KFN Kkr Financial Holdings Llc

SAN FRANCISCO, Nov. 5 /PRNewswire-FirstCall/ -- KKR Financial Holdings LLC (NYSE:KFN) ("KFN" or the "Company") today announced its results for the third quarter ended September 30, 2009. Third Quarter 2009 Highlights -- Net income for the third quarter ended September 30, 2009 of $67.2 million, or $0.42 per diluted common share, as compared to net income for the second quarter ended June 30, 2009 of $20.6 million, or $0.14 per diluted common share. -- As of quarter end, cash and cash equivalents totaled $125.9 million. -- Increase in book value per share from $5.69 per common share as of June 30, 2009 to $7.01 per common share as of September 30, 2009. For the three and nine months ended September 30, 2009, KFN reported net income of $67.2 million, or $0.42 per diluted common share, and $74.8 million, or $0.49 per diluted common share, respectively. For the three and nine months ended September 30, 2008, net income was $49.0 million, or $0.32 per diluted common share, and $100.5 million, or $0.73 per diluted common share, respectively. KFN's third quarter 2009 results reflect net investment income of $72.7 million and other income of $13.0 million, offset by non-investment expenses of $18.5 million. Other income totaling $13.0 million primarily consists of the following: (i) net loss from the unwind of KKR Financial CLO 2009-1, Ltd. totaling $14.4 million; (ii) net gains on investments totaling $21.2 million primarily from an increase in the unrealized gain due to the increase in market value of the Company's common stock investment in Masonite Worldwide Holdings; (iii) net realized and unrealized losses on investments in residential mortgage-backed securities totaling $17.7 million; (iv) net realized and unrealized gains from derivative positions totaling $19.9 million, primarily consisting of credit default swaps and total rate of return swaps; (v) gain on extinguishment of junior subordinated notes totaling $3.8 million; and (vi) net realized and unrealized loss on short positions totaling $1.0 million. Junior Subordinated Notes During August 2009, the Company repurchased $5.0 million of junior subordinated notes for $1.2 million. This transaction resulted in a gain on debt extinguishment of $3.8 million, which was partially offset by a $0.1 million write-off of unamortized debt issuance costs. Shareholders' Equity The Company's shareholders' equity increased $446.8 million to $1.1 billion as of September 30, 2009 from $663.3 million as of December 31, 2008. Book Value Per Common Share The Company's book value per common share outstanding was $7.01 as of September 30, 2009 as compared to $5.69 as of June 30, 2009 and $4.40 as of December 31, 2008. Liquidity As of September 30, 2009, unrestricted cash and cash equivalents totaled $125.9 million compared to $114.4 million and $41.4 million as of June 30, 2009 and December 31, 2008, respectively. Investment Portfolio The Company's corporate debt investment portfolio, consisting of corporate loans and high yield bonds, had an aggregate par value of $8.5 billion with an estimated fair value of $7.1 billion as of September 30, 2009. In comparison, the par value of the Company's corporate debt investment portfolio totaled $8.6 billion (estimated fair value of $6.4 billion) and $9.7 billion (estimated fair value of $5.7 billion) as of June 30, 2009 and December 31, 2008, respectively. The decline in the par amount of the Company's corporate debt investment portfolio of $1.2 billion from December 31, 2008 to September 30, 2009 is primarily due to asset sales from KKR Financial CLO 2009-1, Ltd. during the second quarter of 2009 that were undertaken in response to the rally in corporate loan prices that provided the opportunity to sell assets in order to pay off the senior debt issued by KKR Financial CLO 2009-1, Ltd. The majority of the Company's investment portfolio is held in collateralized loan obligation ("CLO") transactions that the Company has used to finance its corporate debt investments. As of September 30, 2009, the Company's corporate debt investments not held in CLOs had an aggregate par value of $867.6 million and an estimated fair value of $561.3 million. In comparison, the aggregate par value of the Company's investment portfolio not held in CLOs totaled $545.5 million (estimated fair value of $214.2 million) and $539.4 million (estimated fair value of $196.7 million) as of June 30, 2009 and December 31, 2008, respectively. Information for Investors: Conference Call and Webcast The Company will host a conference call and audio webcast to review its third quarter 2009 results on November 5, 2009, at 5:00 p.m. EST. The conference call may be accessed by dialing (888) 487-0361 (Domestic) or (719) 457-2636 (International); a pass code is not required. A telephonic replay of the call will be available through November 19, 2009 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 4996141. 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/kam/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 nine nine months months months months ended ended ended ended September September September September 30, 2009 30, 2008 30, 2009 30, 2008 -------- -------- -------- -------- Net investment income: Securities interest income $21,701 $34,507 $73,805 $109,104 Loan interest income 113,460 187,756 364,583 588,843 Dividend income 26 358 313 2,266 Other interest income 49 4,431 511 20,505 -------- -------- -------- -------- Total investment income 135,236 227,052 439,212 720,718 Interest expense (57,340) (118,105) (219,625) (400,207) Interest expense to affiliates (5,171) (18,794) (16,355) (66,319) Provision for loan losses - - (39,795) (10,000) -------- -------- -------- -------- Net investment income 72,725 90,153 163,437 244,192 -------- -------- -------- -------- Other income (loss): Net realized and unrealized gain (loss) on derivatives and foreign exchange 19,930 (15,534) 58,831 (68,468) Net realized and unrealized gain (loss) on investments 21,181 (28,278) (85,576) (59,254) Net realized and unrealized (loss) gain on residential mortgage-backed securities, residential mortgage loans, and residential mortgage- backed securities issued, carried at estimated fair value (17,681) 121 (44,545) (14,651) Net realized and unrealized (loss) gain on securities sold, not yet purchased (996) 14,242 2,920 22,892 Net (loss) gain on restructuring and extinguishment of debt (10,627) 3,056 30,836 20,281 Other income 1,239 2,470 4,150 7,939 -------- -------- ------- -------- Total other income (loss) 13,046 (23,923) (33,384) (91,261) -------- -------- ------- -------- Non-investment expenses: Related party management compensation 14,616 9,811 36,132 29,357 General, administrative and directors expenses 1,539 3,820 6,917 14,094 Professional services 441 1,335 5,916 4,263 Loan servicing 1,925 2,274 6,117 7,234 -------- -------- ------- -------- Total non-investment expenses 18,521 17,240 55,082 54,948 -------- -------- ------- -------- Income from continuing operations before income tax expense 67,250 48,990 74,971 97,983 Income tax expense (63) - (151) (116) -------- -------- ------- -------- Income from continuing operations 67,187 48,990 74,820 97,867 Income from discontinued operations - - - 2,668 -------- -------- ------- -------- Net income $67,187 $48,990 $74,820 $100,535 ======== ======== ======= ======== Net income per common share: Basic Income per share from continuing operations $0.42 $0.32 $0.49 $0.71 ======== ======== ======= ======== Income per share from discontinued operations $- $- $- $0.02 ======== ======== ======= ======== Net income per share $0.42 $0.32 $0.49 $0.73 ======== ======== ======= ======== Diluted Income per share from continuing operations $0.42 $0.32 $0.49 $0.71 ======== ======== ======= ======== Income per share from discontinued operations $- $- $- $0.02 ======== ======== ======= ======== Net income per share $0.42 $0.32 $0.49 $0.73 ======== ======== ======= ======== Weighted-average number of common shares outstanding: Basic 156,997 149,612 152,664 136,777 ======== ======== ======= ======== Diluted 156,997 149,612 152,664 136,777 ======== ======== ======= ======== Schedule II KKR Financial Holdings LLC CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share information) September 30, December 31, 2009 2008 ------------- ------------ Assets Cash and cash equivalents $125,862 $41,430 Restricted cash and cash equivalents 188,151 1,233,585 Securities available-for-sale, $736,823 and $553,441 pledged as collateral as of September 30, 2009 and December 31, 2008, respectively 736,823 555,965 Corporate loans, net of allowance for loan losses of $470,224 and $480,775 as of September 30, 2009 and December 31, 2008, respectively 6,221,005 7,246,797 Residential mortgage-backed securities, at estimated fair value, $70,256 and $102,814 pledged as collateral as of September 30, 2009 and December 31, 2008, respectively 70,256 102,814 Residential mortgage loans, at estimated fair value 2,274,585 2,620,021 Corporate loans held for sale 504,093 324,649 Private equity investments, at estimated fair value 76,310 5,287 Derivative assets 23,163 73,869 Interest and principal receivable 60,811 116,788 Reverse repurchase agreements 80,344 88,252 Other assets 98,062 105,625 ------ ------- Total assets $10,459,465 $12,515,082 =========== =========== Liabilities Collateralized loan obligation senior secured notes $5,706,882 $7,487,611 Collateralized loan obligation junior secured notes to affiliates 547,421 655,313 Senior secured credit facility 187,500 275,633 Convertible senior notes 275,800 291,500 Junior subordinated notes 283,671 288,671 Residential mortgage-backed securities issued, at estimated fair value 2,165,423 2,462,882 Accounts payable, accrued expenses and other liabilities 7,209 60,124 Accrued interest payable 23,840 61,119 Accrued interest payable to affiliates 2,981 3,987 Related party payable 12,893 2,876 Securities sold, not yet purchased 78,633 90,809 Derivative liabilities 57,091 171,212 ------ ------- Total liabilities 9,349,344 11,851,737 --------- ---------- Shareholders' Equity Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at September 30, 2009 and December 31, 2008 - - Common shares, no par value, 500,000,000 shares authorized, and 158,359,757 and 150,881,500 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively - - Paid-in-capital 2,562,262 2,550,849 Accumulated other comprehensive income (loss) 91,761 (268,782) Accumulated deficit (1,543,902) (1,618,722) ---------- ---------- Total shareholders' equity 1,110,121 663,345 --------- ------- Total liabilities and shareholders' equity $10,459,465 $12,515,082 =========== =========== Investor Contact Laurie Poggi 415-315-3718 Media Contact Peter McKillop/Kristi Huller 212-750-8300 DATASOURCE: KKR Financial Holdings LLC CONTACT: Investors, Laurie Poggi, +1-415-315-3718, or Media, Peter McKillop, or Kristi Huller, all of KKR Financial Holdings LLC, +1-212-750-8300, Web Site: http://www.kkr.com/

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