NEW YORK (Reuters) – KKR Financial Holdings LLC (KFN.N), a debt fund manager-controlled by private equity firm Kohlberg Kravis Roberts & Co, said on Tuesday it expects to report second-quarter earnings of between 11 cents and 19 cents a share when its announces results next Thursday.
The San Francisco-based fund also took steps with four collateralized loan obligation (CLOs) transactions that will help preserve more cash and retain some low-cost senior debt. At the end of June, KKR Financial had unrestricted cash of about $114 million.
Shares of the San Francisco-based company surged 28 cents, or 19 percent, to $1.73 on the New York Stock Exchange. That is its highest price in more than two months.
KKR said it took advantage of improving credit markets and rising loan prices during the second quarter to sell some of the investments financed by one 2009 CLO, generating proceeds to repay all the senior notes outstanding.
Last week, KKR retired the remaining outstanding debt of the CLO. Following the sales and the distribution of some assets to a KKR Financial affiliate, the firm retained $317 million in corporate debt with a current market value $242 million.
The assets generate about $11 million in annualized interest that now will flow to KKR Financial, rather than pay down interest owed on the notes issued by the CLO.
KKR Financial also said it waived about $298 million in notes it held in three other CLOs issued in 2005 and 2006, surrendering their rights to payment of the debt. The mezzanine and junior notes were quickly canceled and related debt was extinguished.
KKR Financial said these moves satisfy certain collateral obligations and enable the company to resume receiving cash from these CLOs.
A CLO is an investment vehicle that issues debt and uses proceeds to acquire and manage a portfolio of loans. Interest generated from loans then repays investors who buy high-yielding shares in the CLO.
When credit markets seized up in mid-2007, the underlying CLO assets fell and the vehicles themselves plunged in value.
KKR Financial reported a $1.2 billion quarterly loss in March, reflecting losses and writedowns on loans and other assets. At the time, the firm said it would not pay a dividend to shareholders so it could preserve cash. (Reporting by Joseph A. Giannone; editing by Jeffrey Benkoe)