SAN FRANCISCO, Jan. 31, 2014 /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, 2013.
Fourth-Quarter and Full-Year 2013 Highlights
- Net income available to common shareholders for the fourth
quarter and year ended December 31,
2013 totaled $62.0 million and
$265.8 million, respectively,
relative to $77.0 million and
$348.2 million for the comparable
periods of 2012.
- Net income per diluted common share totaled $0.30 and $1.31 for
the quarter and year ended December 31,
2013, respectively, relative to $0.40 and $1.87 for
the comparable prior-year periods.
- A quarterly cash distribution of $0.22 per common share was declared for the
fourth quarter of 2013.
- Book value per common share was $10.58 as of December 31,
2013, up from $10.42 as of
September 30, 2013 and $10.31 per common share as of December 31, 2012.
For the three months ended December 31,
2013, the Company reported net income available to common
shareholders of $62.0 million, or
$0.30 per diluted common share,
compared with $77.0 million, or
$0.40 per diluted common share, for
the comparable prior-year period. For the full year ended
December 31, 2013, the Company
reported net income available to common shareholders of
$265.8 million, or $1.31 per diluted common share, compared with
$348.2 million, or $1.87 per diluted common share, for the
comparable prior-year period.
The Company's fourth-quarter 2013 results included total
revenues of $139.5 million, total
investment costs and expenses of $81.6
million, total other income of $33.2
million, and total other expenses of $22.3 million. Comparatively, KFN's
fourth-quarter 2012 results reflected 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. In addition, the Company expensed a
$6.9 million distribution on its
perpetual preferred shares for the fourth quarter of 2013. As
these shares were issued in January
2013, there was no comparable payment in the prior-year
period.
Total revenues of $139.5 million
for the fourth quarter of 2013 represented an increase of
approximately 4% from the comparable prior-year period. This
resulted from a combination of a $14.8
million increase in oil and gas revenues, stemming from a
higher level of production from a larger portfolio than in the
prior-year period, and a $6.0 million
increase in other revenues, predominantly in the form of one-time
dividends from certain equity holdings. These increases were
largely offset by a $15.0 million
decline in loan and securities interest income, which was primarily
attributable to (a) a $9.9 million
decline in scheduled and prepayment-related discount accretion from
the Company's loan portfolio, which was held closer to par at
December 31, 2013 than at
December 31, 2012, and (b) a
$3.0 million decline in securities
interest income excluding discount accretion largely resulting from
a reduction in the interest rate earned on the Company's high-yield
bond holdings from the fourth quarter of 2012 to the fourth quarter
of 2013.
Total investment costs and expenses of $81.6 million for the fourth quarter of 2013
represented an increase of approximately 12% from the comparable
prior-year period. This was primarily due to the recording of
a provision for loan losses of $12.4
million for the fourth quarter of 2013 as compared to no
provision being recorded for the prior-year period. In
addition, expenses associated with the Company's oil and gas
portfolio increased by approximately $6.5
million from the prior-year period, primarily resulting from
increased depletion, depreciation, and amortization expense
generated by a higher level of production from a larger portfolio
than in the prior-year period. These factors were partially
offset by a $9.4 million decline in
interest expense and interest expense to affiliates largely
resulting from the amortization of the Company's legacy
collateralized loan obligation transactions.
Total other income of $33.2
million for the fourth quarter of 2013 reflected a decrease
of approximately 11% from the comparable prior-year period,
stemming largely from a $10.4 million
impairment of certain natural resources holdings as well as
$2.3 million in realized and
unrealized losses on derivatives and foreign exchange.
KFN's full-year 2013 net income available to common shareholders
was $265.8 million, a decline from
$348.2 million for the prior-year
period. This comprised total revenues of $545.9 million, total investment costs and
expenses of $305.7 million, total
other income of $150.9 million, and
total other expenses of $97.4
million. Comparatively, KFN's full-year 2012 results
reflected 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. The
Company also expensed $27.4 million
in distributions on its perpetual preferred shares over the course
of 2013. As these shares were issued in January 2013, there were no comparable payments
in the prior-year period.
Total revenues for the full year ended December 31, 2013 declined 2% from the comparable
prior-year period. This resulted from a $78.6 million decline in loan and securities
interest income primarily due to (a) a $51.4
million decline in loan interest income largely driven by a
$37.8 million reduction in total
recurring and prepayment-related discount accretion, and (b) a
$27.1 million decline in securities
interest income primarily resulting from a lower weighted average
par balance of the Company's high-yield bond holdings during 2013
than in 2012. These factors were largely offset by a
$54.6 million increase in oil and gas
revenues, resulting from a higher level of production in 2013 than
in 2012, as well as a $14.4 million
increase in other revenues.
Total investment costs and expenses for the full year ended
December 31, 2013 declined 4% from
the comparable prior-year period. This was driven
predominantly by a $26.4 million
decline in aggregate interest expense as the Company's legacy
collateralized loan obligations continued to amortize during 2013,
coupled with a smaller provision for loan losses taken in 2013 than
in 2012. These factors were offset by a $29.0 million increase in oil-and-gas-related
costs and expenses in connection with increased production over the
period.
Total other income for the full year ended December 31, 2013 declined 27% from the
comparable prior-year period, stemming largely from a lower level
of realized and unrealized gains on investments in 2013 than in
2012. In addition, other income was reduced by a $20.3 million non-cash charge on extinguishment
of debt associated with retirement of the Company's $172.5 million face amount of 7.5% convertible
notes due 2017 through the issuance of 26.1 million common shares
in the first quarter of 2013.
"We're pleased with KFN's fourth-quarter results," said
Craig J. Farr, CEO of KFN.
"While we benefited from the strength of debt and equity markets
during the period through unrealized gains and one-time dividends,
we also deployed over $300 million of
capital to differentiated and largely yielding opportunities."
Proposed Acquisition by KKR & Co. L.P.
On December 16, 2013, the Company
announced that it had signed a definitive merger agreement under
which KKR & Co. L.P. ("KKR") will acquire the Company through a
stock-for-stock merger. Under the agreement, which has been
approved by the boards of directors of both KKR and KFN, in KFN's
case based on the unanimous recommendation of a committee of its
independent directors, shareholders of KFN will receive 0.51 common
units of KKR for each common share of KFN.
The transaction is subject to approval by a majority of KFN's
outstanding common shares, including a majority of those held by
owners other than KKR and its affiliates, as well as satisfaction
of certain other closing conditions, including receipt of customary
regulatory approvals. Upon closing of the transaction, which
is expected in the first half of 2014, KFN will become a subsidiary
of KKR. KFN's perpetual preferred shares as well as its junior
subordinated and senior notes will remain outstanding securities of
KFN.
Selected Portfolio Activity
Bank Loans and High-Yield Debt Strategy
On December 20, 2013, the Company
priced a new collateralized loan obligation transaction, KKR
Financial CLO 2013-2, Ltd. ("CLO 2013-2"), which closed on
January 23, 2014 at $384.0 million. The Company retained the
entirety of CLO 2013-2's $44.8
million of subordinated notes. The notes issued by CLO
2013-2 are non-recourse to the Company.
The Company also acquired $31.5
million par amount of subordinated notes issued by Sound
Point CLO IV, Ltd., which closed December
17, 2013. This represents the Company's first
deployment to a collateralized loan obligation transaction managed
by a third party.
Private Equity Strategy
On January 16, 2014, the Company
announced that it had agreed to acquire a minority stake in LCI
Helicopters Ltd. ("LCIH"), the helicopter leasing subsidiary of
Lease Corporation International, a Libra Group company. The
Company committed $105.0 million to
LCIH, of which $50.0 million was
funded in December 2013. The investment was made to help LCIH
to grow its fleet significantly and advance its leadership position
in the rapidly expanding helicopter leasing business.
The Company also deployed an incremental $32.3 million toward its earlier commitment to
Maritime Finance Company, a specialty finance company created to
originate, structure, underwrite, invest in and distribute debt
financings secured by high-quality maritime assets. This
brings its deployment to date to $116.6
million against a $150.0
million commitment.
Book Value
Book value per common share increased to $10.58 as of December 31,
2013 from $10.42 as of
September 30, 2013. The
increase was predominantly driven by (a) fourth-quarter net income
available to common shareholders of $0.30 per diluted common share and (b) a decrease
in the Company's accumulated other comprehensive loss, a component
of shareholders' equity, of $0.07 per
diluted common share as a result of increases in the value of
certain interest rate swaps designated as cash flow hedges as well
as certain securities available for sale. These factors were
partially offset by distributions of $0.22 per share paid to common shareholders
during the quarter.
Distribution
On January 30, 2014, the Company's
board of directors declared a cash distribution of $0.22 per common share. The distribution is
payable on February 27, 2014 to
common shareholders of record as of the close of business on
February 13, 2014.
Conference Call and Webcast
The Company will host a conference call and audio webcast to
review its results for the fourth quarter and year ended
December 31, 2013 on January 31, 2014, at 6:00
a.m. PT (9:00 a.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 35265962, beginning approximately two
hours after completion of 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.
Additional Information Related to KFN's Proposed Merger with
KKR & Co. L.P.
In connection with the proposed transaction, KKR has filed a
registration statement on Form S-4 that includes a proxy
statement/prospectus of KFN. The registration statement has not yet
become effective. Following the registration statement having
been declared effective by the SEC, KKR and KFN plan to file with
the SEC, and KFN plans to mail to its shareholders, a definitive
proxy statement/prospectus in connection with the transaction.
KKR also plans to file other relevant materials with the SEC.
Shareholders of KFN are urged to read the proxy
statement/prospectus contained in the registration statement and
other relevant materials filed or to be filed by KKR or KFN when
they become available, because these materials contain or will
contain important information about the proposed transaction.
These materials will be made available to the shareholders of
KFN at no expense to them. The registration statement and
other relevant materials, including any documents incorporated by
reference therein, may be obtained free of charge at the SEC's
website at www.sec.gov or for free from KFN at
http://ir.kkr.com/kfn_ir/kfn_sec.cfm or by e-mailing
kfn.ir@kkr.com. You may also read and copy any reports,
statements and other information filed by KKR with the SEC at the
SEC public reference room at 100 F Street N.E., Room 1580,
Washington, D.C. 20549.
Please call the SEC at (800) 732-0330 or visit the SEC's
website for further information or its public reference room.
This document shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made, except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
KKR, KFN and their respective directors, executive officers and
employees may be deemed, under SEC rules, to be participants in the
solicitation of proxies from KFN's common shareholders in respect
of the proposed transaction. Information regarding KFN's
directors and executive officers is available in KFN's proxy
statement for its 2013 annual meeting of shareholders, filed with
the SEC on March 18, 2013.
Information regarding KKR's directors and executive officers
is available in KKR's Annual Report on Form 10-K for the fiscal
year ended December 31, 2012, filed
with the SEC on February 22, 2013.
Additional information regarding the interests of such
potential participants in the proposed transaction will be included
in the definitive proxy statement/prospectus to be filed with the
SEC in connection with the proposed transaction. These
documents may be obtained free of charge from the SEC's website at
www.sec.gov and KFN's website at
http://ir.kkr.com/kfn_ir/kfn_sec.cfm.
Forward-Looking Statements
Some of the matters discussed in this document may constitute
forward-looking statements within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not
historical facts. The forward-looking statements are based on
KFN's beliefs, assumptions and expectations of its future
performance, taking into account all information currently
available to it. These beliefs, assumptions and expectations
can change as a result of many possible events or factors, not all
of which are known to KFN or are within either of their control.
The following factors, among others, could cause actual
results to vary from the forward-looking statements: the
ability of the parties to satisfy the conditions precedent and
consummate the proposed merger of KKR and KFN, the timing of
consummation of the proposed merger, the ability of the parties to
secure any required shareholder or regulatory approvals in a timely
manner or on the terms desired or anticipated, the ability to
achieve anticipated benefits and savings, risks related to
disruption of management's attention due to the pending merger,
operating results and businesses generally, the outcome of any
legal proceedings related to the proposed merger and the general
risks associated with the business of KFN, including the general
volatility of the capital markets, terms and deployment of capital,
volatility of the KFN share price, changes in the asset management
industry, interest rates or the general economy, underperformance
of KFN's assets and investments and decreased ability to raise
funds and the degree and nature of KFN's competition. KFN
does not undertake any obligation to update any forward-looking
statements to reflect circumstances or events that occur after the
date on which such statements were made except as required by law.
Additional information about risk factors affecting KFN is
available in KFN's Annual Report on Form 10-K for the fiscal year
ended December 31, 2012, filed with
the SEC on February 28, 2013, and
other filings with the SEC, which are available at www.sec.gov.
|
Schedule
I
KKR Financial
Holdings LLC and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in
thousands, except per share information)
|
|
|
For the three
months ended
December 31,
2013
|
|
For the three
months ended
December
31,
2012
|
|
For the
year
ended
December
31,
2013
|
|
For the
year
ended
December
31,
2012
|
Revenues
|
|
|
|
|
|
|
|
Loan interest
income
|
$
|
87,368
|
|
$
|
98,052
|
|
$
|
360,287
|
|
$
|
411,736
|
Securities interest
income
|
10,192
|
|
14,462
|
|
49,518
|
|
76,642
|
Oil and gas
revenue
|
35,060
|
|
20,273
|
|
119,178
|
|
64,535
|
Other
|
6,890
|
|
868
|
|
16,923
|
|
2,560
|
Total
revenues
|
139,510
|
|
133,655
|
|
545,906
|
|
555,473
|
Investment costs
and expenses
|
|
|
|
|
|
|
|
Interest
expense
|
44,850
|
|
41,234
|
|
163,216
|
|
165,022
|
Interest expense to
affiliates
|
458
|
|
13,455
|
|
26,943
|
|
51,586
|
Provision for loan
losses
|
12,405
|
|
—
|
|
32,812
|
|
46,498
|
Oil and gas
production costs
|
9,394
|
|
9,939
|
|
35,814
|
|
28,980
|
Oil and gas
depreciation, depletion and amortization
|
14,151
|
|
7,064
|
|
44,061
|
|
21,931
|
Other
|
328
|
|
876
|
|
2,859
|
|
4,358
|
Total investment
costs and expenses
|
81,586
|
|
72,568
|
|
305,705
|
|
318,375
|
Other
income
|
|
|
|
|
|
|
|
Net realized and
unrealized gain on investments
|
31,677
|
|
32,268
|
|
157,074
|
|
193,056
|
Net realized and
unrealized (loss) gain on derivatives and foreign
exchange
|
(1,826)
|
|
492
|
|
(6,838)
|
|
(2,091)
|
Net gain (loss) on
restructuring and extinguishment of
debt
|
254
|
|
—
|
|
(20,015)
|
|
(445)
|
Other
income
|
3,139
|
|
4,638
|
|
20,704
|
|
15,302
|
Total other
income
|
33,244
|
|
37,398
|
|
150,925
|
|
205,822
|
Other
expenses
|
|
|
|
|
|
|
|
Related party
management compensation
|
11,832
|
|
14,820
|
|
68,576
|
|
72,339
|
General,
administrative and directors expenses
|
6,386
|
|
4,244
|
|
19,524
|
|
19,157
|
Professional
services
|
4,041
|
|
2,327
|
|
9,329
|
|
6,661
|
Total other
expenses
|
22,259
|
|
21,391
|
|
97,429
|
|
98,157
|
Income before income
taxes
|
68,909
|
|
77,094
|
|
293,697
|
|
344,763
|
Income tax expense
(benefit)
|
33
|
|
81
|
|
467
|
|
(3,467)
|
Net
income
|
$
|
68,876
|
|
$
|
77,013
|
|
$
|
293,230
|
|
$
|
348,230
|
|
|
|
|
|
|
|
|
Preferred share
distributions
|
6,891
|
|
—
|
|
27,411
|
|
—
|
Net income
available to common shareholders
|
$
|
61,985
|
|
$
|
77,013
|
|
$
|
265,819
|
|
$
|
348,230
|
|
|
|
|
|
|
|
|
Net income per common
share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.30
|
|
$
|
0.43
|
|
$
|
1.31
|
|
$
|
1.95
|
Diluted
|
$
|
0.30
|
|
$
|
0.40
|
|
$
|
1.31
|
|
$
|
1.87
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
204,154
|
|
177,906
|
|
202,411
|
|
177,838
|
Diluted
|
204,154
|
|
202,371
|
|
202,411
|
|
187,423
|
|
|
|
|
|
|
|
|
Distributions
declared per common share
|
$
|
0.22
|
|
$
|
0.21
|
|
$
|
0.90
|
|
$
|
0.86
|
|
|
Schedule
II
KKR Financial
Holdings LLC
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in
thousands, except share information)
|
|
|
|
December 31,
2013
|
|
December 31,
2012
|
Assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
157,167
|
|
$
|
237,606
|
Restricted cash and
cash equivalents
|
|
350,385
|
|
896,396
|
Securities
|
|
573,312
|
|
533,520
|
Corporate loans, net
(includes $237,480 and $35,879 measured at estimated fair value and
$279,748 and $128,289 loans held for sale as of December 31,
2013 and December 31, 2012, respectively)
|
|
6,466,720
|
|
5,947,857
|
Equity investments,
at estimated fair value (zero and $7,187 pledged as collateral as
of December 31, 2013 and December 31, 2012,
respectively)
|
|
181,212
|
|
161,621
|
Oil and gas
properties, net
|
|
400,369
|
|
289,929
|
Interests in joint
ventures and partnerships
|
|
436,241
|
|
149,534
|
Derivative
assets
|
|
30,224
|
|
23,207
|
Interest and
principal receivable
|
|
33,570
|
|
46,960
|
Other
assets
|
|
87,998
|
|
72,249
|
Total
assets
|
|
$
|
8,717,198
|
|
$
|
8,358,879
|
Liabilities
|
|
|
|
|
Collateralized loan
obligation secured notes
|
|
$
|
5,249,383
|
|
$
|
5,122,338
|
Collateralized loan
obligation junior secured notes to affiliates
|
|
—
|
|
296,557
|
Credit
facilities
|
|
125,289
|
|
107,789
|
Convertible senior
notes
|
|
—
|
|
166,028
|
Senior
notes
|
|
362,276
|
|
362,178
|
Junior subordinated
notes
|
|
283,517
|
|
283,517
|
Accounts payable,
accrued expenses and other liabilities
|
|
58,215
|
|
25,931
|
Accrued interest
payable
|
|
23,575
|
|
20,519
|
Accrued interest
payable to affiliates
|
|
—
|
|
6,632
|
Related party
payable
|
|
5,574
|
|
10,998
|
Derivative
liabilities
|
|
81,635
|
|
117,270
|
Total
liabilities
|
|
6,189,464
|
|
6,519,757
|
Shareholders'
equity
|
|
|
|
|
Preferred shares, no
par value, 50,000,000 shares authorized and 14,950,000 and zero
issued and outstanding as of December 31, 2013 and
December 31, 2012, respectively
|
|
—
|
|
—
|
Common shares, no par
value, 500,000,000 shares authorized, and 204,824,159 and
178,437,078 shares issued and outstanding as of December 31,
2013 and December 31, 2012, respectively
|
|
—
|
|
—
|
Paid-in-capital
|
|
3,315,117
|
|
2,762,584
|
Accumulated other
comprehensive loss
|
|
(15,652)
|
|
(70,226)
|
Accumulated
deficit
|
|
(771,731)
|
|
(853,236)
|
Total
shareholders' equity
|
|
2,527,734
|
|
1,839,122
|
Total liabilities
and shareholders' equity
|
|
$
|
8,717,198
|
|
$
|
8,358,879
|
|
Investor Relations Contact:
Pam Testani Tholen
+1 (855) 374-5411 (US) / +1 (415) 315-3633
kfn.ir@kkr.com
Media Contact:
Kristi Huller
+1 (212) 230-9722
kristi.huller@kkr.com
SOURCE KKR Financial Holdings LLC