SAN FRANCISCO, Nov. 3, 2011 /PRNewswire/ -- KKR Financial
Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today announced
its results for the third quarter ended September 30, 2011.
Third Quarter 2011 Highlights
- Net investment income increased 10.6% to $86.6 million for the third quarter of 2011
compared to the same period in 2010.
- Net investment income less non-investment expenses increased
22.4% to $68.7 million for the third
quarter of 2011 compared to the same period in 2010.
- Declared a cash distribution of $0.18 per common share for the third quarter of
2011.
- KFN received a BBB rating from Fitch Ratings and a BBB- rating
from Standard & Poor's, in each case with a stable
outlook.
For the three and nine months ended September 30, 2011, KFN reported net income of
$39.8 million, or $0.22 per diluted common share, and $241.1 million, or $1.32 per diluted common share, respectively.
Comparatively, for the three and nine months ended September 30, 2010, KFN reported net income of
$82.3 million, or $0.52 per diluted common share, and $292.9 million, or $1.85 per diluted common share, respectively.
KFN's third quarter 2011 results included net investment income
of $86.6 million, other loss of
$29.3 million and non-investment
expenses of $17.9 million.
Comparatively, KFN's third quarter 2010 results reflected net
investment income of $78.3 million,
other income of $26.6 million and
non-investment expenses of $22.2
million. Net investment income increased $8.3 million, or 10.6%, from the three months
ended September 30, 2010 to 2011. The
increase was primarily attributable to revenue earned on the
Company's working and royalty interests in oil and gas properties.
Other loss of $29.3 million included
net realized gains from corporate debt securities sales in
July 2011 totaling $33.6 million, which were more than offset by
unrealized losses consisting of mark-to-market losses on the
Company's equities portfolio of $13.5
million and a $43.8 million
lower of cost or estimated fair value charge for loans classified
as held for sale. These unrealized losses are attributable to
declines in equity and credit prices that occurred during the third
quarter of 2011. Additionally, KFN's results were negatively
impacted by foreign currency translation losses totaling
$7.5 million, which were also
included in other loss for the quarter.
KFN's results for the nine months ended September 30, 2011 included net investment income
of $254.8 million, other income of
$79.7 million and non-investment
expenses of $85.1 million.
Comparatively, KFN's results for the nine months ended September 30, 2010 reflected net investment
income of $238.4 million, other
income of $120.9 million and
non-investment expenses of $66.0
million. The $51.8 million
decrease in net income was primarily due to the factors affecting
KFN's third quarter results discussed above and the absence of an
aggregate one-time gain on extinguishment of debt totaling
$38.7 million that was recorded
during the nine months ended September 30,
2010, related to the purchase of certain notes issued by two
CLOs.
KKR Financial CLO 2011-1, Ltd. ("CLO 2011-1")
On July 8, 2011, the Company
announced that it had upsized CLO 2011-1 to $600.0 million from $400.0
million. The increase in the transaction size is a result of
an amendment to the transaction whereby CLO 2011-1 is now able to
borrow up to $450.0 million
representing an increase of $150.0
million from what was previously available under the
securitization. In addition, the Company increased its residual
interest in the transaction from $100.0
million to $150.0 million
through the acquisition of an additional $50.0 million of subordinated notes issued by CLO
2011-1. As of September 30, 2011, CLO
2011-1 had completed its ramp up by deploying $589.4 million to acquire senior secured
corporate loans.
Debt Transactions
During the third quarter ended September
30, 2011, the Company repurchased $45.1 million par amount of its 7.0% convertible
senior notes due July 15, 2012 (the
"7.0% Notes"). This transaction resulted in the Company recording a
loss of $1.7 million and a write-off
of $0.1 million of unamortized debt
issuance costs during the three months ended September 30, 2011. As of September 30, 2011, the Company had committed to
purchase an additional $1.2 million
par amount of its 7.0% Notes.
Book Value
Book value per share decreased $0.77 from $9.91 as
of June 30, 2011 to $9.14 as of September 30,
2011. The decrease in book value per share from June 30, 2011 was primarily driven by a decrease
in the Company's accumulated other comprehensive income, a
component of shareholders' equity, of $0.81 per share primarily as a result of declines
in value of its securities-available-for sale and interest rate
swaps designated as cash flow hedges, as well as the Company's
quarterly distribution to shareholders of $0.18 per common share, partially offset by its
earnings for the quarter of $0.22 per
common share.
Corporate Rating
On November 3, 2011, KFN received
a BBB rating from Fitch Ratings and a BBB- rating from Standard
& Poor's, in each case with a stable outlook.
Distributions
On November 3, 2011, the Company's
board of directors declared a cash distribution of $0.18 per common share for the quarter ended
September 30, 2011. The distribution
is payable on December 1, 2011 to
common shareholders of record as of the close of business on
November 17, 2011.
Information for Investors: Conference Call and
Webcast
The Company will host a conference call and audio webcast to
review its results for the third quarter ended September 30, 2011 on November 3, 2011, at 2:00
p.m. PT (5:00 p.m. ET). The
conference call may be accessed by dialing (877) 723-9511
(Domestic) or +1 (719) 325-4923 (International); a pass code is not
required. A telephonic replay of the call will be available through
November 17, 2011 by dialing (888)
203-1112 (Domestic) and +1 (719) 457-0820 (International) / pass
code 6249213. 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://ir.kkr.com/kfn_ir/kfn_events.cfm. An audio replay of the web
cast will be archived in the Investor Relations section of the
Company's website at http://ir.kkr.com/kfn_ir/kfn_events.cfm.
From time to time the Company may use its website as a channel
of distribution of material company information. Financial and
other important information regarding the Company is routinely
posted on and accessible at the Investor Relations section for KFN
at www.kkr.com. In addition, you may automatically receive email
alerts and other information about the Company by enrolling your
email by visiting the "Email Alerts" area in KFN's Investor
Relations section.
About KKR Financial Holdings LLC
KKR Financial Holdings LLC is a specialty finance company with
expertise in a range of asset classes. KFN's core business strategy
is to leverage the proprietary resources of its manager with the
objective of generating both current income and capital
appreciation. KFN executes its core business strategy through its
majority-owned subsidiaries. KFN is externally managed by KKR
Financial Advisors LLC, a wholly-owned subsidiary of KKR Asset
Management LLC, which is a wholly-owned subsidiary of Kohlberg
Kravis Roberts & Co. L.P. Additional information
regarding KFN 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 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, 2010, filed with the SEC on
February 28, 2011 and its Quarterly
Report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on
November 3, 2011.
Schedule
I
|
|
KKR
Financial Holdings LLC
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
(Amounts in
thousands, except per share information)
|
|
|
|
|
|
For the three
months ended September
30, 2011
|
|
For the three
months ended
September 30, 2010
|
|
For the nine
months ended
September 30, 2011
|
|
For the nine
months ended
September 30, 2010
|
|
|
Net investment
income:
|
|
|
|
|
|
|
|
|
|
|
Loan interest income
|
|
$
|
104,197
|
|
$
|
96,814
|
|
$
|
316,498
|
|
$
|
282,812
|
|
|
Securities interest
income
|
|
20,143
|
|
25,406
|
|
64,772
|
|
79,067
|
|
|
Other investment income
|
|
10,100
|
|
29
|
|
24,343
|
|
2,086
|
|
|
Total investment income
|
|
134,440
|
|
122,249
|
|
405,613
|
|
363,965
|
|
|
Interest expense
|
|
32,604
|
|
30,051
|
|
97,703
|
|
100,402
|
|
|
Interest expense to
affiliates
|
|
12,688
|
|
5,791
|
|
38,926
|
|
17,072
|
|
|
Provision for loan losses
|
|
2,533
|
|
8,087
|
|
14,194
|
|
8,087
|
|
|
Net investment income
|
|
86,615
|
|
78,320
|
|
254,790
|
|
238,404
|
|
|
Other (loss)
income:
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized
(loss) gain on investments
|
|
(24,531)
|
|
19,441
|
|
73,194
|
|
83,047
|
|
|
Net realized and unrealized
(loss) gain on derivatives and foreign exchange
|
|
(7,603)
|
|
3,831
|
|
(295)
|
|
(3,437)
|
|
|
Net realized and unrealized gain
(loss) on residential mortgage-backed securities,
residential mortgage loans, and residential mortgage-backed
securities issued, carried at estimated fair value
|
|
2,274
|
|
1,492
|
|
2,145
|
|
(7,764)
|
|
|
Net (loss) gain on restructuring
and extinguishment of debt
|
|
(1,736)
|
|
—
|
|
(1,736)
|
|
39,999
|
|
|
Other income
|
|
2,290
|
|
1,863
|
|
6,400
|
|
9,085
|
|
|
Total other (loss) income
|
|
(29,306)
|
|
26,627
|
|
79,708
|
|
120,930
|
|
|
Non-investment
expenses:
|
|
|
|
|
|
|
|
|
|
|
Related party management
compensation
|
|
8,198
|
|
17,551
|
|
53,714
|
|
52,518
|
|
|
General, administrative and
directors expenses
|
|
8,554
|
|
3,561
|
|
27,092
|
|
10,127
|
|
|
Professional services
|
|
1,134
|
|
1,041
|
|
4,257
|
|
3,335
|
|
|
Total non-investment
expenses
|
|
17,886
|
|
22,153
|
|
85,063
|
|
65,980
|
|
|
Income before income tax
expense
|
|
39,423
|
|
82,794
|
|
249,435
|
|
293,354
|
|
|
Income tax (benefit)
expense
|
|
(397)
|
|
452
|
|
8,344
|
|
489
|
|
|
Net income
|
|
$
|
39,820
|
|
$
|
82,342
|
|
$
|
241,091
|
|
$
|
292,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
$
|
0.52
|
|
$
|
1.35
|
|
$
|
1.85
|
|
|
Diluted
|
|
$
|
0.22
|
|
$
|
0.52
|
|
$
|
1.32
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
177,723
|
|
157,057
|
|
177,493
|
|
157,018
|
|
|
Diluted
|
|
180,220
|
|
157,461
|
|
181,304
|
|
157,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule
II
|
|
KKR
Financial Holdings LLC
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
(Amounts in
thousands, except share information)
|
|
|
|
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
137,309
|
|
$
|
313,829
|
|
|
Restricted cash and cash
equivalents
|
|
321,734
|
|
571,425
|
|
|
Securities available-for-sale,
$690,336 and $728,558 pledged as collateral as of
September 30, 2011 and December 31, 2010,
respectively
|
|
786,195
|
|
838,894
|
|
|
Corporate loans, net of
allowance for loan losses of $191,407 and $209,030 as of
September 30, 2011 and December 31, 2010,
respectively
|
|
6,115,948
|
|
5,857,816
|
|
|
Corporate loans held for
sale
|
|
500,490
|
|
463,628
|
|
|
Residential mortgage-backed
securities, at estimated fair value
|
|
88,209
|
|
93,929
|
|
|
Equity investments, at estimated
fair value, $13,410 and $12,036 pledged as collateral as of
September 30, 2011 and December 31, 2010,
respectively
|
|
170,175
|
|
99,955
|
|
|
Derivative assets
|
|
26,066
|
|
19,519
|
|
|
Interest and principal
receivable
|
|
59,917
|
|
57,414
|
|
|
Other assets
|
|
209,861
|
|
102,003
|
|
|
Total
assets
|
|
$
|
8,415,904
|
|
$
|
8,418,412
|
|
|
Liabilities
|
|
|
|
|
|
|
Collateralized loan obligation
secured debt
|
|
$
|
5,596,020
|
|
$
|
5,630,272
|
|
|
Collateralized loan obligation
junior secured notes to affiliates
|
|
365,848
|
|
366,124
|
|
|
Credit facilities
|
|
38,300
|
|
18,400
|
|
|
Convertible senior notes
|
|
299,877
|
|
344,142
|
|
|
Junior subordinated notes
|
|
283,517
|
|
283,517
|
|
|
Accounts payable, accrued
expenses and other liabilities
|
|
52,596
|
|
14,193
|
|
|
Accrued interest payable
|
|
15,987
|
|
22,846
|
|
|
Accrued interest payable to
affiliates
|
|
7,579
|
|
6,316
|
|
|
Related party payable
|
|
3,687
|
|
12,988
|
|
|
Derivative liabilities
|
|
123,957
|
|
76,566
|
|
|
Total
liabilities
|
|
6,787,368
|
|
6,775,364
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
Preferred shares, no par value,
50,000,000 shares authorized and none issued and
outstanding at September 30, 2011 and December 31,
2010
|
|
—
|
|
—
|
|
|
Common shares, no par value,
500,000,000 shares authorized, and 178,145,482 and 177,848,565
shares issued and outstanding at September 30, 2011 and
December 31, 2010, respectively
|
|
—
|
|
—
|
|
|
Paid-in-capital
|
|
2,758,891
|
|
2,756,200
|
|
|
Accumulated other comprehensive
(loss) income
|
|
(37,413)
|
|
133,596
|
|
|
Accumulated deficit
|
|
(1,092,942)
|
|
(1,246,748)
|
|
|
Total
shareholders' equity
|
|
1,628,536
|
|
1,643,048
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
8,415,904
|
|
$
|
8,418,412
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor Relations Contact:
Angela Yang
415-315-6567
investor-relations@kkr.com
Media Contact:
Kristi Huller
212-750-8300
media@kkr.com
SOURCE KKR Financial Holdings LLC