KKR Financial Holdings LLC Announces Fourth Quarter and Full Year 2012 Financial Results, Quarterly Distribution of $0.21 per

    KKR Financial Holdings LLC Announces Fourth Quarter and Full Year 2012
  Financial Results, Quarterly Distribution of $0.21 per Common Share, and a
                Special Distribution of $0.05 per Common Share

PR Newswire

SAN FRANCISCO, Feb. 5, 2013

SAN FRANCISCO, Feb. 5, 2013 /PRNewswire/ --KKR Financial Holdings LLC
(NYSE:KFN) ("KFN" or the "Company") today announced its results for the fourth
quarter and full year ended December 31, 2012.

Fourth Quarter and Full Year 2012 Highlights

  oNet income for the fourth quarter and year ended December 31, 2012 totaled
    $77.0 million, or $0.40 per diluted common share, and $348.2 million, or
    $1.87 per diluted common share, respectively.
  oDeclared a quarterly cash distribution of $0.21 per common share for the
    fourth quarter of 2012 and a special distribution of $0.05 per common
    share for the year ended December 31, 2012.
  oBook value per common share was $10.31 as of December 31, 2012 as compared
    to book value per common share of $10.09 as of September 30, 2012 and
    $9.41 per common share as of December 31, 2011.

For the three months ended December 31, 2012, KFN reported net income of $77.0
million, or $0.40 per diluted common share, in line with $77.0 million, or
$0.43 per diluted common share, for the prior-year period. The per-share
decline pertained largely to an increase in the number of shares included in
the Company's diluted earnings per share calculation following its election to
terminate conversion rights on its 7.5% convertible senior notes due 2017 (the
"7.5% Notes") and settle subsequent conversions in equity.

For the full year ended December 31, 2012, KFN reported net income of $348.2
million, or $1.87 per diluted common share, up 9% from $318.1 million, or
$1.75 per diluted common share, for the prior year. The increase is primarily
attributable to growth in total other income, notably net realized and
unrealized gains on investments, partially offset by an increase in total
investment costs and expenses.

KFN's fourth quarter 2012 results included total revenues of $133.7 million,
total investment costs and expenses of $72.6 million, total other income of
$37.4 million, and total other expenses of $21.4 million. Comparatively, KFN's
fourth quarter 2011 results reflected total revenues of $136.4 million, total
investment costs and expenses of $50.7 million, total other income of $13.7
million, and total other expenses of $22.8 million. Total other income
benefitted from substantially higher net realized and unrealized gains on
investments, predominantly realized gains on asset dispositions during the
quarter, relative to the prior-year period. These gains were offset by an
increase in total investment costs and expenses, specifically a $13.9 million
increase in expenses related to the expansion and ramping of the Company's
natural resources portfolio and, to a lesser degree, $4.8 million of
incremental interest expense relating to the Company's issuance of $373.8
million of senior notes between November 2011 and March 2012.

KFN's full-year 2012 results included total revenues of $555.5 million, total
investment costs and expenses of $318.4 million, total other income of $205.8
million, and total other expenses of $98.2 million. Comparatively, KFN's
full-year 2011 results reflected total revenues of $542.0 million, total
investment costs and expenses of $215.2 million, total other income of $93.4
million, and total other expenses of $94.2 million. Similarly to the fourth
quarter, the Company's year-over-year growth was driven primarily by an
increase in total other income, largely offset by an increase in total
investment costs and expenses. Total other income increased as a result of
materially higher realized and unrealized gains on investments, predominantly
realized gains on asset dispositions during the year. This was offset by an
increase in investment costs and expenses stemming from (i) a $39.5 million
increase in expenses related to the expansion and ramping of the Company's
natural resources portfolio, including a $2.5 million increase in acquisition
and other costs and $1.9 million of incremental interest expense relating to
its natural-resources-specific credit facility; (ii) a $32.3 million increase
in the Company's provision for loan losses; and (iii) $25.6 million of
incremental interest expense relating to the senior note issuance discussed
above.

"Throughout 2012, our focus has been on maintaining high discipline to drive
maximum value for shareholders. We have opportunistically deployed capital
into dislocated markets, such as natural-gas-focused resource investments as
natural gas prices hit lows early in the year, and have maintained that
opportunism on the exit front as well, taking gains as asset prices became
rich in the second half of 2012," said William C. Sonneborn, CEO of KFN. "We
have also taken advantage of the opportunity offered by historically low
interest rates to further strengthen our capital structure and position
ourselves well for future market dislocations."

Revolving Credit Facility
On November 30, 2012, the Company entered into a new revolving credit facility
maturing in November 2015 to replace its prior facility maturing in May 2014.
Initial commitments under the facility total $150.0 million, with the ability
to obtain additional commitments to increase the total committed amount up to
$350.0 million. Loans under the facility bear interest at LIBOR plus 2.25%
(or, at the Company's option, an alternate base rate plus 1.25%) as compared
to LIBOR plus 3.25% (or an alternate base rate plus 2.25%) for the prior
facility.

The facility does not limit the percentage of the Company's estimated annual
taxable income that can be paid to shareholders as distributions, whereas the
prior facility prohibited payment of distributions in excess of 65% of the
Company's estimated annual taxable income.

The facility is secured by a pledge over the capital stock of certain of the
Company's direct subsidiaries and borrowings are not tied to asset values. By
comparison, borrowings under the prior facility were determined by advance
rates applied to market values of assets pledged to that facility.

KKR Financial CLO 2012-1, Ltd.
On December 21, 2012, KFN closed KKR Financial CLO 2012-1, Ltd. ("CLO
2012-1"), a $412.4 million collateralized loan obligation and the Company's
first broadly syndicated CLO in over five years. The CLO has a four-year
reinvestment period and a two-year non-call period, with a final maturity of
December 16, 2024.

The Company retained approximately 52%, or $23.4 million par amount, of the
CLO's $44.9 million of subordinated notes, with the remainder being held by
unaffiliated third parties. The notes issued by CLO 2012-1 are non-recourse
to the Company.

The transaction was approximately 80% ramped as of January 31, 2013.

Perpetual Preferred Shares
On January 17, 2013, the Company issued 14.95 million 7.375% Series A LLC
Preferred Shares at a public offering price of $25 per share, which included
1.95 million shares issued pursuant to the underwriters' full exercise of
their over-allotment option. The offering yielded $373.8 million of gross
proceeds and $362.0 million of net proceeds. The shares began trading on the
New York Stock Exchange on January 28, 2013 under the symbol "KFP" and will,
beginning February 11, 2013, trade under the symbol "KFN.PR."

Termination of Conversion Rights for 7.5% Notes
On January 18, 2013, the Company issued a conversion rights termination notice
to holders of its 7.5% Notes, of which $172.5 million in aggregate principal
amount was then outstanding. Under the indenture relating to the 7.5% Notes
(the "Indenture"), KFN was entitled to terminate the right to convert the 7.5%
Notes into its common shares, no par value, beginning January 15, 2013 if the
closing sale price (as defined in the Indenture) of its common shares had
exceeded 150% of the conversion price relating to the 7.5% Notes for at least
20 trading days in a period of 30 consecutive trading days.

As set forth in its conversion rights termination notice, KFN has chosen
February 17, 2013 as the date on which the 7.5% Notes will no longer be
convertible into the Company's common shares. Holders may exercise their
conversion rights at any time on or prior to February 15, 2013 in accordance
with the terms and instructions set forth in the Indenture.

Holders exercising their conversion rights on or before February 15, 2013 will
receive cash, common shares, or a combination thereof, at the discretion of
the Company, in an amount equal to the conversion rate plus a make-whole
premium calculated in accordance with the Indenture. The conversion rate as
of January 18, 2013 was equal to 141.8256 common shares for each $1,000
principal amount of 7.5% Notes, plus an additional 9.2324 common shares per
$1,000 principal amount to account for the make-whole premium.

Through January 31, 2013, 99.8% of the 7.5% Notes by principal amount
outstanding had been tendered for conversion, all of which were settled in
shares. This has resulted in the issuance by the Company of 25,992,986 common
shares at a weighted average price per share of $11.55, based on the closing
price on the date the Company elected to use common shares to settle the
relevant notes.

Book Value
Book value per share increased to $10.31 as of December 31, 2012 from $10.09
as of September 30, 2012. This increase in book value per share was primarily
driven by the Company's earnings for the fourth quarter of $0.43 per basic
common share, partially offset by the payment of a $0.21 distribution related
to third-quarter earnings.

Distributions
On January 31, 2013, the Company's board of directors declared a cash
distribution of $0.21 per common share. The distribution is payable on
February 28, 2013 to common shareholders of record as of the close of business
on February 14, 2013.

In addition, the Company's board of directors declared a special distribution
of $0.05 per common share. The special distribution is payable on March 28,
2013 to common shareholders of record as of the close of business on March 14,
2013. Consistent with the Company's distribution policy, the Company's board
of directors considered a number of factors in determining to declare this
special distribution, including current market conditions, the amount of
ordinary taxable income or loss earned by the Company, gains or losses the
Company recognized on the disposition of assets, and the Company's liquidity.

Conference Call and Webcast
The Company will host a conference call and audio webcast to review its
results for the fourth quarter and full year ended December 31, 2012 on
February 5, 2013, at 2:00p.m. PT (5:00p.m. ET). The conference call may be
accessed by dialing (877) 303-4382 (domestic) or +1 (253) 237-1193
(international); a pass code is not required. A replay of the live broadcast
will be available by dialing (855) 859-2056 (domestic) and +1 (404) 537-3406
(international), pass code 87026870, beginning approximately two hours after
the event. Additionally, the conference call will be broadcast live over the
Internet and subsequently archived and may be accessed through the KFN
Investor Relations section of the KKR website at
http://ir.kkr.com/kfn_ir/kfn_events.cfm. Supplemental materials that will be
discussed during the call will be available at the same website location.

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 KFN
Investor Relations section of www.kkr.com, where you may also enroll your
email address to receive automatic email alerts and other information about
the Company.

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. 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 the risks described in Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the SEC on January 11, 2013.

Schedule I

KKR Financial Holdings LLC and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except per share information)
                                   For the  For the
                                   three    three    For the year For the year
                                   months   months   ended        ended
                                   ended    ended    December31, December31,
                                   December December 2012         2011
                                   31, 2012 31, 2011
Revenues:
Loan interest income               $98,052  $101,644 $411,736     $418,142
Securities interest income         14,462   23,079   76,642       87,851
Oil and gas revenue                20,273   11,171   64,535       30,629
Other                              868      514      2,560        5,399
 Total revenues                   133,655  136,408  555,473      542,021
Investment costs and expenses:
Interest expense                   41,234   35,906   165,022      133,609
Interest expense to affiliates     13,455   10,532   51,586       49,458
Provision for loan losses          —        —        46,498       14,194
Oil and gas production costs       9,939    1,748    28,980       7,766
Oil and gas depreciation,          7,064    2,537    21,931       8,015
depletion and amortization
Other                              876      26       4,358        2,120
 Total investment costs and       72,568   50,749   318,375      215,162
expenses
Other income:
Net realized and unrealized gain   32,656   15,761   183,757      88,955
on investments
Net realized and unrealized gain
(loss) on derivatives and foreign  492      (3,517)  (2,091)      (3,812)
exchange
Net realized and unrealized (loss)
gain on residential                (388)    680      9,299        2,825
mortgage‑backed securities,
carried at estimated fair value
Net loss on restructuring and      —        —        (445)        (1,736)
extinguishment of debt
Other income                       4,638    815      15,302       7,215
 Total other income               37,398   13,739   205,822      93,447
Other expenses:
Related party management           14,820   14,471   72,339       68,185
compensation
General, administrative and        4,244    6,338    19,157       19,840
directors expenses
Professional services              2,327    1,941    6,661        6,198
 Total other expenses             21,391   22,750   98,157       94,223
Income before income taxes         77,094   76,648   344,763      326,083
Income tax expense (benefit)       81       (333)    (3,467)      8,011
 Net income                       $77,013  $76,981  $348,230     $318,072
Net income per common share:
Basic                              $0.43    $0.43    $1.95        $1.79
Diluted                            $0.40    $0.43    $1.87        $1.75
Weighted average number of common
shares outstanding:
Basic                              177,906  177,759  177,838      177,560
Diluted                            202,371  179,675  187,423      180,897

Schedule II

KKR Financial Holdings LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share information)
                                                     December31, December31,

                                                     2012         2011
Assets
Cash and cash equivalents                            $237,606     $392,154
Restricted cash and cash equivalents                 896,396      399,620
Securities                                           533,520      922,603
Corporate loans, net (includes $128,289 and $317,332
loans held for sale as of December31, 2012 and      5,947,857    6,443,399
December31, 2011, respectively)
Equity investments, at estimated fair value ($7,187
and $12,222 pledged as
                                                     161,621      189,845
collateral as of December31, 2012 and December31,
2011, respectively)
Oil and gas properties, net                          289,929      138,525
Derivative assets                                    23,207       28,463
Interest and principal receivable                    46,960       62,124
Other assets                                         221,783      70,495
Total assets                                         $8,358,879   $8,647,228
Liabilities
Collateralized loan obligation secured notes         $5,122,338   $5,540,037
Collateralized loan obligation junior secured notes  296,557      365,848
to affiliates
Credit facilities                                    107,789      38,300
Convertible senior notes                             166,028      299,830
Senior notes                                         362,178      250,676
Junior subordinated notes                            283,517      283,517
Accounts payable, accrued expenses and other         25,931       24,680
liabilities
Accrued interest payable                             20,519       25,536
Accrued interest payable to affiliates               6,632        6,561
Related party payable                                10,998       11,078
Derivative liabilities                               117,270      125,333
Total liabilities                                    6,519,757    6,971,396
Shareholders' Equity
Preferred shares, no par value, 50,000,000 shares
authorized and none issued and outstanding at        —            —
December31, 2012 and December31, 2011
Common shares, no par value, 500,000,000 shares
authorized, and 178,437,078 and 178,145,482 shares   —            —
issued and outstanding at December31, 2012 and
December31, 2011, respectively
Paid-in-capital                                      2,762,584    2,759,478
Accumulated other comprehensive loss                 (70,226)     (35,619)
Accumulated deficit                                  (853,236)    (1,048,027)
Total shareholders' equity                           1,839,122    1,675,832
Total liabilities and shareholders' equity           $8,358,879   $8,647,228

Investor Relations Contact:
Pam Testani
+1 (415) 315-6597
investor-relations@kkr.com 

Media Contact:
Kristi Huller
+1 (212) 750-8300
media@kkr.com

SOURCE KKR Financial Holdings LLC

Website: http://www.kkr.com
 
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