Fitch Expects to Rate KKR Financial Holdings' Preferred Issuance 'BB+'

  Fitch Expects to Rate KKR Financial Holdings' Preferred Issuance 'BB+'

Business Wire

NEW YORK -- January 10, 2013

Fitch Ratings expects to rate KKR Financial Holdings LLC's (KFN) cumulative
perpetual preferred stock issuance 'BB+'. The preferred issuance will be
callable after a period of five years and will be structurally subordinate to
subordinated debt. Proceeds are expected to be used for general corporate
purposes, including payments made in connection with the repurchase,
redemption, or conversion of its outstanding senior indebtedness. Fitch
expects to assign the issuance 50% equity credit.

At Sept. 30, 2012, KFN's holding company recourse leverage was 0.45x, in-line
with Fitch's expectations. With this preferred issuance, leverage will
increase modestly, but is expected to remain well below management's
articulated ceiling of 1.0x.

RATING DRIVERS AND SENSITIVITIES

The Stable Outlook reflects Fitch's expectation that KFN will continue to
report stable asset quality and relatively consistent core operating
performance over the intermediate term, while maintaining low leverage and
solid liquidity, even with potential declines in the fair value of portfolio
investments given volatility in the capital markets. The Outlook also
incorporates the expectation that KKR's willingness and ability to support
KFN, as needed, will remain unchanged.

Positive rating momentum could result from declines in leverage, improved
funding flexibility, and stronger liquidity. Conversely, holding-company
leverage above 1.0x, deterioration in asset quality, weaker core earnings
performance, outsized portfolio losses, declines in liquidity, and/or a change
in Fitch's view of the relationship between KFN and KKR could yield negative
rating actions.

KFN is a specialty finance company that invests in financial assets, including
below investment-grade corporate debt, natural resources, real estate,
marketable equity securities, and private equity, with the goal of generating
both current income and capital appreciation. The company completed its
initial public offering in 2005 and trades on the NYSE under the ticker KFN.

KFN is externally managed and advised by KKR Financial Advisors LLC (KFA), a
wholly owned subsidiary of KKR Asset Management LLC (KAM), which is a wholly
owned subsidiary of KKR & Co. L.P. KFA receives a monthly base management fee
equal to 1/12 of KFN equity, as defined by its management agreement,
multiplied by 1.75%, in addition to a quarterly incentive fee, if return
hurdles are met.

Fitch expects to assign the following rating:

KKR Financial Holdings LLC

-- Preferred Stock at 'BB+'.

Existing ratings for KFN are as follows:

KKR Financial Holdings LLC

-- Long-term Issuer Default Rating (IDR) at 'BBB';

-- Unsecured debt rating at 'BBB'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

-- 'Global Financial Institutions Criteria' (Aug. 15. 2012);

-- 'Investment Manager and Alternative Funds Criteria' (Dec. 17, 2012);

-- 'Treatment of Hybrids in Nonfinancial Corporate and REIT Credit Analysis'
(Dec. 13, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696670

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696673

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst
Meghan Neenan, CFA, +1-212-908-9121
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Joseph Scott, +1-212-908-0624
Senior Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com
 
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