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) |
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer x (Do not check if a smaller reporting company) | Smaller reporting company o |
Emerging growth company o |
Page | ||
March 31, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 968,840 | $ | 627,237 | |||
Restricted cash and cash equivalents | 284,969 | 512,312 | |||||
Securities, at estimated fair value | 271,477 | 229,206 | |||||
Corporate loans, at estimated fair value | 3,248,385 | 3,305,264 | |||||
Equity investments, at estimated fair value | 174,693 | 168,658 | |||||
Oil and gas properties, net | 109,436 | 110,934 | |||||
Interests in joint ventures and partnerships, at estimated fair value | 841,733 | 793,996 | |||||
Derivative assets | 38,744 | 46,447 | |||||
Interest and principal receivable | 10,237 | 10,937 | |||||
Receivable for investments sold | 46,529 | 35,522 | |||||
Other assets | 11,893 | 10,544 | |||||
Total assets | $ | 6,006,936 | $ | 5,851,057 | |||
Liabilities | |||||||
Collateralized loan obligation secured notes, at estimated fair value | $ | 2,992,893 | $ | 3,087,941 | |||
Collateralized loan obligation junior secured notes to affiliates, at estimated fair value | 92,220 | 89,607 | |||||
Collateralized loan obligation warehouse facility | — | 20,000 | |||||
Senior notes | 490,753 | 123,008 | |||||
Junior subordinated notes | 234,979 | 250,154 | |||||
Payable for investments purchased | 152,028 | 315,773 | |||||
Accounts payable, accrued expenses and other liabilities | 42,856 | 43,297 | |||||
Accrued interest payable | 18,662 | 14,577 | |||||
Related party payable | 5,735 | 5,810 | |||||
Derivative liabilities | 29,785 | 32,705 | |||||
Total liabilities | 4,059,911 | 3,982,872 | |||||
Equity | |||||||
Preferred shares, no par value, 50,000,000 shares authorized and 14,950,000 issued and outstanding as of both March 31, 2017 and December 31, 2016 | — | — | |||||
Common shares, no par value, 500,000,000 shares authorized and 100 shares issued and outstanding as of both March 31, 2017 and December 31, 2016 | — | — | |||||
Paid-in-capital | 2,764,061 | 2,764,061 | |||||
Accumulated deficit | (889,766 | ) | (967,452 | ) | |||
Total KKR Financial Holdings LLC and Subsidiaries shareholders’ equity | 1,874,295 | 1,796,609 | |||||
Noncontrolling interests | 72,730 | 71,576 | |||||
Total equity | 1,947,025 | 1,868,185 | |||||
Total liabilities and equity | $ | 6,006,936 | $ | 5,851,057 |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||
Revenues | |||||||
Loan interest income | $ | 39,176 | $ | 66,908 | |||
Securities interest income | 2,583 | 5,064 | |||||
Oil and gas revenue | 3,710 | 2,641 | |||||
Other | 1,664 | 14,692 | |||||
Total revenues | 47,133 | 89,305 | |||||
Investment costs and expenses | |||||||
Interest expense | 31,017 | 50,918 | |||||
Interest expense to affiliates | 4,653 | — | |||||
Oil and gas production costs | 247 | 215 | |||||
Oil and gas depreciation, depletion and amortization | 1,498 | 1,066 | |||||
Other | 864 | 799 | |||||
Total investment costs and expenses | 38,279 | 52,998 | |||||
Other income (loss) | |||||||
Net realized and unrealized gain (loss) on investments | 116,906 | (138,032 | ) | ||||
Net realized and unrealized gain (loss) on derivatives and foreign exchange | 5,711 | (10,216 | ) | ||||
Net realized and unrealized gain (loss) on debt | 15,216 | (63,173 | ) | ||||
Net realized and unrealized gain (loss) on debt to affiliates | (2,613 | ) | — | ||||
Net gain (loss) on extinguishment of debt | 2,415 | — | |||||
Other income (loss) | 3,866 | 1,539 | |||||
Total other income (loss) | 141,501 | (209,882 | ) | ||||
Other expenses | |||||||
Related party management compensation | 7,558 | 7,276 | |||||
General, administrative and directors' expenses | 1,667 | 15,776 | |||||
Professional services | 1,162 | 1,012 | |||||
Total other expenses | 10,387 | 24,064 | |||||
Income (loss) before income taxes | 139,968 | (197,639 | ) | ||||
Income tax expense (benefit) | 453 | 60 | |||||
Net income (loss) | $ | 139,515 | $ | (197,699 | ) | ||
Net income (loss) attributable to noncontrolling interests | 1,975 | (15,535 | ) | ||||
Net income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries | 137,540 | (182,164 | ) | ||||
Preferred share distributions | 6,891 | 6,891 | |||||
Net income (loss) available to common shares | $ | 130,649 | $ | (189,055 | ) |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||
Net income (loss) | $ | 139,515 | $ | (197,699 | ) | ||
Other comprehensive income (loss): | |||||||
Unrealized gains (losses) on securities available-for-sale | — | — | |||||
Unrealized gains (losses) on cash flow hedges | — | — | |||||
Total other comprehensive income (loss) | — | — | |||||
Comprehensive income (loss) | $ | 139,515 | $ | (197,699 | ) | ||
Less: Comprehensive income (loss) attributable to noncontrolling interests | — | — | |||||
Comprehensive income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries | $ | 139,515 | $ | (197,699 | ) |
KKR Financial Holdings LLC and Subsidiaries | |||||||||||||||||||||||||
Preferred Shares | Common Shares | Accumulated Deficit | Noncontrolling Interests | Total Equity | |||||||||||||||||||||
Shares | Paid-In Capital | Shares | Paid-In Capital | ||||||||||||||||||||||
Balance at January 1, 2016 | 14,950,000 | $ | 378,983 | 100 | $ | 2,385,078 | $ | (895,950 | ) | $ | 82,879 | $ | 1,950,990 | ||||||||||||
Capital contributions | — | — | — | — | — | 1,706 | 1,706 | ||||||||||||||||||
Capital distributions | — | — | — | — | — | (6,005 | ) | (6,005 | ) | ||||||||||||||||
Net income (loss) | — | — | — | — | (182,164 | ) | (15,535 | ) | (197,699 | ) | |||||||||||||||
Distributions declared on preferred shares | — | — | — | — | (6,891 | ) | — | (6,891 | ) | ||||||||||||||||
Distributions to Parent | — | — | — | — | (38,314 | ) | — | (38,314 | ) | ||||||||||||||||
Balance at March 31, 2016 | 14,950,000 | $ | 378,983 | 100 | $ | 2,385,078 | $ | (1,123,319 | ) | $ | 63,045 | $ | 1,703,787 |
KKR Financial Holdings LLC and Subsidiaries | |||||||||||||||||||||||||
Preferred Shares | Common Shares | Accumulated Deficit | Noncontrolling Interests | Total Equity | |||||||||||||||||||||
Shares | Paid-In Capital | Shares | Paid-In Capital | ||||||||||||||||||||||
Balance at January 1, 2017 | 14,950,000 | $ | 378,983 | 100 | $ | 2,385,078 | $ | (967,452 | ) | $ | 71,576 | $ | 1,868,185 | ||||||||||||
Effect from de-consolidation of subsidiaries | — | — | — | — | (500 | ) | — | (500 | ) | ||||||||||||||||
Capital contributions | — | — | — | — | — | 2,245 | 2,245 | ||||||||||||||||||
Capital distributions | — | — | — | — | — | (3,066 | ) | (3,066 | ) | ||||||||||||||||
Net income (loss) | — | — | — | — | 137,540 | 1,975 | 139,515 | ||||||||||||||||||
Distributions declared on preferred shares | — | — | — | — | (6,891 | ) | — | (6,891 | ) | ||||||||||||||||
Distributions to Parent | — | — | — | — | (70,084 | ) | — | (70,084 | ) | ||||||||||||||||
Contributions from Parent | — | — | — | — | 17,621 | — | 17,621 | ||||||||||||||||||
Balance at March 31, 2017 | 14,950,000 | $ | 378,983 | 100 | $ | 2,385,078 | $ | (889,766 | ) | $ | 72,730 | $ | 1,947,025 |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||
Cash flows from operating activities | |||||||
Net income (loss) | $ | 139,515 | $ | (197,699 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Net realized and unrealized (gain) loss on derivatives and foreign exchange | (5,711 | ) | 10,216 | ||||
Net (gain) loss on extinguishment of debt | (2,415 | ) | — | ||||
Unrealized (depreciation) appreciation on investments allocable to noncontrolling interests | (1,975 | ) | (15,535 | ) | |||
Net realized and unrealized (gain) loss on investments | (114,931 | ) | 153,567 | ||||
Depreciation and net amortization | 3,285 | 18,273 | |||||
Net realized and unrealized (gain) loss on debt | (15,216 | ) | 63,173 | ||||
Net realized and unrealized (gain) loss on debt to affiliates | 2,613 | — | |||||
Changes in assets and liabilities: | |||||||
Interest receivable | 699 | 1,217 | |||||
Other assets | (2,267 | ) | (16,611 | ) | |||
Related party payable | (75 | ) | (1,225 | ) | |||
Accounts payable, accrued expenses and other liabilities | (1,328 | ) | (13,274 | ) | |||
Accrued interest payable | 4,178 | 3,181 | |||||
Net cash provided by (used in) operating activities | 6,372 | 5,283 | |||||
Cash flows from investing activities | |||||||
Principal payments from corporate loans | 331,946 | 223,558 | |||||
Principal payments from securities | 27,554 | 17,133 | |||||
Proceeds from sales of corporate loans | 105,266 | 374,229 | |||||
Proceeds from sales of securities | 20,463 | 13,024 | |||||
Proceeds from equity and other investments | 23,969 | 75,852 | |||||
Purchases of corporate loans | (949,510 | ) | (363,541 | ) | |||
Purchases of securities | (2,842 | ) | — | ||||
Purchases of equity and other investments | (18,443 | ) | (14,615 | ) | |||
Net change in proceeds, purchases and settlements of derivatives | 3,057 | 11,058 | |||||
Net change in restricted cash and cash equivalents | 11,345 | 110,295 | |||||
Net cash provided by (used in) investing activities | (447,195 | ) | 446,993 | ||||
Cash flows from financing activities | |||||||
Issuance of collateralized loan obligation secured notes | 605,162 | — | |||||
Retirement of collateralized loan obligation secured notes | (80,378 | ) | (361,550 | ) | |||
Proceeds from collateralized loan obligation warehouse facility | 283,000 | — | |||||
Repayment of collateralized loan obligation warehouse facility | (303,000 | ) | — | ||||
Issuance of senior notes | 372,356 | — | |||||
Repayment of junior subordinated notes | (13,168 | ) | — | ||||
Distributions on common shares | (53,432 | ) | (38,314 | ) | |||
Distributions on preferred shares | (6,891 | ) | (6,891 | ) | |||
Distributions to Parent | (16,652 | ) | — | ||||
Capital distributions to noncontrolling interests | (3,066 | ) | (6,005 | ) | |||
Capital contributions from noncontrolling interests | 2,245 | 1,706 | |||||
Other capitalized costs | (3,750 | ) | — | ||||
Net cash provided by (used in) financing activities | 782,426 | (411,054 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 341,603 | 41,222 | |||||
Cash and cash equivalents at beginning of period | 627,237 | 320,122 | |||||
Cash and cash equivalents at end of period | $ | 968,840 | $ | 361,344 | |||
Supplemental cash flow information | |||||||
Cash paid for interest | $ | 35,396 | $ | 41,104 | |||
Net cash paid (refunded) for income taxes | $ | 65 | $ | 11 | |||
Non-cash investing and financing activities | |||||||
Assets contributed from Parent | $ | 17,621 | $ | — | |||
Preferred share distributions declared, not yet paid | $ | 6,891 | $ | 6,891 |
March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||
Par | Amortized Cost | Estimated Fair Value | Par | Amortized Cost | Estimated Fair Value | ||||||||||||||||||
Securities, at estimated fair value | $ | 337,428 | $ | 261,274 | $ | 271,477 | $ | 371,785 | $ | 304,628 | $ | 229,206 | |||||||||||
Total | $ | 337,428 | $ | 261,274 | $ | 271,477 | $ | 371,785 | $ | 304,628 | $ | 229,206 |
Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||
Net realized gains (losses) | $ | 1,856 | $ | (1,593 | ) | ||
Net (increase) decrease in unrealized losses | 84,995 | (50,126 | ) | ||||
Net realized and unrealized gains (losses) | $ | 86,851 | $ | (51,719 | ) |
March 31, 2017 | December 31, 2016 | ||||||
Pledged as collateral for collateralized loan obligation secured debt | $ | 2,158 | $ | 13,337 | |||
Total | $ | 2,158 | $ | 13,337 |
March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||
Par | Amortized Cost | Estimated Fair Value | Par | Amortized Cost | Estimated Fair Value | ||||||||||||||||||
Corporate loans, at estimated fair value | $ | 3,391,473 | $ | 3,363,359 | $ | 3,248,385 | $ | 3,433,059 | $ | 3,419,483 | $ | 3,305,264 | |||||||||||
Total | $ | 3,391,473 | $ | 3,363,359 | $ | 3,248,385 | $ | 3,433,059 | $ | 3,419,483 | $ | 3,305,264 |
Three Months Ended March 31, 2017 | Three months ended March 31, 2016 | ||||||
Net realized gains (losses) | $ | (3,886 | ) | $ | (30,714 | ) | |
Net (increase) decrease in unrealized losses | (1,886 | ) | 44,923 | ||||
Net realized and unrealized gains (losses) | $ | (5,772 | ) | $ | 14,209 |
March 31, 2017 | December 31, 2016 | ||||||
Pledged as collateral for collateralized loan obligation secured debt | $ | 3,061,010 | $ | 3,048,841 | |||
Total | $ | 3,061,010 | $ | 3,048,841 |
Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||||||||||
Equity Investments | Interests in Joint Ventures and Partnerships(1) | Equity Investments | Interests in Joint Ventures and Partnerships(1) | ||||||||||||
Net realized gains (losses) | $ | — | $ | (34,125 | ) | $ | 725 | $ | (2,162 | ) | |||||
Net (increase) decrease in unrealized losses | 5,592 | 64,360 | (15,992 | ) | (83,093 | ) | |||||||||
Net realized and unrealized gains (losses) | $ | 5,592 | $ | 30,235 | $ | (15,267 | ) | $ | (85,255 | ) |
Par | Carrying Value(1) | Weighted Average Borrowing Rate | Weighted Average Remaining Maturity (in days) | Collateral(2) | ||||||||||||
CLO 2012-1 secured notes | $ | 287,123 | $ | 295,410 | 3.34 | % | 2816 | $ | 262,828 | |||||||
CLO 2012-1 subordinated notes(3) | 18,000 | 9,245 | 12.99 | 2816 | 16,477 | |||||||||||
CLO 2012-1 subordinated notes to affiliates(3) | 19,663 | 10,099 | 12.99 | 2816 | 17,999 | |||||||||||
CLO 2013-1 secured notes | 458,500 | 472,370 | 2.73 | 3028 | 399,223 | |||||||||||
CLO 2013-1 subordinated notes to affiliates(3) | 23,063 | 15,103 | 13.85 | 3028 | 20,081 | |||||||||||
CLO 2013-2 secured notes | 339,250 | 341,193 | 3.03 | 3220 | 324,987 | |||||||||||
CLO 2013-2 subordinated notes to affiliates(3) | 30,959 | 19,621 | 13.06 | 3220 | 29,657 | |||||||||||
CLO 9 secured notes | 463,750 | 470,705 | 3.03 | 3485 | 454,314 | |||||||||||
CLO 9 subordinated notes(3) | 15,000 | 10,003 | 14.42 | 3485 | 14,695 | |||||||||||
CLO 9 subordinated notes to affiliates(3) | 33,400 | 22,274 | 14.42 | 3485 | 32,720 | |||||||||||
CLO 10 secured notes | 368,000 | 372,462 | 3.33 | 3181 | 355,284 | |||||||||||
CLO 10 subordinated notes to affiliates(3) | 39,146 | 25,123 | 10.24 | 3181 | 37,794 | |||||||||||
CLO 15 secured notes | 370,500 | 370,466 | 3.08 | 4219 | 383,509 | |||||||||||
CLO 15 subordinated notes(3) | 12,100 | 11,029 | — | 4219 | 12,525 | |||||||||||
CLO 16 secured notes | 644,300 | 635,858 | 3.16 | 4313 | 696,213 | |||||||||||
CLO 16 subordinated notes(3) | 4,500 | 4,152 | — | 4313 | 4,863 | |||||||||||
Total collateralized loan obligation secured debt | 3,127,254 | 3,085,113 | 3,063,169 | |||||||||||||
7.500% Senior notes(4) | 115,000 | 122,908 | 7.50 | 9120 | — | |||||||||||
5.50% Senior notes | 375,000 | 367,845 | 5.50 | 5478 | — | |||||||||||
Junior subordinated notes | 264,767 | 234,979 | 3.50 | 7126 | — | |||||||||||
Total borrowings | $ | 3,882,021 | $ | 3,810,845 | $ | 3,063,169 |
(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. For purposes of this table, collateral for CLO secured and subordinated notes are calculated pro rata based on the par amount for each respective CLO. |
(3) | Subordinated notes to unaffiliated and affiliated parties 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 cash distributions during the year, if any. |
(4) | On April 24, 2017, the Company redeemed all of its outstanding 7.500% Senior Notes due 2042 (the "Notes due 2042"). Refer to Note 12 to these condensed consolidated financial statements for further discussion. |
Par | Carrying Value(1) | Weighted Average Borrowing Rate | Weighted Average Remaining Maturity (in days) | Collateral(2) | ||||||||||||
CLO 2012-1 secured notes | $ | 367,500 | $ | 378,978 | 3.01 | % | 2906 | $ | 333,931 | |||||||
CLO 2012-1 subordinated notes(3) | 18,000 | 9,613 | 15.40 | 2906 | 16,356 | |||||||||||
CLO 2012-1 subordinated notes to affiliates(3) | 19,663 | 10,501 | — | 2906 | 17,867 | |||||||||||
CLO 2013-1 secured notes | 458,500 | 470,354 | 2.59 | 3118 | 450,836 | |||||||||||
CLO 2013-1 subordinated notes to affiliates(3) | 23,063 | 14,970 | — | 3118 | 22,678 | |||||||||||
CLO 2013-2 secured notes | 339,250 | 343,208 | 2.88 | 3310 | 323,644 | |||||||||||
CLO 2013-2 subordinated notes to affiliates(3) | 30,959 | 19,074 | — | 3310 | 29,535 | |||||||||||
CLO 9 secured notes | 463,750 | 471,824 | 2.89 | 3575 | 437,048 | |||||||||||
CLO 9 subordinated notes(3) | 15,000 | 10,170 | 15.58 | 3575 | 14,136 | |||||||||||
CLO 9 subordinated notes to affiliates(3) | 33,400 | 22,646 | 6.11 | 3575 | 31,477 | |||||||||||
CLO 10 secured notes | 368,000 | 377,369 | 3.18 | 3271 | 356,393 | |||||||||||
CLO 10 subordinated notes to affiliates(3) | 39,146 | 22,416 | 7.53 | 3271 | 37,912 | |||||||||||
CLO 15 secured notes | 370,500 | 370,632 | 3.06 | 4309 | 376,971 | |||||||||||
CLO 15 subordinated notes(3) | 12,100 | 11,430 | — | 4309 | 12,311 | |||||||||||
CLO 16 secured notes | 644,300 | 640,386 | 3.16 | 4403 | 596,916 | |||||||||||
CLO 16 subordinated notes(3) | 4,500 | 3,977 | — | 4403 | 4,169 | |||||||||||
Total collateralized loan obligation secured debt | 3,207,631 | 3,177,548 | 3,062,180 | |||||||||||||
CLO warehouse facility(4) | 20,000 | 20,000 | 2.25 | 305 | 101,976 | |||||||||||
7.500% Senior notes | 115,043 | 123,008 | 7.50 | 9210 | — | |||||||||||
Junior subordinated notes | 283,517 | 250,154 | 3.34 | 7218 | — | |||||||||||
Total borrowings | $ | 3,626,191 | $ | 3,570,710 | $ | 3,164,156 |
(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. For purposes of this table, collateral for CLO secured and subordinated notes are calculated pro rata based on the par amount for each respective CLO. |
(3) | Subordinated notes to unaffiliated and affiliated parties 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 cash distributions during the year, if any. |
(4) | Represents a $200.0 million CLO warehouse facility. |
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||
Notional | Estimated Fair Value | Notional | Estimated Fair Value | ||||||||||||
Free-Standing Derivatives: | |||||||||||||||
Interest rate swaps | $ | 141,000 | $ | (25,506 | ) | $ | 141,000 | $ | (27,263 | ) | |||||
Foreign exchange forward contracts and options | (409,485 | ) | 31,302 | (460,282 | ) | 38,476 | |||||||||
Common stock warrants | — | 1,699 | — | 1,528 | |||||||||||
Options | — | 1,464 | — | 1,001 | |||||||||||
Total | $ | 8,959 | $ | 13,742 |
Three Months Ended March 31, 2017 | Three Months Ended March 31, 2016 | ||||||||||||||||||||||
Realized gains (losses) | Unrealized gains (losses) | Total | Realized gains (losses) | Unrealized gains (losses) | Total | ||||||||||||||||||
Interest rate swaps | $ | — | $ | 1,715 | $ | 1,715 | $ | — | $ | (11,731 | ) | $ | (11,731 | ) | |||||||||
Foreign exchange forward contracts and options(1) | 2,181 | 1,182 | 3,363 | 11,212 | (10,242 | ) | 970 | ||||||||||||||||
Common stock warrants | — | 171 | 171 | 142 | — | 142 | |||||||||||||||||
Options | — | 462 | 462 | — | 403 | 403 | |||||||||||||||||
Net realized and unrealized gains (losses) | $ | 2,181 | $ | 3,530 | $ | 5,711 | $ | 11,354 | $ | (21,570 | ) | $ | (10,216 | ) |
(1) | Net of foreign exchange remeasurement gain or loss on foreign denominated assets. |
As of March 31, 2017 | 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 | $ | 1,253,809 | $ | 1,253,809 | $ | 1,253,809 | $ | — | $ | — | |||||||||
Liabilities: | |||||||||||||||||||
Senior notes | 490,753 | 485,421 | 117,576 | — | 367,845 | ||||||||||||||
Junior subordinated notes | 234,979 | 200,793 | — | — | 200,793 |
As of December 31, 2016 | 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 | $ | 1,139,549 | $ | 1,139,549 | $ | 1,139,549 | $ | — | $ | — | |||||||||
Liabilities: | |||||||||||||||||||
Senior notes | 123,008 | 116,699 | 116,699 | — | — | ||||||||||||||
Junior subordinated notes | 250,154 | 210,084 | — | — | 210,084 |
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of March 31, 2017 | ||||||||||||
Assets: | |||||||||||||||
Securities: | |||||||||||||||
Corporate debt securities | $ | — | $ | 4,993 | $ | 227,198 | $ | 232,191 | |||||||
Residential mortgage-backed securities | — | — | 39,286 | 39,286 | |||||||||||
Total securities | — | 4,993 | 266,484 | 271,477 | |||||||||||
Loans | — | 3,123,297 | 125,088 | 3,248,385 | |||||||||||
Equity investments, at estimated fair value | 43,568 | — | 131,125 | 174,693 | |||||||||||
Interests in joint ventures and partnerships, at estimated fair value | — | — | 841,733 | 841,733 | |||||||||||
Derivatives: | |||||||||||||||
Foreign exchange forward contracts and options | — | 34,727 | 854 | 35,581 | |||||||||||
Warrants | — | — | 1,699 | 1,699 | |||||||||||
Options | — | — | 1,464 | 1,464 | |||||||||||
Total derivatives | — | 34,727 | 4,017 | 38,744 | |||||||||||
Total | $ | 43,568 | $ | 3,163,017 | $ | 1,368,447 | $ | 4,575,032 | |||||||
Liabilities: | |||||||||||||||
Collateralized loan obligation secured notes | $ | — | $ | 2,992,893 | $ | — | $ | 2,992,893 | |||||||
Collateralized loan obligation junior secured notes to affiliates | — | 92,220 | — | 92,220 | |||||||||||
Derivatives: | |||||||||||||||
Interest rate swaps | — | 25,506 | — | 25,506 | |||||||||||
Foreign exchange forward contracts and options | — | 4,241 | 38 | 4,279 | |||||||||||
Total derivatives | — | 29,747 | 38 | 29,785 | |||||||||||
Total | $ | — | $ | 3,114,860 | $ | 38 | $ | 3,114,898 |
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, 2016 | ||||||||||||
Assets: | |||||||||||||||
Securities: | |||||||||||||||
Corporate debt securities | $ | — | $ | 13,337 | $ | 175,206 | $ | 188,543 | |||||||
Residential mortgage-backed securities | — | — | 40,663 | 40,663 | |||||||||||
Total securities | — | 13,337 | 215,869 | 229,206 | |||||||||||
Corporate loans | — | 3,176,070 | 129,194 | 3,305,264 | |||||||||||
Equity investments, at estimated fair value | 36,353 | — | 132,305 | 168,658 | |||||||||||
Interests in joint ventures and partnerships, at estimated fair value | — | — | 793,996 | 793,996 | |||||||||||
Derivatives: | 0 | ||||||||||||||
Foreign exchange forward contracts and options | — | 41,636 | 2,282 | 43,918 | |||||||||||
Options | — | — | 1,001 | 1,001 | |||||||||||
Warrants | 1,528 | 1,528 | |||||||||||||
Total derivatives | — | 41,636 | 4,811 | 46,447 | |||||||||||
Total | $ | 36,353 | $ | 3,231,043 | $ | 1,276,175 | $ | 4,543,571 | |||||||
Liabilities: | |||||||||||||||
Collateralized loan obligation secured notes | $ | — | $ | 3,177,548 | $ | — | $ | 3,177,548 | |||||||
Derivatives: | |||||||||||||||
Interest rate swaps | — | 27,263 | — | 27,263 | |||||||||||
Foreign exchange forward contracts and options | — | 4,152 | 1,290 | 5,442 | |||||||||||
Total derivatives | — | 31,415 | 1,290 | 32,705 | |||||||||||
Total | $ | — | $ | 3,208,963 | $ | 1,290 | $ | 3,210,253 |
Assets | |||||||||||||||||||||||||||||||
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 | Warrants | Options | ||||||||||||||||||||||||
Beginning balance as of January 1, 2017 | $ | 175,206 | $ | 40,663 | $ | 129,194 | $ | 132,305 | $ | 793,996 | $ | 992 | $ | 1,528 | $ | 1,001 | |||||||||||||||
Total gains or losses (for the period): | |||||||||||||||||||||||||||||||
Included in earnings(1) | 85,978 | 1,164 | 2,940 | (1,501 | ) | 35,963 | (176 | ) | 171 | 463 | |||||||||||||||||||||
Transfers into Level 3 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Transfers out of Level 3 (2) | — | — | (9,565 | ) | — | — | — | — | — | ||||||||||||||||||||||
Purchases | — | — | 6,072 | 321 | 18,320 | — | — | — | |||||||||||||||||||||||
Sales | (8,956 | ) | — | (332 | ) | — | — | — | — | — | |||||||||||||||||||||
Settlements | (25,030 | ) | (2,541 | ) | (3,221 | ) | — | (6,546 | ) | — | — | — | |||||||||||||||||||
Ending balance as of March 31, 2017 | $ | 227,198 | $ | 39,286 | $ | 125,088 | $ | 131,125 | $ | 841,733 | $ | 816 | $ | 1,699 | $ | 1,464 | |||||||||||||||
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1) | $ | 84,841 | $ | 1,164 | $ | 2,940 | $ | (1,501 | ) | $ | 35,963 | $ | (633 | ) | $ | 171 | $ | 463 |
(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. |
(2) | Corporate loans were transferred out of Level 3 because observable market data became available. |
Assets | |||||||||||||||||||||||||||
Corporate Debt Securities | Residential Mortgage- Backed Securities | Corporate Loans | Equity Investments, at Estimated Fair Value | Interests in Joint Ventures and Partnerships | Warrants | Options | |||||||||||||||||||||
Beginning balance as of January 1, 2016 | $ | 194,986 | $ | 49,621 | $ | 298,734 | $ | 146,648 | $ | 888,408 | $ | 2,887 | $ | 95 | |||||||||||||
Total gains or losses (for the period): | |||||||||||||||||||||||||||
Included in earnings(1) | (44,882 | ) | 332 | (6,827 | ) | (8,085 | ) | (80,695 | ) | (1,046 | ) | 403 | |||||||||||||||
Transfers into Level 3 | — | — | — | — | — | — | — | ||||||||||||||||||||
Transfers out of Level 3 | — | — | — | — | — | — | — | ||||||||||||||||||||
Purchases | — | — | 2,306 | — | 14,067 | — | — | ||||||||||||||||||||
Sales | — | — | — | — | — | — | — | ||||||||||||||||||||
Settlements | (36 | ) | (2,239 | ) | 2,769 | — | (73,451 | ) | — | — | |||||||||||||||||
Ending balance as of March 31, 2016 | $ | 150,068 | $ | 47,714 | $ | 296,982 | $ | 138,563 | $ | 748,329 | $ | 1,841 | $ | 498 | |||||||||||||
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1) | $ | (44,882 | ) | $ | 329 | $ | (6,827 | ) | $ | (8,085 | ) | $ | (80,695 | ) | $ | (1,046 | ) | $ | 403 |
(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. |
Balance as of March 31, 2017 | Valuation Techniques(1) | Unobservable Inputs(2) | Weighted Average(3) | Range | Impact to Valuation from an Increase in Input(4) | |||||||||
Assets: | ||||||||||||||
Corporate debt securities | $ | 227,198 | Yield analysis | Yield | 22% | 5% - 23% | Decrease | |||||||
Net leverage | 30x | 15x-31x | Decrease | |||||||||||
EBITDA multiple | 37x | 0x - 39x | Increase | |||||||||||
Discount margin | 1151 bps | 1100 -1600 bps | Decrease | |||||||||||
Residential mortgage – backed securities | $ | 39,286 | Discounted cash flows | Probability of default | 2% | 0% - 3% | Decrease | |||||||
Loss severity | 43% | 35% - 50% | Decrease | |||||||||||
Constant prepayment rate | 16% | 12% - 20% | (5 | ) | ||||||||||
Corporate loans | $ | 125,088 | Inputs to market comparables, discounted cash flow and yield analysis | Weight ascribed to market comparables | 1% | 0% - 50% | (7 | ) | ||||||
Weight ascribed to discounted cash flows | 1% | 0% - 50% | (8 | ) | ||||||||||
Weight ascribed to yield analysis | 98% | 0% - 100% | (9 | ) | ||||||||||
Yield Analysis | Yield | 12% | 10% -15% | Decrease | ||||||||||
Net leverage | 15x | 5x - 91x | Decrease | |||||||||||
EBITDA multiple | 10x | 7x - 23x | Increase | |||||||||||
Market comparables | LTM EBITDA multiple | 9x | 9x | Increase | ||||||||||
Forward EBITDA multiple | 8x | 8x | Increase | |||||||||||
Discounted Cash flows | Weighted average cost of capital | 15% | 15% | Decrease | ||||||||||
LTM EBITDA exit multiple | 6x | 6x | Increase | |||||||||||
Black Scholes Options Pricing Model | Risk-Free Rate | 3% | 3% | Increase | ||||||||||
Volatility | 28% | 28% | Decrease | |||||||||||
Equity investments, at estimated fair value(6) | $ | 131,125 | Inputs to both market comparables and discounted cash flow | Illiquidity discount | 11% | 0% - 15% | Decrease | |||||||
Weight ascribed to market comparables | 47% | 0% - 100% | (7 | ) | ||||||||||
Weight ascribed to discounted cash flows | 53% | 0% - 100% | (8 | ) | ||||||||||
Market comparables | LTM EBITDA multiple | 11x | 0x - 16x | Increase | ||||||||||
Forward EBITDA multiple | 10x | 0x - 14x | Increase | |||||||||||
Discounted cash flows | Weighted average cost of capital | 9% | 7% - 15% | Decrease | ||||||||||
LTM EBITDA exit multiple | 8x | 5x - 10x | Increase | |||||||||||
Interests in joint ventures and partnerships(10) | $ | 841,733 | Inputs to market comparables, discounted cash flow and yield analysis | Weight ascribed to market comparables | 25% | 0% - 100% | (7 | ) | ||||||
Weight ascribed to discounted cash flows | 43% | 0% - 100% | (8 | ) |
Weight ascribed to yield analysis | 32% | 0% - 100% | (9 | ) | ||||||||||
Market comparables | LTM EBITDA multiple | 1x | 1x | Increase | ||||||||||
Forward EBITDA multiple | 1x | 1x | Increase | |||||||||||
Capitalization rate | 7% | 4% - 12% | Decrease | |||||||||||
Discounted cash flows | Weighted average cost of capital | 10% | 6% - 20% | Decrease | ||||||||||
Average price per BOE(11) | $19.92 | $18.35-$22.35 | Increase | |||||||||||
Yield analysis | Yield | 27% | 27% | Decrease | ||||||||||
Net Leverage | 2x | 2x | Decrease | |||||||||||
EBITDA multiple | 7x | 7x | Increase | |||||||||||
Foreign exchange options, net | $ | 816 | Option pricing model | Forward and spot rates | 13,309 | 13,309 | (12 | ) | ||||||
Options(13) | $ | 1,464 | Inputs to both market comparables and discounted cash flow | Illiquidity discount | 10% | 10% | Decrease | |||||||
Weight ascribed to market comparables | 50% | 50% | (7 | ) | ||||||||||
Weight ascribed to discounted cash flows | 50% | 50% | (8 | ) | ||||||||||
, | Market comparables | LTM EBITDA multiple | 9x | 9x | Increase | |||||||||
Forward EBITDA multiple | 8x | 8x | Increase | |||||||||||
Discounted cash flows | Weighted average cost of capital | 15% | 15% | Decrease | ||||||||||
LTM EBITDA exit multiple | 6x | 6x | Increase | |||||||||||
Black Scholes Options Pricing Model | Risk-Free Rate | 3% | 3% | Increase | ||||||||||
Volatility | 28% | 28% | 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. Of the total equity investments, at estimated fair value, $15.2 million was valued solely using a market comparables technique and $19.9 million was valued solely using a discounted cash flow technique. |
(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 or yield analysis approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow or yield analysis 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 or yield analysis approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables or yield analysis approach. |
(9) | The directional change from an increase in the weight ascribed to the yield analysis approach would increase the fair value of the Level 3 investments if the yield analysis approach results in a higher valuation than the market comparables or discounted cash flow approach. The opposite would be true if the yield analysis approach results in a lower valuation than the market comparables or discounted cash flow approach. |
(10) | Inputs exclude $462.1 million of assets, comprised of an investment that was valued using an independent third party valuation firm and interests in an alternative credit fund that holds multiple investments, which are valued using Level 3 value methodologies similar to those shown for the corporate debt portfolio and equity investments. Of the total interest in joint ventures and partnerships, $47.1 million was valued solely using a discounted cash flow technique, while $8.8 million was valued solely using a market comparables technique and $26.9 million was valued solely using a yield analysis. |
(11) | Natural resources assets with an estimated fair value of $87.2 million as of March 31, 2017 were valued using commodity prices. Commodity prices may be measured using a common volumetric equivalent where one barrel of oil equivalent (‘‘BOE’’) is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for these investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 24% liquids and 76% natural gas. |
(12) | Inputs include forward rates for investments in Indian Rupees. |
(13) | The total options were valued using 50% a discount cash flow technique and 50% a market comparables technique. |
Balance as of December 31, 2016 | Valuation Techniques(1) | Unobservable Inputs(2) | Weighted Average(3) | Range | Impact to Valuation from an Increase in Input(4) | |||||||||
Assets: | ||||||||||||||
Corporate debt securities | $ | 175,206 | Yield analysis | Yield | 14% | 5% - 15% | Decrease | |||||||
Net leverage | 9x | 7x-16x | Decrease | |||||||||||
EBITDA multiple | 6x | 0x - 9x | Increase | |||||||||||
Discount margin | 1105 | 1100-1150bps | Decrease | |||||||||||
Market comparables | LTM EBITDA multiple | 12x | 12x | Increase | ||||||||||
Black Scholes Options Pricing Model | Risk-Free Rate | 1% | 1% | Increase | ||||||||||
Volatility | 85% | 85% | Decrease | |||||||||||
Broker quotes | Offered quotes | 102 | 101-103 | Increase | ||||||||||
Residential mortgage – backed securities | $ | 40,663 | Discounted cash flows | Probability of default | 2% | 0% - 3% | Decrease | |||||||
Loss severity | 43% | 35% - 50% | Decrease | |||||||||||
Constant prepayment rate | 18% | 12% - 23% | (5 | ) | ||||||||||
Corporate loans | $ | 129,194 | Yield Analysis | Yield | 13% | 11% - 16% | Decrease | |||||||
Net leverage | 11x | 5x - 82x | Decrease | |||||||||||
EBITDA multiple | 6x | 0x - 19x | Increase | |||||||||||
Equity investments, at estimated fair value(6) | $ | 132,305 | Inputs to market comparables and discounted cash flow | Illiquidity discount | 8% | 5% - 15% | Decrease | |||||||
Weight ascribed to market comparables | 47% | 0% - 100% | (7 | ) | ||||||||||
Weight ascribed to discounted cash flows | 53% | 0% - 100% | (8 | ) | ||||||||||
Market comparables | LTM EBITDA multiple | 11x | 0x - 14x | Increase | ||||||||||
Forward EBITDA multiple | 9x | 0x - 13x | Increase | |||||||||||
Discounted cash flows | Weighted average cost of capital | 9% | 7% - 14% | Decrease | ||||||||||
LTM EBITDA exit multiple | 8x | 7x - 10x | Increase | |||||||||||
Interests in joint ventures and partnerships(10) | $ | 793,996 | Inputs to both market comparables and discounted cash flow | Weight ascribed to market comparables | 27% | 0% - 100% | (7 | ) | ||||||
Weight ascribed to discounted cash flows | 45% | 0% - 100% | (8 | ) | ||||||||||
Weight ascribed to yield analysis | 28% | 0% - 100% | (9 | ) | ||||||||||
Market comparables | LTM EBITDA multiple | 4x | 1x - 9x | Increase | ||||||||||
Forward EBITDA multiple | 9x | 9x | Increase | |||||||||||
Capitalization Rate | 7% | 3% - 12% | Decrease | |||||||||||
Discounted cash flows | Weighted average cost of capital | 10% | 6% - 20% | Decrease | ||||||||||
Average price per BOE(11) | $20.26 | $18.81 - $22.38 | Increase | |||||||||||
Yield analysis | Yield | 19% | 19% | Decrease | ||||||||||
Net leverage | 2x | 2x | Decrease | |||||||||||
EBITDA multiple | 7x | 7x | Increase | |||||||||||
Foreign exchange options, net | $ | 992 | Option pricing model | Forward and spot rates | 10,301 | 6 -13,550 | (12 | ) | ||||||
Options(13) | $ | 1,001 | Inputs to both market comparables and discounted cash flow | Illiquidity discount | 10% | 10% | Decrease |
Weight ascribed to market comparables | 50% | 50% | (7 | ) | ||||||||||
Weight ascribed to discounted cash flows | 50% | 50% | (8 | ) | ||||||||||
, | Market comparables | LTM EBITDA multiple | 9x | 9x | Increase | |||||||||
Forward EBITDA multiple | 7x | 7x | Increase | |||||||||||
Discounted cash flows | Weighted average cost of capital | 15% | 15% | Decrease | ||||||||||
LTM EBITDA exit multiple | 5x | 5x | 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. Of the total equity investments, at estimated fair value, $14.5 million was valued solely using using a market comparables technique and $20.0 million was valued solely using a discounted cash flow technique. |
(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 or yield analysis approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow or yield analysis 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 or yield analysis approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables or yield analysis approach. |
(9) | The directional change from an increase in the weight ascribed to the yield analysis approach would increase the fair value of the Level 3 investments if the yield analysis approach results in a higher valuation than the market comparables or discounted cash flow approach. The opposite would be true if the yield analysis approach results in a lower valuation than the market comparables or discounted cash flow approach. |
(10) | Inputs exclude $408.1 million of assets, comprised of an investment that was valued using an independent third party valuation firm and interests in alternative credit funds that holds multiple investments, which were valued suing Level 3 value methodologies similar to those shown for the corporate debt portfolio and equity investments. Of the total interest in joint ventures and partnerships, $43.5 million was valued solely using a discounted cash flow technique, while $9.8 million was valued solely using a market comparables technique and $24.4 million was valued solely using a yield analysis. |
(11) | Natural resources assets with an estimated fair value of $107.3 million as of December 31, 2015 were valued using commodity prices. Commodity prices may be measured using a common volumetric equivalent where one barrel of oil equivalent (‘‘BOE’’) is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for these investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 23% liquids and 77% natural gas. |
(12) | Inputs include forward rates for investments in Chinese Yuan and Indian Rupees. |
(13) | The total options were valued using 50% a discount cash flow technique and 50% a market comparables technique. |
Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||
Base management fees, net | $ | 4,444 | $ | 1,029 | |||
CLO management fees | 3,114 | 6,247 | |||||
Incentive fees | — | — | |||||
Total related party management compensation | $ | 7,558 | $ | 7,276 |
Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||
Base management fees, gross | $ | 5,822 | $ | 5,783 | |||
CLO management fees credit(1) | (1,378 | ) | (4,754 | ) | |||
Total base management fees, net | $ | 4,444 | $ | 1,029 |
(1) | See “CLO Management Fees” for further discussion. |
Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||
Charged and retained CLO management fees(1) | $ | 1,736 | $ | 1,493 | |||
CLO management fees credit | 1,378 | 4,754 | |||||
Total CLO management fees | $ | 3,114 | $ | 6,247 |
(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. |
Three months ended March 31, 2017 | |||
Contributions: | |||
Interests in joint ventures and partnerships | $ | 17,621 | |
Total contributions from Parent | $ | 17,621 | |
Distributions: | |||
Cash | $ | (16,652 | ) |
Total distributions to Parent | $ | (16,652 | ) |
Credit | Natural Resources | Other | Reconciling Items(1) | Total Consolidated | |||||||||||||||||||||||||||||||||||
Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||||||||||||||||||||||||||
Total revenues | $ | 43,422 | $ | 77,395 | $ | 3,710 | $ | 2,641 | $ | 1 | $ | 9,269 | $ | — | $ | — | $ | 47,133 | $ | 89,305 | |||||||||||||||||||
Total investment costs and expenses | 36,153 | 50,984 | 1,925 | 1,614 | 201 | 400 | — | — | 38,279 | 52,998 | |||||||||||||||||||||||||||||
Total other income (loss) | 152,387 | (173,946 | ) | (15,583 | ) | (27,242 | ) | 4,697 | (8,694 | ) | — | — | 141,501 | (209,882 | ) | ||||||||||||||||||||||||
Total other expenses | 9,869 | 23,864 | 256 | 130 | 242 | 70 | 20 | — | 10,387 | 24,064 | |||||||||||||||||||||||||||||
Income tax expense (benefit) | 6 | 23 | — | — | 447 | 37 | — | — | 453 | 60 | |||||||||||||||||||||||||||||
Net income (loss) | $ | 149,781 | $ | (171,422 | ) | $ | (14,054 | ) | $ | (26,345 | ) | $ | 3,808 | $ | 68 | $ | (20 | ) | $ | — | $ | 139,515 | $ | (197,699 | ) | ||||||||||||||
Net income (loss) attributable to noncontrolling interests | 3,775 | (9,711 | ) | (1,800 | ) | (5,824 | ) | — | — | — | — | 1,975 | (15,535 | ) | |||||||||||||||||||||||||
Net income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries | $ | 146,006 | $ | (161,711 | ) | $ | (12,254 | ) | $ | (20,521 | ) | $ | 3,808 | $ | 68 | $ | (20 | ) | $ | — | $ | 137,540 | $ | (182,164 | ) |
(1) | Consists of directors’ expenses which are not allocated to individual segments. |
Credit | Natural Resources | Other | Reconciling Items | Total Consolidated(1) | |||||||||||||||||||||||||||||||||||
As of | March 31, 2017 | December 31, 2016 | March 31, 2017 | December 31, 2016 | March 31, 2017 | December 31, 2016 | March 31, 2017 | December 31, 2016 | March 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||
Total assets | $ | 5,604,492 | $ | 5,422,560 | $ | 198,499 | $ | 219,516 | $ | 203,945 | $ | 208,981 | $ | — | $ | — | $ | 6,006,936 | $ | 5,851,057 |
(1) | Total consolidated assets as of March 31, 2017 included $72.7 million of noncontrolling interests, of which $47.7 million was related to the Credit segment and $25.0 million was related to the Natural Resources segment. Total consolidated assets as of December 31, 2016 included $71.6 million of noncontrolling interests, of which $43.4 million was related to the Credit segment and $28.2 million was related to the Natural Resources segment. |
Credit | Natural Resources | Commercial Real Estate | Reconciling Items(1) | Total Consolidated | |||||||||||||||||||||||||||||||||||
Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||||||||||||||||||||||||||
Total revenues | $ | 43,422 | $ | 77,395 | $ | 3,710 | $ | 2,641 | $ | 1 | $ | 9,269 | $ | — | $ | — | $ | 47,133 | $ | 89,305 | |||||||||||||||||||
Total investment costs and expenses | 36,153 | 50,984 | 1,925 | 1,614 | 201 | 400 | — | — | 38,279 | 52,998 | |||||||||||||||||||||||||||||
Total other income (loss) | 152,387 | (173,946 | ) | (15,583 | ) | (27,242 | ) | 4,697 | (8,694 | ) | — | — | 141,501 | (209,882 | ) | ||||||||||||||||||||||||
Total other expenses | 9,869 | 23,864 | 256 | 130 | 242 | 70 | 20 | — | 10,387 | 24,064 | |||||||||||||||||||||||||||||
Income tax expense (benefit) | 6 | 23 | — | — | 447 | 37 | — | — | 453 | 60 | |||||||||||||||||||||||||||||
Net income (loss) | $ | 149,781 | $ | (171,422 | ) | $ | (14,054 | ) | $ | (26,345 | ) | $ | 3,808 | $ | 68 | $ | (20 | ) | $ | — | $ | 139,515 | $ | (197,699 | ) | ||||||||||||||
Net income (loss) attributable to noncontrolling interests | 3,775 | (9,711 | ) | (1,800 | ) | (5,824 | ) | — | — | — | — | 1,975 | (15,535 | ) | |||||||||||||||||||||||||
Net income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries | $ | 146,006 | $ | (161,711 | ) | $ | (12,254 | ) | $ | (20,521 | ) | $ | 3,808 | $ | 68 | $ | (20 | ) | $ | — | $ | 137,540 | $ | (182,164 | ) |
Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||
Base management fees, gross | $ | 5,822 | $ | 5,783 | |||
CLO management fees credit(1) | (1,378 | ) | (4,754 | ) | |||
Total base management fees, net | $ | 4,444 | $ | 1,029 |
(1) | See “CLO Management Fees” for further discussion. |
Three months ended March 31, 2017 | Three months ended March 31, 2016 | ||||||
Charged and retained CLO management fees(1) | $ | 1,736 | $ | 1,493 | |||
CLO management fees credit | 1,378 | 4,754 | |||||
Total CLO management fees | $ | 3,114 | $ | 6,247 |
(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. |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||
Revenues | |||||||
Corporate loans and securities interest income | $ | 41,878 | $ | 70,887 | |||
Residential mortgage-backed securities interest income | 654 | 682 | |||||
Net discount accretion | (773 | ) | 403 | ||||
Dividend income | 581 | 5,185 | |||||
Other | 1,082 | 238 | |||||
Total revenues | 43,422 | 77,395 | |||||
Investment costs and expenses | |||||||
Interest expense: | |||||||
Collateralized loan obligation secured notes | 24,640 | 36,428 | |||||
Collateralized loan obligation junior secured notes to affiliates | 4,653 | — | |||||
Credit facilities | 721 | — | |||||
Senior notes | 1,969 | 6,731 | |||||
Junior subordinated notes | 2,434 | 4,056 | |||||
Interest rate swaps | 872 | 2,973 | |||||
Total interest expense | 35,289 | 50,188 | |||||
Other | 864 | 796 | |||||
Total investment costs and expenses | 36,153 | 50,984 | |||||
Other income (loss) | |||||||
Realized and unrealized gain (loss) on derivatives and foreign exchange: | |||||||
Interest rate swap | 1,715 | (11,731 | ) | ||||
Common stock warrants | 171 | 142 | |||||
Foreign exchange(1) | 3,258 | 273 | |||||
Options | 462 | 403 | |||||
Total realized and unrealized gain (loss) on derivatives and foreign exchange | 5,606 | (10,913 | ) | ||||
Net realized and unrealized gain (loss) on investments | 127,953 | (101,399 | ) | ||||
Net realized and unrealized gain (loss) on debt | 15,216 | (63,173 | ) | ||||
Net realized and unrealized gain (loss) on debt to affiliates | (2,613 | ) | — | ||||
Net gain on extinguishment of debt | 2,415 | — | |||||
Other income | 3,810 | 1,539 | |||||
Total other income (loss) | 152,387 | (173,946 | ) | ||||
Other expenses | |||||||
Related party management compensation: | |||||||
Base management fees | 4,091 | 964 | |||||
CLO management fees | 3,114 | 6,247 | |||||
Total related party management compensation | 7,205 | 7,211 | |||||
Professional services | 1,070 | 948 | |||||
Other general and administrative | 1,594 | 15,705 | |||||
Total other expenses | 9,869 | 23,864 | |||||
Income (loss) before income taxes | 149,787 | (171,399 | ) | ||||
Income tax expense (benefit) | 6 | 23 | |||||
Net income (loss) | $ | 149,781 | $ | (171,422 | ) |
(1) | Includes foreign exchange contracts and foreign exchange remeasurement gain or loss. |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||||||||||||||||||
Unrealized gains (losses) | Realized gains (losses) | Total | Unrealized gains (losses) | Realized gains (losses) | Total | ||||||||||||||||||
Corporate loans | $ | (1,886 | ) | $ | (3,886 | ) | $ | (5,772 | ) | $ | 44,923 | $ | (30,714 | ) | $ | 14,209 | |||||||
Corporate debt securities | 84,605 | 1,364 | 85,969 | (50,145 | ) | (2,127 | ) | (52,272 | ) | ||||||||||||||
RMBS | 390 | 492 | 882 | 19 | 534 | 553 | |||||||||||||||||
Equity investments, at estimated fair value | 5,592 | — | 5,592 | (15,992 | ) | 725 | (15,267 | ) | |||||||||||||||
Interests in joint ventures and partnerships, at estimated fair value and other | 75,406 | (34,125 | ) | 41,281 | (48,452 | ) | (170 | ) | (48,622 | ) | |||||||||||||
Total | $ | 164,107 | $ | (36,155 | ) | $ | 127,952 | $ | (69,647 | ) | $ | (31,752 | ) | $ | (101,399 | ) |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||
Revenues | |||||||
Oil and gas revenue: | |||||||
Natural gas sales | $ | 375 | $ | 370 | |||
Oil sales | 2,954 | 2,297 | |||||
Natural gas liquids sales | 381 | (26 | ) | ||||
Total revenues | 3,710 | 2,641 | |||||
Investment costs and expenses | |||||||
Oil and gas production costs: | |||||||
Severance and ad valorem taxes | 247 | 215 | |||||
Total oil and gas production costs | 247 | 215 | |||||
Oil and gas depreciation, depletion and amortization | 1,498 | 1,066 | |||||
Interest expense: | |||||||
Senior notes | 80 | 208 | |||||
Junior subordinated notes | 100 | 125 | |||||
Total interest expense | 180 | 333 | |||||
Total investment costs and expenses | 1,925 | 1,614 | |||||
Other income (loss) | |||||||
Net realized and unrealized gain (loss) on investments | (15,583 | ) | (27,242 | ) | |||
Total other income (loss) | (15,583 | ) | (27,242 | ) | |||
Other expenses | |||||||
Related party management compensation: | |||||||
Base management fees | 167 | 30 | |||||
Total related party management compensation | 167 | 30 | |||||
Professional services | 44 | 29 | |||||
Other general and administrative | 45 | 71 | |||||
Total other expenses | 256 | 130 | |||||
Income (loss) before income taxes | (14,054 | ) | (26,345 | ) | |||
Income tax expense (benefit) | — | — | |||||
Net income (loss) | $ | (14,054 | ) | $ | (26,345 | ) |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||
Revenues | |||||||
Dividend income | $ | — | $ | 9,269 | |||
Other income | 1 | — | |||||
Total revenues | 1 | 9,269 | |||||
Investment costs and expenses | |||||||
Interest expense: | |||||||
Senior notes | 90 | 248 | |||||
Junior subordinated notes | 111 | 149 | |||||
Total interest expense | 201 | 397 | |||||
Other | — | 3 | |||||
Total investment costs and expenses | 201 | 400 | |||||
Other income (loss) | |||||||
Net realized and unrealized gain (loss) on derivatives and foreign exchange: | |||||||
Foreign exchange(1) | 105 | 697 | |||||
Total realized and unrealized gain (loss) on derivatives and foreign exchange | 105 | 697 | |||||
Net realized and unrealized gain (loss) on investments | 4,536 | (9,391 | ) | ||||
Other income | 56 | — | |||||
Total other income (loss) | 4,697 | (8,694 | ) | ||||
Other expenses | |||||||
Related party management compensation: | |||||||
Base management fees | 186 | 35 | |||||
Total related party management compensation | 186 | 35 | |||||
Professional services | 48 | 35 | |||||
Other general and administrative | 8 | — | |||||
Total other expenses | 242 | 70 | |||||
Income before income taxes | 4,255 | 105 | |||||
Income tax expense (benefit) | 447 | 37 | |||||
Net income (loss) | $ | 3,808 | $ | 68 |
(1) | Includes foreign exchange contracts and foreign exchange remeasurement gain or loss. |
March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||
Par | Amortized Cost | Estimated Fair Value | Par | Amortized Cost | Estimated Fair Value | ||||||||||||||||||
Senior secured | $ | 3,228,514 | $ | 3,214,308 | $ | 3,136,744 | $ | 3,286,630 | $ | 3,271,336 | $ | 3,194,328 | |||||||||||
Second lien | 74,116 | 70,426 | 60,393 | 67,865 | 68,359 | 58,584 | |||||||||||||||||
Subordinated | 88,843 | 78,625 | 51,248 | 78,564 | 79,788 | 52,352 | |||||||||||||||||
Total | $ | 3,391,473 | $ | 3,363,359 | $ | 3,248,385 | $ | 3,433,059 | $ | 3,419,483 | $ | 3,305,264 |
March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||
Par | Amortized Cost | Estimated Fair Value | Par | Amortized Cost | Estimated Fair Value | ||||||||||||||||||
Senior secured | $ | 145,141 | $ | 108,928 | $ | 120,943 | $ | 156,546 | $ | 125,515 | $ | 61,687 | |||||||||||
Senior unsecured | 280 | 3,839 | 4,380 | 25,280 | 28,842 | 29,133 | |||||||||||||||||
Subordinated | 134,220 | 111,548 | 106,868 | 129,331 | 111,544 | 97,723 | |||||||||||||||||
Total | $ | 279,641 | $ | 224,315 | $ | 232,191 | $ | 311,157 | $ | 265,901 | $ | 188,543 |
As of March 31, 2017 | As of December 31, 2016 | ||||||||
Oil and gas properties, net | $ | 109,436 | $ | 110,934 | |||||
Interests in joint ventures and partnerships(1) | 87,185 | 107,348 | |||||||
Total | $ | 196,621 | $ | 218,282 |
(1) | Includes $25.0 million and $28.2 million of noncontrolling interests as of March 31, 2017 and December 31, 2016, respectively. Refer to “Interests in Joint Ventures and Partnerships Holdings” below for further discussion around the aggregate balance of our interests in joint ventures and partnerships. |
For the three months ended March 31, 2017 | For the three months ended March 31, 2016 | ||||||||
Beginning balance | $ | 168,658 | $ | 262,946 | |||||
Additions | 321 | 5,879 | |||||||
Dispositions and paydowns | — | (9,057 | ) | ||||||
Unrealized gains (losses) | 5,592 | (15,992 | ) | ||||||
Other(1) | 122 | 686 | |||||||
Ending balance | $ | 174,693 | $ | 244,462 |
Declaration Date | Record Date | Payment Date | Cash Distribution Declared per Preferred Share | ||||
Year ended December 31, 2017 | |||||||
March 23, 2017 | April 10, 2017 | April 17, 2017 | $0.460938 | ||||
Year ended December 31, 2016 | |||||||
March 24, 2016 | April 8, 2016 | April 15, 2016 | $0.460938 | ||||
June 23, 2016 | July 8, 2016 | July 15, 2016 | $0.460938 | ||||
September 22, 2016 | October 10, 2016 | October 17, 2016 | $0.460938 | ||||
December 22, 2016 | January 10, 2017 | January 17, 2017 | $0.460938 |
Record and Declaration Date | Payment Date | Cash Distribution Declared per Common Share | |||||
Year ended December 31, 2017 (1) | |||||||
First Quarter ended March 31, 2017 | (2) | (2) | (2) | ||||
Year ended December 31, 2016 (1) | |||||||
First Quarter ended March 31, 2016 | May 9, 2016 | May 10, 2016 | $245,741 | ||||
Second Quarter ended June 30, 2016 | July 21, 2016 | July 22, 2016 | $179,230 | ||||
Third Quarter ended September 30, 2016 | (2) | (2) | (2) | ||||
Fourth Quarter ended December 31, 2016 | February 9, 2017 | February 10, 2017 | $534,323 |
Change in interest rates | Annual Impact | ||
Increase of 1.0% | $ | 4,142 | |
Increase of 2.0% | $ | 8,284 | |
Increase of 3.0% | $ | 12,425 | |
Increase of 4.0% | $ | 16,567 | |
Increase of 5.0% | $ | 20,709 |
As of March 31, 2017 | |||||||
Notional | Estimated Fair Value | ||||||
Free-Standing Derivatives: | |||||||
Interest rate swaps | $ | 141,000 | $ | (25,506 | ) | ||
Foreign exchange forward contracts and options | (409,485 | ) | 31,302 | ||||
Common stock warrants | — | 1,699 | |||||
Options | — | 1,464 | |||||
Total | $ | 8,959 |
Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | Total | |||||||||||||||
Free-Standing Derivatives: | |||||||||||||||||||
Interest rate swaps | $ | (581 | ) | $ | — | $ | — | $ | (24,925 | ) | $ | (25,506 | ) | ||||||
Foreign exchange forward contracts and options | 15,534 | 15,768 | — | — | 31,302 | ||||||||||||||
Total | $ | 14,953 | $ | 15,768 | $ | — | $ | (24,925 | ) | $ | 5,796 |
KKR Financial Holdings LLC | ||
Signature | Title | |
/s/ WILLIAM J. JANETSCHEK | Chief Executive Officer (Principal Executive Officer) | |
William J. Janetschek | ||
/s/ THOMAS N. MURPHY | Chief Financial Officer (Principal Financial and Accounting Officer and Authorized Signatory) | |
Thomas N. Murphy | ||
Date: May 11, 2017 |
Exhibit Number | Description | |
4.1 | Indenture dated as of March 30, 2017 among KKR Financial Holdings LLC and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.1 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on March 30, 2017). | |
4.2 | First Supplemental Indenture dated as of March 30, 2017 among KKR Financial Holdings LLC and The Bank of New York Mellon Trust Company, N. A., as trustee (incorporated by reference to Exhibit 4.2 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on March 30, 2017). | |
4.3 | Form of 5.50% Senior Note due 2032 of KKR Financial Holdings LLC (incorporated by reference to Exhibit 4.2 to the KKR Financial Holdings LLC Current Report on Form 8-K filed on March 30, 2017). | |
10.1 | Fee Waiver Letter, dated May 5, 2017, between KKR Financial Advisors LLC and KKR Financial Holdings LLC. | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
32 | Certification of Chief Executive Officer and Chief Financial Officer 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. |
1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2017 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: May 11, 2017 | |
/s/ WILLIAM J. JANETSCHEK | |
William J. Janetschek | |
Chief Executive Officer | |
(Principal Executive Officer) |
1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2017 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: May 11, 2017 | |
/s/ THOMAS N. MURPHY | |
Thomas N. Murphy | |
Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
(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. |
May 11, 2017 | |
/s/ WILLIAM J. JANETSCHEK | |
William J. Janetschek | |
Chief Executive Officer | |
(Principal Executive Officer) | |
/s/ THOMAS N. MURPHY | |
Thomas N. Murphy | |
Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
May 04, 2017 |
|
Document and Entity Information | ||
Entity Registrant Name | KKR Financial Holdings LLC | |
Entity Central Index Key | 0001386926 | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 100 |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred shares, no par value (in dollars per share) | ||
Preferred shares, shares authorized (in shares) | 50,000,000 | 50,000,000 |
Preferred shares, shares issued (in shares) | 14,950,000 | 14,950,000 |
Preferred shares, shares outstanding (in shares) | 14,950,000 | 14,950,000 |
Common shares, no par value (in dollars per share) | ||
Common shares, shares authorized (in shares) | 500,000,000 | 500,000,000 |
Common shares, shares issued (in shares) | 100 | 100 |
Common shares, shares outstanding (in shares) | 100 | 100 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Statement of Comprehensive Income [Abstract] | ||
Net income (loss) | $ 139,515 | $ (197,699) |
Other comprehensive income (loss): | ||
Unrealized gains (losses) on securities available-for-sale | 0 | 0 |
Unrealized gains (losses) on cash flow hedges | 0 | 0 |
Total other comprehensive income (loss) | 0 | 0 |
Comprehensive income (loss) | 139,515 | (197,699) |
Less: Comprehensive income (loss) attributable to noncontrolling interests | 0 | 0 |
Comprehensive income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries | $ 139,515 | $ (197,699) |
ORGANIZATION |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION | 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 current income. The Company’s holdings primarily consist of below investment grade syndicated corporate loans, also known as leveraged loans, high yield debt securities and interests in joint ventures and partnerships. 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 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 primarily 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 subsidiaries, including CLOs. The Company is a subsidiary of KKR & Co. L.P. ("KKR & Co." and, together with its subsidiaries, "KKR"). KKR Fund Holdings L.P., a subsidiary of KKR & Co., is the sole holder of all of the outstanding common shares of the Company and is the parent of the Company ("Parent"). The Company is externally managed and advised by its Manager pursuant to an amended and restated management agreement (as amended the “Management Agreement”). The Manager is a subsidiary of KKR & Co. The Company’s 7.375% Series A LLC Preferred Shares (“Series A LLC Preferred Shares”) trade on the New York Stock Exchange (“NYSE”). The Company's 7.500% Senior Notes due 2042 (the "Notes due 2042") traded on the NYSE, however, on April 24, 2017, the Company redeemed its Notes due 2042 totaling $115.0 million aggregate principal amount. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The majority of the Company's significant accounting policies have remained unchanged from the Company's Annual Report on Form 10-K filed with the SEC on March 29, 2017 ("2016 Annual Report"). As such, in addition to the below, refer to the Company's 2016 Annual Report for further discussion. 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 unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. 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. Also included in the condensed consolidated financial statements are the financial results of certain entities, which are not considered VIEs, but in which the Company is presumed to have control. The ownership interests held by third parties are reflected as noncontrolling interests in the accompanying financial statements. 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. Consolidation KKR Financial CLO 2012-1, Ltd. (“CLO 2012-1"), KKR Financial CLO 2013-1, Ltd. (“CLO 2013-1"), KKR Financial CLO 2013-2, Ltd. (“CLO 2013-2"), KKR CLO 9, Ltd. (“CLO 9”), KKR CLO 10, Ltd. (“CLO 10”), KKR CLO 15, Ltd. ("CLO 15") and KKR CLO 16, Ltd. ("CLO 16") (collectively the “Cash Flow CLOs”) are entities established to complete secured financing transactions. During 2016, the Company called KKR 2016-1, Ltd. ("CLO 2016-1"), KKR Financial CLO 2007-1 (“CLO 2007-1") and KKR Financial CLO 2011-1 (“CLO 2011-1") and during 2015, the Company called KKR Financial CLO 2005-2, Ltd. (“CLO 2005-2"), KKR Financial CLO 2005-1, Ltd. ("CLO 2005-1") and KKR Financial CLO 2006-1, Ltd ("CLO 2006-1"), whereby the Company repaid all senior and mezzanine notes outstanding. 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. In addition, during 2016, the Company declared a distribution in kind on its common shares of certain subordinated notes of KKR CLO 11, Ltd ("CLO 11") and KKR CLO 13, Ltd ("CLO 13") to its Parent as the sole holder of its common shares. CLO 11 and CLO 13 had previously been consolidated by the Company as they were VIEs which the Company determined it had the power to direct the activities that most significantly impacted these entities’ economic performance and the Company had 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. Following the distribution, the Company determined that it no longer met the consolidation criteria and de-consolidated CLO 11 and CLO 13, resulting in a reduction in both consolidated assets and liabilities of approximately $1.0 billion as of December 31, 2016. Also, as a result of the de-consolidation, the related CLO interest expense and management fees that were previously consolidated will no longer be included in the Company's condensed consolidated statements of operations. The Company finances the majority of its corporate debt investments through its CLOs. As of March 31, 2017, the Company’s CLOs held $3.1 billion par amount, or $3.1 billion estimated fair value, of corporate debt investments. As of December 31, 2016, the Company's CLOs also held $3.1 billion par amount, or $3.1 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 March 31, 2017 and December 31, 2016, the aggregate par amount of CLO debt to unaffiliated and affiliated parties totaled $3.1 billion and $3.2 billion, respectively. The Company consolidates all non‑VIEs in which it holds a greater than 50 percent voting interest. Specifically, the Company consolidates majority owned entities for which the Company is presumed to have control. The ownership interests of these entities held by third parties are reflected as noncontrolling interests in the accompanying financial statements. The Company began consolidating a majority of these non‑VIE entities as a result of the asset contributions from its Parent during the second half of 2014. For certain of these entities, the Company previously held a percentage ownership, but following the incremental contributions from its Parent, was presumed to have control. In addition, the Company has noncontrolling 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. Recent Accounting Pronouncements Accounting Changes and Error Corrections and Investments - Equity Method and Joint Ventures In January 2017, FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 232) – Amendments to SEC Paragraphs Pursuant to staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (“ASU 2017-03”). The amendments included in this update expand required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of the ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is not expected to have any material impact on the Company’s condensed consolidated financial statements. Consolidation In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under Common Control ("ASU 2016-17"). This guidance states that reporting entities deciding whether they are primary beneficiaries no longer have to consider indirect interests held through related parties that are under common control to be the equivalent of direct interests in their entirety. Decision makers would include those indirect interests on a proportionate basis. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company's condensed consolidated financial statements. Financial Instruments In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities (“ASU 2016-01”). The amended guidance (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at fair value; (iii) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments and (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amended guidance related to equity securities without readily determinable fair values (including the disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company is currently evaluating the impact on its financial statements. Cash Flow Classification In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. The amended guidance adds or clarifies guidance on eight cash flow matters: (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively from the earliest date practicable if retrospective application would be impracticable. The Company is currently evaluating the impact on its financial statements. |
SECURITIES |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SECURITIES | SECURITIES The Company accounts for all of its securities, including RMBS, at estimated fair value. The following table summarizes the Company’s securities as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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 (losses) from securities (amounts in thousands):
Defaulted Securities As of both March 31, 2017 and December 31, 2016, the Company had no corporate debt securities in default. Concentration Risk The Company’s corporate debt securities portfolio has certain credit risk concentrated in a limited number of issuers. As of March 31, 2017, the Company’s corporate debt securities portfolio was concentrated in three issuers: Preferred Proppants LLC, LCI Helicopters Limited and Avoca Capital CLO XII Limited, which combined represented $213.9 million, or approximately 92% of the estimated fair value of the Company’s corporate debt securities. As of December 31, 2016, approximately 97% 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, Preferred Proppants LLC and Mizuho Bank Ltd., which combined represented $134.7 million, or approximately 71% of the estimated fair value of the Company’s corporate debt securities. Pledged Assets Note 6 to these condensed consolidated financial statements describes the Company’s borrowings under which the Company has pledged assets for borrowings. The following table summarizes the estimated fair value of securities pledged as collateral as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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LOANS |
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Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LOANS | LOANS The Company accounts for all of its loans at estimated fair value. The following table summarizes the Company’s loans as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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 gains (losses) from loans (amounts in thousands):
For the corporate loans measured at estimated fair value under the fair value option of accounting, $5.5 million and $6.3 million of net gains were attributable to changes in instrument specific credit risk for the three months ended March 31, 2017 and 2016, respectively. Gains and losses attributable to changes in instrument specific credit risk were determined by excluding the non-credit components of gains and losses, such as those due to changes in interest rates and general market conditions. In addition, gains and losses attributable to those loans on non-accrual status or specifically identified as more volatile based on financial or operating performance, restructuring or other factors, were considered instrument specific. Non-Accrual Loans 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 March 31, 2017, the Company held a total par value and estimated fair value of $138.6 million and $37.6 million, respectively, of non-accrual loans carried at estimated fair value. As of December 31, 2016, the Company held a total par value and estimated fair value of $114.1 million and $26.0 million, respectively, of non-accrual loans carried at estimated fair value. As of both March 31, 2017 and December 31, 2016, there were no corporate loans past due 90 or more days and still accruing. Defaulted Loans As of both March 31, 2017 and December 31, 2016, the Company held no corporate loans that were in default. Concentration Risk The Company’s corporate loan portfolio has certain credit risk concentrated in a limited number of issuers. As of March 31, 2017, approximately 21% of the total estimated fair value of the Company’s corporate loan portfolio was concentrated in twenty issuers, with no single issuer individually greater than 2% of the aggregate estimated fair value of the Company’s corporate loans. As of December 31, 2016, approximately 21% of the total estimated fair value of the Company’s corporate loan portfolio was concentrated in twenty issuers, with no single issuer individually greater than 2% of the aggregate estimated fair value of the Company’s corporate loans. Pledged Assets Note 6 to these condensed consolidated financial statements describes the Company’s borrowings under which the Company has pledged assets for borrowings. The following table summarizes the corporate loans, at estimated fair value, pledged as collateral as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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EQUITY METHOD INVESTMENTS AND INTERESTS IN JOINT VENTURES AND PARTNERSHIPS |
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Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY METHOD INVESTMENTS AND INTERESTS IN JOINT VENTURES AND PARTNERSHIPS | EQUITY INVESTMENTS AND INTERESTS IN JOINT VENTURES AND PARTNERSHIPS The Company holds interests in joint ventures and partnerships, certain of which (i) the Company participates alongside affiliates of the Manager through which the Company contributes capital for assets, including development projects related to commercial real estate and specialty lending focused businesses or (ii) are held as interests in private or public funds managed by KKR. Refer to Note 10 to these condensed consolidated financial statements for further discussion. As of March 31, 2017 and December 31, 2016, the Company held $841.7 million and $794.0 million, respectively, of interests in joint ventures and partnerships carried at estimated fair value. In addition, as of March 31, 2017 and December 31, 2016, the Company held $174.7 million and $168.7 million, respectively, of equity investments, which were carried at estimated fair value and comprised primarily of common and preferred stock. Net Realized and Unrealized Gains (Losses) The following tables present the Company’s realized and unrealized gains (losses), which are accounted for similarly to securities and loans, from equity investments and interests in joint ventures and partnerships (amounts in thousands):
(1) Includes net gain attributable to noncontrolling interests of $2.0 million for the three months ended March 31, 2017 and $15.5 million for the three months ended March 31, 2016. Equity Method Investments The Company holds certain investments where the Company does not control the investee and where the Company is not the primary beneficiary, but can exert significant influence over the financial and operating policies of the investee. Significant influence typically exists if the Company has a 20% to 50% ownership interest in the investee unless predominant evidence to the contrary exists. Under the equity method of accounting, the Company records its proportionate share of net income or loss based on the investee’s financial results. Given that the Company elected the fair value option to account for these equity method investments, the Company’s share of the investee’s underlying net income or loss predominantly represents fair value adjustments in the investments. Changes in estimated fair value are recorded in net realized and unrealized gain (loss) on investments in the condensed consolidated statements of operations. As of March 31, 2017 and December 31, 2016, the Company had equity method investments, at estimated fair value, totaling $418.1 million and $408.3 million, respectively. The Company's equity method investments are comprised primarily of the following issuers with the respective ownership percentages: (i) Maritime Credit Corporation Ltd., which the Company holds approximately 31% through its ownership of KKR Nautilus Aggregator Limited, (ii) LCI Helicopters Limited, which the Company holds approximately 33% common equity interest in and (iii) Mineral Acquisition Company, which the Company holds approximately 70% through its ownership of KKR Royalty Aggregator LLC. KKR Royalty Aggregator LLC is an investment company for accounting purposes and accordingly, does not consolidate Mineral Acquisition Company, which it wholly-owns. The Company consolidates both KKR Nautilus Aggregator Limited and KKR Royalty Aggregator LLC and reflects all ownership interests held by third parties as noncontrolling interests in its financial statements. Pledged Assets There were no equity investments or interests in joint ventures and partnerships pledged as collateral as of March 31, 2017 and December 31, 2016. |
BORROWINGS |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BORROWINGS | BORROWINGS The Company accounts 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, and all of its other borrowings at amortized cost. Certain information with respect to the Company’s borrowings as of March 31, 2017 is summarized in the following table (dollar amounts in thousands):
Certain information with respect to the Company’s borrowings as of December 31, 2016 is summarized in the following table (dollar amounts in thousands):
CLO Debt For the CLO secured notes, there were no gains (losses) attributable to changes in instrument specific credit risk for both the three months ended March 31, 2017 and 2016. 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 2013-1, CLO 2013-2, CLO 9, CLO 10, CLO 15 and CLO 16 will end their reinvestment periods during July 2017, January 2018, October 2018, December 2018, October 2020 and January 2021, respectively. Pursuant to the terms of the indentures governing our CLO transactions, the Company has the ability to call its CLO transactions after the end of the respective non-call periods. During August 2016, the Company called CLO 2007-1 and repaid all senior and mezzanine notes totaling $945.6 million par amount. In addition, during October 2016, the remaining $134.5 million par amount of CLO 2007-1 subordinated notes owned by third parties were deemed repaid in full, whereby the Company distributed assets held as collateral in CLO 2007-1 to the subordinated note holders. As described below in Note 7 to these condensed consolidated financial statements, the Company used pay-fixed, receive-variable interest rate swaps to hedge interest rate risk associated with its CLOs. In connection with the repayment of the CLO 2007-1 notes, the related interest rate swap, with a contractual notional amount of $142.3 million was terminated. During the three months ended March 31, 2017, the Company repaid $80.4 million par amount of original CLO 2012-1 secured notes. During the three months ended March 31, 2016, excluding the amounts repaid for called CLOs, $112.2 million of original CLO 2007-1 senior notes were repaid. CLO 2011-1 and CLO 2016-1 do not have reinvestment periods and all principal proceeds from holdings in the respective CLOs are used to amortize the transaction. During the year ended December 31, 2016, $348.4 million par amount of original CLO 2016-1 secured and subordinated notes were repaid in full. In addition, during December 2016, the remaining $8.2 million par amount of CLO 2016-1 subordinated notes owned by third parties were deemed paid in full, whereby the Company distributed assets held as collateral in CLO 2016-1 to subordinated note holders. During March 2016, the Company called CLO 2011-1 and repaid all senior debt totaling $249.3 million par amount. On March 30, 2017, the Company closed KKR CLO 17 LLC ("CLO 17"), a $608.5 million secured financing transaction maturing on April 15, 2029. The Company issued $552.0 million par amount of senior secured notes to unaffiliated investors, all of which was floating rate with a weighted-average coupon of three-month LIBOR plus 1.81%. The Company also issued $22.0 million par amount of subordinated notes to unaffiliated investors and $34.5 million par amount of subordinated notes to affiliated investors. Upon closing CLO 17, it was determined that the Company no longer met the consolidation criteria and therefore de-consolidated CLO 17, resulting in a reduction of both consolidated assets and liabilities of approximately $760.0 million. During December 2016, the Company declared a distribution in kind on its common shares of certain subordinated notes to its Parent as the sole holder of its common shares and distributed an aggregate $106.5 million par amount of CLO 2012-1, CLO 2013-1, CLO 2013-2, CLO 9, CLO 10, CLO 11 and CLO 13 subordinated notes. These notes were previously owned by the Company and eliminated in consolidation. Following the distribution, certain of the subordinated notes were held by an affiliate of the Manager and reflected as collateralized loan obligation junior secured notes to affiliates, at estimated fair value, on the Company's consolidated balance sheets. However, for certain CLOs, specifically CLO 11 and CLO 13, it was determined that the Company no longer met the consolidation criteria and therefore de-consolidated these two CLOs, resulting in a reduction of consolidated CLO liabilities of approximately $967.3 million. On December 15, 2016, the Company closed CLO 16, a $711.3 million secured financing transaction maturing on January 20, 2029. The Company issued $644.3 million par amount of senior secured notes to unaffiliated investors, $634.8 million of which was floating rate with a weighted-average coupon of three-month LIBOR plus 2.04% and $9.5 million of which was fixed rate with a coupon of 4.80%. The Company also issued $4.5 million par amount of subordinated notes to unaffiliated investors. The investments that are owned by CLO 16 collateralize the CLO 16 debt, and as a result, those investments are not available to the Company, its creditors or shareholders. On September 14, 2016, the Company closed CLO 15, a $410.8 million secured financing transaction maturing on October 18, 2028. The Company issued $370.5 million par amount of senior secured notes to unaffiliated investors, all of which was floating rate with a weighted-average coupon of three-month LIBOR plus 2.05%. The Company also issued $12.1 million par amount of subordinated notes to unaffiliated investors. The investments that are owned by CLO 15 collateralize the CLO 15 debt, and as a result, those investments are not available to the Company, its creditors or shareholders. During August 2016, the Company issued $3.6 million par amount of CLO 13 class F notes for proceeds of $3.0 million. During September 2016, the Company issued $3.4 million par amount of CLO 13 class F notes for proceeds of $2.9 million. On June 7, 2016, the Company closed CLO 2016-1, a $426.4 million secured financing transaction maturing on June 7, 2018, which was funded during the third quarter of 2016. The Company issued $330.9 million par amount of senior secured notes to unaffiliated investors at a rate of three-month LIBOR plus 1.70% and $25.7 million par amount of subordinated notes to unaffiliated investors. The investments that are owned by CLO 2016-1 collateralize the CLO 2016-1 debt, and as a result, those investments are not available to the Company, its creditors or shareholders. During May 2016, the Company declared a distribution in kind on its common shares of certain subordinated notes to its Parent as the sole holder of its common shares and distributed an aggregate $96.5 million par amount of CLO 9, CLO 10, CLO 11 and CLO 13 subordinated notes. These notes were previously owned by the Company and eliminated in consolidation. Following the distribution, the subordinated notes were held by an affiliate of the Manager and reflected as collateralized loan obligation junior secured notes to affiliates, at estimated fair value, on the Company's condensed consolidated balance sheets. During April 2016, the remaining $15.1 million par amount of CLO 2007-A subordinated notes owned by third parties were deemed repaid in full, whereby the Company distributed assets held as collateral in CLO 2007-A to the subordinated note holders. CLO Warehouse Facility On November 1, 2016, CLO 17 entered into a $200.0 million CLO warehouse facility ("CLO 17 Warehouse"), which matured upon the closing of CLO 17. The CLO 17 Warehouse was used to purchase assets for the CLO transaction in advance of its closing date upon which the proceeds of the CLO closing were used to repay the CLO 17 Warehouse in full. Debt issued under the CLO 17 warehouse was non-recourse to the Company beyond the assets of CLO 17 and bore interest rates ranging from three-month LIBOR plus 1.25% to 2.20%. Upon the closing of CLO 17 on March 30, 2017, as discussed above, the aggregate amount outstanding under the CLO 17 Warehouse was repaid. Senior Notes On March 30, 2017, the Company issued $375.0 million aggregate principal amount of 5.50% senior unsecured notes due March 30, 2032 ("Notes due 2032") in a private placement, resulting in net proceeds of $368.6 million. Interest on the Notes due 2032 is payable semi-annually on March 30 and September 30 of each year. The Company may redeem the Notes due 2032 in whole, but not in part, at a redemption price equal to 100% of the outstanding principal amount plus accrued and unpaid interest to, but excluding, the date of redemption on or after March 30, 2022 and annually thereafter, after providing notice to noteholders of such redemption not less than 30 and no more than 60 business days prior to such redemption date. At any time prior to March 30, 2022, the Company may redeem the Notes due 2032 in whole, but not in part, at a redemption price equal to (i) 100% of the outstanding principal amount, (ii) plus accrued and unpaid interest to, but excluding, the date of redemption, (iii) plus the excess, if any, of (a) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes due 2032 (as if the Notes due 2032 matured on March 30, 2022), discounted to the redemption date on a semi-annual basis (assuming a 360-day year of twelve 30-day months) at a rate equal to the sum of the applicable treasury rate plus 50 basis points, minus accrued and unpaid interest, if any, on the Notes due 2032 being redeemed to, but excluding, the redemption date over (b) the principal amount of the Notes due 2032 being redeemed. On November 15, 2016, the Company redeemed $258.8 million aggregate principal amount of 8.375% Senior Notes due 2041 (the "Notes due 2041"), in accordance with the optional redemption provisions provided in the documents governing the Notes due 2041. The transaction resulted in the Company recording a gain of $29.8 million. Junior Subordinated Notes In January 2017, the Company repurchased $18.8 million par amount of junior subordinated notes, which resulted in a gain on extinguishment of debt of $2.4 million. |
DERIVATIVE INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE INSTRUMENTS | DERIVATIVE INSTRUMENTS The Company enters into derivative transactions in order to hedge its interest rate and foreign currency exposure to the effects of interest rate and foreign currency 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 are major financial institutions 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 March 31, 2017 and December 31, 2016 (amounts in thousands):
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 interest rate swaps and foreign exchange contracts and options. Free-standing derivatives may 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 gain (loss) 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. Interest Rate Swaps The Company uses interest rate swaps to hedge a portion of the interest rate risk associated with certain of its floating rate junior subordinated notes. The Company had also previously used interest rate swaps to hedge a portion of the interest rate risk associated with its CLOs. As of both March 31, 2017 and December 31, 2016, the Company had interest rate swaps with a notional amount of $141.0 million. 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 March 31, 2017 and December 31, 2016, the net contractual notional balance of our foreign exchange options and forward contract liabilities totaled $409.5 million and $460.3 million, respectively, the majority of which related to certain of our foreign currency denominated assets. Free-Standing Derivatives Gain (Loss) The following table presents the amounts recorded in net realized and unrealized gain (loss) on derivatives and foreign exchange on the condensed consolidated statements of operations (amounts in thousands):
A master netting arrangement may allow each counterparty to net settle amounts owed between the Company and the counterparty as a result of multiple, separate derivative transactions. The Company has International Swaps and Derivatives Association ("ISDA") agreements or similar agreements with certain financial institutions which contain netting provisions. While these derivative instruments are eligible to be offset in accordance with applicable accounting guidance, the Company has elected to present derivative assets and liabilities on a gross basis in its condensed consolidated balance sheets. As of March 31, 2017, if the Company had elected to offset the asset and liability balances of its derivative instruments, the net positions would total the following with its respective financial institution counterparties: (i) $1.0 million net asset, net of $3.8 million collateral posted, (ii) $0.1 million net asset, net of $4.3 million collateral posted and (iii) $6.5 million net asset, including $9.9 million collateral held. Comparatively, as of December 31, 2016, if the Company had elected to offset the asset and liability balances of its derivative instruments, the net positions would total the following with its respective financial institution counterparties: (i) $2.6 million net asset, net of $3.4 million collateral posted, (ii) $1.0 million net asset, net of $8.0 million collateral posted and (iii) $7.5 million net asset, net of $11.3 million collateral held. |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE OF FINANCIAL INSTRUMENTS | FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Instruments Not Carried at Estimated Fair Value The Company accounts for its investments, as well as its collateralized loan obligation secured notes 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 March 31, 2017 (amounts in thousands):
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, 2016 (amounts in thousands):
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 March 31, 2017, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):
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 three months ended March 31, 2017 (amounts in thousands):
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 three months ended March 31, 2016 (amounts in thousands):
There were no transfers between Level 1 and Level 2 for the Company’s financial assets and liabilities measured at fair value on a recurring and non-recurring basis for the three months ended March 31, 2017 and 2016. 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 March 31, 2017 (dollar amounts in thousands):
The table above excludes warrants of $1.7 million, comprised of equity-like securities in a company that were valued using an independent third party valuation firm primarily based on the agreement setting forth the terms of the warrant and public disclosures of the expected sale value. 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, 2016 (dollar amounts in thousands):
The table above excludes warrants of $1.5 million, comprised of equity-like securities in a company that were valued using an independent third party valuation firm primarily based on the agreement setting forth the terms of the warrant and public disclosures of the expected sale value. |
COMMITMENTS AND CONTINGENCIES |
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Mar. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Commitments 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 March 31, 2017 and December 31, 2016, the Company had unfunded financing commitments for corporate loans totaling $0.6 million and $3.2 million, respectively. The Company did not have any significant losses as of March 31, 2017, nor does it expect any significant losses related to those assets for which it committed to 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, as well as alternative credit and specialty lending focused businesses. The Company estimated these future contributions to total approximately $276.8 million as of March 31, 2017 and $279.4 million as of December 31, 2016. Guarantees As of March 31, 2017 and December 31, 2016, the Company had investments, held alongside KKR and its affiliates, in real estate entities that were financed with non-recourse debt totaling approximately $1.2 billion and $1.1 billion, 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 and environmental losses. In connection with certain of these investments, joint and several non-recourse carve-out guarantees and environmental indemnities were provided, pursuant to which KFN guarantees losses or the full amount of the applicable loan in the event of specified bad acts or environmental matters. In addition, completion guarantees were provided for certain properties to complete all or portions of development projects, and partial payment guarantees were provided for certain investments. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against it that have not yet occurred. However, based on prior experience, the Company expects the risk of material loss to be low. Contingencies From time to time, the Company may become 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 regulation, which may result in regulatory investigations or other proceedings against it. It is inherently difficult to predict the ultimate outcome of any legal proceedings, lawsuits, claims, investigations, other proceedings, and an adverse outcome in any matter could at any time have a material effect on the Company’s financial results in any particular period. Based on current discussion and consultation with counsel, management believes that there are no such matters pending that would have a material impact on the Company’s condensed consolidated financial statements. |
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS | 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 1 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):
Base Management Fees The Company pays its Manager a base management fee quarterly in arrears. During 2017 and 2016, 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. The table below summarizes the aggregate base management fees (amounts in thousands):
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 Charged and Fee Credits The Company recorded management fees expense for the majority of its CLOs during both the three months ended March 31, 2017 and 2016. The Manager credited the Company for a portion of the CLO management fees received by an affiliate of the Manager from CLOs including CLO 2007-1, CLO 2012-1, CLO 9, CLO 10, CLO 11, CLO 13 and CLO 2016-1 via an offset to the base management fees payable to the Manager. As the Company owns less than 100% of the subordinated notes of these CLOs (with the remaining subordinated notes held by affiliated and unaffiliated 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 CLOs including 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):
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 receives quarterly incentive compensation from the Company based on its achievement of specified levels of net income pursuant to the Management Agreement. The Manager agreed to waive incentive fees of $16.2 million and earned zero incentive fees for the three months ended March 31, 2017 and 2016, respectively. 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 $1.0 million for both the three months ended March 31, 2017 and 2016. 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. Contributions and Distributions The Company made certain cash distributions on its common shares, which are held by its Parent, totaling $53.4 million and $38.3 million during the three months ended March 31, 2017 and 2016, respectively. Separately, the Company made certain asset distributions in kind on its common shares as described further below. During the three months ended March 31, 2017, certain assets were contributed from and distributed to the Parent, including additional capital account credits for the general partner interests in an alternative credit fund. The table below summarizes the estimated fair value of distributions at the time of transfer (amounts in thousands):
Affiliated Investments The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of the Manager. As of March 31, 2017, the aggregate par amount of these affiliated investments totaled $26.5 million, or less than 1% of the total investment portfolio, and consisted of 3 issuers. The total affiliated investments was comprised of $20.1 million of equity investments, $6.1 million of corporate loans and $0.3 million of corporate debt securities. Comparatively, as of December 31, 2016, the aggregate par amount of these affiliated investments totaled $20.4 million, or less than 1% of the total investment portfolio, and consisted of 2 issuers. The total affiliated investments was comprised of $20.1 million of equity investments and $0.3 million of corporate debt securities In addition, the Company has invested in certain joint ventures and partnerships alongside affiliates of the Manager. As of March 31, 2017 and December 31, 2016, the estimated fair value of these interests in joint ventures and partnerships totaled $724.8 million and $680.5 million, respectively. |
SEGMENT REPORTING |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT REPORTING | 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 ("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 overriding royalty interests in oil and natural gas properties, as well as interests in joint ventures and partnerships focused on the oil and gas sector. 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 incentive fees, insurance expenses and directors’ expenses, if any, 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 statements of operations for the three months ended March 31, 2017 and 2016 (amounts in thousands):
The following table shows total assets of our reportable segments reconciled to amounts reflected in the condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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SUBSEQUENT EVENTS |
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Mar. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS On March 23, 2017, the Company announced a cash distribution on its Series A LLC Preferred Shares totaling $6.9 million, or $0.460938 per share. The distribution was paid on April 17, 2017 to preferred shareholders of record as of the close of business on April 10, 2017. On April 24, 2017, the Company redeemed all of its outstanding Notes due 2042 in accordance with the optional redemption provisions provided in the documents governing the Notes due 2042. As of April 24, 2017, prior to the redemption, there was $115.0 million aggregate principal amount of the Notes due 2042 outstanding. The redemption price equaled 100% of the principal amount of the Notes due 2042 plus unpaid interest accrued thereon to, but excluding, the redemption date, in accordance with the terms of the Notes due 2042. On May 2, 2017, the Company's board of directors approved a $166.3 million contribution from its Parent representing membership interests in a controlling company of a real estate investment trust, and on May 5, 2017, the Company's board of directors approved a $166.3 million cash distribution to its Parent, as the holder of all the Company's common shares. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended |
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Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
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 unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. 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. Also included in the condensed consolidated financial statements are the financial results of certain entities, which are not considered VIEs, but in which the Company is presumed to have control. The ownership interests held by third parties are reflected as noncontrolling interests in the accompanying financial statements. |
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. |
Consolidation | Consolidation KKR Financial CLO 2012-1, Ltd. (“CLO 2012-1"), KKR Financial CLO 2013-1, Ltd. (“CLO 2013-1"), KKR Financial CLO 2013-2, Ltd. (“CLO 2013-2"), KKR CLO 9, Ltd. (“CLO 9”), KKR CLO 10, Ltd. (“CLO 10”), KKR CLO 15, Ltd. ("CLO 15") and KKR CLO 16, Ltd. ("CLO 16") (collectively the “Cash Flow CLOs”) are entities established to complete secured financing transactions. During 2016, the Company called KKR 2016-1, Ltd. ("CLO 2016-1"), KKR Financial CLO 2007-1 (“CLO 2007-1") and KKR Financial CLO 2011-1 (“CLO 2011-1") and during 2015, the Company called KKR Financial CLO 2005-2, Ltd. (“CLO 2005-2"), KKR Financial CLO 2005-1, Ltd. ("CLO 2005-1") and KKR Financial CLO 2006-1, Ltd ("CLO 2006-1"), whereby the Company repaid all senior and mezzanine notes outstanding. 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. In addition, during 2016, the Company declared a distribution in kind on its common shares of certain subordinated notes of KKR CLO 11, Ltd ("CLO 11") and KKR CLO 13, Ltd ("CLO 13") to its Parent as the sole holder of its common shares. CLO 11 and CLO 13 had previously been consolidated by the Company as they were VIEs which the Company determined it had the power to direct the activities that most significantly impacted these entities’ economic performance and the Company had 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. Following the distribution, the Company determined that it no longer met the consolidation criteria and de-consolidated CLO 11 and CLO 13, resulting in a reduction in both consolidated assets and liabilities of approximately $1.0 billion as of December 31, 2016. Also, as a result of the de-consolidation, the related CLO interest expense and management fees that were previously consolidated will no longer be included in the Company's condensed consolidated statements of operations. The Company finances the majority of its corporate debt investments through its CLOs. As of March 31, 2017, the Company’s CLOs held $3.1 billion par amount, or $3.1 billion estimated fair value, of corporate debt investments. As of December 31, 2016, the Company's CLOs also held $3.1 billion par amount, or $3.1 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 March 31, 2017 and December 31, 2016, the aggregate par amount of CLO debt to unaffiliated and affiliated parties totaled $3.1 billion and $3.2 billion, respectively. The Company consolidates all non‑VIEs in which it holds a greater than 50 percent voting interest. Specifically, the Company consolidates majority owned entities for which the Company is presumed to have control. The ownership interests of these entities held by third parties are reflected as noncontrolling interests in the accompanying financial statements. The Company began consolidating a majority of these non‑VIE entities as a result of the asset contributions from its Parent during the second half of 2014. For certain of these entities, the Company previously held a percentage ownership, but following the incremental contributions from its Parent, was presumed to have control. In addition, the Company has noncontrolling 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. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Accounting Changes and Error Corrections and Investments - Equity Method and Joint Ventures In January 2017, FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 232) – Amendments to SEC Paragraphs Pursuant to staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (“ASU 2017-03”). The amendments included in this update expand required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of the ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is not expected to have any material impact on the Company’s condensed consolidated financial statements. Consolidation In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under Common Control ("ASU 2016-17"). This guidance states that reporting entities deciding whether they are primary beneficiaries no longer have to consider indirect interests held through related parties that are under common control to be the equivalent of direct interests in their entirety. Decision makers would include those indirect interests on a proportionate basis. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company's condensed consolidated financial statements. Financial Instruments In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities (“ASU 2016-01”). The amended guidance (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at fair value; (iii) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments and (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amended guidance related to equity securities without readily determinable fair values (including the disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company is currently evaluating the impact on its financial statements. Cash Flow Classification In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. The amended guidance adds or clarifies guidance on eight cash flow matters: (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively from the earliest date practicable if retrospective application would be impracticable. The Company is currently evaluating the impact on its financial statements. |
SECURITIES (Tables) |
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Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the company's securities which are carried at estimated fair value | The following table summarizes the Company’s securities as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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Schedule of realized and unrealized gains from securities | The following table presents the Company’s realized and unrealized gains (losses) from securities (amounts in thousands):
The following tables present the Company’s realized and unrealized gains (losses), which are accounted for similarly to securities and loans, from equity investments and interests in joint ventures and partnerships (amounts in thousands):
(1) Includes net gain attributable to noncontrolling interests of $2.0 million for the three months ended March 31, 2017 and $15.5 million for the three months ended March 31, 2016. |
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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 March 31, 2017 and December 31, 2016 (amounts in thousands):
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LOANS (Tables) |
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Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of corporate loans | The following table summarizes the Company’s loans as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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Schedule of realized and unrealized (losses) gains from corporate loans | The following tables present the Company’s realized and unrealized gains (losses) from loans (amounts in thousands):
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Schedule of corporate loans pledged as collateral | The following table summarizes the corporate loans, at estimated fair value, pledged as collateral as of March 31, 2017 and December 31, 2016 (amounts in thousands):
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EQUITY METHOD INVESTMENTS AND INTERESTS IN JOINT VENTURES AND PARTNERSHIPS (Tables) |
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Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of realized and unrealized gains (losses) from investments | The following table presents the Company’s realized and unrealized gains (losses) from securities (amounts in thousands):
The following tables present the Company’s realized and unrealized gains (losses), which are accounted for similarly to securities and loans, from equity investments and interests in joint ventures and partnerships (amounts in thousands):
(1) Includes net gain attributable to noncontrolling interests of $2.0 million for the three months ended March 31, 2017 and $15.5 million for the three months ended March 31, 2016. |
BORROWINGS (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Company's borrowings | Certain information with respect to the Company’s borrowings as of March 31, 2017 is summarized in the following table (dollar amounts in thousands):
Certain information with respect to the Company’s borrowings as of December 31, 2016 is summarized in the following table (dollar amounts in thousands):
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DERIVATIVE INSTRUMENTS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 March 31, 2017 and December 31, 2016 (amounts in thousands):
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Schedule of net realized and unrealized gain (loss) on derivatives and foreign exchange | The following table presents the amounts recorded in net realized and unrealized gain (loss) on derivatives and foreign exchange on the condensed consolidated statements of operations (amounts in thousands):
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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 March 31, 2017 (amounts in thousands):
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, 2016 (amounts in thousands):
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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 March 31, 2017, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):
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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 three months ended March 31, 2017 (amounts in thousands):
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 three months ended March 31, 2016 (amounts in thousands):
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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 March 31, 2017 (dollar amounts in thousands):
The table above excludes warrants of $1.7 million, comprised of equity-like securities in a company that were valued using an independent third party valuation firm primarily based on the agreement setting forth the terms of the warrant and public disclosures of the expected sale value. 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, 2016 (dollar amounts in thousands):
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MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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):
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Schedule of estimate fair value of contributions and distributions | The table below summarizes the estimated fair value of distributions at the time of transfer (amounts in thousands):
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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):
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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):
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SEGMENT REPORTING (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 statements of operations for the three months ended March 31, 2017 and 2016 (amounts in thousands):
The following table shows total assets of our reportable segments reconciled to amounts reflected in the condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016 (amounts in thousands):
|
ORGANIZATION (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Apr. 24, 2017 |
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Definitive merger agreement | ||||
Repayment secured debt | $ 80,378 | $ 361,550 | ||
Series A LLC Preferred Shares | ||||
Definitive merger agreement | ||||
Preferred shares, dividend rate (as a percent) | 7.375% | |||
7.500% Senior notes | ||||
Definitive merger agreement | ||||
Debt instrument, stated interest rate | 7.50% | 7.50% | ||
Subsequent Event | 7.500% Senior notes | ||||
Definitive merger agreement | ||||
Repayment secured debt | $ 115,000 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Mar. 30, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Collateralized Debt Obligation disclosures | |||
Assets | $ 6,006,936 | $ 5,851,057 | |
Liabilities | 4,059,911 | 3,982,872 | |
Total borrowings | $ 3,882,021 | 3,626,191 | |
Minimum percentage of voting interest required to consolidate non-VIEs | 50.00% | ||
Collateralized Debt Obligation (CLOs) VIEs | |||
Collateralized Debt Obligation disclosures | |||
Corporate debt investment, par amount | $ 3,100,000 | 3,100,000 | |
Estimated fair value of corporate debt investments | 3,100,000 | 3,100,000 | |
Total borrowings | $ 3,100,000 | 3,200,000 | |
Cumulative-Effect Adjustment, Deconsolidation of Variable Interest Entity | |||
Collateralized Debt Obligation disclosures | |||
Assets | $ (760,000) | (1,000,000) | |
Liabilities | $ (760,000) | $ (1,000,000) |
SECURITIES (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Securities Available-for-Sale | |||
Par | $ 337,428 | $ 371,785 | |
Amortized Cost | 261,274 | 304,628 | |
Estimated Fair Value | 271,477 | 229,206 | |
Net realized and unrealized gains (losses) | |||
Net realized gains (losses) | 1,856 | $ (1,593) | |
Net (increase) decrease in unrealized losses | 84,995 | (50,126) | |
Net realized and unrealized gains (losses) | 86,851 | $ (51,719) | |
Securities, at estimated fair value | |||
Securities Available-for-Sale | |||
Par | 337,428 | 371,785 | |
Amortized Cost | 261,274 | 304,628 | |
Estimated Fair Value | $ 271,477 | $ 229,206 |
SECURITIES (Details 2) - security |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Corporate Debt Securities | ||
Gross unrealized losses and estimated fair value of available-for-sale securities | ||
Number of corporate debt securities in default | 0 | 0 |
SECURITIES (Details 3) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Concentration risk | ||
Securities | $ 271,477 | $ 229,206 |
Corporate Debt Securities | Percent to total investment in corporate loans, debt securities and other investments | Top three largest | ||
Concentration risk | ||
Securities | $ 213,900 | $ 134,700 |
Concentration risk of total fair value (as a percent) | 92.00% | 71.00% |
Corporate Debt Securities | Percent to total investment in corporate loans, debt securities and other investments | Ten issuers | ||
Concentration risk | ||
Concentration risk of total fair value (as a percent) | 97.00% |
SECURITIES (Details 4) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Investments, Debt and Equity Securities [Abstract] | ||
Pledged as collateral for collateralized loan obligation secured debt | $ 2,158 | $ 13,337 |
Total | $ 2,158 | $ 13,337 |
LOANS (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Summary of corporate loans | ||
Par | $ 3,391,473 | $ 3,433,059 |
Amortized Cost | 3,363,359 | 3,419,483 |
Estimated Fair Value | 3,248,385 | 3,305,264 |
Corporate loans, at estimated fair value | ||
Summary of corporate loans | ||
Par | 3,391,473 | 3,433,059 |
Amortized Cost | 3,363,359 | 3,419,483 |
Estimated Fair Value | $ 3,248,385 | $ 3,305,264 |
LOANS (Details 2) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Corporate loans | ||
Net realized and unrealized (losses) gains | ||
Credit risk gain | $ 5,500 | $ 6,300 |
Corporate loans, at estimated fair value | ||
Net realized and unrealized (losses) gains | ||
Net realized gains (losses) | (3,886) | (30,714) |
Net (increase) decrease in unrealized losses | (1,886) | 44,923 |
Net realized and unrealized gains (losses) | $ (5,772) | $ 14,209 |
LOANS (Details 3) |
Mar. 31, 2017
USD ($)
loan
|
Dec. 31, 2016
USD ($)
loan
|
---|---|---|
Recorded investment in impaired loans and related allowances for credit losses | ||
Number of loans in default | loan | 0 | 0 |
Corporate loans, at estimated fair value | ||
Recorded investment in impaired loans and related allowances for credit losses | ||
Par amount of non-accrual loans | $ 138,600,000 | $ 114,100,000 |
Estimated fair value of non-accrual loans | 37,600,000 | 26,000,000 |
Ninety days past due, still on accrual | $ 0 | $ 0 |
LOANS (Details 4) - Corporate Loans - Percent to total investment in corporate loans, debt securities and other investments - Top Twenty Issuers |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Concentration risk | ||
Concentration risk (as a percent) | 21.00% | 21.00% |
Maximum | ||
Concentration risk | ||
Concentration risk (as a percent) | 2.00% | 2.00% |
LOANS (Details 5) - Estimated Fair Value - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Pledged assets | ||
Pledged as collateral for collateralized loan obligation secured debt | $ 3,061,010 | $ 3,048,841 |
Total | $ 3,061,010 | $ 3,048,841 |
EQUITY METHOD INVESTMENTS AND INTERESTS IN JOINT VENTURES AND PARTNERSHIPS (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Schedule of Equity Method Investments [Line Items] | ||
Interests in joint ventures and partnerships, at estimated fair value | $ 841,733 | $ 793,996 |
Equity investments, at estimated fair value | 174,693 | 168,658 |
Estimated fair value of equity method investments | $ 418,100 | $ 408,300 |
Maritime Finance Company | ||
Schedule of Equity Method Investments [Line Items] | ||
Ownership percentage | 31.00% | |
LCI Helicopters Limited | ||
Schedule of Equity Method Investments [Line Items] | ||
Ownership percentage | 33.00% | |
Mineral Acquisition Company | ||
Schedule of Equity Method Investments [Line Items] | ||
Ownership percentage | 70.00% |
EQUITY METHOD INVESTMENTS AND INTERESTS IN JOINT VENTURES AND PARTNERSHIPS (Details 2) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Gain (Loss) on Investments [Line Items] | ||
Net realized and unrealized gains (losses) | $ 116,906 | $ (138,032) |
Net income (loss) attributable to noncontrolling interests | 1,975 | (15,535) |
Equity Investments | ||
Gain (Loss) on Investments [Line Items] | ||
Net realized gains (losses) | 0 | 725 |
Net (increase) decrease in unrealized losses | 5,592 | (15,992) |
Net realized and unrealized gains (losses) | 5,592 | (15,267) |
Interests in Joint Ventures and Partnerships | ||
Gain (Loss) on Investments [Line Items] | ||
Net realized gains (losses) | (34,125) | (2,162) |
Net (increase) decrease in unrealized losses | 64,360 | (83,093) |
Net realized and unrealized gains (losses) | 30,235 | (85,255) |
Net income (loss) attributable to noncontrolling interests | $ 2,000 | $ 15,500 |
DERIVATIVE INSTRUMENTS (Details 2) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Counterparty One | ||
Notional amount | ||
Net asset | $ 1,000 | $ 2,600 |
Collateral posted | 3,800 | 3,400 |
Counterparty Two | ||
Notional amount | ||
Net asset | 100 | 1,000 |
Collateral posted | 4,300 | 8,000 |
Counterparty Three | ||
Notional amount | ||
Net asset | 6,500 | 7,500 |
Collateral held | 9,900 | 11,300 |
Free-Standing Derivatives | Interest rate swaps | ||
Notional amount | ||
Notional | 141,000 | 141,000 |
Free-Standing Derivatives | Foreign exchange forward contracts and options | ||
Notional amount | ||
Notional amount of liability | $ 409,485 | $ 460,282 |
DERIVATIVE INSTRUMENTS (Details 3) - Free-Standing Derivatives - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Effect on income from free-standing derivatives | ||
Realized gains (losses) | $ 2,181 | $ 11,354 |
Unrealized gains (losses) | 3,530 | (21,570) |
Total | 5,711 | (10,216) |
Interest rate swaps | ||
Effect on income from free-standing derivatives | ||
Realized gains (losses) | 0 | 0 |
Unrealized gains (losses) | 1,715 | (11,731) |
Total | 1,715 | (11,731) |
Foreign exchange forward contracts and options | ||
Effect on income from free-standing derivatives | ||
Realized gains (losses) | 2,181 | 11,212 |
Unrealized gains (losses) | 1,182 | (10,242) |
Total | 3,363 | 970 |
Common stock warrants | ||
Effect on income from free-standing derivatives | ||
Realized gains (losses) | 0 | 142 |
Unrealized gains (losses) | 171 | 0 |
Total | 171 | 142 |
Options | ||
Effect on income from free-standing derivatives | ||
Realized gains (losses) | 0 | 0 |
Unrealized gains (losses) | 462 | 403 |
Total | $ 462 | $ 403 |
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Millions |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Debt Instrument | ||
Estimated future contributions for interests in joint ventures and partnerships | $ 276.8 | $ 279.4 |
Guarantees | ||
Non-recourse debt | 1,200.0 | 1,100.0 |
Corporate loans, at estimated fair value | ||
Debt Instrument | ||
Unfunded financing commitments for corporate loans | $ 0.6 | $ 3.2 |
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details 2) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Management Agreement and Related Party Transactions | ||
Total CLO management fees | $ 7,558,000 | $ 7,276,000 |
Manager | Base Management Fees | ||
Management Agreement and Related Party Transactions | ||
Total CLO management fees | 4,444,000 | 1,029,000 |
Manager | Incentive Fees | ||
Management Agreement and Related Party Transactions | ||
Total CLO management fees | 0 | 0 |
Collateral manager | CLO Management Fees | ||
Management Agreement and Related Party Transactions | ||
Total CLO management fees | $ 3,114,000 | $ 6,247,000 |
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details 3) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Management Agreement and Related Party Transactions | ||
Total CLO management fees | $ 7,558 | $ 7,276 |
Manager | Base Management Fees | ||
Management Agreement and Related Party Transactions | ||
Base management fees, gross | 5,822 | 5,783 |
CLO management fees credit | (1,378) | (4,754) |
Total CLO management fees | $ 4,444 | $ 1,029 |
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details 4) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Management Agreement and Related Party Transactions | ||
Total CLO management fees | $ 7,558 | $ 7,276 |
Collateral manager | CLO Management Fees | ||
Management Agreement and Related Party Transactions | ||
Charged and retained CLO management fees | 1,736 | 1,493 |
CLO management fees credit | 1,378 | 4,754 |
Total CLO management fees | $ 3,114 | $ 6,247 |
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS (Details 5) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Management Agreement and Related Party Transactions | ||
Assets contributed from Parent | $ 17,621 | $ 0 |
Majority Shareholder | ||
Management Agreement and Related Party Transactions | ||
Assets contributed from Parent | 17,621 | |
Assets distributed to Parent | (16,652) | |
Majority Shareholder | Interests in joint ventures and partnerships | ||
Management Agreement and Related Party Transactions | ||
Assets contributed from Parent | 17,621 | |
Majority Shareholder | Cash | ||
Management Agreement and Related Party Transactions | ||
Assets distributed to Parent | $ (16,652) |
SUBSEQUENT EVENTS (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | ||||||
---|---|---|---|---|---|---|---|
May 02, 2017 |
Apr. 24, 2017 |
Mar. 23, 2017 |
Mar. 31, 2017 |
Mar. 31, 2016 |
Apr. 23, 2017 |
Dec. 31, 2016 |
|
Subsequent events | |||||||
Dividends, preferred stock | $ 6,891 | $ 6,891 | |||||
Carrying value | 2,992,893 | $ 3,087,941 | |||||
Proceeds from parent contribution | 17,621 | 0 | |||||
Distributions to parent | 16,652 | $ 0 | |||||
7.500% Senior notes | |||||||
Subsequent events | |||||||
Carrying value | $ 122,908 | $ 123,008 | |||||
Subsequent Event | |||||||
Subsequent events | |||||||
Proceeds from parent contribution | $ 166,300 | ||||||
Distributions to parent | $ 166,300 | ||||||
Subsequent Event | 7.500% Senior notes | |||||||
Subsequent events | |||||||
Carrying value | $ 115,000 | ||||||
Redemption price as percentage | 100.00% | ||||||
Series A LLC Preferred Shares | |||||||
Subsequent events | |||||||
Dividends, preferred stock | $ 6,900 | ||||||
Cash distribution declared (in dollars per share) | $ 0.460938 |
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