KFN Kkr Financial Holdings Llc

SAN FRANCISCO, March 31 /PRNewswire-FirstCall/ -- KKR Financial Holdings LLC (NYSE:KFN) (the "Company" or "KKR Financial") announced today that it has entered into an agreement with the holders (the "Noteholders") of the secured liquidity notes, also known as commercial paper, issued by the two asset- backed conduits (the "Facilities") sponsored by KKR Financial Corp. (the "REIT Subsidiary"). The agreement provides for the Noteholders to receive the collateral in the Facilities in exchange for terminating the outstanding secured liquidity notes without default in payment. The Company also announced that it has signed a definitive agreement to sell a controlling interest in the REIT Subsidiary to Rock Capital 2 LLC, which sale is anticipated to be consummated in the second quarter of 2008. Upon closing, this transaction will complete the Company's conversion from a REIT to a limited liability company, a change that was approved by the Company's shareholders in May 2007. Terms of the transaction were not disclosed. Saturnino Fanlo, Chief Executive Officer of KKR Financial said, "This agreement and the sale of our REIT subsidiary mark a constructive resolution to an issue created by the unprecedented dislocations in the credit markets. Reflecting these conditions, our Board of Directors has approved an incremental charge of approximately $5.5 million, which we believe is an appropriate amount to resolve both the refinancing issues relating to the secured liquidity notes issued by the REIT's two asset-backed conduits and complete the exit of our mortgage-related business." "KKR Financial remains focused on building enterprise value by making opportunistic investments in corporate debt and continues to execute on our core strategy of underwriting and purchasing the attractively priced assets which are in abundance in the current environment," continued Fanlo. Today, our balance sheet consists of over $8.5 billion in investments, more than 95 percent of which are in corporate debt investments issued by some of the largest companies in the world. The steps we have announced today enhance our ability to take advantage of new opportunities for investment, capital- raising, and other initiatives consistent with our core strategy." Ross Martin, a spokesperson for the Noteholders, said, "The Noteholder Committee has been in discussions with KKR Financial over the past several weeks and appreciates KKR Financial's work to find a constructive resolution in this very challenging market." With respect to the agreement with the Noteholders: -- All of the AAA-rated residential mortgage-backed securities ("RMBS") funding the secured liquidity notes have been returned to the Noteholders in satisfaction of the notes. -- Approximately $3.5 billion of secured liquidity notes and related RMBS will be removed from the Company's balance sheet. -- The Company and its affiliates have been released from any future obligations or liabilities to the Noteholders. When KKR Financial was formed, it was set up as a real estate investment trust (REIT) and initially invested approximately 35% of its equity capital in RMBS to satisfy REIT requirements. KKR Financial converted to a limited liability company structure in May 2007, and at that time discontinued investing in mortgage-related investments. In August of 2007, the Company wrote off its entire investment exposure to mortgage-related investments financed by the secured liquidity notes, recording a charge for discontinued operations, and related contingencies, of approximately $243.7 million. On October 18, 2007, KKR Financial announced that the REIT Subsidiary had consummated a restructuring of its non-recourse asset-backed secured liquidity note facilities, extending the maturity date of the notes. KKR Financial had undertaken the restructuring because the widespread disruptions in the credit markets made the collateral for the notes, AAA-rated RMBS, difficult to refinance. The Company has since been in discussions with the Noteholders with a focus on determining a constructive path forward that would benefit all parties, and has concluded those discussions with today's announcement. Exclusive of the $3.5 billion of secured liquidity notes and related RMBS which will be removed from the Company's balance sheet, as of December 31, 2007 the Company's exposure to the residential mortgage market consists of approximately $337.6 million of RMBS, of which $300.1 million is rated investment grade or higher and $37.5 million is rated below investment grade. These securities do not include any assets that are collateralized or backed by subprime or non-prime residential mortgage loans. In addition, the Company does not have any off-balance sheet exposure to residential mortgage assets as the Company does not hold any investments in off-balance sheet structures such as structured investment vehicles or collateralized debt obligations. KKR Financial Holdings LLC is a publicly owned specialty finance company that invests in multiple asset classes. KKR Financial Holdings LLC is externally managed by KKR Financial Advisors LLC. KKR Financial Advisors LLC is an affiliate of Kohlberg Kravis Roberts & Co. L.P. Additional information regarding KKR Financial Holdings LLC is available at http://www.kkrkfn.com/ . 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 Holdings LLC 415-315-3718 Media Contact: Roanne Kulakoff Joseph Kuo Kekst and Company 212-521-4837 or 212-521-4863 DATASOURCE: KKR Financial Holdings LLC CONTACT: Investors, Laurie Poggi of KKR Financial Holdings LLC, +1-415-315-3718; or Media, Roanne Kulakoff, +1-212-521-4837, or Joseph Kuo, +1-212-521-4863, both of Kekst and Company, for KKR Financial Holdings LLC Web site: http://www.kkrkfn.com/

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