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 Fourth Quarter and Full Year 2009 Financial Results
SAN FRANCISCO, CA, March 1, 2010—KKR Financial Holdings LLC (NYSE: KFN) (“KFN” or the “Company”) today announced its results for the fourth quarter and year ended December 31, 2009.
Fourth Quarter and Full Year 2009 Highlights
· Net income for the fourth quarter ended December 31, 2009 of $2.1 million, or $0.01 per diluted common share, as compared to net loss for the fourth quarter ended December 31, 2008 of $1.2 billion, or a loss of $7.85 per diluted common share. Net income for the year ended December 31, 2009 of $76.9 million, or $0.50 per diluted common share, as compared to net loss for the year ended December 31, 2008 of $1.1 billion, or a loss of $7.69 per diluted common share.
· Book value per common share of $7.37 as of December 31, 2009 as compared to book value per common share of $7.01 and $4.40 as of September 30, 2009 and December 31, 2008, respectively.
KFN’s fourth quarter 2009 results reflect net investment income of $80.1 million, partially offset by other losses of $62.9 million and non-investment expenses of $15.0 million. Other losses totaling $62.9 million primarily consist of the following: (i) net realized and unrealized loss on investments in residential mortgage-backed securities, residential mortgage loans and residential mortgage-backed securities issued, at estimated fair value, totaling $62.5 million, primarily attributable to charges the Company is recognizing on the value of its residential mortgage-backed securities portfolio; (ii) net realized and unrealized loss on investments totaling $6.7 million, consisting of lower of cost or market adjustments on loans transferred to held for sale of $12.1 million and other-than-temporary impairment charges on securities of $3.9 million, partially offset by net realized and unrealized gains from investments of $9.3 million; and (iii) net realized and unrealized gain from derivative positions and foreign exchange totaling $2.1 million.
For the year ended December 31, 2009, KFN reported net investment income of $243.6 million, partially offset by other losses of $96.3 million and non-investment expenses of $70.1 million. Other losses totaling $96.3 million consist of the following: (i) net realized and unrealized loss on investments in residential mortgage-backed securities, residential mortgage loans and residential mortgage-backed securities issued, at estimated fair value, totaling $107.0 million; (ii) net realized and unrealized loss on investments totaling $92.3 million; (iii) net realized and unrealized gain from derivative positions and foreign exchange totaling $60.9 million; and (iv) net gain on restructuring and extinguishment of debt totaling $30.8 million.
Investment Portfolio
The Company’s corporate debt investment portfolio, consisting of corporate loans and high yield bonds, had an aggregate par balance of $8.2 billion and an aggregate estimated fair value of $7.2 billion as of December 31, 2009. In comparison, the par value of the Company’s corporate debt investment portfolio totaled $9.7 billion with an estimated fair value of $5.7 billion as of December 31, 2008.
As of December 31, 2009, the Company’s corporate debt investments not held in its collateralized loan obligation (“CLO”) subsidiaries had an aggregate par value of $759.6 million and an estimated fair value of $588.5 million. In comparison, the aggregate par value of the Company’s investment portfolio not held in its CLO subsidiaries totaled $539.4 million with an estimated fair value of $196.7 million as of December 31, 2008.
Liquidity
As of December 31, 2009, the Company’s unrestricted cash and cash equivalents totaled $97.1 million, as compared to $41.4 million as of December 31, 2008.
On January 15, 2010, the Company issued $172.5 million of 7.50% convertible senior notes. The 7.50% convertible senior notes mature on January 15, 2017. Net proceeds from this offering, totaling $167.3 million, are expected to be used to repurchase or repay some or all of the Company’s existing senior indebtedness with the remainder to be used for general corporate purposes. Since the closing of this transaction, the Company has repurchased approximately $95.2 million par amount of its 7.00% convertible notes due 2012 and has reduced borrowings outstanding under its senior secured credit facility from $175.0 million as of December 31, 2009 to $150.0 million.
Shareholders’ Equity and Book Value per Common Share
The Company’s shareholders’ equity increased $0.5 billion from $0.7 billion as of December 31, 2008 to $1.2 billion as of December 31, 2009. The Company’s book value per common share was $7.37 as of December 31, 2009, as compared to $4.40 as of December 31, 2008.
Information for Investors: Conference Call and Webcast
The Company will host a conference call and audio webcast to review its fourth quarter and year end 2009 results on March 1, 2010, at 5:00 p.m. EST. The conference call may be accessed by dialing (800) 218-2154 (Domestic) or (913) 312-9308 (International); a pass code is not required. A telephonic replay of the call will be available through March 15, 2010 by dialing (888) 203-1112 (Domestic) and (719) 457-0820 (International) / pass code 7428799. 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. KFN’s core business strategy focuses on corporate debt throughout the capital structure with a particular emphasis on debt issued by large capitalization firms with broad geographic and product offerings. KFN executes its core business strategy through its majority-owned subsidiaries. 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.
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements related to the Company’s use of proceeds of certain financing transactions. These forward-looking statements are based on information available to the Company as of the date of this press release and actual results may differ. These forward-looking statements involve known and unknown risks, uncertainties and other factors beyond the Company’s control. Any forward-looking statements speak only as of the date of this press release and the Company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. For additional information concerning risks, uncertainties and other factors that may cause actual results to differ from those anticipated in the forward-looking statements, and risks to the Company’s business in general, please refer to the Company’s SEC filings, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on March 1, 2010.
Schedule I
KKR Financial Holdings LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share information)
| | For the three | | For the three | | | | | |
| | months ended | | months ended | | For the year ended | | For the year ended | |
| | December 31, 2009 | | December 31, 2008 | | December 31, 2009 | | December 31, 2008 | |
Net investment income (loss): | | | | | | | | | |
Loan interest income | | $ | 112,461 | | $ | 188,667 | | $ | 477,044 | | $ | 777,510 | |
Securities interest income | | 20,957 | | 36,761 | | 94,762 | | 145,865 | |
Other interest income | | 95 | | 2,442 | | 919 | | 25,213 | |
Total investment income | | 133,513 | | 227,870 | | 572,725 | | 948,588 | |
Interest expense | | (48,462 | ) | (121,106 | ) | (268,087 | ) | (521,313 | ) |
Interest expense to affiliates | | (4,932 | ) | 23,018 | | (21,287 | ) | (43,301 | ) |
Provision for loan losses | | — | | (471,488 | ) | (39,795 | ) | (481,488 | ) |
Net investment income (loss) | | 80,119 | | (341,706 | ) | 243,556 | | (97,514 | ) |
Other loss: | | | | | | | | | |
Net realized and unrealized loss on investments | | (6,711 | ) | (745,500 | ) | (92,287 | ) | (804,754 | ) |
Net realized and unrealized gain (loss) on derivatives and foreign exchange | | 2,077 | | (72,851 | ) | 60,908 | | (141,319 | ) |
Net realized and unrealized loss on residential mortgage-backed securities, residential mortgage loans, and residential mortgage-backed securities issued, carried at estimated fair value | | (62,483 | ) | (34,248 | ) | (107,028 | ) | (48,899 | ) |
Net realized and unrealized gain on securities sold, not yet purchased | | 662 | | 27,405 | | 3,582 | | 50,297 | |
Net gain on restructuring and extinguishment of debt | | — | | 6,205 | | 30,836 | | 26,486 | |
Other income | | 3,564 | | 3,413 | | 7,714 | | 11,352 | |
Total other loss | | (62,891 | ) | (815,576 | ) | (96,275 | ) | (906,837 | ) |
Non-investment expenses: | | | | | | | | | |
Related party management compensation | | 8,191 | | 7,313 | | 44,323 | | 36,670 | |
General, administrative and directors expenses | | 3,476 | | 4,943 | | 10,393 | | 19,038 | |
Loan servicing | | 1,844 | | 2,210 | | 7,961 | | 9,444 | |
Professional services | | 1,468 | | 3,835 | | 7,384 | | 8,098 | |
Total non-investment expenses | | 14,979 | | 18,301 | | 70,061 | | 73,250 | |
Income (loss) from continuing operations before income tax (expense) benefit | | 2,249 | | (1,175,583 | ) | 77,220 | | (1,077,601 | ) |
Income tax (expense) benefit | | (133 | ) | 9 | | (284 | ) | (107 | ) |
Income (loss) from continuing operations | | 2,116 | | (1,175,574 | ) | 76,936 | | (1,077,708 | ) |
Income from discontinued operations | | — | | — | | — | | 2,668 | |
Net income (loss) | | $ | 2,116 | | $ | (1,175,574 | ) | $ | 76,936 | | $ | (1,075,040 | ) |
| | | | | | | | | |
Net income (loss) per common share: | | | | | | | | | |
Basic | | | | | | | | | |
Income (loss) per share from continuing operations | | $ | 0.01 | | $ | (7.85 | ) | $ | 0.50 | | $ | (7.71 | ) |
Income per share from discontinued operations | | $ | — | | $ | — | | $ | — | | $ | 0.02 | |
Net income (loss) per share | | $ | 0.01 | | $ | (7.85 | ) | $ | 0.50 | | $ | (7.69 | ) |
Diluted | | | | | | | | | |
Income (loss) per share from continuing operations | | $ | 0.01 | | $ | (7.85 | ) | $ | 0.50 | | $ | (7.71 | ) |
Income per share from discontinued operations | | $ | — | | $ | — | | $ | — | | $ | 0.02 | |
Net income (loss) per share | | $ | 0.01 | | $ | (7.85 | ) | $ | 0.50 | | $ | (7.69 | ) |
| | | | | | | | | |
Weighted-average number of common shares outstanding: | | | | | | | | | |
Basic | | 156,997 | | 149,708 | | 153,756 | | 140,027 | |
Diluted | | 156,997 | | 149,708 | | 153,756 | | 140,027 | |
Schedule II
KKR Financial Holdings LLC
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share information)
| | December 31,
2009 | | December 31,
2008 | |
Assets | | | | | |
Cash and cash equivalents | | $ | 97,086 | | $ | 41,430 | |
Restricted cash and cash equivalents | | 342,706 | | 1,233,585 | |
Securities available-for-sale, $740,949 and $553,441 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively | | 755,686 | | 555,965 | |
Corporate loans, net of allowance for loan losses of $237,308 and $480,775 as of December 31, 2009 and December 31, 2008, respectively | | 5,617,925 | | 7,246,797 | |
Corporate loans held for sale | | 925,718 | | 324,649 | |
Residential mortgage-backed securities, at estimated fair value, $47,572 and $102,814 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively | | 47,572 | | 102,814 | |
Residential mortgage loans, at estimated fair value | | 2,097,699 | | 2,620,021 | |
Equity investments, at estimated fair value, $110,812 and $5,287 pledged as collateral as of December 31, 2009 and December 31, 2008, respectively | | 120,269 | | 5,287 | |
Derivative assets | | 15,784 | | 73,869 | |
Interest and principal receivable | | 98,313 | | 116,788 | |
Reverse repurchase agreements | | 80,250 | | 88,252 | |
Other assets | | 100,997 | | 105,625 | |
Total assets | | $ | 10,300,005 | | $ | 12,515,082 | |
Liabilities | | | | | |
Collateralized loan obligation senior secured notes | | $ | 5,650,406 | | $ | 7,487,611 | |
Collateralized loan obligation junior secured notes to affiliates | | 533,786 | | 655,313 | |
Collateralized loan obligation junior secured notes | | 17,310 | | — | |
Senior secured credit facility | | 175,000 | | 275,633 | |
Convertible senior notes | | 275,800 | | 291,500 | |
Junior subordinated notes | | 283,517 | | 288,671 | |
Residential mortgage-backed securities issued, at estimated fair value | | 2,034,772 | | 2,462,882 | |
Accounts payable, accrued expenses and other liabilities | | 7,240 | | 60,124 | |
Accrued interest payable | | 25,297 | | 61,119 | |
Accrued interest payable to affiliates | | 2,911 | | 3,987 | |
Related party payable | | 3,367 | | 2,876 | |
Securities sold, not yet purchased | | 77,971 | | 90,809 | |
Derivative liabilities | | 45,970 | | 171,212 | |
Total liabilities | | 9,133,347 | | 11,851,737 | |
Shareholders’ Equity | | | | | |
Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at December 31, 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 December 31, 2009 and December 31, 2008, respectively | | — | | — | |
Paid-in-capital | | 2,563,634 | | 2,550,849 | |
Accumulated other comprehensive income (loss) | | 152,728 | | (268,782 | ) |
Accumulated deficit | | (1,549,704 | ) | (1,618,722 | ) |
Total shareholders’ equity | | 1,166,658 | | 663,345 | |
Total liabilities and shareholders’ equity | | $ | 10,300,005 | | $ | 12,515,082 | |
