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 oNet income available to common shareholders totaled $33.0 million, compared with $112.0 million for the same period of 2012. oNet income per diluted common share totaled $0.16, compared with $0.61 for the comparable prior-year period. oA quarterly cash distribution of $0.22 per common share was declared for the third quarter of 2013. oBook 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 provisionbeing recorded forthe 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 (5:00p.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 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) Forthethree Forthethree Forthenine Forthenine monthsended monthsended monthsended monthsended September30, September30, September30, September30, 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) derivativesand 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) September30, December31, 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 September30, 2013 and December31, 2012, respectively) Equity investments, at estimated fair value ($5,319 and $7,187 pledged as collateral as of 191,153 161,621 September30, 2013 and December31, 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 September30, 2013 and December31, 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 September30, 2013 and December31, 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 email@example.com Media Contact: Kristi Huller +1 (212) 750-8300 firstname.lastname@example.org SOURCE KKR Financial Holdings LLC Website: http://www.kkr.com
KKR Financial Holdings LLC Announces Third Quarter 2013 Financial Results and Quarterly Distribution of $0.22 per Common Share
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