KKR in Credit Crunch

LONDON (AP) — KKR Financial Holdings LLC, a listed affiliate of U.S. private equity group Kohlberg Kravis Roberts & Co., has delayed repayment of billions of dollars of commercial paper for the second time, the Financial Times reported Wednesday.


In a regulatory filing, KKR Financial Holdings, or KFN, said it had begun talks with creditors and deferred repayment of a chunk of debt due last Friday, the FT said.


The move is a further embarrassment for KKR following a US$270 million bail-out in September of the leveraged investment vehicle, in which founders Henry Kravis and George Roberts personally injected cash, the FT said in the article on its Web site.


KFN is a leveraged investment vehicle that had borrowed in the commercial paper markets to invest in home loans, particularly so-called Alt-A loans seen as riskier than mainstream borrowers but safer than subprime loans, the report said. Like other mortgage-backed securities, Alt-A loans have been hit hard by the credit squeeze and declines in U.S. housing prices.


Unlike other borrowers, KFN used extendible commercial paper known as secured liquidity notes, which allowed it to defer payment on half its borrowings to Feb. 15 and the rest to March 3, the report said.



KFN's statement gave few details of its restructuring talks, saying only that it had given some note-holders the option of taking a slice of the underlying mortgages in lieu of repayment. It declined to comment further, according to the FT.


The report contributed to declines in stocks Wednesday in Japan, where investors worried about further fallout from the global credit crunch. Tokyo's Nikkei index fell 3.24 percent to 13,310 points.