KKR Financial: A Specialty Finance Opportunity

KKR Financial Holdings LLC (KFN) got some media attention this weekend when Barron’s included the stock in its “The Trader” section. The company is a spin-off from its well known private equity parent Kohlberg Kravis Robers & Co. KFN is in the business of buying corporate debt at attractive prices and then realizing a return from both the interest paid on these loans as well as the expected capital appreciation.

Over the past 2 years the stock has fallen sharply as unrealized losses in its bond portfolio accumulated quickly. Although the stock hit $30 in early 2007, the very real fear of insolvency caused shares to hit a low of $0.40 in March. Since that time, the rebound in credit markets has helped investors regain confidence and KFN is pushing above $4.00 per share. While the price is still significantly lower than investors could have imagined before the market crash, the company appears to be sustainable and has some interesting potential for future gains.