KKR Financial Holdings LLC Announces Second Quarter 2012 Financial Results and a Quarterly Distribution of $0.21 per Common

KKR Financial Holdings LLC Announces Second Quarter 2012 Financial Results and               a Quarterly Distribution of $0.21 per Common Share  PR Newswire  SAN FRANCISCO, July 26, 2012  SAN FRANCISCO, July 26, 2012 /PRNewswire/ --KKR Financial Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today announced its results for the second quarter ended June 30, 2012.  Second Quarter 2012 Highlights    oNet income for the second quarter ended June 30, 2012 totaled $71.2     million, or $0.39 per diluted common share.   oDeclared a quarterly cash distribution of $0.21 per common share for the     second quarter of 2012.   oBook value per common share of $9.79 as of June 30, 2012 as compared to     book value per common share of $9.81 as of March 31, 2012.  For the three and six months ended June 30, 2012, KFN reported net income of $71.2 million, or $0.39 per diluted common share, and $159.3 million, or $0.87 per diluted common share, respectively. Comparatively, for the three and six months ended June 30, 2011, KFN reported net income of $107.5 million, or $0.59 per diluted common share, and $201.3 million, or $1.10 per diluted common share, respectively.  KFN's second quarter 2012 results included net investment income of $85.6 million, other income of $19.5 million and non-investment expenses of $33.6 million. Comparatively, KFN's second quarter 2011 results reflected net investment income of $88.7 million, other income of $62.6 million and non-investment expenses of $36.4 million. Net investment income decreased $3.1million from the second quarter ended June 30, 2011 to 2012 primarily due to a $9.7 million increase in interest expense, partially offset by a $4.9 million increase in interest income generated from our corporate loan portfolio. Other income decreased $43.1 million from the second quarter ended June 30, 2011 to 2012 largely due to a $40.2 million decrease in net realized and unrealized gains on investments primarily as the result of a partial sale of one of our largest debt security holdings in the second quarter of 2011.  Portfolio Activity  Natural Resources Strategy  During the second quarter of 2012, the Company completed the following transactions: (i) closed the acquisition of working interests in oil and gas properties located in North Texas for approximately $69.6 million, of which $30.2 million was financed through the Company's non-recourse natural resources credit facility; (ii) funded $29.8 million of the previously announced $90 million commitment to a partnership with Chesapeake Energy Corporation to invest in mineral interests and overriding royalty interests in key oil and gas basins in the United States and (iii) completed the acquisition of additional oil and gas working interests in acreage located in North Texas for approximately $14.8 million.  Commercial Real Estate Strategy  During the second quarter of 2012, the Company invested $36.8 million in Yorktown Center, a major shopping and entertainment center in the Chicago area, through its commercial real estate strategy.  Book Value  Book value per share decreased to $9.79 as of June 30, 2012 from $9.81 as of March 31, 2012. The decrease in book value per share from March 31, 2012 was primarily driven by (i) an increase in the Company's accumulated other comprehensive loss, a component of shareholders' equity, of $0.24 per share partially as a result of declines in value of certain interest rate swaps designated as cash flow hedges and (ii) the Company's distribution to shareholders for the first quarter 2012 of $0.18 per common share, partially offset by (iii) the Company's earnings for the second quarter of $0.40 per basic common share.  Distributions  On July 26, 2012, the Company's board of directors declared a cash distribution of $0.21 per common share. The distribution is payable on August 23, 2012 to common shareholders of record as of the close of business on August 9, 2012.  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, 2012 on July 26, 2012, at 2:00p.m. PT (5:00p.m. ET). The conference call may be accessed by dialing (888) 801-6507 (domestic) or +1(913) 312-0963 (international); a pass code is not required. A telephonic replay of the call will be available through August 9, 2012 by dialing (888) 203-1112 (domestic) and +1 (719) 457-0820 (international), pass code 4076832. Supplemental materials that will be discussed during the call and the live audio webcast will be available in the Investor Relations section of the Company's website at http://ir.kkr.com/kfn_ir/kfn_events.cfm. An audio replay of the webcast will be archived in the Investor Relations section of the Company's website at http://ir.kkr.com/kfn_ir/kfn_events.cfm.  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 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 Section27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended, including statements with regards to commitments to deploy capital. 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 Form10-K for the fiscal year ended December31, 2011, filed with the SEC on February28, 2012 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed with the SEC on May 9, 2012.  Schedule I KKR Financial Holdings LLC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share information)                               Forthe     Forthe     Forthe     Forthe                                three        three        six          six                                months      months      months      months                                ended        ended        ended        ended                                June30,    June30,    June30,    June30,                                2012         2011         2012         2011 Net investment income: Loan interest income          $ 107,602    $ 102,656    $ 211,696    $ 212,301 Securities interest income    20,813       22,073       43,389       44,629 Other investment income       12,135       11,114       23,399       14,243 Total investment income       140,550      135,843      278,484      271,173 Interest expense              42,655       32,978       83,370       65,099 Interest expense to           12,318       14,142       25,177       26,238 affiliates Provision for loan losses     —            —            46,498       11,661 Net investment income         85,577       88,723       123,439      168,175 Other income: Net realized and unrealized   18,382       58,541       81,970       97,725 gain on investments Net realized and unrealized (loss) gain on                (3,630)      1,241        5,519        7,308 derivativesand foreign exchange Net realized and unrealized gain (loss) on residentialmortgage-backed   3,016        609          6,063        (129) securities, atestimated fair value Net loss on restructuring     —            —            (445)        — and extinguishment ofdebt Other income                  1,701        2,187        5,293        4,110 Total other income            19,469       62,578       98,400       109,014 Non-investment expenses: Related party management      12,804       24,315       30,917       45,516 compensation General, administrative and   19,526       10,367       32,330       18,538 directors expenses Professional services         1,308        1,691        3,204        3,123 Total non-investment          33,638       36,373       66,451       67,177 expenses Income before income tax      71,408       114,928      155,388      210,012 expense (benefit) Income tax expense (benefit)  203          7,424        (3,865)      8,741 Net income                    $ 71,205    $ 107,504    $ 159,253    $ 201,271 Net income per common share: Basic                         $   0.40  $   0.60  $   0.89  $                                                                        1.13 Diluted                       $   0.39  $   0.59  $   0.87  $                                                                        1.10 Weighted-average number of common shares outstanding: Basic                         177,809      177,674      177,792      177,376 Diluted                       181,642      182,393      181,944      181,844  Schedule II KKR Financial Holdings LLC CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share information)                                                      June30,     December31,                                                       2012         2011 Assets Cash and cash equivalents                            $  473,789  $  392,154 Restricted cash and cash equivalents                 414,814      399,620 Securities                                           813,777      922,603 Corporate loans, net (includes $183,934 and $317,332 loans held for sale as of June30, 2012     5,945,230    6,443,399 and December31, 2011, respectively) Equity investments, at estimated fair value ($16,418 and $12,222 pledged as collateral as of     157,677      189,845 June30, 2012 and December31, 2011, respectively) Derivative assets                                    32,319       28,463 Interest and principal receivable                    38,223       62,124 Other assets                                         483,808      209,020 Total assets                                         $ 8,359,637  $ 8,647,228 Liabilities Collateralized loan obligation secured debt          $ 5,063,406  $ 5,540,037 Collateralized loan obligation junior secured notes  322,348      365,848 to affiliates Credit facilities                                    100,000      38,300 Convertible senior notes                             277,408      299,830 Senior notes                                         362,132      250,676 Junior subordinated notes                            283,517      283,517 Accounts payable, accrued expenses and other         44,097       24,680 liabilities Accrued interest payable                             25,043       25,536 Accrued interest payable to affiliates               6,921        6,561 Related party payable                                7,967        11,078 Derivative liabilities                               120,072      125,333 Total liabilities                                    6,612,911    6,971,396 Shareholders' Equity Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at        -            - June30, 2012 and December31, 2011 Common shares, no par value, 500,000,000 shares authorized, and 178,393,521 and 178,145,482 shares   -            - issued and outstanding at June30, 2012 and December31, 2011, respectively Paid-in-capital                                      2,760,628    2,759,478 Accumulated other comprehensive loss                 (46,633)     (35,619) Accumulated deficit                                  (967,269)    (1,048,027)  Total shareholders' equity                       1,746,726    1,675,832 Total liabilities and shareholders' equity           $ 8,359,637  $ 8,647,228  Investor Relations Contact: Pam Testani 415-315-6597 investor-relations@kkr.com   Media Contact: Kristi Huller 212-750-8300 media@kkr.com  SOURCE KKR Financial Holdings LLC  Website: http://www.kkrkfn.com  
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