Bearish KKR delays IPO

Amid $649m in third quarter write-downs for KPE – the largest related to a co-investment in the $45bn TXU buyout – the private equity firm has said the restructuring of the Euronext-listed vehicle will come next year.

Kohlberg Kravis Roberts will put off until next year the de-listing and acquisition of KKR Private Equity Investors (KPE) and subsequent public listing of the combined entities on the New York Stock Exchange.

“The parties remain committed to completing the transaction, but do not at this point expect the transaction to close until 2009,” the firm said in KPE’s third quarter earnings report, which detailed roughly $649 million in fair value write-downs.

The transaction had been expected to complete this year. Citing a lack of trading, low dividends paid out and KPE’s declining stock, KKR announced the deal in July, effectively revamping its plans for a $1.25 billion listing of its management company, for which it registered in 2007.

KPE’s net asset value declined by $695.9 million in the third quarter, and as of 30 September was nearly $3.9 billion or $18.85 per unit. Its total return in the third quarter was 15.3 percent.

We are redoubling our already extensive efforts to improve the operations of our companies in anticipation of a weaker economic environment.

George Roberts

Among the largest write-downs the listed fund suffered was $132.8 million for Energy Future Holdings, formerly TXU, the Texas utility acquired in a controversial $45 billion buyout by KKR, TPG and Goldman Sachs. The energy company previously posted a $3.3 billion second quarter loss, citing the effect of fair value accounting rules on its fuel-hedging activities. KPE has marked the investment’s value down from 1.4 times cost to 1 times cost. KPE co-invested $300 million in the deal; an additional $200 million was to be drawn down through KKR’s current private equity fund.

KPE also lost $37.3 million stemming from unfunded commitments to a credit facility from now-bankrupt Lehman Brothers. “There can be no assurance that any lender will assume any part of Lehman’s commitment under the credit facility,” the firm said.

The failure of  “a number of leading financial institutions” and financial market declines have caused uncertainty as to asset valuation as well as “a lack of transparency regarding the magnitude of risk inherent in certain investments, spread from the residential real estate market to financial markets generally”, the firm said. As a result, “sources of liquidity may be not only more difficult, but also impossible to obtain in the current market environment”. 

KKR co-founder George Roberts said in a statement that the firm is “redoubling our already extensive efforts to improve the operations of our companies in anticipation of a weaker economic environment. The vast majority of our companies continue to perform well – growing revenues, growing EBITDA, increasing margins and paying down debt – due to our continuous focus on long term value creation.”