NEW YORK (Reuters) – KKR Financial Holdings LLC (KFN.N: Quote, Profile, Research, Stock Buzz), a publicly traded debt fund managed by private equity firm Kohlberg Kravis Roberts & Co, said on Monday it will not pay a third-quarter dividend, and arranged for more time to pay off its borrowings.
The company also said on a conference call it was exploring various strategic alternatives, including a change in corporate structure, a conversion to a bank and the acquisition of a depositorary.
It also reported third-quarter net income of $49 million, or 33 cents a share, compared with a year-ago loss of $261.5 million, or $2.98 per diluted share.
KKR Financial said it entered into a $300 million senior secured revolving credit facility that matures in November 2010. Proceeds from this, together with existing liquidity, will be used to retire an existing revolving credit facility due June 2009, which currently has $368.3 million in borrowings outstanding.
It has also arranged a $100 million standby unsecured revolving credit facility that matures in December 2010, which can be used if needed in bridging the difference between the $368.3 million and the $300 million.
“In today’s environment obtaining any financing is actually a remarkable achievement,” co-founder Saturnino Fanlo said on a conference call to analysts. “We’re very pleased we were able to execute these transactions, albeit at a significantly higher cost than financing transactions we were able to execute prior to the current financial crisis in the market.”
The company does not expect to borrow against the $100 million standby credit line initially as it has sufficient liquidity to bridge the gap between its previous and new borrowing facilities, Fanlo said. He said the standby facility was an “insurance policy”.
The company said the move gives it increased flexibility in terms of the decisions it makes managing its portfolio.
KKR Financial said it will not pay a dividend for the third quarter of 2008 so it can retain capital.
“The company’s decision to suspend its dividend to shareholders stems from the unprecedented level of illiquidity in the global financial markets and the company’s determination that maintaining maximum flexibility through retaining capital is prudent given the current environment,” it said in a statement.
It paid a second-quarter dividend of 40 cents a share.
Fanlo also said that KKR Financial was exploring other options.
“We’re also exploring various strategic alternatives, including a change in corporate structure, a conversion to a bank and the acquisition of a depositorary,” he said. “These are preliminary considerations only and we expect that alternatives will evolve and develop as the economic landscape changes over time.”
Founded in July 2004, KKR Financial invests in such assets as corporate loans, high yield corporate bonds and distressed debt securities.
The bulk of its investment is in senior secured loans, according to data on its website from the end of June.
“The senior debt orientation of our portfolio helps to cushion any unexpected credit deterioration,” Fanio said on the call. “Defaults on senior loans do not necessarily translate into significant credit losses, in certain cases may not generate any losses.”
Shares closed fell to $2.25 in after-hours trading, a 31 percent fall from their $3.28 New York Stock Exchange close. The San Francisco-based company listed on the NYSE in June 2005 at $24 a share.
(Reporting by Megan Davies; editing by Jeffrey Benkoe, Leslie Gevirtz)