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KKR Financial sells off PE stakes(3)

The beleaguered NYSE-traded affiliate of KKR will raise roughly $191 million through the sale of seven unidentified direct stakes in portfolio companies amid ‘disruption’ in the mortgage market.

A month after announcing it would react to “unprecedented disruption in the residential mortgate and global commercial paper markets”, KKR Financial announced today it would raise $191 million (€138 million) through the sale of seven private equity investments to two institutional investors.

Neither the investments nor the investors were identified. But KKR Financial has previously announced relatively small, direct stakes in buyout deals undertaken by affiliate private equity firm Kohlberg Kravis Roberts.

KKR Financial, based in San Francisco, was taken public in 2004 as a real estate investment trust, which required it to have 75 percent of its gross income be generated by real estate assets. Last month the company said it would sell approximately $5.1 billion in residential mortgage loans. It announced that it would no longer “invest in residential real estate and it intends to dispose of its existing portfolio through either a run-off of the assets through principal payments and prepayments or through a strategic alternative, including actively pursuing the sale of the common stock of its REIT subsidiary.”

The company then announced a $270 million rights issue to shore up its operations.

Today, KKR Financial announced the sale of the private equity assets would result in a net gain of $51 million. The company still has four such direct private equity stakes valued at $20 million.

The company has already warned investors that it may need to record a charge up to $200 million, although it added: “In light of the level of disruption and volatility in commercial paper and broader credit markets, estimates of potential exposure are necessarily subject to future revision.”

The company has also said it may take a $50 million tax hit if it fails to qualify as a REIT going forward.