Shares of KKR Financial Holdings LLC surged on Tuesday after the investment fund said it has taken steps to improve its liquidity through transactions involving collateralized loan obligations, complex debt instruments that plunged in value during the recent credit crunch.
KKR Financial, operated by private equity fund Kohlberg Kravis Roberts & Co., also said Tuesday it expects to post earnings of 11 cents per share to 19 cents per share when it releases second-quarter results after markets close Aug. 6.
Shares of San Francisco-based KKR Financial rose 24 cents, or nearly 17 percent, to $1.69. The stock has traded in a 52-week range of 40 cents to $11.20.
KKR Financial's shares have been hurt by its exposure to collateralized loan obligations, debt securities backed by a pool of commercial loans. CLOs had been a fast-growing segment of debt markets before the credit crunch set in last year, gutting the value of what had previously been high-yielding investments.
KKR Financial said Tuesday that credit market improvements and rising loan prices prompted it to recently sell certain investments financed by one CLO. Proceeds from the "deleveraging" sales and a debt exchange transaction involving an affiliate of KKR Financial helped repay the entire $561 million in debt that had been outstanding as of March 31, KKR Financial said.
KKR Financial how holds the CLO's remaining assets. Those consist of corporate debt investments that had previously been valued at about $317 million, but now have an estimated market value of $242 million, plus about $15 million of cash and receivables, the company said.
The company said it also took other steps to increase its liquidity through transactions involving three other CLOs. Those transactions involve canceling about $298 million in principal for notes linked to the CLOs.
Collectively, the transactions "greatly improve" KKR Financial's liquidity, CEO William Sonneborn said.
As of June 30, the company had about $114 million in unrestricted cash.