Finance Mortgage Banking
KKR Financial Sells Interest in REIT, Gets Out of Mortgage Business
April 1, 2008
By: Dees Stribling, Contributing Correspondent

KKR Financial Holdings L.L.C., an affiliate of buyout firm Kohlberg Kravis Roberts & Co. specializing in debt investments, has agreed to sell a controlling interest in its real estate investment trust, KKR Financial Corp.

At the same time, the company agreed to relinquish mortgage-backed securities to creditors who hold about $3.5 billion in its commercial paper.

KKR Financial Corp. holds a portfolio consisting of residential mortgage loans and mortgage-backed securities, corporate loans and debt securities, commercial real estate loans and debt securities, and other asset-backed securities. Upon the closing of the REIT's sale to Rock Capital 2 L.L.C., probably in the second quarter of this year, the entity will have completed its conversion to a limited liability company. KKR declined to specify the precise terms of the sale.

When KKR Financial was formed, it was set up as a REIT and initially invested about 35 percent of its equity capital in RMBS. KKR Financial Corp. began converting to a limited liability company structure last May, and at that time discontinued investing in mortgage-related investments. In August of 2007, the company wrote off its entire investment exposure to mortgage-related investments to the tune of about $243.7 million.

The move to sell its REIT came as part of a larger exit strategy from mortgage-related businesses for KKR Financial Holdings. KKR has also struck an agreement with holders of $3.5 billion worth of its commercial paper, issued by the two asset-backed conduits sponsored by KKR Financial Corp. The agreement provides for the noteholders to receive the collateral in the facilities in exchange for terminating the outstanding notes without default.


 
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