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): November 3, 2011
KKR Financial Holdings LLC
(Exact name of registrant as specified in its charter)
Delaware |
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001-33437 |
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11-3801844 |
(State or other jurisdiction of |
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(Commission File Number) |
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(I.R.S. Employer Identification No.) |
555 California Street, 50th Floor |
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San Francisco, California |
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94104 |
(Address of principal executive offices) |
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(Zip Code) |
415-315-3620
(Registrants 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):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-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 November 3, 2011, KKR Financial Holdings LLC (the Company) issued an earnings release announcing its financial results for the third quarter ended September 30, 2011. A copy of the earnings release is attached as Exhibit 99.1.
The information contained in this Item 2.02 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 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On November 3, 2011, the Company issued a press release announcing that, effective November 3, 2011, Robert L. Edwards was appointed to the Companys board of directors. Mr. Edwards has also been appointed to serve on the Audit Committee of the board of directors.
A copy of the press release is attached to this Current Report as Exhibit 99.2 and is incorporated herein by reference solely for the purpose of this Item 5.02.
ITEM 8.01 Other Events.
On November 3, 2011, the Companys board of directors declared a cash distribution of $0.18 per common share. The distribution is payable on December 1, 2011 to common shareholders of record as of the close of business on November 17, 2011.
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 |
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Description |
99.1 |
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Earnings release regarding the financial results for the third quarter ended September 30, 2011. |
99.2 |
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Press Release, dated November 3, 2011, announcing the appointment of Robert L. Edwards as a member of the Companys Board of Directors. |
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This current report 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 current report and actual results may differ. These forward-looking statements involve known and unknown risks, uncertainties and other factors beyond the Companys 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 Companys business in general, please refer to the Companys 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.
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.
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KKR Financial Holdings LLC |
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(Registrant) |
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Date: November 3, 2011 |
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/s/ MICHAEL R. MCFERRAN |
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By: |
Michael R. McFerran |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 99.1
KKR Financial Holdings LLC Announces Third Quarter 2011 Financial Results and
Quarterly Distribution of $0.18 per Common Share
SAN FRANCISCO, CA, November 3, 2011KKR Financial Holdings LLC (NYSE: KFN) (KFN or the Company) today announced its results for the third quarter ended September 30, 2011.
Third Quarter 2011 Highlights
· Net investment income increased 10.6% to $86.6 million for the third quarter of 2011 compared to the same period in 2010.
· Net investment income less non-investment expenses increased 22.4% to $68.7 million for the third quarter of 2011 compared to the same period in 2010.
· Declared a cash distribution of $0.18 per common share for the third quarter of 2011.
· KFN received a BBB rating from Fitch Ratings and a BBB- rating from Standard & Poors, in each case with a stable outlook.
For the three and nine months ended September 30, 2011, KFN reported net income of $39.8 million, or $0.22 per diluted common share, and $241.1 million, or $1.32 per diluted common share, respectively. Comparatively, for the three and nine months ended September 30, 2010, KFN reported net income of $82.3 million, or $0.52 per diluted common share, and $292.9 million, or $1.85 per diluted common share, respectively.
KFNs third quarter 2011 results included net investment income of $86.6 million, other loss of $29.3 million and non-investment expenses of $17.9 million. Comparatively, KFNs third quarter 2010 results reflected net investment income of $78.3 million, other income of $26.6 million and non-investment expenses of $22.2 million. Net investment income increased $8.3 million, or 10.6%, from the three months ended September 30, 2010 to 2011. The increase was primarily attributable to revenue earned on the Companys working and royalty interests in oil and gas properties. Other loss of $29.3 million included net realized gains from corporate debt securities sales in July 2011 totaling $33.6 million, which were more than offset by unrealized losses consisting of mark-to-market losses on the Companys equities portfolio of $13.5 million and a $43.8 million lower of cost or estimated fair value charge for loans classified as held for sale. These unrealized losses are attributable to declines in equity and credit prices that occurred during the third quarter of 2011. Additionally, KFNs results were negatively impacted by foreign currency translation losses totaling $7.5 million, which were also included in other loss for the quarter.
KFNs results for the nine months ended September 30, 2011 included net investment income of $254.8 million, other income of $79.7 million and non-investment expenses of $85.1 million. Comparatively, KFNs results for the nine months ended September 30, 2010 reflected net investment income of $238.4 million, other income of $120.9 million and non-investment expenses of $66.0 million. The $51.8 million decrease in net income was primarily due to the factors affecting KFNs third quarter results discussed above and the absence of an aggregate one-time gain on extinguishment of debt totaling $38.7 million that was recorded during the nine months ended September 30, 2010, related to the purchase of certain notes issued by two CLOs.
KKR Financial CLO 2011-1, Ltd. (CLO 2011-1)
On July 8, 2011, the Company announced that it had upsized CLO 2011-1 to $600.0 million from $400.0 million. The increase in the transaction size is a result of an amendment to the transaction whereby CLO 2011-1 is now able to borrow up to $450.0 million representing an increase of $150.0 million from what was previously available under the securitization. In addition, the Company increased its residual interest in the transaction from $100.0 million to $150.0 million through the acquisition of an additional $50.0 million of subordinated notes issued by CLO 2011-1. As of September 30, 2011, CLO 2011-1 had completed its ramp up by deploying $589.4 million to acquire senior secured corporate loans.
Debt Transactions
During the third quarter ended September 30, 2011, the Company repurchased $45.1 million par amount of its 7.0% convertible senior notes due July 15, 2012 (the 7.0% Notes). This transaction resulted in the Company recording a loss of $1.7 million and a write-off of $0.1 million of unamortized debt issuance costs during the three months ended September 30, 2011. As of September 30, 2011, the Company had committed to purchase an additional $1.2 million par amount of its 7.0% Notes.
Book Value
Book value per share decreased $0.77 from $9.91 as of June 30, 2011 to $9.14 as of September 30, 2011. The decrease in book value per share from June 30, 2011 was primarily driven by a decrease in the Companys accumulated other comprehensive income, a component of shareholders equity, of $0.81 per share primarily as a result of declines in value of its securities-available-for sale and interest rate swaps designated as cash flow hedges, as well as the Companys quarterly distribution to shareholders of $0.18 per common share, partially offset by its earnings for the quarter of $0.22 per common share.
Corporate Rating
On November 3, 2011, KFN received a BBB rating from Fitch Ratings and a BBB- rating from Standard & Poors, in each case with a stable outlook.
Distributions
On November 3, 2011, the Companys board of directors declared a cash distribution of $0.18 per common share for the quarter ended September 30, 2011. The distribution is payable on December 1, 2011 to common shareholders of record as of the close of business on November 17, 2011.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its results for the third quarter ended September 30, 2011 on November 3, 2011, at 2:00 p.m. PT (5:00 p.m. ET). The conference call may be accessed by dialing (877) 723-9511 (Domestic) or +1 (719) 325-4923 (International); a pass code is not required. A telephonic replay of the call will be available through November 17, 2011 by dialing (888) 203-1112 (Domestic) and +1 (719) 457-0820 (International) / pass code 6249213. 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 Companys 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 Companys 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 KFNs 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. KFNs 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. 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 Companys 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 Companys business in general, please refer to the Companys 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.
Schedule I
KKR Financial Holdings LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share information)
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For the three |
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For the three |
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For the nine |
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For the nine |
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Net investment income: |
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|
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Loan interest income |
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$ |
104,197 |
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$ |
96,814 |
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$ |
316,498 |
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$ |
282,812 |
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Securities interest income |
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20,143 |
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25,406 |
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64,772 |
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79,067 |
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Other investment income |
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10,100 |
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29 |
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24,343 |
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2,086 |
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Total investment income |
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134,440 |
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122,249 |
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405,613 |
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363,965 |
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Interest expense |
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32,604 |
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30,051 |
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97,703 |
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100,402 |
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Interest expense to affiliates |
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12,688 |
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5,791 |
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38,926 |
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17,072 |
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Provision for loan losses |
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2,533 |
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8,087 |
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14,194 |
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8,087 |
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Net investment income |
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86,615 |
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78,320 |
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254,790 |
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238,404 |
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Other (loss) income: |
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|
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Net realized and unrealized (loss) gain on investments |
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(24,531 |
) |
19,441 |
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73,194 |
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83,047 |
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Net realized and unrealized (loss) gain on derivatives and foreign exchange |
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(7,603 |
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3,831 |
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(295 |
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(3,437 |
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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 |
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2,274 |
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1,492 |
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2,145 |
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(7,764 |
) | ||||
Net (loss) gain on restructuring and extinguishment of debt |
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(1,736 |
) |
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(1,736 |
) |
39,999 |
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Other income |
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2,290 |
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1,863 |
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6,400 |
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9,085 |
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Total other (loss) income |
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(29,306 |
) |
26,627 |
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79,708 |
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120,930 |
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Non-investment expenses: |
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Related party management compensation |
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8,198 |
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17,551 |
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53,714 |
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52,518 |
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General, administrative and directors expenses |
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8,554 |
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3,561 |
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27,092 |
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10,127 |
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Professional services |
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1,134 |
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1,041 |
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4,257 |
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3,335 |
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Total non-investment expenses |
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17,886 |
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22,153 |
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85,063 |
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65,980 |
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Income before income tax expense |
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39,423 |
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82,794 |
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249,435 |
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293,354 |
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Income tax (benefit) expense |
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(397 |
) |
452 |
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8,344 |
|
489 |
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Net income |
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$ |
39,820 |
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$ |
82,342 |
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$ |
241,091 |
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$ |
292,865 |
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Net income per common share: |
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Basic |
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$ |
0.22 |
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$ |
0.52 |
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$ |
1.35 |
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$ |
1.85 |
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Diluted |
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$ |
0.22 |
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$ |
0.52 |
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$ |
1.32 |
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$ |
1.85 |
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Weighted-average number of common shares outstanding: |
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Basic |
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177,723 |
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157,057 |
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177,493 |
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157,018 |
| ||||
Diluted |
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180,220 |
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157,461 |
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181,304 |
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157,294 |
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Schedule II
KKR Financial Holdings LLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
|
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September 30, |
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December 31, |
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Assets |
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Cash and cash equivalents |
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$ |
137,309 |
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$ |
313,829 |
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Restricted cash and cash equivalents |
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321,734 |
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571,425 |
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Securities available-for-sale, $690,336 and $728,558 pledged as collateral as of September 30, 2011 and December 31, 2010, respectively |
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786,195 |
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838,894 |
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Corporate loans, net of allowance for loan losses of $191,407 and $209,030 as of September 30, 2011 and December 31, 2010, respectively |
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6,115,948 |
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5,857,816 |
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Corporate loans held for sale |
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500,490 |
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463,628 |
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Residential mortgage-backed securities, at estimated fair value |
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88,209 |
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93,929 |
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Equity investments, at estimated fair value, $13,410 and $12,036 pledged as collateral as of September 30, 2011 and December 31, 2010, respectively |
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170,175 |
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99,955 |
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Derivative assets |
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26,066 |
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19,519 |
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Interest and principal receivable |
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59,917 |
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57,414 |
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Other assets |
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209,861 |
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102,003 |
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Total assets |
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$ |
8,415,904 |
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$ |
8,418,412 |
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Liabilities |
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Collateralized loan obligation secured debt |
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$ |
5,596,020 |
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$ |
5,630,272 |
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Collateralized loan obligation junior secured notes to affiliates |
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365,848 |
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366,124 |
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Credit facilities |
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38,300 |
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18,400 |
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Convertible senior notes |
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299,877 |
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344,142 |
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Junior subordinated notes |
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283,517 |
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283,517 |
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Accounts payable, accrued expenses and other liabilities |
|
52,596 |
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14,193 |
| ||
Accrued interest payable |
|
15,987 |
|
22,846 |
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Accrued interest payable to affiliates |
|
7,579 |
|
6,316 |
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Related party payable |
|
3,687 |
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12,988 |
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Derivative liabilities |
|
123,957 |
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76,566 |
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Total liabilities |
|
6,787,368 |
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6,775,364 |
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Shareholders Equity |
|
|
|
|
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Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at September 30, 2011 and December 31, 2010 |
|
|
|
|
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Common shares, no par value, 500,000,000 shares authorized, and 178,145,482 and 177,848,565 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively |
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|
|
|
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Paid-in-capital |
|
2,758,891 |
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2,756,200 |
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Accumulated other comprehensive (loss) income |
|
(37,413 |
) |
133,596 |
| ||
Accumulated deficit |
|
(1,092,942 |
) |
(1,246,748 |
) | ||
Total shareholders equity |
|
1,628,536 |
|
1,643,048 |
| ||
Total liabilities and shareholders equity |
|
$ |
8,415,904 |
|
$ |
8,418,412 |
|
Investor Relations Contact:
Angela Yang
415-315-6567
investor-relations@kkr.com
Media Contact:
Kristi Huller
212-750-8300
media@kkr.com
Exhibit 99.2
KKR Financial Holdings Appoints New Independent Director to Board
SAN FRANCISCO, CA, November 3, 2011KKR Financial Holdings LLC (NYSE: KFN) announced today that Mr. Robert L. Edwards has been appointed to the Board of Directors, effective November 3, 2011. Mr. Edwards was also appointed to the Audit Committee of the Board of Directors.
Mr. Edwards, 56, is Executive Vice President (EVP) and Chief Financial Officer (CFO) of Safeway. In this role, he has overall responsibility for the companys finance, accounting, treasury, planning, investor relations, risk management, information technology, real estate and legal functions, as well as energy and fuel operations. He joined Safeway in March 2004.
Prior to Safeway, Mr. Edwards served as EVP and CFO of Maxtor Corporation, a supplier of hard disk drives. Prior to joining Maxtor, he was Senior Vice President, CFO and Chief Administrative Officer at Imation Corporation, a manufacturer of magnetic and optical data storage media. His background also includes 20 years of increasing responsibility at Santa Fe Pacific Corporation, a global business operating in the energy industry. He holds BS and MBA degrees from Brigham Young University.
KFNs other independent directors include Tracy L. Collins, Vincent Paul Finigan, R. Glenn Hubbard, Ross J. Kari, Deborah H. McAneny, Scott A. Ryles and Willy R. Strothotte.
About KKR Financial Holdings LLC
KKR Financial Holdings LLC is a specialty finance company with expertise in a range of asset classes. KFNs 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.
Investor Relations Contact:
Angela Yang
415-315-6567
investor-relations@kkr.com
Media Contact:
Kristi Huller
212-750-8300
media@kkr.com