SAN FRANCISCO, Nov. 4, 2010 /PRNewswire-FirstCall/ -- KKR
Financial Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today
announced its results for the third quarter ended September 30, 2010.
Third Quarter 2010 Highlights
- Net income for the three months ended September 30, 2010 of $82.3 million, or $0.52 per diluted common share.
- Declared a cash distribution of $0.14 per common share for the third quarter of
2010.
- Book value of $8.60 per share as
of September 30, 2010, an increase of
$0.52 from $8.08 as of June 30,
2010.
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. For
the three and nine months ended September
30, 2009, net income totaled $67.2
million, or $0.42 per diluted
common share, and $74.8 million, or
$0.49 per diluted common share,
respectively.
KFN's third quarter 2010 results reflect net investment income
of $78.3 million, other income of
$26.6 million and non-investment
expenses of $22.2 million. Net
investment income of $78.3 million
for the three months ended September 30,
2010 reflects an increase in net investment income of
$5.6 million from $72.7 million for the three months ended
September 30, 2009. Additionally, net
investment income for the three months ended September 30, 2010 includes a provision for loan
losses of $8.1 million as compared to
nil for the three months ended September 30,
2009. Other income of $26.6
million for the three months ended September 30, 2010 reflects an increase of
$13.6 million from $13.0 million for the three months ended
September 30, 2009 that is primarily
attributable to realized gains from the sales of certain corporate
debt holdings during quarter ended September
30, 2010.
Distributions
On November 3, 2010, the Company's
board of directors declared a cash distribution of $0.14 per common share for the quarter ended
September 30, 2010. The distribution
is payable on December 1, 2010 to
common shareholders of record as of the close of business on
November 17, 2010.
Portfolio Review and CLO Subsidiaries
The Company's portfolio primarily consists of below investment
grade corporate loans, often referred to as syndicated bank loans
or leveraged loans, and high yield debt securities. These holdings
have an aggregate par balance of $8.0
billion and an aggregate estimated fair value of
$7.3 billion as of September 30, 2010. Accordingly, the
Company's corporate debt portfolio had a market value of 92% of par
value as of September 30, 2010 and
the Company's corporate debt portfolio had a carrying value on the
Company's balance sheet of 92% of par value as of September 30, 2010.
The majority of the Company's portfolio is held through its
collateralized loan obligation ("CLO") subsidiaries that are
structured as on-balance sheet securitizations and are used as long
term financing for its portfolio assets. As of September 30, 2010, the Company's CLOs held
corporate debt securities and loans with an aggregate par balance
of $7.3 billion and an estimated fair
value of $6.8 billion. In comparison,
the Company's CLOs held corporate debt securities and loans with an
aggregate par balance of $7.4 billion
(estimated fair value of $6.7
billion) and $7.4 billion
(estimated fair value of $6.6
billion) as of June 30, 2010
and December 31, 2009,
respectively.
As of September 30, 2010, the
Company's corporate debt securities and loans not held in CLOs had
an aggregate par of $703.2 million
and an estimated fair value of $569.4
million. In comparison, the aggregate par value of the
Company's corporate debt securities and loans not held in CLOs
totaled $681.5 million (estimated
fair value of $532.9 million) and
$759.6 million (estimated fair value
of $588.5 million) as of June 30, 2010 and December
31, 2009, respectively.
Book Value
The Company's book value per common share increased to
$8.60 as of September 30, 2010 from $8.08 as of June 30,
2010 and $7.37 as of
December 31, 2009. The increase in
book value per share of $0.52 from
June 30, 2010 is primarily
attributable to net income of $82.3
million for the three months ended September 30, 2010 and an increase in accumulated
other comprehensive income, a component of shareholders' equity,
primarily due to appreciation in the estimated fair values of high
yield debt securities.
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, 2010 on November 4, 2010, at 5:00
p.m. EDT. The conference call may be accessed by dialing
(888) 312-9863 (Domestic) or (719) 325-2237 (International); a pass
code is not required. A telephonic replay of the call will be
available through November 18, 2010
by dialing (888) 203-1112 (Domestic) and (719) 457-0820
(International) / pass code 1543768. 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/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.
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 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. Additionally, KFN has made or may
make investments in other asset classes including natural resources
and real estate. KKR Financial Holdings LLC is externally managed
by KKR Financial Advisors LLC, a wholly-owned subsidiary of KKR
Asset Management LLC (formerly known as 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 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 and its Quarterly
Report on Form 10-Q for the quarter ended September 30, 2010, filed with the SEC on
November 4, 2010.
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,
2010
|
|
For the
three
months ended
September 30,
2009
|
|
For
the
nine
months ended
September 30,
2010
|
|
For
the
nine
months ended
September 30,
2009
|
|
|
Net investment
income:
|
|
|
|
|
|
|
|
|
|
|
Loan interest income
|
|
$
|
96,814
|
|
$
|
113,460
|
|
$
|
282,812
|
|
$
|
364,583
|
|
|
Securities interest
income
|
|
25,406
|
|
21,701
|
|
79,067
|
|
73,805
|
|
|
Other interest income
|
|
29
|
|
75
|
|
2,086
|
|
824
|
|
|
Total investment
income
|
|
122,249
|
|
135,236
|
|
363,965
|
|
439,212
|
|
|
Interest expense
|
|
30,051
|
|
57,340
|
|
100,402
|
|
219,625
|
|
|
Interest expense to
affiliates
|
|
5,791
|
|
5,171
|
|
17,072
|
|
16,355
|
|
|
Provision for loan
losses
|
|
8,087
|
|
—
|
|
8,087
|
|
39,795
|
|
|
Net investment income
|
|
78,320
|
|
72,725
|
|
238,404
|
|
163,437
|
|
|
Other income
(loss):
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain
(loss) on investments
|
|
19,441
|
|
21,181
|
|
83,803
|
|
(85,576)
|
|
|
Net realized and unrealized gain
(loss) on derivatives and foreign exchange
|
|
3,831
|
|
19,930
|
|
(3,437)
|
|
58,831
|
|
|
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
|
|
1,492
|
|
(17,681)
|
|
(7,764)
|
|
(44,545)
|
|
|
Net realized and unrealized
(loss) gain on securities sold, not yet purchased
|
|
—
|
|
(996)
|
|
(756)
|
|
2,920
|
|
|
Net (loss) gain on restructuring
and extinguishment of debt
|
|
—
|
|
(10,627)
|
|
39,999
|
|
30,836
|
|
|
Other income
|
|
1,863
|
|
1,239
|
|
9,085
|
|
4,150
|
|
|
Total other income
(loss):
|
|
26,627
|
|
13,046
|
|
120,930
|
|
(33,384)
|
|
|
Non-investment
expenses:
|
|
|
|
|
|
|
|
|
|
|
Related party management
compensation
|
|
17,551
|
|
14,616
|
|
52,518
|
|
36,132
|
|
|
General, administrative and
directors expenses
|
|
3,561
|
|
1,539
|
|
10,127
|
|
6,917
|
|
|
Professional services
|
|
1,041
|
|
441
|
|
3,335
|
|
5,916
|
|
|
Loan servicing
|
|
—
|
|
1,925
|
|
—
|
|
6,117
|
|
|
Total non-investment
expenses
|
|
22,153
|
|
18,521
|
|
65,980
|
|
55,082
|
|
|
Income before income tax
expense
|
|
82,794
|
|
67,250
|
|
293,354
|
|
74,971
|
|
|
Income tax expense
|
|
452
|
|
63
|
|
489
|
|
151
|
|
|
Net income
|
|
$
|
82,342
|
|
$
|
67,187
|
|
292,865
|
|
$
|
74,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.52
|
|
$
|
0.42
|
|
$
|
1.85
|
|
$
|
0.49
|
|
|
Diluted
|
|
$
|
0.52
|
|
$
|
0.42
|
|
$
|
1.85
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
157,057
|
|
156,997
|
|
157,018
|
|
152,664
|
|
|
Diluted
|
|
157,461
|
|
156,997
|
|
157,294
|
|
152,664
|
|
|
Distributions declared per
common shares
|
|
$
|
0.12
|
|
$
|
—
|
|
$
|
0.29
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule
II
KKR
Financial Holdings LLC
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in
thousands, except share information)
|
|
|
|
September
30,
2010
|
|
December
31,
2009
|
|
|
Assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
96,991
|
|
$
|
97,086
|
|
|
Restricted cash and cash
equivalents
|
|
365,220
|
|
342,706
|
|
|
Securities available-for-sale,
$727,485 and $740,949 pledged as collateral as of September 30,
2010 and December 31, 2009, respectively
|
|
849,022
|
|
755,686
|
|
|
Corporate loans, net of
allowance for loan losses of $209,030 and $237,308 as of September
30, 2010 and December 31, 2009, respectively
|
|
5,815,544
|
|
5,617,925
|
|
|
Corporate loans held for
sale
|
|
667,196
|
|
925,718
|
|
|
Residential mortgage-backed
securities, at estimated fair value, $4,235 and $47,572 pledged as
collateral as of September 30, 2010 and December 31, 2009,
respectively
|
|
106,252
|
|
47,572
|
|
|
Residential mortgage loans, at
estimated fair value
|
|
—
|
|
2,097,699
|
|
|
Equity investments, at estimated
fair value, $13,286 and $110,812 pledged as collateral as of
September 30, 2010 and December 31, 2009, respectively
|
|
84,307
|
|
120,269
|
|
|
Derivative assets
|
|
20,004
|
|
15,784
|
|
|
Interest and principal
receivable
|
|
83,195
|
|
98,313
|
|
|
Reverse repurchase
agreements
|
|
—
|
|
80,250
|
|
|
Other assets
|
|
72,325
|
|
100,997
|
|
|
Total
assets
|
|
$
|
8,160,056
|
|
$
|
10,300,005
|
|
|
Liabilities
|
|
|
|
|
|
|
Collateralized loan obligation
secured notes
|
|
$
|
5,630,141
|
|
$
|
5,667,716
|
|
|
Collateralized loan obligation
junior secured notes to affiliates
|
|
371,062
|
|
533,786
|
|
|
Senior secured credit
facility
|
|
—
|
|
175,000
|
|
|
Convertible senior
notes
|
|
343,863
|
|
275,800
|
|
|
Junior subordinated
notes
|
|
283,517
|
|
283,517
|
|
|
Residential mortgage-backed
securities issued, at estimated fair value
|
|
—
|
|
2,034,772
|
|
|
Accounts payable, accrued
expenses and other liabilities
|
|
27,312
|
|
7,240
|
|
|
Accrued interest
payable
|
|
17,538
|
|
25,297
|
|
|
Accrued interest payable to
affiliates
|
|
3,846
|
|
2,911
|
|
|
Related party payable
|
|
12,431
|
|
3,367
|
|
|
Securities sold, not yet
purchased
|
|
—
|
|
77,971
|
|
|
Derivative
liabilities
|
|
108,697
|
|
45,970
|
|
|
Total
liabilities
|
|
6,798,407
|
|
9,133,347
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
Preferred shares, no par value,
50,000,000 shares authorized and none issued and outstanding at
September 30, 2010 and December 31, 2009
|
|
—
|
|
—
|
|
|
Common shares, no par value,
500,000,000 shares authorized, and 158,412,565 and 158,359,757
shares issued and outstanding at September 30, 2010 and December
31, 2009, respectively
|
|
—
|
|
—
|
|
|
Paid-in-capital
|
|
2,578,945
|
|
2,563,634
|
|
|
Accumulated other comprehensive
income
|
|
85,474
|
|
152,728
|
|
|
Accumulated deficit
|
|
(1,302,770)
|
|
(1,549,704)
|
|
|
Total
shareholders' equity
|
|
1,361,649
|
|
1,166,658
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
8,160,056
|
|
$
|
10,300,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
Contact
|
|
Laurie
Poggi
|
|
415-315-3718
|
|
|
|
Media
Contact
|
|
Peter
McKillop/Kristi Huller
|
|
media@kkr.com
|
|
212-750-8300
|
|
|
|
|
SOURCE KKR Financial Holdings LLC