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November 19, 2009
Guernsey, Channel Islands, November 19, 2009 -KKR & Co. (Guernsey) L.P. (Euronext Amsterdam: KKR), formerly known as KKR Private Equity Investors, L.P. ("KPE") and referred to as KKR Guernsey, today reported their respective financial information for the quarter ended September 30, 2009 for KKR Guernsey and KKR & Co. L.P. (together with its affiliates, "KKR" 1).
As previously announced on October 1, 2009, KPE and KKR completed their transaction to combine their businesses (the "Business Combination"). In connection with the Business Combination, KPE changed its name to KKR & Co. (Guernsey) L.P. and changed the ticker symbol for its common units on Euronext Amsterdam to "KKR." Under the terms of the Business Combination, KKR acquired all of the assets and all of the liabilities of KKR Guernsey, and, in exchange, KKR Guernsey received interests representing 30% of the outstanding equity in the combined business with the balance of the equity remaining with KKR's owners and employees. KKR Guernsey currently has 204,902,226 common units outstanding or, as a result of the Business Combination, 683,007,420 common units on a fully diluted basis giving effect to common units that may be issued by KKR Guernsey in exchange for additional equity in the combined business.
"While we continue to face difficult economic conditions, we are also observing signs of improving trends, particularly as it relates to debt and equity capital markets. We are seeing interesting situations to invest capital all over the world, across various industries, and throughout the capital structure. We remain focused on capitalizing on these opportunities and creating value in the investments we have already made," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers.
Assets under management ("AUM") were $54.8 billion as of September 30, 2009, compared to $50.8 billion as of June 30, 2009, an increase of 7.9%.
Fee related earnings ("FRE") were $61.5 million for the quarter ended September 30, 2009, compared to $54.3 million for the quarter ended June 30, 2009, an increase of 13.3%.
Economic net income ("ENI") was $656.6 million for the quarter ended September 30, 2009, compared to ENI of $366.9 million for the quarter ended June 30, 2009, an increase of 78.9%.
Private equity dollars invested amounted to $1.1 billion for the quarter ended September 30, 2009.
As of September 30, 2009, KKR had uncalled private equity commitments of $14.2 billion.
Net asset value ("NAV") was $3.5 billion as of September 30, 2009, compared to $3.0 billion as of June 30, 2009.
NAV per unit was $16.98 as of September 30, 2009, compared to $14.66 as of June 30, 2009, an increase of 15.8% (based on 204,902,226 common units outstanding as of September 30, 2009 and prior to the Business Combination).
KKR'S SEGMENT REVIEW
FRE in KKR's private markets segment were $57.5 million during the quarter ended September 30, 2009, a decrease of $35.6 million, or 38.2%, from the quarter ended September 30, 2008. The decrease was primarily due to unusually high management fees reported during the quarter ended September 30, 2008 as a result of the reversal of accrued management fee refunds in the amount of approximately $40 million. In addition, FRE decreased during the quarter ended September 30, 2009 primarily due to an increase in compensation expense as a result of certain non-cash accruals of performance based compensation related to the performance of KKR's private equity funds. These negative effects were partially offset by a net increase in transaction and monitoring fees primarily reflecting an increase in transaction-fee generating private equity activity during the period and a termination fee earned on a monitoring agreement with a portfolio company.
ENI in KKR's private markets segment was $652.5 million during the quarter ended September 30, 2009, an increase of $1.1 billion compared to an economic net loss of $478.7 million during the quarter ended September 30, 2008. This increase was driven primarily by an increase in net unrealized gains resulting from increases in the fair value of KKR's private equity investment portfolio.
The ENI reported for periods prior to October 1, 2009 does not reflect certain adjustments that are applicable for periods after October 1, 2009 as a result of the Business Combination, which include items such as (i) the exclusion of 40% of the carry allocated to KKR principals; (ii) the exclusion of the capital invested by or on behalf of the general partners of KKR's private equity funds before the completion of the Business Combination and any returns thereon, and (iii) the exclusion of the economic interests associated with the KKR 1996 Fund. The impact of these adjustments would have decreased ENI by approximately $300 million for the quarter ended September 30, 2009. For a further discussion of the adjustments related to the Business Combination please refer to KKR Guernsey's consent solicitation statement dated July 24, 2009, which is available at the Investor Relations page at www.kkr.com.
Fee related earnings in KKR's public markets segment were $4.0 million during the quarter ended September 30, 2009, a decrease of $9.1 million, or 69.7%, from the quarter ended September 30, 2008. This decrease was primarily driven by increases in expenses as a result of non-cash stock-based compensation expenses associated with equity grants received from a public permanent capital vehicle managed by KKR, as well as a reduced base management fee rate in certain credit oriented funds and a decrease in the NAV of the public permanent capital vehicle. These decreases were partially offset by incentive fees earned during the quarter ended September 30, 2009.
Economic net income in KKR's public markets segment was $4.1 million during the quarter ended September 30, 2009, a decrease of $9.0 million, or 68.6%, from the quarter ended September 30, 2008. The decrease in fee related earnings described above was the main contributor to the period over period decrease in economic net income.
RESULTS OF OPERATIONS FOR KKR GUERNSEY
As of September 30, 2009, KKR Guernsey's NAV was $3.5 billion, an increase of $475.8 million during the quarter ended September 30, 2009 compared to a decrease of $695.9 million during the quarter ended September 30, 2008. The increase during the quarter ended September 30, 2009 was predominantly due to the net increase in the fair value of private equity investments of $453.8 million, which included the change in value of co-investments in portfolio companies of KKR's private equity funds, investments in KKR's private equity funds and negotiated equity investments. NAV per unit was $16.98 as of September 30, 2009, compared to $14.66 as of June 30, 2009, an increase of 15.8% (based on 204,902,226 common units outstanding as of September 30, 2009 and prior to the Business Combination).
CAPITAL AND LIQUIDITY
As of September 30, 2009, KKR had an available cash balance of $207.0 million and KKR Guernsey and KKR PEI Investments, L.P. (the "KPE Investment Partnership") had a combined cash balance of $759.6 million.
As of September 30, 2009, KKR had $203.2 million of outstanding debt obligations. The KPE Investment Partnership had $949.0 million outstanding on its senior secured credit facility. Subsequent to September 30, 2009 and through November 19, 2009, the KPE Investment Partnership repaid $150.0 million of outstanding borrowings under its credit facility.
As of September 30, 2009, KKR and the KPE Investment Partnership collectively had the following uncalled commitments to KKR's private equity funds, with amounts in thousands:
Subsequent to the Business Combination, the uncalled commitments for the combined business will include those of both KKR and the KPE Investment Partnership.
FINANCIAL REPORT AND OTHER INFORMATION
KKR Guernsey's interim financial report, which includes a discussion of KKR, the unaudited financial statements of KKR Guernsey and the unaudited consolidated financial statements of the KPE Investment Partnership, is available at the Investor Relations page on KKR's website (www.kkr.com). KKR Guernsey encourages investors to carefully read these documents accompanying this release. Investors are reminded that financial information as of and for periods ending September 30, 2009 and prior do not give effect to the Business Combination, which became effective on October 1, 2009.
INFORMATION FOR INVESTORS - TELECONFERENCE AND WEBCAST
KKR Guernsey and KKR will discuss their financial results on a teleconference to be hosted on Friday, November 20, 2009 at 7:00 PM CET (Amsterdam) / 6:00 PM GMT (Guernsey) / 1:00 PM EST (New York City). The conference call may be accessed by dialing (877) 795-3647 (U.S.) or +1 (719) 325-4933 (non-U.S.); a pass code is not required. Additionally, the conference call will be broadcast live over the Internet and may be accessed through the Investor Relations on KKR's website at http://www.kkr.com/investor_relations/events.cfm.
A replay of the live broadcast will be available on the KKR website or by dialing (888) 203-1112 (U.S.) and +1 (719) 457-0820 (non-U.S.) / pass code 2786430, beginning approximately two hours after the broadcast.
ANNUAL UNITHOLDER MEETING
KKR Guernsey amended its limited partnership agreement to forgo an annual unitholder meeting in 2009. KKR Guernsey will instead hold the next annual unitholder meeting on or before April 30, 2010 when the financial statements showing the combined businesses of KKR and KKR Guernsey are publicly available. At the annual unitholder meeting, KKR Guernsey will present a report on its investment activities, which, effective October 1, 2009, consists solely of its investment in KKR. Unitholders are not entitled to vote or take any action at such meeting.
ABOUT KKR GUERNSEY
KKR & Co. (Guernsey) L.P. (Euronext Amsterdam: KKR) is a Guernsey limited partnership referred to as KKR Guernsey, which as of October 1, 2009 represents a 30% economic interest in KKR's business. KKR Guernsey's common units and related restricted depositary units are subject to a number of ownership and transfer restrictions. Information concerning these ownership and transfer restrictions is included at the Investor Relations section of KKR's website at www.kkr.com. KKR Guernsey was formerly known as KKR Private Equity Investors, L.P.
KKR is a leading global alternative asset manager with $54.8 billion in assets under management, over 600 people and 13 offices around the world as of September 30, 2009. KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationships and capital markets platforms. KKR is publicly traded through KKR & Co. (Guernsey) L.P. (Euronext Amsterdam: KKR). For additional information, please visit KKR's website at www.kkr.com.
NO OFFERING STATEMENT
This release does not constitute an offer of securities for sale in the United States or elsewhere. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from KKR or KKR Guernsey and that will contain detailed information about them and management, as well as financial statements.
This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR's and KKR Guernsey's beliefs, assumptions and expectations of their future performance, taking into account all information currently available to them. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or KKR Guernsey or are within their control. If a change occurs, KKR's and KKR Guernsey's business, financial condition, liquidity and results of operations, including net asset value, assets under management, economic net income and fee-related earnings, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the possibility that the listing of the interests in the combined business on the New York Stock Exchange or The NASDAQ Stock Market may or may not occur; the risk that the anticipated benefits of the combined business may not be achieved; the general volatility of the capital markets; changes in KKR's or KKR Guernsey's business strategy; availability, terms and deployment of capital; availability of qualified personnel and expense of recruiting and retaining such personnel; changes in the asset management industry, interest rates or the general economy; underperformance of KKR's investments and decreased ability to raise funds; and the degree and nature of KKR's competition. Neither KKR nor KKR Guernsey undertakes any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR's and KKR Guernsey's business strategy is focused on the long-term and financial results are subject to significant volatility. Additional information about factors affecting KKR and KKR Guernsey are available in KKR Guernsey's consent solicitation statement dated July 24, 2009, which is available at the Investor Relations section at www.kkr.com.
Kohlberg Kravis Roberts & Co. L.P.
Tel: +1 (877) 610-4910 (U.S) / +1 (212) 230-9410
Peter McKillop or Kristi Huller
Kohlberg Kravis Roberts & Co. L.P.
Tel:+ 1 (212) 750-8300
Notes to the KKR's Unaudited Reportable Segments Selected Financial Data
The reportable segments selected financial data reflects historical financial information for dates or periods completed prior to the consummation of the Business Combination and does not include any pro forma adjustments relating to the Business Combination. The historical financial information presented does not include adjustments necessary for a presentation of the combined financial results of KKR in accordance with U.S. GAAP. The financial information for KKR prior to October 1, 2009 is based on a group, for accounting purposes, of certain consolidated and combined entities under the common control of KKR's senior principals, and under the common ownership of KKR's principals and certain other individuals who have been involved in KKR's business.
Key performance measures used by KKR in evaluating its reportable business segments are summarized below. These measures are used by management for KKR's segments in making resource deployment and other operational decisions.
Fee related earnings ("FRE") is comprised of segment operating revenues, less segment operating expenses. The components of FRE on a segment basis differ from the equivalent U.S. GAAP amounts on a combined basis as a result of: (i) the inclusion of management fees earned from consolidated funds that were eliminated in consolidation; (ii) the exclusion of expenses of consolidated funds and charges relating to the amortization of intangible assets; and (iii) the exclusion of certain non-recurring charges.
Economic net income ("ENI") is a measure of profitability for KKR's reportable segments and is comprised of FRE plus segment investment income, less economic interests in KKR's segments held by third parties. ENI is calculated before the impact of income taxes. ENI differs from net income attributable to KKR on a U.S. GAAP combined basis as a result of (i) the exclusion of charges relating to the amortization of intangible assets; (ii) the exclusion of income taxes; and (iii) the exclusion of certain non-recurring charges.
Assets under management ("AUM") represents the assets to which KKR is entitled to receive fee income, carried interest or capital appreciation. KKR calculates the amount of AUM as of any date as the sum of: (i) the fair value of the investments of its traditional private equity funds plus uncalled capital commitments from these funds; (ii) the fair value of investments in KKR's co-investment vehicles; (iii) the net asset value of KKR's principal investments and certain of its fixed income products; and (iv) the value of outstanding structured finance vehicles. Note that KKR's calculation of AUM may differ from the calculations of other asset managers and, as a result, KKR's measurements of its AUM may not be comparable to similar measures presented by other asset managers. KKR's definition of AUM is not based on any definition of AUM that is set forth in the agreements governing the investment funds that KKR manages.
Fee paying AUM ("FPAUM") represents only those assets to which KKR receives fee income. FPAUM is the sum of all of the individual fee bases that are used to calculate KKR's fees and differs from AUM in the following respects: (i) assets to which KKR does not receive a fee are excluded (i.e., those on which KKR receives only carried interest or capital appreciation) and (ii) certain of KKR's fees, primarily in their private equity funds, are based on capital commitments and invested capital which excludes the impact of mark-to-market adjustments. Accordingly, certain management fees are not dependent on the fair value of certain KKR investments.
Private equity dollars invested is the aggregate amount of capital invested by KKR's private equity funds and carry-yielding co-investment vehicles in private equity transactions during a given period. Such amounts include: (i) capital invested by fund investors and co-investors with respect to which KKR is entitled to a carried interest and (ii) capital invested by KKR as the general partner of a private equity fund with respect to which it is entitled to capital appreciation on the invested capital.
Uncalled private equity commitments represent unfunded capital commitments by partners of KKR's traditional private equity funds and carry-yielding co-investment vehicles to contribute capital to make investments in portfolio companies. Such amounts do not include capital of KKR's principal investments or KKR's fixed income funds that may be used to make private equity investments that are outside of KKR's traditional private equity funds.
The following should be considered when reviewing KKR's reportable segments selected financial data:
Management Fees. KKR's traditional private equity funds require that KKR refund up to 20% of any cash management fees earned from limited partners in the event that the funds recognize a carried interest. At such time as the fund recognizes a carried interest in an amount sufficient to cover 20% of the management fees earned or a portion thereof, a liability to the funds' limited partners is recorded and fee income is reduced for the amount of the carried interest recognized, not to exceed 20% of management fees earned ("Management Fee Refunds"). As of September 30, 2009, the amount subject to Management Fee Refunds for which no liability has been recorded totaled $156.5 million.
Fee Credits. KKR's agreements with the limited partners of its traditional private equity funds require KKR to share a portion of any transaction and monitoring fees received from portfolio companies with such limited partners ("Fee Credits"). Fee Credits exclude fees that are not attributable to a fund's investment in a portfolio company and generally amount to 80% of gross transaction and monitoring fees after fund related expenses are recovered.
Other Operating Expenses. During the quarter and nine months ended September 30, 2009, other operating expenses of KKR's private markets excluded $34.8 million incurred in connection with the Business Combination. KKR has excluded this charge from its segment financial information as such amount will be not be considered when assessing the performance of, or allocating resources to, each of its business segments and is non-recurring in nature. On a KKR combined basis, this charge is included in general, administrative and other expenses.