kohlberg Kravis Roberts & Co. L.P. Statements in this press
release that are not strictly historical are "forward-looking"
statements. Forward-looking statements involve known and unknown
risks, which may cause the Company's actual future results to
differ materially from expected results. These risks include, among
others, general economic conditions, the availability, terms and
deployment of capital to finance planned growth, risks associated
with investing in mortgage-related assets, the Company's limited
liability company and organization structure and the regulatory
environment in which its business operates, as described in the
Company's filings with the Securities and Exchange Commission.
Consequently, such forward-looking statements should be regarded
solely as reflections of the Company's current operating plans and
estimates. Actual operating results may differ materially from what
is expressed or forecast in this press release. The Company
undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date these statements
were made. Investor Contact Laurie Poggi KKR Financial LLC
415-315-3718 Media Contact Roanne Kulakoff and Joseph Kuo Kekst and
Company 212-521-4837 and 212-521-4863 DATASOURCE: KKR Financial
Holdings LLC CONTACT: Investor Contact: Laurie Poggi, KKR Financial
LLC, +1-415-315-3718; or Media Contact: Roanne Kulakoff,
+1-212-521-4837 and Joseph Kuo, +1-212-521-4863, both of Kekst and
Company
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