KKR Affiliate Sets Deal

Wall Street Journal (04/01/08) P. C4; Dowell, Andrew
KKR Financial Holdings LLC has ended months of negotiations by agreeing to turn over mortgage-backed securities to meet $3.5 billion in obligations to commercial-paper holders. The KKR unit had already written off its investment in the securities, taking a $243.7 million loss in 2007, but was hoping to recover some of the value via the negotiations. Instead, the specialty finance company will take an additional $5.5 million charge to cover remaining costs from the settlement as well as a deal to sell a majority stake in KKR Financial Corp. to Rock Capital 2 LLC. KKR Financial invested in so-called Alt-A loans and funded those purchases by issuing commercial paper, which are short-term IOUs typically issued only by the most creditworthy borrowers. When mortgage markets crumbled last summer, buyers for that commercial paper disappeared.