Professional Documents
Culture Documents
Bill Sonneborn
Bob Howard
Erik Falk
July 17, 2012
IMPORTANT INFORMATION
This presentation is furnished on a confidential basis exclusively to the named recipient to this presentation (the Recipient) and is not for redistribution or public use.
The data and information presented are for informational purposes only. The information contained herein should be treated in a confidential manner and may not be
transmitted, reproduced or used in whole or in part for any other purpose, nor may it be disclosed without the prior written consent of KKR Asset Management LLC
(KAM). By accepting this material, the Recipient agrees not to distribute or provide this information to any other person.
The information in this presentation is only as current as the date indicated, and may be superseded by subsequent market events or for other reasons. The information
in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, KAM does not guarantee the accuracy, adequacy or
completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or
other decision. This presentation should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any
investment strategy.
The information in this presentation may contain projections or other forward-looking statements regarding future events, targets or expectations regarding the strategies
described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from
that shown here. The information in this presentation, including statements concerning financial market trends, is based on current market conditions, which will fluctuate
and may be superseded by subsequent market events or for other reasons. KAM assumes no duty to, and does not undertake to update forward looking statements.
Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public investment process is subject to applicable law and inside information
barrier policies and procedures, which may limit the involvement of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in certain circumstances and
KAMs ability to leverage such integration with KKR. Discussions with Senior Advisors and employees of KKRs managed portfolio companies are also subject to the inside
information barrier policies and procedures, which may restrict or limit discussions and/or collaborations with KAM.
References to KKR Capstone or Capstone are to all or any of Capstone Consulting LLC, Capstone Europe Limited, and KKR Capstone Asia Limited, each of which is
owned and controlled by their senior management and not by KKR. KKR Capstone uses the KKR name under license from KKR. KKR Capstone is not a subsidiary or
other affiliate of KKR.
TABLE OF CONTENTS
KAM Overview
Bill Sonneborn
II
II
Erik Falk
Credit Platforms
1. Leveraged Credit Platform
2. Direct Lending Platform
3. Mezzanine Platform
4. Special Situations Platform
III
III
I. KAM Overview
Private Markets
($46.0bn AUM)
Private
Equity
Real
Assets
Stakeholder
Management
Marketable
Securities
Division(1)
KKR
Capstone
Alternative
Investments
Division
Senior Advisors
Integrated investment
Team of ~60 senior
and transaction processes
operations professionals
Note: As of March 31, 2012. Please see Endnotes for important information regarding the calculation of AUM. Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which
may limit the involvement of personnel in certain investment processes and discussions.
(1)
AUM for the Marketable Securities Division includes non-fee paying AUM. The Marketable Securities Division of KAM claims compliance with GIPS.
KAM Strategies
Marketable Securities
Division
Private Markets
$919
Equities
Strategies
$371
Alternative Investments
Division
Bank Loans
Mezzanine
High Yield
Special
Situations
$1,366
Leveraged
Credit
$12,239
Funds
Capital Solutions
(multi asset-class products spanning all KKR strategies)
($ in millions)
1) Data as of March 31, 2012. Please see Endnotes for important information regarding the calculation of AUM.
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Mezzanine
$1,412
Investment
Committee
Leveraged
Credit
Direct
Lending
Distressed /
Special
Situations
Mezzanine
Equities
Industry Analysts
Execution Team
Risk & Trading
~60 KKR
Capstone Professionals
~30 KKR
Senior Advisors
SENIOR INVESTMENT
PROFESSIONALS
ROLE
Marc Ciancimino
Scott Cullerton
Erik A. Falk
19
Ami Goldfein
11
Frederick M. Goltz
18
Dev Gopalan
Robert Howard
16
Scott Henkin
15
Omar Kara
12
Jeremiah S. Lane
Ralph Marron
29
John Massad
13
Mubashir Mukadam
13
John M. Reed
15
Christopher A. Sheldon
13
Jason Ridloff
16
William C. Sonneborn
20
Lynette Vanderwarker
15
Jamie M. Weinstein
13
Nathaniel L. Yap
12
Nathaniel Zilkha
13
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
YEARS OF
EXPERIENCE
15
9
Proprietary
Sourcing
Single-platform sourcing
Active
Portfolio
Management
Capital
Preservation
Note: Portfolio managers may use some or all of the techniques described above or herein. Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the
involvement of personnel in certain investment processes and discussions.
Sourcing
KAM Investment
Professionals
KKR Private
Equity Professionals
KKR
Capital Markets
KKR
Capstone
KKR
Relationships
KAM
Analysts
KKR
Private Equity
Investment
Professionals
KKR
Senior Advisors
Due Diligence
Initial
Investment
Discussion
Final Investment
Approval
Active Portfolio
Management
KKR Senior
Advisors
KKR Portfolio
Companies
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Special Situations
Return Potential
Opportunistic
Credit
Direct Lending
High Yield
Bank Loans
Strategic investments in
distressed companies
Bank loans and high yield based on fundamental credit analysis, with a significant focus
on principal protection
Bank loans based on fundamental credit analysis, with a significant focus on principal protection
Risk
Note: KAM will consider a number of factors, including, for example, projected cash flows, projected future valuations of target assets and businesses, relevant other market dynamics (including interest rate and currency markets), anticipated contingencies, and regulatory
issues. Actual results and events may, however, differ materially from the assumptions underlying such analysis. Such returns are subject to significant economic, market, and other uncertainties that may adversely affect the performance of actual investments. Investments
may be acquired in respect of any KAM fund, vehicle of account that have an anticipated internal rate of return below or above the projected return indicated herein. Such projections are neither guarantees nor predictions or projections of future performance of any KAM fund,
vehicle or account, and are not to be relied upon as such. There can be no assurance that any particular investment or strategy will achieve such returns, that KAM will achieve the investment objectives noted above or that investors in any KAM fund, vehicle or account will
receive a return of capital. An investments targeted gross and net internal rate of return may change over time and may go down as well as up.
Experienced
Team with
Diverse
Backgrounds
Former Managing
Director at Deutsche
Bank Securities Inc.
where he was most
recently Global Co-Head
of the Securitized
Products Group
Over 19 years of
industry experience
Over 13 years of
experience in leveraged
credit
Nat Yap
Jeremiah Lane
Dev Gopalan
John Reed
Former senior
investment analyst at
J.P. Morgan
specializing in paper,
packaging and
chemicals
Former Associate in
the Investment
Banking/Technology,
Media and Telecom
Group at J.P. Morgan
Chase
Head of Credit
Trading; joined KKR in
2008
Over 12 years of
experience in
leveraged credit
Former Associate
Director at Bear
Stearns & Co. in
Institutional Sales &
Trading
Over 15 years of
industry experience
Over 9 years
industry experience
Over 9 years
industry experience
~60 KKR
Capstone Professionals(1)
11
(1) Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Marketable Securities
Division
MARKET
OPPORTUNITY
Secondary
Bank Loans
Market Trading
Strong risk-adjusted
return potential
Asset-Based
Bank Loans
Financing
Plus
High Yield
Private Lending/
High Yield
Recapitalizations
Strong risk-adjusted
return potential
Senior position in
capital structure
Call Protection
Control
Opportunistic Credit
Investing
Strong risk-adjusted
return potential
Relative liquidity
INVESTMENT
OBJECTIVE
Dynamic allocations
across the full spectrum
of below investment grade
credit markets
October 2004
July 2008
October 2004
May 2008
INCEPTION
DATE
PORTFOLIO
FOCUS
12
Marketable Securities
Division
KAM Net
Benchmark
16%
16.7%
15.0%
14%
12%
10.9%
11.4%
10.2%
10.7%
10.0%
10%
8.1%
8%
8.1%
6%
4%
2%
0%
Bank Loans Plus High Yield
(65% LSTA / 35% BoA ML HY)
Inception July 2008
13
Opportunistic Credit
(100% BoA ML HY)
Inception May 2008
Note: See Endnotes for important information relating to the information presented herein. The High Yield Carve Out is supplemental to the GIPS performance presentations shown in the Endnotes. Past performance is not indicative of future
results and there can be no assurance that comparable results will be achieved in respect of such strategies going forward or that investors in any KAM fund, vehicle or account will receive a return of capital.
Marketable Securities
Division
Bill Sonneborn
Member of KKR and
Head of KAM
Erik Falk
Marc Ciancimino
Nat Yap
Jason Ridloff
Formerly Managing
Former senior
Formerly at Credit
Joined KKR in 2008
Director with GSC
investment analyst
Suisse/Donaldson,
Group in the
at J.P. Morgan
Lufkin & Jenrette
Former President and
Former Managing
European Mezzanine
specializing in paper,
specializing in
COO of The TCW
Director at Deutsche
business
packaging and
leveraged finance
Group, Inc.
Bank Securities Inc.;
chemicals
Over 15 years
Over 15 years
19 years of industry
Global Co-Head of
industry experience Over 11 years of
industry experience
experience
the Securitized
in sourcing and
experience in
Products Group
Member of the KAM
evaluating middle
leveraged credit
and Capital Solutions Over 19 years of
and large market
Investment
industry experience
transactions
Committees
Fred Goltz
Member of KKR and
Head of KAM Credit
and Mezzanine
Chris Sheldon
Jeremiah Lane
Dev Gopalan
Doug Tapley
Joined KKR in 2006
Former Vice
President at GE
Capital focused on
media and
healthcare
Over 10 years
industry experience
Scott Cullerton
Peter Glaser
John Empson
Jeff Rowbottom
Joined KKR in 2010 Joined KKR in 2008 Member of KKR and Co-Head of KCM
Head of KCM Europe;
North America;
Former Associate in Previously, Principal Former Vice
joined KKR in 2008
joined KKR in 2009
the Investment
in Private
President at Morgan
Joined KKR in 1995
Banking/Technology,
Investments at
Stanley Capital
Former Head of JP
Former Managing
Former Vice
Media and Telecom
Canada Pension Plan
Partners; initial
Morgans European
Director and Head of
Former Co-head of
President, Senior
Group at
Investment Board
member of Morgan
leveraged capital
U.S. High Yield
the Energy and
Investment Analyst
J.P. Morgan Chase
Stanleys renewed
markets business
Capital Markets at
Natural Resources
Over 9 years
at Wells Fargo Bank,
Private Equity group
Barclays Capital
private equity team
Over 9 years
industry experience
Over 20 years
High Yield
industry experience
Over 9 years
industry experience Over 17 years
Over 19 years of
Securities Group
industry experience
industry experience
industry experience
Over 13 years of
Member of the KAM
experience in
and Capital Solutions
leveraged credit
Investment
Committees
15
Craig Farr
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Marketable Securities
Division
$20
16.8
18.5
18.3
14.4
$15
10.6
$10
$5
1.6
3.4
5.3
5.9
6.1
6.9
13.7
11.8
7.0
$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
196
180
161
114
120
60
48
2
2014
2015
0
(1)
(2)
16
Note:
2010
2011
2012
2013
This presentation reflects the current market views, opinions and expectations of KAM based on its historic experience. Historic market trends are not reliable indicators of actual future market behavior or future performance of any
particular investment or any KAM fund, vehicle or account which, may differ materially, and are not to be relied upon as such. There can be no assurance that investors in any KAM fund, vehicle or account will receive a return of capital.
Marketable Securities
Division
Subordinated Debt
5.6x
Senior Unsecured
4.5x
4.3x
17
Large Corporate
Middle Market
Large Corporate
2007 Vintage
Middle Market
2011 Vintage
Large Corporate
Middle Market
Nominal Spread(1)
568bp
701bp
Call Protection
Not frequent
Fee / OID
Covenants
Diligence
Syndicate level
Documentation
Borrower-friendly
Creditor-friendly
Investors
Marketable Securities
Division
Proprietarily sourced secured debt either through direct origination or clubbed situations from 3rd parties
Seniority
Focus on secured debt; primarily 1st lien (at least 75%) and some 2nd lien loans and bonds
Target Pricing
Size
Documentation
Financing Proceeds
Leverage
Seeks 1.5x-2.0x leverage with financing rates of L+250bp(1), gross equity returns in the high teens(2)
Liquidity
Low liquidity
Geography
Targeted Returns
(1)
(2)
18
Marketable Securities
Division
WASTEQUIP
Situation Overview
Wastequip (the Company) completed a recapitalization on June 15th, 2012. The
recapitalization included a new $150 million term loan and $40 million revolver.
Proceeds from the Term Loan were be used to finance a restructuring
Through recapitalization, Wastequip eliminated over $500 million of debt and reduced
its annual interest expense by over 80%
The investment opportunity arose because of KAMs relationship with the transaction
intermediary, Goldman Sachs, and focus on the name when it was distressed,
highlighting the benefit of KAMs multi-strategy approach
Summary of Terms
Transaction Overview
Borrower/Company: Wastequip, LLC (the Company)
Industry: Waste Handling / Recycling
Geography (Headquarters): United States (Charlotte, NC)
Purpose: Refinance Existing Term Loan
Sponsor/Corporate: Centerbridge
LTM Revenue / EBITDA: $344.0 million / $38.0 million
Sr. Sec / Total Leverage: 3.9x / 3.9x
Facility Overview
New Facility: Senior Secured Term Loan
Facility Size: $150 million
KKR LP Hold: $24.8 million
UOP: Restructuring
Key Terms: L+675, 1.50% LIBOR Floor, 97.5 OID, 1% amortization
Investment Thesis
Strong market position: Company derives 90% of its revenue from products in which
it has a leading position. On the steel products side of the business, Wastequip is the
only company in North America with national scale and is 5x the size of its next
largest competitor
Company is early in its cycle and has solid earnings momentum: LTM EBITDA of $38m
vs. peak of $77m and trough of $19m. Backlog/orders are improving significantly
Nondiscretionary nature of product/market. While timing of purchases of waste
equipment can be delayed, and the waste equipment market is highly cyclical, over
time we believe waste collection is essential and growing, and the companys products
are essential to this
Localized market for steel products
Free Cash Flow Profile: LTM EBITDA of $38m vs. FCF breakeven of $17m ($5m capex
and $12m cash interest)
Company Overview
Wastequip is the largest manufacturer of waste handling and recycling equipment
used to collect, process and transport solid and liquid waste in North America, with
product lines that include steel containers, plastic containers, hoists, compactors,
balers, tarpers, vacuum trucks, parts and services
Founded in 1989, Wastequip is headquartered in Charlotte, North Carolina and has 24
manufacturing facilities in North America
The Company serves over 5,000 customers nationwide, including national, regional
and local waste haulers, chain and convenience stores, municipalities, distributors,
and recycling companies
19
KKR Edge
KKR has a strong relationship with the transaction intermediary, Goldman Sachs, with
different parts of KKR having been an important client to Goldman for a number of
years. This relationship was not just institutional in nature; the KKR deal team also
had prior relationships with the deal team at Goldman
KKR had followed this situation for over a year, first as a distressed opportunity and
then anticipating the new issue. As a result, we were able to act quickly, drive terms,
and invest in a meaningful size across KAMs managed funds and accounts
Marketable Securities
Division
THINGS REMEMBERED
Situation Overview
Things Remembered Inc. (Things Remembered, or the Company), headquartered
in Highland Heights, Ohio, is the leading destination for personalized gifts in the U.S.
with 40 years of brand history. It was previously acquired by private equity firms
Bruckmann, Rosser, Sherrill & Co. and Gordon Brothers Merchant Partners in 2006
On April 22, 2012, Madison Dearborn Partners signed a definitive agreement to
acquire Things Remembered for a purchase price of $295mm, or ~7.5x LTM pro
forma adjusted EBITDA
The financing structure is as follows: $30mm Senior Secured Revolver, $117mm
Senior Secured Term Loan, $30mm Mezzanine Notes, and $163mm equity
contribution from the sponsor, management, and mezzanine investors
KCM acted as the Lead Arranger and Lead Bookrunner for the Senior Secured
Facilities around KAMs commitment. KAM committed to $35mm of the tranche
Summary of Terms
Transaction Overview
Borrower/Company: Things Remembered
Industry: Retail
Geography (Headquarters): United States (Highland Heights, OH)
Purpose: Sale
Sponsor/Corporate: Madison Dearborn Partners, LLC
LTM Revenue/EBITDA: $305.0million / $41.4million
Sr. Sec / Total Debt: 2.8x /3.5x
Facility Overview
Facility: Senior Secured Term Loan
Facility Size: $117 million
KKR LP Hold: $35 million
UOP: Acquisition Financing
Key Terms: L+650, 1.5% LIBOR floor, 98.0 OID (plus underwriting fees), 1%
amortization, 101 soft call for year 1, 50% FCF sweep; 40mm Incremental Facility
subject to leverage test, maintenance covenants and MFN
Investment Thesis
Leading player in the personalized gift space. As evidence of the uniqueness of its
concept, most customers cannot name a competitor
Strong management team that has led impressive improvement in business since
taking over in 2006; resilient performance during the recent economic downturn
Attractive customer demographics, with high degree of loyalty and strong database
Lower than average seasonality given event-driven nature of purchases (weddings,
birthdays, etc.)
Highly profitable store base with strong unit level economics
Opportunities for business improvement including both store growth and direct
channel/online growth, as well as driving personalization revenue through new
initiatives
Investment Risks
Limited history operating at current profitability levels -business had underperformed
prior to current management team
Competitive landscape is benign today, but there is potential for increased pressure
Company Overview
Things Remembered operates in the highly fragmented $15bn U.S. gift industry and is
a leading destination for personalized gifts in the U.S. The majority of their products
sold are engraved
The company operates a broad geographic network of 650 retail locations in 49
states, as well as a rapidly growing online business
All locations are equipped with engravers. Proprietary products are designed to
establish emotional connection with the customer and create high levels of customer
satisfaction
High quality retail model in a variety of configurations with good growth and strong
store-level margins across both full store locations and smaller footprint kiosks
KKR Edge
20
The investments shown on pages 26 though 31 represent all transactions completed in KKR Lending Partners LP as of March 31, 2012. The specific investments identified are not representative of all of the investments purchased, sold or
recommended for KAM clients, and it should not be assumed that the investments identified was or will be profitable. Actual holdings will vary for each client and there is no guarantee that a particular clients account will hold any or all of the
investments listed.
Marketable Securities
Division
8.2%
5.0%
Annualized
1 year
3 year
5 year
15.7%
17.0%
17.9%
Cumulative
1 year
3 year
5 year
15.7%
60.3%
127.7%
KKR Direct Lending Strategy Deal Volume & Gross Unlevered IRR
Since 2005 ($mm)
20%
21
S&P LSTA
KAM IRR
$407.4
Notional
$450
Gross IRR
$373.3
$359.9
15%
14.2%
14.8%
$237.6
10%
5%
$362.5
$350
$300
$250
10.4%
9.1%
$200
$150
6.3%
4.6%
$71.5
$100
$50
$0.0
0%
2005
$400
2006
2007
2008
$0
2009
2010
2011
The Alternative Investments Division of KAM does not claim compliance with GIPS.
Experienced
Team with
Diverse
Backgrounds
Fred Goltz,
Head of Mezzanine
~60 KKR
Capstone Professionals(1)
23
Marc Ciancimino
Jason Ridloff
Scott Cullerton
Formerly Managing
Director with GSC Group
in the European
Mezzanine business
Formerly at Credit
Suisse/Donaldson,
Lufkin & Jenrette
specializing in
leveraged finance
Doug Tapley
Over 10 years of
investment experience
(1) Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Alternative Investments
Division
~$380 billion of
un-invested private
equity capital
commitments
seeking transactions(1)
Numerous
non-sponsor
companies with
financing needs
Additional deal
flow expected to be
driven by ongoing
restructuring of
corporate landscape
Majority of
Mezzanine investors
are focused
on smaller sized
transactions
~$850 billion of
leverage debt
due for
refinancing in
next 5 years(2)
Demand
24
Supply
Alternative Investments
Division
Sourcing
Diligence
Portfolio Construction
and Management
Global network
Integrated approach
Integrated One-Firm
origination capabilities
25
(1) Portfolio companies presented represent all suitable mezzanine investments from the period 2005 March 31, 2012. The specific companies identified are not representative of all the companies purchased, sold or recommended for clients,
and it should not be assumed that an investment in the companies identified was or will be profitable.
Alternative Investments
Division
Company Overview
Transaction Overview
Investment Highlights
KKR Approach
The transaction was sourced through our strong relationships with the Sponsor,
Sycamore Partners, formed by the ex-Golden Gate Capital retail team Stefan
Kaluzny and Peter Morrow. KAM previously worked with Stefan and Peter on our
investments in J.Jill, Eddie Bauer, and Express.
Our competitive advantages in this transaction included:
A long history of working with the Sycamore Partners team and their view of KAM as an
excellent partner;
Deep knowledge of the specialty retail space in particular through our debt and equity
investments in Toys R Us, J.Jill, Eddie Bauer, and Express;
Our Capstone team, which helped provide important insight and perspective into the carve-out
economics and transition services agreement
Insight gained from significant market due diligence
Alternative Investments
Division
Transaction Update
Transaction Overview
Investment Highlights
KKR Approach
KAM started working on this opportunity in February 2012 with EQT by
working alongside them to provide mezzanine to help finance the
acquisition
Following a failed pre-emption attempt by EQT in early March which KAM
supported, KAM continued to support the sponsor through out the entire
auction that followed which ultimately led to the successful SPA signing in
June
We believe our competitive advantages in this transaction included:
Deep knowledge of the medical device space, having gained significant insights from
previous investments in the sector (Convatec, KCI, DJO)
Approach of leveraging broader KKR franchise, with insights from the PE team (had
analysed the space in detail) and accessing KKR portfolio companies in our diligence
process (HCA and Boots)*
Deep market due diligence with industry consultants, vendors, resellers and endcustomers
Strong relationship with EQT
*Participation of KKR Private Equity, KKR Capital Markets, and KKR Capstone personnel in the public markets investment process is subject to applicable law and inside information barrier policies and procedures, which may limit the
involvement of such personnel in certain circumstances and KAMs ability to leverage such integration with KKR. Discussions with Senior Advisors and employees of the Firms managed portfolio companies are also subject to the inside
information barrier policies and procedures, which may restrict or limit discussions and/or collaborations with Public Markets/KAM.
Alternative Investments
Division
MEZZANINE PERFORMANCE
KKR Mezzanine Partners L.P.
Inception to 3/31/2012
(Amounts in millions)
Date of
Investment
Original Investment
Name
July-10
Invested
Amount1
Altegrity Holdings
27.3
Realized
Value2
5.0
Unrealized
Value3
8.7%
1.14
14.6%
1.19
36.4
21.0%
1.06
55.3
59.3
10.3%
1.11
2.4
37.8
40.2
29.6%
1.14
45.1
2.2
47.3
49.5
25.1%
1.10
65.6
2.9
66.8
69.7
16.5%
1.06
29.8
9.4
24.7
34.1
46.3%
1.15
January-12
27.2
1.2
27.2
28.3
23.5%
1.04
January-12
0.5
25.0
25.4
35.6%
1.05
64.6
7.4
December-10
J Jill
34.2
36.4
IMCD Group BV
53.3
4.0
35.2
October-11
October-11
November-11
February-11
September-11
Total
406.6
71.3
Gross Multiple of
Invested Amount6
77.2
26.2
Gross
IRR5
31.2
November-10
Total
Value4
69.8
-
380.0
451.3
1.11
16.1%
FX Hedge Impact=
-0.1%
16.0%
4.8%
Note: As of March 31, 2012. Please refer to the next slide for important information regarding the investments included on this slide. Fund level IRR will differ from the asset-level IRR as it considers management fees, expenses, accrued
carried interest, the timing of capital calls and capital distributions, and the effect of carrying other assets and liabilities, including cash, on the balance sheet. Past performance of any KAM-sponsored fund, vehicle, account or investment
referred to therein is not necessarily indicative of future results and there can be no assurance that the investments will perform similarly to those comprising the Investment Experience.
1)
Includes inception to date management fee and organizational costs billed or accrued.
2)
Timing difference between capital called and capital deployed.
28
29
The Alternative Investments Division of KAM does not claim compliance with GIPS.
Experienced
Team with
Diverse
Backgrounds
Co-head of Special
Situations Investing; joined
KKR in 2005
Involved in portfolio
management and credit
analysis for over 100
transactions
Over 13 years of industry
experience
Director of Harden
Healthcare
Mubashir Mukadam
John Reed
Former Associate
Director at Bear Stearns &
Co. in Institutional Sales
and Trading
31
(1) Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Alternative Investments
Division
Catalyst:
Capital Structure or Broader Market Dislocation
Investment Strategies
Control-Oriented Opportunities
Expected to be
~20-30% of Portfolio
Expected to be
~10-20% of Portfolio
Secondary Distressed
Portfolio Purchases
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Alternative Investments
Division
Theme
Global Healthcare
Funding Crisis
Energy
33
Investment Thesis
Indicative Investments
Note: Please refer to Important Information on page 1 regarding market views. The above listed companies represent all investments reflecting the corresponding investment thesis detailed above. The specific companies identified are not
representative of all of the companies purchased, sold or recommended for KAM clients, and it should not be assumed that the investment in the companies identified was or will be profitable. Actual holdings will vary for each KAM client and
there is no guarantee that a particular KAM clients account will hold any or all of the companies listed.
Alternative Investments
Division
QUICKSILVER
Background
The Company is an oil and gas producer focused on
unconventional natural gas
In order to support development in the Horn River Basin, the
Company and KKR entered into a JV agreement whereby KKR
would purchase an interest in an existing pipeline and commit
to fund future new-build midstream assets in the Horn River
Upon the closing in December 2011, KKR delivered a $255mm
equity commitment in a proprietary originated structured
investment
KKR Edge
Sourcing Edge
Diligence Edge
Through proprietary
relationships developed by the
KKR Energy and Infrastructure
team, the Company reached
out to KKR when looking to find
a JV partner for the
development of Horn River
midstream assets
Longstanding experience
investing in energy from both
the equity and fixed income
standpoints
KKR
EDGE
Investment Highlights
Attractive risk/reward profile
Take-or-pay contract with no direct volume or price risk,
supported by a parent guarantee
Drilling commitment provides volume protection
Substantial potential upside to contracted base return
Potential for additional 3rd party volumes on the pipeline to
be brought into the system
Potential upside from volumes beyond 10-year term, both
from continuation of drilling and from the tail associated
with wells drilled within the 10-year contract period
Potential platform upsides associated with future projects
within the Horn River
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions. Past performance is no guarantee of
future results. This example is included solely to illustrate the terms and strategy which has been utilized by the KKR Special Situations team. Past investments by KAM are not indicative of prospective investments that will be made by any KAM fund, vehicle or account or of
the future performance thereof.
34
Alternative Investments
Division
EDCON
Background
The Company is the largest non-food retailer in South Africa,
with a 29.3% market share in the South African clothing &
footwear market, nearly twice that of its nearest competitor
Bain Capital purchased the Company in April 2007 and KKR
private equity was the runner up in the auction
KKR Edge
Diligence Edge I
KAM leveraged diligence on the company and jurisdiction, and
had intimate knowledge of the companys business model and
the South African retail market
KKR
EDGE
Investment Highlights
The KAM team worked with the KKR private equity retail team
to update its due diligence regarding the business and used
contacts established by the private equity team in the South
African market to evaluate the legal and jurisdictional
considerations
Diligence Edge II
Note: Please refer to Important Information on page 1 for further information on KKRs inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions. Past performance is no guarantee of
future results. This example is included solely to illustrate the terms and strategy which has been utilized by the KKR Special Situations team. Past investments by KAM are not indicative of prospective investments that will be made by any KAM fund, vehicle or account or of
the future performance thereof.
35
Alternative Investments
Division
Inception to 3/31/2012
(Amounts in millions)
Investment
Date of
Name
Original Investment
Invested
Amount1
Realized
2
Value
Unrealized
3
Value
Total
4
Value
Multiple of Gross
Invested Amount5
Realized Investments
iPayment Investors LP
March-10
44.7
1.48
April-10
24.8
35.2
35.2
1.42
McJunkin Corporation
August-10
17.9
21.8
21.8
1.22
November-10
15.7
22.3
22.3
1.42
Countrywide PLC
November-10
10.0
10.6
10.6
1.06
March-11
34.2
51.5
51.5
1.51
August-11
18.2
22.3
22.3
1.23
September-11
25.3
25.9
25.9
1.02
30.2
176.3
76.8
253.1
44.7
234.3
79.5
313.8
234.3
1.33
Gross IRR6:
43.0%
Gross IRR6:
12.5%
79.5
1.03
313.8
1.24
6
Gross IRR :
39.2%
The preceding tables (the Investment Experience) comprise a composite of the investments made within the special situations strategy managed by KKR through KAM and its subsidiaries. KKR believes that these investments illustrate its general experience in managing special situations investments. The
Investment Experience includes investments held within client accounts having a dedicated allocation to the strategy. While certain client accounts that have participated in the strategy have not been included, for example because of their limited ability to participate in each investment made within the strategy
and/or differences in their structure, KKR has determined that investments made within the strategy are represented in the Investment Experience and that the exclusion of such accounts is not material. Such assessment involves significant judgment and may, however, differ from another partys review of
KKR-sponsored portfolios over the same period, which may include comparable investments not represented in the table with lower (or negative) investment returns. Composite or model performance information such as that reflected in the Investment Experience has many inherent limitations and is not
indicative of the performance of all investments made by KAM, nor is it fully representative of the performance of all investments that may have been made by the Funds if the Funds had been operating over the period during which the included investments were made.
The investments referenced in the Investment Experience were made over a period of time that may not include various market and macroeconomic cycles and the circumstances under which such investments were made may differ significantly from those under which the Funds will make their investments.
Furthermore, the investments included in the Investment Experience were not made as part of a single portfolio, but rather by separate, multi-strategy accounts, the investment programs of which, individually or on an overall basis, differ significantly from the Funds investment program, including by asset
class, investment size, geography, duration, leverage, risk and targeted returns. They should not, therefore, be viewed as representative of investments that will be made by the Funds or the profile of the Funds portfolio in general. In particular, it is currently anticipated that the Funds portfolio will include a
lower concentration of liquid, marketable securities and instruments than is currently represented in KKRs special situations portfolio (although this cannot be guaranteed). The Funds are the first dedicated vehicles formed by KKR to invest specifically in special situation investments. Prospective investors may
contact KKR to discuss the procedures and methodologies used to calculate the Investment Experience and other information provided herein.
36
Note: As of March 31, 2012. Please refer to slide 32 for important information regarding the investments included on this slide. Past performance of any KAM-sponsored fund, vehicle, account or investment referred to therein is
not necessarily indicative of future results and there can be no assurance that the Funds investments will perform similarly to those comprising the Investment Experience.
Date of
Name
Original Investment
Invested
Amount1
Realized
2
Value
Unrealized
3
Value
Total
4
Value
Multiple of Gross
Invested Amount5
Unrealized Investments
Harden Healthcare
84.6
1.36
March-10
April-10
35.1
20.4
19.7
40.1
1.14
Expro
July-10
38.1
2.9
41.5
44.4
1.17
September-10
37.7
16.0
33.9
49.9
1.32
September-10
48.2
4.6
49.3
53.9
1.12
November-10
36.1
1.1
29.9
31.0
0.86
January-11
29.2
40.1
40.1
1.37
Kaupthing Hf
February-11
45.8
47.4
47.4
1.03
February-11
65.5
3.6
56.4
60.0
0.92
Enterprise plc
March-11
32.3
2.0
39.3
41.3
1.28
August-11
44.1
27.0
25.2
52.2
1.18
September-11
21.3
5.8
20.8
26.6
1.25
September-11
September-11
30.2
28.2
1.3
5.0
38.0
22.8
39.3
27.8
1.30
0.99
Cemex
Masonite Worldwide Holdings
October-11
November-11
30.4
20.5
20.0
-
18.0
23.1
38.0
23.1
1.25
1.13
December-11
24.8
25.9
25.9
1.04
December-11
27.2
28.6
28.6
1.05
Travelport LLC
December-11
21.2
0.8
23.1
23.9
1.13
February-12
24.9
0.6
28.7
29.3
1.18
March-12
20.4
20.5
20.5
1.00
March-12
25.5
0.8
25.9
26.7
1.05
March-12
17.3
0.1
17.9
18.0
1.04
QMH Limited
Grand Total
Grand Total, adjusted for Recycled Capital
62.2
766.2
25.7
791.9
15.0
127.0
1.8
128.8
69.6
745.6
29.2
774.8
872.6
1.14
Gross IRR6:
16.8%
Gross IRR6:
29.3%
Gross IRR6:
17.2%
31.0
1.21
903.6
1,045.0
442.6
774.8
1,217.4
602.4
774.8
774.8
1.14
1.16
1.29
6
Gross IRR :
21.6%
21.9%
15.3%
The preceding tables (the Investment Experience) comprise a composite of the investments made within the special situations strategy managed by KKR through KAM and its subsidiaries. KKR believes that these investments illustrate its general experience in managing special situations investments. The
Investment Experience includes investments held within client accounts having a dedicated allocation to the strategy. While certain client accounts that have participated in the strategy have not been included, for example because of their limited ability to participate in each investment made within the strategy
and/or differences in their structure, KKR has determined that investments made within the strategy are represented in the Investment Experience and that the exclusion of such accounts is not material. Such assessment involves significant judgment and may, however, differ from another partys review of
KKR-sponsored portfolios over the same period, which may include comparable investments not represented in the table with lower (or negative) investment returns. Composite or model performance information such as that reflected in the Investment Experience has many inherent limitations and is not
indicative of the performance of all investments made by KAM, nor is it fully representative of the performance of all investments that may have been made by the Funds if the Funds had been operating over the period during which the included investments were made.
The investments referenced in the Investment Experience were made over a period of time that may not include various market and macroeconomic cycles and the circumstances under which such investments were made may differ significantly from those under which the Funds will make their investments.
Furthermore, the investments included in the Investment Experience were not made as part of a single portfolio, but rather by separate, multi-strategy accounts, the investment programs of which, individually or on an overall basis, differ significantly from the Funds investment program, including by asset
class, investment size, geography, duration, leverage, risk and targeted returns. They should not, therefore, be viewed as representative of investments that will be made by the Funds or the profile of the Funds portfolio in general. In particular, it is currently anticipated that the Funds portfolio will include a
lower concentration of liquid, marketable securities and instruments than is currently represented in KKRs special situations portfolio (although this cannot be guaranteed). The Funds are the first dedicated vehicles formed by KKR to invest specifically in special situation investments. Prospective investors may
contact KKR to discuss the procedures and methodologies used to calculate the Investment Experience and other information provided herein.
37
Note: As of March 31, 2012. Please refer to slide 32 for important information regarding the investments included on this slide. Past performance of any KAM-sponsored fund, vehicle, account or investment referred to therein is
not necessarily indicative of future results and there can be no assurance that the Funds investments will perform similarly to those comprising the Investment Experience.
Date of
Name
Original Investment
Invested
Amount1
Realized
Value2
Unrealized
Value3
Total
Value4
Multiple of Gross
Invested Amount5
1.1
1.10
September-10
7.1
6.8
6.8
0.96
October-10
0.4
0.4
0.4
1.00
November-10
5.2
3.0
3.0
0.58
Bank Of Ireland
November-10
7.1
7.2
7.2
1.01
February-11
3.4
3.7
3.7
1.09
Endemol B.V.
June-11
1.5
1.3
1.3
0.87
June-11
6.2
5.1
5.1
0.82
Education Management
August-11
1.0
1.1
1.1
1.10
August-11
0.5
0.5
0.5
1.00
September-11
7.2
7.9
7.9
1.10
October-11
3.5
4.9
4.9
1.40
ConvaTec Healthcare
October-11
5.8
6.6
6.6
1.14
October-11
3.7
4.1
4.1
1.11
October-11
3.0
3.1
3.1
1.03
GRND 1
October-11
9.4
10.1
10.1
1.07
TL Acquisitions, Inc.
October-11
0.9
1.2
1.2
1.33
November-11
2.1
2.5
2.5
1.19
November-11
7.8
8.9
8.9
1.14
Refresco
August-10
1.0
76.8
1.1
79.5
79.5
1.04
Gross IRR6:
5.7
1.30
February-11
4.7
0.4
3.6
4.0
0.85
August-11
6.9
0.3
8.2
8.5
1.23
February-12
9.4
8.5
8.5
0.90
February-12
3.9
3.9
0.3
0.2
0.2
February-10
March-12
$
4.4
25.7
1.0
1.7
4.7
29.1
12.5%
0.67
30.8
1.20
6
Gross IRR :
29.3%
The preceding tables (the Investment Experience) comprise a composite of the investments made within the special situations strategy managed by KKR through KAM and its subsidiaries. KKR believes that these investments illustrate its general experience in managing special situations investments. The
Investment Experience includes investments held within client accounts having a dedicated allocation to the strategy. While certain client accounts that have participated in the strategy have not been included, for example because of their limited ability to participate in each investment made within the strategy
and/or differences in their structure, KKR has determined that investments made within the strategy are represented in the Investment Experience and that the exclusion of such accounts is not material. Such assessment involves significant judgment and may, however, differ from another partys review of
KKR-sponsored portfolios over the same period, which may include comparable investments not represented in the table with lower (or negative) investment returns. Composite or model performance information such as that reflected in the Investment Experience has many inherent limitations and is not
indicative of the performance of all investments made by KAM, nor is it fully representative of the performance of all investments that may have been made by the Funds if the Funds had been operating over the period during which the included investments were made.
The investments referenced in the Investment Experience were made over a period of time that may not include various market and macroeconomic cycles and the circumstances under which such investments were made may differ significantly from those under which the Funds will make their investments.
Furthermore, the investments included in the Investment Experience were not made as part of a single portfolio, but rather by separate, multi-strategy accounts, the investment programs of which, individually or on an overall basis, differ significantly from the Funds investment program, including by asset
class, investment size, geography, duration, leverage, risk and targeted returns. They should not, therefore, be viewed as representative of investments that will be made by the Funds or the profile of the Funds portfolio in general. In particular, it is currently anticipated that the Funds portfolio will include a
lower concentration of liquid, marketable securities and instruments than is currently represented in KKRs special situations portfolio (although this cannot be guaranteed). The Funds are the first dedicated vehicles formed by KKR to invest specifically in special situation investments. Prospective investors may
contact KKR to discuss the procedures and methodologies used to calculate the Investment Experience and other information provided herein.
38
Note: As of March 31, 2012. Please refer to slide 32 for important information regarding the investments included on this slide. Past performance of any KAM-sponsored fund, vehicle, account or investment referred to therein is
not necessarily indicative of future results and there can be no assurance that the Funds investments will perform similarly to those comprising the Investment Experience.
39
41
KKR Credit Relative Value (KCRV) is a new strategy within KAM, offering:
Provides a product that is not market directional which diversifies KAMs credit business
Allows us to express investment views already being developed by KAM credit and equity analysts
KCRV will focus on capturing returns from mispriced credit risk and will target relatively low exposure to
credit markets which will diversify KAMs overall credit exposure
Investible universe will include investment and non-investment grade credit and credit linked
instruments, primarily in developed countries
Trade construction will be driven by fundamental analysis of a company, industry or asset class
followed by the development of the optimal way to express the view
Trades will fall under the following strategies: curve trades, fundamental trades, capital structure
arbitrage, basis trades, and index trades
Alternative Investments
Division
Several of KKRs competitors have built meaningful businesses in long/short credit and our LP investors are
increasingly interested in credit hedge funds as part of their alternatives allocation
After a period of portfolio development and systems testing, we went live with this strategy on July 1st
Initially, KCRV is funded with $50 million from KKRs balance sheet. This seed capital will allow KCRV to
develop a track record before commencing third-party fundraising in early-2013
Scott Henkin, formerly a portfolio manager in a similar strategy at DE Shaw, joined the firm earlier this summer
to lead KCRV trade and portfolio construction
This strategy will also allow KKR to access existing and new LP allocations for more liquid strategies
Scott is well-integrated with the rest of the KAM strategies and leverages ideas and analysis from both
equity and credit analysts
Credit Relative Value is a scalable long / short credit platform, which we estimate could be $2 billion+
at maturity, with an investment approach that leverages our existing personnel, credit expertise, and
infrastructure
Strategy Parameters
Expected Level
Limit
[3-4%]
[7%]
[3%]
[5%]
# of Core Investments
20-40
[ TBU ]
10%-15%
N/A
<8%
[ TBU ]
[50% International]
[1x]
[3x]
[+/- 20%]
[+/- 50%]
42
Alternative Investments
Division
Flexibility to include other equity-oriented investment strategies, and in particular, event-driven and
capital structure arbitrage strategies if attractive risk-adjusted equity returns can be found (max
credit exposure generally below 20%)(1)
Consistent approach with former investment experience
Led by Robert Howard, former Head of Goldman Sachs Principal Strategies (GSPS) Americas
Experienced Team
Continuity of 11-person core investment team that worked together in GSPS Americas
Investment process driven by fundamental research and a one-team collaboration honed over 15
years as part of GSPS
Demonstrated Approach
Enhanced by KKR
Resources
Disciplined Risk
Management
Disciplined portfolio hedging and rigorous risk management on both the aggregate portfolio and
individual strategy level
Continuity and integration of previous risk management approach from GSPS into KKRs existing
risk organization
Information regarding KKR Equity Strategies (KES) is provided for discussion purposes only. Therefore, the estimates provided herein, including target allocations, caps, and exposures, are subject to change.
44 (1)
these estimates will be achieved, and actual allocations, caps, exposures, and other estimates may be significantly different than that shown here.
(2) Please refer to "Important Information" on page 1 for further information on KKR's inside information barrier policies and procedures, which may limit the involvement of personnel in certain investment processes and discussions.
Alternative Investments
Division
Investment
Team
Trading
Risk
Strategist
Ralph Marron
Ami Goldfein
Omar Kara
Jason Muenzen
Daniel Henriques
Antoine Chiche
Atul Joshi
Vinesh Motwani
Yi Gu
Alex Nicolau
Legal/Compliance Team
45
Alternative Investments
Division
Retail
Energy &
Consumer
Infrastructure Products
Industrials Technology
Health
Care
Financial
Services
Media
& Telecom
~150 dedicated
investment
professionals;
$46.0bn AUM(1)
Private
Markets
Public
Markets
~60 dedicated
investment
professionals in
KAM; $16.3bn
AUM(1)
Global Integration
Cultural alignment
Idea Sharing
Legal/Compliance
Enhanced alpha
generation
~30 Senior Advisors
who are current and former
leaders of major global
corporations and public
agencies
~60 KKR Capstone operational
experts focused on diligence
and portfolio company
performance
46
Operational
Expertise
Portfolio
Companies
~75 actively
managed
portfolio companies
~$210bn of annual
revenues
~900,000
employees
Note: Please refer to "Important Information" on page 1 for further information on KKR's inside information barrier policies and procedures, which may limit the involvement of
personnel in certain investment processes and discussions.
(1) As of March 31, 2012.
Alternative Investments
Division
Strategy
Portfolio Construction(1)
1530 Core
Emphasis on:
Gross / net exposures
Greeks
Shock scenarios
1530 Feeder
Beginning feeder trades (~2030% of GMV)
Correlations
Feeder
Index explosion
Hedge
structure
Crowded
trades
Liquidity
profile
(1) Information regarding KKR Equity Strategies (KES) is provided for discussion purposes only. Therefore, the estimates provided herein, including target allocations, caps, and exposures, are subject to
change. There is no assurance that these estimates will be achieved, and actual allocations, caps, exposures, and other estimates may be significantly different than that shown here.
Prices of securities bought in an initial public offering (IPO) may rise and fall rapidly, often because of investor perceptions rather than economic reasons. To the extent a fund is small in size, its IPO
47(2)
investments may have a significant impact on its performance since they may represent a larger portion of the funds overall portfolio as compared to the portfolio of a larger fund.
Alternative Investments
Division
HEDGING PHILOSOPHY
We proactively size our positions based on various factors including liquidity, risk return, potential loss, quality of the
hedge, and
portfolio diversification.
INVESTMENT IDEAS
Hedging at the
strategy level
POSITION
HEDGES
Hedging at the
portfolio level
AGGREGAT
E
POSITIONS
Seeks to
eliminate
undesired risks
Risks we want
Risks we manage
Risks we dont want
48
PORTFOLIO
HEDGES
PORTFOLIO
Alternative Investments
Division
POSITION
SIZE
PM / Analysts
Position
work together on write-up
position initiation distributed;
becomes
feeder
position
Further diligence or
market dislocation
supports upsizing
position to core
position
Active trading
based on market
moves to seek to
capture profits and
manage risk
Investment thesis
plays out and / or
changes. Position
reduced /
exited over time
Name and
position
monitored for
new catalyst
opportunities
Ramp up
Exit
TIME
CONTINUOUS DIALOGUE BETWEEN PM, ANALYSTS, AND BROADER KKR TEAM MEMBERS
MORNING MEETING: DAILY
Please refer to "Important Information" on page 1 for further information on KKR's inside information barrier policies and procedures, which may limit the involvement of personnel in certain
49 Note:
investment processes and discussions.
Note: Portfolio manager may use all or some of the techniques described herein or any other techniques that he deems reasonable.
Alternative Investments
Division
INVESTMENT PRINCIPLES
KES seeks to achieve consistent and attractive returns, with low volatility and limited market correlation.
50
Alternative Investments
Division