- The Washington Times - Thursday, February 21, 2008

NEW YORK (AP) — A unit of Kohlberg Kravis Roberts & Co., one of the world’s largest private-equity firms, said yesterday it has delayed payment on millions in loans and opened debt restructuring talks with creditors.

It was the second time the fixed-income fund KKR Financial Holdings LLC, an affiliate of the U.S. buyout shop, has put off repaying asset-backed commercial paper. The fund, which invests in corporate debt and mortgages, did not provide details of how much debt was affected or the amount of collateral securing the debt, according to a filing with the Securities and Exchange Commission.

KKR said it has postponed the repayment of some of its debt due Feb. 15 by two weeks in order to complete talks with noteholders.

“We will continue to work with the noteholders to determine if there is a further restructuring that will protect the noteholders and provide … shareholders the ability to recover some of the equity that was previously written off,” the company said in a statement.

“If we cannot come to agreement with the noteholders, they will take the underlying collateral as contemplated by the October restructuring,” KKR said.

The financial company said its exposure to the residential mortgage market was $337.6 million as of Dec. 31, and holds no investments that are off its balance sheet. KKR said it has $287.8 million of mortgage-backed securities rated investment grade or higher, while the rest was below investment grade. The collateral behind the mortgage portfolio, which includes no subprime loans, has “continued to perform well” since October.

The negotiations with noteholders was considered a further embarrassment for KKR following a $270 million bailout in September of the leveraged investment vehicle amid a widening credit crisis that has swept through global financial markets. KKR founders Henry Kravis and George Roberts personally injected cash into the fund to prevent further hemorrhaging.

KKR fell 28 cents, or 1.9 percent, to $14.25 yesterday. The stock has been sliced in half during the past 12 months.

Kohlberg Kravis Roberts was established in 1976, and holds major stakes in companies like TXU Energy and First Data.

The New York-based investment group raised $800 million in 2005 in an initial public offering for KKR Financial Holdings LLC.

KKR is a leveraged investment vehicle that borrows in the commercial paper markets to invest in home loans, particularly so-called Alt-A loans seen as riskier than mainstream borrowers, but safer than subprime loans. Like other mortgage-backed securities, Alt-A loans have been hit hard by the credit squeeze and declines in U.S. housing prices.

Instead of borrowing from banks, KKR raised money through extendible commercial paper known as secured liquidity notes. It sold almost half of its mortgage loans in August as prices on bonds linked to home loans plunged, leaving it with about $5.3 billion in mortgages.

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