KKR Financial — Merger or Acquisition (December 2013)
23 slides from KKR Financial's merger presentation, Dec 17, 2013
Slide 1: KKR & Co. L.P. Acquisition of KKR Financial Holdings LLC
December 2013 KKR & Co. L.P. Acquisition of KKR Financial Holdings LLC
Slide 2: Our Model
Our Model Funds and separately managed accounts Balance sheet Capital markets Multiple Revenue Streams Fees Carry Balance sheet yield Balance sheet gains Investment professionals Operational expertise Idea sourcing Our goal is to monetize what we do with an attractive ROE and maximize cash outcomes
Slide 3: Recap of May 2013 Investor Day Themes
Recap of May 2013 Investor Day Themes 1 Focused on cash outcomes—Total Distributable Earnings and Distribution/Unit Our balance sheet is a meaningful contributor to our profitability and is a true strategic asset We work across businesses to find more ways to win and capture value from the content w
Slide 4: KFN at a Glance
KFN at a Glance KFN is a specialty finance company externally managed by KKR, with a $2.9 bn portfolio of assets on an unconsolidated basis Assets span a range of complementary asset classes, with the objective of generating both current income and capital appreciation Long-term liability structure
Slide 5: Transaction Overview
Parameter Term Exchange Ratio Common Units Issued Value of Equity Issued 0.51 KKR unit per KFN share 104 million (or 13% of KKR Pro Forma) $2.6 billion Premium – 1 day prior (December 16, 2013) – 30-day volume-weighted average price – Implied price to GAAP book value 35% 27% 1.15x Structure KFN Juni
Slide 6: Balance Sheet Evolution
Balance Sheet Evolution Note: Investor Day 2011 figures as of December 31, 2010; Investor Day 2013 figures as of March 31, 2013. Pro forma combined figures as of September 30, 2013. See Appendix for pro forma balance sheet metrics. Balance Sheet Goals Scale to support growth initiatives Liquidity to
Slide 7: Distribution Policy
Distribution Policy Realized Cash Carry Net Realized Principal Investment Income Adjusted Run-Rate Income(1) Fee Related Earnings Distribution of 100% of realized earnings from KFN portfolio introduces an additional significant, recurring component to our distribution 7 Realized Gain & Other Income(
Slide 8: Illustrative Impact to Street 2014E Distribution
Illustrative Impact to Street 2014E Distribution Total Distribution +7% Recurring Distribution +28% Note: This illustration is not intended to adopt or provide a projection of the level of distributions for 2014. There can be no assurance that KKR will make distributions at the level illustrated. Th
Slide 9: Select Financial Implications
$2 bn Equity $3 bn Total Capital 13% Accretive to Book Value / Unit Opportunity to re-deploy into higher ROE strategies Illustrative Impact to Street 2014E Select Financial Implications Impact of Higher ROE Assumption on KFN Capital Pro Forma(1) +2% +4% 28% Accretive Recurring Distribution/Unit Accr
Slide 10: Why KFN? How KFN Helps
Why KFN? How KFN Helps Positive Impacts to KKR Focus Generate More Cash Flow to Return to Shareholders Specialty finance business with a sizable cash-yielding portfolio Distribution/unit +7% Recurring distribution/unit +28% Increased payout ratio Grow Permanent Capital/Balance Sheet to Monetize More
Slide 11: Appendix
Appendix 11
Slide 12: Summarized Historical KFN P&L
Summarized Historical KFN P&L 2011 2012 3 months 9/30/2013 9 months 9/30/2013 Portfolio Revenues $542 $555 $129 $406 Portfolio Expenses (215) (318) (85) (245) Net Investment Income $327 $237 $44 $161 Gains/Other Income 93 206 6 118 Investment/Other Income & Gains $420 $443 $50 $279 Other Expenses (2
Slide 13: What a Combined KKR-KFN Would Look Like
What a Combined KKR-KFN Would Look Like 13 KFN Stand Alone Combined KKR-KFN Book Value $2.1bn $9.3bn Diversification Available Liquidity(1) $372mm $2.9bn 2014E Street Net Income $214mm $2.0bn Components of 2014 Pre-Tax Income(2) Note: This illustration is not intended to adopt or provide a projectio
Slide 14: KKR Balance Sheet Strategic Goals—Diversification
KKR Balance Sheet Strategic Goals—Diversification 14 A combination with KFN would significantly increase the diversification of our balance sheet and reduce our exposure to private equity A combination would also increase our exposure to other asset classes that we have targeted due to their yield a
Slide 15: Additional Scale to Support Our Growth Initiatives
Additional Scale to Support Our Growth Initiatives KKR Book Value per Adjusted Unit How We Use the Balance Sheet to Drive Growth Follow-On Funds Drop-Down Funds KKR Capital Markets Certain First-Time Funds Strategic M&A Opportunistic Investments Over $2.5 bn of balance sheet capital committed since
Slide 16: Not All AUM Created Equal
Not All AUM Created Equal Traditional Model Alternative Approach Total After Tax ENI $22 mm Total Distributable Earnings (After Tax) $22 mm Total Distribution Impact $22 mm Book Value Impact $0 Total After Tax ENI $52 mm Total Distributable Earnings (After Tax) $52 mm Total Distribution Impact $29 m
Slide 17: KFN Management Agreement
KFN Management Agreement KFN is currently managed by KKR under a management agreement that entitles KKR to: A 175 bps per annum management fee on KFN’s adjusted equity 25% of KFN’s earnings above an 8% hurdle (no catch-up)(1) An expense reimbursement for G&A expenses incurred by KKR on behalf of KFN
Slide 18: (Amounts in thousands) Nine Months Ended Quarter Ended For the Year Ended December 31,
(Amounts in thousands) Nine Months Ended Quarter Ended For the Year Ended December 31, September 30, 2013 September 30, 2013 2012 2011 2010 Net income (loss) attributable to KKR & Co. L.P. $ 413,313 $ 204,740 $ 560,836 $ 1,921 $ 333,178 Plus: Net income (loss) attributable to noncontrolling interest
Slide 19: Reconciliation of Partners' Capital to Book Value per Adjusted Unit
Reconciliation of KKR & Co. L.P. Partners’ Capital (GAAP Basis—Unaudited) to Book Value and Book Value Per Adjusted Unit (Amounts in thousands, except common unit and per common unit amounts) As of As of As of September 30, 2013 December 31, 2012 December 31, 2011 KKR & Co. L.P. partners’ capital $
Slide 20: Reconciliation of GAAP Common Units Outstanding to Adjusted Units
Reconciliation of GAAP Common Units Outstanding to Adjusted Units As of As of As of September 30, 2013 December 31, 2012 December 31, 2011 GAAP Common Units Outstanding - Basic 285,051,256 253,363,691 227,150,182 Unvested Common Units(1) 25,960,447 18,863,517 6,028,444 GAAP Common Units Outstanding
Slide 21: Legal Disclosures
Legal Disclosures This presentation is prepared for KKR & Co. L.P. (NYSE: KKR) for the benefit of its public unitholders. This presentation is solely for informational purposes in connection with evaluating the transaction announced by KKR & Co. L.P. (collectively, with its subsidiaries, “KKR”). Any
Slide 22: Legal Disclosures
Legal Disclosures As it relates to summarized historical KFN P&L presentation: Portfolio revenues include interest income, oil and gas revenue and other revenue. Portfolio expenses include interest expense, preferred distributions, loan loss provision, oil and gas expenses and other expenses. Other
Slide 23: Legal Disclosures
Legal Disclosures or anticipated, the ability to achieve anticipated benefits and savings, risks related to disruption of management’s attention due to the pending merger, operating results and businesses generally, the outcome of any legal proceedings related to the proposed merger and the general
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