KKR ends investment period for mezz fund early

The KKR Mezzanine Partners Fund has ended its investment period in March, as opposed to July, due to Craig Farr’s departure, which triggered the ‘key man’ clause.  

 KKR has decided to end the investment period for its KKR Mezzanine Partners Fund early: on 31 March, as opposed to the originally planned July 2015 date, in response to Craig Farr’s departure. Farr, formerly the head of credit and capital markets at KKR, stepped down from this role last month, as PDI previously reported, triggering the ‘key man’ clause on the fund. Farr was listed as a ‘key person’ on the fund following Bill Sonneborn’s departure in 2013.

Sonneborn resigned in July 2013 as head of KKR Asset Management and chief executive of KKR Financial Holdings, a publicly traded BDC. Farr replaced him in both these roles. Sonneborn joined EIG Global Energy Partners as president in March last year. Although Farr is still an external advisor to KKR, industry sources expect him to surface somewhere else in a full-time role eventually.

The key man clause usually prompts LPs to reduce or redeem their investment in a fund, though in this case, KKR has opted to just end the investment period slightly early, according to a memo from consulting firm Wurts & Associates to its client, the Fresno County Employees Retirement Association in California, which invested in the fund.

“The KKRMP investment period ends in July 2015. Rather than facilitate the ‘key person’ process, KKR has elected to end the fund investment period on March 31, 2015. The fund has called approximately 80 percent of investor commitments and, through the use of recycled capital, has gross exposure to approximately 110 percent of investor commitments,” the recently released documents, dated 4 March, said. At the time, the mezzanine strategy had a couple of deals in the pipeline that were slated to be funded ahead of 31 March.

“After discussions with KKR and a review of fund documents, we are not recommending any limited partner action. While Farr was listed as a ‘key person,’ he was not a member of the KKRMP investment committee, nor involved in day-to-day fund activities. Additionally, the fund is fully invested (on a gross exposure basis) and the original investment period ends soon. We will continue to monitor the situation for new developments,” said the memo from Louis Kleist, senior research associate at Wurts & Associates. The KKR Mezzanine Partners Fund held a final close in August 2011 at $1 billion.

Farr has been with KKR since 2006, when he joined from Citigroup to establish the credit platform. He was previously the co-head of the North American capital markets group at Citi. KKR have replaced him with New York-based Nat Zilkha and Dublin-based Alan Burke as co-heads of credit.

KKR is in the process of raising money for its US Lending Partners Fund II, its Special Situations Fund II and a maiden European direct lending fund. The second US lending fund is targeting $2.5 billion, while the second special situations fund is targeting between $2.5 and $3 billion, as PDI previously reported. The European direct lending fund is aiming to raise €1.5 billion.

Farr’s departure hasn’t had an impact on any other credit funds, a KKR spokeswoman said.