KKR Financial Holdings LLC Announces Second Quarter 2010 Financial Results and Quarterly Distribution of $0.12 per Common Share
SAN FRANCISCO, Aug. 4 /PRNewswire-FirstCall/ -- KKR Financial Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today announced its results for the second quarter ended June 30, 2010.
Second Quarter 2010 Highlights
- Net income for the three months ended June 30, 2010 of $81.0 million, or $0.51 per diluted common share.
- Declared a cash distribution of $0.12 per common share for the second quarter of 2010.
- During May 2010, the Company replaced its $150.0 million secured credit facility, due to mature in November 2011, with a $250.0 million four year secured revolving credit facility, due to mature in May 2014.
For the three and six months ended June 30, 2010, KFN reported net income of $81.0 million, or $0.51 per diluted common share, and $210.5 million, or $1.33 per diluted common share, respectively. For the three and six months ended June 30, 2009, net income totaled $20.6 million, or $0.14 per diluted common share, and $7.6 million, or $0.05 per diluted common share, respectively.
KFN's second quarter 2010 results reflect net investment income of $76.8 million and other income of $23.2 million, partially offset by other non-investment expenses of $18.9 million. Other income totaling $23.2 million consists of the following: (i) net realized and unrealized gains on investments of $28.9 million primarily due to realized gains from the sale of certain corporate debt securities; (ii) net realized and unrealized losses from derivative positions and foreign exchange totaling $5.9 million; (iii) net realized and unrealized losses on investments in residential mortgage-backed securities totaling $4.1 million; and (iv) other income primarily from holdings related fees totaling $4.2 million.
Portfolio Review and CLO Subsidiaries
The Company's portfolio primarily consists of corporate debt securities and below investment grade corporate loans, often referred to as syndicated bank loans or leveraged loans. These investments have an aggregate par balance of $8.1 billion and an aggregate estimated fair value of $7.2 billion as of June 30, 2010.
The majority of the Company's portfolio is held through its collateralized loan obligation ("CLO") subsidiaries that are structured as on-balance sheet securitizations and are used as long term financing for its portfolio assets. As of June 30, 2010, the Company's CLOs held corporate debt securities and loans with an aggregate par of $7.4 billion and an estimated fair value of $6.7 billion. In comparison, the Company's CLOs held corporate debt securities and loans with an aggregate par of $7.3 billion (estimated fair value of $6.7 billion) and an aggregate par of $7.4 billion (estimated fair value of $6.6 billion) as of March 31, 2010 and December 31, 2009, respectively.
As of June 30, 2010, the Company's corporate debt securities and loans not held in CLOs had an aggregate par of $681.5 million and an estimated fair value of $532.9 million. In comparison, the aggregate par value of the Company's corporate debt securities and loans not held in CLOs totaled $719.5 million (estimated fair value of $582.6 million) and $759.6 million (estimated fair value of $588.5 million) as of March 31, 2010 and December 31, 2009, respectively.
Distributions
On August 4, 2010, the Company's board of directors declared a cash distribution for the quarter ended June 30, 2010 on the Company's common shares of $0.12 per share. The distribution is payable on September 1, 2010 to common shareholders of record as of the close of business on August 18, 2010.
Book Value
The Company's book value per common share decreased to $8.08 as of June 30, 2010 from $8.31 as of March 31, 2010. The decline in book value per share is primarily attributable to a decline in accumulated other comprehensive income, a component of shareholders' equity, due to a reduction in the estimated fair values of corporate debt securities and certain interest rate swaps designated by the Company as cash-flow hedges.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its results for the second quarter ended June 30, 2010 on August 4, 2010, at 5:00 p.m. EDT. The conference call may be accessed by dialing (800) 401-3551 (Domestic) or (913) 312-0713 (International); a pass code is not required. A telephonic replay of the call will be available through August 18, 2010 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 7047639. 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.
About KKR Financial Holdings LLC
KKR Financial Holdings LLC is a publicly traded specialty finance company. KFN's core business strategy focuses on corporate debt throughout the capital structure with a particular emphasis on debt issued by large capitalization firms with broad geographic and product offerings. KFN executes its core business strategy through its majority-owned subsidiaries. Additionally, KFN has made or may make investments in other asset classes including natural resources and real estate. KKR Financial Holdings LLC is externally managed by KKR Financial Advisors LLC, a wholly-owned subsidiary of KKR Asset Management LLC (formerly known as 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.
"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, 2009, filed with the SEC on March 1, 2010 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed with the SEC on August 4, 2010.
Schedule I | ||||||||||||||
For the three | For the three | For the six | For the six | |||||||||||
Net investment income: | ||||||||||||||
Loan interest income | $ | 94,002 | $ | 121,919 | $ | 185,998 | $ | 251,123 | ||||||
Securities interest income | 26,400 | 23,252 | 53,661 | 52,104 | ||||||||||
Other interest income | 1,964 | 132 | 2,057 | 749 | ||||||||||
Total investment income | 122,366 | 145,303 | 241,716 | 303,976 | ||||||||||
Interest expense | (38,851) | (72,403) | (70,351) | (162,285) | ||||||||||
Interest expense to affiliates | (6,740) | (5,379) | (11,281) | (11,184) | ||||||||||
Provision for loan losses | — | (12,808) | — | (39,795) | ||||||||||
Net investment income | 76,775 | 54,713 | 160,084 | 90,712 | ||||||||||
Other income (loss): | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 28,939 | (46,553) | 64,362 | (106,757) | ||||||||||
Net realized and unrealized (loss) gain on derivatives and foreign exchange | (5,850) | 26,505 | (7,268) | 38,901 | ||||||||||
Net realized and unrealized loss on residential mortgage-backed securities, residential mortgage loans, and residential mortgage-backed securities issued, carried at estimated fair value | (4,111) | (7,445) | (9,256) | (26,864) | ||||||||||
Net realized and unrealized gain (loss) on securities sold, not yet purchased | — | 2,479 | (756) | 3,916 | ||||||||||
Net gain on restructuring and extinguishment of debt | — | 6,892 | 39,999 | 41,463 | ||||||||||
Other income | 4,218 | 1,578 | 7,222 | 2,911 | ||||||||||
Total other income (loss): | 23,196 | (16,544) | 94,303 | (46,430) | ||||||||||
Non-investment expenses: | ||||||||||||||
Related party management compensation | 14,476 | 10,304 | 34,967 | 21,516 | ||||||||||
General, administrative and directors expenses | 3,216 | 2,975 | 6,566 | 5,378 | ||||||||||
Professional services | 1,230 | 2,090 | 2,294 | 5,475 | ||||||||||
Loan servicing | — | 2,056 | — | 4,192 | ||||||||||
Total non-investment expenses | 18,922 | 17,425 | 43,827 | 36,561 | ||||||||||
Income before income tax expense | 81,049 | 20,744 | 210,560 | 7,721 | ||||||||||
Income tax expense | (21) | (135) | (37) | (88) | ||||||||||
Net income | $ | 81,028 | $ | 20,609 | 210,523 | $ | 7,633 | |||||||
Net income per common share: | ||||||||||||||
Basic | $ | 0.51 | $ | 0.14 | $ | 1.33 | $ | 0.05 | ||||||
Diluted | $ | 0.51 | $ | 0.14 | $ | 1.33 | $ | 0.05 | ||||||
Weighted-average number of common shares outstanding: | ||||||||||||||
Basic | 156,997 | 151,202 | 156,997 | 150,462 | ||||||||||
Diluted | 157,423 | 151,202 | 157,210 | 150,462 | ||||||||||
Distributions declared per common share | $ | 0.10 | $ | — | $ | 0.17 | $ | — | ||||||
Schedule II | ||||||||
June 30, | December 31, | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 141,844 | $ | 97,086 | ||||
Restricted cash and cash equivalents | 236,987 | 342,706 | ||||||
Securities available-for-sale, $799,993 and $740,949 pledged as collateral as of June 30, 2010 and December 31, 2009, respectively | 840,507 | 755,686 | ||||||
Corporate loans, net of allowance for loan losses of $210,218 and $237,308 as of June 30, 2010 and December 31, 2009, respectively | 5,621,416 | 5,617,925 | ||||||
Corporate loans held for sale | 895,205 | 925,718 | ||||||
Residential mortgage-backed securities, at estimated fair value, $4,210 and $47,572 pledged as collateral as of June 30, 2010 and December 31, 2009, respectively | 107,081 | 47,572 | ||||||
Residential mortgage loans, at estimated fair value | — | 2,097,699 | ||||||
Equity investments, at estimated fair value, $16,359 and $110,812 pledged as collateral as of June 30, 2010 and December 31, 2009, respectively | 86,131 | 120,269 | ||||||
Derivative assets | 5,014 | 15,784 | ||||||
Interest and principal receivable | 72,774 | 98,313 | ||||||
Reverse repurchase agreements | — | 80,250 | ||||||
Other assets | 79,255 | 100,997 | ||||||
Total assets | $ | 8,086,214 | $ | 10,300,005 | ||||
Liabilities | ||||||||
Collateralized loan obligation secured notes | $ | 5,629,988 | $ | 5,667,716 | ||||
Collateralized loan obligation junior secured notes to affiliates | 375,502 | 533,786 | ||||||
Senior secured credit facility | 50,176 | 175,000 | ||||||
Convertible senior notes | 343,590 | 275,800 | ||||||
Junior subordinated notes | 283,517 | 283,517 | ||||||
Residential mortgage-backed securities issued, at estimated fair value | — | 2,034,772 | ||||||
Accounts payable, accrued expenses and other liabilities | 12,445 | 7,240 | ||||||
Accrued interest payable | 23,728 | 25,297 | ||||||
Accrued interest payable to affiliates | 4,616 | 2,911 | ||||||
Related party payable | 11,698 | 3,367 | ||||||
Securities sold, not yet purchased | — | 77,971 | ||||||
Derivative liabilities | 70,827 | 45,970 | ||||||
Total liabilities | 6,806,087 | 9,133,347 | ||||||
Shareholders' Equity | ||||||||
Preferred shares, no par value, 50,000,000 shares authorized and none issued and | — | — | ||||||
Common shares, no par value, 500,000,000 shares authorized, and 158,359,757 and | — | — | ||||||
Paid-in-capital | 2,576,813 | 2,563,634 | ||||||
Accumulated other comprehensive income | 69,416 | 152,728 | ||||||
Accumulated deficit | (1,366,102) | (1,549,704) | ||||||
Total shareholders' equity | 1,280,127 | 1,166,658 | ||||||
Total liabilities and shareholders' equity | $ | 8,086,214 | $ | 10,300,005 | ||||
Investor Contact | |
Laurie Poggi | |
415-315-3718 | |
Media Contact | |
Peter McKillop/Kristi Huller | |
212-750-8300 | |
SOURCE KKR Financial Holdings LLC
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