KKR Financial Holdings LLC
KKR Financial Holdings LLC Announces Second Quarter 2010 Financial Results and Quarterly Distribution of $0.12 per Common Share
SAN FRANCISCO, Aug 04, 2010 /PRNewswire via COMTEX News Network/ -- KKR Financial Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today announced its results for the second quarter ended June 30, 2010.
Second Quarter 2010 Highlights
- Net income for the three months ended June 30, 2010 of $81.0 million, or $0.51 per diluted common share.
- Declared a cash distribution of $0.12 per common share for the second quarter of 2010.
- During May 2010, the Company replaced its $150.0 million secured credit facility, due to mature in November 2011, with a $250.0 million four year secured revolving credit facility, due to mature in May 2014.
For the three and six months ended June 30, 2010, KFN reported net income of $81.0 million, or $0.51 per diluted common share, and $210.5 million, or $1.33 per diluted common share, respectively. For the three and six months ended June 30, 2009, net income totaled $20.6 million, or $0.14 per diluted common share, and $7.6 million, or $0.05 per diluted common share, respectively.
KFN's second quarter 2010 results reflect net investment income of $76.8 million and other income of $23.2 million, partially offset by other non-investment expenses of $18.9 million. Other income totaling $23.2 million consists of the following: (i) net realized and unrealized gains on investments of $28.9 million primarily due to realized gains from the sale of certain corporate debt securities; (ii) net realized and unrealized losses from derivative positions and foreign exchange totaling $5.9 million; (iii) net realized and unrealized losses on investments in residential mortgage-backed securities totaling $4.1 million; and (iv) other income primarily from holdings related fees totaling $4.2 million.
Portfolio Review and CLO Subsidiaries
The Company's portfolio primarily consists of corporate debt securities and below investment grade corporate loans, often referred to as syndicated bank loans or leveraged loans. These investments have an aggregate par balance of $8.1 billion and an aggregate estimated fair value of $7.2 billion as of June 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 June 30, 2010, the Company's CLOs held corporate debt securities and loans with an aggregate par of $7.4 billion and an estimated fair value of $6.7 billion. In comparison, the Company's CLOs held corporate debt securities and loans with an aggregate par of $7.3 billion (estimated fair value of $6.7 billion) and an aggregate par of $7.4 billion (estimated fair value of $6.6 billion) as of March 31, 2010 and December 31, 2009, respectively.
As of June 30, 2010, the Company's corporate debt securities and loans not held in CLOs had an aggregate par of $681.5 million and an estimated fair value of $532.9 million. In comparison, the aggregate par value of the Company's corporate debt securities and loans not held in CLOs totaled $719.5 million (estimated fair value of $582.6 million) and $759.6 million (estimated fair value of $588.5 million) as of March 31, 2010 and December 31, 2009, respectively.
Distributions
On August 4, 2010, the Company's board of directors declared a cash distribution for the quarter ended June 30, 2010 on the Company's common shares of $0.12 per share. The distribution is payable on September 1, 2010 to common shareholders of record as of the close of business on August 18, 2010.
Book Value
The Company's book value per common share decreased to $8.08 as of June 30, 2010 from $8.31 as of March 31, 2010. The decline in book value per share is primarily attributable to a decline in accumulated other comprehensive income, a component of shareholders' equity, due to a reduction in the estimated fair values of corporate debt securities and certain interest rate swaps designated by the Company as cash-flow hedges.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its results for the second quarter ended June 30, 2010 on August 4, 2010, at 5:00 p.m. EDT. The conference call may be accessed by dialing (800) 401-3551 (Domestic) or (913) 312-0713 (International); a pass code is not required. A telephonic replay of the call will be available through August 18, 2010 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 7047639. 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.
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 June 30, 2010, filed with the SEC on August 4, 2010.
Schedule I
KKR Financial Holdings LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share information)
For the For the
three three
months months
ended ended
June
June 30, 30,
2010 2009
--------- -----
Net investment
income:
Loan interest income $94,002 $121,919
Securities interest
income 26,400 23,252
Other interest income 1,964 132
----- ---
Total investment
income 122,366 145,303
Interest expense (38,851) (72,403)
Interest expense to
affiliates (6,740) (5,379)
Provision for loan
losses - (12,808)
--- -------
Net investment income 76,775 54,713
------ ------
Other income (loss):
Net realized and
unrealized gain
(loss) on
investments 28,939 (46,553)
Net realized and
unrealized (loss)
gain on derivatives
and foreign exchange (5,850) 26,505
Net realized and
unrealized loss on
residential
mortgage-backed
securities,
residential mortgage
loans, and
residential
mortgage-backed
securities issued,
carried at estimated
fair value (4,111) (7,445)
Net realized and
unrealized gain
(loss) on securities
sold, not yet
purchased - 2,479
Net gain on
restructuring and
extinguishment of
debt - 6,892
Other income 4,218 1,578
----- -----
Total other income
(loss): 23,196 (16,544)
------ -------
Non-investment
expenses:
Related party
management
compensation 14,476 10,304
General,
administrative and
directors expenses 3,216 2,975
Professional services 1,230 2,090
Loan servicing - 2,056
--- -----
Total non-investment
expenses 18,922 17,425
------ ------
Income before income
tax expense 81,049 20,744
Income tax expense (21) (135)
--- ----
Net income $81,028 $20,609
======= =======
Net income per common
share:
Basic $0.51 $0.14
===== =====
Diluted $0.51 $0.14
===== =====
Weighted-average
number of common
shares outstanding:
Basic 156,997 151,202
======= =======
Diluted 157,423 151,202
======= =======
Distributions
declared per common
share $0.10 $ -
===== === ===
For the For the
six six
months months
ended ended
June
30, June 30,
2010 2009
----- ---------
Net investment income:
Loan interest income $185,998 $251,123
Securities interest
income 53,661 52,104
Other interest income 2,057 749
----- ---
Total investment
income 241,716 303,976
Interest expense (70,351) (162,285)
Interest expense to
affiliates (11,281) (11,184)
Provision for loan
losses - (39,795)
--- -------
Net investment income 160,084 90,712
------- ------
Other income (loss):
Net realized and
unrealized gain
(loss) on investments 64,362 (106,757)
Net realized and
unrealized (loss)
gain on derivatives
and foreign exchange (7,268) 38,901
Net realized and
unrealized loss on
residential mortgage-
backed securities,
residential mortgage
loans, and
residential mortgage-
backed securities
issued, carried at
estimated fair value (9,256) (26,864)
Net realized and
unrealized gain
(loss) on securities
sold, not yet
purchased (756) 3,916
Net gain on
restructuring and
extinguishment of
debt 39,999 41,463
Other income 7,222 2,911
----- -----
Total other income
(loss): 94,303 (46,430)
------ -------
Non-investment
expenses:
Related party
management
compensation 34,967 21,516
General,
administrative and
directors expenses 6,566 5,378
Professional services 2,294 5,475
Loan servicing - 4,192
--- -----
Total non-investment
expenses 43,827 36,561
------ ------
Income before income
tax expense 210,560 7,721
Income tax expense (37) (88)
--- ---
Net income 210,523 $7,633
======= ======
Net income per common
share:
Basic $1.33 $0.05
===== =====
Diluted $1.33 $0.05
===== =====
Weighted-average
number of common
shares outstanding:
Basic 156,997 150,462
======= =======
Diluted 157,210 150,462
======= =======
Distributions declared
per common share $0.17 $ -
===== === ===
Schedule II
KKR Financial Holdings LLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
June December
30, 31,
2010 2009
---- ----
Assets
Cash and cash equivalents $141,844 $97,086
Restricted cash and cash
equivalents 236,987 342,706
Securities available-for-
sale, $799,993 and $740,949
pledged as collateral as of
June 30, 2010 and December
31, 2009, respectively 840,507 755,686
Corporate loans, net of
allowance for loan losses of
$210,218 and $237,308 as of
June 30, 2010 and December
31, 2009, respectively 5,621,416 5,617,925
Corporate loans held for sale 895,205 925,718
Residential mortgage-backed
securities, at estimated
fair value, $4,210 and
$47,572 pledged as
collateral as of June 30,
2010 and December 31, 2009,
respectively 107,081 47,572
Residential mortgage loans,
at estimated fair value - 2,097,699
Equity investments, at
estimated fair value,
$16,359 and $110,812 pledged
as collateral as of June 30,
2010 and December 31, 2009,
respectively 86,131 120,269
Derivative assets 5,014 15,784
Interest and principal
receivable 72,774 98,313
Reverse repurchase agreements - 80,250
Other assets 79,255 100,997
------ -------
Total assets $8,086,214 $10,300,005
========== ===========
Liabilities
Collateralized loan
obligation secured notes $5,629,988 $5,667,716
Collateralized loan
obligation junior secured
notes to affiliates 375,502 533,786
Senior secured credit
facility 50,176 175,000
Convertible senior notes 343,590 275,800
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 12,445 7,240
Accrued interest payable 23,728 25,297
Accrued interest payable to
affiliates 4,616 2,911
Related party payable 11,698 3,367
Securities sold, not yet
purchased - 77,971
Derivative liabilities 70,827 45,970
------ ------
Total liabilities 6,806,087 9,133,347
--------- ---------
Shareholders' Equity
Preferred shares, no par
value, 50,000,000 shares
authorized and none issued
and - -
outstanding at June 30, 2010
and December 31, 2009
Common shares, no par value,
500,000,000 shares
authorized, and 158,359,757
and - -
158,359,757 shares issued and
outstanding at June 30, 2010
and December 31,
2009, respectively
Paid-in-capital 2,576,813 2,563,634
Accumulated other
comprehensive income 69,416 152,728
Accumulated deficit (1,366,102) (1,549,704)
---------- ----------
Total shareholders' equity 1,280,127 1,166,658
--------- ---------
Total liabilities and
shareholders' equity $8,086,214 $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
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