KKR Financial Holdings LLC Announces Fourth Quarter and Full Year 2011 Financial Results and a Quarterly Distribution of $0.18 per Common Share and an Annual Special Distribution of $0.08 per Common Share
SAN FRANCISCO, Feb. 6, 2012 /PRNewswire/ -- KKR Financial Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today announced its results for the fourth quarter and year ended December 31, 2011.
Fourth Quarter and Full Year 2011 Highlights
- Net income for the fourth quarter and year ended December 31, 2011 totaled $77.0 million, or $0.43 per diluted common share, and $318.1 million, or $1.75 per diluted common share, respectively.
- Declared a quarterly cash distribution of $0.18 per common share for the fourth quarter of 2011 and an annual special cash distribution of $0.08 per common share for the year ended December 31, 2011.
- Book value per common share of $9.41 as of December 31, 2011 as compared to book value per common share of $9.14 as of September 30, 2011 and $9.24 as of December 31, 2010.
- Completed a $258.8 million 30-year 8.375% senior note offering that generated $250.7 million of net proceeds for the Company.
For the fourth quarter and full year ended December 31, 2011, KFN reported net income of $77.0 million, or $0.43 per diluted common share, and $318.1 million, or $1.75 per diluted common share, respectively. Comparatively, for the fourth quarter and year ended December 31, 2010, KFN reported net income of $78.2 million, or $0.48 per diluted common share, and $371.1 million, or $2.32 per diluted common share, respectively.
KFN's fourth quarter 2011 results included net investment income of $90.0 million, other income of $13.7 million and non-investment expenses of $27.1 million. Comparatively, KFN's fourth quarter 2010 results reflected net investment income of $81.0 million, other income of $22.4 million and non-investment expenses of $25.0 million. Net investment income increased $9.0 million from the fourth quarter ended December 31, 2010 to 2011 primarily due to an increase in net revenue earned on the Company's working and royalty interests in oil and gas properties of $10.0 million, as well as the absence of a provision for loan losses recorded in the fourth quarter of 2010. These two factors were partially offset by a reduction in accelerated accretion income, included in loan and securities interest income, from prepayments on the Company's corporate debt portfolio of $14.2 million. Other income decreased $8.7 million from the fourth quarter ended December 31, 2010 to 2011 primarily due to a reduction in net realized and unrealized gains on investments of $9.7 million.
KFN's results for the full year ended December 31, 2011 included net investment income of $344.8 million, other income of $93.4 million and non-investment expenses of $112.1 million. Comparatively, KFN's results for the year ended December 31, 2010 included net investment income of $319.4 million, other income of $143.4 million and non-investment expenses of $91.0 million. The $25.4 million year over year increase in net investment income was primarily driven by an increase in net revenue earned on the Company's oil and gas properties of $28.8 million. Correspondingly, the $21.2 million increase in non-investment expenses year over year was primarily driven by expenses incurred on the Company's oil and gas properties, including acquisition related costs, of $20.2 million during 2011. Other income for the year ended December 31, 2010 compared to 2011 decreased $49.9 million primarily due to an aggregate one-time gain on extinguishment of debt totaling $38.7 million recorded during 2010, related to the purchase of certain mezzanine and subordinated notes issued by two of the Company's CLO subsidiaries.
Natural Resources Strategy
During the fourth quarter of 2011, the Company deployed or committed to deploy approximately $120 million of capital to three transactions through the Company's natural resources strategy. The first was an approximate $65 million investment in a joint venture with Quicksilver Resources to form a midstream partnership dedicated to the acquisition of existing pipelines, and construction and operation of additional natural gas midstream pipelines and treatment facilities in the Horn River basin in Western Canada. This investment carries with it a 15% contractual return including return of principal over ten years plus the terminal value in year ten of the pipelines and treatment plant.
Second, during the fourth quarter of 2011, the Company committed approximately $70 million to acquire working interests in conventional oil and gas properties located in East Texas, Louisiana and Mississippi. The assets consist of interests in over 625 active producing wells across over 48,000 acres in over 20 distinct fields. The acquisition of these working interests was completed in January 2012 and was partially funded with approximately $41.5 million of cash and $28.5 million of borrowings through the Company's non-recourse asset-based natural resources credit facility.
Finally, during the fourth quarter of 2011, the Company deployed $15.0 million of capital to acquire a private equity investment in Samson Investment Company, one of the largest private exploration and production companies in the United States.
Special Situations Strategy
During the fourth quarter of 2011, the Company deployed or committed to deploy approximately $45 million to several different special situations distressed opportunities, predominantly in Europe. In addition, during the quarter, the Company recorded a $5.0 million gain from the exit of a $13.6 million special situations investment made in the distressed senior debt of an Australian headquartered scrap metal recycling business. The $5.0 million gain combined with interest income received during the holding period of the debt resulted in a 75% internal rate of return from the date of acquisition in March 2011 through the exit date.
Senior Notes Offering
During the fourth quarter ended December 31, 2011, following the receipt of a BBB rating from Fitch Ratings and a BBB- rating from Standard & Poor's, the Company issued $225.0 million par amount of 8.375% Senior Notes due November 15, 2041 ("8.375% Notes"), resulting in net proceeds of $218.0 million. The Company also granted the underwriters an option to purchase up to an additional $33.8 million par amount of 8.375% Notes solely to cover over-allotments, which was exercised in full, resulting in net proceeds of $32.7 million. The total net proceeds from this offering of $250.7 million will be used to repurchase or repay a portion of the Company's existing senior indebtedness and for general corporate purposes.
Book value per share increased to $9.41 from $9.14 as of September 30, 2011 and $9.24 as of December 31, 2010. The increase in book value per share from September 30, 2011 was primarily driven by the Company's earnings for the fourth quarter of $0.43 per diluted common share, primarily offset by the Company's distribution to shareholders for the third quarter of 2011 of $0.18 per common share.
On February 2, 2012, the Company's board of directors declared a cash distribution of $0.18 per common share for the quarter ended December 31, 2011. The distribution is payable on March 1, 2012 to common shareholders of record as of the close of business on February 16, 2012.
In addition, on February 2, 2012, the Company's board of directors declared an annual special distribution of $0.08 per common share for the year ended December 31, 2011. The distribution is payable on March 29, 2012 to common shareholders of record as of the close of business on March 15, 2012. 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, existing restrictions in the Company's borrowing agreements, 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.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its results for the fourth quarter ended December 31, 2011 on February 6, 2012, at 2:00 p.m. PT (5:00 p.m. ET). The conference call may be accessed by dialing (888) 215-6894 (Domestic) or +1 (913) 981-4905 (International); a pass code is not required. A telephonic replay of the call will be available through February 20, 2012 by dialing (888) 203-1112 (Domestic) and +1 (719) 457-0820 (International) / pass code 6184837. 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://ir.kkr.com/kfn_ir/kfn_events.cfm. An audio replay of the web cast will be archived in the Investor Relations section of the Company's website at http://ir.kkr.com/kfn_ir/kfn_events.cfm.
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 Investor Relations section for KFN at www.kkr.com. In addition, you may automatically receive email alerts and other information about the Company by enrolling your email by visiting the "Email Alerts" area in KFN's Investor Relations section.
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, including statements with regards to the use of proceeds from the Company's debt offering in the quarter ended December 31, 2011. 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 Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on February 28, 2011 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on November 3, 2011.
KKR Financial Holdings LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share information)
For the three months ended December 31, 2011
For the three months ended December 31, 2010
For the year ended December 31, 2011
For the year ended December 31, 2010
Net investment income:
Loan interest income
Securities interest income
Other investment income
Total investment income
Interest expense to affiliates
Provision for loan losses
Net investment income
Net realized and unrealized gain on investments
Net realized and unrealized loss on derivatives and foreign exchange
Net realized and unrealized gain (loss) on residential mortgage-backed securities, residential mortgage loans, and residential mortgage-backed securities issued, carried at estimated fair value
Net (loss) gain on restructuring and extinguishment of debt
Total other income
Related party management compensation
General, administrative and directors expenses
Total non-investment expenses
Income from before income tax expense
Income tax (benefit) expense
Net income per common share:
Weighted average number of common shares outstanding:
KKR Financial Holdings LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
December 31, 2011
December 31, 2010
Cash and cash equivalents
Restricted cash and cash equivalents
Corporate loans, net (includes $317,332 and $463,628 loans held for sale as of December 31, 2011 and December 31, 2010, respectively)
Equity investments, at estimated fair value ($12,222 and $12,036 pledged as collateral as of December 31, 2011 and December 31, 2010, respectively)
Interest and principal receivable
Collateralized loan obligation secured notes
Collateralized loan obligation junior secured notes to affiliates
Convertible senior notes
Junior subordinated notes
Accounts payable, accrued expenses and other liabilities
Accrued interest payable
Accrued interest payable to affiliates
Related party payable
Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at December 31, 2011 and December 31, 2010
Common shares, no par value, 500,000,000 shares authorized, and 178,145,482 and 177,848,565 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively
Accumulated other comprehensive (loss) income
Total shareholders' equity
Total liabilities and shareholders' equity
Investor Relations Contact:
SOURCE KKR Financial Holdings LLC