10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to

Commission file number: 001-33437

KKR FINANCIAL HOLDINGS LLC

(Exact name of registrant as specified in its charter)

Delaware	11-3801844
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
555 California Street, 50th Floor San Francisco, CA	94104
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (415) 315-3620

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes  x No

The number of shares of the registrant’s common shares outstanding as of July 31, 2014 was 100.

TABLE OF CONTENTS

		Page
Part I.
FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	98
Item 4.	Controls and Procedures	98
Part II.
OTHER INFORMATION
Item 1.	Legal Proceedings	98
Item 1A.	Risk Factors	98
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98
Item 3.	Defaults Upon Senior Securities	99
Item 4.	Mine Safety Disclosure	99
Item 5.	Other Information	99
Item 6.	Exhibits	99

2

PART I.    FINANCIAL INFORMATION

Item 1. Financial Statements

KKR Financial Holdings LLC and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except share information)

	Successor Company			Predecessor Company
	June 30, 2014			December 31, 2013
Assets
Cash and cash equivalents	$	197,850		$	157,167
Restricted cash and cash equivalents	608,870			350,385
Securities, at estimated fair value	570,071			573,312
Corporate loans, net (includes $6,293,540 measured at estimated fair value as of June 30, 2014 and $237,480 measured at estimated fair value and $279,748 loans held for sale as of December 31, 2013)	6,293,540			6,466,720
Equity investments, at estimated fair value ($88,096 and zero pledged as collateral as of June 30, 2014 and December 31, 2013, respectively)	278,503			181,212
Oil and gas properties, net	525,678			400,369
Interests in joint ventures and partnerships, at estimated fair value	534,026			436,241
Derivative assets	22,991			30,224
Interest and principal receivable	40,015			33,570
Other assets	316,882			87,998
Total assets	$	9,388,426		$	8,717,198
Liabilities
Collateralized loan obligation secured notes (includes $5,547,914 and zero measured at estimated fair value as of June 30, 2014 and December 31, 2013, respectively)	$	5,547,914		$	5,249,383
Credit facilities	83,289			125,289
Senior notes	415,278			362,276
Junior subordinated notes	246,062			283,517
Accounts payable, accrued expenses and other liabilities	223,748			58,215
Accrued interest payable	22,061			23,575
Related party payable	4,420			5,574
Derivative liabilities	88,345			81,635
Total liabilities	6,631,117			6,189,464
Shareholders’ equity
Preferred shares, no par value, 50,000,000 shares authorized and 14,950,000 issued and outstanding as of both June 30, 2014 and December 31, 2013	—			—
Common shares, no par value, 500,000,000 shares authorized, and 100 shares and 204,824,159 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively	—			—
Paid-in-capital	2,763,922			3,315,117
Accumulated other comprehensive loss	—			(15,652		)
Accumulated deficit	(6,613		)	(771,731		)
Total shareholders’ equity	2,757,309			2,527,734
Total liabilities and shareholders’ equity	$	9,388,426		$	8,717,198

See notes to condensed consolidated financial statements.

3

KKR Financial Holdings LLC and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share information)

	Successor Company			Predecessor Company
	For the two months ended June 30, 2014			For the one month ended April 30, 2014			For the four months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Revenues
Loan interest income	$	53,683		$	29,802		$	114,096		$	92,117		$	190,378
Securities interest income	5,087			3,480			13,081			13,531			28,393
Oil and gas revenue	31,930			17,754			61,782			27,867			51,672
Other	3,613			25,616			28,283			3,729			7,251
Total revenues	94,313			76,652			217,242			137,244			277,694
Investment costs and expenses
Interest expense	35,896			17,117			64,362			36,719			78,599
Interest expense to affiliates	—			—			—			9,729			19,646
Provision for loan losses	—			—			—			—			11,068
Oil and gas production costs	7,860			3,938			14,772			9,349			17,257
Oil and gas depreciation, depletion and amortization	11,134			6,929			22,471			9,116			18,104
Other	774			71			220			280			1,568
Total investment costs and expenses	55,664			28,055			101,825			65,193			146,242
Other income (loss)
Net realized and unrealized gain (loss) on investments	54,100			(16,211		)	61,553			24,997			119,724
Net realized and unrealized (loss) gain on derivatives and foreign exchange	(9,164		)	(1,413		)	(9,783		)	6,902			(1,950		)
Net realized and unrealized loss on debt	(25,396		)	—			—			—			—
Net loss on restructuring and extinguishment of debt	—			—			—			—			(20,269		)
Other income	1,347			1,118			4,564			5,336			13,950
Total other income (loss)	20,887			(16,506		)	56,334			37,235			111,455
Other expenses
Related party management compensation	10,406			4,224			29,841			17,518			45,824
General, administrative and directors expenses	2,413			4,988			8,891			3,690			8,484
Professional services	1,545			24,939			26,877			1,988			3,715
Total other expenses	14,364			34,151			65,609			23,196			58,023
Income before income taxes	45,172			(2,060		)	106,142			86,090			184,884
Income tax expense (benefit)	28			143			162			(42		)	416
Net income (loss)	$	45,144		$	(2,203	)	$	105,980		$	86,132		$	184,468
Preferred share distributions	6,891			—			6,891			6,891			13,629
Net income (loss) available to common shares	$	38,253		$	(2,203	)	$	99,089		$	79,241		$	170,839
Net (loss) income per common share:
Basic	N/A			$	(0.01	)	$	0.48		$	0.39		$	0.85
Diluted	N/A			$	(0.01	)	$	0.48		$	0.39		$	0.85
Weighted-average number of common shares outstanding:
Basic	N/A			204,398			204,276			204,108			200,650
Diluted	N/A			204,398			204,276			204,108			200,650
Distributions declared per common share	N/A			$	—		$	0.22		$	0.21		$	0.47

See notes to condensed consolidated financial statements.

4

KKR Financial Holdings LLC and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

	Successor Company		Predecessor Company
	For the two months ended June 30, 2014		For the one month ended April 30, 2014			For the four months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Net income (loss)	$	45,144	$	(2,203	)	$	105,980		$	86,132		$	184,468
Other comprehensive (loss) income:
Unrealized losses on securities available-for-sale	—		(3,364		)	(5,253		)	(6,340		)	(815		)
Unrealized (losses) gains on cash flow hedges	—		(1,611		)	(5,442		)	20,240			31,398
Total other comprehensive (loss) income	—		(4,975		)	(10,695		)	13,900			30,583
Comprehensive income (loss)	$	45,144	$	(7,178	)	$	95,285		$	100,032		$	215,051

See notes to condensed consolidated financial statements.

5

KKR Financial Holdings LLC and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Amounts in thousands, except share information)

	Predecessor Company
							Accumulated
	Preferred Shares			Common Shares			Other						Total
	Shares	Paid-In Capital		Shares	Paid-In Capital		Comprehensive Loss			Accumulated Deficit			Shareholders’ Equity
Balance at January 1, 2014	14,950,000	$	361,622	204,824,159	$	2,953,495	$	(15,652	)	$	(771,731	)	$	2,527,734
Net income	—	—		—	—		—			105,980			105,980
Other comprehensive loss	—	—		—	—		(10,695		)	—			(10,695		)
Distributions declared on preferred shares	—	—		—	—		—			(6,891		)	(6,891		)
Distributions declared on common shares	—	—		—	—		—			(45,061		)	(45,061		)
Share-based compensation expense related to restricted common shares	—	—		—	1,018		—			—			1,018
Balance at April 30, 2014	14,950,000	$	361,622	204,824,159	$	2,954,513	$	(26,347	)	$	(717,703	)	$	2,572,085

	Successor Company
									Accumulated
	Preferred Shares			Common Shares					Other						Total
	Shares	Paid-In Capital		Shares		Paid-In Capital			Comprehensive Loss			Accumulated Deficit			Shareholders’ Equity
Balance at April 30, 2014	14,950,000	$	361,622	204,824,159		$	2,954,513		$	(26,347	)	$	(717,703	)	$	2,572,085
Purchase accounting adjustments	—	17,361		—		(570,040		)	26,347			717,703			191,371
Balance at May 1, 2014	14,950,000	378,983		204,824,159		2,384,473			—			—			2,763,456
Reverse stock split	—	—		(204,824,059	)	—			—			—			—
Net income	—	—		—		—			—			45,144			45,144
Distributions declared on preferred shares	—	—		—		—			—			(6,891		)	(6,891		)
Distributions to Parent	—	—		—		—			—			(44,866		)	(44,866		)
Capital contributions from Parent	—	—		—		466			—			—			466
Balance at June 30, 2014	14,950,000	$	378,983	100		$	2,384,939		$	—		$	(6,613	)	$	2,757,309

See notes to condensed consolidated financial statements.

6

KKR Financial Holdings LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

	Successor Company			Predecessor Company
	For the two months ended June 30, 2014			For the four months ended April 30, 2014			For the six months ended June 30, 2013
Cash flows from operating activities
Net income	$	45,144		$	105,980		$	184,468
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized and unrealized loss on derivatives and foreign exchange	9,164			9,783			1,950
Net loss on restructuring and extinguishment of debt	—			—			20,269
Write-off of debt issuance costs	—			1,472			5,335
Lower of cost or estimated fair value adjustment on corporate loans held for sale	—			(5,038		)	8,650
Provision for loan losses	—			—			11,068
Impairment charges	—			4,391			12,489
Share-based compensation	—			1,018			1,896
Net realized and unrealized gain on investments	(54,100		)	(60,906		)	(140,863		)
Depreciation and net amortization	10,457			15,832			(11,852		)
Net realized and unrealized loss on debt	25,396			—			—
Changes in assets and liabilities:
Interest receivable	94			(6,753		)	6,991
Other assets	1,793			(19,668		)	(19,840		)
Related party payable	4,740			(1,815		)	(740		)
Accounts payable, accrued expenses and other liabilities	(21,190		)	27,211			(3,284		)
Preferred share distribution payable	—			(6,891		)	—
Accrued interest payable	4,415			(1,470		)	(5,889		)
Accrued interest payable to affiliates	—			—			(1,257		)
Net cash provided by operating activities	25,913			63,146			69,391
Cash flows from investing activities
Principal payments from corporate loans	230,956			906,166			1,125,080
Principal payments from securities	6,797			21,223			106,881
Proceeds from sales of corporate loans	231,599			36,595			163,372
Proceeds from sales of securities	1,806			44,373			24,808
Proceeds from equity and other investments	24,409			48,911			28,559
Purchases of corporate loans	(314,846		)	(886,230		)	(875,234		)
Purchases of securities	(32,478		)	(78,106		)	(46,840		)
Purchases of equity and other investments	(56,540		)	(104,301		)	(127,047		)
Cover securities sold, not yet purchased	—			—			(480		)
Net change in proceeds, purchases, and settlements of derivatives	(2,627		)	(7,265		)	1,344
Net change in restricted cash and cash equivalents	41,094			(299,579		)	(289,398		)
Net cash provided by (used in) investing activities	130,170			(318,213		)	111,045
Cash flows from financing activities
Issuance of collateralized loan obligation secured notes	52,594			648,197			449,002
Retirement of collateralized loan obligation secured notes	(196,940		)	(221,914		)	(551,844		)
Proceeds from credit facilities	20,100			13,300			—
Repayment of credit facilities	—			(75,400		)	(61,700		)
Net proceeds from issuance of preferred shares	—			—			361,622
Distributions on common shares	(44,866		)	(45,061		)	(96,248		)
Distributions on preferred shares	—			(6,891		)	(6,738		)
Capital contributions from Parent	466			—			—
Other capitalized costs	—			(3,918		)	(4,633		)
Net cash (used in) provided by financing activities	(168,646		)	308,313			89,461
Net (decrease) increase in cash and cash equivalents	(12,563		)	53,246			269,897
Cash and cash equivalents at beginning of period	210,413			157,167			237,606
Cash and cash equivalents at end of period	$	197,850		$	210,413		$	507,503
Supplemental cash flow information
Cash paid for interest	$	24,196		$	53,576		$	84,238
Net cash paid for income taxes	$	59		$	157		$	4,760
Non-cash investing and financing activities
Issuance of restricted common shares	$	—		$	—		$	3,282
Loans transferred from held for investment to held for sale	$	—		$	348,808		$	76,803
Preferred share distributions declared, not yet paid	$	6,891		$	—		$	6,891
Conversion of convertible senior notes to common shares	$	—		$	—		$	186,254

Non-cash activities:

In connection with the merger with KKR & Co. L.P., KKR Financial Holdings LLC and subsidiaries recorded acquisition accounting adjustments, which resulted in changes to equity. Refer to Note 2 to these condensed consolidated financial statements for further details.

See notes to condensed consolidated financial statements.

7

KKR FINANCIAL HOLDINGS LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

KKR Financial Holdings LLC together with its subsidiaries (the “Company” or “KFN”) is a specialty finance company with expertise in a range of asset classes. The Company’s core business strategy is to leverage the proprietary resources of KKR Financial Advisors LLC (the “Manager”) with the objective of generating both current income and capital appreciation by deploying capital to its strategies, which include bank loans and high yield securities, natural resources, special situations, mezzanine, commercial real estate and private equity with a focus on specialty lending. The Company’s holdings across these strategies primarily consist of below investment grade syndicated corporate loans, also known as leveraged loans, high yield debt securities, private equity, interests in joint ventures and partnerships, and working and royalty interests in oil and gas properties. The corporate loans that the Company holds are typically purchased via assignment or participation in the primary or secondary market.

The majority of the Company’s holdings consist of corporate loans and high yield debt securities held in collateralized loan obligation (“CLO”) transactions that are structured as on-balance sheet securitizations and are used as long term financing for the Company’s investments in corporate debt. The senior secured debt issued by the CLO transactions is generally owned by unaffiliated third party investors and the Company owns the majority of the subordinated notes in the CLO transactions. The Company executes its core business strategy through its majority-owned subsidiaries, including CLOs.

The Manager, a wholly-owned subsidiary of KKR Asset Management LLC, manages the Company pursuant to a management agreement (the “Management Agreement”). KKR Asset Management LLC is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), which is a subsidiary of KKR & Co. L.P. (“KKR & Co.”).

On April 30, 2014, the Company became a subsidiary of KKR & Co., whereby KKR & Co. acquired all of the Company’s outstanding common shares through an exchange of equity through which the Company’s shareholders received 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN (the “Merger Transaction”). Following the Merger Transaction, KKR Fund Holdings L.P. (“KKR Fund Holdings”), a subsidiary of KKR & Co., became the sole holder of all of the outstanding common shares of the Company and is the parent of the Company (the “Parent”).

As of the close of trading on April 30, 2014, the Company’s common shares were delisted on the New York Stock Exchange (“NYSE”). The Company’s 7.375% Series A LLC Preferred Shares (“Series A LLC Preferred Shares”), senior notes and junior subordinated notes remain outstanding and the Company continues to file periodic reports under the Securities Exchange Act of 1934, as amended. Refer to Note 3 to these condensed consolidated financial statements for further details around the Merger Transaction.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and entities established to complete secured financing transactions that are considered to be variable interest entities (“VIEs”) and for which the Company is the primary beneficiary.

As further described in Note 3 to these condensed consolidated financial statements, the Merger Transaction was accounted for using the acquisition method of accounting, which required that the assets purchased and the liabilities assumed all be reported in the acquirer’s financial statements at their fair value, with any excess of net assets over the purchase price being reported as a bargain purchase gain. The application of the acquisition method of accounting represented a push down of accounting basis to the Company, whereby it was also required to record the assets and liabilities at fair value as of the date of the Merger Transaction. This change in accounting basis resulted in the termination of the prior reporting entity and a corresponding creation of a new reporting entity.

Accordingly, the Company’s condensed consolidated financial statements and transactional records prior to the effective date, or May 1, 2014 (the “Effective Date”), reflect the historical accounting basis of assets and liabilities and are labeled “Predecessor Company,” while such records subsequent to the Effective Date are labeled “Successor Company” and reflect the push down basis of accounting for the new estimated fair values in the Company’s condensed consolidated financial statements. This change in accounting basis is represented in the condensed consolidated financial statements by a vertical black line which appears between the columns entitled “Predecessor Company” and “Successor Company” on the statements and in the relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Merger Transaction are not comparable.

8

In addition to the new accounting basis established for assets and liabilities, purchase accounting also required the reclassification of any retained earnings or accumulated deficit from periods prior to the acquisition and the elimination of any accumulated other comprehensive income or loss to be recognized within the Company’s shareholders’ equity section of the Company’s condensed consolidated financial statements. Accordingly, the Company’s accumulated deficit at June 30, 2014 represents only the results of operations subsequent to April 30, 2014, the date of the Merger Transaction.

For the following assets not carried at fair value, as presented under the Predecessor Company, the Company adopted the fair value option of accounting as of the Effective Date: (i) corporate loans held for investment at amortized cost, net of an allowance for loan losses, (ii) corporate loans held for sale at lower of cost or estimated fair value and (iii) certain other investments at cost. In addition, the Company elected the fair value option of accounting for its collateralized loan obligation secured notes. As such, the accounting policies followed by the Company in the preparation of its condensed consolidated financial statements for the Successor period present all financial assets and CLO secured notes at estimated fair value. The Company’s adoption of fair value accounting was for the primary purpose of reporting values that more closely aligned with KKR & Co.’s method of accounting.

Unrealized gains and losses for the financial assets and liabilities carried at estimated fair value are reported in net realized and unrealized gain (loss) on investments and net realized and unrealized loss on debt, respectively, in the condensed consolidated statements of operations. Unrealized gains or losses primarily reflect the change in instrument values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. For the Successor period, upon the sale of a corporate loan or debt security, the net realized gain or loss is computed using the specific identification method. Comparatively, for the Predecessor period, the realized net gain or loss was computed on a weighted average cost basis.

In addition, for the Successor period, all purchases and sales of assets are recorded on the trade date. Comparatively, for the Predecessor periods, corporate loans were recorded on the settlement date.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company uses historical experience and various other assumptions and information that are believed to be reasonable under the circumstances in developing its estimates and judgments. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. While the Company believes that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are appropriate, actual results could differ from those estimates.

Estimates of oil, natural gas and natural gas liquid (“NGL”) reserves and their values, future production rates and future costs and expenses are inherently uncertain, including many factors beyond the Company’s control. Reservoir engineering is a subjective process of estimating underground accumulations of oil, natural gas and NGL that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of many factors including the following: the quality and quantity of available data, the interpretation of that data, the accuracy of various mandated economic assumptions and the judgments of the individuals preparing the estimates. In addition, reserve estimates are a function of many assumptions, all of which could deviate significantly from actual results. As such, reserve estimates may materially vary from the ultimate quantities of oil, natural gas and NGL eventually recovered, and could materially affect the Company’s future depreciation, depletion and amortization expense (“DD&A”), its asset retirement obligations or impairment considerations.

Consolidation

KKR Financial CLO 2005-1, Ltd. (“CLO 2005-1”), KKR Financial CLO 2005-2, Ltd. (“CLO 2005-2”), KKR Financial CLO 2006-1, Ltd. (“CLO 2006-1”), KKR Financial CLO 2007-1, Ltd. (“CLO 2007-1”), KKR Financial CLO 2007-A, Ltd. (“CLO 2007-A”), KKR Financial CLO 2011-1, Ltd. (“CLO 2011-1”), KKR Financial CLO 2012-1, Ltd. (“CLO 2012-1”), KKR Financial CLO 2013-1, Ltd. (“CLO 2013-1”) and KKR Financial CLO 2013-2, Ltd. (“CLO 2013-2”) (collectively the “Cash Flow CLOs”) are entities established to complete secured financing transactions. These entities are VIEs which the Company consolidates as the Company has determined it has the power to direct the activities that most significantly impact these entities’ economic performance and the Company has both the obligation to absorb losses of these entities and the right to receive benefits from these entities that could potentially be significant to these entities. In CLO transactions, subordinated notes have the first risk of loss and conversely, the residual value upside of the transactions.

9

The Company finances the majority of its corporate debt investments through its CLOs. As of June 30, 2014, the Company’s nine CLOs held $6.6 billion par amount, or $6.4 billion estimated fair value, of corporate debt investments. As of December 31, 2013, the Company had eight CLOs that held $6.7 billion par amount, or $6.4 billion estimated fair value, of corporate debt investments. The assets in each CLO can be used only to settle the debt of the related CLO. As of June 30, 2014 and December 31, 2013, the aggregate par amount of CLO debt totaled $5.6 billion and $5.3 billion, respectively, held by unaffiliated third parties.

The Company consolidates all non-VIEs in which it holds a greater than 50 percent voting interest.

In addition, the Company has non-controlling interests in joint ventures and partnerships that do not qualify as VIEs and do not meet the control requirements for consolidation as defined by GAAP.

All inter-company balances and transactions have been eliminated in consolidation.

Fair Value Option

In connection with the application of acquisition accounting related to the Merger Transaction, the Successor Company elected the fair value option of accounting for its financial assets and CLO secured notes for the primary purpose of reporting values that more closely aligned with KKR & Co.’s method of accounting. Related unrealized gains and losses are reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors including the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets and liabilities, and are as follows:

Level 1:  Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2:  Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3:  Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument is new, whether the instrument is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2, and/or 3, which the Company recognizes at the end of the reporting period.

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Many financial assets and liabilities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Company and others are willing to pay for an asset. Ask prices represent the lowest price that the Company and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, the Company does not require that fair value always be a predetermined point in the bid-ask range. The Company’s policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Company’s best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, the Company may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 of the fair value hierarchy are described below.

Securities and Corporate Loans, at Estimated Fair Value:  Securities and corporate loans, at estimated fair value are initially valued at transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models. Valuation models are based on yield analysis techniques, where the key inputs are based on relative value analyses, which incorporate similar instruments from similar issuers. In addition, an illiquidity discount is applied where appropriate.

Equity Investments, at Estimated Fair Value:  Equity investments, at estimated fair value, are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach, which incorporates significant assumptions and judgment, include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as earnings before interest, taxes, depreciation and amortization (“EBITDA”) exit multiples. Upon completion of the valuations conducted using these approaches, a weighting is ascribed to each approach and an illiquidity discount is applied where appropriate. The ultimate fair value recorded for a particular investment will generally be within the range suggested by the two approaches.

Interests in Joint Ventures and Partnerships:  Interests in joint ventures and partnerships include certain equity investments related to the oil and gas, commercial real estate and specialty lending sectors. Interests in joint ventures and partnerships are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Key inputs include the weighted average cost of capital and EBITDA multiples. In addition, an illiquidity discount is applied where appropriate.

Over-the-counter (“OTC”) Derivative Contracts:  OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities and equity prices. OTC derivatives are initially valued using quoted market prices, if available, or models using a series of techniques, including closed-form analytic formulae, such as the Black-Scholes option-pricing model, and/or simulation models in the absence of quoted market prices. Many pricing models employ methodologies that have pricing inputs observed from actively quoted markets, as is the case for generic interest rate swap and option contracts.

Residential Mortgage-Backed Securities, at Estimated Fair Value:  RMBS are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and constant prepayment rates.

Collateralized Loan Obligation Secured Notes: Collateralized loan obligation secured notes are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and discount margins.

Key unobservable inputs that have a significant impact on the Company’s Level 3 valuations as described above are included in Note 9 to these condensed consolidated financial statements. The Company utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. These unobservable pricing inputs and assumptions may differ by asset and in the application of the Company’s valuation methodologies. The reported fair value estimates could vary materially if the Company had chosen to incorporate different unobservable pricing inputs and other assumptions or, for applicable investments, if the Company only used either the discounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies.

Valuation Process

The valuation process involved in Level 3 measurements for assets and liabilities is completed on a quarterly basis and is designed to subject the valuation of Level 3 investments to an appropriate level of consistency, oversight and review. The Company utilizes a valuation committee, whose members consist of the Company’s Chief Financial Officer, General Counsel and certain other employees of the Manager. The valuation committee is responsible for coordinating and implementing the Company’s quarterly valuation process.

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Investments are generally valued based on quotations from third party pricing services, unless such a quotation is unavailable or is determined to be unreliable or inadequately representing the fair value of the particular assets. In that case, valuations are based on either valuation data obtained from one or more other third party pricing sources, including broker dealers, or will reflect the valuation committee’s good faith determination of estimated fair value based on other factors considered relevant. For assets classified as Level 3, the investment professionals are responsible for documenting preliminary valuations based on various factors including their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and model projections discussed above. All valuations are approved by the valuation committee.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three months or less. Interest income earned on cash and cash equivalents is recorded in other within total revenues on the condensed consolidated statements of operations.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents represent amounts that are held by third parties under certain of the Company’s financing and derivative transactions. Interest income earned on restricted cash and cash equivalents is recorded in other within total revenues on the condensed consolidated statements of operations.

On the condensed consolidated statements of cash flows, net additions or reductions to restricted cash and cash equivalents are classified as an investing activity as restricted cash and cash equivalents reflect the receipts from collections or sales of investments, as well as payments made to acquire investments held by third parties.

Securities

Securities Available-for-Sale

The Predecessor and Successor Company both classify certain of their investments in securities as available-for-sale as the Companies may sell them prior to maturity and do not hold them principally for the purpose of selling them in the near term. These investments are carried at estimated fair value. The Successor Company elected the fair value option of accounting for its securities, with changes in estimated fair value reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. Comparatively, the Predecessor Company reported all unrealized gains and losses in accumulated other comprehensive loss on the condensed consolidated balance sheets.

The Predecessor Company monitored its available-for-sale securities portfolio for impairments. A loss was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary. The Company considered many factors in determining whether the impairment of a security was deemed to be other-than-temporary, including, but not limited to, the length of time the security had a decline in estimated fair value below its amortized cost and the severity of the decline, the amount of the unrealized loss, recent events specific to the issuer or industry, external credit ratings and recent changes in such ratings. In addition, for debt securities, the Company considered its intent to sell the debt security, the Company’s estimation of whether or not it expected to recover the debt security’s entire amortized cost if it intended to hold the debt security, and whether it was more likely than not that the Company was required to sell the debt security before its anticipated recovery. For equity securities, the Company also considered its intent and ability to hold the equity security for a period of time sufficient for a recovery in value.

The amount of the loss that was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary was dependent on certain factors. If the security was an equity security or if the security was a debt security that the Company intended to sell or estimated that it was more likely than not that the Company would be required to sell before recovery of its amortized cost, then the impairment amount recognized in earnings was the entire difference between the estimated fair value of the security and its amortized cost. For debt securities that the Company did not intend to sell or estimated that it was not more likely than not to be required to sell before recovery, the impairment was separated into the estimated amount relating to credit loss and the estimated amount relating to all other factors. Only the estimated credit loss amount was recognized in earnings, with the remainder of the loss amount recognized in accumulated other comprehensive loss.

Unamortized premiums and unaccreted discounts on securities available-for-sale were recognized in interest income over the contractual life, adjusted for actual prepayments, of the securities using the effective interest method.

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Other Securities, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their securities for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these securities. All securities, at estimated fair value are included within securities on the condensed consolidated balance sheets.

Estimated fair values are based on quoted market prices, when available, on estimates provided by independent pricing sources or dealers who make markets in such securities, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the securities using the effective interest method.

Residential Mortgage-Backed Securities, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for their residential mortgage investments for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these investments. RMBS, at estimated fair value are included within securities on the condensed consolidated balance sheets.

Equity Investments, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their equity investments, at estimated fair value, including private equity investments received through restructuring debt transactions or issued by an entity in which the Company may have significant influence. The Companies elected the fair value option for certain of their equity investments for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these investments. Equity investments carried at estimated fair value are presented separately on the condensed consolidated balance sheets.

Interests in Joint Ventures and Partnerships

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their interests in joint ventures and partnerships. The Companies elected the fair value option of accounting for certain of their non-controlling interests in joint ventures and partnerships for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these interests. Interests in joint ventures and partnerships are presented separately on the condensed consolidated balance sheets.

Corporate Loans, Net

In connection with the Company’s application of acquisition accounting related to the Merger Transaction and to align more closely with KKR & Co.’s method of accounting, the Company elected to carry all of its corporate loans at estimated fair value as of the Effective Date, with changes in estimated fair value recorded in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. As presented under the Predecessor Company, corporate loans had previously been accounted for based on the following three categories: (i) corporate loans held for investment, which were measured based on their principal plus or minus unaccreted purchase discounts and unamortized purchase premiums, net of an allowance for loan losses; (ii) corporate loans held for sale, which were measured at lower of cost or estimated fair value; and (iii) corporate loans at estimated fair value, which were measured at fair value. As such, the disclosures related to loans held for investment and loans held for sale pertain to the Predecessor Company.

Corporate Loans

Prior to the Effective Date, corporate loans were generally held for investment and the Company initially recorded corporate loans at their purchase prices. The Company subsequently accounted for corporate loans based on their outstanding principal plus or minus unaccreted purchase discounts and unamortized purchase premiums and corporate loans that the Company transferred to held for sale were transferred at the lower of cost or estimated fair value. As of the Effective Date, the Company initially recorded corporate loans at their purchase prices and subsequently accounts for all corporate loans at estimated fair value.

Interest income on corporate loans includes interest at stated coupon rates adjusted for accretion of purchase discounts and the amortization of purchase premiums. Unamortized premiums and unaccreted discounts are recognized in interest income over the contractual life, adjusted for actual prepayments, of the corporate loans using the effective interest method.

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Other than corporate loans measured at estimated fair value, corporate loans acquired with deteriorated credit quality are recorded at initial cost and interest income is recognized as the difference between the Company’s estimate of all cash flows that it will receive from the loan in excess of its initial investment on a level-yield basis over the life of the corporate loan (accretable yield) using the effective interest method.

A corporate loan is typically placed on non-accrual status at such time as: (i) management believes that scheduled debt service payments may not be paid when contractually due; (ii) the corporate loan becomes 90 days delinquent; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (iv) the net realizable value of the collateral securing the corporate loan decreases below the Company’s carrying value of such corporate loan. As such, corporate loans placed on non-accrual status may or may not be contractually past due at the time of such determination. While on non-accrual status, previously recognized accrued interest is reversed if it is determined that such amounts are not collectible and interest income is recognized using the cost-recovery method, cash-basis method or some combination of the two methods. A corporate loan is placed back on accrual status when the ultimate collectability of the principal and interest is not in doubt.

Prior to the Effective Date, the Company may have modified corporate loans in transactions where the borrower was experiencing financial difficulty and a concession was granted to the borrower as part of the modification. These concessions may have included one or a combination of the following: a reduction of the stated interest rate; payment extensions; forgiveness of principal; or an exchange of assets. Such modifications typically qualified as troubled debt restructurings (“TDRs”). In order to determine whether the borrower was experiencing financial difficulty, an evaluation was performed including the following considerations: whether the borrower was or would have been in payment default on any of its debt in the foreseeable future without the modification; whether there was a potential for a bankruptcy filing; whether there was a going-concern issue; or whether the borrower was unable to secure financing elsewhere.

Corporate loans whose terms had been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower demonstrated a sustained period of repayment performance, typically six months.

TDRs were separately identified for impairment disclosures and were measured at either the estimated fair value or the present value of estimated future cash flows using the respective corporate loan’s effective rate at inception. Impairments associated with TDRs were included within the allocated component of the Company’s allowance for loan losses.

The Company may have also identified receivables that were newly considered impaired and disclosed the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that were newly considered impaired.

The corporate loans the Company invested in were generally deemed in default upon the non-payment of a single interest payment or as a result of the violation of a covenant in the respective corporate loan agreement. The Company charged-off a portion or all of its amortized cost basis in a corporate loan when it determined that it was uncollectible due to either: (i) the estimation based on a recovery value analysis of a defaulted corporate loan that less than the amortized cost amount would have been recovered through the agreed upon restructuring of the corporate loan or as a result of a bankruptcy process of the issuer of the corporate loan or (ii) the determination by the Company to transfer a corporate loan to held for sale with the corporate loan having an estimated fair value below the amortized cost basis of the corporate loan.

In addition to TDRs, the Company may have also modified corporate loans which usually involved changes in existing interest rates combined with changes of existing maturities to prevailing market rates/maturities for similar instruments at the time of modification. Such modifications typically did not meet the definition of a TDR since the respective borrowers were neither experiencing financial difficulty nor were seeking a concession as part of the modification.

Allowance for Loan Losses

As a result of the Merger Transaction, the acquisition method of accounting and adoption of fair value for corporate loans eliminated the need for an allowance for loan losses. The reevaluation of assets required by the acquisition method of accounting resulted in all loans being reported at their estimated fair values as of the Effective Date. The estimated fair value took into account the contractual payments on loans that were not expected to be received and consequently, no allowance for loan losses was carried over for the Successor Company. As of the Effective Date, no allowance for loan losses will be recorded as all corporate loans are carried at estimated fair value. As such, the disclosure related to the allowance for loan losses pertains to the Predecessor Company.

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The Company’s corporate loan portfolio is comprised of a single portfolio segment which includes one class of financing receivables, that is, high yield loans that are typically purchased via assignment or participation in either the primary or secondary market. High yield loans are generally characterized as having below investment grade ratings or being unrated.

Prior to the Effective Date, the Company’s allowance for loan losses represented its estimate of probable credit losses inherent in its corporate loan portfolio held for investment as of the balance sheet date. Estimating the Company’s allowance for loan losses involved a high degree of management judgment and was based upon a comprehensive review of the Company’s corporate loan portfolio that was performed on a quarterly basis. The Company’s allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses pertained to specific corporate loans that the Company had determined were impaired. The Company determined a corporate loan was impaired when management estimated that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the corporate loan agreement. On a quarterly basis the Company performed a comprehensive review of its entire corporate loan portfolio and identified certain corporate loans that it had determined were impaired. Once a corporate loan was identified as being impaired, the Company placed the corporate loan on non-accrual status, unless the corporate loan was already on non-accrual status, and recorded an allowance that reflected management’s best estimate of the loss that the Company expected to recognize from the corporate loan. The expected loss was estimated as being the difference between the Company’s current cost basis of the corporate loan, including accrued interest receivable, and the present value of expected future cash flows discounted at the corporate loan’s effective interest rate, except as a practical expedient, the corporate loan’s observable estimated fair value may have been used. The Company also estimated the probable credit losses inherent in its unfunded loan commitments as of the balance sheet date. Any credit loss reserve for unfunded loan commitments was recorded in accounts payable, accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets.

The unallocated component of the Company’s allowance for loan losses represented its estimate of probable losses inherent in the corporate loan portfolio as of the balance sheet date where the specific loan that the loan loss relates to was indeterminable. The Company estimated the unallocated component of the allowance for loan losses through a comprehensive review of its corporate loan portfolio and identified certain corporate loans that demonstrated possible indicators of impairment, including internally assigned credit quality indicators. This assessment excluded all corporate loans that were determined to be impaired and as a result, an allocated reserve had been recorded as described in the preceding paragraph. Such indicators included the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, and the observable trading price of the corporate loan if available. All corporate loans were first categorized based on their assigned risk grade and further stratified based on the seniority of the corporate loan in the issuer’s capital structure. The seniority classifications assigned to corporate loans were senior secured, second lien and subordinate. Senior secured consisted of corporate loans that were the most senior debt in an issuer’s capital structure and therefore had a lower estimated loss severity than other debt that was subordinate to the senior secured loan. Senior secured corporate loans often had a first lien on some or all of the issuer’s assets. Second lien consisted of corporate loans that were secured by a second lien interest on some or all of the issuer’s assets; however, the corporate loan was subordinate to the first lien debt in the issuer’s capital structure. Subordinate consisted of corporate loans that were generally unsecured and subordinate to other debt in the issuer’s capital structure.

There were three internally assigned risk grades that were applied to loans that have not been identified as being impaired: high, moderate and low. High risk meant that there was evidence of possible loss due to the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, observable trading price of the corporate loan if available, or other factors that indicated that the breach of a covenant contained in the related loan agreement was possible. Moderate risk meant that while there was not observable evidence of possible loss, there were issuer and/or industry specific trends that indicated a loss may have occurred. Low risk meant that while there was no identified evidence of loss, there was the risk of loss inherent in the loan that had not been identified. All loans held for investment, with the exception of loans that had been identified as impaired, were assigned a risk grade of high, moderate or low.

The Company applied a range of default and loss severity estimates in order to estimate a range of loss outcomes upon which to base its estimate of probable losses that resulted in the determination of the unallocated component of the Company’s allowance for loan losses.

Corporate Loans Held for Sale

As described above, corporate loans held for sale related to the Predecessor Company. From time to time the Company made the determination to transfer certain of its corporate loans from held for investment to held for sale. The decision to transfer a loan to held for sale was generally as a result of the Company determining that the respective loan’s credit quality in relation to the loan’s expected risk-adjusted return no longer met the Company’s investment objective and/or the Company deciding to reduce or eliminate its exposure to a particular loan for risk management purposes. Corporate loans held for sale were stated at lower of cost or estimated fair value and were assessed on an individual basis. Prior to transferring a loan to held for sale, any difference between the carrying amount of the loan and its outstanding principal balance was recognized as an adjustment to the yield by the effective interest method. The loan was transferred from held for investment to held for sale at the lower of its cost or estimated fair value and was carried at the lower of its cost or estimated fair value thereafter. Subsequent to transfer and while the loan was held for sale, recognition as an adjustment to yield by the effective interest method was discontinued for any difference between the carrying amount of the loan and its outstanding principal balance.

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From time to time the Company also made the determination to transfer certain of its corporate loans from held for sale back to held for investment. The decision to transfer a loan back to held for investment was generally as a result of the circumstances that led to the initial transfer to held for sale no longer being present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby the Company determined that selling the asset no longer met its investment objective and strategy. The loan was transferred from held for sale back to held for investment at the lower of its cost or estimated fair value, whereby a new cost basis was established based on this amount.

Interest income on corporate loans held for sale was recognized through accrual of the stated coupon rate for the loans, unless the loans were placed on non-accrual status, at which point previously recognized accrued interest was reversed if it was determined that such amounts were not collectible and interest income was recognized using either the cost-recovery method or on a cash-basis.

Corporate Loans, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their corporate loans for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these corporate loans. All corporate loans carried at estimated fair value are included within corporate loans, net on the condensed consolidated balance sheets.

Estimated fair values are based on quoted prices for similar instruments in active markets and inputs other than observable quoted prices, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the corporate loans using the effective interest method.

As described above under “Basis of Presentation,” as of the Effective Date, purchases and sales of corporate loans are recorded on the trade date.

Oil and Natural Gas Properties

Oil and natural gas producing activities are accounted for under the successful efforts method of accounting. Under this method, exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. Costs that are associated with the drilling of successful exploration wells are capitalized if proved reserves are found. Lease acquisition costs are capitalized when incurred. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs and costs of certain nonproducing leasehold costs are expensed as incurred.

Expenditures for repairs and maintenance, including workovers, are charged to expense as incurred.

The capitalized costs of producing oil and natural gas properties are depleted on a field-by-field basis using the units-of production method based on the ratio of current production to estimated total net proved oil, natural gas and NGL reserves. Proved developed reserves are used in computing depletion rates for drilling and development costs and total proved reserves are used for depletion rates of leasehold costs.

Estimated dismantlement and abandonment costs for oil and natural gas properties, net of salvage value, are capitalized at their estimated net present value and amortized on a unit-of-production basis over the remaining life of the related proved developed reserves.

Oil and Gas Revenue Recognition

Oil, natural gas and NGL revenues are recognized when production is sold to a purchaser at fixed or determinable prices, when delivery has occurred and title has transferred and collectability of the revenue is reasonably assured. The Company follows the sales method of accounting for natural gas revenues. Under this method of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which the Company is entitled based on the Company’s working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient to enable the under-produced owners to recoup their entitled share through future production. Under the sales method, no receivables are recorded when the Company has taken less than its share of production and no payables are recorded when the Company has taken more than its share of production.

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Long-Lived Assets

Whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable, the Company evaluates its proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. The determination of recoverability is made based upon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, future operating costs and a discount rate commensurate with the risk on the properties and cost of capital. Unproved oil and natural gas properties are assessed periodically and, at a minimum, annually on a property-by-property basis, and any impairment in value is recognized when incurred.

Borrowings

The Company finances the majority of its investments through the use of secured borrowings in the form of securitization transactions structured as non-recourse secured financings and other secured and unsecured borrowings. In addition, the Company finances certain of its oil and gas asset acquisitions through borrowings. The Company recognizes interest expense on all borrowings on an accrual basis.

In connection with the Company’s application of acquisition accounting related to the Merger Transaction and to align more closely with KKR & Co.’s method of accounting, the Company elected to carry its collateralized loan obligation secured notes at estimated fair value as of the Effective Date, with changes in estimated fair value recorded in net realized and unrealized loss on debt in the condensed consolidated statements of operations. Prior to the Effective Date, collateralized loan obligation secured notes were carried at amortized cost.

Trust Preferred Securities

Trusts formed by the Company for the sole purpose of issuing trust preferred securities are not consolidated by the Company as the Company has determined that it is not the primary beneficiary of such trusts. The Company’s investment in the common securities of such trusts is included within other assets on the condensed consolidated balance sheets.

Preferred Shares

Distributions on the Company’s Series A LLC Preferred Shares are cumulative and payable quarterly when and if declared by the Company’s board of directors at a 7.375% rate per annum. The Company accrues for the distribution upon declaration and is included within accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets.

Derivative Instruments

The Company recognizes all derivatives on the condensed consolidated balance sheet at estimated fair value. On the date the Company enters into a derivative contract, the Company designates and documents each derivative contract as one of the following at the time the contract is executed: (i) a hedge of a recognized asset or liability (“fair value” hedge); (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (iii) a hedge of a net investment in a foreign operation; or (iv) a derivative instrument not designated as a hedging instrument (“free-standing derivative”). For a fair value hedge, the Company records changes in the estimated fair value of the derivative instrument and, to the extent that it is effective, changes in the fair value of the hedged asset or liability in the current period earnings in the same financial statement category as the hedged item. For a cash flow hedge, the Company records changes in the estimated fair value of the derivative to the extent that it is effective in accumulated other comprehensive loss and subsequently reclassifies these changes in estimated fair value to net income in the same period(s) that the hedged transaction affects earnings. The effective portion of the cash flow hedges is recorded in the same financial statement category as the hedged item. For free-standing derivatives, the Company reports changes in the fair values in net realized and unrealized loss on derivatives and foreign exchange on the condensed consolidated statements of operations.

The Company formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Company’s evaluation of effectiveness of its hedged transactions. Periodically, the Company also formally assesses whether the derivative it designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in estimated fair values or cash flows of the hedged item using either the dollar offset or the regression analysis method. If the Company determines that a derivative is not highly effective as a hedge, it discontinues hedge accounting.

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In connection with the Merger Transaction, the Company discontinued hedge accounting for its cash flow hedges and, as of the Effective Date, classifies all derivative instruments as free-standing derivatives. As a result, the Company records changes in the estimated fair value of the derivative instruments in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations.

Foreign Currency

The Company makes investments in non-United States dollar denominated assets including securities, loans, equity investments and interests in joint ventures and partnerships. As a result, the Company is subject to the risk of fluctuation in the exchange rate between the United States dollar and the foreign currency in which it makes an investment. In order to reduce the currency risk, the Company may hedge the applicable foreign currency. All investments denominated in a foreign currency are converted to the United States dollar using prevailing exchange rates on the balance sheet date.

Income, expenses, gains and losses on investments denominated in a foreign currency are converted to the United States dollar using the prevailing exchange rates on the dates when they are recorded. Foreign exchange gains and losses are recorded in net realized and unrealized loss on derivatives and foreign exchange on the condensed consolidated statements of operations.

Manager Compensation

The Management Agreement provides for the payment of a base management fee to the Manager, as well as an incentive fee if the Company’s financial performance exceeds certain benchmarks. Additionally, the Management Agreement provides for the Manager to be reimbursed for certain expenses incurred on the Company’s behalf. The base management fee and the incentive fee are accrued and expensed during the period for which they are earned by the Manager.

Share-Based Compensation

In connection with the Merger Transaction, the Predecessor Company’s common shares were converted into 0.51 KKR & Co. common units. Prior to the Effective Date, the Company accounted for share-based compensation issued to its directors and to its Manager using the fair value based methodology in accordance with relevant accounting guidance. Compensation cost related to restricted common shares issued to the Company’s directors was measured at its estimated fair value at the grant date, and was amortized and expensed over the vesting period on a straight-line basis. Compensation cost related to restricted common shares and common share options issued to the Manager was initially measured at estimated fair value at the grant date, and was remeasured on subsequent dates to the extent the awards were unvested. The Company elected to use the graded vesting attribution method to amortize compensation expense for the restricted common shares and common share options granted to the Manager.

Income Taxes

The Company intends to continue to operate so as to qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Therefore, the Company generally is not subject to United States federal income tax at the entity level, but is subject to limited state and foreign taxes. Holders of the Company’s common shares will be required to take into account their allocable share of each item of the Company’s income, gain, loss, deduction, and credit that is allocated to such class of shares for the taxable year of the Company ending within or with their taxable year. Holders of the Company’s preferred shares will be allocated a share of the Company’s gross ordinary income for the taxable year of the Company ending within or with their taxable year.  Holders of the Company’s preferred shares will not be allocated any gains or losses from the sale of the Company’s assets.

The Company owns equity interests in entities that have elected or intend to elect to be taxed as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). A REIT generally is not subject to United States federal income tax to the extent that it currently distributes its income and satisfies certain asset, income and ownership tests, and recordkeeping requirements, but it may be subject to some amount of federal, state, local and foreign taxes based on its taxable income.

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The Company has wholly-owned domestic and foreign subsidiaries that are taxable as corporations for United States federal income tax purposes and thus are not consolidated with the Company for United States federal income tax purposes. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with respect to its interest in the domestic taxable corporate subsidiaries, because each is taxed as a regular corporation under the Code. Deferred income tax assets and liabilities are computed based on temporary differences between the GAAP consolidated financial statements and the United States federal income tax basis of assets and liabilities as of each consolidated balance sheet date. The foreign corporate subsidiaries were formed to make certain foreign and domestic investments from time to time. The foreign corporate subsidiaries are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are anticipated to be exempt from United States federal and state income tax at the corporate entity level because they restrict their activities in the United States to trading in stock and securities for their own account. However, the Company will be required to include their current taxable income in the Company’s calculation of its taxable income allocable to shareholders.

The Company must recognize the tax impact from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax impact recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Penalties and interest related to uncertain tax positions are recorded as tax expense. Significant judgment is required in the identification of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions. If it is determined that recognition for an uncertain tax provision is necessary, the Company would record a liability for an unrecognized tax expense from an uncertain tax position taken or expected to be taken.

Earnings Per Common Share

In connection with the Merger Transaction, as of the Effective Date, the Company is now a subsidiary of KKR Fund Holdings, which owns 100 common shares of the Company constituting all of the Company’s outstanding common shares. As KKR Fund Holdings is the Company’s sole shareholder, earnings per common share is not reported for the Successor Company. Prior to the Effective Date, the Company presented both basic and diluted earnings per common share (“EPS”) in its condensed consolidated financial statements and footnotes thereto. Basic earnings per common share (“Basic EPS”) excluded dilution and was computed by dividing net income or loss available to common shareholders by the weighted average number of common shares, including vested restricted common shares, outstanding for the period. The Company calculated EPS using the more dilutive of the two-class method or the if-converted method. The two-class method was an earnings allocation formula that determined EPS for common shares and participating securities. Unvested share-based payment awards that contained non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) were participating securities and were included in the computation of EPS using the two-class method. Accordingly, all earnings (distributed and undistributed) were allocated to common shares, preferred shares and participating securities based on their respective rights to receive dividends. Diluted earnings per common share (“Diluted EPS”) reflected the potential dilution of common share options and unvested restricted common shares using the treasury method or if-converted method.

NOTE 3. MERGER TRANSACTION

On December 16, 2013, the Company announced the signing of a definitive merger agreement pursuant to which KKR & Co. had agreed to acquire all of the Company’s outstanding common shares through an exchange of equity through which the Company’s shareholders would receive 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN. On April 30, 2014, the date of the Merger Transaction, the transaction was approved by the Company’s common shareholders and the merger was completed, resulting in KFN becoming a subsidiary of KKR & Co. The merger was a taxable transaction for the Company’s common shareholders for U.S. federal income tax purposes.

Pursuant to the merger agreement, on the date of the Merger Transaction, (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by the Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN’s Non-Employee Directors’ Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan.

The Merger Transaction was recorded under the acquisition method of accounting by KKR & Co. and pushed down to the Company by allocating the total purchase consideration of $2.4 billion to the cost of the assets purchased and the liabilities assumed based on their estimated fair values at the date of the Merger Transaction. The excess of the total estimated fair values of the assets acquired and liabilities assumed over the purchase price and value of the preferred shares, which constitute non-controlling interests in the Company, was recorded as a bargain purchase gain by KKR & Co.

In connection with the Merger Transaction, the Company recognized approximately $24.2 million of total transaction costs. Of this total, $22.7 million was recorded during the one and four months ended April 30, 2014 within general, administrative and directors expenses on the condensed consolidated statements of operations. These costs included the contingent consideration owed to the Company’s financial and legal advisors upon the merger closing.

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The following table summarizes the estimated fair values assigned to the assets purchased and liabilities assumed (amounts in thousands):

Assets acquired:
Cash and cash equivalents	$	210,413
Restricted cash and cash equivalents	649,967
Securities	541,149
Corporate loans	6,649,054
Equity investments	297,054
Oil and gas properties, net	505,238
Interests in joint ventures and partnerships	491,324
Derivative assets	26,383
Interest and principal receivable	35,992
Other assets	208,144
Total assets	9,614,718
Liabilities assumed:
Collateralized loan obligation secured notes	5,663,666
Credit facilities	63,189
Senior notes	415,538
Junior subordinated notes	245,782
Accounts payable, accrued expenses and other liabilities	357,084
Accrued interest payable	17,647
Derivative liabilities	88,356
Total liabilities	6,851,262
Fair value of preferred shares	378,983
Fair value of net assets acquired	2,384,473
Less: Purchase price	2,369,559
Bargain purchase gain(1)	$	14,914

(1)Represents the excess of the fair value of the net assets acquired over the purchase price and value of the preferred shares, which constitute non-controlling interests in the Company. This difference was recorded as an adjustment to the Company’s additional paid-in-capital as of the Effective Date.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimated fair values of assets acquired and liabilities assumed were primarily based on information that was available as of the Merger Transaction date. The methodology used to estimate the fair values to apply purchase accounting are summarized below.

The carrying values of cash, restricted cash, interest and principal receivable, credit facilities, accounts payable, accrued expenses and other liabilities, and accrued interest payable represented the fair values. Fair value measurements for financial instruments and other assets included (i) market data for similar instruments (e.g. recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models for corporate loans and securities, (ii) third party valuation servicers for residential mortgage-backed securities, (iii) observable market prices, if available, or internally developed models, for equity investments, oil and gas properties, interests in joint ventures and partnerships, and (iv) quoted market prices, if available, or models using a series of techniques for derivative assets and liabilities. The fair value measurements for the liabilities assumed included (i) third party valuation servicers for the collateralized loan obligation secured notes and junior subordinated notes and (ii) observable market prices for the senior notes.

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NOTE 4. SECURITIES

In connection with the Merger Transaction and as of the Effective Date, the Company accounts for all of its securities, including RMBS, at estimated fair value. Prior to the Effective Date, the Company accounted for securities based on the following categories: (i) securities available-for-sale, which were carried at estimated fair value, with unrealized gains and losses reported in accumulated other comprehensive loss; (ii) other securities, at estimated fair value, with unrealized gains and losses recorded in the condensed consolidated statements of operations; and (iii) RMBS, at estimated fair value, with unrealized gains and losses recorded in the condensed consolidated statements of operations.

Successor Company

The following table summarizes the Company’s securities as of June 30, 2014, which are carried at estimated fair value (amounts in thousands):

	June 30, 2014
	Par		Amortized Cost		Estimated Fair Value
Securities, at estimated fair value	$	617,495	$	559,247	$	570,071
Total	$	617,495	$	559,247	$	570,071

Net Realized and Unrealized Gains (Losses)

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. Unrealized gains or losses are computed as the difference between the estimated fair value of the asset and the amortized cost basis of such asset. Unrealized gains or losses primarily reflect the change in asset values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. The following table presents the Company’s realized and unrealized gains from securities for the two months ended June 30, 2014 (amounts in thousands):

	Two months endedJune 30, 2014
Net realized gains	$	735
Net change in unrealized gains	10,823
Net realized and unrealized gains	$	11,558

Predecessor Company

The following table summarizes the Company’s securities as of December 31, 2013, which were carried at estimated fair value (amounts in thousands):

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Securities available-for-sale	$	326,775	$	24,791	$	(1,225	)	$	350,341
Other securities, at estimated fair value(1)	135,968		12,436		(1,437		)	146,967
Residential mortgage-backed securities, at estimated fair value(1)	138,284		2,809		(65,089		)	76,004
Total securities	$	601,027	$	40,036	$	(67,751	)	$	573,312

(1)Unrealized gains and losses presented represent amounts as of period-end. Unrealized gains and losses recognized during the year for these securities are recorded in earnings.

The following table shows the gross unrealized losses and estimated fair value of the Company’s available-for-sale securities, aggregated by length of time that the individual securities had been in a continuous unrealized loss position as of December 31, 2013 (amounts in thousands):

	Less Than 12 months					12 Months or More					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
December 31, 2013
Securities available-for-sale	$	25,543	$	(658	)	$	30,034	$	(567	)	$	55,577	$	(1,225	)

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The unrealized losses in the table above were considered to be temporary impairments due to market factors and were not reflective of credit deterioration. The Company considered many factors when evaluating whether impairment was other-than-temporary. For securities available-for-sale included in the table above, the Company did not intend to sell or believe that it was more likely than not that the Company would be required to sell any of its securities available-for-sale prior to recovery. In addition, based on the analyses performed by the Company on each of its securities available-for-sale, the Company believed that it was able to recover the entire amortized cost amount of the securities available-for-sale included in the table above.

During the one and four months ended April 30, 2014, the Company recognized losses totaling $1.5 million and $4.4 million, respectively, compared to $6.6 million and $12.5 million for the three and six months ended June 30, 2013, respectively, for securities available-for-sale that it determined to be other-than-temporarily impaired. The Company intended to sell these securities and as a result, the entire amount of the loss was recorded through earnings in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Securities available-for-sale sold at a loss typically included those that the Company determined to be other-than-temporarily impaired or had a deterioration in credit quality. The following table shows the net realized gains on the sales of securities available-for-sale (amounts in thousands):

	For the one month ended April 30, 2014		For the four months ended April 30, 2014		For the three months ended June 30, 2013			For the six months ended June 30, 2013
Gross realized gains	$	2,516	$	2,516	$	679		$	2,829
Gross realized losses	—		—		(6		)	(6		)
Net realized gains	$	2,516	$	2,516	$	673		$	2,823

Troubled Debt Restructurings

As discussed above in Note 2 to these condensed consolidated financial statements, beginning the Effective Date, the Company accounts for all of its securities at estimated fair value with unrealized gains and losses recorded in the condensed consolidated financial statements. Accordingly, TDR disclosure pertains to the Predecessor Company. During the one month ended April 30, 2014, the Company did not modify any securities that qualified as a TDR. During the four months ended April 30, 2014, the Company modified a security with an amortized cost of $24.1 million related to a single issuer in a restructuring that qualified as a TDR. The TDR involving this security, along with corporate loans related to the same issuer, were converted into a combination of equity carried at estimated fair value and cash. Post-modification, the equity securities received from the security TDR had an estimated fair value of $16.1 million. Refer to “Troubled Debt Restructurings” section within Note 5 to these condensed consolidated financial statements for further discussion on the loan TDRs related to this single issuer. There were no securities that qualified as TDRs during the three and six months ended June 30, 2013.

As of April 30, 2014, no securities modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

Defaulted Securities

As of June 30, 2014, the Successor Company had a corporate debt security from one issuer in default with an estimated fair value of $13.2 million, which was on non-accrual status. As of December 31, 2013, the Predecessor Company had a corporate debt security from one issuer in default with an estimated fair value of $25.4 million, which was on non-accrual status.

Concentration Risk

The Company’s corporate debt securities portfolio has certain credit risk concentrated in a limited number of issuers. As of June 30, 2014 under the Successor Company, approximately 68% of the estimated fair value of the Company’s corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by JC Penney Corp. Inc., LCI Helicopters Limited and Avaya Inc., which combined represented $162.1 million, or approximately 32% of the estimated fair value of the Company’s corporate debt securities. As of December 31, 2013 under the Predecessor Company, approximately 55% of the estimated fair value of the Company’s corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by LCI Helicopters Limited, JC Penney Corp. Inc. and NXP Semiconductor NV, which combined represented $104.5 million, or approximately 21% of the estimated fair value of the Company’s corporate debt securities.

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Pledged Assets

Note 7 to these condensed consolidated financial statements describes the Company’s borrowings under which the Company has pledged securities for borrowings. The following table summarizes the estimated fair value of securities pledged as collateral as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Successor Company		Predecessor Company
	As of June 30, 2014		As of December 31, 2013
Pledged as collateral for collateralized loan obligation secured debt	$	329,385	$	324,830
Total	$	329,385	$	324,830

NOTE 5. CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES

In connection with the Merger Transaction and as of the Effective Date, the Company accounts for all of its corporate loans at estimated fair value. Prior to the Effective Date, the Company accounted for loans based on the following categories: (i) corporate loans held for investment, which were measured based on their principal plus or minus unaccreted purchase discounts and unamortized purchase premiums, net of an allowance for loan losses; (ii) corporate loans held for sale, which were measured at lower of cost or estimated fair value; and (iii) corporate loans, at estimated fair value, which were measured at fair value.

Successor Company

The following table summarizes the Company’s corporate loans, at estimated fair value as of June 30, 2014 (amounts in thousands):

	June 30, 2014
	Par		Amortized Cost		Estimated Fair Value
Corporate loans, at estimated fair value	$	6,499,112	$	6,267,679	$	6,293,540
Total	$	6,499,112	$	6,267,679	$	6,293,540

Net Realized and Unrealized Gains (Losses)

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. Unrealized gains or losses are computed as the difference between the estimated fair value of the asset and the amortized cost basis of such asset. Unrealized gains or losses primarily reflect the change in asset values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. The following tables present the Company’s realized and unrealized (losses) gains from corporate loans for the two months ended June 30, 2014 (amounts in thousands):

	Two months endedJune 30, 2014
Net realized losses	$	(4,716	)
Net change in unrealized gains	25,861
Net realized and unrealized gains	$	21,145

Predecessor Company

The following table summarizes the Company’s corporate loans as of December 31, 2013 (amounts in thousands):

	December 31, 2013
	Corporate Loans Held for Investment			Corporate Loans Held for Sale			Corporate Loans, at Estimated Fair Value			Total Corporate Loans
Principal(1)	$	6,280,470		$	315,738		$	277,458		$	6,873,666
Net unamortized discount	(105,979		)	(20,070		)	(54,997		)	(181,046		)
Total amortized cost	6,174,491			295,668			222,461			6,692,620
Lower of cost or fair value adjustment	—			(15,920		)	—			(15,920		)
Allowance for loan losses	(224,999		)	—			—			(224,999		)
Unrealized gains	—			—			15,019			15,019
Net carrying value	$	5,949,492		$	279,748		$	237,480		$	6,466,720

(1)Principal amounts of corporate loans and corporate loans held for sale were net of cumulative charge-offs and other adjustments totaling $18.1 million as of December 31, 2013.

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Allowance for Loan Losses

As discussed above in Note 2 to these condensed consolidated financial statements, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for an allowance for loan losses. Accordingly, disclosure related to allowance for loan losses pertains to the Predecessor Company. As of December 31, 2013, the Company had an allowance for loan losses of $225.0 million. As described in Note 2 to these condensed consolidated financial statements, the allowance for loan losses represented the Company’s estimate of probable credit losses inherent in its loan portfolio as of the balance sheet date. The Company’s allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses consisted of individual loans that were impaired. The unallocated component of the allowance for loan losses represented the Company’s estimate of losses inherent, but not identified, in its portfolio as of the balance sheet date.

The following table summarizes the changes in the allowance for loan losses for the Company’s corporate loan portfolio during the one month and four months ended April 30, 2014 and three and six months ended June 30, 2013 (amounts in thousands):

	For the one month endedApril 30, 2014		For the fourmonths ended April 30, 2014			For the three months endedJune 30, 2013			For the sixmonths ended June 30, 2013
Allowance for loan losses:
Beginning balance	$	223,541	$	224,999		$	206,227		$	223,472
Provision for loan losses	—		—			—			11,068
Charge-offs	—		(1,458		)	(2,972		)	(31,285		)
Ending balance	$	223,541	$	223,541		$	203,255		$	203,255

The following table summarizes the ending balances of the allowance and corporate loans portfolio by basis of impairment method as of December 31, 2013 (amounts in thousands):

	December 31, 2013
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	142,682
Ending balance: collectively evaluated for impairment	82,317
	$	224,999
Corporate loans (recorded investment)(1):
Ending balance: individually evaluated for impairment	$	554,442
Ending balance: collectively evaluated for impairment	5,638,790
	$	6,193,232

(1)Recorded investment is defined as amortized cost plus accrued interest.

As of December 31, 2013, the allocated component of the allowance for loan losses totaled $142.7 million and related to investments in certain loans issued by four issuers with an aggregate par amount of $594.4 million and an aggregate recorded investment of $554.4 million. Of the allocated component totaling $142.7 million, $66.9 million related to Texas Competitive Electric Holdings Company LLC (“TXU”), which had an aggregate amortized cost of $311.6 million as of December 31, 2013.

The following table summarizes the Company’s recorded investment and unpaid principal balance in impaired loans, as well as the related allowance for credit losses as of December 31, 2013 (amounts in thousands):

	December 31, 2013
	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance
With no related allowance recorded	$	—	$	—	$	—
With an allowance recorded	554,442		594,416		142,682
Total	$	554,442	$	594,416	$	142,682

(1)Recorded investment is defined as amortized cost plus accrued interest.

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The Company recognized $1.0 million and $4.5 million of interest income related to impaired loans with a related allowance recorded for the one and four months ended April 30, 2014, respectively. The following table summarizes the Company’s average recorded investment in impaired loans and interest income recognized for the three and six months ended June 30, 2013 (amounts in thousands):

	For the three months endedJune 30, 2013				For the six months endedJune 30, 2013
	Average Recorded Investment(1)		InterestIncome Recognized		Average Recorded Investment(1)		InterestIncome Recognized
With no related allowance recorded	$	—	$	—	$	2,163	$	—
With an allowance recorded	538,344		5,995		505,212		10,269
Total	$	538,344	$	5,995	$	507,375	$	10,269

(1)Recorded investment is defined as amortized cost plus accrued interest.

As of December 31, 2013, the allocated component of the allowance for loan losses included all impaired loans. While all of the Company’s impaired loans were on non-accrual status, the Company’s non-accrual loans also included (i) other loans held for investment, (ii) corporate loans held for sale and (iii) loans carried at estimated fair value, which were not reflected in the table above. Any of these three classifications may have included those loans modified in a TDR, which were typically designated as being non-accrual (see “Troubled Debt Restructurings” section below).

The following table summarizes the Company’s recorded investment in non-accrual loans as of December 31, 2013 (amounts in thousands):

	December 31, 2013
Loans held for investment	$	554,442
Loans held for sale	44,823
Loans at estimated fair value	24,883
Total non-accrual loans	$	624,148

For the one month ended April 30, 2014, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $1.1 million, which included $1.0 million for non-accrual loans that were held for investment and $0.1 million for non-accrual loans held for sale. For the four months ended April 30, 2014, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $5.3 million, which included $4.5 million for non-accrual loans that were held for investment, $0.7 million for non-accrual loans held for sale and $0.1 million for non-accrual loans carried at estimated fair value. Comparatively, for the three months ended June 30, 2013, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $7.4 million, which included $6.0 million for non-accrual loans that were held for investment and $1.4 million for non-accrual loans held for sale. For the six months ended June 30, 2013, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $15.4 million, which included $10.3 million for non-accrual loans that were held for investment and $5.1 million for non-accrual loans held for sale.

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on non-accrual status regardless of whether or not such loan is considered past due. As of June 30, 2014, the Company held a total par value and estimated fair value of $505.2 million and $373.3 million, respectively, of non-accrual loans carried at estimated fair value. As of June 30, 2014, the Company held a total par value and estimated fair value of $48.0 million and $31.6 million, respectively, of past due loans carried at estimated fair value from one issuer, all of which were on non-accrual status and in default as of June 30, 2014. The associated interest payments related to the $31.6 million loans at estimated fair value that were 90 or more days past due was $1.1 million.

As of December 31, 2013, the Company held a total recorded investment of $237.2 million of non-accrual and past due loans held for investment from three issuers, certain of which were in default as of December 31, 2013. The associated past due interest payments related to the $237.2 million recorded investment was $5.6 million, of which $0.9 million was less than 30 days past due, $2.3 million was 60-89 days past due, and $2.4 million was 90 or more days past due. In addition, as of December 31, 2013, the Company held $15.5 million par amount and $12.2 million estimated fair value of non-accrual and past due loans carried at estimated fair value from one issuer, which was also in default as of December 31, 2013. The associated interest payments related to the $12.2 million loans at estimated fair value that were 90 or more days past due was $0.2 million.

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The unallocated component of the allowance for loan losses totaled $82.3 million as of December 31, 2013. As described in Note 2 to these condensed consolidated financial statements, the Company estimated the unallocated components of the allowance for loan losses through a comprehensive review of its loan portfolio and identified certain loans that demonstrated possible indicators of impairments, including credit quality indicators. The following table summarizes how the Company determined internally assigned grades related to credit quality based on a combination of concern as to probability of default and the seniority of the loan in the issuer’s capital structure as of December 31, 2013 (amounts in thousands):

Internally Assigned Grade	Capital Hierarchy	Recorded Investment December 31, 2013 (1)
High	Senior Secured Loan	$	26,886
	Second Lien Loan	286,996
	Subordinated	11,643
		$	325,525
Moderate	Senior Secured Loan	$	1,033,065
	Second Lien Loan	27,504
	Subordinated	39,329
		$	1,099,898
Low	Senior Secured Loan	$	4,148,913
	Second Lien Loan	25,864
	Subordinated	38,590
		$	4,213,367
	Total Unallocated	$	5,638,790
	Total Allocated	554,442
	Total Loans Held for Investment	$	6,193,232

(1)Recorded investment is defined as amortized cost plus accrued interest.

During the one and four months ended April 30, 2014, the Company recorded charge-offs totaling zero and $1.5 million comprised primarily of loans modified in TDRs. During the three and six months ended June 30, 2013, the Company recorded charge-offs totaling $3.0 million comprised of loans transferred to loans held for sale and $31.3 million comprised primarily of loans modified in TDRs, respectively.

Loans Held For Sale and the Lower of Cost or Fair Value Adjustment

As discussed above in Note 2 to these condensed consolidated financial statements, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for the bifurcation between corporate loans held for investment and loans held for sale. Accordingly, related disclosure pertains to the Predecessor Company. As of December 31, 2013, the Company had $279.7 million of loans held for sale. During the one and four months ended April 30, 2014, the Company transferred $110.7 million and $348.8 million amortized cost amount of loans from held for investment to held for sale, respectively. During the three and six months ended June 30, 2013, the Company transferred $55.4 million and $76.8 million amortized cost amount, respectively, of loans from held for investment to held for sale. The transfers of certain loans to held for sale were due to the Company’s determination that credit quality of a loan in relation to its expected risk-adjusted return no longer met the Company’s investment objective and the determination by the Company to reduce or eliminate the exposure for certain loans as part of its portfolio risk management practices. During the one and four months ended April 30, 2014 and the three and six months ended June 30, 2013, the Company did not transfer any loans held for sale back to loans held for investment. Transfers back to held for investment may have occurred as the circumstances that led to the initial transfer to held for sale were no longer present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby the Company determined that selling the asset no longer met its investment objective and strategy.

The Company recorded a $3.3 million net charge to earnings for the lower of cost or estimated fair value adjustment for the one month ended April 30, 2014 and a $5.0 million reduction to the lower of cost or estimated fair value adjustment for the four months ended April 30, 2014 for certain loans held for sale, which had a carrying value of $546.1 million as of April 30, 2014. Comparatively, the Company recorded a $3.9 million and $8.7 million net charge to earnings for the three and six months ended June 30, 2013, respectively, for the lower of cost or estimated fair value adjustment for certain loans held for sale, which had a carrying value of $117.5 million as of June 30, 2013.

26

Troubled Debt Restructurings

As discussed above in Note 2 to these condensed consolidated financial statements, as of the Effective Date, the Company accounts for all of its corporate loans at estimated fair value. Accordingly, required disclosure related to TDRs pertains to the Predecessor Company. The recorded investment balance of TDRs at December 31, 2013 totaled $55.4 million, related to three issuers. Loans whose terms have been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower had demonstrated a sustained period of repayment performance, typically six months. As of December 31, 2013, $55.4 million of TDRs were included in non-accrual loans (see “Non-Accrual Loans” section above). As of December 31, 2013, the allowance for loan losses included specific reserves of $22.1 million related to TDRs.

The following table presents the aggregate balance of loans whose terms had been modified in a TDR during the one and four months ended April 30, 2014 (dollar amounts in thousands):

	One month endedApril 30, 2014					Four months endedApril 30, 2014
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	1	$	154,075	$	—
Loans at estimated fair value	—	—		—		2	41,347		24,571
Total		$	—	$	—		$	195,422	$	24,571

(1)Recorded investment is defined as amortized cost plus accrued interest.

(2)Excludes equity securities received from the loans held for investment and/or loans at estimated fair value TDRs with an estimated fair value of $92.0 million and $12.3 million, from the two issuers, respectively.

The following table presents the aggregate balance of loans whose terms had been modified in a TDR during the three and six months ended June 30, 2013 (dollar amounts in thousands):

	Three months endedJune 30, 2013					Six months endedJune 30, 2013
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	2	$	68,358	$	39,430
Loans held for sale	—	—		—		—	—		—
Loans at estimated fair value	—	—		—		1	1,670		1,229
Total		$	—	$	—		$	70,028	$	40,659

(1)           Recorded investment is defined as amortized cost plus accrued interest.

(2)           Excludes equity securities received from the loans held for investment TDRs with an estimated fair value of $2.1 million.

27

During the four months ended April 30, 2014, the Company modified an aggregate recorded investment of $195.4 million related to two issuers in restructurings which qualified as TDRs. These restructurings involved conversions of the loans into one of the following: (i) a combination of equity carried at estimated fair value and cash, or (ii) a combination of equity and loans carried at estimated fair value with extended maturities ranging from an additional three to five-year period and a higher spread of 4.0%. Prior to the restructurings, one of the TDRs described above was already identified as impaired and had specific allocated reserves, while the other two were loans carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets plus cash received was charged-off against the allowance for loan losses. The TDRs resulted in $1.1 million of charge-offs, or 76% of the total $1.5 million of charge-offs recorded during the four months ended April 30, 2014.

During the six months ended June 30, 2013, the Company modified an aggregate recorded investment of $70.0 million related to three issuers in restructurings which qualified as TDRs. These restructurings involved conversions of the loans into one of the following: (i) new term loans with extended maturities and fixed, rather than floating, interest rates, (ii) equity carried at estimated fair value, or (iii) a combination of equity and loans carried at estimated fair value. The modification involving an extension of maturity date was for an additional four-year period with a higher coupon of 6.8%. Prior to the restructurings, two of the TDRs described above were already identified as impaired and had specific allocated reserves, while the third was a loan carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets was charged-off against the allowance for loan losses. The TDRs resulted in $26.8 million of charge-offs, or 86% of the total $31.3 million of charge-offs recorded during the six months ended June 30, 2013.

As of April 30, 2014, there were no commitments to lend additional funds to the issuers whose loans had been modified in a TDR.

As of April 30, 2014, no loans modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

During the one and four months ended April 30, 2014, the Company modified $135.2 million and $1.1 billion amortized cost of corporate loans, respectively, that did not qualify as TDRs. During the three and six months ended June 30, 2013, the Company modified $773.5 million and $1.8 billion amortized cost of corporate loans, respectively, that did not qualify as TDRs. These modifications involved changes in existing rates and maturities to prevailing market rates/maturities for similar instruments and did not qualify as TDRs as the respective borrowers were not experiencing financial difficulty or seeking (or granted) a concession as part of the modification. In addition, these modifications of non-troubled debt holdings were accomplished with modified loans that were not substantially different from the loans prior to modification.

Defaulted Loans

As of June 30, 2014, the Successor Company held four corporate loans that were in default with a total estimated fair value of $329.0 million from two issuers. As of December 31, 2013, the Predecessor Company held six corporate loans that were in default with a total amortized cost of $215.7 million from two issuers. Of the $215.7 million total amortized cost, $203.7 million were included in the loans that comprised the allocated component of the Company’s allowance for loan losses and $12.0 million were included in loans carried at estimated fair value.

Concentration Risk

The Company’s corporate loan portfolio has certain credit risk concentrated in a limited number of issuers. As of June 30, 2014 under the Successor Company where all corporate loans are carried at estimated fair value, approximately 42% of the total estimated fair value of the Company’s corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, U.S. Foods Inc. and First Data Corp., which combined represented $768.7 million or approximately 12% of the aggregate estimated fair value of the Company’s corporate loans. As of December 31, 2013 under the Predecessor Company, approximately 46% of the total amortized cost basis of the Company’s corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, Modular Space Corporation and U.S. Foods Inc., which combined represented $935.2 million or approximately 14% of the aggregate amortized cost basis of the Company’s corporate loans.

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Pledged Assets

Note 7 to these condensed consolidated financial statements describes the Company’s borrowings under which the Company has pledged loans for borrowings. The following table summarizes the corporate loans pledged as collateral as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Successor Company		Predecessor Company
	As of June 30, 2014		As of December 31, 2013
	Estimated Fair Value		Amortized Cost
Pledged as collateral for collateralized loan obligation secured debt	$	5,975,146	$	6,231,541
Total	$	5,975,146	$	6,231,541

NOTE 6. NATURAL RESOURCES ASSETS

Natural Resources Properties

As described in Note 2, as a result of the Merger Transaction and new accounting basis established for assets and liabilities, oil and gas properties were adjusted to reflect estimated fair value as of the Effective Date, but will continue to be carried at cost net of DD&A. The following table summarizes the Company’s oil and gas properties as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	As of June 30, 2014			As of December 31, 2013
Proved oil and natural gas properties (successful efforts method)	$	519,823		$	451,909
Unproved oil and natural gas properties	16,913			16,913
Less: Accumulated depreciation, depletion and amortization	(11,058		)	(68,453		)
Oil and gas properties, net	$	525,678		$	400,369

Development and Other Purchases

The Company accounted for certain of its initial oil and natural gas properties as business combinations under the acquisition method of accounting, whereby the Company (i) conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values and (ii) expensed as incurred transaction and integration costs associated with the acquisitions. Separate from these acquisitions, the Company deployed capital to develop and purchase other interests and assets in the natural resources sector.

During the six months ended June 30, 2014 and year ended December 31, 2013, the Company capitalized an additional $85.0 million and $154.5 million, respectively, as a result of purchasing natural resources assets or covering costs related to the development of oil and gas properties. Accordingly, these amounts are included in oil and gas properties, net on the condensed consolidated balance sheets.

NOTE 7. BORROWINGS

As described in Note 2, as a result of the Merger Transaction and new accounting basis established for assets and liabilities, all borrowings were adjusted to reflect estimated fair value as of the Effective Date. In addition, the Successor Company elected to account for its collateralized loan obligation secured notes at estimated fair value, with changes in estimated fair value recorded in the condensed consolidated statements of operations. Prior to the Effective Date, all liabilities were carried at amortized cost.

29

Certain information with respect to the Company’s borrowings as of June 30, 2014 is summarized in the following table (dollar amounts in thousands):

	Par		Carrying  Value(1)		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(2)
CLO 2005-1 senior secured notes	$	219,088	$	217,470	1.67	%	1,031	$	258,161
CLO 2005-2 senior secured notes	274,945		273,017		0.65		1,245	433,092
CLO 2006-1 senior secured notes	248,930		247,081		1.04		1,517	507,929
CLO 2007-1 senior secured notes	2,069,459		2,047,353		0.78		2,511	2,495,371
CLO 2007-1 mezzanine notes	489,723		484,087		3.83		2,511	590,513
CLO 2007-1 subordinated notes(3)	134,468		131,926		14.50		2,511	162,142
CLO 2007-A senior secured notes	350,592		350,423		2.03		1,203	129,018
CLO 2007-A mezzanine notes	143,600		143,620		7.41		1,203	52,845
CLO 2007-A subordinated notes(3)	15,096		37,538		20.69		1,203	5,555
CLO 2011-1 senior debt	451,871		451,871		1.58		1,507	549,617
CLO 2012-1 senior secured notes	367,500		366,217		2.32		3,821	370,670
CLO 2012-1 subordinated notes(3)	18,000		15,059		16.27		3,821	18,155
CLO 2013-1 senior secured notes	458,500		447,273		1.96		4,033	468,808
CLO 2013-2 senior secured notes	339,250		334,979		2.21		4,225	350,750
Total collateralized loan obligation secured debt	5,581,022		5,547,914					6,392,626
2015 Asset-based borrowing facility	55,689		55,689		2.40		493	172,594
2018 Asset-based borrowing facility	27,600		27,600		1.90		1,338	284,833
Total credit facilities	83,289		83,289					457,427
8.375% Senior notes	258,750		291,458		8.38		10,000	—
7.500% Senior notes	115,043		123,820		7.50		10,125	—
Junior subordinated notes	283,517		246,062		5.39		8,133	—
Total borrowings	$	6,321,621	$	6,292,543				$	6,850,053

(1)Carrying value represents estimated fair value for the collateralized loan obligation secured debt and amortized cost for all other borrowings.

(2)Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities and equity investments at estimated fair value. Also includes the carrying value of oil and gas assets. For purposes of this table, collateral for CLO senior, mezzanine and subordinated notes are calculated pro rata based on the par amount for each respective CLO.

(3)Subordinated notes do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on annualized distributions during the quarter, if any.

Certain information with respect to the Company’s borrowings as of December 31, 2013 is summarized in the following table (dollar amounts in thousands):

	Outstanding  Borrowings		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(1)
CLO 2005-1 senior secured notes	$	193,909	0.73	%	1,212	$	303,104
CLO 2005-2 senior secured notes	335,570		0.63		1,426	496,917
CLO 2006-1 senior secured notes	384,925		0.69		1,698	649,894
CLO 2007-1 senior secured notes	2,075,040		0.79		2,692	2,354,938
CLO 2007-1 mezzanine notes	406,428		3.65		2,692	461,250
CLO 2007-1 subordinated notes(2)	136,097		18.15		2,692	154,456
CLO 2007-A senior secured notes	428,152		1.57		1,384	540,677
CLO 2007-A mezzanine notes	55,327		7.44		1,384	69,867
CLO 2007-A subordinated notes(2)	15,096		42.22		1,384	19,063
CLO 2011-1 senior debt	388,703		1.25		1,688	517,597
CLO 2012-1 senior secured notes	362,727		2.34		4,002	376,603
CLO 2012-1 subordinated notes(2)	18,000		11.67		4,002	18,689
CLO 2013-1 senior secured notes	449,409		1.98		4,214	468,915
Total collateralized loan obligation secured debt	5,249,383					6,431,970
Senior secured credit facility(3)	75,000		1.39		699	—
2015 Asset-based borrowing facility	50,289		2.42		674	213,935
2018 Asset-based borrowing facility(4)	—		—		1,519	—
Total credit facilities	125,289					213,935
8.375% Senior notes	250,800		8.38		10,181	—
7.500% Senior notes	111,476		7.50		10,306	—
Junior subordinated notes	283,517		5.39		8,347	—
Total borrowings	$	6,020,465				$	6,645,905

30

(1)Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities available-for-sale and equity investments at estimated fair value. Also includes the carrying value of oil and gas assets. For purposes of this table, collateral for CLO senior, mezzanine and subordinated notes are calculated pro rata based on the outstanding borrowings for each respective CLO.

(2)Subordinated notes do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on year-to-date estimated distributions, if any.

(3)Capital stock of material domestic and foreign subsidiaries, as defined by the senior secured credit facility agreement, are eligible to be pledged as collateral. As of December 31, 2013, the total investments held within these eligible subsidiaries exceeded the amount of the outstanding debt.

(4)Borrowing rates range from 1.75% to 3.25% plus London interbank offered rate (“LIBOR”) per annum based on the amount outstanding.

CLO Debt

The indentures governing the Company’s CLO transactions stipulate the reinvestment period during which the collateral manager, which is an affiliate of the Company’s Manager, can generally sell or buy assets at its discretion and can reinvest principal proceeds into new assets. CLO 2007-A, CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 are no longer in their reinvestment periods as of June 30, 2014. As a result, principal proceeds from the assets held in each of these transactions are generally used to amortize the outstanding balance of senior notes outstanding. During the two months ended June 30, 2014, $196.9 million of original CLO 2005-2, CLO 2006-1 and CLO 2007-1 senior notes were repaid. During the one and four months ended April 30, 2014, $128.2 million and $182.6 million, respectively, of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. Comparatively, during the three and six months ended June 30, 2013, an aggregate $360.2 million and $506.3 million, respectively, of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. CLO 2012-1, CLO 2013-1 and CLO 2013-2 will end their reinvestment periods during December 2016, July 2017 and January 2018, respectively. CLO 2011-1 does not have a reinvestment period and all principal proceeds from holdings in CLO 2011-1 are used to amortize the transaction. During the two months ended June 30, 2014, zero original CLO 2011-1 senior notes were repaid, while during both the one and four months ended April 30, 2014, $39.4 million of original CLO 2011-1 senior notes were repaid. Comparatively, during the three and six months ended June 30, 2013, $24.0 million and $45.5 million, respectively, of original CLO 2011-1 senior notes were repaid.

During the two months ended June 30, 2014, the Company issued $15.0 million par amount of CLO 2006-1 Class E notes for proceeds of $15.0 million and $37.5 million par amount of CLO 2007-1 Class E notes for proceeds of $37.6 million.

During the one month ended April 30, 2014, the Company issued $61.1 million par amount of CLO 2007-A class D and E notes for proceeds of $61.3 million. In addition, during the same period, the Company issued $72.0 million par amount of CLO 2005-1 class D through F notes for proceeds of $71.5 million.

During the first quarter of 2014, the Company issued $21.9 million par amount of CLO 2007-1 class E notes for proceeds of $21.9 million. In addition, during the first quarter of 2014, the Company issued $29.8 million par amount of CLO 2007-A class G notes for proceeds of $30.2 million and $29.8 million par amount of CLO 2007-A class H notes for proceeds of $30.1 million.

On January 23, 2014, the Company closed CLO 2013-2, a $384.0 million secured financing transaction maturing on January 23, 2026. The Company issued $339.3 million par amount of senior secured notes to unaffiliated investors, of which $319.3 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.16% and $20.0 million was fixed rate at 3.74%. The investments that are owned by CLO 2013-2 collateralize the CLO 2013-2 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

On September 27, 2013, the Company amended the CLO 2011-1 senior loan agreement (the “CLO 2011-1 Agreement”) to upsize the transaction by $300.0 million, of which CLO 2011-1 is now able to borrow up to an incremental $225.0 million. Under the amended CLO 2011-1 Agreement, CLO 2011-1 matures on August 15, 2020 and borrowings under the CLO 2011-1 Agreement bear interest at a rate of the three-month LIBOR plus 1.35%.

31

On June 25, 2013, the Company closed CLO 2013-1, a $519.4 million secured financing transaction maturing on July 15, 2025. The Company issued $458.5 million par amount of senior secured notes to unaffiliated investors, of which $442.0 million was floating rate with a weighted-average coupon of three-month LIBOR plus 1.67% and $16.5 million was fixed rate at 3.73%. The investments that are owned by CLO 2013-1 collateralize the CLO 2013-1 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

Credit Facilities

Senior Secured Credit Facility

On November 30, 2012, the Company entered into a credit agreement for a three-year $150.0 million revolving credit facility, maturing on November 30, 2015 (the “2015 Facility”). The Company has the right to prepay loans under the 2015 Facility in whole or in part at any time. Loans under the 2015 Facility bear interest at a rate equal to, at the Company’s option, LIBOR plus 2.25% per annum, or an alternate base rate plus 1.25% per annum. As of December 31, 2013, the Company had $75.0 million of borrowings outstanding under the 2015 Facility. In connection with the merger, the Company terminated the 2015 Facility on April 30, 2014 with all amounts outstanding repaid as of March 31, 2014.

Asset-Based Borrowing Facilities

On May 20, 2014, the Company’s five-year nonrecourse, asset-based revolving credit facility, maturing on November 5, 2015 (the “2015 Natural Resources Facility”), was adjusted and reduced to $75.0 million, which is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. The borrowing base is subject to certain caps and concentration limits customary for financings of this type. The Company has the right to prepay loans under the 2015 Natural Resources Facility in whole or in part at any time. Loans under the 2015 Natural Resources Facility bear interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 2.75% per annum. The 2015 Natural Resources Facility contains customary covenants applicable to the Company. As of June 30, 2014 and December 31, 2013, the Company had $55.7 million and $50.3 million, respectively, of borrowings outstanding under the 2015 Natural Resources Facility.

On February 27, 2013, the Company entered into a separate credit agreement for a five-year $6.0 million non-recourse, asset-based revolving credit facility, maturing on February 27, 2018 (the “2018 Natural Resources Facility”), that is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. On May 15, 2014, the 2018 Natural Resources Facility was adjusted and increased to $68.5 million. The Company has the right to prepay loans under the 2018 Natural Resources Facility in whole or in part at any time. Loans under the 2018 Natural Resources Facility bear interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 3.25% per annum. The 2018 Natural Resources Facility contains customary covenants applicable to the Company. As of June 30, 2014 and December 31, 2013, the Company had $27.6 million and zero, respectively, of borrowings outstanding under the 2018 Natural Resources Facility. On July 1, 2014, the 2018 Natural Resources Facility was terminated, with all amounts outstanding repaid as of July 1, 2014.

As of both June 30, 2014 and December 31, 2013, the Company believes it was in compliance with the covenant requirements for its credit facilities.

Convertible Debt

On January 18, 2013, in accordance with the indenture relating to the Company’s $172.5 million 7.5% convertible senior notes due January 15, 2017 (“7.5% Notes”), the Company issued a conversion rights termination notice (“Termination Notice”) to holders of the 7.5% Notes whereby it terminated the right to convert the 7.5% Notes to common shares. The conversion rate as of January 18, 2013 was equal to 141.8256 common shares for each $1,000 principal amount of 7.5% Notes, plus an additional 9.2324 common shares per $1,000 principal amount to account for the make-whole premium. Holders of $172.5 million 7.5% Notes submitted their notes for conversion for which the Company satisfied by physical settlement with 26.1 million common shares.

NOTE 8. DERIVATIVE INSTRUMENTS

The Company enters into derivative transactions in order to hedge its interest rate risk exposure to the effects of interest rate changes. Additionally, the Company enters into derivative transactions in the course of its portfolio management activities. The counterparties to the Company’s derivative agreements are major financial institutions with which the Company and its affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, the Company is potentially exposed to losses. The counterparties to the Company’s derivative agreements have investment grade ratings and, as a result, the Company does not anticipate that any of the counterparties will fail to fulfill their obligations.

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The table below summarizes the aggregate notional amount and estimated net fair value of the derivative instruments as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	As of June 30, 2014						As of December 31, 2013
	Notional			Estimated Fair Value			Notional			Estimated Fair Value
Cash Flow Hedges:
Interest rate swaps	$	—		$	—		$	478,333		$	(42,078	)
Free-Standing Derivatives:
Interest rate swaps	458,833			(48,517		)	—			—
Commodity swaps	—			(7,714		)	—			1,493
Credit default swaps—protection purchased	—			—			(100,000		)	(2,019		)
Foreign exchange forward contracts	(300,370		)	(23,273		)	(320,380		)	(25,258		)
Foreign exchange options	129,900			7,056			129,900			8,941
Common stock warrants	—			1,077			—			945
Total rate of return swaps	—			(158		)	—			(229		)
Options	—			6,175			—			6,794
Total				$	(65,354	)				$	(51,411	)

Cash Flow Hedges

Interest Rate Swaps

As described above in Note 2 to these condensed consolidated financial statements, in connection with the Merger Transaction and as of the Effective Date, the Company discontinued hedge accounting for its cash flow hedges and records changes in the estimated fair value of the derivative instruments in the condensed consolidated statements of operations. Accordingly, disclosures related to cash flow hedges pertain to the Predecessor Company.

The Company uses interest rate swaps to hedge a portion of the interest rate risk associated with its borrowings under CLO senior secured notes as well as certain of its floating rate junior subordinated notes. The Predecessor Company designated these interest rate swaps as cash flow hedges and as of December 31, 2013, had interest rate swaps with a notional amount totaling $478.3 million. Changes in the estimated fair value of the interest rate swaps were recorded through accumulated other comprehensive loss, with gains or losses representing hedge ineffectiveness, if any, recognized in earnings during the reporting period.

The following table presents the net (losses) gains recognized in other comprehensive loss related to derivatives in cash flow hedging relationships for the one and four months ended April 30, 2014 and three and six months ended June 30, 2013 (amounts in thousands):

	For the onemonth ended April 30, 2014			For the fourmonths ended April 30, 2014			For the threemonths ended June 30, 2013		For the six months endedJune 30, 2013
Net (losses) gains recognized in accumulated other comprehensive loss on cash flow hedges	$	(1,611	)	$	(5,442	)	$	20,240	$	31,398

For all hedges where hedge accounting was being applied, effectiveness testing and other procedures to ensure the ongoing validity of the hedges were performed at least quarterly. During the one and four months ended April 30, 2014 and three and six months ended June 30, 2013, the Company did not recognize any ineffectiveness in income on the condensed consolidated statements of operations from its cash flow hedges.

As of June 30, 2014, the Successor Company had interest rate swaps with a notional amount of $458.8 million, which were classified as a free-standing derivatives, rather than cash flow hedges. Gains and losses on free-standing derivatives are reported in net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations. Unrealized gains (losses) represent the change in fair value of the derivative instruments and are noncash items.

33

Free-Standing Derivatives

Free-standing derivatives are derivatives that the Company has entered into in conjunction with its investment and risk management activities, but for which the Company has not designated the derivative contract as a hedging instrument for accounting purposes. Such derivative contracts may include commodity derivatives, credit default swaps (“CDS”) and foreign exchange contracts and options. Free-standing derivatives also include investment financing arrangements (total rate of return swaps) whereby the Company receives the sum of all interest, fees and any positive change in fair value amounts from a reference asset with a specified notional amount and pays interest on such notional amount plus any negative change in fair value amounts from such reference asset.

Gains and losses on free-standing derivatives are reported in net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations. Unrealized gains (losses) represent the change in fair value of the derivative instruments and are noncash items.

Commodity Derivatives

In an effort to minimize the effects of the volatility of oil, natural gas and NGL prices, the Company will from time to time enter into derivative instruments such as swap contracts to hedge its forecasted commodities sales. The Company does not designate these contracts as cash flow hedges and as such, the changes in the estimated fair value of these instruments are recorded in current period earnings.

The following table summarizes open positions as of June 30, 2014, and represents, as of such date, derivatives in place through December 31, 2016, on expected annual production volumes:

	2014		2015		2016
Natural gas positions:
Fixed price swaps:
Hedged volume (MMMBtu)	2,919		4,277		1,805
Average price ($/MMBtu)	$	4.34	$	4.73	$	4.44
Natural gas liquid positions:
Fixed price swaps:
Hedged volume (MBbls)	80		41		—
Average price ($/Bbl)	$	31.54	$	42.39	$	—
Oil positions:
Fixed price swaps:
Hedged volume (MBbls)	417		612		—
Average price ($/Bbl)	$	92.08	$	89.19	$	—

Credit Default Swaps

A CDS is a contract in which the contract buyer pays, in the case of a short position, or receives, in the case of long position, a periodic premium until the contract expires or a credit event occurs. In return for this premium, the contract seller receives a payment from or makes a payment to the buyer if there is a credit default or other specified credit event with respect to the issuer (also known as the reference entity) of the underlying credit instrument referenced in the CDS. Typical credit events include bankruptcy, dissolution or insolvency of the reference entity, failure to pay and restructuring of the obligations of the reference entity.

As of June 30, 2014 and December 31, 2013, the Company had purchased protection with a notional amount of zero and $100.0 million, respectively. The Company sells or purchases protection to replicate fixed income securities and to complement the spot market when cash securities of the referenced entity of a particular maturity are not available or when the derivative alternative is less expensive compared to other purchasing alternatives. In addition, the Company may purchase protection to hedge economic exposure to declines in value of certain credit positions. The Company purchases its protection from banks and broker dealers, other financial institutions and other counterparties.

Foreign Exchange Derivatives

The Company holds certain positions that are denominated in a foreign currency, whereby movements in foreign currency exchange rates may impact earnings if the United States dollar significantly strengthens or weakens against foreign currencies. In an effort to minimize the effects of these fluctuations on earnings, the Company will from time to time enter into foreign exchange options or foreign exchange forward contracts related to the assets denominated in a foreign currency. As of June 30, 2014 and December 31, 2013, the net contractual notional balance of our foreign exchange options and forward contract liabilities totaled $170.5 million and $190.5 million, respectively, all of which related to certain of our foreign currency denominated assets.

34

Free-Standing Derivatives Income (Loss)

The following table presents the amounts recorded in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations for the two months ended June 30, 2014 and for the one and four months ended April 30, 2014 (amounts in thousands):

	Successor Company									Predecessor Company
	Two months ended June 30, 2014									One month ended April 30, 2014									Four months ended April 30, 2014
	Realizedgains (losses)			Unrealized gains (losses)			Total			Realizedgains (losses)			Unrealized gains (losses)			Total			Realizedgains (losses)			Unrealized gains (losses)			Total
Interest rate swaps	$	—		$	(1,125	)	$	(1,125	)	$	—		$	—		$	—		$	—		$	—		$	—
Commodity swaps	(1,532		)	(3,350		)	(4,882		)	(601		)	(2,189		)	(2,790		)	(2,515		)	(5,856		)	(8,371		)
Credit default swaps(1)	—			—			—			—			—			—			(2,167		)	1,986			(181		)
Foreign exchange forward contracts and options(2)	(1,640		)	(958		)	(2,598		)	(1,618		)	2,716			1,098			(2,068		)	2,784			716
Common stock warrants	—			(5		)	(5		)	—			123			123			—			137			137
Total rate of return swaps	169			(213		)	(44		)	(406		)	170			(236		)	(2,349		)	284			(2,065		)
Options	—			(510		)	(510		)	—			392			392			—			(19		)	(19		)
Net realized and unrealized (losses) gains	$	(3,003	)	$	(6,161	)	$	(9,164	)	$	(2,625	)	$	1,212		$	(1,413	)	$	(9,099	)	$	(684	)	$	(9,783	)

(1)   Includes related income and expense on the derivatives.

(2)   Net of foreign exchange remeasurement gain or loss on foreign denominated assets.

The following tables present the amounts recorded in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations for three and six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Three months ended June 30, 2013									Six months ended June 30, 2013
	Realized gains (losses)			Unrealized gains (losses)			Total			Realized gains (losses)			Unrealized gains (losses)			Total
Commodity swaps	$	(22	)	$	7,028		$	7,006		$	1,087		$	919		$	2,006
Credit default swaps(1)	(518		)	49			(469		)	(3,161		)	1,519			(1,642		)
Foreign exchange forward contracts and options(2)	3,177			(4,451		)	(1,274		)	2,266			(6,371		)	(4,105		)
Net realized and realized gains (losses)	$	2,637		$	2,626		$	5,263		$	192		$	(3,933	)	$	(3,741	)

(1)Includes related income and expense on the derivatives.

(2)Net of foreign exchange remeasurement gain or loss on foreign denominated assets.

The Company is not subject to a master netting arrangement and the Company’s derivative instruments are presented on a gross basis on its condensed consolidated balance sheets.

NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments Not Carried at Estimated Fair Value

As described above in Note 2 to these condensed consolidated financial statements, as of the Effective Date, the Successor Company accounts for its investments, as well as its collateralized loan obligation secured notes at estimated fair value. Comparatively, the Predecessor Company accounted for certain of its corporate loans and its collateralized loan obligation secured notes at amortized cost.

35

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value on a recurring basis as of June 30, 2014 (amounts in thousands):

	Successor Company
	As of June 30, 2014				Fair Value Hierarchy
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, restricted cash, and cash equivalents	$	806,720	$	806,720	$	806,720	$	—	$	—
Liabilities:
Credit facilities	83,289		83,289		—		—		83,289
Senior notes	415,278		418,413		418,413		—		—
Junior subordinated notes	246,062		248,051		—		—		248,051

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value on a recurring basis as of December 31, 2013 (amounts in thousands):

	Predecessor Company
	As of December 31, 2013				Fair Value Hierarchy
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, restricted cash, and cash equivalents	$	507,552	$	507,552	$	507,552	$	—	$	—
Corporate loans, net of allowance for loan losses of $224,999 as of December 31, 2013(1)	5,949,492		6,051,641		—		5,691,988		359,653
Corporate loans held for sale(1)	279,748		281,278		—		267,169		14,109
Private equity investments, at cost(2)	405		4,496		—		—		4,496
Other assets	5,763		5,513		—		5,513		—
Liabilities:
Collateralized loan obligation secured debt	$	5,249,383	$	5,179,207	$	—	$	—	$	5,179,207
Credit facilities	125,289		125,289		—		—		125,289
Senior notes	362,276		393,772		393,772		—		—
Junior subordinated notes	283,517		247,416		—		—		247,416

(1)Corporate loans held for investment are carried at amortized cost net of allowance for loan losses, while corporate loans held for sale are carried at the lower of cost or estimated fair value. Refer to “Fair Value Measurements” for a table presenting the corporate loans which are measured at fair value on a non-recurring basis.

(2)Included within other assets on the condensed consolidated balance sheets.

36

Fair Value Measurements

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2014, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Successor Company
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2014
Assets:
Securities:
Corporate debt securities	$	—	$	341,237	$	169,592	$	510,829
Residential mortgage-backed securities	—		—		59,242		59,242
Total securities	—		341,237		228,834		570,071
Corporate loans	—		5,993,258		300,282		6,293,540
Equity investments, at estimated fair value	21,322		116,021		141,160		278,503
Interests in joint ventures and partnerships	—		12,430		515,556		527,986
Other assets	—		5,424		—		5,424
Derivatives:
Interest rate swaps	—		841		—		841
Commodity swaps	—		3,513		—		3,513
Foreign exchange forward contracts	—		4,322		—		4,322
Foreign exchange options	—		—		7,056		7,056
Common stock warrants	—		1,077		—		1,077
Total rate of return swaps	—		7		—		7
Options	—		—		6,175		6,175
Total derivatives	—		9,760		13,231		22,991
Total	$	21,322	$	6,478,130	$	1,199,063	$	7,698,515
Liabilities:
Collateralized loan obligation secured notes	$	—	$	—	$	5,547,914	$	5,547,914
Derivatives:
Interest rate swaps	—		49,358		—		49,358
Commodity swaps	—		11,227		—		11,227
Foreign exchange forward contracts	—		27,595		—		27,595
Total rate of return swaps	—		165		—		165
Total derivatives	—		88,345		—		88,345
Total	$	—	$	88,345	$	5,547,914	$	5,636,259

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Predecessor Company
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31,2013
Assets:
Securities:
Securities available-for-sale	$	—	$	326,940	$	23,401	$	350,341
Other securities, at estimated fair value	—		39,437		107,530		146,967
Residential mortgage-backed securities	—		—		76,004		76,004
Total securities	—		366,377		206,935		573,312
Corporate loans, at estimated fair value	—		84,680		152,800		237,480
Equity investments, at estimated fair value	39,515		3,638		138,059		181,212
Interests in joint ventures and partnerships	14,836		—		415,247		430,083
Derivatives:
Interest rate swaps	—		3,290		—		3,290
Commodity swaps	—		5,408		—		5,408
Foreign exchange forward contracts	—		4,846		—		4,846
Foreign exchange options	—		—		8,941		8,941
Common stock warrants	—		945		—		945
Options	—		—		6,794		6,794
Total derivatives	—		14,489		15,735		30,224
Total	$	54,351	$	469,184	$	928,776	$	1,452,311
Liabilities:
Derivatives:
Interest rate swaps	—		45,368		—		45,368
Commodity swaps	—		3,915		—		3,915
Credit default swaps—protection purchased	—		2,019		—		2,019
Foreign exchange forward contracts	—		30,104		—		30,104
Total rate of return swaps	—		229		—		229
Total derivatives	—		81,635		—		81,635
Total	$	—	$	81,635	$	—	$	81,635

37

The following table presents information about the Company’s assets measured at fair value on a non-recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands). There were no liabilities measured at fair value on a non-recurring basis:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31,2013
Corporate loans held for sale(1)	$	—	$	90,485	$	5,568	$	96,053
Total	$	—	$	90,485	$	5,568	$	96,053

(1)As of December 31, 2013, total loans held for sale had a carrying value of $279.7 million of which $96.1 million was carried at estimated fair value and the remaining $183.6 million carried at amortized cost.

Whenever events or changes in circumstances indicate that the carrying amounts of the Company’s oil and gas properties may not be recoverable, the Company evaluates its proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. For the year ended December 31, 2013, the Company recorded impairment charges totaling $10.4 million to write down certain of its oil and natural gas properties with a carrying amount of $16.1 million to an estimated fair value of $5.7 million.

Level 3 Fair Value Rollforward

The following table presents additional information about assets and liabilities, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the two months ended June 30, 2014 (amounts in thousands):

	Successor Company
	Assets																					Liabilities
	Corporate Debt Securities			Residential Mortgage- Backed Securities			Corporate Loans			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options			Collateralized Loan Obligation Secured Notes
Beginning balance as of May 1, 2014	$	156,500		$	59,623		$	294,218		$	157,765		$	472,467		$	8,854		$	6,684		$	5,663,665
Total gains or losses (for the period):
Included in earnings(1)	2,185			1,359			2,951			2,160			21,690			(1,798		)	(509		)	28,669
Transfers into Level 3	—			—			—			—			—			—			—			—
Transfers out of Level 3(2)	—			—			—			(1,230		)	—			—			—			—
Purchases	20,000			—			1,261			—			27,466			—			—			52,594
Sales	(3,966		)	—			(2,912		)	—			—			—			—			—
Settlements	(5,127		)	(1,740		)	4,764			(17,535		)	(6,067		)	—			—			(197,014		)
Ending balance as of June 30, 2014	$	169,592		$	59,242		$	300,282		$	141,160		$	515,556		$	7,056		$	6,175		$	5,547,914
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	2,185		$	623		$	2,073		$	2,160		$	21,690		$	(1,798	)	$	(509	)	$	28,669

(1)Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations. Amounts for collateralized loan obligation secured notes, which represent liabilities measured at fair value, are included in net realized and unrealized loss on debt in the condensed consolidated statements of operations.

(2)Equity investments, at estimated fair value were transferred out of Level 3 because observable market data became available.

38

The following table presents additional information about assets, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the one and four months ended April 30, 2014 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value			Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options
Beginning balance as of January 1, 2014	$	23,401		$	107,530		$	76,004		$	152,800		$	138,059		$	415,247		$	8,941		$	6,794
Total gains or losses (for the period):
Included in earnings(1)	22			3,059			3,088			(5,123		)	9,076			22,377			(813		)	(302		)
Included in other comprehensive income	121			—			—			—			—			—			—			—
Transfers into Level 3	—			—			—			—			—			—			—			—
Transfers out of Level 3(3)	—			—			—			—			(8,751		)	—			—			—
Purchases	—			25,000			—			8,822			—			42,683			—			—
Sales	—			—			(17,810		)	—			—			—			—			—
Settlements	(16		)	(10,078		)	(2,529		)	(3,104		)	120,593			14,113			—			—
Ending balance as of March 31, 2014	23,528			125,511			58,753			153,395			258,977			494,420			8,128			6,492
Total gains or losses (for the period):
Included in earnings(1)	44			479			1,416			1,240			12,126			(24,158		)	726			192
Included in other comprehensive income	33			—			—			—			—			—			—			—
Transfers into Level 3(2)	6,937			—			—			—			—			—			—			—
Transfers out of Level 3(3)	—			—			—			—			(119,033		)	—			—			—
Purchases	—			—			—			—			—			1,615			—			—
Sales	—			—			—			—			—			—			—			—
Settlements	(32		)	—			(546		)	2,272			—			(1,184		)	—			—
Ending balance as of April 30, 2014	$	30,510		$	125,990		$	59,623		$	156,907		$	152,070		$	470,693		$	8,854		$	6,684
Change in unrealized gains or losses for the period included in earnings for the one month ended April 30, 2014 for assets held at the end of the reporting period(1)	$	44		$	479		$	1,503		$	1,240		$	12,126		$	(24,158	)	$	726		$	192
Change in unrealized gains or losses for the period included in earnings for the four months ended April 30, 2014 for assets held at the end of the reporting period(1)	$	66		$	2,683		$	5,242		$	4,445		$	20,499		$	(1,781	)	$	(87	)	$	(110	)

(1)Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations.

(2)Securities available-for-sale were transferred into Level 3 because observable market data was no longer available as a result of an asset-restructure.

(3)Equity investments, at estimated fair value were transferred out of Level 3 because observable market data became available as a result of asset-restructures.

Certain interests in joint ventures and partnerships were transferred from Level 1 to Level 2 during the two months ended June 30, 2014 due to illiquid market conditions. There were no transfers between Level 1 and Level 2 during the one and four months ended April 30, 2014.

39

The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the three months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Common Stock Warrants		Foreign Exchange Options, Net		Interests in Joint Ventures and Partnerships
Beginning balance as of April 1, 2013	$	42,083		$	3,237	$	87,028		$	17,325		$	102,262		$	1,819	$	5,350	$	169,931
Total gains or losses (for the period):
Included in earnings(1)	99			944		(167		)	374			(1,426		)	1,742		401		(2,771		)
Included in other comprehensive income	131			—		—			—			—			—		—		—
Transfers into Level 3	—			—		—			—			—			—		—		—
Transfers out of Level 3	—			—		—			—			—			—		—		—
Purchases	—			23,691		—			28,695			3			—		—		74,851
Sales	—			—		—			—			—			—		—		—
Settlements	(4,933		)	—		(3,888		)	(458		)	(545		)	—		—		(6,987		)
Ending balance as of June 30, 2013	$	37,380		$	27,872	$	82,973		$	45,936		$	100,294		$	3,561	$	5,751	$	235,024
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	99		$	944	$	3,810		$	374		$	(1,426	)	$	1,742	$	401	$	(2,771	)

(1)Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized gain (loss) on derivatives and foreign exchange in the condensed consolidated statements of operations.

40

The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized level 3 inputs to determine fair value, for the six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Common Stock Warrants		Foreign Exchange Options, Net			Interests in Joint Ventures and Partnerships
Beginning balance as of January 1, 2013	$	42,221		$	2,909	$	83,842		$	16,141		$	97,746		$	1,574	$	8,277		$	142,477
Total gains or losses (for the period):
Included in earnings(1)	(18		)	1,272		5,554			(1,052		)	3,090			1,987		(2,526		)	3,908
Included in other comprehensive income	221			—		—			—			—			—		—			—
Transfers into Level 3	—			—		—			—			—			—		—			—
Transfers out of Level 3	—			—		—			—			—			—		—			—
Purchases	—			23,691		—			31,768			3			—		—			97,663
Sales	—			—		—			—			—			—		—			—
Settlements	(5,044		)	—		(6,423		)	(921		)	(545		)	—		—			(9,024		)
Ending balance as of June 30, 2013	$	37,380		$	27,872	$	82,973		$	45,936		$	100,294		$	3,561	$	5,751		$	235,024
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	(18	)	$	1,272	$	15,898		$	(1,348	)	$	3,090		$	1,987	$	(2,526	)	$	3,908

(1)Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized gain (loss) on derivatives and foreign exchange in the condensed consolidated statements of operations.

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2013.

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Valuation Techniques and Inputs for Level 3 Fair Value Measurements

The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivatives, that are measured at fair value and categorized within Level 3 as of June 30, 2014 (dollar amounts in thousands):

Successor Company
	Balance as of June 30,2014		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Assets:
Corporate debt securities	$	169,592	Yield analysis	Yield	12%	3% - 14%	Decrease
				Net leverage	12x	12x	Decrease
				EBITDA multiple	9x	8x - 10x	Increase
				Discount margin	900bps	900bps	Decrease
			Broker quotes	Offered quotes	103	102-106	Increase
Residential mortgage -backed	$	59,242	Discounted cash flows	Probability of default	6%	0% - 24%	Decrease
securities				Loss severity	26%	12% - 37%	Decrease
				Constant prepayment rate	13%	5% - 17%	(5)
Corporate loans	$	300,282	Yield Analysis	Yield	10%	3% - 18%	Decrease
				Net leverage	6x	0x - 14x	Decrease
				EBITDA multiple	9x	5x - 13x	Increase
Equity investments, at estimated fair value(6)	$	141,160	Inputs to both market comparables and	Weight ascribed to market comparables	60%	33% - 100%	(7)
			discounted cash flow	Weight ascribed to	55%	0% - 100%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	12x	5x - 23x	Increase
				Forward EBITDA multiple	10x	5x - 17x	Increase
			Discounted cash flows	Weighted average cost of capital	11%	8% - 18%	Decrease
				LTM EBITDA exit multiple	10x	7x - 11x	Increase
Interests in joint ventures and partnerships(9)	$	515,556	Inputs to both market comparables and	Weight ascribed to market comparables	53%	0% - 100%	(7)
			discounted cash flow	Weight ascribed to	72%	0% - 100%	(8)
				discounted cash flows
			Market comparables	Current capitalization rate	7%	6% - 10%	Decrease
				LTM EBITDA multiple	11x	8x - 12x	Increase
				Forward EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	13%	8% - 20%	Decrease
Foreign exchange options	$	7,056	Option pricing model	Forward and spot rates	1	0 - 1	(10)
Options	$	6,175	Inputs to both market comparables and	Weight ascribed to market comparables	50%	50%	(7)
			discounted cash flow	Weight ascribed to	50%	50%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	10x	10x	Increase
			Discounted cash flows	Weighted average cost of capital	13%	13%	Decrease
				LTM EBITDA exit multiple	11x	11x	Increase
Liabilities:
Collateralized loan obligation secured notes	$	5,547,914	Yield analysis Discounted cash flows	Discount margin Probability of default Loss severity	229bps 2% 33%	0bps - 1500bps 2% - 3% 30% - 38%	Decrease Decrease Decrease

(1)For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the

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applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(2)In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.

(3)Weighted average amounts are based on the estimated fair values.

(4)Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.

(5)The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.

(6)When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

(7)The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.

(8)The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.

(9)Includes an asset that was valued using an independent third party valuation firm.

(10)The directional change from an increase in forward and spot rates varies and is dependent on the specific option.

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The following table presents additional information about valuation techniques and inputs used for assets, including derivatives, that are measured at fair value and categorized within Level 3 as of December 31, 2013 (dollar amounts in thousands):

Predecessor Company
	Balance as of December 31, 2013		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Assets:
Securities available-for-sale	$	23,401	Yield analysis	Yield	10%	6% - 12%	Decrease
				Net leverage	12x	11x - 12x	Decrease
				EBITDA multiple	8x	8x - 9x	Increase
			Broker quotes	Offered quotes	105	104 - 105	Increase
Other securities, at estimated	$	107,530	Yield Analysis	Yield	12%	7% - 17%	Decrease
fair value				EBITDA multiple	8x	7x - 8x	Increase
				Illiquidity discount	3%	3%	Decrease
				Net leverage	1x	1x - 2x	Decrease
			Broker quotes	Offered quotes	102	101 - 102	Increase
Residential mortgage-backed	$	76,004	Discounted cash flows	Probability of default	7%	0% - 21%	Decrease
securities				Loss severity	28%	16% - 77%	Decrease
				Constant prepayment rate	15%	3% - 35%	(5)
Corporate loans, at estimated	$	152,800	Yield Analysis	Yield	16%	14% - 23%	Decrease
fair value				Net leverage	7x	4x - 12x	Decrease
				EBITDA multiple	8x	6x - 11x	Increase
Equity investments, at estimated fair value(6)	$	138,059	Inputs to both market comparables and	Weight ascribed to market comparables	50%	33% - 100%	(7)
			discounted cash flow	Weight ascribed to	59%	50% - 100%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	12x	6x - 16x	Increase
				Forward EBITA multiple	12x	10x - 14x	Increase
			Discounted cash flows	Weighted average cost of capital	11%	8% - 14%	Decrease
				LTM EBITDA exit multiple	10x	4x - 11x	Increase
Interests in joint ventures and partnerships	$	415,247	Inputs to both market comparables and	Weight ascribed to market comparables	50%	50% - 100%	(7)
			discounted cash flow	Weight ascribed to	50%	50% - 100%	(8)
				discounted cash flows
			Market comparables	Current capitalization rate	7%	6% - 9%	Decrease
				LTM EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	8% - 24%	Decrease
Foreign exchange options	$	8,941	Option pricing model	Forward and spot rates	1	0 - 1	(9)
Options	$	6,794	Inputs to both market	Weight ascribed to market	50%	50%	(7)
			comparables and	comparables
			discounted cash flow	Weight ascribed to	50%	50%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	12%	Decrease
				LTM EBITDA exit multiple	10x	9x - 10x	Increase

(1)For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(2)In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.

(3)Weighted average amounts are based on the estimated fair values.

(4)Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.

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(5)The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.

(6)When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

(7)The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.

(8)The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.

(9)The directional change from an increase in forward and spot rates varies and is dependent on the specific option.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Commitments

As part of its strategy of investing in corporate loans, the Company commits to purchase interests in primary market loan syndications, which obligate the Company, subject to certain conditions, to acquire a predetermined interest in such loans at a specified price on a to-be-determined settlement date. Consistent with standard industry practices, once the Company has been informed of the amount of its syndication allocation in a particular loan by the syndication agent, the Company bears the risks and benefits of changes in the fair value of the syndicated loan from that date forward. In addition, the Company also commits to purchase corporate loans in the secondary market that similar to the above, the Company bears the risks and benefits of changes in the fair value from the trade date forward. As of December 31, 2013, the Company had committed to purchase corporate loans with aggregate par amounts totaling $62.7 million. As described above in Note 2 to these condensed consolidated financial statements, as of the Effective Date, the Company accounts for all corporate loans on trade date. As such, as of June 30, 2014, all corporate loans were included in the condensed consolidated balance sheets. In addition, the Company participates in certain contingent financing arrangements, whereby the Company is committed to provide funding of up to a specific predetermined amount at the discretion of the borrower or has entered into an agreement to acquire interests in certain assets. As of June 30, 2014 and December 31, 2013, the Company had unfunded financing commitments for corporate loans totaling $14.2 million and $17.4 million, respectively. The Company did not have any significant losses as of June 30, 2014, nor does it expect any significant losses related to those assets for which it committed to purchase and fund.

The Company participates in joint ventures and partnerships alongside KKR and its affiliates through which the Company contributes capital for assets, including development projects related to the Company’s interests in joint ventures and partnerships that hold commercial real estate and natural resources investments, as well as specialty lending focused businesses. The Company estimated these future contributions to total approximately $181.2 million as of June 30, 2014 and $325.5 million as of December 31, 2013.

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Guarantees

As of June 30, 2014 and December 31, 2013, the Company had investments, held alongside KKR and its affiliates, in real estate entities that were financed with non-recourse debt totaling $331.5 million and $231.7 million, respectively. Under non-recourse debt, the lender generally does not have recourse against any other assets owned by the borrower or any related parties of the borrower, except for certain specified exceptions listed in the respective loan documents including customary “bad boy” acts. In connection with these investments, joint and several non-recourse “bad boy” guarantees were provided for losses relating solely to specified bad faith acts that damage the value of the real estate being used as collateral. The Company does not expect any related losses. As of both June 30, 2014 and December 31, 2013, the Company also had financial guarantees related to its natural resources investments totaling $17.9 million for which the Company does not expect any significant losses.

Contingencies

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of the Company’s business. The Company’s business is also subject to extensive regulation, which may result in regulatory proceedings against it. It is inherently difficult to predict the ultimate outcome, particularly in cases in which claimants seek substantial or unspecified damages, or where investigations or proceedings are at an early stage and the Company cannot predict with certainty the loss or range of loss that may be incurred. The Company has denied, or believes it has a meritorious defense and will deny liability in the significant cases pending against the Company. Based on current discussion and consultation with counsel, management believes that the resolution of these matters will not have a material impact on the Company’s condensed consolidated financial statements.

From December 19, 2013 to January 31, 2014, multiple putative class action lawsuits have been filed in the Superior Court of California, County of San Francisco, the United States District Court of the District of Northern California, and the Court of Chancery of the State of Delaware by KFN shareholders against KFN, individual members of KFN’s board of directors, KKR & Co., and certain of KKR & Co.’s affiliates in connection with KFN’s entry into a merger agreement pursuant to which it would become a subsidiary of KKR & Co. The merger transaction was completed on April 30, 2014.  The actions filed in California state court have been consolidated but an operative complaint has not been filed or designated.  The complaint filed in the California federal court action, which was never served on the defendants, was voluntarily dismissed on May 6, 2014.  Two of the Delaware actions were voluntarily dismissed, and the remaining Delaware actions were consolidated.  On February 21, 2014, a consolidated complaint was filed in the consolidated Delaware action which all defendants moved to dismiss on March 7, 2014.  On July 29, 2014, the Delaware Court of Chancery heard oral arguments on defendants’ motion to dismiss.

The complaints in these actions allege variously that the members of the KFN board of directors breached fiduciary duties owed to KFN shareholders by approving the proposed transaction for inadequate consideration; approving the proposed transaction in order to obtain benefits not equally shared by other KFN shareholders; entering into the merger agreement containing preclusive deal protection devices; failing to take steps to maximize the value to be paid to the KFN shareholders; and failing to disclose material information necessary for KFN shareholders to make a fully informed decision about the proposed transaction. The actions also allege variously that KKR & Co., and certain of KKR & Co.’s affiliates aided and abetted the alleged breaches of fiduciary duties and that KKR & Co. is a controlling shareholder of KFN by means of a management agreement between KFN and KKR Financial Advisors LLC, and KKR & Co. breached a fiduciary duty it allegedly owed to KFN shareholders by causing KFN to enter into the merger agreement. The relief sought in these actions includes, among other things, declaratory and injunctive relief concerning the alleged breaches of fiduciary duties and the proposed transaction, rescission, an accounting by defendants, damages and attorneys’ fees and costs.

NOTE 11. SHAREHOLDERS’ EQUITY

Preferred Shares

On January 17, 2013, the Company issued 14.95 million of Series A LLC Preferred Shares for gross proceeds of $373.8 million, and net proceeds of $362.0 million. The Series A LLC Preferred Shares trade on the NYSE under the ticker symbol “KFN.PR” and began trading on January 28, 2013. Distributions on the Series A LLC Preferred Shares are cumulative and are payable, when, as, and if declared by the Company’s board of directors, quarterly on January 15, April 15, July 15 and October 15 of each year at a rate per annum equal to 7.375%.

Common Shares

Pursuant to the merger agreement, on the date of the Merger Transaction (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by the Company’s Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN’s Non-Employee Directors’ Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan. In addition, on June 27, 2014, the Company’s board of directors approved a reverse stock split whereby the number of the Company’s issued and outstanding common shares was reduced to 100 common shares, all of which are held solely by the Parent. As such, disclosure related to common shares below pertains to the Predecessor Company.

On May 4, 2007, the Company adopted an amended and restated share incentive plan (the “2007 Share Incentive Plan”) that provides for the grant of qualified incentive common share options that meet the requirements of Section 422 of the Code, non-qualified common share options, share appreciation rights, restricted common shares and other share-based awards. Share options and other share-based awards may be granted to the Manager, directors, officers and any key employees of the Manager and to any other individual or entity performing services for the Company, and no new awards are intended to be issued subsequent to the Effective Date.

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The exercise price for any share option granted under the 2007 Share Incentive Plan may not be less than 100% of the fair market value of the common shares at the time the common share option is granted. Each option to acquire a common share must terminate no more than ten years from the date it is granted. As of April 30, 2014, the 2007 Share Incentive Plan authorized a total of 8,964,625 shares that could be used to satisfy awards under the 2007 Share Incentive Plan.

The following table summarizes the restricted common share transactions that occurred prior to the Merger Transaction:

	Predecessor Company
	Manager		Directors	Total
Unvested shares as January 1, 2014	584,634		85,194	669,828
Issued	—		—	—
Vested	(243,648	)	—	(243,648	)
Forfeited	—		—	—
Unvested shares as of April 30, 2014	340,986		85,194	426,180

The Company is required to value any unvested restricted common shares granted to the Manager at the current market price. The Company valued the unvested restricted common shares granted to the Manager at $11.54 and $10.55 per share at April 30, 2014 and June 30, 2013, respectively. There were $2.2 million and $4.2 million of total unrecognized compensation costs related to unvested restricted common shares granted as of April 30, 2014 and June 30, 2013, respectively. These costs were expected to be recognized through 2016.

The following table summarizes common share option transactions:

	Predecessor Company
	Number of Options	Weighted Average Exercise Price
Outstanding as of January 1, 2014	1,932,279	$	20.00
Granted	—	—
Exercised	—	—
Forfeited	—	—
Outstanding as of April 30, 2014	1,932,279	$	20.00

As of April 30, 2014 and June 30, 2013, 1,932,279 common share options were exercisable. As of April 30, 2014, the common share options were fully vested and expire in August 2014.

For the one and four months ended April 30, 2014 and three and six months ended June 30, 2013, the components of share-based compensation expense are as follows (amounts in thousands):

	Predecessor Company
	For the one month ended April 30, 2014		For the four months ended April 30, 2014		For the three months ended June 30, 2013		For the six months ended June 30, 2013
Restricted common shares granted to Manager	$	113	$	690	$	664	$	1,383
Restricted common shares granted to certain directors	64		328		252		513
Total share-based compensation expense	$	177	$	1,018	$	916	$	1,896

NOTE 12. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

The Manager manages the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors. The Management Agreement expires on December 31 of each year, but is automatically renewed for a one-year term each December 31 unless terminated upon the affirmative vote of at least two-thirds of the Company’s independent directors, or by a vote of the holders of a majority of the Company’s outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. The Manager must be provided 180 days prior notice of any such termination and will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Management Agreement contains certain provisions requiring the Company to indemnify the Manager with respect to all losses or damages arising from acts not constituting bad faith, willful misconduct, or gross negligence. The Company has evaluated the impact of these guarantees on its condensed consolidated financial statements and determined that they are not material.

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The following table summarizes the components of related party management compensation on the Company’s condensed consolidated statements of operations, which are described in further detail below (amounts in thousands):

	Successor Company		Predecessor Company
	Two months endedJune 30, 2014		One month ended April 30, 2014		Four months endedApril 30, 2014		Three months endedJune 30, 2013		Six months endedJune 30, 2013
Base management fees, net	$	5,941	$	1,631	$	5,253	$	9,629	$	19,186
CLO management fees	4,465		2,480		11,016		1,664		2,513
Incentive fees	—		—		12,882		5,561		22,742
Manager share-based compensation	—		113		690		664		1,383
Total related party management compensation	$	10,406	$	4,224	$	29,841	$	17,518	$	45,824

Base Management Fees

The Company pays its Manager a base management fee quarterly in arrears. During 2014, certain related party fees received by affiliates of the Manager were credited to the Company via an offset to the base management fee (“Fee Credits”). Specifically, as described in further detail under “CLO Management Fees” below, a portion of the CLO management fees received by an affiliate of the Manager for certain of the Company’s CLOs were credited to the Company via an offset to the base management fee.

In addition, during the second half of 2013, the Company invested in a transaction that generated placement fees paid to a minority-owned affiliate of KKR. In connection with this transaction, the Manager agreed to reduce the Company’s base management fee payable to the Manager for the portion of these placement fees that were earned by KKR as a result of this minority-ownership. Separately, certain third-party expenses accrued and paid by the Company in the fourth quarter of 2013 in connection with the merger with KKR & Co. were used to reduce the Company’s base management fees payable to the Manager in an amount equal to such third-party expenses.

The table below summarizes the aggregate base management fees (amounts in thousands):

	Successor Company			Predecessor Company
	Two months endedJune 30, 2014			One month ended April 30, 2014			Four months endedApril 30, 2014			Three months endedJune 30, 2013			Six months endedJune 30, 2013
Base management fees, gross	$	6,688		$	3,372		$	13,364		$	9,860		$	19,417
CLO management fees credit(1)	(747		)	(1,741		)	(8,111		)	(231		)	(231		)
Total base management fees, net	$	5,941		$	1,631		$	5,253		$	9,629		$	19,186

(1)See “CLO Management Fees” for further discussion.

The Manager is waiving base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as the Company’s common share closing price on the NYSE is $20.00 or more for five consecutive trading days. Accordingly, the Manager permanently waived approximately $1.5 million during the two months ended June 30, 2014, $0.7 million and $2.9 million during the one and four months ended April 30, 2014, respectively, and $2.2 million and $4.4 million of base management fees during the three and six months ended June 30, 2013, respectively.

CLO Management Fees

An affiliate of the Manager entered into separate management agreements with the respective investment vehicles for all of the Company’s Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

Fees Waived

The collateral manager waived CLO management fees totaling $1.6 million for CLO 2005-2 and CLO 2006-1 during the two months ended June 30, 2014 and zero and $1.6 million during the one and four months ended April 30, 2014, respectively. During the three and six months ended June 30, 2013, the collateral manager waived CLO management fees totaling $7.3 million and $15.0 million, respectively, for all CLOs, except CLO 2005-1 and CLO 2012-1.

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Fees Charged and Fee Credits

The Company recorded management fees expense for CLO 2005-1, CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 2013-1 and CLO 2013-2 during 2014. The Company recorded management fees expense for CLO 2005-1 and CLO 2012-1 during 2013.

During the second half of 2013, the Manager began to credit the Company for a portion of the CLO management fees received by an affiliate of the Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the base management fees payable to the Manager. As the Company owns less than 100% of the subordinated notes of three CLOs (with the remaining subordinated notes held by third parties), the Company received a Fee Credit equal only to the Company’s pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of the Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by the Company. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to the Company, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by the Company to the third party holder of the CLO’s subordinated notes. Similarly, the Manager credited the Company the CLO management fees from CLO 2013-1 and CLO 2013-2 based on the Company’s 100% ownership of the subordinated notes in the CLO.

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):

	Successor Company		Predecessor Company
	Two months endedJune 30, 2014		One month ended  April 30, 2014		Four months endedApril 30, 2014		Three months endedJune 30, 2013		Six months endedJune 30, 2013
Charged and retained CLO management fees (1)	$	3,718	$	739	$	2,905	$	1,433	$	2,282
CLO management fees credit	747		1,741		8,111		231		231
Total CLO management fees	$	4,465	$	2,480	$	11,016	$	1,664	$	2,513

(1)Represents management fees incurred by the senior and subordinated note holders of a CLO, excluding the Fee Credits received by the Company based on its ownership percentage in the CLO.

Subordinated note holders in CLOs have the first risk of loss and conversely, the residual value upside of the transactions. When CLO management fees are paid by a CLO, the residual economic interests in the CLO transaction are reduced by an amount commensurate with the CLO management fees paid. The Company records any residual proceeds due to subordinated note holders as interest expense on the condensed consolidated statements of operations. Accordingly, the increase in CLO management fees is directly offset by a decrease in interest expense.

Incentive Fees

The Manager earned incentive fees totaling zero for the two months ended June 30, 2014 and zero and $12.9 million for the one and four months ended April 30, 2014, respectively. During the three and six months ended June 30, 2013, the Manager earned $5.6 million and $22.7 million, respectively, of incentive fees.

Manager Share-Based Compensation

The Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.1 million and $0.7 million for the one and four months ended April 30, 2014, respectively. In addition, the Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.7 million and $1.4 million for the three and six months ended June 30, 2013, respectively. Refer to Note 11 to these condensed consolidated financial statements for further discussion on share-based compensation.

Reimbursable General and Administrative Expenses

Certain general and administrative expenses are incurred by the Company’s Manager on its behalf that are reimbursable to the Manager pursuant to the Management Agreement. The Company incurred reimbursable general and administrative expenses to its Manager totaling $1.4 million for the two months ended June 30, 2014 and $0.9 million and $2.8 million for the one and four months ended April 30, 2014, respectively. During the three and six months ended June 30, 2013, the Company incurred reimbursable general and administrative expenses to its Manager of $1.9 million and $3.6 million, respectively. Expenses incurred by the Manager and reimbursed by the Company are reflected in general, administrative and directors expenses on the condensed consolidated statements of operations.

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Affiliated Investments

The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of KKR. As of June 30, 2014, the aggregate par amount of these affiliated investments totaled $1.8 billion, or approximately 25% of the total investment portfolio, and consisted of 26 issuers. The total $1.8 billion in affiliated investments was comprised of $1.7 billion of corporate loans, $9.5 million of corporate debt securities and $118.9 million of equity investments, at estimated fair value. As of December 31, 2013, the aggregate par amount of these affiliated investments totaled $2.1 billion, or approximately 27% of the total investment portfolio, and consisted of 28 issuers. The total $2.1 billion in affiliated investments was comprised of $1.9 billion of corporate loans, $52.8 million of corporate debt securities and $84.5 million of equity investments, at estimated fair value.

In addition, the Company has invested in certain joint ventures and partnerships alongside KKR and its affiliates. As of June 30, 2014, the estimated fair value of these interests in joint ventures and partnerships totaled $528.0 million. As of December 31, 2013, the aggregate cost amount of these interests in joint ventures and partnerships totaled $400.3 million.

NOTE 13. SEGMENT REPORTING

Operating segments are defined as components of a company that engage in business activities that may earn revenues and incur expenses for which separate financial information is available and reviewed by the chief operating decision maker or group in determining how to allocate resources and assessing performance. The Company operates its business through the following reportable segments: credit (“Credit”), natural resources (“Natural Resources”) and Other segments (“Other”).

The Company’s reportable segments are differentiated primarily by their investment focuses. The Credit segment consists primarily of below investment grade corporate debt comprised of senior secured and unsecured loans, mezzanine loans, high yield bonds, private and public equity investments, and distressed and stressed debt securities. The Natural Resources segment consists of non-operated working and overriding royalty interests in oil and natural gas properties. The Other segment includes all other portfolio holdings, consisting solely of commercial real estate. The segments currently reported are consistent with the way decisions regarding the allocation of resources are made, as well as how operating results are reviewed by the Company.

The Company evaluates the performance of its reportable segments based on several net income (loss) components. Net income (loss) includes (i) revenues, (ii) related investment costs and expenses, (iii) other income (loss), which is comprised primarily of unrealized and realized gains and losses on investments, debt and derivatives, and (iv) other expenses, including related party management compensation and general and administrative expenses. Certain corporate assets and expenses that are not directly related to the individual segments, including interest expense and related costs on borrowings, base management fees and professional services are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end. Certain other corporate assets and expenses, including prepaid insurance, incentive fees, insurance expenses, directors’ expenses and share-based compensation expense are not allocated to individual segments in the Company’s assessment of segment performance. Collectively, these items are included as reconciling items between reported segment amounts and consolidated totals.

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the two months ended June 30, 2014 (amounts in thousands):

	Successor Company
	Credit		Natural Resources			Other		Reconciling Items(1)			Total Consolidated
	Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014
Total revenues	$	62,311	$	31,930		$	72	$	—		$	94,313
Total investment costs and expenses	35,410		20,057			197		—			55,664
Total other income (loss)	17,113		(4,880		)	8,654		—			20,887
Total other expenses	12,753		1,393			183		35			14,364
Income tax expense	24		—			4		—			28
Net income (loss)	$	31,237	$	5,600		$	8,342	$	(35	)	$	45,144

(1)Consists of directors’ expenses which are not allocated to individual segments.

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The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the one and four months ended April 30, 2014 (amounts in thousands):

	Predecessor Company
	Credit				Natural Resources						Other						Reconciling Items(1)						Total Consolidated
	One month ended April 30, 2014		Four months ended April 30, 2014		One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014
Total revenues	$	37,693	$	134,255	$	17,754		$	61,782		$	21,205		$	21,205		$	—		$	—		$	76,652		$	217,242
Total investment costs and expenses	16,612		62,485		11,339			38,915			104			425			—			—			28,055			101,825
Total other income (loss)	11,530		76,046		(2,734		)	(8,123		)	(25,302		)	(11,589		)	—			—			(16,506		)	56,334
Total other expenses	7,286		23,121		479			1,633			90			230			26,296			40,625			34,151			65,609
Income tax expense	127		146		—			—			16			16			—			—			143			162
Net income (loss)	$	25,198	$	124,549	$	3,202		$	13,111		$	(4,307	)	$	8,945		$	(26,296	)	$	(40,625	)	$	(2,203	)	$	105,980

(1)Consists of certain expenses not allocated to individual segments including other expenses comprised of (i) incentive fees of zero and $12.9 million for the one and four months ended April 30, 2014, respectively and (ii) merger related transaction costs of $22.7 million for both the one and four months ended April 30, 2014. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the three and six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Credit					Natural Resources				Other					Reconciling Items(1)						Total Consolidated
	Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013		Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013			Three months ended June 30, 2013			Six months ended June 30, 2013
Total revenues	$	109,377		$	224,526	$	27,867	$	51,672	$	—		$	1,496	$	—		$	—		$	137,244		$	277,694
Total investment costs and expenses	45,445			106,844		19,500		38,969		248			429		—			—			65,193			146,242
Total other income (loss)	31,958			125,884		7,265		2,519		(1,988		)	3,321		—			(20,269		)	37,235			111,455
Total other expenses	15,028			28,996		799		2,429		244			368		7,125			26,230			23,196			58,023
Income tax (benefit) expense	(46		)	411		—		—		4			5		—			—			(42		)	416
Net income (loss)	$	80,908		$	214,159	$	14,833	$	12,793	$	(2,484	)	$	4,015	$	(7,125	)	$	(46,499	)	$	86,132		$	184,468

(1)Consists of certain expenses not allocated to individual segments including (i) other income (loss) comprised of losses on restructuring and extinguishment of debt of zero and $20.3 million for the three and six months ended June 30, 2013, respectively, and (ii) other expenses comprised of incentive fees of $5.6 million and $22.7 million for the three and six months ended June 30, 2013, respectively. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

The following table shows total assets of reportable segments reconciled to amounts reflected in the condensed consolidated financial statements as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Credit				Natural Resources				Other				Reconciling Items				Total Consolidated
As of	June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013
Total assets	$	8,547,333	$	8,020,353	$	632,527	$	505,029	$	208,372	$	190,946	$	194	$	870	$	9,388,426	$	8,717,198

NOTE 14. EARNINGS PER COMMON SHARE

Earnings per common share is not provided for the two months ended June 30, 2014 as the Company is now a subsidiary of KKR Fund Holdings, which owns 100 common shares of the Company constituting all of the Company’s outstanding common shares. The following table presents a reconciliation of basic and diluted net (loss) income per common share for the Predecessor Company (amounts in thousands, except per share information):

	Predecessor Company
	One month ended April 30, 2014			Four months ended April 30, 2014		Three months endedJune 30, 2013		Six monthsendedJune 30, 2013
Net (loss) income	$	(2,203	)	$	105,980	$	86,132	$	184,468
Less: Preferred share distributions	—			6,891		6,891		13,629
Net (loss) income available to common shareholders	$	(2,203	)	$	99,089	$	79,241	$	170,839
Less: Dividends and undistributed (loss) earnings allocated to participating securities	(5		)	292		262		591
Net (loss) income allocated to common shareholders	$	(2,198	)	$	98,797	$	78,979	$	170,248
Basic:
Basic weighted average common shares outstanding	204,398			204,276		204,108		200,650
Net (loss) income per common share	$	(0.01	)	$	0.48	$	0.39	$	0.85
Diluted:
Diluted weighted average common shares outstanding(1)	204,398			204,276		204,108		200,650
Net (loss) income per common share	$	(0.01	)	$	0.48	$	0.39	$	0.85

(1)Potential anti-dilutive common shares excluded from diluted earnings per share related to common share options were 1,932,279 for all periods presented.

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NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS

In connection with the Merger Transaction, accumulated other comprehensive loss is not provided for the two months ended June 30, 2014, as changes in the estimated fair value of all securities and cash flow hedges are recorded in the condensed consolidated statements of operations, within net realized and unrealized gain (loss) on investments and net realized and unrealized (loss) gain on derivatives and foreign exchange, respectively. The components of changes in accumulated other comprehensive loss for the Predecessor Company were as follows (amounts in thousands):

	Predecessor Company
	One month ended April 30, 2014 (1)									Four months ended April 30, 2014 (1)
	Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total			Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total
Beginning balance	$	21,678		$	(43,050	)	$	(21,372	)	$	23,567		$	(39,219	)	$	(15,652	)
Other comprehensive loss before reclassifications	(2,311		)	(1,611		)	(3,922		)	(2,614		)	(5,442		)	(8,056		)
Amounts reclassified from accumulated other comprehensive loss(2)	(1,053		)	—			(1,053		)	(2,639		)	—			(2,639		)
Net current-period other comprehensive loss	(3,364		)	(1,611		)	(4,975		)	(5,253		)	(5,442		)	(10,695		)
Ending balance	$	18,314		$	(44,661	)	$	(26,347	)	$	18,314		$	(44,661	)	$	(26,347	)

(1)The Company’s gross and net of tax amounts are the same.

(2)Includes an impairment charge of $1.5 million and $4.4 million for investments which were determined to be other-than-temporary for the one and four months ended April 30, 2014, respectively. These reclassified amounts are included in net realized and unrealized gain (loss) on investments on the condensed consolidated statements of operations.

	Predecessor Company
	Three months endedJune 30, 2013(1)									Six months endedJune 30, 2013(1)
	Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total			Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total
Beginning balance	$	22,997		$	(76,540	)	$	(53,543	)	$	17,472		$	(87,698	)	$	(70,226	)
Other comprehensive (loss) income before reclassifications	(12,121		)	20,240			8,119			(9,709		)	31,398			21,689
Amounts reclassified from accumulated other comprehensive loss(2)	5,781			—			5,781			8,894			—			8,894
Net current-period other comprehensive (loss) income	(6,340		)	20,240			13,900			(815		)	31,398			30,583
Ending balance	$	16,657		$	(56,300	)	$	(39,643	)	$	16,657		$	(56,300	)	$	(39,643	)

(1)The Company’s gross and net of tax amounts are the same.

(2)Includes an impairment charge of $6.6 million and $12.5 million for investments which were determined to be other-than-temporary for the three and six months ended June 30, 2013, respectively. These reclassified amounts are included in net realized and unrealized gain on investments on the condensed consolidated statements of operations.

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NOTE 16. SUBSEQUENT EVENTS

On June 27, 2014, the Company’s board of directors declared a cash distribution of $0.460938 per share on its Series A LLC Preferred Shares. The distribution was paid on July 15, 2014 to preferred shareholders as of the close of business on July 8, 2014.

On June 28, 2014, the Company signed an agreement to merge certain of the Company’s natural resources assets with certain assets of KKR Natural Resources Funds and Legend Production Holdings, LLC, a portfolio company of Riverstone Holdings LLC, to create a new oil and gas company called Trinity River Energy, LLC. This transaction is expected to close during the third quarter of 2014.

On June 27, 2014 and July 31, 2014, the Company’s board of directors approved the distribution of certain of the Company’s private equity and natural resources assets and cash, with an aggregate value of $294.6 million, to the Parent as the sole holder of the Company’s common shares. These distributions will have been completed during the third quarter of 2014. The 2018 Natural Resources Facility, which was used to partially finance these natural resources assets, was terminated with all amounts outstanding repaid as of July 1, 2014.

Also, on June 27, 2014 and July 31, 2014, the Company’s board of directors approved the receipt by the Company of contributions from the Parent of cash, CLO subordinated notes controlled by a third-party and specialty lending assets, with an aggregate value of $294.6 million. These contributions will have been completed during the third quarter of 2014.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except where otherwise expressly stated or the context suggests otherwise, the terms “we,” “us” and “our” refer to KKR Financial Holdings LLC and its subsidiaries.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Certain information contained in this Quarterly Report on Form 10-Q constitutes “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, that are based on our current expectations, estimates and projections. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. The words “believe,” “anticipate,” “intend,” “aim,” “expect,” “strive,” “plan,” “estimate,” and “project,” and similar words identify forward-looking statements. Such statements are not guarantees of future performance, events or results and involve potential risks and uncertainties. Accordingly, actual results and the timing of certain events could differ materially from those addressed in forward-looking statements due to a number of factors including, but not limited to, changes in interest rates and market values, financing and capital availability, changes in prepayment rates, general economic and political conditions and events, changes in market conditions, particularly in the global fixed income, credit and equity markets, the impact of current, pending and future legislation, regulation and legal actions, and other factors not presently identified. Other factors that may impact our actual results are discussed under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission, or the SEC, on February 27, 2014, and the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2014. We do not undertake, and specifically disclaim, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except for as required by federal securities laws.

EXECUTIVE OVERVIEW

We are a specialty finance company with expertise in a range of asset classes. Our core business strategy is to leverage the proprietary resources of KKR Financial Advisors LLC (our “Manager”) with the objective of generating both current income and capital appreciation by deploying capital to our strategies, which include bank loans and high yield securities, natural resources, special situations, mezzanine, commercial real estate and private equity with a focus on specialty lending. Our holdings across these strategies primarily consist of below investment grade syndicated corporate loans, also known as leveraged loans, high yield debt securities, private equity, interests in joint ventures and partnerships, and working and royalty interests in oil and gas properties. The corporate loans that we hold are typically purchased via assignment or participation in the primary or secondary market.

The majority of our holdings consist of corporate loans and high yield debt securities held in collateralized loan obligation (“CLO”) transactions that are structured as on-balance sheet securitizations and are used as long term financing for our investments in corporate debt. The senior secured debt issued by the CLO transactions is primarily owned by unaffiliated third party investors and we own the majority of the subordinated notes in the CLO transactions. As of June 30, 2014, our CLO transactions consisted of nine CLO transactions, KKR Financial CLO 2005-1, Ltd. (“CLO 2005-1”), KKR Financial CLO 2005-2, Ltd. (“CLO 2005-2”), KKR Financial CLO 2006-1, Ltd. (“CLO 2006-1”), KKR Financial CLO 2007-1, Ltd. (“CLO 2007-1”), KKR Financial CLO 2007-A, Ltd. (“CLO 2007-A”), KKR Financial CLO 2011-1, Ltd. (“CLO 2011-1”), KKR Financial CLO 2012-1, Ltd. (“CLO 2012-1”), KKR Financial CLO 2013-1, Ltd. (“CLO 2013-1”) and KKR Financial CLO 2013-2, Ltd. (“CLO 2013-2”) (collectively the “Cash Flow CLOs”). We execute our core business strategy through our majority-owned subsidiaries, including CLOs.

We are a Delaware limited liability company and were organized on January 17, 2007. We are the successor to KKR Financial Corp., a Maryland corporation. We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation.

Our Manager is a wholly-owned subsidiary of KKR Asset Management LLC (“KAM”), pursuant to a management agreement (the “Management Agreement”). KAM is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), which is a subsidiary of KKR & Co. L.P. (“KKR & Co.”).

Merger with KKR & Co.

On December 16, 2013, we announced the signing of a definitive merger agreement pursuant to which KKR & Co. had agreed to acquire all of our outstanding common shares through an exchange of equity through which our shareholders would receive 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN (the “Merger Transaction”). On April 30, 2014, the date of the Merger Transaction, the transaction was approved by our common shareholders and the merger was completed, resulting in KFN becoming a subsidiary of KKR & Co. As of the close of trading on April 30, 2014, our common shares were delisted on the New York Stock Exchange (“NYSE”). However, our 7.375% Series A LLC Preferred Shares (“Series A LLC Preferred Shares”), senior notes and junior subordinated notes remain outstanding and we will continue to file periodic reports under the Securities Exchange Act of 1934.

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Pursuant to the merger agreement, on the date of the Merger Transaction, (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by our Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN’s Non-Employee Directors’ Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan. Following the Merger Transaction, KKR Fund Holdings L.P. (“KKR Fund Holdings”), a subsidiary of KKR & Co., became the sole holder of all of our outstanding common shares and is our parent (our “Parent”). The merger was a taxable transaction for our common shareholders for U.S. federal income tax purposes.  Our common shareholders generally recognized gain or loss in connection with the merger measured by the difference, if any, between (i) the sum of (a) the fair market value of any KKR common units received, (b) the amount of cash received and (c) their allocable share of our nonrecourse debt immediately prior to the merger and (ii) their adjusted tax basis in our common shares (which included their allocable share of our debt).

In connection with the Merger Transaction, on April 30, 2014, we terminated our three-year $150.0 million revolving credit facility, maturing on November 30, 2015 (the “2015 Facility”), with all amounts outstanding repaid as of March 31, 2014. In addition, we recognized approximately $24.2 million of aggregate transaction costs, including contingent fees owed to our financial and legal advisors. Of this total cost, $22.7 million was recorded during the one and four months ended April 30, 2014 in the condensed consolidated statements of operations.

The merger agreement required that we and KKR & Co. coordinate the timing of the declaration of distributions on our respective common equity prior to the closing of the Merger Transaction so that, in any quarter, a holder of our common shares did not receive distributions in respect of both KFN common shares and in respect of the KKR & Co. common units that such holder received in the Merger Transaction. As such, our board of directors did not declare a distribution on our common shares for the first quarter of 2014. Instead, common shareholders who received KKR & Co. common units in connection with the Merger Transaction and held these units through May 9, 2014, the record date for such distribution, received a distribution in an amount equal to $0.43 per KKR & Co. common unit. This distribution was paid on May 23, 2014 to unitholders.

Basis of Presentation

The Merger Transaction was accounted for using the acquisition method of accounting, which requires that the assets purchased and the liabilities assumed all be reported in the acquirer’s financial statements at their fair value, with any excess of net assets over the purchase price being reported as bargain purchase gain. The application of the acquisition method of accounting represented a push down of accounting basis to us, whereby we were also required to record the assets and liabilities at fair value as of the date of the Merger Transaction. This change in basis of accounting resulted in the termination of our prior reporting entity and a corresponding creation of a new reporting entity.

Accordingly, our condensed consolidated financial statements and transactional records prior to the effective date, or May 1, 2014 (the “Effective Date”), reflect the historical accounting basis of assets and liabilities and are labeled “Predecessor Company,” while such records subsequent to the Effective Date are labeled “Successor Company” and reflect the push down basis of accounting for the new estimated fair values in our condensed consolidated financial statements. This change in accounting basis is represented in the condensed consolidated financial statements by a vertical black line which appears between the columns entitled “Predecessor Company” and “Successor Company” on the statements and in the relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Merger Transaction are not comparable.

For the following assets not carried at fair value, as presented under the Predecessor Company, we adopted the fair value option of accounting as of the Effective Date: (i) corporate loans held for investment at amortized cost, net of an allowance for loan losses, (ii) corporate loans held for sale at lower of cost or estimated fair value and (iii) certain other investments at cost. In addition, we elected the fair value option of accounting for our collateralized loan obligation secured notes. As such, the accounting policies followed by us in the preparation of our condensed consolidated financial statements for the Successor period present all financial assets and CLO secured notes at estimated fair value. The initial fair value presentation was a result of the push down basis of accounting, while the prospective fair value presentation is for the primary purpose of reporting values more closely aligned with KKR & Co.’s method of accounting.

Unrealized gains and losses for these financial assets and liabilities carried at estimated fair value are reported in net realized and unrealized gain (loss) on investments and net realized and unrealized loss on debt, respectively, in the condensed consolidated statements of operations. Unrealized gains or losses primarily reflect the change in instrument values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. For the Successor period, upon the sale of a corporate loan or debt security, the net realized gain or loss is computed using the specific identification method. Comparatively, for the Predecessor periods, the realized net gain or loss was computed on a weighted average cost basis.

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Summary of Results

Our net income available to common shareholders for the two months ended June 30, 2014 totaled $38.3 million. Our net (loss) income available to common shareholders for the one and four months ended April 30, 2014 totaled $(2.2) million and $99.1 million (or $(0.01) and $0.48 per diluted common share), respectively, as compared to net income of $79.2 million and $170.8 million (or $0.39 and $0.85 per diluted common share) for the three and six months ended June 30, 2013, respectively. Additional discussion around our results, as well as the components of net income for our reportable segments, are detailed further below under “Results of Operations.”

Cash Distributions to Shareholders

On June 27, 2014, our board of directors declared a cash distribution of $0.460938 per share on our Series A LLC Preferred Shares. The distribution was paid on July 15, 2014 to preferred shareholders as of the close of business on July 8, 2014.

The amount and timing of our distributions to our preferred shareholders and Predecessor Company’s common shareholders was determined by our board of directors and was based upon a review of various factors including current market conditions, our liquidity needs, legal and contractual restrictions on the payment of distributions, including those under the terms of our preferred shares which would have impacted our Predecessor Company’s common shareholders, the amount of ordinary taxable income or loss earned by us, gains or losses recognized by us on the disposition of assets and our liquidity needs. For this purpose, we generally determined gains or losses based upon the price we paid for those assets.

We note, however, because of the tax rules applicable to partnerships, the gains or losses recognized by our Predecessor Company’s common shareholders on the sale of assets held by the Predecessor Company may have been higher or lower depending upon the purchase price such shareholders paid for our Predecessor Company’s common shares. Holders of Series A LLC Preferred Shares will not be allocated any gains or losses from any sale of our assets. Shareholders may have taxable income or tax liability attributable to our shares for a taxable year that is greater than our cash distributions for such taxable year. See “Non-Cash ‘Phantom’ Taxable Income” below for further discussion about taxable income allocable to holders of our shares. We may not declare or pay distributions on our common shares unless all accrued distributions have been declared and paid, or set aside for payment, on our Series A LLC Preferred Shares.

Funding Activities

CLOs

During the two months ended June 30, 2014, we issued $15.0 million par amount of CLO 2006-1 Class E notes for proceeds of $15.0 million and $37.5 million par amount of CLO 2007-1 Class E notes for proceeds of $37.6 million.

During the one month ended April 30, 2014, we issued $61.1 million par amount of CLO 2007-A class D and E notes for proceeds of $61.3 million. In addition, during the same period, we issued $72.0 million par amount of CLO 2005-1 class D through F notes for proceeds of $71.5 million.

Consolidation

Our Cash Flow CLOs are all variable interest entities (“VIEs”) that we consolidate as we have determined we have the power to direct the activities that most significantly impact these entities’ economic performance and we have both the obligation to absorb losses of these entities and the right to receive benefits from these entities that could potentially be significant to these entities.

As our condensed consolidated financial statements in this Quarterly Report on Form 10-Q are presented to reflect the consolidation of the CLOs we hold investments in, the information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the Cash Flow CLOs on a consolidated basis, which is consistent with the disclosures in our condensed consolidated financial statements.

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Non-Cash “Phantom” Taxable Income

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Holders of our shares are subject to United States federal income taxation and generally other taxes, such as state, local and foreign income taxes, on their allocable share of our taxable income, regardless of whether or when they receive cash distributions. In addition, certain of our investments, including investments in foreign corporate subsidiaries, CLO issuers (which are treated as partnerships, disregarded entities or foreign corporations for United States federal income tax purposes), partnerships generally and debt securities, may produce taxable income without corresponding distributions of cash to us or may produce taxable income prior to or following the receipt of cash relating to such income. In addition, we have recognized and may recognize in the future cancellation of indebtedness income upon the retirement of our debt at a discount. We generally allocate our taxable income and loss using a monthly convention, which means that we determine our taxable income and losses for the taxable year to be allocated to our shares and then prorate that amount on a monthly basis. Our Series A LLC Preferred Shares will receive an allocation of our gross ordinary income. If the amount of cash distributed to our Series A LLC Preferred Shares in any year exceeds our gross ordinary income for such year, additional gross ordinary income will be allocated to the Series A LLC Preferred Shares in future years until such excess is eliminated. Consequently, in some taxable years, holders of our shares may recognize taxable income in excess of our cash distributions. Furthermore, even if we did not pay cash distributions with respect to a taxable year, holders of our shares may still have a tax liability attributable to their allocation of our taxable income from us during such year.

CRITICAL ACCOUNTING POLICIES

Our condensed consolidated financial statements are prepared by management in conformity with GAAP. Our significant accounting policies are fundamental to understanding our financial condition and results of operations because some of these policies require that we make significant estimates and assumptions that may affect the value of our assets or liabilities and financial results. We believe that certain of our policies are critical because they require us to make difficult, subjective, and complex judgments about matters that are inherently uncertain.

Fair Value of Financial Instruments

In connection with the application of acquisition accounting related to the Merger Transaction, as presented under the Successor Company, we elected the fair value option of accounting for our financial assets and CLO secured notes for the primary purpose of reporting values more closely aligned with KKR & Co.’s method of accounting. The fair value option of accounting also enhances the transparency of our financial condition as fair value is consistent with how we manage the risks of these assets and liabilities. Related unrealized gains and losses are reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors including the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets and liabilities, and are as follows:

Level 1:  Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2:  Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3:  Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.

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The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument is new, whether the instrument is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2, and/or 3, which we recognize at the end of the reporting period.

Many financial assets and liabilities have bid and ask prices that can be observed in the market place. Bid prices reflect the highest price that we and others are willing to pay for an asset. Ask prices represent the lowest price that we and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, we do not require that fair value always be a predetermined point in the bid-ask range. Our policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets our best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, we may transfer assets to Level 3 if we determine that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 of the fair value hierarchy are described below.

Securities and Corporate Loans, at Estimated Fair Value:  Securities and corporate loans, at estimated fair value are initially valued at transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models. Valuation models are based on yield analysis techniques, where the key inputs are based on relative value analyses, which incorporate similar instruments from similar issuers. In addition, an illiquidity discount is applied where appropriate.

Equity Investments, at Estimated Fair Value:  Equity investments, at estimated fair value, are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach, which incorporates significant assumptions and judgment, include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as earnings before interest, taxes, depreciation and amortization (“EBITDA”) exit multiples.  Upon completion of the valuations conducted using these approaches, a weighting is ascribed to each approach and an illiquidity discount is applied where appropriate. The ultimate fair value recorded for a particular investment will generally be within the range suggested by the two approaches.

Interests in Joint Ventures and Partnerships:  Interests in joint ventures and partnerships include certain equity investments related to the oil and gas, commercial real estate and specialty lending sectors. Interests in joint ventures and partnerships are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Key inputs include the weighted average cost of capital and EBITDA multiples. In addition, an illiquidity discount is applied where appropriate.

Over-the-counter (“OTC”) Derivative Contracts:  OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities and equity prices. OTC derivatives are initially valued using quoted market prices, if available, or models using a series of techniques, including closed-form analytic formulae, such as the Black-Scholes option-pricing model, and/or simulation models in the absence of quoted market prices. Many pricing models employ methodologies that have pricing inputs observed from actively quoted markets, as is the case for generic interest rate swap and option contracts.

Residential Mortgage-Backed Securities, at Estimated Fair Value:  RMBS are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and constant prepayment rates.

Collateralized Loan Obligation Secured Notes: Collateralized loan obligation secured notes are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and discount margins.

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Share-Based Compensation

In connection with the Merger Transaction, our Predecessor Company’s common shares were converted into 0.51 KKR & Co. common units. Prior to the Effective Date, we accounted for share-based compensation issued to members of our board of directors and our Manager using the estimated fair value based methodology in accordance with GAAP. We did not have any employees, although we believed that members of our board of directors were deemed to be employees for purposes of interpreting and applying accounting principles relating to share-based compensation. We recorded as compensation costs the restricted common shares that we issued to members of our board of directors at estimated fair value as of the grant date and we amortized the cost into expense over the three-year vesting period using the straight-line method. We recorded compensation costs for restricted common shares and common share options that we issued to our Manager at estimated fair value as of the grant date and we remeasured the amount on subsequent reporting dates to the extent the awards had not vested. Unvested restricted common shares were valued using observable secondary market prices. Unvested common share options were valued using the Black-Scholes model and assumptions based on observable market data for comparable companies. We amortized compensation expense related to the restricted common shares and common share options that we granted to our Manager using the graded vesting attribution method.

Because we remeasured the amount of compensation costs associated with the unvested restricted common shares and unvested common share options that we issued to our Manager as of each reporting period, our share-based compensation expense reported in our condensed consolidated financial statements changed based on the estimated fair value of our common shares and this may have resulted in earnings volatility. For the one and four months ended April 30, 2014, share-based compensation totaled $0.2 million and $1.0 million, respectively.

Accounting for Derivative Instruments and Hedging Activities

We recognize all derivatives on our condensed consolidated balance sheets at estimated fair value. On the date we enter into a derivative contract, we designate and document each derivative contract as one of the following at the time the contract is executed: (i) a hedge of a recognized asset or liability (“fair value” hedge); (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (iii) a hedge of a net investment in a foreign operation; or (iv) a derivative instrument not designated as a hedging instrument (“free-standing derivative”). For a fair value hedge, we record changes in the estimated fair value of the derivative instrument and, to the extent that it is effective, changes in the estimated fair value of the hedged asset or liability in the current period earnings in the same financial statement category as the hedged item. For a cash flow hedge, we record changes in the estimated fair value of the derivative to the extent that it is effective in accumulated other comprehensive loss and subsequently reclassify these changes in estimated fair value to net income in the same period(s) that the hedged transaction affects earnings. The effective portion of the cash flow hedges is recorded in the same financial statement category as the hedged item. For free-standing derivatives, we report changes in the estimated fair values in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations.

We formally document at inception our hedge relationships, including identification of the hedging instruments and the hedged items, our risk management objectives, strategy for undertaking the hedge transaction and our evaluation of effectiveness of our hedged transactions. Periodically, we also formally assess whether the derivative designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in estimated fair values or cash flows of the hedged item using either the dollar offset or the regression analysis method. If we determine that a derivative is not highly effective as a hedge, we discontinue hedge accounting.

We are not required to account for our derivative contracts using hedge accounting as described above. If we decide not to designate the derivative contracts as hedges or if we fail to fulfill the criteria necessary to qualify for hedge accounting, then the changes in the estimated fair values of our derivative contracts would affect periodic earnings immediately, potentially resulting in the increased volatility of our earnings. The qualification requirements for hedge accounting are complex and as a result, we must evaluate, designate, and thoroughly document each hedge transaction at inception and perform ineffectiveness analysis and prepare related documentation at inception and on a recurring basis thereafter. In connection with the Merger Transaction, we discontinued hedge accounting for our cash flow hedges and, as of the Effective Date, classify all derivative instruments as free-standing derivatives. As a result, we record changes in the estimated fair value of the derivative instruments in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations. As of June 30, 2014, the estimated fair value of our net derivative liabilities totaled $65.4 million.

Impairments

Securities Available-for-Sale: The Predecessor and Successor Company both classify certain of their investments in securities as available-for-sale and carry them at estimated fair value. As described above, as of the Effective Date, we elected the fair value option of accounting for our securities, with changes in estimated fair value reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. Comparatively, prior to the Effective Date, we reported all unrealized gains and losses on our securities available-for-sale in accumulated other comprehensive loss. Under the Predecessor Company, we monitored our available-for-sale securities portfolio for impairments. A loss was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary. We considered many factors in determining whether the impairment of a security was deemed to be other-than-temporary, including, but not limited to, the length

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of time the security had a decline in estimated fair value below its amortized cost and the severity of the decline, the amount of the unrealized loss, recent events specific to the issuer or industry, external credit ratings and recent changes in such ratings. In addition, for debt securities we considered our intent to sell the debt security, our estimation of whether or not we expected to recover the debt security’s entire amortized cost if we intended to hold the debt security, and whether it was more likely than not that we would be required to sell the debt security before its anticipated recovery. For equity securities, we also considered our intent and ability to hold the equity security for a period of time sufficient for a recovery in value.

The amount of the loss that was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary was dependent on certain factors. If the security was an equity security or if the security was a debt security that we intended to sell or estimated that it was more likely than not that we would be required to sell before recovery of its amortized cost, then the impairment amount recognized in earnings was the entire difference between the estimated fair value of the security and its amortized cost. For debt securities that we did not intend to sell or estimated that we were not more likely than not to be required to sell before recovery, the impairment was separated into the estimated amount relating to credit loss and the estimated amount relating to all other factors. Only the estimated credit loss amount was recognized in earnings, with the remainder of the loss amount recognized in other comprehensive loss.

This process involved a considerable amount of judgment by our management. During the one and four months ended April 30, 2014, we recorded charges for impairments of securities that we determined to be other-than-temporary totaling $1.5 million and $4.4 million, respectively.

Long Lived Assets:  We evaluate our proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis, whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable. The determination of recoverability is made based upon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, future operating costs and a discount rate commensurate with the risk on the properties and cost of capital. Unproved oil and natural gas properties are assessed periodically and, at a minimum, annually on a property-by-property basis, and any impairment in value is recognized when incurred.

Allowance for Loan Losses

As a result of the Merger Transaction, the acquisition method of accounting and adoption of fair value for corporate loans eliminated the need for an allowance for loan losses. The reevaluation of assets required by the acquisition method of accounting resulted in all loans being reported at their estimated fair values as of the Effective Date. The estimated fair value takes into account the contractual payments on loans that are not expected to be received and consequently, no allowance for loan losses was carried over for the Successor Company. As of the Effective Date, no allowance for loan losses will be recorded as all corporate loans are carried at estimated fair value and disclosure related to the allowance for loan losses pertains to the Predecessor Company.

Our corporate loan portfolio is comprised of a single portfolio segment which includes one class of financing receivables, that is, high yield loans that are typically purchased via assignment or participation in either the primary or secondary market and are held primarily for investment. High yield loans are generally characterized as having below investment grade ratings or being unrated and generally consist of leveraged loans.

Prior to the Effective Date, our allowance for loan losses represented our estimate of probable credit losses inherent in our corporate loan portfolio held for investment as of the balance sheet date. Estimating our allowance for loan losses involved a high degree of management judgment and was based upon a comprehensive review of our corporate loan portfolio that was performed on a quarterly basis. Our allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses pertained to specific corporate loans that we had determined were impaired. We determined a corporate loan was impaired when management estimated that it was probable that we would be unable to collect all amounts due according to the contractual terms of the corporate loan agreement. On a quarterly basis we performed a comprehensive review of our entire corporate loan portfolio and identified certain corporate loans that we had determined were impaired. Once a corporate loan was identified as being impaired, we placed the corporate loan on non-accrual status, unless the corporate loan was already on non-accrual status, and recorded an allowance that reflected management’s best estimate of the loss that we expected to recognize from the corporate loan. The expected loss was estimated as being the difference between our current cost basis of the corporate loan, including accrued interest receivable, and the present value of expected future cash flows discounted at the corporate loan’s effective interest rate, except as a practical expedient, the corporate loan’s observable estimated fair value may have been used. We also estimated the probable credit losses inherent in our unfunded loan commitments as of the balance sheet date. Any credit loss reserve for unfunded loan commitments was recorded in accounts payable, accrued expenses and other liabilities on our condensed consolidated balance sheets.

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The unallocated component of our allowance for loan losses represented our estimate of probable losses inherent in the corporate loan portfolio as of the balance sheet date where the specific loan that the loan loss relates to was indeterminable. We estimated the unallocated component of the allowance for loan losses through a comprehensive review of our corporate loan portfolio and identified certain corporate loans that demonstrated possible indicators of impairment, including internally assigned credit quality indicators. This assessment excluded all corporate loans that were determined to be impaired and as a result, an allocated reserve had been recorded as described in the preceding paragraph. Such indicators included the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, and the observable trading price of the corporate loan if available. All corporate loans were first categorized based on their assigned risk grade and further stratified based on the seniority of the corporate loan in the issuer’s capital structure. The seniority classifications assigned to corporate loans were senior secured, second lien and subordinate. Senior secured consisted of corporate loans that were the most senior debt in an issuer’s capital structure and therefore had a lower estimated loss severity than other debt that was subordinate to the senior secured loan. Senior secured corporate loans often had a first lien on some or all of the issuer’s assets. Second lien consisted of corporate loans that were secured by a second lien interest on some or all of the issuer’s assets; however, the corporate loan was subordinate to the first lien debt in the issuer’s capital structure. Subordinate consists of corporate loans that were generally unsecured and subordinate to other debt in the issuer’s capital structure.

There were three internally assigned risk grades that were applied to loans that have not been identified as being impaired: high, moderate and low. High risk meant that there was evidence of possible loss due to the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, observable trading price of the corporate loan if available, or other factors that indicated that the breach of a covenant contained in the related loan agreement was possible. Moderate risk meant that while there was not observable evidence of possible loss, there were issuer and/or industry specific trends that indicated a loss may have occurred. Low risk meant that while there was no identified evidence of loss, there was the risk of loss inherent in the loan that had not been identified. All loans held for investment, with the exception of loans that had been identified as impaired, were assigned a risk grade of high, moderate or low.

We applied a range of default and loss severity estimates in order to estimate a range of loss outcomes upon which to base our estimate of probable losses that resulted in the determination of the unallocated component of our allowance for loan losses. The range of outcomes used to estimate concern as to the probability of default was between 1% and 20% and the range of loss severity assumptions was between 5% and 85%. The estimates and assumptions we used to estimate our allowance for loan losses were based on our estimated range of outcomes that were determined from industry information providing both historical and forecasted empirical performance of the type of corporate loans that we invested in, as well as from our own estimates based on the nature of our corporate loan portfolio. These estimates and assumptions were susceptible to change due to our corporate loan portfolio’s performance as well as industry and general economic conditions. Changes in the assumptions and estimates used to estimate our allowance for loan losses could have had a material impact on our financial condition and results of operations. The default and loss severity estimates used in determining our allowance for loan losses were assessed on a quarterly and annual basis. As of April 30, 2014, management believed that these estimates were appropriate and consistent with historical and forecasted estimates evidenced and used in both industry and our corporate loan portfolio.

Oil and Gas Revenue Recognition

Oil, natural gas and natural gas liquid (“NGL”) revenues are recognized when production is sold to a purchaser at fixed or determinable prices, when delivery has occurred and title has transferred and collectability of the revenue is reasonably assured. We follow the sales method of accounting for natural gas revenues. Under this method of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which we are entitled based on our working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient to enable the under-produced owners to recoup our entitled share through future production. Under the sales method, no receivables are recorded when we take less than our share of production and no payables are recorded when we take more than our share of production.

Oil, Natural Gas and Natural Gas Liquid Reserve Estimates

Proved reserves are based on the quantities of oil, natural gas and NGL that by analysis of geoscience and engineering data can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.  All reserve information is based on estimates prepared by petroleum engineers from the managers of our oil and gas properties and is aggregated by us. Annual reserve and economic evaluations of all of our properties are prepared, except for overriding royalty interests in certain properties in the Eagle Ford Shale purchased in 2011 since this information is unavailable to us. Similarly, the managers of our oil and gas properties prepare quarterly reserve and economic evaluations.

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Reserves and their relation to estimated future net cash flows impact our depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. The process performed by the managers of our oil and gas properties and management included the estimation of reserve quantities, future, producing rates, future net revenue and the present value of such future net revenue. The estimates of reserves conform to the guidelines of the SEC, including the criteria of “reasonable certainty,” as it pertains to expectations about the recoverability of reserves in future years.

The accuracy of reserve estimates is a function of many factors including the following: the quality and quantity of available data, the interpretation of that data, the accuracy of various mandated economic assumptions and the judgments of the individuals preparing the estimates. In addition, reserve estimates are a function of many assumptions, all of which could deviate significantly from actual results. As such, reserve estimates may materially vary from the ultimate quantities of oil, natural gas and NGL eventually recovered.

RESULTS OF OPERATIONS

Consolidated Results

The following tables show data of reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the two months ended June 30, 2014, one and four months ended April 30, 2014, and three and six months ended June 30, 2013 (amounts in thousands):

	Successor Company
	Credit		Natural Resources			Other		Reconciling Items(1)			Total Consolidated
	Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014
Total revenues	$	62,311	$	31,930		$	72	$	—		$	94,313
Total investment costs and expenses	35,410		20,057			197		—			55,664
Total other income (loss)	17,113		(4,880		)	8,654		—			20,887
Total other expenses	12,753		1,393			183		35			14,364
Income tax expense	24		—			4		—			28
Net income (loss)	$	31,237	$	5,600		$	8,342	$	(35	)	$	45,144

(1)Consists of directors’ expenses which are not allocated to individual segments.

	Predecessor Company
	Credit				Natural Resources						Other						Reconciling Items(1)						Total Consolidated
	One month ended April 30, 2014		Four months ended April 30, 2014		One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014
Total revenues	$	37,693	$	134,255	$	17,754		$	61,782		$	21,205		$	21,205		$	—		$	—		$	76,652		$	217,242
Total investment costs and expenses	16,612		62,485		11,339			38,915			104			425			—			—			28,055			101,825
Total other income (loss)	11,530		76,046		(2,734		)	(8,123		)	(25,302		)	(11,589		)	—			—			(16,506		)	56,334
Total other expenses	7,286		23,121		479			1,633			90			230			26,296			40,625			34,151			65,609
Income tax expense	127		146		—			—			16			16			—			—			143			162
Net income (loss)	$	25,198	$	124,549	$	3,202		$	13,111		$	(4,307	)	$	8,945		$	(26,296	)	$	(40,625	)	$	(2,203	)	$	105,980

(1)Consists of certain expenses not allocated to individual segments including other expenses comprised of (i) incentive fees of zero and $12.9 million for the one and four months ended April 30, 2014, respectively and (ii) merger related transaction costs of $22.7 million for both the one and four months ended April 30, 2014. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

	Predecessor Company
	Credit					Natural Resources				Other					Reconciling Items(1)						Total Consolidated
	Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013		Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013			Three months ended June 30, 2013			Six months ended June 30, 2013
Total revenues	$	109,377		$	224,526	$	27,867	$	51,672	$	—		$	1,496	$	—		$	—		$	137,244		$	277,694
Total investment costs and expenses	45,445			106,844		19,500		38,969		248			429		—			—			65,193			146,242
Total other income (loss)	31,958			125,884		7,265		2,519		(1,988		)	3,321		—			(20,269		)	37,235			111,455
Total other expenses	15,028			28,996		799		2,429		244			368		7,125			26,230			23,196			58,023
Income tax (benefit) expense	(46		)	411		—		—		4			5		—			—			(42		)	416
Net income (loss)	$	80,908		$	214,159	$	14,833	$	12,793	$	(2,484	)	$	4,015	$	(7,125	)	$	(46,499	)	$	86,132		$	184,468

(1)Consists of certain expenses not allocated to individual segments including (i) other income (loss) comprised of losses on restructuring and extinguishment of debt of zero and $20.3 million for the three and six months ended June 30, 2013, respectively, and (ii) other expenses comprised of incentive fees of $5.6 million and $22.7 million for the three and six months ended June 30, 2013, respectively. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

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Successor Company net income for the two months ended June 30, 2014 was $45.1 million, consisting of revenues totaling $94.3 million, investment costs and expenses totaling $55.7 million, other income totaling $20.9 million and other expenses totaling $14.4 million. Successor Company net income available to common shareholders for the two months ended June 30, 2014 was $38.3 million, net of $6.9 million for preferred share distributions.

Predecessor Company net loss for the one month ended April 30, 2014 was $2.2 million, consisting of revenues totaling $76.7 million, investment costs and expenses totaling $28.1 million, other loss totaling $16.5 million and other expenses totaling $34.2 million. Net income for the four months ended April 30, 2014 was $106.0 million, consisting of revenues totaling $217.2 million, investment costs and expenses totaling $101.8 million, other income totaling $56.3 million and other expenses totaling $65.6 million. Predecessor Company net income available to common shareholders for the four months ended April 30, 2014 was $99.1 million, net of $6.9 million for preferred share distributions.

Predecessor Company net income for the three months ended June 30, 2013 was $86.1 million, consisting of revenues totaling $137.2 million, investment costs and expenses totaling $65.2 million, other income totaling $37.2 million and other expenses totaling $23.2 million. Predecessor Company net income available to common shareholders for the three months ended June 30, 2013 was $79.2 million, net of $6.9 million for preferred share distributions. Net income for the six months ended June 30, 2013 was $184.5 million, consisting of revenues totaling $277.7 million, investment costs and expenses totaling $146.2 million, other income totaling $111.5 million and other expenses totaling $58.0 million. Predecessor Company net income available to common shareholders for the six months ended June 30, 2013 was $170.8 million, net of $13.6 million for preferred share distributions.

Revenues

Revenues consist primarily of interest income and discount accretion from our investment portfolio, as well as oil and gas revenue from our undeveloped working and overriding royalty interest properties. Oil and gas revenues were driven by production due to both the drilling and completion of undeveloped properties during 2014 and 2013.

Successor Company

For the two months ended June 30, 2014

Revenues totaled $94.3 million for the two months ended June 30, 2014 and was comprised primarily of corporate loan and security interest income and oil and gas revenue of $58.8 million and $31.9 million, respectively.

Predecessor Company

For the one and four months ended April 30, 2014

Revenues totaled $76.7 million for the one month ended April 30, 2014 and was comprised primarily of corporate loan and security interest income and oil and gas revenue of $33.3 million and $17.8 million, respectively. Revenues totaled $217.2 million for the four months ended April 30, 2014 and was comprised primarily of corporate loan and security interest income and oil and gas revenue of $127.2 million and $61.8 million, respectively.

For the three and six months ended June 30, 2013

Revenues totaled $137.2 million for the three months ended June 30, 2013 and was comprised primarily of corporate loan and security interest income and oil and gas revenue of $105.6 million and $27.9 million, respectively.  Revenues totaled $277.7 million for the six months ended June 30, 2013 and was comprised primarily of corporate loan and security interest income and oil and gas revenue of $218.8 million and $51.7 million, respectively.

Investment Costs and Expenses

Investment costs and expenses is comprised of interest expense, oil and gas production costs, depreciation, depletion and amortization expense (“DD&A”) related to oil and gas properties and other investment expenses.

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Successor Company

For the two months ended June 30, 2014

Investment costs and expenses totaled $55.7 million for the two months ended June 30, 2014 and was comprised primarily of interest expense and DD&A of $35.9 million and $11.1 million, respectively.

Predecessor Company

For the one and four months ended April 30, 2014

Investment costs and expenses totaled $28.1 million for the one month ended April 30, 2014 and was comprised primarily of interest expense of $17.1 million and DD&A of $6.9 million. Investment costs and expenses totaled $101.8 million for the four months ended April 30, 2014 and was comprised primarily of interest expense of $64.4 million, DD&A of $22.5 million and oil and gas production costs of $14.8 million.

For the three and six months ended June 30, 2013

Investment costs and expenses totaled $65.2 million for the three months ended June 30, 2013 and was comprised primarily of interest expense and interest expense to affiliates of $46.4 million coupled with oil and gas-related costs totaling $18.5 million. Investment costs and expenses totaled $146.2 million for the six months ended June 30, 2013 and was comprised primarily of interest expense and interest expense to affiliates of $98.2 million coupled with oil and gas-related costs totaling $35.4 million.

Other Income (Loss)

Successor Company

For the two months ended June 30, 2014

Other income totaled $20.9 million for the two months ended June 30, 2014 and was comprised primarily of a $54.1 million net realized and unrealized gain on investments, largely driven by unrealized gains in our corporate loan portfolio and interests in joint ventures and partnerships, partially offset by a $25.4 million unrealized loss on debt. Pursuant to the Merger Transaction, we elected the fair value option of accounting for our collateralized loan obligation secured notes as of the Effective Date. In addition, a $9.2 million net realized and unrealized loss on derivatives and foreign exchange was recorded during the two months ended June 30, 2014.

Predecessor Company

For the one and four months ended April 30, 2014

Other loss totaled $16.5 million for the one month ended April 30, 2014 primarily driven by a $16.2 million net realized and unrealized loss on investments, primarily due to unrealized losses on commercial real estate focused interests in joint ventures and partnerships. Other income totaled $56.3 million for the four months ended April 30, 2014 and was comprised of a $61.6 million net realized and unrealized gain on investments, partially offset by a $9.8 million net realized and unrealized loss on derivatives and foreign exchange. The $61.6 million net realized and unrealized gain on investments was largely driven by favorable sales and mark-to-market changes in our corporate loan portfolio and equity investments, at estimated fair value.

For the three and six months ended June 30, 2013

Other income totaled $37.2 million for the three months ended June 30, 2013 primarily driven by a $25.0 million net realized and unrealized gain on investments coupled with a $6.9 million net realized and unrealized gain on derivatives and foreign exchange. Other income totaled $111.5 million for the six months ended June 30, 2013 and was comprised of a $119.7 million net realized and unrealized gain on investments and $14.0 million of other income, primarily trade-related income. This income was partially offset by $20.3 million of net loss on restructuring and extinguishment of debt related to the conversion of our convertible notes.

Other Expenses

Other expenses include related party management compensation, general, administrative and directors’ expenses and professional services. Related party management compensation consists of base management fees payable to our Manager pursuant to the Management Agreement, collateral management fees and incentive fees. In connection with the Merger Transaction, our Predecessor Company’s common shares were converted into 0.51 KKR & Co. common units. As such, prior to the Effective Date, we accounted for share-based compensation issued to our directors and to our Manager using the fair value based methodology. Share-based compensation related to restricted common shares and common share options granted to our Manager were also included in related party management compensation.

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Base Management Fees

We pay our Manager a base management fee quarterly in arrears. During the first quarter of 2014, certain related party fees received by affiliates of our Manager were credited to us via an offset to the base management fee (“Fee Credits”). Specifically, as described in further detail under “CLO Management Fees” below, a portion of the CLO management fees received by an affiliate of our Manager for certain of our CLOs were credited to us via an offset to the base management fee.

In addition, during the second half of 2013, we invested in a transaction that generated placement fees paid to a minority owned affiliate of KKR. In connection with this transaction, our Manager agreed to reduce the base management fee payable by us to our Manager for the portion of these placement fees that were earned by KKR as a result of this minority-ownership. Separately, certain third-party expenses accrued and paid by us in the fourth quarter of 2013 in connection with the merger with KKR & Co. were used to reduce the base management fees payable to our Manager in an amount equal to such third-party expenses.

The table below summarizes the aggregate base management fees (amounts in thousands):

	Successor Company			Predecessor Company
	Two months endedJune 30, 2014			One month ended  April 30, 2014			Four months endedApril 30, 2014			Three months endedJune 30, 2013			Six months endedJune 30, 2013
Base management fees, gross	$	6,688		$	3,372		$	13,364		$	9,860		$	19,417
CLO management fees credit(1)	(747		)	(1,741		)	(8,111		)	(231		)	(231		)
Total base management fees, net	$	5,941		$	1,631		$	5,253		$	9,629		$	19,186

(1)See “CLO Management Fees” for further discussion.

CLO Management Fees

An affiliate of our Manager entered into separate management agreements with the respective investment vehicles for all of our Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

Beginning in June 2013, our Manager began to credit us for a portion of the CLO management fees received by an affiliate of our Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the base management fees payable to our Manager. As we own less than 100% of the subordinated notes of these three CLOs (with the remaining subordinated notes held by third parties), we received a Fee Credit equal only to our pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate our Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by us. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to us, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by us to the third party holder of the CLO’s subordinated notes. Similarly, our Manager credited to us the CLO management fees from CLO 2013-1 and CLO 2013-2 based on our 100% ownership of the subordinated notes in the CLO.

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):

	Successor Company		Predecessor Company
	Two months endedJune 30, 2014		One month ended  April 30, 2014		Four months endedApril 30, 2014		Three months endedJune 30, 2013		Six months endedJune 30, 2013
Charged and retained CLO management fees (1)	$	3,718	$	739	$	2,905	$	1,433	$	2,282
CLO management fees credit	747		1,741		8,111		231		231
Total CLO management fees	$	4,465	$	2,480	$	11,016	$	1,664	$	2,513

(1)Represents management fees incurred by the senior and subordinated note holders of a CLO, excluding the Fee Credits received by us based on our ownership percentage in the CLO.

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Subordinated note holders in CLOs have the first risk of loss and conversely, the residual value upside of the transactions. When CLO management fees are paid by a CLO, the residual economic interests in the CLO transaction are reduced by an amount commensurate with the CLO management fees paid. We record any residual proceeds due to subordinated note holders as interest expense on the condensed consolidated statements of operations. Accordingly, the increase in CLO management fees is directly offset by a decrease in interest expense.

Successor Company

For the two months ended June 30, 2014

Other expenses totaled $14.4 million for the two months ended June 30, 2014 and was comprised primarily of related party management compensation which totaled $10.4 million.

Predecessor Company

For the one and four months ended April 30, 2014

Other expenses totaled $34.2 million for the one month ended April 30, 2014 of which professional services expenses totaled $24.9 million primarily related to the Merger Transaction. Other expenses totaled $65.6 million for the four months ended April 30, 2014 and was primarily driven by two factors. First, related party management compensation totaled $29.8 million, $12.9 million of which was related to incentive fees, which are based in part upon our achievement of specified levels of net income. Second, professional services totaled $26.9 million, approximately $22.7 million of which was related to the Merger Transaction.

For the three and six months ended June 30, 2013

Other expenses totaled $23.2 million and $58.0 million for the three and six months ended June 30, 2013, respectively and was comprised primarily of related party management compensation of $17.5 million and $45.8 million, respectively. Included within related party management compensation was $5.6 million and $22.7 million of incentive fees for the three and six months ended June 30, 2013, respectively, primarily due to realized gains on the sale of certain corporate loans.

Segment Results

We operate our business through multiple reportable segments, which are differentiated primarily by their investment focuses.

·Credit (“Credit”): The Credit segment includes primarily below investment grade corporate debt comprised of senior secured and unsecured loans, mezzanine loans, high yield bonds, private and public equity investments, and distressed and stressed debt securities.

·Natural resources (“Natural Resources”): The Natural Resources segment consists of non-operated working and overriding royalty interests in oil and natural gas properties. For segment reporting purposes, the Natural Resources segment excludes private equity and certain interests in joint ventures and partnerships focused on the oil and gas sector.

·Other (“Other”): The Other segment includes all other portfolio holdings, consisting solely of commercial real estate.

The segments currently reported are consistent with the way decisions regarding the allocation of resources are made, as well as how operating results are reviewed by our chief operating decision maker.

We evaluate the performance of our segments based on several net income (loss) components. Net income (loss) includes: (i) revenues; (ii) related investment costs and expenses; (iii) other income (loss), which is comprised primarily of unrealized and realized gains and losses on investments, debt and derivatives and (iv) other expenses, including related party management compensation and general and administrative expenses. Certain corporate assets and expenses that are not directly related to the individual segments, including interest expense and related costs on borrowings, base management fees and professional services are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end. Certain other corporate assets and expenses, including prepaid insurance, incentive fees, insurance expenses, directors’ expenses and share-based compensation expense are not allocated to individual segments in our assessment of segment performance. Collectively, these items are included as reconciling items between reported segment amounts and consolidated totals. For further financial information related to our segments, refer to “Part I - Item 1. Financial Statements—Note 13. Segment Reporting.”

The following discussion and analysis regarding our results of operations is based on our reportable segments.

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Credit Segment

The following table presents the net income components of our Credit segment (amounts in thousands):

	Successor Company			Predecessor Company
	For the two months ended June 30, 2014			For the one month ended April 30, 2014			For the four months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Revenues
Corporate loans and securities interest income	$	54,146		$	28,525		$	114,992		$	85,298		$	179,093
Residential mortgage-backed securities interest income	835			408			2,027			2,593			5,552
Net discount accretion	3,788			4,349			10,158			17,757			34,126
Dividend income	3,526			4,402			7,058			1,692			3,655
Other	16			9			20			2,037			2,100
Total revenues	62,311			37,693			134,255			109,377			224,526
Investment costs and expenses
Interest expense:
Collateralized loan obligation secured notes	24,279			10,629			39,923			18,794			37,858
Credit facilities	—			620			1,059			215			431
Convertible senior notes	—			—			1			1			4,176
Senior notes	4,308			2,317			9,234			6,996			14,099
Junior subordinated notes	2,550			1,174			4,681			3,569			7,188
Interest rate swaps	3,576			1,804			7,284			5,697			11,433
Other interest expense	—			1			14			65			152
Total interest expense	34,713			16,545			62,196			35,337			75,337
Interest expense to affiliates	—			—			—			9,729			19,646
Provision for loan losses	—			—			—			—			11,068
Other	697			67			289			379			793
Total investment costs and expenses	35,410			16,612			62,485			45,445			106,844
Other income
Realized and unrealized (loss) gain on derivatives and foreign exchange:
Interest rate swap	(1,125		)	—			—			—			—
Credit default swaps	—			—			(181		)	(469		)	(1,642		)
Total rate of return swaps	(44		)	(236		)	(2,065		)	—			—
Common stock warrants	(5		)	123			137			1,607			1,759
Foreign exchange(1)	(2,699		)	853			588			(1,274		)	(4,105		)
Options	(510		)	392			(19		)	32			32
Total realized and unrealized (loss) gain on derivatives and foreign exchange	(4,383		)	1,132			(1,540		)	(104		)	(3,956		)
Net realized and unrealized gain on investments(2)	45,689			14,112			72,623			37,514			137,542
Net realized and unrealized loss on debt	(25,396		)	—			—			—			—
Lower of cost or estimated fair value(2)	—			(3,313		)	5,038			(3,902		)	(8,650		)
Impairment of securities available for-sale and private equity at cost(2)	—			(1,463		)	(4,391		)	(6,627		)	(12,489		)
Other income	1,203			1,062			4,316			5,077			13,437
Total other income	17,113			11,530			76,046			31,958			125,884
Other expenses
Related party management compensation:
Base management fees	5,344			1,490			4,786			8,864			17,792
CLO management fees	4,465			2,480			11,016			1,664			2,513
Total related party management compensation	9,809			3,970			15,802			10,528			20,305
Professional services	1,278			2,052			3,508			1,746			3,181
Other general and administrative	1,666			1,264			3,811			2,754			5,510
Total other expenses	12,753			7,286			23,121			15,028			28,996
Income before income taxes	31,261			25,325			124,695			80,862			214,570
Income tax expense (benefit)	24			127			146			(46		)	411
Net income	$	31,237		$	25,198		$	124,549		$	80,908		$	214,159

(1)Includes foreign exchange contracts and foreign exchange remeasurement gain or loss.

(2)Represent components of total net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

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Revenues

Successor Company

For the two months ended June 30, 2014

Revenues totaled $62.3 million for the two months ended June 30, 2014 and was comprised primarily of corporate loan and security interest income of $49.8 million and $4.3 million, respectively. As of June 30, 2014, our corporate loan portfolio had an aggregate par value of $6.5 billion with a weighted average coupon of 4.7%, while our corporate debt securities portfolio had an aggregate par value of $523.5 million with a weighted average coupon of 7.7%. A majority of our corporate loan portfolio is floating rate indexed to the three-month LIBOR; as such, LIBOR rates impact our earnings. The three-month LIBOR was 0.23% as of June 30, 2014 and the percentage of our floating rate corporate debt portfolio with LIBOR floors was 68.2% as of June 30, 2014.

In addition, net discount accretion totaled $3.8 million for the two months ended June 30, 2014, primarily from recurring accretion. As described above in “Executive Overview”, in connection with the Merger Transaction, a new accounting basis was established for all assets and liabilities to reflect estimated fair value as of the Effective Date. Accordingly, total net discount accretion for the two months ended June 30, 2014 was based on accretion and amortization of the new discounts and premiums.

Predecessor Company

For the one and four months ended April 30, 2014

Revenues totaled $37.7 million and $134.3 million for the one and four months ended April 30, 2014, respectively, and was comprised primarily of corporate loan interest income of $25.5 million and $103.6 million, respectively. A majority of our corporate loan portfolio is floating rate indexed to the three-month LIBOR; as such, LIBOR rates impact our earnings. The three-month LIBOR was 0.22% as of April 30, 2014 and the percentage of our floating rate corporate debt portfolio with LIBOR floors was 68.0% as of April 30, 2014.

In addition, net discount accretion totaled $4.3 million and $10.2 million for the one and four months ended April 30, 2014, respectively, primarily as a result of paydowns during April and recurring accretion for the four months ended April 30, 2014. Dividend income totaled $4.4 million and $7.1 million for the one and four months ended April 30, 2014, respectively, primarily received from equity investments, at estimated fair value.

For the three and six months ended June 30, 2013

Revenues totaled $109.4 million and $224.5 million for the three and six months ended June 30, 2013, respectively. A majority of the revenues was from corporate loan interest income of $76.7 million and $160.2 million for the three and six months ended June 30, 2013, respectively. A majority of our corporate loan portfolio is floating rate indexed to the three-month LIBOR; as such, LIBOR rates impact our earnings. The three-month LIBOR was 0.27% as of June 30, 2013 and the percentage of our floating rate corporate debt portfolio with LIBOR floors was 56.5% as of June 30, 2013.

In addition, net discount accretion totaled $17.8 million and $34.1 million for the three and six months ended June 30, 2013, respectively, primarily due to paydowns during each of the respective periods. Dividend income totaled $1.7 million and $3.7 million for the three and six months ended June 30, 2013, respectively.

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Investment Costs and Expenses

Successor Company

For the two months ended June 30, 2014

Investment costs and expenses totaled $35.4 million for the two months ended June 30, 2014, of which $24.3 million was related to interest expense on collateralized loan obligation secured notes. As of June 30, 2014, the aggregate par amount of our collateralized loan obligation secured notes was $5.6 billion. Interest expense on collateralized loan obligation secured notes increased from the comparative period in the prior year due to the closing of CLO 2013-1 and CLO 2013-2 in June 2013 and January 2014, respectively, combined with the upsize of CLO 2011-1 in September 2013. In addition, we issued $267.2 million of class D through H CLO notes during 2014.

Predecessor Company

For the one and four months ended April 30, 2014

Investment costs and expenses totaled $16.6 million and $62.5 million for the one and four months ended April 30, 2014, of which $10.6 million and $39.9 million was related to interest expense on collateralized loan obligation secured notes, respectively. In addition to the new CLOs and notes issued during the first four months of 2014, during the fourth quarter of 2013, an affiliate of our manager sold its interests in the junior notes of both CLO 2007-1 and CLO 2007-A to external parties. Accordingly, interest expense to affiliates was zero for the one and four months ended April 30, 2014 and any interest owed to external parties on these notes was included in interest expense on collateralized loan obligation secured notes.

For the three and six months ended June 30, 2013

Investment costs and expenses totaled $45.4 million and $106.8 million for the three and six months ended June 30, 2013. Interest expense and interest expense to affiliates totaled $45.1 million and $95.0 million for the three and six months ended June 30, 2013, respectively. We also recorded a provision for loan losses of $11.1 million for the six months ended June 30, 2013 primarily as a result of a review of our impaired, held for investment loan portfolio, which included a certain loan that was determined to be impaired during the period.

Other Income

Other income consists of gains and losses that can be highly variable, primarily driven by episodic sales, mark-to-market, commodity prices and foreign currency exchange rates as of each period-end.

The table below details the components of net realized and unrealized gain on investments, which is included in other income, separated by financial instrument for the two months ended June 30, 2014 and one and four months ended April 30, 2014 (amounts in thousands):

	Successor Company									Predecessor Company
	For the two months endedJune 30, 2014									For the one month endedApril 30, 2014							For the four months endedApril 30, 2014
	Unrealized gains (losses)			Realized gains (losses)			Total			Unrealized gains (losses)			Realized gains (losses)		Total		Unrealized gains (losses)		Realized gains (losses)			Total
Corporate loans	$	25,861		$	(4,716	)	$	21,145		$	596		$	430	$	1,026	$	10,586	$	10,761		$	21,347
Corporate debt securities	10,201			967			11,168			(849		)	2,515		1,666		4,060		7,429			11,489
RMBS	622			(232		)	390			1,502			7		1,509		14,889		(9,839		)	5,050
Equity investments, at estimated fair value	(388		)	22			(366		)	9,766			131		9,897		12,406		11,991			24,397
Other(1)	13,311			41			13,352			14			—		14		10,340		—			10,340
Total	$	49,607		$	(3,918	)	$	45,689		$	11,029		$	3,083	$	14,112	$	52,281	$	20,342		$	72,623

(1)Includes interests in joint ventures and partnerships.

The table below details the components of net realized and unrealized gain on investments, which is included in other income, separated by financial instrument for the three and six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	For the three months endedJune 30, 2013								For the six months endedJune 30, 2013
	Unrealized gains (losses)			Realized gains (losses)			Total		Unrealized gains (losses)		Realized gains (losses)			Total
Corporate loans	$	1,856		$	23,200		$	25,056	$	3,344	$	78,588		$	81,932
Corporate debt securities	(399		)	1,605			1,206		5,861		5,487			11,348
RMBS	3,810			(3,246		)	564		15,898		(8,890		)	7,008
Equity investments, at estimated fair value	8,072			275			8,347		32,834		239			33,073
Other(1)	2,283			58			2,341		4,377		(196		)	4,181
Total	$	15,622		$	21,892		$	37,514	$	62,314	$	75,228		$	137,542

(1)Includes securities sold, not yet purchased and interests in joint ventures and partnerships.

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As discussed above in “Executive Overview — Merger with KKR & Co.”, in connection with the Merger Transaction, the Successor Company accounts for all of its corporate loans and collateralized loan obligation secured notes at estimated fair value. Accordingly, as of the Effective Date, the Successor Company (i) recognizes net realized and unrealized gains and losses on debt and (ii) no longer records lower of cost or estimated fair value adjustments for corporate loans held for sale or impairment for securities available for-sale and private equity at cost.

Successor Company

For the two months ended June 30, 2014

Other income totaled $17.1 million for the two months ended June 30, 2014, primarily as a result of a $45.7 million net realized and unrealized gain on investments, which was largely driven by unrealized gains on our corporate loan portfolio and interests in joint ventures and partnerships. This gain was partially offset by a $25.4 million unrealized loss on collateralized loan obligation secured notes. As described above, as of the Effective Date, we elected the fair value option for our CLO liabilities and as such, record any change in estimated fair value on the condensed consolidated statements of operations.

Predecessor Company

For the one and four months ended April 30, 2014

Other income totaled $11.5 million and $76.0 million for the one and four months ended April 30, 2014, respectively. Net realized and unrealized gain on investments totaled $14.1 million for the one month ended April 30, 2014 primarily driven by unrealized gains on our equity investments, at estimated fair value. Net realized and unrealized gain on investments totaled $72.6 million for the four months ended April 30, 2014 primarily driven by unrealized and realized gains on our corporate loan portfolio and equity investments, at estimated fair value. In addition, during the four months ended April 30, 2014, a $5.0 million beneficial change in the lower of cost or estimated fair value adjustment for certain corporate loans held for sale was recorded. While the lower of cost or estimated fair value adjustment is impacted by activity held in the held for sale portfolio, including sales and transfers, fluctuations in the market value typically have the largest impact on the amount of adjustment. Refer to “Investment Portfolio” for the components comprising the lower of cost or estimated fair value adjustment.

For the three and six months ended June 30, 2013

Other income totaled $32.0 million and $125.9 million for the three and six months ended June 30, 2013, respectively. This was primarily from realized and unrealized gain on investments which totaled $37.5 million and $137.5 million for the three and six months ended June 30, 2013, respectively. The $37.5 million net realized and unrealized gain on investments for the three months ended June 30, 2013 was primarily driven by realized gains on our corporate loan portfolio due to the sale of one of our largest corporate loan positions during the period, in addition to $8.1 million of unrealized gains on our equity investments, at estimated fair value. The $137.5 million net realized and unrealized gain on investments for the six months ended June 30, 2013 was primarily driven by realized gains on our corporate loan portfolio due to the sale of certain of our corporate loan positions.

The above gains were partially offset by lower of cost or estimated fair value adjustments and impairment of securities available for-sale and private equity at cost during the three and six months ended June 30, 2013, which in aggregate totaled $10.5 million and $21.1 million, respectively.

Other Expenses

Successor Company

For the two months ended June 30, 2014

Other expenses totaled $12.8 million for the two months ended June 30, 2014 primarily due to related party management compensation, which includes base management fees and CLO management fees.

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Predecessor Company

For the one and four months ended April 30, 2014

Other expenses totaled $7.3 million and $23.1 million for the one and four months ended April 30, 2014, respectively, primarily due to related party management compensation of $4.0 million and $15.8 million, respectively. Related party management compensation includes base management fees and CLO management fees. CLO management fees for CLO 2007-1, CLO 2007-A, CLO 2012-1 and CLO 2013-1were charged during the first four months of 2014, compared to only CLO 2005-1 during the same period in 2013, resulting in an increase in CLO management fees. However, partially offsetting this increase was a decrease in net base management fees primarily due to the Fee Credits received related to certain CLO management fees received by affiliates of our Manager. See “Consolidated Results” above for further discussion around the CLO management fee and base management fee offsets.

For the three and six months ended June 30, 2013

Other expenses totaled $15.0 million and $29.0 million for the three and six months ended June 30, 2013 primarily due to related party management compensation of $10.5 million and $20.3 million for the three and six months ended June 30, 2013, respectively. Related party management compensation includes base management fees and CLO management fees.

Other expenses also included $2.8 million and $5.5 million of other general and administrative expenses for the three and six months ended June 30, 2013, respectively.

Natural Resources Segment

The following table presents the net income components of our Natural Resources segment (amounts in thousands):

	Successor Company			Predecessor Company
	For the two months ended June 30, 2014			For the one month ended April 30, 2014			For the four months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Revenues
Oil and gas revenue:
Natural gas sales	$	6,656		$	2,935		$	13,547		$	9,439		$	16,487
Oil sales	21,872			13,250			40,122			13,672			26,016
Natural gas liquids sales	2,496			1,407			6,211			3,367			6,994
Other	906			162			1,902			1,389			2,175
Total revenues	31,930			17,754			61,782			27,867			51,672
Investments costs and expenses
Oil and gas production costs:
Lease operating expenses	3,673			1,927			7,088			4,121			8,249
Workover expenses	482			192			811			512			1,549
Transportation and marketing expenses	1,821			1,008			4,415			3,065			4,334
Severance and ad valorem taxes	1,884			811			2,458			1,651			3,125
Total oil and gas production costs	7,860			3,938			14,772			9,349			17,257
Oil and gas depreciation, depletion and amortization	11,134			6,929			22,471			9,116			18,104
Interest expense:
Credit facilities	409			228			776			464			1,291
Convertible senior notes	—			—			—			—			244
Senior notes	362			160			641			443			858
Junior subordinated notes	214			81			325			226			438
Total interest expense	985			469			1,742			1,133			2,831
Other	78			3			(70		)	(98		)	777
Total investment costs and expenses	20,057			11,339			38,915			19,500			38,969
Other (loss) income
Net realized and unrealized (loss) gain on derivatives and foreign exchange:
Commodity swaps	(4,882		)	(2,790		)	(8,371		)	7,006			2,006
Total net realized and unrealized (loss) gain on derivatives and foreign exchange:	(4,882		)	(2,790		)	(8,371		)	7,006			2,006
Net realized and unrealized (loss) gain on investments(1)	(142		)	1			1			—			—

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	Successor Company			Predecessor Company
	For the two months ended June 30, 2014			For the one month ended April 30, 2014			For the four months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Other income	144			55			247			259			513
Total other (loss) income	(4,880		)	(2,734		)	(8,123		)	7,265			2,519
Other expenses
Related party management compensation:
Base management fees	449			103			332			561			1,083
Total related party management compensation	449			103			332			561			1,083
Professional services	232			141			580			202			477
Insurance	14			—			56			78			117
Other general and administrative	698			235			665			(42		)	752
Total other expenses	1,393			479			1,633			799			2,429
Income before income taxes	5,600			3,202			13,111			14,833			12,793
Income tax expense	—			—			—			—			—
Net income	$	5,600		$	3,202		$	13,111		$	14,833		$	12,793

(1)Represents components of total net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Our oil and gas results depend substantially on natural gas, oil and NGL prices and production levels, as well as drilling and operating costs. The price we realize for our production is affected by our hedging activities. In order to help mitigate the potential exposure and effects of changing commodity prices on our revenues and cash flows from operations, we have entered into commodity swaps for a portion of our working and overriding royalty interests. Our policy has been to hedge a portion of the total estimated oil, natural gas and/or NGL production on our working and overriding royalty interests for a specified amount of time. Our commodity derivatives are described further below under “Other (Loss) Income”.

Revenues

Successor Company

For the two months ended June 30, 2014

Revenues totaled $31.9 million for the two months ended June 30, 2014, which represented sales from oil and gas production on our working and overriding royalty interest properties. As of June 30, 2014, our working and overriding royalty interests had a carrying amount of $525.7 million.

Predecessor Company

For the one and four months ended April 30, 2014

Revenues totaled $17.8 million and $61.8 million for the one and four months ended April 30, 2014, respectively, which represented sales from oil and gas production on our working and overriding royalty interest properties.

For the three and six months ended June 30, 2013

Revenues totaled $27.9 million and $51.7 million for the three and six months ended June 30, 2013, respectively, which represented oil and gas production resulting from the acquisitions of producing oil and natural gas properties in 2012 as well as the drilling and completion of existing undeveloped working interest and overriding royalty interest property during 2013.

Investment Costs and Expenses

Investment costs and expenses primarily consist of production costs and DD&A.

Production costs represent costs incurred to operate and maintain our wells, or lease operating expenses, as well as transportation and marketing costs. Lease operating expenses include expenses such as labor, rented equipment, field office, saltwater disposal, maintenance, tools and supplies. As we acquire and develop working interests in oil and natural gas properties, lease

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operating expenses increase in conjunction with an increase in oil, natural gas and NGL production. Furthermore, we have agreements with third parties to act as managers of certain of our oil and natural gas properties. Services provided by these third party managers include making the business and operational decisions related to the production and sale of oil, natural gas and NGLs, collection and disbursement of revenues, operating expenses, general and administrative expenses and other necessary and useful services for the operation of the assets. Again, as the overall number of oil and natural gas properties increase, the related costs to manage these properties increase correspondingly.

Production costs also include severance and ad valorem taxes, which increase or decrease primarily when prices of oil and natural gas increase or decrease, but are also affected by changes in production, as well as property values.

DD&A represents recurring charges related to the exhaustion of mineral reserves for our natural resources investments. DD&A is calculated using the units-of-production method, which depletes capitalized costs of producing oil and natural gas properties based on the ratio of current production to estimated total net proved oil, natural gas and NGL reserves, and total net proved developed oil, natural gas and NGL reserves. Our depletion expense is affected by factors including positive and negative reserve revisions primarily related to well performance, commodity prices, additional capital expended to develop new wells and reserve additions resulting from development activity and acquisitions.

Successor Company

For the two months ended June 30, 2014

Investment costs and expenses totaled $20.1 million for the two months ended June 30, 2014. As described above, we continued development of our properties in 2014 and thus, the costs associated with operating and managing additional wells increased. DD&A totaled $11.1 million and oil and gas production costs totaled $7.9 million, of which $3.7 million was from lease operating expenses.

Predecessor Company

For the one and four months ended April 30, 2014

Investment costs and expenses totaled $11.3 million and $38.9 million for the one and four months ended April 30, 2014, respectively. As described above, we continued development of our properties in 2014 and thus, the costs associated with operating and managing additional wells increased. A majority of total investment costs and expenses is related to DD&A, which totaled $6.9 million and $22.5 million for the one and four months ended April 30, 2014, respectively, due to continued production and depletable costs that resulted from the drilling and completion of additional wells. Oil and gas production costs totaled $3.9 million and $14.8 million, of which $1.9 million and $7.1 million was from lease operating expenses for the one and four months ended April 30, 2014, respectively.

For the three and six months ended June 30, 2013

Investment costs and expenses totaled $19.5 million and $39.0 million for the three and six months ended June 30, 2013, respectively. We continued development of our properties in 2013 and thus, the costs associated with operating and managing additional wells increased. Oil and gas production costs totaled $9.3 million and $17.3 million for the three and six months ended June 30, 2013, respectively, of which a majority was from lease operating expenses and transportation and marketing expenses. DD&A totaled $9.1 million and $18.1 million for the three and six months ended June 30, 2013, respectively, due to production and depletable costs.

Other (Loss) Income

We currently use commodity derivative contracts, consisting of oil, natural gas and certain NGL products receive-fixed, pay-floating swaps for certain years through 2016.

Realized gain or loss on commodity swaps represent amounts related to the settlement of derivative instruments which, for commodity derivatives, are aligned with the underlying production. Unrealized losses on commodity swaps result from changes in commodity prices from period to period, as well as changes in market valuations of derivatives as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, unrealized losses are recognized; if the expected future commodity prices decrease compared to the contract prices on the derivatives, unrealized gains are recognized.

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Successor Company

For the two months ended June 30, 2014

Other loss totaled $4.9 million for the two months ended June 30, 2014, primarily attributable to net realized and unrealized loss on our commodity swaps, of which $1.5 million was from derivative settlements and $3.4 million was from changes in market valuations on the derivatives.

Predecessor Company

For the one and four months ended April 30, 2014

Other loss totaled $2.7 million and $8.1 million for the one and four months ended April 30, 2014, respectively, primarily attributable to net realized and unrealized loss on our commodity swaps, which totaled $2.8 million and $8.4 million for the one and four months ended April 30, 2014, respectively. Of these $2.8 million and $8.4 million net realized and unrealized losses on commodity swaps, $0.6 million and $2.5 million was from derivative settlements with the remaining from changes in market valuations on the derivatives.

For the three and six months ended June 30, 2013

Other income totaled $7.3 million and $2.5 million for the three and six months ended June 30, 2013, respectively primarily attributable to net realized and unrealized gain on our commodity swaps, which totaled $7.0 million and $2.0 million for the three and six months ended June 30, 2013, respectively.

Other Expenses

Successor Company

For the two months ended June 30, 2014

Other expenses totaled $1.4 million for the two months ended June 30, 2014 and is comprised primarily of other general and administrative expenses and related party management compensation of $0.7 million and $0.4 million, respectively. As mentioned above, corporate expenses are allocated based on the investment portfolio balance in each respective segment as of period-end.

Predecessor Company

For the one and four months ended April 30, 2014

Other expenses totaled $0.5 million and $1.6 million for the one and four months ended April 30, 2014, respectively, and is comprised primarily of general and administrative expenses and professional services. As mentioned above, corporate expenses are allocated based on the investment portfolio balance in each respective segment as of period-end. General and administrative expenses also include reimbursable costs and payments due to the third party we engaged to operate and manage a portion of our interests.

For the three and six months ended June 30, 2013

Other expenses totaled $0.8 million and $2.4 million for the three and six months ended June 30, 2013, respectively, and is comprised primarily of related party management compensation for the three months ended June 30, 2013 and related party management compensation, general and administrative expenses and professional services for the six months ended June 30, 2013. As mentioned above, corporate expenses are allocated based on the investment portfolio balance in each respective segment as of period-end. General and administrative expenses also include reimbursable costs and payments due to the third party we engaged to operate and manage a portion of our interests. Other general and administrative expenses for the three months ended June 30, 2013 included a reversal of certain accrued expenses based on actual amounts.

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Other Segment

The following table presents the net income components of our Other segment (amounts in thousands):

	Successor Company		Predecessor Company
	For the two months ended June 30, 2014		For the one month ended April 30, 2014			For the four months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Revenues
Dividend income	$	72	$	21,205		$	21,205		$	—		$	1,496
Total revenues	72		21,205			21,205			—			1,496
Investment costs and expenses
Interest expense:
Credit facilities	—		16			29			5			8
Convertible senior notes	—		—			—			—			50
Senior notes	119		58			262			161			246
Junior subordinated notes	71		30			134			82			125
Other interest expense	7		—			—			—			—
Total interest expense	197		104			425			248			429
Total investment costs and expenses	197		104			425			248			429
Other income (loss)
Net realized and unrealized gain on derivatives and foreign exchange:
Foreign exchange(1)	101		245			128			—			—
Total realized and unrealized gain on derivatives and foreign exchange	101		245			128			—			—
Net realized and unrealized gain (loss) on investments(2)	8,553		(25,547		)	(11,717		)	(1,988		)	3,321
Total other income (loss)	8,654		(25,302		)	(11,589		)	(1,988		)	3,321
Other expenses
Related party management compensation:
Base management fees	148		38			135			204			311
Total related party management compensation	148		38			135			204			311
Professional services	35		52			95			40			57
Total other expenses	183		90			230			244			368
Income (loss) before income taxes	8,346		(4,291		)	8,961			(2,480		)	4,020
Income tax expense	4		16			16			4			5
Net income (loss)	$	8,342	$	(4,307	)	$	8,945		$	(2,484	)	$	4,015

(1)Includes foreign exchange contracts and foreign exchange remeasurement gain or loss.

(2)Represents components of total net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Revenues

Our commercial real estate assets are included within interests in joint ventures and partnerships, at estimated fair value on our condensed consolidated balance sheets.

Successor Company

For the two months ended June 30, 2014

Revenues totaled $0.1 million for the two months ended June 30, 2014. As of June 30, 2014, our commercial real estate assets had a carrying value of $204.3 million.

Predecessor Company

For the one and four months ended April 30, 2014

Revenues totaled $21.2 million for both the one and four months ended April 30, 2014, largely driven by dividend payments from certain of our commercial real estate investments. We began acquiring commercial real estate assets during the second quarter of 2012 and as of April 30, 2014, our commercial real estate assets had a carrying value of $194.0 million. Consistent with the fact that these investments require development before meaningful revenues can be expected, $19.2 million of the total $21.2 million dividend income was received from our first commercial real estate investment.

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For the three and six months ended June 30, 2013

Revenues totaled zero and $1.5 million for the three and six months ended June 30, 2013, respectively. The $1.5 million represented a dividend payment related to one of our commercial real estate investments. As of June 30, 2013, our commercial real estate assets had a carrying value of $147.7 million.

Investment Costs and Expenses

Certain corporate assets and expenses that are not directly related to an individual segment, including interest expense and related costs on borrowings, are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end.

Successor Company

For the two months ended June 30, 2014

Investment costs and expenses totaled $0.2 million for the two months ended June 30, 2014 and represented allocated interest expense. As a result of incremental commercial real estate asset acquisitions made in 2014, the investment portfolio balance and amounts allocated for costs and expenses have increased. As of June 30, 2014, our commercial real estate assets had a carrying value of $204.3 million.

Predecessor Company

For the one and four months ended April 30, 2014

Investment costs and expenses totaled $0.1 million and $0.4 million for the one and four months ended April 30, 2014, respectively, and represented allocated interest expense. As a result of incremental commercial real estate asset acquisitions made in 2014, the investment portfolio balance and amounts allocated for costs and expenses have increased. As of April 30, 2014, our commercial real estate assets had a carrying value of $194.0 million.

For the three and six months ended June 30, 2013

Investment costs and expenses totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2013, respectively, and represented allocated interest expense. We began acquiring commercial real estate assets during the second quarter of 2012 and as of June 30, 2013, our commercial real estate assets had a carrying value of $147.7 million.

Other Income (Loss)

Our commercial real estate holdings are carried at estimated fair value on our condensed consolidated balance sheets. Net realized and unrealized gains or losses on these holdings are recorded in other income (loss) on our condensed consolidated statements of operation.

Successor Company

For the two months ended June 30, 2014

Other income totaled $8.7 million for the two months ended June 30, 2014 and primarily represented unrealized gains on our commercial real estate holdings.

Predecessor Company

For the one and four months ended April 30, 2014

Other loss totaled $25.3 million and $11.6 million for the one and four months ended April 30, 2014, respectively, and primarily represented net realized and unrealized losses on our commercial real estate holdings.

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For the three and six months ended June 30, 2013

Other loss totaled $2.0 million for the three months ended June 30, 2013 and other income totaled $3.3 million for the six months ended June 30, 2013 which represented net unrealized (losses) gains on our commercial real estate holdings as of period-end.

Other Expenses

Successor Company

Other expenses are comprised of certain corporate expenses that are not directly related to an individual segment, including base management fees and professional services, but are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end.

For the two months ended June 30, 2014

Other expenses totaled $0.2 million for the two months ended June 30, 2014 and is primarily comprised of allocable net base management fees expense. As described above, as a result of incremental commercial real estate asset acquisitions made in 2014, the investment portfolio balance and amounts allocated for costs and expenses have increased. As of June 30, 2014, our commercial real estate assets had a carrying value of $204.3 million.

Predecessor Company

For the one and four months ended April 30, 2014

Other expenses totaled less than $0.1 million and $0.2 million for the one and four months ended April 30, 2014, respectively, and is comprised of allocable net base management fees expense and professional services. As described above, as a result of incremental commercial real estate asset acquisitions made in 2014, the investment portfolio balance and amounts allocated for costs and expenses have increased. As of April 30, 2014, our commercial real estate assets had a carrying value of $194.0 million.

For the three and six months ended June 30, 2013

Other expenses totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2013, respectively, and is primarily comprised of allocable net base management fees expense. We began acquiring commercial real estate assets during the second quarter of 2012 and as of June 30, 2013, our commercial real estate assets had a carrying value of $147.7 million.

Income Tax Provision

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Therefore, we generally are not subject to United States federal income tax at the entity level, but are subject to limited state and foreign taxes. Holders of our common shares are required to take into account their allocable share of each item of our income, gain, loss, deduction and credit allocated to such class of shares for our taxable year end ending within or with their taxable year. Holders of our preferred shares will be allocated a share of our gross ordinary income for our taxable year ending within or with their taxable year.  Holders of our preferred shares will not be allocated any gains or losses from the sale of our assets.

We hold equity interests in certain subsidiaries which have elected or intend to elect to be taxed as real estate investment trusts (“REIT subsidiaries”) under the Internal Revenue Code of 1986, as amended (the “Code”). A REIT is not subject to United States federal income tax to the extent that it currently distributes its income and satisfies certain asset, income and ownership tests, and recordkeeping requirements, but it may be subject to some amount of federal, state, local and foreign taxes based on its taxable income.

We have wholly-owned domestic and foreign subsidiaries that are taxable as corporations for United States federal income tax purposes and thus are not consolidated by us for United States federal income tax purposes. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by us with respect to our interest in the domestic taxable corporate subsidiaries, because each is taxed as a regular corporation under the Code. Deferred income tax assets and liabilities are computed based on temporary differences between the GAAP consolidated financial statements and the United States federal income tax basis of assets and liabilities as of each condensed consolidated balance sheet date. The foreign corporate subsidiaries were formed to make certain foreign and domestic investments from time to time. The foreign corporate subsidiaries are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are anticipated to be exempt from United States federal and state income tax at the corporate entity level because they restrict their activities in the United States to trading in stock and securities for their own account. They generally will not be subject to corporate income tax in our financial statements on their earnings, and no provision for income taxes for the two months ended June 30, 2014 and one and four months ended April 30, 2014 was recorded; however, we will be required to include their current taxable income in our calculation of our taxable income allocable to shareholders.

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CLO 2005-1, CLO 2005-2, CLO 2006-1, CLO 2007-1, CLO 2007-A, CLO 2009-1 and CLO 2011-1 are our foreign subsidiaries that elected to be treated as disregarded entities or partnerships for United States federal income tax purposes. These subsidiaries were established to facilitate securitization transactions, structured as secured financing transactions.

Our REIT subsidiaries are not expected to incur a federal tax expense, but are subject to limited state and foreign income tax expense related to the 2014 tax year. For the two months ended June 30, 2014, we recorded less than $0.1 million of state and foreign tax expense, and for the one and four months ended April 30, 2014, we recorded $0.1 million and $0.2 million of state and foreign tax expense, respectively. Cumulative tax assets and liabilities are included in other assets and accounts payable, accrued expenses and other liabilities, respectively, on our condensed consolidated balance sheets.

Investment Portfolio

Our investment portfolio primarily consists of corporate debt holdings, consisting of corporate loans and corporate debt securities. The details of our corporate debt portfolio are discussed below under “Corporate Debt Portfolio”. Also included in our investment portfolio are our other holdings, including oil and gas working and royalty interests, equity investments, and interests in joint ventures and partnerships, which are all discussed below under “Other Holdings”.

Corporate Debt Portfolio

Our corporate debt investment portfolio primarily consists of investments in corporate loans and corporate debt securities. Our corporate loans primarily consist of senior secured, second lien and subordinated loans. The corporate loans we invest in are generally below investment grade and are primarily floating rate indexed to either one-month or three-month LIBOR. Our investments in corporate debt securities primarily consist of fixed rate investments in below investment grade corporate bonds that are senior secured, senior unsecured and subordinated. We evaluate and monitor the asset quality of our investment portfolio by performing detailed credit reviews and by monitoring key credit statistics and trends. The key credit statistics and trends we monitor to evaluate the quality of our investments include credit ratings of both our investments and the issuer, financial performance of the issuer including earnings trends, free cash flows of the issuer, debt service coverage ratios of the issuer, financial leverage of the issuer, and industry trends that have or may impact the issuer’s current or future financial performance and debt service ability.

We do not require specific collateral or security to support our corporate loans and debt securities; however, these loans and debt securities are either secured through a first or second lien on the assets of the issuer or are unsecured. We do not have access to any collateral of the issuer of the corporate loans and debt securities, rather the seniority in the capital structure of the loans and debt securities determines the seniority of our investment with respect to prioritization of claims in the event that the issuer defaults on the outstanding debt obligation.

Corporate Loans

Our corporate loan portfolio had an aggregate par value of $6.5 billion as of June 30, 2014 and $6.9 billion as of December 31, 2013. Our corporate loan portfolio consists of debt obligations of corporations, partnerships and other entities in the form of senior secured loans, second lien loans and subordinated loans.

As of the Effective Date, we account for all of our corporate loans at estimated fair value. Prior to the Effective Date, loans that were not deemed to be held for sale were carried at amortized cost net of allowance for loan losses on our condensed consolidated balance sheets. Loans that were classified as held for sale were carried at the lower of net amortized cost or estimated fair value on our condensed consolidated balance sheets. We also had certain loans that we elected to carry at estimated fair value.

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The following table summarizes our corporate loans portfolio stratified by type as of June 30, 2014 and December 31, 2013:

Corporate Loans

(Amounts in thousands)

	Successor Company						Predecessor Company
	June 30, 2014						December 31, 2013(1)
	Par		Amortized Cost		Estimated Fair Value		Par		Carrying Value			Amortized Cost		Estimated Fair Value
Senior secured	$	6,321,950	$	6,121,113	$	6,142,877	$	6,374,004	$	6,212,663		$	6,212,663	$	6,128,193
Second lien	26,522		20,729		23,755		361,520		349,523			349,523		316,783
Subordinated	150,640		125,837		126,908		156,250		130,434			130,434		125,423
Subtotal	6,499,112		6,267,679		6,293,540		6,891,774		6,692,620			6,692,620		6,570,399
Lower of cost or fair value adjustment	—		—		—		—		(15,920		)	—		—
Allowance for loan losses	—		—		—		—		(224,999		)	—		—
Unrealized gains	—		—		—		—		15,019			—		—
Total	$	6,499,112	$	6,267,679	$	6,293,540	$	6,891,774	$	6,466,720		$	6,692,620	$	6,570,399

(1)Includes loans held for sale and loans carried at estimated fair value.

As of June 30, 2014, $6.3 billion par amount, or 97.6%, of our corporate loan portfolio was floating rate and $156.4 million par amount, or 2.4%, was fixed rate. In addition, as of June 30, 2014, $245.6 million par amount, or 3.8%, of our corporate loan portfolio was denominated in foreign currencies, of which 77.0% was denominated in Euros. As of December 31, 2013, $6.7 billion par amount, or 97.8%, of our corporate loan portfolio was floating rate and $148.9 million par amount, or 2.2%, was fixed rate. In addition, as of December 31, 2013, $291.0 million par amount, or 4.2%, of our corporate loan portfolio was denominated in foreign currencies, of which 74.0% was denominated in Euros.

As of June 30, 2014, our fixed rate corporate loans had a weighted average coupon of 13.6% and a weighted average years to maturity of 4.4 years, as compared to 11.2% and 5.1 years, respectively, as of December 31, 2013. All of our floating rate corporate loans have index reset frequencies of less than twelve months with the majority resetting at least quarterly. The weighted average coupon on our floating rate corporate loans was 4.5% as of June 30, 2014 and 4.8% as of December 31, 2013, and the weighted average coupon spread to LIBOR of our floating rate corporate loan portfolio was 3.7% as of June 30, 2014 and 3.9% as of December 31, 2013. The weighted average years to maturity of our floating rate corporate loans was 4.1 years as of both June 30, 2014 and December 31, 2013.

Non-Accrual Loans

Loans are placed on non-accrual when there is uncertainty regarding whether future income amounts on the loan will be earned and collected. While on non-accrual status, interest income is recognized using the cost-recovery method, cash-basis method or some combination of the two methods. A loan is placed back on accrual status when the ultimate collectability of the principal and interest is not in doubt. When placed on non-accrual status, previously recognized accrued interest is reversed and charged against current income.

Under the Predecessor Company, we held certain corporate loans designated as being non-accrual, impaired and/or in default. Non-accrual loans consisted of (i) corporate loans held for investment, including impaired loans, (ii) corporate loans held for sale and (iii) loans carried at estimated fair value. Any of these three classifications may have included those loans modified in a troubled debt restructuring (“TDR”), which were typically designated as being non-accrual (see “Troubled Debt Restructurings” section below).

The following table summarizes our recorded investment in non-accrual loans as of December 31, 2013 (amounts in thousands):

	Predecessor Company
	December 31, 2013
Loans held for investment	$	554,442
Loans held for sale	44,823
Loans at estimated fair value	24,883
Total non-accrual loans	$	624,148

As of June 30, 2014, we held a total par value and estimated fair value of $505.2 million and $373.3 million, respectively, of non-accrual loans carried at estimated fair value.

During the one and four months ended April 30, 2014, we recognized $1.1 million and $5.3 million, respectively, of interest income from cash receipts for loans on non-accrual status. Comparatively, during the three and six months ended June 30, 2013, we recognized $7.4 million and $15.4 million, respectively, of interest income from cash receipts for loans on non-accrual status.

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Impaired Loans

As discussed in “Executive Overview — Merger with KKR & Co.”, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need to assess loans for impairment. Accordingly, disclosures related to impaired loans pertain to the Predecessor Company. Prior to the Effective Date, impaired loans consisted of loans held for investment where we had determined that it was probable that we would not recover our outstanding investment in the loan under the contractual terms of the loan agreement. Impaired loans may or may not have been in default at the time a loan was designated as being impaired and all impaired loans were placed on non-accrual status. The recorded investment of impaired loans totaled $554.4 million as of December 31, 2013.

Defaulted Loans

Defaulted loans consist of corporate loans that have defaulted under the contractual terms of their loan agreements. As of the Effective Date, the balance of defaulted loans may be comprised of corporate loans carried at estimated fair value. Prior to the Effective Date, the balance of defaulted loans may have been comprised of loans held for investment, loans held for sale and loans at estimated fair value. Loans that were held for sale were carried at the lower of amortized cost or estimated fair value and, accordingly, no allowance for loan losses was maintained for such loans. In contrast, loans that were specifically identified as being impaired had a specific allocated reserve that represented the excess of the loan’s amortized cost amount over its estimated fair value. Since defaulted loans may have primarily consisted of loans classified as held for sale and impaired loans consisted of only loans held for investment, fluctuations in the balances of defaulted loans did not necessarily correspond to fluctuations in impaired loans.

Under the Successor Company, as of June 30, 2014, we held four corporate loans that were in default with a total estimated fair value of $329.0 million from two issuers. Under the Predecessor Company, as of December 31, 2013, we held six corporate loans that were in default with a total amortized cost of $215.7 million from two issuers. Of the $215.7 million total amortized cost, $203.7 million were included in the loans that comprised the allocated component of our allowance for loan losses and $12.0 million were included in loans carried at estimated fair value.

Troubled Debt Restructurings

As discussed above, in connection with the Merger Transaction, we account for all of our corporate loans at estimated fair value as of the Effective Date. Accordingly, required disclosure related to TDRs pertains to the Predecessor Company. The recorded investment balance of TDRs at December 31, 2013 totaled $55.4 million, related to three issuers. Loans whose terms had been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower had demonstrated a sustained period of repayment performance, typically six months. As of December 31, 2013, $55.4 million of TDRs were included in non-accrual loans (see “Non-Accrual Loans” section above). As of December 31, 2013, the allowance for loan losses included specific reserves of $22.1 million related to TDRs.

The following table presents the aggregate recorded investment of loans whose terms have been modified in a TDR during the one and four months ended April 30, 2014 (dollar amounts in thousands):

	One month endedApril 30, 2014					Four months endedApril 30, 2014
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	1	$	154,075	$	—
Loans at estimated fair value	—	—		—		2	41,347		24,571
Total		$	—	$	—		$	195,422	$	24,571

(1)Recorded investment is defined as amortized cost plus accrued interest.

(2)Excludes equity securities received from the loans held for investment and/or loans at estimated fair value TDRs with an estimated fair value of $92.0 million and $12.3 million, from the two issuers, respectively.

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The following table presents the aggregate recorded investment of loans whose terms have been modified in a TDR during the three and six months ended June 30, 2013 (dollar amounts in thousands):

	Three months endedJune 30, 2013					Six months endedJune 30, 2013
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	2	$	68,358	$	39,430
Loans held for sale	—	—		—		—	—		—
Loans at estimated fair value	—	—		—		1	1,670		1,229
Total		$	—	$	—		$	70,028	$	40,659

(1)           Recorded investment is defined as amortized cost plus accrued interest.

(2)           Excludes equity securities received from the loans held for investment TDRs with an estimated fair value of $2.1 million.

During the four months ended April 30, 2014, we modified an aggregate recorded investment of $195.4 million related to two issuers in restructurings which qualified as TDRs. These restructurings involved conversions of the loans into one of the following: (i) a combination of equity carried at estimated fair value and cash, or (ii) a combination of equity and loans carried at estimated fair value with extended maturities ranging from an additional three to five-year period and a higher spread of 4.0%. Prior to the restructurings, one of the TDRs described above was already identified as impaired and had specific allocated reserves, while the other two were loans carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets plus cash received was charged-off against the allowance for loan losses. The TDRs resulted in $1.1 million of charge-offs, or 76% of the total $1.5 million of charge-offs recorded during the four months ended April 30, 2014.

During the six months ended June 30, 2013, we modified an aggregate recorded investment of $70.0 million related to three issuers in restructurings which qualified as TDRs. These restructurings involved conversions of the loans into one of the following: (i) new term loans with extended maturities and fixed, rather than floating, interest rates, (ii) equity carried at estimated fair value, or (iii) a combination of equity and loans carried at estimated fair value. The modification involving an extension of maturity date was for an additional four-year period with a higher coupon of 6.8%. Prior to the restructurings, two of the TDRs described above were already identified as impaired and had specific allocated reserves, while the third was a loan carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets was charged-off against the allowance for loan losses. The TDRs resulted in $26.8 million of charge-offs, or 86% of the total $31.3 million of charge-offs recorded during the six months ended June 30, 2013.

As of April 30, 2014, there were no commitments to lend additional funds to the issuers whose loans had been modified in a TDR.

As of April 30, 2014, no loans modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

During the one and four months ended April 30, 2014, we modified $135.2 million and $1.1 billion amortized cost of corporate loans, respectively, that did not qualify as TDRs. During the three and six months ended June 30, 2013, we modified $773.5 million and $1.8 billion amortized cost of corporate loans, respectively, that did not qualify as TDRs. These modifications involved changes in existing rates and maturities to prevailing market rates/maturities for similar instruments and did not qualify as TDRs as the respective borrowers were not experiencing financial difficulty or seeking (or granted) a concession as part of the modification. In addition, these modifications of non-troubled debt holdings were accomplished with modified loans that were not substantially different from the loans prior to modification.

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Allowance for Loan Losses

As discussed in “Executive Overview — Merger with KKR & Co.”, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for an allowance for loan losses. Accordingly, disclosure related to allowance for loan losses pertains to the Predecessor Company.

The following table summarizes the changes in the allowance for loan losses for our corporate loan portfolio (amounts in thousands):

	Predecessor Company
	For the one month endedApril 30, 2014		For the fourmonths endedApril 30, 2014			For the three months endedJune 30, 2013			For the sixmonths ended June 30, 2013
Allowance for loan losses:
Beginning balance	$	223,541	$	224,999		$	206,227		$	223,472
Provision for loan losses	—		—			—			11,068
Charge-offs	—		(1,458		)	(2,972		)	(31,285		)
Ending balance	$	223,541	$	223,541		$	203,255		$	203,255

As of December 31, 2013, we had an allowance for loan loss of $225.0 million. As described under “Critical Accounting Policies”, our allowance for loan losses represented our estimate of probable credit losses inherent in our corporate loan portfolio held for investment as of the balance sheet date. Estimating our allowance for loan losses involved a high degree of management judgment and was based upon a comprehensive review of our loan portfolio that was performed on a quarterly basis. Our allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of our allowance for loan losses pertained to specific loans that we had determined were impaired. We determined a loan was impaired when we estimated that it was probable that we would be unable to collect all amounts due according to the contractual terms of the loan agreement. On a quarterly basis we performed a comprehensive review of our entire loan portfolio and identified certain loans that we had determined were impaired. Once a loan was identified as being impaired we placed the loan on non-accrual status, unless the loan was already on non-accrual status, and recorded a reserve that reflected our best estimate of the loss that we expected to recognize from the loan. The expected loss was estimated as being the difference between our current cost basis of the loan, including accrued interest receivable, and the loan’s estimated fair value.

The unallocated component of our allowance for loan losses represented our estimate of probable losses inherent in our loan portfolio as of the balance sheet date where the specific loan that the loan loss related to was indeterminable. We estimated the unallocated component of our allowance for loan losses through a comprehensive quarterly review of our loan portfolio and identified certain loans that demonstrated possible indicators of impairment, including internally assigned credit quality indicators. This assessment excluded all loans that were determined to be impaired and as a result, an allocated reserve had been recorded as described in the preceding paragraph. Such indicators included, but were not limited to, the current and/or forecasted financial performance and liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, and the observable trading price of the loan if available. All loans were first categorized based on their assigned risk grade and further stratified based on the seniority of the loan in the issuer’s capital structure. The seniority classifications assigned to loans were senior secured, second lien and subordinate. Senior secured consisted of loans that were the most senior debt in an issuer’s capital structure and therefore had a lower estimated loss severity than other debt that was subordinate to the senior secured loan. Senior secured loans often had a first lien on some or all of the issuer’s assets. Second lien consisted of loans that were secured by a second lien interest on some or all of the issuer’s assets; however, the loan was subordinate to the first lien debt in the issuer’s capital structure. Subordinate consisted of loans that were generally unsecured and subordinate to other debt in the issuer’s capital structure.

There were three internally assigned risk grades that were applied to loans that had not been identified as being impaired: high, moderate and low. High risk meant that there was evidence of possible loss due to the financial or operating performance and liquidity of the issuer, industry or economic concerns specific to the issuer, or other factors that indicated that the breach of a covenant contained in the related loan agreement was possible. Moderate risk meant that while there was no observable evidence of possible loss, there were issuer- and/or industry-specific trends that indicated a loss may have occurred. Low risk meant that while there was no identified evidence of loss, there was the risk of loss inherent in the loan that had not been identified. All loans held for investment, with the exception of loans that had been identified as impaired, were assigned a risk grade of high, moderate or low.

We applied a range of default and loss severity estimates in order to estimate a range of loss outcomes upon which to base our estimate of probable losses that resulted in the determination of the unallocated component of our allowance for loan losses.

As of December 31, 2013, the allocated component of our allowance for loan losses totaled $142.7 million and related to investments in certain loans issued by four issuers with an aggregate par amount of $594.4 million and an aggregate recorded investment of $554.4 million.

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The unallocated component of our allowance for loan losses totaled $82.3 million as of December 31, 2013. As discussed above, we estimated the unallocated reserve by first categorizing our corporate loans held for investment portfolio based on their assigned risk grade and then based on the seniority of the loan in the issuer’s capital structure. Of the three internally assigned risk grades, as of December 31, 2013, loans classified as high risk primarily consisted of Modular Space Corporation, which paid off at par its outstanding second lien term loan facility on February 25, 2014.

At September 30, 2012, we transferred Texas Competitive Electric Holdings Company LLC (“TXU”), from the high risk grade of the unallocated component to the allocated component of our allowance for loan losses upon determination that the loans were impaired. Management believed it probable that we would be unable to collect all payments due in accordance with the contractual terms of the loan agreement. To calculate the recovery value of the loans, we estimated the loss as being the difference between our current cost basis of the loan, including accrued interest receivable, and the present value of expected future cash flows discounted using the effective discount rate. At December 31, 2013, the calculation resulted in a specific reserve of $66.9 million related to TXU, or an implied recovery value of approximately 76% of par. As of December 31, 2013, TXU had a total amortized cost of $311.6 million. In addition, we held TXU loans held for sale with a recorded investment of $29.8 million as of December 31, 2013.

During the one and four months ended April 30, 2014, we recorded charge-offs totaling zero and $1.5 million comprised primarily of loans modified in TDRs, respectively. During the three and six months ended June 30, 2013, we recorded charge-offs totaling $3.0 million comprised of loans transferred to loans held for sale and $31.3 million comprised primarily of loans modified in TDRs, respectively.

Loans Held For Sale and the Lower of Cost or Fair Value Adjustment

As discussed in “Executive Overview — Merger with KKR & Co.”, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for the bifurcation between corporate loans held for investment and loans held for sale. Accordingly, related disclosures pertain to the Predecessor Company.

The following table summarizes the changes in our loans held for sale balance for the one month and four months ended April 30, 2014 and three and six months ended June 30, 2013 (amounts in thousands):

	For the one  month ended April 30, 2014			For the four  months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Loans Held for Sale:
Beginning balance	$	510,687		$	279,748		$	107,395		$	128,289
Transfers in	110,693			348,808			55,415			76,803
Transfers out	—			—			—			—
Sales, paydowns, restructurings and other	(71,920		)	(87,447		)	(41,370		)	(78,904		)
Lower of cost or estimated fair value adjustment(1)	(3,313		)	5,038			(3,902		)	(8,650		)
Net carrying value	$	546,147		$	546,147		$	117,538		$	117,538

(1)Represents the recorded net adjustment to earnings for the respective period.

As of December 31, 2013, we had $279.7 million of loans held for sale. During the one and four months ended April 30, 2014, we transferred $110.7 million and $348.8 million amortized cost amount of loans from held for investment to held for sale, respectively. During the three and six months ended June 30, 2013, we transferred $55.4 million and $76.8 million amortized cost amount, respectively, of loans from held for investment to held for sale. The transfers of certain loans to held for sale were due to our determination that credit quality of a loan in relation to its expected risk-adjusted return no longer met our investment objective and the determination by us to reduce or eliminate the exposure for certain loans as part of our portfolio risk management practices. During the one and four months ended April 30, 2014 and the three and six months ended June 30, 2013, we did not transfer any loans held for sale back to loans held for investment. Transfers back to held for investment may have occurred as the circumstances that led to the initial transfer to held for sale were no longer present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby we determined that selling the asset no longer met our investment objective and strategy.

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The following table summarizes the changes in the lower of cost or estimated fair value adjustment for our corporate loans held for sale portfolio (amounts in thousands):

	Predecessor Company
	For the onemonth ended April 30, 2014			For the four  months ended April 30, 2014			For the three months ended June 30, 2013			For the six months ended June 30, 2013
Lower of cost or estimated fair value:
Beginning balance	$	(7,526	)	$	(15,920	)	$	(18,795	)	$	(14,047	)
Sale and paydown of loans held for sale	—			43			628			628
Transfer of loans to held for investment	—			—			—			—
Declines in estimated fair value	(4,395		)	(4,453		)	(5,183		)	(12,665		)
Recoveries in estimated fair value	1,082			9,491			1,281			4,015
Ending balance	$	(10,839	)	$	(10,839	)	$	(22,069	)	$	(22,069	)

We recorded a $3.3 million net charge to earnings for the lower of cost or estimated fair value adjustment for the one month ended April 30, 2014 and a $5.0 million reduction to the lower of cost or estimated fair value adjustment for the four months ended April 30, 2014 for certain loans held for sale, which had a carrying value of $546.1 million as of April 30, 2014. We recorded a $3.9 million and $8.7 million net charge to earnings for the three and six months ended June 30, 2013, respectively, for the lower of cost or estimated fair value adjustment for certain loans held for sale, which had a carrying value of $117.5 million as of June 30, 2013.

Concentration Risk

Our corporate loan portfolio has certain credit risk concentrated in a limited number of issuers. As of June 30, 2014 under the Successor Company where all corporate loans are carried at estimated fair value, approximately 42% of the total estimated fair value of the our corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, U.S. Foods Inc. and First Data Corp., which combined represented $768.7 million or approximately 12% of the aggregate estimated fair value of our corporate loans. As of December 31, 2013 under the Predecessor Company, approximately 46% of the total amortized cost basis of our corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, Modular Space Corporation and U.S. Foods Inc., which combined represented $935.2 million or approximately 14% of the aggregate amortized cost basis of our corporate loans.

Corporate Debt Securities

Our corporate debt securities portfolio had an aggregate par value of $523.5 million and $524.3 million as of June 30, 2014 and December 31, 2013, respectively. Our corporate debt securities portfolio consists of debt obligations of corporations, partnerships and other entities in the form of senior secured, senior unsecured and subordinated bonds. Our corporate debt securities are included in securities on our condensed consolidated balance sheets.

In connection with the Merger Transaction and as of the Effective Date, we account for all of our securities, including RMBS, at estimated fair value. Prior to the Effective Date, we accounted for securities based on the following categories: (i) securities available-for-sale, which were carried at estimated fair value, with unrealized gains and losses reported in accumulated other comprehensive loss; (ii) other securities, at estimated fair value, with unrealized gains and losses recorded in the condensed consolidated statements of operations; and (iii) RMBS, at estimated fair value, with unrealized gains and losses recorded in the condensed consolidated statements of operations.

The following table summarizes our corporate debt securities portfolio stratified by type as of June 30, 2014 and December 31, 2013:

Corporate Debt Securities

(Amounts in thousands)

	Successor Company						Predecessor Company
	June 30, 2014						December 31, 2013(1)
	Par		Amortized Cost		Estimated Fair Value		Par		Carrying Value		Amortized Cost		Estimated Fair Value
Senior secured	$	127,471	$	115,780	$	116,162	$	183,856	$	166,409	$	157,637	$	166,409
Senior unsecured	276,894		274,516		282,835		241,381		241,368		215,875		241,368
Subordinated	119,104		110,332		111,832		99,105		89,531		89,231		89,531
Total	$	523,469	$	500,628	$	510,829	$	524,342	$	497,308	$	462,743	$	497,308

(1)In addition to certain corporate debt securities available-for-sale, these amounts include other corporate debt securities carried at estimated fair value, which have unrealized gains and losses recorded in the condensed consolidated statements of operations.

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As of June 30, 2014, $460.3 million, or 87.9%, of our corporate debt securities portfolio was fixed rate and $63.1 million, or 12.1%, was floating rate. In addition, as of June 30, 2014, $23.7 million par amount, or 4.5%, of our corporate debt securities portfolio, was denominated in foreign currencies, of which 83.2% was denominated in Euros. As of December 31, 2013, $461.3 million, or 88.0%, of our corporate debt securities portfolio was fixed rate and $63.1 million, or 12.0%, was floating rate. In addition, as of December 31, 2013, $26.5 million par amount, or 5.0%, of our corporate debt securities portfolio, was denominated in foreign currencies, of which 85.2% was denominated in Euros.

As of June 30, 2014, our fixed rate corporate debt securities had a weighted average coupon of 8.1% and a weighted average years to maturity of 5.0 years, as compared to 7.9% and 5.6 years, respectively, as of December 31, 2013. All of our floating rate corporate debt securities have index reset frequencies of less than twelve months. The weighted average coupon on our floating rate corporate debt securities was 4.3% as of both June 30, 2014 and December 31, 2013, and the weighted average coupon spread to LIBOR of our floating rate corporate debt securities was 4.1% as of both June 30, 2014 and December 31, 2013, respectively. The weighted average years to maturity of our floating rate corporate debt securities was 7.4 years and 7.6 years as of June 30, 2014 and December 31, 2013, respectively.

Impaired Securities

During the one and four months ended April 30, 2014, we recognized losses totaling $1.5 million and $4.4 million, respectively, compared to $6.6 million and $12.5 million for the three and six months ended June 30, 2013, respectively, for securities available-for-sale that we determined to be other-than-temporarily impaired. These securities were determined to be other-than-temporarily impaired either due to our determination that recovery in value was no longer likely or because we decided to sell the respective security in response to specific credit concerns regarding the issuer.

Defaulted Securities

Under the Successor Company, as of June 30, 2014, we had a corporate debt security from one issuer in default with an estimated fair value of $13.2 million, which was on non-accrual status. Under the Predecessor Company, as of December 31, 2013, we had a corporate debt security from one issuer in default with an estimated fair value of $25.4 million, which was on non-accrual status.

Concentration Risk

Our corporate debt securities portfolio has certain credit risk concentrated in a limited number of issuers. As of June 30, 2014 under the Successor Company, approximately 68% of the estimated fair value of our corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by JC Penney Corp. Inc., LCI Helicopters Limited and Avaya Inc., which combined represented $162.1 million, or approximately 32% of the estimated fair value of our corporate debt securities. As of December 31, 2013 under the Predecessor Company, approximately 55% of the estimated fair value of our corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by LCI Helicopters Limited, JC Penney Corp. Inc. and NXP Semiconductor NV, which combined represented $104.5 million, or approximately 21% of the estimated fair value of our corporate debt securities.

Other Holdings

Our other holdings primarily consist of working and royalty interests, marketable and private equity investments, as well as interests in joint ventures and partnerships.

Natural Resources Holdings

Working Interests

Our natural resources holdings include non-operated working interests in producing oil and natural gas fields located in Louisiana, Mississippi and Texas. As of June 30, 2014 and December 31, 2013, the working interests had a net carrying value of $399.9 million and $359.1 million, respectively, excluding $57.5 million and $50.4 million, respectively, from two assets classified as interests in joint ventures and partnerships on the condensed consolidated balance sheets. These interests are in proved developed, proved undeveloped and unproved properties, with the majority of our proved reserve volumes as natural gas, followed by NGLs and then oil. The acquisition and development of certain working interests was partially financed with borrowings through our five-year nonrecourse, asset-based revolving credit facility, maturing on November 5, 2015 (the “2015 Natural Resources Facility”), which had $55.7 million and $50.3 million outstanding as of June 30, 2014 and December 31, 2013, respectively. In addition, we had borrowings through a five-year non-recourse, asset-based revolving credit facility, maturing on February 27, 2018 (the “2018 Natural Resources Facility”), which had $27.6 million and zero outstanding as of June 30, 2014 and December 31, 2013, respectively.

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Royalty Interests

In addition to natural resources working interests, we own overriding royalty interests in acreage located in south Texas. The overriding royalty interests include producing oil and natural gas properties. We had approximately 420 and 359 gross productive wells as of June 30, 2014 and December 31, 2013, respectively, in which we own an overriding royalty interest only, and the acreage is still under development. The overriding royalty interest properties are operated by unaffiliated third parties and as of June 30, 2014 and December 31, 2013, had net carrying values of $125.8 million and $41.3 million, respectively.

Equity Holdings

Equity investments carried at estimated fair value primarily consist of private equity investments. As of June 30, 2014, our equity investments carried at estimated fair value had an aggregate cost amount of $278.9 million and an estimated fair value of $278.5 million. Comparatively, as of December 31, 2013, our equity investments consisted of (i) private equity investments carried at cost (included in other assets on our condensed consolidated balance sheet) with an aggregate cost amount of $0.4 million and an estimated fair value of $4.5 million and (ii) equity investments carried at estimated fair value, with an aggregate cost amount of $160.6 million and an estimated fair value of $181.2 million.

Interests in Joint Ventures and Partnerships Holdings

As of June 30, 2014, our interests in joint ventures and partnerships, which primarily hold assets related to commercial real estate, natural resources and specialty lending, had an aggregate cost amount of $512.4 million and estimated fair value of $534.0 million. As of December 31, 2013, our interests in joint ventures and partnerships had an aggregate cost amount of $406.5 million and estimated fair value of $436.2 million.

Shareholders’ Equity

As discussed in “Executive Overview — Merger with KKR & Co.”, in connection with the Merger Transaction, purchase accounting required the reclassification of any retained earnings or accumulated deficit from periods prior to the acquisition and the elimination of any accumulated other comprehensive income or loss be recognized within the shareholders’ equity section of our condensed consolidated financial statements. In addition, as of the Effective Date, we discontinued hedge accounting for our cash flow hedges and elected the fair value option of accounting for our securities available-for-sale, both of which resulted in any changes in estimated fair value to be recorded in the condensed consolidated statements of operations, rather than accumulated other comprehensive loss.

On June 27, 2014, our board of directors approved a reverse stock split whereby the number of our issued and outstanding common shares was reduced to 100 common shares, all of which are held solely by our Parent.

Our shareholders’ equity at June 30, 2014 and December 31, 2013 totaled $2.8 billion and $2.5 billion, respectively. Included in our shareholders’ equity as of December 31, 2013, is accumulated other comprehensive loss totaling $15.7 million.

Under the Predecessor Company, our average common shareholders’ equity and return on average common shareholders’ equity for the one and four months ended April 30, 2014 was $2.2 billion and (1.2)% and $2.2 billion and 13.8%, respectively. Comparatively, our average common shareholders’ equity and return on average common shareholders’ equity for the three and six months ended June 30, 2013 was $2.1 billion and 15.1% and $2.1 billion and 16.7%, respectively. Return on average common shareholders’ equity is defined as net income available to common shareholders divided by weighted average common shareholders’ equity.

Our book value per common share as of December 31, 2013 was $10.58 and was computed based on 204,824,159 common shares issued and outstanding as of December 31, 2013.

Distributions and Contributions

On June 27, 2014 and July 31, 2014, our board of directors approved the distribution of certain of our private equity and natural resources assets and cash, with an aggregate value of $294.6 million, to the Parent as the sole holder of our common shares. These distributions will have been completed during the third quarter of 2014. The 2018 Natural Resources Facility, which was used to partially finance these natural resources assets, was terminated with all amounts outstanding repaid as of July 1, 2014.

Also, on June 27, 2014 and July 31, 2014, our board of directors approved the receipt by us of contributions from our Parent of cash, CLO subordinated notes controlled by a third-party and specialty lending assets, with an aggregate value of $294.6 million. These contributions will have been completed during the third quarter of 2014.

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Preferred Shareholders

On June 27, 2014, our board of directors declared a cash distribution of $0.460938 per share on our Series A LLC Preferred Shares. The distribution was paid on July 15, 2014 to preferred shareholders as of the close of business on July 8, 2014.

On March 25, 2014, our board of directors declared a cash distribution of $0.460938 per share on our Series A LLC Preferred Shares. The distribution was paid on April 15, 2014 to preferred shareholders as of the close of business on April 8, 2014.

Common Shareholders

Common shareholders of the Predecessor Company received a quarterly distribution in respect of the KKR & Co. common units that such holders received in connection with the merger to the extent they held those shares through May 9, 2014, which was the record date for the KKR & Co. distribution. The distribution was in an amount equal to $0.43 per KKR & Co. common unit and was paid on May 23, 2014 to unitholders.

On January 30, 2014, our board of directors declared a cash distribution for the quarter ended December 31, 2013 of $0.22 per share to common shareholders of record on February 13, 2014. The distribution was paid on February 27, 2014.

LIQUIDITY AND CAPITAL RESOURCES

We actively manage our liquidity position with the objective of preserving our ability to fund our operations and fulfill our commitments on a timely and cost-effective basis. Although we believe our current sources of liquidity are adequate to preserve our ability to fund our operations and fulfill our commitments, we may evaluate opportunities to issue incremental capital. As of June 30, 2014, we had unrestricted cash and cash equivalents totaling $197.9 million.

The majority of our investments are held in Cash Flow CLOs. Accordingly, the majority of our cash flows have historically been received from our investments in the mezzanine and subordinated notes of our Cash Flow CLOs. However, during the period in which a Cash Flow CLO is not in compliance with an over-collateralization test (“OC Test”) as outlined in its respective indenture, the cash flows we would generally expect to receive from our Cash Flow CLO holdings are paid to the senior note holders of the Cash Flow CLOs. As described in further detail below, as of June 30, 2014, all of our Cash Flow CLOs were in compliance with their respective coverage tests (specifically, their OC Tests and interest coverage (“IC”) tests) and made cash distributions to mezzanine and/or subordinate note holders, including us.

Sources of Funds

Cash Flow CLO Transactions

As of June 30, 2014, we had nine Cash Flow CLO transactions outstanding. In accordance with GAAP, we consolidate each of our CLO subsidiaries as we have the power to direct the activities of these VIEs, as well as the obligation to absorb losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs. We utilize CLOs to fund our investments in corporate loans and corporate debt securities.

During the two months ended June 30, 2014, we issued $15.0 million par amount of CLO 2006-1 Class E notes for proceeds of $15.0 million and $37.5 million par amount of CLO 2007-1 Class E notes for proceeds of $37.6 million.

During the one month ended April 30, 2014, we issued $61.1 million par amount of CLO 2007-A class D and E notes for proceeds of $61.3 million. In addition, during the same period, we issued $72.0 million par amount of CLO 2005-1 class D through F notes for proceeds of $71.5 million.

During the first quarter of 2014, we issued $21.9 million par amount of CLO 2007-1 class E notes for proceeds of $21.9 million. In addition, during the first quarter of 2014, we issued $29.8 million par amount of CLO 2007-A class G notes for proceeds of $30.2 million and $29.8 million par amount of CLO 2007-A class H notes for proceeds of $30.1 million.

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On January 23, 2014, we closed CLO 2013-2, a $384.0 million secured financing transaction maturing on January 23, 2026. We issued $339.3 million par amount of senior secured notes to unaffiliated investors, of which $319.3 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.16% and $20.0 million was fixed rate at 3.74%. The investments that are owned by CLO 2013-2 collateralize the CLO 2013-2 debt, and as a result, those investments are not available to us, our creditors or shareholders.

On September 27, 2013, we amended the CLO 2011-1 senior loan agreement (the “CLO 2011-1 Agreement”) to upsize the transaction by $300.0 million, of which CLO 2011-1 is now able to borrow up to an incremental $225.0 million. Under the amended CLO 2011-1 Agreement, CLO 2011-1 matures on August 15, 2020 and borrowings under the CLO 2011-1 Agreement bear interest at a rate of three-month LIBOR plus 1.35%.

On June 25, 2013, we closed CLO 2013-1, a $519.4 million secured financing transaction maturing on July 15, 2025. We issued $458.5 million par amount of senior secured notes to unaffiliated investors, of which $442.0 million was floating rate with a weighted-average coupon of three-month LIBOR plus 1.67% and $16.5 million was fixed rate at 3.73%. The investments that are owned by CLO 2013-1 collateralize the CLO 2013-1 debt, and as a result, those investments are not available to us, our creditors or shareholders.

The indentures governing our Cash Flow CLOs include numerous compliance tests, the majority of which relate to the CLO’s portfolio.

In the case of CLO 2011-1, the agreement specifies a par value ratio test (“PVR Test”), whereby if the PVR Test is below 120.0%, up to 50% of all interest collections that otherwise are payable to us are used to amortize the senior loan amount outstanding by the lower of the amount required to bring the PVR Test into compliance and the outstanding loan amount. Similarly, if the PVR Test is below 120.0%, the principal collections that otherwise would be payable to us are used to amortize the senior loan amount outstanding by the lower of the amount required to bring the PVR Test into compliance and the outstanding loan amount. For purposes of the calculation, collateral value is the par value of the assets unless an asset is in default or is a CCC-rated asset in excess of the CCC-rated asset limit percentage specified for CLO 2011-1, in which case the collateral value of such asset is the market value of such asset.

In the case of our other Cash Flow CLOs, which vary from CLO 2011-1’s compliance tests, in the event that a portfolio profile test is not met, the indenture places restrictions on the ability of the CLO’s manager to reinvest available principal proceeds generated by the collateral in the CLOs until the specific test has been cured. In addition to the portfolio profile tests, the indentures for these CLOs include OC Tests which set the ratio of the collateral value of the assets in the CLO to the tranches of debt for which the test is being measured, as well as interest coverage tests. For purposes of the calculation, collateral value is the par value of the assets unless an asset is in default, is a discounted obligation, or is a CCC-rated asset in excess of the percentage of CCC-rated asset limit specified for each CLO.

If an asset is in default, the indenture for each CLO transaction defines the value used to determine the collateral value, which value is the lower of the market value of the asset or the recovery value proscribed for the asset based on its type and rating by Standard & Poor’s or Moody’s.

A discount obligation is an asset with a purchase price of less than a particular percentage of par. The discount obligation amounts are specified in each CLO and are generally set at a purchase price of less than 80% of par for corporate loans and 75% of par for corporate debt securities.

The indenture for each CLO specifies a CCC-threshold for the percentage of total assets in the CLO that can be rated CCC. All assets in excess of the CCC threshold specified for the respective CLO are also included in the OC Tests at market value and not par.

Defaults of assets in CLOs, ratings downgrade of assets in CLOs to CCC, price declines of CCC assets in excess of the proscribed CCC threshold amount, and price declines in assets classified as discount obligations may reduce the over-collateralization ratio such that a CLO is not in compliance. If a CLO is not in compliance with an OC Test, cash flows normally payable to the holders of junior classes of notes will be used by the CLO to amortize the most senior class of notes until such point as the OC Test is brought back into compliance. While being out of compliance with an OC Test would not impact our investment portfolio or results of operations, it would impact our unrestricted cash flows available for operations, new investments and cash distributions. As of June 30, 2014, all of our CLOs were in compliance with their respective OC Tests.

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An affiliate of our Manager has entered into separate management agreements with our Cash Flow CLOs and is entitled to receive fees for the services performed as collateral manager. The indentures governing the CLO transactions stipulate the reinvestment period during which the collateral manager can generally sell or buy assets at its discretion and can reinvest principal proceeds into new assets. CLO 2007-A, CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 are no longer in their reinvestment periods as of June 30, 2014. As a result, principal proceeds from the assets held in each of these transactions are generally used to amortize the outstanding balance of senior notes outstanding. During the two months ended June 30, 2014, $196.9 million of original CLO 2005-2, CLO 2006-1 and CLO 2007-1 senior notes were repaid. During the one and four months ended April 30, 2014, $128.2 million and $182.6 million, respectively, of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. Comparatively, during the three and six months ended June 30, 2013, an aggregate $360.2 million and $506.3 million, respectively, of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. CLO 2012-1, CLO 2013-1 and CLO 2013-2 will end their reinvestment periods during December 2016, July 2017 and January 2018, respectively. CLO 2011-1 does not have a reinvestment period and all principal proceeds from holdings in CLO 2011-1 are used to amortize the transaction. During the two months ended June 30, 2014, zero original CLO 2011-1 senior notes were repaid, while during both the one and four months ended April 30, 2014, $39.4 million of original CLO 2011-1 senior notes were repaid. Comparatively, during the three and six months ended June 30, 2013, $24.0 million and $45.5 million, respectively, of original CLO 2011-1 senior notes were repaid. Accordingly, absent any new CLO transactions that we may enter into, our total investments held through CLOs will continue to decline as investments are paid down or paid off once the reinvestment period ends. In addition, pursuant to the terms of the indentures governing our CLO transactions, we have the ability to call our CLO transactions after the end of the respective non-call periods.

Credit Facilities

Senior Secured Credit Facility

On November 30, 2012, we entered into the $150.0 million 2015 Facility. We have the right to prepay loans under the 2015 Facility in whole or in part at any time. Loans under the 2015 Facility bear interest at a rate equal to, at our option, LIBOR plus 2.25% per annum, or an alternate base rate plus 1.25% per annum. As of December 31, 2013, we had $75.0 million of borrowings outstanding under the 2015 Facility. On the date of the Merger Transaction, we terminated the 2015 Facility, which had no borrowings outstanding as of April 30, 2014.

Asset-Based Borrowing Facilities

On May 20, 2014, our 2015 Natural Resources Facility was adjusted and reduced to $75.0 million, which is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. The borrowing base is subject to certain caps and concentration limits customary for financings of this type. We have the right to prepay loans under the 2015 Natural Resources Facility in whole or in part at any time. Loans under the 2015 Natural Resources Facility bear interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 2.75% per annum. As of June 30, 2014 and December 31, 2013, we had $55.7 million and $50.3 million, respectively, of borrowings outstanding under the 2015 Natural Resources Facility.

On February 27, 2013, we entered into the 2018 Natural Resources Facility, that is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. On May 15, 2014, the 2018 Natural Resources Facility was adjusted and increased to $68.5 million. We have the right to prepay loans under the 2018 Natural Resources Facility in whole or in part at any time. Loans under the 2018 Natural Resources Facility bear interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 3.25% per annum. As of June 30, 2014 and December 31, 2013, we had $27.6 million and zero, respectively, of borrowings outstanding under the 2018 Natural Resources Facility. On July 1, 2014, the 2018 Natural Resources Facility was terminated, with all amounts outstanding repaid as of July 1, 2014.

All of our credit facilities contain customary covenants. As of both June 30, 2014 and December 31, 2013, we believe we were in compliance with the covenant requirements for our credit facilities.

Convertible Debt

7.5% Convertible Senior Notes

On January 18, 2013, in accordance with the indenture relating to our $172.5 million 7.5% convertible senior notes due January 15, 2017 (“7.5% Notes”), we issued a Termination Notice to holders of the 7.5% Notes whereby we terminated the right to convert the 7.5% Notes to common shares. Per the indenture, we were able to terminate the conversion rights of the notes if the closing price of our shares exceeded 150% of the conversion price then in effect for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day prior to the date on which we provide notice of the election to terminate the conversion rights. Holders of $172.5 million 7.5% Notes submitted their notes for conversion for which we satisfied by physical settlement with 26.1 million common shares, or 151.0580 shares per $1,000 principal amount of 7.5% Notes. As set forth in the Termination Notice, the 7.5% Notes were no longer convertible to common shares as of February 17, 2013.

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Perpetual Preferred Offering

On January 17, 2013, we issued 14.95 million of Series A LLC Preferred Shares for gross proceeds of $373.8 million, and net proceeds of $362.0 million. The Series A LLC Preferred Shares trade on the NYSE under the ticker symbol “KFN.PR” and began trading on January 28, 2013. Distributions on the Series A LLC Preferred Shares are cumulative and are payable, when, as, and if declared by our board of directors, quarterly on January 15, April 15, July 15 and October 15 of each year, at a rate per annum equal to 7.375%.

Off-Balance Sheet Commitments

We commit to purchase corporate loans in the secondary market, and as such, we bear the risks and benefits of changes in the fair value from the trade date forward. As of December 31, 2013, we had committed to purchase corporate loans with an aggregate par amount totaling $62.7 million. As described above in “Executive Overview — Merger with KKR & Co.”, as of the Effective Date, we account for all corporate loans on trade date. As such, as of June 30, 2014, all corporate loans were included in the condensed consolidated balance sheets. In addition, we participate in certain financing arrangements, whereby we are committed to provide funding of up to a specific predetermined amount at the discretion of the borrower or have entered into an agreement to acquire interests in certain assets. As of June 30, 2014 and December 31, 2013, we had unfunded financing commitments totaling $14.2 million and $17.4 million, respectively.

We participate in joint ventures and partnerships alongside KKR and its affiliates through which we contribute capital for assets, including development projects related to our interests in joint ventures and partnerships that hold commercial real estate and natural resources investments, as well as specialty lending focused businesses. We estimated these future contributions to total approximately $181.2 million as of June 30, 2014, whereby approximately 59% was related to our credit segment and 41% was related to our other segment. Comparatively, we estimated these future contributions to total approximately $325.5 million as of December 31, 2013, whereby approximately 60% was related to our credit segment, 24% was related to our other segment and 16% was related to our natural resources segment.

As of June 30, 2014 and December 31, 2013, we had investments, held alongside KKR and its affiliates, in real estate entities that were financed with non-recourse debt totaling $331.5 million and $231.7 million, respectively. Under non-recourse debt, the lender generally does not have recourse against any other assets owned by the borrower or any related parties of the borrower, except for certain specified exceptions listed in the respective loan documents including customary “bad boy” acts. In connection with these investments, joint and several non-recourse “bad boy” guarantees were provided for losses relating solely to specified bad faith acts that damage the value of the real estate being used as collateral. As of both June 30, 2014 and December 31, 2013, we also had financial guarantees related to our natural resources investments totaling $17.9 million.

PARTNERSHIP TAX MATTERS

Non-Cash “Phantom” Taxable Income

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Holders of our shares are subject to United States federal income taxation and generally other taxes, such as state, local and foreign income taxes, on their allocable share of our taxable income, regardless of whether or when they receive cash distributions. In addition, certain of our investments, including investments in foreign corporate subsidiaries, CLO issuers (which are treated as partnerships, disregarded entities or foreign corporations for United States federal income tax purposes), partnerships generally and debt securities, may produce taxable income without corresponding distributions of cash to us or may produce taxable income prior to or following the receipt of cash relating to such income. In addition, we have recognized and may recognize in the future cancellation of indebtedness income upon the retirement of our debt at a discount. We generally allocate our taxable income and loss using a monthly convention, which means that we determine our taxable income and losses for the taxable year to be allocated to our shares and then prorate that amount on a monthly basis. Our Series A LLC Preferred Shares will receive an allocation of our gross ordinary income. If the amount of cash distributed to our Series A LLC Preferred Shares in any year exceeds our gross ordinary income for such year, additional gross ordinary income will be allocated to the Series A LLC Preferred Shares in future years until such excess is eliminated. Consequently, in some taxable years, holders of our shares may recognize taxable income in excess of our cash distributions.

Furthermore, even if we did not pay cash distributions with respect to a taxable year, holders of our shares may still have a tax liability attributable to their allocation of taxable income from us during such year.

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Qualifying Income Exception

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. In general, if a partnership is “publicly traded” (as defined in the Code), it will be treated as a corporation for United States federal income tax purposes. A publicly traded partnership will be taxed as a partnership, however, and not as a corporation, for United States federal income tax purposes so long as it is not required to register under the Investment Company Act and at least 90% of its gross income for each taxable year constitutes “qualifying income” within the meaning of Section 7704(d) of the Code. We refer to this exception as the “qualifying income exception.” Qualifying income generally includes rents, dividends, interest (to the extent such interest is neither derived from the “conduct of a financial or insurance business” nor based, directly or indirectly, upon “income or profits” of any person), income and gains derived from certain activities related to minerals and natural resources, and capital gains from the sale or other disposition of stocks, bonds and real property. Qualifying income also includes other income derived from the business of investing in, among other things, stocks and securities.

If we fail to satisfy the “qualifying income exception” described above, items of income, gain, loss, deduction and credit would not pass through to holders of our shares and such holders would be treated for United States federal (and certain state and local) income tax purposes as shareholders in a corporation. In such case, we would be required to pay income tax at regular corporate rates on all of our net income. In addition, we would likely be liable for state and local income and/or franchise taxes on all of our income. Distributions to holders of our shares would constitute ordinary dividend income taxable to such holders to the extent of our earnings and profits, and these distributions would not be deductible by us. If we were taxable as a corporation, it could result in a material reduction in cash flow and after-tax return for holders of our shares and thus could result in a substantial reduction in the value of our shares and any other securities we may issue.

Tax Consequences of Investments in Natural Resources and Real Estate

As referenced above, we have made certain investments in natural resources and real estate. It is likely that the income from natural resources investments will be treated as effectively connected with the conduct of a United States trade or business with respect to holders of our shares that are not “United States persons” within the meaning of Section 7701(a)(30) of the Code. Furthermore, any notional principal contracts that we enter into, if any, in connection with investments in natural resources likely would generate income that would be treated as effectively connected with the conduct of a United States trade or business. In addition, if any REIT subsidiary in which we own an interest recognizes gain on the disposition of a United States real property interest, or if we recognize gain on the disposition of a United States real property interest that we hold through a pass-through entity (including gain from the sale of stock in a REIT subsidiary that invests primarily in real estate), such gain will be treated as effectively connected with the conduct of a United States trade or business. Further, our investments in real estate through pass-through entities may generate operating income that is treated as effectively connected with the conduct of a United States trade or business.

To the extent our income is treated as effectively connected income, a holder who is a non-United States person generally would be required to (i) file a United States federal income tax return for such year reporting its allocable share, if any, of our income or loss effectively connected with such trade or business and (ii) pay United States federal income tax at regular United States tax rates on any such income. Moreover, if such a holder is a corporation, it might be subject to a United States branch profits tax on its allocable share of our effectively connected income. In addition, distributions to such a holder would be subject to withholding at the highest applicable federal income tax rate to the extent of the holder’s allocable share of our effectively connected income. Any amount so withheld would be creditable against such holder’s United States federal income tax liability, and such holder could claim a refund to the extent that the amount withheld exceeded such holder’s United States federal income tax liability for the taxable year.

If we are engaged in a United States trade or business, a portion of any gain recognized by an investor who is a non-United States person on the sale or exchange of its shares may be treated for United States federal income tax purposes as effectively connected income, and hence such holder may be subject to United States federal income tax on the sale or exchange. Moreover, if the fair market value of our investments in United States real property interests, which include our investments in natural resources, real estate and REIT subsidiaries that invest primarily in real estate, represent more than 10% of the total fair market value of our assets, our shares could be treated as United States real property interests. In such case, gain recognized by an investor who is a non-United States person on the sale or exchange of its shares would be treated for United States federal income tax purposes as effectively connected income (unless the gain is attributable to a class of our shares that is regularly traded on a securities market and the non-United States person owns 5% or less of the shares of that class). We believe that the fair market value of our investments in United States real property interests represented more than 10% of the total fair market value of our assets during the second quarter of 2014. As a result, although the Treasury regulations are not entirely clear, our shares could be treated as United States real property interests (other than a class of shares that is regularly traded on a securities market where the non-United States person owns 5% or less of the shares of that class). Moreover, it is possible that the IRS could take the position that such shares would be treated as United States real property interests for the five years following the last date on which more than 10% of the total fair market value of our assets consisted of United States real property interests. If gain from the sale of our shares is treated as effectively connected income, the holder may be subject to United States federal income and/or withholding tax on the sale or exchange.

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In addition, all holders of our shares will likely have state tax filing obligations in jurisdictions in which we have made investments in natural resources or real estate (other than through a REIT subsidiary). As a result, holders of our shares will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, holders may be subject to penalties if they fail to comply with those requirements. Our current investments may cause our holders to have state tax filing obligations in the following states: Kansas, Louisiana, Mississippi, North Dakota, Ohio, Oklahoma, Pennsylvania and West Virginia. We may make investments in other states or non-U.S. jurisdictions in the future.

For holders of our shares that are regulated investment companies, to the extent that our income from our investments in natural resources and real estate exceeds 10% of our gross income, then we will likely be treated as a “qualified publicly traded partnership” for purposes of the income and asset diversification tests that apply to regulated investment companies. Although the calculation of our gross income for purposes of this test is not entirely clear, if our calculation of gross income is respected, it is likely that we will not be treated as a “qualified publicly traded partnership” for our 2014 tax year. No assurance can be provided that we will or will not be treated as a “qualified publicly traded partnership” in 2015 or any future year.

OUR INVESTMENT COMPANY ACT STATUS

Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is, holds itself out as being, or proposes to be, primarily engaged in the business of investing, reinvesting or trading in securities and Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” (within the meaning of the Investment Company Act) having a value exceeding 40% of the value of the issuer’s total assets (exclusive of United States government securities and cash items) on an unconsolidated basis (the “40% test”). Excluded from the term “investment securities” are, among others, securities issued by majority-owned subsidiaries unless the subsidiary is an investment company or relies on the exceptions from the definition of an investment company provided by Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act (a “fund”).

We are organized as a holding company. We conduct our operations primarily through our majority-owned subsidiaries. Each of our subsidiaries is either outside of the definition of an investment company in Sections 3(a)(1)(A) and 3(a)(1)(C), described above, or excepted from the definition of an investment company under the Investment Company Act. We believe that we are not, and that we do not propose to be, primarily engaged in the business of investing, reinvesting or trading in securities and we do not believe that we have held ourselves out as such. We intend to continue to conduct our operations so that we are not required to register as an investment company under the Investment Company Act.

We monitor our holdings regularly to confirm our continued compliance with the 40% test. In calculating our position under the 40% test, we are responsible for determining whether any of our subsidiaries is majority-owned. We treat as majority-owned subsidiaries for purposes of the 40% test entities, including those that issue CLOs, in which we own at least 50% of the outstanding voting securities or that are otherwise structured consistent with applicable SEC staff guidance. Some of our majority-owned subsidiaries may rely solely on the exceptions from the definition of “investment company” found in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. In order for us to satisfy the 40% test, our ownership interests in those subsidiaries or any of our subsidiaries that are not majority-owned for purposes of the Investment Company Act, together with any other “investment securities” that we may own, may not have a combined value in excess of 40% of the value of our total assets on an unconsolidated basis and exclusive of United States government securities and cash items. However, many of our majority-owned subsidiaries either fall outside of the general definitions of an investment company or rely on exceptions provided by provisions of, and rules and regulations promulgated under, the Investment Company Act (other than Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act) and, therefore, the securities of those subsidiaries that we own and hold are not investment securities for purposes of the Investment Company Act. In order to conform to these exceptions, these subsidiaries are limited with respect to the assets in which each of them can invest and/or the types of securities each of them may issue. We must, therefore, monitor each subsidiary’s compliance with its applicable exception and our freedom of action relating to such a subsidiary, and that of the subsidiary itself, may be limited as a result. For example, our subsidiaries that issue CLOs generally rely on the exception provided by Rule 3a-7 under the Investment Company Act, while our real estate subsidiaries, including those that are taxed as REITs for United States federal income tax purposes, generally rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act. Each of these exceptions requires, among other things that the subsidiary (i) not issue redeemable securities and (ii) engage in the business of holding certain types of assets, consistent with the terms of the exception. Similarly, any subsidiaries engaged in the ownership of oil and gas assets may, depending on the nature of the assets, be outside the definition of an investment company or rely on exceptions provided by Section 3(c)(5)(C) or Section 3(c)(9) of the Investment Company Act. While Section 3(c)(9) of the Investment Company Act does not limit the nature of the securities issued, it does impose business engagement requirements that limit the types of assets that may be held.

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We do not treat our interests in majority-owned subsidiaries that are outside of the general definition of an investment company or that rely on Section 3(c)(5)(A), (B), (C) or Section 3(c)(9) of, or Rule 3a-7 under, the Investment Company Act as investment securities when calculating our 40% test.

We sometimes refer to our subsidiaries that rely on Rule 3a-7 under the Investment Company Act as “CLO subsidiaries.” Rule 3a-7 under the Investment Company Act is available to certain structured financing vehicles that are engaged in the business of holding financial assets that, by their terms, convert into cash within a finite time period and that issue fixed income securities entitling holders to receive payments that depend primarily on the cash flows from these assets, provided that, among other things, the structured finance vehicle does not engage in certain portfolio management practices resembling those employed by management investment companies (e.g., mutual funds). Accordingly, each of these CLO subsidiaries is subject to an indenture (or similar transaction documents) that contains specific guidelines and restrictions limiting the discretion of the CLO subsidiary and its collateral manager. In particular, these guidelines and restrictions prohibit the CLO subsidiary from acquiring and disposing of assets primarily for the purpose of recognizing gains or decreasing losses resulting from market value changes. Thus, a CLO subsidiary cannot acquire or dispose of assets primarily to enhance returns to the owner of the equity in the CLO subsidiary; however, subject to this limitation, sales and purchases of assets may be made so long as doing so does not violate guidelines contained in the CLO subsidiary’s relevant transaction documents. A CLO subsidiary generally can, for example, sell an asset if the collateral manager believes that its credit quality has declined since its acquisition or that the credit profile of the obligor will deteriorate and the proceeds of permitted dispositions may be reinvested in additional collateral, subject to fulfilling the requirements set forth in Rule 3a-7 under the Investment Company Act and the CLO subsidiary’s relevant transaction documents. As a result of these restrictions, our CLO subsidiaries may suffer losses on their assets and we may suffer losses on our investments in those CLO subsidiaries.

We sometimes refer to our subsidiaries that rely on Section 3(c)(5)(C) of the Investment Company Act, as our “real estate subsidiaries.” Section 3(c)(5)(C) of the Investment Company Act is available to companies that are primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. While the SEC has not promulgated rules to address precisely what is required for a company to be considered to be “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate,” the SEC’s Division of Investment Management, or the “Division,” has taken the position, through a series of no-action and interpretive letters, that a company may rely on Section 3(c)(5)(C) of the Investment Company Act if, among other things, at least 55% of the company’s assets consist of mortgage loans, other assets that are considered the functional equivalent of mortgage loans and certain other interests in real property (collectively, “qualifying real estate assets”), and at least 25% of the company’s assets consist of real estate-related assets (reduced by the excess of the company’s qualifying real estate assets over the required 55%), leaving no more than 20% of the company’s assets to be invested in miscellaneous assets. The Division has also provided guidance as to the types of assets that can be considered qualifying real estate assets. Because the Division’s interpretive letters are not binding except as they relate to the companies to whom they are addressed, if the Division were to change its position as to, among other things, what assets might constitute qualifying real estate assets our REIT subsidiaries might be required to change its investment strategy to comply with the changed position. We cannot predict whether such a change would be adverse.

Based on current guidance, our real estate subsidiaries classify investments in mortgage loans as qualifying real estate assets, as long as the loans are “fully secured” by an interest in real estate on which we retain the unilateral right to foreclose. That is, if the loan-to-value ratio of the loan is equal to or less than 100%, then the mortgage loan is considered to be a qualifying real estate asset. Mortgage loans with loan-to-value ratios in excess of 100% are considered to be only real estate-related assets. Our real estate subsidiaries consider agency whole pool certificates to be qualifying real estate assets. Examples of agencies that issue whole pool certificates are the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. An agency whole pool certificate is a certificate issued or guaranteed as to principal and interest by the United States government or by a federally chartered entity, which represents the entire beneficial interest in the underlying pool of mortgage loans. By contrast, an agency certificate that represents less than the entire beneficial interest in the underlying mortgage loans is not considered to be a qualifying real estate asset, but is considered by our real estate subsidiaries to be a real estate-related asset.

Most non-agency mortgage-backed securities do not constitute qualifying real estate assets because they represent less than the entire beneficial interest in the related pool of mortgage loans; however, based on Division guidance, where our real estate subsidiaries’ investment in non-agency mortgage-backed securities is the “functional equivalent” of owning the underlying mortgage loans, our real estate subsidiaries may treat those securities as qualifying real estate assets. Moreover, investments in mortgage-backed securities that do not constitute qualifying real estate assets are classified by our real estate subsidiaries as real estate-related assets. Therefore, based upon the specific terms and circumstances related to each non-agency mortgage-backed security that our real estate subsidiaries own, our real estate subsidiaries will make a determination of whether that security should be classified as a qualifying

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real estate asset or as a real estate-related asset; and there may be instances where a security is recharacterized from being a qualifying real estate asset to a real estate-related asset, or conversely, from being a real estate-related asset to being a qualifying real estate asset based upon the acquisition or disposition or redemption of related classes of securities from the same securitization trust. If our real estate subsidiaries acquire securities that, collectively, receive all of the principal and interest paid on the related pool of underlying mortgage loans (less fees, such as servicing and trustee fees, and expenses of the securitization), and that subsidiary has unilateral foreclosure rights with respect to those mortgage loans, then our real estate subsidiaries will consider those securities, collectively, to be qualifying real estate assets. If another entity acquires any of the securities that are expected to receive cash flow from the underlying mortgage loans, then our real estate subsidiaries will consider whether it has appropriate foreclosure rights with respect to the underlying loans and whether its investment is a first loss position in deciding whether these securities should be classified as qualifying real estate assets. If our real estate subsidiaries own more than one subordinate class, then, to determine the classification of subordinate classes other than the first loss class, our real estate subsidiaries will consider whether such classes are contiguous with the first loss class (with no other classes absorbing losses after the first loss class and before any other subordinate classes that our real estate subsidiaries own), whether our real estate subsidiaries own the entire amount of each such class and whether our real estate subsidiaries would continue to have appropriate foreclosure rights in connection with each such class if the more subordinate classes were no longer outstanding. If the answers to any of these questions is no, then our real estate subsidiaries would expect not to classify that particular class, or classes senior to that class, as qualifying real estate assets.

We have made or may make oil and gas and other mineral investments that are held through one or more subsidiaries and would refer to those subsidiaries as our “oil and gas subsidiaries”. Depending upon the nature of the oil and gas assets held by an oil and gas subsidiary, such oil and gas subsidiary may rely on Section 3(c)(5)(C) or Section 3(c)(9) of the Investment Company Act or may fall outside of the general definition of an investment company. An oil and gas subsidiary that does not engage primarily, propose to engage primarily or hold itself out as engaging primarily in the business of investing, reinvesting or trading in securities will be outside of the general definition of an investment company provided that it passes the 40% test. This may be the case where an oil and gas subsidiary holds a sufficient amount of oil and gas assets constituting real estate interests together with other assets that are not investment securities such as equipment. Oil and gas subsidiaries that hold oil and gas assets that constitute real property interests, but are unable to pass the 40% test, may rely on Section 3(c)(5)(C), subject to the requirements and restrictions described above. Alternately, an oil and gas subsidiary may rely on Section 3(c)(9) of the Investment Company Act if substantially all of its business consists of owning or holding oil, gas or other mineral royalties or leases, certain fractional interests, or certificates of interest or participations in or investment contracts relating to such royalties, leases or fractional interests. These various restrictions imposed on our oil and gas subsidiaries by the Investment Company Act may have the effect of limiting our freedom of action with respect to oil and gas assets (or other assets) that may be held or acquired by such subsidiary or the manner in which we may deal in such assets.

In addition, we anticipate that one or more of our subsidiaries, will qualify for an exception from registration as an investment company under the 1940 Act pursuant to either Section 3(c)(5)(A) of the 1940 Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services, and/or Section 3(c)(5)(B) of the 1940 Act, which is available for entities primarily engaged in the business of making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services and, in each case, the entities are not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates. In order to rely on Sections 3(c)(5)(A) and (B) and be deemed “primarily engaged” in the applicable businesses, at least 55% of an issuer’s assets must represent investments in eligible loans and receivables under those sections. We intend to treat as qualifying assets for purposes of these exceptions the purchases of loans and leases representing part or all of the sales price of equipment and loans where the loan proceeds are specifically provided to finance equipment, services and structural improvements to properties and other facilities and maritime and infrastructure projects or improvements. We intend to rely on guidance published by the SEC or its staff in determining which assets are deemed qualifying assets.

As noted above, if the combined values of the securities issued to us by any non-majority-owned subsidiaries and our subsidiaries that must rely on Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, together with any other investment securities we may own, exceed 40% of the value of our total assets (exclusive of United States government securities and cash items) on an unconsolidated basis, we may be deemed to be an investment company. If we fail to maintain an exception, exemption or other exclusion from the Investment Company Act, we could, among other things, be required either (i) to change substantially the manner in which we conduct our operations to avoid being subject to the Investment Company Act or (ii) to register as an investment company. Either of these would likely have a material adverse effect on us, the type of investments we make, our ability to service our indebtedness and to make distributions on our shares, and on the market price of our shares and any other securities we may issue. If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with certain affiliated persons (within the meaning of the Investment Company Act), portfolio composition (including restrictions with respect to diversification and industry concentration) and other matters. Additionally, our Manager would have the right to terminate our Management Agreement effective the date immediately prior to our becoming an investment company. Moreover, if we were

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required to register as an investment company, we would no longer be eligible to be treated as a partnership for United States federal income tax purposes. Instead, we would be classified as a corporation for tax purposes and would be able to avoid corporate taxation only to the extent that we were able to elect and qualify as a regulated investment company (“RIC”) under applicable tax rules. Because our eligibility for RIC status would depend on our assets and sources of income at the time that we were required to register as an investment company, there can be no assurance that we would be able to qualify as a RIC. If we were to lose partnership status and fail to qualify as a RIC, we would be taxed as a regular corporation. See “Partnership Tax Matters—Qualifying Income Exception”.

We have not requested approval or guidance from the SEC or its staff with respect to our Investment Company Act determinations, including, in particular: our treatment of any subsidiary as majority-owned; the compliance of any subsidiary with Section 3(c)(5)(A), (B), (C) or Section 3(c)(9) of, or Rule 3a-7 under, the Investment Company Act, including any subsidiary’s determinations with respect to the consistency of its assets or operations with the requirements thereof; or whether our interests in one or more subsidiaries constitute investment securities for purposes of the 40% test. If the SEC were to disagree with our treatment of one or more subsidiaries as being majority-owned, excepted from the Investment Company Act pursuant to Rule 3a-7, Section 3(c)(5)(A), (B), (C), Section 3(c)(9) or any other exception, with our determination that one or more of our other holdings do not constitute investment securities for purposes of the 40% test, or with our determinations as to the nature of the business in which we engage or the manner in which we hold ourselves out, we and/or one or more of our subsidiaries would need to adjust our operating strategies or assets in order for us to continue to pass the 40% test or register as an investment company, either of which could have a material adverse effect on us. Moreover, we may be required to adjust our operating strategy and holdings, or to effect sales of our assets in a manner that, or at a time or price at which, we would not otherwise choose, if there are changes in the laws or rules governing our Investment Company Act status or that of our subsidiaries, or if the SEC or its staff provides more specific or different guidance regarding the application of relevant provisions of, and rules under, the Investment Company Act. The SEC published on August 31, 2011 an advance notice of proposed rulemaking to potentially amend the conditions for reliance on Rule 3a-7 and the treatment of asset-backed issuers that rely on Rule 3a-7 under the Investment Company Act (the “3a-7 Release”).

The SEC, in the 3a-7 Release, requested public comment on the nature and operation of issuers that rely on Rule 3a-7 and indicated various steps it may consider taking in connection with Rule 3a-7, although it did not formally propose any changes to the rule. Among the issues for which the SEC has requested comment in the 3a-7 Release is whether Rule 3a-7 should be modified so that parent companies of subsidiaries that rely on Rule 3a-7 should treat their interests in such subsidiaries as investment securities for purposes of the 40% test. The SEC also published on August 31, 2011 a concept release seeking information about the nature of entities that invest in mortgages and mortgage-related pools and public comment on how the SEC staff’s interpretive positions in connection with Section 3(c)(5)(C) affect these entities, although it did not propose any new interpretive positions or changes to existing interpretive positions in connection with Section 3(c)(5)(C). Any guidance or action from the SEC or its staff, including changes that the SEC may ultimately propose and adopt to the way Rule 3a-7 applies to entities or new or modified interpretive positions related to Section 3(c)(5)(C), could further inhibit our ability, or the ability of a subsidiary, to pursue our current or future operating strategies, which could have a material adverse effect on us.

If the SEC or a court of competent jurisdiction were to find that we were required, but failed, to register as an investment company in violation of the Investment Company Act, we may have to cease business activities, we would breach representations and warranties and/or be in default as to certain of our contracts and obligations, civil or criminal actions could be brought against us, our contracts would be unenforceable unless a court were to require enforcement and a court could appoint a receiver to take control of us and liquidate our business, any or all of which would have a material adverse effect on our business.

OTHER REGULATORY ITEMS

In August 2012, the U.S. Commodities Futures Trading Commission (“CFTC”) adopted a series of rules to establish a new regulatory framework for swaps that may cause certain users of swaps to be deemed commodity pools or to register as commodity pool operators. In October 2012, the CFTC delayed the implementation of the relevant rules until December 31, 2012. Although we believe that KKR Financial Holdings LLC is not a commodity pool, we have requested confirmation of this conclusion from the CFTC. To the extent that any of our subsidiaries may be deemed to be a commodity pool, we believe they should satisfy certain exemptions to these rules available to privately offered entities. However, if the CFTC were to take the position that KKR Financial Holdings LLC is a commodity pool, our directors may be required to register as commodity pool operators. Such registration would add to our operating and compliance costs and could affect the manner in which we use swaps as part of our operating and hedging strategies.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risks

From time to time, we may make investments that are denominated in a foreign currency through which we may be subject to foreign currency exchange risk. As of June 30, 2014, $243.8 million estimated fair value, or 3.6%, of our corporate debt portfolio was denominated in foreign currencies, of which 83.4% was denominated in Euros. In addition, as of June 30, 2014, $151.1 million estimated fair value, or 18.5%, of interests in joint ventures and partnerships and other assets, which includes our equity investments at estimated fair value, was denominated in foreign currencies, of which 30.9% was denominated in Euros, 30.8% was denominated in the British pound sterling and 13.8% was denominated in Canadian dollars.

Based on these investments, we are exposed to movements in foreign currency exchange rates which may impact earnings if the United States dollar significantly strengthens or weakens against foreign currencies. Accordingly, we may use derivative instruments from time to time, including foreign exchange options and forward contracts, to manage the impact of fluctuations in foreign currency exchange rates. As of June 30, 2014, the net contractual notional balance of our foreign exchange options and forward contract liabilities totaled $170.5 million, all of which related to certain of our foreign currency denominated assets. Refer to “Derivative Risk” below for further discussion on our derivatives.

Credit Spread Exposure

Our investments are subject to spread risk. Our investments in floating rate loans and securities are valued based on a market credit spread over LIBOR and for which the value is affected by changes in the market credit spreads over LIBOR. Our investments in fixed rate loans and securities are valued based on a market credit spread over the rate payable on fixed rate United States Treasuries of like maturity. Increased credit spreads, or credit spread widening, will have an adverse impact on the value of our investments while decreased credit spreads, or credit spread tightening, will have a positive impact on the value of our investments. However, tightening credit spreads will increase the likelihood that certain holdings will be refinanced at lower rates that would negatively impact our earnings.

Interest Rate Risk

Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in repricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows and the prepayment rates experienced on our investments that have embedded borrower optionality. The objective of interest rate risk management is to achieve earnings, preserve capital and achieve liquidity by minimizing the negative impacts of changing interest rates, asset and liability mix, and prepayment activity.

We are exposed to basis risk between our investments and our borrowings. Interest rates on our floating rate investments and our variable rate borrowings do not reset on the same day or with the same frequency and, as a result, we are exposed to basis risk with respect to index reset frequency. Our floating rate investments may reprice on indices that are different than the indices that are used to price our variable rate borrowings and, as a result, we are exposed to basis risk with respect to repricing index. The basis risks noted above, in addition to other forms of basis risk that exist between our investments and borrowings, could have a material adverse impact on our future net interest margins.

Interest rate risk impacts our interest income, interest expense, prepayments, as well as the fair value of our investments, interest rate derivatives and liabilities. We generally fund our variable rate investments with variable rate borrowings with similar interest rate reset frequencies. Based on our variable rate investments and related variable rate borrowings as of June 30, 2014, we estimated that increases in interest rates would impact net income by approximately (amounts in thousands):

Change in interest rates	Annual Impact
Increase of 1.0%	$	(18,441	)
Increase of 2.0%	$	(754	)
Increase of 3.0%	$	16,932
Increase of 4.0%	$	34,619
Increase of 5.0%	$	52,305

As of June 30, 2014, approximately 68.2% of our floating rate corporate debt portfolio had LIBOR floors with a weighted average floor of 1.1%. Given these LIBOR floors, increases in short-term interest rates above a certain point beginning between 2% and 3% will result in a greater positive impact as yields on interest-earning assets are expected to rise faster than the cost of funding sources. The simulation above assumes that the asset and liability structure of the condensed consolidated balance sheet would not be changed as a result of the simulated changes in interest rates.

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We manage our interest rate risk using various techniques ranging from the purchase of floating rate investments to the use of interest rate derivatives. The use of interest rate derivatives is a component of our interest risk management strategy. As of June 30, 2014, we had interest rate swaps with a contractual notional amount of $458.8 million, of which $333.8 million was related to two pay-fixed, receive-variable interest rate swaps through certain of our CLOs. These interest rate derivatives consisted of swaps to hedge a portion of the interest rate risk associated with our borrowings under the CLO senior secured notes. The remaining $125.0 million of interest rate swaps were used to hedge a portion of the interest rate risk associated with our floating rate junior subordinated notes. The objective of the interest rate swaps is to eliminate the variability of cash flows in the interest payments of these notes due to fluctuations in the indexed rate. Refer to “Derivative Risk” below for further discussion on our derivatives.

Derivative Risk

Derivative transactions including engaging in swaps and foreign currency transactions are subject to certain risks. There is no guarantee that a company can eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party. Also, there is a possibility of default of the other party to the transaction or illiquidity of the derivative instrument. Furthermore, the ability to successfully use derivative transactions depends on the ability to predict market movements which cannot be guaranteed. As such, participation in derivative instruments may result in greater losses as we would have to sell or purchase an investment at inopportune times for prices other than current market prices or may force us to hold an asset we might otherwise have sold. In addition, as certain derivative instruments are unregulated, they are difficult to value and are therefore susceptible to liquidity and credit risks.

Collateral posting requirements are individually negotiated between counterparties and there is currently no regulatory requirement concerning the amount of collateral that a counterparty must post to secure its obligations under certain derivative instruments. Currently, there is no requirement that parties to a contract be informed in advance when a credit default swap is sold. As a result, investors may have difficulty identifying the party responsible for payment of their claims. If a counterparty’s credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that we may not receive adequate collateral. Amounts paid by us as premiums and cash or other assets held in margin accounts with respect to derivative instruments are not available for investment purposes.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments held as of June 30, 2014 (amounts in thousands):

	As of June 30, 2014
	Notional			Estimated Fair Value
Free-Standing Derivatives:
Interest rate swaps	$	458,833		$	(48,517	)
Commodity swaps	—			(7,714		)
Foreign exchange forward contracts	(300,370		)	(23,273		)
Foreign exchange options	129,900			7,056
Common stock warrants	—			1,077
Total rate of return swaps	—			(158		)
Options	—			6,175
Total				$	(65,354	)

For our derivatives, our credit exposure is directly with our counterparties and continues until the maturity or termination of such contracts. The following table sets forth the estimated net fair values of our primary derivative investments by remaining contractual maturity as of June 30, 2014 (amounts in thousands):

	Less than 1 year			1 - 3 years			3 - 5 years			More than 5 years			Total
Free-Standing Derivatives:
Interest rate swaps	$	(2,731	)	$	—		$	(8,026	)	$	(37,760	)	$	(48,517	)
Commodity swaps	(7,455		)	(259		)	—			—			(7,714		)
Foreign exchange forward contracts	(15,161		)	(6,238		)	(1,874		)	—			(23,273		)
Foreign exchange options	7,056			—			—			—			7,056
Total rate of return swaps	(158		)	—			—			—			(158		)
Total	$	(18,449	)	$	(6,497	)	$	(9,900	)	$	(37,760	)	$	(72,606	)

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Counterparty Risk

We have credit risks that are generally related to the counterparties with which we do business. If a counterparty becomes bankrupt, or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. These risks of non-performance may differ from risks associated with exchange-traded transactions which are typically backed by guarantees and have daily mark-to-market and settlement positions. Transactions entered into directly between parties do not benefit from such protections and thus, are subject to counterparty default. It may be the case where any cash or collateral we pledged to the counterparty may be unrecoverable and we may be forced to unwind our derivative agreements at a loss. We may obtain only a limited recovery or may obtain no recovery in such circumstances, thereby reducing liquidity and earnings.

Management Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Significant estimates, assumptions and judgments are applied in situations including the determination of our allowance for loan losses and the valuation of certain investments. We revise our estimates when appropriate. However, actual results could materially differ from management’s estimates.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See discussion of quantitative and qualitative disclosures about market risk in “Quantitative and Qualitative Disclosures About Market Risk” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4.  CONTROLS AND PROCEDURES

The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2014. Based on their evaluation, the Company’s principal executive and principal financial officer concluded that the Company’s disclosure controls and procedures as of June 30, 2014 were designed and were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the two months ended June 30, 2014 and one month ended April 30, 2014, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The section entitled “Contingencies” appearing in Note 10 “Commitments and Contingencies” of our condensed consolidated financial statements included elsewhere in this report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on February 27, 2014, and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the SEC on May 8, 2014, both of which are accessible on the Securities and Exchange Commission’s website at www.sec.gov.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On April 15, 2014, our non-employee directors deferred $0.1 million of cash compensation in exchange for 3,447 phantom shares pursuant to the KKR Financial Holdings LLC Non-Employee Directors’ Deferred Compensation and Share Award Plan. Each phantom share is the economic equivalent of one of our common shares. The phantom shares become payable, in cash or common shares, at our election, upon the earlier of (i) the first day of January following the applicable non-employee director’s termination of service as a director or (ii) an election date pre-selected by the applicable non-employee director, and in any event in cash or common shares, at the election of the applicable non-employee director, upon the occurrence of a change in control of us. The grants made to our non-employee directors were exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof. In connection with the Merger Transaction, each phantom share under KFN’s Non-Employee Directors’ Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remain subject to the terms of the plan.

98

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number	Description
31.1	Chief Executive Officer Certification
31.2	Chief Financial Officer Certification
32	Certification Pursuant to 18 U.S.C. Section 1350
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

99

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, KKR Financial Holdings LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KKR Financial Holdings LLC
Signature	Title
/s/ WILLIAM J. JANETSCHEK	Chief Executive Officer (Principal Executive Officer)
William J. Janetschek
/s/ MICHAEL R. MCFERRAN	Chief Financial Officer (Principal Financial and Accounting Officer)
Michael R. McFerran
Date: August 11, 2014

100

EX-31.1

Exhibit 31.1

Certification

I, William J. Janetschek, certify that:

1.I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2014 of KKR Financial Holdings LLC;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 11, 2014
	/s/ WILLIAM J. JANETSCHEK
	William J. Janetschek
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

I, Michael R. McFerran, certify that:

1.I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2014 of KKR Financial Holdings LLC;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 11, 2014
	/s/ MICHAEL R. MCFERRAN
	Michael R. McFerran
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of KKR Financial Holdings LLC (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), William J. Janetschek, Chief Executive Officer of the Company, and Michael R. McFerran, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

August 11, 2014
	/s/ WILLIAM J. JANETSCHEK
	William J. Janetschek
	Chief Executive Officer
	(Principal Executive Officer)
	/s/ MICHAEL R. MCFERRAN
	Michael R. McFerran
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2)	6 Months Ended	4 Months Ended	12 Months Ended
	Jun. 30, 2014 methods approach	Apr. 30, 2014 Predecessor Company riskgrade loancategories component	Dec. 31, 2013 Predecessor Company component
Consolidation
Minimum percentage of voting interest required to consolidate non-VIEs	50.00%
Fair Value of Financial Instruments
Number of approaches used to determine fair value of investments (in approaches)	2
Corporate Loans
Period for determination of non-accrual status	90 days
Number of methods interest income recognized	2
Sustained period of repayment performance	6 months
Allowance for Loan Losses
Number of components in the loans receivable allowance for loan losses (in components)		2	2
Number of internally assigned risk grades		3	3
Summary of corporate loans
Number of loan categories		3	3

XML

CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 7) (Predecessor Company, USD $)	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Apr. 30, 2014	Jun. 30, 2013	Apr. 30, 2014	Jun. 30, 2013
Predecessor Company
Average recorded investment in impaired loans and interest income recognized
Interest income related to impaired loans with a related allowance recorded	$ 1,000,000		$ 4,500,000
Average Recorded Investment, with no related allowance recorded				2,163,000
Average Recorded Investment, with an allowance recorded		538,344,000		505,212,000
Average Recorded Investment		538,344,000		507,375,000
Interest Income Recognized, with an allowance recorded		5,995,000		10,269,000
Interest Income Recognized		$ 5,995,000		$ 10,269,000

XML

CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details) (Successor Company, USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Summary of corporate loans
Par	$ 6,499,112
Amortized Cost	6,267,679
Estimated Fair Value	6,293,540
Corporate loans at estimated fair value
Summary of corporate loans
Par	6,499,112
Amortized Cost	6,267,679
Estimated Fair Value	$ 6,293,540

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $)							12 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Quoted Prices in Active Markets for Identical Assets (Level 1)	Jun. 30, 2014 Successor Company Significant Unobservable Inputs (Level 3)	Jun. 30, 2014 Successor Company Carrying Amount	Jun. 30, 2014 Successor Company Estimated Fair Value	Dec. 31, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company Proved oil and natural gas properties	Apr. 30, 2014 Predecessor Company Corporate Loans	Mar. 31, 2014 Predecessor Company Corporate Loans	Dec. 31, 2013 Predecessor Company Corporate Loans	Jun. 30, 2013 Predecessor Company Corporate Loans	Mar. 31, 2013 Predecessor Company Corporate Loans	Dec. 31, 2012 Predecessor Company Corporate Loans	Apr. 30, 2014 Predecessor Company Corporate Loans Held for Sale	Jun. 30, 2013 Predecessor Company Corporate Loans Held for Sale	Dec. 31, 2013 Predecessor Company Quoted Prices in Active Markets for Identical Assets (Level 1)	Dec. 31, 2013 Predecessor Company Significant Other Observable Inputs (Level 2)	Dec. 31, 2013 Predecessor Company Significant Unobservable Inputs (Level 3)	Dec. 31, 2013 Predecessor Company Carrying Amount	Dec. 31, 2013 Predecessor Company Carrying Amount Proved oil and natural gas properties	Dec. 31, 2013 Predecessor Company Estimated Fair Value	Dec. 31, 2013 Predecessor Company Estimated Fair Value Proved oil and natural gas properties
Assets:
Cash, restricted cash, and cash equivalents		$ 806,720,000		$ 806,720,000	$ 806,720,000											$ 507,552,000			$ 507,552,000		$ 507,552,000
Corporate loans, net of allowance for loan losses of $224,999 as of December 31, 2013	6,293,540,000																5,691,988,000	359,653,000	5,949,492,000		6,051,641,000
Allowances for loan losses						224,999,000		223,541,000	223,541,000	224,999,000	203,255,000	206,227,000	223,472,000
Corporate loans held for sale						279,748,000								546,100,000	117,500,000		267,169,000	14,109,000	279,748,000		281,278,000
Private equity investments, at cost																		4,496,000	405,000		4,496,000
Other assets																	5,513,000		5,763,000		5,513,000
Liabilities:
Collateralized loan obligation secured debt	5,547,914,000					5,249,383,000												5,179,207,000	5,249,383,000		5,179,207,000
Credit facilities			83,289,000	83,289,000	83,289,000													125,289,000	125,289,000		125,289,000
Senior notes	415,278,000	418,413,000		415,278,000	418,413,000	362,276,000										393,772,000			362,276,000		393,772,000
Junior subordinated notes	246,062,000		248,051,000	246,062,000	248,051,000	283,517,000												247,416,000	283,517,000		247,416,000
Oil and natural gas properties
Impairment charges of oil and natural gas properties							10,400,000
Oil and natural gas properties	$ 525,678,000					$ 400,369,000														$ 16,100,000		$ 5,700,000

XML

CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 8) (USD $)		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		4 Months Ended
	Jun. 30, 2014 Successor Company Corporate Loans, at Estimated Fair Value issuer	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Corporate Loan Held for Investment	Jun. 30, 2013 Predecessor Company Corporate Loan Held for Investment	Apr. 30, 2014 Predecessor Company Corporate Loan Held for Investment	Jun. 30, 2013 Predecessor Company Corporate Loan Held for Investment	Dec. 31, 2013 Predecessor Company Corporate Loan Held for Investment issuer	Apr. 30, 2014 Predecessor Company Corporate Loans Held for Sale	Jun. 30, 2013 Predecessor Company Corporate Loans Held for Sale	Apr. 30, 2014 Predecessor Company Corporate Loans Held for Sale	Jun. 30, 2013 Predecessor Company Corporate Loans Held for Sale	Dec. 31, 2013 Predecessor Company Corporate Loans Held for Sale	Apr. 30, 2014 Predecessor Company Corporate Loans, at Estimated Fair Value	Dec. 31, 2013 Predecessor Company Corporate Loans, at Estimated Fair Value issuer
Recorded investment in impaired loans and related allowances for credit losses
Recorded investment with nonaccrual status						$ 624,148,000					$ 554,442,000					$ 44,823,000		$ 24,883,000
Interest income recognized using cash basis method		1,100,000	7,400,000	5,300,000	15,400,000		1,000,000	6,000,000	4,500,000	10,300,000		100,000	1,400,000	700,000	5,100,000		100,000
Par amount of non-accrual loans	505,200,000
Estimated fair value of non-accrual loans	373,300,000
Estimated fair value of past due loans	31,600,000																	12,200,000
Recorded investment of non-accrual and past due loans											237,200,000
Par amount of non-accrual and past due loans	48,000,000																	15,500,000
Number of issuers past due (in issuers)	1										3							1
Past due interest payments of amortized cost of non-accrual and past due loans
Total past due interest payment											5,600,000
Less than 30 days past due											900,000
60-89 days past due											2,300,000
Interest payments related to loans at estimated fair value that were 90 or more days past due	$ 1,100,000										$ 2,400,000							$ 200,000

XML

SHAREHOLDERS' EQUITY (Details 3) (Predecessor Company, Restricted common shares, USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Apr. 30, 2014	Jun. 30, 2013	Apr. 30, 2014	Jun. 30, 2013
Stock-based compensation
Share-based compensation expense (in dollars)	$ 177	$ 916	$ 1,018	$ 1,896
Manager
Stock-based compensation
Share-based compensation expense (in dollars)	113	664	690	1,383
Directors
Stock-based compensation
Share-based compensation expense (in dollars)	$ 64	$ 252	$ 328	$ 513

XML

SECURITIES (Details 4) (Predecessor Company, USD $) In Thousands, unless otherwise specified			3 Months Ended	4 Months Ended	6 Months Ended
	Dec. 31, 2013	Apr. 30, 2014 Equity investments, at estimated fair value securities	Jun. 30, 2013 Securities	Apr. 30, 2014 Securities	Jun. 30, 2013 Securities
Troubled Debt Restructurings
Modified amortized cost of security	$ 601,027			$ 24,100
Estimated fair value of new securities received from the security TDR exchange	$ 181,212	$ 16,100
Number of securities that qualified as TDRs			0	0	0
Number of securities modified as TDRs in default within a twelve month period subsequent to their original restructuring		0

XML

MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Jun. 30, 2014

Management Agreement and Related Party Transactions

Summary of components of related party management compensation

The following table summarizes the components of related party management compensation on the Company’s condensed consolidated statements of operations, which are described in further detail below (amounts in thousands):

	Successor Company		Predecessor Company
	Two months endedJune 30, 2014		One month ended April 30, 2014		Four months endedApril 30, 2014		Three months endedJune 30, 2013		Six months endedJune 30, 2013
Base management fees, net	$	5,941	$	1,631	$	5,253	$	9,629	$	19,186
CLO management fees	4,465		2,480		11,016		1,664		2,513
Incentive fees	—		—		12,882		5,561		22,742
Manager share-based compensation	—		113		690		664		1,383
Total related party management compensation	$	10,406	$	4,224	$	29,841	$	17,518	$	45,824

Base Management Fees

Management Agreement and Related Party Transactions

Summary of components of related party management compensation

The table below summarizes the aggregate base management fees (amounts in thousands):

	Successor Company			Predecessor Company
	Two months endedJune 30, 2014			One month ended April 30, 2014			Four months endedApril 30, 2014			Three months endedJune 30, 2013			Six months endedJune 30, 2013
Base management fees, gross	$	6,688		$	3,372		$	13,364		$	9,860		$	19,417
CLO management fees credit(1)	(747		)	(1,741		)	(8,111		)	(231		)	(231		)
Total base management fees, net	$	5,941		$	1,631		$	5,253		$	9,629		$	19,186

(1) See “CLO Management Fees” for further discussion.

CLO Management Fees

Management Agreement and Related Party Transactions

Summary of components of related party management compensation

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):

	Successor Company		Predecessor Company
	Two months endedJune 30, 2014		One month ended  April 30, 2014		Four months endedApril 30, 2014		Three months endedJune 30, 2013		Six months endedJune 30, 2013
Charged and retained CLO management fees (1)	$	3,718	$	739	$	2,905	$	1,433	$	2,282
CLO management fees credit	747		1,741		8,111		231		231
Total CLO management fees	$	4,465	$	2,480	$	11,016	$	1,664	$	2,513

(1) Represents management fees incurred by the senior and subordinated note holders of a CLO, excluding the Fee Credits received by the Company based on its ownership percentage in the CLO.

XML

MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details) (USD $)	2 Months Ended				6 Months Ended	2 Months Ended	6 Months Ended	2 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company CLO Management Fees CollateralizedLoanObligations	Jun. 30, 2014 Successor Company CLO Management Fees Maximum	Jun. 30, 2014 Successor Company CLO Management Fees CLO 2013-1 and CLO 2013-2	Jun. 30, 2014 Successor Company Manager item periods	Jun. 30, 2014 Successor Company Manager Base Management Fees	Jun. 30, 2014 Successor Company Manager Base Management Fees	Jun. 30, 2014 Successor Company Collateral manager CLO Management Fees	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Manager Base Management Fees	Jun. 30, 2013 Predecessor Company Manager Base Management Fees	Sep. 30, 2007 Predecessor Company Manager Base Management Fees	Apr. 30, 2014 Predecessor Company Manager Base Management Fees	Jun. 30, 2013 Predecessor Company Manager Base Management Fees	Jun. 30, 2013 Predecessor Company Manager Incentive Fees	Apr. 30, 2014 Predecessor Company Manager Incentive Fees	Jun. 30, 2013 Predecessor Company Manager Incentive Fees	Apr. 30, 2014 Predecessor Company Manager Manager Share-Based Compensation	Jun. 30, 2013 Predecessor Company Manager Manager Share-Based Compensation	Apr. 30, 2014 Predecessor Company Manager Manager Share-Based Compensation	Jun. 30, 2013 Predecessor Company Manager Manager Share-Based Compensation	Apr. 30, 2014 Predecessor Company Collateral manager CLO Management Fees	Jun. 30, 2013 Predecessor Company Collateral manager CLO Management Fees	Apr. 30, 2014 Predecessor Company Collateral manager CLO Management Fees	Jun. 30, 2013 Predecessor Company Collateral manager CLO Management Fees
Management Agreement and Related Party Transactions
Renewal period					1 year
Votes for termination, minimum (as a percent)					66.70%
Notice period for termination					180 days
Multiplier used to determine termination fee					4
Number of 12 month periods considered for calculation of termination fee (in periods)					2
Specified period for which average annual incentive fee to be considered					12 months
Related party transaction expense						$ 5,941,000		$ 4,465,000	$ 0	$ 5,561,000	$ 12,882,000	$ 22,742,000	$ 1,631,000	$ 9,629,000		$ 5,253,000	$ 19,186,000	$ 5,561,000	$ 12,882,000	$ 22,742,000	$ 113,000	$ 664,000	$ 690,000	$ 1,383,000	$ 2,480,000	$ 1,664,000	$ 11,016,000	$ 2,513,000
Total related party management compensation	10,406,000								4,224,000	17,518,000	29,841,000	45,824,000
Entity's percentage in subordinated notes (as a percent)			100.00%	100.00%
Number of CLOs the Company owns less than 100% of subordinated notes		3
Common shares offering															230,400,000
Common share right offering															270,000,000
Common share closing price, minimum (in dollars per share)						$ 20.00	$ 20.00
Number of consecutive trading days							5 days
Fees, waived						$ 1,500,000		$ 1,600,000					$ 700,000	$ 2,200,000		$ 2,900,000	$ 4,400,000								$ 0	$ 7,300,000	$ 1,600,000	$ 15,000,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 4) (USD $) In Thousands, unless otherwise specified	2 Months Ended									1 Months Ended	4 Months Ended		1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended		4 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Corporate debt securities	Jun. 30, 2014 Successor Company Residential mortgage-backed securities	Jun. 30, 2014 Successor Company Corporate loans at estimated fair value	Jun. 30, 2014 Successor Company Equity investments, at estimated fair value	Jun. 30, 2014 Successor Company Interests in Joint Ventures and Partnerships	Jun. 30, 2014 Successor Company Foreign Exchange Options, Net	Jun. 30, 2014 Successor Company Options	Apr. 30, 2014 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Securities available-for-sale	Mar. 31, 2014 Predecessor Company Securities available-for-sale	Jun. 30, 2013 Predecessor Company Securities available-for-sale	Apr. 30, 2014 Predecessor Company Securities available-for-sale	Jun. 30, 2013 Predecessor Company Securities available-for-sale	Apr. 30, 2014 Predecessor Company Other Securities, at Estimated Fair Value	Mar. 31, 2014 Predecessor Company Other Securities, at Estimated Fair Value	Jun. 30, 2013 Predecessor Company Other Securities, at Estimated Fair Value	Apr. 30, 2014 Predecessor Company Other Securities, at Estimated Fair Value	Jun. 30, 2013 Predecessor Company Other Securities, at Estimated Fair Value	Apr. 30, 2014 Predecessor Company Residential mortgage-backed securities	Mar. 31, 2014 Predecessor Company Residential mortgage-backed securities	Jun. 30, 2013 Predecessor Company Residential mortgage-backed securities	Apr. 30, 2014 Predecessor Company Residential mortgage-backed securities	Jun. 30, 2013 Predecessor Company Residential mortgage-backed securities	Apr. 30, 2014 Predecessor Company Corporate loans at estimated fair value	Mar. 31, 2014 Predecessor Company Corporate loans at estimated fair value	Jun. 30, 2013 Predecessor Company Corporate loans at estimated fair value	Apr. 30, 2014 Predecessor Company Corporate loans at estimated fair value	Jun. 30, 2013 Predecessor Company Corporate loans at estimated fair value	Apr. 30, 2014 Predecessor Company Equity investments, at estimated fair value	Mar. 31, 2014 Predecessor Company Equity investments, at estimated fair value	Jun. 30, 2013 Predecessor Company Equity investments, at estimated fair value	Apr. 30, 2014 Predecessor Company Equity investments, at estimated fair value	Jun. 30, 2013 Predecessor Company Equity investments, at estimated fair value	Apr. 30, 2014 Predecessor Company Interests in Joint Ventures and Partnerships	Mar. 31, 2014 Predecessor Company Interests in Joint Ventures and Partnerships	Jun. 30, 2013 Predecessor Company Interests in Joint Ventures and Partnerships	Apr. 30, 2014 Predecessor Company Interests in Joint Ventures and Partnerships	Jun. 30, 2013 Predecessor Company Interests in Joint Ventures and Partnerships	Apr. 30, 2014 Predecessor Company Foreign Exchange Options, Net	Mar. 31, 2014 Predecessor Company Foreign Exchange Options, Net	Jun. 30, 2013 Predecessor Company Foreign Exchange Options, Net	Apr. 30, 2014 Predecessor Company Foreign Exchange Options, Net	Jun. 30, 2013 Predecessor Company Foreign Exchange Options, Net	Jun. 30, 2013 Predecessor Company Common Stock Warrants	Jun. 30, 2013 Predecessor Company Common Stock Warrants	Apr. 30, 2014 Predecessor Company Options	Mar. 31, 2014 Predecessor Company Options	Apr. 30, 2014 Predecessor Company Options
Reconciliation of assets measured on Level 3 basis
Balance at the beginning of the period		$ 5,663,665	$ 156,500	$ 59,623	$ 294,218	$ 157,765	$ 472,467	$ 8,854	$ 6,684				$ 23,528	$ 23,401	$ 42,083	$ 23,401	$ 42,221	$ 125,511	$ 107,530	$ 3,237	$ 107,530	$ 2,909	$ 58,753	$ 76,004	$ 87,028	$ 76,004	$ 83,842	$ 153,395	$ 152,800	$ 17,325	$ 152,800	$ 16,141	$ 258,977	$ 138,059	$ 102,262	$ 138,059	$ 97,746	$ 494,420	$ 415,247	$ 169,931	$ 415,247	$ 142,477	$ 8,128	$ 8,941	$ 5,350	$ 8,941	$ 8,277	$ 1,819	$ 1,574	$ 6,492	$ 6,794	$ 6,794
Total gain or losses (for the period)
Included in earnings		28,669	2,185	1,359	2,951	2,160	21,690	(1,798)	(509)				44	22	99		(18)	479	3,059	944		1,272	1,416	3,088	(167)		5,554	1,240	(5,123)	374		(1,052)	12,126	9,076	(1,426)		3,090	(24,158)	22,377	(2,771)		3,908	726	(813)	401		(2,526)	1,742	1,987	192	(302)
Included in other comprehensive income													33	121	131		221
Transfers into Level 3	0									0	0		6,937
Transfers out of Level 3						(1,230)																											(119,033)	(8,751)
Purchases		52,594	20,000		1,261		27,466												25,000	23,691		23,691							8,822	28,695		31,768			3		3	1,615	42,683	74,851		97,663
Sales			(3,966)		(2,912)																			(17,810)
Settlements		(197,014)	(5,127)	(1,740)	4,764	(17,535)	(6,067)						(32)	(16)	(4,933)		(5,044)		(10,078)				(546)	(2,529)	(3,888)		(6,423)	2,272	(3,104)	(458)		(921)		120,593	(545)		(545)	(1,184)	14,113	(6,987)		(9,024)
Balance at the end of the period		5,547,914	169,592	59,242	300,282	141,160	515,556	7,056	6,175				30,510	23,528	37,380	30,510	37,380	125,990	125,511	27,872	125,990	27,872	59,623	58,753	82,973	59,623	82,973	156,907	153,395	45,936	156,907	45,936	152,070	258,977	100,294	152,070	100,294	470,693	494,420	235,024	470,693	235,024	8,854	8,128	5,751	8,854	5,751	3,561	3,561	6,684	6,492	6,684
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period		28,669	2,185	623	2,073	2,160	21,690	(1,798)	(509)				44		99	66	(18)	479		944	2,683	1,272	1,503		3,810	5,242	15,898	1,240		374	4,445	(1,348)	12,126		(1,426)	20,499	3,090	(24,158)		(2,771)	(1,781)	3,908	726		401	(87)	(2,526)	1,742	1,987	192		(110)
Transfers from Level 1 into Level 2										0	0	0
Transfers from Level 2 into Level 1										$ 0	$ 0	$ 0

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 10) (Predecessor Company, USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Apr. 30, 2014	Jun. 30, 2013	Apr. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Summary of corporate loans
Charge-offs recorded	$ 0	$ 3,000	$ 1,500	$ 31,300
Corporate loans held for sale					279,748
Corporate loans transferred from held for investment to held for sale			348,808	76,803
Net charge for lower of cost or estimated fair value adjustment			(5,038)	8,650
Corporate loans transferred from held for sale to held for investment	0	0	0	0
Carrying reported amount
Summary of corporate loans
Corporate loans held for sale					279,748
Corporate Loan Held for Investment
Summary of corporate loans
Charge-offs recorded		2,972	1,458	31,285
Corporate loans transferred from held for investment to held for sale	110,700	55,400	348,800	76,800
Corporate Loans Held for Sale
Summary of corporate loans
Corporate loans held for sale	546,100	117,500	546,100	117,500
Net charge for lower of cost or estimated fair value adjustment	$ 3,300	$ 3,900	$ (5,000)	$ 8,700

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SHAREHOLDERS' EQUITY (Details) (USD $)			6 Months Ended					0 Months Ended				4 Months Ended		0 Months Ended	4 Months Ended					0 Months Ended
	Jun. 27, 2014 KKR & Co.	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Series A LLC Preferred Shares	Jun. 30, 2014 Successor Company Common share options	Jun. 30, 2014 Successor Company Common share options Maximum	Jun. 30, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company KFN KKR & Co.	Dec. 16, 2013 Predecessor Company KFN KKR & Co.	Apr. 30, 2014 Predecessor Company Series A LLC Preferred Shares	Jan. 17, 2013 Predecessor Company Series A LLC Preferred Shares	Apr. 30, 2014 Predecessor Company Restricted common shares	Jun. 30, 2013 Predecessor Company Restricted common shares	Apr. 30, 2014 Predecessor Company Restricted common shares KFN KKR & Co.	Apr. 30, 2014 Predecessor Company Restricted common shares Manager	Jun. 30, 2013 Predecessor Company Restricted common shares Manager	Apr. 30, 2014 Predecessor Company Restricted common shares Directors	Dec. 31, 2013 Predecessor Company Restricted common shares Directors	Apr. 30, 2014 Predecessor Company Common share options	Apr. 30, 2014 Predecessor Company Phantom share Directors KFN KKR & Co.
Stock-based compensation
Preferred shares, shares issued		14,950,000					14,950,000				14,950,000
Gross proceeds from issue of preferred shares (in dollars)											$ 373,800,000
Net proceeds from issuance of preferred stock (in dollars)						361,622,000					362,000,000
Preferred shares, dividend rate (as a percent)			7.375%							7.375%	7.375%
Exchange ratio of share based awards under merger transaction								0.51	0.51					0.51						0.51
Number of common shares issued	100	100					204,824,159
Number of common shares outstanding	100	100					204,824,159
Exercise price of share options granted, minimum (as a percent)				100.00%
Termination period from date of grant					10 years
Authorized shares available to satisfy awards as of the balance sheet date																			8,964,625
Restricted common share transactions
Unvested shares at the beginning of the period												669,828			584,634		85,194	85,194
Vested (in shares)												(243,648)			(243,648)
Unvested shares at the end of the period												426,180			340,986		85,194	85,194
Value of unvested restricted common shares granted (in dollars per share)															$ 11.54	$ 10.55
Unrecognized compensation cost (in dollars)												$ 2,200,000	$ 4,200,000

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SUBSEQUENT EVENTS (Details) (Successor Company, USD $) In Millions, except Per Share data, unless otherwise specified		1 Months Ended
	Jul. 31, 2014 Subsequent Event KKR&Co.	Jul. 31, 2014 Subsequent Event KKR & Co.	Jun. 27, 2014 Series A LLC Preferred Shares
Subsequent events
Cash distribution declared (in dollars per share)			$ 0.460938
Aggregate value of private equity, natural resources assets and cash distributed to Parent	$ 294.6
Amount of cash, subordinated notes and specialty lending assets contributed by parent		$ 294.6

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MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details 3) (USD $) In Thousands, unless otherwise specified		2 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Collateral manager CLO Management Fees	Jun. 30, 2014 Successor Company Manager Reimbursable General and Administrative Expenses	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Restricted common shares	Jun. 30, 2013 Predecessor Company Restricted common shares	Apr. 30, 2014 Predecessor Company Restricted common shares	Jun. 30, 2013 Predecessor Company Restricted common shares	Apr. 30, 2014 Predecessor Company Collateral manager CLO Management Fees	Jun. 30, 2013 Predecessor Company Collateral manager CLO Management Fees	Apr. 30, 2014 Predecessor Company Collateral manager CLO Management Fees	Jun. 30, 2013 Predecessor Company Collateral manager CLO Management Fees	Jun. 30, 2013 Predecessor Company Manager Incentive Fees	Apr. 30, 2014 Predecessor Company Manager Incentive Fees	Jun. 30, 2013 Predecessor Company Manager Incentive Fees	Apr. 30, 2014 Predecessor Company Manager Manager Share-Based Compensation	Jun. 30, 2013 Predecessor Company Manager Manager Share-Based Compensation	Apr. 30, 2014 Predecessor Company Manager Manager Share-Based Compensation	Jun. 30, 2013 Predecessor Company Manager Manager Share-Based Compensation	Apr. 30, 2014 Predecessor Company Manager Manager Share-Based Compensation Restricted common shares	Jun. 30, 2013 Predecessor Company Manager Manager Share-Based Compensation Restricted common shares	Apr. 30, 2014 Predecessor Company Manager Manager Share-Based Compensation Restricted common shares	Jun. 30, 2013 Predecessor Company Manager Manager Share-Based Compensation Restricted common shares	Apr. 30, 2014 Predecessor Company Manager Reimbursable General and Administrative Expenses	Jun. 30, 2013 Predecessor Company Manager Reimbursable General and Administrative Expenses	Apr. 30, 2014 Predecessor Company Manager Reimbursable General and Administrative Expenses	Jun. 30, 2013 Predecessor Company Manager Reimbursable General and Administrative Expenses
Management Agreement and Related Party Transactions
Charged and retained CLO management fees		$ 3,718											$ 739	$ 1,433	$ 2,905	$ 2,282
CLO management fees credit		(747)											(1,741)	(231)	(8,111)	(231)
Total related party transaction expense		4,465	1,400	0	5,561	12,882	22,742						2,480	1,664	11,016	2,513	5,561	12,882	22,742	113	664	690	1,383					900	1,900	2,800	3,600
Related party payable	4,420							5,574
Expenses recognized for restricted common shares granted									$ 177	$ 916	$ 1,018	$ 1,896												$ 100	$ 700	$ 700	$ 1,400

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SHAREHOLDERS' EQUITY (Details 2) (Predecessor Company, Common share options, USD $)	Apr. 30, 2014	Dec. 31, 2013	Jun. 30, 2013
Predecessor Company | Common share options
Number of Options
Outstanding at the beginning of the period (in shares)	1,932,279	1,932,279
Outstanding at the end of the period (in shares)	1,932,279	1,932,279
Exercisable at the end of the period (in shares)	1,932,279		1,932,279
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 20.00	$ 20.00
Outstanding at the end of the period (in dollars per share)	$ 20.00	$ 20.00

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Residential mortgage-backed securities	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Corporate debt securities	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Interest rate swaps	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Commodity swaps	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Foreign exchange forward contracts	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Foreign exchange options	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Common stock warrants	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Total Rate of Return Swaps	Jun. 30, 2014 Successor Company Recurring basis Estimated Fair Value Options	Jun. 30, 2014 Successor Company Recurring basis Quoted Prices in Active Markets for Identical Assets (Level 1)	Jun. 30, 2014 Successor Company Recurring basis Significant Other Observable Inputs (Level 2)	Jun. 30, 2014 Successor Company Recurring basis Significant Other Observable Inputs (Level 2) Corporate debt securities	Jun. 30, 2014 Successor Company Recurring basis Significant Other Observable Inputs (Level 2) Interest rate swaps	Jun. 30, 2014 Successor Company Recurring basis Significant Other Observable Inputs (Level 2) Commodity swaps	Jun. 30, 2014 Successor Company Recurring basis Significant Other Observable Inputs (Level 2) Foreign exchange forward contracts	Jun. 30, 2014 Successor Company Recurring basis Significant Other Observable Inputs (Level 2) Common stock warrants	Jun. 30, 2014 Successor Company Recurring basis Significant Other Observable Inputs (Level 2) Total Rate of Return Swaps	Jun. 30, 2014 Successor Company Recurring basis Significant Unobservable Inputs (Level 3)	Jun. 30, 2014 Successor Company Recurring basis Significant Unobservable Inputs (Level 3) Residential mortgage-backed securities	Jun. 30, 2014 Successor Company Recurring basis Significant Unobservable Inputs (Level 3) Corporate debt securities	Jun. 30, 2014 Successor Company Recurring basis Significant Unobservable Inputs (Level 3) Foreign exchange options	Jun. 30, 2014 Successor Company Recurring basis Significant Unobservable Inputs (Level 3) Options	Dec. 31, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Common and preferred stock	Dec. 31, 2013 Predecessor Company Estimated Fair Value	Dec. 31, 2013 Predecessor Company Significant Other Observable Inputs (Level 2)	Dec. 31, 2013 Predecessor Company Significant Unobservable Inputs (Level 3)	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Other securities, at estimated fair value	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Residential mortgage-backed securities	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Interest rate swaps	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Commodity swaps	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Credit default swaps-protection purchased	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Foreign exchange forward contracts	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Foreign exchange options	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Common stock warrants	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Total Rate of Return Swaps	Dec. 31, 2013 Predecessor Company Recurring basis Estimated Fair Value Options	Dec. 31, 2013 Predecessor Company Recurring basis Quoted Prices in Active Markets for Identical Assets (Level 1)	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2)	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Other securities, at estimated fair value	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Interest rate swaps	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Commodity swaps	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Credit default swaps-protection purchased	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Foreign exchange forward contracts	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Common stock warrants	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Total Rate of Return Swaps	Dec. 31, 2013 Predecessor Company Recurring basis Significant Other Observable Inputs (Level 2) Portion at estimated fair value	Dec. 31, 2013 Predecessor Company Recurring basis Significant Unobservable Inputs (Level 3)	Dec. 31, 2013 Predecessor Company Recurring basis Significant Unobservable Inputs (Level 3) Other securities, at estimated fair value	Dec. 31, 2013 Predecessor Company Recurring basis Significant Unobservable Inputs (Level 3) Residential mortgage-backed securities	Dec. 31, 2013 Predecessor Company Recurring basis Significant Unobservable Inputs (Level 3) Foreign exchange options	Dec. 31, 2013 Predecessor Company Recurring basis Significant Unobservable Inputs (Level 3) Options	Dec. 31, 2013 Predecessor Company Recurring basis Significant Unobservable Inputs (Level 3) Portion at estimated fair value
Assets:
Securities available-for-sale																									$ 350,341					$ 350,341																				$ 326,940						$ 23,401
Trading securities			59,242	510,829										341,237							59,242	169,592									146,967	76,004											39,437									107,530	76,004
Total securities	570,071	570,071											341,237							228,834					573,312					573,312												366,377									206,935
Corporate loans	6,293,540	6,293,540											5,993,258							300,282					237,480					237,480												84,680									152,800
Equity investments, at estimated fair value	278,503	278,503										21,322	116,021							141,160					181,212	16,100				181,212											39,515	3,638									138,059
Interests in joint ventures and partnerships	534,026	527,986											12,430							515,556					436,241					430,083											14,836										415,247
Other assets		5,424											5,424														5,513	5,513
Derivatives:
Derivative assets					841	3,513	4,322	7,056	1,077	7	6,175				841	3,513	4,322	1,077	7				7,056	6,175									3,290	5,408		4,846	8,941	945		6,794				3,290	5,408		4,846	945						8,941	6,794
Total derivatives	22,991	22,991											9,760							13,231					30,224					30,224												14,489									15,735
Total		7,698,515										21,322	6,478,130							1,199,063										1,452,311											54,351	469,184									928,776
Liabilities:
Collateralized loan obligation secured debt	5,547,914	5,547,914																		5,547,914					5,249,383		5,179,207		5,179,207
Derivatives:
Derivative liabilities					49,358	11,227	27,595			165					49,358	11,227	27,595		165														45,368	3,915	2,019	30,104			229					45,368	3,915	2,019	30,104		229
Total derivatives	88,345	88,345											88,345												81,635					81,635												81,635
Total		$ 5,636,259											$ 88,345							$ 5,547,914										$ 81,635												$ 81,635

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MERGER TRANSACTION (Tables)

6 Months Ended

Jun. 30, 2014

MERGER TRANSACTION

Summary of the estimated fair values assigned to the assets purchased and liabilities assumed

The following table summarizes the estimated fair values assigned to the assets purchased and liabilities assumed (amounts in thousands):

Assets acquired:
Cash and cash equivalents	$	210,413
Restricted cash and cash equivalents	649,967
Securities	541,149
Corporate loans	6,649,054
Equity investments	297,054
Oil and gas properties, net	505,238
Interests in joint ventures and partnerships	491,324
Derivative assets	26,383
Interest and principal receivable	35,992
Other assets	208,144
Total assets	9,614,718
Liabilities assumed:
Collateralized loan obligation secured notes	5,663,666
Credit facilities	63,189
Senior notes	415,538
Junior subordinated notes	245,782
Accounts payable, accrued expenses and other liabilities	357,084
Accrued interest payable	17,647
Derivative liabilities	88,356
Total liabilities	6,851,262
Fair value of preferred shares	378,983
Fair value of net assets acquired	2,384,473
Less: Purchase price	2,369,559
Bargain purchase gain(1)	$	14,914

(1) Represents the excess of the fair value of the net assets acquired over the purchase price and value of the preferred shares, which constitute non-controlling interests in the Company. This difference was recorded as an adjustment to the Company’s additional paid-in-capital as of the Effective Date.

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 3) (USD $)	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Corporate Loans, at Estimated Fair Value	Dec. 31, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Corporate Loan Held for Investment	Mar. 31, 2014 Predecessor Company Corporate Loan Held for Investment	Dec. 31, 2013 Predecessor Company Corporate Loan Held for Investment	Jun. 30, 2013 Predecessor Company Corporate Loan Held for Investment	Mar. 31, 2013 Predecessor Company Corporate Loan Held for Investment	Dec. 31, 2012 Predecessor Company Corporate Loan Held for Investment	Dec. 31, 2013 Predecessor Company Corporate Loans Held for Sale	Dec. 31, 2013 Predecessor Company Corporate Loans, at Estimated Fair Value	Dec. 31, 2013 Predecessor Company Corporate loans and corporate loans held for sale
Summary of corporate loans
Principal			$ 6,873,666,000			$ 6,280,470,000				$ 315,738,000	$ 277,458,000
Net unamortized discount			(181,046,000)			(105,979,000)				(20,070,000)	(54,997,000)
Total amortized cost	6,267,679,000	6,267,679,000	6,692,620,000			6,174,491,000				295,668,000	222,461,000
Lower of cost or fair value adjustment			(15,920,000)							(15,920,000)
Allowance for loan losses			(224,999,000)	(223,541,000)	(223,541,000)	(224,999,000)	(203,255,000)	(206,227,000)	(223,472,000)
Unrealized gains			15,019,000								15,019,000
Net carrying value			6,466,720,000			5,949,492,000				279,748,000	237,480,000
Cumulative charge-offs and other adjustments												$ 18,100,000

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MERGER TRANSACTION (Details) (KFN, KKR & Co., USD $)	0 Months Ended
	Apr. 30, 2014	Dec. 16, 2013
Merger transaction
Transaction costs	$ 24,200,000
General, administrative and directors expenses
Merger transaction
Transaction costs	22,700,000
Predecessor Company
Merger transaction
Exchange ratio of share based awards under merger transaction	0.51	0.51
Assets acquired:
Cash and cash equivalents	210,413,000
Restricted cash and cash equivalents	649,967,000
Securities	541,149,000
Corporate loans	6,649,054,000
Equity investments	297,054,000
Oil and gas properties, net	505,238,000
Interests in joint ventures and partnerships	491,324,000
Derivative assets	26,383,000
Interest and principal receivable	35,992,000
Other assets	208,144,000
Total assets	9,614,718,000
Liabilities assumed:
Collateralized loan obligation secured notes	5,663,666,000
Credit facilities	63,189,000
Senior notes	415,538,000
Junior subordinated notes	245,782,000
Accounts payable, accrued expenses and other liabilities	357,084,000
Accrued interest payable	17,647,000
Derivative liabilities	88,356,000
Total liabilities	6,851,262,000
Fair value of preferred shares	378,983,000
Fair value of net assets acquired	2,384,473,000
Less: Purchase price	2,369,559,000
Bargain purchase gain	$ 14,914,000
Predecessor Company | Restricted common shares
Merger transaction
Exchange ratio of share based awards under merger transaction	0.51
Predecessor Company | Phantom share | Non-Employee Director's
Merger transaction
Exchange ratio of share based awards under merger transaction	0.51

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COMMITMENTS AND CONTINGENCIES (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014 item	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Corporate Loans	Dec. 31, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company Corporate Loans
Guarantees
Non-recourse debt		$ 331.5		$ 231.7
Financial guarantees related to natural resources investments		17.9		17.9
Estimated future contributions for interests in joint ventures and partnerships		181.2		325.5
Aggregate par amounts to purchase corporate loans					62.7
Unfunded financing commitments for corporate loans			$ 14.2		$ 17.4
Contingencies
Number of Delaware actions voluntarily dismissed	2

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ORGANIZATION (Details) (Predecessor Company)	0 Months Ended
	Apr. 30, 2014 Series A LLC Preferred Shares	Jan. 17, 2013 Series A LLC Preferred Shares	Apr. 30, 2014 KFN KKR & Co.
Definitive merger agreement
Stock exchange ratio to be applied in the merger transaction			0.51
Preferred shares, dividend rate (as a percent)	7.375%	7.375%

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 5) (Predecessor Company, USD $) In Thousands, unless otherwise specified	Apr. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012
Allowance for loan losses by basis of impairment method:
Ending balance: individually evaluated for impairment			$ 142,682
Ending balance: collectively evaluated for impairment			82,317
Allowance for loan losses			224,999
Corporate loans (recorded investment) by basis of impairment method:
Recorded Investment			6,193,232
Corporate Loans
Allowance for loan losses by basis of impairment method:
Allowance for loan losses	223,541	223,541	224,999	203,255	206,227	223,472
Corporate loans (recorded investment) by basis of impairment method:
Ending balance: individually evaluated for impairment			554,442
Ending balance: collectively evaluated for impairment			5,638,790
Recorded Investment			$ 6,193,232

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DERIVATIVE INSTRUMENTS (Details 2) (Predecessor Company, USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Apr. 30, 2014	Jun. 30, 2013	Apr. 30, 2014	Jun. 30, 2013
Predecessor Company
Net (losses) gains recognized in accumulated other comprehensive loss on cash flow hedges
Net (losses) gains recognized in accumulated other comprehensive loss on cash flow hedges	$ (1,611)	$ 20,240	$ (5,442)	$ 31,398

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NATURAL RESOURCES ASSETS (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014 Successor Company	Dec. 31, 2013 Predecessor Company
Oil and natural gas properties
Proved oil and natural gas properties (successful efforts method)	$ 519,823,000	$ 451,909,000
Unproved oil and natural gas properties	16,913,000	16,913,000
Less: Accumulated depreciation, depletion and amortization	(11,058,000)	(68,453,000)
Oil and gas properties, net	525,678,000	400,369,000
Amount capitalized from purchases of natural resource assets	$ 85,000,000	$ 154,500,000

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SECURITIES (Details 5) (USD $) In Thousands, unless otherwise specified		6 Months Ended			12 Months Ended
	Jun. 30, 2014 Successor Company issuer	Jun. 30, 2014 Successor Company Corporate debt securities Credit concentration Top three largest	Jun. 30, 2014 Successor Company Corporate debt securities Credit concentration Ten issuers	Dec. 31, 2013 Predecessor Company issuer	Dec. 31, 2013 Predecessor Company Corporate debt securities Credit concentration Top three largest	Dec. 31, 2013 Predecessor Company Corporate debt securities Credit concentration Ten issuers
Concentrated risks
Number of issuers with whom a specified percentage of estimated fair value of corporate debt securities is concentrated (in issuers)	10			10
Number of largest issuers with whom a specified percentage of estimated fair value of debt securities is concentrated (in issuers)	3			3
Concentration risk of total fair value (as a percent)		32.00%	68.00%		21.00%	55.00%
Securities		$ 162,100		$ 350,341	$ 104,500
Estimated fair value of securities pledged as collateral
Pledged as collateral for collateralized loan obligation secured debt	329,385			324,830
Total	$ 329,385			$ 324,830

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and entities established to complete secured financing transactions that are considered to be variable interest entities (“VIEs”) and for which the Company is the primary beneficiary.

As further described in Note 3 to these condensed consolidated financial statements, the Merger Transaction was accounted for using the acquisition method of accounting, which required that the assets purchased and the liabilities assumed all be reported in the acquirer’s financial statements at their fair value, with any excess of net assets over the purchase price being reported as a bargain purchase gain. The application of the acquisition method of accounting represented a push down of accounting basis to the Company, whereby it was also required to record the assets and liabilities at fair value as of the date of the Merger Transaction. This change in accounting basis resulted in the termination of the prior reporting entity and a corresponding creation of a new reporting entity.

Accordingly, the Company’s condensed consolidated financial statements and transactional records prior to the effective date, or May 1, 2014 (the “Effective Date”), reflect the historical accounting basis of assets and liabilities and are labeled “Predecessor Company,” while such records subsequent to the Effective Date are labeled “Successor Company” and reflect the push down basis of accounting for the new estimated fair values in the Company’s condensed consolidated financial statements. This change in accounting basis is represented in the condensed consolidated financial statements by a vertical black line which appears between the columns entitled “Predecessor Company” and “Successor Company” on the statements and in the relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Merger Transaction are not comparable.

In addition to the new accounting basis established for assets and liabilities, purchase accounting also required the reclassification of any retained earnings or accumulated deficit from periods prior to the acquisition and the elimination of any accumulated other comprehensive income or loss to be recognized within the Company’s shareholders’ equity section of the Company’s condensed consolidated financial statements. Accordingly, the Company’s accumulated deficit at June 30, 2014 represents only the results of operations subsequent to April 30, 2014, the date of the Merger Transaction.

For the following assets not carried at fair value, as presented under the Predecessor Company, the Company adopted the fair value option of accounting as of the Effective Date: (i) corporate loans held for investment at amortized cost, net of an allowance for loan losses, (ii) corporate loans held for sale at lower of cost or estimated fair value and (iii) certain other investments at cost. In addition, the Company elected the fair value option of accounting for its collateralized loan obligation secured notes. As such, the accounting policies followed by the Company in the preparation of its condensed consolidated financial statements for the Successor period present all financial assets and CLO secured notes at estimated fair value. The Company’s adoption of fair value accounting was for the primary purpose of reporting values that more closely aligned with KKR & Co.’s method of accounting.

Unrealized gains and losses for the financial assets and liabilities carried at estimated fair value are reported in net realized and unrealized gain (loss) on investments and net realized and unrealized loss on debt, respectively, in the condensed consolidated statements of operations. Unrealized gains or losses primarily reflect the change in instrument values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. For the Successor period, upon the sale of a corporate loan or debt security, the net realized gain or loss is computed using the specific identification method. Comparatively, for the Predecessor period, the realized net gain or loss was computed on a weighted average cost basis.

In addition, for the Successor period, all purchases and sales of assets are recorded on the trade date. Comparatively, for the Predecessor periods, corporate loans were recorded on the settlement date.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company uses historical experience and various other assumptions and information that are believed to be reasonable under the circumstances in developing its estimates and judgments. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. While the Company believes that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are appropriate, actual results could differ from those estimates.

Estimates of oil, natural gas and natural gas liquid (“NGL”) reserves and their values, future production rates and future costs and expenses are inherently uncertain, including many factors beyond the Company’s control. Reservoir engineering is a subjective process of estimating underground accumulations of oil, natural gas and NGL that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of many factors including the following: the quality and quantity of available data, the interpretation of that data, the accuracy of various mandated economic assumptions and the judgments of the individuals preparing the estimates. In addition, reserve estimates are a function of many assumptions, all of which could deviate significantly from actual results. As such, reserve estimates may materially vary from the ultimate quantities of oil, natural gas and NGL eventually recovered, and could materially affect the Company’s future depreciation, depletion and amortization expense (“DD&A”), its asset retirement obligations or impairment considerations.

Consolidation

KKR Financial CLO 2005-1, Ltd. (“CLO 2005-1”), KKR Financial CLO 2005-2, Ltd. (“CLO 2005-2”), KKR Financial CLO 2006-1, Ltd. (“CLO 2006-1”), KKR Financial CLO 2007-1, Ltd. (“CLO 2007-1”), KKR Financial CLO 2007-A, Ltd. (“CLO 2007-A”), KKR Financial CLO 2011-1, Ltd. (“CLO 2011-1”), KKR Financial CLO 2012-1, Ltd. (“CLO 2012-1”), KKR Financial CLO 2013-1, Ltd. (“CLO 2013-1”) and KKR Financial CLO 2013-2, Ltd. (“CLO 2013-2”) (collectively the “Cash Flow CLOs”) are entities established to complete secured financing transactions. These entities are VIEs which the Company consolidates as the Company has determined it has the power to direct the activities that most significantly impact these entities’ economic performance and the Company has both the obligation to absorb losses of these entities and the right to receive benefits from these entities that could potentially be significant to these entities. In CLO transactions, subordinated notes have the first risk of loss and conversely, the residual value upside of the transactions.

The Company finances the majority of its corporate debt investments through its CLOs. As of June 30, 2014, the Company’s nine CLOs held $6.6 billion par amount, or $6.4 billion estimated fair value, of corporate debt investments. As of December 31, 2013, the Company had eight CLOs that held $6.7 billion par amount, or $6.4 billion estimated fair value, of corporate debt investments. The assets in each CLO can be used only to settle the debt of the related CLO. As of June 30, 2014 and December 31, 2013, the aggregate par amount of CLO debt totaled $5.6 billion and $5.3 billion, respectively, held by unaffiliated third parties.

The Company consolidates all non-VIEs in which it holds a greater than 50 percent voting interest.

In addition, the Company has non-controlling interests in joint ventures and partnerships that do not qualify as VIEs and do not meet the control requirements for consolidation as defined by GAAP.

All inter-company balances and transactions have been eliminated in consolidation.

Fair Value Option

In connection with the application of acquisition accounting related to the Merger Transaction, the Successor Company elected the fair value option of accounting for its financial assets and CLO secured notes for the primary purpose of reporting values that more closely aligned with KKR & Co.’s method of accounting. Related unrealized gains and losses are reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors including the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets and liabilities, and are as follows:

Level 1:  Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2:  Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3:  Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument is new, whether the instrument is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2, and/or 3, which the Company recognizes at the end of the reporting period.

Many financial assets and liabilities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Company and others are willing to pay for an asset. Ask prices represent the lowest price that the Company and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, the Company does not require that fair value always be a predetermined point in the bid-ask range. The Company’s policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Company’s best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, the Company may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 of the fair value hierarchy are described below.

Securities and Corporate Loans, at Estimated Fair Value:  Securities and corporate loans, at estimated fair value are initially valued at transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models. Valuation models are based on yield analysis techniques, where the key inputs are based on relative value analyses, which incorporate similar instruments from similar issuers. In addition, an illiquidity discount is applied where appropriate.

Equity Investments, at Estimated Fair Value:  Equity investments, at estimated fair value, are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach, which incorporates significant assumptions and judgment, include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as earnings before interest, taxes, depreciation and amortization (“EBITDA”) exit multiples. Upon completion of the valuations conducted using these approaches, a weighting is ascribed to each approach and an illiquidity discount is applied where appropriate. The ultimate fair value recorded for a particular investment will generally be within the range suggested by the two approaches.

Interests in Joint Ventures and Partnerships:  Interests in joint ventures and partnerships include certain equity investments related to the oil and gas, commercial real estate and specialty lending sectors. Interests in joint ventures and partnerships are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Key inputs include the weighted average cost of capital and EBITDA multiples. In addition, an illiquidity discount is applied where appropriate.

Over-the-counter (“OTC”) Derivative Contracts:  OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities and equity prices. OTC derivatives are initially valued using quoted market prices, if available, or models using a series of techniques, including closed-form analytic formulae, such as the Black-Scholes option-pricing model, and/or simulation models in the absence of quoted market prices. Many pricing models employ methodologies that have pricing inputs observed from actively quoted markets, as is the case for generic interest rate swap and option contracts.

Residential Mortgage-Backed Securities, at Estimated Fair Value:  RMBS are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and constant prepayment rates.

Collateralized Loan Obligation Secured Notes: Collateralized loan obligation secured notes are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and discount margins.

Key unobservable inputs that have a significant impact on the Company’s Level 3 valuations as described above are included in Note 9 to these condensed consolidated financial statements. The Company utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. These unobservable pricing inputs and assumptions may differ by asset and in the application of the Company’s valuation methodologies. The reported fair value estimates could vary materially if the Company had chosen to incorporate different unobservable pricing inputs and other assumptions or, for applicable investments, if the Company only used either the discounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies.

Valuation Process

The valuation process involved in Level 3 measurements for assets and liabilities is completed on a quarterly basis and is designed to subject the valuation of Level 3 investments to an appropriate level of consistency, oversight and review. The Company utilizes a valuation committee, whose members consist of the Company’s Chief Financial Officer, General Counsel and certain other employees of the Manager. The valuation committee is responsible for coordinating and implementing the Company’s quarterly valuation process.

Investments are generally valued based on quotations from third party pricing services, unless such a quotation is unavailable or is determined to be unreliable or inadequately representing the fair value of the particular assets. In that case, valuations are based on either valuation data obtained from one or more other third party pricing sources, including broker dealers, or will reflect the valuation committee’s good faith determination of estimated fair value based on other factors considered relevant. For assets classified as Level 3, the investment professionals are responsible for documenting preliminary valuations based on various factors including their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and model projections discussed above. All valuations are approved by the valuation committee.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three months or less. Interest income earned on cash and cash equivalents is recorded in other within total revenues on the condensed consolidated statements of operations.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents represent amounts that are held by third parties under certain of the Company’s financing and derivative transactions. Interest income earned on restricted cash and cash equivalents is recorded in other within total revenues on the condensed consolidated statements of operations.

On the condensed consolidated statements of cash flows, net additions or reductions to restricted cash and cash equivalents are classified as an investing activity as restricted cash and cash equivalents reflect the receipts from collections or sales of investments, as well as payments made to acquire investments held by third parties.

Securities

Securities Available-for-Sale

The Predecessor and Successor Company both classify certain of their investments in securities as available-for-sale as the Companies may sell them prior to maturity and do not hold them principally for the purpose of selling them in the near term. These investments are carried at estimated fair value. The Successor Company elected the fair value option of accounting for its securities, with changes in estimated fair value reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. Comparatively, the Predecessor Company reported all unrealized gains and losses in accumulated other comprehensive loss on the condensed consolidated balance sheets.

The Predecessor Company monitored its available-for-sale securities portfolio for impairments. A loss was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary. The Company considered many factors in determining whether the impairment of a security was deemed to be other-than-temporary, including, but not limited to, the length of time the security had a decline in estimated fair value below its amortized cost and the severity of the decline, the amount of the unrealized loss, recent events specific to the issuer or industry, external credit ratings and recent changes in such ratings. In addition, for debt securities, the Company considered its intent to sell the debt security, the Company’s estimation of whether or not it expected to recover the debt security’s entire amortized cost if it intended to hold the debt security, and whether it was more likely than not that the Company was required to sell the debt security before its anticipated recovery. For equity securities, the Company also considered its intent and ability to hold the equity security for a period of time sufficient for a recovery in value.

The amount of the loss that was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary was dependent on certain factors. If the security was an equity security or if the security was a debt security that the Company intended to sell or estimated that it was more likely than not that the Company would be required to sell before recovery of its amortized cost, then the impairment amount recognized in earnings was the entire difference between the estimated fair value of the security and its amortized cost. For debt securities that the Company did not intend to sell or estimated that it was not more likely than not to be required to sell before recovery, the impairment was separated into the estimated amount relating to credit loss and the estimated amount relating to all other factors. Only the estimated credit loss amount was recognized in earnings, with the remainder of the loss amount recognized in accumulated other comprehensive loss.

Unamortized premiums and unaccreted discounts on securities available-for-sale were recognized in interest income over the contractual life, adjusted for actual prepayments, of the securities using the effective interest method.

Other Securities, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their securities for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these securities. All securities, at estimated fair value are included within securities on the condensed consolidated balance sheets.

Estimated fair values are based on quoted market prices, when available, on estimates provided by independent pricing sources or dealers who make markets in such securities, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the securities using the effective interest method.

Residential Mortgage-Backed Securities, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for their residential mortgage investments for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these investments. RMBS, at estimated fair value are included within securities on the condensed consolidated balance sheets.

Equity Investments, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their equity investments, at estimated fair value, including private equity investments received through restructuring debt transactions or issued by an entity in which the Company may have significant influence. The Companies elected the fair value option for certain of their equity investments for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these investments. Equity investments carried at estimated fair value are presented separately on the condensed consolidated balance sheets.

Interests in Joint Ventures and Partnerships

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their interests in joint ventures and partnerships. The Companies elected the fair value option of accounting for certain of their non-controlling interests in joint ventures and partnerships for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these interests. Interests in joint ventures and partnerships are presented separately on the condensed consolidated balance sheets.

Corporate Loans, Net

In connection with the Company’s application of acquisition accounting related to the Merger Transaction and to align more closely with KKR & Co.’s method of accounting, the Company elected to carry all of its corporate loans at estimated fair value as of the Effective Date, with changes in estimated fair value recorded in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. As presented under the Predecessor Company, corporate loans had previously been accounted for based on the following three categories: (i) corporate loans held for investment, which were measured based on their principal plus or minus unaccreted purchase discounts and unamortized purchase premiums, net of an allowance for loan losses; (ii) corporate loans held for sale, which were measured at lower of cost or estimated fair value; and (iii) corporate loans at estimated fair value, which were measured at fair value. As such, the disclosures related to loans held for investment and loans held for sale pertain to the Predecessor Company.

Corporate Loans

Prior to the Effective Date, corporate loans were generally held for investment and the Company initially recorded corporate loans at their purchase prices. The Company subsequently accounted for corporate loans based on their outstanding principal plus or minus unaccreted purchase discounts and unamortized purchase premiums and corporate loans that the Company transferred to held for sale were transferred at the lower of cost or estimated fair value. As of the Effective Date, the Company initially recorded corporate loans at their purchase prices and subsequently accounts for all corporate loans at estimated fair value.

Interest income on corporate loans includes interest at stated coupon rates adjusted for accretion of purchase discounts and the amortization of purchase premiums. Unamortized premiums and unaccreted discounts are recognized in interest income over the contractual life, adjusted for actual prepayments, of the corporate loans using the effective interest method.

Other than corporate loans measured at estimated fair value, corporate loans acquired with deteriorated credit quality are recorded at initial cost and interest income is recognized as the difference between the Company’s estimate of all cash flows that it will receive from the loan in excess of its initial investment on a level-yield basis over the life of the corporate loan (accretable yield) using the effective interest method.

A corporate loan is typically placed on non-accrual status at such time as: (i) management believes that scheduled debt service payments may not be paid when contractually due; (ii) the corporate loan becomes 90 days delinquent; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (iv) the net realizable value of the collateral securing the corporate loan decreases below the Company’s carrying value of such corporate loan. As such, corporate loans placed on non-accrual status may or may not be contractually past due at the time of such determination. While on non-accrual status, previously recognized accrued interest is reversed if it is determined that such amounts are not collectible and interest income is recognized using the cost-recovery method, cash-basis method or some combination of the two methods. A corporate loan is placed back on accrual status when the ultimate collectability of the principal and interest is not in doubt.

Prior to the Effective Date, the Company may have modified corporate loans in transactions where the borrower was experiencing financial difficulty and a concession was granted to the borrower as part of the modification. These concessions may have included one or a combination of the following: a reduction of the stated interest rate; payment extensions; forgiveness of principal; or an exchange of assets. Such modifications typically qualified as troubled debt restructurings (“TDRs”). In order to determine whether the borrower was experiencing financial difficulty, an evaluation was performed including the following considerations: whether the borrower was or would have been in payment default on any of its debt in the foreseeable future without the modification; whether there was a potential for a bankruptcy filing; whether there was a going-concern issue; or whether the borrower was unable to secure financing elsewhere.

Corporate loans whose terms had been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower demonstrated a sustained period of repayment performance, typically six months.

TDRs were separately identified for impairment disclosures and were measured at either the estimated fair value or the present value of estimated future cash flows using the respective corporate loan’s effective rate at inception. Impairments associated with TDRs were included within the allocated component of the Company’s allowance for loan losses.

The Company may have also identified receivables that were newly considered impaired and disclosed the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that were newly considered impaired.

The corporate loans the Company invested in were generally deemed in default upon the non-payment of a single interest payment or as a result of the violation of a covenant in the respective corporate loan agreement. The Company charged-off a portion or all of its amortized cost basis in a corporate loan when it determined that it was uncollectible due to either: (i) the estimation based on a recovery value analysis of a defaulted corporate loan that less than the amortized cost amount would have been recovered through the agreed upon restructuring of the corporate loan or as a result of a bankruptcy process of the issuer of the corporate loan or (ii) the determination by the Company to transfer a corporate loan to held for sale with the corporate loan having an estimated fair value below the amortized cost basis of the corporate loan.

In addition to TDRs, the Company may have also modified corporate loans which usually involved changes in existing interest rates combined with changes of existing maturities to prevailing market rates/maturities for similar instruments at the time of modification. Such modifications typically did not meet the definition of a TDR since the respective borrowers were neither experiencing financial difficulty nor were seeking a concession as part of the modification.

Allowance for Loan Losses

As a result of the Merger Transaction, the acquisition method of accounting and adoption of fair value for corporate loans eliminated the need for an allowance for loan losses. The reevaluation of assets required by the acquisition method of accounting resulted in all loans being reported at their estimated fair values as of the Effective Date. The estimated fair value took into account the contractual payments on loans that were not expected to be received and consequently, no allowance for loan losses was carried over for the Successor Company. As of the Effective Date, no allowance for loan losses will be recorded as all corporate loans are carried at estimated fair value. As such, the disclosure related to the allowance for loan losses pertains to the Predecessor Company.

The Company’s corporate loan portfolio is comprised of a single portfolio segment which includes one class of financing receivables, that is, high yield loans that are typically purchased via assignment or participation in either the primary or secondary market. High yield loans are generally characterized as having below investment grade ratings or being unrated.

Prior to the Effective Date, the Company’s allowance for loan losses represented its estimate of probable credit losses inherent in its corporate loan portfolio held for investment as of the balance sheet date. Estimating the Company’s allowance for loan losses involved a high degree of management judgment and was based upon a comprehensive review of the Company’s corporate loan portfolio that was performed on a quarterly basis. The Company’s allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses pertained to specific corporate loans that the Company had determined were impaired. The Company determined a corporate loan was impaired when management estimated that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the corporate loan agreement. On a quarterly basis the Company performed a comprehensive review of its entire corporate loan portfolio and identified certain corporate loans that it had determined were impaired. Once a corporate loan was identified as being impaired, the Company placed the corporate loan on non-accrual status, unless the corporate loan was already on non-accrual status, and recorded an allowance that reflected management’s best estimate of the loss that the Company expected to recognize from the corporate loan. The expected loss was estimated as being the difference between the Company’s current cost basis of the corporate loan, including accrued interest receivable, and the present value of expected future cash flows discounted at the corporate loan’s effective interest rate, except as a practical expedient, the corporate loan’s observable estimated fair value may have been used. The Company also estimated the probable credit losses inherent in its unfunded loan commitments as of the balance sheet date. Any credit loss reserve for unfunded loan commitments was recorded in accounts payable, accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets.

The unallocated component of the Company’s allowance for loan losses represented its estimate of probable losses inherent in the corporate loan portfolio as of the balance sheet date where the specific loan that the loan loss relates to was indeterminable. The Company estimated the unallocated component of the allowance for loan losses through a comprehensive review of its corporate loan portfolio and identified certain corporate loans that demonstrated possible indicators of impairment, including internally assigned credit quality indicators. This assessment excluded all corporate loans that were determined to be impaired and as a result, an allocated reserve had been recorded as described in the preceding paragraph. Such indicators included the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, and the observable trading price of the corporate loan if available. All corporate loans were first categorized based on their assigned risk grade and further stratified based on the seniority of the corporate loan in the issuer’s capital structure. The seniority classifications assigned to corporate loans were senior secured, second lien and subordinate. Senior secured consisted of corporate loans that were the most senior debt in an issuer’s capital structure and therefore had a lower estimated loss severity than other debt that was subordinate to the senior secured loan. Senior secured corporate loans often had a first lien on some or all of the issuer’s assets. Second lien consisted of corporate loans that were secured by a second lien interest on some or all of the issuer’s assets; however, the corporate loan was subordinate to the first lien debt in the issuer’s capital structure. Subordinate consisted of corporate loans that were generally unsecured and subordinate to other debt in the issuer’s capital structure.

There were three internally assigned risk grades that were applied to loans that have not been identified as being impaired: high, moderate and low. High risk meant that there was evidence of possible loss due to the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, observable trading price of the corporate loan if available, or other factors that indicated that the breach of a covenant contained in the related loan agreement was possible. Moderate risk meant that while there was not observable evidence of possible loss, there were issuer and/or industry specific trends that indicated a loss may have occurred. Low risk meant that while there was no identified evidence of loss, there was the risk of loss inherent in the loan that had not been identified. All loans held for investment, with the exception of loans that had been identified as impaired, were assigned a risk grade of high, moderate or low.

The Company applied a range of default and loss severity estimates in order to estimate a range of loss outcomes upon which to base its estimate of probable losses that resulted in the determination of the unallocated component of the Company’s allowance for loan losses.

Corporate Loans Held for Sale

As described above, corporate loans held for sale related to the Predecessor Company. From time to time the Company made the determination to transfer certain of its corporate loans from held for investment to held for sale. The decision to transfer a loan to held for sale was generally as a result of the Company determining that the respective loan’s credit quality in relation to the loan’s expected risk-adjusted return no longer met the Company’s investment objective and/or the Company deciding to reduce or eliminate its exposure to a particular loan for risk management purposes. Corporate loans held for sale were stated at lower of cost or estimated fair value and were assessed on an individual basis. Prior to transferring a loan to held for sale, any difference between the carrying amount of the loan and its outstanding principal balance was recognized as an adjustment to the yield by the effective interest method. The loan was transferred from held for investment to held for sale at the lower of its cost or estimated fair value and was carried at the lower of its cost or estimated fair value thereafter. Subsequent to transfer and while the loan was held for sale, recognition as an adjustment to yield by the effective interest method was discontinued for any difference between the carrying amount of the loan and its outstanding principal balance.

From time to time the Company also made the determination to transfer certain of its corporate loans from held for sale back to held for investment. The decision to transfer a loan back to held for investment was generally as a result of the circumstances that led to the initial transfer to held for sale no longer being present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby the Company determined that selling the asset no longer met its investment objective and strategy. The loan was transferred from held for sale back to held for investment at the lower of its cost or estimated fair value, whereby a new cost basis was established based on this amount.

Interest income on corporate loans held for sale was recognized through accrual of the stated coupon rate for the loans, unless the loans were placed on non-accrual status, at which point previously recognized accrued interest was reversed if it was determined that such amounts were not collectible and interest income was recognized using either the cost-recovery method or on a cash-basis.

Corporate Loans, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their corporate loans for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these corporate loans. All corporate loans carried at estimated fair value are included within corporate loans, net on the condensed consolidated balance sheets.

Estimated fair values are based on quoted prices for similar instruments in active markets and inputs other than observable quoted prices, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the corporate loans using the effective interest method.

As described above under “Basis of Presentation,” as of the Effective Date, purchases and sales of corporate loans are recorded on the trade date.

Oil and Natural Gas Properties

Oil and natural gas producing activities are accounted for under the successful efforts method of accounting. Under this method, exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. Costs that are associated with the drilling of successful exploration wells are capitalized if proved reserves are found. Lease acquisition costs are capitalized when incurred. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs and costs of certain nonproducing leasehold costs are expensed as incurred.

Expenditures for repairs and maintenance, including workovers, are charged to expense as incurred.

The capitalized costs of producing oil and natural gas properties are depleted on a field-by-field basis using the units-of production method based on the ratio of current production to estimated total net proved oil, natural gas and NGL reserves. Proved developed reserves are used in computing depletion rates for drilling and development costs and total proved reserves are used for depletion rates of leasehold costs.

Estimated dismantlement and abandonment costs for oil and natural gas properties, net of salvage value, are capitalized at their estimated net present value and amortized on a unit-of-production basis over the remaining life of the related proved developed reserves.

Oil and Gas Revenue Recognition

Oil, natural gas and NGL revenues are recognized when production is sold to a purchaser at fixed or determinable prices, when delivery has occurred and title has transferred and collectability of the revenue is reasonably assured. The Company follows the sales method of accounting for natural gas revenues. Under this method of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which the Company is entitled based on the Company’s working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient to enable the under-produced owners to recoup their entitled share through future production. Under the sales method, no receivables are recorded when the Company has taken less than its share of production and no payables are recorded when the Company has taken more than its share of production.

Long-Lived Assets

Whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable, the Company evaluates its proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. The determination of recoverability is made based upon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, future operating costs and a discount rate commensurate with the risk on the properties and cost of capital. Unproved oil and natural gas properties are assessed periodically and, at a minimum, annually on a property-by-property basis, and any impairment in value is recognized when incurred.

Borrowings

The Company finances the majority of its investments through the use of secured borrowings in the form of securitization transactions structured as non-recourse secured financings and other secured and unsecured borrowings. In addition, the Company finances certain of its oil and gas asset acquisitions through borrowings. The Company recognizes interest expense on all borrowings on an accrual basis.

In connection with the Company’s application of acquisition accounting related to the Merger Transaction and to align more closely with KKR & Co.’s method of accounting, the Company elected to carry its collateralized loan obligation secured notes at estimated fair value as of the Effective Date, with changes in estimated fair value recorded in net realized and unrealized loss on debt in the condensed consolidated statements of operations. Prior to the Effective Date, collateralized loan obligation secured notes were carried at amortized cost.

Trust Preferred Securities

Trusts formed by the Company for the sole purpose of issuing trust preferred securities are not consolidated by the Company as the Company has determined that it is not the primary beneficiary of such trusts. The Company’s investment in the common securities of such trusts is included within other assets on the condensed consolidated balance sheets.

Preferred Shares

Distributions on the Company’s Series A LLC Preferred Shares are cumulative and payable quarterly when and if declared by the Company’s board of directors at a 7.375% rate per annum. The Company accrues for the distribution upon declaration and is included within accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets.

Derivative Instruments

The Company recognizes all derivatives on the condensed consolidated balance sheet at estimated fair value. On the date the Company enters into a derivative contract, the Company designates and documents each derivative contract as one of the following at the time the contract is executed: (i) a hedge of a recognized asset or liability (“fair value” hedge); (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (iii) a hedge of a net investment in a foreign operation; or (iv) a derivative instrument not designated as a hedging instrument (“free-standing derivative”). For a fair value hedge, the Company records changes in the estimated fair value of the derivative instrument and, to the extent that it is effective, changes in the fair value of the hedged asset or liability in the current period earnings in the same financial statement category as the hedged item. For a cash flow hedge, the Company records changes in the estimated fair value of the derivative to the extent that it is effective in accumulated other comprehensive loss and subsequently reclassifies these changes in estimated fair value to net income in the same period(s) that the hedged transaction affects earnings. The effective portion of the cash flow hedges is recorded in the same financial statement category as the hedged item. For free-standing derivatives, the Company reports changes in the fair values in net realized and unrealized loss on derivatives and foreign exchange on the condensed consolidated statements of operations.

The Company formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Company’s evaluation of effectiveness of its hedged transactions. Periodically, the Company also formally assesses whether the derivative it designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in estimated fair values or cash flows of the hedged item using either the dollar offset or the regression analysis method. If the Company determines that a derivative is not highly effective as a hedge, it discontinues hedge accounting.

In connection with the Merger Transaction, the Company discontinued hedge accounting for its cash flow hedges and, as of the Effective Date, classifies all derivative instruments as free-standing derivatives. As a result, the Company records changes in the estimated fair value of the derivative instruments in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations.

Foreign Currency

The Company makes investments in non-United States dollar denominated assets including securities, loans, equity investments and interests in joint ventures and partnerships. As a result, the Company is subject to the risk of fluctuation in the exchange rate between the United States dollar and the foreign currency in which it makes an investment. In order to reduce the currency risk, the Company may hedge the applicable foreign currency. All investments denominated in a foreign currency are converted to the United States dollar using prevailing exchange rates on the balance sheet date.

Income, expenses, gains and losses on investments denominated in a foreign currency are converted to the United States dollar using the prevailing exchange rates on the dates when they are recorded. Foreign exchange gains and losses are recorded in net realized and unrealized loss on derivatives and foreign exchange on the condensed consolidated statements of operations.

Manager Compensation

The Management Agreement provides for the payment of a base management fee to the Manager, as well as an incentive fee if the Company’s financial performance exceeds certain benchmarks. Additionally, the Management Agreement provides for the Manager to be reimbursed for certain expenses incurred on the Company’s behalf. The base management fee and the incentive fee are accrued and expensed during the period for which they are earned by the Manager.

Share-Based Compensation

In connection with the Merger Transaction, the Predecessor Company’s common shares were converted into 0.51 KKR & Co. common units. Prior to the Effective Date, the Company accounted for share-based compensation issued to its directors and to its Manager using the fair value based methodology in accordance with relevant accounting guidance. Compensation cost related to restricted common shares issued to the Company’s directors was measured at its estimated fair value at the grant date, and was amortized and expensed over the vesting period on a straight-line basis. Compensation cost related to restricted common shares and common share options issued to the Manager was initially measured at estimated fair value at the grant date, and was remeasured on subsequent dates to the extent the awards were unvested. The Company elected to use the graded vesting attribution method to amortize compensation expense for the restricted common shares and common share options granted to the Manager.

Income Taxes

The Company intends to continue to operate so as to qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Therefore, the Company generally is not subject to United States federal income tax at the entity level, but is subject to limited state and foreign taxes. Holders of the Company’s common shares will be required to take into account their allocable share of each item of the Company’s income, gain, loss, deduction, and credit that is allocated to such class of shares for the taxable year of the Company ending within or with their taxable year. Holders of the Company’s preferred shares will be allocated a share of the Company’s gross ordinary income for the taxable year of the Company ending within or with their taxable year.  Holders of the Company’s preferred shares will not be allocated any gains or losses from the sale of the Company’s assets.

The Company owns equity interests in entities that have elected or intend to elect to be taxed as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). A REIT generally is not subject to United States federal income tax to the extent that it currently distributes its income and satisfies certain asset, income and ownership tests, and recordkeeping requirements, but it may be subject to some amount of federal, state, local and foreign taxes based on its taxable income.

The Company has wholly-owned domestic and foreign subsidiaries that are taxable as corporations for United States federal income tax purposes and thus are not consolidated with the Company for United States federal income tax purposes. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with respect to its interest in the domestic taxable corporate subsidiaries, because each is taxed as a regular corporation under the Code. Deferred income tax assets and liabilities are computed based on temporary differences between the GAAP consolidated financial statements and the United States federal income tax basis of assets and liabilities as of each consolidated balance sheet date. The foreign corporate subsidiaries were formed to make certain foreign and domestic investments from time to time. The foreign corporate subsidiaries are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are anticipated to be exempt from United States federal and state income tax at the corporate entity level because they restrict their activities in the United States to trading in stock and securities for their own account. However, the Company will be required to include their current taxable income in the Company’s calculation of its taxable income allocable to shareholders.

The Company must recognize the tax impact from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax impact recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Penalties and interest related to uncertain tax positions are recorded as tax expense. Significant judgment is required in the identification of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions. If it is determined that recognition for an uncertain tax provision is necessary, the Company would record a liability for an unrecognized tax expense from an uncertain tax position taken or expected to be taken.

Earnings Per Common Share

In connection with the Merger Transaction, as of the Effective Date, the Company is now a subsidiary of KKR Fund Holdings, which owns 100 common shares of the Company constituting all of the Company’s outstanding common shares. As KKR Fund Holdings is the Company’s sole shareholder, earnings per common share is not reported for the Successor Company. Prior to the Effective Date, the Company presented both basic and diluted earnings per common share (“EPS”) in its condensed consolidated financial statements and footnotes thereto. Basic earnings per common share (“Basic EPS”) excluded dilution and was computed by dividing net income or loss available to common shareholders by the weighted average number of common shares, including vested restricted common shares, outstanding for the period. The Company calculated EPS using the more dilutive of the two-class method or the if-converted method. The two-class method was an earnings allocation formula that determined EPS for common shares and participating securities. Unvested share-based payment awards that contained non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) were participating securities and were included in the computation of EPS using the two-class method. Accordingly, all earnings (distributed and undistributed) were allocated to common shares, preferred shares and participating securities based on their respective rights to receive dividends. Diluted earnings per common share (“Diluted EPS”) reflected the potential dilution of common share options and unvested restricted common shares using the treasury method or if-converted method.

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BORROWINGS (Details) (USD $) In Thousands, unless otherwise specified			6 Months Ended												6 Months Ended		6 Months Ended										12 Months Ended									0 Months Ended	12 Months Ended				0 Months Ended		12 Months Ended	0 Months Ended	12 Months Ended		12 Months Ended			0 Months Ended	12 Months Ended		0 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Nonaffiliates	Jun. 30, 2014 Successor Company CLO 2005-1 senior secured notes	Jun. 30, 2014 Successor Company CLO 2005-2 senior secured notes	Jun. 30, 2014 Successor Company CLO 2006-1 senior secured notes	Jun. 30, 2014 Successor Company CLO 2007-1 senior secured notes	Jun. 30, 2014 Successor Company CLO 2007-1 mezzanine notes	Jun. 30, 2014 Successor Company CLO 2007-A senior secured notes	Jun. 30, 2014 Successor Company CLO 2011-1 senior debt	Jun. 30, 2014 Successor Company CLO 2012-1 senior secured notes	Jun. 30, 2014 Successor Company CLO 2012-1 subordinated notes	Jun. 30, 2014 Successor Company 2015 Natural Resources Facility	Jun. 30, 2014 Successor Company 2018 Natural Resources Facility	Dec. 31, 2013 Successor Company 2018 Natural Resources Facility	Jun. 30, 2014 Successor Company 2018 Natural Resources Facility LIBOR	Jun. 30, 2014 Successor Company Total credit facilities	Jun. 30, 2014 Successor Company 8.375% Senior Notes	Jun. 30, 2014 Successor Company 7.500% Senior notes	Jun. 30, 2014 Successor Company Junior subordinated notes	Jun. 30, 2014 Successor Company CLO 2013-1 senior secured notes	Jun. 30, 2014 Successor Company CLO 2013-2 senior secured notes	Jun. 30, 2014 Successor Company CLO 2007-1 subordinated notes to affiliates	Jun. 30, 2014 Successor Company CLO 2007-A mezzanine notes to affiliates	Jun. 30, 2014 Successor Company CLO 2007-A subordinated notes to affiliates	Dec. 31, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company Nonaffiliates	Dec. 31, 2013 Predecessor Company CLO 2005-1 senior secured notes	Dec. 31, 2013 Predecessor Company CLO 2005-2 senior secured notes	Dec. 31, 2013 Predecessor Company CLO 2006-1 senior secured notes	Dec. 31, 2013 Predecessor Company CLO 2007-1 senior secured notes	Dec. 31, 2013 Predecessor Company CLO 2007-1 mezzanine notes	Dec. 31, 2013 Predecessor Company CLO 2007-1 subordinated notes	Dec. 31, 2013 Predecessor Company CLO 2007-A senior secured notes	Dec. 31, 2013 Predecessor Company CLO 2007-A mezzanine notes	Dec. 31, 2013 Predecessor Company CLO 2007-A subordinated notes	Sep. 27, 2013 Predecessor Company CLO 2011-1 senior debt	Dec. 31, 2013 Predecessor Company CLO 2011-1 senior debt	Dec. 31, 2013 Predecessor Company CLO 2012-1 senior secured notes	Dec. 31, 2013 Predecessor Company CLO 2012-1 subordinated notes	Dec. 31, 2013 Predecessor Company 2015 Facility	Nov. 30, 2012 Predecessor Company 2015 Facility LIBOR	Nov. 14, 2013 Predecessor Company 2015 Natural Resources Facility	Dec. 31, 2013 Predecessor Company 2015 Natural Resources Facility	Feb. 27, 2013 Predecessor Company 2018 Natural Resources Facility	Dec. 31, 2013 Predecessor Company 2018 Natural Resources Facility	Dec. 31, 2013 Predecessor Company Total credit facilities	Dec. 31, 2013 Predecessor Company 8.375% Senior Notes	Dec. 31, 2013 Predecessor Company 7.500% Senior notes	Dec. 31, 2013 Predecessor Company Junior subordinated notes	Jun. 25, 2013 Predecessor Company CLO 2013-1 senior secured notes	Dec. 31, 2013 Predecessor Company CLO 2013-1 senior secured notes	Jun. 25, 2013 Predecessor Company CLO 2013-1 senior secured notes Nonaffiliates	Jan. 23, 2014 Predecessor Company CLO 2013-2 senior secured notes	Jan. 23, 2014 Predecessor Company CLO 2013-2 senior secured notes Nonaffiliates
Details of Company's borrowings
Par	$ 5,581,022		$ 219,088	$ 274,945	$ 248,930	$ 2,069,459	$ 489,723	$ 350,592	$ 451,871	$ 367,500	$ 18,000									$ 458,500	$ 339,250	$ 134,468	$ 143,600	$ 15,096																										$ 519,400		$ 458,500	$ 384,000	$ 339,300
Collateralized loan obligation secured debt	5,547,914																								5,249,383		193,909	335,570	384,925	2,075,040	406,428	136,097	428,152	55,327	15,096		388,703	362,727	18,000												449,409
Credit facilities	83,289											55,689	27,600	0		83,289									125,289															75,000			50,289			125,289
Senior notes	415,278																258,750	115,043							362,276																						250,800	111,476
Junior subordinated notes	246,062																		283,517						283,517																								283,517
Total borrowings	6,321,621																								6,020,465
Total borrowings, carrying value	6,292,543	5,547,914	217,470	273,017	247,081	2,047,353	484,087	350,423	451,871	366,217	15,059	55,689	27,600			83,289	291,458	123,820	246,062	447,273	334,979	131,926	143,620	37,538
Weighted Average Borrowing Rate (as a percent)			1.67%	0.65%	1.04%	0.78%	3.83%	2.03%	1.58%	2.32%	16.27%	2.40%	1.90%				8.38%	7.50%	5.39%	1.96%	2.21%	14.50%	7.41%	20.69%			0.73%	0.63%	0.69%	0.79%	3.65%	18.15%	1.57%	7.44%	42.22%		1.25%	2.34%	11.67%	1.39%			2.42%				8.38%	7.50%	5.39%		1.98%
Weighted Average Remaining Maturity			1031 days	1245 days	1517 days	2511 days	2511 days	1203 days	1507 days	3821 days	3821 days	493 days	1338 days				10000 days	10125 days	8133 days	4033 days	4225 days	2511 days	1203 days	1203 days			1212 days	1426 days	1698 days	2692 days	2692 days	2692 days	1384 days	1384 days	1384 days		1688 days	4002 days	4002 days	699 days			674 days		1519 days		10181 days	10306 days	8347 days		4214 days
Total borrowings, fair value of collateral	$ 6,850,053	$ 6,392,626	$ 258,161	$ 433,092	$ 507,929	$ 2,495,371	$ 590,513	$ 129,018	$ 549,617	$ 370,670	$ 18,155	$ 172,594	$ 284,833			$ 457,427				$ 468,808	$ 350,750	$ 162,142	$ 52,845	$ 5,555	$ 6,645,905	$ 6,431,970	$ 303,104	$ 496,917	$ 649,894	$ 2,354,938	$ 461,250	$ 154,456	$ 540,677	$ 69,867	$ 19,063		$ 517,597	$ 376,603	$ 18,689				$ 213,935			$ 213,935					$ 468,915
Debt, variable interest rate basis															LIBOR																					three-month LIBOR					LIBOR	LIBOR		LIBOR						three-month LIBOR			three-month LIBOR

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SECURITIES (Details) (USD $) In Thousands, unless otherwise specified	2 Months Ended			12 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Securities, at estimated fair value	Dec. 31, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company Other securities, at estimated fair value	Dec. 31, 2013 Predecessor Company Residential mortgage-backed securities, at estimated fair value
Net realized and unrealized gains
Net realized gains	$ 735
Net change in unrealized gains	10,823
Net realized and unrealized gains	11,558
Securities Available-for-Sale
Par	617,495	617,495
Amortized Cost		559,247	326,775
Amortized Cost	559,247
Gross Unrealized Gains			24,791
Gross Unrealized Losses			(1,225)
Estimated Fair Value			350,341
Total securities	570,071	570,071	573,312
Total Securities
Amortized Cost				135,968	138,284
Gross Unrealized Gains				12,436	2,809
Gross Unrealized Losses				(1,437)	(65,089)
Other Securities, at Estimated Fair Value				146,967	76,004
Amortized Cost			601,027
Gross Unrealized Gains			40,036
Gross Unrealized Losses			(67,751)
Total securities	$ 570,071	$ 570,071	$ 573,312

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BORROWINGS (Tables)

6 Months Ended

Jun. 30, 2014

Successor Company

Borrowings

Schedule of Company's borrowings

Certain information with respect to the Company’s borrowings as of June 30, 2014 is summarized in the following table (dollar amounts in thousands):

	Par		Carrying  Value(1)		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(2)
CLO 2005-1 senior secured notes	$	219,088	$	217,470	1.67	%	1,031	$	258,161
CLO 2005-2 senior secured notes	274,945		273,017		0.65		1,245	433,092
CLO 2006-1 senior secured notes	248,930		247,081		1.04		1,517	507,929
CLO 2007-1 senior secured notes	2,069,459		2,047,353		0.78		2,511	2,495,371
CLO 2007-1 mezzanine notes	489,723		484,087		3.83		2,511	590,513
CLO 2007-1 subordinated notes(3)	134,468		131,926		14.50		2,511	162,142
CLO 2007-A senior secured notes	350,592		350,423		2.03		1,203	129,018
CLO 2007-A mezzanine notes	143,600		143,620		7.41		1,203	52,845
CLO 2007-A subordinated notes(3)	15,096		37,538		20.69		1,203	5,555
CLO 2011-1 senior debt	451,871		451,871		1.58		1,507	549,617
CLO 2012-1 senior secured notes	367,500		366,217		2.32		3,821	370,670
CLO 2012-1 subordinated notes(3)	18,000		15,059		16.27		3,821	18,155
CLO 2013-1 senior secured notes	458,500		447,273		1.96		4,033	468,808
CLO 2013-2 senior secured notes	339,250		334,979		2.21		4,225	350,750
Total collateralized loan obligation secured debt	5,581,022		5,547,914					6,392,626
2015 Asset-based borrowing facility	55,689		55,689		2.40		493	172,594
2018 Asset-based borrowing facility	27,600		27,600		1.90		1,338	284,833
Total credit facilities	83,289		83,289					457,427
8.375% Senior notes	258,750		291,458		8.38		10,000	—
7.500% Senior notes	115,043		123,820		7.50		10,125	—
Junior subordinated notes	283,517		246,062		5.39		8,133	—
Total borrowings	$	6,321,621	$	6,292,543				$	6,850,053

(1) Carrying value represents estimated fair value for the collateralized loan obligation secured debt and amortized cost for all other borrowings.

(2) Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities and equity investments at estimated fair value. Also includes the carrying value of oil and gas assets. For purposes of this table, collateral for CLO senior, mezzanine and subordinated notes are calculated pro rata based on the par amount for each respective CLO.

(3) Subordinated notes do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on annualized distributions during the quarter, if any.

Predecessor Company

Borrowings

Schedule of Company's borrowings

Certain information with respect to the Company’s borrowings as of December 31, 2013 is summarized in the following table (dollar amounts in thousands):

	Outstanding  Borrowings		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(1)
CLO 2005-1 senior secured notes	$	193,909	0.73	%	1,212	$	303,104
CLO 2005-2 senior secured notes	335,570		0.63		1,426	496,917
CLO 2006-1 senior secured notes	384,925		0.69		1,698	649,894
CLO 2007-1 senior secured notes	2,075,040		0.79		2,692	2,354,938
CLO 2007-1 mezzanine notes	406,428		3.65		2,692	461,250
CLO 2007-1 subordinated notes(2)	136,097		18.15		2,692	154,456
CLO 2007-A senior secured notes	428,152		1.57		1,384	540,677
CLO 2007-A mezzanine notes	55,327		7.44		1,384	69,867
CLO 2007-A subordinated notes(2)	15,096		42.22		1,384	19,063
CLO 2011-1 senior debt	388,703		1.25		1,688	517,597
CLO 2012-1 senior secured notes	362,727		2.34		4,002	376,603
CLO 2012-1 subordinated notes(2)	18,000		11.67		4,002	18,689
CLO 2013-1 senior secured notes	449,409		1.98		4,214	468,915
Total collateralized loan obligation secured debt	5,249,383					6,431,970
Senior secured credit facility(3)	75,000		1.39		699	—
2015 Asset-based borrowing facility	50,289		2.42		674	213,935
2018 Asset-based borrowing facility(4)	—		—		1,519	—
Total credit facilities	125,289					213,935
8.375% Senior notes	250,800		8.38		10,181	—
7.500% Senior notes	111,476		7.50		10,306	—
Junior subordinated notes	283,517		5.39		8,347	—
Total borrowings	$	6,020,465				$	6,645,905

(1) Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities available-for-sale and equity investments at estimated fair value. Also includes the carrying value of oil and gas assets. For purposes of this table, collateral for CLO senior, mezzanine and subordinated notes are calculated pro rata based on the outstanding borrowings for each respective CLO.

(2) Subordinated notes do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on year-to-date estimated distributions, if any.

(3) Capital stock of material domestic and foreign subsidiaries, as defined by the senior secured credit facility agreement, are eligible to be pledged as collateral. As of December 31, 2013, the total investments held within these eligible subsidiaries exceeded the amount of the outstanding debt.

(4) Borrowing rates range from 1.75% to 3.25% plus London interbank offered rate (“LIBOR”) per annum based on the amount outstanding.

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NATURAL RESOURCES ASSETS (Tables)

6 Months Ended

Jun. 30, 2014

NATURAL RESOURCES ASSETS

Summary of the company's oil and gas properties

The following table summarizes the Company’s oil and gas properties as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	As of June 30, 2014			As of December 31, 2013
Proved oil and natural gas properties (successful efforts method)	$	519,823		$	451,909
Unproved oil and natural gas properties	16,913			16,913
Less: Accumulated depreciation, depletion and amortization	(11,058		)	(68,453		)
Oil and gas properties, net	$	525,678		$	400,369

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 9) (Predecessor Company, USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Corporate Loans and Allowance for Loan Losses
Recorded Investment	$ 6,193,232
Allowances for loan losses	82,317
Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	5,638,790
Allowances for loan losses	82,300
Allocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	554,442
High | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	325,525
High | Senior Secured Loan | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	26,886
High | Second Lien Loan | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	286,996
High | Subordinated | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	11,643
Moderate | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	1,099,898
Moderate | Senior Secured Loan | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	1,033,065
Moderate | Second Lien Loan | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	27,504
Moderate | Subordinated | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	39,329
Low | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	4,213,367
Low | Senior Secured Loan | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	4,148,913
Low | Second Lien Loan | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	25,864
Low | Subordinated | Unallocated
Corporate Loans and Allowance for Loan Losses
Recorded Investment	$ 38,590

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SECURITIES (Details 2) (USD $)			1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company Corporate debt securities issuer securities	Dec. 31, 2013 Predecessor Company Corporate debt securities issuer securities	Apr. 30, 2014 Predecessor Company Securities available-for-sale	Jun. 30, 2013 Predecessor Company Securities available-for-sale	Apr. 30, 2014 Predecessor Company Securities available-for-sale	Jun. 30, 2013 Predecessor Company Securities available-for-sale	Dec. 31, 2013 Predecessor Company Securities available-for-sale
Fair value on available for sale securities in a gross continuous unrealized loss position by the length of time
Less Than 12 months							$ 25,543,000
12 Months or More							30,034,000
Total Estimated Fair Value							55,577,000
Unrealized losses on available for sale securities in a gross continuous unrealized loss position by the length of time
Less Than 12 months							(658,000)
12 months or More							(567,000)
Total Unrealized Losses							(1,225,000)
Other-than-temporarily impaired loss			1,500,000	6,600,000	4,400,000	12,500,000
Number of issuers with corporate debt securities in default	1	1
Number of corporate debt securities in default	1	1
Estimated fair value of corporate debt security in default	$ 13,200,000	$ 25,400,000

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DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Derivative Instruments

Schedule of aggregate notional amount and estimated net fair value of the derivative instruments

The table below summarizes the aggregate notional amount and estimated net fair value of the derivative instruments as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	As of June 30, 2014						As of December 31, 2013
	Notional			Estimated Fair Value			Notional			Estimated Fair Value
Cash Flow Hedges:
Interest rate swaps	$	—		$	—		$	478,333		$	(42,078	)
Free-Standing Derivatives:
Interest rate swaps	458,833			(48,517		)	—			—
Commodity swaps	—			(7,714		)	—			1,493
Credit default swaps—protection purchased	—			—			(100,000		)	(2,019		)
Foreign exchange forward contracts	(300,370		)	(23,273		)	(320,380		)	(25,258		)
Foreign exchange options	129,900			7,056			129,900			8,941
Common stock warrants	—			1,077			—			945
Total rate of return swaps	—			(158		)	—			(229		)
Options	—			6,175			—			6,794
Total				$	(65,354	)				$	(51,411	)

Schedule of effect on income from free-standing derivatives by derivative instrument type

The following table presents the amounts recorded in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations for the two months ended June 30, 2014 and for the one and four months ended April 30, 2014 (amounts in thousands):

	Successor Company									Predecessor Company
	Two months ended June 30, 2014									One month ended April 30, 2014									Four months ended April 30, 2014
	Realizedgains (losses)			Unrealized gains (losses)			Total			Realizedgains (losses)			Unrealized gains (losses)			Total			Realizedgains (losses)			Unrealized gains (losses)			Total
Interest rate swaps	$	—		$	(1,125	)	$	(1,125	)	$	—		$	—		$	—		$	—		$	—		$	—
Commodity swaps	(1,532		)	(3,350		)	(4,882		)	(601		)	(2,189		)	(2,790		)	(2,515		)	(5,856		)	(8,371		)
Credit default swaps(1)	—			—			—			—			—			—			(2,167		)	1,986			(181		)
Foreign exchange forward contracts and options(2)	(1,640		)	(958		)	(2,598		)	(1,618		)	2,716			1,098			(2,068		)	2,784			716
Common stock warrants	—			(5		)	(5		)	—			123			123			—			137			137
Total rate of return swaps	169			(213		)	(44		)	(406		)	170			(236		)	(2,349		)	284			(2,065		)
Options	—			(510		)	(510		)	—			392			392			—			(19		)	(19		)
Net realized and unrealized (losses) gains	$	(3,003	)	$	(6,161	)	$	(9,164	)	$	(2,625	)	$	1,212		$	(1,413	)	$	(9,099	)	$	(684	)	$	(9,783	)

(1) Includes related income and expense on the derivatives.

(2) Net of foreign exchange remeasurement gain or loss on foreign denominated assets.

Successor Company

Derivative Instruments

Schedule of open positions of derivative contracts on expected annual production volumes

	2014		2015		2016
Natural gas positions:
Fixed price swaps:
Hedged volume (MMMBtu)	2,919		4,277		1,805
Average price ($/MMBtu)	$	4.34	$	4.73	$	4.44
Natural gas liquid positions:
Fixed price swaps:
Hedged volume (MBbls)	80		41		—
Average price ($/Bbl)	$	31.54	$	42.39	$	—
Oil positions:
Fixed price swaps:
Hedged volume (MBbls)	417		612		—
Average price ($/Bbl)	$	92.08	$	89.19	$	—

Predecessor Company

Derivative Instruments

Schedule of net (losses) gains recognized in accumulated other comprehensive loss related to derivatives in cash flow hedging relationships

The following table presents the net (losses) gains recognized in other comprehensive loss related to derivatives in cash flow hedging relationships for the one and four months ended April 30, 2014 and three and six months ended June 30, 2013 (amounts in thousands):

	For the onemonth ended April 30, 2014			For the fourmonths ended April 30, 2014			For the threemonths ended June 30, 2013		For the six months endedJune 30, 2013
Net (losses) gains recognized in accumulated other comprehensive loss on cash flow hedges	$	(1,611	)	$	(5,442	)	$	20,240	$	31,398

Schedule of effect on income from free-standing derivatives by derivative instrument type

The following tables present the amounts recorded in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations for three and six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Three months ended June 30, 2013									Six months ended June 30, 2013
	Realized gains (losses)			Unrealized gains (losses)			Total			Realized gains (losses)			Unrealized gains (losses)			Total
Commodity swaps	$	(22	)	$	7,028		$	7,006		$	1,087		$	919		$	2,006
Credit default swaps(1)	(518		)	49			(469		)	(3,161		)	1,519			(1,642		)
Foreign exchange forward contracts and options(2)	3,177			(4,451		)	(1,274		)	2,266			(6,371		)	(4,105		)
Net realized and realized gains (losses)	$	2,637		$	2,626		$	5,263		$	192		$	(3,933	)	$	(3,741	)

(1) Includes related income and expense on the derivatives.

(2) Net of foreign exchange remeasurement gain or loss on foreign denominated assets.

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Successor Company

Carrying value and the estimated fair value of the financial instruments

Schedule of carrying value and estimated fair value, as well as the respective hierarchy classifications, of the financial assets and liabilities that are not carried at estimated fair value

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value on a recurring basis as of June 30, 2014 (amounts in thousands):

	Successor Company
	As of June 30, 2014				Fair Value Hierarchy
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, restricted cash, and cash equivalents	$	806,720	$	806,720	$	806,720	$	—	$	—
Liabilities:
Credit facilities	83,289		83,289		—		—		83,289
Senior notes	415,278		418,413		418,413		—		—
Junior subordinated notes	246,062		248,051		—		—		248,051

Schedule of fair value of financial assets and liabilities measured on a recurring basis

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2014, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Successor Company
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2014
Assets:
Securities:
Corporate debt securities	$	—	$	341,237	$	169,592	$	510,829
Residential mortgage-backed securities	—		—		59,242		59,242
Total securities	—		341,237		228,834		570,071
Corporate loans	—		5,993,258		300,282		6,293,540
Equity investments, at estimated fair value	21,322		116,021		141,160		278,503
Interests in joint ventures and partnerships	—		12,430		515,556		527,986
Other assets	—		5,424		—		5,424
Derivatives:
Interest rate swaps	—		841		—		841
Commodity swaps	—		3,513		—		3,513
Foreign exchange forward contracts	—		4,322		—		4,322
Foreign exchange options	—		—		7,056		7,056
Common stock warrants	—		1,077		—		1,077
Total rate of return swaps	—		7		—		7
Options	—		—		6,175		6,175
Total derivatives	—		9,760		13,231		22,991
Total	$	21,322	$	6,478,130	$	1,199,063	$	7,698,515
Liabilities:
Collateralized loan obligation secured notes	$	—	$	—	$	5,547,914	$	5,547,914
Derivatives:
Interest rate swaps	—		49,358		—		49,358
Commodity swaps	—		11,227		—		11,227
Foreign exchange forward contracts	—		27,595		—		27,595
Total rate of return swaps	—		165		—		165
Total derivatives	—		88,345		—		88,345
Total	$	—	$	88,345	$	5,547,914	$	5,636,259

Schedule of additional information about assets and liabilities, including derivatives, that are measured at fair value on a recurring basis

The following table presents additional information about assets and liabilities, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the two months ended June 30, 2014 (amounts in thousands):

	Successor Company
	Assets																					Liabilities
	Corporate Debt Securities			Residential Mortgage- Backed Securities			Corporate Loans			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options			Collateralized Loan Obligation Secured Notes
Beginning balance as of May 1, 2014	$	156,500		$	59,623		$	294,218		$	157,765		$	472,467		$	8,854		$	6,684		$	5,663,665
Total gains or losses (for the period):
Included in earnings(1)	2,185			1,359			2,951			2,160			21,690			(1,798		)	(509		)	28,669
Transfers into Level 3	—			—			—			—			—			—			—			—
Transfers out of Level 3(2)	—			—			—			(1,230		)	—			—			—			—
Purchases	20,000			—			1,261			—			27,466			—			—			52,594
Sales	(3,966		)	—			(2,912		)	—			—			—			—			—
Settlements	(5,127		)	(1,740		)	4,764			(17,535		)	(6,067		)	—			—			(197,014		)
Ending balance as of June 30, 2014	$	169,592		$	59,242		$	300,282		$	141,160		$	515,556		$	7,056		$	6,175		$	5,547,914
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	2,185		$	623		$	2,073		$	2,160		$	21,690		$	(1,798	)	$	(509	)	$	28,669

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations. Amounts for collateralized loan obligation secured notes, which represent liabilities measured at fair value, are included in net realized and unrealized loss on debt in the condensed consolidated statements of operations.

(2) Equity investments, at estimated fair value were transferred out of Level 3 because observable market data became available.

Summary of valuation techniques used for assets and liabilities, measured at fair value and categorized within level 3

The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivatives, that are measured at fair value and categorized within Level 3 as of June 30, 2014 (dollar amounts in thousands):

Successor Company
	Balance as of June 30,2014		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Assets:
Corporate debt securities	$	169,592	Yield analysis	Yield	12%	3% - 14%	Decrease
				Net leverage	12x	12x	Decrease
				EBITDA multiple	9x	8x - 10x	Increase
				Discount margin	900bps	900bps	Decrease
			Broker quotes	Offered quotes	103	102-106	Increase
Residential mortgage -backed	$	59,242	Discounted cash flows	Probability of default	6%	0% - 24%	Decrease
securities				Loss severity	26%	12% - 37%	Decrease
				Constant prepayment rate	13%	5% - 17%	(5)
Corporate loans	$	300,282	Yield Analysis	Yield	10%	3% - 18%	Decrease
				Net leverage	6x	0x - 14x	Decrease
				EBITDA multiple	9x	5x - 13x	Increase
Equity investments, at estimated fair value(6)	$	141,160	Inputs to both market comparables and	Weight ascribed to market comparables	60%	33% - 100%	(7)
			discounted cash flow	Weight ascribed to	55%	0% - 100%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	12x	5x - 23x	Increase
				Forward EBITDA multiple	10x	5x - 17x	Increase
			Discounted cash flows	Weighted average cost of capital	11%	8% - 18%	Decrease
				LTM EBITDA exit multiple	10x	7x - 11x	Increase
Interests in joint ventures and partnerships(9)	$	515,556	Inputs to both market comparables and	Weight ascribed to market comparables	53%	0% - 100%	(7)
			discounted cash flow	Weight ascribed to	72%	0% - 100%	(8)
				discounted cash flows
			Market comparables	Current capitalization rate	7%	6% - 10%	Decrease
				LTM EBITDA multiple	11x	8x - 12x	Increase
				Forward EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	13%	8% - 20%	Decrease
Foreign exchange options	$	7,056	Option pricing model	Forward and spot rates	1	0 - 1	(10)
Options	$	6,175	Inputs to both market comparables and	Weight ascribed to market comparables	50%	50%	(7)
			discounted cash flow	Weight ascribed to	50%	50%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	10x	10x	Increase
			Discounted cash flows	Weighted average cost of capital	13%	13%	Decrease
				LTM EBITDA exit multiple	11x	11x	Increase
Liabilities:
Collateralized loan obligation secured notes	$	5,547,914	Yield analysis Discounted cash flows	Discount margin Probability of default Loss severity	229bps 2% 33%	0bps - 1500bps 2% - 3% 30% - 38%	Decrease Decrease Decrease

(1) For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(2) In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.

(3) Weighted average amounts are based on the estimated fair values.

(4) Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.

(5) The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.

(6) When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

(7) The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.

(8) The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.

(9) Includes an asset that was valued using an independent third party valuation firm.

(10) The directional change from an increase in forward and spot rates varies and is dependent on the specific option.

Predecessor Company

Carrying value and the estimated fair value of the financial instruments

Schedule of carrying value and estimated fair value, as well as the respective hierarchy classifications, of the financial assets and liabilities that are not carried at estimated fair value

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value on a recurring basis as of December 31, 2013 (amounts in thousands):

	Predecessor Company
	As of December 31, 2013				Fair Value Hierarchy
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, restricted cash, and cash equivalents	$	507,552	$	507,552	$	507,552	$	—	$	—
Corporate loans, net of allowance for loan losses of $224,999 as of December 31, 2013(1)	5,949,492		6,051,641		—		5,691,988		359,653
Corporate loans held for sale(1)	279,748		281,278		—		267,169		14,109
Private equity investments, at cost(2)	405		4,496		—		—		4,496
Other assets	5,763		5,513		—		5,513		—
Liabilities:
Collateralized loan obligation secured debt	$	5,249,383	$	5,179,207	$	—	$	—	$	5,179,207
Credit facilities	125,289		125,289		—		—		125,289
Senior notes	362,276		393,772		393,772		—		—
Junior subordinated notes	283,517		247,416		—		—		247,416

(1) Corporate loans held for investment are carried at amortized cost net of allowance for loan losses, while corporate loans held for sale are carried at the lower of cost or estimated fair value. Refer to “Fair Value Measurements” for a table presenting the corporate loans which are measured at fair value on a non-recurring basis.

(2) Included within other assets on the condensed consolidated balance sheets.

Schedule of fair value of financial assets and liabilities measured on a recurring basis

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Predecessor Company
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31,2013
Assets:
Securities:
Securities available-for-sale	$	—	$	326,940	$	23,401	$	350,341
Other securities, at estimated fair value	—		39,437		107,530		146,967
Residential mortgage-backed securities	—		—		76,004		76,004
Total securities	—		366,377		206,935		573,312
Corporate loans, at estimated fair value	—		84,680		152,800		237,480
Equity investments, at estimated fair value	39,515		3,638		138,059		181,212
Interests in joint ventures and partnerships	14,836		—		415,247		430,083
Derivatives:
Interest rate swaps	—		3,290		—		3,290
Commodity swaps	—		5,408		—		5,408
Foreign exchange forward contracts	—		4,846		—		4,846
Foreign exchange options	—		—		8,941		8,941
Common stock warrants	—		945		—		945
Options	—		—		6,794		6,794
Total derivatives	—		14,489		15,735		30,224
Total	$	54,351	$	469,184	$	928,776	$	1,452,311
Liabilities:
Derivatives:
Interest rate swaps	—		45,368		—		45,368
Commodity swaps	—		3,915		—		3,915
Credit default swaps—protection purchased	—		2,019		—		2,019
Foreign exchange forward contracts	—		30,104		—		30,104
Total rate of return swaps	—		229		—		229
Total derivatives	—		81,635		—		81,635
Total	$	—	$	81,635	$	—	$	81,635

Schedule of fair value of assets measured on a non-recurring basis

The following table presents information about the Company’s assets measured at fair value on a non-recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands).

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31,2013
Corporate loans held for sale(1)	$	—	$	90,485	$	5,568	$	96,053
Total	$	—	$	90,485	$	5,568	$	96,053

(1) As of December 31, 2013, total loans held for sale had a carrying value of $279.7 million of which $96.1 million was carried at estimated fair value and the remaining $183.6 million carried at amortized cost.

Schedule of additional information of assets measured on level 3 basis

The following table presents additional information about assets, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the one and four months ended April 30, 2014 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value			Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options
Beginning balance as of January 1, 2014	$	23,401		$	107,530		$	76,004		$	152,800		$	138,059		$	415,247		$	8,941		$	6,794
Total gains or losses (for the period):
Included in earnings(1)	22			3,059			3,088			(5,123		)	9,076			22,377			(813		)	(302		)
Included in other comprehensive income	121			—			—			—			—			—			—			—
Transfers into Level 3	—			—			—			—			—			—			—			—
Transfers out of Level 3(3)	—			—			—			—			(8,751		)	—			—			—
Purchases	—			25,000			—			8,822			—			42,683			—			—
Sales	—			—			(17,810		)	—			—			—			—			—
Settlements	(16		)	(10,078		)	(2,529		)	(3,104		)	120,593			14,113			—			—
Ending balance as of March 31, 2014	23,528			125,511			58,753			153,395			258,977			494,420			8,128			6,492
Total gains or losses (for the period):
Included in earnings(1)	44			479			1,416			1,240			12,126			(24,158		)	726			192
Included in other comprehensive income	33			—			—			—			—			—			—			—
Transfers into Level 3(2)	6,937			—			—			—			—			—			—			—
Transfers out of Level 3(3)	—			—			—			—			(119,033		)	—			—			—
Purchases	—			—			—			—			—			1,615			—			—
Sales	—			—			—			—			—			—			—			—
Settlements	(32		)	—			(546		)	2,272			—			(1,184		)	—			—
Ending balance as of April 30, 2014	$	30,510		$	125,990		$	59,623		$	156,907		$	152,070		$	470,693		$	8,854		$	6,684
Change in unrealized gains or losses for the period included in earnings for the one month ended April 30, 2014 for assets held at the end of the reporting period(1)	$	44		$	479		$	1,503		$	1,240		$	12,126		$	(24,158	)	$	726		$	192
Change in unrealized gains or losses for the period included in earnings for the four months ended April 30, 2014 for assets held at the end of the reporting period(1)	$	66		$	2,683		$	5,242		$	4,445		$	20,499		$	(1,781	)	$	(87	)	$	(110	)

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations.

(2) Securities available-for-sale were transferred into Level 3 because observable market data was no longer available as a result of an asset-restructure.

(3) Equity investments, at estimated fair value were transferred out of Level 3 because observable market data became available as a result of asset-restructures.

Certain interests in joint ventures and partnerships were transferred from Level 1 to Level 2 during the two months ended June 30, 2014 due to illiquid market conditions. There were no transfers between Level 1 and Level 2 during the one and four months ended April 30, 2014.

The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the three months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Common Stock Warrants		Foreign Exchange Options, Net		Interests in Joint Ventures and Partnerships
Beginning balance as of April 1, 2013	$	42,083		$	3,237	$	87,028		$	17,325		$	102,262		$	1,819	$	5,350	$	169,931
Total gains or losses (for the period):
Included in earnings(1)	99			944		(167		)	374			(1,426		)	1,742		401		(2,771		)
Included in other comprehensive income	131			—		—			—			—			—		—		—
Transfers into Level 3	—			—		—			—			—			—		—		—
Transfers out of Level 3	—			—		—			—			—			—		—		—
Purchases	—			23,691		—			28,695			3			—		—		74,851
Sales	—			—		—			—			—			—		—		—
Settlements	(4,933		)	—		(3,888		)	(458		)	(545		)	—		—		(6,987		)
Ending balance as of June 30, 2013	$	37,380		$	27,872	$	82,973		$	45,936		$	100,294		$	3,561	$	5,751	$	235,024
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	99		$	944	$	3,810		$	374		$	(1,426	)	$	1,742	$	401	$	(2,771	)

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized gain (loss) on derivatives and foreign exchange in the condensed consolidated statements of operations.

The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized level 3 inputs to determine fair value, for the six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Common Stock Warrants		Foreign Exchange Options, Net			Interests in Joint Ventures and Partnerships
Beginning balance as of January 1, 2013	$	42,221		$	2,909	$	83,842		$	16,141		$	97,746		$	1,574	$	8,277		$	142,477
Total gains or losses (for the period):
Included in earnings(1)	(18		)	1,272		5,554			(1,052		)	3,090			1,987		(2,526		)	3,908
Included in other comprehensive income	221			—		—			—			—			—		—			—
Transfers into Level 3	—			—		—			—			—			—		—			—
Transfers out of Level 3	—			—		—			—			—			—		—			—
Purchases	—			23,691		—			31,768			3			—		—			97,663
Sales	—			—		—			—			—			—		—			—
Settlements	(5,044		)	—		(6,423		)	(921		)	(545		)	—		—			(9,024		)
Ending balance as of June 30, 2013	$	37,380		$	27,872	$	82,973		$	45,936		$	100,294		$	3,561	$	5,751		$	235,024
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	(18	)	$	1,272	$	15,898		$	(1,348	)	$	3,090		$	1,987	$	(2,526	)	$	3,908

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized gain (loss) on derivatives and foreign exchange in the condensed consolidated statements of operations.

Summary of valuation techniques used for assets and liabilities, measured at fair value and categorized within level 3

The following table presents additional information about valuation techniques and inputs used for assets, including derivatives, that are measured at fair value and categorized within Level 3 as of December 31, 2013 (dollar amounts in thousands):

Predecessor Company
	Balance as of December 31, 2013		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Assets:
Securities available-for-sale	$	23,401	Yield analysis	Yield	10%	6% - 12%	Decrease
				Net leverage	12x	11x - 12x	Decrease
				EBITDA multiple	8x	8x - 9x	Increase
			Broker quotes	Offered quotes	105	104 - 105	Increase
Other securities, at estimated	$	107,530	Yield Analysis	Yield	12%	7% - 17%	Decrease
fair value				EBITDA multiple	8x	7x - 8x	Increase
				Illiquidity discount	3%	3%	Decrease
				Net leverage	1x	1x - 2x	Decrease
			Broker quotes	Offered quotes	102	101 - 102	Increase
Residential mortgage-backed	$	76,004	Discounted cash flows	Probability of default	7%	0% - 21%	Decrease
securities				Loss severity	28%	16% - 77%	Decrease
				Constant prepayment rate	15%	3% - 35%	(5)
Corporate loans, at estimated	$	152,800	Yield Analysis	Yield	16%	14% - 23%	Decrease
fair value				Net leverage	7x	4x - 12x	Decrease
				EBITDA multiple	8x	6x - 11x	Increase
Equity investments, at estimated fair value(6)	$	138,059	Inputs to both market comparables and	Weight ascribed to market comparables	50%	33% - 100%	(7)
			discounted cash flow	Weight ascribed to	59%	50% - 100%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	12x	6x - 16x	Increase
				Forward EBITA multiple	12x	10x - 14x	Increase
			Discounted cash flows	Weighted average cost of capital	11%	8% - 14%	Decrease
				LTM EBITDA exit multiple	10x	4x - 11x	Increase
Interests in joint ventures and partnerships	$	415,247	Inputs to both market comparables and	Weight ascribed to market comparables	50%	50% - 100%	(7)
			discounted cash flow	Weight ascribed to	50%	50% - 100%	(8)
				discounted cash flows
			Market comparables	Current capitalization rate	7%	6% - 9%	Decrease
				LTM EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	8% - 24%	Decrease
Foreign exchange options	$	8,941	Option pricing model	Forward and spot rates	1	0 - 1	(9)
Options	$	6,794	Inputs to both market	Weight ascribed to market	50%	50%	(7)
			comparables and	comparables
			discounted cash flow	Weight ascribed to	50%	50%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	12%	Decrease
				LTM EBITDA exit multiple	10x	9x - 10x	Increase

(1) For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(2) In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.

(3) Weighted average amounts are based on the estimated fair values.

(4) Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.

(5) The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.

(6) When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

(7) The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.

(8) The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.

(9) The directional change from an increase in forward and spot rates varies and is dependent on the specific option.

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ORGANIZATION

6 Months Ended

Jun. 30, 2014

ORGANIZATION

ORGANIZATION

NOTE 1. ORGANIZATION

KKR Financial Holdings LLC together with its subsidiaries (the “Company” or “KFN”) is a specialty finance company with expertise in a range of asset classes. The Company’s core business strategy is to leverage the proprietary resources of KKR Financial Advisors LLC (the “Manager”) with the objective of generating both current income and capital appreciation by deploying capital to its strategies, which include bank loans and high yield securities, natural resources, special situations, mezzanine, commercial real estate and private equity with a focus on specialty lending. The Company’s holdings across these strategies primarily consist of below investment grade syndicated corporate loans, also known as leveraged loans, high yield debt securities, private equity, interests in joint ventures and partnerships, and working and royalty interests in oil and gas properties. The corporate loans that the Company holds are typically purchased via assignment or participation in the primary or secondary market.

The majority of the Company’s holdings consist of corporate loans and high yield debt securities held in collateralized loan obligation (“CLO”) transactions that are structured as on-balance sheet securitizations and are used as long term financing for the Company’s investments in corporate debt. The senior secured debt issued by the CLO transactions is generally owned by unaffiliated third party investors and the Company owns the majority of the subordinated notes in the CLO transactions. The Company executes its core business strategy through its majority-owned subsidiaries, including CLOs.

The Manager, a wholly-owned subsidiary of KKR Asset Management LLC, manages the Company pursuant to a management agreement (the “Management Agreement”). KKR Asset Management LLC is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), which is a subsidiary of KKR & Co. L.P. (“KKR & Co.”).

On April 30, 2014, the Company became a subsidiary of KKR & Co., whereby KKR & Co. acquired all of the Company’s outstanding common shares through an exchange of equity through which the Company’s shareholders received 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN (the “Merger Transaction”). Following the Merger Transaction, KKR Fund Holdings L.P. (“KKR Fund Holdings”), a subsidiary of KKR & Co., became the sole holder of all of the outstanding common shares of the Company and is the parent of the Company (the “Parent”).

As of the close of trading on April 30, 2014, the Company’s common shares were delisted on the New York Stock Exchange (“NYSE”). The Company’s 7.375% Series A LLC Preferred Shares (“Series A LLC Preferred Shares”), senior notes and junior subordinated notes remain outstanding and the Company continues to file periodic reports under the Securities Exchange Act of 1934, as amended. Refer to Note 3 to these condensed consolidated financial statements for further details around the Merger Transaction.

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SHAREHOLDERS' EQUITY (Tables) (Predecessor Company)

6 Months Ended

Jun. 30, 2014

Predecessor Company

Stock-based compensation

Schedule of restricted common share transactions

	Predecessor Company
	Manager		Directors	Total
Unvested shares as January 1, 2014	584,634		85,194	669,828
Issued	—		—	—
Vested	(243,648	)	—	(243,648	)
Forfeited	—		—	—
Unvested shares as of April 30, 2014	340,986		85,194	426,180

Schedule of common share option transactions

	Predecessor Company
	Number of Options	Weighted Average Exercise Price
Outstanding as of January 1, 2014	1,932,279	$	20.00
Granted	—	—
Exercised	—	—
Forfeited	—	—
Outstanding as of April 30, 2014	1,932,279	$	20.00

Schedule of share-based compensation expense

For the one and four months ended April 30, 2014 and three and six months ended June 30, 2013, the components of share-based compensation expense are as follows (amounts in thousands):

	Predecessor Company
	For the one month ended April 30, 2014		For the four months ended April 30, 2014		For the three months ended June 30, 2013		For the six months ended June 30, 2013
Restricted common shares granted to Manager	$	113	$	690	$	664	$	1,383
Restricted common shares granted to certain directors	64		328		252		513
Total share-based compensation expense	$	177	$	1,018	$	916	$	1,896

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SEGMENT REPORTING (Details) (USD $)	1 Months Ended	2 Months Ended					1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Reportable segments Credit	Jun. 30, 2014 Successor Company Reportable segments Natural Resources	Jun. 30, 2014 Successor Company Reportable segments Other	Jun. 30, 2014 Successor Company Reconciling Items	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Reportable segments Credit	Jun. 30, 2013 Predecessor Company Reportable segments Credit	Apr. 30, 2014 Predecessor Company Reportable segments Credit	Jun. 30, 2013 Predecessor Company Reportable segments Credit	Dec. 31, 2013 Predecessor Company Reportable segments Credit	Apr. 30, 2014 Predecessor Company Reportable segments Natural Resources	Jun. 30, 2013 Predecessor Company Reportable segments Natural Resources	Apr. 30, 2014 Predecessor Company Reportable segments Natural Resources	Jun. 30, 2013 Predecessor Company Reportable segments Natural Resources	Dec. 31, 2013 Predecessor Company Reportable segments Natural Resources	Apr. 30, 2014 Predecessor Company Reportable segments Other	Jun. 30, 2013 Predecessor Company Reportable segments Other	Apr. 30, 2014 Predecessor Company Reportable segments Other	Jun. 30, 2013 Predecessor Company Reportable segments Other	Dec. 31, 2013 Predecessor Company Reportable segments Other	Apr. 30, 2014 Predecessor Company Reconciling Items	Jun. 30, 2013 Predecessor Company Reconciling Items	Apr. 30, 2014 Predecessor Company Reconciling Items	Jun. 30, 2013 Predecessor Company Reconciling Items	Dec. 31, 2013 Predecessor Company Reconciling Items
Reconciliation of operating profit loss from segment to consolidated
Total revenues		$ 94,313,000	$ 62,311,000	$ 31,930,000	$ 72,000		$ 76,652,000	$ 137,244,000	$ 217,242,000	$ 277,694,000		$ 37,693,000	$ 109,377,000	$ 134,255,000	$ 224,526,000		$ 17,754,000	$ 27,867,000	$ 61,782,000	$ 51,672,000		$ 21,205,000		$ 21,205,000	$ 1,496,000
Total investment costs and expenses		55,664,000	35,410,000	20,057,000	197,000		28,055,000	65,193,000	101,825,000	146,242,000		16,612,000	45,445,000	62,485,000	106,844,000		11,339,000	19,500,000	38,915,000	38,969,000		104,000	248,000	425,000	429,000
Total other income (loss)		20,887,000	17,113,000	(4,880,000)	8,654,000		(16,506,000)	37,235,000	56,334,000	111,455,000		11,530,000	31,958,000	76,046,000	125,884,000		(2,734,000)	7,265,000	(8,123,000)	2,519,000		(25,302,000)	(1,988,000)	(11,589,000)	3,321,000			0		(20,269,000)
Total other expenses		14,364,000	12,753,000	1,393,000	183,000	35,000	34,151,000	23,196,000	65,609,000	58,023,000		7,286,000	15,028,000	23,121,000	28,996,000		479,000	799,000	1,633,000	2,429,000		90,000	244,000	230,000	368,000		26,296,000	7,125,000	40,625,000	26,230,000
Income tax expense (benefit)		28,000	24,000		4,000		143,000	(42,000)	162,000	416,000		127,000	(46,000)	146,000	411,000							16,000	4,000	16,000	5,000
Net income (loss)	45,144,000	45,144,000	31,237,000	5,600,000	8,342,000	(35,000)	(2,203,000)	86,132,000	105,980,000	184,468,000		25,198,000	80,908,000	124,549,000	214,159,000		3,202,000	14,833,000	13,111,000	12,793,000		(4,307,000)	(2,484,000)	8,945,000	4,015,000		(26,296,000)	(7,125,000)	(40,625,000)	(46,499,000)
Incentive fees							0	5,561,000	12,882,000	22,742,000
Net loss on restructuring and extinguishment of debt		0								20,269,000
Merger related transaction costs							22,700,000		22,700,000
Total assets	$ 9,388,426,000	$ 9,388,426,000	$ 8,547,333,000	$ 632,527,000	$ 208,372,000	$ 194,000					$ 8,717,198,000					$ 8,020,353,000					$ 505,029,000					$ 190,946,000					$ 870,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) (Predecessor Company, KFN, KKR & Co.)	0 Months Ended
	Apr. 30, 2014	Dec. 16, 2013
Predecessor Company | KFN | KKR & Co.
Merger transaction
Exchange ratio of share based awards under merger transaction	0.51	0.51

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 6) (Predecessor Company, USD $) In Thousands, unless otherwise specified	Dec. 31, 2013 issuer
Recorded investment in impaired loans and related allowances for credit losses
Number of issuers of loans related to the aggregate allowance on impaired loans (in issuers)	4
Impaired Financing Receivable, Recorded Investment
Recorded Investment, with an allowance recorded	$ 554,442
Recorded Investment	554,442
Unpaid Principal Balance, with an allowance recorded	594,416
Unpaid Principal Balance	594,416
Related Allowance	142,682
Impaired Financing Receivable, Amortized Cost
Allocated component of allowance for loan losses to the account for impairment	142,682
Texas Competitive Electric Holdings Company LLC
Impaired Financing Receivable, Amortized Cost
Impaired loans	311,600
Allocated component of allowance for loan losses to the account for impairment	$ 66,900

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) (Predecessor Company, USD $) In Thousands, unless otherwise specified	Apr. 30, 2014	Dec. 31, 2013	Jun. 30, 2013
Assets and liabilities measured at fair value on a recurring and non- recurring basis
Net carrying value		$ 6,466,720
Transfers from Level 1 into Level 2	0		0
Transfers from Level 2 into Level 1	0		0
Corporate Loans Held for Sale
Assets and liabilities measured at fair value on a recurring and non- recurring basis
Net carrying value		279,748
Amortized Cost | Corporate Loans Held for Sale
Assets and liabilities measured at fair value on a recurring and non- recurring basis
Loans held for sale		183,600
Non-recurring basis | Significant Other Observable Inputs (Level 2)
Assets and liabilities measured at fair value on a recurring and non- recurring basis
Loans held for sale		90,485
Asset, fair value		90,485
Non-recurring basis | Significant Unobservable Inputs (Level 3)
Assets and liabilities measured at fair value on a recurring and non- recurring basis
Loans held for sale		5,568
Asset, fair value		5,568
Non-recurring basis | Estimated Fair Value
Assets and liabilities measured at fair value on a recurring and non- recurring basis
Liabilities measured at fair value on a non-recurring basis		0
Loans held for sale		96,053
Asset, fair value		$ 96,053

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014 Successor Company	Apr. 30, 2014 Predecessor Company	Mar. 31, 2014 Predecessor Company	Dec. 31, 2013 Predecessor Company	Jun. 30, 2013 Predecessor Company	Mar. 31, 2013 Predecessor Company	Dec. 31, 2012 Predecessor Company
Assets
Cash and cash equivalents	$ 197,850	$ 210,413		$ 157,167	$ 507,503		$ 237,606
Restricted cash and cash equivalents	608,870			350,385
Securities, at estimated fair value	570,071			573,312
Corporate loans, net (includes $6,293,540 measured at estimated fair value as of June 30, 2014 and $237,480 measured at estimated fair value and $279,748 loans held for sale as of December 31, 2013)	6,293,540			237,480
Corporate loans, net (includes $6,293,540 measured at estimated fair value as of June 30, 2014 and $237,480 measured at estimated fair value and $279,748 loans held for sale as of December 31, 2013)				6,466,720
Equity investments, at estimated fair value ($88,096 and zero pledged as collateral as of June 30, 2014 and December 31, 2013, respectively)	278,503			181,212
Oil and gas properties, net	525,678			400,369
Interests in joint ventures and partnerships, at estimated fair value	534,026			436,241
Derivative assets	22,991			30,224
Interest and principal receivable	40,015			33,570
Other assets	316,882			87,998
Total assets	9,388,426			8,717,198
Liabilities
Collateralized loan obligation secured notes (includes $5,547,914 and zero measured at estimated fair value as of June 30, 2014 and December 31, 2013, respectively)	5,547,914			5,249,383
Credit facilities	83,289			125,289
Senior notes	415,278			362,276
Junior subordinated notes	246,062			283,517
Accounts payable, accrued expenses and other liabilities	223,748			58,215
Accrued interest payable	22,061			23,575
Related party payable	4,420			5,574
Derivative liabilities	88,345			81,635
Total liabilities	6,631,117			6,189,464
Shareholders' equity
Preferred shares, no par value, 50,000,000 shares authorized and 14,950,000 issued and outstanding as of both June 30, 2014 and December 31, 2013	0			0
Common shares, no par value, 500,000,000 shares authorized, and 100 shares and 204,824,159 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively	0			0
Paid-in-capital	2,763,922			3,315,117
Accumulated other comprehensive loss		(26,347)	(21,372)	(15,652)	(39,643)	(53,543)	(70,226)
Accumulated deficit	(6,613)			(771,731)
Total shareholders' equity	2,757,309	2,572,085		2,527,734
Total liabilities and shareholders' equity	$ 9,388,426			$ 8,717,198

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SECURITIES (Details 3) (Predecessor Company, USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Apr. 30, 2014	Jun. 30, 2013	Apr. 30, 2014	Jun. 30, 2013
Predecessor Company
Net realized gains and losses recognized on the sale of securities available for sale
Gross realized gains	$ 2,516	$ 679	$ 2,516	$ 2,829
Gross realized losses		(6)		(6)
Net realized gains	$ 2,516	$ 673	$ 2,516	$ 2,823

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Condensed Consolidated Statements of Changes in Shareholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Successor Company USD ($)	Successor Company Preferred Shares	Successor Company Preferred Shares Paid-In Capital USD ($)	Successor Company Common Shares	Successor Company Common Shares Paid-In Capital USD ($)	Successor Company Accumulated Other Comprehensive Loss USD ($)	Successor Company Accumulated Deficit USD ($)	Predecessor Company USD ($)	Predecessor Company Preferred Shares	Predecessor Company Preferred Shares Paid-In Capital USD ($)	Predecessor Company Common Shares	Predecessor Company Common Shares Paid-In Capital USD ($)	Predecessor Company Accumulated Other Comprehensive Loss USD ($)	Predecessor Company Accumulated Deficit USD ($)
Balance at Dec. 31, 2013								$ 2,527,734		$ 361,622		$ 2,953,495	$ (15,652)	$ (771,731)
Balance (in shares) at Dec. 31, 2013									14,950,000		204,824,159
Increase (Decrease) in Shareholders' Equity
Net income								105,980						105,980
Other comprehensive loss								(10,695)					(10,695)
Distributions declared on preferred shares								(6,891)						(6,891)
Distributions declared on common shares								(45,061)						(45,061)
Share-based compensation expense related to restricted common shares								1,018				1,018
Balance at Apr. 30, 2014								2,572,085		361,622		2,954,513	(26,347)	(717,703)
Balance (in shares) at Apr. 30, 2014									14,950,000		204,824,159
Balance at Mar. 31, 2014
Increase (Decrease) in Shareholders' Equity
Net income								(2,203)
Other comprehensive loss								(4,975)
Balance at Apr. 30, 2014								2,572,085		361,622
Balance (in shares) at Apr. 30, 2014									14,950,000		204,824,159
Increase (Decrease) in Shareholders' Equity
Purchase accounting adjustments	191,371
Balance at May. 31, 2014	2,763,456
Balance (in shares) at May. 31, 2014		14,950,000
Balance at May. 01, 2014
Increase (Decrease) in Shareholders' Equity
Purchase accounting adjustments			17,361		(570,040)	26,347	717,703
Purchase accounting adjustments (in shares)				(204,824,000)
Balance at May. 31, 2014			378,983		2,384,473
Balance (in shares) at May. 31, 2014		14,950,000		204,824,159
Balance at May. 01, 2014
Increase (Decrease) in Shareholders' Equity
Reverse stock split (in shares)				(204,824,059)
Net income	45,144
Balance at Jun. 30, 2014	2,757,309		378,983
Balance (in shares) at Jun. 30, 2014		14,950,000		100
Balance at May. 31, 2014	2,763,456				2,384,473
Balance (in shares) at May. 31, 2014		14,950,000
Increase (Decrease) in Shareholders' Equity
Net income	45,144						45,144
Distributions declared on preferred shares	(6,891)						(6,891)
Distributions to Parent	(44,866)						(44,866)
Capital contributions from Parent	466				466
Balance at Jun. 30, 2014	$ 2,757,309		$ 378,983		$ 2,384,939		$ (6,613)
Balance (in shares) at Jun. 30, 2014		14,950,000

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 12) (USD $)			6 Months Ended				12 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Corporate Loans issuer	Jun. 30, 2014 Successor Company Corporate Loans Percent to total investment in corporate loans, debt securities and other investments Top Twenty Issuers	Jun. 30, 2014 Successor Company Corporate Loans Percent to total investment in corporate loans, debt securities and other investments Top Three Issuers	Dec. 31, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company Corporate Loans issuer	Dec. 31, 2013 Predecessor Company Corporate Loans Percent to total investment in corporate loans, debt securities and other investments Top Twenty Issuers	Dec. 31, 2013 Predecessor Company Corporate Loans Percent to total investment in corporate loans, debt securities and other investments Top Three Issuers
Concentrated risks
Concentration risk (as a percent)			42.00%	12.00%			46.00%	14.00%
Number of issuers with whom a specified percentage of estimated fair value or amortized cost of corporate loans is concentrated		20				20
Number of issuers with the largest concentration of corporate loans		3				3
Amortized cost of corporate loans concentrated in major issuers (in dollars)								$ 935,200,000
Estimated fair value of corporate loans	$ 6,293,540,000			$ 768,700,000	$ 237,480,000

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EARNINGS PER COMMON SHARE (Tables) (Predecessor Company)

6 Months Ended

Jun. 30, 2014

Predecessor Company

Earnings per common share

Schedule of reconciliation of basic and diluted net (loss) income per common share

The following table presents a reconciliation of basic and diluted net (loss) income per common share for the Predecessor Company (amounts in thousands, except per share information):

	Predecessor Company
	One month ended April 30, 2014			Four months ended April 30, 2014		Three months endedJune 30, 2013		Six monthsendedJune 30, 2013
Net (loss) income	$	(2,203	)	$	105,980	$	86,132	$	184,468
Less: Preferred share distributions	—			6,891		6,891		13,629
Net (loss) income available to common shareholders	$	(2,203	)	$	99,089	$	79,241	$	170,839
Less: Dividends and undistributed (loss) earnings allocated to participating securities	(5		)	292		262		591
Net (loss) income allocated to common shareholders	$	(2,198	)	$	98,797	$	78,979	$	170,248
Basic:
Basic weighted average common shares outstanding	204,398			204,276		204,108		200,650
Net (loss) income per common share	$	(0.01	)	$	0.48	$	0.39	$	0.85
Diluted:
Diluted weighted average common shares outstanding(1)	204,398			204,276		204,108		200,650
Net (loss) income per common share	$	(0.01	)	$	0.48	$	0.39	$	0.85

(1) Potential anti-dilutive common shares excluded from diluted earnings per share related to common share options were 1,932,279 for all periods presented.

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BORROWINGS (Details 4) (Predecessor Company, USD $) Share data in Millions, unless otherwise specified	6 Months Ended	0 Months Ended
	Jun. 30, 2013	Jan. 18, 2013 7.5% Convertible Senior Notes
Details of Company's borrowings
Interest rate (as a percent)		7.50%
Convertible senior notes issued, principal amount		$ 172,500,000
Conversion rate of common stock shares per $1,000 principal amount (in shares per USD)		0.1418256
Principal amount used for debt instrument conversion ratio		1,000
Conversion rate of additional common shares issued upon conversion per $1,000 principal amount to account for the make-whole premium (in shares per USD)		0.0092324
Amount of debt that had been tendered for conversion	$ 186,254,000	$ 172,500,000
Number of common shares of the entity issued in exchange of convertible notes (in shares)		26.1

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ACCUMULATED OTHER COMPREHENSIVE LOSS

6 Months Ended

Jun. 30, 2014

ACCUMULATED OTHER COMPREHENSIVE LOSS

ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS

In connection with the Merger Transaction, accumulated other comprehensive loss is not provided for the two months ended June 30, 2014, as changes in the estimated fair value of all securities and cash flow hedges are recorded in the condensed consolidated statements of operations, within net realized and unrealized gain (loss) on investments and net realized and unrealized (loss) gain on derivatives and foreign exchange, respectively. The components of changes in accumulated other comprehensive loss for the Predecessor Company were as follows (amounts in thousands):

	Predecessor Company
	One month ended April 30, 2014 (1)									Four months ended April 30, 2014 (1)
	Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total			Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total
Beginning balance	$	21,678		$	(43,050	)	$	(21,372	)	$	23,567		$	(39,219	)	$	(15,652	)
Other comprehensive loss before reclassifications	(2,311		)	(1,611		)	(3,922		)	(2,614		)	(5,442		)	(8,056		)
Amounts reclassified from accumulated other comprehensive loss(2)	(1,053		)	—			(1,053		)	(2,639		)	—			(2,639		)
Net current-period other comprehensive loss	(3,364		)	(1,611		)	(4,975		)	(5,253		)	(5,442		)	(10,695		)
Ending balance	$	18,314		$	(44,661	)	$	(26,347	)	$	18,314		$	(44,661	)	$	(26,347	)

(1) The Company’s gross and net of tax amounts are the same.

(2) Includes an impairment charge of $1.5 million and $4.4 million for investments which were determined to be other-than-temporary for the one and four months ended April 30, 2014, respectively. These reclassified amounts are included in net realized and unrealized gain (loss) on investments on the condensed consolidated statements of operations.

	Predecessor Company
	Three months endedJune 30, 2013(1)									Six months endedJune 30, 2013(1)
	Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total			Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total
Beginning balance	$	22,997		$	(76,540	)	$	(53,543	)	$	17,472		$	(87,698	)	$	(70,226	)
Other comprehensive (loss) income before reclassifications	(12,121		)	20,240			8,119			(9,709		)	31,398			21,689
Amounts reclassified from accumulated other comprehensive loss(2)	5,781			—			5,781			8,894			—			8,894
Net current-period other comprehensive (loss) income	(6,340		)	20,240			13,900			(815		)	31,398			30,583
Ending balance	$	16,657		$	(56,300	)	$	(39,643	)	$	16,657		$	(56,300	)	$	(39,643	)

(1) The Company’s gross and net of tax amounts are the same.

(2) Includes an impairment charge of $6.6 million and $12.5 million for investments which were determined to be other-than-temporary for the three and six months ended June 30, 2013, respectively. These reclassified amounts are included in net realized and unrealized gain on investments on the condensed consolidated statements of operations.

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables) (Predecessor Company)

6 Months Ended

Jun. 30, 2014

Predecessor Company

ACCUMULATED OTHER COMPREHENSIVE LOSS

Schedule of components of changes in accumulated other comprehensive loss

The components of changes in accumulated other comprehensive loss for the Predecessor Company were as follows (amounts in thousands):

	Predecessor Company
	One month ended April 30, 2014 (1)									Four months ended April 30, 2014 (1)
	Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total			Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total
Beginning balance	$	21,678		$	(43,050	)	$	(21,372	)	$	23,567		$	(39,219	)	$	(15,652	)
Other comprehensive loss before reclassifications	(2,311		)	(1,611		)	(3,922		)	(2,614		)	(5,442		)	(8,056		)
Amounts reclassified from accumulated other comprehensive loss(2)	(1,053		)	—			(1,053		)	(2,639		)	—			(2,639		)
Net current-period other comprehensive loss	(3,364		)	(1,611		)	(4,975		)	(5,253		)	(5,442		)	(10,695		)
Ending balance	$	18,314		$	(44,661	)	$	(26,347	)	$	18,314		$	(44,661	)	$	(26,347	)

(1) The Company’s gross and net of tax amounts are the same.

(2) Includes an impairment charge of $1.5 million and $4.4 million for investments which were determined to be other-than-temporary for the one and four months ended April 30, 2014, respectively. These reclassified amounts are included in net realized and unrealized gain (loss) on investments on the condensed consolidated statements of operations.

	Predecessor Company
	Three months endedJune 30, 2013(1)									Six months endedJune 30, 2013(1)
	Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total			Net unrealized gains on available-for-sale securities			Net unrealized losses on cash flow hedges			Total
Beginning balance	$	22,997		$	(76,540	)	$	(53,543	)	$	17,472		$	(87,698	)	$	(70,226	)
Other comprehensive (loss) income before reclassifications	(12,121		)	20,240			8,119			(9,709		)	31,398			21,689
Amounts reclassified from accumulated other comprehensive loss(2)	5,781			—			5,781			8,894			—			8,894
Net current-period other comprehensive (loss) income	(6,340		)	20,240			13,900			(815		)	31,398			30,583
Ending balance	$	16,657		$	(56,300	)	$	(39,643	)	$	16,657		$	(56,300	)	$	(39,643	)

(1) The Company’s gross and net of tax amounts are the same.

(2) Includes an impairment charge of $6.6 million and $12.5 million for investments which were determined to be other-than-temporary for the three and six months ended June 30, 2013, respectively. These reclassified amounts are included in net realized and unrealized gain on investments on the condensed consolidated statements of operations.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and entities established to complete secured financing transactions that are considered to be variable interest entities (“VIEs”) and for which the Company is the primary beneficiary.

As further described in Note 3 to these condensed consolidated financial statements, the Merger Transaction was accounted for using the acquisition method of accounting, which required that the assets purchased and the liabilities assumed all be reported in the acquirer’s financial statements at their fair value, with any excess of net assets over the purchase price being reported as a bargain purchase gain. The application of the acquisition method of accounting represented a push down of accounting basis to the Company, whereby it was also required to record the assets and liabilities at fair value as of the date of the Merger Transaction. This change in accounting basis resulted in the termination of the prior reporting entity and a corresponding creation of a new reporting entity.

Accordingly, the Company’s condensed consolidated financial statements and transactional records prior to the effective date, or May 1, 2014 (the “Effective Date”), reflect the historical accounting basis of assets and liabilities and are labeled “Predecessor Company,” while such records subsequent to the Effective Date are labeled “Successor Company” and reflect the push down basis of accounting for the new estimated fair values in the Company’s condensed consolidated financial statements. This change in accounting basis is represented in the condensed consolidated financial statements by a vertical black line which appears between the columns entitled “Predecessor Company” and “Successor Company” on the statements and in the relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Merger Transaction are not comparable.

In addition to the new accounting basis established for assets and liabilities, purchase accounting also required the reclassification of any retained earnings or accumulated deficit from periods prior to the acquisition and the elimination of any accumulated other comprehensive income or loss to be recognized within the Company’s shareholders’ equity section of the Company’s condensed consolidated financial statements. Accordingly, the Company’s accumulated deficit at June 30, 2014 represents only the results of operations subsequent to April 30, 2014, the date of the Merger Transaction.

For the following assets not carried at fair value, as presented under the Predecessor Company, the Company adopted the fair value option of accounting as of the Effective Date: (i) corporate loans held for investment at amortized cost, net of an allowance for loan losses, (ii) corporate loans held for sale at lower of cost or estimated fair value and (iii) certain other investments at cost. In addition, the Company elected the fair value option of accounting for its collateralized loan obligation secured notes. As such, the accounting policies followed by the Company in the preparation of its condensed consolidated financial statements for the Successor period present all financial assets and CLO secured notes at estimated fair value. The Company’s adoption of fair value accounting was for the primary purpose of reporting values that more closely aligned with KKR & Co.’s method of accounting.

Unrealized gains and losses for the financial assets and liabilities carried at estimated fair value are reported in net realized and unrealized gain (loss) on investments and net realized and unrealized loss on debt, respectively, in the condensed consolidated statements of operations. Unrealized gains or losses primarily reflect the change in instrument values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. For the Successor period, upon the sale of a corporate loan or debt security, the net realized gain or loss is computed using the specific identification method. Comparatively, for the Predecessor period, the realized net gain or loss was computed on a weighted average cost basis.

In addition, for the Successor period, all purchases and sales of assets are recorded on the trade date. Comparatively, for the Predecessor periods, corporate loans were recorded on the settlement date.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company uses historical experience and various other assumptions and information that are believed to be reasonable under the circumstances in developing its estimates and judgments. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. While the Company believes that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are appropriate, actual results could differ from those estimates.

Estimates of oil, natural gas and natural gas liquid (“NGL”) reserves and their values, future production rates and future costs and expenses are inherently uncertain, including many factors beyond the Company’s control. Reservoir engineering is a subjective process of estimating underground accumulations of oil, natural gas and NGL that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of many factors including the following: the quality and quantity of available data, the interpretation of that data, the accuracy of various mandated economic assumptions and the judgments of the individuals preparing the estimates. In addition, reserve estimates are a function of many assumptions, all of which could deviate significantly from actual results. As such, reserve estimates may materially vary from the ultimate quantities of oil, natural gas and NGL eventually recovered, and could materially affect the Company’s future depreciation, depletion and amortization expense (“DD&A”), its asset retirement obligations or impairment considerations.

Consolidation

Consolidation

KKR Financial CLO 2005-1, Ltd. (“CLO 2005-1”), KKR Financial CLO 2005-2, Ltd. (“CLO 2005-2”), KKR Financial CLO 2006-1, Ltd. (“CLO 2006-1”), KKR Financial CLO 2007-1, Ltd. (“CLO 2007-1”), KKR Financial CLO 2007-A, Ltd. (“CLO 2007-A”), KKR Financial CLO 2011-1, Ltd. (“CLO 2011-1”), KKR Financial CLO 2012-1, Ltd. (“CLO 2012-1”), KKR Financial CLO 2013-1, Ltd. (“CLO 2013-1”) and KKR Financial CLO 2013-2, Ltd. (“CLO 2013-2”) (collectively the “Cash Flow CLOs”) are entities established to complete secured financing transactions. These entities are VIEs which the Company consolidates as the Company has determined it has the power to direct the activities that most significantly impact these entities’ economic performance and the Company has both the obligation to absorb losses of these entities and the right to receive benefits from these entities that could potentially be significant to these entities. In CLO transactions, subordinated notes have the first risk of loss and conversely, the residual value upside of the transactions.

The Company finances the majority of its corporate debt investments through its CLOs. As of June 30, 2014, the Company’s nine CLOs held $6.6 billion par amount, or $6.4 billion estimated fair value, of corporate debt investments. As of December 31, 2013, the Company had eight CLOs that held $6.7 billion par amount, or $6.4 billion estimated fair value, of corporate debt investments. The assets in each CLO can be used only to settle the debt of the related CLO. As of June 30, 2014 and December 31, 2013, the aggregate par amount of CLO debt totaled $5.6 billion and $5.3 billion, respectively, held by unaffiliated third parties.

The Company consolidates all non-VIEs in which it holds a greater than 50 percent voting interest.

In addition, the Company has non-controlling interests in joint ventures and partnerships that do not qualify as VIEs and do not meet the control requirements for consolidation as defined by GAAP.

All inter-company balances and transactions have been eliminated in consolidation.

Fair Value Option

Fair Value Option

In connection with the application of acquisition accounting related to the Merger Transaction, the Successor Company elected the fair value option of accounting for its financial assets and CLO secured notes for the primary purpose of reporting values that more closely aligned with KKR & Co.’s method of accounting. Related unrealized gains and losses are reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors including the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets and liabilities, and are as follows:

Level 1:  Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2:  Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3:  Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument is new, whether the instrument is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2, and/or 3, which the Company recognizes at the end of the reporting period.

Many financial assets and liabilities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Company and others are willing to pay for an asset. Ask prices represent the lowest price that the Company and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, the Company does not require that fair value always be a predetermined point in the bid-ask range. The Company’s policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Company’s best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, the Company may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 of the fair value hierarchy are described below.

Securities and Corporate Loans, at Estimated Fair Value:  Securities and corporate loans, at estimated fair value are initially valued at transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models. Valuation models are based on yield analysis techniques, where the key inputs are based on relative value analyses, which incorporate similar instruments from similar issuers. In addition, an illiquidity discount is applied where appropriate.

Equity Investments, at Estimated Fair Value:  Equity investments, at estimated fair value, are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach, which incorporates significant assumptions and judgment, include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as earnings before interest, taxes, depreciation and amortization (“EBITDA”) exit multiples. Upon completion of the valuations conducted using these approaches, a weighting is ascribed to each approach and an illiquidity discount is applied where appropriate. The ultimate fair value recorded for a particular investment will generally be within the range suggested by the two approaches.

Interests in Joint Ventures and Partnerships:  Interests in joint ventures and partnerships include certain equity investments related to the oil and gas, commercial real estate and specialty lending sectors. Interests in joint ventures and partnerships are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Valuation models are generally based on market and income (discounted cash flow) approaches, in which various internal and external factors are considered. Key inputs include the weighted average cost of capital and EBITDA multiples. In addition, an illiquidity discount is applied where appropriate.

Over-the-counter (“OTC”) Derivative Contracts:  OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities and equity prices. OTC derivatives are initially valued using quoted market prices, if available, or models using a series of techniques, including closed-form analytic formulae, such as the Black-Scholes option-pricing model, and/or simulation models in the absence of quoted market prices. Many pricing models employ methodologies that have pricing inputs observed from actively quoted markets, as is the case for generic interest rate swap and option contracts.

Residential Mortgage-Backed Securities, at Estimated Fair Value:  RMBS are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and constant prepayment rates.

Collateralized Loan Obligation Secured Notes: Collateralized loan obligation secured notes are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and discount margins.

Key unobservable inputs that have a significant impact on the Company’s Level 3 valuations as described above are included in Note 9 to these condensed consolidated financial statements. The Company utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. These unobservable pricing inputs and assumptions may differ by asset and in the application of the Company’s valuation methodologies. The reported fair value estimates could vary materially if the Company had chosen to incorporate different unobservable pricing inputs and other assumptions or, for applicable investments, if the Company only used either the discounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies.

Valuation Process

The valuation process involved in Level 3 measurements for assets and liabilities is completed on a quarterly basis and is designed to subject the valuation of Level 3 investments to an appropriate level of consistency, oversight and review. The Company utilizes a valuation committee, whose members consist of the Company’s Chief Financial Officer, General Counsel and certain other employees of the Manager. The valuation committee is responsible for coordinating and implementing the Company’s quarterly valuation process.

Investments are generally valued based on quotations from third party pricing services, unless such a quotation is unavailable or is determined to be unreliable or inadequately representing the fair value of the particular assets. In that case, valuations are based on either valuation data obtained from one or more other third party pricing sources, including broker dealers, or will reflect the valuation committee’s good faith determination of estimated fair value based on other factors considered relevant. For assets classified as Level 3, the investment professionals are responsible for documenting preliminary valuations based on various factors including their evaluation of financial and operating data, company specific developments, market valuations of comparable companies and model projections discussed above. All valuations are approved by the valuation committee.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three months or less. Interest income earned on cash and cash equivalents is recorded in other within total revenues on the condensed consolidated statements of operations.

Restricted Cash and Cash Equivalents

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents represent amounts that are held by third parties under certain of the Company’s financing and derivative transactions. Interest income earned on restricted cash and cash equivalents is recorded in other within total revenues on the condensed consolidated statements of operations.

On the condensed consolidated statements of cash flows, net additions or reductions to restricted cash and cash equivalents are classified as an investing activity as restricted cash and cash equivalents reflect the receipts from collections or sales of investments, as well as payments made to acquire investments held by third parties.

Securities Available-for-Sale

Securities Available-for-Sale

The Predecessor and Successor Company both classify certain of their investments in securities as available-for-sale as the Companies may sell them prior to maturity and do not hold them principally for the purpose of selling them in the near term. These investments are carried at estimated fair value. The Successor Company elected the fair value option of accounting for its securities, with changes in estimated fair value reported in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. Comparatively, the Predecessor Company reported all unrealized gains and losses in accumulated other comprehensive loss on the condensed consolidated balance sheets.

The Predecessor Company monitored its available-for-sale securities portfolio for impairments. A loss was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary. The Company considered many factors in determining whether the impairment of a security was deemed to be other-than-temporary, including, but not limited to, the length of time the security had a decline in estimated fair value below its amortized cost and the severity of the decline, the amount of the unrealized loss, recent events specific to the issuer or industry, external credit ratings and recent changes in such ratings. In addition, for debt securities, the Company considered its intent to sell the debt security, the Company’s estimation of whether or not it expected to recover the debt security’s entire amortized cost if it intended to hold the debt security, and whether it was more likely than not that the Company was required to sell the debt security before its anticipated recovery. For equity securities, the Company also considered its intent and ability to hold the equity security for a period of time sufficient for a recovery in value.

The amount of the loss that was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary was dependent on certain factors. If the security was an equity security or if the security was a debt security that the Company intended to sell or estimated that it was more likely than not that the Company would be required to sell before recovery of its amortized cost, then the impairment amount recognized in earnings was the entire difference between the estimated fair value of the security and its amortized cost. For debt securities that the Company did not intend to sell or estimated that it was not more likely than not to be required to sell before recovery, the impairment was separated into the estimated amount relating to credit loss and the estimated amount relating to all other factors. Only the estimated credit loss amount was recognized in earnings, with the remainder of the loss amount recognized in accumulated other comprehensive loss.

Unamortized premiums and unaccreted discounts on securities available-for-sale were recognized in interest income over the contractual life, adjusted for actual prepayments, of the securities using the effective interest method.

Other Securities, at Estimated Fair Value

Other Securities, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their securities for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these securities. All securities, at estimated fair value are included within securities on the condensed consolidated balance sheets.

Estimated fair values are based on quoted market prices, when available, on estimates provided by independent pricing sources or dealers who make markets in such securities, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the securities using the effective interest method.

Residential Mortgage-Backed Securities, at Estimated Fair Value

Residential Mortgage-Backed Securities, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for their residential mortgage investments for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these investments. RMBS, at estimated fair value are included within securities on the condensed consolidated balance sheets.

Equity Investments, at Estimated Fair Value

Equity Investments, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their equity investments, at estimated fair value, including private equity investments received through restructuring debt transactions or issued by an entity in which the Company may have significant influence. The Companies elected the fair value option for certain of their equity investments for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these investments. Equity investments carried at estimated fair value are presented separately on the condensed consolidated balance sheets.

Interests in Joint Ventures and Partnerships

Interests in Joint Ventures and Partnerships

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their interests in joint ventures and partnerships. The Companies elected the fair value option of accounting for certain of their non-controlling interests in joint ventures and partnerships for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these interests. Interests in joint ventures and partnerships are presented separately on the condensed consolidated balance sheets.

Corporate Loans

Corporate Loans, Net

In connection with the Company’s application of acquisition accounting related to the Merger Transaction and to align more closely with KKR & Co.’s method of accounting, the Company elected to carry all of its corporate loans at estimated fair value as of the Effective Date, with changes in estimated fair value recorded in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. As presented under the Predecessor Company, corporate loans had previously been accounted for based on the following three categories: (i) corporate loans held for investment, which were measured based on their principal plus or minus unaccreted purchase discounts and unamortized purchase premiums, net of an allowance for loan losses; (ii) corporate loans held for sale, which were measured at lower of cost or estimated fair value; and (iii) corporate loans at estimated fair value, which were measured at fair value. As such, the disclosures related to loans held for investment and loans held for sale pertain to the Predecessor Company.

Corporate Loans

Prior to the Effective Date, corporate loans were generally held for investment and the Company initially recorded corporate loans at their purchase prices. The Company subsequently accounted for corporate loans based on their outstanding principal plus or minus unaccreted purchase discounts and unamortized purchase premiums and corporate loans that the Company transferred to held for sale were transferred at the lower of cost or estimated fair value. As of the Effective Date, the Company initially recorded corporate loans at their purchase prices and subsequently accounts for all corporate loans at estimated fair value.

Interest income on corporate loans includes interest at stated coupon rates adjusted for accretion of purchase discounts and the amortization of purchase premiums. Unamortized premiums and unaccreted discounts are recognized in interest income over the contractual life, adjusted for actual prepayments, of the corporate loans using the effective interest method.

Other than corporate loans measured at estimated fair value, corporate loans acquired with deteriorated credit quality are recorded at initial cost and interest income is recognized as the difference between the Company’s estimate of all cash flows that it will receive from the loan in excess of its initial investment on a level-yield basis over the life of the corporate loan (accretable yield) using the effective interest method.

A corporate loan is typically placed on non-accrual status at such time as: (i) management believes that scheduled debt service payments may not be paid when contractually due; (ii) the corporate loan becomes 90 days delinquent; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (iv) the net realizable value of the collateral securing the corporate loan decreases below the Company’s carrying value of such corporate loan. As such, corporate loans placed on non-accrual status may or may not be contractually past due at the time of such determination. While on non-accrual status, previously recognized accrued interest is reversed if it is determined that such amounts are not collectible and interest income is recognized using the cost-recovery method, cash-basis method or some combination of the two methods. A corporate loan is placed back on accrual status when the ultimate collectability of the principal and interest is not in doubt.

Prior to the Effective Date, the Company may have modified corporate loans in transactions where the borrower was experiencing financial difficulty and a concession was granted to the borrower as part of the modification. These concessions may have included one or a combination of the following: a reduction of the stated interest rate; payment extensions; forgiveness of principal; or an exchange of assets. Such modifications typically qualified as troubled debt restructurings (“TDRs”). In order to determine whether the borrower was experiencing financial difficulty, an evaluation was performed including the following considerations: whether the borrower was or would have been in payment default on any of its debt in the foreseeable future without the modification; whether there was a potential for a bankruptcy filing; whether there was a going-concern issue; or whether the borrower was unable to secure financing elsewhere.

Corporate loans whose terms had been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower demonstrated a sustained period of repayment performance, typically six months.

TDRs were separately identified for impairment disclosures and were measured at either the estimated fair value or the present value of estimated future cash flows using the respective corporate loan’s effective rate at inception. Impairments associated with TDRs were included within the allocated component of the Company’s allowance for loan losses.

The Company may have also identified receivables that were newly considered impaired and disclosed the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that were newly considered impaired.

The corporate loans the Company invested in were generally deemed in default upon the non-payment of a single interest payment or as a result of the violation of a covenant in the respective corporate loan agreement. The Company charged-off a portion or all of its amortized cost basis in a corporate loan when it determined that it was uncollectible due to either: (i) the estimation based on a recovery value analysis of a defaulted corporate loan that less than the amortized cost amount would have been recovered through the agreed upon restructuring of the corporate loan or as a result of a bankruptcy process of the issuer of the corporate loan or (ii) the determination by the Company to transfer a corporate loan to held for sale with the corporate loan having an estimated fair value below the amortized cost basis of the corporate loan.

In addition to TDRs, the Company may have also modified corporate loans which usually involved changes in existing interest rates combined with changes of existing maturities to prevailing market rates/maturities for similar instruments at the time of modification. Such modifications typically did not meet the definition of a TDR since the respective borrowers were neither experiencing financial difficulty nor were seeking a concession as part of the modification.

Allowance for Loan Losses

Allowance for Loan Losses

As a result of the Merger Transaction, the acquisition method of accounting and adoption of fair value for corporate loans eliminated the need for an allowance for loan losses. The reevaluation of assets required by the acquisition method of accounting resulted in all loans being reported at their estimated fair values as of the Effective Date. The estimated fair value took into account the contractual payments on loans that were not expected to be received and consequently, no allowance for loan losses was carried over for the Successor Company. As of the Effective Date, no allowance for loan losses will be recorded as all corporate loans are carried at estimated fair value. As such, the disclosure related to the allowance for loan losses pertains to the Predecessor Company.

The Company’s corporate loan portfolio is comprised of a single portfolio segment which includes one class of financing receivables, that is, high yield loans that are typically purchased via assignment or participation in either the primary or secondary market. High yield loans are generally characterized as having below investment grade ratings or being unrated.

Prior to the Effective Date, the Company’s allowance for loan losses represented its estimate of probable credit losses inherent in its corporate loan portfolio held for investment as of the balance sheet date. Estimating the Company’s allowance for loan losses involved a high degree of management judgment and was based upon a comprehensive review of the Company’s corporate loan portfolio that was performed on a quarterly basis. The Company’s allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses pertained to specific corporate loans that the Company had determined were impaired. The Company determined a corporate loan was impaired when management estimated that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the corporate loan agreement. On a quarterly basis the Company performed a comprehensive review of its entire corporate loan portfolio and identified certain corporate loans that it had determined were impaired. Once a corporate loan was identified as being impaired, the Company placed the corporate loan on non-accrual status, unless the corporate loan was already on non-accrual status, and recorded an allowance that reflected management’s best estimate of the loss that the Company expected to recognize from the corporate loan. The expected loss was estimated as being the difference between the Company’s current cost basis of the corporate loan, including accrued interest receivable, and the present value of expected future cash flows discounted at the corporate loan’s effective interest rate, except as a practical expedient, the corporate loan’s observable estimated fair value may have been used. The Company also estimated the probable credit losses inherent in its unfunded loan commitments as of the balance sheet date. Any credit loss reserve for unfunded loan commitments was recorded in accounts payable, accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets.

The unallocated component of the Company’s allowance for loan losses represented its estimate of probable losses inherent in the corporate loan portfolio as of the balance sheet date where the specific loan that the loan loss relates to was indeterminable. The Company estimated the unallocated component of the allowance for loan losses through a comprehensive review of its corporate loan portfolio and identified certain corporate loans that demonstrated possible indicators of impairment, including internally assigned credit quality indicators. This assessment excluded all corporate loans that were determined to be impaired and as a result, an allocated reserve had been recorded as described in the preceding paragraph. Such indicators included the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, and the observable trading price of the corporate loan if available. All corporate loans were first categorized based on their assigned risk grade and further stratified based on the seniority of the corporate loan in the issuer’s capital structure. The seniority classifications assigned to corporate loans were senior secured, second lien and subordinate. Senior secured consisted of corporate loans that were the most senior debt in an issuer’s capital structure and therefore had a lower estimated loss severity than other debt that was subordinate to the senior secured loan. Senior secured corporate loans often had a first lien on some or all of the issuer’s assets. Second lien consisted of corporate loans that were secured by a second lien interest on some or all of the issuer’s assets; however, the corporate loan was subordinate to the first lien debt in the issuer’s capital structure. Subordinate consisted of corporate loans that were generally unsecured and subordinate to other debt in the issuer’s capital structure.

There were three internally assigned risk grades that were applied to loans that have not been identified as being impaired: high, moderate and low. High risk meant that there was evidence of possible loss due to the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, observable trading price of the corporate loan if available, or other factors that indicated that the breach of a covenant contained in the related loan agreement was possible. Moderate risk meant that while there was not observable evidence of possible loss, there were issuer and/or industry specific trends that indicated a loss may have occurred. Low risk meant that while there was no identified evidence of loss, there was the risk of loss inherent in the loan that had not been identified. All loans held for investment, with the exception of loans that had been identified as impaired, were assigned a risk grade of high, moderate or low.

The Company applied a range of default and loss severity estimates in order to estimate a range of loss outcomes upon which to base its estimate of probable losses that resulted in the determination of the unallocated component of the Company’s allowance for loan losses.

Corporate Loans Held for Sale

Corporate Loans Held for Sale

As described above, corporate loans held for sale related to the Predecessor Company. From time to time the Company made the determination to transfer certain of its corporate loans from held for investment to held for sale. The decision to transfer a loan to held for sale was generally as a result of the Company determining that the respective loan’s credit quality in relation to the loan’s expected risk-adjusted return no longer met the Company’s investment objective and/or the Company deciding to reduce or eliminate its exposure to a particular loan for risk management purposes. Corporate loans held for sale were stated at lower of cost or estimated fair value and were assessed on an individual basis. Prior to transferring a loan to held for sale, any difference between the carrying amount of the loan and its outstanding principal balance was recognized as an adjustment to the yield by the effective interest method. The loan was transferred from held for investment to held for sale at the lower of its cost or estimated fair value and was carried at the lower of its cost or estimated fair value thereafter. Subsequent to transfer and while the loan was held for sale, recognition as an adjustment to yield by the effective interest method was discontinued for any difference between the carrying amount of the loan and its outstanding principal balance.

From time to time the Company also made the determination to transfer certain of its corporate loans from held for sale back to held for investment. The decision to transfer a loan back to held for investment was generally as a result of the circumstances that led to the initial transfer to held for sale no longer being present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby the Company determined that selling the asset no longer met its investment objective and strategy. The loan was transferred from held for sale back to held for investment at the lower of its cost or estimated fair value, whereby a new cost basis was established based on this amount.

Interest income on corporate loans held for sale was recognized through accrual of the stated coupon rate for the loans, unless the loans were placed on non-accrual status, at which point previously recognized accrued interest was reversed if it was determined that such amounts were not collectible and interest income was recognized using either the cost-recovery method or on a cash-basis.

Corporate Loans, at Estimated Fair Value

Corporate Loans, at Estimated Fair Value

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their corporate loans for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these corporate loans. All corporate loans carried at estimated fair value are included within corporate loans, net on the condensed consolidated balance sheets.

Estimated fair values are based on quoted prices for similar instruments in active markets and inputs other than observable quoted prices, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the corporate loans using the effective interest method.

As described above under “Basis of Presentation,” as of the Effective Date, purchases and sales of corporate loans are recorded on the trade date.

Oil and Natural Gas Properties

Oil and Natural Gas Properties

Oil and natural gas producing activities are accounted for under the successful efforts method of accounting. Under this method, exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. Costs that are associated with the drilling of successful exploration wells are capitalized if proved reserves are found. Lease acquisition costs are capitalized when incurred. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs and costs of certain nonproducing leasehold costs are expensed as incurred.

Expenditures for repairs and maintenance, including workovers, are charged to expense as incurred.

The capitalized costs of producing oil and natural gas properties are depleted on a field-by-field basis using the units-of production method based on the ratio of current production to estimated total net proved oil, natural gas and NGL reserves. Proved developed reserves are used in computing depletion rates for drilling and development costs and total proved reserves are used for depletion rates of leasehold costs.

Estimated dismantlement and abandonment costs for oil and natural gas properties, net of salvage value, are capitalized at their estimated net present value and amortized on a unit-of-production basis over the remaining life of the related proved developed reserves.

Oil And Gas Revenue Recognition

Oil and Gas Revenue Recognition

Oil, natural gas and NGL revenues are recognized when production is sold to a purchaser at fixed or determinable prices, when delivery has occurred and title has transferred and collectability of the revenue is reasonably assured. The Company follows the sales method of accounting for natural gas revenues. Under this method of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which the Company is entitled based on the Company’s working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient to enable the under-produced owners to recoup their entitled share through future production. Under the sales method, no receivables are recorded when the Company has taken less than its share of production and no payables are recorded when the Company has taken more than its share of production.

Long-Lived Assets

Long-Lived Assets

Whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable, the Company evaluates its proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. The determination of recoverability is made based upon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, future operating costs and a discount rate commensurate with the risk on the properties and cost of capital. Unproved oil and natural gas properties are assessed periodically and, at a minimum, annually on a property-by-property basis, and any impairment in value is recognized when incurred.

Borrowings

Borrowings

The Company finances the majority of its investments through the use of secured borrowings in the form of securitization transactions structured as non-recourse secured financings and other secured and unsecured borrowings. In addition, the Company finances certain of its oil and gas asset acquisitions through borrowings. The Company recognizes interest expense on all borrowings on an accrual basis.

In connection with the Company’s application of acquisition accounting related to the Merger Transaction and to align more closely with KKR & Co.’s method of accounting, the Company elected to carry its collateralized loan obligation secured notes at estimated fair value as of the Effective Date, with changes in estimated fair value recorded in net realized and unrealized loss on debt in the condensed consolidated statements of operations. Prior to the Effective Date, collateralized loan obligation secured notes were carried at amortized cost.

Trust Preferred Securities

Trust Preferred Securities

Trusts formed by the Company for the sole purpose of issuing trust preferred securities are not consolidated by the Company as the Company has determined that it is not the primary beneficiary of such trusts. The Company’s investment in the common securities of such trusts is included within other assets on the condensed consolidated balance sheets.

Preferred Shares

Preferred Shares

Distributions on the Company’s Series A LLC Preferred Shares are cumulative and payable quarterly when and if declared by the Company’s board of directors at a 7.375% rate per annum. The Company accrues for the distribution upon declaration and is included within accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets.

Derivative Instruments

Derivative Instruments

The Company recognizes all derivatives on the condensed consolidated balance sheet at estimated fair value. On the date the Company enters into a derivative contract, the Company designates and documents each derivative contract as one of the following at the time the contract is executed: (i) a hedge of a recognized asset or liability (“fair value” hedge); (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); (iii) a hedge of a net investment in a foreign operation; or (iv) a derivative instrument not designated as a hedging instrument (“free-standing derivative”). For a fair value hedge, the Company records changes in the estimated fair value of the derivative instrument and, to the extent that it is effective, changes in the fair value of the hedged asset or liability in the current period earnings in the same financial statement category as the hedged item. For a cash flow hedge, the Company records changes in the estimated fair value of the derivative to the extent that it is effective in accumulated other comprehensive loss and subsequently reclassifies these changes in estimated fair value to net income in the same period(s) that the hedged transaction affects earnings. The effective portion of the cash flow hedges is recorded in the same financial statement category as the hedged item. For free-standing derivatives, the Company reports changes in the fair values in net realized and unrealized loss on derivatives and foreign exchange on the condensed consolidated statements of operations.

The Company formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Company’s evaluation of effectiveness of its hedged transactions. Periodically, the Company also formally assesses whether the derivative it designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in estimated fair values or cash flows of the hedged item using either the dollar offset or the regression analysis method. If the Company determines that a derivative is not highly effective as a hedge, it discontinues hedge accounting.

In connection with the Merger Transaction, the Company discontinued hedge accounting for its cash flow hedges and, as of the Effective Date, classifies all derivative instruments as free-standing derivatives. As a result, the Company records changes in the estimated fair value of the derivative instruments in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations.

Foreign Currency

Foreign Currency

The Company makes investments in non-United States dollar denominated assets including securities, loans, equity investments and interests in joint ventures and partnerships. As a result, the Company is subject to the risk of fluctuation in the exchange rate between the United States dollar and the foreign currency in which it makes an investment. In order to reduce the currency risk, the Company may hedge the applicable foreign currency. All investments denominated in a foreign currency are converted to the United States dollar using prevailing exchange rates on the balance sheet date.

Income, expenses, gains and losses on investments denominated in a foreign currency are converted to the United States dollar using the prevailing exchange rates on the dates when they are recorded. Foreign exchange gains and losses are recorded in net realized and unrealized loss on derivatives and foreign exchange on the condensed consolidated statements of operations.

Manager Compensation

Manager Compensation

The Management Agreement provides for the payment of a base management fee to the Manager, as well as an incentive fee if the Company’s financial performance exceeds certain benchmarks. Additionally, the Management Agreement provides for the Manager to be reimbursed for certain expenses incurred on the Company’s behalf. The base management fee and the incentive fee are accrued and expensed during the period for which they are earned by the Manager.

Share-Based Compensation

Share-Based Compensation

In connection with the Merger Transaction, the Predecessor Company’s common shares were converted into 0.51 KKR & Co. common units. Prior to the Effective Date, the Company accounted for share-based compensation issued to its directors and to its Manager using the fair value based methodology in accordance with relevant accounting guidance. Compensation cost related to restricted common shares issued to the Company’s directors was measured at its estimated fair value at the grant date, and was amortized and expensed over the vesting period on a straight-line basis. Compensation cost related to restricted common shares and common share options issued to the Manager was initially measured at estimated fair value at the grant date, and was remeasured on subsequent dates to the extent the awards were unvested. The Company elected to use the graded vesting attribution method to amortize compensation expense for the restricted common shares and common share options granted to the Manager.

Income Taxes

Income Taxes

The Company intends to continue to operate so as to qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Therefore, the Company generally is not subject to United States federal income tax at the entity level, but is subject to limited state and foreign taxes. Holders of the Company’s common shares will be required to take into account their allocable share of each item of the Company’s income, gain, loss, deduction, and credit that is allocated to such class of shares for the taxable year of the Company ending within or with their taxable year. Holders of the Company’s preferred shares will be allocated a share of the Company’s gross ordinary income for the taxable year of the Company ending within or with their taxable year.  Holders of the Company’s preferred shares will not be allocated any gains or losses from the sale of the Company’s assets.

The Company owns equity interests in entities that have elected or intend to elect to be taxed as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). A REIT generally is not subject to United States federal income tax to the extent that it currently distributes its income and satisfies certain asset, income and ownership tests, and recordkeeping requirements, but it may be subject to some amount of federal, state, local and foreign taxes based on its taxable income.

The Company has wholly-owned domestic and foreign subsidiaries that are taxable as corporations for United States federal income tax purposes and thus are not consolidated with the Company for United States federal income tax purposes. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with respect to its interest in the domestic taxable corporate subsidiaries, because each is taxed as a regular corporation under the Code. Deferred income tax assets and liabilities are computed based on temporary differences between the GAAP consolidated financial statements and the United States federal income tax basis of assets and liabilities as of each consolidated balance sheet date. The foreign corporate subsidiaries were formed to make certain foreign and domestic investments from time to time. The foreign corporate subsidiaries are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are anticipated to be exempt from United States federal and state income tax at the corporate entity level because they restrict their activities in the United States to trading in stock and securities for their own account. However, the Company will be required to include their current taxable income in the Company’s calculation of its taxable income allocable to shareholders.

The Company must recognize the tax impact from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax impact recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Penalties and interest related to uncertain tax positions are recorded as tax expense. Significant judgment is required in the identification of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions. If it is determined that recognition for an uncertain tax provision is necessary, the Company would record a liability for an unrecognized tax expense from an uncertain tax position taken or expected to be taken.

Earnings Per Common Share

Earnings Per Common Share

In connection with the Merger Transaction, as of the Effective Date, the Company is now a subsidiary of KKR Fund Holdings, which owns 100 common shares of the Company constituting all of the Company’s outstanding common shares. As KKR Fund Holdings is the Company’s sole shareholder, earnings per common share is not reported for the Successor Company. Prior to the Effective Date, the Company presented both basic and diluted earnings per common share (“EPS”) in its condensed consolidated financial statements and footnotes thereto. Basic earnings per common share (“Basic EPS”) excluded dilution and was computed by dividing net income or loss available to common shareholders by the weighted average number of common shares, including vested restricted common shares, outstanding for the period. The Company calculated EPS using the more dilutive of the two-class method or the if-converted method. The two-class method was an earnings allocation formula that determined EPS for common shares and participating securities. Unvested share-based payment awards that contained non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) were participating securities and were included in the computation of EPS using the two-class method. Accordingly, all earnings (distributed and undistributed) were allocated to common shares, preferred shares and participating securities based on their respective rights to receive dividends. Diluted earnings per common share (“Diluted EPS”) reflected the potential dilution of common share options and unvested restricted common shares using the treasury method or if-converted method.

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DERIVATIVE INSTRUMENTS (Details 3) (USD $)		6 Months Ended
	Jun. 30, 2014 Successor Company Foreign exchange options and forward contracts	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Natural gas positions 2014 MMBTU	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Natural gas positions 2015 MMBTU	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Natural gas positions 2016 MMBTU	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Natural gas liquid positions 2014 MBbls	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Natural gas liquid positions 2015 MBbls	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Oil positions 2014 MBbls	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Oil positions 2015 MBbls	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Credit default swaps-protection purchased	Dec. 31, 2013 Predecessor Company Foreign exchange options and forward contracts	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Credit default swaps-protection purchased
Fixed price swaps
Hedged volume (MBbls)					80	41	417	612
Hedged volume (MMMBtu)		2,919	4,277	1,805
Average price ($/Bbl)					31.54	42.39	92.08	89.19
Average price ($/MMBtu)		4.34	4.73	4.44
Notional amount
Notional amount									$ 0		$ (100,000,000)
Notional amount of liability	$ 170,500,000									$ 190,500,000

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	2 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Jun. 30, 2013 Predecessor Company Affiliates	Jun. 30, 2013 Predecessor Company Nonaffiliates
Cash flows from operating activities
Net income	$ 45,144	$ 105,980	$ 184,468
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized and unrealized loss on derivatives and foreign exchange	9,164	9,783	1,950
Net loss on restructuring and extinguishment of debt	0		20,269
Write-off of debt issuance costs		1,472	5,335
Lower of cost or estimated fair value adjustment on corporate loans held for sale		(5,038)	8,650
Provision for loan losses			11,068
Impairment charges		4,391	12,489
Share-based compensation		1,018	1,896
Net realized and unrealized gain on investments	(54,100)	(60,906)	(140,863)
Depreciation and net amortization	10,457	15,832	(11,852)
Net realized and unrealized loss on debt	25,396
Changes in assets and liabilities:
Interest receivable	94	(6,753)	6,991
Other assets	1,793	(19,668)	(19,840)
Related party payable	4,740	(1,815)	(740)
Accounts payable, accrued expenses and other liabilities	(21,190)	27,211	(3,284)
Preferred share distribution payable		(6,891)
Accrued interest payable				(1,257)	(5,889)
Net cash provided by operating activities	25,913	63,146	69,391
Cash flows from investing activities
Principal payments from corporate loans	230,956	906,166	1,125,080
Principal payments from securities	6,797	21,223	106,881
Proceeds from sales of corporate loans	231,599	36,595	163,372
Proceeds from sales of securities	1,806	44,373	24,808
Proceeds from equity and other investments	24,409	48,911	28,559
Purchases of corporate loans	(314,846)	(886,230)	(875,234)
Purchases of securities	(32,478)	(78,106)	(46,840)
Purchases of equity and other investments	(56,540)	(104,301)	(127,047)
Cover securities sold, not yet purchased			(480)
Net change in proceeds, purchases, and settlements of derivatives	(2,627)	(7,265)	1,344
Net change in restricted cash and cash equivalents	41,094	(299,579)	(289,398)
Net cash provided by (used in) investing activities	130,170	(318,213)	111,045
Cash flows from financing activities
Issuance of collateralized loan obligation secured notes	52,594	648,197	449,002
Retirement of collateralized loan obligation secured notes	(196,940)	(221,914)	(551,844)
Proceeds from credit facilities	20,100	13,300
Repayment of credit facilities		(75,400)	(61,700)
Net proceeds from issuance of preferred shares			361,622
Distributions on common shares	(44,866)	(45,061)	(96,248)
Distributions on preferred shares		(6,891)	(6,738)
Capital contributions from Parent	466
Other capitalized costs		(3,918)	(4,633)
Net cash (used in) provided by financing activities	(168,646)	308,313	89,461
Net (decrease) increase in cash and cash equivalents	(12,563)	53,246	269,897
Cash and cash equivalents at beginning of period		157,167	237,606
Cash and cash equivalents at end of period	197,850	210,413	507,503
Supplemental cash flow information
Cash paid for interest	24,196	53,576	84,238
Net cash paid for income taxes	59	157	4,760
Non-cash investing and financing activities
Issuance of restricted common shares			3,282
Loans transferred from held for investment to held for sale		348,808	76,803
Conversion of convertible senior notes to common shares			$ 186,254

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014 Successor Company	Dec. 31, 2013 Predecessor Company
Corporate loans, estimated fair value (in dollars)	$ 6,293,540	$ 237,480
Corporate loans, held for sale (in dollars)		279,748
Equity investments, at estimated fair value, pledged as collateral (in dollars)	88,096	0
Collateralized loan obligation secured notes, estimated fair value (in dollars)	$ 5,547,914	$ 0
Preferred shares, no par value (in dollars per share)
Preferred shares, shares authorized	50,000,000	50,000,000
Preferred shares, shares issued	14,950,000	14,950,000
Preferred shares, shares outstanding	14,950,000	14,950,000
Common shares, no par value (in dollars per share)
Common shares, shares authorized	500,000,000	500,000,000
Common shares, shares issued	100	204,824,159
Common shares, shares outstanding	100	204,824,159

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2014

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 10. COMMITMENTS AND CONTINGENCIES

Commitments

As part of its strategy of investing in corporate loans, the Company commits to purchase interests in primary market loan syndications, which obligate the Company, subject to certain conditions, to acquire a predetermined interest in such loans at a specified price on a to-be-determined settlement date. Consistent with standard industry practices, once the Company has been informed of the amount of its syndication allocation in a particular loan by the syndication agent, the Company bears the risks and benefits of changes in the fair value of the syndicated loan from that date forward. In addition, the Company also commits to purchase corporate loans in the secondary market that similar to the above, the Company bears the risks and benefits of changes in the fair value from the trade date forward. As of December 31, 2013, the Company had committed to purchase corporate loans with aggregate par amounts totaling $62.7 million. As described above in Note 2 to these condensed consolidated financial statements, as of the Effective Date, the Company accounts for all corporate loans on trade date. As such, as of June 30, 2014, all corporate loans were included in the condensed consolidated balance sheets. In addition, the Company participates in certain contingent financing arrangements, whereby the Company is committed to provide funding of up to a specific predetermined amount at the discretion of the borrower or has entered into an agreement to acquire interests in certain assets. As of June 30, 2014 and December 31, 2013, the Company had unfunded financing commitments for corporate loans totaling $14.2 million and $17.4 million, respectively. The Company did not have any significant losses as of June 30, 2014, nor does it expect any significant losses related to those assets for which it committed to purchase and fund.

The Company participates in joint ventures and partnerships alongside KKR and its affiliates through which the Company contributes capital for assets, including development projects related to the Company’s interests in joint ventures and partnerships that hold commercial real estate and natural resources investments, as well as specialty lending focused businesses. The Company estimated these future contributions to total approximately $181.2 million as of June 30, 2014 and $325.5 million as of December 31, 2013.

Guarantees

As of June 30, 2014 and December 31, 2013, the Company had investments, held alongside KKR and its affiliates, in real estate entities that were financed with non-recourse debt totaling $331.5 million and $231.7 million, respectively. Under non-recourse debt, the lender generally does not have recourse against any other assets owned by the borrower or any related parties of the borrower, except for certain specified exceptions listed in the respective loan documents including customary “bad boy” acts. In connection with these investments, joint and several non-recourse “bad boy” guarantees were provided for losses relating solely to specified bad faith acts that damage the value of the real estate being used as collateral. The Company does not expect any related losses. As of both June 30, 2014 and December 31, 2013, the Company also had financial guarantees related to its natural resources investments totaling $17.9 million for which the Company does not expect any significant losses.

Contingencies

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of the Company’s business. The Company’s business is also subject to extensive regulation, which may result in regulatory proceedings against it. It is inherently difficult to predict the ultimate outcome, particularly in cases in which claimants seek substantial or unspecified damages, or where investigations or proceedings are at an early stage and the Company cannot predict with certainty the loss or range of loss that may be incurred. The Company has denied, or believes it has a meritorious defense and will deny liability in the significant cases pending against the Company. Based on current discussion and consultation with counsel, management believes that the resolution of these matters will not have a material impact on the Company’s condensed consolidated financial statements.

From December 19, 2013 to January 31, 2014, multiple putative class action lawsuits have been filed in the Superior Court of California, County of San Francisco, the United States District Court of the District of Northern California, and the Court of Chancery of the State of Delaware by KFN shareholders against KFN, individual members of KFN’s board of directors, KKR & Co., and certain of KKR & Co.’s affiliates in connection with KFN’s entry into a merger agreement pursuant to which it would become a subsidiary of KKR & Co. The merger transaction was completed on April 30, 2014.  The actions filed in California state court have been consolidated but an operative complaint has not been filed or designated.  The complaint filed in the California federal court action, which was never served on the defendants, was voluntarily dismissed on May 6, 2014.  Two of the Delaware actions were voluntarily dismissed, and the remaining Delaware actions were consolidated.  On February 21, 2014, a consolidated complaint was filed in the consolidated Delaware action which all defendants moved to dismiss on March 7, 2014.  On July 29, 2014, the Delaware Court of Chancery heard oral arguments on defendants’ motion to dismiss.

The complaints in these actions allege variously that the members of the KFN board of directors breached fiduciary duties owed to KFN shareholders by approving the proposed transaction for inadequate consideration; approving the proposed transaction in order to obtain benefits not equally shared by other KFN shareholders; entering into the merger agreement containing preclusive deal protection devices; failing to take steps to maximize the value to be paid to the KFN shareholders; and failing to disclose material information necessary for KFN shareholders to make a fully informed decision about the proposed transaction. The actions also allege variously that KKR & Co., and certain of KKR & Co.’s affiliates aided and abetted the alleged breaches of fiduciary duties and that KKR & Co. is a controlling shareholder of KFN by means of a management agreement between KFN and KKR Financial Advisors LLC, and KKR & Co. breached a fiduciary duty it allegedly owed to KFN shareholders by causing KFN to enter into the merger agreement. The relief sought in these actions includes, among other things, declaratory and injunctive relief concerning the alleged breaches of fiduciary duties and the proposed transaction, rescission, an accounting by defendants, damages and attorneys’ fees and costs.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Jul. 31, 2014
Document and Entity Information
Entity Registrant Name	KKR Financial Holdings LLC
Entity Central Index Key	0001386926
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		100
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2014

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY

NOTE 11. SHAREHOLDERS’ EQUITY

Preferred Shares

On January 17, 2013, the Company issued 14.95 million of Series A LLC Preferred Shares for gross proceeds of $373.8 million, and net proceeds of $362.0 million. The Series A LLC Preferred Shares trade on the NYSE under the ticker symbol “KFN.PR” and began trading on January 28, 2013. Distributions on the Series A LLC Preferred Shares are cumulative and are payable, when, as, and if declared by the Company’s board of directors, quarterly on January 15, April 15, July 15 and October 15 of each year at a rate per annum equal to 7.375%.

Common Shares

Pursuant to the merger agreement, on the date of the Merger Transaction (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by the Company’s Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN’s Non-Employee Directors’ Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan. In addition, on June 27, 2014, the Company’s board of directors approved a reverse stock split whereby the number of the Company’s issued and outstanding common shares was reduced to 100 common shares, all of which are held solely by the Parent. As such, disclosure related to common shares below pertains to the Predecessor Company.

On May 4, 2007, the Company adopted an amended and restated share incentive plan (the “2007 Share Incentive Plan”) that provides for the grant of qualified incentive common share options that meet the requirements of Section 422 of the Code, non-qualified common share options, share appreciation rights, restricted common shares and other share-based awards. Share options and other share-based awards may be granted to the Manager, directors, officers and any key employees of the Manager and to any other individual or entity performing services for the Company, and no new awards are intended to be issued subsequent to the Effective Date.

The exercise price for any share option granted under the 2007 Share Incentive Plan may not be less than 100% of the fair market value of the common shares at the time the common share option is granted. Each option to acquire a common share must terminate no more than ten years from the date it is granted. As of April 30, 2014, the 2007 Share Incentive Plan authorized a total of 8,964,625 shares that could be used to satisfy awards under the 2007 Share Incentive Plan.

The following table summarizes the restricted common share transactions that occurred prior to the Merger Transaction:

	Predecessor Company
	Manager		Directors	Total
Unvested shares as January 1, 2014	584,634		85,194	669,828
Issued	—		—	—
Vested	(243,648	)	—	(243,648	)
Forfeited	—		—	—
Unvested shares as of April 30, 2014	340,986		85,194	426,180

The Company is required to value any unvested restricted common shares granted to the Manager at the current market price. The Company valued the unvested restricted common shares granted to the Manager at $11.54 and $10.55 per share at April 30, 2014 and June 30, 2013, respectively. There were $2.2 million and $4.2 million of total unrecognized compensation costs related to unvested restricted common shares granted as of April 30, 2014 and June 30, 2013, respectively. These costs were expected to be recognized through 2016.

The following table summarizes common share option transactions:

	Predecessor Company
	Number of Options	Weighted Average Exercise Price
Outstanding as of January 1, 2014	1,932,279	$	20.00
Granted	—	—
Exercised	—	—
Forfeited	—	—
Outstanding as of April 30, 2014	1,932,279	$	20.00

As of April 30, 2014 and June 30, 2013, 1,932,279 common share options were exercisable. As of April 30, 2014, the common share options were fully vested and expire in August 2014.

For the one and four months ended April 30, 2014 and three and six months ended June 30, 2013, the components of share-based compensation expense are as follows (amounts in thousands):

	Predecessor Company
	For the one month ended April 30, 2014		For the four months ended April 30, 2014		For the three months ended June 30, 2013		For the six months ended June 30, 2013
Restricted common shares granted to Manager	$	113	$	690	$	664	$	1,383
Restricted common shares granted to certain directors	64		328		252		513
Total share-based compensation expense	$	177	$	1,018	$	916	$	1,896

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MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details 2) (USD $) In Thousands, unless otherwise specified	2 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company Manager Base Management Fees	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Manager Base Management Fees	Jun. 30, 2013 Predecessor Company Manager Base Management Fees	Apr. 30, 2014 Predecessor Company Manager Base Management Fees	Jun. 30, 2013 Predecessor Company Manager Base Management Fees
Management Agreement and Related Party Transactions
Base management fees, gross	$ 6,688					$ 3,372	$ 9,860	$ 13,364	$ 19,417
CLO management fees credit	(747)					(1,741)	(231)	(8,111)	(231)
Total related party transaction expense	$ 5,941	$ 0	$ 5,561	$ 12,882	$ 22,742	$ 1,631	$ 9,629	$ 5,253	$ 19,186

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Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	2 Months Ended		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Nonaffiliates	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Jun. 30, 2013 Predecessor Company Affiliates	Jun. 30, 2013 Predecessor Company Affiliates
Revenues
Loan interest income	$ 53,683		$ 29,802	$ 92,117	$ 114,096	$ 190,378
Securities interest income	5,087		3,480	13,531	13,081	28,393
Oil and gas revenue	31,930		17,754	27,867	61,782	51,672
Other	3,613		25,616	3,729	28,283	7,251
Total revenues	94,313		76,652	137,244	217,242	277,694
Investment costs and expenses
Interest expense		35,896	17,117	36,719	64,362	78,599	9,729	19,646
Provision for loan losses						11,068
Oil and gas production costs	7,860		3,938	9,349	14,772	17,257
Oil and gas depreciation, depletion and amortization	11,134		6,929	9,116	22,471	18,104
Other	774		71	280	220	1,568
Total investment costs and expenses	55,664		28,055	65,193	101,825	146,242
Other income (loss)
Net realized and unrealized gain (loss) on investments	54,100		(16,211)	24,997	61,553	119,724
Net realized and unrealized (loss) gain on derivatives and foreign exchange	(9,164)		(1,413)	6,902	(9,783)	(1,950)
Net realized and unrealized loss on debt	(25,396)
Net loss on restructuring and extinguishment of debt	0					(20,269)
Other income	1,347		1,118	5,336	4,564	13,950
Total other income (loss)	20,887		(16,506)	37,235	56,334	111,455
Other expenses
Related party management compensation	10,406		4,224	17,518	29,841	45,824
General, administrative and directors expenses	2,413		4,988	3,690	8,891	8,484
Professional services	1,545		24,939	1,988	26,877	3,715
Total other expenses	14,364		34,151	23,196	65,609	58,023
Income before income taxes	45,172		(2,060)	86,090	106,142	184,884
Income tax expense (benefit)	28		143	(42)	162	416
Net income (loss)	45,144		(2,203)	86,132	105,980	184,468
Preferred share distributions	6,891			6,891	6,891	13,629
Net income (loss) available to common shares	$ 38,253		$ (2,203)	$ 79,241	$ 99,089	$ 170,839
Net (loss) income per common share:
Basic (in dollars per share)			$ (0.01)	$ 0.39	$ 0.48	$ 0.85
Diluted (in dollars per share)			$ (0.01)	$ 0.39	$ 0.48	$ 0.85
Weighted-average number of common shares outstanding:
Basic (in shares)			204,398	204,108	204,276	200,650
Diluted (in shares)			204,398	204,108	204,276	200,650
Distributions declared per common share (in dollars per share)				$ 0.21	$ 0.22	$ 0.47

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2014

CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES

CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 5. CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES

In connection with the Merger Transaction and as of the Effective Date, the Company accounts for all of its corporate loans at estimated fair value. Prior to the Effective Date, the Company accounted for loans based on the following categories: (i) corporate loans held for investment, which were measured based on their principal plus or minus unaccreted purchase discounts and unamortized purchase premiums, net of an allowance for loan losses; (ii) corporate loans held for sale, which were measured at lower of cost or estimated fair value; and (iii) corporate loans, at estimated fair value, which were measured at fair value.

Successor Company

The following table summarizes the Company’s corporate loans, at estimated fair value as of June 30, 2014 (amounts in thousands):

	June 30, 2014
	Par		Amortized Cost		Estimated Fair Value
Corporate loans, at estimated fair value	$	6,499,112	$	6,267,679	$	6,293,540
Total	$	6,499,112	$	6,267,679	$	6,293,540

Net Realized and Unrealized Gains (Losses)

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. Unrealized gains or losses are computed as the difference between the estimated fair value of the asset and the amortized cost basis of such asset. Unrealized gains or losses primarily reflect the change in asset values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. The following tables present the Company’s realized and unrealized (losses) gains from corporate loans for the two months ended June 30, 2014 (amounts in thousands):

	Two months endedJune 30, 2014
Net realized losses	$	(4,716	)
Net change in unrealized gains	25,861
Net realized and unrealized gains	$	21,145

Predecessor Company

The following table summarizes the Company’s corporate loans as of December 31, 2013 (amounts in thousands):

	December 31, 2013
	Corporate Loans Held for Investment			Corporate Loans Held for Sale			Corporate Loans, at Estimated Fair Value			Total Corporate Loans
Principal(1)	$	6,280,470		$	315,738		$	277,458		$	6,873,666
Net unamortized discount	(105,979		)	(20,070		)	(54,997		)	(181,046		)
Total amortized cost	6,174,491			295,668			222,461			6,692,620
Lower of cost or fair value adjustment	—			(15,920		)	—			(15,920		)
Allowance for loan losses	(224,999		)	—			—			(224,999		)
Unrealized gains	—			—			15,019			15,019
Net carrying value	$	5,949,492		$	279,748		$	237,480		$	6,466,720

(1) Principal amounts of corporate loans and corporate loans held for sale were net of cumulative charge-offs and other adjustments totaling $18.1 million as of December 31, 2013.

Allowance for Loan Losses

As discussed above in Note 2 to these condensed consolidated financial statements, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for an allowance for loan losses. Accordingly, disclosure related to allowance for loan losses pertains to the Predecessor Company. As of December 31, 2013, the Company had an allowance for loan losses of $225.0 million. As described in Note 2 to these condensed consolidated financial statements, the allowance for loan losses represented the Company’s estimate of probable credit losses inherent in its loan portfolio as of the balance sheet date. The Company’s allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses consisted of individual loans that were impaired. The unallocated component of the allowance for loan losses represented the Company’s estimate of losses inherent, but not identified, in its portfolio as of the balance sheet date.

The following table summarizes the changes in the allowance for loan losses for the Company’s corporate loan portfolio during the one month and four months ended April 30, 2014 and three and six months ended June 30, 2013 (amounts in thousands):

	For the one month endedApril 30, 2014		For the fourmonths ended April 30, 2014			For the three months endedJune 30, 2013			For the sixmonths ended June 30, 2013
Allowance for loan losses:
Beginning balance	$	223,541	$	224,999		$	206,227		$	223,472
Provision for loan losses	—		—			—			11,068
Charge-offs	—		(1,458		)	(2,972		)	(31,285		)
Ending balance	$	223,541	$	223,541		$	203,255		$	203,255

The following table summarizes the ending balances of the allowance and corporate loans portfolio by basis of impairment method as of December 31, 2013 (amounts in thousands):

	December 31, 2013
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	142,682
Ending balance: collectively evaluated for impairment	82,317
	$	224,999
Corporate loans (recorded investment)(1):
Ending balance: individually evaluated for impairment	$	554,442
Ending balance: collectively evaluated for impairment	5,638,790
	$	6,193,232

(1) Recorded investment is defined as amortized cost plus accrued interest.

As of December 31, 2013, the allocated component of the allowance for loan losses totaled $142.7 million and related to investments in certain loans issued by four issuers with an aggregate par amount of $594.4 million and an aggregate recorded investment of $554.4 million. Of the allocated component totaling $142.7 million, $66.9 million related to Texas Competitive Electric Holdings Company LLC (“TXU”), which had an aggregate amortized cost of $311.6 million as of December 31, 2013.

The following table summarizes the Company’s recorded investment and unpaid principal balance in impaired loans, as well as the related allowance for credit losses as of December 31, 2013 (amounts in thousands):

	December 31, 2013
	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance
With no related allowance recorded	$	—	$	—	$	—
With an allowance recorded	554,442		594,416		142,682
Total	$	554,442	$	594,416	$	142,682

(1) Recorded investment is defined as amortized cost plus accrued interest.

The Company recognized $1.0 million and $4.5 million of interest income related to impaired loans with a related allowance recorded for the one and four months ended April 30, 2014, respectively. The following table summarizes the Company’s average recorded investment in impaired loans and interest income recognized for the three and six months ended June 30, 2013 (amounts in thousands):

	For the three months endedJune 30, 2013				For the six months endedJune 30, 2013
	Average Recorded Investment(1)		InterestIncome Recognized		Average Recorded Investment(1)		InterestIncome Recognized
With no related allowance recorded	$	—	$	—	$	2,163	$	—
With an allowance recorded	538,344		5,995		505,212		10,269
Total	$	538,344	$	5,995	$	507,375	$	10,269

(1) Recorded investment is defined as amortized cost plus accrued interest.

As of December 31, 2013, the allocated component of the allowance for loan losses included all impaired loans. While all of the Company’s impaired loans were on non-accrual status, the Company’s non-accrual loans also included (i) other loans held for investment, (ii) corporate loans held for sale and (iii) loans carried at estimated fair value, which were not reflected in the table above. Any of these three classifications may have included those loans modified in a TDR, which were typically designated as being non-accrual (see “Troubled Debt Restructurings” section below).

The following table summarizes the Company’s recorded investment in non-accrual loans as of December 31, 2013 (amounts in thousands):

	December 31, 2013
Loans held for investment	$	554,442
Loans held for sale	44,823
Loans at estimated fair value	24,883
Total non-accrual loans	$	624,148

For the one month ended April 30, 2014, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $1.1 million, which included $1.0 million for non-accrual loans that were held for investment and $0.1 million for non-accrual loans held for sale. For the four months ended April 30, 2014, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $5.3 million, which included $4.5 million for non-accrual loans that were held for investment, $0.7 million for non-accrual loans held for sale and $0.1 million for non-accrual loans carried at estimated fair value. Comparatively, for the three months ended June 30, 2013, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $7.4 million, which included $6.0 million for non-accrual loans that were held for investment and $1.4 million for non-accrual loans held for sale. For the six months ended June 30, 2013, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $15.4 million, which included $10.3 million for non-accrual loans that were held for investment and $5.1 million for non-accrual loans held for sale.

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on non-accrual status regardless of whether or not such loan is considered past due. As of June 30, 2014, the Company held a total par value and estimated fair value of $505.2 million and $373.3 million, respectively, of non-accrual loans carried at estimated fair value. As of June 30, 2014, the Company held a total par value and estimated fair value of $48.0 million and $31.6 million, respectively, of past due loans carried at estimated fair value from one issuer, all of which were on non-accrual status and in default as of June 30, 2014. The associated interest payments related to the $31.6 million loans at estimated fair value that were 90 or more days past due was $1.1 million.

As of December 31, 2013, the Company held a total recorded investment of $237.2 million of non-accrual and past due loans held for investment from three issuers, certain of which were in default as of December 31, 2013. The associated past due interest payments related to the $237.2 million recorded investment was $5.6 million, of which $0.9 million was less than 30 days past due, $2.3 million was 60-89 days past due, and $2.4 million was 90 or more days past due. In addition, as of December 31, 2013, the Company held $15.5 million par amount and $12.2 million estimated fair value of non-accrual and past due loans carried at estimated fair value from one issuer, which was also in default as of December 31, 2013. The associated interest payments related to the $12.2 million loans at estimated fair value that were 90 or more days past due was $0.2 million.

The unallocated component of the allowance for loan losses totaled $82.3 million as of December 31, 2013. As described in Note 2 to these condensed consolidated financial statements, the Company estimated the unallocated components of the allowance for loan losses through a comprehensive review of its loan portfolio and identified certain loans that demonstrated possible indicators of impairments, including credit quality indicators. The following table summarizes how the Company determined internally assigned grades related to credit quality based on a combination of concern as to probability of default and the seniority of the loan in the issuer’s capital structure as of December 31, 2013 (amounts in thousands):

Internally Assigned Grade	Capital Hierarchy	Recorded Investment December 31, 2013 (1)
High	Senior Secured Loan	$	26,886
	Second Lien Loan	286,996
	Subordinated	11,643
		$	325,525
Moderate	Senior Secured Loan	$	1,033,065
	Second Lien Loan	27,504
	Subordinated	39,329
		$	1,099,898
Low	Senior Secured Loan	$	4,148,913
	Second Lien Loan	25,864
	Subordinated	38,590
		$	4,213,367
	Total Unallocated	$	5,638,790
	Total Allocated	554,442
	Total Loans Held for Investment	$	6,193,232

(1) Recorded investment is defined as amortized cost plus accrued interest.

During the one and four months ended April 30, 2014, the Company recorded charge-offs totaling zero and $1.5 million comprised primarily of loans modified in TDRs. During the three and six months ended June 30, 2013, the Company recorded charge-offs totaling $3.0 million comprised of loans transferred to loans held for sale and $31.3 million comprised primarily of loans modified in TDRs, respectively.

Loans Held For Sale and the Lower of Cost or Fair Value Adjustment

As discussed above in Note 2 to these condensed consolidated financial statements, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for the bifurcation between corporate loans held for investment and loans held for sale. Accordingly, related disclosure pertains to the Predecessor Company. As of December 31, 2013, the Company had $279.7 million of loans held for sale. During the one and four months ended April 30, 2014, the Company transferred $110.7 million and $348.8 million amortized cost amount of loans from held for investment to held for sale, respectively. During the three and six months ended June 30, 2013, the Company transferred $55.4 million and $76.8 million amortized cost amount, respectively, of loans from held for investment to held for sale. The transfers of certain loans to held for sale were due to the Company’s determination that credit quality of a loan in relation to its expected risk-adjusted return no longer met the Company’s investment objective and the determination by the Company to reduce or eliminate the exposure for certain loans as part of its portfolio risk management practices. During the one and four months ended April 30, 2014 and the three and six months ended June 30, 2013, the Company did not transfer any loans held for sale back to loans held for investment. Transfers back to held for investment may have occurred as the circumstances that led to the initial transfer to held for sale were no longer present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby the Company determined that selling the asset no longer met its investment objective and strategy.

The Company recorded a $3.3 million net charge to earnings for the lower of cost or estimated fair value adjustment for the one month ended April 30, 2014 and a $5.0 million reduction to the lower of cost or estimated fair value adjustment for the four months ended April 30, 2014 for certain loans held for sale, which had a carrying value of $546.1 million as of April 30, 2014. Comparatively, the Company recorded a $3.9 million and $8.7 million net charge to earnings for the three and six months ended June 30, 2013, respectively, for the lower of cost or estimated fair value adjustment for certain loans held for sale, which had a carrying value of $117.5 million as of June 30, 2013.

Troubled Debt Restructurings

As discussed above in Note 2 to these condensed consolidated financial statements, as of the Effective Date, the Company accounts for all of its corporate loans at estimated fair value. Accordingly, required disclosure related to TDRs pertains to the Predecessor Company. The recorded investment balance of TDRs at December 31, 2013 totaled $55.4 million, related to three issuers. Loans whose terms have been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower had demonstrated a sustained period of repayment performance, typically six months. As of December 31, 2013, $55.4 million of TDRs were included in non-accrual loans (see “Non-Accrual Loans” section above). As of December 31, 2013, the allowance for loan losses included specific reserves of $22.1 million related to TDRs.

The following table presents the aggregate balance of loans whose terms had been modified in a TDR during the one and four months ended April 30, 2014 (dollar amounts in thousands):

	One month endedApril 30, 2014					Four months endedApril 30, 2014
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	1	$	154,075	$	—
Loans at estimated fair value	—	—		—		2	41,347		24,571
Total		$	—	$	—		$	195,422	$	24,571

(1) Recorded investment is defined as amortized cost plus accrued interest.

(2) Excludes equity securities received from the loans held for investment and/or loans at estimated fair value TDRs with an estimated fair value of $92.0 million and $12.3 million, from the two issuers, respectively.

The following table presents the aggregate balance of loans whose terms had been modified in a TDR during the three and six months ended June 30, 2013 (dollar amounts in thousands):

	Three months endedJune 30, 2013					Six months endedJune 30, 2013
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	2	$	68,358	$	39,430
Loans held for sale	—	—		—		—	—		—
Loans at estimated fair value	—	—		—		1	1,670		1,229
Total		$	—	$	—		$	70,028	$	40,659

(1) Recorded investment is defined as amortized cost plus accrued interest.

(2) Excludes equity securities received from the loans held for investment TDRs with an estimated fair value of $2.1 million.

During the four months ended April 30, 2014, the Company modified an aggregate recorded investment of $195.4 million related to two issuers in restructurings which qualified as TDRs. These restructurings involved conversions of the loans into one of the following: (i) a combination of equity carried at estimated fair value and cash, or (ii) a combination of equity and loans carried at estimated fair value with extended maturities ranging from an additional three to five-year period and a higher spread of 4.0%. Prior to the restructurings, one of the TDRs described above was already identified as impaired and had specific allocated reserves, while the other two were loans carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets plus cash received was charged-off against the allowance for loan losses. The TDRs resulted in $1.1 million of charge-offs, or 76% of the total $1.5 million of charge-offs recorded during the four months ended April 30, 2014.

During the six months ended June 30, 2013, the Company modified an aggregate recorded investment of $70.0 million related to three issuers in restructurings which qualified as TDRs. These restructurings involved conversions of the loans into one of the following: (i) new term loans with extended maturities and fixed, rather than floating, interest rates, (ii) equity carried at estimated fair value, or (iii) a combination of equity and loans carried at estimated fair value. The modification involving an extension of maturity date was for an additional four-year period with a higher coupon of 6.8%. Prior to the restructurings, two of the TDRs described above were already identified as impaired and had specific allocated reserves, while the third was a loan carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets was charged-off against the allowance for loan losses. The TDRs resulted in $26.8 million of charge-offs, or 86% of the total $31.3 million of charge-offs recorded during the six months ended June 30, 2013.

As of April 30, 2014, there were no commitments to lend additional funds to the issuers whose loans had been modified in a TDR.

As of April 30, 2014, no loans modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

During the one and four months ended April 30, 2014, the Company modified $135.2 million and $1.1 billion amortized cost of corporate loans, respectively, that did not qualify as TDRs. During the three and six months ended June 30, 2013, the Company modified $773.5 million and $1.8 billion amortized cost of corporate loans, respectively, that did not qualify as TDRs. These modifications involved changes in existing rates and maturities to prevailing market rates/maturities for similar instruments and did not qualify as TDRs as the respective borrowers were not experiencing financial difficulty or seeking (or granted) a concession as part of the modification. In addition, these modifications of non-troubled debt holdings were accomplished with modified loans that were not substantially different from the loans prior to modification.

Defaulted Loans

As of June 30, 2014, the Successor Company held four corporate loans that were in default with a total estimated fair value of $329.0 million from two issuers. As of December 31, 2013, the Predecessor Company held six corporate loans that were in default with a total amortized cost of $215.7 million from two issuers. Of the $215.7 million total amortized cost, $203.7 million were included in the loans that comprised the allocated component of the Company’s allowance for loan losses and $12.0 million were included in loans carried at estimated fair value.

Concentration Risk

The Company’s corporate loan portfolio has certain credit risk concentrated in a limited number of issuers. As of June 30, 2014 under the Successor Company where all corporate loans are carried at estimated fair value, approximately 42% of the total estimated fair value of the Company’s corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, U.S. Foods Inc. and First Data Corp., which combined represented $768.7 million or approximately 12% of the aggregate estimated fair value of the Company’s corporate loans. As of December 31, 2013 under the Predecessor Company, approximately 46% of the total amortized cost basis of the Company’s corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, Modular Space Corporation and U.S. Foods Inc., which combined represented $935.2 million or approximately 14% of the aggregate amortized cost basis of the Company’s corporate loans.

Pledged Assets

Note 7 to these condensed consolidated financial statements describes the Company’s borrowings under which the Company has pledged loans for borrowings. The following table summarizes the corporate loans pledged as collateral as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Successor Company		Predecessor Company
	As of June 30, 2014		As of December 31, 2013
	Estimated Fair Value		Amortized Cost
Pledged as collateral for collateralized loan obligation secured debt	$	5,975,146	$	6,231,541
Total	$	5,975,146	$	6,231,541

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SECURITIES

6 Months Ended

Jun. 30, 2014

SECURITIES

SECURITIES

NOTE 4. SECURITIES

In connection with the Merger Transaction and as of the Effective Date, the Company accounts for all of its securities, including RMBS, at estimated fair value. Prior to the Effective Date, the Company accounted for securities based on the following categories: (i) securities available-for-sale, which were carried at estimated fair value, with unrealized gains and losses reported in accumulated other comprehensive loss; (ii) other securities, at estimated fair value, with unrealized gains and losses recorded in the condensed consolidated statements of operations; and (iii) RMBS, at estimated fair value, with unrealized gains and losses recorded in the condensed consolidated statements of operations.

Successor Company

The following table summarizes the Company’s securities as of June 30, 2014, which are carried at estimated fair value (amounts in thousands):

	June 30, 2014
	Par		Amortized Cost		Estimated Fair Value
Securities, at estimated fair value	$	617,495	$	559,247	$	570,071
Total	$	617,495	$	559,247	$	570,071

Net Realized and Unrealized Gains (Losses)

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. Unrealized gains or losses are computed as the difference between the estimated fair value of the asset and the amortized cost basis of such asset. Unrealized gains or losses primarily reflect the change in asset values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. The following table presents the Company’s realized and unrealized gains from securities for the two months ended June 30, 2014 (amounts in thousands):

	Two months endedJune 30, 2014
Net realized gains	$	735
Net change in unrealized gains	10,823
Net realized and unrealized gains	$	11,558

Predecessor Company

The following table summarizes the Company’s securities as of December 31, 2013, which were carried at estimated fair value (amounts in thousands):

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Securities available-for-sale	$	326,775	$	24,791	$	(1,225	)	$	350,341
Other securities, at estimated fair value(1)	135,968		12,436		(1,437		)	146,967
Residential mortgage-backed securities, at estimated fair value(1)	138,284		2,809		(65,089		)	76,004
Total securities	$	601,027	$	40,036	$	(67,751	)	$	573,312

(1) Unrealized gains and losses presented represent amounts as of period-end. Unrealized gains and losses recognized during the year for these securities are recorded in earnings.

The following table shows the gross unrealized losses and estimated fair value of the Company’s available-for-sale securities, aggregated by length of time that the individual securities had been in a continuous unrealized loss position as of December 31, 2013 (amounts in thousands):

	Less Than 12 months					12 Months or More					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
December 31, 2013
Securities available-for-sale	$	25,543	$	(658	)	$	30,034	$	(567	)	$	55,577	$	(1,225	)

The unrealized losses in the table above were considered to be temporary impairments due to market factors and were not reflective of credit deterioration. The Company considered many factors when evaluating whether impairment was other-than-temporary. For securities available-for-sale included in the table above, the Company did not intend to sell or believe that it was more likely than not that the Company would be required to sell any of its securities available-for-sale prior to recovery. In addition, based on the analyses performed by the Company on each of its securities available-for-sale, the Company believed that it was able to recover the entire amortized cost amount of the securities available-for-sale included in the table above.

During the one and four months ended April 30, 2014, the Company recognized losses totaling $1.5 million and $4.4 million, respectively, compared to $6.6 million and $12.5 million for the three and six months ended June 30, 2013, respectively, for securities available-for-sale that it determined to be other-than-temporarily impaired. The Company intended to sell these securities and as a result, the entire amount of the loss was recorded through earnings in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations.

Securities available-for-sale sold at a loss typically included those that the Company determined to be other-than-temporarily impaired or had a deterioration in credit quality. The following table shows the net realized gains on the sales of securities available-for-sale (amounts in thousands):

	For the one month ended April 30, 2014		For the four months ended April 30, 2014		For the three months ended June 30, 2013			For the six months ended June 30, 2013
Gross realized gains	$	2,516	$	2,516	$	679		$	2,829
Gross realized losses	—		—		(6		)	(6		)
Net realized gains	$	2,516	$	2,516	$	673		$	2,823

Troubled Debt Restructurings

As discussed above in Note 2 to these condensed consolidated financial statements, beginning the Effective Date, the Company accounts for all of its securities at estimated fair value with unrealized gains and losses recorded in the condensed consolidated financial statements. Accordingly, TDR disclosure pertains to the Predecessor Company. During the one month ended April 30, 2014, the Company did not modify any securities that qualified as a TDR. During the four months ended April 30, 2014, the Company modified a security with an amortized cost of $24.1 million related to a single issuer in a restructuring that qualified as a TDR. The TDR involving this security, along with corporate loans related to the same issuer, were converted into a combination of equity carried at estimated fair value and cash. Post-modification, the equity securities received from the security TDR had an estimated fair value of $16.1 million. Refer to “Troubled Debt Restructurings” section within Note 5 to these condensed consolidated financial statements for further discussion on the loan TDRs related to this single issuer. There were no securities that qualified as TDRs during the three and six months ended June 30, 2013.

As of April 30, 2014, no securities modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

Defaulted Securities

As of June 30, 2014, the Successor Company had a corporate debt security from one issuer in default with an estimated fair value of $13.2 million, which was on non-accrual status. As of December 31, 2013, the Predecessor Company had a corporate debt security from one issuer in default with an estimated fair value of $25.4 million, which was on non-accrual status.

Concentration Risk

The Company’s corporate debt securities portfolio has certain credit risk concentrated in a limited number of issuers. As of June 30, 2014 under the Successor Company, approximately 68% of the estimated fair value of the Company’s corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by JC Penney Corp. Inc., LCI Helicopters Limited and Avaya Inc., which combined represented $162.1 million, or approximately 32% of the estimated fair value of the Company’s corporate debt securities. As of December 31, 2013 under the Predecessor Company, approximately 55% of the estimated fair value of the Company’s corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by LCI Helicopters Limited, JC Penney Corp. Inc. and NXP Semiconductor NV, which combined represented $104.5 million, or approximately 21% of the estimated fair value of the Company’s corporate debt securities.

Pledged Assets

Note 7 to these condensed consolidated financial statements describes the Company’s borrowings under which the Company has pledged securities for borrowings. The following table summarizes the estimated fair value of securities pledged as collateral as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Successor Company		Predecessor Company
	As of June 30, 2014		As of December 31, 2013
Pledged as collateral for collateralized loan obligation secured debt	$	329,385	$	324,830
Total	$	329,385	$	324,830

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2014

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 16. SUBSEQUENT EVENTS

On June 27, 2014, the Company’s board of directors declared a cash distribution of $0.460938 per share on its Series A LLC Preferred Shares. The distribution was paid on July 15, 2014 to preferred shareholders as of the close of business on July 8, 2014.

On June 28, 2014, the Company signed an agreement to merge certain of the Company’s natural resources assets with certain assets of KKR Natural Resources Funds and Legend Production Holdings, LLC, a portfolio company of Riverstone Holdings LLC, to create a new oil and gas company called Trinity River Energy, LLC. This transaction is expected to close during the third quarter of 2014.

On June 27, 2014 and July 31, 2014, the Company’s board of directors approved the distribution of certain of the Company’s private equity and natural resources assets and cash, with an aggregate value of $294.6 million, to the Parent as the sole holder of the Company’s common shares. These distributions will have been completed during the third quarter of 2014. The 2018 Natural Resources Facility, which was used to partially finance these natural resources assets, was terminated with all amounts outstanding repaid as of July 1, 2014.

Also, on June 27, 2014 and July 31, 2014, the Company’s board of directors approved the receipt by the Company of contributions from the Parent of cash, CLO subordinated notes controlled by a third-party and specialty lending assets, with an aggregate value of $294.6 million. These contributions will have been completed during the third quarter of 2014.

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MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2014

MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

NOTE 12. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

The Manager manages the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors. The Management Agreement expires on December 31 of each year, but is automatically renewed for a one-year term each December 31 unless terminated upon the affirmative vote of at least two-thirds of the Company’s independent directors, or by a vote of the holders of a majority of the Company’s outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. The Manager must be provided 180 days prior notice of any such termination and will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Management Agreement contains certain provisions requiring the Company to indemnify the Manager with respect to all losses or damages arising from acts not constituting bad faith, willful misconduct, or gross negligence. The Company has evaluated the impact of these guarantees on its condensed consolidated financial statements and determined that they are not material.

The following table summarizes the components of related party management compensation on the Company’s condensed consolidated statements of operations, which are described in further detail below (amounts in thousands):

	Successor Company		Predecessor Company
	Two months endedJune 30, 2014		One month ended April 30, 2014		Four months endedApril 30, 2014		Three months endedJune 30, 2013		Six months endedJune 30, 2013
Base management fees, net	$	5,941	$	1,631	$	5,253	$	9,629	$	19,186
CLO management fees	4,465		2,480		11,016		1,664		2,513
Incentive fees	—		—		12,882		5,561		22,742
Manager share-based compensation	—		113		690		664		1,383
Total related party management compensation	$	10,406	$	4,224	$	29,841	$	17,518	$	45,824

Base Management Fees

The Company pays its Manager a base management fee quarterly in arrears. During 2014, certain related party fees received by affiliates of the Manager were credited to the Company via an offset to the base management fee (“Fee Credits”). Specifically, as described in further detail under “CLO Management Fees” below, a portion of the CLO management fees received by an affiliate of the Manager for certain of the Company’s CLOs were credited to the Company via an offset to the base management fee.

In addition, during the second half of 2013, the Company invested in a transaction that generated placement fees paid to a minority-owned affiliate of KKR. In connection with this transaction, the Manager agreed to reduce the Company’s base management fee payable to the Manager for the portion of these placement fees that were earned by KKR as a result of this minority-ownership. Separately, certain third-party expenses accrued and paid by the Company in the fourth quarter of 2013 in connection with the merger with KKR & Co. were used to reduce the Company’s base management fees payable to the Manager in an amount equal to such third-party expenses.

The table below summarizes the aggregate base management fees (amounts in thousands):

	Successor Company			Predecessor Company
	Two months endedJune 30, 2014			One month ended April 30, 2014			Four months endedApril 30, 2014			Three months endedJune 30, 2013			Six months endedJune 30, 2013
Base management fees, gross	$	6,688		$	3,372		$	13,364		$	9,860		$	19,417
CLO management fees credit(1)	(747		)	(1,741		)	(8,111		)	(231		)	(231		)
Total base management fees, net	$	5,941		$	1,631		$	5,253		$	9,629		$	19,186

(1) See “CLO Management Fees” for further discussion.

The Manager is waiving base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as the Company’s common share closing price on the NYSE is $20.00 or more for five consecutive trading days. Accordingly, the Manager permanently waived approximately $1.5 million during the two months ended June 30, 2014, $0.7 million and $2.9 million during the one and four months ended April 30, 2014, respectively, and $2.2 million and $4.4 million of base management fees during the three and six months ended June 30, 2013, respectively.

CLO Management Fees

An affiliate of the Manager entered into separate management agreements with the respective investment vehicles for all of the Company’s Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

Fees Waived

The collateral manager waived CLO management fees totaling $1.6 million for CLO 2005-2 and CLO 2006-1 during the two months ended June 30, 2014 and zero and $1.6 million during the one and four months ended April 30, 2014, respectively. During the three and six months ended June 30, 2013, the collateral manager waived CLO management fees totaling $7.3 million and $15.0 million, respectively, for all CLOs, except CLO 2005-1 and CLO 2012-1.

Fees Charged and Fee Credits

The Company recorded management fees expense for CLO 2005-1, CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 2013-1 and CLO 2013-2 during 2014. The Company recorded management fees expense for CLO 2005-1 and CLO 2012-1 during 2013.

During the second half of 2013, the Manager began to credit the Company for a portion of the CLO management fees received by an affiliate of the Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the base management fees payable to the Manager. As the Company owns less than 100% of the subordinated notes of three CLOs (with the remaining subordinated notes held by third parties), the Company received a Fee Credit equal only to the Company’s pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of the Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by the Company. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to the Company, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by the Company to the third party holder of the CLO’s subordinated notes. Similarly, the Manager credited the Company the CLO management fees from CLO 2013-1 and CLO 2013-2 based on the Company’s 100% ownership of the subordinated notes in the CLO.

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):

	Successor Company		Predecessor Company
	Two months endedJune 30, 2014		One month ended  April 30, 2014		Four months endedApril 30, 2014		Three months endedJune 30, 2013		Six months endedJune 30, 2013
Charged and retained CLO management fees (1)	$	3,718	$	739	$	2,905	$	1,433	$	2,282
CLO management fees credit	747		1,741		8,111		231		231
Total CLO management fees	$	4,465	$	2,480	$	11,016	$	1,664	$	2,513

(1) Represents management fees incurred by the senior and subordinated note holders of a CLO, excluding the Fee Credits received by the Company based on its ownership percentage in the CLO.

Subordinated note holders in CLOs have the first risk of loss and conversely, the residual value upside of the transactions. When CLO management fees are paid by a CLO, the residual economic interests in the CLO transaction are reduced by an amount commensurate with the CLO management fees paid. The Company records any residual proceeds due to subordinated note holders as interest expense on the condensed consolidated statements of operations. Accordingly, the increase in CLO management fees is directly offset by a decrease in interest expense.

Incentive Fees

The Manager earned incentive fees totaling zero for the two months ended June 30, 2014 and zero and $12.9 million for the one and four months ended April 30, 2014, respectively. During the three and six months ended June 30, 2013, the Manager earned $5.6 million and $22.7 million, respectively, of incentive fees.

Manager Share-Based Compensation

The Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.1 million and $0.7 million for the one and four months ended April 30, 2014, respectively. In addition, the Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.7 million and $1.4 million for the three and six months ended June 30, 2013, respectively. Refer to Note 11 to these condensed consolidated financial statements for further discussion on share-based compensation.

Reimbursable General and Administrative Expenses

Certain general and administrative expenses are incurred by the Company’s Manager on its behalf that are reimbursable to the Manager pursuant to the Management Agreement. The Company incurred reimbursable general and administrative expenses to its Manager totaling $1.4 million for the two months ended June 30, 2014 and $0.9 million and $2.8 million for the one and four months ended April 30, 2014, respectively. During the three and six months ended June 30, 2013, the Company incurred reimbursable general and administrative expenses to its Manager of $1.9 million and $3.6 million, respectively. Expenses incurred by the Manager and reimbursed by the Company are reflected in general, administrative and directors expenses on the condensed consolidated statements of operations.

Affiliated Investments

The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of KKR. As of June 30, 2014, the aggregate par amount of these affiliated investments totaled $1.8 billion, or approximately 25% of the total investment portfolio, and consisted of 26 issuers. The total $1.8 billion in affiliated investments was comprised of $1.7 billion of corporate loans, $9.5 million of corporate debt securities and $118.9 million of equity investments, at estimated fair value. As of December 31, 2013, the aggregate par amount of these affiliated investments totaled $2.1 billion, or approximately 27% of the total investment portfolio, and consisted of 28 issuers. The total $2.1 billion in affiliated investments was comprised of $1.9 billion of corporate loans, $52.8 million of corporate debt securities and $84.5 million of equity investments, at estimated fair value.

In addition, the Company has invested in certain joint ventures and partnerships alongside KKR and its affiliates. As of June 30, 2014, the estimated fair value of these interests in joint ventures and partnerships totaled $528.0 million. As of December 31, 2013, the aggregate cost amount of these interests in joint ventures and partnerships totaled $400.3 million.

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EARNINGS PER COMMON SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified		1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 KKR Fund Holdings	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company
Earnings per common share
Number of common shares held	100
Reconciliation of basic and diluted net income and distributions per common share
Net (loss) income		$ (2,203)	$ 86,132	$ 105,980	$ 184,468
Less: Preferred share distributions			6,891	6,891	13,629
Net income (loss) available to common shares		(2,203)	79,241	99,089	170,839
Less: Dividends and undistributed (loss) earnings allocated to participating securities		(5)	262	292	591
Net (loss) income allocated to common shareholders		$ (2,198)	$ 78,979	$ 98,797	$ 170,248
Basic:
Basic weighted average common shares outstanding (in shares)		204,398,000	204,108,000	204,276,000	200,650,000
Net (loss) income per common share (in dollars per share)		$ (0.01)	$ 0.39	$ 0.48	$ 0.85
Diluted:
Diluted weighted average common shares outstanding (in shares)		204,398,000	204,108,000	204,276,000	200,650,000
Net (loss) income per common share (in dollars per share)		$ (0.01)	$ 0.39	$ 0.48	$ 0.85
Anti-dilutive securities
Anti-dilutive securities excluded from diluted earnings per share calculations (in shares)		1,932,279	1,932,279	1,932,279	1,932,279

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DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2014

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

NOTE 8. DERIVATIVE INSTRUMENTS

The Company enters into derivative transactions in order to hedge its interest rate risk exposure to the effects of interest rate changes. Additionally, the Company enters into derivative transactions in the course of its portfolio management activities. The counterparties to the Company’s derivative agreements are major financial institutions with which the Company and its affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, the Company is potentially exposed to losses. The counterparties to the Company’s derivative agreements have investment grade ratings and, as a result, the Company does not anticipate that any of the counterparties will fail to fulfill their obligations.

The table below summarizes the aggregate notional amount and estimated net fair value of the derivative instruments as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	As of June 30, 2014						As of December 31, 2013
	Notional			Estimated Fair Value			Notional			Estimated Fair Value
Cash Flow Hedges:
Interest rate swaps	$	—		$	—		$	478,333		$	(42,078	)
Free-Standing Derivatives:
Interest rate swaps	458,833			(48,517		)	—			—
Commodity swaps	—			(7,714		)	—			1,493
Credit default swaps—protection purchased	—			—			(100,000		)	(2,019		)
Foreign exchange forward contracts	(300,370		)	(23,273		)	(320,380		)	(25,258		)
Foreign exchange options	129,900			7,056			129,900			8,941
Common stock warrants	—			1,077			—			945
Total rate of return swaps	—			(158		)	—			(229		)
Options	—			6,175			—			6,794
Total				$	(65,354	)				$	(51,411	)

Cash Flow Hedges

Interest Rate Swaps

As described above in Note 2 to these condensed consolidated financial statements, in connection with the Merger Transaction and as of the Effective Date, the Company discontinued hedge accounting for its cash flow hedges and records changes in the estimated fair value of the derivative instruments in the condensed consolidated statements of operations. Accordingly, disclosures related to cash flow hedges pertain to the Predecessor Company.

The Company uses interest rate swaps to hedge a portion of the interest rate risk associated with its borrowings under CLO senior secured notes as well as certain of its floating rate junior subordinated notes. The Predecessor Company designated these interest rate swaps as cash flow hedges and as of December 31, 2013, had interest rate swaps with a notional amount totaling $478.3 million. Changes in the estimated fair value of the interest rate swaps were recorded through accumulated other comprehensive loss, with gains or losses representing hedge ineffectiveness, if any, recognized in earnings during the reporting period.

The following table presents the net (losses) gains recognized in other comprehensive loss related to derivatives in cash flow hedging relationships for the one and four months ended April 30, 2014 and three and six months ended June 30, 2013 (amounts in thousands):

	For the onemonth ended April 30, 2014			For the fourmonths ended April 30, 2014			For the threemonths ended June 30, 2013		For the six months endedJune 30, 2013
Net (losses) gains recognized in accumulated other comprehensive loss on cash flow hedges	$	(1,611	)	$	(5,442	)	$	20,240	$	31,398

For all hedges where hedge accounting was being applied, effectiveness testing and other procedures to ensure the ongoing validity of the hedges were performed at least quarterly. During the one and four months ended April 30, 2014 and three and six months ended June 30, 2013, the Company did not recognize any ineffectiveness in income on the condensed consolidated statements of operations from its cash flow hedges.

As of June 30, 2014, the Successor Company had interest rate swaps with a notional amount of $458.8 million, which were classified as a free-standing derivatives, rather than cash flow hedges. Gains and losses on free-standing derivatives are reported in net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations. Unrealized gains (losses) represent the change in fair value of the derivative instruments and are noncash items.

Free-Standing Derivatives

Free-standing derivatives are derivatives that the Company has entered into in conjunction with its investment and risk management activities, but for which the Company has not designated the derivative contract as a hedging instrument for accounting purposes. Such derivative contracts may include commodity derivatives, credit default swaps (“CDS”) and foreign exchange contracts and options. Free-standing derivatives also include investment financing arrangements (total rate of return swaps) whereby the Company receives the sum of all interest, fees and any positive change in fair value amounts from a reference asset with a specified notional amount and pays interest on such notional amount plus any negative change in fair value amounts from such reference asset.

Gains and losses on free-standing derivatives are reported in net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations. Unrealized gains (losses) represent the change in fair value of the derivative instruments and are noncash items.

Commodity Derivatives

In an effort to minimize the effects of the volatility of oil, natural gas and NGL prices, the Company will from time to time enter into derivative instruments such as swap contracts to hedge its forecasted commodities sales. The Company does not designate these contracts as cash flow hedges and as such, the changes in the estimated fair value of these instruments are recorded in current period earnings.

The following table summarizes open positions as of June 30, 2014, and represents, as of such date, derivatives in place through December 31, 2016, on expected annual production volumes:

	2014		2015		2016
Natural gas positions:
Fixed price swaps:
Hedged volume (MMMBtu)	2,919		4,277		1,805
Average price ($/MMBtu)	$	4.34	$	4.73	$	4.44
Natural gas liquid positions:
Fixed price swaps:
Hedged volume (MBbls)	80		41		—
Average price ($/Bbl)	$	31.54	$	42.39	$	—
Oil positions:
Fixed price swaps:
Hedged volume (MBbls)	417		612		—
Average price ($/Bbl)	$	92.08	$	89.19	$	—

Credit Default Swaps

A CDS is a contract in which the contract buyer pays, in the case of a short position, or receives, in the case of long position, a periodic premium until the contract expires or a credit event occurs. In return for this premium, the contract seller receives a payment from or makes a payment to the buyer if there is a credit default or other specified credit event with respect to the issuer (also known as the reference entity) of the underlying credit instrument referenced in the CDS. Typical credit events include bankruptcy, dissolution or insolvency of the reference entity, failure to pay and restructuring of the obligations of the reference entity.

As of June 30, 2014 and December 31, 2013, the Company had purchased protection with a notional amount of zero and $100.0 million, respectively. The Company sells or purchases protection to replicate fixed income securities and to complement the spot market when cash securities of the referenced entity of a particular maturity are not available or when the derivative alternative is less expensive compared to other purchasing alternatives. In addition, the Company may purchase protection to hedge economic exposure to declines in value of certain credit positions. The Company purchases its protection from banks and broker dealers, other financial institutions and other counterparties.

Foreign Exchange Derivatives

The Company holds certain positions that are denominated in a foreign currency, whereby movements in foreign currency exchange rates may impact earnings if the United States dollar significantly strengthens or weakens against foreign currencies. In an effort to minimize the effects of these fluctuations on earnings, the Company will from time to time enter into foreign exchange options or foreign exchange forward contracts related to the assets denominated in a foreign currency. As of June 30, 2014 and December 31, 2013, the net contractual notional balance of our foreign exchange options and forward contract liabilities totaled $170.5 million and $190.5 million, respectively, all of which related to certain of our foreign currency denominated assets.

Free-Standing Derivatives Income (Loss)

The following table presents the amounts recorded in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations for the two months ended June 30, 2014 and for the one and four months ended April 30, 2014 (amounts in thousands):

	Successor Company									Predecessor Company
	Two months ended June 30, 2014									One month ended April 30, 2014									Four months ended April 30, 2014
	Realizedgains (losses)			Unrealized gains (losses)			Total			Realizedgains (losses)			Unrealized gains (losses)			Total			Realizedgains (losses)			Unrealized gains (losses)			Total
Interest rate swaps	$	—		$	(1,125	)	$	(1,125	)	$	—		$	—		$	—		$	—		$	—		$	—
Commodity swaps	(1,532		)	(3,350		)	(4,882		)	(601		)	(2,189		)	(2,790		)	(2,515		)	(5,856		)	(8,371		)
Credit default swaps(1)	—			—			—			—			—			—			(2,167		)	1,986			(181		)
Foreign exchange forward contracts and options(2)	(1,640		)	(958		)	(2,598		)	(1,618		)	2,716			1,098			(2,068		)	2,784			716
Common stock warrants	—			(5		)	(5		)	—			123			123			—			137			137
Total rate of return swaps	169			(213		)	(44		)	(406		)	170			(236		)	(2,349		)	284			(2,065		)
Options	—			(510		)	(510		)	—			392			392			—			(19		)	(19		)
Net realized and unrealized (losses) gains	$	(3,003	)	$	(6,161	)	$	(9,164	)	$	(2,625	)	$	1,212		$	(1,413	)	$	(9,099	)	$	(684	)	$	(9,783	)

(1) Includes related income and expense on the derivatives.

(2) Net of foreign exchange remeasurement gain or loss on foreign denominated assets.

The following tables present the amounts recorded in net realized and unrealized (loss) gain on derivatives and foreign exchange on the condensed consolidated statements of operations for three and six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Three months ended June 30, 2013									Six months ended June 30, 2013
	Realized gains (losses)			Unrealized gains (losses)			Total			Realized gains (losses)			Unrealized gains (losses)			Total
Commodity swaps	$	(22	)	$	7,028		$	7,006		$	1,087		$	919		$	2,006
Credit default swaps(1)	(518		)	49			(469		)	(3,161		)	1,519			(1,642		)
Foreign exchange forward contracts and options(2)	3,177			(4,451		)	(1,274		)	2,266			(6,371		)	(4,105		)
Net realized and realized gains (losses)	$	2,637		$	2,626		$	5,263		$	192		$	(3,933	)	$	(3,741	)

(1) Includes related income and expense on the derivatives.

(2) Net of foreign exchange remeasurement gain or loss on foreign denominated assets.

The Company is not subject to a master netting arrangement and the Company’s derivative instruments are presented on a gross basis on its condensed consolidated balance sheets.

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 13) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014 Successor Company Estimated Fair Value	Dec. 31, 2013 Predecessor Company Carrying Amount
Pledged assets
Pledged as collateral for collateralized loan obligation secured debt	$ 5,975,146	$ 6,231,541
Total loans pledged as collateral	$ 5,975,146	$ 6,231,541

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NATURAL RESOURCES ASSETS

6 Months Ended

Jun. 30, 2014

NATURAL RESOURCES ASSETS

NATURAL RESOURCES ASSETS

NOTE 6. NATURAL RESOURCES ASSETS

Natural Resources Properties

As described in Note 2, as a result of the Merger Transaction and new accounting basis established for assets and liabilities, oil and gas properties were adjusted to reflect estimated fair value as of the Effective Date, but will continue to be carried at cost net of DD&A. The following table summarizes the Company’s oil and gas properties as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	As of June 30, 2014			As of December 31, 2013
Proved oil and natural gas properties (successful efforts method)	$	519,823		$	451,909
Unproved oil and natural gas properties	16,913			16,913
Less: Accumulated depreciation, depletion and amortization	(11,058		)	(68,453		)
Oil and gas properties, net	$	525,678		$	400,369

Development and Other Purchases

The Company accounted for certain of its initial oil and natural gas properties as business combinations under the acquisition method of accounting, whereby the Company (i) conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values and (ii) expensed as incurred transaction and integration costs associated with the acquisitions. Separate from these acquisitions, the Company deployed capital to develop and purchase other interests and assets in the natural resources sector.

During the six months ended June 30, 2014 and year ended December 31, 2013, the Company capitalized an additional $85.0 million and $154.5 million, respectively, as a result of purchasing natural resources assets or covering costs related to the development of oil and gas properties. Accordingly, these amounts are included in oil and gas properties, net on the condensed consolidated balance sheets.

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BORROWINGS

6 Months Ended

Jun. 30, 2014

BORROWINGS

BORROWINGS

NOTE 7. BORROWINGS

As described in Note 2, as a result of the Merger Transaction and new accounting basis established for assets and liabilities, all borrowings were adjusted to reflect estimated fair value as of the Effective Date. In addition, the Successor Company elected to account for its collateralized loan obligation secured notes at estimated fair value, with changes in estimated fair value recorded in the condensed consolidated statements of operations. Prior to the Effective Date, all liabilities were carried at amortized cost.

Certain information with respect to the Company’s borrowings as of June 30, 2014 is summarized in the following table (dollar amounts in thousands):

	Par		Carrying  Value(1)		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(2)
CLO 2005-1 senior secured notes	$	219,088	$	217,470	1.67	%	1,031	$	258,161
CLO 2005-2 senior secured notes	274,945		273,017		0.65		1,245	433,092
CLO 2006-1 senior secured notes	248,930		247,081		1.04		1,517	507,929
CLO 2007-1 senior secured notes	2,069,459		2,047,353		0.78		2,511	2,495,371
CLO 2007-1 mezzanine notes	489,723		484,087		3.83		2,511	590,513
CLO 2007-1 subordinated notes(3)	134,468		131,926		14.50		2,511	162,142
CLO 2007-A senior secured notes	350,592		350,423		2.03		1,203	129,018
CLO 2007-A mezzanine notes	143,600		143,620		7.41		1,203	52,845
CLO 2007-A subordinated notes(3)	15,096		37,538		20.69		1,203	5,555
CLO 2011-1 senior debt	451,871		451,871		1.58		1,507	549,617
CLO 2012-1 senior secured notes	367,500		366,217		2.32		3,821	370,670
CLO 2012-1 subordinated notes(3)	18,000		15,059		16.27		3,821	18,155
CLO 2013-1 senior secured notes	458,500		447,273		1.96		4,033	468,808
CLO 2013-2 senior secured notes	339,250		334,979		2.21		4,225	350,750
Total collateralized loan obligation secured debt	5,581,022		5,547,914					6,392,626
2015 Asset-based borrowing facility	55,689		55,689		2.40		493	172,594
2018 Asset-based borrowing facility	27,600		27,600		1.90		1,338	284,833
Total credit facilities	83,289		83,289					457,427
8.375% Senior notes	258,750		291,458		8.38		10,000	—
7.500% Senior notes	115,043		123,820		7.50		10,125	—
Junior subordinated notes	283,517		246,062		5.39		8,133	—
Total borrowings	$	6,321,621	$	6,292,543				$	6,850,053

(1) Carrying value represents estimated fair value for the collateralized loan obligation secured debt and amortized cost for all other borrowings.

(2) Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities and equity investments at estimated fair value. Also includes the carrying value of oil and gas assets. For purposes of this table, collateral for CLO senior, mezzanine and subordinated notes are calculated pro rata based on the par amount for each respective CLO.

(3) Subordinated notes do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on annualized distributions during the quarter, if any.

Certain information with respect to the Company’s borrowings as of December 31, 2013 is summarized in the following table (dollar amounts in thousands):

	Outstanding  Borrowings		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(1)
CLO 2005-1 senior secured notes	$	193,909	0.73	%	1,212	$	303,104
CLO 2005-2 senior secured notes	335,570		0.63		1,426	496,917
CLO 2006-1 senior secured notes	384,925		0.69		1,698	649,894
CLO 2007-1 senior secured notes	2,075,040		0.79		2,692	2,354,938
CLO 2007-1 mezzanine notes	406,428		3.65		2,692	461,250
CLO 2007-1 subordinated notes(2)	136,097		18.15		2,692	154,456
CLO 2007-A senior secured notes	428,152		1.57		1,384	540,677
CLO 2007-A mezzanine notes	55,327		7.44		1,384	69,867
CLO 2007-A subordinated notes(2)	15,096		42.22		1,384	19,063
CLO 2011-1 senior debt	388,703		1.25		1,688	517,597
CLO 2012-1 senior secured notes	362,727		2.34		4,002	376,603
CLO 2012-1 subordinated notes(2)	18,000		11.67		4,002	18,689
CLO 2013-1 senior secured notes	449,409		1.98		4,214	468,915
Total collateralized loan obligation secured debt	5,249,383					6,431,970
Senior secured credit facility(3)	75,000		1.39		699	—
2015 Asset-based borrowing facility	50,289		2.42		674	213,935
2018 Asset-based borrowing facility(4)	—		—		1,519	—
Total credit facilities	125,289					213,935
8.375% Senior notes	250,800		8.38		10,181	—
7.500% Senior notes	111,476		7.50		10,306	—
Junior subordinated notes	283,517		5.39		8,347	—
Total borrowings	$	6,020,465				$	6,645,905

(1) Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities available-for-sale and equity investments at estimated fair value. Also includes the carrying value of oil and gas assets. For purposes of this table, collateral for CLO senior, mezzanine and subordinated notes are calculated pro rata based on the outstanding borrowings for each respective CLO.

(2) Subordinated notes do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on year-to-date estimated distributions, if any.

(3) Capital stock of material domestic and foreign subsidiaries, as defined by the senior secured credit facility agreement, are eligible to be pledged as collateral. As of December 31, 2013, the total investments held within these eligible subsidiaries exceeded the amount of the outstanding debt.

(4) Borrowing rates range from 1.75% to 3.25% plus London interbank offered rate (“LIBOR”) per annum based on the amount outstanding.

CLO Debt

The indentures governing the Company’s CLO transactions stipulate the reinvestment period during which the collateral manager, which is an affiliate of the Company’s Manager, can generally sell or buy assets at its discretion and can reinvest principal proceeds into new assets. CLO 2007-A, CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 are no longer in their reinvestment periods as of June 30, 2014. As a result, principal proceeds from the assets held in each of these transactions are generally used to amortize the outstanding balance of senior notes outstanding. During the two months ended June 30, 2014, $196.9 million of original CLO 2005-2, CLO 2006-1 and CLO 2007-1 senior notes were repaid. During the one and four months ended April 30, 2014, $128.2 million and $182.6 million, respectively, of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. Comparatively, during the three and six months ended June 30, 2013, an aggregate $360.2 million and $506.3 million, respectively, of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. CLO 2012-1, CLO 2013-1 and CLO 2013-2 will end their reinvestment periods during December 2016, July 2017 and January 2018, respectively. CLO 2011-1 does not have a reinvestment period and all principal proceeds from holdings in CLO 2011-1 are used to amortize the transaction. During the two months ended June 30, 2014, zero original CLO 2011-1 senior notes were repaid, while during both the one and four months ended April 30, 2014, $39.4 million of original CLO 2011-1 senior notes were repaid. Comparatively, during the three and six months ended June 30, 2013, $24.0 million and $45.5 million, respectively, of original CLO 2011-1 senior notes were repaid.

During the two months ended June 30, 2014, the Company issued $15.0 million par amount of CLO 2006-1 Class E notes for proceeds of $15.0 million and $37.5 million par amount of CLO 2007-1 Class E notes for proceeds of $37.6 million.

During the one month ended April 30, 2014, the Company issued $61.1 million par amount of CLO 2007-A class D and E notes for proceeds of $61.3 million. In addition, during the same period, the Company issued $72.0 million par amount of CLO 2005-1 class D through F notes for proceeds of $71.5 million.

During the first quarter of 2014, the Company issued $21.9 million par amount of CLO 2007-1 class E notes for proceeds of $21.9 million. In addition, during the first quarter of 2014, the Company issued $29.8 million par amount of CLO 2007-A class G notes for proceeds of $30.2 million and $29.8 million par amount of CLO 2007-A class H notes for proceeds of $30.1 million.

On January 23, 2014, the Company closed CLO 2013-2, a $384.0 million secured financing transaction maturing on January 23, 2026. The Company issued $339.3 million par amount of senior secured notes to unaffiliated investors, of which $319.3 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.16% and $20.0 million was fixed rate at 3.74%. The investments that are owned by CLO 2013-2 collateralize the CLO 2013-2 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

On September 27, 2013, the Company amended the CLO 2011-1 senior loan agreement (the “CLO 2011-1 Agreement”) to upsize the transaction by $300.0 million, of which CLO 2011-1 is now able to borrow up to an incremental $225.0 million. Under the amended CLO 2011-1 Agreement, CLO 2011-1 matures on August 15, 2020 and borrowings under the CLO 2011-1 Agreement bear interest at a rate of the three-month LIBOR plus 1.35%.

On June 25, 2013, the Company closed CLO 2013-1, a $519.4 million secured financing transaction maturing on July 15, 2025. The Company issued $458.5 million par amount of senior secured notes to unaffiliated investors, of which $442.0 million was floating rate with a weighted-average coupon of three-month LIBOR plus 1.67% and $16.5 million was fixed rate at 3.73%. The investments that are owned by CLO 2013-1 collateralize the CLO 2013-1 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

Credit Facilities

Senior Secured Credit Facility

On November 30, 2012, the Company entered into a credit agreement for a three-year $150.0 million revolving credit facility, maturing on November 30, 2015 (the “2015 Facility”). The Company has the right to prepay loans under the 2015 Facility in whole or in part at any time. Loans under the 2015 Facility bear interest at a rate equal to, at the Company’s option, LIBOR plus 2.25% per annum, or an alternate base rate plus 1.25% per annum. As of December 31, 2013, the Company had $75.0 million of borrowings outstanding under the 2015 Facility. In connection with the merger, the Company terminated the 2015 Facility on April 30, 2014 with all amounts outstanding repaid as of March 31, 2014.

Asset-Based Borrowing Facilities

On May 20, 2014, the Company’s five-year nonrecourse, asset-based revolving credit facility, maturing on November 5, 2015 (the “2015 Natural Resources Facility”), was adjusted and reduced to $75.0 million, which is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. The borrowing base is subject to certain caps and concentration limits customary for financings of this type. The Company has the right to prepay loans under the 2015 Natural Resources Facility in whole or in part at any time. Loans under the 2015 Natural Resources Facility bear interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 2.75% per annum. The 2015 Natural Resources Facility contains customary covenants applicable to the Company. As of June 30, 2014 and December 31, 2013, the Company had $55.7 million and $50.3 million, respectively, of borrowings outstanding under the 2015 Natural Resources Facility.

On February 27, 2013, the Company entered into a separate credit agreement for a five-year $6.0 million non-recourse, asset-based revolving credit facility, maturing on February 27, 2018 (the “2018 Natural Resources Facility”), that is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. On May 15, 2014, the 2018 Natural Resources Facility was adjusted and increased to $68.5 million. The Company has the right to prepay loans under the 2018 Natural Resources Facility in whole or in part at any time. Loans under the 2018 Natural Resources Facility bear interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 3.25% per annum. The 2018 Natural Resources Facility contains customary covenants applicable to the Company. As of June 30, 2014 and December 31, 2013, the Company had $27.6 million and zero, respectively, of borrowings outstanding under the 2018 Natural Resources Facility. On July 1, 2014, the 2018 Natural Resources Facility was terminated, with all amounts outstanding repaid as of July 1, 2014.

As of both June 30, 2014 and December 31, 2013, the Company believes it was in compliance with the covenant requirements for its credit facilities.

Convertible Debt

On January 18, 2013, in accordance with the indenture relating to the Company’s $172.5 million 7.5% convertible senior notes due January 15, 2017 (“7.5% Notes”), the Company issued a conversion rights termination notice (“Termination Notice”) to holders of the 7.5% Notes whereby it terminated the right to convert the 7.5% Notes to common shares. The conversion rate as of January 18, 2013 was equal to 141.8256 common shares for each $1,000 principal amount of 7.5% Notes, plus an additional 9.2324 common shares per $1,000 principal amount to account for the make-whole premium. Holders of $172.5 million 7.5% Notes submitted their notes for conversion for which the Company satisfied by physical settlement with 26.1 million common shares.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2014

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments Not Carried at Estimated Fair Value

As described above in Note 2 to these condensed consolidated financial statements, as of the Effective Date, the Successor Company accounts for its investments, as well as its collateralized loan obligation secured notes at estimated fair value. Comparatively, the Predecessor Company accounted for certain of its corporate loans and its collateralized loan obligation secured notes at amortized cost.

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value on a recurring basis as of June 30, 2014 (amounts in thousands):

	Successor Company
	As of June 30, 2014				Fair Value Hierarchy
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, restricted cash, and cash equivalents	$	806,720	$	806,720	$	806,720	$	—	$	—
Liabilities:
Credit facilities	83,289		83,289		—		—		83,289
Senior notes	415,278		418,413		418,413		—		—
Junior subordinated notes	246,062		248,051		—		—		248,051

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value on a recurring basis as of December 31, 2013 (amounts in thousands):

	Predecessor Company
	As of December 31, 2013				Fair Value Hierarchy
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, restricted cash, and cash equivalents	$	507,552	$	507,552	$	507,552	$	—	$	—
Corporate loans, net of allowance for loan losses of $224,999 as of December 31, 2013(1)	5,949,492		6,051,641		—		5,691,988		359,653
Corporate loans held for sale(1)	279,748		281,278		—		267,169		14,109
Private equity investments, at cost(2)	405		4,496		—		—		4,496
Other assets	5,763		5,513		—		5,513		—
Liabilities:
Collateralized loan obligation secured debt	$	5,249,383	$	5,179,207	$	—	$	—	$	5,179,207
Credit facilities	125,289		125,289		—		—		125,289
Senior notes	362,276		393,772		393,772		—		—
Junior subordinated notes	283,517		247,416		—		—		247,416

(1) Corporate loans held for investment are carried at amortized cost net of allowance for loan losses, while corporate loans held for sale are carried at the lower of cost or estimated fair value. Refer to “Fair Value Measurements” for a table presenting the corporate loans which are measured at fair value on a non-recurring basis.

(2) Included within other assets on the condensed consolidated balance sheets.

Fair Value Measurements

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2014, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Successor Company
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2014
Assets:
Securities:
Corporate debt securities	$	—	$	341,237	$	169,592	$	510,829
Residential mortgage-backed securities	—		—		59,242		59,242
Total securities	—		341,237		228,834		570,071
Corporate loans	—		5,993,258		300,282		6,293,540
Equity investments, at estimated fair value	21,322		116,021		141,160		278,503
Interests in joint ventures and partnerships	—		12,430		515,556		527,986
Other assets	—		5,424		—		5,424
Derivatives:
Interest rate swaps	—		841		—		841
Commodity swaps	—		3,513		—		3,513
Foreign exchange forward contracts	—		4,322		—		4,322
Foreign exchange options	—		—		7,056		7,056
Common stock warrants	—		1,077		—		1,077
Total rate of return swaps	—		7		—		7
Options	—		—		6,175		6,175
Total derivatives	—		9,760		13,231		22,991
Total	$	21,322	$	6,478,130	$	1,199,063	$	7,698,515
Liabilities:
Collateralized loan obligation secured notes	$	—	$	—	$	5,547,914	$	5,547,914
Derivatives:
Interest rate swaps	—		49,358		—		49,358
Commodity swaps	—		11,227		—		11,227
Foreign exchange forward contracts	—		27,595		—		27,595
Total rate of return swaps	—		165		—		165
Total derivatives	—		88,345		—		88,345
Total	$	—	$	88,345	$	5,547,914	$	5,636,259

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Predecessor Company
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31,2013
Assets:
Securities:
Securities available-for-sale	$	—	$	326,940	$	23,401	$	350,341
Other securities, at estimated fair value	—		39,437		107,530		146,967
Residential mortgage-backed securities	—		—		76,004		76,004
Total securities	—		366,377		206,935		573,312
Corporate loans, at estimated fair value	—		84,680		152,800		237,480
Equity investments, at estimated fair value	39,515		3,638		138,059		181,212
Interests in joint ventures and partnerships	14,836		—		415,247		430,083
Derivatives:
Interest rate swaps	—		3,290		—		3,290
Commodity swaps	—		5,408		—		5,408
Foreign exchange forward contracts	—		4,846		—		4,846
Foreign exchange options	—		—		8,941		8,941
Common stock warrants	—		945		—		945
Options	—		—		6,794		6,794
Total derivatives	—		14,489		15,735		30,224
Total	$	54,351	$	469,184	$	928,776	$	1,452,311
Liabilities:
Derivatives:
Interest rate swaps	—		45,368		—		45,368
Commodity swaps	—		3,915		—		3,915
Credit default swaps—protection purchased	—		2,019		—		2,019
Foreign exchange forward contracts	—		30,104		—		30,104
Total rate of return swaps	—		229		—		229
Total derivatives	—		81,635		—		81,635
Total	$	—	$	81,635	$	—	$	81,635

The following table presents information about the Company’s assets measured at fair value on a non-recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands). There were no liabilities measured at fair value on a non-recurring basis:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31,2013
Corporate loans held for sale(1)	$	—	$	90,485	$	5,568	$	96,053
Total	$	—	$	90,485	$	5,568	$	96,053

(1) As of December 31, 2013, total loans held for sale had a carrying value of $279.7 million of which $96.1 million was carried at estimated fair value and the remaining $183.6 million carried at amortized cost.

Whenever events or changes in circumstances indicate that the carrying amounts of the Company’s oil and gas properties may not be recoverable, the Company evaluates its proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. For the year ended December 31, 2013, the Company recorded impairment charges totaling $10.4 million to write down certain of its oil and natural gas properties with a carrying amount of $16.1 million to an estimated fair value of $5.7 million.

Level 3 Fair Value Rollforward

The following table presents additional information about assets and liabilities, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the two months ended June 30, 2014 (amounts in thousands):

	Successor Company
	Assets																					Liabilities
	Corporate Debt Securities			Residential Mortgage- Backed Securities			Corporate Loans			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options			Collateralized Loan Obligation Secured Notes
Beginning balance as of May 1, 2014	$	156,500		$	59,623		$	294,218		$	157,765		$	472,467		$	8,854		$	6,684		$	5,663,665
Total gains or losses (for the period):
Included in earnings(1)	2,185			1,359			2,951			2,160			21,690			(1,798		)	(509		)	28,669
Transfers into Level 3	—			—			—			—			—			—			—			—
Transfers out of Level 3(2)	—			—			—			(1,230		)	—			—			—			—
Purchases	20,000			—			1,261			—			27,466			—			—			52,594
Sales	(3,966		)	—			(2,912		)	—			—			—			—			—
Settlements	(5,127		)	(1,740		)	4,764			(17,535		)	(6,067		)	—			—			(197,014		)
Ending balance as of June 30, 2014	$	169,592		$	59,242		$	300,282		$	141,160		$	515,556		$	7,056		$	6,175		$	5,547,914
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	2,185		$	623		$	2,073		$	2,160		$	21,690		$	(1,798	)	$	(509	)	$	28,669

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations. Amounts for collateralized loan obligation secured notes, which represent liabilities measured at fair value, are included in net realized and unrealized loss on debt in the condensed consolidated statements of operations.

(2) Equity investments, at estimated fair value were transferred out of Level 3 because observable market data became available.

The following table presents additional information about assets, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the one and four months ended April 30, 2014 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value			Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options
Beginning balance as of January 1, 2014	$	23,401		$	107,530		$	76,004		$	152,800		$	138,059		$	415,247		$	8,941		$	6,794
Total gains or losses (for the period):
Included in earnings(1)	22			3,059			3,088			(5,123		)	9,076			22,377			(813		)	(302		)
Included in other comprehensive income	121			—			—			—			—			—			—			—
Transfers into Level 3	—			—			—			—			—			—			—			—
Transfers out of Level 3(3)	—			—			—			—			(8,751		)	—			—			—
Purchases	—			25,000			—			8,822			—			42,683			—			—
Sales	—			—			(17,810		)	—			—			—			—			—
Settlements	(16		)	(10,078		)	(2,529		)	(3,104		)	120,593			14,113			—			—
Ending balance as of March 31, 2014	23,528			125,511			58,753			153,395			258,977			494,420			8,128			6,492
Total gains or losses (for the period):
Included in earnings(1)	44			479			1,416			1,240			12,126			(24,158		)	726			192
Included in other comprehensive income	33			—			—			—			—			—			—			—
Transfers into Level 3(2)	6,937			—			—			—			—			—			—			—
Transfers out of Level 3(3)	—			—			—			—			(119,033		)	—			—			—
Purchases	—			—			—			—			—			1,615			—			—
Sales	—			—			—			—			—			—			—			—
Settlements	(32		)	—			(546		)	2,272			—			(1,184		)	—			—
Ending balance as of April 30, 2014	$	30,510		$	125,990		$	59,623		$	156,907		$	152,070		$	470,693		$	8,854		$	6,684
Change in unrealized gains or losses for the period included in earnings for the one month ended April 30, 2014 for assets held at the end of the reporting period(1)	$	44		$	479		$	1,503		$	1,240		$	12,126		$	(24,158	)	$	726		$	192
Change in unrealized gains or losses for the period included in earnings for the four months ended April 30, 2014 for assets held at the end of the reporting period(1)	$	66		$	2,683		$	5,242		$	4,445		$	20,499		$	(1,781	)	$	(87	)	$	(110	)

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations.

(2) Securities available-for-sale were transferred into Level 3 because observable market data was no longer available as a result of an asset-restructure.

(3) Equity investments, at estimated fair value were transferred out of Level 3 because observable market data became available as a result of asset-restructures.

Certain interests in joint ventures and partnerships were transferred from Level 1 to Level 2 during the two months ended June 30, 2014 due to illiquid market conditions. There were no transfers between Level 1 and Level 2 during the one and four months ended April 30, 2014.

The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the three months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Common Stock Warrants		Foreign Exchange Options, Net		Interests in Joint Ventures and Partnerships
Beginning balance as of April 1, 2013	$	42,083		$	3,237	$	87,028		$	17,325		$	102,262		$	1,819	$	5,350	$	169,931
Total gains or losses (for the period):
Included in earnings(1)	99			944		(167		)	374			(1,426		)	1,742		401		(2,771		)
Included in other comprehensive income	131			—		—			—			—			—		—		—
Transfers into Level 3	—			—		—			—			—			—		—		—
Transfers out of Level 3	—			—		—			—			—			—		—		—
Purchases	—			23,691		—			28,695			3			—		—		74,851
Sales	—			—		—			—			—			—		—		—
Settlements	(4,933		)	—		(3,888		)	(458		)	(545		)	—		—		(6,987		)
Ending balance as of June 30, 2013	$	37,380		$	27,872	$	82,973		$	45,936		$	100,294		$	3,561	$	5,751	$	235,024
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	99		$	944	$	3,810		$	374		$	(1,426	)	$	1,742	$	401	$	(2,771	)

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized gain (loss) on derivatives and foreign exchange in the condensed consolidated statements of operations.

The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized level 3 inputs to determine fair value, for the six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Securities Available- For-Sale			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Common Stock Warrants		Foreign Exchange Options, Net			Interests in Joint Ventures and Partnerships
Beginning balance as of January 1, 2013	$	42,221		$	2,909	$	83,842		$	16,141		$	97,746		$	1,574	$	8,277		$	142,477
Total gains or losses (for the period):
Included in earnings(1)	(18		)	1,272		5,554			(1,052		)	3,090			1,987		(2,526		)	3,908
Included in other comprehensive income	221			—		—			—			—			—		—			—
Transfers into Level 3	—			—		—			—			—			—		—			—
Transfers out of Level 3	—			—		—			—			—			—		—			—
Purchases	—			23,691		—			31,768			3			—		—			97,663
Sales	—			—		—			—			—			—		—			—
Settlements	(5,044		)	—		(6,423		)	(921		)	(545		)	—		—			(9,024		)
Ending balance as of June 30, 2013	$	37,380		$	27,872	$	82,973		$	45,936		$	100,294		$	3,561	$	5,751		$	235,024
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	(18	)	$	1,272	$	15,898		$	(1,348	)	$	3,090		$	1,987	$	(2,526	)	$	3,908

(1) Amounts are included in net realized and unrealized gain (loss) on investments or net realized and unrealized gain (loss) on derivatives and foreign exchange in the condensed consolidated statements of operations.

There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2013.

Valuation Techniques and Inputs for Level 3 Fair Value Measurements

The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivatives, that are measured at fair value and categorized within Level 3 as of June 30, 2014 (dollar amounts in thousands):

Successor Company
	Balance as of June 30,2014		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Assets:
Corporate debt securities	$	169,592	Yield analysis	Yield	12%	3% - 14%	Decrease
				Net leverage	12x	12x	Decrease
				EBITDA multiple	9x	8x - 10x	Increase
				Discount margin	900bps	900bps	Decrease
			Broker quotes	Offered quotes	103	102-106	Increase
Residential mortgage -backed	$	59,242	Discounted cash flows	Probability of default	6%	0% - 24%	Decrease
securities				Loss severity	26%	12% - 37%	Decrease
				Constant prepayment rate	13%	5% - 17%	(5)
Corporate loans	$	300,282	Yield Analysis	Yield	10%	3% - 18%	Decrease
				Net leverage	6x	0x - 14x	Decrease
				EBITDA multiple	9x	5x - 13x	Increase
Equity investments, at estimated fair value(6)	$	141,160	Inputs to both market comparables and	Weight ascribed to market comparables	60%	33% - 100%	(7)
			discounted cash flow	Weight ascribed to	55%	0% - 100%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	12x	5x - 23x	Increase
				Forward EBITDA multiple	10x	5x - 17x	Increase
			Discounted cash flows	Weighted average cost of capital	11%	8% - 18%	Decrease
				LTM EBITDA exit multiple	10x	7x - 11x	Increase
Interests in joint ventures and partnerships(9)	$	515,556	Inputs to both market comparables and	Weight ascribed to market comparables	53%	0% - 100%	(7)
			discounted cash flow	Weight ascribed to	72%	0% - 100%	(8)
				discounted cash flows
			Market comparables	Current capitalization rate	7%	6% - 10%	Decrease
				LTM EBITDA multiple	11x	8x - 12x	Increase
				Forward EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	13%	8% - 20%	Decrease
Foreign exchange options	$	7,056	Option pricing model	Forward and spot rates	1	0 - 1	(10)
Options	$	6,175	Inputs to both market comparables and	Weight ascribed to market comparables	50%	50%	(7)
			discounted cash flow	Weight ascribed to	50%	50%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	10x	10x	Increase
			Discounted cash flows	Weighted average cost of capital	13%	13%	Decrease
				LTM EBITDA exit multiple	11x	11x	Increase
Liabilities:
Collateralized loan obligation secured notes	$	5,547,914	Yield analysis Discounted cash flows	Discount margin Probability of default Loss severity	229bps 2% 33%	0bps - 1500bps 2% - 3% 30% - 38%	Decrease Decrease Decrease

(1) For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(2) In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.

(3) Weighted average amounts are based on the estimated fair values.

(4) Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.

(5) The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.

(6) When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

(7) The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.

(8) The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.

(9) Includes an asset that was valued using an independent third party valuation firm.

(10) The directional change from an increase in forward and spot rates varies and is dependent on the specific option.

The following table presents additional information about valuation techniques and inputs used for assets, including derivatives, that are measured at fair value and categorized within Level 3 as of December 31, 2013 (dollar amounts in thousands):

Predecessor Company
	Balance as of December 31, 2013		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Assets:
Securities available-for-sale	$	23,401	Yield analysis	Yield	10%	6% - 12%	Decrease
				Net leverage	12x	11x - 12x	Decrease
				EBITDA multiple	8x	8x - 9x	Increase
			Broker quotes	Offered quotes	105	104 - 105	Increase
Other securities, at estimated	$	107,530	Yield Analysis	Yield	12%	7% - 17%	Decrease
fair value				EBITDA multiple	8x	7x - 8x	Increase
				Illiquidity discount	3%	3%	Decrease
				Net leverage	1x	1x - 2x	Decrease
			Broker quotes	Offered quotes	102	101 - 102	Increase
Residential mortgage-backed	$	76,004	Discounted cash flows	Probability of default	7%	0% - 21%	Decrease
securities				Loss severity	28%	16% - 77%	Decrease
				Constant prepayment rate	15%	3% - 35%	(5)
Corporate loans, at estimated	$	152,800	Yield Analysis	Yield	16%	14% - 23%	Decrease
fair value				Net leverage	7x	4x - 12x	Decrease
				EBITDA multiple	8x	6x - 11x	Increase
Equity investments, at estimated fair value(6)	$	138,059	Inputs to both market comparables and	Weight ascribed to market comparables	50%	33% - 100%	(7)
			discounted cash flow	Weight ascribed to	59%	50% - 100%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	12x	6x - 16x	Increase
				Forward EBITA multiple	12x	10x - 14x	Increase
			Discounted cash flows	Weighted average cost of capital	11%	8% - 14%	Decrease
				LTM EBITDA exit multiple	10x	4x - 11x	Increase
Interests in joint ventures and partnerships	$	415,247	Inputs to both market comparables and	Weight ascribed to market comparables	50%	50% - 100%	(7)
			discounted cash flow	Weight ascribed to	50%	50% - 100%	(8)
				discounted cash flows
			Market comparables	Current capitalization rate	7%	6% - 9%	Decrease
				LTM EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	8% - 24%	Decrease
Foreign exchange options	$	8,941	Option pricing model	Forward and spot rates	1	0 - 1	(9)
Options	$	6,794	Inputs to both market	Weight ascribed to market	50%	50%	(7)
			comparables and	comparables
			discounted cash flow	Weight ascribed to	50%	50%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	12%	Decrease
				LTM EBITDA exit multiple	10x	9x - 10x	Increase

(1) For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(2) In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.

(3) Weighted average amounts are based on the estimated fair values.

(4) Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.

(5) The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.

(6) When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

(7) The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.

(8) The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.

(9) The directional change from an increase in forward and spot rates varies and is dependent on the specific option.

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BORROWINGS (Details 3) (USD $)					6 Months Ended		0 Months Ended		0 Months Ended					0 Months Ended				0 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company 2015 Natural Resources Facility	Jun. 30, 2014 Successor Company 2018 Natural Resources Facility	Dec. 31, 2013 Successor Company 2018 Natural Resources Facility	Jun. 30, 2014 Successor Company 2018 Natural Resources Facility LIBOR	Dec. 31, 2013 Predecessor Company	Nov. 30, 2012 Predecessor Company 2015 Facility	Dec. 31, 2013 Predecessor Company 2015 Facility	Nov. 30, 2012 Predecessor Company 2015 Facility LIBOR	Nov. 30, 2012 Predecessor Company 2015 Facility Alternate base rate	May 20, 2014 Predecessor Company 2015 Natural Resources Facility	Nov. 14, 2013 Predecessor Company 2015 Natural Resources Facility	Dec. 31, 2013 Predecessor Company 2015 Natural Resources Facility	Nov. 14, 2013 Predecessor Company 2015 Natural Resources Facility Minimum LIBOR	Nov. 14, 2013 Predecessor Company 2015 Natural Resources Facility Maximum LIBOR	Feb. 27, 2013 Predecessor Company 2018 Natural Resources Facility	May 15, 2014 Predecessor Company 2018 Natural Resources Facility	Feb. 27, 2013 Predecessor Company 2018 Natural Resources Facility Minimum LIBOR	Feb. 27, 2013 Predecessor Company 2018 Natural Resources Facility Maximum LIBOR
Details of Company's borrowings
Credit facility term							3 years				5 years					5 years
Current borrowing capacity under line of credit facility							$ 150,000,000				$ 75,000,000
Maximum borrowing capacity																6,000,000	68,500,000
Amount outstanding	$ 83,289,000	$ 55,689,000	$ 27,600,000	$ 0		$ 125,289,000		$ 75,000,000					$ 50,289,000
Debt, variable interest rate basis					LIBOR				LIBOR	alternate base rate		LIBOR				LIBOR
Percentage of margin added to reference rate to determine interest rate on debt (in percentage)									2.25%	1.25%				1.75%	2.75%			1.75%	3.25%

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) (Predecessor Company, USD $)	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Apr. 30, 2014	Jun. 30, 2013	Apr. 30, 2014	Jun. 30, 2013
Components of changes in accumulated other comprehensive income (loss)
Beginning balance	$ (21,372,000)	$ (53,543,000)	$ (15,652,000)	$ (70,226,000)
Other comprehensive (loss) income before reclassifications	(3,922,000)	8,119,000	(8,056,000)	21,689,000
Amounts reclassified from accumulated other comprehensive loss	(1,053,000)	5,781,000	(2,639,000)	8,894,000
Net current-period other comprehensive (loss) income	(4,975,000)	13,900,000	(10,695,000)	30,583,000
Ending balance	(26,347,000)	(39,643,000)	(26,347,000)	(39,643,000)
Impairment charge for investments which were determined to be other-than-temporary	1,500,000	6,600,000	4,400,000	12,500,000
Net unrealized gains on available-for-sale securities
Components of changes in accumulated other comprehensive income (loss)
Beginning balance	21,678,000	22,997,000	23,567,000	17,472,000
Other comprehensive (loss) income before reclassifications	(2,311,000)	(12,121,000)	(2,614,000)	(9,709,000)
Amounts reclassified from accumulated other comprehensive loss	(1,053,000)	5,781,000	(2,639,000)	8,894,000
Net current-period other comprehensive (loss) income	(3,364,000)	(6,340,000)	(5,253,000)	(815,000)
Ending balance	18,314,000	16,657,000	18,314,000	16,657,000
Net unrealized losses on cash flow hedges
Components of changes in accumulated other comprehensive income (loss)
Beginning balance	(43,050,000)	(76,540,000)	(39,219,000)	(87,698,000)
Other comprehensive (loss) income before reclassifications	(1,611,000)	20,240,000	(5,442,000)	31,398,000
Net current-period other comprehensive (loss) income	(1,611,000)	20,240,000	(5,442,000)	31,398,000
Ending balance	$ (44,661,000)	$ (56,300,000)	$ (44,661,000)	$ (56,300,000)

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DERIVATIVE INSTRUMENTS (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Interest rate swaps	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Commodity swaps	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Credit default swaps-protection purchased	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Foreign exchange forward contracts	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Foreign exchange options	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Common stock warrants	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Total Rate of Return Swaps	Jun. 30, 2014 Successor Company Free-Standing Derivatives: Options	Dec. 31, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company Cash Flow Hedges: Interest rate swaps	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Commodity swaps	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Credit default swaps-protection purchased	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Foreign exchange forward contracts	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Foreign exchange options	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Common stock warrants	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Total Rate of Return Swaps	Dec. 31, 2013 Predecessor Company Free-Standing Derivatives: Options
Summary of aggregate notional amount and estimated net fair value of the derivative instruments
Notional amount		$ 458,833		$ 0	$ (300,370)	$ 129,900					$ 478,333		$ (100,000)	$ (320,380)	$ 129,900
Estimated Fair Value	$ (65,354)	$ (48,517)	$ (7,714)		$ (23,273)	$ 7,056	$ 1,077	$ (158)	$ 6,175	$ (51,411)	$ (42,078)	$ 1,493	$ (2,019)	$ (25,258)	$ 8,941	$ 945	$ (229)	$ 6,794

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BORROWINGS (Details 2) (USD $)	2 Months Ended		2 Months Ended			2 Months Ended				4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	0 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	0 Months Ended	3 Months Ended			0 Months Ended				1 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company CLO 2011-1 senior debt	Jun. 30, 2014 Successor Company CLO 2007-1 Class E secured notes	Jun. 30, 2014 Successor Company CLO 2013-2 senior secured notes	Jun. 30, 2014 Successor Company CLO 2013-1 senior secured notes	Jun. 30, 2014 Successor Company CLO 2007-A, CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 senior notes	Jun. 30, 2014 Successor Company CLO 2006-1 Class E secured notes	Jun. 30, 2014 Successor Company CLO 2012-1 senior secured notes	Jun. 30, 2014 Successor Company CLO 2007-A notes	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes	Jun. 30, 2013 Predecessor Company CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes	Apr. 30, 2014 Predecessor Company CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes	Jun. 30, 2013 Predecessor Company CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes	Sep. 27, 2013 Predecessor Company CLO 2011-1 senior debt	Apr. 30, 2014 Predecessor Company CLO 2011-1 senior debt	Jun. 30, 2013 Predecessor Company CLO 2011-1 senior debt	Apr. 30, 2014 Predecessor Company CLO 2011-1 senior debt	Jun. 30, 2013 Predecessor Company CLO 2011-1 senior debt	Sep. 27, 2013 Predecessor Company CLO 2011-1 senior debt Maximum	Mar. 31, 2014 Predecessor Company CLO 2007-1 Class E secured notes	Mar. 31, 2014 Predecessor Company CLO 2007-A Class G secured notes	Mar. 31, 2014 Predecessor Company CLO 2007-A Class H secured notes	Jan. 23, 2014 Predecessor Company CLO 2013-2 senior secured notes	Jan. 23, 2014 Predecessor Company CLO 2013-2 senior secured notes Nonaffiliates	Jun. 25, 2013 Predecessor Company CLO 2013-1 senior secured notes	Jun. 25, 2013 Predecessor Company CLO 2013-1 senior secured notes Nonaffiliates	Apr. 30, 2014 Predecessor Company CLO 2007-A Class D and E secured notes	Apr. 30, 2014 Predecessor Company CLO 2005-1 Class D through F secured notes
Details of Company's borrowings
Collateralized loan obligation secured debt repaid	$ 196,940,000					$ 196,900,000				$ 221,914,000	$ 551,844,000	$ 128,200,000	$ 360,200,000	$ 182,600,000	$ 506,300,000		$ 39,400,000	$ 24,000,000	$ 39,400,000	$ 45,500,000
Par amount of notes issued			37,500,000				15,000,000															21,900,000	29,800,000	29,800,000					61,100,000	72,000,000
Proceeds from senior notes			37,600,000				15,000,000															21,900,000	30,200,000	30,100,000					61,300,000	71,500,000
Increase in the maximum borrowing capacity																300,000,000
Increase in current borrowing capacity																					225,000,000
Par amount of notes issued	5,581,022,000	451,871,000		339,250,000	458,500,000			367,500,000	350,592,000																384,000,000	339,300,000	519,400,000	458,500,000
Floating rate senior secured note																										319,300,000		442,000,000
Debt, variable interest rate basis																three-month LIBOR									three-month LIBOR		three-month LIBOR
Percentage of margin added to reference rate to determine interest rate on debt (in percentage)																1.35%										2.16%		1.67%
Fixed rate senior secured note																										$ 20,000,000		$ 16,500,000
Fixed rate (as a percent)																										3.74%		3.73%

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SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2014

Segment reporting

Schedule showing net income (loss) components and total assets of reportable segments reconciled to amounts reflected in the condensed consolidated financial statements

The following table shows total assets of reportable segments reconciled to amounts reflected in the condensed consolidated financial statements as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Credit				Natural Resources				Other				Reconciling Items				Total Consolidated
As of	June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013
Total assets	$	8,547,333	$	8,020,353	$	632,527	$	505,029	$	208,372	$	190,946	$	194	$	870	$	9,388,426	$	8,717,198

Successor Company

Segment reporting

Schedule showing net income (loss) components and total assets of reportable segments reconciled to amounts reflected in the condensed consolidated financial statements

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the two months ended June 30, 2014 (amounts in thousands):

	Successor Company
	Credit		Natural Resources			Other		Reconciling Items(1)			Total Consolidated
	Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014
Total revenues	$	62,311	$	31,930		$	72	$	—		$	94,313
Total investment costs and expenses	35,410		20,057			197		—			55,664
Total other income (loss)	17,113		(4,880		)	8,654		—			20,887
Total other expenses	12,753		1,393			183		35			14,364
Income tax expense	24		—			4		—			28
Net income (loss)	$	31,237	$	5,600		$	8,342	$	(35	)	$	45,144

(1) Consists of directors’ expenses which are not allocated to individual segments.

Predecessor Company

Segment reporting

Schedule showing net income (loss) components and total assets of reportable segments reconciled to amounts reflected in the condensed consolidated financial statements

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the one and four months ended April 30, 2014 (amounts in thousands):

	Predecessor Company
	Credit				Natural Resources						Other						Reconciling Items(1)						Total Consolidated
	One month ended April 30, 2014		Four months ended April 30, 2014		One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014
Total revenues	$	37,693	$	134,255	$	17,754		$	61,782		$	21,205		$	21,205		$	—		$	—		$	76,652		$	217,242
Total investment costs and expenses	16,612		62,485		11,339			38,915			104			425			—			—			28,055			101,825
Total other income (loss)	11,530		76,046		(2,734		)	(8,123		)	(25,302		)	(11,589		)	—			—			(16,506		)	56,334
Total other expenses	7,286		23,121		479			1,633			90			230			26,296			40,625			34,151			65,609
Income tax expense	127		146		—			—			16			16			—			—			143			162
Net income (loss)	$	25,198	$	124,549	$	3,202		$	13,111		$	(4,307	)	$	8,945		$	(26,296	)	$	(40,625	)	$	(2,203	)	$	105,980

(1) Consists of certain expenses not allocated to individual segments including other expenses comprised of (i) incentive fees of zero and $12.9 million for the one and four months ended April 30, 2014, respectively and (ii) merger related transaction costs of $22.7 million for both the one and four months ended April 30, 2014. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the three and six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Credit					Natural Resources				Other					Reconciling Items(1)						Total Consolidated
	Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013		Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013			Three months ended June 30, 2013			Six months ended June 30, 2013
Total revenues	$	109,377		$	224,526	$	27,867	$	51,672	$	—		$	1,496	$	—		$	—		$	137,244		$	277,694
Total investment costs and expenses	45,445			106,844		19,500		38,969		248			429		—			—			65,193			146,242
Total other income (loss)	31,958			125,884		7,265		2,519		(1,988		)	3,321		—			(20,269		)	37,235			111,455
Total other expenses	15,028			28,996		799		2,429		244			368		7,125			26,230			23,196			58,023
Income tax (benefit) expense	(46		)	411		—		—		4			5		—			—			(42		)	416
Net income (loss)	$	80,908		$	214,159	$	14,833	$	12,793	$	(2,484	)	$	4,015	$	(7,125	)	$	(46,499	)	$	86,132		$	184,468

(1) Consists of certain expenses not allocated to individual segments including (i) other income (loss) comprised of losses on restructuring and extinguishment of debt of zero and $20.3 million for the three and six months ended June 30, 2013, respectively, and (ii) other expenses comprised of incentive fees of $5.6 million and $22.7 million for the three and six months ended June 30, 2013, respectively. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 4) (Predecessor Company, USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	12 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Apr. 30, 2014 component	Jun. 30, 2013	Apr. 30, 2014 riskgrade component	Jun. 30, 2013	Dec. 31, 2013 component	Jun. 30, 2013 Corporate Loans	Apr. 30, 2014 Corporate Loans	Jun. 30, 2013 Corporate Loans	Mar. 31, 2014 Corporate Loans
Summary of corporate loans
Number of components in the loans receivable allowance for loan losses (in components)	2		2		2
Number of Internally Assigned Risk Grades			3		3
Allowance for loan losses:
Beginning balance			$ 224,999			$ 206,227	$ 224,999	$ 223,472	$ 223,541
Provision for loan losses				11,068				11,068
Charge-offs	0	(3,000)	(1,500)	(31,300)		(2,972)	(1,458)	(31,285)
Ending balance					$ 224,999	$ 203,255	$ 223,541	$ 203,255	$ 223,541

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EARNINGS PER COMMON SHARE

6 Months Ended

Jun. 30, 2014

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE

NOTE 14. EARNINGS PER COMMON SHARE

Earnings per common share is not provided for the two months ended June 30, 2014 as the Company is now a subsidiary of KKR Fund Holdings, which owns 100 common shares of the Company constituting all of the Company’s outstanding common shares. The following table presents a reconciliation of basic and diluted net (loss) income per common share for the Predecessor Company (amounts in thousands, except per share information):

	Predecessor Company
	One month ended April 30, 2014			Four months ended April 30, 2014		Three months endedJune 30, 2013		Six monthsendedJune 30, 2013
Net (loss) income	$	(2,203	)	$	105,980	$	86,132	$	184,468
Less: Preferred share distributions	—			6,891		6,891		13,629
Net (loss) income available to common shareholders	$	(2,203	)	$	99,089	$	79,241	$	170,839
Less: Dividends and undistributed (loss) earnings allocated to participating securities	(5		)	292		262		591
Net (loss) income allocated to common shareholders	$	(2,198	)	$	98,797	$	78,979	$	170,248
Basic:
Basic weighted average common shares outstanding	204,398			204,276		204,108		200,650
Net (loss) income per common share	$	(0.01	)	$	0.48	$	0.39	$	0.85
Diluted:
Diluted weighted average common shares outstanding(1)	204,398			204,276		204,108		200,650
Net (loss) income per common share	$	(0.01	)	$	0.48	$	0.39	$	0.85

(1) Potential anti-dilutive common shares excluded from diluted earnings per share related to common share options were 1,932,279 for all periods presented.

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SECURITIES (Tables)

6 Months Ended

Jun. 30, 2014

Securities

Schedule of estimated fair value of securities pledged as collateral

The following table summarizes the estimated fair value of securities pledged as collateral as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Successor Company		Predecessor Company
	As of June 30, 2014		As of December 31, 2013
Pledged as collateral for collateralized loan obligation secured debt	$	329,385	$	324,830
Total	$	329,385	$	324,830

Successor Company

Securities

Summary of the company's securities which are carried at estimated fair value

The following table summarizes the Company’s securities as of June 30, 2014, which are carried at estimated fair value (amounts in thousands):

	June 30, 2014
	Par		Amortized Cost		Estimated Fair Value
Securities, at estimated fair value	$	617,495	$	559,247	$	570,071
Total	$	617,495	$	559,247	$	570,071

Schedule of realized and unrealized gains from securities

The following table presents the Company’s realized and unrealized gains from securities for the two months ended June 30, 2014 (amounts in thousands):

	Two months endedJune 30, 2014
Net realized gains	$	735
Net change in unrealized gains	10,823
Net realized and unrealized gains	$	11,558

Predecessor Company

Securities

Summary of the company's securities which are carried at estimated fair value

The following table summarizes the Company’s securities as of December 31, 2013, which were carried at estimated fair value (amounts in thousands):

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Securities available-for-sale	$	326,775	$	24,791	$	(1,225	)	$	350,341
Other securities, at estimated fair value(1)	135,968		12,436		(1,437		)	146,967
Residential mortgage-backed securities, at estimated fair value(1)	138,284		2,809		(65,089		)	76,004
Total securities	$	601,027	$	40,036	$	(67,751	)	$	573,312

(1) Unrealized gains and losses presented represent amounts as of period-end. Unrealized gains and losses recognized during the year for these securities are recorded in earnings.

Schedule of gross unrealized losses and estimated fair value of securities classified as available-for-sale aggregated by length of time the securities have been in a continuous unrealized loss position

The following table shows the gross unrealized losses and estimated fair value of the Company’s available-for-sale securities, aggregated by length of time that the individual securities had been in a continuous unrealized loss position as of December 31, 2013 (amounts in thousands):

	Less Than 12 months					12 Months or More					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
December 31, 2013
Securities available-for-sale	$	25,543	$	(658	)	$	30,034	$	(567	)	$	55,577	$	(1,225	)

Schedule of net realized gains on the sales of available-for-sale securities

The following table shows the net realized gains on the sales of securities available-for-sale (amounts in thousands):

	For the one month ended April 30, 2014		For the four months ended April 30, 2014		For the three months ended June 30, 2013			For the six months ended June 30, 2013
Gross realized gains	$	2,516	$	2,516	$	679		$	2,829
Gross realized losses	—		—		(6		)	(6		)
Net realized gains	$	2,516	$	2,516	$	673		$	2,823

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 2) (Successor Company, Corporate loans at estimated fair value, USD $) In Thousands, unless otherwise specified	2 Months Ended
	Jun. 30, 2014
Successor Company | Corporate loans at estimated fair value
Net realized and unrealized (losses) gains
Net realized losses	$ (4,716)
Net change in unrealized gains	25,861
Net realized and unrealized gains	$ 21,145

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5) (KKR Fund Holdings)	Jun. 30, 2014
KKR Fund Holdings
Earnings per common share
Number of common shares held	100

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Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	2 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company
Net income (loss)	$ 45,144	$ (2,203)	$ 86,132	$ 105,980	$ 184,468
Other comprehensive (loss) income:
Unrealized losses on securities available-for-sale		(3,364)	(6,340)	(5,253)	(815)
Unrealized (losses) gains on cash flow hedges		(1,611)	20,240	(5,442)	31,398
Total other comprehensive (loss) income		(4,975)	13,900	(10,695)	30,583
Comprehensive income (loss)	$ 45,144	$ (7,178)	$ 100,032	$ 95,285	$ 215,051

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MERGER TRANSACTION

6 Months Ended

Jun. 30, 2014

MERGER TRANSACTION

MERGER TRANSACTION

NOTE 3. MERGER TRANSACTION

On December 16, 2013, the Company announced the signing of a definitive merger agreement pursuant to which KKR & Co. had agreed to acquire all of the Company’s outstanding common shares through an exchange of equity through which the Company’s shareholders would receive 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN. On April 30, 2014, the date of the Merger Transaction, the transaction was approved by the Company’s common shareholders and the merger was completed, resulting in KFN becoming a subsidiary of KKR & Co. The merger was a taxable transaction for the Company’s common shareholders for U.S. federal income tax purposes.

Pursuant to the merger agreement, on the date of the Merger Transaction, (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by the Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN’s Non-Employee Directors’ Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan.

The Merger Transaction was recorded under the acquisition method of accounting by KKR & Co. and pushed down to the Company by allocating the total purchase consideration of $2.4 billion to the cost of the assets purchased and the liabilities assumed based on their estimated fair values at the date of the Merger Transaction. The excess of the total estimated fair values of the assets acquired and liabilities assumed over the purchase price and value of the preferred shares, which constitute non-controlling interests in the Company, was recorded as a bargain purchase gain by KKR & Co.

In connection with the Merger Transaction, the Company recognized approximately $24.2 million of total transaction costs. Of this total, $22.7 million was recorded during the one and four months ended April 30, 2014 within general, administrative and directors expenses on the condensed consolidated statements of operations. These costs included the contingent consideration owed to the Company’s financial and legal advisors upon the merger closing.

The following table summarizes the estimated fair values assigned to the assets purchased and liabilities assumed (amounts in thousands):

Assets acquired:
Cash and cash equivalents	$	210,413
Restricted cash and cash equivalents	649,967
Securities	541,149
Corporate loans	6,649,054
Equity investments	297,054
Oil and gas properties, net	505,238
Interests in joint ventures and partnerships	491,324
Derivative assets	26,383
Interest and principal receivable	35,992
Other assets	208,144
Total assets	9,614,718
Liabilities assumed:
Collateralized loan obligation secured notes	5,663,666
Credit facilities	63,189
Senior notes	415,538
Junior subordinated notes	245,782
Accounts payable, accrued expenses and other liabilities	357,084
Accrued interest payable	17,647
Derivative liabilities	88,356
Total liabilities	6,851,262
Fair value of preferred shares	378,983
Fair value of net assets acquired	2,384,473
Less: Purchase price	2,369,559
Bargain purchase gain(1)	$	14,914

(1) Represents the excess of the fair value of the net assets acquired over the purchase price and value of the preferred shares, which constitute non-controlling interests in the Company. This difference was recorded as an adjustment to the Company’s additional paid-in-capital as of the Effective Date.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimated fair values of assets acquired and liabilities assumed were primarily based on information that was available as of the Merger Transaction date. The methodology used to estimate the fair values to apply purchase accounting are summarized below.

The carrying values of cash, restricted cash, interest and principal receivable, credit facilities, accounts payable, accrued expenses and other liabilities, and accrued interest payable represented the fair values. Fair value measurements for financial instruments and other assets included (i) market data for similar instruments (e.g. recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models for corporate loans and securities, (ii) third party valuation servicers for residential mortgage-backed securities, (iii) observable market prices, if available, or internally developed models, for equity investments, oil and gas properties, interests in joint ventures and partnerships, and (iv) quoted market prices, if available, or models using a series of techniques for derivative assets and liabilities. The fair value measurements for the liabilities assumed included (i) third party valuation servicers for the collateralized loan obligation secured notes and junior subordinated notes and (ii) observable market prices for the senior notes.

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Details 11) (USD $)	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	12 Months Ended	4 Months Ended		1 Months Ended	4 Months Ended	6 Months Ended	12 Months Ended	1 Months Ended	4 Months Ended	6 Months Ended
	Jun. 30, 2014 Successor Company issuer loan	Apr. 30, 2014 Predecessor Company loan	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company issuer loan	Jun. 30, 2013 Predecessor Company issuer	Dec. 31, 2013 Predecessor Company issuer loan	Apr. 30, 2014 Predecessor Company Minimum	Apr. 30, 2014 Predecessor Company Maximum	Apr. 30, 2014 Predecessor Company Corporate Loan Held for Investment issuer	Apr. 30, 2014 Predecessor Company Corporate Loan Held for Investment issuer	Jun. 30, 2013 Predecessor Company Corporate Loan Held for Investment issuer	Dec. 31, 2013 Predecessor Company Corporate Loan Held for Investment	Apr. 30, 2014 Predecessor Company Corporate loans at estimated fair value issuer	Apr. 30, 2014 Predecessor Company Corporate loans at estimated fair value item issuer	Jun. 30, 2013 Predecessor Company Corporate loans at estimated fair value item issuer	Dec. 31, 2013 Predecessor Company Corporate loans at estimated fair value
Troubled debt restructurings:
Troubled debt restructurings on a recorded investment basis						$ 55,400,000
Number of issuers related to recorded investment balance (in issuers)						3
Sustained period of repayment performance for determining the reclassification of restructured loans from non-accrual to accrual status	6 months
Troubled debt restructurings, included in non-accrual loans						55,400,000
Specific reserves allocated to the issuer						22,100,000
Financing Receivable Modifications Extension Period of Maturity Date					4 years		3 years	5 years
Higher coupon rate for extended period (as a percent)				4.00%	6.80%
Number of TDRs (in issuers)									0	1	2		0	2	1
Pre-modification outstanding recorded investment		0		195,422,000	70,028,000				0	154,075,000	68,358,000		0	41,347,000	1,670,000
Number of issuers troubled debt restructurings				2	3
Post-modification outstanding recorded investment		0		24,571,000	40,659,000				0		39,430,000		0	24,571,000	1,229,000
Estimated fair value of equity received from the TDRs excluded from post-modification outstanding recorded investment									92,000,000	92,000,000	2,100,000		12,300,000	12,300,000
Number of TDRs identified as impaired (in issuers)									1	1	2
Number of loans carried at estimated fair value														2	1
Charge-offs recorded related to TDR's				1,100,000	26,800,000
Charge-offs related to TDR's as a percentage of charge-offs related to loans and losses (in percentage)				76.00%	86.00%
Charge-offs recorded		0	3,000,000	1,500,000	31,300,000
Lending commitment to borrower whose loans had been modified in the troubled debt restructuring		0		0
Number of loans modified as TDRs in default		0		0
Modified amortized cost of corporate loans that did not qualify as TDRs		135,200,000	773,500,000	1,100,000,000	1,800,000,000
Number of loans in default	4					6
Amortized cost of corporate loans in default						215,700,000										12,000,000
Estimated fair value of corporate loans in default	329,000,000
Number of issuers in default	2					2
Amortized cost of corporate loans in default												$ 203,700,000

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MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details 4) (Affiliates, USD $) In Millions, unless otherwise specified						6 Months Ended						12 Months Ended
	Jun. 30, 2014 Successor Company issuer	Jun. 30, 2014 Successor Company Corporate loans	Jun. 30, 2014 Successor Company Corporate debt securities	Jun. 30, 2014 Successor Company Equity investments, at estimated fair value	Jun. 30, 2014 Successor Company Joint ventures and partnerships	Jun. 30, 2014 Successor Company Affiliated investments Percent to total investment in corporate loans, debt securities and other investments	Dec. 31, 2013 Predecessor Company issuer	Dec. 31, 2013 Predecessor Company Corporate loans	Dec. 31, 2013 Predecessor Company Corporate debt securities	Dec. 31, 2013 Predecessor Company Equity investments, at estimated fair value	Dec. 31, 2013 Predecessor Company Joint ventures and partnerships	Dec. 31, 2013 Predecessor Company Affiliated investments Percent to total investment in corporate loans, debt securities and other investments
Investments in affiliates
Investment in affiliates as a percentage of total investment (in percentage)						25.00%						27.00%
Investment in affiliates, number of issuers	26						28
Estimated Fair Value	$ 1,800.0	$ 1,700.0	$ 9.5	$ 118.9	$ 528.0		$ 2,100.0	$ 1,900.0	$ 52.8	$ 84.5
Aggregate cost amount											$ 400.3

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DERIVATIVE INSTRUMENTS (Details 4) (Free-Standing Derivatives:, USD $) In Thousands, unless otherwise specified	2 Months Ended							1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	3 Months Ended	4 Months Ended	6 Months Ended	1 Months Ended	4 Months Ended	1 Months Ended	4 Months Ended	1 Months Ended	4 Months Ended
	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Interest rate swaps	Jun. 30, 2014 Successor Company Commodity swaps	Jun. 30, 2014 Successor Company Foreign exchange forward contracts and options	Jun. 30, 2014 Successor Company Common stock warrants	Jun. 30, 2014 Successor Company Total Rate of Return Swaps	Jun. 30, 2014 Successor Company Options	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company	Jun. 30, 2013 Predecessor Company	Apr. 30, 2014 Predecessor Company Commodity swaps	Jun. 30, 2013 Predecessor Company Commodity swaps	Apr. 30, 2014 Predecessor Company Commodity swaps	Jun. 30, 2013 Predecessor Company Commodity swaps	Jun. 30, 2013 Predecessor Company Credit Default Swaps	Apr. 30, 2014 Predecessor Company Credit Default Swaps	Jun. 30, 2013 Predecessor Company Credit Default Swaps	Apr. 30, 2014 Predecessor Company Foreign exchange forward contracts and options	Jun. 30, 2013 Predecessor Company Foreign exchange forward contracts and options	Apr. 30, 2014 Predecessor Company Foreign exchange forward contracts and options	Jun. 30, 2013 Predecessor Company Foreign exchange forward contracts and options	Apr. 30, 2014 Predecessor Company Common stock warrants	Apr. 30, 2014 Predecessor Company Common stock warrants	Apr. 30, 2014 Predecessor Company Total Rate of Return Swaps	Apr. 30, 2014 Predecessor Company Total Rate of Return Swaps	Apr. 30, 2014 Predecessor Company Options	Apr. 30, 2014 Predecessor Company Options
Effect on income from free-standing derivatives
Realized gains (losses)	$ (3,003)		$ (1,532)	$ (1,640)		$ 169		$ (2,625)	$ 2,637	$ (9,099)	$ 192	$ (601)	$ (22)	$ (2,515)	$ 1,087	$ (518)	$ (2,167)	$ (3,161)	$ (1,618)	$ 3,177	$ (2,068)	$ 2,266			$ (406)	$ (2,349)
Unrealized gains (losses)	(6,161)	(1,125)	(3,350)	(958)	(5)	(213)	(510)	1,212	2,626	(684)	(3,933)	(2,189)	7,028	(5,856)	919	49	1,986	1,519	2,716	(4,451)	2,784	(6,371)	123	137	170	284	392	(19)
Total	$ (9,164)	$ (1,125)	$ (4,882)	$ (2,598)	$ (5)	$ (44)	$ (510)	$ (1,413)	$ 5,263	$ (9,783)	$ (3,741)	$ (2,790)	$ 7,006	$ (8,371)	$ 2,006	$ (469)	$ (181)	$ (1,642)	$ 1,098	$ (1,274)	$ 716	$ (4,105)	$ 123	$ 137	$ (236)	$ (2,065)	$ 392	$ (19)

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CORPORATE LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

6 Months Ended

Jun. 30, 2014

Summary of corporate loans

Schedule of corporate loans pledged as collateral

The following table summarizes the corporate loans pledged as collateral as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Successor Company		Predecessor Company
	As of June 30, 2014		As of December 31, 2013
	Estimated Fair Value		Amortized Cost
Pledged as collateral for collateralized loan obligation secured debt	$	5,975,146	$	6,231,541
Total	$	5,975,146	$	6,231,541

Successor Company

Summary of corporate loans

Schedule of corporate loans

The following table summarizes the Company’s corporate loans, at estimated fair value as of June 30, 2014 (amounts in thousands):

	June 30, 2014
	Par		Amortized Cost		Estimated Fair Value
Corporate loans, at estimated fair value	$	6,499,112	$	6,267,679	$	6,293,540
Total	$	6,499,112	$	6,267,679	$	6,293,540

Schedule of realized and unrealized (losses) gains from corporate loans

The following tables present the Company’s realized and unrealized (losses) gains from corporate loans for the two months ended June 30, 2014 (amounts in thousands):

	Two months endedJune 30, 2014
Net realized losses	$	(4,716	)
Net change in unrealized gains	25,861
Net realized and unrealized gains	$	21,145

Predecessor Company

Summary of corporate loans

Schedule of corporate loans

The following table summarizes the Company’s corporate loans as of December 31, 2013 (amounts in thousands):

	December 31, 2013
	Corporate Loans Held for Investment			Corporate Loans Held for Sale			Corporate Loans, at Estimated Fair Value			Total Corporate Loans
Principal(1)	$	6,280,470		$	315,738		$	277,458		$	6,873,666
Net unamortized discount	(105,979		)	(20,070		)	(54,997		)	(181,046		)
Total amortized cost	6,174,491			295,668			222,461			6,692,620
Lower of cost or fair value adjustment	—			(15,920		)	—			(15,920		)
Allowance for loan losses	(224,999		)	—			—			(224,999		)
Unrealized gains	—			—			15,019			15,019
Net carrying value	$	5,949,492		$	279,748		$	237,480		$	6,466,720

(1) Principal amounts of corporate loans and corporate loans held for sale were net of cumulative charge-offs and other adjustments totaling $18.1 million as of December 31, 2013.

Schedule of changes in the allowance for loan losses

The following table summarizes the changes in the allowance for loan losses for the Company’s corporate loan portfolio during the one month and four months ended April 30, 2014 and three and six months ended June 30, 2013 (amounts in thousands):

	For the one month endedApril 30, 2014		For the fourmonths ended April 30, 2014			For the three months endedJune 30, 2013			For the sixmonths ended June 30, 2013
Allowance for loan losses:
Beginning balance	$	223,541	$	224,999		$	206,227		$	223,472
Provision for loan losses	—		—			—			11,068
Charge-offs	—		(1,458		)	(2,972		)	(31,285		)
Ending balance	$	223,541	$	223,541		$	203,255		$	203,255

Schedule of ending balances of allowances for loan losses by basis of impairment method

The following table summarizes the ending balances of the allowance and corporate loans portfolio by basis of impairment method as of December 31, 2013 (amounts in thousands):

	December 31, 2013
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	142,682
Ending balance: collectively evaluated for impairment	82,317
	$	224,999
Corporate loans (recorded investment)(1):
Ending balance: individually evaluated for impairment	$	554,442
Ending balance: collectively evaluated for impairment	5,638,790
	$	6,193,232

(1) Recorded investment is defined as amortized cost plus accrued interest.

Schedule of investment and unpaid principal balance in impaired loans, as well as the related allowance for credit losses

The following table summarizes the Company’s recorded investment and unpaid principal balance in impaired loans, as well as the related allowance for credit losses as of December 31, 2013 (amounts in thousands):

	December 31, 2013
	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance
With no related allowance recorded	$	—	$	—	$	—
With an allowance recorded	554,442		594,416		142,682
Total	$	554,442	$	594,416	$	142,682

(1) Recorded investment is defined as amortized cost plus accrued interest.

Schedule of average recorded investment in impaired loans and interest income recognized

The following table summarizes the Company’s average recorded investment in impaired loans and interest income recognized for the three and six months ended June 30, 2013 (amounts in thousands):

	For the three months endedJune 30, 2013				For the six months endedJune 30, 2013
	Average Recorded Investment(1)		InterestIncome Recognized		Average Recorded Investment(1)		InterestIncome Recognized
With no related allowance recorded	$	—	$	—	$	2,163	$	—
With an allowance recorded	538,344		5,995		505,212		10,269
Total	$	538,344	$	5,995	$	507,375	$	10,269

(1) Recorded investment is defined as amortized cost plus accrued interest.

Schedule of recorded investment in non-accrual loans

The following table summarizes the Company’s recorded investment in non-accrual loans as of December 31, 2013 (amounts in thousands):

	December 31, 2013
Loans held for investment	$	554,442
Loans held for sale	44,823
Loans at estimated fair value	24,883
Total non-accrual loans	$	624,148

Schedule of recorded investment in corporate loans by internally assigned grades

The following table summarizes how the Company determined internally assigned grades related to credit quality based on a combination of concern as to probability of default and the seniority of the loan in the issuer’s capital structure as of December 31, 2013 (amounts in thousands):

Internally Assigned Grade	Capital Hierarchy	Recorded Investment December 31, 2013 (1)
High	Senior Secured Loan	$	26,886
	Second Lien Loan	286,996
	Subordinated	11,643
		$	325,525
Moderate	Senior Secured Loan	$	1,033,065
	Second Lien Loan	27,504
	Subordinated	39,329
		$	1,099,898
Low	Senior Secured Loan	$	4,148,913
	Second Lien Loan	25,864
	Subordinated	38,590
		$	4,213,367
	Total Unallocated	$	5,638,790
	Total Allocated	554,442
	Total Loans Held for Investment	$	6,193,232

(1) Recorded investment is defined as amortized cost plus accrued interest.

Schedule of loans by class modified as troubled debt restructurings

The following table presents the aggregate balance of loans whose terms had been modified in a TDR during the one and four months ended April 30, 2014 (dollar amounts in thousands):

	One month endedApril 30, 2014					Four months endedApril 30, 2014
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	1	$	154,075	$	—
Loans at estimated fair value	—	—		—		2	41,347		24,571
Total		$	—	$	—		$	195,422	$	24,571

(1) Recorded investment is defined as amortized cost plus accrued interest.

(2) Excludes equity securities received from the loans held for investment and/or loans at estimated fair value TDRs with an estimated fair value of $92.0 million and $12.3 million, from the two issuers, respectively.

The following table presents the aggregate balance of loans whose terms had been modified in a TDR during the three and six months ended June 30, 2013 (dollar amounts in thousands):

	Three months endedJune 30, 2013					Six months endedJune 30, 2013
	Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)		Number of TDRs	Pre-modification outstanding recorded investment(1)		Post-modification outstanding recorded investment(1)(2)
Troubled debt restructurings:
Loans held for investment	—	$	—	$	—	2	$	68,358	$	39,430
Loans held for sale	—	—		—		—	—		—
Loans at estimated fair value	—	—		—		1	1,670		1,229
Total		$	—	$	—		$	70,028	$	40,659

(1) Recorded investment is defined as amortized cost plus accrued interest.

(2) Excludes equity securities received from the loans held for investment TDRs with an estimated fair value of $2.1 million.

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 5) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended								6 Months Ended			6 Months Ended																																																			12 Months Ended							12 Months Ended				12 Months Ended
	Jun. 30, 2014 Successor Company Minimum	Jun. 30, 2014 Successor Company Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Unobservable Inputs Foreign exchange options	Jun. 30, 2014 Successor Company Unobservable Inputs Corporate debt securities	Jun. 30, 2014 Successor Company Unobservable Inputs Residential mortgage-backed securities	Jun. 30, 2014 Successor Company Unobservable Inputs Corporate loans at estimated fair value	Jun. 30, 2014 Successor Company Unobservable Inputs Equity investments, at estimated fair value	Jun. 30, 2014 Successor Company Unobservable Inputs Equity investments, at estimated fair value Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Interests in joint ventures and partnerships	Jun. 30, 2014 Successor Company Unobservable Inputs Options	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Weighted Average Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Minimum Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Maximum Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Corporate debt securities Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Corporate debt securities Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Corporate debt securities Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Other securities, at estimated fair value	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Other securities, at estimated fair value Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Corporate loans at estimated fair value Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Corporate loans at estimated fair value Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Corporate loans at estimated fair value Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Securities available-for-sale Corporate debt securities Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Securities available-for-sale Corporate debt securities Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Yield analysis Securities available-for-sale Corporate debt securities Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Broker quotes Other securities, at estimated fair value Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Broker quotes Other securities, at estimated fair value Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Broker quotes Other securities, at estimated fair value Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Weighted Average Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Minimum Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Maximum Collateralized loan obligation secured notes	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Residential mortgage-backed securities Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Residential mortgage-backed securities Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Residential mortgage-backed securities Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Equity investments, at estimated fair value Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Equity investments, at estimated fair value Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Equity investments, at estimated fair value Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Interests in joint ventures and partnerships Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Interests in joint ventures and partnerships Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Interests in joint ventures and partnerships Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Options	Jun. 30, 2014 Successor Company Unobservable Inputs Discounted cash flow Options Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Equity investments, at estimated fair value Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Equity investments, at estimated fair value Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Equity investments, at estimated fair value Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Options	Jun. 30, 2014 Successor Company Unobservable Inputs Market comparables Options Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Equity investments, at estimated fair value Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Equity investments, at estimated fair value Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Equity investments, at estimated fair value Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Interests in joint ventures and partnerships Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Interests in joint ventures and partnerships Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Interests in joint ventures and partnerships Maximum	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Options	Jun. 30, 2014 Successor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Options Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Option pricing model Foreign exchange options Weighted Average	Jun. 30, 2014 Successor Company Unobservable Inputs Option pricing model Foreign exchange options Minimum	Jun. 30, 2014 Successor Company Unobservable Inputs Option pricing model Foreign exchange options Maximum	Dec. 31, 2013 Predecessor Company Minimum	Dec. 31, 2013 Predecessor Company Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Foreign exchange options	Dec. 31, 2013 Predecessor Company Unobservable Inputs Other securities, at estimated fair value	Dec. 31, 2013 Predecessor Company Unobservable Inputs Residential mortgage-backed securities	Dec. 31, 2013 Predecessor Company Unobservable Inputs Corporate loans at estimated fair value	Dec. 31, 2013 Predecessor Company Unobservable Inputs Equity investments, at estimated fair value	Dec. 31, 2013 Predecessor Company Unobservable Inputs Equity investments, at estimated fair value Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Interests in joint ventures and partnerships	Dec. 31, 2013 Predecessor Company Unobservable Inputs Options	Dec. 31, 2013 Predecessor Company Unobservable Inputs Securities available-for-sale Corporate debt securities	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Other securities, at estimated fair value	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Other securities, at estimated fair value Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Other securities, at estimated fair value Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Other securities, at estimated fair value Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Corporate loans at estimated fair value Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Corporate loans at estimated fair value Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Corporate loans at estimated fair value Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Securities available-for-sale Corporate debt securities Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Securities available-for-sale Corporate debt securities Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Yield analysis Securities available-for-sale Corporate debt securities Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Broker quotes Other securities, at estimated fair value Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Broker quotes Other securities, at estimated fair value Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Broker quotes Other securities, at estimated fair value Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Broker quotes Securities available-for-sale Corporate debt securities Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Broker quotes Securities available-for-sale Corporate debt securities Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Broker quotes Securities available-for-sale Corporate debt securities Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Residential mortgage-backed securities Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Residential mortgage-backed securities Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Residential mortgage-backed securities Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Equity investments, at estimated fair value Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Equity investments, at estimated fair value Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Equity investments, at estimated fair value Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Interests in joint ventures and partnerships Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Interests in joint ventures and partnerships Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Interests in joint ventures and partnerships Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Options	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Options Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Options Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Discounted cash flow Options Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Equity investments, at estimated fair value Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Equity investments, at estimated fair value Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Equity investments, at estimated fair value Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Interests in joint ventures and partnerships Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Options	Dec. 31, 2013 Predecessor Company Unobservable Inputs Market comparables Options Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Equity investments, at estimated fair value Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Equity investments, at estimated fair value Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Equity investments, at estimated fair value Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Interests in joint ventures and partnerships Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Interests in joint ventures and partnerships Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Interests in joint ventures and partnerships Maximum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Options	Dec. 31, 2013 Predecessor Company Unobservable Inputs Inputs to both market comparables and discounted cash flow Options Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Option pricing model Foreign exchange options Weighted Average	Dec. 31, 2013 Predecessor Company Unobservable Inputs Option pricing model Foreign exchange options Minimum	Dec. 31, 2013 Predecessor Company Unobservable Inputs Option pricing model Foreign exchange options Maximum
Valuation techniques used for assets, measured at fair value
Assets, fair value (in dollars)				$ 7,056	$ 169,592	$ 59,242	$ 300,282	$ 141,160		$ 515,556	$ 6,175																																																						$ 8,941	$ 107,530	$ 76,004	$ 152,800	$ 138,059		$ 415,247	$ 6,794	$ 23,401
Liabilities, fair value (in dollars)			$ 5,547,914
Yield															12.00%	14.00%	3.00%			10.00%	3.00%	18.00%																																																					12.00%	7.00%	17.00%	16.00%	14.00%	23.00%	10.00%	6.00%	12.00%
Net leverage																				6	0	14	12	12	12																																																		1	1	2	7	4	12	12	11	12
Illiquidity discount									5.00%																																																													5.00%				3.00%	3.00%
Weight ascribed to market comparables																																																				60.00%	33.00%	100.00%	53.00%	0.00%	100.00%	50.00%	50.00%																																																					50.00%	33.00%	100.00%	50.00%	50.00%	100.00%	50.00%	50.00%
Weight ascribed to discounted cash flows																																																				55.00%	0.00%	100.00%	72.00%	0.00%	100.00%	50.00%	50.00%																																																					59.00%	50.00%	100.00%	50.00%	50.00%	100.00%	50.00%	50.00%
EBITDA multiple																		7	7	9	5	13	9	8	10																																																		8	7	8	8	6	11	8	8	9
Discount margin												22.90%	0.00%	150.00%				90.00%	90.00%
Offered quotes (in dollars per share)																										$ 103	$ 102	$ 106																																																								$ 102	$ 101	$ 102	$ 105	$ 104	$ 105
Probability of default																													2.00%	2.00%	3.00%	6.00%	0.00%	24.00%																																																								7.00%	0.00%	21.00%
Loss severity																													33.00%	30.00%	38.00%	26.00%	12.00%	37.00%																																																								28.00%	16.00%	77.00%
Constant prepayment rate																																13.00%	5.00%	17.00%																																																								15.00%	3.00%	35.00%
LTM EBITDA multiple																																											12	5	23	9	9			9	9																																																				12	6	16	9	9			9	9
Forward EBITDA multiple																																											10	5	17																																																										12	10	14
Weighted average cost of capital																																			11.00%	8.00%	18.00%	12.00%	8.00%	24.00%	12.00%	12.00%																																																			11.00%	8.00%	14.00%	12.00%	8.00%	24.00%	12.00%	12.00%
Current capitalization rate																																															7.00%	6.00%	10.00%																																																										7.00%	6.00%	9.00%
LTM EBITDA exit multiple																																			10	7	11				10	10																																																			10	4	11					10	9	10
Forward and spot rates, Assets																																																												1	0	1																																																										1	0	1
Weight ascribed to each valuation technique	0.00%	100.00%																																																													0.00%	100.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	Jun. 30, 2014 Successor Company	Jun. 30, 2014 Successor Company Collateralized Debt Obligation (CLOs) VIEs loan	Jun. 30, 2014 Successor Company Collateralized Debt Obligation (CLOs) VIEs Nonaffiliates	Dec. 31, 2013 Predecessor Company	Dec. 31, 2013 Predecessor Company Collateralized Debt Obligation (CLOs) VIEs loan	Dec. 31, 2013 Predecessor Company Collateralized Debt Obligation (CLOs) VIEs Nonaffiliates
Collateralized Debt Obligation disclosures
Number of Collateralized Loan Obligation (CLOs) VIEs (in loans)		9			8
Corporate debt investment, par amount		$ 6,600,000,000			$ 6,700,000,000
Estimated fair value of corporate debt investments		6,400,000,000			6,400,000,000
Collateralized loan obligation secured debt	$ 5,547,914,000		$ 5,600,000,000	$ 5,249,383,000		$ 5,300,000,000

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SEGMENT REPORTING

6 Months Ended

Jun. 30, 2014

SEGMENT REPORTING

SEGMENT REPORTING

NOTE 13. SEGMENT REPORTING

Operating segments are defined as components of a company that engage in business activities that may earn revenues and incur expenses for which separate financial information is available and reviewed by the chief operating decision maker or group in determining how to allocate resources and assessing performance. The Company operates its business through the following reportable segments: credit (“Credit”), natural resources (“Natural Resources”) and Other segments (“Other”).

The Company’s reportable segments are differentiated primarily by their investment focuses. The Credit segment consists primarily of below investment grade corporate debt comprised of senior secured and unsecured loans, mezzanine loans, high yield bonds, private and public equity investments, and distressed and stressed debt securities. The Natural Resources segment consists of non-operated working and overriding royalty interests in oil and natural gas properties. The Other segment includes all other portfolio holdings, consisting solely of commercial real estate. The segments currently reported are consistent with the way decisions regarding the allocation of resources are made, as well as how operating results are reviewed by the Company.

The Company evaluates the performance of its reportable segments based on several net income (loss) components. Net income (loss) includes (i) revenues, (ii) related investment costs and expenses, (iii) other income (loss), which is comprised primarily of unrealized and realized gains and losses on investments, debt and derivatives, and (iv) other expenses, including related party management compensation and general and administrative expenses. Certain corporate assets and expenses that are not directly related to the individual segments, including interest expense and related costs on borrowings, base management fees and professional services are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end. Certain other corporate assets and expenses, including prepaid insurance, incentive fees, insurance expenses, directors’ expenses and share-based compensation expense are not allocated to individual segments in the Company’s assessment of segment performance. Collectively, these items are included as reconciling items between reported segment amounts and consolidated totals.

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the two months ended June 30, 2014 (amounts in thousands):

	Successor Company
	Credit		Natural Resources			Other		Reconciling Items(1)			Total Consolidated
	Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014		Two months ended June 30, 2014			Two months ended June 30, 2014
Total revenues	$	62,311	$	31,930		$	72	$	—		$	94,313
Total investment costs and expenses	35,410		20,057			197		—			55,664
Total other income (loss)	17,113		(4,880		)	8,654		—			20,887
Total other expenses	12,753		1,393			183		35			14,364
Income tax expense	24		—			4		—			28
Net income (loss)	$	31,237	$	5,600		$	8,342	$	(35	)	$	45,144

(1) Consists of directors’ expenses which are not allocated to individual segments.

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the one and four months ended April 30, 2014 (amounts in thousands):

	Predecessor Company
	Credit				Natural Resources						Other						Reconciling Items(1)						Total Consolidated
	One month ended April 30, 2014		Four months ended April 30, 2014		One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014			One month ended April 30, 2014			Four months ended April 30, 2014
Total revenues	$	37,693	$	134,255	$	17,754		$	61,782		$	21,205		$	21,205		$	—		$	—		$	76,652		$	217,242
Total investment costs and expenses	16,612		62,485		11,339			38,915			104			425			—			—			28,055			101,825
Total other income (loss)	11,530		76,046		(2,734		)	(8,123		)	(25,302		)	(11,589		)	—			—			(16,506		)	56,334
Total other expenses	7,286		23,121		479			1,633			90			230			26,296			40,625			34,151			65,609
Income tax expense	127		146		—			—			16			16			—			—			143			162
Net income (loss)	$	25,198	$	124,549	$	3,202		$	13,111		$	(4,307	)	$	8,945		$	(26,296	)	$	(40,625	)	$	(2,203	)	$	105,980

(1) Consists of certain expenses not allocated to individual segments including other expenses comprised of (i) incentive fees of zero and $12.9 million for the one and four months ended April 30, 2014, respectively and (ii) merger related transaction costs of $22.7 million for both the one and four months ended April 30, 2014. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the condensed consolidated financial statements for the three and six months ended June 30, 2013 (amounts in thousands):

	Predecessor Company
	Credit					Natural Resources				Other					Reconciling Items(1)						Total Consolidated
	Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013		Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013		Three months ended June 30, 2013			Six months ended June 30, 2013			Three months ended June 30, 2013			Six months ended June 30, 2013
Total revenues	$	109,377		$	224,526	$	27,867	$	51,672	$	—		$	1,496	$	—		$	—		$	137,244		$	277,694
Total investment costs and expenses	45,445			106,844		19,500		38,969		248			429		—			—			65,193			146,242
Total other income (loss)	31,958			125,884		7,265		2,519		(1,988		)	3,321		—			(20,269		)	37,235			111,455
Total other expenses	15,028			28,996		799		2,429		244			368		7,125			26,230			23,196			58,023
Income tax (benefit) expense	(46		)	411		—		—		4			5		—			—			(42		)	416
Net income (loss)	$	80,908		$	214,159	$	14,833	$	12,793	$	(2,484	)	$	4,015	$	(7,125	)	$	(46,499	)	$	86,132		$	184,468

(1) Consists of certain expenses not allocated to individual segments including (i) other income (loss) comprised of losses on restructuring and extinguishment of debt of zero and $20.3 million for the three and six months ended June 30, 2013, respectively, and (ii) other expenses comprised of incentive fees of $5.6 million and $22.7 million for the three and six months ended June 30, 2013, respectively. The remaining reconciling items include insurance expenses, directors’ expenses and share-based compensation expense.

The following table shows total assets of reportable segments reconciled to amounts reflected in the condensed consolidated financial statements as of June 30, 2014 and December 31, 2013 (amounts in thousands):

	Credit				Natural Resources				Other				Reconciling Items				Total Consolidated
As of	June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013		June 30,2014		December 31,2013
Total assets	$	8,547,333	$	8,020,353	$	632,527	$	505,029	$	208,372	$	190,946	$	194	$	870	$	9,388,426	$	8,717,198