Our close ties to Kohlberg Kravis Roberts & Co. L.P., combined with the demonstrated financing capabilities of our Founding Partners, give us unparalleled expertise in the financing area. KKR’s two co-founders pioneered the use of leverage in acquisitions, and our founding partners achieved an impressive track record having established and run a number of leveraged credit businesses. Building on this heritage, we at KKR Financial Holdings LLC use leverage to increase the potential returns to our shareholders.
We do, however, recognize that the use of leverage in this way may increase our losses during unfavorable economic times. To mitigate that risk, we use interest rate derivatives to hedge all or a portion of our interest rate risk associated with our borrowings. We have extensive experience in this area, and are able to take advantage of a number of interest rate management techniques.
Relationship of Finance and Investment Strategies
Our financing objective is simple: Apply moderate leverage using attractive, flexible, low-cost, financing tools to enhance the returns to our shareholders. Through the use of leverage, we seek to generate competitive, leveraged risk-adjusted returns. We leverage our portfolio through funding vehicles that afford us control and flexibility such as collateralized loan obligations, total rate of return swaps as well as repurchase agreements. The amount of leverage will vary depending on our ability to obtain credit facilities and the lender’s and rating agencies’ estimate of the stability of the portfolio investment’s cash flow. We manage total leverage to ensure that capital is always available to take advantage of opportunistic investments and to meet our liquidity needs. We apply moderate leverage using attractive, flexible, low-cost, financing tools to enhance the returns to our shareholders.
