KKR Financial boasts strong liquidity in Q1, 'ample dry powder'

By Lisa Kerner

Charlotte, N.C., May 1 - KKR Financial Holdings LLC chief financial officer Michael McFerran said that the company's balance sheet is "particularly strong" and that the company has no mark-to-market debt.

"Our next maturity is 23 years from now, and we are only levered 0.3 times on a debt-to-equity basis," McFerran said during a conference call to discuss KKR's first-quarter earnings results on Wednesday.

According to McFerran, KKR has positioned itself with an insulated debt structure with "ample dry powder."

In January, the company issued 14.95 million 7.375% perpetual preferred shares at a public offering price of $25 per share for net proceeds of $362 million.

Chief executive officer William Sonneborn said one of the best features of KKR's balance sheet is its liquidity.

"We ended the quarter with over $700 million of cash. That's in addition to our $150 million revolver and mezz notes we could sell out of our COO position," he said.

Sonneborn noted that the obvious question is, "Why sit on so much cash?"

"We think it's critical because of the environment we find ourselves in," he said. "As you can tell from our Q1 results, 2013 began like the last few years, with markets firing on all cylinders for risk assets."

During the quarter ended March 31, KKR continued to reduce its high-yield debt holdings through its bank loans and high-yield debt strategy. The holdings fell by about 12% to $332.5 million par amount at the end of the first quarter from $379.1 million par amount at year's end, according to the earnings news release.

The company said it reduced its high-yield debt holdings strategy by 51% during the 12 months ended March 31.

Financial highlights

The company's net income for the first quarter was up 4% from the prior-year period at $91.6 million.

Net income per diluted common share totaled $0.46, compared with $0.48 for the comparable prior-year period.

A quarterly cash distribution of $0.21 per common share was declared for the first quarter of 2013.

The New York-based global investment firm's first-quarter 2013 results included total revenues of $140.5 million, total investment costs and expenses of $81.0 million, total other income of $74.2 million and total other expenses of $34.8 million.

For the first quarter of 2012, KKR reported total revenues of $137.9 million, total investment costs and expenses of $107.8 million, total other income of $78.8 million and total other expenses of $25.0 million.

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