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KKR Financial Holdings LLC Announces Third Quarter 2013 Financial Results and Quarterly Distribution of $0.22 per Common Share



KKR Financial Holdings LLC Announces Third Quarter 2013 Financial Results and
               Quarterly Distribution of $0.22 per Common Share

PR Newswire

SAN FRANCISCO, Oct. 23, 2013

SAN FRANCISCO, Oct. 23, 2013 /PRNewswire/ -- KKR Financial Holdings LLC
(NYSE:KFN) ("KFN" or the "Company") today announced its results for the third
quarter ended September 30, 2013.

Third Quarter 2013 Highlights

  o Net income available to common shareholders totaled $33.0 million,
    compared with $112.0 million for the same period of 2012.
  o Net income per diluted common share totaled $0.16, compared with $0.61 for
    the comparable prior-year period.
  o A quarterly cash distribution of $0.22 per common share was declared for
    the third quarter of 2013.
  o Book value per common share was $10.42 as of September 30, 2013 as
    compared to book value per common share of $10.41 as of June 30, 2013.

For the three months ended September 30, 2013, the Company reported net income
available to common shareholders of $33.0 million, or $0.16 per diluted common
share, compared with $112.0 million, or $0.61 per diluted common share, for
the comparable prior-year period.  For the nine months ended September 30,
2013, the Company reported net income available to common shareholders of
$203.8 million, or $1.01 per diluted common share, compared with $271.2
million, or $1.48 per diluted common share, for the comparable prior-year
period.

The Company's third quarter 2013 results included total revenues of $128.7
million, total investment costs and expenses of $77.9 million, total other
income of $6.2 million, and total other expenses of $17.1 million.
Comparatively, KFN's third quarter 2012 results reflected total revenues of
$143.3 million, total investment costs and expenses of $70.9 million, total
other income of $73.0 million, and total other expenses of $33.2 million. 

Total revenues of $128.7 million for the third quarter of 2013 represented a
decline of approximately 10% from the comparable prior-year period.  Loan and
securities interest income comprised 73% of total revenue and oil and gas
revenue comprised 25%, as compared to 84% and 15%, respectively, for the
prior-year period.  The Company's loan and securities interest income declined
from $120.8 million for the quarter ended September 30, 2012 to $93.5 million
for the quarter ended September 30, 2013.  This resulted primarily from (a) a
decline of approximately 64 basis points, or 12%, in the annualized interest
rate being earned on the Company's loan portfolio during the third quarter of
2013 versus 2012; (b) a $9.3 million decline in scheduled and
prepayment-related discount accretion from the Company's loan portfolio; and
(c) a $6.6 million decline in securities interest income excluding discount
accretion, largely resulting from a reduction in the Company's high-yield bond
holdings across its strategies from a par value of $500.5 million to $458.9
million over the year.  These were partially offset largely by oil and gas
revenue, which increased by $11.0 million from the prior-year period.

Total investment costs and expenses of $77.9 million for the third quarter of
2013 represented an increase of approximately 10% from the comparable
prior-year period.  This was primarily due to the recording of a provision for
loan losses of $9.3 million for the third quarter of 2013 as compared to no
provision being recorded for the prior-year period.  In addition, expenses
associated with the Company's oil and gas portfolio increased by approximately
$4.2 million from the prior-year period, resulting from acquisitions during
the twelve months ending September 30, 2013.  These factors were partially
offset by a $6.8 million decline in interest expense and interest expense to
affiliates largely resulting from the amortization of the Company's legacy
collateralized loan obligations.

Total other income of $6.2 million for the third quarter of 2013 reflected a
decrease from $73.0 million during the comparable prior-year period, stemming
primarily from a materially lower level of realized and unrealized gains on
investments.

Total other expenses of $17.1 million for the third quarter of 2013 reflected
a decrease from $33.2 million during the comparable prior-year period,
primarily due to a lower level of related party management compensation in
light of the Company's third-quarter performance.

"Our results reflect the environment in which KFN is operating, as yields
continue to compress and many of our legacy CLOs continue to amortize," said
Craig J. Farr, CEO of KFN.  "That said, we found a number of attractive
opportunities for capital deployment during the quarter, and we're focusing
the business on cash-yielding, credit-oriented strategies in order to drive
ongoing shareholder value."

Selected Portfolio Activity

Bank Loans and High-Yield Debt Strategy

On September 30, 2013, the Company announced that it had added $300 million to
the total facility size of KKR Financial CLO 2011-1, Ltd. ("CLO 2011-1").  The
increase results from an amendment to the transaction whereby CLO 2011-1 may
now borrow up to an incremental $225 million to purchase senior secured
corporate loans.  In connection with the upsize, the Company increased its
residual interest in the transaction through the acquisition of an additional
$75 million of subordinated notes issued by CLO 2011-1.  The cost of the
financing remains three-month LIBOR plus 1.35%.

Private Equity Strategy

On August 20, 2013, KKR announced the formation of Maritime Finance Company
("Maritime Finance"), a new specialty finance company created to originate,
structure, underwrite, invest in and distribute debt financings secured by
high-quality maritime assets, including drilling rigs, development and
production assets, subsea construction vessels and other traditional shipping
assets. KFN served as anchor investor in the equity raise, committing $150.0
million of the $580.0 million raised.  These proceeds are funding the
establishment and operation of Maritime Finance as well as the acquisition of
a seed portfolio of outstanding loans.  Over time, the portfolio is expected
to generate a regular cash yield, providing distributions to equity holders.

To date, KFN has deployed $84.3 million of its total commitment.

Book Value

Book value per common share increased to $10.42 as of September 30, 2013 from
$10.41 as of June 30, 2013.  The increase was predominantly driven by (a)
third-quarter net income available to common shareholders of $0.16 per diluted
common share and (b) a decrease in the Company's accumulated other
comprehensive loss, a component of shareholders' equity, of $0.05 per diluted
common share as a result of increases in the value of certain interest rate
swaps designated as cash flow hedges, as well as certain securities available
for sale.  These factors were partially offset by distributions of $0.21 per
share paid to common shareholders during the quarter.

Distribution

On October 23, 2013, the Company's board of directors declared a cash
distribution of $0.22 per common share.  The distribution is payable on
November 20, 2013 to common shareholders of record as of the close of business
on November 6, 2013.

Conference Call and Webcast

The Company will host a conference call and audio webcast to review its
results for the third quarter ended September 30, 2013 on October 23, 2013, at
2:00 p.m. PT (5:00 p.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
68903529, beginning approximately two hours after completion of 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
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended, that are based on the Company's
current expectations, estimates and projections. Statements that are not
historical facts, including statements about our beliefs and expectations, are
forward-looking statements. The words "believe," "anticipate," "intend,"
"aim," "expect," "strive," "plan," "estimate," and "project," and similar
words identify forward-looking statements. Such statements are not guarantees
of future performance, events or results and involve potential risks and
uncertainties. Accordingly, actual results and the timing of certain events
could differ materially from those addressed in forward-looking statements due
to a number of factors including, but not limited to, changes in interest
rates and market values, financing and capital availability, changes in
prepayment rates, underperformance of the Company's investments, general
economic and political conditions and events, changes in market conditions,
particularly in the global fixed income, credit and equity markets, the impact
of current, pending and future legislation, regulation and legal actions, and
other factors not presently identified. 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 Form 10-K for the fiscal year ended December
31, 2012, filed with the SEC on February 28, 2013. 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, except
for as required by federal securities laws. 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.

 

Schedule I
KKR Financial Holdings LLC and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share information)
                  For the three   For the three   For the nine    For the nine
                  months ended    months ended    months ended    months ended
                  September 30,   September 30,   September 30,   September 30, 

                  2013            2012            2013            2012
Revenues
Loan interest     $   82,541      $   101,988     $   272,919     $   313,684
income
Securities        10,933          18,791          39,326          62,180
interest income
Oil and gas       32,446          21,487          84,118          44,262
revenue
Other             2,782           1,068           10,033          1,692
Total revenues    128,702         143,334         406,396         421,818
Investment costs
and expenses
Interest expense  39,767          40,418          118,366         123,788
Interest expense  6,839           12,954          26,485          38,131
to affiliates
Provision for     9,339           —               20,407          46,498
loan losses
Oil and gas       9,163           9,803           26,420          19,041
production costs
Oil and gas
depreciation,     11,806          7,011           29,910          14,867
depletion and
amortization..
Other             963             714             2,531           3,482
Total investment
costs and         77,877          70,900          224,119         245,807
expenses
Other income
Net realized and
unrealized gain   5,673           75,774          125,397         160,788
on investments
Net realized and
unrealized loss
on                (3,062)         (8,102)         (5,012)         (2,583)
derivatives and
foreign exchange
Net loss on
restructuring
and               —               —               (20,269)        (445)
extinguishment
of debt
Other income      3,615           5,371           17,565          10,664
Total other       6,226           73,043          117,681         168,424
income
Other expenses
Related party
management        10,920          26,602          56,744          57,519
compensation
General,
administrative    4,654           5,464           13,138          14,913
and directors
expenses
Professional      1,573           1,130           5,288           4,334
services
Total other       17,147          33,196          75,170          76,766
expenses
Income before     39,904          112,281         224,788         267,669
income taxes
Income tax
expense           18              317             434             (3,548)
(benefit)
Net income        $   39,886      $   111,964     $   224,354     $   271,217
Preferred share   6,891           —               20,520          —
distributions
Net income
available to      $   32,995      $   111,964     $   203,834     $   271,217
common
shareholders
Net income per
common share:
Basic             $   0.16        $   0.63        $   1.01        $   1.52
Diluted           $   0.16        $   0.61        $   1.01        $   1.48
Weighted-average
number of common
shares
outstanding:
Basic             204,134         177,862         201,824         177,815
Diluted           204,134         183,431         201,824         182,440
Distributions
declared per      $       0.21    $       0.21    $       0.68    $       0.65
common share

 

Schedule II
KKR Financial Holdings LLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
                                                   September 30,  December 31,
                                                   2013           2012
Assets
Cash and cash equivalents                          $  221,986     $  237,606
Restricted cash and cash equivalents               509,688        896,396
Securities                                         519,675        533,520
Corporate loans, net (includes $156,595 and
$35,879 measured at estimated fair value and
$312,312 and $128,289 loans held for sale as of    6,153,072      5,947,857
September 30, 2013 and December 31, 2012,
respectively)
Equity investments, at estimated fair value
($5,319 and $7,187 pledged as collateral as of     191,153        161,621
September 30, 2013 and December 31, 2012,
respectively)
Oil and gas properties, net                        372,034        289,929
Derivative assets                                  35,348         23,207
Interest and principal receivable                  38,586         46,960
Other assets                                       430,449        221,783
Total assets                                       $  8,471,991   $  8,358,879
Liabilities
Collateralized loan obligation secured notes       $  4,903,438   $  5,122,338
Collateralized loan obligation junior secured      193,921        296,557
notes to affiliates
Credit facilities                                  48,489         107,789
Convertible senior notes                           —              166,028
Senior notes                                       362,251        362,178
Junior subordinated notes                          283,517        283,517
Accounts payable, accrued expenses and other       74,737         25,931
liabilities
Accrued interest payable                           16,497         20,519
Accrued interest payable to affiliates             4,134          6,632
Related party payable                              3,847          10,998
Derivative liabilities                             86,108         117,270
Total liabilities                                  5,976,939      6,519,757
Shareholders' equity
Preferred shares, no par value, 50,000,000 shares
authorized and 14,950,000 and zero issued and      —              —
outstanding as of September 30, 2013 and
December 31, 2012, respectively
Common shares, no par value, 500,000,000 shares
authorized, and 204,824,159 and 178,437,078        —              —
shares issued and outstanding as of September 30,
2013 and December 31, 2012, respectively
Paid-in-capital                                    3,313,400      2,762,584
Accumulated other comprehensive loss               (29,693)       (70,226)
Accumulated deficit                                (788,655)      (853,236)
Total shareholders' equity                         2,495,052      1,839,122
Total liabilities and shareholders' equity         $  8,471,991   $  8,358,879

 

Investor Relations
Contact:                                                              
Pam Testani
+1 (855) 374-5411 (US) / +1 (415) 315-3633
kfn.ir@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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