KKR Financial Holdings LLC Announces Fourth Quarter and Full Year
2012 Financial Results, Quarterly Distribution of $0.21 per Common
Share, and a Special Distribution of $0.05 per Common Share
SAN FRANCISCO, Feb. 5, 2013 /PRNewswire/ -- KKR Financial
Holdings LLC (NYSE:KFN) ("KFN" or the "Company") today announced
its results for the fourth quarter and full year ended December 31, 2012.
Fourth Quarter and Full Year 2012 Highlights
- Net income for the fourth quarter and year ended December 31, 2012 totaled $77.0 million, or $0.40 per diluted common share, and $348.2 million, or $1.87 per diluted common share,
respectively.
- Declared a quarterly cash distribution of $0.21 per common share for the fourth quarter of
2012 and a special distribution of $0.05 per common share for the year ended
December 31, 2012.
- Book value per common share was $10.31 as of December 31,
2012 as compared to book value per common share of
$10.09 as of September 30, 2012 and $9.41 per common share as of December 31, 2011.
For the three months ended December 31,
2012, KFN reported net income of $77.0 million, or $0.40 per diluted common share, in line with
$77.0 million, or $0.43 per diluted common share, for the
prior-year period. The per-share decline pertained largely to
an increase in the number of shares included in the Company's
diluted earnings per share calculation following its election to
terminate conversion rights on its 7.5% convertible senior notes
due 2017 (the "7.5% Notes") and settle subsequent conversions in
equity.
For the full year ended December 31,
2012, KFN reported net income of $348.2 million, or $1.87 per diluted common share, up 9% from
$318.1 million, or $1.75 per diluted common share, for the prior
year. The increase is primarily attributable to growth in
total other income, notably net realized and unrealized gains on
investments, partially offset by an increase in total investment
costs and expenses.
KFN's fourth quarter 2012 results included total revenues of
$133.7 million, total investment
costs and expenses of $72.6 million,
total other income of $37.4 million,
and total other expenses of $21.4
million. Comparatively, KFN's fourth quarter 2011 results
reflected total revenues of $136.4
million, total investment costs and expenses of $50.7 million, total other income of $13.7 million, and total other expenses of
$22.8 million. Total other
income benefitted from substantially higher net realized and
unrealized gains on investments, predominantly realized gains on
asset dispositions during the quarter, relative to the prior-year
period. These gains were offset by an increase in total
investment costs and expenses, specifically a $13.9 million increase in expenses related to the
expansion and ramping of the Company's natural resources portfolio
and, to a lesser degree, $4.8 million
of incremental interest expense relating to the Company's issuance
of $373.8 million of senior notes
between November 2011 and
March 2012.
KFN's full-year 2012 results included total revenues of
$555.5 million, total investment
costs and expenses of $318.4 million,
total other income of $205.8 million,
and total other expenses of $98.2
million. Comparatively, KFN's full-year 2011 results
reflected total revenues of $542.0
million, total investment costs and expenses of $215.2 million, total other income of
$93.4 million, and total other
expenses of $94.2 million.
Similarly to the fourth quarter, the Company's year-over-year
growth was driven primarily by an increase in total other income,
largely offset by an increase in total investment costs and
expenses. Total other income increased as a result of
materially higher realized and unrealized gains on investments,
predominantly realized gains on asset dispositions during the
year. This was offset by an increase in investment costs and
expenses stemming from (i) a $39.5
million increase in expenses related to the expansion and
ramping of the Company's natural resources portfolio, including a
$2.5 million increase in acquisition
and other costs and $1.9 million of
incremental interest expense relating to its
natural-resources-specific credit facility; (ii) a $32.3 million increase in the Company's provision
for loan losses; and (iii) $25.6
million of incremental interest expense relating to the
senior note issuance discussed above.
"Throughout 2012, our focus has been on maintaining high
discipline to drive maximum value for shareholders. We have
opportunistically deployed capital into dislocated markets, such as
natural-gas-focused resource investments as natural gas prices hit
lows early in the year, and have maintained that opportunism on the
exit front as well, taking gains as asset prices became rich in the
second half of 2012," said William C.
Sonneborn, CEO of KFN. "We have also taken advantage
of the opportunity offered by historically low interest rates to
further strengthen our capital structure and position ourselves
well for future market dislocations."
Revolving Credit Facility
On November 30, 2012, the Company entered into a new
revolving credit facility maturing in November 2015 to replace its prior facility
maturing in May 2014. Initial commitments under the facility
total $150.0 million, with the
ability to obtain additional commitments to increase the total
committed amount up to $350.0
million. Loans under the facility bear interest at
LIBOR plus 2.25% (or, at the Company's option, an alternate base
rate plus 1.25%) as compared to LIBOR plus 3.25% (or an alternate
base rate plus 2.25%) for the prior facility.
The facility does not limit the percentage of the Company's
estimated annual taxable income that can be paid to shareholders as
distributions, whereas the prior facility prohibited payment of
distributions in excess of 65% of the Company's estimated annual
taxable income.
The facility is secured by a pledge over the capital stock of
certain of the Company's direct subsidiaries and borrowings are not
tied to asset values. By comparison, borrowings under the
prior facility were determined by advance rates applied to market
values of assets pledged to that facility.
KKR Financial CLO 2012-1, Ltd.
On December 21, 2012, KFN closed KKR Financial CLO
2012-1, Ltd. ("CLO 2012-1"), a $412.4
million collateralized loan obligation and the Company's
first broadly syndicated CLO in over five years. The CLO has
a four-year reinvestment period and a two-year non-call period,
with a final maturity of December 16,
2024.
The Company retained approximately 52%, or $23.4 million par amount, of the CLO's
$44.9 million of subordinated notes,
with the remainder being held by unaffiliated third parties.
The notes issued by CLO 2012-1 are non-recourse to the Company.
The transaction was approximately 80% ramped as of January 31, 2013.
Perpetual Preferred Shares
On January 17, 2013, the Company issued 14.95
million 7.375% Series A LLC Preferred Shares at a public offering
price of $25 per share, which
included 1.95 million shares issued pursuant to the underwriters'
full exercise of their over-allotment option. The offering
yielded $373.8 million of gross
proceeds and $362.0 million of net
proceeds. The shares began trading on the New York Stock
Exchange on January 28, 2013 under
the symbol "KFP" and will, beginning February 11, 2013, trade under the symbol
"KFN.PR."
Termination of Conversion Rights for 7.5% Notes
On
January 18, 2013, the Company issued
a conversion rights termination notice to holders of its 7.5%
Notes, of which $172.5 million in
aggregate principal amount was then outstanding. Under the
indenture relating to the 7.5% Notes (the "Indenture"), KFN was
entitled to terminate the right to convert the 7.5% Notes into its
common shares, no par value, beginning January 15, 2013 if the closing sale price (as
defined in the Indenture) of its common shares had exceeded 150% of
the conversion price relating to the 7.5% Notes for at least 20
trading days in a period of 30 consecutive trading days.
As set forth in its conversion rights termination notice, KFN
has chosen February 17, 2013 as the
date on which the 7.5% Notes will no longer be convertible into the
Company's common shares. Holders may exercise their
conversion rights at any time on or prior to February 15, 2013 in accordance with the terms
and instructions set forth in the Indenture.
Holders exercising their conversion rights on or before
February 15, 2013 will receive cash,
common shares, or a combination thereof, at the discretion of the
Company, in an amount equal to the conversion rate plus a
make-whole premium calculated in accordance with the
Indenture. The conversion rate as of January 18, 2013 was equal to 141.8256 common
shares for each $1,000 principal
amount of 7.5% Notes, plus an additional 9.2324 common shares per
$1,000 principal amount to account
for the make-whole premium.
Through January 31, 2013, 99.8% of
the 7.5% Notes by principal amount outstanding had been tendered
for conversion, all of which were settled in shares. This has
resulted in the issuance by the Company of 25,992,986 common shares
at a weighted average price per share of $11.55, based on the closing price on the date
the Company elected to use common shares to settle the relevant
notes.
Book Value
Book value per share increased to
$10.31 as of December 31, 2012 from $10.09 as of September
30, 2012. This increase in book value per share was
primarily driven by the Company's earnings for the fourth quarter
of $0.43 per basic common share,
partially offset by the payment of a $0.21 distribution related to third-quarter
earnings.
Distributions
On January 31,
2013, the Company's board of directors declared a cash
distribution of $0.21 per common
share. The distribution is payable on February 28, 2013 to common shareholders of
record as of the close of business on February 14, 2013.
In addition, the Company's board of directors declared a special
distribution of $0.05 per common
share. The special distribution is payable on March 28, 2013 to common shareholders of record
as of the close of business on March
14, 2013. Consistent with the Company's distribution
policy, the Company's board of directors considered a number of
factors in determining to declare this special distribution,
including current market conditions, the amount of ordinary taxable
income or loss earned by the Company, gains or losses the Company
recognized on the disposition of assets, and the Company's
liquidity.
Conference Call and Webcast
The Company will host a
conference call and audio webcast to review its results for the
fourth quarter and full year ended December
31, 2012 on February 5, 2013,
at 2:00 p.m. PT (5:00 p.m. ET). The conference call may
be accessed by dialing (877) 303-4382 (domestic) or +1 (253)
237-1193 (international); a pass code is not required. A
replay of the live broadcast will be available by dialing (855)
859-2056 (domestic) and +1 (404) 537-3406 (international), pass
code 87026870, beginning approximately two hours after the
event. Additionally, the conference call will be broadcast
live over the Internet and subsequently archived and may be
accessed through the KFN Investor Relations section of the KKR
website at http://ir.kkr.com/kfn_ir/kfn_events.cfm.
Supplemental materials that will be discussed during the call will
be available at the same website location.
From time to time the Company may use its website as a channel
of distribution of material company information. Financial
and other important information regarding the Company is routinely
posted on and accessible at the KFN Investor Relations section of
www.kkr.com, where you may also enroll your email address to
receive automatic email alerts and other information about the
Company.
About KKR Financial Holdings LLC
KKR Financial
Holdings LLC is a specialty finance company with expertise in a
range of asset classes. KFN's core business strategy is to leverage
the proprietary resources of its manager with the objective of
generating both current income and capital appreciation. KFN
executes its core business strategy through its majority-owned
subsidiaries. KFN is externally managed by KKR Financial Advisors
LLC, a wholly-owned subsidiary of KKR Asset Management LLC, which
is a wholly-owned subsidiary of Kohlberg Kravis Roberts &
Co. L.P. Additional information regarding KFN 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 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, 2011, filed with the SEC on
February 28, 2012 and the risks described in Exhibit 99.2 to
the Company's Current Report on Form 8-K filed with the SEC on
January 11, 2013.
Schedule I
KKR
Financial Holdings LLC and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share
information)
|
|
|
|
|
|
|
For the
three months ended December 31, 2012
|
For the
three months ended December 31, 2011
|
For the
year ended December 31, 2012
|
For the
year ended December 31, 2011
|
Revenues:
|
|
|
|
|
Loan
interest income
|
$98,052
|
$101,644
|
$411,736
|
$418,142
|
Securities
interest income
|
14,462
|
23,079
|
76,642
|
87,851
|
Oil and
gas revenue
|
20,273
|
11,171
|
64,535
|
30,629
|
Other
|
868
|
514
|
2,560
|
5,399
|
Total revenues
|
133,655
|
136,408
|
555,473
|
542,021
|
Investment costs and expenses:
|
|
|
|
|
Interest
expense
|
41,234
|
35,906
|
165,022
|
133,609
|
Interest
expense to affiliates
|
13,455
|
10,532
|
51,586
|
49,458
|
Provision
for loan losses
|
—
|
—
|
46,498
|
14,194
|
Oil and
gas production costs
|
9,939
|
1,748
|
28,980
|
7,766
|
Oil and
gas depreciation, depletion and amortization
|
7,064
|
2,537
|
21,931
|
8,015
|
Other
|
876
|
26
|
4,358
|
2,120
|
Total investment costs and expenses
|
72,568
|
50,749
|
318,375
|
215,162
|
Other
income:
|
|
|
|
|
Net
realized and unrealized gain on investments
|
32,656
|
15,761
|
183,757
|
88,955
|
Net
realized and unrealized gain (loss) on derivatives and foreign
exchange
|
492
|
(3,517)
|
(2,091)
|
(3,812)
|
Net
realized and unrealized (loss) gain on residential mortgage‑backed
securities, carried at estimated fair value
|
(388)
|
680
|
9,299
|
2,825
|
Net loss
on restructuring and extinguishment of debt
|
—
|
—
|
(445)
|
(1,736)
|
Other
income
|
4,638
|
815
|
15,302
|
7,215
|
Total other income
|
37,398
|
13,739
|
205,822
|
93,447
|
Other
expenses:
|
|
|
|
|
Related
party management compensation
|
14,820
|
14,471
|
72,339
|
68,185
|
General,
administrative and directors expenses
|
4,244
|
6,338
|
19,157
|
19,840
|
Professional services
|
2,327
|
1,941
|
6,661
|
6,198
|
Total other expenses
|
21,391
|
22,750
|
98,157
|
94,223
|
Income
before income taxes
|
77,094
|
76,648
|
344,763
|
326,083
|
Income tax
expense (benefit)
|
81
|
(333)
|
(3,467)
|
8,011
|
Net
income
|
$77,013
|
$76,981
|
$348,230
|
$318,072
|
Net income
per common share:
|
|
|
|
|
Basic
|
$0.43
|
$0.43
|
$1.95
|
$1.79
|
Diluted
|
$0.40
|
$0.43
|
$1.87
|
$1.75
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
Basic
|
177,906
|
177,759
|
177,838
|
177,560
|
Diluted
|
202,371
|
179,675
|
187,423
|
180,897
|
Schedule II
KKR
Financial Holdings LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except share
information)
|
|
|
|
|
December 31,
2012
|
December 31,
2011
|
Assets
|
|
|
Cash and
cash equivalents
|
$237,606
|
$392,154
|
Restricted
cash and cash equivalents
|
896,396
|
399,620
|
Securities
|
533,520
|
922,603
|
Corporate
loans, net (includes $128,289 and $317,332 loans held for sale as
of December 31, 2012 and December 31, 2011,
respectively)
|
5,947,857
|
6,443,399
|
Equity
investments, at estimated fair value ($7,187 and $12,222 pledged
as
collateral
as of December 31, 2012 and December 31, 2011,
respectively)
|
161,621
|
189,845
|
Oil and
gas properties, net
|
289,929
|
138,525
|
Derivative
assets
|
23,207
|
28,463
|
Interest
and principal receivable
|
46,960
|
62,124
|
Other
assets
|
221,783
|
70,495
|
Total assets
|
$8,358,879
|
$8,647,228
|
Liabilities
|
|
|
Collateralized loan obligation secured
notes
|
$5,122,338
|
$5,540,037
|
Collateralized loan obligation junior secured notes
to affiliates
|
296,557
|
365,848
|
Credit
facilities
|
107,789
|
38,300
|
Convertible senior notes
|
166,028
|
299,830
|
Senior
notes
|
362,178
|
250,676
|
Junior
subordinated notes
|
283,517
|
283,517
|
Accounts
payable, accrued expenses and other liabilities
|
25,931
|
24,680
|
Accrued
interest payable
|
20,519
|
25,536
|
Accrued
interest payable to affiliates
|
6,632
|
6,561
|
Related
party payable
|
10,998
|
11,078
|
Derivative
liabilities
|
117,270
|
125,333
|
Total liabilities
|
6,519,757
|
6,971,396
|
Shareholders' Equity
|
|
|
Preferred
shares, no par value, 50,000,000 shares authorized and none issued
and outstanding at December 31, 2012 and December 31,
2011
|
—
|
—
|
Common
shares, no par value, 500,000,000 shares authorized, and
178,437,078 and 178,145,482 shares issued and outstanding at
December 31, 2012 and December 31, 2011,
respectively
|
—
|
—
|
Paid-in-capital
|
2,762,584
|
2,759,478
|
Accumulated other comprehensive loss
|
(70,226)
|
(35,619)
|
Accumulated deficit
|
(853,236)
|
(1,048,027)
|
Total shareholders' equity
|
1,839,122
|
1,675,832
|
Total liabilities and shareholders'
equity
|
$8,358,879
|
$8,647,228
|
Investor Relations Contact:
Pam Testani
+1 (415) 315-6597
investor-relations@kkr.com
Media Contact:
Kristi Huller
+1 (212) 750-8300
media@kkr.com
SOURCE KKR Financial Holdings LLC