KKR Financial Holdings LLC Announces First Quarter 2011 Financial Results and Quarterly Distribution of $0.16 per Common Share
SAN FRANCISCO, May 2, 2011 /PRNewswire/ -- KKR Financial Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today announced its results for the first quarter ended March 31, 2011.
First Quarter 2011 Highlights
- Net income for the first quarter ended March 31, 2011 totaled $93.8 million, or $0.51 per diluted common share.
- Declared a cash distribution of $0.16 per common share for the first quarter of 2011.
- Book value per common share of $9.73 as of March 31, 2011.
- As of March 31, 2011, the Company's corporate debt portfolio had an estimated fair value of 97% of par value, which exceeded the Company's reported carrying value of 92% of par value.
For the three months ended March 31, 2011 and 2010, KFN reported net income of $93.8 million, or $0.51 per diluted common share, and $129.5 million, or $0.82 per diluted common share, respectively. KFN's first quarter 2011 results reflected net investment income of $79.5 million, other income of $46.4 million and non-investment expenses of $30.8 million. Comparatively, KFN's first quarter 2010 results reflected net investment income of $83.3 million, other income of $71.1 million and non-investment expenses of $24.9 million. The $35.7 million change in net income was due to two primary factors. First, net investment income for the three months ended March 31, 2011 included a provision for loan losses of $11.7 million, while no provision for loan losses was recorded for the three months ended March 31, 2010. And second, other income of $71.1 million for the three months ended March 31, 2010 included a one-time net gain on restructuring and extinguishment of debt of $40.0 million primarily related to the purchase of notes issued by KKR Financial CLO 2007-1, Ltd. and KKR Financial CLO 2007-A, Ltd.
Portfolio Review and CLO Subsidiaries
The Company deploys capital to its strategies, which include bank loans and high yield securities, mezzanine, special situations, natural resources, commercial real estate and private equity. The Company's holdings across these strategies primarily consist of below investment grade syndicated corporate loans, also known as leveraged loans, high yield debt securities and private equity. In addition to these financial instruments, the Company also deploys capital to both working and royalty interests in oil and gas properties through its natural resources strategy.
The majority of the Company's holdings consist of corporate loans and high yield debt securities, which comprise the Company's corporate debt investment portfolio. These holdings have an aggregate par value of $7.9 billion and an aggregate estimated fair value of $7.7 billion as of March 31, 2011 and an aggregate par value of $7.8 billion and an aggregate estimated fair value of $7.4 billion as of December 31, 2010. As of March 31, 2011, the Company's corporate debt portfolio had an estimated fair value of 97% of par value, which exceeded the carrying value on the Company's balance sheet of 92% of par value. In comparison, the Company's corporate debt portfolio had an estimated fair value of 95% of par value and was carried on the Company's balance sheet at 92% of par value as of December 31, 2010.
The majority of the Company's corporate debt portfolio is held through collateralized loan obligation ("CLO") transactions that are structured as on-balance sheet securitizations and are used as long term financing for the Company's investments in corporate debt. As of March 31, 2011, the Company's CLOs held corporate debt securities and loans with an aggregate par value of $7.2 billion and an estimated fair value of $7.1 billion. In comparison, the Company's CLOs held corporate debt securities and loans with an aggregate par value of $7.1 billion with an estimated fair value of $6.8 billion as of December 31, 2010.
In addition to the above, the Company owns corporate debt securities and loans not held in CLOs with an aggregate par value of $715.7 million and an estimated fair value of $641.1 million. In comparison, the aggregate par value of the Company's corporate debt securities and loans not held in CLOs totaled $664.9 million with an estimated fair value of $574.6 million as of December 31, 2010.
Book Value
The Company's book value per common share increased to $9.73 as of March 31, 2011 from $9.24 as of December 31, 2010. The increase in book value per share of $0.49 was primarily driven by the Company's earnings for the quarter of $0.51 per diluted common share and an increase in the Company's accumulated other comprehensive income, a component of shareholders' equity, of $0.12 per share outstanding as a result of quarterly appreciation in the values of the Company's high yield debt securities and interest rate swaps designated as cash flow hedges, offset by a quarterly distribution to shareholders of $0.15 per common share.
Distributions
On April 27, 2011, the Company's board of directors declared a cash distribution of $0.16 per common share for the quarter ended March 31, 2011. The distribution is payable on May 27, 2011 to common shareholders of record as of the close of business on May 13, 2011.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its results for the first quarter ended March 31, 2011 on May 2, 2011, at 2:00 p.m. PT (5:00 p.m. ET). The conference call may be accessed by dialing (888) 312-9858 (Domestic) or +1 (719) 325-2235 (International); a pass code is not required. A telephonic replay of the call will be available through May 16, 2011 by dialing (888) 203-1112 (Domestic) and +1 (719) 457-0820 (International) / pass code 5751609. 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/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.
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 KKR Financial Holdings LLC 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. 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 March 31, 2011, filed with the SEC on May 2, 2011.
Schedule I KKR Financial Holdings LLC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share information) | |||
For the three months ended | For the three months ended | ||
Net investment income: | |||
Loan interest income | $109,645 | $91,996 | |
Securities interest income | 22,556 | 27,261 | |
Other investment income | 3,129 | 93 | |
Total investment income | 135,330 | 119,350 | |
Interest expense | 32,121 | 31,500 | |
Interest expense to affiliates | 12,096 | 4,541 | |
Provision for loan losses | 11,661 | - | |
Net investment income | 79,452 | 83,309 | |
Other income: | |||
Net realized and unrealized gain on investments | 39,184 | 34,667 | |
Net realized and unrealized gain (loss) on derivatives and foreign exchange | 6,067 | (1,418) | |
Net realized and unrealized loss on residential mortgagebacked securities, residential mortgage loans, and residential mortgagebacked securities issued, carried at estimated fair value | (738) | (5,145) | |
Net gain on restructuring and extinguishment of debt | - | 39,999 | |
Other income | 1,923 | 3,004 | |
Total other income | 46,436 | 71,107 | |
Non-investment expenses: | |||
Related party management compensation | 21,201 | 20,491 | |
General, administrative and directors expenses | 8,171 | 3,350 | |
Professional services | 1,432 | 1,064 | |
Total non-investment expenses | 30,804 | 24,905 | |
Income before income tax expense | 95,084 | 129,511 | |
Income tax expense | 1,317 | 16 | |
Net income | $93,767 | $129,495 | |
Net income per common share: | |||
Basic | $0.53 | $0.82 | |
Diluted | $0.51 | $0.82 | |
Weighted-average number of common shares outstanding: | |||
Basic | 177,075 | 156,997 | |
Diluted | 181,292 | 156,997 | |
Schedule II KKR Financial Holdings LLC CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share information) | |||
March 31, 2011 | December 31, 2010 | ||
Assets | |||
Cash and cash equivalents | $129,332 | $313,829 | |
Restricted cash and cash equivalents | 591,580 | 571,425 | |
Securities available-for-sale, $745,232 and $728,558 pledged as collateral as of March 31, 2011 and December 31, 2010, respectively | 846,676 | 838,894 | |
Corporate loans, net of allowance for loan losses of $198,582 and $209,030 as of March 31, 2011 and December 31, 2010, respectively | 5,632,057 | 5,857,816 | |
Corporate loans held for sale | 869,808 | 463,628 | |
Residential mortgagebacked securities, at estimated fair value | 90,369 | 93,929 | |
Equity investments, at estimated fair value, $15,824 and $12,036 pledged as collateral as of March 31, 2011 and December 31, 2010, respectively | 147,462 | 99,955 | |
Derivative assets | 23,921 | 19,519 | |
Interest and principal receivable | 45,898 | 57,414 | |
Other assets | 153,835 | 102,003 | |
Total assets | $8,530,938 | $8,418,412 | |
Liabilities | |||
Collateralized loan obligation secured debt | $5,646,037 | $5,630,272 | |
Collateralized loan obligation junior secured notes to affiliates | 365,848 | 366,124 | |
Credit facilities | 18,400 | 18,400 | |
Convertible senior notes | 344,428 | 344,142 | |
Junior subordinated notes | 283,517 | 283,517 | |
Accounts payable, accrued expenses and other liabilities | 23,887 | 14,193 | |
Accrued interest payable | 16,233 | 22,846 | |
Accrued interest payable to affiliates | 7,064 | 6,316 | |
Related party payable | 15,766 | 12,988 | |
Derivative liabilities | 76,733 | 76,566 | |
Total liabilities | 6,797,913 | 6,775,364 | |
Shareholders' Equity | |||
Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at March 31, 2011 and December 31, 2010 | - | - | |
Common shares, no par value, 500,000,000 shares authorized, and 178,127,870 and 177,848,565 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively | - | - | |
Paid-in-capital | 2,758,033 | 2,756,200 | |
Accumulated other comprehensive income | 154,692 | 133,596 | |
Accumulated deficit | (1,179,700) | (1,246,748) | |
Total shareholders' equity | 1,733,025 | 1,643,048 | |
Total liabilities and shareholders' equity | $8,530,938 | $8,418,412 | |
Investor Contact
Angela Yang
415-315-6567
Media Contact
Kristi Huller
[email protected]
212-750-8300
SOURCE KKR Financial Holdings LLC
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