KKR Financial Holdings LLC: KKR Financial Corp controlling interest to be sold to Rock Capital 2 LLC
KKR Affiliate Sets Deal
By ANDREW DOWELL
April 1, 2008
NEW YORK — KKR Financial Holdings LLC, a specialty finance company affiliated with buyout shop Kohlberg Kravis Roberts & Co., has struck an agreement to turn over mortgage-backed securities to satisfy $3.5 billion in obligations to commercial-paper holders.
The move ends months of negotiations over an issue that at times had rattled markets. The KKR unit had already written off its investment in the securities, taking a $243.7 million hit last year, but was hoping to recover some of the value via the negotiations.
Instead, the company said Monday that it will take an additional $5.5 million charge to cover remaining costs from the settlement as well as a deal to sell a controlling interest in KKR Financial Corp., the subsidiary that sponsored commercial paper, to Rock Capital 2 LLC. Terms weren’t disclosed.
Separately, KKR Financial said it would sell 20 million shares of common stock to raise funds to repay debt or fund investments. The unit has 116 million shares outstanding.
In a separate disclosure, the company said it may use the proceeds along with a $1.6 billion credit facility to make new investments in its core business of corporate debt, now trading at a discount in the market.
KKR Financial invested in so-called Alt-A loans that range between prime and subprime and funded those purchases largely by issuing commercial paper, short-term IOU’s typically issued only by the most creditworthy borrowers.
When mortgage markets fell apart last summer, buyers for that commercial paper dried up, and KKR Financial raised about $500 million to shore up its capital base.
In February, a delay in repaying the debt roiled Asian markets, as investors grew concerned about an inability to find buyers for nonsubprime-mortgage backed securities.
–Peter Lattman contributed to this article.
Write to Andrew Dowell at andrew.dowell@dowjones.com
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