Shares of KKR Financial Holdings LLC (NYSE: KFN), an affiliate of private equity giant Kohlberg Kravis Roberts & Co., rose over 8 percent on Monday after it announced a plan to raise $500 million in cash from investors, including existing shareholders.
The move comes a week after the San Francisco-based bonds and loans investor sold over $5.1 billion in mortgage loan assets at a loss of $40 million as a result of pressure in the market for mortgage-backed debt created by the ongoing housing market downturn. The company still retains $5.8 billion in mortgage loans.
The institutional investors will buy 16 million common shares worth $230 million. Current shareholders will have the opportunity to buy 18.75 million common shares on August 30 worth $270.0 million. The shares will be priced at $14.40, the closing price of New York-based KKR Financialâ€™s common shares on Friday.
KFN will use the capital to strengthen its balance sheet and ensure it is able to operate from a position of strength in these turbulent times, said KFN's Chief Executive Officer, Nino Fanlo. We are grateful for the support of the investor group and our partners at KKR.
Investors reacted positively to the news, as shares of KKR Financial rose $1.24, or 8.61 percent, to close at $15.64 on The New York Stock Exchange.
The institutional investors include hedge fund Farallon Capital Management L.L.C. and investment bank Morgan Stanley. Other investors are Fir Tree Partners, JGE Capital Management, Marsico Capital Management, Oak Hill Advisors, and Sageview Capital L.P.
Kohlberg Kravis Roberts & Co. L.P has entered into a â€œbackstop commitmentâ€ with KFN to purchase up to approximately $100 million of common shares at the same price if needed.
The rights for the public offering will expire on September 19 unless the company makes an extension.