8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 1, 2010

KKR Financial Holdings LLC

(Exact name of registrant as specified in its charter)

Delaware	001-33437	11-3801844
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

555 California Street, 50th Floor
San Francisco, California	94104
(Address of principal executive offices)	(Zip Code)

415-315-3620

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02  Results of Operations and Financial Condition.

On March 1, 2010, KKR Financial Holdings LLC (the “Company”) issued an earnings release announcing its financial results for the fourth quarter and year ended December 31, 2009. A copy of the earnings release is attached as Exhibit 99.1.

The information contained in this current report and the attached press release is “furnished” but not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

ITEM 9.01  Financial Statements and Exhibits.

(d)          Exhibits

The following documents are attached as exhibits to this Current Report on Form 8-K:

EXHIBIT INDEX

Exhibit Number	Description
99.1	Earnings release regarding the financial results for the fourth quarter and year ended December 31, 2009.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: This current report and the attached press release contain 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 include, but are not limited to, statements related to the Company’s use of proceeds of certain financing transactions.  These forward-looking statements are based on information available to the Company as of the date of this current report 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 current report 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.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

		KKR Financial Holdings LLC
		(Registrant)
Date:  March 1, 2010		/s/ JEFFREY B. VAN HORN
	By:	Jeffrey B. Van Horn
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

3

EX-99.1

Exhibit 99.1

Investor Contact	Media Contact
Laurie Poggi	Peter McKillop/Kristi Huller
415-315-3718	media@kkr.com
	212-750-8300

KKR Financial Holdings LLC Announces Fourth Quarter and Full Year 2009 Financial Results

SAN FRANCISCO, CA, March 1, 2010—KKR Financial Holdings LLC (NYSE: KFN) (“KFN” or the “Company”) today announced its results for the fourth quarter and year ended December 31, 2009.

Fourth Quarter and Full Year 2009 Highlights

·Net income for the fourth quarter ended December 31, 2009 of $2.1 million, or $0.01 per diluted common share, as compared to net loss for the fourth quarter ended December 31, 2008 of $1.2 billion, or a loss of $7.85 per diluted common share. Net income for the year ended December 31, 2009 of $76.9 million, or $0.50 per diluted common share, as compared to net loss for the year ended December 31, 2008 of $1.1 billion, or a loss of $7.69 per diluted common share.

·Book value per common share of $7.37 as of December 31, 2009 as compared to book value per common share of $7.01 and $4.40 as of September 30, 2009 and December 31, 2008, respectively.

KFN’s fourth quarter 2009 results reflect net investment income of $80.1 million, partially offset by other losses of $62.9 million and non-investment expenses of $15.0 million. Other losses totaling $62.9 million primarily consist of the following: (i) net realized and unrealized loss on investments in residential mortgage-backed securities, residential mortgage loans and residential mortgage-backed securities issued, at estimated fair value, totaling $62.5 million, primarily attributable to charges the Company is recognizing on the value of its residential mortgage-backed securities portfolio; (ii) net realized and unrealized loss on investments totaling $6.7 million, consisting of lower of cost or market adjustments on loans transferred to held for sale of $12.1 million and other-than-temporary impairment charges on securities of $3.9 million, partially offset by net realized and unrealized gains from investments of $9.3 million; and (iii) net realized and unrealized gain from derivative positions and foreign exchange totaling $2.1 million.

For the year ended December 31, 2009, KFN reported net investment income of $243.6 million, partially offset by other losses of $96.3 million and non-investment expenses of $70.1 million. Other losses totaling $96.3 million consist of the following: (i) net realized and unrealized loss on investments in residential mortgage-backed securities, residential mortgage loans and residential mortgage-backed securities issued, at estimated fair value, totaling $107.0 million; (ii) net realized and unrealized loss on investments totaling $92.3 million; (iii) net realized and unrealized gain from derivative positions and foreign exchange totaling $60.9 million; and (iv) net gain on restructuring and extinguishment of debt totaling $30.8 million.

Investment Portfolio

The Company’s corporate debt investment portfolio, consisting of corporate loans and high yield bonds, had an aggregate par balance of $8.2 billion and an aggregate estimated fair value of $7.2 billion as of December 31, 2009. In comparison, the par value of the Company’s corporate debt investment portfolio totaled $9.7 billion with an estimated fair value of $5.7 billion as of December 31, 2008.

As of December 31, 2009, the Company’s corporate debt investments not held in its collateralized loan obligation (“CLO”) subsidiaries had an aggregate par value of $759.6 million and an estimated fair value of $588.5 million. In comparison, the aggregate par value of the Company’s investment portfolio not held in its CLO subsidiaries totaled $539.4 million with an estimated fair value of $196.7 million as of December 31, 2008.

Liquidity

As of December 31, 2009, the Company’s unrestricted cash and cash equivalents totaled $97.1 million, as compared to $41.4 million as of December 31, 2008.

On January 15, 2010, the Company issued $172.5 million of 7.50% convertible senior notes. The 7.50% convertible senior notes mature on January 15, 2017. Net proceeds from this offering, totaling $167.3 million, are expected to be used to repurchase or repay some or all of the Company’s existing senior indebtedness with the remainder to be used for general corporate purposes. Since the closing of this transaction, the Company has repurchased approximately $95.2 million par amount of its 7.00% convertible notes due 2012 and has reduced borrowings outstanding under its senior secured credit facility from $175.0 million as of December 31, 2009 to $150.0 million.

Shareholders’ Equity and Book Value per Common Share

The Company’s shareholders’ equity increased $0.5 billion from $0.7 billion as of December 31, 2008 to $1.2 billion as of December 31, 2009. The Company’s book value per common share was $7.37 as of December 31, 2009, as compared to $4.40 as of December 31, 2008.

Information for Investors: Conference Call and Webcast

The Company will host a conference call and audio webcast to review its fourth quarter and year end 2009 results on March 1, 2010, at 5:00 p.m. EST. The conference call may be accessed by dialing (800) 218-2154 (Domestic) or (913) 312-9308 (International); a pass code is not required. A telephonic replay of the call will be available through March 15, 2010 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 7428799. 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. 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. 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.

“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 include, but are not limited to, statements related to the Company’s use of proceeds of certain financing transactions. 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.

Schedule I

KKR Financial Holdings LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except per share information)

	For the three			For the three
	months ended			months ended			For the year ended			For the year ended
	December 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008
Net investment income (loss):
Loan interest income	$	112,461		$	188,667		$	477,044		$	777,510
Securities interest income	20,957			36,761			94,762			145,865
Other interest income	95			2,442			919			25,213
Total investment income	133,513			227,870			572,725			948,588
Interest expense	(48,462		)	(121,106		)	(268,087		)	(521,313		)
Interest expense to affiliates	(4,932		)	23,018			(21,287		)	(43,301		)
Provision for loan losses	—			(471,488		)	(39,795		)	(481,488		)
Net investment income (loss)	80,119			(341,706		)	243,556			(97,514		)
Other loss:
Net realized and unrealized loss on investments	(6,711		)	(745,500		)	(92,287		)	(804,754		)
Net realized and unrealized gain (loss) on derivatives and foreign exchange	2,077			(72,851		)	60,908			(141,319		)
Net realized and unrealized loss on residential mortgage-backed securities, residential mortgage loans, and residential mortgage-backed securities issued, carried at estimated fair value	(62,483		)	(34,248		)	(107,028		)	(48,899		)
Net realized and unrealized gain on securities sold, not yet purchased	662			27,405			3,582			50,297
Net gain on restructuring and extinguishment of debt	—			6,205			30,836			26,486
Other income	3,564			3,413			7,714			11,352
Total other loss	(62,891		)	(815,576		)	(96,275		)	(906,837		)
Non-investment expenses:
Related party management compensation	8,191			7,313			44,323			36,670
General, administrative and directors expenses	3,476			4,943			10,393			19,038
Loan servicing	1,844			2,210			7,961			9,444
Professional services	1,468			3,835			7,384			8,098
Total non-investment expenses	14,979			18,301			70,061			73,250
Income (loss) from continuing operations before income tax (expense) benefit	2,249			(1,175,583		)	77,220			(1,077,601		)
Income tax (expense) benefit	(133		)	9			(284		)	(107		)
Income (loss) from continuing operations	2,116			(1,175,574		)	76,936			(1,077,708		)
Income from discontinued operations	—			—			—			2,668
Net income (loss)	$	2,116		$	(1,175,574	)	$	76,936		$	(1,075,040	)
Net income (loss) per common share:
Basic
Income (loss) per share from continuing operations	$	0.01		$	(7.85	)	$	0.50		$	(7.71	)
Income per share from discontinued operations	$	—		$	—		$	—		$	0.02
Net income (loss) per share	$	0.01		$	(7.85	)	$	0.50		$	(7.69	)
Diluted
Income (loss) per share from continuing operations	$	0.01		$	(7.85	)	$	0.50		$	(7.71	)
Income per share from discontinued operations	$	—		$	—		$	—		$	0.02
Net income (loss) per share	$	0.01		$	(7.85	)	$	0.50		$	(7.69	)
Weighted-average number of common shares outstanding:
Basic	156,997			149,708			153,756			140,027
Diluted	156,997			149,708			153,756			140,027

Schedule II

KKR Financial Holdings LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share information)

	December 31, 2009			December 31, 2008
Assets
Cash and cash equivalents	$	97,086		$	41,430
Restricted cash and cash equivalents	342,706			1,233,585
Securities available-for-sale, $740,949 and $553,441 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively	755,686			555,965
Corporate loans, net of allowance for loan losses of $237,308 and $480,775 as of December 31, 2009 and December 31, 2008, respectively	5,617,925			7,246,797
Corporate loans held for sale	925,718			324,649
Residential mortgage-backed securities, at estimated fair value, $47,572 and $102,814 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively	47,572			102,814
Residential mortgage loans, at estimated fair value	2,097,699			2,620,021
Equity investments, at estimated fair value, $110,812 and $5,287 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively	120,269			5,287
Derivative assets	15,784			73,869
Interest and principal receivable	98,313			116,788
Reverse repurchase agreements	80,250			88,252
Other assets	100,997			105,625
Total assets	$	10,300,005		$	12,515,082
Liabilities
Collateralized loan obligation senior secured notes	$	5,650,406		$	7,487,611
Collateralized loan obligation junior secured notes to affiliates	533,786			655,313
Collateralized loan obligation junior secured notes	17,310			—
Senior secured credit facility	175,000			275,633
Convertible senior notes	275,800			291,500
Junior subordinated notes	283,517			288,671
Residential mortgage-backed securities issued, at estimated fair value	2,034,772			2,462,882
Accounts payable, accrued expenses and other liabilities	7,240			60,124
Accrued interest payable	25,297			61,119
Accrued interest payable to affiliates	2,911			3,987
Related party payable	3,367			2,876
Securities sold, not yet purchased	77,971			90,809
Derivative liabilities	45,970			171,212
Total liabilities	9,133,347			11,851,737
Shareholders’ Equity
Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at December 31, 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 December 31, 2009 and December 31, 2008, respectively	—			—
Paid-in-capital	2,563,634			2,550,849
Accumulated other comprehensive income (loss)	152,728			(268,782		)
Accumulated deficit	(1,549,704		)	(1,618,722		)
Total shareholders’ equity	1,166,658			663,345
Total liabilities and shareholders’ equity	$	10,300,005		$	12,515,082