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Third Quarter 2009 Highlights
-- Net income for the third quarter ended September 30, 2009 of $67.2
million, or $0.42 per diluted common share, as compared to net income
for the second quarter ended June 30, 2009 of $20.6 million, or $0.14
per diluted common share.
-- As of quarter end, cash and cash equivalents totaled $125.9 million.
-- Increase in book value per share from $5.69 per common share as of June
30, 2009 to $7.01 per common share as of September 30, 2009.
For the three and nine months ended September 30, 2009, KFN reported net income of $67.2 million, or $0.42 per diluted common share, and $74.8 million, or $0.49 per diluted common share, respectively. For the three and nine months ended September 30, 2008, net income was $49.0 million, or $0.32 per diluted common share, and $100.5 million, or $0.73 per diluted common share, respectively. KFN's third quarter 2009 results reflect net investment income of $72.7 million and other income of $13.0 million, offset by non-investment expenses of $18.5 million. Other income totaling $13.0 million primarily consists of the following: (i) net loss from the unwind of KKR Financial CLO 2009-1, Ltd. totaling $14.4 million; (ii) net gains on investments totaling $21.2 million primarily from an increase in the unrealized gain due to the increase in market value of the Company's common stock investment in Masonite Worldwide Holdings; (iii) net realized and unrealized losses on investments in residential mortgage-backed securities totaling $17.7 million; (iv) net realized and unrealized gains from derivative positions totaling $19.9 million, primarily consisting of credit default swaps and total rate of return swaps; (v) gain on extinguishment of junior subordinated notes totaling $3.8 million; and (vi) net realized and unrealized loss on short positions totaling $1.0 million. Junior Subordinated Notes During August 2009, the Company repurchased $5.0 million of junior subordinated notes for $1.2 million. This transaction resulted in a gain on debt extinguishment of $3.8 million, which was partially offset by a $0.1 million write-off of unamortized debt issuance costs. Shareholders' Equity The Company's shareholders' equity increased $446.8 million to $1.1 billion as of September 30, 2009 from $663.3 million as of December 31, 2008. Book Value Per Common Share The Company's book value per common share outstanding was $7.01 as of September 30, 2009 as compared to $5.69 as of June 30, 2009 and $4.40 as of December 31, 2008. Liquidity As of September 30, 2009, unrestricted cash and cash equivalents totaled $125.9 million compared to $114.4 million and $41.4 million as of June 30, 2009 and December 31, 2008, respectively. Investment Portfolio The Company's corporate debt investment portfolio, consisting of corporate loans and high yield bonds, had an aggregate par value of $8.5 billion with an estimated fair value of $7.1 billion as of September 30, 2009. In comparison, the par value of the Company's corporate debt investment portfolio totaled $8.6 billion (estimated fair value of $6.4 billion) and $9.7 billion (estimated fair value of $5.7 billion) as of June 30, 2009 and December 31, 2008, respectively. The decline in the par amount of the Company's corporate debt investment portfolio of $1.2 billion from December 31, 2008 to September 30, 2009 is primarily due to asset sales from KKR Financial CLO 2009-1, Ltd. during the second quarter of 2009 that were undertaken in response to the rally in corporate loan prices that provided the opportunity to sell assets in order to pay off the senior debt issued by KKR Financial CLO 2009-1, Ltd. The majority of the Company's investment portfolio is held in collateralized loan obligation ("CLO") transactions that the Company has used to finance its corporate debt investments. As of September 30, 2009, the Company's corporate debt investments not held in CLOs had an aggregate par value of $867.6 million and an estimated fair value of $561.3 million. In comparison, the aggregate par value of the Company's investment portfolio not held in CLOs totaled $545.5 million (estimated fair value of $214.2 million) and $539.4 million (estimated fair value of $196.7 million) as of June 30, 2009 and December 31, 2008, respectively. Information for Investors: Conference Call and Webcast The Company will host a conference call and audio webcast to review its third quarter 2009 results on November 5, 2009, at 5:00 p.m. EST. The conference call may be accessed by dialing (888) 487-0361 (Domestic) or (719) 457-2636 (International); a pass code is not required. A telephonic replay of the call will be available through November 19, 2009 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 4996141. Supplemental materials that will be discussed during the call and the live audio web cast will be available in the Investor Relations section of the Company's website at http://www.kkr.com/kam/kfn_webcasts_presentations_and_important_documents.cfm. An audio replay of the web cast will be archived in the Investor Relations section of the Company's website. About KKR Financial Holdings LLC KKR Financial Holdings LLC is a publicly traded specialty finance company that invests in multiple asset classes. KKR Financial Holdings LLC is externally managed by KKR Financial Advisors LLC, a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. (Fixed Income) LLC, which is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P. Additional information regarding KKR Financial Holdings LLC is available at http://www.kkr.com. Statements in this press release which are not historical fact may be deemed 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. Although KKR Financial Holdings LLC believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include completion of pending investments, continued ability to source new investments, the availability and cost of capital for future investments, competition within the specialty finance sector, economic conditions, credit loss experience, availability of financing, maintenance of sufficient liquidity, and other risks disclosed from time to time in the Company's filings with the SEC.
Schedule I
KKR Financial Holdings LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share information)
For the For the For the For the
three three nine nine
months months months months
ended ended ended ended
September September September September
30, 2009 30, 2008 30, 2009 30, 2008
-------- -------- -------- --------
Net investment income:
Securities interest income $21,701 $34,507 $73,805 $109,104
Loan interest income 113,460 187,756 364,583 588,843
Dividend income 26 358 313 2,266
Other interest income 49 4,431 511 20,505
-------- -------- -------- --------
Total investment income 135,236 227,052 439,212 720,718
Interest expense (57,340) (118,105) (219,625) (400,207)
Interest expense to affiliates (5,171) (18,794) (16,355) (66,319)
Provision for loan losses - - (39,795) (10,000)
-------- -------- -------- --------
Net investment income 72,725 90,153 163,437 244,192
-------- -------- -------- --------
Other income (loss):
Net realized and unrealized
gain (loss) on derivatives and
foreign exchange 19,930 (15,534) 58,831 (68,468)
Net realized and unrealized
gain (loss) on investments 21,181 (28,278) (85,576) (59,254)
Net realized and unrealized
(loss) gain on residential
mortgage-backed securities,
residential mortgage loans,
and residential mortgage-
backed securities issued,
carried at estimated fair
value (17,681) 121 (44,545) (14,651)
Net realized and unrealized
(loss) gain on securities
sold, not yet purchased (996) 14,242 2,920 22,892
Net (loss) gain on
restructuring and
extinguishment of debt (10,627) 3,056 30,836 20,281
Other income 1,239 2,470 4,150 7,939
-------- -------- ------- --------
Total other income (loss) 13,046 (23,923) (33,384) (91,261)
-------- -------- ------- --------
Non-investment expenses:
Related party management
compensation 14,616 9,811 36,132 29,357
General, administrative and
directors expenses 1,539 3,820 6,917 14,094
Professional services 441 1,335 5,916 4,263
Loan servicing 1,925 2,274 6,117 7,234
-------- -------- ------- --------
Total non-investment expenses 18,521 17,240 55,082 54,948
-------- -------- ------- --------
Income from continuing
operations before income tax
expense 67,250 48,990 74,971 97,983
Income tax expense (63) - (151) (116)
-------- -------- ------- --------
Income from continuing
operations 67,187 48,990 74,820 97,867
Income from discontinued
operations - - - 2,668
-------- -------- ------- --------
Net income $67,187 $48,990 $74,820 $100,535
======== ======== ======= ========
Net income per common share:
Basic
Income per share from
continuing operations $0.42 $0.32 $0.49 $0.71
======== ======== ======= ========
Income per share from
discontinued operations $- $- $- $0.02
======== ======== ======= ========
Net income per share $0.42 $0.32 $0.49 $0.73
======== ======== ======= ========
Diluted
Income per share from
continuing operations $0.42 $0.32 $0.49 $0.71
======== ======== ======= ========
Income per share from
discontinued operations $- $- $- $0.02
======== ======== ======= ========
Net income per share $0.42 $0.32 $0.49 $0.73
======== ======== ======= ========
Weighted-average number of
common shares outstanding:
Basic 156,997 149,612 152,664 136,777
======== ======== ======= ========
Diluted 156,997 149,612 152,664 136,777
======== ======== ======= ========
Schedule II
KKR Financial Holdings LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
September 30, December 31,
2009 2008
------------- ------------
Assets
Cash and cash equivalents $125,862 $41,430
Restricted cash and cash
equivalents 188,151 1,233,585
Securities
available-for-sale, $736,823
and $553,441 pledged as
collateral as of September
30, 2009 and December 31,
2008, respectively 736,823 555,965
Corporate loans, net of
allowance for loan losses of
$470,224 and $480,775 as of
September 30, 2009 and
December 31, 2008,
respectively 6,221,005 7,246,797
Residential mortgage-backed
securities, at estimated
fair value, $70,256 and
$102,814 pledged as
collateral as of September
30, 2009 and December 31,
2008, respectively 70,256 102,814
Residential mortgage loans,
at estimated fair value 2,274,585 2,620,021
Corporate loans held for sale 504,093 324,649
Private equity investments,
at estimated fair value 76,310 5,287
Derivative assets 23,163 73,869
Interest and principal
receivable 60,811 116,788
Reverse repurchase agreements 80,344 88,252
Other assets 98,062 105,625
------ -------
Total assets $10,459,465 $12,515,082
=========== ===========
Liabilities
Collateralized loan
obligation senior secured
notes $5,706,882 $7,487,611
Collateralized loan
obligation junior secured
notes to affiliates 547,421 655,313
Senior secured credit
facility 187,500 275,633
Convertible senior notes 275,800 291,500
Junior subordinated notes 283,671 288,671
Residential mortgage-backed
securities issued, at
estimated fair value 2,165,423 2,462,882
Accounts payable, accrued
expenses and other
liabilities 7,209 60,124
Accrued interest payable 23,840 61,119
Accrued interest payable to
affiliates 2,981 3,987
Related party payable 12,893 2,876
Securities sold, not yet
purchased 78,633 90,809
Derivative liabilities 57,091 171,212
------ -------
Total liabilities 9,349,344 11,851,737
--------- ----------
Shareholders' Equity
Preferred shares, no par
value, 50,000,000 shares
authorized and none issued
and outstanding at September
30, 2009 and December 31,
2008 - -
Common shares, no par value,
500,000,000 shares
authorized, and 158,359,757
and 150,881,500 shares
issued and outstanding at
September 30, 2009 and
December 31, 2008,
respectively - -
Paid-in-capital 2,562,262 2,550,849
Accumulated other
comprehensive income (loss) 91,761 (268,782)
Accumulated deficit (1,543,902) (1,618,722)
---------- ----------
Total shareholders' equity 1,110,121 663,345
--------- -------
Total liabilities and
shareholders' equity $10,459,465 $12,515,082
=========== ===========
Investor Contact
Laurie Poggi
415-315-3718
Media Contact
Peter McKillop/Kristi Huller
media@kkr.com
212-750-8300
SOURCE KKR Financial Holdings LLC http://www.kkr.com For full details on KKR Financial Corp (KFN) click here. KKR Financial Corp (KFN) has Short Term PowerRatings of 4. Details on KKR Financial Corp (KFN) Short Term PowerRatings is available at This Link.
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