SAN FRANCISCO, Oct. 23, 2013 /PRNewswire/ -- KKR Financial
Holdings LLC (NYSE:KFN) ("KFN" or the "Company") today announced
its results for the third quarter ended September 30, 2013.
Third Quarter 2013 Highlights
- Net income available to common shareholders totaled
$33.0 million, compared with
$112.0 million for the same period of
2012.
- Net income per diluted common share totaled $0.16, compared with $0.61 for the comparable prior-year period.
- A quarterly cash distribution of $0.22 per common share was declared for the third
quarter of 2013.
- Book value per common share was $10.42 as of September 30,
2013 as compared to book value per common share of
$10.41 as of June 30, 2013.
For the three months ended September 30,
2013, the Company reported net income available to common
shareholders of $33.0 million, or
$0.16 per diluted common share,
compared with $112.0 million, or
$0.61 per diluted common share, for
the comparable prior-year period. For the nine months ended
September 30, 2013, the Company
reported net income available to common shareholders of
$203.8 million, or $1.01 per diluted common share, compared with
$271.2 million, or $1.48 per diluted common share, for the
comparable prior-year period.
The Company's third quarter 2013 results included total revenues
of $128.7 million, total investment
costs and expenses of $77.9 million,
total other income of $6.2 million,
and total other expenses of $17.1
million. Comparatively, KFN's third quarter 2012 results
reflected total revenues of $143.3
million, total investment costs and expenses of $70.9 million, total other income of $73.0 million, and total other expenses of
$33.2 million.
Total revenues of $128.7 million
for the third quarter of 2013 represented a decline of
approximately 10% from the comparable prior-year period. Loan
and securities interest income comprised 73% of total revenue and
oil and gas revenue comprised 25%, as compared to 84% and 15%,
respectively, for the prior-year period. The Company's loan
and securities interest income declined from $120.8 million for the quarter ended September 30, 2012 to $93.5 million for the quarter ended September 30, 2013. This resulted primarily
from (a) a decline of approximately 64 basis points, or 12%, in the
annualized interest rate being earned on the Company's loan
portfolio during the third quarter of 2013 versus 2012; (b) a
$9.3 million decline in scheduled and
prepayment-related discount accretion from the Company's loan
portfolio; and (c) a $6.6 million decline in securities interest
income excluding discount accretion, largely resulting from a
reduction in the Company's high-yield bond holdings across its
strategies from a par value of $500.5 million to $458.9 million
over the year. These were partially offset largely by oil and
gas revenue, which increased by $11.0 million from the prior-year
period.
Total investment costs and expenses of $77.9 million for the third quarter of 2013
represented an increase of approximately 10% from the comparable
prior-year period. This was primarily due to the recording of
a provision for loan losses of $9.3
million for the third quarter of 2013 as compared to no
provision being recorded for the prior-year period.
In addition, expenses associated with the Company's oil and gas
portfolio increased by approximately $4.2
million from the prior-year period, resulting from
acquisitions during the twelve months ending September 30, 2013. These factors were
partially offset by a $6.8 million
decline in interest expense and interest expense to affiliates
largely resulting from the amortization of the Company's legacy
collateralized loan obligations.
Total other income of $6.2 million
for the third quarter of 2013 reflected a decrease from
$73.0 million during the comparable
prior-year period, stemming primarily from a materially lower level
of realized and unrealized gains on investments.
Total other expenses of $17.1
million for the third quarter of 2013 reflected a decrease
from $33.2 million during the
comparable prior-year period, primarily due to a lower level of
related party management compensation in light of the Company's
third-quarter performance.
"Our results reflect the environment in which KFN is operating,
as yields continue to compress and many of our legacy CLOs continue
to amortize," said Craig J. Farr,
CEO of KFN. "That said, we found a number of attractive
opportunities for capital deployment during the quarter, and we're
focusing the business on cash-yielding, credit-oriented strategies
in order to drive ongoing shareholder value."
Selected Portfolio Activity
Bank Loans and High-Yield Debt Strategy
On September 30, 2013, the Company
announced that it had added $300
million to the total facility size of KKR Financial CLO
2011-1, Ltd. ("CLO 2011-1"). The increase results from an
amendment to the transaction whereby CLO 2011-1 may now borrow up
to an incremental $225 million to
purchase senior secured corporate loans. In connection with
the upsize, the Company increased its residual interest in the
transaction through the acquisition of an additional $75 million of subordinated notes issued by CLO
2011-1. The cost of the financing remains three-month LIBOR
plus 1.35%.
Private Equity Strategy
On August 20, 2013, KKR announced
the formation of Maritime Finance Company ("Maritime Finance"), a
new specialty finance company created to originate, structure,
underwrite, invest in and distribute debt financings secured by
high-quality maritime assets, including drilling rigs, development
and production assets, subsea construction vessels and other
traditional shipping assets. KFN served as anchor investor in the
equity raise, committing $150.0
million of the $580.0 million
raised. These proceeds are funding the establishment and
operation of Maritime Finance as well as the acquisition of a seed
portfolio of outstanding loans. Over time, the portfolio is
expected to generate a regular cash yield, providing distributions
to equity holders.
To date, KFN has deployed $84.3
million of its total commitment.
Book Value
Book value per common share increased to $10.42 as of September 30,
2013 from $10.41 as of
June 30, 2013. The increase was
predominantly driven by (a) third-quarter net income available to
common shareholders of $0.16 per
diluted common share and (b) a decrease in the Company's
accumulated other comprehensive loss, a component of shareholders'
equity, of $0.05 per diluted common
share as a result of increases in the value of certain interest
rate swaps designated as cash flow hedges, as well as certain
securities available for sale. These factors were partially
offset by distributions of $0.21 per
share paid to common shareholders during the quarter.
Distribution
On October 23, 2013, the Company's
board of directors declared a cash distribution of $0.22 per common share. The distribution is
payable on November 20, 2013 to
common shareholders of record as of the close of business on
November 6, 2013.
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, 2013 on October 23, 2013, at 2:00
p.m. PT (5:00 p.m. ET). The conference call may
be accessed by dialing (877) 303-4382 (domestic) or +1 (253)
237-1193 (international); a pass code is not required. A
replay of the live broadcast will be available by dialing (855)
859-2056 (domestic) and +1 (404) 537-3406 (international), pass
code 68903529, beginning approximately two hours after completion
of the event. Additionally, the conference call will be
broadcast live over the Internet and subsequently archived and may
be accessed through the KFN Investor Relations section of the KKR
website at http://ir.kkr.com/kfn_ir/kfn_events.cfm.
Supplemental materials that will be discussed during the call will
be available at the same website location.
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 KFN Investor Relations section of
www.kkr.com, where you may also enroll your email address to
receive automatic email alerts and other information about the
Company.
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, that are based on the Company's current expectations,
estimates and projections. Statements that are not historical
facts, including statements about our beliefs and expectations, are
forward-looking statements. The words "believe," "anticipate,"
"intend," "aim," "expect," "strive," "plan," "estimate," and
"project," and similar words identify forward-looking statements.
Such statements are not guarantees of future performance, events or
results and involve potential risks and uncertainties. Accordingly,
actual results and the timing of certain events could differ
materially from those addressed in forward-looking statements due
to a number of factors including, but not limited to, changes in
interest rates and market values, financing and capital
availability, changes in prepayment rates, underperformance of the
Company's investments, general economic and political conditions
and events, changes in market conditions, particularly in the
global fixed income, credit and equity markets, the impact of
current, pending and future legislation, regulation and legal
actions, and other factors not presently identified. 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, 2012, filed with the SEC on
February 28, 2013. 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, except for as required by
federal securities laws. 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.
Schedule
I
|
KKR Financial
Holdings LLC and Subsidiaries
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
(Amounts in
thousands, except per share information)
|
|
|
|
For the three
months ended
September 30,
2013
|
|
For the three
months ended
September 30,
2012
|
|
For the nine
months ended
September 30,
2013
|
|
For the nine
months ended
September 30,
2012
|
Revenues
|
|
|
|
|
|
|
|
|
Loan interest
income
|
|
$
|
82,541
|
|
$
|
101,988
|
|
$
|
272,919
|
|
$
|
313,684
|
Securities interest
income
|
|
10,933
|
|
18,791
|
|
39,326
|
|
62,180
|
Oil and gas
revenue
|
|
32,446
|
|
21,487
|
|
84,118
|
|
44,262
|
Other
|
|
2,782
|
|
1,068
|
|
10,033
|
|
1,692
|
Total
revenues
|
|
128,702
|
|
143,334
|
|
406,396
|
|
421,818
|
Investment costs
and expenses
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
39,767
|
|
40,418
|
|
118,366
|
|
123,788
|
Interest expense to
affiliates
|
|
6,839
|
|
12,954
|
|
26,485
|
|
38,131
|
Provision for loan
losses
|
|
9,339
|
|
—
|
|
20,407
|
|
46,498
|
Oil and gas
production costs
|
|
9,163
|
|
9,803
|
|
26,420
|
|
19,041
|
Oil and gas
depreciation, depletion and amortization..
|
|
11,806
|
|
7,011
|
|
29,910
|
|
14,867
|
Other
|
|
963
|
|
714
|
|
2,531
|
|
3,482
|
Total investment
costs and expenses
|
|
77,877
|
|
70,900
|
|
224,119
|
|
245,807
|
Other
income
|
|
|
|
|
|
|
|
|
Net realized and
unrealized gain on investments
|
|
5,673
|
|
75,774
|
|
125,397
|
|
160,788
|
Net realized and
unrealized loss on derivatives and foreign exchange
|
|
(3,062)
|
|
(8,102)
|
|
(5,012)
|
|
(2,583)
|
Net loss on
restructuring and extinguishment of debt
|
|
—
|
|
—
|
|
(20,269)
|
|
(445)
|
Other
income
|
|
3,615
|
|
5,371
|
|
17,565
|
|
10,664
|
Total other
income
|
|
6,226
|
|
73,043
|
|
117,681
|
|
168,424
|
Other
expenses
|
|
|
|
|
|
|
|
|
Related party
management compensation
|
|
10,920
|
|
26,602
|
|
56,744
|
|
57,519
|
General,
administrative and directors expenses
|
|
4,654
|
|
5,464
|
|
13,138
|
|
14,913
|
Professional
services
|
|
1,573
|
|
1,130
|
|
5,288
|
|
4,334
|
Total other
expenses
|
|
17,147
|
|
33,196
|
|
75,170
|
|
76,766
|
Income before income
taxes
|
|
39,904
|
|
112,281
|
|
224,788
|
|
267,669
|
Income tax expense
(benefit)
|
|
18
|
|
317
|
|
434
|
|
(3,548)
|
Net
income
|
|
$
|
39,886
|
|
$
|
111,964
|
|
$
|
224,354
|
|
$
|
271,217
|
|
|
|
|
|
|
|
|
|
Preferred share
distributions
|
|
6,891
|
|
—
|
|
20,520
|
|
—
|
Net income
available to common shareholders
|
|
$
|
32,995
|
|
$
|
111,964
|
|
$
|
203,834
|
|
$
|
271,217
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
$
|
0.63
|
|
$
|
1.01
|
|
$
|
1.52
|
Diluted
|
|
$
|
0.16
|
|
$
|
0.61
|
|
$
|
1.01
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
204,134
|
|
177,862
|
|
201,824
|
|
177,815
|
Diluted
|
|
204,134
|
|
183,431
|
|
201,824
|
|
182,440
|
|
|
|
|
|
|
|
|
|
Distributions
declared per common share
|
|
$
|
0.21
|
|
$
|
0.21
|
|
$
|
0.68
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule
II
|
KKR Financial
Holdings LLC
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
(Amounts in
thousands, except share information)
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
Assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
221,986
|
|
$
|
237,606
|
Restricted cash and
cash equivalents
|
|
509,688
|
|
896,396
|
Securities
|
|
519,675
|
|
533,520
|
Corporate loans, net
(includes $156,595 and $35,879 measured at estimated fair value and
$312,312 and $128,289 loans held for sale as of September 30,
2013 and December 31, 2012, respectively)
|
|
6,153,072
|
|
5,947,857
|
Equity investments,
at estimated fair value ($5,319 and $7,187 pledged as collateral as
of September 30, 2013 and December 31, 2012,
respectively)
|
|
191,153
|
|
161,621
|
Oil and gas
properties, net
|
|
372,034
|
|
289,929
|
Derivative
assets
|
|
35,348
|
|
23,207
|
Interest and
principal receivable
|
|
38,586
|
|
46,960
|
Other
assets
|
|
430,449
|
|
221,783
|
Total
assets
|
|
$
|
8,471,991
|
|
$
|
8,358,879
|
Liabilities
|
|
|
|
|
Collateralized loan
obligation secured notes
|
|
$
|
4,903,438
|
|
$
|
5,122,338
|
Collateralized loan
obligation junior secured notes to affiliates
|
|
193,921
|
|
296,557
|
Credit
facilities
|
|
48,489
|
|
107,789
|
Convertible senior
notes
|
|
—
|
|
166,028
|
Senior
notes
|
|
362,251
|
|
362,178
|
Junior subordinated
notes
|
|
283,517
|
|
283,517
|
Accounts payable,
accrued expenses and other liabilities
|
|
74,737
|
|
25,931
|
Accrued interest
payable
|
|
16,497
|
|
20,519
|
Accrued interest
payable to affiliates
|
|
4,134
|
|
6,632
|
Related party
payable
|
|
3,847
|
|
10,998
|
Derivative
liabilities
|
|
86,108
|
|
117,270
|
Total
liabilities
|
|
5,976,939
|
|
6,519,757
|
Shareholders'
equity
|
|
|
|
|
Preferred shares, no
par value, 50,000,000 shares authorized and 14,950,000 and zero
issued and outstanding as of September 30, 2013 and
December 31, 2012, respectively
|
|
—
|
|
—
|
Common shares, no par
value, 500,000,000 shares authorized, and 204,824,159 and
178,437,078 shares issued and outstanding as of September 30,
2013 and December 31, 2012, respectively
|
|
—
|
|
—
|
Paid-in-capital
|
|
3,313,400
|
|
2,762,584
|
Accumulated other
comprehensive loss
|
|
(29,693)
|
|
(70,226)
|
Accumulated
deficit
|
|
(788,655)
|
|
(853,236)
|
Total
shareholders' equity
|
|
2,495,052
|
|
1,839,122
|
Total liabilities
and shareholders' equity
|
|
$
|
8,471,991
|
|
$
|
8,358,879
|
Investor Relations
Contact:
Pam Testani
+1 (855) 374-5411 (US) / +1 (415) 315-3633
kfn.ir@kkr.com
Media Contact:
Kristi Huller
+1 (212) 750-8300
media@kkr.com
SOURCE KKR Financial Holdings LLC