Exhibit 99.1
Investor Contact | | Media Contact |
Laurie Poggi | | Peter McKillop/Kristi Huller |
415-315-3718 | | media@kkr.com |
| | 212-750-8300 |
KKR Financial Holdings LLC Announces Third Quarter 2009 Financial Results
SAN FRANCISCO, CA, November 5, 2009—KKR Financial Holdings LLC (NYSE: KFN) (“KFN” or the “Company”) today announced its results for the third quarter ended September 30, 2009.
Third Quarter 2009 Highlights
· Net income for the third quarter ended September 30, 2009 of $67.2 million, or $0.42 per diluted common share, as compared to net income for the second quarter ended June 30, 2009 of $20.6 million, or $0.14 per diluted common share.
· As of quarter end, cash and cash equivalents totaled $125.9 million.
· Increase in book value per share from $5.69 per common share as of June 30, 2009 to $7.01 per common share as of September 30, 2009.
For the three and nine months ended September 30, 2009, KFN reported net income of $67.2 million, or $0.42 per diluted common share, and $74.8 million, or $0.49 per diluted common share, respectively. For the three and nine months ended September 30, 2008, net income was $49.0 million, or $0.32 per diluted common share, and $100.5 million, or $0.73 per diluted common share, respectively.
KFN’s third quarter 2009 results reflect net investment income of $72.7 million and other income of $13.0 million, offset by non-investment expenses of $18.5 million. Other income totaling $13.0 million primarily consists of the following: (i) net loss from the unwind of KKR Financial CLO 2009-1, Ltd. totaling $14.4 million; (ii) net gains on investments totaling $21.2 million primarily from an increase in the unrealized gain due to the increase in market value of the Company’s common stock investment in Masonite Worldwide Holdings; (iii) net realized and unrealized losses on investments in residential mortgage-backed securities totaling $17.7 million; (iv) net realized and unrealized gains from derivative positions totaling $19.9 million, primarily consisting of credit default swaps and total rate of return swaps; (v) gain on extinguishment of junior subordinated notes totaling $3.8 million; and (vi) net realized and unrealized loss on short positions totaling $1.0 million.
Junior Subordinated Notes
During August 2009, the Company repurchased $5.0 million of junior subordinated notes for $1.2 million. This transaction resulted in a gain on debt extinguishment of $3.8 million, which was partially offset by a $0.1 million write-off of unamortized debt issuance costs.
Shareholders’ Equity
The Company’s shareholders’ equity increased $446.8 million to $1.1 billion as of September 30, 2009 from $663.3 million as of December 31, 2008.
Book Value Per Common Share
The Company’s book value per common share outstanding was $7.01 as of September 30, 2009 as compared to $5.69 as of June 30, 2009 and $4.40 as of December 31, 2008.
Liquidity
As of September 30, 2009, unrestricted cash and cash equivalents totaled $125.9 million compared to $114.4 million and $41.4 million as of June 30, 2009 and December 31, 2008, respectively.
Investment Portfolio
The Company’s corporate debt investment portfolio, consisting of corporate loans and high yield bonds, had an aggregate par value of $8.5 billion with an estimated fair value of $7.1 billion as of September 30, 2009. In comparison, the par value of the Company’s corporate debt investment portfolio totaled $8.6 billion (estimated fair value of $6.4 billion) and $9.7 billion (estimated fair value of $5.7 billion) as of June 30, 2009 and December 31, 2008, respectively. The decline in the par amount of the Company’s corporate debt investment portfolio of $1.2 billion from December 31, 2008 to September 30, 2009 is primarily due to asset sales from KKR Financial CLO 2009-1, Ltd. during the second quarter of 2009 that were undertaken in response to the rally in corporate loan prices that provided the opportunity to sell assets in order to pay off the senior debt issued by KKR Financial CLO 2009-1, Ltd.
The majority of the Company’s investment portfolio is held in collateralized loan obligation (“CLO”) transactions that the Company has used to finance its corporate debt investments. As of September 30, 2009, the Company’s corporate debt investments not held in CLOs had an aggregate par value of $867.6 million and an estimated fair value of $561.3 million. In comparison, the aggregate par value of the Company’s investment portfolio not held in CLOs totaled $545.5 million (estimated fair value of $214.2 million) and $539.4 million (estimated fair value of $196.7 million) as of June 30, 2009 and December 31, 2008, respectively.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its third quarter 2009 results on November 5, 2009, at 5:00 p.m. EST. The conference call may be accessed by dialing (888) 487-0361 (Domestic) or (719) 457-2636 (International); a pass code is not required. A telephonic replay of the call will be available through November 19, 2009 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 4996141. Supplemental materials that will be discussed during the call and the live audio web cast will be available in the Investor Relations section of the Company’s website at http://www.kkr.com/kam/kfn_webcasts_presentations_and_important_documents.cfm. An audio replay of the web cast will be archived in the Investor Relations section of the Company’s website.
About KKR Financial Holdings LLC
KKR Financial Holdings LLC is a publicly traded specialty finance company that invests in multiple asset classes. KKR Financial Holdings LLC is externally managed by KKR Financial Advisors LLC, a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. (Fixed Income) LLC, which is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P. Additional information regarding KKR Financial Holdings LLC is available at http://www.kkr.com.
Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although KKR Financial Holdings LLC believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company’s expectations include completion of pending investments, continued ability to source new investments, the availability and cost of capital for future investments, competition within the specialty finance sector, economic conditions, credit loss experience, availability of financing, maintenance of sufficient liquidity, and other risks disclosed from time to time in the Company’s filings with the SEC.
Schedule I
KKR Financial Holdings LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share information)
| | For the three | | For the three | | For the nine | | For the nine | |
| | months ended | | months ended | | months ended | | months ended | |
| | September 30,
2009 | | September 30,
2008 | | September 30,
2009 | | September 30,
2008 | |
Net investment income: | | | | | | | | | |
Securities interest income | | $ | 21,701 | | $ | 34,507 | | $ | 73,805 | | $ | 109,104 | |
Loan interest income | | 113,460 | | 187,756 | | 364,583 | | 588,843 | |
Dividend income | | 26 | | 358 | | 313 | | 2,266 | |
Other interest income | | 49 | | 4,431 | | 511 | | 20,505 | |
Total investment income | | 135,236 | | 227,052 | | 439,212 | | 720,718 | |
Interest expense | | (57,340 | ) | (118,105 | ) | (219,625 | ) | (400,207 | ) |
Interest expense to affiliates | | (5,171 | ) | (18,794 | ) | (16,355 | ) | (66,319 | ) |
Provision for loan losses | | — | | — | | (39,795 | ) | (10,000 | ) |
Net investment income | | 72,725 | | 90,153 | | 163,437 | | 244,192 | |
Other income (loss): | | | | | | | | | |
Net realized and unrealized gain (loss) on derivatives and foreign exchange | | 19,930 | | (15,534 | ) | 58,831 | | (68,468 | ) |
Net realized and unrealized gain (loss) on investments | | 21,181 | | (28,278 | ) | (85,576 | ) | (59,254 | ) |
Net realized and unrealized (loss) gain on residential mortgage-backed securities, residential mortgage loans, and residential mortgage-backed securities issued, carried at estimated fair value | | (17,681 | ) | 121 | | (44,545 | ) | (14,651 | ) |
Net realized and unrealized (loss) gain on securities sold, not yet purchased | | (996 | ) | 14,242 | | 2,920 | | 22,892 | |
Net (loss) gain on restructuring and extinguishment of debt | | (10,627 | ) | 3,056 | | 30,836 | | 20,281 | |
Other income | | 1,239 | | 2,470 | | 4,150 | | 7,939 | |
Total other income (loss) | | 13,046 | | (23,923 | ) | (33,384 | ) | (91,261 | ) |
Non-investment expenses: | | | | | | | | | |
Related party management compensation | | 14,616 | | 9,811 | | 36,132 | | 29,357 | |
General, administrative and directors expenses | | 1,539 | | 3,820 | | 6,917 | | 14,094 | |
Professional services | | 441 | | 1,335 | | 5,916 | | 4,263 | |
Loan servicing | | 1,925 | | 2,274 | | 6,117 | | 7,234 | |
Total non-investment expenses | | 18,521 | | 17,240 | | 55,082 | | 54,948 | |
Income from continuing operations before income tax expense | | 67,250 | | 48,990 | | 74,971 | | 97,983 | |
Income tax expense | | (63 | ) | — | | (151 | ) | (116 | ) |
Income from continuing operations | | 67,187 | | 48,990 | | 74,820 | | 97,867 | |
Income from discontinued operations | | — | | — | | — | | 2,668 | |
Net income | | $ | 67,187 | | $ | 48,990 | | $ | 74,820 | | $ | 100,535 | |
| | | | | | | | | |
Net income per common share: | | | | | | | | | |
Basic | | | | | | | | | |
Income per share from continuing operations | | $ | 0.42 | | $ | 0.32 | | $ | 0.49 | | $ | 0.71 | |
Income per share from discontinued operations | | $ | — | | $ | — | | $ | — | | $ | 0.02 | |
Net income per share | | $ | 0.42 | | $ | 0.32 | | $ | 0.49 | | $ | 0.73 | |
Diluted | | | | | | | | | |
Income per share from continuing operations | | $ | 0.42 | | $ | 0.32 | | $ | 0.49 | | $ | 0.71 | |
Income per share from discontinued operations | | $ | — | | $ | — | | $ | — | | $ | 0.02 | |
Net income per share | | $ | 0.42 | | $ | 0.32 | | $ | 0.49 | | $ | 0.73 | |
| | | | | | | | | |
Weighted-average number of common shares outstanding: | | | | | | | | | |
Basic | | 156,997 | | 149,612 | | 152,664 | | 136,777 | |
Diluted | | 156,997 | | 149,612 | | 152,664 | | 136,777 | |
Schedule II
KKR Financial Holdings LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
| | September 30,
2009 | | December 31,
2008 | |
Assets | | | | | |
Cash and cash equivalents | | $ | 125,862 | | $ | 41,430 | |
Restricted cash and cash equivalents | | 188,151 | | 1,233,585 | |
Securities available-for-sale, $736,823 and $553,441 pledged as collateral as of September 30, 2009 and December 31, 2008, respectively | | 736,823 | | 555,965 | |
Corporate loans, net of allowance for loan losses of $470,224 and $480,775 as of September 30, 2009 and December 31, 2008, respectively | | 6,221,005 | | 7,246,797 | |
Residential mortgage-backed securities, at estimated fair value, $70,256 and $102,814 pledged as collateral as of September 30, 2009 and December 31, 2008, respectively | | 70,256 | | 102,814 | |
Residential mortgage loans, at estimated fair value | | 2,274,585 | | 2,620,021 | |
Corporate loans held for sale | | 504,093 | | 324,649 | |
Private equity investments, at estimated fair value | | 76,310 | | 5,287 | |
Derivative assets | | 23,163 | | 73,869 | |
Interest and principal receivable | | 60,811 | | 116,788 | |
Reverse repurchase agreements | | 80,344 | | 88,252 | |
Other assets | | 98,062 | | 105,625 | |
Total assets | | $ | 10,459,465 | | $ | 12,515,082 | |
Liabilities | | | | | |
Collateralized loan obligation senior secured notes | | $ | 5,706,882 | | $ | 7,487,611 | |
Collateralized loan obligation junior secured notes to affiliates | | 547,421 | | 655,313 | |
Senior secured credit facility | | 187,500 | | 275,633 | |
Convertible senior notes | | 275,800 | | 291,500 | |
Junior subordinated notes | | 283,671 | | 288,671 | |
Residential mortgage-backed securities issued, at estimated fair value | | 2,165,423 | | 2,462,882 | |
Accounts payable, accrued expenses and other liabilities | | 7,209 | | 60,124 | |
Accrued interest payable | | 23,840 | | 61,119 | |
Accrued interest payable to affiliates | | 2,981 | | 3,987 | |
Related party payable | | 12,893 | | 2,876 | |
Securities sold, not yet purchased | | 78,633 | | 90,809 | |
Derivative liabilities | | 57,091 | | 171,212 | |
Total liabilities | | 9,349,344 | | 11,851,737 | |
Shareholders’ Equity | | | | | |
Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at September 30, 2009 and December 31, 2008 | | — | | — | |
Common shares, no par value, 500,000,000 shares authorized, and 158,359,757 and 150,881,500 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively | | — | | — | |
Paid-in-capital | | 2,562,262 | | 2,550,849 | |
Accumulated other comprehensive income (loss) | | 91,761 | | (268,782 | ) |
Accumulated deficit | | (1,543,902 | ) | (1,618,722 | ) |
Total shareholders’ equity | | 1,110,121 | | 663,345 | |
Total liabilities and shareholders’ equity | | $ | 10,459,465 | | $ | 12,515,082 | |
