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): February 6, 2012
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 February 6, 2012, KKR Financial Holdings LLC (the Company) issued an earnings release announcing its financial results for the fourth quarter and year ended December 31, 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 8.01 Other Events.
On February 2, 2012, the Companys board of directors declared a cash distribution of $0.18 per common share. 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 Companys 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.
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 fourth quarter and year ended December 31, 2011. |
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, including statements with regards to the use of proceeds from the Companys 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 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: February 6, 2012 |
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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 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, CA, February 6, 2012KKR 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.
KFNs 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, KFNs 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 Companys 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 Companys 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.
KFNs 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, KFNs 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 Companys 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 Companys 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 Companys CLO subsidiaries.
Portfolio Activity
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 Companys 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 Companys 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 & Poors, 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 Companys existing senior indebtedness and for general corporate purposes.
Book Value
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 Companys earnings for the fourth quarter of $0.43 per diluted common share, primarily offset by the Companys distribution to shareholders for the third quarter of 2011 of $0.18 per common share.
Distributions
On February 2, 2012, the Companys 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 Companys 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 Companys distribution policy, the Companys board of directors considered a number of factors in determining to declare this special distribution, including current market conditions, existing restrictions in the Companys 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 Companys 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 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, including statements with regards to the use of proceeds from the Companys 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 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
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 year ended |
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For the year ended |
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Net investment income: |
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Loan interest income |
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$ |
101,644 |
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$ |
114,822 |
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$ |
418,142 |
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$ |
397,634 |
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Securities interest income |
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23,079 |
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25,328 |
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87,851 |
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104,395 |
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Other investment income |
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11,685 |
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1,244 |
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36,028 |
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3,330 |
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Total investment income |
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136,408 |
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141,394 |
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542,021 |
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505,359 |
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Interest expense |
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35,906 |
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31,298 |
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133,609 |
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131,700 |
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Interest expense to affiliates |
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10,532 |
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8,080 |
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49,458 |
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25,152 |
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Provision for loan losses |
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|
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21,034 |
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14,194 |
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29,121 |
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Net investment income |
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89,970 |
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80,982 |
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344,760 |
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319,386 |
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Other income: |
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Net realized and unrealized gain on investments |
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15,761 |
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25,506 |
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88,955 |
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108,553 |
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Net realized and unrealized loss on derivatives and foreign exchange |
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(3,517 |
) |
(1,257 |
) |
(3,812 |
) |
(4,694 |
) | ||||
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 |
|
680 |
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(3,632 |
) |
2,825 |
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(11,396 |
) | ||||
Net (loss) gain on restructuring and extinguishment of debt |
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|
|
|
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(1,736 |
) |
39,999 |
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Other income |
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815 |
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1,805 |
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7,215 |
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10,890 |
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Total other income |
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13,739 |
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22,422 |
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93,447 |
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143,352 |
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Non-investment expenses: |
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Related party management compensation |
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14,471 |
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16,607 |
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68,185 |
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69,125 |
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General, administrative and directors expenses |
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10,649 |
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6,389 |
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37,741 |
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16,516 |
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Professional services |
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1,941 |
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1,996 |
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6,198 |
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5,331 |
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Total non-investment expenses |
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27,061 |
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24,992 |
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112,124 |
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90,972 |
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Income from before income tax expense |
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76,648 |
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78,412 |
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326,083 |
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371,766 |
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Income tax (benefit) expense |
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(333 |
) |
213 |
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8,011 |
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702 |
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Net income |
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$ |
76,981 |
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$ |
78,199 |
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$ |
318,072 |
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$ |
371,064 |
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Net income per common share: |
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Basic |
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$ |
0.43 |
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$ |
0.48 |
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$ |
1.79 |
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$ |
2.33 |
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Diluted |
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$ |
0.43 |
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$ |
0.48 |
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$ |
1.75 |
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$ |
2.32 |
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Weighted average number of common shares outstanding: |
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Basic |
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177,759 |
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160,662 |
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177,560 |
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157,936 |
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Diluted |
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179,675 |
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163,173 |
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180,897 |
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158,771 |
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Schedule II
KKR Financial Holdings LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
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December 31, |
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December 31, |
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Assets |
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Cash and cash equivalents |
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$ |
392,154 |
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$ |
313,829 |
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Restricted cash and cash equivalents |
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399,620 |
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571,425 |
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Securities |
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922,603 |
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932,823 |
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Corporate loans, net (includes $317,332 and $463,628 loans held for sale as of December 31, 2011 and December 31, 2010, respectively) |
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6,443,399 |
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6,321,444 |
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Equity investments, at estimated fair value ($12,222 and $12,036 pledged as collateral as of December 31, 2011 and December 31, 2010, respectively) |
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189,845 |
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99,955 |
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Derivative assets |
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28,463 |
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19,519 |
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Interest and principal receivable |
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62,124 |
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57,414 |
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Other assets |
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209,020 |
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102,003 |
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Total assets |
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$ |
8,647,228 |
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$ |
8,418,412 |
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Liabilities |
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|
|
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Collateralized loan obligation secured notes |
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$ |
5,540,037 |
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$ |
5,630,272 |
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Collateralized loan obligation junior secured notes to affiliates |
|
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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299,830 |
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344,142 |
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Senior notes |
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250,676 |
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|
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Junior subordinated notes |
|
283,517 |
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283,517 |
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Accounts payable, accrued expenses and other liabilities |
|
24,680 |
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14,193 |
| ||
Accrued interest payable |
|
25,536 |
|
22,846 |
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Accrued interest payable to affiliates |
|
6,561 |
|
6,316 |
| ||
Related party payable |
|
11,078 |
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12,988 |
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Derivative liabilities |
|
125,333 |
|
76,566 |
| ||
Total liabilities |
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6,971,396 |
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6,775,364 |
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Shareholders Equity |
|
|
|
|
| ||
Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at December 31, 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 December 31, 2011 and December 31, 2010, respectively |
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|
|
|
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Paid-in-capital |
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2,759,478 |
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2,756,200 |
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Accumulated other comprehensive (loss) income |
|
(35,619 |
) |
133,596 |
| ||
Accumulated deficit |
|
(1,048,027 |
) |
(1,246,748 |
) | ||
Total shareholders equity |
|
1,675,832 |
|
1,643,048 |
| ||
Total liabilities and shareholders equity |
|
$ |
8,647,228 |
|
$ |
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