KKR writes to ‘nil’ some $4bn in equity

While the equity in Capmark Financial and ProSiebenSat is valued at or near zero, the mega-firm wrote up several investments, including IPO-bound Dollar General.

Kohlberg Kravis Roberts has written down to zero or near zero almost $4 billion of equity in portfolio companies Capmark Financial Group and ProSiebenSat.1 Media, respectively.

The information was contained in second quarter report from KKR listed affiliate KKR Private Equity Investors, which was filed Monday. The report also shows that KKR has written up some investments, including Dollar General, which the firm is reportedly preparing to take public.

The write-downs are unrealised and are the result of fair value rules that force firms to mark investments as if they were to be sold in today’s market. While complying with fair value, many GPs complain they do not take into account long-term investment goals.

KKR and co-investors Goldman Sachs Capital Partners and Five Mile Capital Partners sunk $2.1 billion of equity in Capmark in 2006 in a deal that totaled $16.8 billion.

The deal gave the investor group a 78 percent stake in Capmark, which was called GMAC Commercial Holding before the deal, after which it changed its name to Capmark. Capmark was the commercial mortgage division of GMAC Financial. According to KPE’s financial report, the firm has written down its investment in Capmark to “nil”.

KKR and co-investor Permira used €1.3 billion of equity in its deal to acquire ProSiebenSat.1 Media, which was the largest television group in Germany. The deal that totaled €3.2 billion. The investment has been written down to “less than 0.1 times cost as of June 30, 2009”, the firm said.

Better news in the fund came from investments in Dollar General, HCA, Alliance Boots and an increase in the value of debt holdings in Sun Microsystems. From 31 March to 30 June, the value of Dollar General increased $116 million, which was marked up to 1.7 times cost from 1.3 times cost as of 30 June. KKR acquired the company in 2007 in a $7 billion deal, investing with Goldman Sachs and Citi.

HCA was marked up from 1 times cost as of 31 March to 1.2 times cost as of 30 June. KKR invested with Bain Capital and Merrill Lynch Global Private Equity in the $33 billion transaction, in which each firm contributed $1.5 billion of equity.

KKR wrote up the value of its portfolio company Alliance Boots by about $35 million after the company benefitted from the change in exchange rates from British pounds sterling to US dollars, and the firm also wrote up the value of its debt holding in Sun Microsystem’s by $59 million.