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KKR BDC goes public with new fee, governance structure

The New York-based mid-market lender cut its management fee and instituted a lookback period to its incentive fee calculation formula.

KKR listed its business development company Corporate Capital Trust, on the New York Stock Exchange Tuesday, becoming the second such firm to make a public offering this year after The Carlyle Group’s TCG BDC debuted on the NASDAQ in June.

The firm is now the third-largest publicly-listed BDC by assets, which stood at $4.4 billion, behind Ares Capital Corporation and Prospect Capital Corporation, according to its third-quarter earnings presentation.

In addition to the listing, CCT also altered its management structure. Previously, CNL Financial Group was the BDC’s external manager, while KKR served as a sub-advisor. Now, KKR is the lone investment advisor.

KKR taking the reins was a “natural evolution of the relationship we have with CNL”, Daniel Pietrzak, the BDC’s new chief investment officer said, adding both firms “decided it made sense to redefine our respective roles for the Company’s next life phase”. The second BDC, Corporate Capital Trust II, will remain in its current structure with CNL Financial Group as the external manager and KKR as the sub-advisor.

Following the listing, the firm appointed Todd Builione as chief executive officer, Pietrzak as chief investment officer, Ryan Wilson as chief operating officer and associate portfolio manager, Thomas Murphy as chief financial officer and Philip Davidson as general counsel.

The firm also lowered its management fee to 1.5 percent from 2 percent of gross assets. The firm’s 20 percent incentive fee is now subject to a three-year lookback provision, meaning losses going back three years will be factored into performance before calculating the incentive fee. The BDC has a 7 percent hurdle rate.

While the firm did not sell any new shares on Tuesday, it plans to conduct a $185 million tender officer to repurchase shares at the firm’s $20.01 net asset value per share as of 30 September. That figure reflects the 2.25-to-1 stock split completed on 31 October.

The 2.25-to-1 stock split came to set the BDC’s net asset value per share in line with the industry standard, Pietrzak said, explaining it as a “resetting for public market point”.

Pietrzak said the firm met with financial advisors as part of its “listing listening tour” and also talked to institutional shareholders as well. “We spent a lot of time talking with existing shareholder base” before going public, he said.