Tuesday, FBR Capital Markets upgraded KKR Financial Holdings LLC (KFN) shares to Outperform from Market Perform and increased its price target to $4 from $2.50.
Analyst Gabe Poggi noted that actions taken by management since March 31, in the midst of a sizeable rally in the levered loan market, have enabled KFN to once again free cash flow to equityholders. During second quarter of 2009, and subsequently, management has successfully taken advantage of opportunities to enter into transactions that have alleviated previous CLO triggers that were trapping cash flow.
At this juncture, via a combination of asset sales to pay down the entirety of senior notes in CLO 2009-1, KFN's surrender of several pieces of mezzanine notes in both 2005 CLOs and CLO 2006-1, as well as recently amending the credit facility that was partially due in November 2010, the company stands on a much better footing, and more importantly, is in position, in the analyst's opinion, to earn roughly $0.16 of cash available for distribution, or CAD, in third quarter of 2009.
The analyst noted that due to the aforementioned actions, KFN has eliminated CLO 2009-1, formerly known as Wayzata, is in compliance with three of its five CLOs, and expects to generate an additional $60 million-$70 million of cash flow from the actions. Consequently, cash flows are back in the hands of equityholders.
While dividend payments should not be expected for some time, the analyst is a buyer of shares based on the deep discount to book value at which shares currently trade as well as his expectation of future CAD yield over 22%.
The analyst's new $4 price target is predicated on a more appropriate, yet conservative in his opinion, yield of 16%, some of which may be dividend out in fiscal 2010. In addition, at $4, shares would trade at a very conservative 70% of last reported book value of $5.69, which, as of June 30, represented an $0.86 carry value of assets to par.
Currently, KFN is up $0.02 or 0.72% and trading at $2.81.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.