SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 10, 2022
KKR Real Estate Finance Trust Inc.
(Exact Name of Registrant as Specified in its Charter)
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Maryland
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001-38082
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47-2009094
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(State or Other Jurisdiction of Incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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30 Hudson Yards,Suite 7500, New York, New York 10001
(Address of Principal Executive Offices) (Zip Code)
(212) 750-8300
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
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☐
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common stock, par value $0.01 per share
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KREF
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New York Stock Exchange
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6.50% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share
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KREF.PRA
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New York Stock Exchange
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or
Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 1.01
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Entry into a Material Definitive Agreement.
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CLO Transaction Overview
On February 10, 2022 (the “Closing Date”), KKR Real Estate Finance Trust Inc. (the “Company”) entered into a collateralized loan
obligation through its wholly-owned subsidiaries KREF 2022-FL3 Ltd., a newly formed exempted company incorporated with limited liability under the laws of the Cayman Islands, as issuer (the “Issuer”), and KREF 2022-FL3 LLC, a newly formed Delaware
limited liability company, as co-issuer (the “Co-Issuer” and together with the Issuer, the “Issuers”). On the Closing Date, the Issuers co-issued the aggregate principal amounts of the following classes of notes pursuant to the terms of an Indenture,
dated as of February 10, 2022 (the “Indenture”), by and among the Issuers, KREF CLO Loan Seller LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (the “Seller”), as advancing agent, Wilmington Trust, National
Association, as trustee (together with its permitted successors and assigns, the “Trustee”), and Computershare Trust Company, National Association, as note administrator, paying agent, calculation agent, transfer agent, authenticating agent,
custodian, backup advancing agent and notes registrar (in all such capacities, together with its permitted successors and assigns, the “Note Administrator”):
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Interest Rate Prior to December 2027 Payment Date
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Interest Rate for and After December 2027 Payment Date
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Class A Senior Secured Floating Rate Notes
(the “Class A Notes”)
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$585,000,000
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February 2039
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Benchmark(1) + 1.450%
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Benchmark(1) + 1.700%
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Class A-S Second Priority Secured Floating Rate Notes
(the “Class A-S Notes”)
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$81,250,000
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February 2039
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Benchmark(1) + 1.900%
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Benchmark(1) + 2.150%
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Class B Third Priority Secured Floating Rate Notes
(the “Class B Notes”)
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$53,750,000
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February 2039
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Benchmark(1) + 2.100%
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Benchmark(1) + 2.600%
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Class C Fourth Priority Secured Floating Rate Notes
(the “Class C Notes”)
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$62,500,000
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February 2039
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Benchmark(1) + 2.300%
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Benchmark(1) + 2.800%
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Class D Fifth Priority Secured Floating Rate Notes
(the “Class D Notes”)
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$53,750,000
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February 2039
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Benchmark(1) + 2.800%
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Benchmark(1) + 3.300%
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Class E Sixth Priority Secured Floating Rate Notes
(the “Class E Notes”)
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$11,250,000
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February 2039
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Benchmark(1) + 3.150%
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Benchmark(1) + 3.650%
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Initially, One-Month Term SOFR.
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The Class A Notes, the Class A-S Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes are collectively
referred to herein as the “Offered Notes.” The Offered Notes were placed by Wells Fargo Securities, LLC, KKR Capital Markets LLC, Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and MUFG Securities Americas Inc. pursuant to a placement
agency agreement dated February 3, 2022.
In addition to the Offered Notes, on the Closing Date, the Issuer issued, pursuant to the Indenture:
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Interest Rate Prior to September March 2024 Date
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Interest Rate for and After March 2024 Payment Date
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Class F Seventh Priority Floating Rate Notes(1)
(the “Class F Notes”)
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$51,250,000
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February 2039
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Benchmark(2) + 4.000%
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Benchmark(1) + 4.500%
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Class G Eighth Priority Floating Rate Notes(1)
(the “Class G Notes”)
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$33,750,000
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February 2039
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Benchmark(2) + 5.000%
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Benchmark(1) + 5.500%
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The Class F Notes and the Class G Notes are exchangeable notes (the “Exchangeable Notes”) and are exchangeable for proportionate interests in MASCOT Notes (defined
below). All or a portion of each Class of Exchangeable Notes may be exchanged as follows: (i) the Class F Notes may be exchanged for proportionate interests in the Class F-E Notes (the “Class F-E Notes”) and the Class F-X Notes (the “Class
F-X Notes”) and (ii) the Class G Notes may be exchanged for proportionate interests in the Class G-E Notes (the “Class G-E Notes” and, collectively with the Class F-E Notes, the “MASCOT P&I Notes”) and the Class G-X Notes (the “Class G-X
Notes” and, collectively with the Class F-X Notes, the “MASCOT Interest Only Notes,” and together with the MASCOT P&I Notes, the “MASCOT Notes”).
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Initially, One-Month Term SOFR.
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The Class F Notes, the Class G Notes, the Offered Notes and any MASCOT Notes are collectively referred to herein as the “Notes.” The
Class F Notes and the Class G Notes were acquired by KREF 2022-FL3 Holdings LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (“Retention Holder”).
Concurrently with the issuance of the Notes, the Issuer also issued 67,500 preferred shares, par value $0.001 per share, with an
aggregate liquidation preference and notional amount equal to $1,000 per share (the “Preferred Shares” and, together with the Notes, the “Securities”), to Retention Holder. Retention Holder acquired the Preferred Shares, in part, in order to comply
with certain risk retention rules. The Preferred Shares are subject to the terms and conditions of a Preferred Share Paying Agency Agreement, dated as of February 10, 2022, among the Issuer, Computershare Trust Company, National Association, as
preferred share paying agent, and MaplesFS Limited, as preferred share registrar and administrator. The Preferred Shares have no stated dividend rate. Holders of the Preferred Shares will be entitled to receive monthly non-cumulative dividends, if
and to the extent that funds are available for such purpose, in accordance with the priority of payments set forth in the Indenture and Cayman Islands law.
The Securities have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities
laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
Proceeds from the issuance of the Securities were used, among other things, to purchase from the Seller on the Closing Date two Mortgage
Loans (as defined below) and 14 fully funded pari passu, senior or senior pari passu participations (each, an “Owned Participation”). Each Owned Participation represents an interest in a multifamily real estate mortgage loans or A notes therein (each, a “Mortgage Loan”). The Issuer
additionally may (i) purchase from the Seller during the period beginning on the Closing Date and ending on and including the payment date occurring in February 2024 (and up to 60 days thereafter in certain circumstances) (the “Reinvestment Period”)
certain other Mortgage Loans, combinations of a Mortgage Loan and a related mezzanine loan secured by equity interests in the related mortgage borrower (each, a “Mezzanine Loan” and, together with the related Mortgage Loan, a “Combined Loan”) or
Owned Participations in a Mortgage Loan or a Combined Loan (the “Reinvestment Collateral Interests”), (ii) acquire additional funded companion participations in an amount equal to up to 10% of the aggregate Collateral Interest cut-off date balance
(“Replenishment Collateral Interests”) during the period beginning on the first day after the end of the Reinvestment Period and ending on and including the first to occur of the following events or dates: the earlier of (a) the date that the Issuer
has acquired funded companion participations in the amount equal to 10% of the aggregate Collateral Interest cut-off date balance after the Reinvestment Period and (b) the sixth payment date after the Reinvestment Period and (iii) acquire from the
Seller at any time certain Mortgage Loans, Combined Loans or Owned Participations (the “Exchange Collateral Interests”) in exchange for a defaulted Collateral Interest or a Collateral Interest that, in the reasonable business judgment of KKR Real
Estate Finance Manager LLC, a Delaware limited liability company (the “Collateral Manager”), has a significant risk of declining in credit quality or, with a lapse or time, becoming a defaulted Collateral Interest for Collateral Interests, in each
case, that satisfy the eligibility criteria, the acquisition criteria and the acquisition and disposition requirements and other conditions set forth in the Indenture and the Collateral Interest Purchase Agreement (as defined below). If such sale or
exchange is consummated, on the related sale or exchange date, the Seller will transfer and assign all of its right, title and interest in the applicable Reinvestment Collateral Interest, Replenishment Collateral Interest or Exchange Collateral
Interest, as applicable, to the Issuer.
Any Mortgage Loan or Combined Loan in which an Owned Participation represents an interest is referred to herein as a “Participated Loan”
and all of the Mortgage Loans, Combined Loans and Participated Loans are referred to herein as “Real Estate Loans.” Each Mortgage Loan and Owned Participation acquired by the Issuer on the Closing Date is referred to herein as a “Closing Date
Collateral Interest” and each of the Mortgage Loans, Combined Loans and Owned Participations acquired by the Issuer on the Closing Date and thereafter in accordance with the terms and conditions of the Indenture (including all Reinvestment Collateral
Interests, Replenishment Collateral Interests and Exchange Collateral Interests) is referred to herein as a “Collateral Interest.”
The Real Estate Loans (other than non-serviced Real Estate Loans) will be serviced by Midland Loan Services, a Division of PNC Bank,
National Association, as servicer (in such capacity, the “Servicer”) and as special servicer (in such capacity, the “Special Servicer”), pursuant to a Servicing Agreement, dated as of February 10, 2022 (the “Servicing Agreement”), by and among the
Issuer, the Servicer, the Special Servicer, the Seller (as advancing agent), the Trustee, the Note Administrator and the Collateral Manager.
The Servicing Agreement will require each of the Servicer and Special Servicer to diligently service and administer the Real Estate
Loans (other than non-serviced Real Estate Loans) and any applicable mortgaged property acquired directly or indirectly by the Special Servicer for the benefit of the secured parties under the Indenture and the holders of companion participations in
any Participated Loan. In connection with their respective duties under the Servicing Agreement, the Servicer and the Special Servicer (or any replacement servicer or sub-servicer) will be entitled to monthly servicing and special servicing fees, as
described in the Servicing Agreement.
The Notes
Collateral
The Offered Notes are secured by, among other things, (i) the portfolio of the Closing Date Collateral Interests that the Issuer
purchased on the Closing Date and all Collateral Interests which the Issuer purchases after the Closing Date pursuant to the terms of the Indenture (including all Reinvestment Collateral Interests, Replenishment Collateral Interests and Exchange
Collateral Interests acquired by the Issuer after the Closing Date), (ii) certain collection, payment, custodial, reinvestment and replenishment and expense reserve accounts and the related security entitlements and all income from the investment of
funds in any of the foregoing at any time credited to any of the foregoing accounts, (iii) certain eligible investments set forth in the Indenture in which amounts in the accounts established under the Indenture may be invested, (iv) the Issuer’s
rights under certain related agreements, (v) all amounts delivered to the Note Administrator (or its bailee) (directly or through a securities intermediary), (vi) all other investment property, instruments and general intangibles in which the Issuer
has an interest, other than certain excepted property, (vii) the Issuer’s ownership interests in and rights in certain permitted subsidiaries and (viii) all proceeds of the foregoing (collectively, the “Collateral”).
The Offered Notes are limited recourse obligations of the Issuer and non-recourse obligations of the Co-Issuer, and the Class F Notes,
the Class F-E Notes, the Class F-X Notes, the Class G Notes, the Class G-E Notes and the Class G-X Notes are limited recourse obligations of the Issuer. The Co-Issuer owns no material assets and will engage in no other business other than co-issuing
the Offered Notes. To the extent that amounts are insufficient to meet payments due in respect of the Notes and expenses following liquidation of the Collateral, the obligations of the Issuer and the Co-Issuer to pay such deficiency will be
extinguished.
The Collateral Interests were purchased or will be purchased, as the case may be, by the Issuer from the Seller pursuant to a Collateral
Interest Purchase Agreement, dated as of February 10, 2022 (the “Collateral Interest Purchase Agreement”), among the Issuer, the Seller and KKR Real Estate Finance Holdings L.P., a Delaware limited partnership (“Holdco”). Pursuant to the Collateral
Interest Purchase Agreement, the Seller made, or will be required to make, as the case may be, certain representations and warranties to the Issuer with respect to the Collateral Interests. In the event that a material breach of representation or
warranty with respect to any Collateral Interest exists, the Seller will have to either (a) cure such breach of representation or warranty in all material respects, within 90 days of discovery by the Seller or any party to the Indenture (to the
extent such breach is capable of being corrected or cured), (b) make a cash payment to the Issuer, or (c) repurchase such Collateral Interest at a repurchase price calculated as set forth in the Collateral Interest Purchase Agreement. In addition,
with respect to any Combined Loan, if the Mortgage Loan portion thereof is repaid in full, but the Mezzanine Loan portion thereof remains outstanding (a “Combined Loan Repurchase Event”), the Seller will be required to repurchase such Collateral
Interest from the Issuer at the related repurchase price. The obligation of the Seller to repurchase a Collateral Interest in connection with a material breach of the representations and warranties or a Combined Loan Repurchase Event pursuant to the
Collateral Interest Purchase Agreement has been guaranteed by Holdco.
The Collateral Manager will act as collateral manager pursuant to a Collateral Management Agreement, dated as of February 10, 2022 (the
“Collateral Management Agreement”), by and between the Issuer and the Collateral Manager, which contains customary representations, warranties and covenants. Under the Collateral Management Agreement, the Collateral Manager will perform certain
administrative and advisory functions for the Issuer.
Interest Rate and Maturity
The Offered Notes have an initial weighted average interest rate of approximately One-Month Term SOFR plus 1.71%. Interest payments on
the Notes are payable monthly, beginning in March 2022. Each class of Notes will mature at par in February 2039, unless redeemed or repaid prior thereto. Principal payments on each class of Notes will be paid at the stated maturity in accordance with
the priority of payments set forth in the Indenture. However, it is anticipated that the Notes will be paid in advance of the stated maturity date in accordance with the priority of payments in the Indenture.
Exchangeable Notes
The Indenture allows for the exchange of all or a portion of certain Classes of Notes (such Notes to be exchanged, the “Exchangeable
Notes”) for proportionate interests in one or more classes of certain other Notes (such Notes received in such an exchange, the “Exchanged Notes”) at any time on or after the 15th day following the Closing Date (or if such 15th
day is not a business day, the next business day). Specifically, all or a portion of each of the Class F Notes or the Class G Notes, as applicable, may be exchanged at any time on or after the Initial MASCOT Note Issuance Date by the holders thereof
for a corresponding (i) MASCOT P&I Note and (ii) a MASCOT Interest Only Note. With respect to an exchange of the Class F Notes or the Class G Notes, as applicable, for MASCOT Notes, the principal balance of the applicable MASCOT P&I Note
received in the exchange will be equal to the principal balance of the Class F Note or Class G Note, as applicable, surrendered in such exchange. The notional balance of a MASCOT Interest Only Note received in an exchange will be equal to the
principal balance of the applicable MASCOT P&I Note received in the exchange. The per annum interest rates payable on the MASCOT P&I
Notes and the MASCOT Interest Only Notes will be determined, on the date of such exchange, by the holder of the Class F Notes or the Class G Notes, as applicable, surrendered in such exchange. The sum of the interest rates of MASCOT Notes received
in any exchange will equal the Class F Rate or the Class G Rate, as applicable, for the Class F Notes or the Class G Notes, as applicable, surrendered in such exchange.
All or a portion of each Class of the MASCOT Notes received in an exchange may be subsequently exchanged for Class F Notes or Class G
Notes, as applicable. The principal balance of the Class F Notes or the Class G Notes, as applicable, received in an exchange will be equal to the principal balance of the corresponding MASCOT P&I Notes surrendered in such exchange and the per annum interest rates payable on the Class F Notes or the Class G Notes, as applicable, received in such exchange will equal the Class F Rate or
the Class G Rate, as applicable.
Subordination of the Notes
In general, payments of interest and principal on any class of Notes are subordinate to all payments of interest and principal on any
class of Notes with a more senior priority. Generally, all payments on the Notes will be subordinate to certain payments required to be made in respect of any interest advances and certain other expenses. Payments on the Notes will be senior to any
payments on or in respect of the Preferred Shares to the extent required by the priority of payments set forth in the Indenture.
Note Protection Tests
The Notes are subject to certain note protection tests as set forth in the Indenture (the “Offered Note Protection Tests”), which will
be used primarily to determine whether and to what extent interest received on the Collateral Interests may be used to make certain payments subordinate to interest and principal payments to the Class F Notes and the Class G Notes (or, in each case,
the related class of MASCOT Notes) in the priority of payments set forth in the Indenture. In the event that either of the Offered Note Protection Tests is not satisfied on the related determination date, interest received on the Collateral
Interests that would otherwise be used to pay interest on the Class F Notes and the Class G Notes (or, in each case, the related class of MASCOT Notes) and pay dividends to the Preferred Shares and make certain other payments must instead be used to
pay principal of first, the Class A Notes, second, the Class A-S Notes, third, the Class B Notes, fourth, the Class C Notes, fifth, the Class D Notes and sixth, to the Class E Notes, in each case, to the extent necessary to cause such Offered Note
Protection Test to be satisfied.
The foregoing summary of the Indenture is qualified in its entirety by reference to the full text of the Indenture, a copy of which is
filed herewith as Exhibit 4.1, and incorporated herein by reference.
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Item 2.03
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
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The information set forth under Item 1.01 above is incorporated by reference into this Item 2.03.
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Item 7.01
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Regulation FD Disclosure.
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On February 14, 2022, the Company issued a press release announcing the closing of the collateralized loan obligation described in Items
1.01 and 2.03 of this Current Report on Form 8-K. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.
The information contained in the press release shall not be deemed “filed” with the Securities and Exchange Commission for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any registration statement filed by the Company under the
Securities Act, unless it is specifically incorporated by reference therein.
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Item 9.01
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Financial Statements and Exhibits.
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(d) Exhibits
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Indenture, dated as of February 10, 2022, among KREF 2022-FL3 Ltd., KREF 2022-FL3 LLC, KREF CLO Loan Seller LLC, Wilmington Trust, National
Association, and Computershare Trust Company, National Association.
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Press Release dated February 14, 2022.
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104
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Cover Page Interactive Data File, formatted in Inline XBRL (embedded within the Inline XBRL document)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
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KKR REAL ESTATE FINANCE TRUST INC. |
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By:
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/s/ Vincent J. Napolitano
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Name:
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Vincent J. Napolitano
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Title:
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General Counsel and Secretary
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Date: February 16, 2022