the hits keep on a-comin'...........
KKR Financial Turns Over Securities
To Settle Dispute With Creditors
DOW JONES NEWSWIRES
March 31, 2008 7:37 p.m.
NEW YORK -- KKR Financial Holdings LLC, a specialty finance company affiliated with buyout shop Kohlberg Kravis Robers & Co., has agreed 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. That doesn't appear to have happened, as the company said Monday it will take another $5.5 million charge.
The charge covers 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 the public to raise funds to repay debt or fund investments. The unit has about 116 million shares outstanding. The stock fell 6% after the announcement to $11.88 in postmarket trading.
KKR Financial invested in so-called Alt-A loans which range between prime and subprime and funded those purchases largely by issuing commercial paper, short-term IOU's typically issued only be the most creditworthy borrowers. When mortgage markets fell apart last summer, buyers for that commercial paper dried up, forcing KKR Financial to restructure the debt.
In February, a delay in repaying the debt roiled Asian markets, as investors grew concerned about an inability to find buyers for non-subprime mortgage backed securities. The difficulties also tainted the brand of KKR, the big buyout shop.
As of last summer, holders of the KKR Financial commercial paper included General Electric Co. and the money-management arms of U.S. Bancorp and Legg Mason.
Until last year, KKR Financial was principally an investment vehicle that had borrowed short-term money to make longer-term investments in home mortgages. Last year, KKR Financial said it would stop investing in mortgages, and in August sold about $5 billion of residential mortgages at a loss.
To shore up its capital base last year, the company raised $500 million - receiving $230 million in August from investors, including Farallon Capital Management LLC and Morgan Stanley; and raising $270 million in a rights offering in September, in which KKR principals kicked in about $57 million of their own money. The company had about $1 billion in cash on its balance sheet as of the end of 2007. |
