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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