KFN Kkr Financial Holdings Llc

SAN FRANCISCO, March 1 /PRNewswire-FirstCall/ -- KKR Financial Holdings LLC ("KFN" or the "Company") today announced its results for the fourth quarter and year ended December 31, 2009. Fourth Quarter and Full Year 2009 Highlights -- Net income for the fourth quarter ended December 31, 2009 of $2.1 million, or $0.01 per diluted common share, as compared to net loss for the fourth quarter ended December 31, 2008 of $1.2 billion, or a loss of $7.85 per diluted common share. Net income for the year ended December 31, 2009 of $76.9 million, or $0.50 per diluted common share, as compared to net loss for the year ended December 31, 2008 of $1.1 billion, or a loss of $7.69 per diluted common share. -- Book value per common share of $7.37 as of December 31, 2009 as compared to book value per common share of $7.01 and $4.40 as of September 30, 2009 and December 31, 2008, respectively. KFN's fourth quarter 2009 results reflect net investment income of $80.1 million, partially offset by other losses of $62.9 million and non-investment expenses of $15.0 million. Other losses totaling $62.9 million primarily consist of the following: (i) net realized and unrealized loss on investments in residential mortgage-backed securities, residential mortgage loans and residential mortgage-backed securities issued, at estimated fair value, totaling $62.5 million, primarily attributable to charges the Company is recognizing on the value of its residential mortgage-backed securities portfolio; (ii) net realized and unrealized loss on investments totaling $6.7 million, consisting of lower of cost or market adjustments on loans transferred to held for sale of $12.1 million and other-than-temporary impairment charges on securities of $3.9 million, partially offset by net realized and unrealized gains from investments of $9.3 million; and (iii) net realized and unrealized gain from derivative positions and foreign exchange totaling $2.1 million. For the year ended December 31, 2009, KFN reported net investment income of $243.6 million, partially offset by other losses of $96.3 million and non-investment expenses of $70.1 million. Other losses totaling $96.3 million consist of the following: (i) net realized and unrealized loss on investments in residential mortgage-backed securities, residential mortgage loans and residential mortgage-backed securities issued, at estimated fair value, totaling $107.0 million; (ii) net realized and unrealized loss on investments totaling $92.3 million; (iii) net realized and unrealized gain from derivative positions and foreign exchange totaling $60.9 million; and (iv) net gain on restructuring and extinguishment of debt totaling $30.8 million. Investment Portfolio The Company's corporate debt investment portfolio, consisting of corporate loans and high yield bonds, had an aggregate par balance of $8.2 billion and an aggregate estimated fair value of $7.2 billion as of December 31, 2009. In comparison, the par value of the Company's corporate debt investment portfolio totaled $9.7 billion with an estimated fair value of $5.7 billion as of December 31, 2008. As of December 31, 2009, the Company's corporate debt investments not held in its collateralized loan obligation ("CLO") subsidiaries had an aggregate par value of $759.6 million and an estimated fair value of $588.5 million. In comparison, the aggregate par value of the Company's investment portfolio not held in its CLO subsidiaries totaled $539.4 million with an estimated fair value of $196.7 million as of December 31, 2008. Liquidity As of December 31, 2009, the Company's unrestricted cash and cash equivalents totaled $97.1 million, as compared to $41.4 million as of December 31, 2008. On January 15, 2010, the Company issued $172.5 million of 7.50% convertible senior notes. The 7.50% convertible senior notes mature on January 15, 2017. Net proceeds from this offering, totaling $167.3 million, are expected to be used to repurchase or repay some or all of the Company's existing senior indebtedness with the remainder to be used for general corporate purposes. Since the closing of this transaction, the Company has repurchased approximately $95.2 million par amount of its 7.00% convertible notes due 2012 and has reduced borrowings outstanding under its senior secured credit facility from $175.0 million as of December 31, 2009 to $150.0 million. Shareholders' Equity and Book Value per Common Share The Company's shareholders' equity increased $0.5 billion from $0.7 billion as of December 31, 2008 to $1.2 billion as of December 31, 2009. The Company's book value per common share was $7.37 as of December 31, 2009, as compared to $4.40 as of December 31, 2008. Information for Investors: Conference Call and Webcast The Company will host a conference call and audio webcast to review its fourth quarter and year end 2009 results on March 1, 2010, at 5:00 p.m. EST. The conference call may be accessed by dialing (800) 218-2154 (Domestic) or (913) 312-9308 (International); a pass code is not required. A telephonic replay of the call will be available through March 15, 2010 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 7428799. 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. KFN's core business strategy focuses on corporate debt throughout the capital structure with a particular emphasis on debt issued by large capitalization firms with broad geographic and product offerings. KFN executes its core business strategy through its majority-owned subsidiaries. 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/. "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains 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. These forward-looking statements include, but are not limited to, statements related to the Company's use of proceeds of certain financing transactions. These forward-looking statements are based on information available to the Company as of the date of this press release and actual results may differ. These forward-looking statements involve known and unknown risks, uncertainties and other factors beyond the Company's control. Any forward-looking statements speak only as of the date of this press release and the Company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. For additional information concerning risks, uncertainties and other factors that may cause actual results to differ from those anticipated in the forward-looking statements, and risks to the Company's business in general, please refer to the Company's SEC filings, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on March 1, 2010. Schedule I KKR Financial Holdings LLC CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share information) For the For the three three For the For the months months year year ended ended ended ended December 31, December 31, December 31, December 31, 2009 2008 2009 2008 ---- ---- ---- ---- Net investment income (loss): Loan interest income $112,461 $188,667 $477,044 $777,510 Securities interest income 20,957 36,761 94,762 145,865 Other interest income 95 2,442 919 25,213 -- ----- --- ------ Total investment income 133,513 227,870 572,725 948,588 Interest expense (48,462) (121,106) (268,087) (521,313) Interest expense to affiliates (4,932) 23,018 (21,287) (43,301) Provision for loan losses - (471,488) (39,795) (481,488) --- -------- ------- -------- Net investment income (loss) 80,119 (341,706) 243,556 (97,514) ------ -------- ------- ------- Other loss: Net realized and unrealized loss on investments (6,711) (745,500) (92,287) (804,754) Net realized and unrealized gain (loss) on derivatives and foreign exchange 2,077 (72,851) 60,908 (141,319) Net realized and unrealized loss on residential mortgage-backed securities, residential mortgage loans, and residential mortgage-backed securities issued, carried at estimated fair value (62,483) (34,248) (107,028) (48,899) Net realized and unrealized gain on securities sold, not yet purchased 662 27,405 3,582 50,297 Net gain on restructuring and extinguishment of debt - 6,205 30,836 26,486 Other income 3,564 3,413 7,714 11,352 ----- ----- ----- ------ Total other loss (62,891) (815,576) (96,275) (906,837) ------- -------- ------- -------- Non-investment expenses: Related party management compensation 8,191 7,313 44,323 36,670 General, administrative and directors expenses 3,476 4,943 10,393 19,038 Loan servicing 1,844 2,210 7,961 9,444 Professional services 1,468 3,835 7,384 8,098 ----- ----- ----- ----- Total non-investment expenses 14,979 18,301 70,061 73,250 ------ ------ ------ ------ Income (loss) from continuing operations before income tax (expense) benefit 2,249 (1,175,583) 77,220 (1,077,601) Income tax (expense) benefit (133) 9 (284) (107) ---- --- ---- ---- Income (loss) from continuing operations 2,116 (1,175,574) 76,936 (1,077,708) Income from discontinued operations - - - 2,668 --- --- --- ----- Net income (loss) $2,116 $(1,175,574) $76,936 $(1,075,040) ====== =========== ======= =========== Net income (loss) per common share: Basic Income (loss) per share from continuing operations $0.01 $(7.85) $0.50 $(7.71) ===== ====== ===== ====== Income per share from discontinued operations $- $- $- $0.02 === === === ===== Net income (loss) per share $0.01 $(7.85) $0.50 $(7.69) ===== ====== ===== ====== Diluted Income (loss) per share from continuing operations $0.01 $(7.85) $0.50 $(7.71) ===== ====== ===== ====== Income per share from discontinued operations $- $- $- $0.02 === === === ===== Net income (loss) per share $0.01 $(7.85) $0.50 $(7.69) ===== ====== ===== ====== Weighted-average number of common shares outstanding: Basic 156,997 149,708 153,756 140,027 ======= ======= ======= ======= Diluted 156,997 149,708 153,756 140,027 ======= ======= ======= ======= Schedule II KKR Financial Holdings LLC CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share information) December 31, December 31, 2009 2008 ---- ---- Assets Cash and cash equivalents $97,086 $41,430 Restricted cash and cash equivalents 342,706 1,233,585 Securities available-for-sale, $740,949 and $553,441 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively 755,686 555,965 Corporate loans, net of allowance for loan losses of $237,308 and $480,775 as of December 31, 2009 and December 31, 2008, respectively 5,617,925 7,246,797 Corporate loans held for sale 925,718 324,649 Residential mortgage-backed securities, at estimated fair value, $47,572 and $102,814 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively 47,572 102,814 Residential mortgage loans, at estimated fair value 2,097,699 2,620,021 Equity investments, at estimated fair value, $110,812 and $5,287 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively 120,269 5,287 Derivative assets 15,784 73,869 Interest and principal receivable 98,313 116,788 Reverse repurchase agreements 80,250 88,252 Other assets 100,997 105,625 ------- ------- Total assets $10,300,005 $12,515,082 =========== =========== Liabilities Collateralized loan obligation senior secured notes $5,650,406 $7,487,611 Collateralized loan obligation junior secured notes to affiliates 533,786 655,313 Collateralized loan obligation junior secured notes 17,310 - Senior secured credit facility 175,000 275,633 Convertible senior notes 275,800 291,500 Junior subordinated notes 283,517 288,671 Residential mortgage-backed securities issued, at estimated fair value 2,034,772 2,462,882 Accounts payable, accrued expenses and other liabilities 7,240 60,124 Accrued interest payable 25,297 61,119 Accrued interest payable to affiliates 2,911 3,987 Related party payable 3,367 2,876 Securities sold, not yet purchased 77,971 90,809 Derivative liabilities 45,970 171,212 ------ ------- Total liabilities 9,133,347 11,851,737 --------- ---------- Shareholders' Equity Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at December 31, 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 December 31, 2009 and December 31, 2008, respectively - - Paid-in-capital 2,563,634 2,550,849 Accumulated other comprehensive income (loss) 152,728 (268,782) Accumulated deficit (1,549,704) (1,618,722) ---------- ---------- Total shareholders' equity 1,166,658 663,345 --------- ------- Total liabilities and shareholders' equity $10,300,005 $12,515,082 =========== =========== Investor Contact Laurie Poggi 415-315-3718 Media Contact Peter McKillop/Kristi Huller media@kkr.com 212-750-8300 DATASOURCE: KKR Financial Holdings LLC CONTACT: Investors, Laurie Poggi, +1-415-315-3718, or Media, PeterMcKillop, or Kristi Huller, all of KKR Financial Holdings LLC,+1-212-750-8300, media@kkr.com Web Site: http://www.kkr.com/

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