Affiliated Transactions Committee Charter

There shall be constituted a standing committee of the board of directors (the "Board") of KKR Financial Holdings LLC (the "Company") to be known as the affiliated transactions committee (the "Affiliated Transactions Committee").

The Affiliated Transactions Committee shall be comprised of three or more directors, each of whom shall satisfy the independence requirements of the New York Stock Exchange for members of a board of directors.

The members of the Affiliated Transactions Committee shall be appointed by the Board, based upon the recommendation of the Nominating and Corporate Governance Committee, at the Board's annual meeting and may be removed by the Board.  The members of the Affiliated Transactions Committee shall serve for one year or until their successors are duly elected and qualified.  The full Board shall elect a Chairman and, if a Chairman is not elected by the full Board, the members of the Affiliated Transactions Committee shall designate a Chairman by majority vote of the full Affiliated Transactions Committee.

The Affiliated Transactions Committee shall review and assess this Charter annually and recommend any proposed changes to the Board for approval, and annually review the Affiliated Transactions Committee's Performance. Changes to this Charter require approval by the majority of the Affiliated Transaction Committee.

The primary function of the Affiliated Transactions Committee shall be to represent and assist the independent directors on the Board in their oversight and review of transactions ("Affiliated Transactions") by and between the Company and (1) Kohlberg Kravis Roberts & Co. L.P. ("KKR") and entities that are controlled by or under the common control of KKR ("Affiliates") including, without limitation, Kohlberg Kravis Roberts & Co. (Fixed Income) LLC (the "Manager"), or with respect to which KKR or its Affiliates have a direct or indirect material equity ownership interest or (2) any executive officer, director or director nominee of, or any 5% or more beneficial owner of any equity interest of, the Company, KKR or any of its Affiliates, including the Manager, or member of the immediate family of any of the foregoing related persons or any entity in which any of the foregoing persons has, or will have, a direct or indirect material interest (a "Related Party"). For the purposes of this Charter, an aggregate equity ownership by KKR and all Affiliates (including funds or accounts managed and/or controlled by KKR and all Affiliates) of more than 9.9% of the outstanding equity of the relevant entity shall be deemed to constitute a material equity ownership interest.

For the avoidance of doubt, a transaction shall not be considered to be an Affiliated Transaction merely because of the fact that the Manager or an Affiliate receives a transaction fee (including, but not limited to, arrangement, commitment, syndication or underwriting fees) in connection with such transaction ("Fee Transactions"); however, the Manager shall report the details of such transactions to the Affiliated Transactions Committee on a periodic basis, as provided in Article V(2) below. Notwithstanding the preceding sentence, if approval of a transaction is required pursuant to Section 206(3) of the Investment Advisers Act of 1940 or any similar rule or law, then advance approval of the Affiliated Transactions Committee shall be obtained.

1. Function: The Affiliated Transactions Committee shall monitor the Manager's compliance, as it relates to Affiliated Transactions, with the investment policies adopted by the Board (as such policies may be amended from time to time with the prior approval of the Affiliated Transactions Committee or the Board , the "Investment Policies") and with this Charter.  As part of this monitoring function, the Committee shall review with the Manager its policies and procedures for documenting all Affiliated Transactions and the form of approval of each such transaction, i.e.:  (a) approval by a majority of the members of the Affiliated Transactions Committee, (b) approval by a majority of the Independent Directors of the Board, in the event of a referral of such approval decision by the Affiliated Transactions Committee to the full Board or (c) deemed pre-approval by the Independent Directors of the Board under the Investment Policies and this Charter.

   Management shall be responsible for determining when a proposed transaction must be brought before the Affiliated Transactions Committee for review and approval under the terms of the Investment Policies and this Charter.  No potential transaction with an Affiliate of KKR or a Related Party shall be brought before the Affiliated Transactions Committee without the Investment Committee of the Manager (the "Investment Committee") and/or the Manager having first approved such transaction as applicable.





2. Pre-Approval

   (a) Subject to the requirements of Article IV(3) below, any individual investment purchased by the Company in a Portfolio Company (as defined below) either directly or through a Joint Financing Transaction Vehicle shall be deemed "pre-approved" under the Investment Policies and this Charter, if the purchase would not result in the Company, KKR, and all Affiliates (including any funds or accounts managed and/or controlled by any such entity, but other than the private equity investment creating the affiliation) collectively owning more than 19.9% (the "Threshold") of the outstanding par amount of a single tranche or class of a loan or a security (each, a "Security") of a company which is affiliated with funds advised by the private equity business of KKR (a "Portfolio Company").  For purposes of computing the Threshold, only the Company's, KKR or its Affiliates (other than the private equity investment creating the affiliation), as the case may be, actual economic interest in the Security shall be taken into account.  For the avoidance of doubt, the Affiliated Transactions Committee must approve the purchase of any Security by the Company (either directly or through a Joint Financing Transaction Vehicle) of a Portfolio Company (in either the primary market or secondary market) in excess of the Threshold. For the purposes of this Charter, "Joint Financing Transaction Vehicle" shall mean a collateralized loan obligation "CLO" vehicle, a CLO warehouse facility or similar arrangement whereby the Company and other Affiliate(s) of the Manager jointly own a beneficial interest in such vehicles.

   Investments existing prior to the date of this Charter in excess of the Threshold shall not require any further approval by the Affiliated Transactions Committee, but any additions to such Investments shall require approval.

   (b) The Affiliated Transactions Committee may pre-approve any series or class of transactions to be entered into by the Company by resolution of the majority of the members of the Affiliated Transactions Committee. If requested by the Affiliated Transactions Committee, the Manager shall report the details of such pre-approved series or class of transactions to the Affiliated Transaction Committee on a periodic basis, in the form agreed upon by the Affiliated Transaction Committee and the Manager.

3. Specific Affiliated Transactions Requiring Approval:

   (a) Distressed Securities: Unless granted a waiver from the Affiliated Transaction Committee, the Company will not make an investment in a Distressed Security (as defined below) of a Portfolio Company, if such Security is considered a Distressed Security at the time of such purchase. 

   "Distressed Security" means a Security that has a (i) has a price below 80 and such price is at least 10 points below the average price for a Security on the index¹ which is most applicable to such Security, (ii) is rated Caa3 or lower by Moody's Investors Service ("Moody's") or CCC- or lower by Standard & Poor's Ratings Service ("S&P") or (iii) is rated Caa2 by Moody's or CCC by S&P and such Security is also on negative watch. For example, a loan that is (A) rated CCC by S&P that is not on negative watch and (B) valued at 60 pursuant to the Manager's Valuation Policies and Procedures (as it may be amended from time to time) will not be deemed a Distressed Security unless the average price of a loan in the applicable index is greater than 70.

   (b) Joint Financing Transaction Vehicles: The Affiliated Transactions Committee must approve any investment in the obligations of a Joint Financing Transaction Vehicle in which any Affiliate of the Manager is investing contemporaneously with the Company or is an existing investor in the applicable vehicle (other than any such investments existing prior to the date of this Charter, which investments shall not require any further approval by the Affiliated Transactions Committee, but any additions to such investments shall require approval).

   (c) Amendments: Notwithstanding anything set forth in this Charter to the contrary, the Affiliated Transaction Committee shall review and approve any Amendment (as defined below) sought from the Company with respect to a Portfolio Company's debt Securities; provided, however, that the following Amendments shall be deemed pre-approved:

   1. Any Amendment which the Manager reasonably believes would be in the best interests of the Company and in which unusual or exigent circumstances then exist which in the reasonable opinion of the Manager make it impracticable to obtain the prior approval of the Affiliated Transactions Committee; provided that the Manager shall timely inform the Affiliated Transactions Committee of any such Amendment entered into in reliance on this exception.

   2. Any Amendment which the Manager reasonably believes would be in the best interest of the Company and which the granting or failure to grant would not be material to the Company's investment in the applicable Security.

   3. Any Amendment which the Manager reasonably believes would be in the best interest of the Company and the Manager reasonably believes that the granting or failure to grant by the Company would not affect whether or not the Amendment is approved by the requisite number of holders of the applicable Security.

   "Amendment" means, with respect to a Debt Security, any amendment, modification, or waiver to the agreement(s) governing such Debt Security for which the approval of the holders of such Debt Security is required and that adversely affects, alters or changes the economics, powers, preferences or special rights of such Debt Security.

   (d) Cross Transactions: Notwithstanding anything set forth in this Charter to the contrary, the Affiliated Transaction Committee shall review and approve any transaction between the Company and any other fund or account managed by the Manager or KKR ("Cross Transactions"). For purposes of this Charter, Cross Transactions shall not include transactions between (i) structured finance vehicles ("Financing Vehicles") managed by the Manager where the Company and the counterparty Client have an equal amount of economic ownership of each Financing Vehicle and (ii) Financing Vehicles and the Company when such trade is undertaken in pro rata proportion to the economic ownership of such Financing Vehicle by the Client (collectively, the "Excluded Transactions").  For purposes of this Charter, an Excluded Transaction will be considered a Cross Transaction if a Financing Vehicle involved in such Cross Transaction is Distressed.  A Financing Vehicle will be considered Distressed if the overcollateralization ratio in the most junior overcollateralization test contained in the indenture governing such Financing Vehicle is less than or equal to 100%.

   (e) Other Affiliated Transactions Requiring Approval: Notwithstanding the pre-approved transactions set forth in Article IV(2) above the Manager shall ask the Affiliated Transactions Committee to review and provide its prior approval for the following transactions:

   1. any investment if any of the following are present:

      1. the investment is a type of investment that the Investment Committee has a current policy of disfavoring as a general matter;

      2. in the judgment of the Manager the structure or pricing is worse than relevant market comparables;

      3. the investment is not being offered generally to other investors on the same or less favorable terms;

      4. in the judgment of the Manager, the transaction would not be fully subscribed in the absence of the proposed investment by the Company; or

      5. if in connection with the investment the Manager or an affiliate of the Manager would receive any direct or indirect economic benefit, other than in the capacity of investment manager or general partner of a fund or account, in connection with transaction fees (including but not limited to arrangement, syndication or underwriting fees), or any similar compensation.

   2. any investment where, after giving effect to the investment, the aggregate amount of investments of the Company consisting of investments in entities affiliated with KKR or that would otherwise constitute Affiliated Transactions would exceed a percentage established from time to time by a majority of the Independent Directors or by the Affiliated Transactions Committee (such percentage to initially equal  50% of all of the Company's investments excluding residential mortgage loans and mortgage-backed securities). The percentage referred to in the preceding sentence shall be applied to the Company's consolidated investment portfolio, excluding excluding residential mortgage loans and mortgage-backed securities, and is measured based on market value as of trade date. Long and short positions are presented on a net basis if designated as a hedge, otherwise short positions will be presented gross and all credit derivatives are tested based on the market value of the reference obligation.

   (f) Affiliated Transactions Not Described Elsewhere: When requested by the Manager, the Affiliated Transactions Committee will consider and review any transaction by the Company in financial instruments issued by Affiliates of KKR or other Affiliated Transactions that do not otherwise fall within any of the other limitations described herein.

The Affiliated Transactions Committee shall receive and review reports by the Investment Committee and/or the Manager regarding potential Affiliated Transactions and any amendments, modifications or waivers with respect to a Debt Security (including any Amendments).  The Affiliated Transactions Committee may rely on such reports in reviewing and approving investments brought before it by Management. In this regard, the Affiliated Transactions Committee shall:

1. Receive and review periodic reports by the Manager regarding the composition and financial performance of the investment portfolio of the Company that is represented by Affiliated Transactions.

2. Receive and review periodic reports by the Manager regarding the composition and financial performance of the investment portfolio of the Company that is represented by Fee Transactions.

3. Receive and review quarterly reports by the Manager setting forth all Portfolio Companies' Securities purchased during the preceding quarter.

4. Review and assess the Investment Policies, as they relate to Affiliated Transactions and this Charter with the Manager on a periodic basis.

5. Receive and review any amendments or modifications to the following policies of the Manager: a) Investment Approval and Risk Management Policies, b) Investment Monitoring Process Policy, c) Trade Allocation Policies and Procedures, d) Valuation Policies and Procedures, e) Conflicts Mitigation Policy, f) Cross Transaction Policy and g) Confidential Information Barrier Policies and Procedures.

6. Receive reports from the Manager and such other persons as the Affiliated Transactions Committee may deem appropriate regarding compliance with internal policies and other legal and regulatory requirements as may be related to any Affiliated Transactions.

In general, the Affiliated Transactions Committee shall meet when requested by the Manager to consider and approve Affiliated Transactions which the Manager has determined require such approval as specified in the Investment Policies and this Charter. In making such a request, the Manager will provide reasonable notice to all members of the Affiliated Transactions Committee. The Chairman or a majority of the members of the Affiliated Transactions Committee may also call meetings of the Affiliated Transactions Committee upon reasonable notice to all members of the Affiliated Transactions Committee. The Affiliated Transactions Committee shall report to the Board on a regular periodic basis with respect to its activities.

In the course of fulfilling its duties, the Affiliated Transactions Committee shall have, to the extent it deems necessary, the authority to retain outside legal, accounting or other advisors, who shall be appropriately compensated, as determined by the Affiliated Transactions Committee, with funding provided by the Company.